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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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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

 


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"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

 


 

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COMMENTARY for all articles by Gordon T Long

 

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.

READ MORE

 

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: 08/08/2010 08:36 PM

RED ALERT

AMBER ALERT

ACTIVITY

MONITOR

Click to Enlarge

 

 

POSTS:  WEEKEND 08-07-10

 

 

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

 

IRAN

Guest Post- The Enduring Middle East Strategic Framework Begins to Emerge as Iran Surges, and the US Resiles  ZH

The lingering impact of August 3, 2010, clash on the Israeli-Lebanese border lies in the greater context of, and wider strategic dynamics in, the Middle East. These aspects were highlighted by HizbAllah Secretary-General Hassan Nasrallah in his speech later that day. Overall, the issue dominating the overall situation in the Middle East is the reaction by the local powers to the emerging new grand strategic reality: namely, the demise of the United States as the dominant regional power. This is a dramatic reversal of a concentrated US policy of more than half a century.

 

ISRAEL

 

KOREA 

 

SOVEREIGN DEBT & CREDIT CRISIS

 

 

GREECE

 

SPAIN / PORTUGAL

 

FRANCE

 

GERMANY

German industrial production's surprise dip MW

 

ITALY

 

UK

Unpalatable pricesCash-strapped public faces food inflation  FT

 

JAPAN

 

CHINA

U.S. levies steep duties on Chinese steel drill pipe Reuters

 

USA

Consumers cut back on credit cards again in June AP FED

Consumers Still Chopping Up The Credit Cards, As June Revolving Credit Falls Again  BI

The process of cutting up credit cards continues.

The Fed is out with June consumer credit data and it shows that while total consumer credit fell just .7%, revolving consumer credit shrank 6.5% on an annualized basis. On a sequential basis, the decline went from $831 billion to $826 billion.  The total consumer credit decline was $2419 billion to $2418.5 billion

 

Goldman Capitulates- Lowers GDP Forecast, Increases Unemployment And Inflation Outlook, Sees Imminent QE "Lite"

It's official: the double dip is here. Goldman's Jan Hatzius just lowered his GDP forecast for 2011 from 2.5% to 1.9% (kiss goodbye all those 93 EPS estimates on the S&P), increased his unemployment forecast from 9.8% to 10.0%, boosted his inflation expectation from 0.4% to 1.0%, and said that QE lite is now on the table, as he expects that "the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting." Look for all other sell-side "strategists" (here's looking at you Neil Dutta) to lower their economic outlook in kind, and the 2011 S&P consensus to decline accordingly.

 

A VERY TELLING CONSUMER SENTIMENT ANALYSIS

 

 

EU BANKING CRISIS

   

Big UK banks clock up £15bn profits  FT

Banks’ reports speak volumes if not the whole story  FT

 

 

BOND BUBBLE

 

What More Could The Fed Do? BMO
Only the Federal Reserve can jump-start the recovery at this stage Inde

Weak Hiring Intensifies Debate on Possible Fed Easing  BL

 

Gross Says Fed Won't Raise Rates for 2 to 3 Years BL

STATE & LOCAL GOVERNMENT

 

Exotic Deals Put Denver Schools Deeper in Debt NYT


CENTRAL & EASTERN EUROPE

 

 

HUNGARY

 

BANKING CRISIS II

 

 

 BIS: it's the implicit taxpayer guarantee that drives banks to get bigger Telegraph

 

DODD FRANK ACT

 Wall Street's Big Win Taibbi Caveat Emptor, Continued NYT (Norris)
Senators Who Crafted Volcker Rule Welcome Goldman's Decision BL
Two weeks after it took effect, the Volcker rule is already sweeping Wall St.   F
Why Can't Anyone Just Call It "the Volcker Rule"? NYM
He's an old man! Let him have his rule.
Tim Geithner Ignores Volcker Rule, Touts 'Financial Innovation' HP

RATING AGENCIES

 

RISK REVERSAL

 

 

 

COMMERCIAL REAL ESTATE

 

After Signs Of Improvement, Commercial Real Estate Prices Fall Sharply In June BI

This is a new repeat sales index for commercial real estate. Previously I've only been using the Moodys/REAL Commercial Property Price Index (CPPI) for commercial real estate.

From CoStar: CoStar Commercial Repeat-Sales Indices, July 2010

  • The commercial real estate market’s pricing has been a tale of two worlds with the largest metro markets attracting significant institutional capital and forcing prices upward over the first two quarters of 2010, while the broader market has continued to soften.

  • This divergence of the two worlds may soon change as we are now witnessing a pause and softening even within the investment or institutional grade primary markets.

  • Over the past ten months we have seen the overall CCRSI oscillate from positive to negative and back again, with preliminary July figures very likely to be down for the investment grade property markets. From May to June, the overall CCRSI was down 7.78% with the investment grade property declining by 4.83%, reversing previous positive movement.
    emphasis added

  •  Click on graph for larger image in new window.

    This graph from CoStar shows the indexes for investment grade, general commercial and a composite index. The investment grade index had been increasing - but turned sharply lower in June.

    On the number of transactions:
    The CCRSI July report is based on data through the end of June. In June, 665 sales pairs were recorded, up significantly from May, during which 506 transactions occurred. Overall, there has been an upward trend in pair volume going back to 2009. February 2009 appears to have been the low point in the downturn in terms of pair volume, when 374 transactions were recorded.
    ...
    Distress is also a factor in the mix of properties being traded. Since 2007, the ratio of distressed sales to overall sales has gone from around 1% to above 23% currently. Hospitality properties are seeing the highest ratio, with 35% of all sales occurring being distressed. Multifamily properties are seeing the next highest level of distress at 28%, followed by office properties at 21%, retail properties at 18%, and industrial properties at 17%.

