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COMMENTARY for all articles by
Gordon T Long
INNOVATION: America has a Structural Problem
 I
gave President Barrack Obama six months to roll-out his doomed
Keynesian policies, twelve months to discover they were flawed and
eighteen months to realize that the solution to America’s problems
must lie within a different economic framework. I had hoped by the end
of twenty-four months to see new policies closer to an Austrian
economic philosophy emerge. I was wrong.
Though, even the Wall Street Journal recently featured an article on the
re-emergence of the Austrian School of Economic philosophy, it would
appear that President Obama’s administration still neither gets it, nor I
am afraid ever will.
Key defections by his leading economic advisors, talk of the need for QE
II and a Stimulus II, and a political collapse in public confidence
suggests a growing awareness that Keynesian policies are not working, as
many predicted they wouldn’t. Obama's exciting rhetoric of Hope and Change
has left myself and the majority of recent polled Americans disillusioned
and disappointed. What I see the administration failing to grasp is
twofold:
I-America has a Structural problem, not a cyclical business cycle problem.
Though the cyclical business cycle was greatly worsened by the financial
crisis, I would argue that the structural problem facing the US is
actually a contributor to what caused the financial crisis.
II- America has a Credit demand problem, not a Credit supply problem. It
isn’t that the banks won’t lend, but rather that few can any longer afford
or qualify (on any reasonably and historically sound basis) to borrow.
READ MORE
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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
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READER ROADMAP
- 2010 TIPPING POINTS aid to
positioning COMMENTARY
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Last Update:
09/18/2010 03:18 AM
SCHEDULE: 1st Pass: 5:30AM EST, 2nd Pass: 8:00 AM, 3rd Pass 10:30
AM. Last Pass 5:30 PM
Complete Legend to the Right, Top Items below.
Articles with
highlights, graphics and any pertinent analysis found below.
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1
1-SOVEREIGN DEBT |
2-EU BANKING CRISIS |
3-BOND BUBBLE |
4-STATE &
LOCAL GOVERNMENT |
5-CENTRAL & EASTERN EUROPE |
6-BANKING CRISIS II |
7-RISK REVERSAL |
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8-COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE -
PHASE II |
10-EXPIRATION FINANCIAL
CRISIS PROGRAM |
11-PENSION CRISIS |
12-CHRONIC
UNEMPLOYMENT |
13-GOVERNMENT BACKSTOP
INSUR. |
14-CORPORATE
BANKRUPTCY |
|
TODAY'S TIPPING POINTS UPDATE |
RED ALERT |
AMBER ALERT |
ACTIVITY |
MONITOR |
|

Click to Enlarge

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09-17-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
Iran’s
Global Ambitions - Part II
YALE Global
ISREAL
KOREA
1-
SOVEREIGN DEBT & CREDIT CRISIS |
Demand
for U.S. Long-Term Financial Assets Increased in July
BL
Treasury
A Serious Warning About Muni Bonds Comments Feed Personal Liberty
4- STATE
& LOCAL GOVERNMENT |
States
face fiscal consequences if Bush-era tax cuts expire
Stateline
5-
CENTRAL & EASTERN EUROPE |
Hungary Minister Says No Need for Austerity: Report
Reuters
BASEL III
After
Basel, the Banks Are Not Safer
BW
Global
Liquidity Drying Up — Commodities, Stocks and Economies at Risk!
M&M
8-
COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE - PHASE II |
U.S.
Home Seizures Reach Record for Third Time in Five Months
BL
“We’re on track for a record year for homes in foreclosure and
repossessions. There is no improvement in the underlying
economic conditions.” |
The Great Housing Bamboozle- A Look Behind The Numbers Shows Home
Ownership To Be A Horrible Investment Daily Bail
Without question, the best way to make people love you
politically is to throw Tootsie rolls into the crowd. In lieu of
sugary treats, making an impassioned plea for education
is a close second. No one wants to see their kid grow up to be a
potato head, right?
