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COMMENTARY for all articles by
Gordon T Long
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PRESERVE & PROTECT: Mapping the Tipping Points
 The
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
community.
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.
READ MORE
Do you believe trees grow to the sky?
Or, is it you believe you are smart enough to get out before this graph
crashes?
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INNOVATION: 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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READER ROADMAP
- 2010 TIPPING POINTS aid to
positioning COMMENTARY
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Last Update:
09/07/2021 02:42 PM
SCHEDULE: 1st Pass: 5:30AM EST, 2nd Pass: 8:00 AM, 3rd Pass 10:30
Complete Legend to the Right, Top Items below.
Articles with
highlights, graphics and any pertinent analysis found below.
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1
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1-SOVEREIGN DEBT |
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2-EU BANKING CRISIS |
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3-BOND BUBBLE |
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4-STATE &
LOCAL GOVERNMENT |
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5-CENTRAL & EASTERN EUROPE |
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6-BANKING CRISIS II |
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7-RISK REVERSAL |
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8-COMMERCIAL REAL ESTATE |
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9-RESIDENTIAL REAL ESTATE -
PHASE II |
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10-EXPIRATION FINANCIAL
CRISIS PROGRAM |
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11-PENSION CRISIS |
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12-CHRONIC
UNEMPLOYMENT |
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13-GOVERNMENT BACKSTOP
INSUR. |
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14-CORPORATE
BANKRUPTCY |
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TODAY'S TIPPING POINTS UPDATE |
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RED ALERT |
AMBER ALERT |
ACTIVITY |
MONITOR |
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Click to Enlarge
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09-07-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISREAL
KOREA
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1-
SOVEREIGN DEBT & CREDIT CRISIS |
Stress Tests Missed Debt at EU Lenders
WSJ
| Europe's recent "stress tests" of the strength of major banks
understated some lenders' holdings of potentially risky government
debt, Wall Street Journal analysis shows. |
German banks try to fend off Basel III
FT
Should US government debt be rated junk? Fortune
BB? AAA? Disclosure Tells Us More NYT (Morgenson)
Did The Scary Bond Bubble Just Pop Pragmatic Capitalist viBI
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If you hop in your time machine back to the 1930′s the
environment was eerily similar. Deflation risks abound, low
yields, floundering economy, high unemployment, private sector
debt bubble, etc.
It’s impossible to say what year we most highly correlate to in
the 30′s. Some people think we’re in the early 30′s while
others think we’re in the late 30′s, but one thing is clear –
the interest rate environment is remarkably similar regardless of
where you think we are.
So what happened back in the 30′s? The economy
muddled through until WW2 or so and then started to pick up
momentum. Interest rates steadied and then rose a
whopping 1.5% over the course of the next 20-30 years
depending on where we begin. And that’s including
the New Deal period when government spending was 120% of GDP!
Sound familiar? I’m sure the deficit hawks were puking
all over themselves at the time of FDR’s outrageous spending
spree.
The greatest irony in all of this hysteria is that those
who are shrieking the loudest about rising yields, US
government default, etc
fail to understand why interest rates would likely rise in
the current environment. Despite massive debt levels,
private sector de-leveraging, deflation risks, etc the only
thing that got interest rates moving higher in the 1940′s was
an economic recovery!
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4- STATE
& LOCAL GOVERNMENT |
The Latest Scheme In California- Dissolving Cities MIsh
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5-
CENTRAL & EASTERN EUROPE |
Where's the Appetite for Risk WSJ
| From stocks to bonds to commodities, the question is when
investors will want to take on more risk. Was last week's run-up,
the Dow Industrials' best pre-Labor Day week in two decades, the
start of a fall rally or just another surge to be followed by an
equivalent decline? |
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8-
COMMERCIAL REAL ESTATE |
Lenders Move to Foreclose on Stuyvesant Town WSJ
| The battle over Manhattan's giant Peter Cooper Village and
Stuyvesant Town apartment complex intensified Saturday as the
banks overseeing the $3 billion first-mortgage debt on the
property moved to foreclose. |
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9-RESIDENTIAL REAL ESTATE - PHASE II |
Housing Woes Bring New Cry: Let Market Fall NYT
New Program for Buyers, With No Money Down NYT
Housing Choice - Help Today’s Owners or Future Buyers NYT
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The deteriorating circumstances have given a new voice to the
“do nothing” chorus, whose members think the era of trying to buy
stability while hoping the market will catch fire — called “extend
and pretend” or “delay and pray” — has run its course.
