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The defining book for the current

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Gordon T Long

RESEARCH ANALYTICS for the GLOBAL MACRO

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ALSO

SULTANS OF SWAP: Explaining $605 Trillion in Derivatives!

 

SULTANS OF SWAP: Fearing the Gearing!

 

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SULTANS OF SWAP: BP Potentially More Devastating then Lehman!

 

As horrific as the gulf environmental catastrophe is, an even more intractable and cataclysmic disaster may be looming. The yet unknowable costs associated with clean-up, litigation and compensation damages due to arguably the world’s worst environmental tragedy, may be in the process of triggering a credit event by British Petroleum (BP) that will be equally devastating to global over-the-counter (OTC) derivatives. The potential contagion may eventually show that Lehman Bros. and Bear Stearns were simply early warning signals of the devastation lurking and continuing to grow unchecked in the $615T OTC Derivatives market.

 

What is yet unknowable is what the reality is of BP’s off-balance sheet obligations and leverage positions. How many Special Purpose Entities (SPEs) is it operating? Remember, during the Enron debacle Andrew Fastow, the Enron CFO, asserted in testimony nearly 10 years ago that GE had 2500 such entities already in existence. BP has even more physical assets than Enron and GE. Furthermore, no one knows the true size of BP’s OTC derivative contracts such as Interest Rate Swaps and Currency Swaps. Only the major international banks have visibility to what the collateral obligations associated with these instruments are, their credit trigger events and who the counter parties are. They are obviously not talking, but as I will explain, they are aggressively repositioning trillions of dollars in global currency, swap, derivative, options, debt and equity portfolios.

 

READ MORE

 

 

EXTEND & PRETEND: A Matter of National Security

 

There 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 changed.

 

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READER ROADMAP -  2010 TIPPING POINTS aid to positioning COMMENTARY

 

 

 

1

         

SOVEREIGN DEBT PIIGS

EU BANKING CRISIS
BOND BUBBLE

STATE & LOCAL GOVERNMENT

CENTRAL & EASTERN EUROPE
BANKING CRISIS II
RISK REVERSAL

COMMERCIAL REAL ESTATE

CREDIT CONTRACTION II

RESIDENTIAL REAL ESTATE - PHASE II
EXPIRATION FINANCIAL CRISIS PROGRAM
US FISCAL IMBALANCES
PENSION CRISIS
CHINA BUBBLE

TODAY'S TIPPING POINTS UPDATE

Last Update: 07/07/2010 03:13 AM

RED ALERT

AMBER ALERT

ACTIVITY

MONITOR

Click to Enlarge

 

 

POSTS:   TUESDAY 07-06-10

 

 

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

 

IRAN

 

ISRAEL

 

KOREA 

 

SOVEREIGN DEBT & CREDIT CRISIS

 

Trichet Calls on EU Governments to Reduce Budget Deficits to Boost Growth BL

Chinese Premier Says Global Crisis More Serious Than Expected  BI

 

GREECE

 

ITALY

 

SPAIN / PORTUGAL

Gloomy economy dampens mood at Pamplona bull run AP

Strong demand for Spanish bond auction  FT

The Ticking Time Bomb That Are The Spanish Cajas  ZH

 

FRANCE

 

GERMANY

 

UK

British economy 'could relapse into recession' Independent

 

UNION SHOWDOWN

Civil servants face regional pay threat  FT

Unions threaten to take industrial action

Cameron pushes unions   FT

Civil servants vow to fight redundancy cuts  FT

Big cuts to civil service pay-offs  FT

 

JAPAN

 

CHINA

Int'l monetary system needs yuan as 'third leg' Xinhua

Yam touts yuan use Standard
Rogoff Says China Property Starting to ‘Collapse’ BL

 

 

Land minister: housing prices to fall in Q4 China Daily
Fitch warns of hidden information risks in Chinese banks Finance Asia

China eyes shake-up of bank holdings  FT

Plan to remove restrictions on investing in the US

 

DUBAI WORLD

 

USA

 

SOME INTERESTING CHARTS FROM DAVID ROSENBERG @ GLUSKIN SCHEFF





 

EU BANKING CRISIS

 

