Already a CLASSIC.

The defining book for the current

Macro Economic Environment

Gordon T Long

RESEARCH ANALYTICS for the GLOBAL MACRO

|   TIPPING POINTS   |  COMMENTARY  READER ROADMAP | SWAP SENTINEL   | 

 

BUY ANY BOOK

 

GET 2 MONTH SUBSCRIPTION TO

 

 MONTHLY MARKET

COMMENTARY

 

PROMOTION  DETAILS

 

BOOKSTORE


Bookmark and Share 

PROFESSIONAL COMMUNITY

SITE ACCESS

 FUND MANAGERS & ANALYSTS


Developers of Chaos Theory

& Mandelbrot Generator

Algorithms


Fibonacci series and spiral

Fibonacci - W.D. Gann

Elliott Wave - J. M. Hurst

 

SPECIFICALLY TAILORED

 

 


 

READ ALL THE

"EXTEND & PRETEND SERIES"

 

 

Shifting Risk to the Innocent

 

Uncle Sam, You Sly Devil!

 

Is the US Facing a Cash Crunch?

 

Gaming the US Tax Payer

 

Manufacturing a Minsky Melt-Up

 

Hitting the Maturity Wall

 

An Accounting Driven Market Recovery

 


 A MUST READ FOR ANY UNDERSTANDING

of the current

GLOBAL MACRO ECONOMIC

ENVIRONMENT

 


 

READ ALL THE

"SULTANS OF SWAP"

 

ACT I

Sultans of Swap: Smoking Guns!

ACT II

Sultans of Swap: The Sting!

ACT III

Sultans of Swap: The Get Away!

 

 

ALSO

SULTANS OF SWAP: Explaining $605 Trillion in Derivatives!

 

SULTANS OF SWAP: Fearing the Gearing!

 

FOR UPCOMING SHOW TIMES SEE: COMMENTARY

 


 

FREE INTRODUCTORY

MAILING

 

The Latest Quarterly Advisory

62 pages

 

EXTEND & PRETEND

 

Click page to view Index

 

Contact Us

 

Add Promo Code: "Introduction"

in the Subject Heading

 

The Latest Monthly

MONTHLY MARKET COMMENTARY

12 pages

 

Click page for Front Page

 

Contact Us

 

Add Promo Code: "MMU"

in the Subject Heading

 


Eliott Wave

The Elliott Wave Principle

Prechter &  Neely Methods

 

FREE INTRODUCTORY

MAILING

 

TECHNICAL ANALYSIS

RESEARCH

 

W.D.Gann

Elliott Wave Principle

J.M Hurst

 

PROPRIETARY

Chaos Theory

Mandelbrot Generators

Fibonacci Conditions

 

Latest Boundary Condition

Analysis

 

Click chart to view

 

Contact Us

 

Add Promo Code: "Technical"

in the Subject Heading

 


FREE INTRODUCTORY

ACCESS

 

FACEBOOK

 

 

DAILY TIPPING POINT ARTICLE POSTS

 

SAMPLE PAGE

 

Click page to view Index

 

Contact Us

 

Add Promo Code: "Facebook"

in the Subject Heading

 

 


 

CUSTOMIZE YOUR RESEARCH EFFORTS

 

TIPPING POINT

TAG ENGINE

 

Click page to view Index

 

Free Access to Our Tag Engine for detailed research behind our Tipping Points.

 

OVER 1000 ARTICLES INDEXED

each with an

Executive Summary - Abstract

 

SAMPLE

 

Click page to view Index

 

Contact Us

 

Add Promo Code: "Tag Engine"

in the Subject Heading

 

  Bookmark and Share


 

 

 

 

 

 

 

                    LATEST PUBLICATIONS

RSS 

COMMENTARY for all articles by Gordon T Long

 

EXTEND & PRETEND: Stage I Comes to an End!

