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- Lower GDP Growth Still Heavily Overstated
- 3rd-Quarter GDP at 2.8%, GDI at 2.0%
- "Reduced" Inflation Bloated Reported Activity
- Revised Salaries and Wages Soared as Employment Collapsed?

Jim Sinclair’s Commentary

This morning a discussion on troubled banks at a high level publicly gave a number of over 1000.

It seems as if the closings are serialized and the number of banks that should be closed now exceed those that are closed.

That would be applied MOPE whilst praying for a miracle.

Number of Troubled Banks Rises to 552; FDIC Fund Sinks Into the Red
NOVEMBER 25, 2009
By JESSICA HOLZER

WASHINGTON — The government insurance fund that protects more than $4.5 trillion of U.S. bank deposits slipped into the red at the end of September, after fifty banks collapsed during the third quarter.

The deposit insurance fund dropped by $18.6 billion during the third quarter of 2009 to negative $8.2 billion, as the Federal Deposit Insurance Corp. set aside $21.7 billion in provisions for additional bank failures. This is the second time in the agency’s history that the balance has fallen into negative territory.

The FDIC has already called on the industry to prepay $45 billion in assessments at the end of the year that will be set aside to cover the cost of bank failures in 2010.

Fifty U.S. banks failed in the third quarter, the largest quarterly total since 55 banks went bust during the second quarter of 1990. The FDIC’s list of "problem" banks swelled to 552 at the end of September, its highest level in 16 years and up from 416 in June.

Despite the turmoil in the industry, banks posted a modest $2.8 billion profit in the third quarter of 2009, as their securities portfolios recovered and banks with less than $10 billion in assets saw margins improve. Bank profits were more than triple the $879 million they earned in the third quarter of 2008 and improved from a $4.3 billion loss in the second quarter of 2009.

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Jim Sinclair’s Commentary

Merrill’s Analytical Department gets on board with Gold.

The three stages of gold price appreciation to $1500/oz
As we first discussed in our October 13 2008 Metals Strategist, three variables alone can explain the fluctuations in the price of gold: risk, currency and commodity prices. Departing from this analytic framework, we argued back then that gold would move to $1500/oz in three steps over three years. The outburst of the credit crisis in August 2007 marked the start of the first stage, with gold rising from about $650/oz to about $950/oz. The second stage of gold price appreciation is primarily about USD weakness and lack of confidence in fiat currencies, and should drive gold above $1200/oz. The third and final stage will be driven, in our view, by a strong cyclical recovery in energy and commodity prices.

The 2nd stage of higher gold prices is about USD weakness
Decomposing gold spot returns into factors, we find that USD depreciation and currency risk have been the key contributors to higher gold prices in the last eight months. Our analysis also suggests that gold prices have also been leading indicators of 5Y breakeven inflation rates and the USD yield curve slope (10Y-2Y) since April. Moreover, we find that the correlation of gold returns to EURUSD is a lot higher on the upside than on the downside. In our opinion, the explanation for this is that the supply of money in all currency areas is increasing a lot faster than the supply gold. So the weak dollar is pushing gold prices higher in USD, and the increase in global money supply is driving gold prices up in every currency.

A 100t increase in gold demand = a $45/oz move in prices
Broad money in a number of key currencies expanded 7 to 10 times faster than gold supply in 2008. This trend is poised continue over the next 18 months. If EM CBs come to the conclusion that gold at the current prices is better value and offers lower political risk than government bonds denominated in EUR or USD, reserve diversification into gold will continue. We estimate that any given increase physical gold demand of 100t ($3.6bn) could push prices up by $45/oz. With EM FX reserves at nearly $6trn, it will not take much to send gold prices higher.

The point of fiat currencies is to debase them as needed
While some investors remain concerned that lax monetary policy could end up resulting in inflation sometime down the road, we would argue instead that the whole point of having a fiat currency is to be able to debase it when the economic conditions require it. Of course, as the combination of monetary and fiscal policy measures help create an upswing in economic activity over the next two years, cyclical pressures will come back into the system. Because we expect gold to maintain its long-run relationship with other commodities, we see a third stage of gold price appreciation in the next 18 months where prices push above $1500/oz on the back of higher oil and commodity price.

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Jim Sinclair’s Commentary

With the possibility of 800 more banks going broke, the ability to tap other not terribly solvent banks is limited.

Before this is all over, payments by the FDIC will be in the form of non-marketable short term US treasury instruments.

The FDIC Is $8.2 Billion in the Hole
Posted Nov 24, 2009 12:26pm EST by John Carney
From The Business Insider, Nov. 24, 2009:

The FDIC fund that insures bank deposits is $8.2 billion in the hole.

The Federal Deposit Insurance Corp. released its latest set of grim banking data moments ago. The FDIC had to set aside $21.7 billion for expected losses on future bank failures as the total number of "problem" banks rose to 552 from 416.

There were glimmers of hope. While bad loans continue to beat up bank balance sheets, revenues are returning to the banking sector. Overall, the banking sector was profitable after a $4.3 billion loss in the second quarter and saw just $879 million in earnings last year.

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Jim Sinclair’s Commentary

The inviting question here is why?

It is not because this entity does not want clients or because there is no room at the inn.

A Mad Rush as Gold Bugs Get the Boot
BY CAROLYN CUI

Fleets of armored trucks piled with gold bars and coins have been streaming out of midtown Manhattan in one unexpected consequence of the gold craze.

Amid gold’s rise — it has gained 32% this year and reached a record on Monday — investors have been loading up on bullion and coins. One big problem now is where to store it. The solution from HSBC, owner of one of the biggest vaults in the U.S.: somewhere else.

HSBC has told retail clients to remove their small holdings from its fortress beneath its tower on New York City’s Fifth Avenue.

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