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COMMENTARY for all articles by
Gordon T Long
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SULTANS OF SWAP: Gold Swaps Signal the Roadmap Ahead
SLIDE REFERENCE PAGE:
Shadow Banking
  The
news rocked the global gold market when an almost obscure line item in
the back of a 216 page document released by an equally obscure
organization was recently unearthed. Thrust into the unwanted glare of
the spotlight, the little publicized Bank of International Settlements
(BIS) is discovered to have accepted 349 metric tons of gold in a $14B
swap. Why? With whom? For what duration? How long has this been going
on? This raises many questions and as usual with all $617T of murky
unregulated swaps, we are given zero answers. It is none of our
business!
Considering the US taxpayer is bearing the burden of $13T in lending,
spending and guarantees for the financial crisis, and an additional $600B
of swaps from the US Federal Reserve to stem the European Sovereign Debt
crisis, some feel that more transparency is merited. It is particularly
disconcerting, since the crisis was a direct result of unsound banking
practices and possibly even felonious behavior. The arrogance and lack of
public accountability of the entire banking industry blatantly
demonstrates why gold manipulation, which came to the fore in recent CFTC
hearings, has been able to operate so effectively for so long. It operates
above the law or more specifically above sovereign law in the un-policed
off-shore, off-balance sheet zone of international waters.
Since President Richard Nixon took the US off the Gold standard in 1971,
transparency regarding anything to do with gold sales, leasing, storage or
swaps is as tightly guarded by governments as the unaudited gold holdings
of Fort Knox. Before we delve into answering what this swap may be all
about and what it possibly means to gold investors, we need to start with
the most obvious question and one that few seem to ask. Who is this Bank
of International Settlements and who controls it?
READ MORE |
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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 four to five 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
POPULAR ARTICLES:
SULTANS OF SWAP: BP Potentially More Devastating then Lehman!
EXTEND & PRETEND - Manufacturing a Minsky Melt-Up
EXTEND & PRETEND: A Guide to the Road Ahead |
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1
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EU BANKING CRISIS |
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STATE &
LOCAL GOVERNMENT |
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TODAY'S TIPPING POINTS UPDATE
Last Update:
08/05/2021 06:32 PM
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RED ALERT |
AMBER ALERT |
ACTIVITY |
MONITOR |
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POSTS: THURSDAY 08-05-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISRAEL
Israel Vows To Retaliate Against Monday's Attack, Blames Hamas
ZH
Clash On Israel-Lebanon Border Holds Potential For Strategic
Escalation ZH
KOREA
|
SOVEREIGN DEBT & CREDIT CRISIS |
GREECE
SPAIN / PORTUGAL
FRANCE
GERMANY
ITALY
UK
UK car sales slump in July FT
Economic uncertainty clouds industry prospects
JAPAN
CHINA
Business Cycle Monitor: Asia leads the global slowdown
Danske
China Shows How To Do A Stress Test- Tells Banks To Imagine 60%
Property Collapse BI
USA
3 Month Euribor Touches 0.9% For First Time In 2010
ZH
Barclays rises 44% to £3.95bn in first half
FT
Investment banking revenues
fall 38% in second quarter
Here's How The US Government Is REALLY Financing Its Monster Spending
Spree BI
A new report from
The Treasury Department
goes into depth on how much the government is borrowing, the
price the government is paying for capital, and who, exactly,
is doing the buying. |
Click to Enlarge
Candy From Strangers, Or Who Is Buyng All Those Treasuries ZH
|
Submitted by Marc McHugh from
Across the Street
Candy from
Strangers
When TrimTabs Charles Biderman
questioned the source of the money that propelled stocks 65%
from the March 2009 lows, he got beaten with the idiot stick so
badly that he actually turned bullish in April 2010. Lost in
the ensuing choke-out was the fact that no one ever actually
answered his question, unless scoffing and muttering “dark pools
and stuff,” under your breath counts (and he’s the one who
should be wearing the tin-foil hat?). Here we go
again.
