Gordon T Long

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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.

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: 08/10/2010 06:30 AM

RED ALERT

AMBER ALERT

ACTIVITY

MONITOR

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POSTS:  TUESDAY 08-10-10

 

 

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

 

IRAN

 

ISRAEL

 

KOREA 

 

SOVEREIGN DEBT & CREDIT CRISIS

 

 

GREECE

John Taylor Says That Despite Everything, Greece And Spain Will Default  ZH

John Taylor was on Bloomberg TV Friday, and in this extended version of his interview, the head of the world's largest currency hedge fund said that the euro will fall, equities could head lower, credit spreads will widen sharply and government bonds will rally.

 

SPAIN / PORTUGAL

 

FRANCE

 

GERMANY

 

ITALY

 

UK

Economic fears rise as house prices dip  FT

First decline in a year, says surveyors’ report

Plan to offer incentives for new housing  FT

 

JAPAN

The U.S. and Japan: Land of the falling price G&M
Japan Redux: A Video Case Study Of The Upcoming U.S. Lost Decade ZHedge
"Social Recession" and Japan's "Lost Generations" Smith

 

CHINA

Chinese banks reportedly face wave of bad loans MW

China Takes The Property Bubble To A Whole New Level- An Explosion Of (Vacant) Inland Cities Is Coming ZH

 

USA

The European Debt Crisis and U.S. Economic Growth FRBSL

We Are in Equivalent of Great Depression: Strategist CNBC

Oil Prices Say 100% Chance of a New Recession  Pragmatic Capitalist

This interesting fact comes to us courtesy of The Global Macro Investor:

“Oil prices are always a precursor to recessions.  We hit the magic 100% YoY rise in November 2009 and went on to hit the third highest YoY% rise in the history of oil markets…“The magic 100% level in the YoY change in oil gives us a 100% chance of a recession in the succeeding twelve months.  This indicator suggests that ISM will fall to 40, or even 35, in the coming months before recovering…”



 

 

EU BANKING CRISIS

   

European banks: Distinguishing the walking wounded from the living dead Vox

FT audit casts doubt on Bank’s forecasts  FT

Findings suggest problems of bias and optimism with predictions are endemic

 

 

BOND BUBBLE

 

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QUANTITATIVE EASING: “THE GREATEST MONETARY NON-EVENT”  Pragmatic Capitalist

The most glaring example of failed QE is in Japan in 2001. Richard Koo refers to this event as the “greatest monetary non-event”.  In his book, The Holy Grail of Macroeconomics, Koo confirms what the BIS states above:

“In reality, however, borrowers – not lenders, were the primary bottleneck in Japan’s Great Recession.  If there were many willing borrowers and few able lenders, the Bank of Japan, as the ultimate supplier of funds, would indeed have to do something.  But when there are no borrowers the bank is powerless.”

IT  FAILED IN JAPAN!

 QE I  FAILED IN THE US

ITS A DEMAND PROBLEM - NOT A SUPPLY PROLEM!

 

Visualizing The Bond Bubble Inflows  JPM  via  ZH
Kurt Brouwer highlights something that may substantiate the claims of those who claim there is a treasury bubble in the forming. Using the suddenly all too popular ICI data (which we have been presenting for well over a year), JPMorgan has tallied the total flows into stocks in advance of the tech bubble (April 1998 through March 2000) and compared it to the period since the Lehman collapse (July 2008 through June 2010), the result is surprising: there has been over $50 billion more allocated to bonds in the past 2 year period ($476 billion), than to stocks in advance of the biggest market bubble pop before the housing/credit bubble popped in 2007/8. Is this indicative of anything more than just everyone going on the same side of the trade? Not at all, however even that in itself should be sufficient for bond bulls to reconsider pushing every last cent of capital into what at least on the surface has all the makings of a an even bigger bubble than tech stocks in 2000.

