Dear CIGAs,

Don’t worry. Everything is going to be as we anticipated it.

 

Jim Sinclair’s Commentary

The recent new derivative regulations exempt those large dealers that claim the status as hedgers.

I suspect the Saudis drop of West Texas Intermediate as the measure of price is a step away from the huge US interest that with the use of highly sophisticated computer programs and infinite finance are able to adjust the price of world energy.

Any move away is an effort to untangle that relationship.
Any move away is another effort to untangle from dollar dependency.
As any exchange loses the value of an instrument in terms of control another acquires it.
As the West loses control of key economic entities it loses position.
As the USA loses its grip on key markets, the US dollar loses more dollar influence.
As dollar influence is lost dollar use declines.
As dollar use declines dollar demand declines
As dollar demand declines dollar price declines.

This is not an opinion. This is axiomatic.

Saudis drop WTI oil contract
By Javier Blas in London
Published: October 28 2009 20:27 | Last updated: October 28 2009 20:27

Saudi Arabia on Wednesday decided to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil, dealing a serious blow to the New York Mercantile Exchange.

The decision by the world’s biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the world’s most heavily traded oil futures contract. It is the main contract traded on Nymex.

The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, depressed the value of the WTI against other global benchmarks, throwing the global oil market into disarray.The move reveals the growing discontent of Riyadh and its US refinery customers with WTI after the price of the price of the benchmark became separatedfrom the global oil market this year.

In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 – a record gap. This dislocation in the market continued well into the summer.

From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil pricing company.

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Jim Sinclair’s Commentary

Turkey is playing dangerous games with powerful people. Notice how Turkey has come out of the cold, maybe into the frying pan?

This is another international move away from the US dollar.

Turkey to use national currencies in trade with Iran, China
11:1428/10/2009

ANKARA, October 28 (RIA Novosti) – Turkey is switching to national currencies in trade with Iran and China, ending dependence on the U.S. dollar and the euro for about 20% of its commodity turnover, local media reported on Wednesday.

Turkey has already switched to settlements in national currencies with Russia amid weakening confidence in the greenback as the world’s major reserve currency. The move was initiated by Turkish President Abdullah Gul during his visit to Moscow in February.

Turkey’s decision to make settlements with Iran and China in national currencies was announced during a visit to Iran by Turkish Prime Minister Recep Tayyip Erdogan. The Turkish premier told a Turkish-Iranian business forum on Tuesday that the countries had prepared a legal framework for transition to settlements in national currencies.

"We have adopted a necessary legislative act and are prepared for the transition," the Turkish newspaper Milliyet quoted Erdogan as saying.

According to the paper, Turkey’s trade with Russia, Iran and China exceeds $65 billion a year. Russia is Turkey’s largest trade partner, with $37.8 billion commodity turnover registered last year.

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Jim Sinclair’s Commentary

All is well.

You are going to curtail QE? You are going to drain liquidity?

You have to be kidding

Mortgage applications slide
Mortgage Bankers Association says demand for home loans waned last week, even as 30-year rate eased closer to 5%.
By Ben Rooney, CNNMoney.com staff reporter
October 28, 2009: 7:44 AM ET

NEW YORK (CNNMoney.com) — Mortgage applications fell last week for the third week in a row, even as interest rates edged lower, an industry group said Wednesday.

The Mortgage Bankers Association (MBA) said its index of mortgage application volume fell 12.3% in the week ended Oct. 23 from the prior week.

The drop in activity came as a popular tax credit for first-time homebuyers faced an uncertain future. The credit, which can be worth up to $8,000 for eligible buyers, is set to expire at the end of next month.

The MBA said refinancing applications also fell, by 16.2% from the previous week. The purchase index, a measure of applications at mortgage lenders, declined 5.2% last week.

Meanwhile, interest rates on the widely-used 30-year fixed mortgage eased to 5.04% from 5.07%, according to the MBA.

