Brazil

• Obama, Romney tiptoe around housing morass as they woo voters (Reuters) ... just as ZH expected
• Poll Finds Obama in Better Shape Than Any Nominee Since Clinton (Bloomberg)
• Romney on Offense, Says Obama Can’t Help Middle Class (Bloomberg)
• Fed’s Fisher Says U.S. Inflation Expectations Rising (Bloomberg)
• Citigroup Warns Irish Investors to Plan for Losses (Bloomberg)
• Central Banks Flex Muscles (WSJ)
• China says U.S. auto trade complaint driven by election race (Reuters)
• Brussels sidesteps China trade dispute (FT)
• How misstep over trading fractions wounded ICAP's EBS (Reuters)
• Ex-CME programmer pleads guilty to trade secret theft (Reuters)
• Income squeeze will persist, says BoE (FT)
• South African miners return to work, unrest rumbles on (Reuters)

So, the Fed has failed to improve the economy… but it has unleashed inflation. This is called STAGFLATION folks. And the fact the Fed thinks the answer to it is printing more money tells us point blank: things are going to be getting a lot worse in the coming months.

• Nothing has changed and things have just gotten worse: Europe Banks Fail to Cut as Draghi Loans Defer Deleverage (Bloomberg)
• Mitt Romney secret video reveals views on Obama voters (BBC)
• Romney Stands by Government-Dependent ‘Victims’ Remark (Bloomberg)
• Video shows Libyans helping rescue U.S. ambassador after attack (Reuters)
• Fannie Mae paid BofA premium to transfer soured loans-regulator (Reuters)
• Northrop to shed nearly 600 jobs (LA Times)
• LOLmarkets: Retail Currency Traders Turn to Algorithms (WSJ)
• U.K. Royal Family Wins French Ruling on Kate Photos (Bloomberg)
• Nevada recluse dies with $200 in bank, $7 million in gold at home (LA Times)
• Gap Between Rich and Poor Grows in Germany (Spiegel)
• Chicago teachers meet Tuesday to decide whether to end strike (Reuters)
• Australia's Fortescue wins debt breather, shares soar (Reuters) ... a deal which ultimately will prime equity and unsecureds by $4.5 billion in secured debt
• Ford car sales fall 29% in Europe (FT)

Which is it Ms. Lagarde?

A few days ago, the BOE's Andy Haldane, rightfully, lamented that the apparent "solution" to the exponentially growing level of complexity in the financial system is more complexity. Alas, there was little discussion on the far more relevant central planning concept of fixing debt with even more debt, especially as the US just crossed $16 trillion in public debt last week, right on schedule, and as we pointed out over the weekend, there has been precisely zero global deleveraging during the so-called austerity phase. But perhaps most troubling is that with 2 days to go to what JPM says 77% of investors expect with be a NEW QE round (mostly MBS) between $200 and $500 billion in QE, the world is, also in the words of JP Morgan, drowning in liquidity. In other words, according to the central planners, not only is debt the fix to record debt, but liquidity is about to be unleashed on a world that is, you guessed it, already drowning in liquidity. The bad news: everything being tried now will fail, as it did before, because nothing has changed, except for the scale, meaning the blow up will be all that more spectacular. The good news: at least the Keynesians (or is it simply Socialists now?) out there will not be able to say we should have just added one more [    ]illion in debt/liquidity and all would have worked, just as our textbooks predicted. Because by the time it's over, that too will have happened.

Now that oil’s price revolution – a process that took ten years to complete – is self-evident, it is possible once again to start anew and ask: When will the next re-pricing phase begin? Most of the structural changes that carried oil from the old equilibrium price of $25 to the new equilibrium price of $100 (average of Brent and WTIC) unfolded in the 2002-2008 period. During that time, both the difficult realities of geology and a paradigm shift in awareness worked their way into the market, as a new tranche of oil resources, entirely different in cost and structure than the old oil resources, came online. The mismatch between the old price and the emergent price was resolved incrementally at first, and finally by a super-spike in 2008. However, once the dust settled on the ensuing global recession and financial crisis, oil then found its way to its new range between $90 and $110. Here, supply from a new set of resources and the continuance of less-elastic demand from the developing world have created moderate price stability. Prices above $90 are enough to bring on new supply, thus keeping production levels slightly flat. And yet those same prices roughly balance the continued decline of oil consumption in the OECD, which offsets the continued advance of consumption in the non-OECD. If oil prices can’t fall that much because of the cost of marginal supply and overall flat global production, and if oil prices can’t rise that much because of restrained Western economies, what set of factors will take the oil price outside of its current envelope?

There are three key factors to modeling trade flows - or relevance - in a post-globalization world. While competitiveness is important, countries gain from being generally 'Technology-rich', 'Labor-rich', and/or 'Resource-rich'. The following chart, from Deutsche Bank, shows where the world's countries fit into the Venn diagram of give-and-take in a post-globalization market. The red oval highlights where Italy, Greece, Portugal, and Spain (and Argentina sadly enough) do not fit into this picture. Two words - Euro-sustainability?

There is a glaring divide between the G10 and Emerging Market economies in terms of what monetary easing is priced in - and what is not. Specifically, as Citi notes below, traders 'expect' the US, Europe, and Canada all to be tightening (raising rates) within 18 months, while expectations are for Australia (and the rest of the China-reliant nations across Asia) to see notable easing in that period - and already priced in. Brazil is the standout as far as 'inflation' fighting rate rises just as Eastern Europe is priced for the most 'easing' of rates. It seems clear that not every stimulating headline has the same value with this much EM easing priced in already - and hope priced into DMs.

