Message: Must Reading by Jim Sinclair - Oh what a mess!
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Dear Extended Family, I wrote you last night about the seriousness of the situation. We have examined every possible solution to today's problems and find NO PRACTICAL SOLUTION whatsoever. Today’s multi billion dollar bail out of a cash stripped major international investment banking firm proves my contention that whatever infinite level of liquidity is required will be provided. Any assumption that these bailout loans are only 28 days is childish. They will ALL be rolled forward at zero or near zero interest into the next lifetime, if required. This is a modern day Weimar Republic case study. The following article is from the BBC. Note how careful they are to not say the "D" word, derivatives. How dangerous is the Bear Stearns situation? The worry is that if Bear Stearns collapsed, it would be forced to sell its assets, such as sub-prime mortgage securities, into the market at cut down prices. This would have lowered their value even further. And that could have affected the solvency of many other big US banks. And if other big banks went bust, then credit would dry up rapidly across the whole economy, slowing economic activity. That is why the New York Federal Reserve felt it had no choice but to intervene to support a short-term rescue deal. But there may be other banks that are already at risk of reaching a similar position to Bear Stearns.
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Dear CIGAs, Here comes the power of the Formula. Jim’s Formula:
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral. I heard all this "slow business" as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now. Recession Is Inevitable It is a very logical progression. Peloton, Carlyle, Focus -- hedge funds and other non-deposit-taking financial institutions (NDFIs) are now being hit by the credit crunch, which had so far been mainly confined to mortgage lenders and the banks. The Federal Reserve has reacted. Its Term Securities Lending Facility aims to encourage investment banks and prime brokers to lend to NDFIs and so relieve those parts of the credit market it cannot reach with its rate cuts and loans to banks. The Fed understands the structure of the liquidity pyramid (from central bank money at the bottom, through bank lending, to the even bigger securitized debt markets, up to the huge derivatives sectors at the top). So far its liquidity injections have got no further than the banks. Now it hopes to reach higher. Unfortunately, it won't work. The Fed is like King Canute with a difference -- it is trying to halt an ebbing tide rather than a rising one. Its liquidity injection seems huge at $200 billion (with perhaps more to follow), but it is still only equivalent to one-third of the expected losses in the NDFI sector. Moreover, the Fed's readiness to accept almost any asset at just below face value as collateral will prevent price discovery. That means the U.S. financial system will remain burdened with uncleansed balance sheets that penalize future lending and economic growth. Jim Sinclair’s Commentary What is your wager? You can bet they are not SHORT. Goldman Sees `Explosive' Commodity Rallies, $175 Oil March 14 (Bloomberg) -- Commodities may have ``explosive rallies'' in the next couple of years, with crude oil rising to $175 a barrel, according to Goldman Sachs Group Inc. Political decisions on money flows, labor and technology are ``substantially constraining supply growth'' of commodities, Goldman analysts including Jeffrey Currie in London wrote in a report today. ``This will likely support the ongoing structural bull market in commodities until these policy-driven investment constraints are removed and/or demand is adjusted.'' Commodities are in their seventh year of gains as underinvestment in refineries, mines and land sent prices for oil, gold, platinum and wheat to records. More natural resources are controlled by political entities than at any time since the 17th century, according to the Goldman report. Oil rose to a record $111 a barrel yesterday as the tumbling value of the dollar attracted investors to the crude market. The U.S. currency yesterday fell below 100 yen for the first time since 1995 and dropped to an all-time low against the euro. A weak dollar draws investors to oil as commodities become cheaper for buyers using other currencies. Crude at $175 a barrel ``represents the price level required to maintain trend economic growth against our anemic supply growth forecasts, assuming growth in the U.S. re- accelerates early next year,'' Goldman said. Jim Sinclair’s Commentary No Bees, no bats, no food. Vanishing Honeybees Continue to Trouble Virginia Newswise — More than 2,000 beekeepers in Virginia face the possibility of losing entire bee colonies to the Colony Collapse Disorder, but through Virginia Cooperative Extension, they have access to the latest research-based information about the problem. The term Colony Collapse Disorder, which was coined by scientists in 2007, is being used to describe the sudden disappearance of adult bee populations, an unexplained phenomenon that has plagued honeybee colonies around the world. "The disorder is characterized by an absence of adult bees in colonies with few, if any, dead bees in the hive or in the front of the hive,” said Rick Fell, Extension bee specialist and professor of entomology in Virginia Tech’s College of Agriculture and Life Sciences. “We frequently see the presence of capped brood in the colony along with food reserves such as honey or pollen. Strangely, the colonies have not been robbed, and pests such as wax moths have not attacked the hives. Some colonies have small clusters of remaining bees with a laying queen, but the bees do not respond to simulative feeding.” According to Fell, bee losses are not uncommon. Before Colony Collapse Disorder entered the scene, an average of 31 percent of Virginia’s bee colonies would die because of winter loss, usually from starvation, lack of a sufficient number of winter bees, poor bee health, disease, and mite parasites. But, last year more than 50 percent of bee colonies disappeared, an increase attributed to the disorder. “Most colony losses are from factors other than [Colony Collapse Disorder], but [it] continues to be a problem that we do not understand,” Fell said. Jim Sinclair's Commentary What the OTC derivatives have not done to the international banking system, the mountain of upcoming slam-dunk litigation will. This is no joke because OTC derivatives are fraudulent in the legal sense. In the practical sense OTC derivatives are worse because they are:
