Dear CIGAs,

Goldman is out there doing the public a service again by making a bear recommendation on the Euro at the exact same time as the US 5 year bond issues went begging.

I imagine that Goldman is a large short in the Euro, so why wouldn’t they talk it down if they could?

 

Jim Sinclair’s Commentary

Exactly as it occurred in the 70s, exactly as I told you it would occur in 2008-2012

"However, with bullion an increasingly attractive portfolio diversifier for central banks after a period of instability in the currency markets, fewer are selling gold, while talk emerged earlier this year of Asian banks considering new purchases."

Cenbank sales under gold pact well below limit: WGC
By Jan Harvey

LONDON (Reuters) – Official sector gold sales under the Central Bank Gold Agreement (CBGA) have totalled only 140 tonnes so far in the pact’s final year, well short of the maximum 500 tonnes allowed, the World Gold Council said.

France and Sweden are the two principal remaining sellers, the WGC said in an emailed statement on Wednesday, although the possibility exists for a further sale by the European Central Bank.

The 15 signatories of the pact, which also include the central banks of Spain, Germany and Italy, agreed in 2004 to limit gold sales to the market to 500 tonnes in any one year.

"With 140 tonnes of sales, according to our numbers, it looks like we have had over 100 tonnes less than was sold over the same period of last year," said Barclays Capital analyst Suki Cooper.

"Given the current pace, it is likely this is going to be the lowest annual sales-per-quota year since the start of the very first agreement."

The first CBGA was signed in 1999, and limited sales to 400 tonnes per year to avoid flooding the market with bullion and consequently destabilising the gold price.

More…

Jim Sinclair’s Commentary

Interested in buying Hartford or Albany?

I hear that someone is shopping an Alt A mortgage application on a large, historic and old white house in Washington.

State may sell Capitol buildings, others
Under GOP plan, government would pay to lease back most of the sites
by Matthew Benson and JJ Hensley – Jul. 29, 2009 12:00 AM
The Arizona Republic

Call it a sign of desperate times: Legislators are considering selling the House and Senate buildings where they’ve conducted state business for more than 50 years.

Dozens of other state properties also may be sold as the state government faces its worst financial crisis in a generation, if not ever. The plan isn’t to liquidate state assets, though.

Instead, officials hope to sell the properties and then lease them back over several years before assuming ownership again. The complex financial transaction would allow government services to continue without interruption while giving the state a fast infusion of as much as $735 million, according to Capitol projections.

For investors, the arrangement means long-term lease payments from a stable source.

Once any deals are approved, money could begin flowing into state coffers in as little as 90 days.

The plan has bipartisan backing, but that doesn’t make the prospect of paying rent for buildings once owned free and clear by taxpayers any easier to swallow.

"We’ve mortgaged the legislative halls," said an exasperated state Rep. Steve Yarbrough, a Chandler Republican. "That just tells you how extraordinary the times are.

More…

Jim Sinclair’s Commentary

Here is a video of Rick Santelli today reporting on the 5 year US Treasury auction:

 

Jim Sinclair’s Commentary

Polls are a politician’s sustenance If this is a crack in the armor then it has serious ramifications for a MOPE based Administration.

Poll Shows Obama’s Clout on Health Care Is Eroding
Wednesday, July 29, 2009 — 6:52 PM ET

President Obama’s ability to shape the debate on health care appears to be eroding as opponents aggressively portray the effort as a government-takeover that could limit Americans’

ability to chose their doctor and course of treatment, according to the latest New York Times/CBS News poll.

Americans are concerned that overhauling the health care system would reduce the quality of their care, increase their out-of-pocket health costs and tax bills and limit their options in choosing doctors, treatment and tests, the poll found.

More…

Jim Sinclair’s Commentary

Let’s see if the true believers in MOPE can spin this problem away.

California pensions next state financial crisis
Wed Jul 29, 2009 5:01pm EDT
By Jim Christie – Analysis

SAN FRANCISCO (Reuters) – On the heels of closing a $24 billion state budget deficit, California faces new financial trouble — from its public pensions.

The loss incurred by California’s biggest pension fund in the last year is more than half the size of the state’s spending plan, and financial analysts say the market on its own will keep the pension hole open for years or longer, a challenge public pension funds across the United States will also face.

"Pensions will be a major issue, sooner more likely than later, because they’re going to bankrupt many jurisdictions," said Bob Stern of the Center for Governmental Studies in Los Angeles.

