Questions Of The Day:
What did the BRICs discuss at their closed door conference that motivated them to turn down the US’s request to attend the meeting as observers only?
What is the inherent message being broadcast by crude’s $40 rise from the low and nickel’s 50% increase in value?
The answer to both is hyperinflation, not an economic event but rather a currency event.
Jim Sinclair’s Commentary
You need to know the facts:
- June Jobs Loss Was 513,000 Net of
Concurrent Seasonal Factor Bias,
Likely Topped 700,000 with Birth-Death Machinations
- Payroll Employment Growth Overstatement
Could Top 2.5 Million per Year with
Birth-Death Modeling
- Annual Payroll Decline Deepened to 4.2%,
Equal to 1958 Trough and Near 1949 Trough
- SGS-Alternate Unemployment at 20.6%
BY SUBSCRIPTION - http://www.shadowstats.com
Jim Sinclair’s Commentary
The present administration has a great deal of its magic attached to the outcome of the GM bankruptcy and the creation of a new and profitable ongoing entity.
In order to accomplish this inventoried purchase interest by the government that lacks sustainability, what is required is a recovery that government economists have been sold on the party line and really believe is forthcoming.
Failing success, the administration’s magic will have been spent unwisely.
U.S. Sales Down Sharply in June for GM, Toyota and Chrysler
Ford reports smallest decline and reiterates plan to boost production.
By . Agency France-Presse
July 1, 2009
General Motors posted a 34% drop in June sales Wednesday but said it had managed to increase its retail sales for the fourth consecutive month despite seeking bankruptcy protection. Total sales fell to 176,571 vehicles in June, but GM said its retail sales rose about 10% from May.
Sales for the first half were down 41% to 954,356 vehicles.
Toyota Motor posted a 35% drop in U.S. sales in June, capping a painful first half of 2009 in which sales fell 38% to 770,449 vehicles. The Japanese automaker said it saw an improvement in the second quarter, with sales 11.2% higher than the first quarter of 2009 at 410,777 vehicles.
The Toyota division posted June sales of 114,780 units, down 36% from last June, while the luxury Lexus division saw sales fall 20% to 16,874 vehicles. Total June sales were 131,654 vehicles.
Chrysler posted a 42% sales drop in its first month since emerging from bankruptcy protection, but the automaker said Wednesday it had managed to increase its share of the U.S. retail market.
More…
Jim Sinclair’s Commentary
You can be sure an OTC market will develop in these chits. 25% bid - 35% offered to be the initial market. We shall see.
The next step in the formula is the fatigue of Asia in supporting bad Western monetary habits and QE to infinity to protect the long term 28 year up-trend line in the 30 year US Treasury bond market.
Out of Cash, California Turns to IOUs
New America Media, News Report, Aaron Glantz, Posted: Jul 01, 2009
Editor’s Note: Today, California enters a new fiscal year without a budget, and an estimated deficit of $24 billion. Gov. Arnold Schwarzenegger refuses to sign a budget that raises taxes while Democrats in the state legislature are unwilling to eliminate social services. As the economy worsens and the budget gap becomes larger and even more difficult to close, the state controller is issuing IOUs.
SAN FRANCISCO -– If you’re waiting for a check from the state of California, keep waiting. You won’t be getting it anytime soon.
Whether you’re a student waiting for your financial aid to come through, a taxpayer waiting for a refund, a defense lawyer representing a prisoner on death row, a businessman with a contract, a mental health care provider, or a state-funded community clinic, you won’t be getting any of the money California has promised you.
Instead, starting Wednesday, you can expect an IOU.
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Jim Sinclair’s Commentary
Ponder or pay? Probably ponder.
California banks ponder their stance on state IOUs
If you believe your financial institution will stand behind California-issued IOUs, don’t bank on it — yet.
The state planned to issue IOUs as soon as Thursday, after the Legislature failed to remedy a $24.3 billion deficit by the end of the fiscal year. State Controller John Chiang planned to issue $3.4 billion in IOUs that mature on Oct. 1 in place of actual payments by the state.
