COMMENTARY for all articles by Gordon T Long

READER ROADMAP -  2010 TIPPING POINTS aid to positioning COMMENTARY

POSTS:  WEDNESDAY 08-11-10

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

IRAN

ISRAEL

KOREA 

Here's Where A U.S. Warship Is Teasing China Into A Rage  BI

GREECE

SPAIN / PORTUGAL

FRANCE

GERMANY

ITALY

UK

UK near top of economic gloom rankings  FT

Opinion poll shows much higher confidence in developing countries

U.K. Consumer Sentiment Drops to Lowest Since Aftermath of 2009 GDP Plunge  BL

Employers warn of 'jobless recovery'  FT

Criticizing King WSJ

Justice ministry staff warned of £2bn cut  FT

JAPAN

CHINA

Chinese economy shows further signs of slowing  FT

Industrial production and retail growth slacken

China Output Growth Weakens; Inflation Rises to 3.3%  BL

China's trade surplus reaches record high Finance Asia

High trade surplus 'likely to remain'

How Fifty Percent Of China's 'High Tech' Companies Are Actually Fake  BI

Spiking Food Prices Shoots Chinese Inflation Past Government Targets  BI

China Said to Order Banks to Reclaim Loans From Trust Companies BL

Chinese Regulators Order Banks To Expose Their Massive Off-Balance Sheet Loan Portfolios  BI

USA

Worker Productivity in U.S. Unexpectedly Fell in 2nd Quarter BL

U.S. May Be Trapped in Japan-Like Deflation Within 3 Years, Schroder Says  BL

Structured Notes Are Wall Street's `Next Bubble,' Whalen Says BL

U.S. Is Bankrupt and We Don't Even Know It Laurence Kotlikoff
Beware the light at the end of the tunnel MW

Commentary: It's a debt train about to collide with federal obligations

Mapping US Treasuries – Here be deflation FT Alphaville

Deflationary fears send Treasuries off charts  FT

Fed's Total 2-10 Year UST Monetization Over Next 12 Months- $340 Billion  ZH

STATE & LOCAL GOVERNMENT

US House agrees $26bn in state aid

Obama signs emergency bill to halt teacher layoffs AP
House passes state aid bill; Obama signs into law Reuters
Oregon tax hikes don't stop revenue bleeding Stateline

California City With $800,000 City Manager May Default On Debt, Warns S&P  BI

CENTRAL & EASTERN EUROPE

 Fed Looks to Spur Growth by Buying Government Debt BL

Fed Moves from "QE" to "QN" NTrust

Fed Reverses Exit Plans, Sets $2 Trillion Floor for Holdings  BL

The Federal Reserve reversed plans to exit from aggressive monetary stimulus and decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated.

Fed Sees Recovery Slowing  WSJ

After cutting short-term interest rates nearly to zero in December 2008, the Fed essentially printed money to expand its portfolio of securities and loans to above $2 trillion, from $800 billion before the global financial crisis. Its purchases of mortgage-backed securities and U.S. Treasury debt, aimed at keeping long-term interest rates down, were discontinued in March. The Fed began talking about an "exit strategy" from the unprecedented steps it took to prevent an even deeper recession. But on Tuesday, the Fed shifted its stance. The Fed, facing an economic recovery that it termed "more modest" than anticipated, said it will stop shrinking its huge portfolio of securities by reinvesting the proceeds of maturing mortgages in U.S. Treasury debt. Fed officials spent the weeks ahead of Tuesday's meeting contemplating how to address an economy that was losing momentum. The government estimated late last month that growth slowed in the second quarter to a 2.4% annual rate, too slow to bring the jobless rate down quickly. More recent data suggests that figure could be revised down below 2%, raising questions about whether the economy is, as Federal Reserve Chairman Ben Bernanke has put it, achieving "escape velocity" so it can flourish without extraordinary government support.

Fed downgrades recovery outlook  FT

Monetary policy bias shifts toward easing

Deflationary fears send Treasuries off charts  FT

A downgrade of the US Federal Reserve’s economic outlook and a pledge to purchase longer-term government as the Fed seeks to maintain its extraordinarily easy monetary policy by not allowing its $2,300bn balance sheet to contract. The Federal Reserve announced it will buy longer-term Treasuries to support the fragile economic recovery but left benchmark overnight interest rates steady in a zero to 0.25 per cent range. The announcement means that maturing bonds on the Fed’s balance sheet will now be reinvested but does not constitute a fresh round of quantitative easing. “The makers of domestic monetary policy took the middle road between doing nothing and expanding quantitative easing,” said Steven Ricchiuto, chief economist at Mizuho Securities.”The decision to re-invest maturing Agency and Agency MBS was maintaining the status quo.”  “The initial response of the equity market, I believe, will be reversed as soon as investors realise that the Fed only took a baby step when the economy needs a giant leap”

Most economists sees U.S. rate hikes beyond mid-2011 - poll Reuters

The median of forecasts was for a 20% chance of deflation over the next year
Monetary policy in a time of deleveraging Nutting

Commentary: The Fed can't do much more to get credit flowing
Hoenig, Top Fed Official, Warns Fed Risks Repeating Past Mistakes HP

Crudele: ”QE is the time-honored tradition used mostly by bankrupt, underdeveloped nations to make its people feel richer...”

