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Jim Sinclair’s Commentary
When there is no "cash for clunkers" giveaway there will be practically no car buyers. Potential buyers want a bonus to buy therefore all buy interest has been exhausted.
Interest in Cash for Clunkers sputters
In ‘Gold Rush mentality,’ demand for cars peaked in July and could fall to pre-Clunkers levels next week, report says.
By Julianne Pepitone, CNNMoney.com contributing writer
Last Updated: August 11, 2009: 2:58 PM ET
NEW YORK (CNNMoney.com) — After sparking an initial rush to showrooms, the Cash for Clunkers program seems to be running out of fuel.
Interest in Cash for Clunkers has fallen 15% since its peak, and the number of people planning to buy cars could fall to pre-Clunkers levels by next week, an auto research group said Tuesday.
Under the Clunkers program, which launched July 27, vehicles purchased after July 1 are eligible for refund vouchers worth $3,500 to $4,500 on traded-in cars with a fuel economy rating of 18 miles per gallon or less.
The program proved wildly popular, running through its initial $1 billion in its first week and leading lawmakers to approve an additional $2 billion in funding on August 7.
But interest in the program peaked on July 29, and demand has waned, according to the report from Edmunds.com.
The report, which cited Internet shopping data, said if current trends continue auto purchase intent will fall back to pre-Cash for Clunker levels by August 20.
Jim Sinclair’s Commentary
Problems are cascading, not contracting.
Social Security can’t wait long for a fix
I don’t expect the white papers from the Center for a Responsible Federal Budget to put more spring in my step and a song in my heart, but today’s report about Social Security’s looming fiscal problems was unusually sobering. The CRFB said that recent analyses by the Congressional Budget Office and the Social Security Trustees don’t agree on all the specifics, but they leave little doubt that the Social Security trust funds will soon begin doling out more cash than they collect from payroll taxes. By the CBO’s reckoning, that day will arrive in 2017, wiping out the trust funds by 2043. By the Trustees’ estimates (which are more pessimistic because they assume the Bush tax cuts will remain in effect), the trust funds begin to drain in 2016 and run out of money by 2037. "Despite these differences," the report says, "both reports show with near certainty that the Social Security system will add significantly to projected deficits and require considerable revenue or spending adjustments to remain solvent."
Ugh. The situation is similar in some ways to the Medicare Trust Fund, which is expected to become insolvent in 2017. The Social Security trust funds have about $2.4 trillion in reserves, which make the shortfall in revenue seem less pressing. But the shortfall will exacerbate the federal budget deficit immediately, so lawmakers won’t be able to avoid the problem for long.
Without a change in policy, the CRFB says, Social Security benefits will have to be cut by an estimated 17 percent as soon as the trust funds empty. "Averting this scenario would require the equivalent of a 3 percentage point increase in the payroll tax in 2042 – the equivalent of a little over 1 percent of GDP," the report estimates.
While the exact size of the shortfall cannot be precisely predicted, one thing is certain: Social Security cannot continue on its path in the current fiscal context. The system will need to be rebalanced through adjustments to benefits and/or revenues; and the sooner we act the more we can spread out these changes and give workers time to prepare.
Jim Sinclair’s Commentary
No bees and no bats means no food
Honey bees disappearing may be a greater threat than global warming
August 11, 5:22 PM
A while ago there were stories making all the major news outlets about the disappearance of honey bees. No one knew why. Some were even suggesting that cell phones signals were causing it.
Not having heard more about it in a couple years, I thought perhaps scientists had come up with a solution to the mystery. I was wrong.
The other night I saw a program on PBS that made it clear that the problem is anything but solved. Colony Collapse Disorder, as it has been dubbed, is affecting 35 states in the US, as well as Europe, South America, India, and China. We’ve already lost 35% of the bees in the US, and we’re losing 8% more every year. Honey bees were being predicted to be extinct in the US by 2035 before CCD, just from loss of habitat, pesticides, and parasites. Now it’s likely to happen much sooner.
