Gordon T Long

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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: 08/11/2010 09:48 AM

RED ALERT

AMBER ALERT

ACTIVITY

MONITOR

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POSTS:  WEDNESDAY 08-11-10

 

 

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

 

IRAN

 

ISRAEL

 

KOREA 

Here's Where A U.S. Warship Is Teasing China Into A Rage  BI

 

SOVEREIGN DEBT & CREDIT CRISIS

 

 

GREECE

 

SPAIN / PORTUGAL

 

FRANCE

 

GERMANY

 

ITALY

 

UK

UK near top of economic gloom rankings  FT

Opinion poll shows much higher confidence in developing countries

U.K. Consumer Sentiment Drops to Lowest Since Aftermath of 2009 GDP Plunge  BL

Employers warn of 'jobless recovery'  FT

Criticizing King WSJ

Justice ministry staff warned of £2bn cut  FT

 

JAPAN


National debt hits 190% of GDP at ¥900 trillion Kyodo News
Much of the debt can be attributed to massive economic stimulus measures the government repeatedly took after the burst of the bubble economy...
Why the Japanese see an opportunity in U.S. bonds LA Times
“The Japanese have been big buyers of Treasuries...They’re betting on us becoming them.”  
                 
Majority of mortgages now adjustable-rate Yomiuri

CHINA

Chinese economy shows further signs of slowing  FT

Industrial production and retail growth slacken

China Output Growth Weakens; Inflation Rises to 3.3%  BL

China’s industrial output rose the least in 11 months, retail sales growth eased and new loans climbed less than estimated, adding to signs that a slowdown in the world’s third-biggest economy is deepening.

China's trade surplus reaches record high Finance Asia

High trade surplus 'likely to remain'

 

There was also disturbing economic news in China, with a report showing that its trade surplus surged in July to an 18-month high, a sign of weak domestic demand. Materials and industrial group shares in all regions have lead declines in equities, and an auction of US Treasury bonds was strongly bid as investors continue to seek the safety of fixed income. The Shanghai Composite index tumbled 2.9 per cent, taking the index to its lowest level of the month. Hong Kong’s Hang Seng index was down 1.5 per cent. For both, it was the worst-one day drop since late June.

How Fifty Percent Of China's 'High Tech' Companies Are Actually Fake  BI

Spiking Food Prices Shoots Chinese Inflation Past Government Targets  BI

 

China Said to Order Banks to Reclaim Loans From Trust Companies BL

Chinese Regulators Order Banks To Expose Their Massive Off-Balance Sheet Loan Portfolios  BI

 

USA

Worker Productivity in U.S. Unexpectedly Fell in 2nd Quarter BL

U.S. May Be Trapped in Japan-Like Deflation Within 3 Years, Schroder Says  BL

 

The Cleveland Fed (via PragCap) takes a look at bank lending volume pre- and post- recession trough.  The chart is a little unclear, but if you look closely, you can see that the line for the 2007 recession is currently tracking well below average, right around the worst one they have measured (1990). The bad news: if we continue on the 1990 path, we've got several more quarters of contraction before a turnaround

 

EU BANKING CRISIS

   

Structured Notes Are Wall Street's `Next Bubble,' Whalen Says BL

Using the same “loophole” that allowed OTC sales of CDOs and auction-rate securities, firms are pitching illiquid structured notes whose value is partly derived from bets on interest rates

 

 

BOND BUBBLE

 

U.S. Is Bankrupt and We Don't Even Know It Laurence Kotlikoff
Beware the light at the end of the tunnel MW

Commentary: It's a debt train about to collide with federal obligations

Mapping US Treasuries – Here be deflation FT Alphaville

Deflationary fears send Treasuries off charts  FT

 

Fed's Total 2-10 Year UST Monetization Over Next 12 Months- $340 Billion  ZH

 

STATE & LOCAL GOVERNMENT

 

US House agrees $26bn in state aid

 

