Dear CIGAs,

The Peanut Brittle Recovery:

 

Jim Sinclair’s Commentary

"Thou shalt not Lie" –Moses Tablets.

Wall Street’s 10 Biggest Lies of 2009

Say goodbye to 2009, the worst economic year since the Great Depression.

Say hello to the billionaire bailout society in which the super-rich gamble, lose and get bailed out by the rest of us.

To save the system from total collapse we poured trillions of dollars into the financial sector. The result? Banks still are refusing to lend. Thirty million Americans are looking for full-time jobs and 49 million are skipping meals including one out of four children. But Wall Street again is reaping record profits and bonuses.

Not only are we richly rewarding those who wrecked our economy, but also, we have to put up with hundreds of fabrications about how the big banks got us here. Here is my biggest, fattest lies list for 2009:

1. "Government programs for low-income home buyers caused the financial crash." Wall Street defenders were quick to blame the Community Reinvestment Act, which urges banks to loan money in minority communities. In fact, almost none of the CRA loans are sub-prime and the vast majority are doing well, thank you. Blaming government programs deflects us from the real cause: Wall Street’s incredibly reckless creation, marketing, selling and trading of "innovative" new securities that supposedly removed the risk from pools of risky debt. It didn’t work. Wall Street, not the poor, crashed our economy.

2. "Income inequality is good for everyone." Lord Brian Griffiths, Vice-Chairman of Goldman Sachs at least had the nerve to say what so many of the super-rich really believe:

"We have to accept that inequality is a way of achieving greater opportunity and prosperity for all."

Unfortunately, the facts suggest otherwise. There is a high correlation between the mal-distribution of income and economic crashes. The last time our wealth and income distribution was as skewed as it is today was 1929, and that’s not an accident. When too much money is in the hands of the few it runs out of real world investment and gravitates towards speculative investments. This inevitably creates asset bubbles and crashes. Record pay and bonuses on Wall Street and high unemployment are connected. (See The Looting of AmericaChapter 11).

3. "The rising number of billionaires is a sign of economic health." It’s accepted media wisdom that the more billionaires the better. China with 130 billionaires now trails only the US, which has 359, according to Forbes magazine. But in our billionaire bailout society, the rising number of billionaires signals a collapsing middle class. Ponder this statistic: In 1970 the ratio of the compensation of the top 100 CEOs compared to the average production worker was 45 to 1. By 2006 it was an astounding 1,723 to one. Does that look healthy to you?

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Jim Sinclair’s Commentary

Here is the Year End Dollar Party as we head into 2010.

Jim Sinclair’s Commentary

Here is the Great Housing Recovery of 2009.

One of Five Modified Loans Fails in 90 Days
Published: Dec. 22, 2009

Mortgages that were modified in the second quarter of 2009, which had a greater proportion of modifications that reduced monthly payments, are re-defaulting at a lower than those modified earlier. But nearly one out of five borrowers is still re-defaulting only three months after the lowered payments took effect.

That’s the good and bad news from the latest Mortgage Metrics Report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

Lowering payments by reducing both the principal and interest is the strategy behind the Administration’s $75 billion Making Home Affordable program. Though the program has completed only 31,000 modifications, the goal has been to reduce re-defaults, which exceeded 50 percent in modifications older than a year.

Modifications on loans held in the servicers’ own portfolios continued to perform better after modification than loans serviced for others. This difference may reflect differences in modification programs and additional flexibility to modify terms to achieve greater sustainability.

Reasons for re-defaulting on a modified loan are similar to those causing initial defaults: high unemployment, depressed property values and excessive borrower leverage. However, the report found that re-default rates were lowest for modifications that reduced monthly payments. The data also show that the larger the reduction in monthly payment, the lower the subsequent re-default rate. For servicers and investors, determining the optimal type of modification often requires weighing the reduction in cash flow from loan terms that reduce monthly principal and interest payments, along with the possible costs of delaying foreclosure, against the potential for longer term sustainability of the payments and ultimate repayment.

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Jim Sinclair’s Commentary

The Dollar firms on dicey housing data. Banks pay back TARP to bonus themselves freely.

