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COMMENTARY for all articles by
Gordon T Long
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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1
SOVEREIGN DEBT PIIGS |
EU BANKING CRISIS |
BOND BUBBLE |
STATE &
LOCAL GOVERNMENT |
CENTRAL & EASTERN EUROPE |
BANKING CRISIS II |
RISK REVERSAL |
|
COMMERCIAL REAL ESTATE |
CREDIT CONTRACTION II |
RESIDENTIAL REAL ESTATE -
PHASE II |
EXPIRATION FINANCIAL
CRISIS PROGRAM |
US FISCAL IMBALANCES |
PENSION CRISIS |
CHINA BUBBLE |
|
TODAY'S TIPPING POINTS UPDATE
Last Update:
07/15/2010 03:24 AM
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RED ALERT |
AMBER ALERT |
ACTIVITY |
MONITOR |
|

Click to Enlarge

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POSTS: WEDNESDAY 07-14-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
UAE official backs use of force against Iran FT
Cost of attacking Iran underplayed FT
Dubai’s heavy price for Iran sanctions FT
Emirate becomes front against
Tehran’s nuclear programme and legitimate Iranian businesses suffer
ISRAEL
KOREA
SOVEREIGN DEBT & CREDIT CRISIS |

Red: Gordon T Long
After three years, new fault lines threaten
Martin Wolf FT
I think of it as the end of “the deal”. What was that deal? It
was the post-second-world-war settlement: in the US, the deal
centred on full employment and high individual consumption. In
Europe, it centred on state-provided welfare. We can see two
huge threats in front of us.
1- The first is the failure to recognise the
strength of the deflationary pressures (see chart). The danger
that premature fiscal and monetary tightening will end up tipping
the world economy back into recession is not small, even if the
largest emerging countries should be well able to protect
themselves.
2- The second threat is failure to secure the
medium-term structural shifts in fiscal positions, in management
of the financial sector and in export-dependency that are needed
if a sustained and healthy global recovery is to occur.
The west is not the power it was; its debt-fuelled consumers
are not the source of demand they were; the west’s financial
system is not the source of credit it was; and the integration of
economies is not the driving force it proved to be over the past
three decades. Leaders of the world’s principal
economies – both advanced and emerging – will need to reform
co-operatively and deeply if the world economy is not to suffer
further earthquakes in years ahead.
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"The problem similar to 1930's is going to be a failed Public Policy
Response due to:
misunderstanding, failed diagnoses and failed global coordination"
Gordon T Long
GREECE
Greek T-Bill Sale Oversubscribed, Yields Up
Reuters
Greek central bank accused on short selling
FT
ITALY
SPAIN / PORTUGAL
Moody's cuts Portugal rating
Reuters
Fitch
Still Negative
Is Spain About To Be The Next Big Downgrade To Hit European Markets
BI
A Third Of Spanish Cities Are Facing A California Crisis
BI
Telegraph: "I am deeply ashamed to
know that I won't be able to pay our staff. They have got
mortgages, children. What am I supposed to do?" said Jesus
Manuel Ampero, mayor of Cenicientos, near Madrid. "We were not
able to cover our payroll in June. Neither I nor our
councillors have received anything for two years. I've had two
heart attacks. My health is cracking. If we cannot solve this,
I'm resigning."
Pedro Arahuetes, mayor of Segovia and head of the
federation's finance committee, told The Daily Telegraph that
councils had lost up to 30pc of tax revenues because of the
property and construction crash, and a further 20pc
in funding cuts by Madrid
The latest Consenso Económico survey forecasts that GDP
will contract by 0.8pc this year, with zero growth next year.
Unemployment is already 19.9pc. The lesson of the
early 1930s is that once slumps last much beyond two years
they start to engender serious social tension.
While in the end this will all likely be bailed out by the
central government, it just means more debt for Spain, since
the government runs at a deficit as it stands.
|
FRANCE
GERMANY
Germans Show No Way to Abandon Euro, Spurring Business
BL
UK
Jobs woe set to last five years, say experts
FT
JAPAN
CHINA
China's frothy property market may have peaked
BBC
USA
June Deficit Fails To Account For $142 Billion In Excess June
Borrowings; U.S. Has Issued $1.5 Trillion Excess Debt Over Budget In Past
4 Years ZH
the June US budget deficit came in around as expected, at $68.4
billion. Yet an interesting observation that we have touched upon
previously, is that over the same period, the US borrowed a
whopping total of $210.9 billion. Once again, as has been the case
over the past four years, the US borrowed far more in any deficit
month, then it needed simply to close the deficit. Case in point,
the June differential was $142.5 billion more borrowed than
"needed", the YTD (fiscal) differential is $290 billion, and the
cumulative differential since the beginning of the 2007 Fiscal
year (October 2006), is a whopping $1.5 trillion. Over the
past 3 years and 9 months, the US has accumulated an incremental
$4.7 trillion in new debt, even as the budget deficit has grown by
"only" $3.2 trillion. One wonders just what the reason
for this differential is, which amounts to half
the cumulative budget deficit over the same time period? The
cumulative data, as well as the stunning differential between the
two time series is presented on the attached chart.

