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Thought For The Day:
Gold has spoken out both before and after US trading hours for two days now on the developments taking place in the darkened central bankers meeting room. This is the same room with the shades pulled down, military and police guards out front and air support flying above.
The floating exchange system as it now exists is going be folded. We are moving toward a one Western world currency, and one Western world central bank of central banks.
Because all Western world federal budget deficits are out of control and there is no PRACTICAL method to reverse this condition in the foreseeable future, there is no other alternative.
That means the two major Western World currencies will be Gold and the SDR (type entity).
Jim Sinclair’s Commentary
If you send me a fax without a return fax number I cannot reply to you.
Jim Sinclair’s Commentary
As Bill Carleton’s album (Squeeze The People) says, "Main Street is in the hands of a Roulette wheel."
These guys are never going to stop. The OTC derivative market continues to grow. The end game is not in the hands of central banks or banksters. Clearly no currency is safe from the forces of the dark banksters side.
Only gold offers you protection. This is why the dark side is long of gold.
Citi plans crisis derivatives
Author: Laurie Carver
Credit specialists at Citi are considering launching the first derivatives intended to pay out in the event of a financial crisis. The firm has drawn up plans for a tradable liquidity index, known as the CLX, on which products could be structured that allow buyers to hedge a spike in funding costs.
I believe it will reduce the systemic risk in the industry, akin to how the advent of swaps means that people don’t worry about interest rate exposures anymore
Like the untraded US rates liquidity index (USRLI), the CLX is constructed as a sum of the Sharpe ratio – deviations from the mean divided by volatility – of various market factors, such as equity volatilities, Treasury rates, swap spreads, corporate bond swaption-implied volatilities, and structured credit spreads. Citi will make the CLX tradable by using fixed historical values for the mean and volatility parameters, eliminating the need for costly recomputation from lengthy time series.
Although the design of the index serves as a proxy measure for liquidity, Terry Benzschawel, a managing director of quantitative credit trading strategy at Citi in New York and head of the team researching the product, says it also tracks more traditional measures such as bid-ask spreads, trading volumes and the USRLI. He compares the potential impact of CLX to that of the interest rate swaps market.
"The great thing about the index is that it hedges your funding costs while being very simple to trade. I believe it will reduce the systemic risk in the industry, akin to how the advent of swaps means people don’t worry about interest-rate exposures any more – they just pay a fee to hedge it," he says.
Like a swap, the contracts envisaged by Citi would be entered into without an up-front premium, with money changing hands according to the index’s movements around a fair strike value.
Jim Sinclair’s Commentary
This looks like a challenge to Israel.
Iran warns it will ‘punch’ the West on Islamic revolution anniversary
Ayatollah Ali Khamenei, Iran’s supreme leader, has said that the country was set to deliver a "punch" that will stun world powers during this week’s 31st anniversary of the Islamic revolution.
Published: 7:00AM GMT 09 Feb 2010
"The Iranian nation, with its unity and God’s grace, will punch the arrogance (Western powers) on the 22nd of Bahman (February 11) in a way that will leave them stunned," Khamenei, who is also Iran’s commander-in-chief, told a gathering of air force personnel.
The country’s top cleric was marking the occasion when Iran’s air force gave its support to revolutionary leader Ayatollah Ruhollah Khomeini, a key event which led to the toppling of the US-backed shah on February 11, 1979.
His comments came as Iran said it would begin to produce higher enriched uranium from Tuesday, in defiance of Western powers trying to ensure the country’s nuclear drive is peaceful.
This year’s anniversary is expected to become a flashpoint between security forces and supporters of opposition leaders Mir Hossein Mousavi and Mehdi Karroubi, who charge that the June re-election of President Mahmoud Ahmadinejad was rigged.
Opposition supporters are expected to stage anti-government protests on Thursday when the traditional regime-sponsored marches to mark the revolution take place across the country.
Jim Sinclair’s Commentary
Think about this carefully as F-TV keep selling you the short euro story using a most disrespectful term for five countries.
They forgot New York and a bunch of other US states are waiting in the wings.