Governor Arnold Schwarzenegger on Saturday in a radio address put the California Public Employees’ Retirement System, the biggest U.S. public pension fund that is best known as Calpers, on notice that its cost to the state government is in his sights.

"In these challenging economic times, we cannot afford everything we have funded in the past," he said. "And we will take on pension reform to cut down on unfunded liabilities and save the state billions of dollars."

By Monday, Calpers officials were discussing how to respond to Schwarzenegger — and others who may take aim at the fund.

More…

Jim Sinclair’s Commentary

This is total nonsense when it comes to the gold market. It will never see the marketplace. This is purely spin for the shorts.

In the 70s this was the singular most bullish event as it allowed huge buyers in at one price.

With a planetary desire to diversify out of the dollar not changed in any way by three days of intervention and algorithm follow through trading how can you fall for this?

IMF to sell gold within central bank pact-official
07.29.09, 12:42 PM EDT

WASHINGTON (Reuters) – The planned sale of 400 tonnes of IMF gold would take place within a new central bank gold sales agreement being negotiated, a senior International Monetary Fund official said Wednesday.

The IMF has provisionally agreed to sell the gold to raise resources for increased lending to poor countries. A final decision by all 186 IMF member countries on the sales is expected by IMF meetings in Istanbul in October and requires the support of 85 percent of the membership.

"We have committed as part of our new income model to have that gold sale, if done on the markets, to be done through the central bank sales mechanism," said Reza Moghadam, director of the IMF’s Strategy, Policy and Review Department.

Moghadam told a conference call the sales would take place through the central bank mechanism "all the time" and could take two to three years.

He said he hoped negotiations on the new Central Bank Gold Sales Agreement will also be finalized by October. The current 5-year agreement expires in September

More…

Jim Sinclair’s Commentary

This is so dollar negative it is hard to get worse.

What would be worse is 10 and 30 year bonds begging for buyers.

Now you see why it is QE to infinity or the Fed is toast, compliments of the legislative at the behest of the Administration.

Weak U.S. 5-year debt auction raises worries
Wed Jul 29, 2009 1:52pm EDT

NEW YORK, July 29 (Reuters) – The U.S. Treasury sold $39 billion in five-year debt on Wednesday in an auction that drew poor demand, raising worries over the cost of financing the government’s burgeoning budget deficit.

Demand overall was below average, measured by the bid-to-cover ratio of 1.92, the weakest in almost a year.

In a further sign of weakness, yields at the auction were well above expectations, known as a "tail" by market participants.

A key proxy for foreign interest, the indirect bidder category, was slightly above the average of auctions over the past year at 36.6 percent but far below the most recent sale.

"It was just a horrendous result," William O’Donnell, head of U.S. Treasury strategy at RBS Securities in Greenwich Connecticut, said about the auction.

"It was the weakest bid-to-cover since September 2008, and by my numbers it was the biggest tail since February 1993. It was just a very, very weak result."

More…

Jim Sinclair’s Commentary

Maybe they can talk this problem away.

California Can’t Stop IOUs Just Yet, State Controller Says
By Michael B. Marois

July 29 (Bloomberg) — California must continue paying some obligations with IOUs for at least another week while officials crunch numbers to see if a budget revision signed by Governor Arnold Schwarzenegger puts enough cash into state coffers.

Democratic Controller John Chiang’s office said he will determine when the IOUs will stop once he has received updated revenue projections from Schwarzenegger’s finance department, expected sometime next week, Deputy Controller Hallye Jordan said in telephone interview today. Schwarzenegger, a Republican, yesterday signed a revised $84.5 billion budget that lawmakers sent him July 24.

California, whose economy is the eighth-largest in the world, begin giving out IOUs on July 2 for only the second time since the Great Depression for everything from tax refunds to services and goods, after Schwarzenegger and lawmakers deadlocked over how to close a resurgent deficit that left the state without enough cash.

“It’s not going to happen overnight,” Schwarzenegger told reporters in his Sacramento office yesterday after he signed the revision.

Since July 2, Chiang has issued more than 200,000 of the IOUs worth $1.08 billion. The so-called registered warrants, mature in October and pay an annualized interest rate of 3.75 percent. The state has the authority to repay early if the money is available.

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Jim Sinclair’s Commentary

One out of ten put of work by OTC derivatives and we all subsidize the Banksters?