Obama signs emergency bill to halt teacher layoffs AP
House passes state aid bill; Obama signs into law Reuters
Oregon tax hikes don't stop revenue bleeding Stateline

California City With $800,000 City Manager May Default On Debt, Warns S&P  BI


CENTRAL & EASTERN EUROPE

 

 

HUNGARY

Hungary Sees No Problems in Refinancing Debt Through 2012, Borbely Says  BL

 

BANKING CRISIS II

 

FOMC MEETING ANALYSIS

 

Statement

FOMC Word For Word Changes  ZH

 

 Fed Looks to Spur Growth by Buying Government Debt BL

 

Fed Moves from "QE" to "QN" NTrust

Fed Reverses Exit Plans, Sets $2 Trillion Floor for Holdings  BL

The Federal Reserve reversed plans to exit from aggressive monetary stimulus and decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated.

 

Fed Sees Recovery Slowing  WSJ
 

After cutting short-term interest rates nearly to zero in December 2008, the Fed essentially printed money to expand its portfolio of securities and loans to above $2 trillion, from $800 billion before the global financial crisis. Its purchases of mortgage-backed securities and U.S. Treasury debt, aimed at keeping long-term interest rates down, were discontinued in March. The Fed began talking about an "exit strategy" from the unprecedented steps it took to prevent an even deeper recession.

But on Tuesday, the Fed shifted its stance.

The Fed, facing an economic recovery that it termed "more modest" than anticipated, said it will stop shrinking its huge portfolio of securities by reinvesting the proceeds of maturing mortgages in U.S. Treasury debt.

Fed officials spent the weeks ahead of Tuesday's meeting contemplating how to address an economy that was losing momentum. The government estimated late last month that growth slowed in the second quarter to a 2.4% annual rate, too slow to bring the jobless rate down quickly. More recent data suggests that figure could be revised down below 2%, raising questions about whether the economy is, as Federal Reserve Chairman Ben Bernanke has put it, achieving "escape velocity" so it can flourish without extraordinary government support.

 

Fed downgrades recovery outlook  FT

Monetary policy bias shifts toward easing

 

Deflationary fears send Treasuries off charts  FT
A downgrade of the US Federal Reserve’s economic outlook and a pledge to purchase longer-term government as the Fed seeks to maintain its extraordinarily easy monetary policy by not allowing its $2,300bn balance sheet to contract.
The Federal Reserve announced it will buy longer-term Treasuries to support the fragile economic recovery but left benchmark overnight interest rates steady in a zero to 0.25 per cent range. The announcement means that maturing bonds on the Fed’s balance sheet will now be reinvested but does not constitute a fresh round of quantitative easing.

“The makers of domestic monetary policy took the middle road between doing nothing and expanding quantitative easing,” said Steven Ricchiuto, chief economist at Mizuho Securities.”The decision to re-invest maturing Agency and Agency MBS was maintaining the status quo.”  “The initial response of the equity market, I believe, will be reversed as soon as investors realise that the Fed only took a baby step when the economy needs a giant leap”

 

Most economists sees U.S. rate hikes beyond mid-2011 - poll Reuters

The median of forecasts was for a 20% chance of deflation over the next year
Monetary policy in a time of deleveraging Nutting

Commentary: The Fed can't do much more to get credit flowing
Hoenig, Top Fed Official, Warns Fed Risks Repeating Past Mistakes HP
Crudele: ”QE is the time-honored tradition used mostly by bankrupt, underdeveloped nations to make its people feel richer...”

Let's Be Honest, This Was Just The First Step Towards Way More Quantitative Easing  BI

 

Fed Shuns Passive Tightening, No QE2 in Sight- Caroline Baum  BL

 

Why The Fed's Halfway Move Was Its Worst Option, And Today Was Bad News For The Bulls  BI
Mike O'Rourke of BTIG regarding what some are calling the Fed's Quantitative Neutrality. O'Rourke, who went bullish in early July, hasn't sounded this down in a while.