But as of Wednesday, a week after Chiang announced his plan, some of the largest banks in the region would not say whether they will honor the so-called “registered warrants.”
Wells Fargo N.A., JP Morgan Chase & Co. and Bank of the West all said they had not made a decision on the warrants. California Bank & Trust and City National Bank both said, “no comment.”
“When the state publicly says ‘We’ll be issuing warrants,’ we’ll have a decision made,” said Chase spokesman Gary Kishner.
Kishner said Chase was communicating with the state so it could identify all its options, and its decision would be based on the benefit to customers as well as the bank’s protection.
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Jim Sinclair’s Commentary
"As goes Motors so goes the United States."
–Livermore and Seligman
GM warns about bankruptcy implications on stock
THE ASSOCIATED PRESS July 1, 2009, 2:40PM
"There will be no value for common stockholders once the court process has concluded."
General Motors Corp., which is operating under bankruptcy protection, warned investors again Wednesday that it believes there will be no value for common stockholders once the court process has concluded.
In typical cases, existing shareholders are wiped out once a company emerges from bankruptcy. That was the case when Delta Air Lines Inc., the world’s biggest airline operator, emerged from Chapter 11 protection in 2007.
GM said it has noticed continuing high trading volume in GM’s common stock at prices in excess of $1.
"GM management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios," the automaker said in a statement.
"Stockholders of a company in Chapter 11 generally receive value only if all claims of the company’s secured and unsecured creditors are fully satisfied." it said. "In this case, GM management strongly believes all such claims will not be fully satisfied, leading to its conclusion that GM common stock will have no value."
More…
GM’s Forever Bankruptcy
Tue Jun 30, 2009 1:04pm EDT
The Washington Post has dutifully pointed out that the taxpayer may never recover its investment in General Motors (GMGMQ), post-bankruptcy. Assorted debt-pay-down and forward-looking share-price valuations figure into this analysis. But a basic point is being missed: We’ve effectively nationalized GM!
The government’s stake in GM, in a best-case future, represents a kind of market-aided industrial policy. Sure, GM 2.0 is supposed to run itself, but if you believe that, I’ve got a shiny office tower in Detroit to sell you. (Oops! As a taxpayer and stakeholder in GM, I evidently do own a piece of a shiny office tower in Detroit!)
We should, on this very day, forget about ever getting our money back. What we gain from Obama’s management of the GM meltdown is the golden opportunity to convert a huge chunk of our industrial sector to something that more closely resembles the clean-tech economy we have rightly envisioned as our future.
This is one of those times when we should remember that governments can and should productively waste money, while businesses cannot and should not.
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Jim Sinclair’s Commentary
This is certain to make the government less popular regardless of whether it is a simple recognition of cost.
Pakistan raises fuel prices 12%
Financial Times
1 July 2009
Pakistan raised fuel prices by approximately 12 per cent on Wednesday, reflecting a rebound in global crude prices and prompting protests from consumers.
“This raise was essentially in line with global trends. We have to keep up with global prices,” said an official from the ministry of petroleum in Islamabad.
The move has revived public criticism of conditions tied to a US$7.6b international monetary fund (IMF) loan to stave off a debt crisis in Pakistan which included a condition to remove government subsidies on energy.
“We have no sovereignty left as a country. Our policies are dictated by the IMF,” said Waseem Akhtar, an Islamabad shopkeeper. “I sold my car last year because the petrol was becoming expensive and I ended up buying a motorcycle. Thanks to the IMF, I will probably now be forced to use a bicycle”.
Chaudhary Saeed, a greengrocer, warned that inflation which has been falling in the past few months “will now shoot up”.
More…
Jim Sinclair’s Commentary
And legislators want to see the financial goal posts lowered for certain residential purchases.
You want Washington running businesses? The new GM will be quite interesting. Maybe selling cars at 50% of the cost to build them would be socially sensitive and good for votes?
Fannie Sees Jump in Overdue Home Loans
By JAMES R. HAGERTY
* JUNE 29, 2009, 4:44 P.M. ET
Fannie Mae reported a steep increase in the percentage of home mortgages with overdue payments.
