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COMMENTARY for all articles by
Gordon T Long
PRESERVE & PROTECT: What Made America Great is now Killing Her!

What made America great was her unsurpassed ability to innovate.
Equally important was also her ability to rapidly adapt to the change that
this innovation fostered. For decades the combination has been a self
reinforcing growth dynamic with innovation offering a continuously
improving standard of living and higher corporate productivity levels,
which the US quickly embraced and adapted to.
This in turn financed further innovation. No country in the world could
match the American culture that flourished on technology advancements in
all areas of human endeavor. However, something serious and major has
changed across America. Daily, more and more are becoming acutely
aware of this, but few grasp exactly what it is. It is called Creative
Destruction.
It turns out that what made America great is now killing her!
Our political leaders are presently addressing what they perceive as an
intractable cyclical recovery problem when in fact it is a structural
problem that is secular in nature. Like generals fighting the last war
with outdated perceptions, we face a new and daunting challenge. A
challenge that needs to be addressed with the urgency and scope of a
Marshall plan that saved Europe from the ravages of a different type of
destruction. We need a modern US centric Marshall plan focused on growth,
but orders of magnitude larger than the one in the 1940’s. A plan even
more brash than Kennedy’s plan in the 60’s to put a man of the moon by the
end of the decade. America needs to again think and act boldly. First
however, we need to see the enemy. As the great philosopher Pogo said:
“I saw the enemy and it was I”.
READ MORE |
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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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EU BANKING CRISIS |
BOND BUBBLE |
STATE &
LOCAL GOVERNMENT |
CENTRAL & EASTERN EUROPE |
BANKING CRISIS II |
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RESIDENTIAL REAL ESTATE -
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EXPIRATION FINANCIAL
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PENSION CRISIS |
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TODAY'S TIPPING POINTS UPDATE
Last Update:
08/13/2010 05:06 PM
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RED ALERT |
AMBER ALERT |
ACTIVITY |
MONITOR |
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POSTS: FRIDAY 08-13-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
U.S. Saudi Sale, With Helicopters, Said to Approach $60 Billion
BL
ISRAEL
KOREA
Chinese Admiral Says U.S., South Korea Drills `Fresh Provocation'
to China BL
SOVEREIGN DEBT & CREDIT CRISIS |
Eurozone industrial output falls in June
FT
The Eurozone Crisis Returns
BI
Europe's PIIGS economies, the soft underbelly of the
Eurozone, are back in the spotlight. Fresh concerns have
emerged in the news regarding Spain, Greece, and Ireland's
finances. Yet if the wave of news stories isn't enough to
convince you that something is up, then check out the latest
move for credit default swaps. As shown below, credit
default swap spreads are rising again for all of the PIIGS
(Portugal, Italy, Ireland, Greece, and Spain). We're
heading back towards past peaks, the Eurozone crisis is back:
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GREECE
SPAIN / PORTUGAL
FRANCE
GERMANY
Germany's GDP surges 2.2% in quarter
FT
Buoyant exports power fastest
growth in decades
German Economy Expands at Fastest Pace Since Reunification
BL
Germany’s economy grew at the fastest pace since the country’s
reunification two decades ago in the second quarter as the global
recovery boosted exports and companies stepped up investment.
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ThyssenKrupp raises forecasts after strong quarter
FT
ITALY
UK
Repossession threat as Government reduces home owner support
Telegraph
Dealing with bad debts
Telegraph
It
isn't just the Duchess of York who is struggling with debt
IRELAND
Irish Banks Rattle Nerves Again
WSJ
JAPAN
When Japan's debt bubble bursts – watch out
CSM
The Japanese economy operates on the (soon-to-be-proved-false)
assumption that the government will always be able to borrow at
low interest rates. |
Japan Hints at Yen Intervention
WSJ
CHINA
China Has Enough Empty Apartments To House 200 Million People
BI
USA
Are We Headed for a Lost Economic Decade?
WSJ
Goldman Sachs Sees 25% to 30% Odds of U.S. Double-Dip With Growth
Slowing BL
Web of shadow banking must be unravelled
FT
Japanese
style Deflation Spreads to Global Bond markets
Dorsch
The Pause That Doesn't Refresh Comstock
Look How Much Federal Spending Is Funneled Through The States
BI
Bloomberg (via
Barry Ritholtz) had an interesting chart of the day today
detailing the amount of grants the U.S. government gives to
states, compared the the amount of federal government spending
overall. We'd say the rise over the past 25 years was
shocking, but what the state spending is made up of is
Medicaid and education spending, both of which have seen
dramatic inflation during that time period. From
Bloomberg (via
Barry Ritholtz):
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HUNGARY
DODD FRANK ACT
The Dodd-Frank Wall Street Reform and Consumer Protection Act: The
Triumph of Crony Capitalism (Part 2)
Assumptions Guiding the Act
The Act is guided by several broad concepts:
- Wall Street must be strictly regulated to prevent systemic
risk and to promote financial stability.
