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Gold’s gains eclipse dollar
October 8, 2009
By Bloomberg
Gold might climb to $1 650 (R12 300) an ounce by early 2011 on demand for an investment to compete with the dollar and other currencies, commodity investor James Sinclair said yesterday.
"The carry trade has dropped the dollar as a currency of choice," said Sinclair, the chief executive of Canada-based Tanzanian Royalty. "Gold is competition to currencies."
Yesterday gold futures in New York climbed to $1 049.70, reaching a record for a second consecutive day. The spot price is heading for a ninth annual gain amid rising demand for a hedge against inflation and a slumping dollar.
Some investors buy bullion on concern that ballooning US debt will drive the dollar down further. An "extreme amount of liquidity has been injected in the financial system, not just in the US, but around the globe", said Sinclair.
US President Barack Obama has increased the US marketable debt to an unprecedented $7.1 trillion as the government borrows to revive growth.
Jim Sinclair’s Commentary
The following is a most compelling reason to keep your wealth in gold.
"Every single bank in Japan, the US, Germany, Spain, and Italy included in S&P’s list of 45 global lenders fails the 8pc safety level under the agency’s risk-adjusted capital (RAC) ratio. Most fall woefully short."
Most global banks are still unsafe, warns S&P
Standard & Poor’s has given warning that nearly all of the world’s big banks lack sufficient capital to cover trading and investment exposure, risking further downgrades over the next 18 months unless they move swiftly to beef up their defences.
By Ambrose Evans-Pritchard
Published: 12:02AM GMT 24 Nov 2009
Every single bank in Japan, the US, Germany, Spain, and Italy included in S&P’s list of 45 global lenders fails the 8pc safety level under the agency’s risk-adjusted capital (RAC) ratio. Most fall woefully short.
The most vulnerable are Mizuho Financial (2.0), Citigroup (2.1), UBS (2.2), Sumitomo Mitsui (3.5), Mitsubishi (4.9), Allied Irish (5.0), DZ Deutsche Zentral (5.3), Danske Bank (5.4), BBVA (5.4), Bank of Ireland (6.2), Bank of America (5.8), Deutsche Bank (6.1), Caja de Ahorros Barcelona (6.2), and UniCredit (6.3).
While some banks may look healthy under normal Tier 1 and leverage targets, critics claim these measures can be highly misleading since they fail to discriminate between high-risk and low-risk uses of leverage. The system failed to pick up the danger signals before the financial crisis. The supposedly moderate leverage of US banks in 2007 proved to be a spectacularly useless indicator.
S&P has shifted to a tougher code. It is less tolerant of hybrid capital – a liability rather than an asset, and no defence in a crunch – and insists that banks must quadruple capital put aside to cover trading desks. Private equity exposure will be treated more harshly.
The Bank for International Settlements unveiled its own version in September. The regulatory framework worldwide is clearly shifting in this direction, a move that will hit some banks harder than others. "We expect banks to continue strengthening capital ratios over the next 18 months to meet more stringent requirements. Failure to achieve this could put renewed pressure on ratings," said Bernard de Longevialle, S&P’s credit strategist.
Jim Sinclair’s Commentary
They have gotten this right.
Dollar Slump Persisting as Top Analysts See No Bottom (Update2)
By Bo Nielsen
Nov. 23 (Bloomberg) — The most accurate dollar forecasters predict the world’s reserve currency will continue sliding even when the Federal Reserve begins to raise interest rates, which policy makers say is an “extended period” away.
Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 6.4 percent versus the euro. About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the currency, they said. So will the nation’s 10.2 percent unemployment rate and signs that the economic recovery may falter, they said.
“History tells us the dollar shouldn’t start rising on a sustained basis until 12 months after the Fed starts to lift rates,” said Callum Henderson, the Singapore-based global head of foreign-exchange strategy for Standard Chartered.
