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COMMENTARY for all articles by
Gordon T Long
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EXTEND & PRETEND: Stage I Comes to an End!
The Dog Ate my Report Card
 Both
came to an end at the same time: the administration’s policy to Extend &
Pretend has run out of time as has the patience of the US electorate
with the government’s Keynesian economic policy responses. Desperate
last gasp attempts are to be fully expected, but any chance of success
is rapidly diminishing.
Before we can identify what needs to be done, what the administration is
likely to do and how we can preserve and protect our wealth through it, we
need to first determine where we are going wrong. Surprisingly, no
one has assessed the results of the American Recovery & Reinvestment Act
2009 (ARRA) which was this administration’s cornerstone program to place
the US back on the post financial crisis road to recovery.
We can safely conclude either:
1-
The administration completely under estimated the
extent of the economic crisis, even though we were well into it when the
ARRA was introduced.
2-
The administration was unable to secure the
actually required stimulus amount which was likely 4-5 times that
approved.
3-
The administration failed to implement the program
in a timely manner.
4-
The administration failed to diagnose the problem
correctly and that in fact it is a structural problem versus a cyclical
and liquidity problem, as they still insist it to be.
I personally believe it is all four of the above.
READ MORE |
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SULTANS OF SWAP: BP Potentially More Devastating then Lehman!
As
horrific as the gulf environmental catastrophe is, an even more
intractable and cataclysmic disaster may be looming. The yet unknowable
costs associated with clean-up, litigation and compensation damages due
to arguably the world’s worst environmental tragedy, may be in the
process of triggering a credit event by British Petroleum (BP) that will
be equally devastating to global over-the-counter (OTC) derivatives. The
potential contagion may eventually show that Lehman Bros. and Bear
Stearns were simply early warning signals of the devastation lurking and
continuing to grow unchecked in the $615T OTC Derivatives market.
What is yet unknowable is what the reality is of BP’s off-balance sheet
obligations and leverage positions. How many Special Purpose Entities
(SPEs) is it operating? Remember, during the Enron debacle Andrew Fastow,
the Enron CFO, asserted in testimony nearly 10 years ago that GE had
2500 such entities already in existence. BP has even more physical
assets than Enron and GE. Furthermore, no one knows the true size of
BP’s OTC derivative contracts such as Interest Rate Swaps and Currency
Swaps. Only the major international banks have visibility to what the
collateral obligations associated with these instruments are, their
credit trigger events and who the counter parties are. They are
obviously not talking, but as I will explain, they are aggressively
repositioning trillions of dollars in global currency, swap, derivative,
options, debt and equity portfolios.
READ MORE |
READER ROADMAP
- 2010 TIPPING POINTS aid to
positioning COMMENTARY
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SOVEREIGN DEBT PIIGS |
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EU BANKING CRISIS |
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BOND BUBBLE |
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STATE &
LOCAL GOVERNMENT |
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CENTRAL & EASTERN EUROPE |
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BANKING CRISIS II |
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RISK REVERSAL |
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COMMERCIAL REAL ESTATE |
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CREDIT CONTRACTION II |
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RESIDENTIAL REAL ESTATE -
PHASE II |
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EXPIRATION FINANCIAL
CRISIS PROGRAM |
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US FISCAL IMBALANCES |
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PENSION CRISIS |
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CHINA BUBBLE |
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TODAY'S TIPPING POINTS UPDATE
Last Update:
07/12/2021 04:38 PM
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RED ALERT |
AMBER ALERT |
ACTIVITY |
MONITOR |
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Click to Enlarge
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POSTS: MONDAY 07-12-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISRAEL
KOREA
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SOVEREIGN DEBT & CREDIT CRISIS |
Beyond the False Growth vs. Austerity Debate
PIMCO
GREECE
ITALY
SPAIN / PORTUGAL
Head Of Largest Private Portuguese Bank Forced To Deny Bankruptcy
Rumors zh
FRANCE
GERMANY
UK
JAPAN
Japan Ruling Party Pummeled in Vote WSJ
Japan Just Showed Why U.S. Democrats Will Be Doomed If They Try To
Raise Taxes BI
Kan Election Loss May Impede Effort to Cut Japan Debt
BL
Could Japan Collapse?