The seven states to make my list are California, Florida, Illinois, Ohio, Michigan, North Carolina, and New Jersey. Each has a population above 8 million people. Each has had to borrow more than a billion dollars, so far, to pay claims out of their now bankrupt unemployment insurance fund. Also, each state currently registers broad, underemployment above 15% as indicated by the U-6 measure for the States. And finally, each state is a large net importer of either oil, natural gas, electricity, or all three of these energy sources.
My seven states of energy debt represent a full 35% of the total US population. As with other US states, they face looming policy clashes between protected state and city workers on one hand, and the growing ranks of the private economy’s underemployed on the other. The recent circus at the LA City Council meeting was a nice foreshadowing that the days of unlimited borrowing by governments–against future growth based on cheap energy–is coming to an end. Washington can print up dollars and fund these states for years, if it so chooses. But just as with the 70 million people in Portugal, Italy, Greece and Spain, the 108 million people in these seven large states are probably facing even higher levels of unemployment as austerity measures finally slam into their cashless coffers, and reduce their ability to borrow.
Jim Sinclair’s Commentary
Do you recall reading something like this here?
U.S. Losing AAA Is Way to Rein in Pelosi, Reid: David Reilly
February 08, 2010, 11:22 PM EST
Commentary by David Reilly
Feb. 9 (Bloomberg) — When it comes to America’s AAA debt rating, we have to ask whether we would be better off without it.
That notion is pure heresy, and Treasury Secretary Timothy Geithner was quick this weekend to try and dispel any thought that the U.S. would ever be in for a downgrade.
“That will never happen to this country,” Geithner said during an interview with ABC News. The remark came after Moody’s Investors Service last week said the pristine U.S. rating will come under pressure unless something is done about mounting deficits.
Geithner shouldn’t have fought Moody’s report. He should have embraced it. What better way to impress upon Congress that the U.S. is very much in crisis and needs to face up to its problems.
That reality has yet to set in on Capitol Hill. Two weeks ago, for example, the Senate shot down a proposal to create a deficit-reduction commission. The measure failed because the Left worries such a committee will cut spending, while the Right is afraid it will call for tax hikes.
So no spending cuts or tax hikes, which is what we need — just deficits as far as the eye can see. Let’s break out the fiddles already and watch Rome burn.
This is why concerns over the so-called PIGS — Portugal, Ireland, Greece and Spain — or those on the geographic and economic periphery of the European Union are really a sideshow. The real danger to markets lies with the DOLTS, or Dangerously Over-Leveraged Triple-A Superpowers.
That club currently consists of the U.S.
Let’s Pretend
So far, membership has allowed the U.S. and its elected representatives to pretend urgent action isn’t needed. After all, DOLTS have the world’s reserve currency and nukes.
This supposedly means we can spend our way out of debt because creditors like China will forever lend us money. Failing that, we can just print more dollars.
Yet even these benefits can’t change the fact that the U.S. is on an unsustainable course with deficits rising, the national debt soaring, and Social Security and Medicare preparing to go bust. At 10 percent of gross domestic product, the $1.6 trillion budget deficit for 2010 forecast by the Obama administration ranks as the highest such ratio since World War II.
The administration predicts that this ratio will fall to about 4 percent by 2015. For that to happen, though, the economic recovery mustn’t sputter.
U.S. Weakening
Debt, meanwhile, is set to climb to 77 percent of gross domestic product by 2019, according to Moody’s, while “debt affordability would be weakened by higher interest costs in the next several years.” That compares with government expectations at the end of 2008 of a future debt-to-GDP ratio of about 40 percent by the end of this decade.
No wonder investors like Marc Faber, who publishes the Gloom, Boom and Doom report, say the U.S. would carry a below- investment grade, or junk, rating if the country were a company.
And starting in 2020, things will get even worse. “It is worth noting that after 2019 is when the most serious pressures resulting from Social Security, Medicare, and Medicaid will develop, so that failure to rein in the deficits would make it even more difficult to deal with such pressures,” Moody’s said in a credit opinion last week.
