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Gordon T Long

RESEARCH ANALYTICS for the GLOBAL MACRO

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Sultans of Swap: The Get Away!

 

 

ALSO

SULTANS OF SWAP: Explaining $605 Trillion in Derivatives!

 

SULTANS OF SWAP: Fearing the Gearing!

 

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SULTANS OF SWAP: Gold Swaps Signal the Roadmap Ahead

 

SLIDE REFERENCE PAGE: Shadow Banking

 

The news rocked the global gold market when an almost obscure line item in the back of a 216 page document released by an equally obscure organization was recently unearthed. Thrust into the unwanted glare of the spotlight, the little publicized Bank of International Settlements (BIS) is discovered to have accepted 349 metric tons of gold in a $14B swap. Why? With whom? For what duration? How long has this been going on? This raises many questions and as usual with all $617T of murky unregulated swaps, we are given zero answers. It is none of our business!

Considering the US taxpayer is bearing the burden of $13T in lending, spending and guarantees for the financial crisis, and an additional $600B of swaps from the US Federal Reserve to stem the European Sovereign Debt crisis, some feel that more transparency is merited. It is particularly disconcerting, since the crisis was a direct result of unsound banking practices and possibly even felonious behavior. The arrogance and lack of public accountability of the entire banking industry blatantly demonstrates why gold manipulation, which came to the fore in recent CFTC hearings, has been able to operate so effectively for so long. It operates above the law or more specifically above sovereign law in the un-policed off-shore, off-balance sheet zone of international waters.

Since President Richard Nixon took the US off the Gold standard in 1971, transparency regarding anything to do with gold sales, leasing, storage or swaps is as tightly guarded by governments as the unaudited gold holdings of Fort Knox. Before we delve into answering what this swap may be all about and what it possibly means to gold investors, we need to start with the most obvious question and one that few seem to ask. Who is this Bank of International Settlements and who controls it?

READ MORE

 

 

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 four to five 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.

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POPULAR ARTICLES:

SULTANS OF SWAP: BP Potentially More Devastating then Lehman!

 

EXTEND & PRETEND - Manufacturing a Minsky Melt-Up

 

EXTEND & PRETEND: A Guide to the Road Ahead


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: 07/30/2010 12:26 PM

RED ALERT

AMBER ALERT

ACTIVITY

MONITOR

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POSTS:   FRIDAY 07-30-10

 

 

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

 

IRAN

 

ISRAEL

 

KOREA 

 

SOVEREIGN DEBT & CREDIT CRISIS

 

Europe Crisis Is Not Over, May Lead to Fiscal Union, UBS Says  BL

 

GREECE

When Jail Threats Don't Work- Greek Government Punctuates Case Against Strikers By Firing Tear Gas At Them  ZH

 

SPAIN / PORTUGAL

Moody's Says Spain May Lose Aaa Rating; U.S. Needs `Clear Plan'  BL

 

FRANCE

 

GERMANY

 

ITALY

 

UK

 

ICELAND

Moody's Puts Iceland's Baa3 Rating On Outlook Negative, Next Stop - Junk, As Island Nation Continues Giving Banks the Finger  ZH

  

JAPAN

More Japan workers lose jobs, factory output falls AP

 

CHINA

Property bubbles still a risk for China, says S&P official China Daily
Where China Hides Its Debt BL
The rising power of the Chinese worker Economist

 

USA

GDP Up, Jobs Down  Phil's Stock World

 

CLICK TO ENLARGE

 

Now The Selloff Is Gathering Steam, As Beige Book Confirms Softening Economy  BI

The Fed Reports A Sluggish Economy  ZH

The Fed came out with its Beige Book, a summary of economic activity from June to mid-July. The report overall noted "modest" growth if not slowing growth. Consumer confidence declined and durable goods orders were also down.

