Bank of England

• Ackman Says Pershing Square Takes 9.8% Stake in Air Products (BBG) - So is APD Carl Icahn's biggest ever short yet
• Latest Hilsenplant: Summers Hedges His Doubts on Fed's Bond Buying (WSJ)
• China Stocks World’s Worst Losing $748 Billion on Slump (BBG)
• U.S. Spy Program Lifts Veil in Court (WSJ)
• Abenomics on the rock again: Japan July manufacturing PMI shows growth at 4-month low (Reuters)
• EADS to be renamed Airbus in shake-up (FT)
• Goldman's GSAM has significantly increased its exposure to European equities (FT) - there is a reason why this is Goldman's worst division
• Japanese Megabanks Post Mega Profit Gains (WSJ) - when one excludes MTM impact from rate surge of course
• Ex-workers sue Apple, seek overtime for daily bag searches (Reuters)
• Hong Kong Yuan Deposits Snap Eight-Month Increase on Cash Crunch (BBG)
• Downtown NYC Landlords Remake Offices in Shift From Banks (BBG)

We previously showed hard evidence of the Bank of England's complicit hiding of the truth about the quality of Bundesbank gold stored in the Fed's vaults. A few weeks later in a "completely unrelated" action, the Bundesbank dramatically shifted its recent stance, and demanded that its gold be repatriated into its own vaults (and we now know the impact that has had on the paper-physical paper markets). However, in yet another one of the 'darkest episodes in central banking history' the FT reports, the Bank of England facilitated the sale of gold that was looted by the Nazis after their invasion of Czechoslovakia in 1938. Of course, judging today's central bankers by this ethical (and potentially criminal) behavior of over 70 years ago is unfair but it is notable that the pattern of whatever-it-takes and at-all-costs decisions, coupled with pervasive opacity and stark unaccountability, appear to have been formed a long time ago.

The July edition of Insight aptly titled ‘As The Crisis Deepens, Gold Flows East’ builds on our recent commentary and offers another viewpoint on why there is a marked flow of gold from west to east.

The next three editions of Market Update will quote extensively from ‘As The Crisis Deepens, Gold Flows East’ as we delve deeper into the story and its implications for our financial well being.

Hopes that Kuroda would say something substantial, material and beneficial to the "three arrow" wealth effect (about Japan's sales tax) last night were promptly dashed when the BOJ head came, spoke, and went, with the USDJPY sliding to a new monthly low, which in turn saw the Nikkei tumble another nearly 500 points. China didn't help either, where the Shanghai Composite also closed below 2000 wiping out a few weeks of gains on artificial hopes that the PBOC would step in with a bailout package, as attention turned to the reported announcement that an update of local government debt could double the size of China's non-performing loans, and what's worse, that the PBOC was ok with that. Asian negativity was offset by the European open, where fundamentals are irrelevant (especially on the one year anniversary of Draghi FX Advisors LLC "whatever it takes to buy the EURUSD" speech) and renewed M&A sentiment buoyed algos to generate enough buying momentum to send more momentum algos buying and so on. As for the US, futures are indicating weakness for the third day in a row but hardly anyone is fooled following two consecutive days of green closes on melt ups "from the lows": expect another rerun of the now traditional Friday ramp, where a 150 DJIA loss was wiped out during the day for a pre-programmed just green closing print.

Dis-passionate discussion of next week's events and data, placed within a somewhat larger context.  

"At all times, ultimate collateral and ultimate money remain crucial reference points in modern financial markets, but the actual instruments are important only in times of crisis when promises to pay are cashed rather than offset with other promises to pay.... Our world is organized as a network of promises to buy in the event that someone else doesn’t buy. The key reason is that in today’s world so many promised payments lie in the distant future, or in another currency. As a consequence, mere guarantee of eventual par payment at maturity doesn’t do much good. On any given day, only a very small fraction of outstanding primary debt is coming due, and in a crisis the need for current cash can easily exceed it. In such a circumstance, the only way to get cash is to sell an asset, or to use the asset as collateral for borrowing."

Excessive monetary stimulus and low interest rates create financial bubbles. This is the biggest debt bubble in history. It is a potent deflationary force and central banks are forced into deploying increasingly aggressive (offsetting) inflationary forces. The avoidance of a typical deflationary resolution to this economic long (Kondratieff) wave is pushing the existing monetary system beyond the point of no return. The purchasing power of the developed world’s currencies will have to bear the brunt of the “adjustment”. Preparations for this by the BRICS nations, led by China, are advancing rapidly. The end game is an inflationary/currency crisis, dislocation across credit and derivative markets, and the transition to a new monetary system. A new “basket” currency is likely to replace the dollar as the world’s reserve currency. The “Inflationary Deflation” paradox refers to the coming rise in the price of almost everything in conventional money and simultaneous fall in terms of gold.

A brief discussion of the technical condition of the major currencies going to what is a week packed with fundamental developments.