Where is the public outrage? God help us all.

Out of the TARP, But Still on the Dole
Posted by Mark A. Calabria

While banks such as Goldman and J.P. Morgan have managed to find a way to re-pay the capital injections made under the TARP bailout, their reliance on public subsidies is far from over. The federal government, via a debt guarantee program run by the FDIC, is still putting considerable taxpayer funds at risk on behalf of the banking industry.  The Wall Street Journal estimates that banks participating in the FDIC debt guarantee program will save about $24 billion in reduced borrowing costs of the next three years. The Journal estimates that Goldman alone will save over $2 billion on its borrowing costs due to the FDIC’s guarantees.

One of the conditions imposed by the Treasury department for allowing banks to leave the TARP was that such banks be able to issue debt not guaranteed by the government.  Apparently this requirement did not apply to all of a firm’s debt issues.  These banks should be expected to issue all their debt without a government guarantee and be required to pay back any currently outstanding government guaranteed debt.

To add insult to injury, not only are banks reaping huge subsidies from the FDIC debt guarantee program, but the program itself is likely illegal.  The FDIC’s authority to take special actions on behalf of a failing ”systemically” important bank is limited to a bank-by-bank review.  The FDIC’s actions over the last several months to declare the entire banking system as systemically important is at best a fanciful reading of the law.

The FDIC should immediately terminate this illegal program and end the continuing string of subsidies going to Wall Street banks, many of which are reporting enormous profits.

More…

 

Jim Sinclair’s Commentary

Outside of us here, who cares about the average guy?

It is all Banksters, institutions and Fat Cats squashing the backbone of a nation, the blue collar citizen.

Good news, these guys shuffled paper. Yes, that is what this says.

I am sick to my stomach as I see the news pass in front on my eye. This is worse than when I listen to the F-TV hacks.

U.S. Banks Dodge Regulatory Bullet
By Dana Wiklund , IDG News Service , 07/29/2009

With the results of the government stress tests of the nation largest banks released it would appear that the banking system has dodged a regulatory bullet in terms of a potential need for massive new infusions of equity capital. What does this mean for the banking system and providers of technology to financial services?

The U.S. banking system has dodged a bullet. As the government has completed its stress testing of the nation’s top 19 (why not 20?) institutions, the capital adequacy of a few of the nation’s top banks have been called into question while many others have been deemed healthy — for the moment. What is the significance of these tests? Government regulators have for each bank simulated baseline and worst case scenarios for further deterioration in asset quality — the value of assets with each institution. The worst case scenario was very severe simulating economic conditions rivaling the great depression.

Regulators have drawn a line in the sand indicating which banks need additional equity capital to offset potential future devaluations in consumer, commercial or derivative assets. This is preventative medicine to ward off a future solvency crisis which would further aggravate global systemic risk, the risk of the global financial system freezing up with risk aversion. Banks need to lend to one another, lend to businesses and lend to consumers if the domestic and global economies are to turn a corner towards a return to modest growth over the next 18 months and in order for that to happen, relative stability and transparency regarding solvency risk with our largest banks is critical. Analysis, transparency and capital adequacy leads to improved market confidence.

The good news in these stress tests is that regulators feel that institutions will be able to raise additional equity either by re-jiggering of their capital structures by converting preferred stock or by raising additional common equity in the capital markets without the government directly infusing cash or taking equity positions in the banks.

More…

Jim Sinclair’s Commentary

I have said and will say again that the Federal Reserve has no practical tools whatsoever to be able to drain the massive increase in international liquidity regardless of the loud claims to have everything always under control.

Take a look at the Asian view on this subject.

No escape for Fed
By Hossein Askari and Noureddine Krichene

In contrast to Federal Reserve chairman Ben Bernanke’s testimony last week, we cannot see a safe "exit strategy" for the Fed from its current loose monetary policy. Bernanke’s ambivalent testimony of a safe exit strategy can only heighten uncertainty and exacerbate instabilities. Let’s explain.

In his recent testimony on July 21 before the Committee on Financial Services of the House of Representatives, Bernanke was felicitous that aggressive money policy had averted the collapse of the financial system. However, he omitted to say that the same policy had failed to avert a collapse of real gross domestic product (GDP) and private investment and rising unemployment.

