economic news has turned decidedly negative globally and a sense of
‘quiet before the storm’ permeates the financial headlines. Arcane
subjects such as a Hindenburg Omen now make mainline news. The retail
investor continues to flee the equity markets and in concert with the
institutional players relentlessly pile into the perceived safety of
yield instruments, though they are outrageously expensive by any
proven measure. Like trying to buy a pump during a storm flood, people
are apparently willing to pay any price. As a sailor it feels
like the ominous period where the crew is fastening down the hatches
and preparing for the squall that is clearly on the horizon. Few crew
mates are talking as everyone is checking preparations for any
eventuality. Are you prepared?
What if this is not a squall but a tropical storm, or even a hurricane?
Unlike sailors the financial markets do not have the forecasting
technology to protect it from such a possibility. Good sailors before
today’s technology advancements avoided this possibility through the use
of almanacs, shrewd observation of the climate and common sense. It
appears to this old salt that all three are missing in today’s financial
Looking through the misty haze though, I can see the following clearly
looming on the horizon.
Since President Nixon took the US off the Gold standard in 1971 the
increase in global fiat currency has been nothing short of breath taking.
It has grown unchecked and inevitably became unhinged from world
industrial production and the historical creators of real tangible wealth.
Do you believe trees grow to the sky?
Or, is it you believe you are smart enough to get out before this graph
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
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 Economic Cycle Research Institute 's (ECRI) leading indicator has dipped
below -10% again, reports Zero Hedge. The -10% level is a 'definitive double
dip' threshold, according to ZH, and if the ECRI tells you otherwise, which they
probably will, then they're just spinsters against their own self-calculated
ZH: One can only imagine what the spin proffered by the index creators will be this
time: it was suddenly very credible last week, hopefully that credibility
persists as it reaffirms a definitive double dip yet again.
Companies Already Lobbying Fed on Financial Rules WSJ
Goldman Sachs Said to Shut Principal Strategies Unit to Meet Volcker Rule
COMMERCIAL REAL ESTATE
9-RESIDENTIAL REAL ESTATE - PHASE II
The housing bubble reconsidered FT Alphaville
10- EXPIRATION FINANCIAL CRISIS PROGRAM
11- PENSION & ENTITLEMENTS CRISIS
12- CHRONIC UNEMPLOYMENT
U.S. Labor Department reported that private payrolls climbed
67,000 in August, more than forecast. Overall employment fell
54,000 for a second month and the
unemployment rate rose to 9.6 percent from 9.5 percent as more
people entered the labor force.
Non Farm Payrolls: The Devil Is In the Adjustments Jesse's Cafe
From my own analysis of each month's data, and especially
looking at the changes made to the numbers over time, the two
biggest factors are the restatements of prior months, and
sometimes years, and the monthly changes in seasonality factor.
Given the degrees of freedom in setting the seasonality, and
adjusting prior months to add and subtract jobs once they have
served their purpose in supporting the headlines, I think it is
safe to say that if you give me a spreadsheet of jobs data, and
you are my politically appointed supervisor, I can make the
numbers come out pretty close to whatever you want within reason
to support whatever messaging you may wish to put forward. As the
errors start to add up over time, I can 'restate' the past numbers
in a wholesale change to bring them into line with reality.So what
is the point of this discussion. First, and foremost, judging the
health of the economy over a monthly headline number like this
is more artifice than substance. At worst it is leaked to Wall
Street cronies to help them skin the public from their money, and
provide a few sound bytes to support whatever political message
the government wishes to promote that month to 'restore
confidence.' At best and most properly it can be included in
a series of numbers, a moving average preferably that shows the
trend in employment, which along with other factors can help
economists determine the actual growth and health of the economy.
The government was able to turn around a
tremendous loss of jobs, which is good news. The bad news is that
they accomplished this by essentially throwing trillions of
dollars at the problem, and in particular a corrupt and oversized
financialization industry, in order to bring the trend back to
zero. Without a change one cannot return to a bubble economy and
hope it to be sustainable without a growing asset bubble. This
implies organic growth and a return to a growth in the median wage
which has been declining or stagnant in a long term structural
trend. Has anything been done to promote this? No. And in this
sense of over cautious lack of reform Obama is more a Hoover than
a Roosevelt.But this cult of 'headline numbers' as used by the
mainstream media, the government, and Wall Street is a sad
commentary on the frivolous nature of US leadership. This
childishness should not be surprising given that they think they
can hide their monetary inflation by leasing gold into the bullion
markets and buying Treasuries to hold down the long term rates
while a private
banking cartel prints money and provides it to their friends.