Today we’ll be exploring the mathematics behind the US housing
market over the last thirty years to determine how smart we really
want our kids to be. If you can successfully complete (or at least
understand) the accompanying quiz you’ll have a more thorough
understanding of economic realities than every Ivy League
professor (including Nobel Laureates) active in government and
mainstream media.
Question #1 – Joe and Mary Twelvepack, an
average American couple, buy the average American home in 1980.
They pay the average American price ($76,400) and
take out the average American mortgage. 29 years later, they sell
the home to another couple for the 2009 average American price of
$270,900. How much did they profit from the sale
(assume the mortgage has been paid in full)?
A: If you said $194,500 ride
the pony, big guy.
Author’s note: If you only aspire to be as intelligent as
Uncle Sam wants you to be, STOP HERE.
Question #2 – According to the
BLS,
cumulative inflation from 1980 to 2009 was 160.36%.
a)What is the simple inflation adjusted value of the
house? b)How much of the Twelvepack’s
profit was the result of inflation and c)how
much was their profit after inflation?
a) $198,915.04 ($76,400 * 2.6036)
b) $122,515.04 ($198,915.04 – 76,400)
c) $ 71,984.96 ($270,900 – $198,915.04)
C’mon, chin-up buckaroo. The Twelvepacks still made money.
Beating inflation is the name of the game, right?
Well, there is one other factor we should probably consider:
The effect interest rates had on the value of the Twelvepack’s
“investment”. After all, re-fiing the house at ever lower interest
rates is how they paid for Mary’s boob job, Joe’s rehab, that boat
in the driveway, and the kids’ braces. God knows it wasn’t their
ability to earn more.
Question #3 –The average 1980 mortgage was
14.005% APR (13.74% w/ 1.8 pts.) and the couple that bought it,
the Fourpacks, got 5.1015% APR (5.04% w/ 0.7 pts plus cool
cash from Uncle Sam) Their 30-year fixed mortgage payments
are $1471.10. a)How big of a
mortgage would that payment get if interest rates were the same as
in 1980? b)How much of the Twelvepack’s “profit”
can be directly attributed to the change in interest rates?
a) $124,206 (you’ll need Excel to calculate
this if you’re not Korean)
b) $146,694 ($270,900 – $124,206)
Question #4 –So there you have it. 74% of the
Twelvepack’s gain can be attributed to the 9% drop in interest
rate. When you strip out the interest rate effect, the
house underperformed inflation by more than 60% over 30 years
(and that’s excluding all other costs associated with the
American dream), which of course means this wasn’t actually an
investment at all. How many Americans understand this?
A: Not many.
Somehow the mathematical realities of the US housing market
have completely escaped the education-loving American public as
they continue to assume that the next thirty years will yield
results similar to the last thirty. Utterly freaking
impossible. We can’t drop mortgage interest rates 9% again
(currently 4.4%), but we should expect houses to continue to
underperform inflation.
Despite our perception, the earth turns. That’s what makes day
and night, and that’s why it seems like the sun travels through
our sky. It took human beings more than 2,000 years to fully
embrace that truth. Teaching your children that houses are good
investments (‘cuz look how it worked out for you) and they’re
lucky to have such low mortgage interest rates is about as
enlightened as sacrificing them to Moloch so the Sun will continue
to rise.
Right now, the powers that be are bazooka-ing tootsie rolls
into the crowd at an unprecedented rate. So if your child asks
you, “Who’s gonna pay for all this?” maybe you should just say,
“Shut-up and eat your paint chips, kid.”
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10- EXPIRATION FINANCIAL CRISIS PROGRAM
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11- PENSION & ENTITLEMENTS CRISIS
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Retirement on Hold: American Workers $6 Trillion Short
CNBC
The $6 Trillion 401K Grab Financial Sense
The actual debt numbers are insane. Public Debt is over
$13,433,000,000,000.00 (13.4 trillion). Add the GSE
(Freddie/Fannie) debt to that and we are over 18 trillion. Pile on
the unfunded liabilities hidden on the government’s off balance
sheet ledgers: Social Security (14.6 trillion), Prescription Drugs
(19.2 trillion), Medicare (76 trillion) and we come up with 128
trillion dollars.
