China seen letting U.S. down gently as it prepares for dollar's fall

Jim Sinclair’s Commentary

Here is your perfect example of the Ski Jump recovery.

The Self-Inflicted Insanity of American Unemployment

News that the unemployment rate has fallen to a "mere" 9.5% seems to suggest an improvement in our dire economic prospects. The reality, however, is far grimmer, as the latest US Bureau of Labor statistics indicate. On balance, it would seem that the apparent "ignition" to the economy achieved in March and April through expanding employment, income, spending and production has somehow "sputtered" in May and June. This is indeed disturbing, since such sustained "ignition" is now necessary since fiscal policy is about to go into reverse.

There are many costs associated with high unemployment, both economic and social. They include not only daily income losses, which are catastrophic for most Americans, but also increased crime rates, family breakdown, increased incidence of mental and physical health disorders, increased alcohol and substance abuse and a generalized misery (See Bill Mitchell).

Yet despite the obvious pathologies created by long-term unemployment, bad policy continues to drive the Obama administration to perpetuate these trends. Worse, with polls indicating rising discontent with Democrat incumbents in the House and Senate, the President’s political advisors appear to be recommending that the President ignore the advice of his economic team and press forward with deficit reduction ahead of job creation spending.

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Jim Sinclair’s Commentary

Actually, in Mandarin that could be a threat.

China Says It Won’t Use U.S. Debt as Threat
BY AARON BACK

BEIJING—China’s foreign-exchange agency sought to ease concerns about how it uses its huge currency reserves, saying it operates on market principles and would never wield its holdings of U.S. government debt as a threat.

The statement Wednesday by the State Administration of Foreign Exchange was the latest in a series of moves by the agency aimed at addressing concerns about its influence. Presented in question-and-answer form, the statement, posted on the agency’s website, rebutted what it portrayed as misconceptions about its management of China’s $2.4 trillion in foreign-exchange reserves, the world’s largest.

The statement rejected the notion posited by some …

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China says it won't dump treasuries or pile into gold

Jim’s Mailbox

Posted: Jul 07 2010 By: Jim Sinclair Post Edited: July 7, 2010 at 6:41 pm

Filed under: Jim's Mailbox

Dear CIGAs,

Please read this outstanding article provided by CIGA Richard B. so that you can see behind the opaque curtain of management of news in finance

Dear Jim,

Since May 22, 2010, the FDIC has announced the closings of 14 more banks, bringing the total so far this year to 86. Collectively, they had assets of $6.86 billion and deposits of $5.92 billion.

The FDIC’s estimate of the cost of closing these 14 banks is $1.16 billion, about 20% of deposits. 11 of the 14 failures were accomplished by way of the FDIC entering into loss-share agreements covering a high percentage of the assets taken over by the successor banks. In connection with these closings, the FDIC entered into new loss-share agreements covering an additional $4.82 billion.

That brings the FDIC’s total losses for 2010 up to $17.62 billion. The total face value of assets now guaranteed under FDIC loss share agreements has grown to $176.74 billion.

Releases Provide Insight Into FASB-Blessed Over-Valuations

The FDIC’s Press Releases issued in connection with bank closings provide a basis for evaluating the extent to which each failed bank’s management may have been exaggerating the value of its assets. These facts are important to discover in light of the Financial Accounting Standards Board (“FASB”) having last year rolled back fair value accounting requirements, giving bank management tremendous leeway to assign unrealisticly high values to the institutions’ least liquid, most difficult to value assets.

In connection with each closure, the FDIC obtains competing bids from parties who are interested in taking over the failed bank’s deposits and assets. The FDIC’s estimated loss is basically the difference between the bank’s deposits and the value of the assets agreed upon between the FDIC and the successful bidder.

Since about the first quarter of 2009, this price discovery mechanism has been muddied by the FDIC’s extensive use of loss-share agreements in resolving bank failures. Loss share agreements increase the value buyers are willing to assign to failed banks’ assets in exchange for the FDIC indemnifying them against future losses resulting from the assets turning out to be worth less than the value agreed to.

