Gordon T Long

RESEARCH ANALYTICS for the GLOBAL MACRO

|   TIPPING POINTS   |  COMMENTARY  READER ROADMAP | SWAP SENTINEL   | 

BUY ANY BOOK

 

GET 2 MONTH SUBSCRIPTION TO

 

 MONTHLY MARKET COMMENTARY

 

PROMOTION  DETAILS

 

INVESTING ONLY

BOOKSTORE


Bookmark and Share 

LCM GROUPE 

SITE ACCESS

 TECHNICAL SERVICES


Developers of Chaos Theory

& Mandelbrot Generator

Algorithms


Fibonacci series and spiral

Fibonacci - W.D. Gann

Elliott Wave - J. M. Hurst

 

APPLICATIONS

 

 


 

READ ALL THE

"EXTEND & PRETEND SERIES"

 

 

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

 


 

 

 

 A MUST READ FOR ANY UNDERSTANDING

of the current

GLOBAL MACRO ECONOMIC

ENVIRONMENT

 


 

READ ALL THE

"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

 


 

 

 

 

FREE INTRODUCTORY

MAILING

 

The Latest Quarterly Advisory

62 pages

 

EXTEND & PRETEND

 

 

Click page to view Index

 

Contact Us

 

Add Promo Code: "Introduction"

in the Subject Heading

 

The Latest Monthly

MONTHLY MARKET COMMENTARY

12 pages

 

Click page for Front Page

 

Contact Us

 

Add Promo Code: "MMU"

in the Subject Heading

 


Eliott Wave

The Elliott Wave Principle

Prechter &  Neely Methods

 

FREE INTRODUCTORY

MAILING

 

TECHNICAL ANALYSIS

RESEARCH

 

W.D.Gann

Elliott Wave Principle

J.M Hurst

 

PROPRIETARY

Chaos Theory

Mandelbrot Generators

Fibonacci Conditions

 

Latest Boundary Condition

Analysis

 

Click chart to view

 

Contact Us

 

Add Promo Code: "Technical"

in the Subject Heading

 


FREE INTRODUCTORY

ACCESS

 

FACEBOOK

 

 

DAILY TIPPING POINT ARTICLE POSTS

 

SAMPLE PAGE

 

Click page to view Index

 

Contact Us

 

Add Promo Code: "Facebook"

in the Subject Heading

 

 


 

CUSTOMIZE YOUR RESEARCH EFFORTS

 

TIPPING POINT

TAG ENGINE

 

Click page to view Index

 

Free Access to Our Tag Engine for detailed research behind our Tipping Points.

 

OVER 1000 ARTICLES INDEXED

each with an

Executive Summary - Abstract

 

SAMPLE

 

Click page to view Index

 

Contact Us

 

Add Promo Code: "Tag Engine"

in the Subject Heading

 

  Bookmark and Share


 

 

 

 

 

 

 

                    LATEST PUBLICATIONS

RSS 

COMMENTARY for all articles by Gordon T Long

 

PRESERVE & PROTECT: Mapping the Tipping Points

The economic news has turned decidedly negative globally and a sense of ‘quiet before the storm’ permeates the financial headlines. Arcane subjects such as a Hindenburg Omen now make mainline news. The retail investor continues to flee the equity markets and in concert with the institutional players relentlessly pile into the perceived safety of yield instruments, though they are outrageously expensive by any proven measure. Like trying to buy a pump during a storm flood, people are apparently willing to pay any price.  As a sailor it feels like the ominous period where the crew is fastening down the hatches and preparing for the squall that is clearly on the horizon. Few crew mates are talking as everyone is checking preparations for any eventuality. Are you prepared?

 

What if this is not a squall but a tropical storm, or even a hurricane? Unlike sailors the financial markets do not have the forecasting technology to protect it from such a possibility. Good sailors before today’s technology advancements avoided this possibility through the use of almanacs, shrewd observation of the climate and common sense. It appears to this old salt that all three are missing in today’s financial community.

 

Looking through the misty haze though, I can see the following clearly looming on the horizon.