Today's GDP Report Will Confirm That The Slowdown Has Already Begun  BI

“Practically every Street economist took a knife to Q2 and Q3 G.D.P. growth,” David A. Rosenberg, chief economist for Gluskin Sheff, wrote last week in a note to clients, referring to Wall Street forecasts for gross domestic product. For the second-quarter results to be released Friday, economists project a modest annualized gain of 2.6 percent, down from 2.7 percent in the first quarter and 5.6 percent in the final quarter of last year.

That number may even be a tad high at this point. Some are definitely closer to 2% in their forecast.

Goldman's Leading Indicator Plummets To A Seven-Month Low, Predicts An ISM Collapse Next Week BI

 

EU BANKING CRISIS

 

 

BOND BUBBLE

 

Nassim Taleb- "The Government Debt Is Becoming A Pure Ponzi Scheme"  ZH
In an interview conducted with Business Week, Nassim Taleb discusses his view of the biggest black swan in the market currently, and isn't shy to call government debt a "Pure Ponzi scheme." - When asked where he the biggest potential source of systemic fragility is, he responds: "The massive one is government deficits. As an analogy: You often have planes landing two hours late. In some cases, when you have volcanos, you can land two or three weeks late. How often have you landed two hours early? Never. It's the same with deficits. The errors tend to go one way rather than the other. When I wrote The Black Swan, I realized there was a huge bias in the way people estimate deficits and make forecasts. Typically things costs more, which is chronic. Governments that try to shoot for a surplus hardly ever reach it. The problem is getting runaway. It's becoming a pure Ponzi scheme. It's very nonlinear: You need more and more debt just to stay where you are. And what broke Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers." Alas, Taleb is wrong: Ponzi or not, today's UST auction will likely once again come at a multi year high Bid To Cover as the suckers (especially those who recycle Fed discount window money) just refuse to go away.

 

STATE & LOCAL GOVERNMENT

 

Los Angeles Investigates Voter Fraud In Suburb With Incredibly Well-Paid Officials  BI

 

In Advance Of The GDP Report, Goldman's Hatzius Sees 3% GDP Drag From State, Local And Federal In Coming Year  ZH

Tomorrow's GDP report will be a major market catalyst as it will either confirm that an inflationary double dip has now arrived and the Fed will have no option but to print, or it will come "just better than expectations", once again sending the market into a lithium-deprived paroxysm of intraday jerkiness. Yet in the medium run, tomorrow's number is very much irrelevant, especially if Jan Hatzius' latest analysis on the impact of various trends at the local, state and federal level turns out to be correct. Goldman's analysis is based on the following assumptions: (1) Congress will not extend emergency unemployment benefits beyond the current expiration date in November 2010, (2) state governments will need to make do without any additional federal fiscal aid beyond what was included in ARRA, and (3) Congress extends the lower- and middle-income tax cuts of 2001-2003 as well as the Making Work Pay tax cut of 2009 but not the higher-income cuts of 2001-2003. The latter is of particular significance because as Bloomberg reports, Obama is about to take populism into high gear, as Geithner will next week bring the proposed tax cuts for the rich directly to the masses (and the corrupt simians in the Senate). Obviously the financial implications of that one move alone will be disastrous and even if tomorrow's GDP number prove better than expected, the market may ultimately trade off on the devastating impact from the expiration of the most important subset of tax cuts. Which is why, going back to Hatzius, the Goldman economist states: "The overall impact of fiscal policy (combining all levels of government) is likely to go from an average of +1.3 percentage points between early 2009 and early 2010 to -1.7 percentage points in 2011, a swing of about -3 percentage points. We estimate that the boost to the level of GDP starts to decline in mid-2010, first gently and then more forcefully, setting up a significant negative impact on GDP growth in late 2010 and 2011." The only thing Hatzius forgot to add is brace yourselves for impact. Yet somehow Goldman's own David Kostin projects that 2011 S&P EPS will grow by double digits... even as the firm's own economic team anticipates an economic crunch. This is precisely the conflicted double speak that we have grown to love and expect from the Wall Street sellside.

