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COMMENTARY for all articles by
Gordon T Long
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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:
09/20/2010 10:08 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.
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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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09-20-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISREAL
KOREA
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1-
SOVEREIGN DEBT & CREDIT CRISIS |
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El-Erian: Europe’s debt crisis and the global
configuration of currencies returning to the for
FTA
The IMF itself has become the problem as Europe's woes return
Pritchard
GREECE
Greek bank stress tests delayed
FT
Athens to raise more money on capital markets
Steinbrück sees Greece rescheduling
FT
SPAIN
GERMANY
Britain's Former Treasury Chief Blames The Germans For
Sovereign Debt Chaos BI
FRANCE
UK
U.K. to Examine Bank Sector WSJ
UK Proposes All Paychecks Go to the State First
HMRC
(Source:
proposal by Her Majesty’s Revenue and Customs (HMRC)
)
IRELAND
Irish Bank Bailout May Cost $52 Billion, Ex-NTMA Head
Somers Tells Times BL
Ireland IMF bail-out rumours spook markets
Telegraph
JAPAN
Cash Is King for Japan Households as Pessimism Threatens
Japan's Recovery BL
Japan Intervenes (last week) In Foreign Exchange Market-Chart
BCAR
Despite the Bank of
Japan’s efforts last week to weaken the yen, without an
accompanying change in monetary policy, those efforts are
unlikely to succeed in reversing the yen’s primary uptrend
versus the U.S. dollar.
The Japanese yen
fell earlier last week as the Bank of Japan (BoJ)
intervened in the foreign exchange market to sell the
currency for the first time since 2004. Prior to the
intervention, the yen was perched at a 15 year high
against the U.S. dollar. While there is speculation that
the monetary authorities will leave the intervention
unsterilized, the size of the action is unlikely to change
the underlying upward trend in the yen. Indeed, our
Foreign Exchange Strategy service
cautioned a few weeks ago that [in the event of
intervention] “USD/JPY will almost certainly spike
higher. However, for currency intervention to have a long
run impact, it must occur with a change in monetary
policy.” In any case, there is little chance that the
BoJ will ramp up its quantitative easing measures
sufficiently to make a difference. The Fed is purportedly
considering the purchase of an additional $1 trillion of
assets, or about 7% of U.S. nominal GDP. An equivalent
amount relative to the size of the Japanese economy is ¥33
trillion. In our opinion, it is very unlikely that the BoJ
will pursue such a bold policy. Furthermore, comments by a
top Japanese government official following the
intervention will likely invite further speculation on the
yen: Chief Cabinet Secretary Yoshito Sengoku was quoted as
saying that the Ministry of Finance (MoF) “seems to
think” 82 yen per dollar needs to be defended. By
drawing a ‘line in the sand’ the MoF is only persuading
currency traders to test the BoJ’s resolve. The bottom
line is that investors should continue to hold strategic
long positions in the yen versus the dollar.
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ECB considers action on ‘addicted’ banks FT
| Overall lending by the ECB has fallen to about €600bn ($780bn)
compared with peaks of up to €900bn. But the amounts have
stabilised at high levels in those countries worst hit by this
year’s crisis over public finances. Greek, Spain, Portugal and
Ireland account for 61 per cent of the total, despite comprising
only 18 per cent of eurozone gross domestic product |
BayernLB and WestLB in merger talks FT
Tie-up would create Germany’s third-biggest bank
Bond Surge Driven by Supply and Demand
WSJ
| Lost in the debate over whether the bond market is in a bubble
is the concept of supply and demand. Overall borrowing in the U.S.
remains down, so investors seeking safe returns are competing for
a limited supply of debt. |
Junk bond prices hit pre-crisis levels
FT
| More sub-investment grade debt sold this year than in all 2009 |
The Dangers of Debt-Driven Economic Growth BJ
Review
Mortgage Bonds in Canada Lure Yield Starved U.S. Investors
BL
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4- STATE
& LOCAL GOVERNMENT |
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5-
CENTRAL & EASTERN EUROPE |
Six Banks Fail as Georgia Lender Community & Southern Acquires Three
BL
The Layoffs Begin- Bank Of America Will Cut 5% Of Capital Markets
Employees Before Bonus Season BI
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8-
COMMERCIAL REAL ESTATE |
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9-RESIDENTIAL REAL ESTATE - PHASE II |
How Underwater Mortgages Can Float the Economy
Hubbard NYT Op-Ed
Defaults Account for Most of Pared Down Debt WSJ
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Over the two years ending June 2010, the total value of
home-mortgage debt and consumer credit outstanding has fallen by
about $610 billion, to $12.6 trillion, according to the
Federal Reserve. That’s an annualized decline of about
2.3%, which is pretty impressive given the fact that such debts
grew at an annualized rate in excess of 10% over the previous
decade.
There are two ways, though, that the debts can decline: People
can pay off existing loans, or they can renege on the loans,
forcing the lender to charge them off. As it happens, the latter
accounted for almost all the decline. Our own analysis of data
from the Fed and the Federal Deposit Insurance Corp. suggests that
over the two years ending June 2010, banks and other lenders
charged off a total of about $588 billion in mortgage and consumer
loans.