The Dog Ate my Report Card

 

Both came to an end at the same time: the administration’s policy to Extend & Pretend has run out of time as has the patience of the US electorate with the government’s Keynesian economic policy responses. Desperate last gasp attempts are to be fully expected, but any chance of success is rapidly diminishing.

Before we can identify what needs to be done, what the administration is likely to do and how we can preserve and protect our wealth through it, we need to first determine where we are going wrong. Surprisingly, no one has assessed the results of the American Recovery & Reinvestment Act 2009 (ARRA) which was this administration’s cornerstone program to place the US back on the post financial crisis road to recovery.

We can safely conclude either:

1-    The administration completely under estimated the extent of the economic crisis, even though we were well into it when the ARRA was introduced.

2-    The administration was unable to secure the actually required stimulus amount which was likely 4-5 times that approved.

3-    The administration failed to implement the program in a timely manner.

4-    The administration failed to diagnose the problem correctly and that in fact it is a structural problem versus a cyclical and liquidity problem, as they still insist it to be.

I personally believe it is all four of the above.

READ MORE

 

 

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


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: 07/19/2010 10:08 AM

RED ALERT

AMBER ALERT

ACTIVITY

MONITOR

Click to Enlarge

 

 

POSTS:   MONDAY 07-19-10

 

 

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

 

IRAN

 

ISRAEL

 

KOREA 

 

SOVEREIGN DEBT & CREDIT CRISIS

 

Global Double-Dip Recession? BCAR

 
BCAR completely misses the point in the following chart which they see as a positive for corporate earnings going forward. How exactly do corporations continue to increase profits from present levels, with sales flat to marginally up (inflation), after making the labeled cuts? 
Investments for the future are expensive and are the first thing to go for a CEO and Board of Directors who must show profit increases and share increases to survive or be taken over by those predators who took these actions faster. Obviously BCAR has not ran, nor are familiar with the modern strategic realities of running a publicly traded company!
Gordon T Long

 

Austerity vs stimulusJoin debate with Martin Wolf and Larry Summers on biggest contemporary economic issue  FT

 

GREECE

Greece central banker sees lenders passing stress tests Reuters

Greece braced for consolidation  FT

 

SPAIN / PORTUGAL

 

FRANCE

 

GERMANY

 

ITALY

 

UK

  House prices 'to crash 20pc by 2012' as Budget bites, says Capital Economics Telegraph
 
Mandarins offered early redundancy

Many Whitehall officials could walk before severance terms are reduced

Cameron Raids Dormant U.K. Accounts as Minister Attacks Banks  BL

 

IRELAND

Moody’s downgrades Ireland rating   FT

Moody's Downgrades Ireland  WSJ

Moody's cut Ireland's credit rating, citing a rising debt burden, a weak growth outlook and the high cost of rebuilding a shattered banking system.

 

JAPAN

 

CHINA

Bangladesh, With Low Pay, Moves In on China NYT

USA

Housing, Leading Index in U.S. Probably Slumped in Sign Recovery Slowing BL

A flashing red light from the ECRI FTA

 

EU BANKING CRISIS

 

Stress-testing Europe's banks won't stave off a deflationary vortex Pritchard

Euroland's authorities are inflicting a triple shock of fiscal, monetary, and currency tightening on a broken economy.

Europe: Anxiety Rising Over Stress Tests  BCAR

 
All eyes remain transfixed on Europe, where increased bank funding stress and declining liquidity in parts of the euro area credit markets have been the main catalyst for the correction in global risk assets.

Access to term funding has been constrained for some euro zone banks, with the result that banks are relying heavily on loans from the ECB. In fact, the only bid for Southern European sovereign debt is coming from the central bank. As we have previous noted, bank stress tests in the U.S. succeeded in restoring some investor faith in the financial sector, in large part because the tests were backed with taxpayer funds. However, the situation in Europe is more dire. Investors are rightfully questioning the ability of some governments to bail out banks when they are having difficulty funding themselves. In Spain, Greece and Portugal, there is strong positive relationship between changes in sovereign CDS and bank CDS, which suggests that investors now view bank default risk as synonymous with sovereign default risk. Thus, despite the fact that some investors welcomed Spain’s announcement that it will publish the results of a bank stress test, and that the government is prepared to use public money to recapitalize banks that are found to be wanting, it has not been sufficient to calm most investors nerves. In sum, the European bank stress tests are a step in the right direction, but there is no guarantee that they will be as successful as those in the U.S. in terms of ending the latest financial crisis. A market riot may force the reluctant ECB to grow its balance sheet more aggressively. Hold off putting new cash to work in risk assets. 

