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COMMENTARY for all articles by
Gordon T Long
PRESERVE & PROTECT: The Jaws of Death

The United States is
facing both a structural and demand problem - it is not the cyclical
recessionary business cycle or the fallout of a credit supply crisis
which the Washington spin would have you believe.
It is my opinion that
the Washington political machine is being forced to take this position,
because it simply does not know what to do about the real dilemma
associated with the implications of the massive structural debt and
deficits facing the US. This is a politically dangerous predicament
because the reality is we are on the cusp of an imminent and
significant
collapse in the standard of living for most Americans.
The politicos’ proven
tool of stimulus spending, which has been the silver bullet solution for
decades to everything that has even hinted of being a problem, is
clearly no longer working. Monetary and Fiscal policy are presently no
match for the collapse of the Shadow Banking System. A $2.1 Trillion YTD
drop in Shadow Banking Liabilities has become an insurmountable problem
for the Federal Reserve without a further and dramatic increase in
Quantitative Easing. The fallout from this action will be an intractable
problem which we will face for the next five to eight years, resulting
in the “Jaws of Death” for the American public.
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:
09/19/2010 04:56 PM
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.
|
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 |
|
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

|
09-18-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISREAL
KOREA
1-
SOVEREIGN DEBT & CREDIT CRISIS |
More On The ECRI Leading Indicator Comstock
Consumer Sentiment at Weakest Point Since August 2009
Reuters
Consumer Sentiment declines in September, lowest level in a year
Calculated Risk
This was a big story in July when consumer sentiment
collapsed to the lowest level since late 2009. Now it is
even lower ... |
U.S. Consumer Prices Rose 0.3% in August, Core Rate Unchanged
BL BLS
Inflation- Core CPI, Median CPI, 16% trimmed-mean CPI
Calculated Risk
The Cleveland Fed has
released the median CPI:
According to the Federal Reserve Bank of Cleveland,
the median Consumer Price Index rose 0.1% (0.6%
annualized rate) in August. The 16% trimmed-mean
Consumer Price Index increased 0.1% (1.2% annualized
rate) during the month. ... Over the last 12
months, the median CPI rose 0.5%, the trimmed-mean CPI
rose 0.9%, the CPI rose 1.1%, and the CPI less food
and energy rose 0.9%.

Click on
graph for larger image in new window.
This graph shows three measure of inflation, Core CPI,
Median CPI (from
the Cleveland Fed), and 16% trimmed CPI (also from
Cleveland Fed).
They all show that inflation has
been falling, and that measured inflation is up less than
1% year-over-year. Core CPI was flat, and median CPI and
the 16% trimmed mean CPI were up 0.1% in August.
Note: The Cleveland Fed has a discussion of a number of
measures of inflation:
Measuring Inflation
|
U.S.
economy "gradually deteriorating": Levy
TTicker
A Telltale Recession Indicator Was Buried Inside Yesterday's Philly Fed Survey
BI
The percentage of companies reporting
seeing a decrease in sales broke over 30%, and
historically everytime that's happened, a new recession
has followed closely thereafter (there is one exception,
when the tech bubble saved everything -- bubbles can do
that).
The chart is a bit hard to read, but
the blue line represents companies reporting decreasing
orders, and the orange line in the middle is 30, which you
can see the blue line just broke above.
In the past, this has always come just
before the shaded areas (recessions).
The green line is the ISM -- there's a
good chance we'lls ee more of that.
Click here for more details from the ugly Philly Fed
report >
|
American Households Just Slashed Their Debt At A Record Pace
BI
We all know the American government is
spending more and consumers are spending less, but the
level of deleveraging in the household sector has picked
up pace significantly, according to the Federal Reserve's
flow of
funds report (via
Zero Hedge).
Approximately $300 billion in household debt was paid down in Q2 2010,
according to
the report. This is the 9th quarterly decline in a row in household debt,
and was at an annual rate of 2.25%. The severity of the debt-slashing hit a new
record.Household wealth fell by $1.5 trillion
overall in Q2. That's government borrowing in purple, and negative household borrowing in blue. |
|
Zero percent for your money! MW
Nearly one in four taxable money funds has a current yield of
0.00%. |
4- STATE
& LOCAL GOVERNMENT |
5-
CENTRAL & EASTERN EUROPE |
SEC
Eyes New Rules on Banks' Debt-Level Disclosure AP
Raising the curtain on the private nature of derivatives FT
Many derivatives contracts are rarely, if ever, traded
Shadow Bank Liabilities Plunge By $700 Billion In Q2, $2.1 Trillion Year
To Date ZH
Continuing the analysis of today's Z.1 report, we next focus on
recent developments in the shadow banking system. And it's
a bloodbath: total shadow bank liabilities dropped by
$680 billion in Q2, and a massive $2.1 trillion YTD.
If one wonders why Ben Bernanke (yes, it's technically
TurboTim) continues to print trillions and trillions of debt, and
it is still doing nothing (yet) to stimulate the system,
here is your answer.
As credit will only exist if i) it is needed and ii) there are
cash paying assets (or at least the myth thereof) to support its
existence, the latest plunge in the shadow banking system is
merely the most recent confirmation that the deleveraging in
America is only just beginning. In fact, from the peak of the
credit bubble in Q2 2008, through Q2, total bank liabilities
(shadow and traditional) have plunged by $2.6 trillion, from $32.1
trillion to $29.5 trillion. Yet it is the collapse in shadow
banking that was responsible, with shadow liabilities falling by a
stunning 20% from $21 trillion to $17 trillion in just over two
years even as banks have benefitted from the transfer of cheap
government cheap on their traditional lending books (think Fed
intervention and QE, leading to record low interest rates).
What this means is very clear: the shadow banking system is
collapsing, period. Yes, the rate of collapse is slower than in
Q1, but the total plunge was still a whopping $4.2 trillion
annualized for 2010. And the delta between Shadow Banking and
Traditional liabilities has collapsed from $10.7 trillion at the
peak in March 2008, down to under $4 trillion. This is a record
amount of "money" being removed from the system, and explains why,
for now at least, the velocity of money is nothing faster than a
crawl.
That said, if and when this indicator plateaus and recommences
climbing, will be a very "sensitive" moment for all deflationists
and inflationists as it will mark the inflection point from credit
contraction to renewed credit creation. Alternatively, the Fed can
merely force credit into traditional bank liabilities, which banks
can then proceed to use and purchase stocks and commodities, at a
zero cost of debt. What that will do to select asset prices, we
leave to our readers' imagination.
Chart 1: Total sub-components of the shadow banking system
|

