Tropical Storm Isaac has battered the hopes of an on-time departure of the Romney-Ryan express and now looks set to threaten New Orleans and the Gulf. Weather trackers are predicting an increase in intensity given its size and the storm's predicted paths are set to cross straight through the middle of the Gulf's oil production in a replay of the terrible August of Katrina (though we can only hope not as severe). All major rig operators are evacuating which leaves output notably down already. (via Bloomberg)

*U.S. SAYS 24%  OF OIL OUTPUT SHUT FOR TROPICAL STORM ISAAC
*U.S. SAYS 8.2% OF NATURAL GAS OUTPUT SHUT FOR ISAAC
*U.S. SAYS 39 PLATFORMS EVACUATED FOR TROPICAL STORM ISAAC
*U.S. SAYS 8 RIGS EVACUATED FOR TROPICAL STORM ISAAC

and as a reminder - the average US retail gas price rose 75c during Katrina...

Bail me out once, shame on you; bail me twice, shame on me; shame on me; come back for a third (and final, we promise!) bailout, only a Franco-Belgian SNAFU is capable of such Einstein-ian repetition. Dexia, that stress-test-passing bastion of all things entirely wrong with European banking and politics is back at the trough. Reuters is reporting what we have known all along, that without massive additional capital injections the bad-bank, crap-bank model simply cannot work. To wit: Dexia needs to recap its Luxembourg unit (BIL) before its apparently 'imminent' sale to a Qatari sovereign wealth fund (one more billionaire sucker family born every day it seems). The somewhat comical aspect is that the post-October (the second - and final, we promise - bailout), BIL's 'legacy' bond portfolio was 'transferred' to its parent Dexia at December 2011 prices - creating a net loss of EUR1.9bn for the subsidiary. This significantly affected the sub's solvency - making it unlikely to meet its capital requirements (which it was 'sure' would be 9% Tier 1 by now!). But given Dexia's own extensive losses - EUR11.6bn in 2011 and EUR1.2bn in the first six months of 2012 - a capital increase for Dexia BIL may force Dexia to seek funds itself. That would mean mo' money, mo' bailout from the states currently guaranteeing its borrowings - principally Belgium and France, and to a lesser extent Luxembourg - which now look set to rise to EUR90bn in aggregate!

Earlier today we showed for the nth time that with insanity and insolvency ravaging the old continent, at least one person has the temerity to avoid sticking his head in the sand of collectivist stupidity and denial. That person is Bundesbank head Jens Weidmann, who until now may or may not have had the backing of Germany's elected leader, Angela Merkel. Moments ago it became clear whose side Merkel, who recently came back from vacation and is set to spoil the party that the (insolvent) mice put together in her absence, is on. From Reuters, who quotes Merkel in her just released interview with German ARD: "I think it is good that Jens Weidmann warns the politicians again and again," Merkel said. "I support Jens Weidmann, and believe it is a good thing that he, as the head of the German Bundesbank, has much influence in the ECB."

There was a time when the market at least pretended to be influenced by the economy. Alas, with the advent of officially endorsed central planning those days are gone. Which in turn may be the primary reason why so many retail investors, brought up on the myth that the market is efficient and anticipating the facts instead of, as it has now become all too clear, reactionary, and anticipating liquid release by central planning academics who have never held a real job in their entire lives, have left the rigged casino. So what's a status quo regime that needs the retail dumb money (which is anything but in the past three years) to do? The only thing it can do: lower expectations. Which is precisely what Goldman has done. Because apparently one no longer needs growth to justify insane multiples. All one needs is a, drumroll please, stagnation. That's right - all you need, apparently, to buy stocks is hope and prayer that the US economy can sustain its stagnant state, and all shall be well. Of course, with GDP rising at best at a 2% rate each year, even as the public debt soars at 4-5x times that level, stagnation may well be the best thing the US economy can hope for.

If the following "heatmap" of readership political bent by state from Amazon is any indication of the votership inclination in the coming election, then Mitt Romney, more natural disasters notwithstanding, has nothing to worry about. Then again in the world of oxymorons, there are few quite as potent as "America Reads" (with the exception of the occasional money-losing Kindle for the aspirationally cool reader).

Forget Merriam-Webster. The Mario-Webber dictionary is where it's at these days...