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Jim Sinclair’s Commentary

Politically curtailing QE would seem as if it would signal the demise of the Fed as a functioning reality at the hands of the legislative.

Those that created the Fed in 1913 can extinguish the Fed in 2009. Of course, that would be called an audit and the transformation of the Fed into a policing agency.

Extending jobless benefits clears Senate hurdle
Bill would expand unemployment checks to maximum of 99 weeks
By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) – The Senate moved closer Tuesday to approving an extension of unemployment benefits for an extra 20 weeks.

The Senate agreed on an 87-13 procedural vote to bring the measure to a final vote, killing a Republican filibuster that had delayed action for more than a week.

If the bill is approved by both chambers on Capitol Hill and is signed by the president, those who cannot find work would be eligible for a maximum of 99 weeks of benefits.

The Senate bill would extend benefits for 14 additional weeks in all states, and an additional six weeks in states with unemployment rate above 8.5%. In September, 26 states and the District of Columbia had unemployment rates above 8.5%.

Nationally, the unemployment rate was 9.8% in September, the highest in 26 years. Most analysts expect the unemployment rate to reach 10% soon and to remain above 9% for at least another year, even if the economy continues to recover.

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Jim Sinclair’s Commentary

During Cash for Clunkers, most loans, no matter what model vehicle you bought, were made by GMAC.

Now GMAC, General Motors Acceptance Corporation, the former lending arm of GM requires more rescue.

Big Lender GMAC Asks for More U.S. Aid
By MICHAEL J. de la MERCED and ERIC DASH
Published: October 27, 2009

GMAC, the troubled consumer finance company, is seeking billions of dollars in additional federal aid, a move that would be its third taxpayer bailout and could give the government a majority stake in the company, according to people briefed on the situation.

GMAC and Treasury Department officials have been locked in negotiations over how to structure the third bailout as it approaches a crucial deadline in early November for shoring up its finances. The government has injected $12.5 billion into the company and already owns about a 35 percent stake from a broader restructuring of General Motors, its onetime parent.

Any fresh injection of government money, or the conversion of its existing preferred shares into common stock, would give taxpayers a much larger — perhaps even a majority stake — in the company. The government’s investment in GMAC would vastly surpass its nearly 34 percent stake in Citigroup, and could reignite the public debate over the Obama administration’s role as a major investor in corporations.

The talks highlight the importance of GMAC, a 90-year-old institution designated as a bank only late last year, to the national economy — and its continued trouble in surviving without government support.

GMAC was selected by the Obama administration earlier this year as a key source of buyer and dealer financing to G.M. and Chrysler. Many of its problems, however, stem from now-soured sub-prime mortgages and other real estate loans it made at the height of the housing bubble.

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Jim Sinclair’s Commentary

How long will the supposed first time home owners own their homes?

Can you imagine the family that participated in Cash for Clunkers and first time home ownership six months down this debt road?

U.S. Economy: New-Home Sales Drop as Credit Nears End (Update1)
By Bob Willis and Shobhana Chandra

Oct. 28 (Bloomberg) — Sales of new U.S. homes unexpectedly fell in September as the end of a tax credit for first-time homebuyers approached, highlighting the importance of government aid to the emerging economic recovery.

Purchases dropped 3.6 percent to a 402,000 annual pace that was lower than the most pessimistic economist’s forecast, according to Commerce Department figures issued today in Washington. Other data showed orders for durable goods climbed 1 percent in September, the fourth gain in the last six months.

Stocks fell as the home-sales report reinforced concerns a recovery from the worst recession since the 1930s may cool after programs such as the $8,000 tax credit and Federal Reserve purchases of mortgage-backed securities expire. Economists say a recovery in housing is a key to rebuilding the confidence and finances of American consumers, whose spending makes up 70 percent of the world’s largest economy.

