[Leaplist] The current money situation.

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Posted On: Sunday, December 09, 2007, 6:31:00 PM EST

In The News Today

Author: Jim Sinclair



MORTGAGE MELTDOWN
Interest rate 'freeze' - the real story is fraud
Bankers pay lip service to families while scurrying to avert suits, prison
Sean Olender
Sunday, December 9, 2007

New proposals to ease our great mortgage meltdown keep rolling in. First 
the Treasury Department urged the creation of a new fund that would buy 
risky mortgage bonds as a tactic to hide what those bonds were really 
worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac 
to buy the risky loans, even if it was clear that U.S. taxpayers would 
eventually be stuck with the bill. But that plan went south after Fannie 
suffered a new accounting scandal, and Freddie's existing loan losses 
shot up more than expected.

Now, just unveiled Thursday, comes the "freeze," the brainchild of 
Treasury Secretary Henry Paulson. It sounds good: For five years, 
mortgage lenders will freeze interest rates on a limited number of 
"teaser" subprime loans. Other homeowners facing foreclosure will be 
offered assistance from the Federal Housing Administration.

But unfortunately, the "freeze" is just another fraud - and like the 
other bailout proposals, it has nothing to do with U.S. house prices, 
with "working families," keeping people in their homes or any of that 
nonsense.

The sole goal of the freeze is to prevent owners of mortgage-backed 
securities, many of them foreigners, from suing U.S. banks and forcing 
them to buy back worthless mortgage securities at face value - right now 
almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting 
subprime mortgage rates. The real problem is the contractual ability of 
investors in mortgage bonds to require banks to buy back the loans at 
face value if there was fraud in the origination process.

And, to be sure, fraud is everywhere. It's in the loan application 
documents, and it's in the appraisals. There are e-mails and memos 
floating around showing that many people in banks, investment banks and 
appraisal companies - all the way up to senior management - knew about it.

I can hear the hum of shredders working overtime, and maybe that is the 
new "hot" industry to invest in. There are lots of people who would like 
to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy 
time and make this all go away. Cuomo is just inches from getting what 
he needs to start putting a lot of people in prison. I bet some people 
are trying right now to make him an offer "he can't refuse."

Despite Thursday's ballyhooed new deal with mortgage lenders, does 
anyone really think that it can ultimately stop fraud lawsuits by 
mortgage bond investors, many of them spread out across the globe?

The catastrophic consequences of bond investors forcing originators to 
buy back loans at face value are beyond the current media discussion. 
The loans at issue dwarf the capital available at the largest U.S. banks 
combined, and investor lawsuits would raise stunning liability 
sufficient to cause even the largest U.S. banks to fail, resulting in 
massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.

The problem isn't just subprime loans. It is the entire mortgage market. 
As home prices fall, defaults will rise sharply - period. And so will 
the patience of mortgage bondholders. Different classes of mortgage 
bonds from various risk pools are owned by different central banks, 
funds, pensions and investors all over the world. Even your pension or 
401(k) might have some of these bonds in it.

Perhaps some U.S. government department can make veiled threats to 
foreign countries to suggest they will suffer unpleasant consequences if 
their largest holders (central banks and investment funds) don't go 
along with the plan, but how could it be possible to strong-arm everyone?

More…


Jim Sinclair’s Commentary

Derivatives certainly do present some prickly problems that are only 
starting to come out of the woodwork. In time derivative traders and 
their backup geeks are going to be considered criminal. They should take 
their hundreds of millions and run to a non-extradition country Monday.

Judge Dismisses Foreclosures because Banks couldn’t Prove They Owned the 
Mortgage

In the murky world of packaging and reselling mortgage loans, where is 
the paper trail?

December 8, 2007 – Palm Coast, FL – Investors holding mortgage backed 
securities increasingly face losses due to foreclosures. Now they face a 
new problem. In November, an Ohio federal judge dismissed 14 foreclosure 
cases because the mortgage investors were unable to prove that they 
owned the mortgages underlying the foreclosed properties.

Jim Sinclair’s Commentary

It is everywhere.

Sub-prime fears hit the UAE

With global liabilities from structured investments at more than $200 
billion, UAE banks may be on course for greater write-downs than 
predicted, HSBC research claims. However, Abu Dhabi Commercial Bank 
(ADCB) played down forecasts that it could face losses of up to Dh900 
million due to exposure to US sub-prime mortgage related instruments.

An HSBC research report, obtained exclusively by Business 24|7, said: 
"Taking into account the size of ADCB' overall securities portfolio of 
Dh3.6bn (as of September 2007) and the decline in the ABX index during 
second quarter of 2007, ranging from 5 percent (for AAA-rated products) 
to 30 percent (for BBB-rated products), we estimate the overall position 
to be approximately Dh900m.." However, ADCB rejected the numbers saying 
its potential losses from structured products were much lower.

"The HSBC numbers are over-exaggerated. It is not right," a senior 
official of ADCB told Business 24|7. "Besides, ADCB did not book a loss 
of Dh283m but only Dh70m. A total of Dh213m was taken to equity 
account," he said.