• JPMorgan provided rescue financing to Knight (WSJ)
• HSBC hands U.S. more staff names in tax evasion probe (Reuters), HSBC, Credit Suisse Sacrifice Employees to U.S., Lawyers Say (BBG)
• Hong Kong shares slide to two-week closing low, China weak (Reuters)
• Israel Would Strike Iran to Gain a Delay, Oren Says (Businessweek)
• Britain 'threatened to storm Ecuador's London embassy' to arrest Julian Assange (AP)
• You have now entered the collateral-free zone: Spain Said to Speed EU Bank Bailout on Collateral Limits (BBG)
• China Can Meet Growth Target on Positive Signs, Wen Says (BBG)
• Risk Builds as Junk Bonds Boom (NYT)
• Berlin maintains firm line on Greece (FT)
• Brazil unveils $66bn stimulus plan (FT)

Since 1990, across the four 'major' emerging markets and the advanced economies, UBS estimates a point estimate of a 29% increase in the number of “well-off” households in these economies. This sounds like a new age of affluence. But before we get carried away by the rise of what might be termed the upper middle class, economist Paul Donovan notes that the number of well off households having increasing 29% from 1990 to 2010 needs to be compared against a rise in the global population of 30% over the same period. In other words, the number of “well-off” households has risen broadly in line with demographics. This then begs the question – why has income inequality increased, if the number of "well-off" households is rising proportionate to the increase in overall population? The answer, quite simply, is that in relative terms, the “well-off” are not as “well-off” as they used to be.

Last week was a scratch in terms of events, if not in terms of multiple expansion, as 2012 forward EPS continued contraction even as the market continued rising and is on the verge of taking out 2012 highs - surely an immediate catalyst for the New QE it is pricing in. This week promises to be just as boring with few events on the global docket as Europe continues to bask in mid-August vacation, and prepare for the September event crunch. Via DB, In Europe, apart from GDP tomorrow we will also get inflation data from the UK, Spain and France as well as the German ZEW survey. Greece will also auction EU3.125bn in 12-week T-bills to help repay a EU3.2bn bond due 20 August held by the ECB. Elsewhere will get Spanish trade balance and euroland inflation data on Thursday, German PPI and the Euroland trade balance on Friday. In the US we will get PPI, retail sales and business inventories tomorrow. On Wednesday we get US CPI, industrial production, NY Fed manufacturing, and the NAHB  housing index. Building permits/Housing starts and Philly Fed survey are the highlights for Thursday before the preliminary UofM consumer sentiment survey on Friday.

With drought conditions bad and getting worse and agricultural commodities 'stabilizing' at their multi-year highs, tomorrow morning could be the catalyst for the next leg in a global food inflation spike (and its accompanying deflationary impacts on economies). The USDA releases it August World Agricultural Supply and Demand Estimates (WASDE) at 830ET  - which is particularly important since it is the first survey-based estimates of the year. It would appear that while pre-positioning has slowed a little, sell-side analysts expect prices (and implied vols) for corn, soybeans, and less-so wheat to rise on the back of not just (dramatically) lower crop yields (in this first of the year survey) but overly optimistic harvested-to-planted estimates and demand limits. Ethanol demand destruction is also emerging as a consensus.

After last week's event-a-palooza, where the headlines, the spin, the erroneous HFT trading, and the propaganda (Draghi is too cold; Draghi is too hot; Draghi is just right) just refused to stop, we finally enter the summer proper where all of Europe is on vacation, as is congress. Add on top of this a very light macro event week and an earnings season which has seen the bulk of companies already report, and we expect the volume in the coming 5 days to be among the lowest recorded in 2012, and thus in the past decade. Which of course means that the cannibalization among the market makers will continue as more and more firms succumb to "trading anomalies."

• U.S. nuclear bomb facility shut after security breach (Reuters)
• EU Commission Welcomes Greek Reform Pledge, Wants Implementation (Reuters) -> less talkee, more tickee
• China Cuts Stock Trading Costs to Lift Confidence (China Daily) as France hikes transactions costs
• Holding Fire—for Now—but Laying Plans (WSJ)
• ECB-Politicians’ Anti-Crisis Bargain Starts to Emerge (Bloomberg)
• Dollar falls back as non-farm payrolls loom (FT)
• Ethics Plan to Raise Consumer Confidence (China Daily)
• Brazil backslides on protecting the Amazon (Reuters) - fair weather progressive idealism?
• Japan Foreign-Bond Debate May Boost BOJ Stimulus Odds (Bloomberg)
• Japan’s Lower House Passes Bill to Let Workers Stay on to 65 (Bloomberg)

• What's wrong with this headline: Obama authorizes secret support for Syrian rebels (Reuters)
• Hilsenrath promptly dusts off ashes of sheer propaganda failure, tries again: Fed Gives Stronger Signals of Action (WSJ)
• Fed Hints at Fresh Action on Economy (FT)
• Fed Poised to Step Up Stimulus Unless Economy Strengthens (Bloomberg)
• IMF Chief Lagarde Praises Greece, Spain for Efforts (Bloomberg) - efforts to beg as loud as possible?
• US sanctions against bank 'target' China (China Daily)
• Trimming China's Financial Hedges (WSJ)
• ganda central bank cuts key lending rate to 17 pct (Reuters)
• Greece Agrees €11.5bn Spending Cuts (FT) - Agrees? Or does what a good debt slave is told to do
• Germany Retains Stable AAA Outlook at S&P After Moody’s Cut (Bloomberg)
• Spain’s Bond Auction Beats Target as Borrowing Costs Rise (Bloomberg)