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”.
Just as the earnings of leveraged investors like banks are
starting to suffer due to zero rate policy, so too the spending by
all manner of savers, from retirees to companies and
not-for-profits to municipalities, is falling too. Fed Chairman
Bernanke and the other members of the FOMC are killing the real
economy to save the banks — but none of the benefit flowing to the
banks is reaching U.S. households. In fact, the Obama
Administration has been providing political cover for the Fed to
conduct a massive, reverse Robin Hood scheme, moving trillions of
dollars in resources from savers and consumers to the big banks
and their share and bond holders.
The Federal Deposit Insurance Corp. said Tuesday that 829 of
the nation's roughly 7,800 banks were on its "problem list" at the
end of June, up from 775 at the end of the first three months of
the year. Already 118 banks have failed this year, well ahead of
the pace set last year when 140 were seized by regulators.
The results highlighted the diverging fortunes of larger banks
and their smaller rivals. Major firms, which benefited from
outsized government support at the height of the financial crisis,
have been able to recover faster as evidenced by their ability to
set aside less money for future loan losses. Smaller banks,
conversely, increasingly make up a greater portion of the banks on
the FDIC's list of troubled banks and continued to set aside more
money for future loan problems.
For the first time since 2006
the number of loans at least three months past due fell, declining
nearly 5%, and the number of loans charged off by banks declined
across most major loan categories.
Banks boosted their results by setting aside less to cover
future loan losses than they have in recent quarters. The agency
said firms set aside a total of $40.3 billion to gird against
future credit quality problems. That's still high by historic
standards, but the figure is the lowest total reported by the
industry in two years.
"Lower loss provisions suggest that many banks see asset
quality problems moderating," Ms. Bair said.
Still, more than 60% of banks, mainly smaller institutions,
continued to boost their loss reserves.
Real-estate funds saddled with boom-time properties are
getting relief from Wall Street firms and other investors hoping
to capitalize on their need for cash. The capital freeze plaguing
the commercial-real-estate industry since the global financial
downturn is beginning to thaw. For two years, property owners have
refrained from selling to avoid realizing losses. But in recent
weeks, some banks have also shown an increasing willingness to
sell distressed assets at discounted prices because their balance
sheets have stabilized and values have bounced back from their
Amid depressed property values and maturing loans, a
total of 40 private-equity real-estate funds have gone back to
their investors for additional capital since last year, according
to Townsend Group, which invests on behalf of institutional
clients. But only a handful, including funds run by
Deutsche Bank AG and Stockbridge Real Estate Funds—have been
successful, as existing fund investors like pension funds and
college endowments worry about throwing good money after bad.
Gartner said Tuesday it now sees a weaker-than-expected second half "in light of
the uncertain economic outlook for the United States and Western Europe." "There is no doubt that consumer, if not business PC demand has slowed relative
to expectations in mature markets,"
For the first time since 2006, banks
are making commercial and industrial loans more available to small
firms, with about one-fifth of large domestic banks having eased
lending standards, according to the
Fed's latest quarterly survey of banks' lending practices
recorded during July 2010. This "offset a net tightening of
standards by a small fraction of other banks," the Fed noted.
Also, for the past six months, banks have continued easing lending
to large and mid-sized firms.
What's more, banks also reported that they stopped cutting
existing lines of credit for commercial and industrial firms for
the first time since the Fed added the question in its survey in
January 2009. And as for consumer loans, banks also reported
easing standards for approving loans.
Credit is available, but demand remains flat. Asked in the
July survey how demand for commercial and industrial loans has
changed over the past three months, 61% of banks responded "about
the same," while 9% said "moderately weaker." While it was good
news that 30% responded "moderately stronger," it's not exactly a
surge in demand.
Even in a slowly recovering economy, the growing distaste for
credit among our debt-weary public has hampered the way for new
purchases and investments.
This isn't all that surprising. The latest economic indicators
paint a very exhausted consumer: In the years leading up to the
financial crisis, he bought too much house and too many cars. He's
in burn-out mode - more focused on either saving or paying down
credit card debt than buying more appliances and gadgets.
The amount consumers owed on their
credit cards during the three months ending in June dropped to its
lowest levels in more than eight years, indicating that
cardholders continue to pay off balances in the uncertain economy,
according to TransUnion's
second quarter credit card statistics.
The average combined debt for bank-issued credit cards fell by
more than 13% to $4,951 over the previous year. This represented
the first three-month period where credit card debt fell below
$5,000 since the three months ending in March 2002. Meanwhile,
personal savings have risen to 6.4% of after-tax incomes, about
three times higher than it was in 2007.
Perhaps what the Fed's quarterly
report is really saying is this: There's a growing distaste for
credit. The American consumer is the child who ate too much and
spoiled his dinner. And even if you hand him his favorite meal on
a silver platter, he's just not that hungry.
know the price of everything but the value of nothing. Author Unknown
I 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.
Jim Quinn - Burning Platform Never
have so few, done so little, and made so much, while
screwing so many. Mobs, Messiahs and Markets “On the Forbes list
of rich people, you will find hedge fund managers in
droves, but no one who made his money as a hedge fund
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