Used to be, a beekeeper would drop off his hives at an orchard or strawberry patch for free… his primary source of income was honey, with perhaps a sideline in bee pollen, bees wax and royal jelly. However, when truck farming began in earnest in the fifties, apiculture became big business. In 1960, beekeepers were charging $3 per hive. By 2004, that figure had inflated to $60. But since then, as bees have disappeared and demand for bees has risen, the figure now can be as much as $180 per hive. In 2006, American beekeepers had to import bees for the first time in 80 years. A farmer now pays more for pollination than he does for fertilizer, water, or labor. How much of that cost can he pass on to consumers before pricing himself out of business? Are you willing to pay $25 a pound for almonds? And farmers can’t quickly alter their crop yield to match market demand; they have to make decisions about what and how much to grow a year or more in advance.
Why should you care? Aside from the cost of your food spiraling up, the nutritive value will begin spiraling down. This morning, for example, I had a bowl of oatmeal with cherries, walnuts, and yogurt for breakfast. The cherries are supposed to prevent gout, walnuts are good for my brain, and the yogurt – frankly, I don’t remember what yogurt is supposed to be good for, but it tastes nasty, so it must be good for me. If bees disappear, I’ll have no cherries, no walnuts, and likely no yogurt… most of what cows eat is pollinated by bees. So, in addition to a higher tab for groceries, mankind’s health will deteriorate, raising the cost of healthcare.
Jim Sinclair’s Commentary
Ask yourself a simple question: Is the following from this article a solid fundamental reason to be dollar bullish?
In complex times the right answer is always simple.
"The United States is functionally bankrupt.
Our collective capacity to deal with this astonishing fact is seemingly nonexistent.
Our national politics have become show business, exhibiting a complete refusal to strategically respond to this reality."
We broke the bank!
We need to rein in our overspending
By Mike Whalen | Tuesday, August 11, 2009
The United States is functionally bankrupt. Our collective capacity to deal with this astonishing fact is seemingly nonexistent. Our national politics have become show business, exhibiting a complete refusal to strategically respond to this reality.
Let’s look at the simple numbers of our national debt. Our on-the-books national debt is $11.6 trillion. But off-the-books federal debt, including Medicare and Social Security, is $107 trillion. This is not a made-up number; this is the money we should have in the bank, according to the federal government’s own accountants, to pay for our current promises to our retirees and future retirees, and this doesn’t include unfunded obligations that we have to the pensions and benefits promised to federal workers and veterans. Nor does it include huge unfunded pension and benefit obligations for other public employees at levels below the federal government.
But let’s just add the $11 trillion to the $107 trillion, and we get $118 trillion. These are big numbers but still just fifth-grade math. Now our total annual national output, or gross domestic product (GDP), is about $14.3 trillion. Total federal receipts, or income if stated in business terms, are about $2.5 trillion. This means that our debt to federal income ratio is about 47, and that ratio assumes that the federal revenues are free to retire the obligations, which they are not. We must pay for defense and a myriad of other programs. Again, in business terms, there is no free cash flow to pay these massive obligations.
Our total national private net worth, according to the Federal Reserve Board, is about $51.5 trillion. That means our federal unfunded liabilities represent 2.3 times our collective net worth. That’s pretty darn broke.
Ask any accountant, banker, or anyone remotely familiar with simple accounting knowledge if we can service this debt, and the collective answer is a resounding "no." Any business with these ratios would be a complete basket case, hopelessly bankrupt. Unlike General Motors Corp., there is no one with the wherewithal to bail out the U.S.A.
Jim Sinclair’s Commentary
You first read it here years ago. Now read it in Forbes.
Refer back to my posting today that clearly says there is NO practical way to drain the $12 trillion injected into the OTC derivative meltdown.
Bullish on the dollar? You have to be kidding.
Fed Faces Its Zimbabwe Moment
Joshua Zumbrun, 08.11.09, 05:45 PM EDT
Is the central bank confident enough about the recovery to take the economy off life support?
WASHINGTON — When stock markets plumbed new lows in March, the Federal Reserve responded with nearly every tool in its box. It announced it would create new money to buy $1.25 trillion in mortgages and $300 billion in government debt.