State and local governments are also in crisis, and, like their federal counterparts, are unwilling to face the harsh reality confronting them.
California Dwarfs Greece
The mire facing California, for example, makes Greece’s woes look somewhat manageable. California, staring at a $20 billion budget gap over the next 17 months, accounts for about 13 percent of the U.S. economy. Greece accounts for just 3 percent of the economy of countries that use the euro.
Things are so bad in Nevada, meanwhile, that the state could lay off every worker paid from its general fund and it would still be $300 million in the red, according to state Assembly Speaker Barbara Buckley.
Given all this, Geithner should be using Moody’s AAA talk as a cudgel to beat some reality into congressional heads. So far, though, President Barack Obama has preferred to kowtow to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, rather than lead them.
From the earliest days of his administration, Obama has tried to appease both, or stood by as they hijacked and then wrecked his initiatives. This started with Obama’s acquiescence to a pork-laden stimulus bill and continued as the president gave Congress control over initiatives like the health-care overhaul and financial reform.
Getting Worse
The result is that the government has accomplished little in the face of the greatest financial crisis since the Great Depression. And things may easily get worse.
An emboldened and divided Congress, meanwhile, shows no sense of recognizing the true extent of the meltdown. Unless there is a sense of immediate danger, there’s little chance it will do anything differently.
So while the threat of a downgrade might be unsettling, allowing the country to continue along its present course is far worse.
Jim Sinclair’s Commentary
Today two major Wall Street international banking firms downgraded the euro.
Surprise, surprise.
If you think 40,000 short of the euro is a big short, I can only imagine what is short in the OTC currency derivatives.
Massive short of the euro.
Traders and hedge funds have bet nearly $8B against the euro in the largest ever short position of the currency. Concerned about a eurozone debt crisis, traders have built up more than 40,000 contracts against the euro.
Jim Sinclair’s Commentary
With so many majors short the euro anticipate a continuing fight.
U.S. Stocks Rally on Growing Prospects for Bailout of Greece
By Rita Nazareth
Feb. 9 (Bloomberg) — U.S. stocks rallied, sending the Dow Jones Industrial Average up the most since July, as growing prospects for a bailout of Greece eased concern deteriorating government finances will derail the global economic recovery.
Financial shares in the Standard & Poor’s 500 Index reversed an earlier drop and climbed 1.8 percent as a group, led by JPMorgan Chase & Co. and Wells Fargo & Co. Freeport-McMoRan Copper & Gold Inc. and ConocoPhillips rose at least 2.9 percent as metals gained and oil rebounded to near $74 a barrel. Coca- Cola Co. jumped 4 percent after sales grew in China and India.
“Stocks will continue grinding higher,” said John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees more than $200 billion. “The business environment is very encouraging. Earnings are decent and demand is coming back. We do seem to be experiencing economic recovery. There’s some speculation Greece is going to be helped out in some way. That also helps.”
The S&P 500 climbed 1.4 percent to 1,071.03 at 12:44 p.m. in New York. The Dow increased 165.29 points, or 1.7 percent, to 10,073.68 after earlier rallying as much as 2.3 percent for its biggest intraday gain since July 23. Five stocks rose for each that fell on the New York Stock Exchange.
Benchmark indexes surged to their highs of the session as European officials held out the prospect of aiding Greece. Olli Rehn, who takes over as European Union economic affairs commissioner tomorrow, said support for Greece will be discussed in coming days. Michael Meister, a German legislator from Chancellor Angela Merkel’s Christian Democrats, said lawmakers in that country are considering financial assistance.
Jim Sinclair’s Commentary
Want a shock? The Fed can easily provide it. Talk Hawk is all that is required.
QE to infinity or the Fed is history.
BIS Says Banks Need More Capital to Withstand Shocks (Update1)
February 09, 2010, 06:46 AM EST
By Shamim Adam
Feb. 9 (Bloomberg) — Capital requirements on banks aren’t sufficient to ensure financial stability and lenders should hold enough liquid assets to survive a temporary loss of access to funding, the head of the Bank for International Settlements said.