Full Goldman note below:

Today’s comment integrates state and local finances into our analysis of the impact of fiscal policy on real GDP growth.  We include changes in spending and tax policy at the state and local level—as discussed in last Wednesday’s daily comment—directly in our analysis, instead of the transfer payments from the federal government to state governments in the American Recovery and Reinvestment Act of 2010 (ARRA).  We believe that this results in a more complete and realistic assessment of the overall stance of fiscal policy at all levels of government.

These estimates imply that the overall impact of fiscal policy (combining all levels of government) is likely to go from an average of +1.3 percentage points between early 2009 and early 2010 to -1.7 percentage points in 2011, a swing of about -3 percentage points.  The main difference compared with our federal-only estimates is a smaller positive impact of overall fiscal policy in 2009 as well as a somewhat earlier weakening in 2010.  The reason is that state and local policies have exerted a drag on growth all along, and this drag has increased somewhat in early 2010.

Most analyses of the impact of fiscal policy on GDP growth—those of the Congressional Budget Office (CBO), the Council of Economic Advisers (CEA), and numerous private-sector forecasters including ourselves—have focused on the role of federal fiscal policy.  More precisely, they have estimated the impact of the American Recovery and Reinvestment Act of 2009 (ARRA) on GDP relative to what would have happened to GDP in the absence of ARRA.

In general, these estimates are fairly close to one another.  The CEA’s latest quarterly update summarizes three official and five private-sector estimates of the cumulative impact of ARRA on the level of GDP as of mid-2010, which are clustered in a reasonably tight range from 2.2% to 3.7%.  (See Table 8 of the following report: http://www.whitehouse.gov/files/documents/cea_4th_arra_report.pdf; the preceding statement is based on the midpoint of the CBO’s “low” and “high” estimate.)  Our own estimate of the impact is 2.6%, i.e. modestly below but fairly close to the midpoint of these estimates.  Moreover, we estimate that the boost to the level of GDP starts to decline in mid-2010, first gently and then more forcefully, setting up a significant negative impact on GDP growth in late 2010 and 2011.

But while the impact of ARRA on GDP is an important question from both an economic and political perspective, it is not necessarily the best guide to the overall impact of fiscal policy on GDP growth, for at least three reasons.

First, there have been several “follow-on” fiscal programs since the enactment of ARRA, including the “cash for clunkers” program, the homebuyer tax credit, and repeated extensions of unemployment benefits. These need to be taken into account as well in gauging the impact of fiscal policy.  (We have been doing this in our fiscal policy analysis already.)

Second, the potential expiration of the 2001-2003 tax cuts has received increasing attention in recent months (see Alec Phillips, “Extending the Expiring Tax Cuts: What, How, When, and Why,” US Daily, July 26, 2010).  This also needs to be taken into account in a gauging the impact of fiscal policy.  (We have been doing this as well.)

Third, although the analysis of the GDP boost from ARRA includes a line item for aid to state governments, this does not appropriately capture the impulse from state and local governments.  In calendar 2009, ARRA provided about $60 billion of funding for state governments, which is equivalent to 0.4% of GDP.  Including multiplier effects, this implies a boost to real GDP growth of around 0.5 percentage point in the standard ARRA-related calculation.  But despite the ARRA funds, state and local governments have exerted a significant drag on real GDP growth since 2009, as we showed last week. (See “The State and Local Drag Continues,” US Daily, July 21, 2010.)  This does not mean that the standard ARRA analysis is “wrong”—after all, if state governments hadn’t received funds from the federal government, they would have had to cut back even more.  But if we are interested in the overall fiscal impulse to GDP, we should look at the impact of state and local governments on the rest of the economy via their spending and tax policies, not at the impact of the federal government on state government finances.

The chart below provides an integrated look at the GDP growth impact of fiscal policy at the federal, state, and local level.   These numbers are based on our current assumptions that (1) Congress will not extend emergency unemployment benefits beyond the current expiration date in November 2010, (2) state governments will need to make do without any additional federal fiscal aid beyond what was included in ARRA, and (3) Congress extends the lower- and middle-income tax cuts of 2001-2003 as well as the Making Work Pay tax cut of 2009 but not the higher-income cuts of 2001-2003.