That purchase of government debt looked particularly ominous. Creating new money to buy government debt is the sort of strategy that’s known to destroy economies–just ask Zimbabwe, which suffered so much hyperinflation that it destroyed its currency. The Zimbabwe central bank printed bills in the denomination of 100 trillion Zimbabwean dollars, then found they had value only as a novelty item on eBay. Eventually, Zimbabwe was forced to abandon its currency altogether.
But the difference between the U.S. Federal Reserve and the Reserve Bank of Zimbabwe (one would hope) is that the Federal Reserve will stop before it wrecks the dollar.
The first major test of the differences between Zimbabwe and the U.S. is rapidly approaching. An indication could come as soon as the Fed releases a policy statement Wednesday afternoon. The Fed is not expected to announce a major change of course (see "All Quiet On The FOMC Front"), but the present course calls for current programs to unwind.
A Note On The Dollar:
Forex companies reaching out to the public advertise 500 to 1 leverage if you qualify. All you need to do to qualify is lie on your application form.
Today from the very early US AM to now, 5:06pm EST, the direction of the US dollar changed 21 times.
Now there is a market made up of a group of techies with no fundamental conviction trying very hard to pick each other’s pockets.
The US dollar will not survive this fall. Gold is going to $1224 and $1650.
Jim Sinclair’s Commentary
Our financial problems are so far from over. Difficulties with smaller banks hits home.
Now we have OVERSEERS. What exactly is an OVERSEER? Is that a seven foot tall guru? Are they in Congress? I think not.
I prefer Czars. We have lots of them. Remember what happened to the Czars?
Overseers warn: Losses could pose threat to small banks
Congressional Oversight Panel says small banks may need to raise $21 billion
By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) — The largest U.S. financial institutions are better able to handle a worst-case scenario for potential losses in their whole-loan portfolios than smaller public banks, which could face serious trouble, according to a report released by a bank-bailout oversight panel Tuesday.
According to a report from the Congressional Oversight Panel, which is charged with overseeing the $700 billion Troubled Asset Relief Program, or TARP, the 18 largest financial institutions with over $600 million in assets would "be able to deal with" whole-loan portfolio losses projected in an analysis the group completed.
‘The reason it is so important to think about smaller financial institutions is because they do disproportionately more of the lending to small businesses.’
However, the report’s analysis of troubled whole loans — based on a model developed by SNL Financial — suggests they pose a threat to smaller public banks, those with $600 million to $100 billion in assets. The report also takes issue with the Treasury department’s decision to delay indefinitely a program to buy toxic whole loans from banks.
Whole loans refer to individual residential or commercial mortgages, as opposed to packaged mortgage securities, which have received much of the attention during the financial crisis.
Jim Sinclair’s Commentary
Change "may" to "will."
Toxic assets may need more Treasury support
Tue Aug 11, 2009 8:12am EDT
By David Lawder
WASHINGTON (Reuters) – The Treasury Department should consider expanding programs to cleanse troubled assets from bank balance sheets if current efforts fail to restart markets or if economic conditions worsen, a U.S. bailout watchdog panel said on Tuesday.
The Congressional Oversight Panel said in its latest monthly report that toxic loans and securities continue to pose a threat to the financial system, particularly for smaller banks that face mounting losses on commercial real estate loans.
These banks may need similar stress tests and capital support afforded to larger institutions, the panel added.
It also advocated that stress tests for the largest 19 institutions be repeated if the economy worsens beyond the worst-case assumptions used in initial tests conducted in April.
Despite improved financial market conditions, the panel said a "continuing uncertainty is whether the troubled assets that remain on bank balance sheets can again become the trigger for instability."
Jim Sinclair’s Commentary
What OTC derivatives and bad business does not do to financials by 2011, litigation will.
State Street says legal reserve may not be enough
Mon Aug 10, 2009 4:01pm EDT
By Svea Herbst-Bayliss
BOSTON (Reuters) – State Street Corp, one of the world’s biggest institutional investors, said on Monday it may not have set aside enough money to cover fees and penalties linked to lawsuits and investigations by regulators into risky investments.