- Large interconnected international financial companies are
inherently risky.
- Excessive leverage leads to systemic risk.
- A lack of transactional transparency impeded necessary
regulatory control.
- Investors lacked information to properly understand the
nature of complex risky securities.
- Regulators are capable of carrying out the intent of the
Act.
Specific blame for the financial collapse is assigned as
follows:
Lenders, investment bankers, credit-rating firms, mortgage
brokers and others had ample incentive to take risks, often
with other people’s money. That led to a bubble in credit: too
much borrowing.
The explosion of trading in the shadowy worlds of
derivatives and hedge funds hid risks, and perhaps even
created new ones, without the transparency essential to
well-functioning markets.
Big financial firms lacked sufficient capital cushions to
withstand a shock, and assets they could sell quickly to raise
needed cash. …
For the inevitable day when another big financial firm gets
into trouble, the bill attempts to impose order and
punishment—but gives authorities the power to use taxpayer
money if they deem it necessary. …
Description of the Act
What is obvious from a review of the Act is that the powers
granted are very broad, almost unlimited, ill-defined, and yet to
be written. The following descriptions of the Act are intended to
give you an idea as to the vast scope of the Act and the powers
granted. I have picked out some of the more important powers, but
the Act is much more invasive and controlling than what I am
describing here. I have gone into some detail because I believe
that most people don’t understand how pervasive the Act is. Please
bear with me here; it will be eye-opening.
Here is a major law firm’s (Gibson Dunn) overview
of the Act:
[The Act] … seeks to increase financial marketplace
transparency and stability by establishing a Financial
Stability Oversight Council (the “Council”) focused on
identifying and monitoring systemic risks posed by financial
firms and by financial activities and practices. It
establishes a new regulatory and supervisory framework for
“large, interconnected” banking organizations and certain
nonbank financial companies. By a two-thirds vote, the Council
can determine which U.S. and foreign nonbank financial
companies that are predominantly engaged in financial
activities (together “NBFCs”) are to be subject to enhanced
supervision (“Supervised NBFCs”) by the [Fed], based on the
perceived risk a company poses to financial stability in the
United States. Empowering the Fed to implement this regime
substantially enhances its powers and responsibilities.
As you will see, the Act, while it comprises 2,300 pages,
speaks mostly of legislative goals, with specific requirements
that require fleshing out by rules and regulations that will
follow. For the most part, the actual law will be developed by the
mandarins.
The Concept of
Financial Risk
The entire Act is built around the concept of protecting the
“financial stability” of the economy. The term “financial
stability” is mentioned about 80 times in the Act but there is no
definition of what it is. The Act assumes that the Council will
know it when it sees it.
Instead of defining the term, the Act assigns the new Financial
Stability Oversight Council the duty of regulating companies whose
activities threaten “financial stability.” The Council is
obligated to conduct studies and make findings on which to base
new rules and regulations which establish “prudential standards”
for regulated companies. It is assumed that out of that process
“financial stability” will be defined, but it seems no one really
knows what “financial stability” is or what consists of a threat
to it. Which is a problem is when you give vast powers to a new
agency: it makes their powers almost unlimited.
The likelihood of finding this Act unconstitutional because of
vagueness is low. Consider the fact that a Council takeover of a
company because it is a “threat to financial stability” will
probably only be challenged in the courts during a financial
crisis. This puts pressure on judges who have little knowledge of
economics. They would be afraid to assume responsibility for the
economy. Since the experts testifying in court will most likely be
mainstream economists and financiers who believe in current
economic thinking that such powers are necessary to save the
economy, it is unlikely that courts will believe the testimony of
“outliers” such as Austrian theory economists.
The Act thus creates a board of economics czars who will have
almost unlimited powers to regulate the financial sector of the
economy.
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RATING AGENCIES
RRESIDENTIAL REAL ESTATE - PHASE II |
EXPIRATION FINANCIAL CRISIS PROGRAM
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PENSION & ENTITLEMENTS CRISIS
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'Overpaid' Pensions Being Seized WSJ
David Goldman, of
Asia Times' Inner Workings, has a pretty good explanation
of why this is about more than just cuts reaching their peak.