The best forecaster of the dollar against the euro in the six quarters ended June 30 in Bloomberg’s ranking of 46 firms last month predicts the greenback will weaken 5.3 percent to $1.58 per euro in 2010, from $1.4970 today.
“It’ll take time to drain the oversupply of dollars from the market,” Henderson said. “The dollar will remain weak until the Fed’s rates rise above the competitors’.”
Jim Sinclair’s Commentary
Saying a statement is speculative is not denying veracity.
Goldman lashes back at NYT.
Lucas van Praag, spokesman for Goldman Sachs (GS), fired back at the New York Times over the weekend for suggesting in an article and editorial that Goldman had more AIG exposure than it let on pre-bailout, dismissing most of the statements as "speculative." He also took issue with the findings of a government report (.pdf) that said the Fed caved in to AIG’s counterparties during the bailout. Goldman still insists its exposure was "close to zero." The Times editorial slammed Goldman for fleecing the American public and called on the firm to make a multi-billion-dollar gift to the federal Bureau of the Public Debt.
Jim Sinclair’s Commentary
These tests were never structured to be failed.
Most banks fail ratings test.
Most major banks still don’t have enough capital to comfortably maintain their credit ratings, S&P said Monday, releasing the first global comparison of risk-adjusted capital adequacy for the world’s top banks. Mizuho (MFG), Citigroup (C), UBS (UBS) and BBVA all came in well below the global average RAC of 6.7%; Mizuho’s was just 2%, Citigroup’s was 2.1%, UBS’s 2.2%, and BBVA’s 5.4%. Banks with stronger than average balance sheets included HSBC (HBC) (9.2%) and Goldman Sachs (GS) (8.3%). In a swipe at widely-used tier-one and leverage ratios, S&P said they aren’t consistently calculated or don’t adjust for risks. "We do not believe that these two capital ratios, which are the most commonly used by market constituents, are sufficient to assess banks’ risk-adjusted capital adequacy."
Jim Sinclair’s Commentary
QE grows due to the thin fabric of the recovery.
Bullard wants more QE.
St. Louis Fed chief James Bullard says the Fed should extend its program to buy mortgage-backed securities and agency bonds beyond the current March deadline in order to remain agile and respond to any weakening in the economy. "I would just like to keep them active at a very low level instead of saying we’re shutting down," Bullard told reporters in New York. "Initially it would do nothing for the economy, but it would give the Fed the option to react to future news as it comes in." The Fed has said it will complete its planned $1.25T scheme by March, and recently reduced the agency-debt purchase ceiling to $175B from $200B.
Jim Sinclair’s Commentary
The sum of all fears.
N-weapons falling in wrong hands an area of concern: Antony
New Delhi, November 23, 2009
First Published: 14:14 IST(23/11/2009)
With increasing terror attacks in Pakistan raising concerns over the safety of its nuclear arsenal, Defence Minister A K Antony on Monday said the threat of these weapons falling in wrong hands was an "area of serious concern" and its consequences would be "unimaginable".
Noting that there was scarcely any country which was not affected by terrorism, Antony said the recent terror-related incidents in Pakistan and Afghanistan have "thrust South Asia into a sub-conventional conflict and instability."
"Threat of nuclear weapons falling in wrong hands remains an area of serious concern and consequences of such a situation are unimaginable," he said while addressing a seminar ‘Changing Nature of Conflict: Trends and Responses’.
Speaking on the occasion, Army Chief General Deepak Kapoor said South Asia along with West Asia has emerged as "one of the epicentres of conflict and instability."
The Army Chief warned that the situation would "further worsen since there was neither any political or diplomatic unity nor any common ground to build a consensus to fight this new war."
Jim Sinclair’s Commentary
Drain, cut back, even if they could figure out how to do it effectively it cannot be done!
The fabric of this recovery is rice paper mark ups because the FASB folded.
Falling Chicago Fed index bodes ill for US recovery
Mon Nov 23, 2009 8:54am EST
NEW YORK, Nov 23 (Reuters) – The Federal Reserve Bank of Chicago said on Monday its gauge of the national economy fell further into negative territory in October, in a report that suggested the economic recovery could be in trouble.