The government-backed mortgage investor said in a monthly summary released Monday that 3.42% of the single-family mortgages it owns or guarantees were 90 days or more delinquent in April, up from 3.15% a month before.
Fannie’s main rival, Freddie Mac, reported last week that its single-family delinquency rate for May was 2.62%, up from 2.44% in April.
Fannie and Freddie are the main providers of funding for U.S. home mortgages. Although the two companies bought many of the riskier types of home loans in recent years, their main business is in prime mortgages. More prime borrowers have been falling behind as they lose jobs or their incomes fall.
Richard DeKaser, an independent economist in Washington, D.C., blamed the continuing rise in loan delinquencies on the spike in job losses and on what her termed the "evaporation" of home equity amid falling home prices, leaving many borrowers without a cushion when they lose their jobs.
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Jim Sinclair’s Commentary
Oxymoron Department or Management of Perspective Economics?
Delinquencies Double on Least-Risky Loans, U.S. Says
By Margaret Chadbourn
June 30 (Bloomberg) — Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.
Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.
“I’m very concerned about the rise in delinquent mortgages and foreclosure actions,” Comptroller of the Currency John Dugan said in a statement with the report. President Barack Obama’s plan to create “sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months,” Dugan said.
Obama’s program, unveiled Feb. 18, aims to help as many as 4 million homeowners by modifying loans and calls for Fannie Mae and Freddie Mac to refinance mortgages for as many as 5 million borrowers who owe more than their houses are worth. Foreclosure filings surpassed 300,000 for a third straight month in May, according to RealtyTrac Inc., and the U.S. economy has shed about 6 million jobs since the recession began in 2007.
“Job losses have mounted and even those with good credit that were able to get a prime mortgage are having a harder time making monthly payments with a loss of income,” said Celia Chen, an economist at Moody’s Economy.com in West Chester, Pennsylvania.
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Jim Sinclair’s Commentary
Nothing changes but the spin.
Lives, fortunes, and the Pakistan people could have been rescued if attention was paid to the Pakistan people’s real needs when I first alerted you to the inevitable outcome of policies then in place. These policies pandered to a political retirement fund that is now feeding the recipients quite well.
Surges there and now are totally counterproductive. The West has no respect for their enemy nor the military tactics dating back centuries. History will write this up as the "Greatest Error" of the last administration.
Truthfully the new Administration has inherited the wind directly in their faces. Now, even if they wish to make it right the uphill climb is roughly equivalent to scaling Mt. Everest backwards in a swim suit.
Pakistan will go insurgent after the just completed and extremely effective recruiting program.
EU warns of collapsing Pakistan, upbeat about India ties
Manish Chand
July 1st, 2009
NEW DELHI - Warning of the “danger of the collapse of Pakistan” to the region, the European Union (EU) plans to expand cooperation with India in countering terrorism, with the EU’s counter-terror coordinator expected in New Delhi soon.
“Terrorism is a matter of great concern. We want more cooperation with India in countering terrorism,” Swedish Ambassador to India Lars-Olof Lindgren told IANS in an interview Wednesday, the day Stockholm took over the six-month rotating presidency of the 27-member EU.
“Our cooperation with India in countering terrorism is stronger than before. We plan to cooperate at various levels,” the Swedish envoy said when asked about the EU’s priorities for its forthcoming summit with India Nov 6 in New Delhi.
The EU’s counter-terrorism coordinator Gilles de Kerkove is set to visit India soon, the envoy said.
The envoy, however, trod cautiously on the EU’s aid to Pakistan amid reports that such financial assistance, like the one given by the US, had been allegedly used by Islamabad in the past to fund anti-India terrorist activities.
“A democratic and stable Pakistan is in the interests of all of us. It’s a danger to the region if Pakistan is collapsing,” he replied when asked what India and the EU can do to stop terrorism emanating from Pakistan.
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Jim Sinclair’s Commentary
That is a polite statement, but read further and you find the constant word DIVERSIFICATION.