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Finally, People Are Calling For A REAL Housing-Market Fix- Letting Prices
Fall BI
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Three years into the bailouts, people are finally throwing up
their hands. As the administration tries to figure out what to do
to save the Democrats in November, calls for a new form of housing
action are emerging: STOP trying to keep house prices
artificially high and just let prices fall. (See
this article by David Streitfeld in the New York Times.)
In other words, stop screwing the majority of the country that didn't
borrow huge amounts of money from 2005-2007 to buy houses it couldn't afford,
and just let the market heal itself. How would the government do this? Any number of
ways1- By letting mortgage prices and loan requirements rise to normal levels.
2- By trimming the Fannie/Freddie subsidies.
3- By figuring out a simple mechanism whereby banks can reduce principal on
mortgages in exchange for equity interests in the houses.
4- By squelching all talk
of future housing tax credits. Etc.
And what would this do? Well, in the short-term, if house prices fell to fair value (5% to 10% below
today's level--see chart below), it would certainly lead to more folks walking
away from their mortgages. It would also, thereby, lead to more bank writeoffs.
But that's only fair. And the banks now have enough capital (and enough access
to capital), so they'll be able to survive.Importantly, it would also
allow
1- a new generation of home buyers to step into the market and buy with the
confidence that they won't get screwed if the government ever does
decide to stop pumping up prices. (This is a big and justifiable fear.)
Instead, new buyers will be able to look at long-term price-to-income and
price-to-rent ratios and observe that they are buying houses at fair value or
below--instead of at levels that are still artificially inflated relative to
almost all non-bubble history.
2- It would allow renters who have heretofore been priced out of the market to
buy for the first time.
3- It would force banks to clean up their balance sheets faster.
4- It would encourage consumers to clean up their own balance sheets faster.
5- It would restore sales velocity to the housing market, which would help
the vast communities of real-estate related industries get back on their
feet--thus helping reduce unemployment.
6- It would restore the government's firepower, allowing for modest, temporary
intervention if it ever became desirable down the road (instead of prolonging
the flooring-it-just-to-stay-steady current situation).
In short, in exchange for a modest amount of short-term pain
for some banks and a minority of Americans (those
underwater on their mortgages), it would help the country's
housing market heal itself faster. And, in so doing, it would help
the majority of the country, by helping our economy more
quickly get back on its feet again.
Here's a larger version of Robert Shiller's long-term house
price chart. Note that prices (blue line) are still modestly above
the long-term average:
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10- EXPIRATION FINANCIAL CRISIS PROGRAM
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11- PENSION & ENTITLEMENTS CRISIS
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Jobless rate hints at permanent shift G&M
The White House Attempts To Refute The Scariest Jobs Chart Ever
BI
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According to The White House, this is the wrong way to look
about it. A post on the
White House blog offers up a chart they'd prefer you to use.
The idea: If you line up employment at the economic
troughs (i.e. the beginning of the recovery), then you'll see that
this recession is above average in terms of the time it took to
return to job creation. Here are the two charts they show:
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First off, neither of the recoveries are nearly as impressive
as 1982, but that's okay, and well known.
Secondly, only the second chart -- hours of production -- shows
a return to growth that's at all above "trend" if trend is defined
as merely the 1991 and 2001 recessions.
What's more increased hours of production is consistent with an
economy that's hiring less, but getting more productivity (up
until recently) from the existing workforce.
But beyond that, we don't think you can just ignore the
steepness of the decline leading into the trough. We may be
creating employment hours faster than in 1991 and 2001, but the
decimation just wasn't nearly as bad.
In the end, with this stuff, you can torture the data to get
any story you want. But the jobs situation really is as bad as
advertised, and The White House's attempt to refute this actually
just emphasizes that.
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13- GOVERNMENT BACKSTOP INSURANCE |
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14- CORPORATE BANKRUPTCIES |
Central Asia’s Perfect Storm Project-Syndicate
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19- PUBLIC POLICY MISCUES |
STIMULUS II
Full text of Obama's Speech at Labor Rally WSJ
Obama Unveils Infrastructure Plan WSJ
| Obama unveiled a new $50 billion proposal to improve the
nation's highways, airports and railways – the latest attempt by
the administration to jump-start the sputtering economy. |
Obama Set To Launch Brand New Homeowner Bailout On Tuesday BI
Why Obama's New $50 Billion Infrastructure Stimulus Will Flop On Every
Level BI
| You can't call it a stimulus, but
Obama has announced a new $50 billion infrastructure
initiative. This is going to be a big "nothing" on two levels.
