Hat Trick Letter – březen 2010

Řecko – Greece

JIMMY ROGERS FORECASTS A BRITISH POUND COLLAPSE VERY SOON. HE CALLS IT VULNERABLE , AND POTENTIALLY A BASKET CASE, VERY JUSTIFIABLY.

A PLUNGE IN THE BRITISH POUND IS DEAD AHEAD, THE COURSE ALREADY BEGUN. SOME ESTIMATES ARE FOR ANOTHER 20% TO BE SHED FROM THE POUND STERLING, ENOUGH TO CHALLENGE USDOLLAR PARITY. IT WILL EASILY REACH EURO PARITY.

Haig Bathgate is head of strategy at Turcan Connell, which manages investments from wealthy families. Bathgate expects the Pound to lose between 20% and 30% against the USDollar once investors turn their sights on Britain as its government sells a record amount of debt. This is basic currency debasement.

THE BRITISH POUND WILL SOON BE DRAWN TOWARD THE 138 LOW FROM EARLY 2009. FUNDAMENTALS DEFY DESCRIPTION ON THE NEGATIVE SIDE. QUANTITATIVE EASING WILL LEAD TO POWERFUL DECLINE TOWARD USDOLLAR PARITY. THE POUND STERLING BREAKDOWN TO 2009 LOWS SIGNALS $1400 GOLD, WHILE A DEEPER BREAKDOWN TOWARD USDOLLAR PARITY SIGNALS $2000 GOLD, ALL IN TIME. THE U.S. & U.K. SHARE A FATE IN THE DEATH OF THE ANGLOSPHERE.

The fall from grace for the British Pound currency will serve as an indisputable signal that the USDollar will sit at the epicenter of a global monetary crisis. All in time. The death of the USDollar is assured by the critical decline in Pound Sterling. The path will not be clear, however, since lifts in the USDollar come from the UK hardship, until the global FOREX market realizes that the British Pound is the harbinger for the USDollar, a shared fate. The fall of the BPound signals $2000 gold, but with a wait!!

NEXT IN LINE AS TARGETS FOR DEBT DEFAULT ARE ITALY AND SPAIN, IN THAT ORDER. SPAIN FINDS ITSELF STUCK WITH REGIONAL PRESSURES. THEY ARE PROVING TO BE MASTERS AT DELAY, OR ELSE DEEPLY ENTRENCHED IN A FANTASY WORLD. TAX REVENUE IS SHARPLY DOWN, AND A FURTHER DEBT DOWNGRADE IS A CERTAINTY. A STRUGGLE COMES WITH MADRID OVER REGIONAL DEBT ISSUANCE.

The race is on between Italy and Spain to become the next Greece. My sources tell of Italy being next to see the meat cleaver, an event to occur rapidly after the Greek default.

CHINESE COMMODITY SHIPMENTS HAVE ACCELERATED. THEY ARE SUFFERING LOSSES ON US$ HEDGES. THEY MUST ANTICIPATE A FURTHER RISE IN THE US$ EXCHANGE RATE. SOME SPECULATE AN IMMINENT OVERT CHINESE YUAN DEVALUATION AS STIMULUS TO ANGER THE USGOVT.

Data points strongly to a wave of exports coming out of China. The indexes fail to tell the full story of goods being shipped. Anecdotal evidence abounds that metals from China are making their way to other countries. Unusually high volume shipments of aluminum, probably from Shanghai, showed up in Japan recently. The month of January saw a marked increase in Chinese applications for steel imports into the European Union. Observers in the metals industry have been openly fearful of a sequence of events, of a „bust that would launch a thousand ships.“ China built huge stockpiles of copper, zinc, aluminum, coal, silver, and iron ore over the last year. The motive was to accumulate the diverse commodity inventory on speculation of rising prices. The metals and other commodites would return to the world market when fretful investors and discouraged investors sell wholesale. The discharge dishoard would act as a big drag on global metals prices. Recent action in the shipping indexes may be confirming those fears. The Baltic Dry Index used to measure shipping costs has risen from 2600 in mid-February to 3500 in mid-March. Shipping activity is clear, but based upon what is not clear. Perhaps China is experiencing simple export growth, but that fails to explain extraordinary commodity sales abroad. If the sales are planned and calculated, then they must expect a USDollar rise versus their Yuan currency. Or else, they are scrambling to raise cash in a severe pinch of capital. A credit crunch is not apparent from other indications.

CHINA PLANS TO NULLIFY ALL GUARANTEES FOR ITS REGIONAL AND LOCAL GOVERNMENTS. AN ANTICIPATED BREAKDOWN SOON COULD BEGIN IN CHINA. THE CHINESE GOVT IN BEIJING HAS BEGUN TO BUILD A FIREWALL.

China has begin to set in to motion plans to nullify all guarantees made to local governments by the Beijing central government for loans taken by their financing vehicles. Concern has elevated over credit risks to the regional and city government debt, which has seen a surge in recent years. The Chinese Govt Ministry of Finance will formally ban all future guarantees by local governments and legislatures in rules that may be issued before the start of April, according to Yan Qingmin, head of the banking regulator Shanghai branch.

