is something seriously wrong in America. We all sense it, but few in the
mainstream media are willing to touch it or can effectively articulate it
within the public’s sound-bite oriented attention span.
It isn’t just about the remnants of the financial crisis; it isn’t the
protracted jobs recession and slow recovery; it isn’t the trillions of
dollars in deficit spending; it isn’t the degree of rampant financial
malfeasants. It is something deeper which reaches into the soul of who we
are as a people and society. It will soon be the central theme to your
investment strategy and financial security.
On the surface it might appear we have lost our optimism about the future
and our confidence that America is still the ‘beacon on the hill’ that
countries around the world admire and look to for leadership. Though our
children mouth the platitudes taught by older generations, they ring
hollow in the hallways with video surveillance, motion detectors and metal
detectors when recited by them. The high minded ideals seem misplaced in
unemployment lines where they stand with freshly minted advanced degrees
in hand, huge education debts and little hope other than the faint
possibility of a non-paying internship position.
It isn’t that the American people have changed. Our government has
will likely surprise you but like a trolley car we are now locked into
economic tracks that determine our financial destination. Unfortunately,
it isn't a place anyone
would choose knowingly
other than possibly the Bilderberg elite.
Financially and economically we are lurching along, rocking from side to
side with the occasional unexpected jarring flash crash jolt. But unlike a
trolley line, for some reason no one seems to know what the destination
is. Many are asking but few are willing to tell.
road is well traveled and documented if you were to take the time to study
the maps and not rely on the happy face media spin doctors for directions.
route of the current global economic path is now locked in, we need to
either accept the ride or hastily exit.
from my seat and headed for the door. What are you going to do?
The sinking of the South Korean warship is not likely to lead to a
wider conflict at this point, and much of what happens on the
geopolitical scene will depend on China’s willingness to play a
mediating role, and its determination to seize the opportunity to use
its economic leverage to help denuclearize a North Korea that is on the
edge of famine. Beijing is planning $10 billion worth of infrastructure
investments in North Korea (an amount that represents 70 percent of
North Korean GDP). This is where the main opportunity is to move beyond
simply “managing” Pyongyang to “resolving” major security issues.
Germany and France are examining ways of creating a "two-tier" euro
system to separate stronger northern European countries from weaker
southern states. The creation of a "super-euro" zone would initially
include France, Germany, Holland, Austria, Denmark and Finland. A two-tier
mSenior politicians believe their economies need to be better protected as
they could not cope with another crisis on a par the one in Greece.onetary
system in the 16-member euro zone is being examined as a "plan B".
"It's an act of desperation. They are not talking about ideal solutions
but the lesser of evils. Helping Greece could be done relatively cheaply
but Spain they can't afford to let fail or bail-out. "And putting
more pressure on the people of France and Germany to save other countries
is politically unfeasible."
Nicolas Sarkozy, the French president, is understood to have been
initially cool on the idea but has grown so frustrated with Greece and now
Spain that he has allowed officials to explore proposals.
"He would prefer to keep the euro in place but if Spain, Italy and
Greece are dragging him down he accepts he may have to cut them loose,"
said the official. "They are trying to contain the contagious effect but
they don't have a solution yet."
The crunch time will come in September, when Spain has to refinance £67
billion of its foreign debt.
"The euro zone debt crisis has a long way to run,"
said one senior EU negotiator. "No one knows where it is going to end up.
Only one thing is sure, the euro zone will change."
since June, the Chinese 1 Month
Repo Rate has exploded and is not looking back.After trading in the 1.5%
area for years, in the past 3 weeks, this has nearly tripled, and today
traded at a 52-week (and close to all time) high of 3.8%. While for many
Chinese banks, flush to the gills with money due to a tapering in consumer
lending, this is not an issue, we are fairly confident there are various
banks that will be impaired by this spike. And it certainly did not occur
in a vacuum - there a distinct, and extremely levered, correlation between
the CNY fixing and the 30 Day Repo. Should China go ahead and reval the
renminbi, must we expect a complete lock up of the Chinese lending market?
Perhaps with the Shanghai Composite hitting a fresh 52 week low today, at
least someone is paying attention.
The ECRI weekly leading index is continuing its accelerating dive, and
is now well into negative territory, hitting -5.7 for the past week: a 2.2
decline from the prior week. Here is why, as David Rosenberg, this is a
critical indicator, and why we may have just 4.3 more points to go before
the critical -10 threshold: "It is one thing to slip to or fractionally
below the zero line, but a -3.5% reading has only sent off two head-fakes
in the past, while accurately foreshadowing seven recessions — with a
three month lag. Keep your eye on the -10 threshold, for at that
level, the economy has gone into recession … only 100% of the time (42
years of data)." At this rate of decline -10 will be taken out in
the first week of July.