The drop in sales “does raise some questions about where the housing market is going to be in six months, arguably without any more support,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “Whatever you think about the economy, it’s not going to be a straight line” toward recovery.

The Standard & Poor’s 500 Index closed down 2 percent at 1042.62, extending a global slump. The S&P Homebuilder Supercomposite Index, which includes companies such as Lennar Corp. and KB Home, dropped 5.5 percent to 240.31.

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Jim Sinclair’s Commentary

If you want to kill something just talk it to death. As long as fair value is anything a banks wants it to be value will not be fair. Then again, the Sheeple do not care.

Lie all you want as long as your lie lines my pocket is the Wall Street mantra.

Accounting boards try to reconcile fair value views
Mon Oct 26, 2009 7:01pm EDT
By Emily Chasan

NEW YORK, Oct 26 (Reuters) – U.S. and international accounting rulemakers still disagree on a controversial proposed expansion of mark-to-market accounting rules, but said on Monday they would explore ways to allow investors to make easy comparisons if their final rules differ.

At a joint meeting in Norwalk, Connecticut on Monday, members of the London-based International Accounting Standards Board (IASB) and U.S. Financial Accounting Standards Board (FASB) sparred over whether fair value, or "mark-to-market," accounting rules should be expanded to a broader array of financial assets, such as loans and deposits.

In a move opposed by the banking industry, the FASB has proposed that all financial instruments be valued at market levels, while the IASB has proposed to have those assets valued at "amortized cost," which would mostly provide information about expected cash flows.

"If FASB and IASB can’t agree on mixed model or full fair value model … the next best thing is something to move between the two," Sir David Tweedie, chairman of the IASB, said on Monday.

At the meeting, 11 of IASB’s board members said they would be open to exploring some kind of presentation for fair value for more financial assets on corporate balance sheets so that investors would be able to quickly reconcile numbers in U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Four members of the IASB disagreed, as some said two sets of numbers could be confusing.

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Jim Sinclair’s Commentary

He is right. The Sheeple still do not care. The Chinese do care. The Russians do care. And apparently so do most of the world even though you may have forgotten about that today.

The upcoming G20 meeting is going to be a fun time for the US Treasury.

Bill Gross: Assets Are $15 Trillion Overvalued And Fed Will Keep Rates At 0% Forever To Keep The Fantasy Alive
Henry Blodget Oct. 28, 2009, 7:17 AM

PIMCO’s Bill Gross with a great monthly letter.  Here are the key points:

Over the past 30 years, paper asset prices rose 2X as much as they should have based on economic fundamentals

This was the result of leverage

The asset price rise in turn pumped up the economy’s fundamentals (Soros’s reflexivity)

The government wants to restore the "old normal" (2007) not the "new normal" (slower growth as asset prices return to trend)

Therefore…  The Fed will keep rates at 0% for at least 18 months into sustained 4% growth

Next year, when the inventory restocking effect wears off, 4% will be tough

Bill Gross:

[I]n a New Normal economy (1) almost all assets appear to be overvalued on a long-term basis, and, therefore, (2) policymakers need to maintain artificially low interest rates and supportive easing measures in order to keep economies on the “right side of the grass.”

Let me start out by summarizing a long-standing PIMCO thesis: The U.S. and most other G-7 economies have been significantly and artificially influenced by asset price appreciation for decades. Stock and home prices went up – then consumers liquefied and spent the capital gains either by borrowing against them or selling outright. Growth, in other words, was influenced on the upside by leverage, securitization, and the belief that wealth creation was a function of asset appreciation as opposed to the production of goods and services…

My point: Asset prices are embedded not only in our psyche, but the actual growth rate of our economy. If they don’t go up – economies don’t do well, and when they go down, the economy can be horrid.

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Jim Sinclair’s Commentary

There are a lot of fishy things coming up for the US dollar in early November.

Jim Sinclair’s Commentary

Where is the Western interest as the mineral basket of the world moves to Beijing?

