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
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.
Do you believe trees grow to the sky?
Or, is it you believe you are smart enough to get out before this graph
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”.
The Jewish state, earlier this month, ordered 284 million
gallons of JP-8 aviation jet fuel, 100 million gallons of diesel
fuel and 60 million gallons of unleaded gasoline – all suitable
for military uses – at an estimated cost of $2 billion.
The Bank of Japan moved to halt the rise of the yen and support the country’s
faltering economy by expanding a special bank lending programme by half to
Y30,000bn.The central bank’s decision on Monday, a day before
Naoto Kan, prime minister, is scheduled to unveil economic stimulus measures,
highlights the growing sense of concern about the weakness of the Japanese
economy and the negative impact of the yen’s sharp appreciation against the
dollar.Masaaki Shirakawa, the Japanese central bank governor,
returned early from Jackson Hole for the unscheduled bank board meeting and
is expected to meet later on Monday with Mr Kan, who last week urged the
governor to act swiftly to tackle the yen’s rise. The new Y10,000bn added to the lending programme will provide funds for six
months. The existing Y20,000bn programme has a three-month duration.
economy in the second quarter grew an annualised 0.4 per
cent, according to preliminary government data, and was
overtaken by China as the world’s second largest.
The Bank of Japan, under strong political pressure to stem the yen's surge,
extended an emergency-loan program Monday, but markets were unimpressed by the
monetary easing. The central bank's board voted eight to one, at an emergency meeting, to offer
domestic financial institutions 10 trillion yen ($117.15 billion) of six-month
loans, in addition to the 20 trillion yen in three-month loans it has been
But despite the hopes of the central bank and
politicians, the yen rose on news of the BOJ's widely
anticipated moved, threatening to resume its climb to
15-year highs. The economic impact of the decision, which
came shortly before BOJ Gov. Masaaki Shirakawa was to meet
with Prime Minister Naoto Kan, will be "close to zero,"
said Macquarie Bank economist Richard Jerram. "It's
largely a charade."
The BoJ just released a decision to extend the 3 month
lending program to 6 months, to expand the 6 month fixed
rate facility to 30 trillion yen from 20 trillion,
extended the maturity of QE, and kept the benchmark rate
at 0.1%: in essence a nothingburger extension of QE, which
has done miracles for the past 20 years. The key item,
however, is that there was no direct mention of FX
intervention by the BoJ, which was the silver bullet many
had hoped for. As a result, the Yen is currently surging.
State and local governments shed 48,000 jobs in July, the
biggest number in a year, according to the Labor Department. The
sector, which now employs about 19.5 million people, has cut
169,000 jobs this year, including 102,000 in the past three
months.The second-quarter gains were driven by growth in sales and
income taxes, both of which have been raised in many states.
Second-quarter sales-tax revenue increased 5.9% in the 47 states
surveyed by the Rockefeller Institute, while the take from
personal income taxes grew 1.6%. Collections from corporate income
taxes, which tend to be volatile and are just a small slice of
most states' collections, fell nearly 19% over the period.
New home sales in July were at the weakest levels since the government began
keeping records 47 years ago. Existing home sales weren't much better. But in all that news, there's a number that jumps out: Almost one-third of the
home sales were in all-cash deals. Before the housing bust, less than 10 percent
of sales were in all cash, according to the National Association of Realtors.
Defaulted borrowers were spending an average 469 days in their
homes after ceasing to make payments as of July 31.
“All the excuses have been used up. This is blatant,” said Sean
O’Toole, CEO of ForeclosureRadar.com, a Discovery Bay, Calif.,
company that has been documenting the slowdown in Western markets.
Banks have filed fewer notices of default so far this year in
California, the nation’s biggest real estate market, than they did
2009 or 2008, according to data gathered by the company.
Foreclosure default notices are now at their lowest level since
the second quarter of 2007, when the percentage of seriously
delinquent loans in the state was one-sixth what it is now.
New data from LPS Applied Analytics in Jacksonville, Fla.,
suggests that the backlog is no longer worsening nationally — but
foreclosures are not at the levels needed to clear existing
The simple explanation is that banks are averse to realizing
losses on foreclosures, experts said.
“We can’t have 11% of Californians delinquent and so few
foreclosures if regulators are actually forcing banks to clean
assets off their books,” O’Toole said.