And the primary capital allocation mechanism of the nation is
riddled with false trades, naked short positions, and accounting
fraud, schemes and subterfuges, that go largely unaddressed by the
financial authority charged with enforcement of the integrity of
the system even when they become so blatant as to cause a flash
crash collapse of the system.
The only thing that is surprising about Wall
Street and the US financial frauds is, as Eliot Spitzer famously
observed, their scams and schemes are so simple and so obvious
when one can pry back the veil of secrecy and see what is actually
Sadly it will likely continue because 'it
works' for the short term, and the US is preoccupied with the
short term, instant analysis and results over substance and solid
progress built on strong foundations, every time.
There is indeed a small jobs recovery happening, even if weak
and uneven, and that's the key take-away from today's report given
all the double-dip fears (as in double-dip recession fears)
markets have been bombarded with lately. According to
Carpe Diem, where this chart is from, "This
is the first time since December 2006 to July 2007, three years
ago, of eight consecutive monthly gains in private-sector
Payrolls Report Eases Concern U.S. Economy Is Sliding Back Into Recession
So it's clear: The economy will be gifted a second stimulus if the White House
has its way (i.e. Congress complies).The Obama administration made that clear on Thursday. Some combination of tax
cuts, tax extensions, and new
infrastructure program will be put in place to (hopefully) get the economy
rolling.The only thing is that you can't call it a stimulus.
official message from the administration, that no stimulus is being
considered.We're guessing this has something to do with focus group politics.
"stimulus" probably doesn't poll very well, but tax cuts and infrastructure do,
so that's why the next stimulus won't be called as such.
In his latest op-ed Paul Krugman calls on The White House to
do something super-bold (on the grounds that the GOP will oppose
it no matter what), but given how timid the administration has
been in voicing this issue, we wouldn't hold out much hope that it
will be scale-tipping in any significant way.
- promised to lay out new ideas next week to boost growth and
- urged Congress to pass a package of measures to help small
businesses, including tax breaks and aid to ease credit.
- White House economic advisers are considering additional
measures, including more tax breaks for small businesses and new
spending on infrastructure, according to congressional aides
familiar with the discussions who spoke on condition of anonymity
because talks are preliminary.
- Obama also may renew his call for Congress to permanently
extend a research-and-development tax credit.
- Any new initiatives will be “targeted” and won’t be on the same scale as the
$814 billion stimulus legislation approved last year,
Robert Gibbs, Obama’s spokesman, said yesterday. “Some big new stimulus plan
is not in the offing,” he said.
- The House has already passed an administration-backed
package of tax cuts and credit aid for small businesses. Senate
Republicans blocked the legislation before lawmakers left for
their summer recess.
The Obama administration on Tuesday will launch its most
ambitious effort at reducing mortgage balances for homeowners that
owe more than their homes are worth.
Officials say between 500,000 and 1.5 million so-called
underwater loans could be modified through the program, the first
initiative to target homeowners who are current on their mortgage
payments but are at risk of default because they have no equity in
their homes. Some experts are warning, however, that the same
knots that tied up prior initiatives could do so again.
Under the new "short refinance" program, banks and other
creditors that write down mortgages to less than the value of the
property can essentially hand off the reduced loan to the
government. The process involves refinancing borrowers into loans
backed by the Federal Housing Administration.
While the program puts taxpayers at risk—officials estimate one
in five loans in the program could default—the government has set
aside $14 billion previously earmarked for housing aid from the
Troubled Asset Relief Program to cover losses.
The new program, which was announced in March, is starting as
the housing market shows signs of renewed trouble and as the Obama
administration's signature Home Affordable Modification Program,
or HAMP, falls short of its goals of helping three million
homeowners. Half of the 1.3 million borrowers that enrolled in
temporary loan modifications have fallen out of HAMP because they
didn't qualify. Only one-third has received permanent
With the vaunted price/earnings ratio losing its mojo as a
market gauge, investors are seizing on better ways to value
VIDEO TO WATCH
VIDEO: CREATION OF MONEY bleedingindebt.com
QUOTE OF THE WEEK
To paraphrase Oscar Wilde
know the price of everything but the value of nothing.
Author Unknown In therapy, you have to accept a mistake to move on.
At times, this realization will be painful but in the end
it is better for you. Right now Wall Street is in
complete denial and trying to pretend all is well.
Their profits are up but all that is happening is a wealth
transfer from taxpayers to this unproductive group.
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.ont>
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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