China Seeks ‘Stable’ Dollar, Monetary Diversification (Update2)
By Bloomberg News
July 2 (Bloomberg) — China, the largest holder of foreign currency reserves, reiterated its call for a stable dollar and a diversification of the international monetary system.
“We hope that as the main reserve currency the exchange rate of the U.S. dollar will be stable,” Vice Foreign Minister He Yafei told reporters in Beijing.
The vice minister said he wasn’t aware that China had pushed for the subject of a reserve currency to be on the agenda of this month’s Group of Eight summit, though “if this issue is raised by leaders during the meeting it is nothing strange, it is natural because we are all discussing how to respond to the international crisis.”
China, whose leaders have expressed concern that U.S. government spending to counter a recession will weaken the dollar, cut its holdings of dollar reserves by $4.4 billion in April to $763.5 billion, the latest figures available show. The dollar rose against the euro and erased losses versus the yen after He’s comments.
“The magnitude of China’s foreign-exchange holdings limits its ability to move out of the dollar very quickly without shooting itself in the foot,” said David Cohen, an economist with Action Economics in Singapore. “Finding alternatives is a long-term goal.”
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Jim Sinclair’s Commentary
A dollar rally? You have to be kidding.
I am in China and you might say I have been hearing this repeated from the horse’s mouth.
All the MOPE in the world cannot stop the BRICs of which China is the lead voice of the combined intention.
If my math is correct, as it is your tomorrow here, we have 126 days to go.
China requests reserve currency debate at G8 -sources
Wed Jul 1, 2009 1:17pm EDT
July 1 (Reuters) - China has asked to debate proposals for a new global reserve currency at next week’s Group of Eight summit in Italy and the issue could be referred to briefly in the summit statement, G8 sources said on Wednesday.
One G8 source who was involved in the negotiations said China made the request during preparatory talks about a joint statement to be issued on the second day of the summit in L’Aquila by the G8 plus the G5 (Brazil, India, China, Mexico and South Africa) and also Egypt.
This forum, the so-called "G14", meets on July 9 to discuss the financial crisis, trade and climate change and for the first time a G8 summit will also produce a joint G14 statement.
The euro EUR= surged around half a cent to session highs above 1.42 against the dollar immediately after the news.
A European source with knowledge of preparations for the summit also said China had raised the subject of a reserve currency debate and that it might be mentioned during the meeting, though the source added: "Any country at the meeting can raise issues they see fit."
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Jim Sinclair’s Commentary
It is a game of MOPE and manipulation of the indices versus the BRICs and a shocking reality of the dollar. There is no way to avoid where all this is going or for that matter when it will occur.
China to Partially Lift Yuan Curbs for Foreign Banks
Foreign banks will be able to buy or borrow yuan from Chinese mainland lenders for the first time to settle trade in Hong Kong and Macau under a pilot scheme steered by the central bank.
The central bank chiefs of China and Hong Kong signed a memorandum on Monday, paving the way for the scheme, which analysts say is a step toward greater international use of the yuan.
According to detailed rules published on Thursday by the People’s Bank of China, foreign banks settling imports and exports in yuan in Hong Kong and Macau will be allowed to buy Chinese currency from mainland banks within certain limits.
The PBOC did not disclose the quotas, which it will set.
The rules make clear that China will be checking to ensure that banks and companies do not try to use the pilot program to get round the country’s capital controls.
To that end, any yuan loans must be supported by trade documentation.
"Domestic settlement banks should take effective measures to know the nature and purpose of their clients’ trading," the PBOC said.
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Jim Sinclair’s Commentary
Here is a world class example of closing the gate after the horse has escaped.
Swaps, Credit Scoring on Tap for NCOIL Meeting
Wed. July 01, 2009; Posted: 04:38 PM
The National Conference of Insurance Legislators plans to address a full plate of issues, including credit default swaps and credit-based insurance scoring, at its summer meeting in Philadelphia.
Despite movements on the federal level to rein in the use of credit default swaps, the issue will be a centerpiece of the July 9-12 meeting, officials said. A proposed NCOIL model law would identify such derivatives, the use of which has caught much of the blame for the near-collapse of American International Group Inc. (NYSE:AIG) as insurance products.