Since President Nixon took the US off the Gold standard in 1971 the increase in global fiat currency has been nothing short of breath taking. It has grown unchecked and inevitably became unhinged from world industrial production and the historical creators of real tangible wealth.  READ MORE

 

Do you believe trees grow to the sky?

Or, is it you believe you are smart enough to get out before this graph crashes?

   

 

INNOVATION: What Made America Great is now Killing Her!

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 Destruction. 

 

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”.

READ MORE

 


READER ROADMAP -  2010 TIPPING POINTS aid to positioning COMMENTARY

 

 

 

POSTS:  WEEKEND 08-21/22-10

 

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: 08/22/2010 07:32 PM

RED ALERT

AMBER ALERT

ACTIVITY

MONITOR

Click to Enlarge


 

08-21/22-10

 

 

GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN

 

 

IRAN

Iran Loads Fuel Into Nuclear Plant WSJ

 

 

 

Iran prepares to start up first nuclear reactor AP

 

ISRAEL

Israeli-Palestinian peace talks set for September  FT

Obama to host Netanyahu and Abbas at the White House

Israel, Palestinians to Resume Direct Talks With U.S. Deadline of One Year  BL

 

KOREA 

 

 

SOVEREIGN DEBT & CREDIT CRISIS

  

SOVEREIGNS

 

John Plender - A dangerous shift in the global economy  FT

What is needed globally is for both debtor and creditor countries to rebalance their economies. The debtors need to tidy their balance sheets, while the creditors need to bump up domestic consumption, let currencies float and reduce export dependence. This would also be in China’s own interest because its economy is in disequilibrium. It cannot, among other things, prevent inflation and asset-price bubbles while running an artificially low exchange rate. Yet the obstacles to change are formidable. The key to rebalancing towards consumption, says Mr Dumas, may be relaxation of government control over its citizens, which is unlikely to happen. There are also powerful lobbies against change, not least the inefficient producers who have been featherbedded by a cheap currency and whose economic survival depends on continuing undervaluation.

There is, then, a Chinese policy impasse. How does the world escape from its dire potential economic consequences? One scenario might be muddle-through: the US responds to an impending economic slowdown with looser fiscal and monetary policy, at the cost of racking up more debt and a crunch later on. Another would see US fiscal conservatives prevent budgetary loosening, while monetary policy remains lax. This would cause the US current account deficit to shrink sooner rather than later.

Either way, the risks of a protectionist backlash against China would rise. Under either scenario, the world’s creditor countries would ultimately see their chief market dry up. The main difference is in the timing. When, you might well ask, will the creditors wake up?

GREECE

 

SPAIN / PORTUGAL

 

FRANCE

 

GERMANY

 

ITALY

 

UK

Government urged to reveal 'true' debt of £4.8 trillion Telegraph

 

IRELAND

Ireland May Buy Anglo Irish Loans at Discount of More Than 60% BL

 

 

USA

 

Fear of double dip intensifies Danske

Research US - A deeper slowdown, but no recession Dankse

U.S. deficit forecast masks true scope of problem Reuters

 

 

And now we're headed for the GREATEST depression: Gerald Celente TTicker

The fake "recovery" was nice while it lasted, says famous apocalyptic forecaster Gerald Celente, founder of the Trends Research Institute. But now the fun's over, and we're headed for what Celente describes as the "Greatest Depression."

Specifically, the always startling Celente says the country is headed for rising unemployment, poverty, and violent class warfare as the government efforts to keep the economy going begin to fail.

The crux of the problem, Celente argues, is that the middle class has been wiped out. America used to be a land of opportunity for all, where hard-working people could build their own small businesses in their own communities and live prosperous and fulfilling lives. But now a collusion of state and corporate interests that Celente describes as "fascism" have conspired to help only the biggest companies and the richest Americans. This has put a shocking amount of the country's wealth in the hands of a privileged few and left the rest of the country to subsist on chicken-feed wages and low job satisfaction as Wal-Mart "associates" -- or worse.

The answer, Celente says, is to bring back the laws that prevented huge companies from getting so big and powerful, and put some opportunity back in the hands of ordinary people.  But doing that is going to take a while.  And in the meantime, we're headed for trouble.