The capacity and incentives to take risks have “clearly overwhelmed” any improvements in risk management, Jaime Caruana wrote in a paper he delivered to a gathering of central bankers in Sydney today. Financial companies alone can’t keep underlying risks in check and will need help from regulators to prevent any system-wide threat, he said.
Regulators worldwide have been wrestling with plans to increase supervision of banks following the global financial crisis, in which credit markets shut down and policy makers were forced to bail out lenders. The Basel Committee on Banking Supervision proposed changes in December that would improve the quality and quantity of capital as well as bolster easily sellable assets that lenders should hold to meet short-term liquidity needs.
“Capital and liquidity buffers need to be built up in good times so that they can be drawn down in bad times,” Caruana said. “Banks should hold a sufficient stock of high-quality liquid assets to be able to survive a month-long loss of access to funding markets.”
Reforms to global financial regulations shouldn’t suppress market forces, Andrew Crocket, president of JPMorgan Chase International, told the Sydney meeting today.
Jim Sinclair’s Commentary
Look what you can do when you simply run an illiquid market for OTC derivatives wild.
Who need weapons of mass destruction that go boom when you already simply have OTC CDS available.
This is as much of an attack on Greece as was the last stand of the 300. The difference then is enemies saw each other face to face and fought bravely as warriors. Now they are geeks hiding from view and killing via computers.
If Greece falls it will not be long before the dollar bites the dust. Killing the weak states of the euro is no different than killing the states of the USA. The tool is the same.
No currency can deliver protection as a storehouse of value.
Greek Ouzo crisis escalates into global margin call as confidence ebbs
For the third time in 18 months the global financial system risks spinning out of control unless political leaders take immediate and radical action.
By Ambrose Evans-Pritchard
Published: 5:46PM GMT 07 Feb 2010
Flow data shows an abrupt withdrawal of German and Asian capital from Club Med debt markets. The EU’s refusal to offer Greece anything beyond stern words and a one-month deadline for harsher austerity – while admirable in one sense – is to misjudge how fast confidence is ebbing. Greece’s drama has already metastasised into a wider systemic crisis. The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes.
Barclays Capital says the net external liabilities of Greece are 87pc of GDP, or €208bn (£182bn). Spain is worse at 91pc (€950bn), and Portugal worse yet at 108pc (€177bn); Ireland is 68pc (€123bn), Italy is 23pc, (€347bn). Add East Europe’s bubble and foreign debts top €2 trillion.
The scale matches America’s sub-prime/Alt-A adventure and assorted CDOs and SIVS of the Greenspan fling. The parallels are closer than Europe cares to admit. Just as Benelux funds and German Landesbanken bought subprime debt for high yield with AAA gloss, they bought Spanish Cedulas because these too had a safe gloss – even though Spain’s property boom broke world records. They thought EMU had eliminated risk: it merely switched exchange risk into credit risk.
A fat chunk of Club Med debt has to be rolled over soon. Capital Economics said the share of state debt maturing this year is even higher in Spain (17pc) than in Greece (12pc), though Spain’s Achilles’ Heel is mortgage debt.
The risk is the EMU version of Mexico’s Tequila crisis or Asia’s crisis in 1998. This Ouzo crisis is coming to a head just as tougher bank rules cause German lenders to restrict loans, and it touches on the most neuralgic issue of our day: that governments themselves are running low. Britain, France, Japan, and the US are all vulnerable. All must retrench. The great "reflation trade" of 2009 is over.
Jim Sinclair’s Commentary
It is interesting that China is doing what North American producers are not doing.
China builds stakes in Canadian mining companies
Andy Hoffman
Vancouver — Globe and Mail UpdatePublished on Monday, Feb. 08, 2010 8:15PM ESTLast updated on Tuesday, Feb. 09, 2010 6:49AM EST
China Investment Corp., the Asian economic superpower’s hulking $200-billion (U.S.) sovereign wealth fund, has been quietly accumulating stakes in resource firms including Canada’sKinross Gold Corp. (K-T18.550.683.81%) and Potash Corp. of Saskatchewan, (POT-T 112.623.283.00%) according to a filing with securities regulators.