Two additional comments are in order.  First, we have lengthened and smoothed out the impact of tax changes on spending in order to reduce the volatility in quarterly GDP impulses from fluctuations in tax refunds and final settlements from one quarter to the next.  Second, we recognize that part of the impact from income replacement measures, most prominently emergency unemployment benefits, is not a completely “exogenous” consequence of a shift to more generous benefit provision in ARRA but also partly an “endogenous” consequence of weakness in the econom.



The upshot of the chart is that the overall fiscal impulse to GDP growth is likely to go from +1.3 percentage points between early 2009 and early 2010 to -1.7 percentage points in 2011.  There are two main differences compared with our federal-only estimates—(1) a smaller positive impact in 2009 and (2) a somewhat earlier turn into negative territory in 2010.  The reason for both is that state and local finances have been a drag on growth all along, and this drag has increased somewhat in early 2010.  The earlier turn toward restraint may be one reason why growth has been weakening noticeably over the past few months, although the end of the positive inventory cycle has undoubtedly also been an important factor.

However, the basic implication is unchanged from our prior analysis—namely that fiscal policy will result in a substantial “swing” from stimulus to restraint.  This is likely to contribute to slower GDP growth of around 1½% (annualized) in the second half of 2010, and it implies downside risks to our current forecast of 3% growth (on a Q4/Q4 basis) in 2011.


CENTRAL & EASTERN EUROPE

 

 

HUNGARY

 

BANKING CRISIS II

 

 IMF Says Some Small US Banks May Need Capital Reuters
In Basel, Eternal Work In Progress NYT
All this makes it easy to conclude that the regulators are again giving in to banks...

The Fed Has Not Run Out of Options, As Yet NTrust


The Fed Flashes the Nuclear QE Trump Card Dorsch

 

US banks in rush for cheap finance  FT

Action amid low rates and rising demand

 

Swap rates fall below Treasury yields FT

A historic relationship between US government bonds and interest rate swaps has broken down this week, for only the second time, as a flood of corporate debt issuance from banks pushed 10-year swap rates below Treasury yields.   The negative spread between swaps and “risk free” Treasuries occurred for the first time in March and that inversion only abated at the end of April

 

DODD FRANK ACT

 

SEC Says New Financial Regulation Law Exempts it From Public Disclosure   FOX Business

View SEC Financial Regulatory Law H.R. 4173 on Scribd

So much for transparency.

Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act.

The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from "surveillance, risk assessments, or other regulatory and oversight activities." Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot.

That argument comes despite the President saying that one of the cornerstones of the sweeping new legislation was more transparent financial markets. Indeed, in touting the new law, Obama specifically said it would “increase transparency in financial dealings."

The SEC cited the new law Tuesday in a FOIA action brought by FOX Business Network. Steven Mintz, founding partner of law firm Mintz & Gold LLC in New York, lamented what he described as “the backroom deal that was cut between Congress and the SEC to keep the  SEC’s failures secret. The only losers here are the American public.”

If the SEC’s interpretation stands, Mintz, who represents FOX Business Network, predicted “the next time there is a Bernie Madoff failure the American public will not be able to obtain the SEC documents that describe the failure,” referring to the shamed broker whose Ponzi scheme cost investors billions.

"The new provision applies to information obtained through examinations or derived from that information," said SEC spokesman John Nester. "We are expanding our examination program's surveillance and risk assessment efforts in order to provide more sophisticated and effective Wall Street oversight. The success of these efforts depends on our ability to obtain documents and other information from brokers, investment advisers and other registrants. The new legislation makes certain that we can obtain documents from registrants for risk assessment and surveillance under similar conditions that already exist by law for our examinations. Because registrants insist on confidential treatment of their documents, this new provision also removes an opportunity for brokers, investment advisers and other registrants to refuse to cooperate with our examination document requests."