Diplomat
CHINA
China Trade Surplus Rebounds WSJ
US Export Push Fails As Chinese June Exports And Trade Surplus
With America Hits Record ZH
| Yet the June export record will likely be a fluke. Bloomberg
quotes Shen Jianguang, Hong Kong-based economist at Mizuho
Securities Asia Ltd, who warns: "Exports may see a sharp
deceleration after July as demand in Europe and the U.S. weakens
and a stronger Chinese currency, higher wages and reduced export
tax rebates erode the competitiveness of Chinese goods. The
government may have to intensify efforts to boost the domestic
economy as they have limited control over external demand."
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USA
Debt
commission leaders paint gloomy picture
AP
|
Bowles said if the U.S. makes no changes it will be spending $2
trillion by 2020 just for interest on the national debt. |
Three Headwinds could threaten to drag GDP lower than
forecast
Headwind 1: FISCAL POLICY goes
from strongly expansionary to mildly restrictive, which could
happen if the Bush tax cuts for the middle class are not
extended.
Headwind 2: HOUSING overhang is still
huge. Residential vacancies are around 5% of housing
stock vs a historical average of 3.5% during
1985-2000. Housing prices are edging down again since the
expiration of the home-buyers tax credit.
Headwind 3: EUROPEAN CRISIS would
affect GDP through1) exports to Europe and exports to
countries that trade with Europe, 2) wealth effect from
declining European
equities, and 3) credit availability.
Offsetting those effects would be lower oil prices and lower
long-term, risk-free yields if Europe’s troubles worsened.
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EU Under Pressure to Spell Out Stress Tests
BL
|
European finance ministers are under pressure to disclose more
about the stress tests being conducted on banks to see whether
they could withstand losses if the region’s debt crisis worsens.
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Stress tests spur bank bond issues
FT
Lenders eye improving investor sentiment with €18.4bn of issues
European banks are about to be crushed by debt maturities
BI
Here's why Europe's financial sector is in far more trouble
than America's right now.
European banks have a good $1.65 trillion of debt they need
to roll over from 2010 - 2011, which is many times more than
U.S. banks have to deal with, as shown by the
Wall Street Journal graphic to the right. Note the
difference between the light blue and red bars for each year.
WSJ:
As investors fret about European banks’ exposures to Greece
and other financially troubled countries, those banks’
borrowing costs are rising sharply. That wouldn’t be a problem
if they didn’t need to borrow, but as it happens they need to
borrow quite a lot: This year and next, some $1.7 trillion in
euro-area bank debt will come due, far more than among banks
in the U.S., the U.K. or elsewhere.
If banks are forced to renew those borrowings at high
interest rates, the resulting debt-service costs will make it
still more difficult for them to earn their way out of their
troubles. If they choose not to refinance, they’ll have to
sell assets and cut back on lending — anathema to European
economies still struggling to recover.
Thus it's not just European government debts that have a
wave of debt maturities to deal with, the banks do too, and
the chart above is a key reason why Europe's debt problems are
of a far more near-term nature than America's.
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US
is not AAA in new Chinese-made ratings
Shanghai Daily
|
Dagong said it rated the US below China and 11 other countries,
including Switzerland and Australia, because of high debt and slow
growth. It warned that the US is among countries that might face
rising borrowing costs and risks of default. |
States Can't Count on Federal Bailout, Obama Appointees Say BL
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Statement 159
In the first quarter, the four biggest U.S. lenders -- Bank of
America,
JPMorgan Chase & Co., Citigroup and Wells Fargo & Co. --
produced combined profit of $13.5 billion, the most since the
second quarter of 2007. That figure probably fell by 28 percent in
the second quarter, based on a Bloomberg survey of analysts’
estimates. The banks are scheduled to announce results over the
next two weeks, led by JPMorgan on July 15.
The second-quarter results may include gains taken under a U.S.
accounting rule known as Statement 159, adopted by the Financial
Accounting Standards Board in 2007, which allows banks to book
profits when the value of their bonds falls from par. The rule
expanded the daily marking of banks’ trading assets to their
liabilities, under the theory that a profit would be realized if
the debt were bought back at a discount.