The ADCB official also said the losses are not necessarily due to the 
sub-prime crisis but due to the fallout of sub-prime and lack of liquidity.

"Sub-prime was the catalyst but losses are not necessarily due to 
sub-prime. It is because of lack of liquidity also."

More…


Jim Sinclair’s Commentary

The US dollar is dead now and for years to come.

Gulf plans revaluation talks in days: Bahrain
Sat Dec 8, 2007 4:45am EST .
By Mohammed Abbas

MANAMA (Reuters) - Gulf Arab oil producers are considering revaluing 
their dollar-pegged currencies together and will hold talks on a change 
in the exchange rates "in the next few days", Bahrain's foreign minister 
said on Saturday.

Saudi Arabia and five neighbors preparing for monetary union as early as 
2010 ruled out dropping pegs to the tumbling dollar after a summit last 
week and said any talks on revaluation would be kept secret.

Since the summit the United Arab Emirates, which has been pushing for 
currency reform, said it would not change exchange rate policy for "the 
foreseeable future."

Bahraini Foreign Minister Sheikh Khaled bin Ahmed al-Khalifa said the 
six states were working together to shift exchange rates, although they 
would keep their dollar pegs.

More…

Jim Sinclair’s Commentary

This is the Formula in action.

CompUSA to close all of its 103 stores
The consumer electronics store will run store-closing sales during the 
holidays to get rid of inventory.
December 7 2007: 7:18 PM EST

DALLAS (AP) -- Consumer electronics retailer CompUSA said Friday it will 
close its stores after the holidays following sale of the company to an 
affiliate of Gordon Brothers Group, a restructuring firm.

CompUSA operates 103 stores, which plan to run store-closing sales 
during the holidays.

Privately held CompUSA, controlled by Mexican financier Carlos Slim 
Helu's Grupo Carso SA, said discussions were under way to sell certain 
stores in key markets. Stores that can't be sold will be closed.

Gordon Brothers will also try to sell the company's technical services 
business, CompUSA TechPro, and online business, CompUSA.com.

Terms of the transaction were not disclosed.

Dallas-based CompUSA has struggled for nearly a decade with falling 
prices on personal computers, its most important product, and 
competition from big-box retailers such as Best Buy

More…

Jim Sinclair’s Commentary

Here is the Formula in action. It does not matter why scaling back 
occurs. What is your guess on what is going to happen to Federal tax 
revenues? What is your guess on what is going to happen to Federal 
spending? With those two items, you can predict the dollar's action in 
2008 better than GS.

Americans scale back on big loans
The Fed says borrowing for cars and other costly items fell in October 
for second month in a row.
 From Reuters
December 8, 2007

WASHINGTON -- U.S. loans for big-ticket items like cars fell in October 
for a second consecutive month, according to a Federal Reserve report 
Friday that suggested tighter lending conditions in the wake of a global 
credit crunch.

It was the first back-to-back decline for this type of loan since 1992.

Nonrevolving credit, which includes closed-end loans for big-ticket 
items such as cars, boats, college educations and holidays, declined by 
$1.64 billion, or 1.26%, to $1.561 trillion, the Fed said.

In addition, September's report of nonrevolving credit was revised to 
show a decline of $1.37 billion from a previously estimated $363-million 
increase.

The data can be seen in different ways. One explanation might be that 
tougher lending standards mean fewer customers qualify for this type of 
borrowing, which is dominated by auto loans.

More…

Jim Sinclair’s Commentary

Who was saying the US is a resilient economy that could resist the 
downward spiral of the Formula?

Auto loan delinquency rises, another sign of stretched consumer
Posted Dec 6th 2007 10:15AM by Douglas McIntyre

The housing crisis has been going on for over a year now. As the value 
of peoples' homes drops and loans reset to higher rates, foreclosures 
rise. But up until recently at least, car loans and credit card payments 
have been holding their own. This was a sign that consumers still had 
some money in their pockets.

The Wall Street Journal reported that "about 4.5% of auto loans made in 
2006 to top-rated borrowers were at least 30 days delinquent as of the 
end of September, up from 2.9% the previous month, according to a Lehman 
Brothers survey of companies servicing these loans."

Investors in financial stocks have probably been hoping that home loan 
worries, which are a problem at financial firms, would be written off 
and most of the bad news would be in the past. But $575 billion in car 
loans are made each year, and that is a huge pool for potential defaults.

Car loans are put into pools the same way home loans are. Those pools 
are bought and sold based on the overall value and default rate of the 
loans in the pool.

More…

Posted On: Sunday, December 09, 2007, 6:25:00 PM EST

Jim's Mailbox

Author: Jim Sinclair

Dear Jim,

“I will tell you when, but you and 97% of the CIGAs will not at that 
time believe me.”

Why not?

I went from not having a clue about anything financial to having a 
current six figure portfolio in “real” assets.

Forever grateful for you and your JS Mineset crew.

