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with outdated perceptions, we face a new and daunting challenge.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”.
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?
The latest development in the neverending saga of Iran, comes
via the
Middle East Media Research Institute (MEMRI) which states that
according to the Gulf states, the military option may be the best
option to deal with the Iranian nuclear program, as the
contra-Iran axis is now complete. The article also reflected "the
Gulf states' growing tension and concern regarding Iran's nuclear
program, and mentioned their proximity to the Bushehr reactor."
What is scary is that the straw man of military intervention is
pretty much presented as a fait accompli, and
alternatives to military intervention are not even considered as
an option. The timing could not be worse:
as we highlighted earlier, John Bolton believes that there is
ticking clock (through the 21st) after which the option of
"striking" Iran with manageable casualties becomes negligible. And
lastly, and certainly not making matters any easier, was the
earlier revaluation by AFP, that Iran is
preparing to unveil an array of weapons next week. An
impartial reader would be forgiven if left with the impression
that at this point a military operation is all but granted. Yet,
keeping an eye out on spot oil, indicates that the realistic
chance of an incursion is still negligible, at least as judged by
oil prices. We believe that is still one of the best advance
warnings indicators of a geopolitical shift. Unfortunately, if the
oil market is in any way comparable to stocks in its predictive
ability, it just may be that oil is, for once, a reactionary
indicator instead of forward looking, in which case it will be
useless as a predictive force.
ISRAEL
Iran Threatens Israel’s Existence if Attacked
Bloomberg reports
Iran Threatens ‘Israel’s Existence’ If It Attacks
Iran will respond if Israel attacks its first nuclear power
plant, which will begin loading fuel Aug. 21, according to the
Persian Gulf country’s defense minister.
“In that case
we will lose a power plant, but Israel’s existence will be in
danger,” Ahmad Vahidi was cited as saying today by the
state-run Mehr news agency, in response to questions about the
possibility of an attack by Israel on the Russian-built atomic
facility at Bushehr.
Israeli leaders have said that all
options are on the table in dealing with Iran’s nuclear
aspirations. Iran is under four sets of United Nations
sanctions over its nuclear program, which the U.S. and many of
its allies say is aimed at creating a weapon. Iran, the
second-largest oil producer in the Middle East, denies the
allegation, saying it needs nuclear energy for civilian
purposes, such as generating electricity.
The Bushehr
power station will begin producing electricity in several
months, Sergei Novikov, spokesman for Rosatom Corp., the
Russian state nuclear holding company that built the plant,
said Aug. 13.
Saudi Daily says Military Option Best Solution to Crisis
"Tehran's [August 13, 2021] announcement, confirmed by Russia,
that an Iranian nuclear reactor would be inaugurated this
month in Bushehr, on the Arabian Gulf coast, and that it would
be equipped with fuel and would operate as a nuclear facility,
is an indication that the region is now entering a new phase.
"In taking this action, Tehran is ignoring all the advice,
warnings, and requests to halt its nuclear program, or at the
very least to try to continue it under clear and open
international inspection that would guarantee that it does not
have a military facet. If [Tehran] insists upon going ahead
[with the program] without the agreement of the international
community, it will bring embarrassment and suspicion upon
every [country] that supported [Iran's] right to peaceful
nuclear energy.
"More importantly, by means of this
action, Tehran is moving its conflict with the international
community into high gear, and [in this case] some may consider
the military option to be the best solution. [Delaying
recourse to this option] may lead to a point where it is
impossible to implement it – if Tehran manages to produce a
nuclear bomb of its own.
Russia to load fuel into reactor on Saturday
The Jerusalem Post reports
'Israel has days to strike Bushehr'
The U.S. government will likely continue to play a role in
guaranteeing mortgages, but policy makers must figure out how to
design a system that doesn't lead to a rerun of the collapse of
Fannie and Freddie, Geithner said.
FT London: Reform of Fannie Mae and Freddie
Mac, which have
incurred losses of about $150bn (€117bn, £96bn) for the US
since being placed under government control in 2008, was left out
of the massive financial regulatory overhaul bill enacted last
month, but has since risen to the top of the economic and
financial policy agenda.
The Obama administration is expected to propose its own reform
plan in January, and Mr Geithner said there was a “strong case to
be made for a carefully designed guarantee in a reformed system”.
Without such support, “future recessions could be more severe”,
with greater home price declines and damage to financial wealth.
But Bill Gross, founder of Pimco and manager of the world’s
largest bond fund, said it was “unrealistic” to think the private
market was going to come back in a significant way. “For better or
worse, the government is part of our future in terms of the
mortgage market.”
Bloomberg: “To suggest that there’s a large place for
private financing in the future of housing finance is
unrealistic,” Gross said today at a U.S. Treasury Department
conference in Washington. “Government is part of our future. We
need a government balance sheet. To suggest that the private
market come back in is simply impractical. It won’t work.”
