Ford

While everyone's attention is focused on the Detroit bankruptcy, and just what assets the city will sell in lieu of raising a DIP loan, perhaps it is time to refocus attention to the city 300 miles west: Chicago. According to the Chicago Sun Times, Obama's former right hand man, Rahm Emanuel, closed the books on 2012 with $33.4 million in unallocated cash on hand — down from $167 million the year before — while adding to the mountain of debt piled on Chicago taxpayers, citing year-end audits. In addition to a liquidity problem, Chicago may also be quite insolvent as the city's total long-term debt soared to nearly $29 billion. That’s $10,780 for every one of the city’s nearly 2.69 million residents. More than a decade ago, the debt load was $9.6 billion or $3,338 per resident. Of course, in a world in which debt is "wealth", this is great news... at least until debt becomes "bankruptcy."

• The Department of Justice has opened an initial probe into the metals warehousing industry (WSJ)
• Obama Says Budget Debate a Battle for Middle Class Future (BBG)
• Death Toll From Spanish Train Crash Hits 77 (WSJ)
• ‘Fabulous Fab’ takes to witness stand (FT)
• Banks Said to Weigh Suspending Dealings With SAC as Charges Loom (BBG) - what about Anthony Scaramucci?
• How the Muslim Brotherhood lost Egypt (Reuters)
• German Business Confidence Rises for a Third Month (BBG)
• Fraternities Lobby for Tax Break Without Hazing Penalties (BBG)
• China charges Bo Xilai with corruption, paves way for trial (Reuters)
• Airbus Pushes Higher-Density A380 to Counter Luxury Image (BBG)

At precisely 4 am Eastern two opposite things happened: the German IFO Business Climate for July printed at a better than expected 106.2 vs 105.9 in June and higher than the 106.1 consensus: news which would have been EURUSD positive. And yet the EUR tumbled. Why? Because at the same time the ECB provided an update to the chart that "keeps Mario Draghi up at night" as we reminded readers yesterday - the ECB's all important credit creation update in the form of the M3, which not only missed expectations (of +3%) but declined from 2.9% to 2.3%. But more importantly, ECB lending to private sector shrank for the 14th consecutive month in June, and slid to a new record low 1.6% in June, down from a 1.1% in May.

• 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)

Plunging Chinese manufacturing and an 11 month low PMI got you down? Don't worry: there's a Europe for that, which overnight reported that manufacturing and service PMI in Germany and, don't laugh, France soared far above expectations (German Mfg and Services PMIs of 50.3 and 52.5, up from 48.6 and 50.4, and above expectations of 49.2 and 50.8; French Mfg and Services PMIs of 48.3 and 49.8, up from 47.2 and 48.4 and an 11 and 17 month high, respectively, blowing away expectations of 47.6 and 48.8). The result was a composite Eurozone Manufacturing PMI of 50.1, above 50 for the first time since February of 2012, up from 48.8 and at a 24 month high - reporting the largest monthly increase in output sunce June 2011, as well as a composite Services PMI of 49.6, up from 48.3, and an 18 month high. In other words, European Composite PMI is expanding (above 50) for the first time since January 2012.

A BP official who led the company before the 2010 incident in the Gulf of Mexico marked his return to the region in a $3.75 billion deal with Houston-based Apache. Apache seemingly said goodbye to the Gulf of Mexico in the deal, opting instead to focus its efforts onshore. Former BP Chief Executive John Browne helped nab 1.9 million net acres in the agreement with Apache last week. Apache's "good run" in the Gulf of Mexico may suggest assets onshore may hold more long-term value for explorers as new drilling technologies have contributed to exponential production gains for onshore oil and natural gas in the United States.

Surplus capital used to be the understood as the primary challenge, but this fell out of favor.  This essay seeks to return it to the center of the narrative.  

