What made America great was her unsurpassed ability to innovate.
Equally important was also her ability to rapidly adapt to the change that
this innovation fostered. For decades the combination has been a self
reinforcing growth dynamic with innovation offering a continuously
improving standard of living and higher corporate productivity levels,
which the US quickly embraced and adapted to.
This in turn financed further innovation. No country in the world could
match the American culture that flourished on technology advancements in
all areas of human endeavor. However, something serious and major has
changed across America. Daily, more and more are becoming acutely
aware of this, but few grasp exactly what it is. It is called Creative
It turns out that what made America great is now killing her!
Our political leaders are presently addressing what they perceive as an
intractable cyclical recovery problem when in fact it is a structural
problem that is secular in nature. Like generals fighting the last war
with outdated perceptions, we face a new and daunting challenge. A
challenge that needs to be addressed with the urgency and scope of a
Marshall plan that saved Europe from the ravages of a different type of
destruction. We need a modern US centric Marshall plan focused on growth,
but orders of magnitude larger than the one in the 1940’s. A plan even
more brash than Kennedy’s plan in the 60’s to put a man of the moon by the
end of the decade. America needs to again think and act boldly. First
however, we need to see the enemy. As the great philosopher Pogo said:
“I saw the enemy and it was I”.
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
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?
Not quite sure what it is, but this is not good. There's no
news on the wire that I can find that accounts for that move, but
it is coming toward the end of the European session into a
weekend. One has to wonder if the "euphoric" response to the
so-called (bogus) "stress tests" is wearing off, whether the
creeping-higher CDS spreads on European nations have finally woken
people up, or whether, just perhaps, there's a nasty
little - or not-so-little - surprise that is going to be served up
on someone over the weekend. Right now, as I
write this, our markets look reasonably stable. But FX moves
like this, when there is no news story on the wire, are rarely "no big deal" - instead, they typically
indicate that something is going on and
you're just not privvy to what it is - yet.
Extreme caution advised.
SPAIN / PORTUGAL
Bloomberg (Emma Ross-Thomas and Esteban
Duarte): "Prime Minister Jose Luis Rodriguez Zapatero may face
a second front in his battle to contain Spain's fiscal crisis as
borrowing costs for the country's regional governments climb.
Catalonia, which accounts for a fifth of Spanish gross domestic
product, has been shut out of public bond markets since March and
the extra yield it pays over national government debt has almost
tripled this year. Galicia, in the northwest, has asked to freeze
payments of debt it owes the central government and the Madrid
region postponed a bond sale last month."
Germany reported blistering growth friday, and it wasn't a
statistical illusion. How do we know? Because while other
countries like the US and France continue with their jobless
recoveries, Germans are actually going back to work, as this
There will be a significant slow-down of growth in the
second half of the year, especially since many forms of U.S.
stimulus from the first half of 2010 won't be around in the
second half. His view: There will be 1.5% U.S. GDP
growth in the second half of 2010, and 1.5% GDP growth for
"1.5% growth is not a double-dip recession, but it's damn
close to it because potential GDP growth is closer to 3%"
At this level of growth...
home prices won't stabilize and will fall further.
"Even at 1.5%, it's going to feel like a recession even
though technically it's not a recession."
Sick and tired of CNBC "interviews" in which the speaker is
given 15 seconds inbetween commercials to explain why the economy
is in the toilet, before another talking head from the dodecabox
appears and starts spouting painfully ridiculous things? So are
we. Which is why we refuse to link to David Rosenberg's earlier
presence on CNBC, and instead we present Rosie's following 26
minute interview with the WSJ which is a must watch for all who
want to listen to exiled Merrill Lyncher express a coherent
realistic thought before some CNBC associate producer screams
"cut to commercial for incontinence pills." And, true to form,
Rosie starts off in style: "If you don't believe there's
going to be a double dip, it's because the first recession never
ended. If there is going to be a double dip, the odds are
certainly higher than 50-50." For those who follow our
daily posts and Rosie's periodic letters via
Gluskin Sheff (which
would be all of our readers), the insights won't be particularly
new, but it is always great to hear a rational and sensible person
discuss things as he sees them, not as his trading book demands he
Bloomberg (Courtney Schlisserman and Shobhana
Chandra): "The U.S. economy will improve slowly and another
round of fiscal stimulus probably wouldn't be effective, former
Treasury secretaries Paul O'Neill and Robert Rubin said."