 

IMF seeks $250bn boost to lending resources  FT

IMF aims to boost lending resources by $250 billion: report Reuters

 

European private bank profits dive  FT

 

BOND BUBBLEBOND BUBBLE

 

The Debt Supercycle Mauldin

Treasury Two-Year Note Yields Tumble to a Record Low as Economy Weakens BL
Dollar Weakens Most in 14 Months Versus Euro on Signs of Economic Slowdown BL

 

Western economies are still in danger of sinking under an ocean of self-created debt King
Does Ben Bernanke suffer nightmares? Does Jean-Claude Trichet have sleepless nights? Does Mervyn King wake up in a cold sweat, his pyjamas soaking wet? I wouldn't blame them if they did...

STATE & LOCAL GOVERNMENT

 

Munis Under Strain- Should Investors Be Concerned  Lord Abbett

California's Chiang Can Delay Schwarzenegger Minimum Wage Plan, Judge Says BL

Illinois's Quinn Doubles Furlough Days for 2,700 State Workers BL
Recession Continues to Batter State Budgets – CBPP.org

When the states go bankrupt – Daily Reckoning

A San Diego County panel – faced with $2.2 billion in unfunded pension liabilities and $1.3 billion in unfunded health care liabilities – recommended, among a number of other possible actions, filing for bankruptcy. According to Grant’s Interest Rate Observer, four major American cities (Miami, Detroit, Los Angeles and Harrisburg) have all hinted at the same this year.

The big states are even worse. The Economist reports on Illinois: “By 2018, Illinois will be paying $14 billion a year in benefits, equal to more than a third of the state’s revenue, compared with $6.5 billion now.”

Plugging those kinds of gaps means getting creative with new forms of skullduggery. For instance, the State of New York, with its $9 billion budget deficit, is looking at a proposal to borrow $6 billion from its state pension fund in order to make a $6 billion payment due to that same pension fund. Yeah, you read that right.

The trials of Illinois and New York are not isolated incidences, either. Grant’s quotes from the Center on Budget and Policy Priorities: “At least 46 states face or have faced shortfalls for the upcoming fiscal year (FY 2011, which will begin on July 1 in most states). These come on top of the large shortfalls that 48 states faced in their current budgets (FY 2010).”

State schools face credit crunch of their own – Times Union


CENTRAL & EASTERN EUROPE

 

SLOVAKIA

 Meet The First Eurozone Country To Admit That Its Deficit Targets Are A Joke  BI

 

HUNGARY

 

Markets braced for turmoil over IMF's Hungary move Telegraph

The move, which was described by economists as “very rare”, means that Hungary will not have access to standby funds that were secured as part of a 2008 loan deal.

IMF and EU defer talks with Hungary  FT

Hungarian Crisis Back On The Map As IMF Talks Breakdown  BI

The Next Leg Of Eurocrisis 2010- The Hungary Wolfpack Cometh As IMF, EU Cancel $25 Billion Rescue Loan Access  ZH

In the most surprising news of the weekend (so far), the IMF and the EU effectively suspended Hungary's access to the remaining funds in a $25 billion rescue loan package created in 2008 to prevent a financial meltdown of the country. The timing of this development is most extraordinary, as only a month ago Hungary served as ground zero for yet another scare that pushed European sovereign bond spreads to new records. The reason given for this dramatic, and very destabilizing action is that the nation must "take tough action to meet targets for cutting its budget deficit." Ostensibly  Greece continuing to lie about its own economic deterioration is a necessary and sufficient condition for escalating IMF lauding. Yet, with Europe set to announce results of its Stress Test kabuki next week, the last thing the continent needs is a real liquidity crisis (or the threat thereof) to counteract the smooth talking bureaucrats dead set into hypnotizing the union into "all is well" submission ("and when I snap my fingers, the debt-to-GDP ratio will be back to 10%"). To quote Portfolio.hu: "Brace yourself for Monday, folks!"