Let's Be Honest, This Was Just The First Step Towards Way More Quantitative Easing  BI

Fed Shuns Passive Tightening, No QE2 in Sight- Caroline Baum  BL

Why The Fed's Halfway Move Was Its Worst Option, And Today Was Bad News For The Bulls  BI

Mike O'Rourke of BTIG regarding what some are calling the Fed's Quantitative Neutrality. O'Rourke, who went bullish in early July, hasn't sounded this down in a while.

Last night, we characterized the path the FOMC took at its meeting today as one that “risks becoming the worst outcome.”  Making Replacement Purchases of securities is the option we liked least for the markets.  On the positive side, in taking this course of action, the Fed has clearly indicated that they are willing to act should the recovery falter.  On the negative side, in shifting policy the Fed gives credence to economic weakness, indicating that it warrants a response.  The problem is this response will not move the needle in its influence upon the economy, and for every sign of weakness that emerges, investors will be looking for a response from the FOMC.  Thus far, it is a positive sign that the market did not take today’s move and extrapolate it into a more pessimistic scenario.  This offers hope that our fears may be unfounded.  That being said, it is still early and the FOMC just officially eased policy and the S&P 500 lost 60 basis points today and the Russell 2000 lost 2%.  If you are in the bullish camp with us, you don’t feel good about that result.   More importantly, the Fed is now part of the story. A few days ago it wasn't, and that's not good. At this stage of recovery, you want Fed policy to be accommodating for investing, but you don’t want it to be the reason for investing.  We view it from this perspective, from its April peak to its July low the S&P 500 dropped 17%.  Despite the pain of the drop, there was a major positive for investors, barely a word was heard from the Fed.  The lone exception was that the barely used Central Bank swap lines re-opened to help Europe.  The equity market bottomed on its own and rallied on its own, without an adrenaline boost from the Federal Reserve.  It is not often that the equity market experiences a correction of such magnitude, without being accompanied by a policy response from the Federal Reserve.  Now that the FOMC is back into the mix and intervening, that healthy progress in the market is tainted.

PIMCO- Basically The Fed Move Was Only Good For Blowing More Bubbles  BI

Here Is The Simple Reason Why QE Is Unnecessary ZH

DODD FRANK ACT

 AIG Faces Fed Scrutiny as Dodd Law Spares Buffett's Bets BL

US regulators tighten control over Wall St risk  FT

Fed staff delve deeper into riskier activities

RATING AGENCIES

The Fed Can Print More Money, But It Can’t Print Jobs KudlowVisualizing Job Prospects By State  ZH

GOVERNMENT BACKSTOP INSURANCE

CORPORATE BANKRUPTCIES

OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

Study: Recession Cost Small Businesses $2 Trillion Inc.

Firms Spend More—Carefully  WSJ

Companies in the U.S. are stepping up purchases of equipment and software. But much of the spending is aimed at replacing older equipment or to improve efficiency—not to raise production or boost hiring.

FLASH CRASH - HFT - DARK POOLS

Today's Dose Of "Crop Circle" Quote Stuffing Algos Focuses On V, DUG And TRN  ZH

MARKET WARNINGS

GOLD MANIPULATION

the DOW is up over 1000 points - Yet the public withdraws $50B and this?

BarCap to slash jobs in cost-cuts  FT
Several hundred could go after sharp fall in market activity

Main Street's Boycott Of Capital Markets Succeeding- Barclays First Casualty, To Fire Hundreds Due To Plunge In Market Activity  ZH

VIDEO TO WATCH...

QUOTE OF THE WEEK

“In reality, however, borrowers – not lenders, were the primary bottleneck in Japan’s Great Recession.  If there were many willing borrowers and few able lenders, the Bank of Japan, as the ultimate supplier of funds, would indeed have to do something.  But when there are no borrowers the bank is powerless.” Richard Koo -- The Holy Grail of Macro Economics

ZH - Zero Hedge - Business Insider, WSJ - Wall Street Journal, BL - Bloomberg, FT - Financial Times

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