(Celente's dead right about U.S. wealth inequality, by the way.  It's shocking.  And it's getting worse.  For a quick overview, see "15 Mind-Blowing Facts About Wealth And Inequality In America)

 

 

 

Economic Weakness Accelerating Comstock

It becomes clearer every day that the economy is headed for a renewed recession or a recovery so slow it will seem like one. 

- Initial unemployment claims climbed to 500,000 last week for the first time since November

- Philadelphia Fed index dropped below the zero line for the first time since July 2009.  This follows a pattern of generally softening economic data over the last two or three months.

BALANCE SHEET RECESSION 

As we have long expected, the economy is tracing out a trajectory typical of a balance sheet induced recession rather than the garden-variety inventory recessions typical of the period since the end of World War ll.  In a balance sheet recession the dire effects of debt deleveraging overwhelm the efforts of the government to stimulate the economy as is happening now, and the economy undergoes a lengthy period of deflation,  sub-par recoveries and frequent slowdowns as the U.S. experienced during the 1930s and Japan over the last 20 years.

While the massive stimulative measures undertaken by the Fed, Congress and the White House have succeeded in averting a financial collapse, they are being more than offset by the deleveraging now taking place.  The effects of inventory replenishment are winding down without any other major drivers to sustain growth.  Typically a new economic expansion is led by inventories, consumer spending, employment, housing and readily available credit.  This time only inventories have performed their usual function, meaning that the economy has been acting on only one of five cylinders.

FED POLICY

The Fed has already used all of its conventional weapons and will undoubtedly resort to untried unconventional measures with unknown outcomes and the possibility of unintended consequences.  The most likely measures will probably be

- further large purchases of Treasury securities and mortgage bonds together with

- a ceiling on Treasury bond yields as outlined in Chairman Bernanke's famous 2002 speech that earned him the nickname "Helicopter Ben".  This is commonly referred to as quantitative easing or QE2.  We doubt, however, that this will have any more effect than QE1 as it would be more than offset by debt deleveraging in the private sector.

GLOBAL COMPLACENCY

We also believe that the market is currently too complacent about the global economy.  China is attempting to prevent a bubble by engineering a soft landing that will at best result in a substantial slowing of imports, and at worst a full-fledged recession as often happens when governments aim for soft landings.  Japan, too, is undergoing renewed economic weakness following two decades of deflation and minimal growth.  Europe is going through a short period of temporary calm after the EU and the IMF threw a lifeline to the struggling southern tier.  However, the authorities have failed to deal with the underlying structural debt problems that will continue to be a major problem while the austerity measures that that are being implemented will be a major drag on the various economies.

For example the German magazine, Der Spiegel points out that the austerity measures applauded by the EU are already having dire effects on the Greek economy.  The Greek government has reduced its budget deficit by an astounding 39.7% and spending by 10%.  This has had a drastic effect on income, consumption, employment and bankruptcies, leading to a "mixture of fear, hopelessness and anger".  According to the article another wave of layoffs is likely in the fall and this could have "extreme social consequences."  Such an outcome could come as a severe shock to a U.S. market that has factored in a quieter Europe.

In sum, we believe that the market is still discounting a continued U.S. recovery as well as a supportive global economy.  In the current climate such hopes are likely to be disappointing and corporate earnings estimates for 2010 and 2011 will probably be revised down sharply.  The market peaked in late April and is now trending down amid a lot of volatility.

 

 

EU BANKING CRISIS

   

 

BOND BUBBLE

 


For a Change, U.S. Debt Is Staying in the U.S. NYT (Norris)
Foreign governments, whose purchases were once critical, were net sellers of Treasury securities in the first half of 2010.

The Global Hunt for Yield BMO

 

CHART OF THE DAY- How To Blow A Bond Bubble  BInsider

if we take the U.S. mutual fund flows into bonds for the six months ending June, and multiply it by two, then we arrive at an annualized 2010 fund flow which is set to be larger than even what we saw in 2009 (in blue). Meanwhile, stock fund flows continue to be negative (in red).