Reuters is on the case:

Negotiations with the lenders had been expected to finish early next week. Analysts said the forint currency could fall sharply when financial markets reopen Monday due to uncertainty over the international safety net for Hungary, which has financed itself from the markets since last year.

"In an environment of heightened market scrutiny of government deficits and debt levels, the fiscal deficit targets previously announced -- 3.8 percent of GDP in 2010 and below 3 percent of GDP in 2011 -- remain an appropriate anchor for the necessary consolidation process and debt sustainability, and should be adhered to, but additional measures will need to be taken to achieve these objectives," the IMF said.

Hungary's politicians proves once again they are complete dilletantes when it comes to dealing with entrenched status quoers as the IMF - instead of taking Greece's lead and promising they would not only cut pension to zero, but demand the citizens pay for the privilege for working for the government (a stance, which of course will be repealed in 364 days, but by then, the myth goes, the Keynesian ponzi will be back in full swing), Hungary's new political party apparently had the temerity of telling the IMF it can shove its demands.

Hungary's new center-right government, which swept to power in April elections, has said it wanted to extend its current financing deal with lenders until the end of 2010 and seek a precautionary deal for 2011 and 2012.

Economy Minister Gyorgy Matolcsy made clear the government was keen to resume negotiations. "The government will of course continue talks with international organizations including the IMF and the EU," he said in a statement published by the national news agency MTI Saturday.

Christoph Rosenberg, who led the IMF delegation to Hungary, signaled that the Fund wanted more on next year's budget. "By definition when we come next time -- unless we come next week -- the government will have made more progress on the 2011 budget and that will be a very important budget," he told Reuters.

In an interview, he also said the IMF had not discussed the possibility of a new financing deal for 2011 and 2012.

"We are aware of what has been said in public but in our meetings we didn't really get to that point, because we obviously needed to first resolve the policy issues and those have not been resolved," he said.

One thing is certain: the next Hungarian bond auction will fail, as will the HUF on Monday. Look for a plunge in the currency (and a surge in Hungarian, and by implication Romanian and Bulgarian, CDS) when the market opens Monday.

"If we do not have the safety net of international lenders, that hits us where it hurts most," said MKB Bank analyst Zsolt Kondrat.

"One would definitely expect a weakening forint Monday. A 10-forint weakening (versus the euro) is quite plausible, and nobody knows how nervous the market's reaction might be."

And for the version straight from the horse's mouth, here is the non-hyperbolized perspective straight from portfolio.hu

Although Hungary, seeking to secure a precautionary loan deal with the International Monetary Fund, was to continue discussions with officials of the IMF and the European Union on Monday, the mission from the Washington-based lender decided to return home. The EU also postponed the conclusion of the review of the country’s EUR 20 billion credit facility granted in the autumn of 2008. The reason is that "a range of issues remain open" and the cabinet that will need to provide clarification for these. Brace yourself for Monday, folks!

That’s it, we’re leaving!

An IMF mission, led by Christoph Rosenberg, held discussions with the Hungarian authorities during July 6-17, as part of the sixth and seventh reviews of the country’s Stand-By Arrangement (SBA) approved on 6 November, 2008.

While there was "much common ground" between the negotiating parties, the IMF has announced that its mission decided to return to Washington D.C., as "a range of issues remain open". It said it would seek to bridge these differences.