Last night, we characterized the path the FOMC took at its meeting today as one that “risks becoming the worst outcome.”  Making Replacement Purchases of securities is the option we liked least for the markets.  On the positive side, in taking this course of action, the Fed has clearly indicated that they are willing to act should the recovery falter.  On the negative side, in shifting policy the Fed gives credence to economic weakness, indicating that it warrants a response.  The problem is this response will not move the needle in its influence upon the economy, and for every sign of weakness that emerges, investors will be looking for a response from the FOMC.  Thus far, it is a positive sign that the market did not take today’s move and extrapolate it into a more pessimistic scenario.  This offers hope that our fears may be unfounded.  That being said, it is still early and the FOMC just officially eased policy and the S&P 500 lost 60 basis points today and the Russell 2000 lost 2%.  If you are in the bullish camp with us, you don’t feel good about that result.  

More importantly, the Fed is now part of the story. A few days ago it wasn't, and that's not good.

At this stage of recovery, you want Fed policy to be accommodating for investing, but you don’t want it to be the reason for investing.  We view it from this perspective, from its April peak to its July low the S&P 500 dropped 17%.  Despite the pain of the drop, there was a major positive for investors, barely a word was heard from the Fed.  The lone exception was that the barely used Central Bank swap lines re-opened to help Europe.  The equity market bottomed on its own and rallied on its own, without an adrenaline boost from the Federal Reserve.  It is not often that the equity market experiences a correction of such magnitude, without being accompanied by a policy response from the Federal Reserve.  Now that the FOMC is back into the mix and intervening, that healthy progress in the market is tainted

 

PIMCO- Basically The Fed Move Was Only Good For Blowing More Bubbles  BI

 

Here Is The Simple Reason Why QE Is Unnecessary ZH

 

 

DODD FRANK ACT

 AIG Faces Fed Scrutiny as Dodd Law Spares Buffett's Bets BL

US regulators tighten control over Wall St risk  FT

Fed staff delve deeper into riskier activities

RATING AGENCIES

 

RISK REVERSAL

 

Chief Executives in U.S. Less Confident on Jobs, Survey Shows BL

 

COMMERCIAL REAL ESTATE

 

 

RRESIDENTIAL REAL ESTATE - PHASE II

 

 

EXPIRATION FINANCIAL CRISIS PROGRAM

 

 

PENSION & ENTITLEMENTS CRISIS



CHRONIC UNEMPLOYMENT

 

The Fed Can Print More Money, But It Can’t Print Jobs KudlowVisualizing Job Prospects By State  ZH

GOVERNMENT BACKSTOP INSURANCE

 

 

CORPORATE BANKRUPTCIES

 

BP - British Petroleum

SULTANS OF SWAP: BP Potentially More Devastating then Lehman!

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

 

BP spill suits to be heard in New Orleans  FT

Oil group could face more hostile hearings than in Texas

 

Boom Makers Say BP Left Them Adrift  WSJ

Containment-boom makers and their vendors say BP stopped accepting deliveries weeks ago, leaving them with millions of dollars in unused product.


 

OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

Study: Recession Cost Small Businesses $2 Trillion Inc.

 

Firms Spend More—Carefully  WSJ
Companies in the U.S. are stepping up purchases of equipment and software. But much of the spending is aimed at replacing older equipment or to improve efficiency—not to raise production or boost hiring.

 

FLASH CRASH - HFT - DARK POOLS

Today's Dose Of "Crop Circle" Quote Stuffing Algos Focuses On V, DUG And TRN  ZH

 

MARKET WARNINGS

 

 

GOLD MANIPULATION

 

the DOW is up over 1000 points - Yet the public withdraws $50B and this?

BarCap to slash jobs in cost-cuts  FT
Several hundred could go after sharp fall in market activity

Main Street's Boycott Of Capital Markets Succeeding- Barclays First Casualty, To Fire Hundreds Due To Plunge In Market Activity  ZH

 

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

WEDNESDAY

08-11-10

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.