Two years ago State Street, which manages $1.6 trillion for investors, set aside $625 million to cover costs stemming from lawsuits by clients charging that the company misrepresented its investment strategy.
At the end of June, the company, which also earns fees for keeping records for investment managers, said it had $193 million left in the reserve.
Federal and state regulators are investigating allegations that Boston-based State Street made inappropriately aggressive bets on subprime mortgages.
Disgruntled investors allege that while they thought they were buying low-risk fixed income funds, the funds may have been stocked with more aggressive instruments.
Jim Sinclair’s Commentary
MOPE requires painting the picture. I imagine that TIC figures will show this as Caribbean demand/Central Bank source.
Fed buys $6.6 billion in Treasury’s
Aug 10, 2009, 11:09 a.m. EST
By Deborah Levine
NEW YORK (MarketWatch) — The Federal Reserve Bank of New York bought $6.594 billion in Treasurys on Monday, the first of two operations this week. Dealers submitted $22.002 billion in debt maturing between 2012 and 2013 to the Fed. The U.S. central bank is more than two-thirds of the way through the $300 billion in U.S. debt it promised in March to buy in an effort to keep borrowing costs, particularly for companies and homebuyers, affordable. When the Fed last bought from this maturity range, it purchased $6.5 billion. Two-year note yields /quotes/comstock/31*!ust2yr (UST2YR 1.23, -0.06, -4.71%) , which move in the opposite direction of prices, remained lower on the day. The yield fell 5 basis points to 1.26%
Jim Sinclair’s Commentary
There is no PRACTICAL means to drain, therefore no PRACTICAL exit strategy from the $12+ trillion monetary injection.
All the means available, regardless of MOPE claims, will plunge the West into a more significant crisis. That would require more bailouts and monetary injections.
That is what the downward spiral is all about.
Fed Needs A Policy ‘Exit Strategy’
Oxford Analytica, 08.11.09, 06:00 AM EDT
Monetary policy shift will help U.S. avoid inflation once recovery begins.
As the recession draws to a close, the Federal Reserve is coming under pressure to outline an ‘exit strategy’ from its extraordinary monetary policy easing over the past year. The timely implementation of this shift is important if the U.S. is to avoid an inflationary spurt once the economy has fully recovered.
Market concern. The exceptionally rapid expansion of the Fed balance sheet is giving rise to market concern about the potential inflationary impact of that expansion, once the economy recovers and the financial system returns to health. At present, in the depths of a recession and at a time when the financial system remains under stress, the surge of Fed liquidity associated with the increase in its balance sheet is being hoarded by a troubled U.S. banking system and is not giving rise to an undue expansion in the broad monetary aggregates. However, it is feared that unless ’soaked up’ in a timely and bold fashion, this increased liquidity could quickly give rise to an undue monetary expansion that might fuel a sharp spurt in inflation once growth returns.
Fed exit strategy. In recent weeks, Bernanke has sought to reassure financial markets about the long-term inflationary risks that might arise from pumping large amounts of liquidity into the economy. He has emphasized that the Fed has the necessary tools to soak up any excess liquidity once the economy starts to recover. In particular, he highlighted three potential measures:
–Gradual response to demand. The Fed can allow its balance sheet to shrink naturally as improving financial market conditions reduce the demand by financial institutions for its short-term lending facilities. Indeed, Bernanke has noted that this process has already begun. By mid-July, short-term credit extended by the Fed to financial institutions and other market participants had fallen to less than $600 billion from a peak of $1.5 trillion at the end of 2008.
–Reserve rates. The Fed can increase the interest rates it now pays banks on their reserve balances at the Fed, as it starts to increase its federal funds rate target. Since banks will generally not lend funds in money markets at a lower interest rate than the risk-free rate that they earn at the Fed, the interest rate that the Fed pays on reserves would place an effective floor under short-term rates.
Jim Sinclair’s Commentary
This is far from comforting.