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HUNGARYY
Bank Profits Depend on Debt-Writedown `Abomination'
BL
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Bank of America Corp. and Wall Street firms that notched
perfect trading records in the first quarter are now depending on
an accounting benefit last used in the depths of the credit crisis
to prop up their results.
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Bank Of America Hid Debt At The End Of The Quarter
bi
DODD FRANK ACT
RATING AGENCIESRATING AGENCIES
PIMCO's Perspectives On Commercial Real Estate- "Expect Cap Rates Near Or
Above 8%"
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As part of its Commercial Real Estate Project, PIMCO has
conducted an extensive overview of opportunities in the U.S. CRE
market. In this most perplexing of markets, where if one follows
REIT stock prices, a V-shaped recovery is all but guaranteed,
PIMCO has a notably less optimistic outlook. Based on the
framework of its well-documented "new normal" paradigm, the
Newport Beach asset manager is far less sanguine about investment
opportunities in the market - in evaluating prospects for the most
relevant CRE valuation metric, PIMCO sees a gradual return to 8%
capitalization rates. "the market can expect long term cap rates
near or above 8%. In this case, even if properties with floating
rate debt can successfully avoid defaults in the short term,
rising longer term rates will create a floor for cap rates and
limit recoveries." On the other hand, extrapolating from current
CMBS spreads, the prevailing market expectation is for a current
and future cap rate up to 150 bps lower. Which means that as
securities backed by existing assets see their cash flows dry out,
as all valuable assets get extinguished, the repricing in assorted
CRE fixed income securities, and their equity counterpartes in the
REIT realm, will likely have a very dramatic downward repricing
event in the future.
Full
PIMCO report
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RRESIDENTIAL REAL ESTATE - PHASE II |
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EXPIRATION FINANCIAL CRISIS PROGRAM
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PENSION & ENTITLEMENTS CRISIS
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The Unspeakable Reason That Manufacturing Has To Be Part Of A US Economic
Turnaround BI
It's
More Than Just Birth-Death
Mauldin
The Real Tragedy of Persistent Unemployment By Mohamed El-Erian
PIMCO
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1- Persistently high unemployment erodes the skills of any
labor force, especially when joblessness is a big problem
among the young. This reduces future productivity and growth
potential.
2- A high rate of joblessness puts pressure on
inadequate social safety nets like the unemployment benefit
system. It also exacerbates the strain on government budgets
already stretched at both the federal and state levels.
3-
Stubbornly high unemployment makes those who are employed more
cautious. By spending less, they aggravate the economic
slowdown
4- Finally, high unemployment has historically
induced companies and countries to become more inwardly
oriented. Many firms have already moved to a “self-insurance”
mode, including holding large cash balances rather than
investing in equipment and hiring people.
Put all of
this together, and you begin to get a sense of the importance
of the employment reports. They are more than indicators of
what has happened; they also shed light on what will likely
happen going forward. The greater the persistence of high
unemployment now, the higher the likelihood that it will drive
future behavior of governments, companies and individuals
|
And Now, 700,000 Ex-Census Workers Are About To Flood The Market BI
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GOVERNMENT BACKSTOP INSURANCE |
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BBP - British
Petroleum
BP nears date with destiny over its future
FT
BP Mulls Selling Off Billions in Assets WSJ
BP is in talks with independent oil and gas producer Apache on
a deal worth as much as $10 billion that could include stakes
in BP's Alaska operations.
New BP oil well cap to take days to fit FT
PetroChina open to closer ties with BP FT
Could join UK group in joint ventures or purchase assets
Louisiana Pushes BP for Fisherman Aid WSJ
BP Rumormill Update- Sunday Times Reports Exxon And Chevron
Receive Green Light From Obama To Plot Takeover ZH
According to the Sunday Times, the Obama administration
has given its blessing to Exxon and Chevron to consider
takeover bids of the troubled major unimpeded. Because
obviously any deal in the current environment must first and
foremost get the Obama stamp of approval
|
More from
Dow Jones/WSJ, this time presumably without
the
Fed's preclearance:
U.S. oil major Exxon has
sought clearance from Washington DC to examine a
takeover bid for BP PLC (BP.LN), according to the
Sunday Times.
