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Jim Sinclair’s Commentary
A view from the Asian golden bridge
China, gold, and the civilization shift
By Ambrose Evans-Pritchard Economics Last updated: November 26th, 2009
Stephen Jen from the hedge fund Blue Gold Capital has a warning for those who think that gold has risen far too high, is necessarily in a speculative bubble, and must soon come clattering back down.
Mr Jen is an expert on sovereign wealth funds from his days at Morgan Stanley. The gold story — essentially — is that the rising economic powers of Asia, the Middle East, and the commodity bloc are rejecting Western fiat currencies. China, India, and Russia have all been buying gold on a large scale over recent months
Why should that stop when the AAA club of sovereign debtors is pushing towards the danger threshold of 100pc of GDP?
These new players account for almost all the accumulation of foreign currency reserves worldwide over the last five years, so what they do matters enormously.
After crunching the numbers, Mr Jen found that the share of gold in their reserves is just 2.2pc compared to 38pc for the Old World (perhaps we should just call them the deadbeats from now on). They would have to buy $115bn of gold at current prices to raise their bullion to just 5pc of total reserves, and $700bn to reach just half western levels.
Jim Sinclair’s Commentary
I am always amazed on how media is convinced and acts to convince the public that governments make currency values and not markets.
Benign neglect? Like Hell.
Deficits, monetary expansion at historic levels and a mountain of WMD OTC derivatives out there that are still being manufactured and distributed like confetti.
Benign neglect, like Hell!
Benign neglect may turn the dollar from a safe haven to a dangerous place to be
The US government is shouldering a vast $12 trillion debt pile – that’s 12, followed by 12 zeros.
By Liam Halligan
Published: 6:10PM GMT 28 Nov 2009
The trade deficit of the world’s biggest economy also remains huge. How much longer can the dollar defy gravity?
Last week, America’s currency fell to a 15-month low against the euro, cutting through $1.5050. Against a trade-weighted currency basket, the dollar was also at its weakest since July 2008. The greenback plunged to parity with the rock-solid Swiss franc, then hit a 14-year low against the yen.
The dollar’s weakness is based on fundamentals – not least America’s jaw-dropping debt. It’s a long-term trend. From the start of 2002 until the middle of last year, the dollar lost 30pc on a trade-weighted basis.
It was during the summer and autumn of 2008, though, that the sub-prime debacle entered its most vicious phase (so far). The rescue of Fannie Mae and Freddie Mac, America’s quasi-state mortgage-lenders, followed by the Lehman collapse, sent shock waves around the world. For six months or so, Western investors piled into what they knew, liquidating complex positions and buying plain dollars. The greenback became stronger, spiralling upward during the so-called "safe haven rally".
All that has now changed. The trade-weighted dollar has lost 22pc since March. One reason is that, since the spring, the Federal Reserve has been printing money like crazy – both to bail out Wall Street and service America’s rapidly growing debt.
Jim Sinclair’s Commentary
We don’t know now what it is, but there is more to HSBC dropping storage than seeking only mega accounts or punishing gold bugs.
Gold acquires new investment aura
When HSBC closes its vaults to hundreds of American gold bugs (investors) next July, it will be shutting the door on one of the fastest growing trends in the investment community.
By James Quinn, US Business Editor
Published: 5:34PM GMT 29 Nov 2009
Although the British-based bank has decided to stop retail investors depositing the shiny stuff at its New York vaults in favour of storing gold for higher paying institutional customers, it has not stopped the rest of the world from clamouring to join the gold rush.
From the Indian central bank – rumoured to be buying another 200 tonnes from the International Monetary Fund – to hedge fund manager John Paulson – in the process of setting up a new gold only fund – everyone is buying gold. Even Harrods is getting in on the act by selling gold bars. Changed days from the end of the last decade when the UK joined other parts of the world in ending the "gold standard".
In spite of HSBC’s actions, one of the fastest growing areas of gold investment is ordinary investors buying actual bars of gold. Data from the World Gold Council shows that the number of retail investors buying gold in its physical form – as opposed to investing in gold futures contracts or gold miners – rose by 11pc in the three months to September, compared to the previous three months.