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June Federal Budget Deficit Comes At ($68.4) Billion, $1 Trillion+
In Deficit Raked Up For First Nine Months ZH
June budget outlays came in at the largest ever for the month.
Also 2010 Federal individual income tax collections are
running 4.4% lower, or $31 billion below 2009 levels: the economic
"recovery" sure isn't causing greater tax receipts. And
from the report: "The federal government incurred a deficit of
just over $1.0 trillion for the first nine months of fiscal year
2010, CBO estimates, $81 billion less than the roughly $1.1
trillion deficit incurred through June 2009. Revenues so far
this year are slightly higher than they were last year at this
time; outlays are about 3 percent lower. CBO estimates that
receipts in June were $36 billion (or 17 percent) higher than
collections in June 2009. Morethan half of that difference stemmed
from an increase of $19 billion (or almost 60 percent) in net
receipts from corporate income taxes. Gross receipts from those
taxes rose by $15 billion (or 37 percent), primarily because of
higher estimated payments for the current year; a $4 billion
decline in corporate income tax refunds also bolstered net
corporate receipts."
|
Banking editor Patrick Jenkins explains EU plan to stress test 91
European banks FT
AUDIO
SLIDESHOW
Double-Dippers Get Wet Ignoring Yield Curve
Baum
California May Cut Pay, Illinois Holds Bills to Bar Downgrades
BL
Texas To Rely On Bond Sales To Replenish Empty Unemployment Trust Fund
ZH
Broke US states are probing new lows with each passing day, as
money continues to stubbornly refuse to grow on trees (unless you
have discount window access of course). The latest funding fiasco
comes from Texas, which
Reuters reports is planning on selling $2 billion in debt
just to refill its empty unemployment trust fund. We are
confident that bondholders will be ecstatic to put their money
into a extremely rapidly amortizing "asset" that will begin
depleting from day one and will likely have no collateral recourse
in under a year. But after all, it is other people's money, so we
are confident this particular Citi/BofA led bond offering will
close and price and sub Treasury rates.
More from
Reuters:
Texas, like many states around the nation,
has seen the recession drain its unemployment insurance fund,
which pays benefits to jobless workers.
Last year, Texas
paid out $4 billion in jobless benefits, up from $1 billion in
2008, said Ann Hatchitt, a spokeswoman for the Texas Workforce
Commission.
Along with at least 33 other states, Texas has
also borrowed from the federal government, which will start
charging interest at the end of this year.
By early May,
U.S. states had borrowed a total of $38.9 billion from the federal
government to pay unemployment benefits, according to a Government
Accountability Office report.
"We don't know yet if the
bonds will be tax-exempt," Hatchitt said.
The co-senior
managers of the new debt, if it is approved, are Citigroup, which
is working with BofA Merrill Lynch , Loop Capital Markets, and
Estrada Hinojosa, she said.
Ironically, the underwriters will likely end up holding a big
chunk of the offering on their own books, demonstrating just how
efficient of a financial system ponzies are: bankrupt entities
using issued debt to buy the debt of another bankrupt entity, so
it can give its unemployed llittle green pieces of paper, and
prevent an uprising.
|
HUNGARY
Mark Ups: Gordon T Long

Federal Reserve Sees Slower Growth WSJ
Fed officials, who are likely to reveal a cut in their
assessment of the growth outlook, are divided on how aggressively
the central bank should act if the economy slows further. |
DODD FRANK ACT
RATING AGENCIES
ECB's
Trichet Wants End of Rating Agencies Oligopoly
Reuters
RRESIDENTIAL REAL ESTATE - PHASE II |
EXPIRATION FINANCIAL CRISIS PROGRAM
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PENSION & ENTITLEMENTS CRISIS
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BT's pension liability may hit £22.8bn FT
Court to rule on taxpayer exposure in case of fund failure
Court looks at ‘crown guarantee’ for BT
FT
Job
openings drop in May as hiring stays weak
AP
Fighting Unemployment With a Stick WSJ
Americans in 70% Majority See More Jobless as Deficit Widens
BL
GOVERNMENT BACKSTOP INSURANCE |
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
The Volume, As Always, Speaks Volumes ZH
At this point there is little one can add or say. Today the
marching orders were for an S&P 1,100. And we will get it. One way
or another.
|
Seller Heavy Market Bid-Ask Stack Means Lifting Offers Pushes Stocks
Higher As Increasingly More Shares Sold ZH
Welcome to reverse distribution. The Bid-Offer stack in the ES
is telegraphing the intentions of market participants who can't
wait to offload positions, yet are doing so in a way that is
pushing the market higher: any bid-side interest is occurring via
market trades lifting the ES price courtesy of a massive
ask-side inventory which however is locked into limit positions
and refuses to go VWAP or market. Yes - sellers outnumber buyers
two to one, but unlike panicked shorts who are urgently covering
exposed positions, are willing to wait to get their desired price.
And with every lift, the NBBO ratchets up one notch higher,
creating a feedback loop. The more ask side interest, the
faster the market rips, even as the imbalanced market with much
greater sell-side interest clears progressively higher!
Nothing like selling causing rising prices in this latest
installment of the bizarro market. |
GOLD MANIPULATION
VIDEO TO WATCH
INTERESTING ARTICLES - GENERAL
Investors Bank on Artificial Intelligence WSJ
A new wave of investment firms are turning to
artificial-intelligence programs to make trading decisions. The
programs are designed to crunch numbers, learn from decisions, and
adapt. Some are having success. |
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
herein was obtained from sources which Mr. Long believes reliable, but he
does not guarantee its accuracy. None of the information, advertisements,
website links, or any opinions expressed constitutes a solicitation of the
purchase or sale of any securities or commodities. Please note that Mr.
Long may already have invested or may from time to time invest in
securities that are recommended or otherwise covered on this website. Mr.
Long does not intend to disclose the extent of any current holdings or
future transactions with respect to any particular security. You should
consider this possibility before investing in any security based upon
statements and information contained in any report, post, comment or
recommendation you receive from him.
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RESIDENTIAL REAL ESTATE - PHASE II |
EXPIRATION FINANCIAL CRISIS PROGRAM |
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PENSION CRISIS |
CHINA BUBBLE |
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CHRONIC UNEMPLOYMENT |
INTEREST PAYMENTS |
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JAPAN DEBT DEFLATION SPIRAL |
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