With no plan you get exactly what you planned, which is NOTHING. Any plan is better than no plan.

China’s appetite for African minerals unabated – Report
According to the superpower direct investment into Africa by China rose 78%
Posted:  Wednesday , 28 Oct 2009

BEIJING (REUTERS) – The global financial crisis has failed to dampen Chinese investment in Africa, a leading state-run newspaper said on Wednesday.

Premier Wen Jiabao heads to Egypt next month for the second China-Africa summit, as China’s appetite for raw materials drives African growth.

China portrays itself as a steadfast friend of Africa and has pumped billions of dollars into the continent, especially over the last few years, often by what it calls "no-strings" loans or aid.

In the first half of this year China’s direct investment in Africa, excluding in the financial sector, shot up 78.6 percent year-on-year to $875 million, the People’s Daily said, citing an unnamed Commerce Ministry official.

Last year’s total African investment was $5.49 billion, or about one-tenth of China’s total overseas investment, said the paper, which is the official mouthpiece of the ruling Communist Party, without providing an on-year comparison.

"Since the start of the international financial crisis, China has maintained strong investment growth in Africa," the newspaper said..

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Jim Sinclair’s Commentary

More good news from the Brits. The Queen’s real estate holdings have been marked up to make her feel financially better.

UK financial system ‘not able to support recovery’
Britain’s financial sector is not equipped to support recovery when it comes and could trigger a double-dip recession if not fixed, the newest recruit to the Bank of England’s Monetary Policy Committee (MPC) warned yesterday.
By Angela Monaghan
Published: 8:15PM GMT 26 Oct 2009

Adam Posen said the issue was "the next target of concern" for the UK economy. Speaking at Cass Business School in London, he said: "I am concerned that the UK financial system as currently structured, as well as damaged by the crisis, may not be ready to support the coming handover of recovery to private-sector impetus from public-sector stimulus."

He said the main question was where credit for non-financial companies – particularly small and medium-sized enterprises – would come from. Without it, the emergence of a sustainable private-sector led recovery would be constrained, there would be insufficient investment into the UK economy, and a reduction in the number of businesses formed he said.

Mr Posen said the banking system must therefore be "largely fixed" before macroeconomic stimulus is withdrawn. "The alternative is likely to result in a still-born recovery, a double-dip – though less severe – recession, and/or persistently slow growth," he said.

Mr Posen said history had taught us that those economies that have recovered "faster and stronger" have either fixed their banking systems quickly, or have alternative channels through which to provide capital to businesses.

"I am concerned because the financial system in the UK does not seem to have a spare tire for the provision of capital to non-financial businesses when the banking system has popped a leak."

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Jim Sinclair’s Commentary

The government owns a long term Cash for Clunkers program.

FDIC is to guarantee another $2.9 billion in GM debt whilst themselves requiring rescue.

GMAC May Receive Third Bailout Package From U.S. Government
By Peter Eichenbaum and David Mildenberg

Oct. 28 (Bloomberg) — GMAC Inc., the lender that received two government bailouts totaling $13.5 billion, is in talks with the Treasury Department to receive a third lifeline, a person familiar with the matter said.

The U.S. government may inject an additional $2.8 billion to $5.6 billion into GMAC, the person said, declining to be identified because the transaction hasn’t been completed. The deal would involve the issuance of preferred stock, allowing the government to expand its 35.4 percent stake in the Detroit-based company if existing shares are converted into common equity, the person said.

The Federal Deposit Insurance Corp. also told the company that it would guarantee an additional $2.9 billion in debt, helping to fund operations, the Wall Street Journal reported yesterday, citing people familiar with the discussions. GMAC spokeswoman Gina Proia and FDIC spokesman Andrew Gray declined to comment.

GMAC is the only lender that went through stress tests by the U.S. government and requires another public rescue, said Andrew Williams, a Treasury spokesman. Other companies raised capital from investors and some have already paid back the taxpayer, he said. Williams declined to comment on the bailout.