In monetary terms this was equivalent to $7bn (£4.25bn), some $5.7bn of which went on physical gold, in the form of bars and official coins, while the remaining $1.3bn was spent on exchange traded funds (ETFs), which invest in real gold and not futures or contracts.
Although only a recent trend in the UK, retail investors’ demand for the shimmering metal has become big business in the US, with a host of companies devoted to convincing would-be gold bugs to part with their money in return for a real piece of the action.
Jim Sinclair’s Commentary
Don’t you think the picture of the real estate development might have been a giveaway?
I really do not think this is the economic equivalent or Arch Duke Ferdinand as one would have believed early last trading day.
U.A.E. Central Bank Stands Behind Lenders, Adds Funds
By Arif Sharif
Nov. 29 (Bloomberg) — The United Arab Emirates’ central bank said it “stands behind” the country’s local and foreign banks, which face losses from Dubai World’s possible default, and offered them access to more money under a new facility.
Banks will be able to use a special facility tied to their current accounts that can be accessed at a cost of 50 basis points above the three-month local benchmark interest rate, the Abu Dhabi-based regulator said in an e-mailed statement today.
“This is a very reassuring move by the central bank to limit the risk of any run on Dubai-based banks,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. It will alleviate any “liquidity concerns by foreign banks about the banking system, mostly those based in Dubai.”
Dubai World, a state-owned holding company struggling with $59 billion of debt and other liabilities, said Nov. 25 it would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, 2010. The news led to a slump in financial markets around the world and raised prospects of new loan losses for U.A.E. and foreign banks.
The benchmark three-month Emirates interbank offered rate was at 1.919 percent on Nov. 25, the last working day before a religious holiday, according to Bloomberg data. The U.A.E. has 24 local banks and 28 units of foreign lenders operating in the country, including those of Citigroup Inc. and HSBC Holdings Plc.
Jim Sinclair’s Commentary
The Chinese will do what the Chinese wish to do, when they wish to do it.
The push from the West only stands to make the West look weak.
What happened to the old political axiom that you adopt what you cannot control? In this case it might just take longer.
Let’s look for media commentary on why a strong Renminbi and Yuan are good for the worldwide economic recovery.
Rebuff for EU in push for strong renminbi
By Patti Waldmeir in Nanjing, China
Published: November 29 2009 17:18 | Last updated: November 29 2009 17:18
European officials on Sunday failed to persuade Beijing to begin strengthening its currency, despite “frank” talks between top officials ahead of Monday’s EU-China summit in the eastern Chinese city of Nanjing.
Scarcely a fortnight after Barack Obama, US president, called on his Asian tour for an appreciation of the renminbi, European officials made similarly little progress toward their goal of easing pressure on European exporters from the weak Chinese currency.
Three of Europe’s most senior economic policymakers met Wen Jiabao, China’s premier, Zhou Xiaochuan, central bank governor, and other key officials for a mini-summit on the renminbi. After the meeting Jean-Claude Juncker, Luxembourg’s prime minister, who chairs eurozone finance minister meetings, said of China’s plans to strengthen its currency: “I can’t say I am more optimistic than I was before I came here.”
José Manuel Barroso, European Commission president, who met Mr Wen for a private dinner lon Sunday night, said afterwards: “The Chinese reiterated their position on the matter . . . They are telling us exactly what they told President Obama – exactly the same.” State television reported that Mr Wen had restated Beijing’s long-standing position that the renminbi’s exchange rate should be kept at a reasonable, balanced level.
Monday’s EU-China summit is expected to focus on climate change, coming only days before United Nations-sponsored meetings in Copenhagen.
Jim Sinclair’s Commentary
This is read in India, Sri Lanka and elsewhere.
China 2009 Gold Demand, Output May Gain to Records, Group Says
By Bloomberg News
Nov. 30 (Bloomberg) — China, the world’s largest gold producer, may break records for both demand and output this year as jewelry consumption soars and miners expand production after prices reached all-time highs, according to the China Gold Association.