The scope of regional debt is staggering, bigger than the US Muni Bond market. The plethora of local governments in China have been raising funds through specially designed investment vehicles so as to work around regulations that prevent them from borrowing directly. The stability and integrity of this quasi Sino Muni bond market is uncertain, and very likely not very stable or sound. A crackdown on local government debt production could trigger a gigantic wave of bad loans. Projects would be stranded without funding. Northwestern University Professor Victor Shih estimated the value of this bond market at 24 trillion Yuan (=US$3.5 trillion), which can be compared to the US Muni Bond market with $2.8 trillion size.

China might be preparing for a powerful credit market shock wave to strike. China might be attempting to protect itself from a run on its $2.4 trillion in reserves. China might be making preliminary groundwork for a currency devaluation, as new stimulus in direct contradiction with the popular notion of a higher imposed Yuan valuation. China might suspect that the Greek Govt debt problem will be contagious globally.

RECENT F.D.I.C. AUCTIONS INDICATE BIG BANKS MUST SUFFER ASSET WRITEDOWNS. THE AUCTIONS IN 2009 FETCHED LESS THAN HALF THE BOOK VALUE OF ASSETS WHEN SOLD. ENTER THE COMMERCIAL LOAN FIASCO. THE F.D.I.C. HAS UNWISELY ENCOURAGED PENSION FUNDS TO COME INTO THEIR BLACK HOLE.

The pattern is clear. When big banks accept tranches of failed bank assets, they are not written down. They are absorbed into their already ruined carried balance sheets, mired in insolvency. When small and midsized banks accept the tranches of credit portfolio assets, they are often liquidated in market sales. Banks of all sizes near the edge of ruin are vulnerable. The FDIC Loan Auctions have created a pattern that cannot be ignored. The sale of loans from failed banks in 2009 brought on average 43% of their held book value, according to the FDIC records. Non-performing loans, such as those in default or with prospect of repayment, were sold for 26% of their book value on average. The ripple effects should be felt by all but the biggest protected syndicate banks that do not play by any rules. An FDIC plan to auction more than $1 billion in assets seized from failed banks next month, including a loans to construct the W Hotel in Atlanta, will cause ripple effects from writedowns sure to weaken lenders nationwide.

U.S. BANKS FACE A VERITABLE TSUNAMI OF BANK DEFAULTS, RESULTING IN AN ESTIMATED ADDITIONAL $1 TRILLION IN FURTHER LOSSES. THE NIGHTMARE OF BANK LOSSES SEEMS NEVERENDING BECAUSE IT IS NEVERENDING, MY FORECAST FROM 2007. THE RELATIONSHIP BETWEEN JOB LOSS AND BANK FAILURE IS CLEAR, AND PORTENDS MUCH WORSE BANK FAILURES AHEAD.

USTREASURY AUCTIONS HAVE HIT CRITICAL ALARM LEVELS ON INDIRECT BIDS, THE LEDGER ITEM FOR FOREIGN CENTRAL BANK PURCHASES. THE 71% AVERAGE FOR INDIRECTS SINCE OCTOBER HAS BEEN EXCEEDED IN THE LAST FIVE AUCTIONS. THE RATIO HIT 100% IN LATE FEBRUARY. THIS IS CENTRAL BANK SELF-DEALING, AND A SMOKESCREEN FOR MASSIVE BOND MONETIZATION USING NEWLY PRINTED MONEY.

In recent months, the USTreasury has been saddled with the responsibility of securitizing the USGovt deficits, sold at auctions. What mammoth deficits in the trillion$ they are! With Bid/Cover ratios near 2.0, some auctions were close to failures. Primary bond deals are choking on inventory, obligated to buy, often just about the only buyers. The hidden degree of official monetization is astonishing. Subtract the central bank purchases and the institutional purchases from the issuance, and basic arithmetic on a napkin arrives at roughly 50% Printing Pre$$ purchase in hidden fashion, half the bonds monetized. In late February an official auction showed 100% Indirect Bids, which means central banks took the entire heap of junk bonds sold by the USGovt at nearly 0%. Two weeks after the Indirect hit hit the record 100%, the March 9th auction showed Indirect Bids gathering $6.683 billion of the $6.744 billion offered, resulting in a 99.1% hit ratio. The bubble continues, but with much strain.

CITIGROUP ANNOUNCED DELAYS ON ACCOUNT WITHDRAWALS, CITING AN OBSCURE REGULATION ON THE BOOKS FOR A LONG TIME. STRESS WITHIN THE U.S. BANKING SYSTEM APPEARS TO BE ON THE RISE, SOON POTENTIALLY REACHING A CRESCENDO. THE WINDOW MIGHT BE CLOSING, THE HOURGLASS RUNNING OUT OF SAND.

Invoking an old USFed regulation still on the books, Citigroup declared that withdrawals from many types of accounts must wait seven days to receive funds. Since highly liquid accounts are not required to be reinforced by reserves requirements, banks are granted a 7-day leeway in the current regulatory framework. See Regulation D of the Securities Act of 1933, which applies to all accounts classified as Negotiable Order of Withdrawal (NOW) accounts, the interest bearing checking and savings accounts held by individuals and non-profit organizations. So NOW no longer means now! They have not used the legally available rule until this moment. The notice serves as a vivid reminder of the vulnerability of the fractional reserve banking system and the shaky guarantee from the FDIC on insured deposits in the event of a bank run or sudden closures.