Criticism of the provision has been swift. “It allows the SEC to block the public’s access to virtually all SEC records,” said Gary Aguirre, a former SEC staff attorney-turned-whistleblower who had accused the agency of thwarting an investigation into hedge fund Pequot Asset Management in 2005. “It permits the SEC to promulgate its own rules and regulations regarding the disclosure of records without getting the approval of the Office of Management and Budget, which typically applies to all federal agencies.”

Aguirre used FOIA requests in his own lawsuit against the SEC, which the SEC settled this year by paying him $755,000. Aguirre, who was fired in September 2005, argued that supervisors at the SEC stymied an investigation of Pequot – a charge that prompted an investigation by the Senate Judiciary and Finance committees.

The SEC closed the case in 2006, but would re-open it three years later. This year, Pequot and its founder, Arthur Samberg, were forced to pay $28 million to settle insider-trading charges related to shares of Microsoft (MSFT: 26.03 ,0.00 ,0.00%). The settlement with Aguirre came shortly later.

“From November 2008 through January 2009, I relied heavily on records obtained from the SEC through FOIA in communications to the FBI, Senate investigators, and the SEC in arguing the SEC had botched its initial investigation of Pequot’s trading in Microsoft securities and thus the SEC should reopen it, which it did,” Aguirre said. “The new legislation closes access to such records, even when the investigation is closed.

“It is hard to imagine how the bill could be more counterproductive,” Aguirre added.

FOX Business Network sued the SEC in March 2009 over its failure to produce documents related to its failed investigations into alleged investment frauds being perpetrated by Madoff and R. Allen Stanford. Following the Madoff and Stanford arrests it, was revealed that the SEC conducted investigations into both men prior to their arrests but failed to uncover their alleged frauds.

FOX Business made its initial request to the SEC in February 2009 seeking any information related to the agency’s response to complaints, tips and inquiries or any potential violations of the securities law or wrongdoing by Stanford.

FOX Business has also filed lawsuits against the Treasury Department and Federal Reserve over their failure to respond to FOIA requests regarding use of the bailout funds and the Fed’s extended loan facilities. In February, the Federal Court in New York sided with FOX Business and ordered the Treasury to comply with its requests.

Last year, the network won a legal victory to force the release of documents related to New York University’s lawsuit against Madoff feeder Ezra Merkin.

FOX Business’ FOIA requests have so far led the SEC to release several important and damaging documents:

•FOX Business used the FOIA to obtain a 2005 survey that the SEC in Fort Worth was sending to Stanford investors. The survey showed that the SEC had suspicions about Stanford several years prior to the collapse of his $7 billion empire.

•FOX Business used the FOIA to obtain copies of emails between Federal Reserve lawyers, AIG and staff at the Federal Reserve Bank of New York in which it was revealed the Fed staffers knew that bailing out AIG would result in bonuses being paid.

Recently, TARP Congressional Oversight Panel chair Elizabeth Warren told FOX Business that the network’s Freedom of Information Act efforts played a “very important part” of the panel’s investigation into AIG.

Warren told the network the government “crossed a line” with the AIG bailout.

“FOX News and the congressional oversight panel has pushed, pushed, pushed, for transparency, give us the documents, let us look at everything. Your Freedom of Information Act suit, which ultimately produced 250,000 pages of documentation, was a very important part of our report. We were able to rely on the documents that you pried out for a significant part of our being able to put this report together,” Warren said.

The SEC first made its intention to block further FOIA requests known on Tuesday. FOX Business was preparing for another round of “skirmishes” with the SEC, according to Mintz, when the agency called and said it intended to use Section 929I of the 2000-page legislation to refuse FBN’s ongoing requests for information.

Mintz said the network will challenge the SEC’s interpretation of the law.

“I believe this is subject to challenge,” he said. “The contours will have to be figured out by a court.”