The Commodity Futures Modernization Act, passed by Congress and signed by President Bill Clinton nine years ago, pre-empted states regulating swaps under gaming and so-called "bucket shop" laws (BestWire, Feb. 4, 2009). But by identifying covered swaps, where the purchaser holds an interest in the underlying security and is acting to hedge exposure, as insurance products and banning the use of speculative "naked" swaps, the model asserts states’ rights to action, NCOIL Executive Director Susan Nolan said.
"They’re not going to sit around and wait. We don’t know what’s going to happen in Washington," she said.
NCOIL will also review how to best respond to efforts by the Obama administration and members of Congress to take a larger federal role in insurance regulation, Nolan said. NCOIL will continue to advocate for state-based solutions to insurance issues and strict limits on federal involvement, she said. The meeting will also include a roundtable discussion on systemic risk regulation.
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After I made my post yesterday, I saw another article at Bloomberg on the US dollar. The strategists that have come close to estimating the value of the dollar today are saying that the dollar is going to rise. The prediction is that the US dollar will rise about 17% in the second half of the year. That’s a large move and probably something that we could all turn profitable. Other big players like the CIBC World Markets Plc, Deutsche Bank AG, Bank of America Corp. are predicting that there will be a 4% rise in the second half the year.
It appears like all the big players are bullish on the US dollar for the second half of 2009. That’s good. I think 4% is pretty decent, but if you can pull away with a 17% return, than you’re set.
Source
June 29 (Bloomberg) — Strategists who came closest to predicting the dollar’s value against the euro so far this year see it strengthening as much as 17 percent in the second half as the U.S. recovers from the recession faster than Europe.
CIBC World Markets Plc, Deutsche Bank AG, Bank of America Corp. and Wells Fargo & Co. estimate the U.S. currency will rise more than 4 percent by Dec. 31 after May ended with its steepest three-month fall since 2002. At the start of the year, all had second-quarter forecasts within a penny or two of the $1.4056- per-euro close on June 26, Bloomberg’s currency survey shows.
“I’m reasonably bullish on the dollar,” said Henrik Gullberg, a currency strategist in London at Frankfurt-based Deutsche Bank, which Euromoney Institutional Investor Plc ranks as the world’s biggest foreign-exchange trader. “If you look at the data over the past few weeks, it has been consistent with the situation where the U.S. is a quarter or two ahead” of the 16-country euro region in rebounding, he said.
At the start of the year, after 2008 closed with the euro worth $1.3971, Deutsche Bank said it would weaken to $1.40 by June 30, just shy of where it was two trading days before the quarter’s end. Now the bank predicts a 17.1 percent gain to $1.20 per euro by year’s end, which would be the greenback’s best two-quarter performance against the euro or a basket of predecessor currencies since 1981.
Emerging from Turmoil
Little changed so far in 2009, the dollar is down 5.8 percent this quarter to trade at $1.4071 as of 12:34 p.m. in New York. Against the yen, which has declined against all 16 major currencies tracked by Bloomberg this year, the dollar has gained 5.9 percent since Dec. 31 to 96.00 yen.
Pro-dollar predictions reflect signs that the U.S. economy is emerging from the worst turmoil since World War II. Orders for American-made durable goods unexpectedly jumped in May, the Commerce Department said June 24. Median forecasts in Bloomberg’s economist survey predict the U.S. will grow 1.9 percent next year after shrinking 2.7 percent in 2009 as the euro economy contracts 4.3 percent before expanding 0.5 percent.
The Federal Reserve on June 24 said that “the pace of economic contraction is slowing.” The Organization for Economic Cooperation and Development last week urged the European Central Bank to cut interest rates further to speed the recovery there.
“In Europe, there’s a lot of headwinds, so the bullish- dollar story is based on what’s going on elsewhere,” said Adam Fazio, a CIBC currency strategist in New York. “We are bullish dollar in the near term.” Toronto-based CIBC predicts a 4.1 percent increase in the next two quarters.
