Testimony

“…the best way to get interest rates up is to have low interest rates" —Fed Chairman Bernanke responding to a Congressional testimony question

“We all know it’s going to end badly, but in the meantime we can make some money.”  —Jim Cramer, CNBC

“Thank God for the Fed.” —Australian Treasurer Wayne Swan

“Let’s be clear. We’ve intentionally blown the biggest government bond bubble in history.” —Andy Haldane, Bank of England director of financial stability

• "Ooops": Barclays reveals £12.8bn balance sheet hole (FT), Barclays Bows to Pressure With Share Sale (WSJ)
• Bank of Italy Inspecting Top Lenders' Books (WSJ)
• Obama to propose 'grand bargain' on corporate tax rate, infrastructure (Reuters)
• China injects funds into money markets, quelling fears (FT)
• Berlusconi faces verdict that could endanger Italian government (Reuters)
• Shale Threatens Saudi Economy, Warns Prince Alwaleed (WSJ)
• Qatar Finds Revolution Abroad Not as Easy as Stock Picks (BBG)
• Cities Begin Hiring Again (WSJ) - not to mention filing for bankruptcy
• Big Question Hangs Over Small-Caps (WSJ)
• China Politburo Pledges to Press On With Restructuring Economy (BBG)
• Bank Revenues Surge on Trading Over What Fed Will Do (BBG)

Bernanke still hasn't picked what non-extradition country he will move to following his Federal retirement, and already the storm clouds are brewing overhead:

U.S. JUDGE SAYS EX-AIG CEO GREENBERG SHOULD BE PERMITTED TO DEPOSE FED CHAIRMAN BERNANKE OVER INSURER'S BAILOUT -- COURT RULING; U.S. COURT OF FEDERAL CLAIMS JUDGE THOMAS WHEELER SAYS THERE ARE "EXTRAORDINARY CIRCUMSTANCES" FOR TAKING OF BERNANKE'S DEPOSITION

Too bad Bernanke's predecessor, who is just as culpable for the AIG collapse and bailout, won't be sitting next to the Chairsatan or else we would very soon have a great reason to roll out the following image:

• More Doctors Steer Clear of Medicare (WSJ)
• Syrian Looters in Bulldozers Seek Treasure Amid Chaos (BBG)
• Siemens CEO Peter Löscher Is Set to Leave His Post After Series of Earnings Misses (WSJ)
• Silver Vault for 200 Tons Starts in Singapore as Wealthy Buy (BBG)
• Omincom and Publicis merger shows that advertising is now firmly in the business of Big Data: collecting and selling the personal information of millions of consumers (NYT)
• Apple supplier accused of labour violations (FT)
• 'BarCap was the Wild Wild West – that’s what we called it’ (Telegraph)
• P&G chief seizes opportunity in era of three-day stubble (FT)
• Federal Reserve 'Doves' Beat 'Hawks' in Economic Prognosticating (WSJ) - LOL: Fed "hawks"

For the second consecutive day futures have drifted lower following a drubbing in the Nikkei which was down nearly 3% to just above 14K (time to start talking about the failure of Abenomics again despite National CPI posting the first positive print of 0.2% in forever and rising at the fastest pace in 5 years) and the Shanghai Composite which dropped to just above 2000 once again, after PBOC governor Zhou saying that China has big economic downward pressure and further reiterated prudent monetary policy will be pursued. This is despite Hilsenrath's latest puff piece which pushed the market into the green in yesterday's last hour of trading and despite initial optimism which saw stocks open higher following forecast-beating EU earnings gradually easing and heading into the North American open stocks are now little changed. It may be up to the WSJ mouhtpiece to provide today's 3pm catalyst to BTFATH, or else it will be up to the circular and HFT-early released UMichigan confidence index to surge/plunge in order to push stocks on any red flashing news is good news.

Following the debacle of free-and-easy mortgage money to anyone who could fog a mirror in the run-up to the last housing bubble (remember that was just 6 years ago), regulators proposed 'skin-in-the-game' rules which forced banks to hold certain amounts of the loans they made (as opposed to securitizing and selling off that yieldy risk to the next greater fool). Makes sense. However, in a major U-turn, with interest rates rising, mortgage rates spiking, and home prices now collapsing once again, it would appear the very same congress has folded. As the WSJ reports, more stringent lending standards on top of the market environment leave the watchdogs, which include the Fed and the FDIC, wanting to loosen a proposed requirement that banks retain a portion of the mortgage securities they sell to investors (representing a victory for an unusual alliance of banks and consumer advocates that opposed the new rules). Undermining the initial goal of imposing market discipline, former FDIC Chair Sheil Bair noted, "My sense is that Washington has lost its political will for serious reform of the securitization market." Indeed it has, Sheila.

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.

Last week Federal Reserve Chairman Ben Bernanke delivered what may well be his last Congressional testimony before leaving the Federal Reserve in 2014. Unfortunately, his farewell performance was full of contradictory comments about the state of the economy and the effects of Fed policies on the market. One thing Bernanke inadvertently made clear was that the needs of Wall Street trump Main street, the economy, and sound money.

No really, that is the actual name of the hearing that the Senate Committee on Banking, Housing and Urban Affairs will hold today in order to "clarify" why banks like Goldman are currently the owners of the largest aluminum warehouse in the US, or why Goldman, JPM and BlackRock are set to control 80% of all copper stores. The hearing's official name: "Examining Financial Holding Companies: Should Banks Control Power Plants, Warehouses, and Oil Refineries?"

In testimony yesterday on Capitol Hill before the Senate Banking Committee, Federal Reserve Chairman Bernanke remarked:

“Gold is an unusual asset. It's an asset that people hold as disaster insurance. A lot of people hold gold as an inflation hedge.  But movements of gold prices don't predict inflation very well, actually. But anyway, the perception is that by holding gold you have a hard asset that will protect you in case of some kind of major problem.

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.

There is a very simple and elegant solution to declining defense spending, one which has been used time and again in US history when the US government needed to provide the Fed with more securities (i.e. deficit) to monetize: war. According to RT that, or rather its more politicall correct equivalent "kinetic strikes", is what may be just over the horizon. RT reports that President Barack Obama is considering using military force in Syria, and the Pentagon has prepared various scenarios for possible United States intervention.  Army Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, said the Obama administration is deliberating whether or not it should use the brute of the US military in Syria during a Thursday morning Senate hearing. Gen. Dempsey said the administration was considering using “kinetic strikes” in Syria and said "issue is under deliberation inside of our agencies of government,” the Associated Press reported from Washington.

Raise your hand if you think Bernanke can keep everybody drunk while simultaneously pulling away the punch bowl!!!!

Unfortunately for Ben, rates are already rising around the world. Rates on Portugal’s ten-year are over 7%. Rates on Greece’s ten-year are back over 10%. Japan, the country of zero interest rates has seen a spike in its rates since April. Even Treasuries are surging higher, despite the Fed buying $45 billion worth of them every month.