Bonds are either 1) Already over-hyped, or 2) Soon will be if this current trend continues:

 

 

 

STATE & LOCAL GOVERNMENT

 


CENTRAL & EASTERN EUROPE

 

 

BANKING CRISIS II

 

ShoreBank of Chicago Shuttered by Regulators to Open as Urban Partnership B FIDC

 

Failure Of Obama's Pet ShoreBank Costs Taxpayers $368 Million, Which Immediately Goes To Goldman Sachs Among Others  ZH

Some details on the bank from the FDIC press release: "As of June 30, 2010, ShoreBank had approximately $2.16 billion in total assets and $1.54 billion in total deposits." In other words, the value of ShoreBank's assets was well below 70% of face, if the bank was undercapitalized at its current deposit level. Continuing: "The FDIC and Urban Partnership Bank entered into a loss-share transaction on $1.41 billion of ShoreBank's assets. Urban Partnership Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $367.7 million." Netting the incremental cost of taxpayer DIF subsidies, means that the real value of assets was ($1.54 billion - $367.7 million)/$2.16 billion or 54% of face. And this is a bank that Obama wanted to keep alive at all costs? And just who is this "Urban Partnership Bank" that is receiving a taxpayer subsidy of $368 million? Why all the usual suspects of course: "The significant investors in Urban Partnership Bank are American Express Company, Bank of America, Citigroup, Ford Foundation, GE Capital Equity Investments, Inc., Harris Bank, the John D. and Catherine T. MacArthur Foundation, JPMorgan Chase & Co., Key Community Development Corp., Morgan Stanley, Northern Trust Corporation, PNC Investment Corp., State Farm Mutual Automobile, The Goldman Sachs Group, Inc., and Wells Fargo & Company." And so the old "out-of-one-taxpayer-pocket-and-into-another-Wall-Street-pocket" game continues, only this time it includes administration darling banks that should have been liquidated long ago.

By keeping ShoreBank artificially alive for far longer than it deserved, the assets amortized far more than they would have had it been taken into receivership by a non-conflicted bank, and thus the final cost to taxpayers would have been far less.

As it stands, Goldman and 11 other banks are receiving a multimillion dollar gift to conduct a portfolio liquidation run-off of ShoreBank's assets, while merely making sure existing deposits are serviced. At least we now know just how truly angry at Wall Street Obama is.

The funniest bit: this is how efficient the auction process was (from the press release)

FDIC received only one bid, which included an asset discount of $146 million and a 0.5 percent deposit premium. This saved the FDIC’s insurance fund $250 million to $334 million over liquidation.

This also padded the top line of the abovementioned banks by $368 million off the bat, over and above whatever they make as they collect the proceeds from the portfolio run off.

In other words, Wall Street's core banks could have come up with any bid they wanted, and the FDIC would have had no choice but to fund the difference, because the alternative would be, gasp, so much scarier. Hm, where have we heard this before.

Full press release (link) and supplemental information (link) to this latest taxpayer gift to Wall Street's kleptocrats.

 

DODD FRANK ACT

Fighting Flares on Derivatives Rules  WSJ

Banks, companies and trade associations challenged federal regulators Friday over the controversial question of how to regulate derivatives under the new Dodd-Frank financial revamp, the first big day of posturing since the law was enacted last month.

The meetings, particularly a three-hour roundtable hosted jointly by the Commodity Futures Trading Commission and the Securities and Exchange Commission, illustrate how Wall Street's attention has shifted from Congress to the federal agencies that have to interpret the law by writing hundreds of new rules.

Perhaps nowhere is the attention to detail more apparent than the focus on complex financial instruments known as derivatives, in part because the rules will impact scores of companies and can affect how hundreds of billions of dollars in credit moves through the economy.Jason Kastner, vice chairman of the Swaps and Derivatives Markets Association, said if regulators don't allow more companies to participate as part of derivatives clearinghouses, the concentration of big banks dominating these firms would lead to a "real risk that we're going to end up right where we started."

