B+

Some correction of Friday’s Bull trap: European Risk Off, EGB credit torsion and weaker equities.

Doubtful whether any fireworks will come out of the ECOFIN meeting.

Seems to be more about maintaining the relative market quietness and status-quo.

Given the Fed's ZIRP impact on expected returns, PIMCO notes that those approaching retirement have three choices: a) save more, b) work longer, or c) tighten their belts in retirement. If everyone saves more, we consume less, and therefore GDP growth slows down. Anemic growth leads to a Fed on hold for a prolonged period - and even further lowered return expectations in an ugly paradox-of-thrift-like feedback loop. PIMCO has found a concerning empirical link between lower rates and longer periods in the workforce as a higher fraction of older Americans remain employed. This has the structurally dismal impact of reducing (implicitly) the level of 'prime working age' employment and has 'convexity' - in other words, the lower rates go, the greater the inertia of the elderly to stay in the workforce. Intuitively, low rates leading to longer work lives just makes sense – especially in an era where fewer retirees will draw defined benefit pensions. This is why some of us are wondering if the Fed is spinning its wheels by sticking to the old model of trying to stimulate growth. So expect lower-rates and longer working years or go all-in on HY CCC debt with 20% of your savings.

The majority of Americans seem OK with just waddling through life, accepting the lies and misinformation blasted from the boob tube and their various iGadgets by their owners, gorging themselves to death on Twinkies and Cheetos, paying 15% interest on their $10,000 rolling credit card balance, and growing ever more dependent on the welfare/warfare state to provide and protect them from accepting personal responsibility for their lives. A minority of critical thinking people have chosen to question everything they see and hear being spewed at us by the propagandist mainstream media. What do 'we, the people' want? As it seems the entitlement “free shit” mentality permeates our culture. The question is whether we will stand idly by, fiddling with our gadgets, tweeting about Honey Boo Boo, or will we regain our sense of duty to the future generations of this country.

Polticians lie. Obama and Romney are politicians. They talk. Therefore they lie. They lied big time during the debate. Are our choices between evil and lesser evil?

According to the Paul Krugman, the “confidence fairy” is the erroneous belief that ambiguity over future government regulation and taxation plays a significant role in how investors choose to put capital to work. To the Nobel laureate, the anemic economic recovery in the United States shouldn’t be blamed on this “uncertainty” but rather a “lack of demand for the things workers produce.” The theory which puts a lack of aggregate demand as being the cause of economic recessions has the issue backwards.  Demand by itself doesn’t add to the stock of goods in society; only production does.  Because economic theory deals with the interactions of mankind it needs to be applicable to all times and places.  On a desert island, only a true charlatan would insist that a “lack of demand” is holding the primitive economy back from its full potential.  Desert islands are no different from today’s economy; both are still dominated by scarcity.  If the world economy is ever going to recover, the obstacles put in business’s place have to be lifted to make way for investment in real, tangible goods and services.  Consumption will come after.

• Draghi Says Next Move Not His as Spain Resists Bailout (Bloomberg)
• EU Doubts on Deficit Cutting May Hinder Spain’s Path to Bailout (Bloomberg)
• Merkel to Visit Greece for First Time Since Crisis Outbreak (Bloomberg)
• Fed's Bullard warns inflation won't ease U.S. debt burden (Reuters)
• Walmart Workers Stage a Walkout in California (NYT)
• Natural Gas Glut Pushes Exports (WSJ)
• BOJ Refrains From More Stimulus as Political Pressure Mounts (Bloomberg)
• Big funds seek to rein in pay at Wall Street banks (Reuters)
• Hong Kong Luxury Sales Fall as Chinese Curb Spending (Bloomberg)
• Dave and Busters Pulls IPO due to "Market Conditions" (Reuters) - so market at anything but all time highs now is market conditions?
• Weak U.S. labor market looms ahead of elections (Reuters)
• Glut of Solar Panels Poses a New Threat to China (NYT)

On ECB Q&A: Yawn! Can’t always be a rainmaker and light fireworks every month. 

• Romney dominates presidential debate (FT)
• What Romney’s Debate Victory Means (Bloomberg)
• Obama Lead Shrinks in Two Battlegrounds (WSJ)
• "Everything will fall apart unless the Spanish conditions are extremely tough" German policy-maker (Telegraph)
• Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting (Bloomberg)
• RBS facing loss after Spanish property firm collapse (Telegraph)
• Burdened by Old Mortgages, Banks Are Slow to Lend Now (WSJ)
• The Woman Who Took the Fall for JPMorgan Chase (NYT)
• European Banks Told to Hold On to $258 Billion of Fresh Capital (Bloomberg)
• Europe Weighs More Sanctions as Iran’s Currency Plummets (Bloomberg)

• No Joy on Wall Street as Biggest Banks Earn $63 Billion (Bloomberg)
• And more good news: IMF’s Blanchard Says Crisis Will Last a Decade (Reuters)
• Hobbit Returns to Find Middle Earth Has Become Expensive (Bloomberg)
• Freddie's Foreclosure Plan Hits Roadblock (WSJ)
• Who will buy the FT? Pearson CEO Scardino Will Step Down as Fallon Takes Over (BBG)
• Jeremy Lin Said to Be in Talks With Harvard on Licensing Deal (Bloomberg)
• Jon Weil tears apart the NYAG "prosecution" - Eric Schneiderman Will Have to Do Better Than This (BBG)
• Portugal Offers to Exchange Bonds as It Seeks Debt Market Access (Bloomberg)
• Is unlimited growth a thing of the past? (FT-Martin Wolf)
• European Bank Capital Results Overtaken by Tougher Global Rules (Bloomberg)
• China’s Slowdown Reverberates as ADB Cuts Forecasts (Bloomberg)
• Tokyo has no plan to extend currency swap deal with Seoul (Reuters)

Somewhere deep in the bowels of the world’s Western central banks lie vaults holding gargantuan piles of physical gold bars… or at least that’s what they all claim.

Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely. We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.... We realize that some readers may scoff at any analysis of the gold market that hints at “conspiracy”. We’re not talking about conspiracy here however, we’re talking about stupidity. After all, Western central banks are probably under the impression that the gold they’ve swapped and/or lent out is still legally theirs, which technically it may be. But if what we are proposing turns out to be true, and those reserves are not physically theirs; not physically in their possession… then all bets are off regarding the future of our monetary system.

Slowly, the fund that made "information arbitrage" a household name, and almost singlehandedly created the expert network industry (first exposed on Zero Hedge in 2009 before the broader public had ever heard of them up on Part 1, Part 2 and Part 3 and all of which was summarized in Are Expert Networks About To Be Exposed As The Ringleader In The Biggest Insider Trading Bust In History?) only to watch it go up in insider trading flames (as we warned years prior), and which no regulator had dared to touch for decades, is coming unwound. The latest details in a story which once again began on the pages of Zero Hedge in 2010 come from Bloomberg, where we learn what everyone already knew, namely that when working for Stevie Cohen "it was “understood” that those assigned to give their best trading ideas to founder Steven A. Cohen would provide him with insider information." Because one doesn't generate 10-20% 'Alpha' (a term which no longer has any meaning in a market exposed to have been driven exclusively by insider trading in the pre-New Normal, and entirely by central planning in the post-New Normal era) year after year and charge 3 and 50 for being just smarter. Being first apparently counts too, but cheating beats all.

• RBA Cuts Rate to 3.25% as Mining-Driven Growth Wanes (Reuters)
• Republicans Not Buying Bernanke’s QE3 Defense (WSJ)
• Spain ready for bailout, Germany signals "wait" (Reuters)
• EU says prop trading and investment banking should be separated from deposit taking (Reuters)
• Call for bank bonuses to be paid in debt (FT)
• Spanish Banks Need More Capital Than Tests Find, Moody’s Says (Bloomberg) ... as we explained on Friday
• "Fiscal cliff" to hit 90% of US families (FT)
• The casualties of Chesapeake's "land grab" across America (Reuters)
• U.K. Government Needs to Do More to Boost Weak Economy, BCC Says (Bloomberg)
• World Bank Sees Long Crisis Effect (WSJ)
• UBS Co-Worker Says He Used Adoboli’s Umbrella Account (Bloomberg)
• And more easing: South Korea central bank switches tack to encourage growth (Reuters)

• Trade Slows Around World (WSJ)
• Debt limit lurks in fiscal cliff talks (FT)
• Welcome back to the eurozone crisis (FT, Wolfgang Munchau)
• Euro Leaders Face October of Unrest After September Rally (Bloomberg)
• Dad, you were right (FT)
• 25% unemployment, 25% bad loans, 5% drop in Industrial Production, and IMF finally lowers its 2013 Greek GDP forecast (WSJ)
• Global IPOs Slump to Second-Lowest Level Since Financial Crisis (Bloomberg)
• France's Hollande faces street protest over EU fiscal pact (Reuters)
• EU Working to Resolve Difference on Bank Plan, Rehn Says (Bloomberg)
• China manufacturing remains sluggish (FT)
• Samaras vows to fight Greek corruption (FT) ... and one of these days he just may do it
• Leap of Faith (Hssman)
• Germany told to 'come clean’ over Greece (AEP)

It's the weekend so forgive us this modest sidetrack but this 'Onion-esque' story was just too good to ignore.The company at the center of the Olympics' security debacle, G4S (whose directors resigned just yesterday over the "humiliating shambles") has gone one better. As Reuters reports, Megan Rice - an 82-year-old nun - cut perimeter fences and reached the outer wall where enriched uranium was stored at the US Government's nuclear storage 'Fort Knox' in Oak Ridge, Tennessee. Can you guess who was responsible for the 'outsourced' security that enabled this SNAFU? G4S' subsidiary Babcock & Wilcox Co. (B&W). Energy Secretary Steven Chu has said the incident was an important "wake-up call" for the entire nuclear complex. An investigation last month found a security camera had been broken for about six months and was part of a backlog of repairs needed for security at the facility. Several top-ranking NNSA officials have been 'reassigned' (Gulag?) but have no fear as B&W have stated that the active union workers involved will all be employed elsewhere. One more example of the ineptitude of government oversight, the unintended consequence of crony capitalism, or simply another 'fool-me-once...'/unpunished debacle?

Ray Dalio recently described the characteristics of a “beautiful deleveraging” in which equal doses of austerity, write-downs, and inflation gradually lighten the load of impaired debt. Two things can turn beautiful inflation into ugly inflation: Wages don’t inflate along with prices and the currency depreciates as money is printed excessively. This might not matter for a nation that is a net exporter of goods and services.  But for nations that import essentials such as oil and grain, this is a catastrophe, as wages are flat while the cost of imported energy and food skyrocket.  Households have less money to spend, and servicing debt becomes increasingly burdensome. Welcome to the United States of Ugly Inflation.  Real household income (i.e., adjusted for official inflation) has declined 8% since 2007; the cost of oil, medical care and higher education has climbed; and government revenues have stagnated even as demand for government services has increased. As a result, the entire beautiful deleveraging scenario is at risk.