 

US Debt Duration Grows As T-Bill Share Plunges To Pre-Crisis Levels  ZH

 

STATE & LOCAL GOVERNMENT

 


CENTRAL & EASTERN EUROPE

 

 

HUNGARY

Hungary's Defiance Of IMF And European Authorities Scares The Guardians Of Austerity In Europe  BI

 

BANKING CRISIS II

 

BofA May Get $13 Billion Capital Boost From China Banking Stake  BL

 

 

 

PRE FOMC MEETING

FOMC Policy Statement on the 3rd Anniversary of the Crisis: Additional Stimulus Likely? NT

The False Fed Savior WSJ (Complete via Google jump)
It's a tempting religion, this faith in the magical powers of Ben Bernanke and monetary policy, but it's also dangerous.

 Fed may resist pressure MW

Fed Efforts to Spur Growth May Move Markets More Than Economy  BL

Federal Reserve policy makers meeting today may find the market reaction to any announcement of steps to spur growth will be bigger than the impact on the economy.

Rubin Says Second U.S. Stimulus May Create Uncertainty- Video  BL

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

 

Here's Your Playbook Ahead Of A Very Dicey FOMC Meeting  BI
We have a lingering concern that due to a confluence of events, tomorrow’s FOMC meeting has a higher than normal risk of investor disappointment.  The key moving parts are:
  • the sub-3% 10 year Treasury yield; 
  • a 17% equity market correction; 
  • FOMC Voter Jim Bullard’s concern that current policy increases the likelihood of Japanese style deflation;
  • the “Double Dip” fears soft patch of economic data and the WSJ speculating the Fed may begin re-purchasing securities using proceeds from  interest payments, pre-payments and maturing assets of the asset purchase portfolio to keep the Fed’s balance sheet at its current size (Replacement Purchases).
 
The sub-3% 10 year Treasury yield alone was enough to start speculation about a second round of Quantitative Easing (QE2).  The other events add a great deal of fuel to that fire.  One problem is that any hints at a shift in that direction should come from the Fed Chairman himself, and Chairman Bernanke has held the line on his recovery forecast.

As the European Sovereign Debt crisis erupted, the Fed re-opened the Dollar swap lines with foreign central banks in order to ease the dollar funding pressures overseas.  In retrospect those swap lines where barely used (Chart 1), but the Fed illustrated it was prepared to act decisively if necessary. 

San Francisco Fed- Here Are The Real Reasons Why We're At Risk For A Second Recession  BI
Any forecast 24 months into the future is very uncertain. At two years out, the odds of recession vary from almost three times more likely than expansion, to expansion being almost five times more likely than recession, depending on which LEI components are used. Nevertheless, LEI forecast trends indicate that the macroeconomic outlook is likely to deteriorate progressively starting sometime next summer, even if the data suggest that a renewed recession is unlikely over the next several months. Of course, economic policy can strongly influence the outcome. The policies that are adopted today could play a decisive role in shaping the pace of growth.

San Francisco Fed- "A Recessionary Relapse Is A Significant Possibility Sometime In The Next Two Years" ZH

 

DODD FRANK ACT

 

RATING AGENCIES

 

RISK REVERSAL

 

 

COMMERCIAL REAL ESTATE

 

Commercial Real Estate Lobby Ask For Taxpayer Aid To Help Recapitalize Banks Saddled With Billions In Underwater CRE Loans  ZH
 

 

RRESIDENTIAL REAL ESTATE - PHASE II

 

 

EXPIRATION FINANCIAL CRISIS PROGRAM/font>

 

 

PENSION & ENTITLEMENTS CRISIS


Boomers wanting to work past retirement age find limited options USAT


CHRONIC UNEMPLOYMENT

 

Incomes Fall in Most Metro Areas WSJ

Personal incomes fell across the U.S. last year except in areas with a high concentration of federal government and military jobs, the Commerce Department said Monday. They declined most in places with a lot of housing and finance jobs.

Among the 52 metro areas with populations of more than one million, in only three did both net earnings and the broader measure of personal income both rise. All three had strong ties to the federal government: the Washington, D.C., area and two areas with a large military presence, San Antonio and Virginia Beach, Va. In all three, the biggest g ains were among workers in the federal government and the military; private sector compensation fell.