The Chicago Fed said its National Activity Index slid to -1.08 from a revised -1.01 in September. September’s reading was originally reported at -0.81.
The index’s three-month moving average, CFNAI-MA3, decreased to -0.91 in October from -0.67 in September, declining for the first time in 2009, the Chicago Fed said.
"October’s CFNAI-MA3 suggests that growth in national economic activity remained below its historical trend," the report said.
The Chicago Fed said that a move below -0.70 in the index’s three-month moving average following a period of economic expansion indicates an increasing likelihood that a recession has begun.
Jim Sinclair’s Commentary
Democracy – not a perfect definition but since we are discussing it here:
Democracy is a political government either carried out by the people (direct democracy), or the power to govern is granted to elected representatives (republicanism). The term is derived from the Greek: δημοκρατία – (dēmokratía) "the power to the people",[1] which was coined from δῆμος (dêmos) "people" and κράτος (krátos) "power", in the middle of the fifth-fourth century BC to denote the political systems then existing in some Greek city-states, notably Athens following a popular uprising in 508 BC.[2]
Even though there is no specific, universally accepted definition of ‘democracy’,[3] there are two principles that any definition of democracy includes, equality and freedom.[4] These principles are reflected by all citizens being equal before the law, and having equal access to power.[5] A third common principle, though less measurable, is that all citizens are promised certain legitimized freedoms and liberties, which are generally protected by a constitution.[6][7]
There are several varieties of democracy, some of which provide better representation and more freedoms for their citizens than others.[8][9] However, if any democracy is not carefully legislated to avoid an uneven distribution of political power with balances, such as the separation of powers, then a branch of the system of rule could accumulate power and become harmful to the democracy itself.[10][11][12]
Democracy began its demise a long time ago but departed when you traded your rights for an assumed safety from something called Terrorism.
IMF warns second bailout would ‘threaten democracy’
Angela Jameson and Elizabeth Judge
November 23, 2009
The public will not bail out the financial services sector for a second time if another global crisis blows up in four or five years time, the managing-director of the International Monetary Fund warned this morning.
Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy.
"Most advanced economies will not accept any more [bailouts]…The political reaction will be very strong, putting some democracies at risk," he told delegates.
"I do believe that the financial sector needs to contribute both to the costs of the financial crisis and to reduce recourse to public funds in the future," he said.
Mr Strauss-Kahn said that imposing high capital ratio requirements on banks was one price the financial services sector must pay to prevent the threat of further multi-billion dollar bailouts.
Jim Sinclair’s Commentary
If this was a business it would no longer be.
A more difficult situation cannot be imagined. Gold will benefit from the inevitable long term break down of the multigenerational long term US Treasury bull market.
Wave of Debt Payments Facing U.S. Government
By EDMUND L. ANDREWS
Published: November 22, 2009
WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
Jim Sinclair’s Commentary
Why should France be any different from anywhere else in the West?
This Weimar experience looks as if it will reach the entire Western World.
Sarkozy takes 35bn gamble on France’s future with his ‘big loan’
20 November 2009
By Greg Keller in Paris
IT’S called "le grand emprunt", a budget-busting 35 billion loan that the French government plans to take out in an audacious venture designed to prepare the country for a more competitive future.
The authors of the "big loan" plan, which was called for by President Nicolas Sarkozy, say massive new investments in France’s universities, R&D labs and renewable energy sources will pay for themselves by lifting the nation’s long-term growth.
But, in the short run, the spending will serve only to worsen France’s already dire public finances.
It also places the country sharply at odds with European Union officials and international economic watchdogs such as the OECD, who say states should be planning to withdraw the billions in stimulus spending they injected into their economies last year, not adding to it.