Report: Pakistan Nuclear Facilities Attacked at Least Three Times by Terrorists
Tuesday, August 11, 2009
Pakistan’s nuclear facilities have been attacked at least three times by home-grown extremists in little-reported incidents over the last two years, according to security experts, reports the Times of India.
The incidents include an attack on a nuclear missile storage facility at Sargodha on Nov. 1, 2007, and a homicide bombing at the nuclear airbase at Kamra on Dec. 10, 2007, as tracked by Shaun Gregory, director of the Pakistan Security Research Unit at the University of Bradford in the UK.
But Bradford also noted a much more considerable raid by the Pakistani Taliban on Aug. 20, 2008, when homicide bombers blew up several entry points to a main armament complex at the country’s main nuclear facility, the Wah Cantonment Ordnance Complex, according to the paper.
Pakistan insists that its nuclear weapons are secure and that there is no chance of their falling into the hands of extremists or terrorists.
But these homegrown attacks have occurred even as Pakistan has taken steps to safeguard its stockpile against potential strikes, Gregory writes in the July issue of West Point’s Combating Terrorism Center Sentinel.
Jim Sinclair’s Commentary
Now someone is thinking correctly.
Canada’s oil patch open for Chinese business: Flaherty
Jorge Barrera,
Published: Monday, August 10, 2009
Finance Minister Jim Flaherty rolled out the welcome mat for Chinese investment in the Canadian energy sector Monday, saying this country’s foreign-investment rules pose little hindrance to the growth of a Chinese presence.
Mr. Flaherty, in Beijing to give Canadian corporate interests a boost in the region, said China is flush with U.S. dollars reserves and is looking to spend it in the "emerging energy superpower" that is Canada.
In meetings with Chinese Vice-Premier Li Keqiang and Chinese Finance Minister Xie Xuren, Mr. Flaherty said neither indicated concerns Canada’s foreign-investments regulatory framework would hinder Chinese business interests.
"They did not express any concerns," said Mr. Flaherty. "We are encouraging Chinese foreign direct investment in Canada . . . so long as there is compliance with the governance concern and other rules that we have with Investment Canada."
China has recently expressed concern over its difficulty in establishing a presence in Canada’s energy sector.
Jim Sinclair’s Commentary
Here comes the Prechterites.
Please do not send me emails enlightening me that Mr. Prechter is bullish on the US dollar, bearish on gold and espousing deflation.
First, this is nothing new and has occurred on every gold/dollar reaction since $248 and USDX 120.
Secondly, on every gold reaction millions of flyers are mailed out by this source espousing just this opinion.
Third, JSMineset is provided daily as a service and competes with no one.
Fourth, Mr. Prechter is a by subscription service.
Fifth, I do not care.
Sixth, I will use the delete button as your message is simply to sustain your own bearish opinion, or worse yet, your fear.
Jim Sinclair’s Commentary
In a fascist state, corporations rule, and the military keeps the peace
Governors Object to Pentagon Disaster Proposal
Aug. 10, 2009 – 1:37 p.m.
The National Governors Association opposes a Defense Department proposal to expand the military’s authority to respond to domestic disasters.
In a letter Friday to Paul N. Stockton, assistant secretary of Defense for homeland defense and Americas’ security affairs, the governors said the proposal could lead to confusion over who’s in charge during domestic emergencies and unnecessarily duplicate response efforts.
“We are concerned that the legislative proposal you discuss in your letter would invite confusion on critical command and control issues, complicate interagency planning, establish stove-piped response efforts, and interfere with governors’ constitutional responsibilities to ensure the safety and security of their citizens,” Govs. Jim Douglas , R-Vt., and Joe Manchin III , D-W.Va., wrote on behalf of the group.
The Pentagon did not immediately respond Monday to a request for comment on the letter.
In their letter, the governors elaborate on their concerns over expanding the Pentagon’s independent authority to operate military forces in domestic incidents.
Jim Sinclair’s Commentary
For our silver brethren.
China Encourages Silver Bullion for Investment [Video]
China has introduced its first-ever investment opportunity for silver bullion. The bars are available in 500 grams, 1 kilogram, 2 kilograms and 5 kilograms with a purity of 99.9 percent.