8-
COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE - PHASE II |
10- EXPIRATION FINANCIAL CRISIS PROGRAM
|
11- PENSION & ENTITLEMENTS CRISIS
|
Pension Funds Gap Looms Larger WSJ
Many of America's largest pension funds are sticking to
expectations of fat returns on their investments even after a
decade of paltry gains, which could leave the U.S. with an even
larger pensions shortfall than expected. Many of America's
largest pension funds are sticking to expectations of fat returns
on their investments even after a decade of paltry gains, which
could leave U.S. retirement plans facing an even deeper funding
hole and taxpayers on the hook for huge additional contributions.
The median expected investment return for more than 100 U.S.
public pension plans surveyed by the National Association of State
Retirement Administrators remains 8%, the same level as in 2001,
the association says.
The country's 15 biggest public pension systems have an average
expected return of 7.8%, and only a handful recently have changed
or are reconsidering those return assumptions, according to a
survey of those funds by The Wall Street Journal.
Corporate pension plans in many cases have been cutting
expectations more quickly than public plans, but often they were
starting from more-optimistic assumptions. Pension plans at
companies in the Standard & Poor's 500 stock index have trimmed
expected returns by one-half of a percentage point over the past
five years, but their average return assumption is also 8%,
according to the Analyst's Accounting Observer, a research firm.
Pension funds at companies in the S&P
500 faced a $260 billion shortfall at the end of 2009, according
to Standard & Poor's.
Estimates of the fund deficits faced
by state and local governments range from $500 billion to $1
trillion.
|
No increase to Social Security Benefits for 2011 (unofficial)
Calculated Risk
America isn't working and the rest of the world should be alarmed
Independent
California Employment Hooks Downward Once Again BI
13- GOVERNMENT BACKSTOP INSURANCE |
14- CORPORATE BANKRUPTCIES |
US-China clash over yuan escalates, risking superpower stand-off Tele
China Now Runs the World, Soros Says TheStreet
There's really nothing the U.S. can do to accelerate the
liberalization of China's currency policy, Soros said... |
China's Get-Out-Of-Jail Card Vexes Geithner Pesek
Such beggar-thy-neighbor policies will only get Asia so far.
Everyone simultaneously wants to export their way out of trouble
and can’t... |
Geithner vows to take China currency dispute to G20 Reuters
Yuan hits record high Xinhua
China's yuan on long gaining streak People's Daily
China to Expand Cross-Border Yuan Settlement Regions BW
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
Our
Best Minds Are Failing Us Hirsh
With America in deep trouble, our economists are AWOL, and our
scientists are still off ‘financial engineering.’ |
Fiscal policy and global imbalances VOX
Why there's such a dividend deluge Jubak
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
Biggest Monthly Bearish-To-Bullish Swing In 6 Years Zero Hedge
Robert Prechter- We're On The Verge Of The Biggest Bear Market In 300
Years BI
MARKET &
GOLD MANIPULATION
The Golden Ratio Price
The Fed's gold problem La Monica
Greenspan’s Warning on Gold NY Sun
“Fiat money has no place to go but gold”
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.
|
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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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 |
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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. |
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24-RETAIL SALES |
25-US DOLLAR WEAKNESS |
26-GLOBAL OUTPUT GAP |
27-CONFIDENCE - SOCIAL UNREST |
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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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