"the recent financial crisis and recession was not caused
by high interest rates but by low rates that contributed to
excessive debt and leverage among consumers, businesses and
government. We need to get off of the emergency rate of zero,
move rates up slowly and deliberately. This will align more
closely with the economy’s slow, deliberate recovery so that
policy does not lag the recovery.
Monetary policy is a
useful tool, but it cannot solve every problem faced by the
United States today. In trying to use policy as a cure-all, we
will repeat the cycle of severe recessionand unemployment in a
few short years by keeping rates too low for too long. I wish
free money was really free and that there was a painless way
to move from severe recession and high leverage to robust and
sustainable economic growth, but there is no short cut."
When the Fed keeps borrowing rates so
low, "you see investors piling more into the high-yield market, it
becomes part of a virtuous cycle that allows lower-rated companies
to refinance their liabilities."
Companies are using most of the
proceeds of the junk-bond offerings to refinance more expensive
debt, or in some cases to pay special
dividends to their private-equity owners. Many of the
refinancings are for companies that took on massive debt over the
Bloomberg (Zeke Faux and Jody Shenn):
"Wall Street banks are creating the 'next investment bubble' by
selling opaque and unregulated structured notes to investors
hunting for yield, according to Christopher Whalen, managing
director of Institutional Risk Analytics. Using the same
'loophole' that allowed over-the-counter sales of collateralized
debt obligations and auction-rate securities, firms are pitching
illiquid structured notes whose value is partly derived from bets
on interest rates... 'The only trouble is that the firms
originating these ersatz securities, as with the case of
auction-rate municipal securities, have no obligation to make
markets in these OTC structured assets or even show clients a
low-ball bid,' Whalen wrote."
DODD FRANK ACT
COMMERCIAL REAL ESTATE
RRESIDENTIAL REAL ESTATE - PHASE II
Bloomberg (Kathleen M. Howley): "Harvey Collier, a
mortgage broker in Fort Lauderdale, Florida, says he gets as many
as 10 calls a month from people planning to default on their
loans. The twist: They first want financing to buy another home.
Real estate professionals call it 'buy and bail,' acquiring a new
house before the buyer's credit rating is ruined by walking away
from the old one because it's 'underwater,' or worth less than the
mortgage. It's an attempt to escape payments on a home whose value
may never recover while securing a new property, often at a lower
price with a more affordable loan. The practice, which constitutes
fraud if borrowers lie on loan applications, is continuing even
after Fannie Mae and Freddie Mac, the biggest U.S.
mortgage-finance companies, beefed up standards to prevent it..."
As the first of the 80 million Baby Boomers have begun to
retire, it has become increasingly apparent that the United
States is facing a pension crisis of unprecedented magnitude.
State and local government pension plans are woefully
underfunded, dozens of large corporate pension plans either
have collapsed or are on the verge of collapsing, Social
Security is a complete and total financial disaster and about
half of all Americans essentially have nothing saved up for
So yes, to say that we are facing a retirement crisis would
be a tremendous understatement. There is simply no way
that we can keep all of the financial promises that we have
made to the Baby Boomer generation. Unfortunately, the
crumbling U.S. economy simply cannot support the comfortable
retirement of tens of millions of elderly Americans any
longer. The truth is that we are all going to have to
start fundamentally changing the way that we think about our
Once upon a time, you could count on getting a big, fat
pension if you put 30 years into a job. But now pension
plans everywhere are failing. State and
local governments are cutting back and are raising retirement
ages. A majority of Americans have even lost faith in
the Social Security system, which was supposed to be the most
secure of them all.
The reality is that we are moving into a time when there is
not going to be such a thing as "financial security" as we
have known it in the past. Things have fundamentally changed,
and we are all going to have to struggle to stay above water
in the economic nightmare that is coming.
Part of the reason we have such a gigantic economic mess on
the way is because we have promised vastly more than we can
deliver to future retirees. When you closely examine the
numbers, it quickly becomes clear that a financial tsunami is
about to hit us that is going to be so devastating that it
will change everything that we know about retirement.
There are three primary reasons why the US is suffering from
structurally high unemployment: 1- a pervasively irresponsible
monetary policy, 2- the continued attenuation of our
manufacturing base, and 3- an overleveraged consumer who must
now reconcile his balance sheet.
