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SULTANS OF SWAP: Explaining $605 Trillion in Derivatives!

 

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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.

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: 08/09/2010 09:01 AM

RED ALERT

AMBER ALERT

ACTIVITY

MONITOR

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POSTS:  MONDAY 08-09-10

 

 

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

 

IRAN

 

ISRAEL

Netanyahu Tells Probe Israel Acted in Self Defense  BL

 

KOREA 

North Korea Fires Artillery Shells Into Sea Close To South Korea Border - Holds Fishing Boat With 7 On Board  ZH

Some interesting geopolitical news to start off the day from Reuters: "North Korea fired artillery rounds into the sea off its west coast on Monday, a South Korean military official said, heightening tension on the divided peninsula. YTN cable news channel reported dozens of rounds were fired into the North's waters near the border with the South soon after a South Korean naval exercise off the west coast officially ended at 5 p.m." This follows earlier news that North Korea held a South Korean fishing vessel with seven people on board, after it crossed into North Korean waters.

South Korean fishing vessel held by North: coast guard Reuters

Is NK facing hyperinflation? Korea Times

Last month, rice, their staple, and other foodstuff increased about two times in prices on a month to month basis.

 

SOVEREIGN DEBT & CREDIT CRISIS

 

 

IMF SINGLE CURRENCY ROADMAP

 

http://www.imf.org/external/np/pp/enhttp://www.gordontlong.com/2010/041310.pdf

IMF blueprint for a global currency – yes really  FT Alphaville

 

GREECE

 

SPAIN / PORTUGAL

 

FRANCE

 

GERMANY

 

ITALY

 

UK

 

DUBAI

Dubai Brokerages Shutter as Stock Trading Tumbles to 4-Year Low BL

 

JAPAN

Japan's Debt Is So High, It Doesn't Even Fit On The Charts  BI

Let this be a reminder that the ongoing popularity of the yen and JGB (Japanese Government Bonds) should throw a big fat wrench into any notion that any simplistic ideas about the size of a country's debt, and the strength of their national financial instruments.  A brief paper on global sovereign debt crises by Silvio Contessi at the St. Louis Fed (.pdf) includes this lovely chart. As you can see, they had to especially elongate the chart, just so they could fit Japan on there.

The Japanese debt has been financing to a large extent by the savings habits of Japanese consumer. This is changing in a major fashion. How long before it reaches crisis proportions?  - GTL

CHINA

 

USA

The crisis of middle-class America  FT

Weekend Reading - The Crisis of Middle-Class America   Phil's Stock World

 

"Nowadays in America," says the Times, "you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.  Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning crisis of American capitalism. It is one thing to suffer grinding income stagnation. It is another to realise that you have a diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse."

 

We definitely need to do more to encourage small business in this country. (Cameron Herold makes a great case here for teaching our children to be entrepreneurs, but avoids the hot-button debate on lemonade stands)  99.7% of the businesses in the US are "small," with less than 500 workers yet, surprisingly, small business makes up 97% of the US’s export volume.  Last year there were 672,200 new businesses started in the US but, unfortunately, 595,600 closed down and 43,546 additional ones went bankrupt - this "birth/death" ratio for small businesses is a far bigger impact on the US job market than anything that’s happening in Big Business.  We need government stimulus to get small business back in gear - the best way to make America strong is to make sure we have a diversified base of small business, who are nimble enough to pick up the slack in the economy in troubled times.  Unfortunately, with the banks refusing to lend, what usually turns us around in a recession is dead in the water and our Government refuses to help as every bill aimed at aiding small businesses for the past 3 years has been filibustered to death.

 

A dated chart below, but the message is clear and likely worse!

 

 

 

EU BANKING CRISIS

   

 

BOND BUBBLE

 

Commodity spike queers the pitch for Bernanke's QE2 Pritchard
Don't be fooled: a food and oil price spike is not and cannot be inflationary in those advanced industrial economies where the credit system remains broken...

Global bond yields set record lows Forsyth (Complete via Google jump)
Whatever the FOMC's decision this week, it's a low-rate world while risks tilt toward economic weakness and deflation.

Greenspan Calls for Repeal of All the Bush Tax Cuts NYT
“Our choices right now are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.”

U.S. Economy Improving, More Stimulus Isn't the Answer, Rubin, O'Neill Say BL

 

Fed set to downgrade outlook for US  FT

Big new steps to boost growth are unlikely

U.S. Buyers Regain Majority of Treasuries as Savings Rate Rises  BL

 

STATE & LOCAL GOVERNMENT

 

States of distressRoots of US budget woes are not new

So Mr Kuzniewski has been forced to wield the axe. District 201 pupils who go back to high school on August 23 will find 22 per cent fewer teachers and 44 per cent fewer teacher aides. They will have five (longer) classes a day rather than six. They will also need fewer credits to graduate.

Unfunded pensions are a central reason the state cannot pay its bills to institutions such as high school district 201. Interest payments on much of the money Illinois borrows to fund pension contributions come out of its general fund – the same pool that pays for elementary education, keeping the peace and fixing potholes.

As the unfunded portion of the fund grows, so does the annual payment Illinois is required to make – putting stress on the general fund and crowding out other spending.

Using a rate of 3.6 per cent – what US Treasuries were yielding in June – Prof Rauh recalculates Illinois’ pension hole at $145bn – about $30,000 for every household in the state.