European Commission officials, in close cooperation with IMF staff, conducted their fifth review mission under the EU balance of payments assistance to Hungary in the aforementioned period. They, however, said there were "a number of open questions on which the government would need more time to provide clarification." The EU executive decided to postpone the conclusion of the review and that "it would be appropriate to return for further discussions at a later stage."

The parties were to hold a joint press conference on Monday, provided they come to terms about a few issues. They have not, so the IMF stood up and left and the EU did not conclude its review.

Rate meeting ahead

The early departure of the missions mean Hungary cannot draw the next tranche of the credit facility, although the country had no intention to do so therefore it will have no impact on the budget. But the break in the talks is likely to lead to forint weakening and a rise in government securities yields on Monday, i.e. the financing of the state will become more expensive.

The morning market reactions will be especially crucial as the central bank’s (NBH) Monetary Council will hold a rate setting meeting that day. According to the consensus forecast of analysts in a Portfolio.hu poll, the MPC will keep the base rate on hold at 5.25%. But a sharp HUF depreciation and a rise in Hungarian CDS (Credit Default Swap) spreads might convince the MPC to hike rates. This, of course, will not help boost lending and economic growth.

 

BANKING CRISIS II


The US banking recovery is a sham – MoneyWeek

Regulators shut 6 more banks, making 96 failures for the year AP FDIC

 The Boiling Point: Is Fed’s Muscle Weakening? Index Universe

Major Accounting Changes: When Will They Hit? CFO
The Real Reason Geithner Is Afraid of Elizabeth Warren Talbott
I believe Geithner sees the appointment of Elizabeth Warren as a threat to the very scheme he has utilized to date to hide bank losses...

 

DODD FRANK ACT

 

RATING AGENCIES

 

RISK REVERSAL

 

Traders rein in risk as European fiscal fears return

 

COMMERCIAL REAL ESTATE

 

 

RRESIDENTIAL REAL ESTATE - PHASE II

 

Federal Housing Beat Now Has a Tough Cop NYT (Morgenson)

 

Housing Bubble Leaves $4 Trillion Hangover BL

 

Homeowners Use Airbnb Room-Renting Site to Pay Mortgage, Dodge Foreclosure BL

 

Housing Basics: Massive Supply, Faltering Demand – Charles Hugh Smith, OfTwoMinds

 

Fannie Mae cracks down on 'strategic' mortgage defaults USAT

 

EXPIRATION FINANCIAL CRISIS PROGRAM/font>

 

 

PENSION & ENTITLEMENTS CRISIS



CHRONIC UNEMPLOYMENT

 

When Being Out of Work Becomes a Chronic Condition NYT (Norris)

Below is how current unemployment is being sold to gullible analysts with a 'sell' book to justify:
Gordon T Long

U.S. Payrolls: Sub-Par, But Sustainable
BCAR

Private sector payrolls in the U.S. increased by an estimated 83,000 in June. Fears that the recovery has been derailed are overdone. Despite market fears of a "jobless recovery" the current cycle is not far behind previous cycles in terms of year-over-year job growth, and is in fact stronger than the 2001 cycle (of course, the level of employment is still lagging previous recoveries because of the severe depth of the recession). Growth in temporary employment is running ahead of past recoveries, which implies that employers have been slightly more reluctant to make permanent additions to their workforce. However, the reliance on temporary workers does not appear to be out of line with past recoveries. 

One source of angst that we do share with market participants is the lack of hiring in the small business sector. Small businesses historically have been a major driver of job creation, and have lagged this cycle because credit conditions have tightened significantly. However, there are some signs that the recovery in the small business sector is gaining traction. The National Federation of Independent Business (NFIB) survey reported that hiring plans among small businesses finally turned positive in June.

The bottom line is that job growth is broadly in line with our expectations at this point of the cycle, and it is hard to make the case that firms are behaving any differently than in the past. Our employment model has historically been an accurate indicator of job growth with a six month lead. The current message is that payrolls will expand at an annual pace of at least 1% annual pace over the next few months, which corresponds to an average of 200,000 new jobs per month - not stellar but enough to keep the lackluster recovery on track.