Treasury unveiled the Troubled Asset Relief Program and
promised to help financial institutions avoid liquidating assets
at panic-driven prices. The Financial Accounting Standards Board
and other authorities followed suit with fair-value dispensations.
These changes made it easier to avoid fire-sale marks — and
less attractive to foreclose on bad assets and unload them at
market clearing prices. In California, ForeclosureRadar data
shows, the volume of foreclosure filings has never returned to the
levels they had reached before government intervention gave
servicers breathing room.
Blecher said the increase in foreclosure starts by the GSEs “is
nowhere near” what is needed to clear through the shadow inventory
of 4.5 million loans that were 90 days delinquent or in
foreclosure as of July 31.Freddie says a good 14% of homes that
are seriously delinquent are vacant. In such circumstances,
eventual recovery values rapidly deteriorate.
The firm that was long the biggest bull on Wall Street, Morgan
Stanley, with its initial 5.5% target on 10 Years by the end of
2010, has finally folded: "We are downgrading our outlook for
second-half growth to 2-2.5% from 3-3.5% previously. This
downgrade from above-trend to below-trend growth has
important implications for forecasts of the unemployment rate,
inflation and monetary policy." Ostensibly it also has
implications on rates, with the firm now actively calling for a
flattener, just in time for the 10s30s to start creeping out
again. Of course, this being Morgan Stanley, nothing is ever easy,
and the firm obstinately refuses to see the plunge in H2 GDP as
anything more than just a temporary blip: "we don’t think this
slowdown will last beyond H2, much less morph into a downturn
It is all due to unrestrained
spending by the federal government. And,
furthermore, the canard that the "rich will pay for it
all" is nonsense. This is another refusal to face facts.
Larry Elder, "[f]or the 2007 tax year (the latest
income tax data year released by the IRS) the top 1
percent of income earners, those making over $410,000 a
year, paid 40 percent of all federal income taxes. [But]
the top 5 percent, those making about $160,000 a year or
more, paid 60 percent of all federal income taxes."
Moreover, "the rich are not the only ones to benefit from
the Bush tax cuts. Extending cuts to the non-rich would
‘cost' the government about $140 billion next year.
Extending the cuts to the rich would ‘cost' about $40
billion next year. If the tax cuts only benefit the rich,
why would the Treasury "lose" more money from the non-rich
than it would ‘lose' from the rich?" As corporations
continue to downsize, the "rich" get poorer; the
middle-class get poorer and everyone suffers. As
Margaret Thatcher once said, "the trouble with
Socialism is that eventually you run out of other people's
money." The "tea bags" need to be thrown into the
Potomac every day until Congress and Obama get the
message. Better yet, the voting booth levers need to be
pressed very hard come November to unseat those who are
For the first time since at least 1997, fewer than 29 percent
of ratings for stocks covered by brokerages worldwide are “buys,”
according to 159,919 recommendations compiled by Bloomberg.
Analysts are turning more pessimistic even as they push up
estimates for profit growth among Standard & Poor’s 500 Index
companies to 36 percent, the
highest since 1988.
“People are sitting on a fence,” said
Paul Zemsky, the New York-based head of asset allocation for
ING Investment Management, which oversees $550 billion. “When I go
and talk to our equity analysts, they look at the companies and
say, ‘Boy these companies look pretty good, earnings are OK, they
have plenty of cash. What if there’s a double dip?’”
More than 54 percent of ratings for companies in the U.S.,
U.K., Japan and Brazil are “holds,” the highest level since
Bloomberg began tracking the data in 1997. While the proportion of
“sell” ratings in the U.S. has fallen to 5.1 percent, half the
level of 2003, the total combined with “holds” reached a record 71
percent last month, the data show.
“A ‘neutral’ usually means historically a ‘sell,’” said
Kevin Rendino, a money manager at New York-based BlackRock
Inc., which oversees about $3.2 trillion. “Ratings chase stock
prices. When everyone becomes risk averse, they don’t want to
stick their necks out.”
While pessimism is increasing, analysts say profits for
companies in the
MSCI World Index of 24 developed nations will gain 28 percent
in the next year. The MSCI index trades at 11.5 times forecast
earnings, data compiled by Bloomberg show. Except for the six
months starting October 2008, the index has never traded below
12.5 times reported earnings.