Gold demand may be more than 450 metric tons compared with 395.6 tons in 2008, and output may climb to 310 tons, compared with 282 tons a year earlier, Zhang Yongtao, deputy secretary- general of the association, said at a conference in Kunming yesterday. China’s gold production increased by an average 9.5 percent in the past eight years, he said.
China overtook South Africa to become the world’s largest producer in 2007 and the World Gold Council said in July that the nation may pass India as the biggest consumer. Bullion touched a record of $1,195.13 an ounce Nov. 26 as a weaker dollar drove demand for precious metals as an alternative asset.
“China is likely to become the number-one supplier and consumer of gold this year,” said Rozanna Wozniak, investment research manager at the World Gold Council. Global jewelry demand remained weak in the third quarter, with China being the exception, according to slides provided by the council.
Bullion, up 34 percent this year, is set for a ninth annual gain as central banks, pension funds and individual buyers seek to protect their assets from potential currency debasement and inflation. Gold may climb to $1,500 an ounce as the dollar falls amid low interest rates, Kenneth Tropin, chairman of Graham Capital Management, told Barron’s in its Nov. 30 issue.
Jim Sinclair’s Commentary
Here is a way to make great savings of medicare – cull the gene pool.
Let’s hear a round of applause for the OTC derivative manufacturers and distributors for their help in overcoming health costs.
Recession Leading More Seniors To Food Pantries
Nov 28, 2009 7:30 pm US/Pacific
(5/14/2008)
Older Americans who were raised on stories of the Great Depression and acquired lifelong habits of thrift now find themselves crowding soup kitchens and food pantries in greater numbers for the first time after seeing retirement funds, second jobs and nest eggs wiped out by recession.
"What we see in line is lots of gray hair, lots of walkers," said Marti Forman, CEO of The Cooperative Feeding Program in Fort Lauderdale, Fla.
The help is crucial for many fixed-income seniors, who can’t always keep up with rising food prices.
"It’s a lifeline. It just means that you can function," said Ronald Shewchuk of Ithaca, N.Y. "Otherwise we would have to sell our house. I don’t know what we would do. Go to an old age home."
Jim Sinclair’s Commentary
Here is the hidden in plain view problem of commercial real estate.
Banks are not marking down their losses. Who can blame them when financial institutions are permitted by FASB to mark up their toxic paper and declare trading profits.
Hotel owners, like home owners, behind on payments
Return to lender: US hotel owners, like home owners, going delinquent on debt
By Travis Reed, Associated Press Writer
On 10:05 am EST, Saturday November 28, 2009
MIAMI (AP) — Like many home owners, hotels are starting to drown in debt.
They have been enticing travelers all year with sweet deals: credits for in-house spas and restaurants, up to 50 percent off five-star rooms, even free nights.
But all that discounting hasn’t stopped occupancy from dropping an average of 10 percent. The result? Hotel loans have begun falling into delinquency faster than any other kind of commercial real estate debt.
The rising defaults paint a grim picture for an industry with increasingly more rooms than guests, and more hotels still opening every day. It’s a problem that could get worse before it gets better, with demand expected to remain weak and ambitious new projects planned before the meltdown worsening the room glut.
Jim Sinclair’s Commentary
Here are a few comments on Turkey.
Night-Watch
For the Night of 25 November 2009
Turkey: Analytical opinions about the intentions of the Erdogan government range from the view that Erdogan is pursuing a neo-Ottoman foreign policy in Europe and the Middle East to the view that Erdogan is abandoning NATO and identifying Turkey as an Islamist state. At a minimum, Turkey represents a challenge for NATO unity because it supports Iran’s nuclear policy.
Turkey’s policies are so divergent from those of a European power that they raise the possibility that Turkey will drift out of NATO entirely in time.
Jim Sinclair’s Commentary
It looks like the Western trip to the oasis has succeeded.
The camel trains have returned. Now what is the price if the West supports the UAE central bank via swaps as was done for Euroland?