GMAC is preparing to report third-quarter results on Nov. 4 after posting losses in seven of the last eight periods. The U.S. rescued GMAC last December after deciding the firm was crucial to the survival of the auto industry. General Motors Co., its former parent, and Chrysler Group LLC rely on GMAC to provide financing to customers.

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Jim Sinclair’s Commentary

Pakistan continues to slip away from the West no matter how many billions are shipped there by bank wire.

Clinton visits Pakistan amid public outrage
Wed, 28 Oct 2009 08:45:57 GMT

US Secretary of State Hillary Clinton has arrived in Islamabad in an attempt to turn a new page in relations with Pakistan, where anti-US sentiments run high.

"We have a relationship that we want to strengthen," Clinton told reporters at the start of her three-day visit on Wednesday.

"It is unfortunate that there are those who question our motives, perhaps are skeptical that we’re going to commit to a long-term relationship, and I want to try to clear the air on that," the top US diplomat stressed.

Clinton also urged Pakistan to join the nuclear non-proliferation talks, expressing concerns over the security of Islamabad’s nuclear weapons.

The remarks come as Washington-Islamabad relations face an uphill road as public outrage has increased over recent drone attacks in Pakistan’s restive northwestern region and a controversial US aid package.

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Jim Sinclair’s Commentary

Some welcome for the Secretary of State where billions were just sent after dropping all strings from the financial package.

Car bomb kills 91 in Pakistani city of Peshawar
Oct 28, 8:03 AM (ET)
By RIAZ KHAN

PESHAWAR, Pakistan (AP) – A car bomb tore through a busy market in northwestern Pakistan on Wednesday, killing 91 people as U.S. Secretary of State Hillary Rodham Clinton visited the country and pledged American support for its campaign against Islamist militants.

More than 200 people were wounded in the blast in the main northwestern city of Peshawar, the deadliest in a surge of attacks this month. The government blamed militants seeking to avenge an army offensive launched this month against al-Qaida and Taliban in their stronghold close to the Afghan border.

The bomb destroyed much of a market selling bangles, dresses and toys that was popular with women and children.

It collapsed buildings, including a mosque, and set shops on fire in an old part of the city crisscrossed with narrow alleys and clogged with stalls. Wounded people sat amid burning debris and body parts as a huge plume of gray smoke rose above the city.

Crying for help, men grabbed at the wreckage, trying to pull out survivors trapped beneath. One two-story building collapsed as firefighters doused it with water, triggering more panic.

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Jim Sinclair’s Commentary

Prior to the upcoming manufactured GDP report, sentiment seems to shifting more toward reality than MOPEd illusion.

Gloom Spreads on Economy, but GOP Doesn’t Gain
OCTOBER 28, 2009
By JONATHAN WEISMAN

Americans are growing increasingly pessimistic about the economy after a mild upswing of attitudes in September. But Republicans haven’t been able to profit politically from the economic gloom, according to a new Wall Street Journal/NBC News poll.

The survey found a country in a decidedly negative mood, nearly a year after the election of President Barack Obama. For the first time during the Obama presidency, a majority of Americans sees the country as being on the wrong track.

Fifty-eight percent of those polled say the economic slide still has a ways to go, up from 52% in September and back to the level of pessimism expressed in July. Only 29% said the economy had "pretty much hit bottom," down from 35% last month.

But a dark national view of how everybody in Washington is conducting the public’s business appears to be preventing Republicans from benefiting from concerns about the direction of the country or the Democrat-led government’s handling of the economy, as the minority party often does.

In fact, disapproval of the Republican Party actually has ticked upward, along with the public’s general pessimism. Asked which political party should control Congress after next year’s midterm elections, Democrats now hold a clear edge over the GOP, 46% to 38%, a month after the Republicans were nearly as popular. In September, the Democratic edge was 43% to 40%.

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