Lack of Bank Liquidity Threatens Commercial Real Estate Market
12/22/2009BY: BRITTANY DUNN

According to Remington Financial Group, a capital services company based in Scottsdale, Arizona, a lack of bank liquidity poses a severe threat to the commercial real estate market.

“The commercial real estate industry is a disaster waiting to happen,” said Andy Bogdanoff, founder and chairman of the company. “With U.S. banks in a deep and continuing liquidity crisis and with $1.2 trillion in commercial debt due to mature by 2012, thousands of real estate owners and developers across the country will soon find themselves between a rock and a hard place when their loans mature.”

However, bank liquidity isn’t the only threat to commercial real estate. Bogdanoff said it is estimated that two-thirds of the securitized loans and half of the whole loans due to mature between 2010 and 2013 would not quality for refinancing due to today’s more stringent banking standards. He said the problem is further compounded by the combination of the unprecedented high cost of funds and the 40 percent decline in real estate values since 2007.

“With property values less than the original debt, thousands of owners and developers may have no choice but to sell their properties at a loss or face bankruptcy

when their loans mature,” Bogdanoff said. “If the problem isn’t solved soon, the result could be a disaster for the commercial real estate industry and the U.S. economy as a whole.”

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Jim Sinclair’s Commentary

MOPE to the level of stand up comedy.

Fed Drains $225 Million From Banking System With Reverse Repos
By Liz Capo McCormick

Dec. 9 (Bloomberg) — The Federal Reserve drained $225 million in temporaryreserves from the banking system when it arranged one-day tri-party reverse repurchase agreements.

The transaction is one of the possible tools for an eventual withdrawal of the central bank’s unprecedented monetary stimulus. Fed officials said when the tri-party reverse repo operational readiness program was announced on Nov. 30 that the actions themselves don’t represent any change in policy.

The repos settle tomorrow and mature Dec. 11. In a reverse repo, the Fed sells securities for a set period, temporarily lowering the amount of money available in the banking system. At maturity, the securities are returned to the Fed and the cash to the 18 primary dealers that act as counterparties for central bank transactions.

In a tri-party arrangement, a third party functions as the agent for the transaction and holds the security as collateral. JPMorgan Chase & Co. and Bank of New York Mellon Corp. are the only banks that serve in a trade-clearing capacity in the tri- party repo market.

Policy makers led by Fed Chairman Ben S. Bernanke are considering how to withdraw the more than $1 trillion they have pumped into the financial system to combat the deepest recession since the 1930s. Along with raising the overnight bank lending rate, Fed officials have said they may use reverse repos, pay interest on excess bank reserves and sell securities directly to investors to withdraw or neutralize cash in the banking system.

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Jim Sinclair’s Commentary

Compromise. The reason government never works.

Why the lobbyist prosper.
Why the public suffers.
Why the fat cats get fatter.

Special deals, carve-outs keep health care afloat
December 22, 2009 11:56 a.m. EST

(CNN) — Democrats call it compromise. Republicans call it bribery. But both sides agree that special deals are why the Senate is on track to pass a health care bill by Christmas.

It wasn’t clear whether Senate Majority Leader Harry Reid had the support needed to move ahead with his chamber’s health care bill until Sen. Ben Nelson, the last Democratic holdout, had a change of heart this weekend.

He agreed to support the bill in return for compromise language on federal funding for abortion and more money for his home state of Nebraska.

As a part of the deal, the federal government will pay 100 percent of Nebraska’s tab indefinitely for expanding Medicaid for low-income Americans.

Despite the benefit for his state, Nelson’s fellow Nebraskan, Republican Sen. Mike Johanns, was not pleased.

"There should be no special deals, no carve-outs for anyone in this health care bill; not for states, not for insurance companies, not for individual senators," he said.

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Jim Sinclair’s Commentary

You need extremely rose colored glasses to like the dollar

Chinese Dynamics Mean Exploding Global Inflation

"In order to prevent a collapse of international trade next year as the dollar collapse (See 2010 Food Crisis), China will be forced to allow the settlement of cross-border trade in Yuan as well as allowing financial companies and importers to purchase Yuan more freely for investment and trade. In effect, the dollar’s instability in 2010 will [necessitate??] for the Chinese Yuan to assume the role of reserve currency. Needless to say, this will compound the dollar’s troubles, accelerating the currency’s freefall.

