Washington D.C.

So let's pretend for the moment that the Federal Reserve gets everything it has stated it wants.  And even further: that Washington, D.C. gets everything it wants, too. The credit markets are repaired, and massive new loan growth flows out the door.  Loans are made to businesses that hire gobs of new people.  Consumers borrow and borrow some more to go to school and buy homes, cars, and gadgets. Inflation remains low and job growth explodes.  Tax receipts climb and the deficit falls.  The stock market goes higher and higher, gold falls and then falls some more, as confidence in the system, its masters, and its institutions grows. The Fed wins and D.C. wins. But in reality, we all lose. It's all just a matter of timing (and un-sustainability).

The Justice department is said to plan to block the AMR-US airline merger:

*AMR-US AIRWAYS DEAL SAID TO BE SUBJECT OF U.S. ANTITRUST SUIT
*US AIRWAYS ALSO SUED BY TEXAS, ARIZONA, FLORIDA, DC, VIRGINIA
*JUSTICE DEPARTMENT SAID TO PLAN SUIT TO BLOCK AIRLINE MERGER
*AMR CAN EMERGE FROM BANKRUPTCY WITHOUT MERGER, U.S. SAYS

Both stocks are down notably on the news - AMR -22%, LCC -11%; and the rest of the airlines sector is weakening. Among the DoJ's 'gotchas - "A US Airways document said that capacity reductions have “enabled” fare increases." Perhaps the lowly lobbyists of the Airline industry should have 'donated' just a little more money...?

We have discussed the flipping frenzy that has gripped the country in 2006 2013 on several occasions previously (most recently here, here and here) so there is little we can add, but this anecdote from Reuters just has to be read to be believed. Presenting Jan Brzeski who stands in a sun-filled, beautifully refurbished living room high in the Hollywood Hills, looking out at a swimming pool and miles below, stunning views of Los Angeles. Brzeski is a private money lender running an investment firm in Los Angeles that provides loans to house flippers - investors who buy a home, refurbish it, and sell it at a profit. Many flippers turn to money lenders because they cannot get banks to provide such short-term, quick financing. Standing with Brzeski is Scott Ryan, the realtor who bought this four-bedroom, five-bathroom house in December 2012 for $1.5 million - with money lent by Brzeski - and has transformed it with another $600,000. This week the property will go on the market at $3.295 million.

Those who did not read Zero Hedge in March 2011 will be shocked, shocked to learn that yet another "news" service, one owned by Deutsche Börse, was merely disguising as an HFT-facilitating, instanews disseminating, speed roadblock removing provider, who just happened to charge $375,000 per year for its frontrunning services. The firm in question, as the WSJ reports today, was "founded by an investment firm and now owned by the Deutsche Börse stock exchange, Need To Know News has operated with an overriding mission: sending data directly from the government through high-speed lines to financial firms that are able to trade on it instantly. Some have paid $375,000 a year for the service." Of course, those who did read Zero Hedge in March 2011 will already know all about Deutsche Boerse's "news dissemination" strategy which was covered here first with "Alpha Flash: For All Your Nanosecond, Collocated, Algorithmic Frontrunning Needs" in which we tongue-in-cheekly asked "Ever feel like your nanosecond algorithmic frontrunning skills are becoming obsolete? Unable to scalp even a few extra pennies from illiterate orphans, widows and kittens armed with REDIPlus 9.0? Despair not, for Deutsche Boerse [and Need to Know News LLC] has Alpha Flash just for you."

The Russian Bear is stronger and more powerful than it has ever been before.  Sadly, most Americans don't understand this.  They still think of Russia as an "ex-superpower" that was rendered almost irrelevant when the Cold War ended.  And yes, when the Cold War ended Russia was in rough shape. Today, Russia is an economic powerhouse that is blessed with an abundance of natural resources.  Their debt to GDP ratio is extremely small, they actually run a trade surplus every year, and they have the second most powerful military on the entire planet.  Anyone that underestimates Russia at this point is making a huge mistake.  The Russian Bear is back, and today it is a more formidable adversary than it ever was at any point during the Cold War. Just check out the following statistics...

Even though the United States has the highest incarceration rate and the largest total prison population in the world by a very wide margin, hundreds of communities all over America are being overwhelmed by crime and violence.  For many years, violent crime had actually decreased in the United States, but now the trend is going the other way. The frightening thing is that crime statistics are going up even though police departments in some major cities have publicly announced that they will not even respond to certain crimes anymore. So what is causing the rise in crime and violence?  Well, we live at a time when economic opportunities for young people are extremely limited.  The younger you are, the more likely you are to be unemployed, and poverty in America has been steadily rising even in the midst of this so-called "economy recovery". When people are poor and feel like they are out of options, they tend to get desperate.  And desperate people do desperate things.