The productivity number doesn’t mean
much by itself, but it is consistent with the idea that the US
corporate sector can’t get much more blood out of this stone.
The fact that private equity predators
are giving money back (for example, Carl Moelis’ return of
$750 million last week) and real estate funds also are unable
to use the money they have ought to tell us something. There
simply aren’t enough good projects to absorb the capital that
is chasing them. If that’s the case for private equity, it
surely is the case for large corporations considering
investment. Small business, meanwhile, remains dead in the
water, sunk by higher healthcare costs, nickel-and-time tax
demands, and the death-by-a-thousand-cuts of regulation.
In short, the economy is going nowhere, and the stock
market doesn’t have a second act after the heroic cost-cutting
of last year.
From the St. Louis Fed:

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GOVERNMENT BACKSTOP INSURANCE |
KKR, Bain Companies Repay Leveraged Loans as Economy Sours- Credit Markets
BL
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
US probes corruption in big pharma FT
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
DEFLATION'S COMING, Says Gary Shilling, And It's Going To Clobber The
Stock Market BI
Prepare for chronic deflation, buy bonds, and sell stocks.
Why is Gary still expecting deflation? Because consumers
still have way too much debt, and this debt will take decades
to work off. Also, consumers are saving money again,
which means they aren't spending it. Banks have plenty
of cash and reserves, but the demand for money just isn't
there. And when consumers are strapped and credit is
contracting, prices tend to fall.
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The
Hindenburg Omen Has Arrived ZH
Easily the most feared technical pattern in all of chartism
(for the bullishly inclined) is the dreaded Hindenburg Omen. Those
who know what it is, tend to have an atavistic reaction to its
mere mention. Those who do not, can catch up on its implications
courtesy of
Wikipedia, but in a nutshell: "The Hindenburg Omen is
a technical analysis that attempts to predict a forthcoming stock
market crash. It is named after the Hindenburg disaster
of May 6th 1937, during which the German zeppelin was destroyed in
a sudden conflagration." Granted, the Hindenburg Omen is not a
guarantee of a crash, and the five criteria that must be met for a
Hindenburg trigger typically need to reoccur within 36 days for
reconfirmation. Yet the statistics are startling: "Looking back at
historical data, the probability of a move greater than 5% to the
downside after a confirmed Hindenburg Omen was 77%, and usually
takes place within the next forty-days." The last Hindenburg Omen
occurred during the lows of 2009. Today, we just had another
(unconfirmed) Hindenburg Omen. It is time to batten down the
hatches - something big is coming.
As a reminder, the 5 criteria of the Omen are as follows:
- That the daily number of
NYSE new 52 Week Highs and the daily number of new 52 Week
Lows must both be greater than 2.2 percent of
total
NYSE issues traded that day.
- That the smaller of these numbers is greater than or equal
to 69 (68.772 is 2.2% of 3126). This is not a rule but more
like a checksum. This condition is a function of the 2.2% of
the total issues.
- That the
NYSE 10 Week
moving average is rising.
- That the
McClellan Oscillator is negative on that same day.
- That new 52 Week Highs cannot be more than twice the new
52 Week Lows (however it is fine for new 52 Week Lows to be
more than double new 52 Week Highs). This condition is
absolutely mandatory.
Today, all five conditions were satisfied. June 2008 was
another such reconfirmed event, and as
Barron's pointed out then, "there's a 25% probability of a
full-blown stock-market crash in the next 120 days. Caveat
emptor." Boy was the emptor caveating within 120 days (especially
if said emptor was named Dick Fuld). Which brings us to the
present: should the Omen be reconfirmed within 36 days, all bets
are off.
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GOLD MANIPULATION
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
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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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TODAY'S NEWS
FRIDAY
08-13-10
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ARCHIVAL |
SOVEREIGN DEBT PIIGS |
EU BANKING CRISIS |
BOND BUBBLE |
STATE & LOCAL
GOVERNMENT |
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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 |
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INTEREST PAYMENTS |
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JAPAN DEBT DEFLATION SPIRAL |
US RESERVE CURRENCY. |
GOVERNMENT BACKSTOP INSURANCE |
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CORPORATE BANKRUPTCIES |
US DOLLAR WEAKNESS |
GLOBAL OUTPUT GAP |
CONFIDENCE - SOCIAL UNREST |
ENTITLEMENT CRISIS |
IRAN NUCLEAR THREAT |
OIL PRICE PRESSURES |
FOOD PRICE PRESSURES |
US STOCK MARKET VALUATIONS |
PANDEMIC |
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