Financial services firm facing lawsuit WASHINGTON (AP) - A group of state and municipal governments, including Mississippi, Chicago and Fairfax County, Va., said Friday they sued multiple financial-services firms, alleging price-fixing and bid-rigging in the municipal derivatives industry. The suits were filed against 37 financial-services firms, including Merrill Lynch (OOTC:MERIZ) & Co., JPMorgan Chase (NYSE:JPM PRH) (NYSE:JPM PRX) (NYSE:JPM PRK) (NYSE:JPM PRJ) (NYSE:JPT) (NYSE:JPM) & Co. and Morgan Stanley. (NYSE:MS) JPMorgan Chase and Merrill Lynch declined to comment. Morgan Stanley was not immediately available to comment. In a statement, attorneys representing the government said the defendants conspired to deprive the group of extra money they would have received from their municipal bond investments. The suits, filed in federal court in Washington, allege the price-fixing and bid-rigging dates back to 1992. Municipal derivatives are used to invest proceeds of municipal bonds. Jim Sinclair's Commentary The slowest auto wreck in history just got a little faster. What a mess! Who is next, GE? Chrysler to shut down completely for 2 weeks DETROIT — After losing $1.6 billion in 2007 and watching its U.S. sales plummet in the first two months of this year, Chrysler is taking a drastic new step to right the ship: Requiring all employees worldwide to take a two-week vacation this summer. Chrysler informed employees of the plan in an e-mail this week. Chrysler spokeswoman Mary Beth Halprin confirmed the e-mail was sent. "This year, in order to create better alignment and efficiency across organizational lines and boost productivity, Chrysler will use a corporate-wide vacation shutdown for the weeks of July 7 and July 14," the e-mail said. "We ask that you approach this idea with an open mind and a team spirit. It's going to take your cooperation and teamwork to achieve success." Halprin said the move isn't a cost-saving measure, but an attempt to get more efficient. "When you have projects going on, if everyone takes vacation at the same time, you don't have that gap in knowledge on the team that you do when you're covering for someone on vacation," she said. "It does help to ensure that projects continue on time." But David Cole, chairman of the Center for Automotive Research in Ann Arbor, said cost savings were certainly a factor. Jim Sinclair’s Commentary The Federal Reserve is giving away billions of unsecured money. Follow this money. The Fed loans JP Morgan funds on an UNSECURED basis (no asset collateral). JP Morgan then loans that money to Bear Stearns on a SECURED basis. This means Bear Stearns had to put up collateral to borrow the funds. This is a close match to the Weimar Situation. What ever liquidity is required will be produced to an infinite level. Bear Stearns Gets Emergency Funds From JPMorgan, Fed March 14 (Bloomberg) -- Bear Stearns Cos. plummeted a record 45 percent in New York trading after the New York Federal Reserve and JPMorgan Chase & Co. stepped in to rescue the fifth-largest U.S. securities firm with an emergency bailout. After denying for three days that access to capital was at risk, Bear Stearns said today that its cash position had ``significantly deteriorated.'' The New York Fed agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement today. Bear Stearns acted in response to ``market rumors'' of a liquidity crisis, Chief Executive Officer Alan Schwartz said in a separate statement. Schwartz said earlier this week that the company's ``liquidity cushion'' was sufficient to weather the credit-market contraction. Traders have been reluctant to engage in long-term transactions with Bear Stearns as the counterparty, the Wall Street Journal reported yesterday. ``We have tried to confront and dispel these rumors and parse fact from fiction,'' Schwartz said in the New York-based company's statement today. ``Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated.'' Bear Stearns said it was in talks with New York-based JPMorgan ``regarding permanent funding or other alternatives.'' Bear Stearns plummeted to a nine-year low of $31.58 at 10:59 a.m. in New York Stock Exchange composite trading. The shares fell to as low as $26.85 earlier today, and have lost 63 percent of their value this year. Jim Sinclair’s Commentary From where? Not sovereign funds, not me, not you. Paulson urges banks to raise more capital Hank Paulson on Thursday called on financial institutions to raise more capital and reduce their dividends in order to strengthen their balance sheets as he set out the US government’s regulatory response to the credit crisis. The US Treasury secretary backed plans to make it easier for banks to issue “covered bonds” to finance mortgages kept on their own books as an alternative to selling them on to investors as mortgage-backed securities. He said the Treasury was aware that “a number of hedge funds are now facing difficulty” and was monitoring the sector closely. “We are encouraging financial institutions to continue to strengthen balance sheets by raising capital and revisiting dividend policies,” Mr Paulson said. “We need these institutions to continue to lend and facilitate economic growth.
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