That means consumers managed to shave off only $22 billion in
debt through the kind of belt-tightening we typically envision. In
other words, in the absence of defaults, they would have achieved
an annualized decline of only 0.08%.
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10- EXPIRATION FINANCIAL CRISIS PROGRAM
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11- PENSION & ENTITLEMENTS CRISIS
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Pension Funds Gap Looms Larger WSJ
Funds Stick to 'Unrealistic' Return Assumptions, Threatening
Bigger Shortfalls
The Illusion of Pension Savings NYT
The Stagnant Labor Market Roosevelt
Institute
Below is a commentary on the Roosevelt Paper (.pdf above)
Why High Unemployment Is Much Worse This Time Than Ever Before
BI
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13- GOVERNMENT BACKSTOP INSURANCE |
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14- CORPORATE BANKRUPTCIES |
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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
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
------------
Why Ben Bernanke Should Completely Ignore The Commodity Inflation
All Around Him BI
There's no doubt that commodity inflation is happening all around the world,
as our colleague Henry Blodget noted earlier. Soft
commodities, hard commodities, and precious metals have made impressive
moves in recent months, helped in large part -- it's believed -- by ongoing
robust demand in much of the semi-developed world (China, the rest of Asia,
India, Brazil), and of course the "growth" in US and Europe. So when the FOMC meets in the coming week, it should take into account this
inflation, right? Absolutely not.
What Bernanke and the rest of the FOMC should be concerned with is domestic
inflation -- inflation that was the result of there being a lack of slack in the
US economy. So, for example, if domestic rents, wages, and home
prices were back on the march higher, then there's a good chance that added
monetary stimulus would merely serve to push prices higher, rather than help
stimulate demand. Sure, added US demand would also have a further inflationary effect on global
commodity markets, but that's a separate issue from the one facing the FOMC. Commodity inflation is confusing, but it's not a monetary phenomenon, and it's
not one that need to distract the FOMC.
This is an important point, because in the summer 2008 (post- Bear Stearns!),
the ECB made a classic policy blunder -- as the world was careening towards a
financial crisis, the
ECB
raised interest rates in part due to surging oil prices. Obviously, this was
soon proven foolish, as the bank eventually backtracked during the crisis, but
because of commodity inflation, the ECB took its eye of the ball.The inflation gauge that actually matters in the US -- for all its faults, the
CPI -- indicates that there really is none out there (and the CPI is probably
overstating the inflation, since the full extent of the housing plunge isn't
being captured).
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Competitive Monetization Noland
Central Banks Embrace Risky Currency Gambit Forsyth
Fed Will Retain Policy on Assets, Low-Rate Pledge, Survey Shows
BL
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GENERAL INTEREST
DEFLATION- Who Are They Kidding- Commodities Prices Are Going Through The
Roof BI
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A few weeks ago, everyone began to agree that
the US was headed for a decade of Japan-style deflation. The
banks weren't lending, consumers weren't borrowing, the Fed's
desperate attempts to create inflation weren't working, the
country was awash in excess manufacturing and labor capacity, and
so on.
And most of those things are true. In the
United States.
But the world's not just about the United
States anymore.
Several billion people in China and India and
elsewhere have recently discovered the joys of capitalism, and, as
a result, they're getting richer by the day. They're also
not up to their eyeballs in debt, the way Americans are. And
their economies are humming along, so there are plenty of jobs.
And the jobs are making them richer. And as they get richer,
they buy more stuff. And as they buy stuff, the price of that
stuff--and the raw materials used to make it--goes up.
In other words, now that the global economy
isn't collapsing anymore, the rest of the world is buying more
stuff.
And that demand is driving the price of raw
materials sky-high. (See chart below).
Will the the soaring prices of raw materials
eventually lead to real inflation in the United States, even with
our crappy economy, comatose banks, deleveraging consumers,
enormous unemployment, and excess capacity?
Actually, it might.
Because as their input prices go up, companies
will try to pass those cost increases through to consumers to
preserve their profit margins. And consumers might
pay the higher prices, at least some of them. Even if
they have to borrow more to do it.
Alternatively, consumers will have to swallow
the commodity price increases, which will result in lower profit
margins. This will lead to stagflation. And it won't be good
for the
stock market.
In any event, as the chart from
CRB below illustrates, commodity prices are inflating rapidly.
So be VERY skeptical about the sudden consensus that we're headed
for deflation. If this trend continues, we're likely headed
for stagflation...or a stock-market collapse and a lower standard
of living.
The chart was forwarded by reader David Jensen,
who adds the following:
The onset (return) of
inflation in raw materials in the CRB Spot Index is visible in the
graph below.
The bovine scatology re. “deflation” and that
Fed policy is not inflationary because the banks aren’t lending or
monetary velocity is low is just that. Note that many
components of the spot index are non-futures traded and thus
paradoxically less vulnerable to price manipulation.
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The Chances of a Double Dip Mauldin
In Great Recession, Other Nations Have Suffered More NYT
Currencies behaving badly: Why conventional practices can fail G&M
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After Japan intervened and weakened the yen, economists argue that
Canada should consider doing the same |
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
Wall Street 'casino' spooks small American investors AFP
BofA's Head Technician Calls For Market Correction ZH
MARKET &
GOLD MANIPULATION
AUDIO / VIDEO
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
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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
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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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