The economic recession continues despite interest rates being near-zero, money supply rising at 22% a year, unprecedented stimuli packages, and record fiscal deficits reaching 13% of GDP in 2009. Bernanke and President Barack Obama’s team had clearly believed that a combination of aggressive money and fiscal policies would secure the return to full-employment and quickly. After all, Larry Summers had predicted the unemployment cresting at about 8%. These expectations were standard Keynesian predictions that have proven to be substantially off the mark.

As clearly implied by Bernanke himself, this policy has so far been self-defeating: "Aggressive policy actions taken around the world last fall may well have averted the collapse of the global financial system, an event that would have had extremely adverse and protracted consequences for the world economy. Even so, the financial shocks that hit the global economy in September and October were the worst since the 1930s, and they helped push the global economy into the deepest recession since World War II.

"The US economy contracted sharply in the fourth quarter of last year and the first quarter of this year. More recently, the pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization. The labor market, however, has continued to weaken."

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Jim Sinclair’s Commentary

This is very modest progress on short seller’s tactics.

SEC Sticks With Patchwork Fix For Naked Shorts
Liz Moyer, 07.27.09, 04:20 PM EDT

Regulator makes permanent an emergency rule that requires brokers to promptly buy or borrow security to deliver.

The markets will still have to wait for stricter rules to stop abusive short-selling.

On Monday, the Securities and Exchange Commission made a temporary emergency rule permanent that requires brokers to promptly buy or borrow securities to deliver on a short sale. But the agency stopped short of deciding on other hot issues, including the resurrection of the so-called uptick rule and circuit breaker restrictions. Instead, it said merely it would hold a hearing at the end of September.

That adds further delay to resolving a long-running debate at the agency and in the markets about whether existing rules are adequate to prevent abusive short-selling, whether those rules are being properly enforced and whether additional safeguards are needed.

The now permanent rule, which requires brokers to promptly buy or borrow a security to deliver, would have expired on Friday. It is aimed at stopping "naked" short-selling, where a trader doesn’t borrow or properly locate a stock before selling it, potentially allowing them to drive the price of the stock lower regardless of the supply/demand for the issue. The rule cleans up trades after the fact by ensuring that the stock is delivered to the buyer, closing out a failure to deliver. A great quantity of failures to deliver in any one stock can be a sign of abusive trading.

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Jim Sinclair’s Commentary

Exactly what will the military be doing? This is a CNN report.

Military planning for possible H1N1 outbreak
10:20 p.m. EDT, Tue July 28, 2009

WASHINGTON (CNN) — The U.S. military wants to establish regional teams of military personnel to assist civilian authorities in the event of a significant outbreak of the H1N1 virus this fall, according to Defense Department officials.

The proposal is awaiting final approval from Defense Secretary Robert Gates.

The officials would not be identified because the proposal from U.S. Northern Command’s Gen. Victor Renuart has not been approved by the secretary.

The plan calls for military task forces to work in conjunction with the Federal Emergency Management Agency. There is no final decision on how the military effort would be manned, but one source said it would likely include personnel from all branches of the military.

It has yet to be determined how many troops would be needed and whether they would come from the active duty or the National Guard and Reserve forces.

Civilian authorities would lead any relief efforts in the event of a major outbreak, the official said. The military, as they would for a natural disaster or other significant emergency situation, could provide support and fulfill any tasks that civilian authorities could not, such as air transport or testing of large numbers of viral samples from infected patients.

More…

Jim Sinclair’s Commentary

QE to infinity or the Federal Reserve into the round file, that is what this present game is all about.

Expect new legislation limiting the Fed’s power as part of transmuting the Fed into a financial police station.

Volcker won it all and Greenspan gave it all back plus more. Bernanke may well Chair the Fed out of business.

Gallup Poll: Americans Turning Against Federal Reserve

Opinions souring as efforts to audit the Fed gain momentum

As momentum builds for Ron Paul’s efforts to audit the Fed, a new Gallup poll shows that Americans are turning against the Federal Reserve, with just 30 per cent saying the agency is doing a good job.

35 per cent rate the job the Fed is doing as "only fair" and 22 per cent say it is doing a "poor" job.

The contrast compared with when the question was last asked in 2003 is clear. Six years ago, just 5 per cent thought the Fed was doing a "poor" job, while 53% thought it was doing a "good/excellent" job.

The Fed is bottom of the pile when compared to the ratings received by other agencies in the poll (we hesitate to call the Fed a "government agency" because it isn’t). The IRS and the FDA are the other two least popular agencies.