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BANKING CRISIS II

 

 

 

 

DODD FRANK ACT

 

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RISK REVERSAL

 

 

 

COMMERCIAL REAL ESTATE

 

 

RRESIDENTIAL REAL ESTATE - PHASE II

 

Housing Policy’s Third Rail NYT (Morgenson)

 

EXPIRATION FINANCIAL CRISIS PROGRAM/font>

 

 

PENSION & ENTITLEMENTS CRISIS



CHRONIC UNEMPLOYMENT

 

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CORPORATE BANKRUPTCIES

 

BP - British Petroleum

SULTANS OF SWAP: BP Potentially More Devastating then Lehman!

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

 

BP spill leads to demand for more regulation  FT

 

 

 



 

OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

What the Great Recession Has Done to Family Life NYT
Capitalism 4.0 by Anatole Kaletsky Guardian

 

US to pay big sums for Wall St tip-offs  FT

Rewards set to trigger surge in informants

 

Drought doubles price of barley in six weeks  FT
Rise in vital feed grain prompts fears for the costs of meat and poulty

 

American Thinker: 1913 Was a Very Bad Year
Since 1913, the federal tax code has been used as a primary tool of leftist social engineering, in which the people have been forced to fund a government they no longer recognize and no longer support. The U.S. Congress has a mere 11% approval rating today, and the executive branch is supported only by the 28% of citizens who benefit personally from the robbing of fellow citizens. The states are now fiscal dependents of the federal government, and the federal government is a twenty-trillion-pound ape trampling through the rose garden of American life. Nobody seems to have any clue how to rein it all in. Further, thanks to the 17th Amendment, also passed in 1913, the states no longer have representation in Washington, D.C. Once again, what seemed like a simple sentence and a good idea to some at the time has since been used by the federal government to eliminate states' sovereignty and rights.

FLASH CRASH - HFT - DARK POOLS

 

MARKET WARNINGS

Goldman Explains Why It Is "QE2 Or Bust" For Stocks Tomorrow  ZH
Just in case you missed Goldman's economic team shift to outright bearishness, here is Jan Hatzius presents several key observations that other economists (particularly those of BofA) have yet to grasp. And even as Goldman openly expects a recommencement in debt monetization tomorrow to the tune of $1 trillion, Hatzius openly acknowledges that this decision could be delayed... And such a decision would be a major mistake, as it is already priced in: "Such a decision could prove to be a serious mistake, because a significant part of the recent easing in financial conditions is probably due to market expectations of a more expansionary monetary policy.  Indeed, if a disappointment on Tuesday results in a significant renewed tightening of conditions, the decision might ultimately hasten the transition to further easing steps." In other words, it is pretty much QE or bust for stocks.

 

6. In addition, we are counting on another push from monetary policy to ease financial conditions via further another round of large-scale asset purchases and/or a more forceful commitment to a long period of near-zero short-term rates.  If our growth, employment, and inflation forecasts are on the mark—and in particular, if the unemployment rate rises back to 10% as we expect—we are reasonably confident that Fed officials will indeed decide to do significantly more.

7. So what will happen at Tuesday’s FOMC meeting?  It’s a close call, but we expect an announcement that the proceeds from maturing or prepaid MBS will be reinvested in the bond market (most likely Treasuries).  In our view, the gradual tightening of the policy stance that is implied by the current policy of letting the balance sheet shrink is inconsistent with what we expect will be a significant downward revision in the forecasts of the FOMC as well as the Board staff since the last meeting.  We have little direct information about any forecast changes, but some insights are available from public documents and speeches by officials and staff at the San Francisco Fed (arguably the most open part of the system in this regard).  On May 13—the last available date before the June 22-23 FOMC meeting—the SF Fed expected real GDP growth of 3¾% in 2010 on a Q4/Q4 basis.  On July 8—the first available date after the meeting—the forecast had fallen to 3.1%.  And on July 28—the most recent update—it had fallen further to 2½%.  These numbers require some interpretation since they are affected by a changing picture of H1, and we have no information on any further changes in the wake of the GDP, ISM, and employment data released since July 28.  But our interpretation is that the SF Fed has probably revised down its view of H2 growth from about 3½% (clearly above trend) at the June 22-23 FOMC meeting to 2%-2½% (slightly below trend) at the upcoming meeting.  If other officials have made similar changes, this would probably be enough to trigger a meaningful shift.  And the most obvious meaningful (but not yet radical) shift would be a decision to reinvest MBS paydowns.

8. However, it is also very possible that the committee will require more time for a shift.  One reason to think so was Chairman Bernanke’s speech last Tuesday.  This was before the employment data, but it was noteworthy that the chairman sounded relatively upbeat, specifically on consumer spending.  Undoubtedly, Fed officials are also encouraged by the recent, broad easing in financial conditions.  But while this might argue for a decision to do nothing much on Tuesday, such a decision could prove to be a serious mistake, because a significant part of the recent easing in financial conditions is probably due to market expectations of a more expansionary monetary policy.  Indeed, if a disappointment on Tuesday results in a significant renewed tightening of conditions, the decision might ultimately hasten the transition to further easing steps.

 

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

MONDAY

08-09-10

AUGUST
S M T W T F S
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8 9 10 11 12 13 14
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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

 

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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.

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© 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.