 

Regulators Begin Process of Labeling the 'Systemically Important'  WSJ

 

RISK REVERSAL

 

Recovery fears knock appetite for risk  FT

 

COMMERCIAL REAL ESTATE

 

 

RRESIDENTIAL REAL ESTATE - PHASE II

 

15 Signs The U.S. Housing Market Is Headed For Complete And Total Collapse BInsider

 

GORDON T LONG:
U.S. banks only wrote off approximately
$8 billion on mortgages during the quarter of 2010, and if this pace continues it will even exceed 2009's staggering full-year total of $31 billion. That being said (the hype the banKS put out, look at the above chart closely. The gap isn't in billions, it is the TRILLIONS

Now look at the chart below and ask how the "accountants" gap above can be sustained

 

 

Also remember this

it could take up to 5 trillion MORE dollars to completely "fix" Fannie Mae and Freddie Mac. But without Fannie Mae and Freddie Mac we might not even have a mortgage industry at this point.  Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration backed approximately 90 percent of all U.S. home loans during the first half of 2010

 

US banks seizing homes at record levels  Telegrpah

 

EXPIRATION FINANCIAL CRISIS PROGRAM

 

 

PENSION & ENTITLEMENTS CRISIS


Record Number Of Americans Using Retirement Funds As Source Of Immediate Cash  ZH
If our readers have been wondering where, in addition to the decision to never make mortgage payments again, do Americans get the money to buy a 2nd iPad (for that real 3D-effect of iTunes porn), preorder the iPhone 12.499, and bid up Amazon stock at 999x P/E, here is your answer: according to a new study by Fidelity, a record number of workers tapped their retirement funds and made hardship withdrawals from their accounts in the second quarter. In other words, just like the country they live in, Americans no longer give a rat's ass about the retirement years in a narrow sense, and the future in a broader one, and since real unemployment is about 20%, wage deflation is everywhere, even as Solitaire time is down to 0 (except for SEC employees), and nobody has any money left, the only logical recourse is to borrow from the self-funded pension fund. According to the Fidelity study, "Among the 11 million workers whose 401(k) plans are run by Fidelity, 11 percent took out a loan from their plan during the 12 months ended June 30, the company said, up from 9 percent at the same point a year earlier. By the end of the second quarter, plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier." And if anyone is so deluded to think that these not so gracious retirees have any intention of ever paying these "loans" back, we have some AJ-rated CMBS to sell you at par prime. Which also means that suddenly Fidelity may find itself with worthless liens instead of cash, and should the market plunge again and the fund giant find itself in a need to satisfy billions in collateral calls, it is game over. After all, it is not like investors have been steadily putting cash into stocks over the past 15 weeks.


CHRONIC UNEMPLOYMENT


Nevada Sets New High For Unemployment At 14.3%  BInsider

GOVERNMENT BACKSTOP INSURANCE/b>

 

The Fannie and Freddie effect is here long term  FT

 

CORPORATE BANKRUPTCIES/b>

 

GORDON T LONG:

I keep looking and waiting for the Bankruptcy wave. However, like Japan's banks we now have large Zombie corporations instead. The zombies can't be allowed to go into bankruptcy because of CDS payouts that senior secured lenders no doubt have heavily sold to bolster yield where the senior holders actually control the bankruptcy event.

 

Below is a new twist, though not laid out in the FT articles but can clearly be seen between the lines.

 

When you can no longer 'extend & pretend' and 'milk the cow' you shift your strategy from above to:

1- Naked Short the Bonds,

2- load up on CDSs (making debt more expensive & effectively acting as a trigger for bankruptcy) ,

3- file under British Law as a "pre-pack",

4-be FULLY reinbursed as senior debt (screw the subordinated)

5- pass control to new entity effectively controlled through an off balance sheet SPE where of course the structured senior debt are position holders.

6- start all over again by issuing even more debt to the new entitiy to replace the liquidated subordinated and unsecured debt holders.    

 

SLICK! -- NICE!

 

Now the implementation - ->

 


Bankrupt Europeans are flocking to London  FT

The City of London is getting itself a bad name. A “bankruptcy brothel” is what some now call it – a haven for European companies and their owners fleeing creditors, into the welcoming arms of its courts.  In recent weeks, these fears have been further reinforced with companies from Greece and the Netherlands moving their “centres of main interest” to London so that they fall under English law in apparent first steps towards their own debt restructurings.  While this trend of jurisdiction shopping for insolvency is not new, in the wake of the credit crisis, the losses for debt investors when companies shift to England can be searingly painful.