CIGA David

Dear David,

Let me tell you a short story.

On my trading desk at the Sinclair Group of 15 traders, 7 came from less 
than nothing to millionaires as a result of following my lead for their 
own account. I allowed them to trade for themselves, but not in front of 
any client, nor in the same marketplace.

The day gold hit $887.50 I called a time out and told the kids the game 
was over. We spent that night selling physical everywhere it was traded, 
in each different form it was traded. We sold short 400 ounce bars to a 
Hong Kong teals against our futures positions. All my traders heard what 
I said and stayed that night, assisting us to bail out and in the 
process sold gold down over $100.

I took all these kids from school into trading, holding evening classes 
to train them. Not one of them listened. They thought Daddy didn't want 
them to keep raking in the money. Every single one of them went belly up.

I received death threats from the gold community when I said the gold 
bull was over, and over for many years to come. Old man Forbes quoted me 
as saying "If you missed gold, you missed it." That was a comment on 
gold going South for at least 15 years.

You may believe me, but if you do David, you will be in the minority. 
These kids looked at me every day. They were the near and dear. They did 
not listen.

Regards,
Jim





Jim,

The GS Gold and Dollar report was a part of "Operation Overwhelm."

This proves further that the GS report was totally "WAG THE DOG"

CIGA Brian

JPMorgan favors precious metals in 2008
Saturday December 8, 1:38 AM

NEW YORK, Dec 7 (Reuters) - Precious metals could rally in 2008 as the 
U.S. dollar falls and supply flattens, JPMorgan said on Friday, ranking 
the sector the strongest among all commodities for next year.

JPMorgan said its favorite precious metals continued to be gold and 
platinum, with their respective prices expected to average $815 an ounce 
and $1,475 an ounce for 2008, with risks strongly skewed to the upside.

The U.S. bank said that precious metals are unlikely to de-link from the 
dollar next year and it expected a large portion of the volatility in 
metals prices is likely to come from the currency markets.

"Precious metals have the most scope to rally given their leverage to 
currency markets and supply constraints. Mining supply growth will 
likely be flat in gold for the next four years, while platinum and 
palladium will likely remain in deficit next year," JPMorgan told 
clients in a note.

More…





Jim Sinclair’s Commentary

CIGA Erik, in a note to Trader Dan, has a great analysis using this own 
proprietary methods. I fully agree.

"Conditions are ripe for a trend acceleration as most long-term bulls 
sit on the sidelines in fear."





Dear Jim,

Part of the Formula in action?

Sincerely,
CIGA Alex

Oil Min: Iran Has Halted Oil Transactions In Dollars -AFP

TEHRAN (AFP)--Major crude producer Iran has completely stopped carrying 
out its oil transactions in dollars, Oil Minister Gholam Hossein Nozari 
said on Saturday, labeling the greenback an "unreliable" currency.

"At the moment selling oil in dollars has been completely halted, in 
line with the policy of selling crude in non-dollar currencies," Nozari 
was quoted as saying by the ISNA news agency.

"The dollar is an unreliable currency, considering its devaluation and 
the oil exporters' losses," he added.

The world's fourth-largest oil exporter, Iran has massively reduced its 
dependence on the dollar over the past year in the face of U.S. 
pressures on its financial system.

The U.S. has successfully encouraged major European and Asian banks to 
cut their dealings with Iran in a bid to make the Islamic republic give 
way on its controversial nuclear program.

More…

Dear Alex,

No, that is not part of the Formula. That is politics plus the fact that 
as you sell oil for dollars your revenue declines in value because you 
discounted the oil. In time all oil producers not politically dependent 
on the USA will drop the dollar as the medium of exchange for oil.

To cease accepting dollars for oil is a means of diversification away 
from dollars that oil rich central banks have already expressed an 
interest in.

Regards,
Jim





Jim Sinclair’s Commentary

The TIC report will get some positive input from the continuing fire 
sale on all or part of financial institutions to non US entities.

The deep discounting by retailers in the face of a slower Christmas 
selling season could cushion the statistics of the economic slow down.

Whatever the numbers are be sure to factor in both these concepts.

A housekeeping note:

Please help me help you.

If your question is complex or a tome please give me your phone number, 
and when you can be contacted.





Dear Mr. Sinclair,

I was reading up on Jesse Livermore and his trading style. What outdid 
him initially was the delay between market price and price quoted. Does 
that mean that his trading style is more effective today than it has 
ever been?

Thank you
Ron

Ron,

I think you got that backwards.

Jesse busted about 6 Bucket Shops (they bet against their clients by 
taking the order, giving an execution at one price, but never executing 
anything) because he could get an execution all at one price which could 
not be done in the market place. In time the Bucket Shops banned him as 
they were in business to skin the public, not pay them.

It was the execution at one price he could get from the Bucketeers that 
the exchanges and Curb could and would not do. That was the differential 
and it favored him, disfavoring the Bucketeers.

He made a bunch but then was banned. He tried many ways to sneak in or 
use agents but the Bucketeers were ready and banned them too.

Regards,