 

Look What Surprises They Snuck Into The Financial Reform Bill  TheEconomicCollapseBlog.com

Even just a decade ago, major pieces of legislation in the U.S. Congress would be just a few dozen pages long.  But today, it seems like every time Congress passes an important bill it ends up being over a thousand pages long.  In fact, the final version of the new financial reform law was over 2,300 pages.  Overall, as we wrote about extensively in a previous article, this much-ballyhooed new law does a whole lot of nothing, but it turns out that lobbyists and special interests were able to insert a few nasty surprises that we are just now finding out about.  But it was the same thing with the health care reform law.  It was only after it was passed that most of us learned that it contained a provision that will force U.S. small businesses to collectively produce millions more 1099 tax forms each year.  Now small businesses from coast to coast are screaming bloody murder about that provision but it is too late - the law has already passed.  Unfortunately, there are some surprises in the recently passed financial reform law that are nearly just as bad. So just what are those surprises?

Well, first let's talk about what the financial reform law does not do.  The financial reform bill was supposed to "fix" Wall Street and the financial system, but it did not do much of anything....        

-It does nothing to address the problems with Fannie Mae and Freddie Mac.

-It does not eliminate "too big to fail".

-It does absolutely nothing to eliminate the horrific bubble in the derivatives market.

-It does nothing to reform the organization most responsible for the recent financial crisis - the Federal Reserve.  In fact, this new law actually gives the Federal Reserve even more power.

But it does create a ton of new paperwork and a bunch of new government organizations.  Oh goody!  But was there any major law that Congress has passed over the last several years that did not increase the size and scope of government?That is a good question. In any event, let's get to some of the nasty surprises contained in the new financial reform law....

*Barack Obama has been running around touting how this new law will "increase transparency" in the financial world, but it turns out that a little-noticed provision of the new law exempts the Securities and Exchange Commission from virtually all requests for information by the public, including those filed under the Freedom of Information Act.  Not that the SEC was doing much good anyway.  But now the SEC's incompetence and the nefarious actions of those they are investigating will be hidden from public view.  So what makes the SEC so special that they get to block the public from seeing their records while other government agencies still have to comply with FOIA?  Talk about ridiculous.

But there is actually another little surprise contained in the new law that is even more nasty....

*Another little-noticed section deeply embedded in the financial reform law actually gives the federal government the authority to terminate government contracts with any "financial firm" that fails to ensure the "fair inclusion" of women and minorities in its workforce.

This section of the law, written by U.S. Representative Maxine Waters, is 1,261 words long and it establishes "Offices of Minority and Women Inclusion" in the Treasury Department, the Federal Reserve, the Securities and Exchange Commission and more than a dozen other finance-related agencies.

The directors of these new departments are tasked with developing standards that "ensure, to the maximum extent possible, the fair inclusion and utilization of minorities, women, and minority-owned and women-owned businesses in all business and activities of the agency at all levels, including in procurement, insurance, and all types of contracts."

The maximum extent possible?  That sounds pretty strong.  So what kind of firms does this section apply to?

Well, according to Politico, this section is going to apply to just about anyone who has anything to do with the financial industry....

This applies to “services of any kind,” including investment firms, mortgage banking firms, asset management firms, brokers, dealers, underwriters, accountants, consultants and law firms, the legislation states. Every contractor and subcontractor must now certify that their workforces reflect a “fair inclusion” of women and minorities.

The truth is that this small section of the law represents a fundamental change in employment law in the United States.

And it is written so vaguely that firms are going to be tempted to go above and beyond in complying with it just so they are safe.  In fact, many analysts are already saying that it could lead to an unofficial quota system.   In any event, hundreds of new federal government bureaucrats will be watching to make certain that these vague new regulations are fully implemented.

*It also looks like the new financial reform law is going to end the era of free checking accounts. Why?Well, it turns out that the new law really limits the amount of fees that banks can charge and the way that they charge them.  So banks have got to make their money somewhere.  Wells Fargo and Bank of America have already announced new fees on checking accounts, and other banks are expected to follow their lead shortly.  What a mess.