The Innovator’s Dilemma strikes again, this time with the news that the city of Detroit has filed for bankruptcy protection.  As a business term, ConvergEx's Nick Colas reminds us that the “Dilemma” describes how successful companies fall from grace because they ignore new competition with disruptive technologies at the low end of their markets.  In a world that increasingly revolves around intellectual capital (a.k.a. people), government at all levels needs to think about how they do not fall prey to the same error.  As for Detroit, any lasting solution likely needs far more government intervention than is currently possible. And so to where Detroit goes from here, we’ll borrow from another business paradigm that parses all solutions to troubled operations into three buckets: "Fix, Close or Sell." In summary, Detroit’s failures are certainly of its own making. The way forward will need leadership that is unavailable locally.

Don't look now but futures are up as usual, driven higher by both good and bad news. The biggest event of the weekend, if largely priced in, was the victory by Abe's coalition in the upper-house leading to the following seat breakdown. Of course, judging by the Yen and market reaction, which barely managed to eek out a gain: its first in four trading days, the event was largely of the "sell the news" type despite such bold proclamations: "Abe’s victory in the upper house is bullish for Japanese equities and the Japanese economy as a whole, as the removal of political headwinds bolsters the government’s ability to press forward with all ‘three arrows’ of its growth strategy," John Vail, Tokyo-based chief global strategist at Nikko Asset Management Co., which manages $162 billion, wrote in an e-mail. Elsewhere in Europe, Portugal bond yields have plunged by roughly 60 bps on news that the Portuguese President Silva has backed the centre-right coalition government, consequently ruling out snap polls. Well, what else is he going to do? This also comes on the heels of a Goldman report that said a second bailout for the country will be necessary and will likely be discussed in the fall. That too is bullish. What also was bullish in Europe apparently is that government debt hit a new record high of 92.2% of GDP. Remember: debt is wealth so just buy more futures. Looking forward to the US, the market will focus on the latest existing home sales data, the Chicago Fed activity index, as well as earnings report releases from McDonalds, Texas Instruments and Halliburton and a bunch of other companies that will beat EPS and miss revenues.

• 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)

Some thoughts on why US auto sales are at their strongest pace since prior to the crisis, while EU auto sales are at 20 year lows.

• India Joins Brazil to China in Efforts to Tighten Liquidity (BBG)
• Seven dead as police and protesters clash in Egypt (Reuters)
• U.S. senators fail to cut deal, head for showdown on filibuster (Reuters)
• Gasoline Tankers Beating Crude for First Time on Record (BBG)
• Smithfield's China bidders plan Hong Kong IPO after deal (Reuters)
• Bitcoin ETF plan struggles to find support (FT)
• Big Home Builders Gobble Up Rivals Starved for Cash (WSJ)
• Putin wants Snowden to go, but asylum not ruled out (Reuters)
• Zimmerman's lawyer calls prosecutors 'disgrace' to profession (Reuters)
• McDonald’s to bring Big Mac to Vietnam (FT)
• Korean Pilots Avoided Manual Flying, Former Trainers Say (BBG)

• Portuguese bond yields soar amid political turmoil (FT)
• Portugal Resignation Rocks European Markets (WSJ)
• Portugal, Greece risk reawakening euro zone beast (Reuters)
• Egypt’s military chiefs hold crisis meeting as Mursi snubs ultimatum (Al Arabiya)
• Egypt Crisis Deepens as Mursi Refuses to Step Down (BBG)
• Hidden microphone found in London embassy: Ecuador (AFP)
• Health Law Penalties Delayed (WSJ)
• Rise in mortgage rates cut into homebuyer demand last week (Reuters)
• Bolivia angered by search of president's plane, no sign of Snowden (Reuters)
• Olympus ex-chairman gets suspended sentence (FT)

While there are many positives to declining energy consumption, the question is: does this reflect a better standard of living or a lesser standard of living? In terms of replacing the ownership model with the access model and replacing long commutes with remote work, the answer is "better." In terms of overall economic activity, these charts scream recession, i.e. a declining standard of living.