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Jim Sinclair’s Commentary

As yes, applaud the growth, and then comes the revisions.

Reefer Madness was nothing compared to MOPE Madness.

US third-quarter growth revised down to 2.2 percent
Published: Tuesday December 22, 2009

The US economy limped forward at a 2.2 percent pace in the third quarter, according to government figures Tuesday that showed a downward revision of gross domestic product (GDP).

The downward revision from last month’s estimate of 2.8 percent growth came primarily from a weaker contribution from business investment, as well as slightly slower consumer spending growth.

The report nonetheless confirms that the world’s biggest economy swung back to growth in the July-September period after four quarters of contraction in the worst recession in decades.

The Commerce Department revision indicates the economy’s momentum in the third quarter was weaker than anticipated, suggesting that the recovery from recession may be tepid.

"The recovery is underway, but this does raise concerns about its strength and the prospects for a turnaround in the labor market," said Augustine Faucher at Moody’s Economy.com.

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Jim Sinclair’s Commentary

All is well according to the dollar bulls. The problem is that it isn’t all well, at all

More prime mortgages default in 3rd quarter
Also: Many homeowners with modified mortgages fall behind again. And the number of homes in foreclosure rises, though new foreclosures are steady, report shows.
By Jim Puzzanghera
December 22, 2009

Reporting from Washington – Troubled home loans continued to mount in the nation’s banks in the third quarter as even once-solid borrowers increasingly fell behind on their mortgage payments.

For the first quarter ever, the number of homes in foreclosure with mortgages serviced by U.S. national banks and savings and loans topped the 1-million mark, according to figures released Monday by the Office of Thrift Supervision and the Office of the Comptroller of the Currency.

The percentage of prime borrowers whose loans were 60 or more days past due doubled from the July-to-September period a year earlier. And more than half of all homeowners whose payments had been lowered through modification plans defaulted again.

The report, which covers about 34 million loans, or about 65% of all U.S. mortgages, underscores the obstacles to strengthening the nation’s rickety housing market. Stubborn unemployment is making it tough for millions of homeowners to pay their debts. In addition, many people whose monthly installments have been lowered still are unable to keep up with their payments.

Of the mortgages serviced by national banks and thrifts, only 87.2% were current and performing. It was the sixth straight quarter that the quality of those home loan portfolios had slipped.

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Jim SInclair’s Commentary

John Wiliams focuses his for subscription essay on the very present tool, revisions.

- GDP Growth Still Overstated 
- Economic and Liquidity Crises Face New Down-Legs

"No. 267:  Third-Quarter GDP Revision"
http://www.shadowstats.com/

Jim Sinclair’s Commentary

Think the State of California.

Moody’s downgrades Greece.
Moody’s threw its hat in with S&P and Fitch, which earlier this month cut the government bond ratings of Greece, as the country struggles to emerge from its economic crisis. But, the one-notch cut was less severe than the other two agencies – sparking a rally in Greece’s bonds. The less-aggressive move eased concerns that the country’s debt would be ineligible as collateral at the ECB. Moody’s, which also cut the ratings of several Greek banks, said the government’s long-term credit strength was "eroding materially," and cut the bond ratings to A2 from A1. It also issued a Negative outlook and said future ratings decisions will depend on whether the government makes good on deficit-reduction plans.

Jim Sinclair’s Commentary

Houses under foreclosure, jobs lost, yet the financial industry set takes record gifts for Christmas.

AIG exec wins big payday.
An unnamed AIG (AIG) executive will get $3.26M in a deferred stock grant thanks to a nod from paymaster Kenneth Feinberg. The unnamed top-25 executive will also get an annual long-term incentive award of as much as $1M. "AIG has indicated that the employee is critical to AIG’s long-term performance and stability, and that his continued employment by AIG will significantly aid AIG’s ability to repay the taxpayer," Feinberg said, explaining his decision.