LOAN SERVICING FIRMS: Loan servicing firms that don't
actually own loans, but represent banks and investors, and collect
mortgage payments on their behalf. These firms follow
often-ambiguous rules set by the owners of the loans. In cases
where a loan has been bundled into a security, it might have
thousands of owners scattered around the world, making it
impossible to know all their preferences.
FUNDS: Selene is the sole owner of its loans and has a servicing affiliate that can
negotiate directly with borrowers. "Every case is individual," Mr. Ranieri says.
"There's no template. "But the main reason Mr. Ranieri can strike deals with borrowers is that his firm
buys loans, mostly from banks, at steep discounts to the balance due. If his
fund pays $50,000 for a loan with a $100,000 balance due, for example, it can
make a profit even if the borrower ends up paying back only $70,000. Around 90%
of Selene's loan modifications involve reducing the principal,
compared to less than 2% of the modifications done by federally
regulated banks in the first quarter. Selene, which owns about $1
billion worth of home mortgages, will say only that it has
modified "thousands" of loans, a drop in the bucket among the
millions of overdue mortgages. Many loans are locked up in
securities and thus unavailable for sale. In other cases, owners
of loans aren't willing to take the losses that would be needed to
mark down the mortgages enough to lure buyers like Selene.
HAMP: One reason Selene has the leeway to help borrowers is that it generally bypasses
the federal government's $50 billion Home Affordable Modification Program, or
HAMP. The program offers financial incentives to lenders and servicers to modify
loans. When President Barack Obama announced HAMP 18 months ago, the program
raised hopes among millions of borrowers. As of June 30, however, only about
389,000 households were benefiting from long-term reductions in payments under
that program, and 364,000 were in "trial" periods, trying to qualify by showing
they could make reduced payments. Critics say the program is overly complex, unwieldy and revised so often that
servicers have a hard time keeping up with the latest requirements for
modifications. The Treasury Department blames servicers. They "have done a
terrible job of making sure that they are doing everything they can to meet the
needs of their customers who are facing the possibility of losing their home,"
Treasury Secretary Timothy Geithner told a congressional panel in June. Nonprofit counselors who help homeowners say far more borrowers have either
failed to qualify or given up than have actually received modifications. Some
borrowers have spent more than a year trying to find out whether they qualify.
A real-estate investment firm led by Joseph E. Robert Jr. is
exploring a potential bankruptcy filing for Highland Hospitality
that would mark yet another collapse of a major hotel company.
"How in the heck can you increase earnings with tighter
revenue? The answer is that we expect some expense relief," said
Home Depot Chief Financial Officer Carol Tome. The company has
been hiring more part-timers, with fewer vacation days and
benefits, as sales slowly return. The results provided fresh
evidence that top retail chains are adapting to the prolonged
economic slowdown by reducing employee work hours, maintaining
bone-thin inventories, squeezing costs out of supply chains and
finding other ways to match consumers' belt-tightening.
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
GOLD MANIPULATION
VIDEO TO WATCH
HIGHLIGHTS:
1- the inevitable
restructuring of untenable sovereign debt, 2- the nearly $5 trillion in new global debt
that needs to be issued just to plug near-term deficits, 3-
the joke that was the European stress test and the ongoing
insolvency of the European banking system which is times bigger
than its US equivalent, 4- the imminent downward revision of
Q2 GDP to sub 1%, 5- the Fed's conflicted position as a
political authority whose sole purpose now is not to keep inflation and unemployment low, but merely to
keep interest rates as low as possible, as even the slightest
shift to higher short-end rates will be seen as a black swan,
indicative the Fed is losing control over the economy, and
ultimately the futility of Keynesian theory band-aiding of a world
caught in a toxic debt death spiral.
In short, Bass sees
no way the world can get out of its current state absent a huge
reset.
QUOTE OF THE WEEK
“It ain’t what you don’t know that gets you into trouble. It’s what
you know for sure that just ain’t so.” – Mark Twain
"the recent financial crisis and recession was not caused
by high interest rates but by low rates that contributed to
excessive debt and leverage among consumers, businesses and
government. We need to get off of the emergency rate of zero,
move rates up slowly and deliberately. This will align more
closely with the economy’s slow, deliberate recovery so that
policy does not lag the recovery.
Monetary policy is a
useful tool, but it cannot solve every problem faced by the
United States today. In trying to use policy as a cure-all, we
will repeat the cycle of severe recessionand unemployment in a
few short years by keeping rates too low for too long. I wish
free money was really free and that there was a painless way
to move from severe recession and high leverage to robust and
sustainable economic growth, but there is no short cut."
Thoma Hoenig Kansas City Federal Reserve
President FULL SPEECH
ZH - Zero Hedge - Business Insider,
WSJ - Wall Street Journal, BL -
Bloomberg, FT - Financial Times
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.
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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, we recommend 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.