The first thing you should notice when looking at The
Treasury’s 2010 Q1 Bulletin is that it’s incomplete,
as I’m sure most of Secretary Tim Geithner’s homework assignments
were. Of the 12 columns on Table OFS-2 (Estimated Ownership
of U.S. Treasury Securities), Turbo managed to fill in only 5 (FYI:
it takes Treasury more than two months to prepare the bulletin).
From the data actually present, we can determine that Treasury
issued 461.7 Billion in new debt Q1. That’s
not surprising, we’ve been running at the $500 per person per
month clip for almost two years now. What is surprising is
that the Fed & Intragovernment holdings went down
$17B. Foreigners, God bless ‘em, scooped up
an additional $192.5 B, while US saving
bond holdings were basically flat (-$1.1 B).
Um, we’re out of data now, but not debt. 287.4
Billion (62%) of Q1′s public debt is not accounted for
on the report. Fortunately when discussing
who could digest that much debt in three months, we can quickly
eliminate 6 of the 7 “not available” data points (depository
institutions, pension funds, mutual funds, insurance companies,
and State & local governments). The only logical conclusion
is at least a quarter trillion in debt was
purchased by “Other Investors” in Q1.
Aren’t you glad we cleared that up?
What’s that? “Who the hell are Other Investors,”
you say? Good question. It does seem rather nebulous,
especially considering that they are now clearly our best
customer(s). Not very bright though. They
stepped in and bought like crazy as interest rates went to record
lows. Still I think we should send a basket of fruit and a
nice thank you note, because without them we would surely have had
a failed auction (read Keynesian apocalypse).
The Treasury defines Other Investors as:
Individuals, Government-sponsored enterprises,
brokers and dealers, bank personal trusts and estates,
corporate and non-corporate businesses, and other investors.
Thanks Turbo, for narrowing it down to just about everyone
under the sun.
Let’s go ask Ben!
Geithner’s a slacker, this is known, but Fed Chair Ben
Bernanke’s SAT score (1590!) suggests analality (?) (mine
was considerably lower). Besides, Treasury’s footnotes
on tables OFS-2 tell us that the source for 6 of the 7 empty
columns is the
Federal Reserve Board of Governors, Flow of Funds Table L.209
(and which was actually released
before the
Treasury Bulletin – don’t get me started…).
The Fed’s flow of funds data is an exercise in convolution, but
it wasn’t too difficult to extract the data missing from the
Treasury bulletin. Here’s the breakdown:
- Depository Institutions +$59.6 B
- Private Pension Funds +$30.9 B
- State & Local Government Pension Funds +$7.1 B
- Insurance Companies $2.1 B
- Mutual Funds -$18.9
B
- State & Local Governments
-8.5 B
Depository institutions and Private pensions purchased record
amounts of Treasuries in Q1. Which means that
“Other Investors” accounted for $215 B
of the Treasuries issued in Q1. Yes, I realize that
this is somewhat lower than my original estimate, but in my
defense that was a
logical conclusion. Who knew banks and private
pensions are expecting another stock market collapse? Nobody
at CNBC anyway. They’re too busy laughing at Main Street for
not seeing the awesomeness of the recovery.
Before putting away the Fed’s flow of funds, it is worth noting
that brokers and dealers (who are included as other investors)
do not share the pessimism of banks and private pensions.
They dumped $19 B during the quarter. This
brings us to the turd in the punchbowl. The
Household sector, who the Fed says purchased a whopping
$68 B. Now before you start thinking your
neighbors are taking their unemployment checks and sneaking off to
Treasury auctions, listen to what Sprott Asset Management’s Eric
Sprott and David Franklin said of the household sector in their
December 2009 report entitled,
Is it all just a Ponzi Scheme?:
To quote directly from the Flow of Funds Guide, “For
example, the amounts of Treasury securities held by all other
sectors, obtained from asset data reported by the companies or
institutions themselves, are subtracted from total Treasury
securities outstanding, obtained from the Monthly Treasury
Statement of Receipts and Outlays of the United States
Government and the balance is assigned to the household
sector.” (Emphasis ours) So to answer the question – who is
the Household Sector? They are a PHANTOM.
