Morningstar

Just days ahead of the most-anticipated IPO of the year, and despite the constant calming language from the mainstream media, as the WSJ notes, investors are stampeding into initial public offerings at the fastest clip since the financial crisis, fueling a frenzy in the shares of newly listed companies that echoes the technology-stock craze of the late 1990s. October was the busiest month for U.S.-listed IPOs since 2007, and while 'everyone' is convinced that the Twitter IPO will be different from Facebook, the early exuberant demand suggests otherwise:

• *TWITTER SEES IPO PRICE $23-$25, HAD SEEN $17-$20

So a 25% rise in the offering price perhas best contextualizes the comments of one broker: "When I hear intelligent investors asking me not which companies are good to invest in, but which IPOs can I get into, it scares the heck of me."

• Troops Forage for Food While Golfers Play On in Shutdown (BBG)
• Police suspect dental hygienist Miriam Carey was behind the wheel of Capitol chase (WaPo)
• Italian Senate committee starts Berlusconi expulsion process (Reuters)
• Swiss Regulator Probing Banks Over Foreign-Exchange Manipulation (WSJ)
• GOP Begins Search for Broad Deal on Budget (WSJ)
• No Jobs Report Means Economists Chew on Football Instead of Data (BBG)
• U.S. default seems unthinkable but investors have options (Reuters)
• Citigroup fined $30 million after analyst sent report to SAC, others (Reuters)
• FBI Snags Silk Road Boss With Own Methods (BBG)
• Recession Warnings Found in Asset Price Falls (BBG)
• Bank of Japan warns of severe global impact from U.S. fiscal standoff (Reuters)

"It's getting concerning," notes one fixed-income banker, Puerto Rico muni bond yields "never got near 10% [yields] even in the crisis." Some of the 27-year maturity Puerto Rico bonds just traded at a dismal 67 cents on the dollar (10.082% yield) and the most recently issued 2036 Electric Power bonds have collapsed from par a month ago to just above 82 cents on the dollar today. As the WSJ reports, the fall in prices also is a sign of investor risk aversion in the wake of Detroit's record municipal-bankruptcy filing in July; but it seems the anxiety and outflows from ETFs is having just as big an impact as Puerto Rico bonds now trade cheaper than Detroit's. "It's out of whack," one analysts warns, though the island's double-digit unemployment and recent weakness in economic indicators somewhat support the concerns - and while the "yields are attractive" it is possible that the island's borrowing costs could go higher as supply is extremely heavy in coming months. With 77% of managers holding Puerto Rico bonds, this is a problem...

Ouch. 

• 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)

Is the global economic downturn going to accelerate as we roll into the second half of this year?  There is turmoil in the Middle East, we are seeing things happen in the bond markets that we have not seen happen in more than 30 years, and much of Europe has already plunged into a full-blown economic depression.  Sadly, most Americans will never understand what is happening until financial disaster strikes them personally.  As long as they can go to work during the day and eat frozen pizza and watch reality television at night, most of them will consider everything to be just fine. Unfortunately, the truth is that everything is not fine.

Prepare for the big freeze. 

First it was the conspiracy theory that Li(e)bor traders were manipulating the entire rates market which a year ago became conspiracy fact. Then it was commodities with an emphasis on the energy market (but not gold - gold is never, ever manipulated) with even such luminaries as JPMorgan's Blythe Masters, subsequently implicated. And moments ago, via Bloomberg, to absolutely nobody's surprise, we learn that that final market which so far had not been exposed as the "wild west" of manipulators, the FX market, is part of the conspiracy "fact" too. According to Bloomberg, "employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years."

The pricing of 'safe' assets reflects the ongoing uncertainty in a world that is in the grip of the lunacy of policymakers who have seemingly lost all sense of perspective and are engaged in a huge gamble. This essential fundamental backdrop has not changed for the better lately, but for the worse. What this once again demonstrates is that intervention by central banks is creating incentives for many institutional investors to take inordinate risks in the name of preserving the purchasing power of the savings that have been entrusted to them. The problem is that the gains of today are absolutely certain to become the losses of tomorrow for investors taking the bait, as the echo bubble created by loose monetary policy is fated to turn into a major bust once the boom has played out. When the tide is going out, a great many naked swimmers will be revealed.

It may seem uncharitable to note that only 0.4% - that's 4/10th of 1% - of mutual fund managers outperform a plain-vanilla S&P 500 index fund over 10 years, but that is being generous: by other measures, it's an infinitesimal 1/10th of 1%. So what do we get for investing our capital in mutual funds and hedge funds? The warm and fuzzy feeling that we've contributed the liquidity needed to grease a monumental skimming operation. Ten out of 10,000 is simply signal noise; in effect, nobody beats an index fund. The entire financial management industry is a rentier arrangement: they skim immense profits and return no productive yield at all.

• Venezuela Says Chávez Successor Wins Vote (WSJ)
• China growth risks in focus as first quarter data falls short (Reuters)
• Japan Gets Calls From U.S. to Europe Not to Drive Down Yen (BBG)
• EU Set to Clash on Bank Deal as Germany Sees Treaty Limit (BBG)
• Dish Launches $25.5 Billion Bid for Sprint (WSJ)
• Commodities Tumble, Stocks Slide as China Growth Slows (BBG)
• Top fund managers take home $8bn less (FT)
• Obama Programs Derided by Republicans as Pejorative Entitlements (BBG)
• Gene swapping makes new China bird flu a moving target (Reuters)
• McDonald's Cranks Up The Volume on 'Value' (WSJ)
• UK pension deficits set to rise by £100bn (FT)

The ex-back of the envelope TARP calculation "chump" become wood-chopper, turned equity portfolio manager has gone full circle and decided his time is better spent serving the public good once again. As the WSJ reports, Neel Kashkari is considering running for office in California. The napkin-laden chrome-dome has seen his funds suffer from spotty performance since their launch - all underperforming the benchmarks. We can't help but think the timing of his announcement odd given his love affair with Apple and tonight's collapse but that would be harsh judgment on the always self-denigrating 39 year-old. Of course, we will hear the impressive nature of him leaving a well-paid job to run for office as his patriotism runs wild; we are less 'believer'. Still, managing to have your name turned into a noun and a verb is no easy task...

Most people are missing the boat regarding the Netflix/SEC tangle as the more relevant issue is the seemingly “selective disclosure” on Facebook by the Netflix CEO.

• Just like last year: A Postholiday Letdown for Retailers (WSJ)
• Obama Fights Republicans on Debt as Investors Seek Growth (BBG)
• Housing a Sweet Spot for U.S. Economy as Recovery Expands (BBG)
• House chooses Boehner as speaker again despite dissent (Reuters)
• Backlash pushes Republicans to seek cuts (FT)
• Jobs Lost Hit 5 Million With Rigged Currencies (BBG)
• Chavez still has "severe" respiratory problem (Reuters)
• Paris promises flurry of economic reforms  (FT)
• Investors Sour on Pro Stock Pickers (WSJ)
• Abe moves to ease South Korea tensions (FT)
• Wildfires Hit Australia Amid Worst Heatwave in Decade (BBG)
• Monti attacks ‘extremist’ rivals (FT)

AMZN - Profitless, but making it up in volume.