Europe's bank stress test may backfire Wolfgang Münchau

Bank Balance Sheets Could Torpedo Recovery Spiegel

Europe debt concerns ease but bank fears remain  FT

Some investors have started buying sovereign bonds again

European Banks' Hidden Losses May Threaten EU Stress Test Plan  BL

 

ECB Buys Another €4 Billion In Sovereign Debt; Is Another Failed Fixed Term Deposit Operation Coming Up- ZH

 

BOND BUBBLE

 

Don't Be Complacent in Bonds  WSJ

Think Treasury Yields Are Too Low- Get Ready For Bond Bulls To Laugh Even Harder At Us  BI

Thanks to the barrage of rather horrible employment data we've been hit with recently, Deutsche Bank is pushing back their forecast for a Federal Reserve interest rate hike from November 2010 to all the way out as far as potentially March 2011 (Q1 2011)

Deutsche Bank's Joseph LaVorgna:

A Grinding Labor Market Recovery: The June employment report confirmed our view that the labor recovery is progressing, but the pace continues to be stubbornly anemic. Monetary policymakers’ concerns of another “jobless recovery” will hardly be diminished by the latest results. While there is one more jobs report ahead of the August 10 FOMC meeting, there is little reason to believe the extended period language will change anytime soon. As we highlight in the following section, we are pushing our forecast for the first Fed rate hike into next year.

Chart

Lower than expected core inflation, an uneven labor recovery and concerns about sovereign risks have given us cause to change our forecast for monetary policy tightening from November 2010 to Q1 2011. For the Fed to commence removing extreme policy accommodation, sovereign risks need to abate and more importantly, the labor market needs to show more robust gains in private payrolls. If the labor market does not improve significantly in the near term, then monetary policy will be on hold much longer than we currently envision [Emphasis added] and downside risks to our forecast would rise commensurately.

Which means that U.S. 10-year government bonds could rally even further despite yields already being extremely low, historically, at about 2.98%.

Bullish Yields Through to a Policy Shift: We remain bullish on bonds. Any setbacks will be short-lived and shallow and should be used as buying opportunities, and 10s could trade to around 21⁄2 percent. [Emphasis added]

A 2.5% yield would imply a rather strong Treasury rally ahead (Note that bond yields fall as bond prices rise). We're not touching the bonds, happier to be wrong here than to end up feeling plain silly lending to the government for 10-years at just 2.98%.

(Via Deutsche Bank, Quarterly Update: Labor Market is Key to Outlook, Joseph LaVorgna, 2 July 2010)

STATE & LOCAL GOVERNMENT/b>

 

Investors fear rising risk of US regional defaults  FT
Difficulties in curbing pension and budget deficits
US states face hard budget choices  FT

CENTRAL & EASTERN EUROPE

 

High CDS Prices Show Continued Stress In Eastern Europe  BI

Right now, CDS on Eastern European sovereigns is tightening after what was a difficult June for the market. The spike seen in early June has since leveled off since, but prices on Hungarian, Romanian, Latvian, and Bulgarian sovereign debt insurance remain high.

From CMA Datavision:

Eastern Europe CDS 75

 

HUNGARY

 

BANKING CRISIS II

 

Failing US banks drive bond yields to record low FT


DODD FRANK ACT

U.S. Financial Regulatory Overhaul: What a Mess BMO

 

RATING AGENCIES

 

RISK REVERSAL

 

 

COMMERCIAL REAL ESTATE

 

Office Vacancies Keep Climbing  WSJ
Vacant office space continued to accumulate in the second quarter, the latest indication that businesses aren't planning significant hiring in the near future.

Office buildings across the U.S. lost 1.8 million square feet of occupied space in the quarter, pushing the national office vacancy rate to 17.4%, the highest level since 1993, according to New York-based research firm Reis Inc.

While the drop in occupied space was much smaller than in previous quarters, analysts said companies' continued reduction of office space meant they still lacked confidence in economic recovery.