They don’t exist. They merely serve to balance the ledger in
the Federal Reserve’s Flow of Funds report.
I guess that means your neighbor isn’t our superhero, and
besides, if he was he’d have a cooler car. So who are these
strangers with candy hell-bent on making sure this sugar high
doesn’t end? I don’t know.
There I said it. Maybe Charles Biderman gets rattled when
everyone calls him a moron, but I’m used to it. S0 fire away, but
answer the question.
By the end of 2010, Other Investors will own more than
10% of the US public debt (1.5 Trillion or so). They bought more
than 45% of the new debt in Q1. At what point does this kind
of opacity become unacceptable? Why can’t the Treasury fill
out its own bulletin with information already available? Why
do we have to wait five months for information that is so vague,
you can’t even call it information with a straight face?
And last but not least, where do we send the fruit basket?
Other Reading:
Is it all just a Ponzi Scheme? (Sprott & Franklin)
http://www.zerohedge.com/article/chinese-treasury-dump-brings-its-total-holdings-one-year-low-uk-continues-exponential-accumu
Smoking Guns of US Treasury Monetization (Jim Willie)
Treasury table OFS-2 (updated by author).
Starving For Yield
"In an over-leveraged
system prices of assets respond uniquely to the supply and
demand balance for monetary liquidity. Too much cash in
the system leads to bubbles, and not enough leads to a
collapse. Markets are so highly correlated due to advances
in technology, correlation trading, and information
circulation, that the system has become completely binary
and relying solely on monetary availability."
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A
growing pile of debt for state unemployment insurance programs
Stateline
HUNGARY
US banks braced for slump in profits FT
Hedge funds reluctant to bet big on debt
DODD FRANK ACT
RATING AGENCIES
Uncertain outlook limits risk appetite FT
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RRESIDENTIAL REAL ESTATE - PHASE II |
IMF- U.S. Real Estate Sectors Could Bring Banking Crisis 2.0 ZH
|
By Dian L. Chu,
Economic Forecasts & Opinions
The International Monetary Fund (IMF) stress tested
53 large banking holding companies and published its
findings last month. The report
concluded that despite restoration of some stability, there remain
certain important risks to the U.S. financial system and economy
mainly coming from the real estate sectors:
- Further increases in nonperforming loans
due to high unemployment rate and
significant weakness in the real estate
sectors
- Credit quality in the commercial real estate
(CRE) sector - About $1.4 trillion
of CRE loans will mature in 2010–14, nearly half of which
are 90 days or more past due or “underwater.”
- Housing prices - The very high
level of underwater mortgages increases the risk of strategic
defaults and further losses to banks and mortgage backed
security (MBS) investors.
Market perception of sovereign risk,
sluggish growth, and mounting
fiscal deficits and debt are also identified
as major risks to the economy and the financial system.
IMF noted financial institutions will face
rollover risks with large loan maturities in
2011–13, which could bring rapidly rising foreclosures and
bank losses. The small and medium-sized banks, which are most
heavily exposed to the commercial real estate sector, are
causing the most concern.
Since bank balance sheets remain fragile and
under-capitalized (Figure 1), under an “adverse
scenario”, small and regional banks as well as subsidiaries of
foreign banks would incur $1.113 trillion of cumulative loan
losses from 2010 to 2015 and need as much as $76.3
billion (i.e. a TARP 2.0), additional capital to
meet a tier one ratio of 6% .
Under the “baseline scenario”, cumulative loan losses would have
been $860.9 billion, and need $40.5
billion additional capital. (See table)
IMF also noted the securitization market
could become a drag on the economic recovery:
“Almost all of the recent issuance of U.S. private label MBSs
has comprised re-securitizations of formerly “AAA” senior
securities (so-called “re-remics”), with the Fed’s TALF
responsible for much of the 2009 issuance of other asset
backed securities (ABSs).”
And to make things even more depressing, IMF warned that
“The economy and some key financial markets continue to depend
heavily on fiscal, monetary, and financial policy support, and
the output gap is expected to remain
wide for many years.”
Other research reports also paint an equally gloomy picture.