A great chart from The Economist
show another picture of our dismal jobs growth. Rather than
job loss relative to peak employment, it shows job growth
following the end of the recession. Job growth has been
this bad two times: the last two recessions. We're suffering
in this "recovery" because the last recovery was so bad.
No sooner did we receive last week’s poor employment report
than we get added confirmation that the battle against
joblessness is being lost. I’m being generous in assuming that
the U.S. government has even waged a battle on this front as
it focused on auto spending, housing consumption, regulatory
reform, health care and loan modifications.
INITIAL JOBLESS CLAIMS Initial jobless claims rose
2k in the August 7th week from an upwardly revised 482k level
the week before — not to mention well above consensus
estimates of 464k. A month ago, claims were sitting at 458k
and we are now at the highest levels since late January. This
is simply awful and if claims back up above 500k, for at least
a few weeks, double-dip risks will rise materially.
Even some of the biggest bears — Steve Roach at 40% odds, Gary
Shilling near 50% — have yet to make this a base-case
scenario. We wonder about that because 98% of the time, when
Household employment contracts three months in a row, we are
already in a recession or about to head into one. Who knows?
Maybe we’ll be lucky and this will be the other 2% this time
around. Now let us pray.
Opening Labor Turnover Survey) The JOLTS (Job
Opening Labor Turnover Survey) just came out from the Bureau
of Labor Statistics and it revealed more adverse news (please
don’t shoot the messenger):
GAINS • The
number of job openings dipped 2k in June after a 363k plunge
in May. At 2.937 million, they are at a three-month low and
this means that there are five unemployed job seekers vying
for every job opening. If that doesn’t continue to exert
deflationary pressure on wages, we can only assume that the
laws of supply and demand have somehow bypassed the labour
past three months and the steepest falloff since November
2008. The level has rolled back to a four-month low.
LOSSES • Finally,layoffs rose 130k on top of a 144k
bump-up in May, calling into question the veracity of the
Challenger survey. At just a snick over two million in June,
the number of pink slips that employers handed out were at
their highest level in 11 months.
Hidden financial traps are snaring even the best and
brightest—and their parents. How to make sure you don't flunk
Bloomberg (Jeff Wilson and Whitney McFerron): "The
world's appetite for meat, flour and ethanol is expanding faster
than the supply of the crops needed to produce them, eroding
inventories and increasing the chance of accelerating food prices.
Wheat stockpiles may slip to a two-year low... according to 17
analysts in a Bloomberg survey. Inventories of corn, used to feed
livestock and make fuel, probably will drop to the lowest level
since 2008, even as output tops a record..."
FLASH CRASH - HFT - DARK POOLS
Bloomberg (Christine Harper): "Goldman Sachs...,
the bank that makes the most revenue trading stocks and bonds,
lost money in that business on 10 days in the second quarter,
ending a three-month streak of loss-free days at the start of the
year. Losses on Goldman Sachs's trading desks exceeded $100
million on three days during the period that ended on June 30...
Today's filing also shows that the firm's traders generated more
than $100 million on 17 days during the quarter. Of the 65 days in
the quarter, Goldman Sachs traders made money on 55 days, or 85%
of the time."
Gregory Simmons, the energetic force behind Scopelabs, is an
unorthodox money manager whose legacy exposure, and subsequent
disenchantment, with Wall Street forced him into self-enforced
exile (Hawaii is sufficiently far from Wall and Broadway), where
he now runs an iconoclast trading operation combining elements of
quantitative, technical, fundamental and every other possible
analysis. Simmons has been striving to expose the core truths, or
flaws depending on perspective, about trading (first and foremost
that there is no such thing, especially since the vast majority of
market participants end up losing to a few select winners, as a
sure thing) which many daytraders simply refuse to accept in their
pursuit of gambling nirvana, all the while failing to recognize
that perceived skill (especially in our current marketplace) has
very little if anything to do with profit. The below video is a
suitable introduction for Zero Hedge readers who may not be
familiar with Scopelabs: appropriately titled "Buzzkill", in it
Simmons debunks several of the key doctrines that dominate the
numerous streams of Stocktwits momentum chasers, "theory fitters"
and other Koolaid drinkers, all of whom, we have long claimed,
have far better odds at success in a rigged casino (and not to
mention the downside protection of at least getting comped
expenses) than trading in the stock market, absent the
"information arbitrage" capabilities of those who, to bastardize
Sun Tzu, have made the profit before the initiating trade was ever
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
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.
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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