     

    RRESIDENTIAL REAL ESTATE - PHASE II

     

    Housing Insanity Atlantic Morgan Stanley Sees San Francisco Housing Double-Dip
    Countercyclical Loan-to-Value Limits Can Help Prevent the Next Bubble Pollock

     

    EXPIRATION FINANCIAL CRISIS PROGRAM/font>

     

     

    PENSION & ENTITLEMENTS CRISIS


    The Problem with Pensions Mauldin
    Battle Looms Over Huge Costs of Public Pensions NYT
    Social Security and Medicare continue to face grave financial challenges LAT  CMS
    “The long-run financial challenges facing Social Security and those that remain for Medicare should be addressed soon.”
    Canada's Biggest MEPP in Dire Straits  ZH
    Canada’s biggest multi-employer pension plan says thousands of members, with 130,000 active members, could soon face future benefit cuts of 15 to 50 per cent depending on negotiations with companies.


    CHRONIC UNEMPLOYMENT

     

    LABOR REPORT - NFP JULY
    U.S. loses 131,000 jobs BL BLS
    Total employment fell a revised 221,000 in June, today’s figures showed
    A look at US unemployment Fabius Maximus
    Lackluster Private Sector Job Growth Once Again NTrust
    Canada: 139,000 full-time jobs disappear G&M

    US is hit by slow growth in jobs  FT
    Losses put pressure on the Fed to take action

    Real U-3 Unemployment Rate When Adjusted For Labor Force Participation- Around 14%  ZH

    When it comes to pointless (and bullish) reversion to the mean exercises,it seems nobody has a problem with saying stocks have to go back to 1,500 just because that's where they were, and the unemployment rate has to go back to 5% cause that's how we know the Fed is the immaculate and flawless piece of art it is, and always gets things under control to near-peak efficiency. Well, here at Zero Hedge we (again) decided to take the reversion to the mean approach and flip it, instead applying it to a deteriorating indicator, the labor force participation rate. The first chart below demonstrates the LFP rate, which a derivative of the chart we presented earlier, has now plunged to the lowest level in over 25 years, or 64.6% (gotta go back to December 1984 for the first time this was passed). So we decided to "normalize" the LFP by keeping it at the peak achieved at the turn of millennium, or December 1999, when it hit a peak of 67.1%. Now as everyone knows the US population has been soaring since then, and with the cost of living increasing ever more with each day, and as more and more family members are forced to join the work pool, it makes sense that in a normal economy, the LFP should continue rising instead of declining. We thus kept it constant at the 67.1% level (instead of doing the conservative thing and pushing it higher along the trendline), and ran the unemployment numbers through, assuming this part of the jobless equation was constant. To our surprise, we found that the U-3 rate (not the U-6), which today was supposed to be 9.5%, in fact turns out to be 13.0% as of July: an all time record save for the 13.6% recorded in December 2009. And if instead we use the trendline number of a 68.5% LFP rate, the unemployment rate today would be 14.7%. In retrospect we sympathize with Christina Romer's decision to get the hell out of Dodge. 

    Reported and adjusted labor force participation rate:

    Running these numbers through the actual unemplyment calculation, reveals the following: while assuming a declining LFP rate we obviously get the 9.5% unemployment rate, assuming a peak 67.1% LFP results in a 13.0% unemployment rate. And if the labor force participation rate were to grow according to trendline, the jobless rate in the US today would have been reported at 14.7%, just about where the U-6 was reported, but based on an entirely different methodology.



    GOVERNMENT BACKSTOP INSURANCE

     

     

    CORPORATE BANKRUPTCIES

     

    BP - British Petroleum

    SULTANS OF SWAP: BP Potentially More Devastating then Lehman!

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

     

     

     

     



     

    OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

    The New Push for a Global Currency Mises

     

    No Wheat Shortage, but Prices May Rise NYT
    “This is still going to be the third-largest wheat crop in world history, even with the Russian shortfall”

    When Labor Is Capital: The Limits of Keynesian Policy TheAmerican

     

    The Backstory On How Christina Romer Wanted To Fix The Economy  BI

    FLASH CRASH - HFT - DARK POOLS

    Humiliation- Bank Of America Plunges From Trading Perfection To Just 81% Profitable Trading Days

     

    MARKET WARNINGS

    The Return of the Animal Spirits Kass Don’t Get Caught Up In Optimism
    Stocks Ignore Green Shoots' Turning Brown Forsyth  Hulbert
    Forgotten Indicators Are Flashing Danger: Economist CNBC

    McClellan Oscillator Is Positive Swenlin

     

    GOLD MANIPULATION

     

     

    VIDEO TO WATCH

     

     

     

    QUOTE OF THE WEEK
    In politics, nothing happens by accident. If it happens, you can bet it was planned that way.
    Franklin D. Roosevelt

    The biggest political change in my lifetime is that Americans no longer assume that their children will have it better than they did. This is a huge break with the past, with assumptions and traditions that shaped us.
    Peggy Noonan: America Is at Risk of Boiling Over - WSJ.com

     


    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

    WEEKEND

    08-07-10

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    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
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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.