According to oil industry
sources, the Obama administration had told Exxon and
one other U.S. oil company, thought to be Chevron,
that it would not stand in the way of a deal that
could value BP at up to GBP100 billion, the newspaper
said.
The sources said there was no certainty
that Exxon would make a move, but said talks with
Washington indicated a renewed interest as BP came
closer to plugging their oil well in the Gulf of
Mexico.
"There have been talks at a high level,
and Exxon has expressed a serious interest. It is too
early to talk about a bid yet, but they are clearing
the way," a senior oil industry source told the
newspaper.
A spokesman for Exxon declined to
comment, the paper said.
|
Americans May Hate BP, But BP Could Soon be An American
Company If Exxon Gets Its Way BI
Is it Safe to Buy British Petroleum 'Junk' Bonds?
Dorsch
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OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
In U.S., VAT Is a Hard Sell WSJ
Too Rich to Live WSJ
| The estate tax is set to come roaring back in January. That
sets the stage for a perverse calculus: End it all—or leave a
massive bill for your heirs to deal with. |
CEOs Grapple With Creeping Expenses WSJ
Copper On Life Support After Shock Chinese Demand Drop BI
|
Shipments of copper and products into China fell for a third
month in June to 328,231 tons, the customs office said July
10. That’s 17 percent less than May and 31 percent less than a
year earlier, according to Bloomberg calculations.
Copper in London had its first quarterly decline since 2008 in
the April-to-June period on concerns that the global
economic recovery was weakening, widening the premium of
Shanghai copper over the LME price.
|
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
Small Investors Flee Stocks WSJ
| Small investors' faith in stocks has waned, and the pullback
means ordinary investors are a declining force in a market
increasingly dominated by professionals. |
Even
as Market Jumps Higher, Investors Head For Exits
CNBC
Perhaps the past week's stock market rally was only a mirage:
Fund-flow data showed retail investors ran for the exits even as
the major averages were gaining...
|
GOLD MANIPULATION
VIDEO TO WATCH
INTERESTING ARTICLES - GENERAL
QUOTE OF THE WEEKQUOTE OF THE WEEK
ZH - Zero Hedge - Business Insider,
WSJ - Wall Street Journal, BL -
Bloomberg, FT - Financial Times |
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Gordon T Long is not a registered advisor and
does not give investment advice. His comments are an expression of opinion
only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, he recommends that you consult with a
qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your
own before making important investment commitments.
© Copyright 2010 Gordon T Long. The information
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does not guarantee its accuracy. None of the information, advertisements,
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purchase or sale of any securities or commodities. Please note that Mr.
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consider this possibility before investing in any security based upon
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TODAY'S NEWS
MONDAY
07-12-10
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ARCHIVAL |
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SOVEREIGN DEBT PIIGS |
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EU BANKING CRISIS |
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BOND BUBBLE |
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STATE & LOCAL
GOVERNMENT |
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CENTRAL & EASTERN EUROPE |
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BANKING CRISIS II |
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RISK REVERSAL |
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COMMERCIAL REAL ESTATE |
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CREDIT CONTRACTION II |
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RESIDENTIAL REAL ESTATE - PHASE II |
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EXPIRATION FINANCIAL CRISIS PROGRAM |
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US FISCAL IMBALANCES |
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PENSION CRISIS |
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CHINA BUBBLE |
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CHRONIC UNEMPLOYMENT |
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INTEREST PAYMENTS |
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US PUBLIC POLICY MISCUES |
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JAPAN DEBT DEFLATION SPIRAL |
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US RESERVE CURRENCY. |
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GOVERNMENT BACKSTOP INSURANCE |
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SHRINKING REVENUE GROWTH RATE |
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FINANCE & INSURANCE WRITE-DOWNS |
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RETAIL SALES |
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CORPORATE BANKRUPTCIES |
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US DOLLAR WEAKNESS |
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GLOBAL OUTPUT GAP |
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CONFIDENCE - SOCIAL UNREST |
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ENTITLEMENT CRISIS |
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IRAN NUCLEAR THREAT |
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OIL PRICE PRESSURES |
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FOOD PRICE PRESSURES |
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US STOCK MARKET VALUATIONS |
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PANDEMIC |
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US$ RESERVE CURRENCY |
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TERRORIST EVENT |
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NATURAL DISASTER |
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