Amid the market tumult, a handful of stocks have seen their
share prices ratchet up to record highs in recent weeks. And many
of them are connected by a curious, if disconcerting, thread:
Between them, they provide an investor with essentials for any
respectable fallout shelter—makers of bottled water, canned goods,
dehydrated broth, gas masks and auxiliary generators. A portfolio
of the 18 companies that reached their peaks in the past month
would be up about 24% this year, compared with the broader
market's 4.5% decline, a sign some investors may be taking the
prospects of financial Armageddon more seriously than one might
Oceanographic satellite data now shows that as of
July 28, the Loop Current in the Gulf of Mexico has
stalled as a consequence of the BP oil spill disaster.
This according to Dr. Gianluigi Zangari, an Italian
theoretical physicist, and major complex and chaotic
systems analyst at the Frascati National Laboratories in
This could be the most significant man-caused Earth
Changes news thus far in my lifetime. This morning,
Lesie Pastor informed the New Energy Congress of a
report by Your Own World USA that as of July
28, Oceanographic satellite data now shows that the Loop
Current in the Gulf of Mexico has stalled as a consequence
of the BP oil spill [volcano] disaster. This according to
Dr. Gianluigi Zangari, an Italian theoretical physicist,
and major complex and chaotic systems analyst at the
Frascati National Laboratories in Italy.
further notes that the effects of this stall have also
begun to spread to the Gulf Stream. This is because the
Loop Current is a crucial element of the Gulf Stream
itself and why it is commonly referred to as the "main
engine" of the Stream.
The concern now, is whether
or not natural processes can re-establish the stalled Loop
Current. If not, we could begin to see global crop
failures as early as 2011. Images of The Day
After Tomorrow flashed in my head. The disruption of
major ocean currents is no small thing. The climate
ramifications are massive, worldwide.
mechanism by which the oil slick could lead to something
like this could have to do with 1-the changed
viscosity of the water penetrated with oil to great depths
due to the Corexit dispersant; and 2- it could have to
do with the darkened water attracting more solar heat,
increasing its temperature.
Is it free speech to hold up an anti-Obama sign in a public
At about 5pm Alaska Time, Thursday, August 26, 2010,
security personnel approach Sidney Hill, a lone man peacefully
displaying an impeach Obama sign near Pioneer Plaza on the
Alaska State Fairgrounds in Palmer. Minutes later, a crowd
assembles, additional security forces arrive, and they
physically assault the man holding the sign. He’s taken to the
ground with force and detained.
An unidentified Alaska State Trooper arrives to physically
disperse the crowd, and at several points during the conflict,
crowd members yell in support of the demonstrator’s right to
speak his message. The demonstrator’s personal firearm is
confiscated by fair security, and he is held captive until
Palmer police arrive to escort the man away in cuffs.
Sidney Hill was in jail awaiting a pre-trial at 1:00pm on
August 27, 2010 at the Palmer Courthouse. He has been
charged with Assault 4-Cause Fear Of Injury, Disorderly
Conduct-Challenge To Fight, and Criminal Trespass 2- Upon
Premises. However, according to the Valley
Frontiersman newspaper, “Assistant District Attorney Trina
Sears said her office decided not to prosecute Hill on the
assault charge.” The Alaska State Fair, Inc. contracted
security and traffic control to StarPlex, a firm located in
the Northwest Lower 48.
If Mr. Hill’s demonstration was peaceful, then his free speech
rights seem to have been violated, though we are not completely
clear on Alaskan, county and city laws in regards to what is
deemed a public venue. If, however, security personnel took Mr.
Hill’s sign, by force, should they have not also removed the
t-shirts of any fairground visitors who were displaying messages
supporting political candidates or ideas deemed to be
controversial by an arbitrary party?
Mr. Hill made calls for the media. But no one showed up - at
least not from the mainstream.
Luckily, video cameras were present, otherwise it is likely
that Mr. Hill’s assault charges would be pursued to the full
extent of the law. In a perfect world, exactly the opposite would
happen, and those who were responsible for the assault,
detainment, arrest and falsification of charges against Mr. Hill
would be the ones facing charges.
QUOTE OF THE WEEK
To paraphrase Oscar Wilde
know the price of everything but the value of nothing.
Author Unknown In therapy, you have to accept a mistake to move on.
At times, this realization will be painful but in the end
it is better for you. Right now Wall Street is in
complete denial and trying to pretend all is well.
Their profits are up but all that is happening is a wealth
transfer from taxpayers to this unproductive group.
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.ont>
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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