CIC, whose chairman is former Communist Party of China insider Lou Jiwei, has spent billions of dollars on mining and energy related investments, the filing with the U.S. Securities and Exchange Commission reveals. China is the world’s largest commodity buyer and part of the fund’s mandate is to invest directly in materials producers to offset China’s costs.
The regulatory disclosure also shows that CIC has turned an impressive profit on the $1.5-billion it invested in debt-ladenTeck Resources Ltd. (TCK.B-T36.061.564.52%) last July.
The filing shows that the stake in the Vancouver base-metals miner was worth $3.5-billion by the end of 2009, making it CIC’s largest single equity holding.
The list represents the most detailed holdings information of North American equities ever revealed by the Chinese sovereign wealth fund.
CIC has become one of the world’s largest and most important investors as China’s economic influence has increased. The fund is allocated a portion of China’s $2.4-trillion worth of foreign exchange reserves to invest overseas.
Jim Sinclair’s Commentary
China bashing is bashing your banker. It is possible that your banker might get a tad upset at such blatant and continued disrespect.
F-TV is shown in every hotel in China. Listen to what some of these do-dos say.
I can assure you China does not suffer from lack of self-confidence.
China PLA officers urge economic punch against U.S.
Chris Buckley
Tue Feb 9, 2010 12:00pm EST
BEIJING (Reuters) – Senior Chinese military officers have proposed that their country boost defense spending, adjust PLA deployments, and possibly sell some U.S. bonds to punish Washington for its latest round of arms sales to Taiwan.
The calls for broad retaliation over the planned U.S. weapons sales to the disputed island came from officers at China’s National Defence University and Academy of Military Sciences, interviewed by Outlook Weekly, a Chinese-language magazine published by the official Xinhua news agency.
The interviews with Major Generals Zhu Chenghu and Luo Yuan and Senior Colonel Ke Chunqiao appeared in the issue published on Monday.
The People’s Liberation Army (PLA) plays no role in setting policy for China’s foreign exchange holdings. Officials in charge of that area have given no sign of any moves to sell U.S. Treasury bonds over the weapons sales, a move that could alarm markets and damage the value of China’s own holdings.
While far from representing fixed government policy, the open demands for retaliation by the PLA officers underscored the domestic pressures on Beijing to deliver on its threats to punish the Obama administration over the arms sales.
Jim Sinclair’s Commentary
And today guess who, amongst others, downgraded the euro because of Greece.
When I see these things daily, I wonder if I am on the right planet.
How Goldman Sachs Helped Greece to Mask its True Debt
By Beat Balzli
Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country’s already bloated deficit.
Greeks aren’t very welcome in the Rue Alphones Weicker in Luxembourg. It’s home to Eurostat, the European Union’s statistical office. The number crunchers there are deeply annoyed with Athens. Investigative reports state that important data "cannot be confirmed" or has been requested but "not received."
Creative accounting took priority when it came to totting up government debt.Since 1999, the Maastricht rules threaten to slap hefty fines on euro member countries that exceed the budget deficit limit of three percent of gross domestic product. Total government debt mustn’t exceed 60 percent.
The Greeks have never managed to stick to the 60 percent debt limit, and they only adhered to the three percent deficit ceiling with the help of blatant balance sheet cosmetics. One time, gigantic military expenditures were left out, and another time billions in hospital debt. After recalculating the figures, the experts at Eurostat consistently came up with the same results: In truth, the deficit each year has been far greater than the three percent limit. In 2009, it exploded to over 12 percent.
Now, though, it looks like the Greek figure jugglers have been even more brazen than was previously thought. "Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future," one insider recalled, adding that Mediterranean countries had snapped up such products.
Jim Sinclair’s Commentary
Up, up and away, but always with "Management of Perspective Economics."
This is definitely a bull market in deficits. When we cross 17 trillion, I wonder what the MOPE will be?
President Barack Obama is set to sign a bill on Today or Wednesday raising the government’s borrowing authority to $14.3 trillion and reinstalling pay-as-you-go rules that require Congress to offset spending with cuts elsewhere.
