The United States is
facing both a structural and demand problem - it is not the cyclical
recessionary business cycle or the fallout of a credit supply crisis
which the Washington spin would have you believe.
It is my opinion that
the Washington political machine is being forced to take this position,
because it simply does not know what to do about the real dilemma
associated with the implications of the massive structural debt and
deficits facing the US. This is a politically dangerous predicament
because the reality is we are on the cusp of an imminent and
collapse in the standard of living for most Americans.
The politicos’ proven
tool of stimulus spending, which has been the silver bullet solution for
decades to everything that has even hinted of being a problem, is
clearly no longer working. Monetary and Fiscal policy are presently no
match for the collapse of the Shadow Banking System. A $2.1 Trillion YTD
drop in Shadow Banking Liabilities has become an insurmountable problem
for the Federal Reserve without a further and dramatic increase in
Quantitative Easing. The fallout from this action will be an intractable
problem which we will face for the next five to eight years, resulting
in the “Jaws of Death” for the American public.
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.
Some funny quotes in the latest weekly ABC Consumer
Comfort Index poll, which incidentally dropped from -43 to
-46, just inches away from the 2010 lows, but more
importantly, just inches away from the lows seen
throughout the entire depression, as consumer sentiment
has gone nowhere fast in the past two years:
"Recession Ends, Nobody Notices." Indeed, as the
chart below shows, ABC's weekly poll of about 1,000 random
people shows nothing at all good for the economy, which,
oh yes, is now out of the recession, but not the
depression. And for technicians out there, the reading of
46 dropped just below the 52 week average of -45.98.
Joking aside, the report found that: "This week 89
percent of Americans rate the economy negatively, 75
percent say it’s a bad time to spend money and 55 percent
rate their own finances negatively." Surely these
are the Green shoots that forced Larry Summers to realize
that destroying the Harvard endowment is a far less
dangerous job than continuing to bring ruin and pestilence
to all of America.
If the recession’s over, maybe no one told the economy.
That’s one conclusion from the latest ABC News Consumer
Comfort Index. In last week’s results, optimism for the
economy’s future reached its lowest since March 2009. This
week, the CCI’s index of current conditions stands at a
dismal -46 on its scale of +100 to -100.
That’s even though the National Bureau of Economic
Research declared last week that the recession ended in
June 2009. Clearly, the public’s economic yardstick is a
Indeed consumer views of current conditions don’t
necessarily anticipate the climb out of a trough. While
the 1990-91 recession officially ended in March 1991, the
CCI didn’t regain its pre-recession level until June 1994
– far too late for the political fortunes of the first
President Bush, voted out in 1992 amid continued economic
discontent. The CCI in mid-September 1992 was -42, much
like it is now.
as we showed last week, is employment; the CCI
correlates with it strongly, and it’s still weak. The
chart below shows that the CCI also correlates with yearly
change in the GDP, a basis for dating recessions. For
growth to become robust, it suggests, consumer views have
a ways to go.
The CCI, produced for ABC News by
Langer Research Associates, is based on views of the
national economy, personal finances and the buying
climate. This week 89 percent of Americans rate
the economy negatively, 75 percent say it’s a bad time to
spend money and 55 percent rate their own finances
negatively. The CCI’s -46 compares to a record
low -54, a record-high +38 in early 2000 and a long-term
average of -13. Recession or not, we’re still in the
IBM could have to hold off on acquisitions and see its organic growth
stunted if it is included on a list of major derivatives users, the technology
group’s director of global funding said. Large companies in the US are lobbying hard to escape being designated “major
swap participants” by regulators implementing the
Dodd-Frank financial reform act. Such a designation will require companies
to post margin against derivatives trades. Tammy Evans, director of global funding at IBM, said if the company were
designated an MSP “you could potentially have $5bn of capital that’s held up
with margin requirements” on its $40bn-$45bn derivatives portfolio.
Farmland has become hot. Average U.S. farm real estate prices
- including the value of land and buildings - have nearly doubled
in the last decade.
Farmland has become hot. Average U.S.
farm real estate prices including the value of land and buildings
have nearly doubled in the last decade to $2,140 an acre,
according to the U.S. Department of Agriculture's National
Agricultural Statistics Service. Wells Fargo, the nation's top
agricultural business lender in total dollar volume, said demand
prompted it to increase farm lending 12% from 2008 to 2009. Since
the recession began in December 2007, financial analysts say,
agricultural investments have easily outperformed the Standard &
Poor's 500 index.
Wealthy Americans and private funds alike
are gobbling up Washington apple orchards, Illinois cornfields and
Louisiana sugar plantations. So are foreigners. In California,
investors from countries including Spain, Switzerland, China,
Egypt and Iran collectively boosted their holdings 2.5% from
February 2007 to February 2009 to 1.08 million acres â?� about 5%
of the state's total farmland. Overseas, U.S. and other investors
are snapping up tens of millions of hectares of farmland in
Africa, Central America and Eastern Europe.
The White House has been facing increasing pressure to
revamp its approach to economic policy, and
speculation has been rife that Mr Obama may choose a
senior member of the business community to replace Mr
Summers in an attempt to counter criticism that its
policies are too harsh on corporate America
“The great enemy of the truth,” John
F. Kennedy declared in a 1962 commencement address at Yale
University, “is very often not the lie – deliberate, contrived and
dishonest – but the myth – persistent, persuasive and
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