Jim Sinclair’s Commentary
JB Slear says there might just be hope for the Sheeple.
CNBC slides as viewers get crunched
Aggressive business network becomes a turn-off
Andrew Clark in New York
The Observer, Sunday 9 August 2009
With a steely gaze, the pin-striped CNBC television host Larry Kudlow looks meaningfully into the camera.
"We believe that free market capitalism is the best path to prosperity," he declares, reciting his trademark "creed" before enthusiastically launching into the day’s financial action.
Share prices flicker across the bottom of the screen. Traders bicker about the fundamentals of the market. A "breaking news" flash delivers US non-farm payroll numbers. Welcome to CNBC, the world’s top business television channel, which broadcasts across the globe from the nondescript suburban town of Englewood Cliffs, New Jersey.
Courting constant controversy for its evangelism of financial speculation, CNBC has never had so much attention. It devotes 16 hours of live coverage every day to the markets and has analysed every detail of the credit crunch. So why are its ratings slumping?
According to figures supplied to the Observer by Nielsen, the television tracking agency, the average number of Americans watching CNBC at any point on the 24-hour clock was 188,000 last month, a drop of 11% on last year. A more detailed breakdown leaked on the internet reveals a 28% plunge in CNBC viewers during the core business day, between 5am and 7pm.
Jim Sinclair’s Commentary
Amidst the barrage of recovery talk, core circumstances worsen.
That is not dollar positive.
U.S. Underwater Mortgages May Reach 30%, Zillow Says
By Dan Levy
Aug. 11 (Bloomberg) — Almost one-quarter of U.S. mortgage holders owed more than their homes were worth in the second quarter and that figure may rise to as much as 30 percent by mid-2010 as job losses and foreclosures climb, Zillow.com said.
Homeowners are being hurt by price declines. The estimated median value for single-family houses slid to $186,500 in the period, a 12 percent drop from a year earlier and the 10th consecutive quarterly decrease, the Seattle-based real estate data service said in a report today.
“The negative-equity rate will rise and spin off more foreclosures,” Stan Humphries, Zillow’s chief economist, said in an interview. “I see a substantial downside risk to prices and don’t think we’ll see a bottom until the middle of next year.”
The U.S. housing market is being hindered even as the pace of job cuts and price declines slows. Payrolls fell by 247,000 in July, after a 443,000 loss in June, the Labor Department said. Home prices in 20 major cities declined 17 percent in May from a year earlier, the smallest drop in nine months, according to the S&P/Case-Shiller index.
Home values dipped in the second quarter from a year earlier in almost 90 percent of the 161 U.S. metropolitan areas surveyed by Zillow, the company said. Twenty-three percent of mortgage holders were underwater at the end of June, Zillow said.
Jim Sinclair’s Commentary
When push comes to shove CIT will have to rescued. It does not matter if the method is Federal arm twisting of private interest or direct QE, the consequences will be the same.
CIT delays report, warns on bankruptcy
August 11, 2009: 10:15 AM ET
NEW YORK (Reuters) – Shares of CIT Group Inc sank 20 percent Tuesday after the troubled lender delayed filing its second-quarter report with regulators and again warned it may have to file for bankruptcy.
CIT, which has been battling to restructure its debt, said in a filing with the U.S. Securities and Exchange Commission that management is focused on restructuring the company to avoid bankruptcy and it was unable to file its quarterly report by the deadline on Monday.
The 101-year-old lender, which last month secured $3 billion in emergency funding from bondholders, has launched a tender offer for $1 billion of floating-rate notes due Aug. 17.
In the filing on Tuesday, it warned that if the tender offer is not successful and if the company is unable to secure alternative financing, it may be forced into bankruptcy.
New York-based CIT last week said it had met the conditions for the offer, after it passed the 58 percent mark for the minimum tender.
CIT plans to use the proceeds from its emergency funding to complete the tender offer and make the payment on the Aug. 17 notes, according to the filing on Tuesday.