Over the past several decades, people around the world have become so brainwashed that few people really give much thought anymore to the safety of their currency. It’s not something people really understand... there’s apparently some Wizard of Oz type figure at the top of the hill pulling all the levers of the monetary system. And we just trust them to be good guys. This power rests primarily in the hands of four men who control roughly 75% of the entire world money supply. So, how are they doing?

In every era, there are certain people and institutions that are held in the highest public regard as they embody the prevailing values of society. Not that long ago, Albert Einstein was a major public figure and was widely revered. Can you name a scientist that commands a similar presence today? Today, some of the most celebrated individuals and institutions are ensconced within the financial industry; in banks, hedge funds, and private equity firms. Which is odd because none of these firms or individuals actually make anything, which society might point to as additive to our living standards. Instead, these financial magicians harvest value from the rest of society that has to work hard to produce real things of real value. Money is power. And history has shown that power is never ceded spontaneously or willingly. But the stability of this parasitical system begins to weaken quickly when the lifeblood it depends on begins to dry up. And that's when things can begin to go south in a hurry

• Humans Beating Robots Most Since ’08 as Trends Shift (BBG)
• Easing of Mortgage Curb Weighed (WSJ)
• European Banks Face Capital Gap With Focus on Leverage (BBG)
• Signs Suggest China Warming to Idea of Stimulus (WSJ)
• China Coal-Fired Economy Dying of Thirst as Mines Lack Water (BBG)
• Jeans and shoes show criminal underbelly of China-EU trade (Reuters)
• How U.S. drug sting targeted West African military chiefs (Reuters)
• Japan scrambles jets after China plane flies by southern islands (Reuters)
• Apple Plots Return to Growth After Coping With Aging Lineup (BBG)
• AT&T Falls Shy of Analyst Estimates as Discounts Hurt Margins (BBG)
• SAC insider trading case takes twist (FT)

With little going on today besides the just reported GE earnings, which beat consensus EPS expectations of $0.35 by the smallest possible increment but, as expected, missed consensus revenue of $35.56 printing at $35.12, and both the Japanese (which experienced a 500 point drop in minutes overnight) and Chinese (which closed below 2000 again) markets sliding, it is perhaps better to summarize the day that just was: Detroit City files for bankruptcy (send in Detroika!), Moody's take the US off negative outlook, Google and Microsoft miss on earnings and the S&P 500 hits a new record high. As DB says, the above certainly made for an eventful close to the US session after what was a fairly dull second day of testimony and Q&A for Bernanke. He has said all that can be said for now and we're left waiting for the data. And the earnings data so far has been abysmal if mostly on the top line, with corporate revenues now assured to double dip and decline for the second quarter in a row. And if the tech bellwethers all of which have been major disappointments to date and have guided down, are an indication of what is coming, Q3 may and will be even worse.

If indeed the administration had floated a trial balloon with Larry Summers' Fed Chairman candidacy, it appears to have been full of lead. Moments ago Fed mouthpiece Hilsenrath just undid the disturbance in the farce with an article that promptly crushes Larry's chances as Bernanke's replacement, instead putting Janet Yellen up as the "front-runner for the top fed post."

• MSM always "ahead" of the curve: Fed’s Messages Raise Volatility in Threat to Profits (BBG)
• Bernanke Plays Down Link Between Jobless Rate, Fed Moves (WSJ)
• Draghi to Carney Face Test Backing Guidance on Rates (BBG)
• House Republicans Vote to Delay Obamcare Mandates (Reuters)
• China media accuses Japan PM of dangerous politics (Reuters)
• China will replace America as the leading superpower, global attitudes survey finds (SCMP)
• Nonqualified mortgages make up as much as $1.5 trillion of the $10 trillion home-loan market (BBG)
• Dell $24.4 Billion Buyout Plan Is a Nail-Biter as Vote Looms (BBG)
• Republicans could see more bruising Senate primaries (Reuters)
• GM delays Chevy Cruze debut by a year (Reuters)
• Peltz needs support for PepsiCo restructuring dealsa (FT)
• Sweaty Wall Streeters Skip Booze for Spin-Class Meetings (BBG)

• Bernanke Seeks to Divorce QE Tapering From Interest Rates (BBG)
• China launches crackdown on pharmaceutical sector (Reuters)
• Barclays, Traders Fined $487.9 Million by U.S. Regulator (BBG) - or a few days profit
• Barclays to fight $453 million power fine in U.S. court (Reuters)
• When an IPO fails, raise money privately: Ally Said to Weigh Raising $1 Billion to Pass Fed Stress Tests (BBG)
• Bank of England signals retreat from quantitative easing (FT) ... Let's refresh on this headline in 6 months, shall we.
• Russia's Putin puts U.S. ties above Snowden (Reuters)
• Smartphone Upgrades Slow as 'Wow' Factor Fades (WSJ)
• Snowden could leave Moscow airport in next few days (FT)
• New Egypt government may promote welfare, not economic reform (Reuters)