 

RRESIDENTIAL REAL ESTATE - PHASE II

 

 

EXPIRATION FINANCIAL CRISIS PROGRAM/b>

 

 

PENSION & ENTITLEMENTS CRISIS

 


CHRONIC UNEMPLOYMENT

 

 

GOVERNMENT BACKSTOP INSURANCE

 

 

CORPORATE BANKRUPTCIES

 

BBP - British Petroleum

 

Crisis-hit BP rules out issuing new shares  FT

Company reaches out to overseas investors

Oil spill drains BP of funding options  FT

 

BP costs for oil spill response pass $3 billion AP
BP's Oil-Collecting Effort Delayed as High Waves Hamper Vessel Connection BL
BP Seeking Middle East Investors? AP

 

Freelance Photographer Detained By Police After Taking Pictures Of A Texas BP Refinery BI 

Guest Post- Macondo History Before The Blowout  ZH

Macondo History Before the Blowout
BP plc And The Administration Replace First Amendment With $40,000 Fine And Class D Felony  ZH

 

OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE/b>

Goldman- Our Clients Are Now 'Uniformly Bearish' And Scared Of Deflation  BI

 

FLASH CRASH - HFT - DARK POOLS

 

INNOVATION

 

VIDEO TO WATCH

 

 

INTERESTING ARTICLES - GENERAL

Chavez Crackdown on Brokerage `Thieves' Leaves Traders Jobless BL

Why the Greater Depression Still Lies Ahead Delta

Steve Keen’s Scary Minsky Model Yves Smith

Is America Really Free, If A Privately-Owned Central Bank Controls Our Currency And Runs Our Economy-  BI

 

QUOTE OF THE WEEK

Rick Santelli Uncut (And GE Turbofan Commercial Free)

Having rapidly become the only person worth listening to on CNBC, Rick Santelli's insights on the economy are now far more valuable than any other guest's on the Jeff Immelt propaganda station. Which is why we were very happy to find that Eric King's latest interview was with none other than Mr. Santelli. The topics discussed are numerous, varied and and very critical to our economy, covering such concepts as deflation, deficit spending, bailouts, government spending multipliers, Fed transparency, spending cuts, austerity, the folly of Keynesianism, strategic defaults, direct bidders and treasury auctions, and lastly, tea party dynamics, making this a must hear interview for anyone still on either side of the economic fence, and who enjoys listening to Rick for longer than the 45 second segments the CNBC producers will allow.