According to an analysis by
Realpoint, reported by
HousingWire, delinquencies in
commercial mortgage -backed securities (CMBS) in the US increased
to 7.2%, and more than triple the rate a year ago. In May, the
total delinquent unpaid balance for these loans reached $57.3
billion.
Realpoint forecasts by the end of 2010, the total amount of
unpaid principal balance could grow between
$80 billion and $90 billion, and the
delinquency rate could reach as high as 12%.
Earlier in the year, Trepp reported that these spiking
delinquencies could cause bank failures
to increase as much as 30% in 2010 (You think we don’t have enough
problem banks bankrupting FDIC already? see Figure 3)
While the $40-80 billion capitalization numbers probably
will not take the entire U.S. economy into a
double-dip recession, they will likely put a
significant drag on GDP and earnings in the financial sector, as
well as the broader equity market for the next two to six
quarters.
With the easy year-over-year earnings beat
coming to an end, the best of the earnings may have already come
to pass. As such, now would be a good time to take some profit off
the table for another day, another entry point.
(Note: The
full IMF report is available
here.)
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EXPIRATION FINANCIAL CRISIS PROGRAM/font>
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PENSION & ENTITLEMENTS CRISIS
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GOVERNMENT BACKSTOP INSURANCE |
For
Fannie Stock, Even Betting Pennies Is a Risk
NYT
“It’s
not really a stock anymore — everyone knows this is going to zero”
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
Wheat
Trades Near 22-Month High as Russia Drought Curbs Exports
BL
“We’ve
got a little bit of panic...There’s certainly room for bigger gains,
without a doubt.”
FLASH CRASH - HFT - DARK POOLS
And Scene- ICI Reports 13th Consecutive Week of Massive Domestic Equity
Outflows As Banks Start To Panic ZH
|
The
latest update from ICI shows that the week ended July 28 saw a
record 13th consecutive outflow from domestic mutual funds as
stocks surged. Good thing the HFT algos can now
essentially communicate with each other in the actual unique
flow patterns of cancelled stock bids, thereby announcing to all
other participants the plans of one which promptly become those of
all, in the most under the radar concerted effort to "club" the
market's HFT participants as one big trading force. As for retail:
it is all over. We won't even chart the latest move. Figure it
out: nearly $50 billion in outflows YTD as the market is
well green. When the coordinated computerized front running game
(of stupid carbon based lifeforms) in which one Atari machine
sells to another, and repeats into infinity, while all book
liquidity rebates, comes to an end and the theater is finally
perceived to have been burning all along, watch out for the binary
stampede.
But don't take our word for it.
According to the FT, banks are starting to panic that as a
result of collapsing trade volumes, profit target misses and
massive layoffs are just around the corner.
US banks with Wall Street operations are
bracing for a slump in trading profits this year after the third
quarter got off to a poor start, with global economic uncertainty
and Europe’s sovereign debt woes leading to a slowdown in market
activity in July.
Executives said volumes and profitability
last month were even lower than during the sluggish second
quarter, with hedge funds particularly reluctant to take big bets
on equities and debt.
“July was a miserable month for
trading,” one senior banker said. “If August and September don’t
rebound sharply, banks will be forced to cut jobs.”
The
squeeze in trading profits highlights the rising importance of
groups’ consumer and commercial banking operations, whose
performance is improving as the economy heals.
The lack of
activity led many banks to miss internal targets for trading
revenues in both fixed income commodities and currencies – a key
recent driver of profitability – and equities.
John Brady,
senior vice-president at MF Global, said: “A lot of the drop we
have seen in trading volumes during June and July follows violent
changes in markets during the preceding months.”
Retail
investors have also shunned stocks. US equity mutual funds have
been hit by 12 straight weeks of outflows totalling $40.7bn, says
the Investment Company Institute.
|
MARKET WARNINGS
GOLD MANIPULATION
VIDEO TO WATCH
QUOTE OF THE WEEK
In politics, nothing happens by accident. If it
happens, you can bet it was planned that way.
Franklin D. Roosevelt |
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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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TODAY'S NEWS
THURSDAY
08-05-10
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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
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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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RETAIL SALES |
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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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