The French plan, outlined yesterday by former prime ministers Michel Rocard and Alain Juppe, sets out seven "strategic priorities" for the spending. Higher education and research are to receive the largest share, 16bn (£14.3bn), with some of this used to set up endowments to create five to ten "world class" campuses. Other priorities include support for innovative small businesses, life sciences and renewable energies.
Jim Sinclair’s Commentary
Not a very good advertisement for the US dollar, true, but then what would you expect from the source.
Iran gained $5 bln by euro switch: banker
TEHRAN — Iran’s central bank chief said on Monday that the country has gained five billion dollars by replacing the US dollar with the euro in its currency basket, state-owned English language Press TV reported.
"Iran has considerably reduced the total of US dollars in its currency basket," Mahmoud Bahmani said at a bankers’ seminar in Tehran.
Since October 2007, Iran has received 85 percent of its oil revenues in currencies other than the US dollar, the channel reported, adding it is seeking a substitute for the dollar for the remaining 15 percent.
The Iranian government began preparing the ground for the dollar’s replacement by the euro and other foreign exchanges in 2005, it said.
The channel said the constant slide of the dollar coupled with the persisting economic crisis in the US has forced many countries to drop the currency in favour of a more stable and valuable one.
Jim Sinclair’s Commentary
Do you recall when I told you the bailout money went into AIG and then straight out the back door to the winners of OTC derivatives?
Who or what got bailed out?
AIG: The Secret Bailout
11:12 AM Monday November 23, 2009
by Bob Pozen
When an insolvent AIG paid out $165 million in executive bonuses, the public was outraged. But that is peanuts compared to the $62 billion AIG has quietly paid out to settle its obligations with some of the world’s largest banks. Last week, the details of this settlement were finally disclosed.
The financial products subsidiary of AIG had sold these banks a huge volume of credit default swaps (CDS) — obligations of AIG to pay the full face value of designated bonds if the issuers were to default. Many of these bonds were backed by mortgages, whose values deteriorated sharply during the summer of 2008. In response, AIG executives tried to persuade these banks to settle its CDS obligations at a 40 percent discount to the face value of the relevant bonds.
Then, on September 16, 2008, the federal government took over almost 80 percent of AIG’s stock in return for an $85 billion line of credit, which was later increased to over $180 billion in other loans and investments.
During the first week of November, 2008, the Federal Reserve Bank of New York — with the current Treasury Secretary Timothy Geithner as its then president — took over the negotiations with the large banks owning CDS contracts with AIG. After a week of negotiations, the New York Fed instructed AIG to settle these CDS contracts by paying the full face value of all the relevant bonds — $62 billion, as compared to their then market value of less than $30 billion.
Jim Sinclair’s Commentary
Remember the recent rumor that the Russians were sellers?
Russia c.bank buys 0.5 mln oz gold in October
Mon Nov 23, 2009 6:29pm IST
MOSCOW, Nov 23 (Reuters) – Russia’s central bank gold stocks rose by 0.5 million ounces (15.6 tonnes) or by 2.6 percent in October to 19.5 billion ounces (606.5 tonnes), data on the bank’s web site www.cbr.ru showed.
Russia’s central bank has said it aims to increase gold’s share in its reserves this year [ID:nLG124285] to keep its investments diverse. The metal is also seen as a safe-haven at times of financial market turbulence and economic crisis — a status which has helped send the price of gold XAU= to record highs this year. [ID:nGEE5AM0FB]
The web site said the total value of gold in the bank’s stocks rose to $20.4 billion at Nov. 1 from $18.8 billion a month earlier. Gold made up 4.7 percent of Russia’s total gold and foreign exchange reserves — the world’s third largest — which stood at $434.43 billion at the start of November.
A source in the Russian state precious and metals repository Gokhran said the gold did not come from its stocks.
The central bank was not immediately available for comment.
Russia’s Finance Minister Alexei Kudrin said last week Gokhran, subordinated to the ministry, will sell 30 tonnes of gold to the central bank this year. [ID:nLI200517]