UAE cbank sets up emergency facility for banks
Sun Nov 29, 2009 11:07am EST
By Martin Dokoupil and Raissa Kasolowsky
DUBAI (Reuters) – The United Arab Emirates’ central bank set up an emergency facility on Sunday to support bank liquidity in the first policy response to Dubai’s debt woes that threatened to paralyze lending and derail economic recovery.
Dubai rocked the financial world on November 25 when it said it would ask creditors of Dubai World, the conglomerate behind its rapid expansion, and Nakheel, builder of its palm-shaped islands, to agree to a standstill on billions of dollars of debt as a first step to restructuring.
As a result, banks face heavy losses and the risk that fearful depositors could rush to remove cash from the system, and threatening interbank lending with the second largest Arab economy still facing a downturn this year.
"It might support the market a little bit but I don’t think it is enough," said Shawkut Raslan, head of brokerage at Prime Emirates brokerage.
"I think some foreigners will take their money of the country and others will be afraid to put their money into these markets." The central bank policy move came late on Sunday as Dubai’s Supreme Fiscal Committee gathered to prepare a statement before market open on Monday in an attempt to reassure investors.
Jim Sinclair’s Commentary
How do you make a bankster into Mother Theresa?
Obama to push banks on mortgages
Administration plan aims to address emerging problem: Only a handful of homeowners are receiving permanent loan modifications.
By Tami Luhby, CNNMoney.com senior writer
Last Updated: November 29, 2009: 8:06 AM ET
NEW YORK (CNNMoney.com) — As foreclosure casualties mount, the Obama administration is expected to announce additional steps on Monday to get long-term help for troubled borrowers.
Under the new initiative, the government will provide more resources for borrowers and will partner with organizations to offer homeowners assistance, a Treasury Department spokeswoman said. The plan also calls for increased transparency and accountability on the part of loan servicers.
The administration’s move is its latest attempt to jumpstart its $75 billion loan modification plan, which many fear will fall far short of its goal to help up to 4 million delinquent homeowners.
While some 650,000 people have had their mortgage payments temporarily adjusted, only a fraction have received permanent modifications. More comprehensive data should be released soon, but preliminary figures show the extent of the problem.
For example, fewer than 5% of the trial adjustments on loans owned or guaranteed by Freddie Mac were converted to permanent modifications as of Sept. 30, according to the mortgage finance giant.
Jim Sinclair’s Commentary
Add this to the CIT situation and the noose is tightened on Middle American Business
U.S. stimulus funds run out for lower SBA loan fees
Tue Nov 24, 2009 7:20pm EST
By Nancy Waitz
WASHINGTON (Reuters) – The Small Business Administration said on Tuesday that supplemental economic stimulus funds for its two most popular loan programs have run out and new loan volumes could fall if funds are not extended.
The SBA said $375 million in Recovery Act funds for use in 7(a) and 504 loan programs were exhausted by Monday, leaving thousands of struggling but viable small businesses in limbo unless new resources can be found.
The money was used to temporarily reduce fees on SBA-backed loans and raise SBA’s guarantee percentage on some loans to 90 percent from 75 percent. This saved small businesses up to $60,000 in fees, made lenders more willing to extend credit and helped lure investors back into the market for securities backed by SBA loans.
Jim Sinclair’s Commentary
Japan grows close to China which is inherently further from previous associations.
Japanese prime minister, Chinese defense minister meet to enhance exchanges
TOKYO, Nov. 27 (Xinhua) — Visiting Chinese Defense Minister Liang Guanglie met Friday Japanese Prime Minister Yukio Hatoyama for deepening Japan-China mutual trust and exchanges.
Hatoyama said since he became the Prime Minister two months ago, he had met Chinese leaders Hu Jintao and Wen Jiabao many times. Japan and China endeavor to strengthen cooperation not only in economy, but also in defense and many other areas, which is helpful for both bilateral ties and regional and world peace.
Liang responded that China holds a positive attitude towards the defense cooperation with Japan and hoped the two sides can expand personnel exchanges and communication to improve the strategic mutually beneficial relations.