128 trillion dollars of debt is why workers toil 227 days just
for Uncle Scam and have no money to save. Stealing their savings
and blowing it like they blew social security will not fix
anything.
Like Doug Casey says; “giving politicians the ability to borrow
is like giving a teenager a bottle of whiskey and the keys to a
Corvette.” Great words but “giving politicians” needs to be
replaced with “letting politicians steal”.
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13- GOVERNMENT BACKSTOP INSURANCE |
14- CORPORATE BANKRUPTCIES |
FedEx
Profit Disappoints; To Cut 1,700 Jobs
AP
Small
Business Can't Get Loans From Bailed-Out Banks in U.S.
BL
19- PUBLIC POLICY MISCUES |
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
19-US PUBLIC POLICY MISCUES
24-RETAIL SALES
26-GLOBAL OUTPUT GAP
31-FOOD PRICE PRESSURES
32-US STOCK
MARKET VALUATIONS
GENERAL INTEREST
Rosenberg- Small Business Spending Plans Spell Doom In The Next Year
BI
David Rosenberg warns:
The National Federation of Independent Business’s (NFIB)
capital spending intentions index dipped to 16 in August from 18
in July and is now down three straight months after peaking out at
the beginning of the year. This index leads industrial production
growth by six months, and at a time when there has been a record
divergence between the two data series. In the name of Bob
Farrell’s Rule #2, as it pertains to mean reversion, either NFIB
surges from here or ... look out below with regard to the growth
rate in industrial activity.
|
Real
World Solutions To Economic Tyranny Neithercorp
43.6 Million Americans Living In Poverty Is The Highest Number Ever
Recorded BI
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
MARKET &
GOLD MANIPULATION
Congressmen Weiner and Waxman Set Gold Hearing Seeking Alpha
AUDIO / VIDEO
Llink to Pento post-mortem on King World News
Zero Hedge Commentary on CNBC Interview: For some, this
week's incident on CNBC where Michael Pento was kicked off CNBC
for daring to question the basic assumption that his host Erin
Burnett presented as fact, was perplexing (to others, who are well
aware of the modus operandi of the TV station is, not so
much). In a follow up interview that was uninterrupted by
commercial breaks and octoboxes, with King World News, Michael
Pento gives a post-mortem of just what transpired: "I looked at it
4 times and I don't when I went off the rails, I thought it was a
bit unwarranted. All I was doing was being very passionate about
an issue I feel very strongly about." The core of the disagreement
of course, is the underlying assumption which CNBC takes as
gospel, which is that no matter what, interest rates will not, are
not allowed to rise (which together with a failed treasury
auction, will be the key indicators of the "beginning of the
end"). And Pento is completely right to question this as the
underlying "factual basis" of any rhetorical question: "We as
Americans have no right to believe that interest rates on the 10
year, which are far below their historic 49 year average, 7.31%,
are now on 2.7%, so the onus is not on me that interest rates will
rise. The onus is on other people to convince me and the investing
public that the US bond market will always be in a perpetual
bubble that will never burst. And if you look at the data, it
shows that this can not be a sustainable situation." Pento then
goes on to highlight all the facts that certainly make his case,
but that ultimately all collapse into one thing: that the Fed will
be able to continue to control, and frankly, manipulate the rate
market for perpetuity. This is a flawed assumption and sooner or
later Ben Bernanke will lose control as with every system which is
in disequilibrium, the snapback to a sustainable balance will
occur, and the longer it is kept away from its natural state, the
more violent the snapback will be.