And some more recent observations on ECRI from Rosie:
Suffice it to say, when the ECRI was drifting lower in 2007, it got
to -3.5%, where are we are now, in November and unbeknownst to the
consensus at the time that a recession was only one month away. Remember
that the economics community did not call for recession until after
Lehman collapsed — nine months after it started; and go back to 2001,
and the consensus did not call for recession until after 9/11 and again
the economy had been in recession for a good six months).
Morgan Stanley's Huw van Steenis has confirmed that the European
Stress Tests will be nothing more than a dud and a farce: the primary risk
consideration that is enveloping Europe, i.e. sovereign risk, will not
even be discussed at all in the stress tests.
The CFTC Commitment of Traders is out and, it's a doozy: the amount of
short covering in net spec EUR short positions hits what is certainly an
all time record, as just under 50 thousand (49,585) short contracts are
covered. This represents a huge 44% of all outstanding EUR net shorts
(-111,945) as of the prior week. No wonder the EUR surged, and no wonder
Goldman downgraded the EURUSD - in tried and true fashion we wonder how
many banks tightened up margin requirements only to force the biggest
short squeeze in history. It is only logical that every sellside desk
would try to sucker as many clients as they could in advance of this
rampage. The current net spec short position takes total shorts back to
levels from mid-April, when the euro was trading in the 1.30 range. This
is very bad news for existing EUR longs as it is now guaranteed that all
weak hands have certainly been shaken out. Any additional move higher will
actually have to occur for truly fundamental reasons. Alas, those will not
be coming any time soon.
Don't be fooled by today's low interest rates. The government could
very quickly discover the limits of its borrowing capacity.
By Alan Greenspan
An urgency to rein in budget deficits seems to be gaining some traction
among American lawmakers. If so, it is none too soon. Perceptions of a
large U.S. borrowing capacity are misleading.
Despite the surge in federal debt to the public during the past 18
months—to $8.6 trillion from $5.5 trillion—inflation and long-term
interest rates, the typical symptoms of fiscal excess, have remained
remarkably subdued. This is regrettable, because it is fostering a sense
of complacency that can have dire consequences.
The roots of the apparent debt market calm are clear enough. The financial
crisis, triggered by the unexpected default of Lehman Brothers in
September 2008, created a collapse in global demand that engendered a high
degree of deflationary slack in our economy. The very large contraction of
private financing demand freed private saving to finance the explosion of
federal debt. Although our financial institutions have recovered
perceptibly and returned to a degree of solvency, banks, pending a
significant increase in capital, remain reluctant to lend.
Beneath the calm, there are market signals that do not bode well for the
future. For generations there had been a large buffer between the
borrowing capacity of the U.S. government and the level of its debt to the
public. But in the aftermath of the Lehman Brothers collapse, that gap
began to narrow rapidly. Federal debt to the public rose to 59% of GDP by
mid-June 2010 from 38% in September 2008. How much borrowing leeway at
current interest rates remains for U.S. Treasury financing is highly
The WGC has released its latest report of
official gold holdings. The key buyers and sellers, well, seller,
were Russia, +27.6 tonnes, Venezuela, +3.1 tonnes, and Philippines, +10.3
tonnes, while the IMF sold 38.5 tonnes. Yet most interesting was the surge
in Saudi Arabia holdings which increased its official holdings from 143 to
323 tonnes. It appears, at least on the surface, that this was not
incremental purchasing, or at least that is how the Saudi Arabian Monetary
Authority is trying to spin it: “gold data have been modified from
First Quarter 2008 as a result of the adjustment of the SAMA’s gold
accounts.” We wonder just how a country can "reclassify" 180 tonnes,
or more than double existing holdings, in gold. Of course, if would not be
good to see the country which lies on a sea of the world's biggest
non-gold, yet $-denominated commodity to be in the market, diversifying
its dollar holdings into gold. If SA had in fact purchased the gold, it
would be equivalent to roughly $7.5 billion worth of purchases in the open
One does not even need to look at daily record gold prices to grasp
the accelerating dollar credibility loss. A better proxy might well be the
plunging assets at money market funds: in the past week these saw a
massive outflow of $37.9 billion, which represents a drop of 1.5% in total
money market assets. Even scarier is that this is almost half a trillion,
or $456 billion in YTD outflows. From the peak, current MM holdings have
declined by 28%, or over a $1 trillion. Speaking of losing credibility,
the "money on the sidelines" argument is promptly losing it as well. Yet
ironically even as half a trillion in cash has been pushed "elsewhere",
the dollar, on both a relative basis (FX), and due to ongoing deflation,
has continued to gain strength. US consumers have once again listened to
the propaganda media and lost: whether it is due to the slow and unchanged
grind in all asset classes over the past 6 months, or the sudden, massive
losses from the flash crash. Either way, with gold at an all time high, we
now know where some or all of the $134 billion differential between MM
outflows and all other fund inflows, has gone.
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.
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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