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"Stability Breeds Instability", Or Why John Taylor Is Angry

"What is the matter with us? Why can't we - especially our financial leaders - get it? Too much demos? Are we ruled by the Sun, the NY Post, and the Roman circus?Dropping back to earth from 10,000 meters - unfortunately, not high enough to be safe - the Japanese yen and the Dollar Index in general went wild this past week rising from comatose - straight lining almost - seemingly out of nowhere. It wasn't actually the Japanese industrial production coming in at minus 3.3% instead of the forecasted minus 1.2% that was such a surprise. We and many other analysts have been saying the Japanese economy was acting worse than it did in 1997 when they last hiked the sales tax, but the authorities everywhere said nothing, there seem to be no vigilantes of any sort. This is not the 1970's or the 1980's, we don't call an idiotic policy by its name (with money, that is). Zero Hedge can rant on but no one follows them or, more important, does a real analysis of the situation."



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Substituting Debt For Income Is Not Success - It's Failure On An Epic Scale

The economic "recovery" has been based on a simple premise: debt can be substituted for income with no ill effects. As real household incomes have declined, the legitimate foundation of additional spending--more income--has eroded for the bottom 90%. The Fed's substitution of debt for income has only doomed the nation to a deeper, more painful realignment of real income and expenses.



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Pentagon Slams Israel's "Unacceptable" Shelling Of UN Shelters As "Totally Indefensible"

We already know that all is not well in US-Israeli relations (despite the ongoing funding) and John Kerry is not helping, but this morning's comments from the White House and Pentagon are concerning. As The BBC reports, the US Defense Dept says civilian casualties in Gaza are "too high" and Israel needs to do more to protect civilian life. Then White House spokesman John Earnest added, "the shelling of a UN facility that is housing innocent civilians who are fleeing violence is totally unacceptable and totally indefensible." Time to rethink the $576 mllion tripling of Israeli aid?



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Fitch Warns High-Yield Default Rate Set To Jump

As every 'real' corporate bond manager knows (as opposed to playing one on television), forecasting from historical defaults is a fool's errand as the process is entirely cyclical and non-stationary. The fact that default rates have been low for 4 years (thanks to an overwhelming flood of liquidity-driven demand for yield) is of absolutely no use when pricing discounted cashflows into the future. However, as Fitch warns, a jump in US high-yield default rates looms. There have been 10 LBO related bond defaults thus far in 2014, compared with nine for all of 2013. While most sectors remain relatively clam, the utilities and chemicals sectors are seeing huge spikes in defaults... which explains why the market is starting to price that in.



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CIA Admits Spying On Senate Computers

It's not been a good day for the CIA. First, the State Department slams them for brutally treating terror suspects after the 9/11 attacks, noting that "no American is proud" of CIA tactics. And now, as The NY Times reports, an internal investigation has found that its officers improperly penetrated a computer network used by the Senate Intelligence Committee in preparing the report on the CIA's detention and interrogation program. Of course, this is not the first time the CIA has hacked Senate networks but do not fear American citizenry, CIA Director has apologized for his staff "acting inappropriately" and is setting up an internal accountability board to review the matter. It appears Ron Paul was right.



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"Three Lost Decades" – How The American Middle Class Is 20% Poorer Now Vs. 1984

Like so many other things in popular American culture, this quaint notion of a "middle class" in the U.S. is at this point nothing more than a myth; a rapidly fading fantasy from a bygone era. As we have noted for quite some time, the decimation of the middle class began long ago. It really got started in the early 1970?s after Nixon defaulted on the gold standard and financialization began to take over the American economy. Median real wages haven’t increased since that time and the rest is history.



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Russia And India Begin Negotations To Use National Currencies In Settlements, Bypassing Dollar

Over the past 6 months, there has been much talk about the strategic proximity between Russia and China, made even more proximal following the "holy grail" gas deal announced in May which would not have happened on such an accelerated time frame had it not been for US escalation in Ukraine. And yet little has been said about that other just as crucial for the "new BRIC-centric world order" relationship, that between Russia and India. That is about to change when yesterday the Russian central bank announced that having been increasingly shunned by the west, Russia discussed cooperation with Reserve Bank of India Executive Director Shrikant Padmanabhan. The punchline: India agreed to create a task group to work out a mechanism for using national currencies in settlements. And so another major bilateral arrangement is set up that completely bypasses the dollar.



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214 Years Of Sovereign Defaults In One Chart

From 1800 to 1950, Argentina had been a relatively low frequency 'defaulter', but as the following chart from The Economist shows, since then (as we noted here) they have made up for it.



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Propaganda Full Frontal: A Little High Level Intervention And This Is What Happens

There is no grammatical justification for why two days ago, AP did it again, when a "harshly" worded tweet by the AP became this, just four hours later.



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Is JPMorgan About To Bailout Argentina?

With Argentine politicians explaining that "Argentina is not in default" and ISDA set to decide if last night's default is an 'official' trigger event for CDS, it appears Kirchner, Kicillof, and their (k)omrades may have found an angel. The initial 'bailout' plan, by which Argentine banks bought the holdouts defaulted debt (then promptly acquiesced to Argentina's old debt-swap agreement), failed last night; but, as WSJ reports, JPMorgan is in discussions to buy the defaulted bonds of Argentina's holdout creditors. While this would not impact the default decision (that is history), it would speed up the exit from default rapidly. Of course, JPM is not doing this out of love for Argentina, we suspect they are on the hook for a few billion CDS and need some cheapest-to-deliver bonds to help them through the settlement process.



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All Major US Equity Indices Are Now Down Since MH17 Crashed

Who says geopolitics doesn't matter in today's efficient markets?



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Muppet Slaughter: Goldman Removes Adidas From Its "Conviction Buy" List Minutes After Its Biggest Drop In History

"We remove adidas from the Conviction List following the company reducing FY14 net income guidance (to €650mn from €830mn), resulting in 33%/40%/46% cuts to our FY14-16 earnings estimates. Our new 12-month price target is €77.5. Since being added to the Conviction List on October 18, 2013, the shares are -16.1% vs. FTSE World Europe index +6.7%. We also remove the stock from the Directors of Research Focus List." - Goldman Sachs



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Chicago PMI Collapses To 13-Month Lows, Biggest Miss On Record

We warned last month that under the covers Chicago PMI looked a lot weaker than the headlines and this morning's collapse confirms that. Against expectations of a small rise to 63.0, Chicago PMI plunged from 62.6 to 52.6 (13-month lows) for the biggest miss on record. According to the release itself, "A monthly fall of this magnitude has not been seen since October 2008 ." The was an 8 standard-deviation miss from analyst expectations (Joe Lavorgna was on the high side at 63.0). New orders, inventory, production, order backlogs, and prices paid all dropped (but employment rose?). This is the biggest 2-month drop since Lehman (and 2nd biggest since 1980). We await the seasonal adjustment "correction" as MNI get the call from Yellen.



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Stocks Open Weak - Lose All July Gains

The Dow and S&P 500 are now in the red for July as stocks are opening weak this morning. Of course, the month's big loser is the Russell 2000 which is down 5.3% - its worst month in over 2 years.



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