First, we hate to say it, but $50 billion just isn't needle
moving, especially when you consider that the initial stimulus was
$700 billion, and critics who said it was too small were looking
for at least another half-a-trillion (or about that).
But beyond that, it won't work out politically.
That's what Paul Krugman correctly pointed out in his latest piece. Because
the initial efforts to stimulate the economy failed (Krugman says it's because
they were too small) the public isn't inclined to trust follow-on efforts that
work along the same lines. That's also why the new
homeowner bailout will flop (because after HAMP nobody thinks the government
can do much for housing).If Obama wants to break this cycle (of public
disillusionment with stimulus) it needs to be something radical
and clear like a
payroll tax holiday. We're intrigued by that -- unfortunately
it doesn't sound like this is actually on the table.
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OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
19-US PUBLIC POLICY MISCUES
24-RETAIL SALES
26-GLOBAL OUTPUT GAP
31-FOOD PRICE PRESSURES
Grain prices spark global supply fears CBC
32-US STOCK
MARKET VALUATIONS
John Hussman- No, The Markets Aren't Excessively Bearish BI
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
------------
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GENERAL INTEREST
Montary
Base and Bank Lending: You Can Lead a Horse to Water… FRBSL
The Myth of Exponential Growth Bear’s Liar
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
ICI Mutual Fund Statistics Swenlin
Are Investors Unfair to U.S. Stock Funds? NYT
Downside Protection Has Its Downsides WSJ
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Money has hemorrhaged out of U.S. stock funds for 18 weeks in a row,
with an estimated $15 billion flowing out in August alone |
Last
55 Points of S&P Rally Is Probably Short Covering Kass
MARKET &
GOLD MANIPULATION
VIDEO TO WATCH
QUOTE OF THE WEEK
To paraphrase Oscar Wilde
Investors
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.
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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.ont>
© 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
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09-07-10
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ARCHIVAL |
READING
THE RIGHT BOOKS? NO TIME?
WE HAVE IT ANALYZED
& INCLUDED IN OUR LATEST RESEARCH PAPERS!
ACCEPTING
PRE-ORDERS
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TIPPING POINTS |
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1-SOVEREIGN DEBT &
CREDIT CRISIS |
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2-EU BANKING CRISIS |
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3-BOND BUBBLE |
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4-STATE & LOCAL
GOVERNMENT |
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5-CENTRAL & EASTERN EUROPE |
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6-BANKING CRISIS II |
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7-RISK REVERSAL |
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8-COMMERCIAL REAL ESTATE |
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9-RESIDENTIAL REAL ESTATE -
PHASE II |
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10-EXPIRATION FINANCIAL
CRISIS PROGRAM |
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11-PENSION CRISIS |
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12-CHRONIC
UNEMPLOYMENT |
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13-GOVERNMENT BACKSTOP
INSUR. |
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14-CORPORATE
BANKRUPTCY |
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15-CREDIT CONTRACTION II |
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16-US FISCAL IMBALANCES |
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17-CHINA BUBBLE |
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18-INTEREST PAYMENTS |
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19-US PUBLIC POLICY MISCUES |
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20-JAPAN DEBT DEFLATION SPIRAL |
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21-US RESERVE CURRENCY. |
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22-SHRINKING REVENUE GROWTH RATE |
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23-FINANCE & INSURANCE WRITE-DOWNS |
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24-RETAIL SALES |
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25-US DOLLAR WEAKNESS |
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26-GLOBAL OUTPUT GAP |
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27-CONFIDENCE - SOCIAL UNREST |
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28-ENTITLEMENT CRISIS |
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29-IRAN NUCLEAR THREAT |
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30-OIL PRICE PRESSURES |
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31-FOOD PRICE PRESSURES |
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32-US STOCK MARKET VALUATIONS |
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33-PANDEMIC |
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34-S$ RESERVE CURRENCY |
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35-TERRORIST EVENT |
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36-NATURAL DISASTER |
Book Review- Five Thumbs Up for Steve Greenhut's
Plunder! Mish
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