Here is the Reality



Some financial analysts failed or never understood Calculus!


GOVERNMENT BACKSTOP INSURANCE

 

Fight Now Looms Over Fannie, Freddie WSJ

 

CORPORATE BANKRUPTCIES

 

BBP - British Petroleum

 

 

Potential Second Spill Found Near BP Blown Out Oil Well, As BP Evaluates Potential Break Up Opportunities  ZH

In case you missed George Wahsington's update, here it is straight from the AP horse's mouth. And, if this story is true, we can only hope one is not long BP stock or short the CDS.

NEW ORLEANS — A federal official says scientists are concerned about a seep and possible methane near BP's busted oil well in the Gulf of Mexico

Both could be signs there are leaks in the well that's been capped off for three days.

The official spoke to The Associated Press on condition of anonymity Sunday because an announcement about the next steps had not been made yet.

The official is familiar with the spill oversight but would not clarify what is seeping near the well. The official says BP is not complying with the government's demand for more monitoring.

And if that wasn't enough, some more bad news from Sunday Times, via Reuters:

Under-fire oil company BP Plc (BP.L) has started canvassing shareholders about a restructuring in the wake of its Gulf of Mexico oil spill which could include a break up of the business, the Sunday Times reported.

The newspaper, citing unnamed BP insiders, said options included selling the group's refineries and petrol stations, scaling back its U.S. operations and ramping-up in-house engineering instead of outsourcing.

These are on top of the sale of about 10 percent of its assets, including its stake in the giant Prudhoe Bay field in Alaska, the Sunday Times added.

A BP spokesman said it did not comment on rumour and speculation.

 

Oh-No- Tests Confirm Oil Seep Distance Away From Deepwater Well  BI

 

U.S. Demands More Test Data From BP as Seep Found in Seabed BL

U.S. Raises Concern About Seeping Crude  WSJ

 

 

BP Well Boss Could Shed Light on Cause of Gulf Oil Disaster  BL

Oil Rig's Final Hours Under Investigation   WSJ

Federal authorities investigating BP's oil spill in the Gulf of Mexico are focusing on bad decisions, missed warnings and worker disagreements in the hours before the April 20 inferno aboard the Deepwater Horizon

 

 

BP looms large in Cameron’s US trip  FT

Containment cap working well, say BP  FT

 

 

BP Talks With Apache Said to Stall on Selling Prudhoe Bay Stake  BL

BP Plc’s talks to sell half its stake in Alaska’s Prudhoe Bay oil field to Apache Corp. stalled twice over the weekend, raising doubts about whether the deal will be completed, said a person with knowledge of the matter.

 

BP, Obama May Keep Macondo Oil Well Shut Until Final Kill  BL

UPDATE- Admiral Allen Orders Well Opened, BP Says It Will Keep Well Closed  BI

 



 

OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

Republicans May Gain 40 Seats, Win House Control, Campaign Chairman Says  BL

GOP Sees Path to Win Senate   WSJ
Democrats for the first time are acknowledging that Republicans could retake the Senate this November, less than two years after Democrats captured a daunting 60-seat majority.

"For Every $1 Of Proceeds From Taxpayers, The Federal Government Issues More Than $1 In New Debt"  ZH

but a few points to put some context around the problem.

  • We already know several important numbers – “people” tax receipts YTD of $845 billion and “corporate” tax receipts of $148 billion. Tax refunds for the calendar year thus far have been $371 billion, mostly to individuals. So the country’s tax receipts, round numbers, are $622 billion year to date. There are some miscellaneous other income lines – excise taxes primarily, that add about $35 billion. Total, total: $657 billion in taxes/withholding.
  • In the same period of time – the first 180 days of 2010 – the U.S. Treasury has issued some $892 billion in incremental debt. Almost all of it was issued to the public, rather than the customary practice of selling a piece to the Social Security system. That was not by choice – the reduced amount of withholding we outlined above means that Social Security has not had any material inflows of new money to invest in 2010. So all that newly issued debt – much of which went out as short term Treasury Bills – will need to be “rolled” as it matures. That means it has to find new buyers every 3, 6, 9 or 12 months.