Can't Congress do anything right these days?  At this point Congress is so incompetent that if they would just sit there and do nothing that would be a vast improvement.  But that isn't going to happen.

RATING AGENCIES

 

RISK REVERSAL

 

 

COMMERCIAL REAL ESTATE

 

 

RRESIDENTIAL REAL ESTATE - PHASE II

 

Australian house prices fall as rate hikes bite Dow Jones

Mortgage Originators Everywhere Seeing Red As Freddie 30 Year Mortgage Hits Fresh All Time Low Of 4.54%  ZH

The Fed came, saw, and conquered the mortgage market. The 30 year Freddie fixed just dropped another 2 bps from the prior week to 4.54%, a fresh all time low, and more billions in margins chopped off from the profit line of mortgage originators everywhere, now that the Fed and Pimco are the only two entities remaining in the mortgage market, even as consumer cash flows are under more pressure than ever confirming that in this bizarro market just as one wants to buy, the right button to push is sell and vice versa.

Housing Bubble Not To Be Reblown- Foreclosures Increase In 75% Of Big Metro Areas  BI

 

EXPIRATION FINANCIAL CRISIS PROGRAM/font>

 

 

PENSION & ENTITLEMENTS CRISIS



CHRONIC UNEMPLOYMENT

 

Why The Public Hates Corporate America Right Now  BI

As the number of jobs in the U.S. have continued to decline, profits have soared above pre-recession levels.

From The Atlantic:

chart of the day, corporate profits vs jobs, 2007-2010


GOVERNMENT BACKSTOP INSURANCE

 

Hank Paulson Wants To Fix Fannie And Freddie By... Recreating Fannie And Freddie BInsider
QE 2.0 Or QE 1.999- GSEs And FHA Are Preparing Auto-Refi Program Taking Millions To Current Market Rates Overnight  ZH
The main story making waves this afternoon is the presentation by St. Louis Fed's James Bullard titled "Seven Faces of The Peril" in which the Fed president pledges that the Fed should immediately recommence purchasing Treasurys if the deflation scenario picks up, which he notes is an increasingly likely probability. In the paper, Bullard argues that the Federal Open Market Committee’s extended period language may be increasing the probability of a Japanese-style deflationary outcome in the U.S. within the next several years, and concludes that an appropriate quantitative easing policy offers the best hope for avoiding a low nominal interest rate, deflationary outcome. "The U.S. is closer to a Japanese-style outcome today than at any time in recent history...A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.” While of course keeping up a facade that the Fed is in control, Bullard does speculate about the downside case: “The most likely possibility from where we sit today is that the recovery will continue through the fall, inflation will start to move up and this issue will all go away. Suppose we get another negative shock, another surprise. We have to be prepared in that event to have a plan in place to do something." Yet all of this is in the sphere of probabilities of QE2.0 and for now at least, is something to consider in the intermediate future. Yet something far more sinister may be brewing just below the immediate horizon. As Mark Hanson suggests based on speculation by both MS and ML (oddly enough released concurrently, MS report attached below), the GSEs and the FHA may be preparing to imminently launch an instant auto-refi program which would take millions of borrowers to current market rates overnight! In the process $45 billion of consumer savings would be created. Welcome QE 1.999.

 

CORPORATE BANKRUPTCIES

 

BP - British Petroleum

SULTANS OF SWAP: BP Potentially More Devastating then Lehman!

------------

 

BP's Hayward Defends Tenure, Spill Response  WSJ

 

BP May Have Broke Law By Signing Scientists To Non-Disclosure Agreements  BI

 

Dudley to outline BP plans to help Gulf recover

 



 

OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

With Case Against The Wyly Brothers, The SEC Goes To War Against Offshore Finance  BI

SEC Brings GIGANTIC Insider Trading Case Against The Famous Wyly Brothers Of Texas BI

Wyly Brothers Face SEC Fraud Charges  WSJ
Billionaire brothers Sam Wyly and Charles Wyly hid $550 million in trading profits by using an "elaborate sham system" of offshore entities, the SEC charged.