Liang conveyed greetings from Chinese Premier Wen Jiabao.
Liang also met with Japanese Defense Minister Toshimi Kitazawa Friday.
Jim Sinclair’s Commentary
Hold off on buying that new dishwasher. You can get it soon in your new Chevy pickup truck you got during the Cash for Clunkers program.
This way the repo man can do a 2 for 1
‘Cash for Clunkers,’ household edition
Program expected to boost appliance sales as economy drags
By Peter Whoriskey
Washington Post Staff Writer
Friday, November 27, 2009
In U.S. history, there may have been no better time to own a junk car, a rattling old fridge and a leaking dishwasher.
On the heels of its ballyhooed "Cash for Clunkers" program for cars, the federal government is expected to finalize details in the coming weeks of another tax-supported shopping extravaganza, known as "Cash for Appliances."
Supported by $300 million from the economic stimulus, the program will offer rebates to consumers who buy energy-efficient refrigerators, dishwashers, air conditioners and other appliances to replace their older models.
And like the $3 billion cars program that gave consumers money for swapping their clunkers for more fuel-efficient rides, the appliance initiative seems destined to inspire shoppers, drive up sales for a while and profoundly divide economists over how much lasting good this chunk of government spending will do for the economy.
"The premise seems to be that for Americans to be richer, they need to throw out their old appliances faster — I don’t see it that way," said James D. Hamilton, an economics professor at the University of California at San Diego, who has blogged about the clunkers rebates. "I don’t like the idea of just spending money for its own sake."
Jim Sinclair’s Commentary
This is putting the problem in neon lights.
Pakistani PM takes charge of nuclear weapons
Sun Nov 29, 2009 4:35am EST
By Augustine Anthony
ISLAMABAD, Nov 29 (Reuters) – Pakistan’s president has transfered authority over the nation’s nuclear weapons to the prime ministership, as the unpopular leader tries to deflect growing criticism he has too much power.
President Asif Ali Zardari, beset by corruption allegations, has been under pressure to give up sweeping powers that his predecessor Pervez Musharraf accumulated for the presidency.
The transfer of the chairmanship of the National Command Authority (NCA), which oversees Pakistan’s nuclear arsenal, came as Zardari could face pressure after the lapse of an amnesty opened several of his top aides to prosecution on graft charges.
That amnesty, and growing criticism that Zardari has too much power, may herald more political instability in Pakistan, worrying the United States and its allies as the government also gets increasingly embroiled in a war against Islamist militants.
Key cabinet ministers and the army, navy and air force heads are also members of the NCA, which controls the country’s nuclear programme, including deployment and the use of the weapons.
Jim Sinclair’s Commentary
The question is why be so public about this? The answer is because some already exist.
Iran authorizes 10 new uranium plants
November 29, 2009 1:57 p.m. EST
(CNN) — Iran’s Cabinet has authorized the construction of another 10 uranium enrichment plants, its state news agency announced Sunday, further defying international calls to halt its production of nuclear fuel.
The Iranian Cabinet approved existing plans for five more facilities similar to its current plant at Natanz and ordered planning for five more to begin, the Islamic Republic News Agency reported. The dispatch quoted Iranian President Mahmoud Ahmadinejad as saying that the new plants will be used to produce fuel for civilian nuclear power stations.
The move comes two days after the International Atomic Energy Agency, the U.N. nuclear watchdog, passed a resolution demanding that Iran stop construction on a previously secret nuclear facility at Qom. The IAEA also repeated calls for Iran to stop its uranium enrichment program. The agency said it would not comment on Sunday’s announcement.
Enriched uranium can be used to fuel power plants — or, if enriched to a much higher concentration, it can be used to make a nuclear bomb.
Iran has said its uranium enrichment program is aimed at producing fuel for civilian power plants. But the United States and other countries have accused Tehran of working toward nuclear weapons, and the IAEA’s Friday resolution stated that Iran’s refusal to comply with international demands "does not contribute to the building of confidence."