We think this comparison neatly sums up the bind the U.S. still finds itself trying to disentangle. Through the first half of 2010 new debt is over 33% larger than tax and withholding income. Yes, there are some other ancillary sources of reported income in our Daily Treasury statement – State reimbursements for unemployment insurance, Federal Reserve Bank earnings and the like. But even when you lump every piece in, the ratio of taxes/withholding to new debt is still not one-to-one. For every dollar of withholding, the government issues more than one new dollar of debt to fund its total expenditures.

Economics is the study of how societies allocate inherently scarce resources. Even this brief outline of taxation and government spending makes me think that the scarcest resource of all might just be common sense.


EARNINGS - Q2 2010

Will Earnings Light the Way? Schwab
Don't Take the Bait Hussman
I can't emphasize enough that when you hear an analyst say "stocks are cheap based on forward operating earnings" it would be best to replace that phrase in your head with "stocks are cheap based on Wall Street's extrapolative estimates of a misleading number."

 

FLASH CRASH - HFT - DARK POOLS

 

MARKET WARNINGS

Cashin: If S&P 'Stalls' Now, Bears May Seize Market CNBC

You Won't Understand How Badly Our Stock Market Is Doing Until You Look At These Charts  BI

On an inflation-adjusted TOTAL RETURN basis (including dividends), our current bear market is WORSE than the one that followed 1929.  Specifically, on an inflation adjusted total return basis, our market is down 34% from the peak in 2000.  The market in the Great Depression, meanwhile, was only down 16%.

Despite the HORRIBLE performance of our stock market over the past dozen years, stocks are still at least 20% overvalued.  This means they're likely to continue to have relatively lousy performance going forward.

How do we know stocks are still overvalued?  We know by looking at Professor Robert Shiller's cyclically adjusted PE chart for the past 130 years.

The cyclically adjusted PE is one of the only measures of valuation that has some long-term predictive validity, and this chart suggests that stock returns are going to continue to be crappier than average for a long while to come.  The PE is in blue, interest rates in red.

How is it possible that even after a GODAWFUL decade--a decade in which the inflation-adjusted total return of the stock market was WORSE than in the decade after 1929--we can still be set up for lousy returns going forward?

It is possible because, as Robert Shiller's chart also shows, the valuation peak we reached in 2000 was absolutely unprecedented and dwarfed the one we hit in 1929. And what we've seen for the past decade--and likely will continue to see for another decade--is brutal reversion to the mean.

(And it's also possible because our dividend yield is so low. As the charts clearly illustrate, dividends contribute a big portion of the total stock market return--and our dividend yield is still a paltry 2%. Back in the bad old days of the Great Depression, the dividend yield was often well over 4%.)

Pass the Prozac, please.


GOLD MANIPULATION

Preventing Your Government From Stealing Your Gold Bulion Bulls Canada

 

VIDE TO WATCH

 

 

 

QUOTE OF THE WEEK

 


 


ZH - Zero Hedge - Business Insider, WSJ - Wall Street Journal, BL - Bloomberg, FT - Financial Times

 

BUY ANY BOOK/font>

 

GET 2 MONTH SUBSCRIPTION TO

 

 MONTHLY MARKET COMMENTARY

BOOKSTORE

PROMOTION  DETAILS

 

 

 

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

MONDAY

07-19-10

JULY
S M T W T F S
        1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 31

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

 

READING THE RIGHT BOOKS?

 

NO TIME?

 

WE HAVE IT ANALYZED & INCLUDED IN OUR LATEST RESEARCH PAPERS!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

Fair Use Notice

Fair Use Notice

This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

 

If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.   

 

 

l Fractal Research l Secrets of the Pyramids l Φ Research l Platonic Solids l 6T Development Site

 

E-Mail


 
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.