Still, each bank closing announcement provides a basis for comparing the stated value of the failed bank’s assets against the market value agreed to in connection with the loss share agreement, and therefore understanding the extent to which FASB’s capitulation may be affecting bank values across the board.

Applying this analysis to the largest eight of the 14 banks that failed over the past six weeks leads to the following figures. The highest of the over-valuations was 84%. The lowest was 20% — a still worrisome number.

Over-Valuations Range From 84% to 20%

Washington First International Bank of Seattle, WA, had stated assets of $520.9 million and deposits of $441.4 million. The FDIC estimated it closing cost $158.4 million. Based on that estimate, the bank’s assets were really only worth about $283 million, and had been over-valued by 84%.

Peninsula Bank of Englewood, FL, had stated assets of $644.3 million and deposits of $580.1 million. The FDIC estimated its closing cost $198.4 million. Based on that estimate, the bank’s assets were really only worth about $385.3 million, and had been over-valued by 67%.

First National Bank of Savannah, GA, had stated assets of $252.5 million and deposits of $231.9million. The FDIC estimated it closing cost $68.9million. Based on that estimate, the bank’s assets were really only worth about $163 million, and had been over-valued by 55%.

TierOne Bank of Lincoln, NB, had stated assets of $2.8 billion and deposits of $2.2 billion. The FDIC estimated it closing cost $297.8 million. Based on that estimate, the bank’s assets were really only worth about $1.9 billion, and had been over-valued by 47%.

Sun West Bank of Las Vegas, NV, had stated assets of $360.7 million and deposits of $353.9 million. The FDIC estimated it closing cost $96.7 million. Based on that estimate, the bank’s assets were really only worth about $257 million, and had been over-valued by 40%.

Bank of Florida – Southwest, of Naples, FL, had stated assets of $640.9 million and deposits of $559.5 million. The FDIC estimated it closing cost $91.3 million. Based on that estimate, the bank’s assets were really only worth about $468.2 million, and had been over-valued by 37%.

Bank of Florida – Southeast, of Fort Lauderdale, FL, had stated assets of $595.3 million and deposits of $531.7 million. The FDIC estimated it closing cost $71.4 million. Based on that estimate, the bank’s assets were really only worth about $460.3 million, and had been over-valued by 30%.

Nevada Security Bank of Reno, NV, had stated assets of $480.3 million and deposits of $479.8 million. The FDIC estimated it closing cost $80.9 million. Based on that estimate, the bank’s assets were really only worth about $399 million, and had been over-valued by 20%.

Slow Pace of Closings Not Encouraging Given Backlog

Over the past six weeks the pace of announced bank closings has been quite slow compared to the rest of the year. This might be an encouraging sign were it not for the known backlog of seriously under-capitalized banks, known to number more than 425. Given this backlog, a slowing pace of closures implies little more than Manipulation of Perspective Economics (“MOPE”) and Pretend and Extend being put into overdrive.

In the updated study of key FDIC enforcement actions last month, I pointed out there were at least 425 banks currently operating under serious FDIC enforcement orders that only issue when banks are found to be seriously under-capitalized. Since then, the FDIC announced its May enforcement actions. A total of 26 new banks became subject to a serious enforcement order for the first time, while only 5 had their orders lifted.

Meanwhile, over the past six weeks 39 new banks became subject to serious Federal Reserve System Enforcement Actions – 35 Written Agreements (“WAs”) and 4 Prompt Corrective Action Directives (“PCADs”). WAs have to be read on a case-by-case basis, but at the very least, their issuance indicates the bank fared very poorly in its last inspection. PCADs indicate a bank is seriously under-capitalized and at imminent risk of failure.

With this serious a backlog overhanging regulators, it does not inspire confidence to see them resolving so few troubled institutions over time. MOPE-inspired pronouncements of a recovering economy are looking thinner by the minute. An honest look at the facts makes a ski jump-shaped renewal of the economic downturn look very likely.

The pace of new bank closing announcements can be expected to pick up dramatically in the near future. There is no basis to believe the number of troubled institutions is decreasing or the serious problems threatening the banking sector are improving.

Respectfully yours,
CIGA Richard B.