Never Heard Of Sam Wyly- Maybe You Know The Two George Bush Opponents Who He Helped Destroy  BI

Despite being mega-wealthy, it's possible that plenty of folks have never  heard of the Texas-based Wyly brothers, who were charged by the SEC with insider fraud yesterday.  So who are they?  Well in addition to being boardmembers of several companies, they're also big GOP boosters, and Sam in particular did A LOT for George W. Bush.  In 2000, he backed a shadowy group "Republicans for Clean Air" that pressed hard to defeat John McCain in the primary.  And in 2004.... well perhaps you remember the Swift Boat ads? Yep, Sam was a backer of that, too.

 

Speculators Rediscover Agricultural Commodities Spiegel

FLASH CRASH - HFT - DARK POOLS

 

MARKET WARNINGSEquity Market Being Propped Up As Market Remains Last Line Of Defense Against Deflation  ZH

Recent 1 to 1 Treasury to Equity correlation continues to break down as we noted monday...note Treasuries holding near high of the day as equities rally back into green...something is amiss in the financial markets right now with one of these markets being artificially skewed...again most likely culprit is equities as this market is much more easily manipulated due to lower liquidity profile relative to the treasury market....believe equities are being artificially propped up as a defense against widespread acceptance of deflationary pressures for if headlines start to cross that equities are cratering due to deflation, consumer spending will certainly come to a screeching halt (due to perception of lower asset prices in the future) which will certainly give deflation the green light to take hold of this economy...ultimately believe equity market pricing is the last line of defense against the reality of deflation which is why we are seeing such a strong defense against lower prices....in the end however, deflation is such a strong force that any attempt at short-term manipulation of asset prices will fail.

http://www.matrixanalytix.com/live-market-analytix.html


Stunner- 12th Sequential Domestic Equity Outflow (And $11 Billion In July Alone) Invalidates Volumeless July Stock Surge  ZH

The latest update from ICI is a doozy: in the week ended July 21, domestic equity mutual funds saw a 12th sequential outflow of $1.5 billion. Even as the market has surged 10% in the last three weeks, just under $10 billion have been redeemed from mutual funds, completely invalidating the move and further justifying the skeptics who see absolutely no reflection to reality in the volumeless ramp orchestrated by a few momentum HFTs and a couple of Primary Dealers with some excess leftover Discount Window change. Not to mention that 12 weeks in a row of outflows pretty much marks game over as far as retail participation is concerned in stocks. Regardless of what the market does, where it close, how high it ramps, etc, retail just pulls money indiscriminately from the market, without any regards for what the fraudulent and fabricated current level of the DJIA may be: all mom and pop just want is to get the hell out of stocks stat and get into fixed income. The market is now completely disconnected from fund flows, and the only thing potentially keeping it in the stratosphere in addition to deranged binary concoctions are various "self-fulfilling prophecy" high gamma ETFs, which continue to push stocks away from fair value to the tune of several standard deviations. However, just like on May 6, the rubberband will, sooner or later, snap, and make May 6 seem like a dress rehearsal.

While technical difficulties prevent us from posting the latest Domestic mutual fund flow-SPY chart, below we have recreated last week's  - fell free to use your imagination and fill the July 21 data point.

 

GOLD MANIPULATION

BIS gold swaps mystery is unravelled  FT

 

 

VIDEO TO WATCH

 

 

Jim Quinn of The Burning Platform  

"The Ruling Elite Called"

QUOTE OF THE WEEK
In a Financial Times op-ed dated July 25, 
Laurence Kotlikoff, economics professor at Boston University

"Due to the “labeling problem”--governments can describe receipts and payments in any way they like--we are essentially “in a fiscal wonderland of measurement without meaning.”


 


ZH - Zero Hedge - 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

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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.