One point that Pento discusses that bears further attention, is
his argument that governmental investment in the economy should
decline and the private sector should be encouraged to pick up the
slack. Of course, with the
Balance
of Payments equation which is now on the forefront of public
attention, this means that unless the Current Account goes
positive, the private sector is unlikely to be able to pick up the
slack from a collapse in endless governmental stimulus (and thus
constant debt creation). Which goes to the crux of the
Keynesian-Austrian debate. Many would say here that instead of
having funded the government apparatus, which as even
Mort Zuckerman points out is beyond unwieldy and has grown
excessively, the government should have instead have focused on
making the US competitive from an international trade standpoint,
a topic even
Warren Buffett lamented in his non-corrupt days, when he was
actually a voice of reason, and not just unbridled, government
captured greed. Alas, that would mean a total break from the
current Chinese trade surplus hegemony and realigning the US
economy in a way that would result in a dramatic shock to millions
of people who realize they are simply uncompetitive in the global
picture (and thus redundant in the job market) but which would
serve as another much needed reset to get America off on a way to
long-lost prosperity with an attempt to reincarnate the American
manufacturing sector while gradually phasing out the service
sector (and especially its "financial innovation" component) . Yet
as
Gorgon T. Long also pointed out a few days ago, America is now
dead set on repeating the destructive Keynesian mistakes of the
past, and will continue to fund a broken model until one day, as
Michael Pento all too correctly points out, it all snaps, and the
"shocking" death of Keynesianism,
as described a month ago by Eric Sprott, catches all so many
completely unaware.
Of course to explain all this to Erin Burnett, who still
believes that the government has done a great job with the
"fastest" recovery in the past 20 years, which would be correct if
one could eliminate those little pesky things known as "facts", is
beyond folly. All those who are invited to CNBC, and dare to
explain the truth: you have been warned.
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QUOTE OF THE WEEK
“The great enemy of the truth,” John
F. Kennedy declared in a 1962 commencement address at Yale
University, “is very often not the lie – deliberate, contrived and
dishonest – but the myth – persistent, persuasive and
unrealistic.”
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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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WE HAVE IT ANALYZED
& INCLUDED IN OUR LATEST RESEARCH PAPERS!
ACCEPTING
PRE-ORDERS
TIPPING POINTS |
1-SOVEREIGN DEBT &
CREDIT CRISIS |
2-EU BANKING CRISIS |
3-BOND BUBBLE |
4-STATE & LOCAL
GOVERNMENT |
5-CENTRAL & EASTERN EUROPE |
6-BANKING CRISIS II |
7-RISK REVERSAL |
|
8-COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE -
PHASE II |
10-EXPIRATION FINANCIAL
CRISIS PROGRAM |
11-PENSION CRISIS |
12-CHRONIC
UNEMPLOYMENT |
13-GOVERNMENT BACKSTOP
INSUR. |
14-CORPORATE
BANKRUPTCY |
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15-CREDIT CONTRACTION II |
16-US FISCAL IMBALANCES |
17-CHINA BUBBLE |
18-INTEREST PAYMENTS |
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19-US PUBLIC POLICY MISCUES |
20-JAPAN DEBT DEFLATION SPIRAL |
21-US RESERVE CURRENCY. |
22-SHRINKING REVENUE GROWTH RATE |
23-FINANCE & INSURANCE WRITE-DOWNS |
24-RETAIL SALES |
25-US DOLLAR WEAKNESS |
26-GLOBAL OUTPUT GAP |
27-CONFIDENCE - SOCIAL UNREST |
28-ENTITLEMENT CRISIS |
29-IRAN NUCLEAR THREAT |
30-OIL PRICE PRESSURES |
31-FOOD PRICE PRESSURES |
32-US STOCK MARKET VALUATIONS |
33-PANDEMIC |
34-S$ RESERVE CURRENCY |
35-TERRORIST EVENT |
36-NATURAL DISASTER |

Book Review- Five Thumbs Up for Steve Greenhut's
Plunder! Mish
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