  • Deflation: "deflation is the most disingenuous argument especially in the current conditions. [When the bubble process ends prices have to come down to reality] the process really is deleveraging, but what happens when prices go down you get the economists call it deflation. Deflation is always the biggest bogeyman in a central banker's closet. It also allows them to use the only tool in their toolbox, which is to spend money, and usually money they haven't collected yet, so it's usually a deficit form of spending. Think about what economists are trying to do: we go up too high in leverage, prices are too high, we try to correct that process, it's called deflation, and they try to put money in to prop it up at an artificial price-deleveraging is the word we should stick to"
  • Deficit spending: "the only thing that works is across the board tax cuts because it fuels the type of small business that does the bulk of the hiring"
  • Bailouts: "the only regulation that will ever work is failure. If you don't allow failure what you end up with is regulators trying to serve when it's time to take punch bowls away. Regulators never go against the grain. Back in 03-04 many in the fixed income markets saw it coming but nobody wants to pull that punch bowl away. Businesses should fail, that's the way the system was designed"
  • The Multiplier of Government spending: "Larry Summers on many occasions has said that the multiplier of government spending is greater than 1. If that was true, we'd never have another recession ever again, and I would be advocating to spend a trillion dollars every hour. It would be like a perpetual motion machine and all physicists know those are impossible. Every dollar the government spends comes from somebody's pocket"
  • Fed Transparency: "It seems to me we are making some progress on the financial audit. I absolutely agree that on all of the issues that take taxpayers' money and end up being distributed or put on the balance sheet and in any way used by the Fed, there should be an audit that should be fully transparent. I am worried about the financial accounting"
  • On Spending Cuts: "Listeners, this is going to be the most important thing I am going to say: we need to maintain the focus on spending, the politicians in my lifetime always spend. If we end up spending way more than we can take in, in essence the deficit panel becomes a tax panel. We must stop spending before we talk about VAT taxes or taxing Americans more, we need to get spending under control. The retings of congress are the lowest they have been in history." 
  • On Austerity: "Nobody wants that. But there is a silver lining - the UK have conditions in their economy worse than the US, but they came up with an austerity plan, and we see that their currency has been rewarded. The GBP has risen about 10% in a very short period of time."
  • On Keynesianism: "The Keynesians are both right and wrong. I don't think Keynes advocated the kind of helicopter-Ben spending  that many say he promoted. He promoted the kind of stimulus that created jobs, that's more the medicine for a cyclical downturn, we have a structural issue because of the bubble credit scenario."
  • On the ECB's Debt Monetization: "I think that the ECB has a huge issue and they are behind the ball. They don't have a constitution in the eurozone, they have cultural and monetary cultural issues to deal with. I think that buying securities or monetizing or QE is always a bad idea. Once there is a subsidy in the marketplace, it becomes the normal pricing mechanism. For the Fed or the ECB to unload these securities, becomes a destabilizing force and in the long run does more harm than good."
  • On Strategic Defaults: "I have feelings on this that go both ways. I think morally I would have an issue doing that, but people who did the mortgage, or the second mortgage, or took a HELOC to pay for cars, pay for the vacations, I think it is reprehensible that we end up reshuffling wealth to pay some of that off. But I think the dynamic is from the government side - I think contracts between banks and homeowners - if it's unsecured, it's unsecured, I don't have an issue with that."
  • On Direct Bidders being a proxy for the Fed (a much debated topic on Zero Hedge) and Treasury Auctions in general: "That's the best question anyone has asked me in a long time. I think there is a recycling quid pro quo going on: the Fed is making banking obsolete because a lot of the programs that they have is to take the cheap end of the curve and invest it in Treasuries. Well the Treasury needs as many buyers as it can get. I think the financial institutions are recycling easy money that should be going into John Q Public's pocket, to those that deserve credit, all this money is ending up in the forms of purchases of 10, 7, and 5-Year Notes, and I don't like that way that's working. That's why I think that raising rates would be a good thing. Why? Because it would take some of the easy ways the banks recycle the Fed's cheap money and put it back in the hands of the public and actually make banking a relationship between banks and Americans that need it whether it is for funding a mortgage or funding a small business."
  • And on Tea Party dynamics: "I think November 2 is going to be a watershed of Americans letting Washington know they're the boss."


ZHHstrong> - Zero Hedge, BI - Business Insider, WSJ - Wall Street Journal, BL - Bloomberg, FT - Financial Times

 

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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.

 

© 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.

 

         

TODAY'S NEWS

TUESDAY

07-06-10

JULY
S M T W T F S
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ARCHIVAL

SOVEREIGN DEBT PIIGS

EU BANKING CRISIS
BOND BUBBLE

STATE & LOCAL GOVERNMENT

CENTRAL & EASTERN EUROPE
BANKING CRISIS II
RISK REVERSAL

COMMERCIAL REAL ESTATE

CREDIT CONTRACTION II

RESIDENTIAL REAL ESTATE - PHASE II
EXPIRATION FINANCIAL CRISIS PROGRAM
US FISCAL IMBALANCES
PENSION CRISIS
CHINA BUBBLE
CHRONIC UNEMPLOYMENT
INTEREST PAYMENTS
US PUBLIC POLICY MISCUES
JAPAN DEBT DEFLATION SPIRAL
US RESERVE CURRENCY.
GOVERNMENT BACKSTOP INSURANCE
SHRINKING REVENUE GROWTH RATE
FINANCE & INSURANCE WRITE-DOWNS
RETAIL SALES
CORPORATE BANKRUPTCIES
US DOLLAR WEAKNESS
GLOBAL OUTPUT GAP
CONFIDENCE - SOCIAL UNREST
ENTITLEMENT CRISIS
IRAN NUCLEAR THREAT
OIL PRICE PRESSURES
FOOD PRICE PRESSURES
US STOCK MARKET VALUATIONS
PANDEMIC
US$ RESERVE CURRENCY
TERRORIST EVENT
NATURAL DISASTER

 

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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 investment commitments.

Copyright and Disclaimer

© Copyright 2010, Gordon T Long. The information herein was obtained from sources which the Gordon T Long. believes reliable, but we do 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 the Gordon T Long. or its principals may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Gordon T 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 us.