“pre-pack” a court process that has become controversial during the crisis. It allows a company to be sold quickly by senior ranking lenders to a new owner. Importantly it can be done without the permission, and often with the purpose of leaving behind the claims, of lower ranking creditors such as unsecured bondholders, suppliers or landlords.

                       creditors get a better recovery in pre-packs

While credit markets have improved over the past year, the UK government is worried about a £90bn debt refinancing mountain facing UK companies over the next few years

City is getting a bad name as a haven for those fleeing creditors

 

Unsecured creditors need protection, says OFT  FT

 

 

Businesses defy forecast of insolvency rise  FT

UK corporate resilience was partly thanks to:
1- historically low interest rates, Artificial
2- quantitative easing and Artificial
3- cooler-headed management than during the recession of the early 1990s.
4- Executives have cut marketing activities less severely and agreed
5- reduced pay and hours deals with workers to limit redundancies.
6- In addition creditors, ranging from the tax authorities to bank lenders, have pursued debts less aggressively than in past downturns. Artificial

Many businesses are fatally debilitated by recessionary wounds that include large debts. But Mr Hickmann said he could find no evidence that there was a big cohort of such “zombie companies” across business.

 

Resource demand spurs M&A deal surge  FT

Rise of China and India behind more than $50bn of proposed takeovers

Resources are easier to buy  FT

 

M&A

 

Will an M&A Boom Lift Sagging Markets ZH

 

M&A Losers in $10 Trillion Deal Binge Led by McClatchy, Sprint  BusinessWeek

 

HSBC leads race for S Africa’s Nedbank  FT

KNOC launches hostile bid for Dana Petroleum  FT

 

 

How Much Debt Does the S&P 500 Have ZH

About 25 years ago I worked for a few months with a team of deep thinkers who were trying to convert Capital Leases into Operating Leases for tax and accounting purposes. The objective was to get the most optimal treatment; (1) tax deductible amortization of the asset and (2) keep it off the balance sheet so as to hide the true debt level and therefore improve balance sheet ratios. There were strict rules that were supposed to avoid this. But is was a goldmine idea if it could be done. This was early derivative days. Make something look different than what it actually was. I thought it was a dumb idea, so I quit and went to sell junk bonds at Drexel. Turns out the folks involved figured it out and made a bundle selling it. I am still glad I was not involved.

 

Shocking new accounting rules  - You gonna buy that?  Economist

WHEN you lease something—a boat, a warehouse, a machine for making ball-bearings—you agree to pay for it bit by bit over time. So it is like incurring a debt, say the International Accounting Standards Board (IASB) and America’s Financial Accounting Standards Board (FASB). Therefore, it should be on your balance-sheet. This new rule, proposed on August 17th by the two regulators, has shocked companies everywhere. It is up for public comment until December, but could be enacted as soon as June next year.

Today, companies can opt either for a “capital lease”, which goes on the balance-sheet, or an “operating lease”, which does not. This distinction makes a certain sense. But the IASB and FASB think it is open to abuse. By labelling leases as “operating”, firms can appear less indebted than they really are. The new rules would put the right to use the leased item in the assets column. The obligation to pay for it would go in the debit column.

That will make a lot of firms look wobblier: a survey by PricewaterhouseCoopers, an accounting firm, found that it would add about 58% to the average company’s interest-bearing debt. Not only new leases but also existing ones would immediately be subject to the new rules. On the other hand, since rents will no longer be a running expense, operating earnings could see a bump upwards. But since the downturn, many companies are close to their maximum debt limits, and the new rules could push them over the edge. Small wonder they are howling.

The new rules’ effects will vary widely. Retailers, who often lease prime property, will take a beating. Airlines, which seldom own their jets, will suffer too. Some businesses, such as utilities, will barely notice. But others will see their apparent return on capital plunge. Many firms will see their debt-to-equity ratio rise and their ability to borrow fall. Some will start leasing the tools of their trade on short-term contracts. Others will simply buy instead of lease, predicts Deloitte, an accounting firm.