According to Gallup editor in chief Dr. Frank Newport, "Americans are blaming to some degree the actions or inactions of the Federal Reserve board" for the economic turmoil.

More…

 

Jim Sinclair’s Commentary

Here is an interesting review of the DTCC system that asks a most interesting question.

However if you believe in MOPE, why worry?

Who Really Owns Your Stocks? Hint: It’s Not You

So, do you think you own the stocks you’ve bought?

Think again.

For those of you who have not heard of the Depository Trust & Clearing Corp. (DTCC) and you own stocks … sit down.  This might change your your whole way of thinking.

Who is the DTCC and what does it do?  The DTCC actually provides clearing for 3.5 million securities from the United States and, get this, from 110 other countries and territories as well — all valued at roughly $28 trillion.  In 2008 alone, the DTCC settled more than $1.88 quadrillion in securities transactions.

The DTCC is also the registered owner and holder of your stock.

At present, the DTCC holds $23 trillion in assets.  It has a virtual monopoly on clearing.  In fact, 99% of all stocks in the USA are legally owned by it.

When Was the Last Time You Saw a Stock Certificate?

Remember the good old days when you bought a stock and received a certificate for it?  The SEC changed that law and went from stock certificates for individual investors to, well, your broker holding the certificate for you so that he or she will be able to legally trade it on your behalf.

The stock certificates were issued in the name of the brokerage … remember, just so they could trade them for you.  In reality, you became the beneficiary of the stocks you bought rather than the owner.

But the SEC, out of the goodness of its heart, changed the laws again, so that now the brokers can’t have the stocks in their name. Instead, the stocks must be placed in the name of "Cede & Co."

The excuse you’ll hear from your broker is that it is just a fictitious name used by the brokerage so it can trade your stocks for you because brokerages can’t, by law, put the stock certificates in their name any longer.

To Whom, Exactly, Have You ‘Ceded’ Your Stocks?

What we have now suddenly all come to find out is the Cede & Co is actually not a fictitious name, but a subsidiary company of DTCC.  In essence, DTCC owns probably 99% of all the stocks in the entire world.

This is how it works.  You buy some shares of stock at your brokerage.  Your broker tells you that, in order to do business on your behalf, you must give the brokerage power of attorney to buy and sell.

Therefore, your stock purchases are placed in a "street name" because, according to the SEC, no brokerage can place a stock in its own name.  The brokerage then notifies the DTCC of the transaction.

The DTCC is a banking trust company and, by SEC regulation, cannot own shares in its own name, either.  So it transfers the certificates to its subsidiary, Cede & Co.

What do you own?

How about nothing?

And now you are not even the beneficiary.  The brokerage is technically the beneficiary.  You are twice removed!

Guess Who’s Also Behind the Mortgage Mess

Recently, DTCC presented testimony before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.  The hearing was on "Effective Regulation of the Over-the-Counter Derivatives Markets," just a couple of weeks ago, and the transcripts were just released.

The subcommittee is attempting to find out how mortgages could come to be packaged and then sold, and then re-packaged and resold many times over.  Since DTCC owns 99% of all derivatives, it seems only fair that it would be called to give testimony.

Larry Thompson, general counsel for DTCC, applauded the good works of the DTCC.  In his opening statement, he said, "Now, many of you may not have heard of DTCC before. That’s purposeful. We have traditionally kept a low profile, given the critical nature of the role we play in U.S. financial markets."   (Dah … who would have guessed?)

In truth, DTCC knew all about the Collateralized Debt Obligation (CDO) markets, who owned what, how often the same collateral was used and repackaged, etc.  Why?  Because they own it all.

DTCC created a massive computer warehouse and keeps records of all CDO trades, all stock transactions, all derivatives, etc.  It has a monopoly on clearing.  And to justify its great job, Thompson added to his testimony.

"I’d submit to you Mr. Chairman, and Members of the Subcommittee, that had DTCC not had the foresight to create this Trade Information Warehouse and load the Warehouse with all these records of CDS trades in 2007, we might still be sitting here today in 2009 trying to sort out the total exposure of trading obligations following the Lehman bankruptcy, i.e., who traded with whom, at what point in time and at what price?”

Next time you are in the market to buy stocks, trade futures.  You’re only in the trade for four minutes or less.  Not enough time for Cede & Co. to get their mitts on your money. …

Barbara Cohen
Contributing Editor
The Tycoon Report