Wide Range
Forecasts for the currency are the most scattered in two years, with fourth-quarter predictions ranging from $1.16 to $1.55 per euro, Bloomberg data show. The median of 48 forecasts sees the year ending at $1.40, near the current level.
Aletti Gestielle SGR SpA, an asset-management unit of Italy’s Banca Popolare di Verona, had the same second-quarter prediction at the start of the year as Deutsche Bank and now is among the most bearish, seeing $1.52 per euro by Dec. 31.
“There’s a lot of disillusion about growth in the U.S.,” said Fabrizio Fiorini, who helps manage $12 billion for Aletti Gestielle in Milan. “The U.S. will suffer from high debt and low consumption for quarters to come.”
Market uncertainty is driving up foreign-exchange swings. Fluctuations in Group of Seven currencies have risen to more than double what they were in the year before the credit crunch started in mid-2007; the G7 Volatility Index closed at 14.4 percent on June 26.
Winning Streaks
In the past six quarters, just two forecasters in Bloomberg’s survey — Danske Bank A/S in Copenhagen and Royal Bank of Canada’s London-based strategists — were among the five most accurate half-year-hence dollar-euro prognosticators twice in a row. Only London-based HSBC Holdings Plc did so three straight times. The rankings are based on forecasts in Bloomberg’s database on each quarter’s first day.
Robert Minikin, a Standard Chartered Plc currency strategist in London, said forecasting is difficult because governments are committing record sums to battle the recession.
“There’s profound uncertainty about the impact of the non- conventional measures,” on foreign-exchange markets, Minikin said. “It’ll be difficult” for policy makers “to unwind what they’ve done,” he said. There will be “heavy downward pressure” pushing the dollar to $1.55 per euro by year-end, he added.
HSBC has gone from positive to negative on the currency following three straight quarters in the ranks of the most accurate. After foreseeing $1.25 per euro by this quarter’s end, HSBC predicts $1.50 by Dec. 31.
‘Vulnerable Position’
“The dollar is in a vulnerable position because of the quantitative-easing policy,” said Paul Mackel, a HSBC currency strategist in London.
The greenback fell against the euro from early 2002 until the economic crisis exploded in mid-2008, when it strengthened to a two-year peak of $1.2330 per euro on Oct. 28 as investors fled to the perceived safety of Treasuries. It’s been a rollercoaster since — $1.4719 on Dec. 18, $1.2457 on March 4 and then an 11.4 percent decline as investors returned to riskier investments and pushed the Standard & Poor’s 500 Index up 29 percent.
The legal tender fell as much as 0.9 percent on June 26, after policy makers at the People’s Bank of China renewed calls for a new global currency “delinked from sovereign nations.” Despite such talk, investors aren’t deserting dollar assets. The Fed’s custodial holdings of Treasuries for foreigners rose to a record $1.96 trillion this month as central banks and others abroad bought $15.2 billion worth the week ended June 24.
‘Risk Rally’
The dollar rose today for the first time in three days against the euro after China said it will not alter its foreign- currency reserves suddenly. China’s “foreign exchange reserve policy is always quite stable,” central bank Governor Zhou Xiaochuan told reporters yesterday in Basel, Switzerland.
“The recovery is going to take time, and that puts pressure on the risk rally,” said Geoffrey Yu, a strategist in London at UBS AG, the second-biggest currency trader. Renewed demand for havens is “going to be dollar supportive,” he added, predicting it will strengthen to $1.30 per euro in three months. The currency will trade at $1.40 by the end of 2010, Ashley Davies, a UBS currency strategist in Singapore, wrote in a report today.
“You don’t have to bet on the recovery to be bullish on the dollar,” said Christoph Kind, who manages $20 billion as head of asset allocation in Frankfurt at Frankfurt-Trust Investment GmbH. “If the situation stays as bad as it is, the dollar is a safe haven. And if the economy turns the corner, the U.S. will be the first to get out of the recession. On that basis, the dollar looks like a good investment. We are buying the dollar against the yen and the euro.”