 

 

BP - British Petroleum

SULTANS OF SWAP: BP Potentially More Devastating then Lehman!

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

 




 


OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

 

FOOD INFLATION

Coffee squeeze sends Arabica to 12-year peak  FT

What’s driving the wheat price spike  FT

Interactive graphic explaining the recent rise in prices. With video analysis and country-by-country data  FT

 

Barbecues trigger stampede in cattle prices  FT

Resurgent food cost fears weigh on market

Menu that will not eat into your wallet  FT

Recipe for dinner parties to beat food-price inflation

MPs call for more food security aid

 

Sugar Surges as U.S. Helps Imports  WSJ
Global sugar prices soared after the U.S. said it will ease import restrictions to help avert a national shortage.

 



GENERAL INTEREST

 

FLASH CRASH - HFT - DARK POOLS

Wild Trades Put Focus on Fund Manager WSJ

 

MARKET WARNINGS

Profiting From Next 'Black Swan'  WSJ
Investors are flocking to strategies designed to cash in on calamity. Will they fly?

 

Second Hindenburg Omen Confirmation In As Many Days, Third H.O. Event In One Week  ZH

 

Knight Trading Reports July Average Daily Share Volume Lowest Since April 2009  ZH
For a firm which describes itself as "the leading source of off-exchange liquidity in U.S. equities and [has] greater share volume than any U.S. exchange" , "share volume", as one can surmise, is the lifeblood of the firm. And should there be a dramatic drop in "share volume" it means that both revenue, as well as the general volume of other exchanges must be very low, since Knight is presumably a good proxy of trends elsewhere. Which is why when we pulled up Knight's recent trading volume we were rather surprised by the dramatic plunge in stock trading over the past 4 months. After hitting a near record in April of just under 16 billion daily average shares, volume has since plunged to 7.4 billion, or the lowest since last April, when it was a mere 5.9 billion. And no, this is not merely the seasonal summer slowdown: last July Knight did an average of 10.2 billion shares, thus July 2010 was a 27% decline in share volume. But one doesn't need to look far to confirm this: a casual glimpse at the NYSE daily volume, or the ridiculous moves in stocks on vapor trading when a block of SPOOs can move the bid ask by a quarter of a dollar, are sufficient to demonstrate just how fragmented the market has become. This merely reinforces our observations that in addition to pulling capital out of equity mutual funds, retail investors and increasingly institutional ones, simply refuse to trade. Luckily our message that the market is (at least for the time being) broken has finally been heard far and wide. And to all those who think that based on a series of lucky coin tosses, they can outwit an irrational and chaotic system, we wish them all the best.

 

GOLD MANIPULATION

 

VIDEO TO WATCH

 

 

 

 

Paul Craig Roberts: America is Truly being Destroyed by Design

The Alex Jones Show 1/3

PART 1 Below   PART 2   PART 3

 

 

 

 

QUOTE OF THE WEEK
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
Mark Twain

"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."

Thoma  Hoenig
Kansas City Federal Reserve President
FULL SPEECH

 

 

 

QUOTE OF THE WEEKtable style="width: 500px">

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain

BUY ANY BOOK

 

GET 2 MONTH SUBSCRIPTION TO

 

 MONTHLY MARKET COMMENTARY

BOOKSTORE

PROMOTION  DETAILS

 

 

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

08-21/22-10

AUGUST
S M T W T F S
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31        

ARCHIVAL


TIPPING POINTS

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

 

READING THE RIGHT BOOKS?

 

NO TIME?

 

WE HAVE IT ANALYZED & INCLUDED IN OUR LATEST RESEARCH PAPERS!

 

ACCEPTING PRE-ORDERS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book Review- Five Thumbs Up for Steve Greenhut's Plunder!  Mish

 

 

   

 

Fair Use Notice

Fair Use Notice

This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

 

If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.   

 

 

l Fractal Research l Secrets of the Pyramids l Φ Research l Platonic Solids l 6T Development Site

 

E-Mail


 
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.