In a nutshell:

• Relatively low unemployment rates for the “Western Leaders” aren’t just an artifact of recent strength in, say, energy production and commodities. These states have consistently outperformed the rest of the country.
• Abysmally high unemployment rates for the “Eastern Super-laggards” have also persisted for over two decades, exceeding all other parts of the country.
• The “Northern Coastal and Great Lakes Laggards” and “Western Laggards and Southeast” fall somewhere between the other two regions, but always favoring the southern states over the northern states.

Not surprisingly, California, Nevada and Florida are more volatile than the other regions, cycling well above and then back toward the Western Leaders in each of the past two decades. Also, the unemployment problems in California and Nevada have been consistently worse than Florida’s unemployment. These trends may or may not persist in coming years. But if your goal is to anticipate the next Stockton, San Bernardino or Detroit, watch the unemployment data closely and pay particular attention to the cities listed here.

Problem ... What Problem?

Anyone that thinks that the U.S. economy can keep going along like this is delusional.  We are in the terminal phase of an unprecedented debt spiral which has allowed us to live far, far beyond our means for the last several decades.  Unfortunately, all debt spirals eventually end, and they usually do so in a very disorderly manner. 

Claiming he wasn't afraid to let everyone in attendance know about "the real mess we're in," Federal Reserve chairman Ben Bernanke reportedly got drunk Tuesday and told everyone at Elwood's Corner Tavern about how absolutely fucked the U.S. economy actually is. Bernanke, who sources confirmed was "totally sloshed," arrived at the drinking establishment at approximately 5:30 p.m., ensconced himself upon a bar stool, and consumed several bottles of Miller High Life and a half-dozen shots of whiskey while loudly proclaiming to any patron who would listen that the economic outlook was "pretty goddamned awful if you want the God's honest truth." "Look, they don't want anyone except for the Washington, D.C. bigwigs to know how bad shit really is," said Bernanke, slurring his words as he spoke. "Mounting debt exacerbated—and not relieved—by unchecked consumption, spiraling interest rates, and the grim realities of an inevitable worldwide energy crisis are projected to leave our entire economy in the shitter for, like, a generation, man, I'm telling you."

The grotesque days of the first housing bubble are now being flatly trounced by the surreal second coming of the housing bubble, where courtesy of RealtyTrac we find that the old gross maximum profit potential of 63% realized in Orlando, FL house flipping, has two short months been eclipsed by flipping a house in Daytona Beach, generating a mindblowing 82% "flip that house" return! In brief: in the first half of 2013 there were 136,184 single family home flips — where a home is purchased and subsequently sold again within six months — in the first half of 2013, up 19 percent from a year ago and up 74 percent from the first half of 2011. Real estate investors made an average gross profit of $18,391 on single family home flips in the first half of the year, a 9 percent gross return on the initial purchase price. That was up 246 percent from an average gross return of $5,321 in the first half of 2012 and an average loss of -$13,206 in the first half of 2011.

And in the category of most made up charges by the SEC against a hedge fund billionaire we have:

SEC SUES STEVE COHEN FOR FAILING TO PREVENT INSIDER TRADING
SEC SUES SAC’S STEVEN COHEN WITH FAILING TO SUPERVISE MANAGERS
SEC CHARGES STEVEN COHEN WITH FAILING TO SUPERVISE PORTFOLIO
SEC SEEKS TO BAR COHEN FROM OVERSEEING INVESTOR FUNDS
ALLEGES COHEN RECEIVED INFO THAT SHOULD HAVE LED TO PROBE

All of the above was known to our readers since December 2010. Thus Steve Cohen's forced conversion to a "friends and family" office is now complete. And since hedge funds make money not on portfolio upside (and certainly not downside) but on the management fees, the chapter of Blue Eyes' information arbitrage glory days are now over.

• Bernanke Supports Continuing Stimulus Amid Debate Over QE (BBG)
• Portugal president wants 'salvation' deal, including opposition (Reuters)
• Egypt has less than two months imported wheat left - ex-minister (Reuters)
• A rise in long-term interest rates is creating challenges and opportunities for the largest U.S. banks. (WSJ)
• BoJ says Japanese economy is ‘recovering’ (FT)
• More Chinese cities likely to curb auto sales (Reuters)
• PC Shipments Fall for 5th Quarter (BBG)
• Property Crushes Hedge Funds in Alternative Markets (BBG)
• New aid gives Greece summer respite before showdown (Reuters)
• Rajoy Punishes Exporters Sustaining Spain’s Economy (BBG)

Big Banks Move Into Uranium Mining, Petroleum Products, Aluminum, Ownership and Operation Of Airports, Toll Roads, and Ports, and Electricity

This week's biggest news is not the Non-Farm Payrolls, or the European Central Bank or even Portugal's government falling. No - this week's big deal is the openness with which the Federal Reserve is preparing a major margin call on the too-big-to-fail banks in the US. This has been a long time coming since the introduction of the Dodd-Frank law back in 2010 but it is a game changer. Remember all macro paradigm shifts come from policy impulses, often mistakes. Is the Fed about to given the whole banking industry a major margin call?