It is one thing for various anti-Central Planning (and thus central bank) outlets to warn, over 3 years ago, that easy monetary policy is merely an enabling substance, and is addictive as any drug to a dysfunctional political establishment which is more than happy to avoid fiscal prudence if monetary policy is readily available to delay the inevitable day of reckoning when monetizing the debt will no longer work. It is a different matter entirely when the head of the world's only solvent central bank -  the German Bundesbank, which happens to be the biggest guarantor of that other mega hedge funds the ECB, and which of all developed economies also happens to have had the closest recent encounter with hyperinflation (unlike all the "other" theoretical experts who enjoy talking extensively about matters they have zero experience with). In an interview with German Spiegel magazine, Buba head Jens Weidmann, once again has loudly warned what as recently as 2009 very few dared to even think: namely that rampant and gratuitous deficit plugging using central bank debt issuance, and thus explicitly monetizing the debt, "can be addictive as a drug." Obviously, like any drug overdose, the aftereffects are always fatal.

“The extent of tax fraud by the Swiss has no numbers”

I remember watching Neil Armstrong land on the Moon...

The link between nominal interest rates, inflation breakevens, and stocks has changed; especially with regard the last few years' seemingly increased dependence on the Central Bank to keep an anti-deflationary floor on breakevens (or conversely the Bernanke Put under stocks). UBS' macro team, while humbly professing not to be experts in corporate earnings (which have been dismal) or balance sheet ratios (which are positive but have deteriorated in recent months) believe in a big picture macro perspective that we have been vociferously commenting on for a year or two now. Specifically, they have noticed a potentially curious link between the way the market interpreted monetary policy signals and the large cap stocks in the US: the breakeven inflation rate on 10yr TIPS has tracked the S&P 500 very closely this year. When the Fed is perceived to be successful in stimulating the economy, stocks benefit and breakevens also rise. When the Fed’s potency is called into question, stocks fade and breakevens decline. As official policy rates remain frozen near zero (and remain so for the foreseeable futures), nominal Treasury rates have lost their 'signal' as UBS agrees with the point we have been making for a long time: central bankers and politicians, not economic fundamentals and inflation expectations, currently drive the nominal rate and equity markets.

"If you’re rich you get a bailout. If you’re poor you get a handout. And if you’re middle class you get left out." That's not a sustainable way to run the system, exclaims investment strategist Keith Fitz-Gerald. A cancer at the core of our current economy is the magical thinking, "no pain, all gain" philosophy, pursued by those running it. They are doing all they can to remove the consequences of failure from the system -- blind to failure's essential 'waste-clearing' function in a healthy free market. Without the discipline of Darwinism, the individual actors in the system make all sorts of malinvestments that would never make sense in an efficient marketplace. But since the losses from these inane pursuits are socialized, there's no incentive to stop making them. At least, up until the point where the class whose back is burdened with paying for the socialized messes finally breaks.

Smart Money acknowledges its big miss with GATA and gold

Submitted by cpowell on 12:42PM ET Saturday, August 25, 2012. Section: Daily Dispatches

3:40p ET Saturday, August 25, 2012

We have desperately tried to explain the sheer idiocy of the circular argument of the Fed 'attemping' to stimulate fiscal policy by enacting an overly permissive monetary policy, having failed miserably time after time. Perhaps the 'simplistic' argumentation of Diapason's Sean Corrigan will succeed where we have failed (although we are not holding our breath) as ne hotes, in true Orwellian fashion that 'Weakness is Strength' and "Once bailed out, always bailed out seems to be the guiding inference. Meantime, close your eyes and pray."

China has two problems... well more than two we are sure, but these seem critical. The combination of a slowing (and seemingly unstoppable) economic trajectory with significant negative money-flows is becoming a vicious circle - that the PBOC is increasingly unable (or politically incapable) to 'fix'.

While Belize is comfortable buggering bondholders, the Greeks (following this morning's headlines) remain beholden to their euro-zone overlords - having survived a few more months on the back of reach-around 'bailouts' and ponzi-financing - all in the effort of providing more time for the 'rest of Europe' to figure out how to handle the 'Athens moment' that is surely coming. With September and October critical 'event-rich' months, Patrick Young, of DV Advisors, provides the clearest and least 'rose-tinted' perspective on where Greece has been, where they are now, and where this will all end. From the forged application for euro-zone membership to Oz-like fantasies of growth and austerity targets that remain pipe-dreams (and are constantly being missed), the bold Irishman in this brief clip explains "Greece has not done anything to really help itself, missed every deadline its been given" and the PM's comments on their 'spectacular come-back' clarifies the 'utter delusion' among the Greek political class because "Greece is bankrupt; full stop; game over" and Merkel must agree to 'let' Greece leave the Euro (post Troika) - as the rise of civil unrest, since whatever new money flows their way exits right out the back door and never 'helps' the people, is inevitable.