The same picture was reflected nationally, as private employers froze and in many cases reduced workers' pay and hours.  The only other big metro areas with rising personal incomes—Baltimore and Pittsburgh—had falling net earnings but a sharp increase in government checks, such as unemployment benefits.

Guest Post- Are We Moving Toward a Perma-Temp Workplace  ZH

GOVERNMENT BACKSTOP INSURANCE

 

Freddie seeks $1.8bn from US Treasury  FT

FHA Insured Mortgages- A Disaster In The Making   BI

 

CORPORATE BANKRUPTCIES

 

BP - British Petroleum

SULTANS OF SWAP: BP Potentially More Devastating then Lehman!

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

U.S., BP Near Deal on Fund  WSJ

The Obama administration and BP are close to a deal to use future revenues from the oil giant's Gulf of Mexico operations to guarantee its $20 billion cleanup and compensation fund.

 

Costs of BP oil spill increase to $6bn  FT

Group puts $3bn in escrow account for victim claims

Lawsuits threaten BP over air pollution  FT

Experts split over level of BP spill damage



 

OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

Wall St turbulence hits big US banks  FT

Goldman loses $100m on three separate days’ trading

 

Atlantic Hotter Than Before Katrina, Boosting Storm Forecasts  BL

 

Lousy Lawmakers, Not Low Taxes, Made Our Woes- Commentary by Amity Shlaes  BL

 

Obama to Say Lag in College Grads Imperils U.S. Economic Competitiveness  BL

 

Food Inflation Coming To A Household Near You, As Wal-Mart Hikes Prices At Fastest Pace Since Early January  BI

 

A Quick Guide To Who's Doing What In The President's Economic Team  BI

 

FLASH CRASH - HFT - DARK POOLS

 

Algorithmic Crop Circles Redux - Rise Of The Stock Market Machines Part 2  ZH

 

MARKET WARNINGS

Market Volume Tumbles To 50% Below Average As Dislocations Abound  ZH

A quick look at market volume: in a word - deplorable. It confirms what Gillian Tett said last week, piggybacking on our ongoing fund outflow observations, that there is "a loss of confidence – not merely in the idea that the future will be a brighter place, but also, most crucially, about whether anybody is able to predict that future at all." She concludes: "it is bad for investors to feel confused about the outlook for government regulation or deflation; but it seems that nobody really understands how the basic mechanics of the equity market work any more, it is hard to trust that the stock markets are a good destination for your money. Little wonder, then, that those US equity mutual fund outflows have accelerated." Presenting exhibit A of precisely this phenomenon: today's ES volume is about the worst it has been in, well, ever, at 50% below average!

Another perspective of where volume has been in the past two weeks:

And a result of the ongoing dislocation in stocks, the bond to stock divergence is just plain silly now.

 

GOLD MANIPULATION

 

 

VIDEO TO WATCH

 

 

QUOTE OF THE WEEK

“In reality, however, borrowers – not lenders, were the primary bottleneck in Japan’s Great Recession.  If there were many willing borrowers and few able lenders, the Bank of Japan, as the ultimate supplier of funds, would indeed have to do something.  But when there are no borrowers the bank is powerless.”

Richard Koo -- The Holy Grail of Macro Economics



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

TUESDAY

08-10-10

AUGUST
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ARCHIVAL

SOVEREIGN DEBT PIIGS

EU BANKING CRISIS
BOND BUBBLE

STATE & LOCAL GOVERNMENT

CENTRAL & EASTERN EUROPE
BANKING CRISIS II
RISK REVERSAL

COMMERCIAL REAL ESTATE

CREDIT CONTRACTION II

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

 

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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, we recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

Copyright and Disclaimer

© Copyright 2010, Gordon T Long. The information herein was obtained from sources which the Gordon T Long. believes reliable, but we do not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that the Gordon T Long. or its principals may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Gordon T Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from us.