Even as stocks continue to ignore the broader economic decline, and trade exclusively to kneejerks on one-time items such as Goldman's settlement and BPs pressure tests, the far more liquid and rational bond market is hunkering down. Today, the 2 Year hit an all time low yield, even as the 2s10s tightened by yet another 6 bps to 240 bps. The impact of today's curve flattening alone will have a far more profound impact on Goldman EPS than the latest SEC wristslap farce. And as we pointed out previously, the spread between the S&P and the 10 Year yield continues to diverge. In fact, it is now so wide, that in the latest John Noyce piece, the Goldman Strategist says: "As in mid-June, the S&P looks very overvalued relative to yields. Yields are also beginning to decline again as equities stall." Sure enough the reverse is also true, and bonds may be rich to stocks, but either way, we reiterate our observation that the short stocks-short bonds trade will eventually converge (luckily with the yield on the 10 Y so low, the carry is marginal and the repo rate will likely be a greater burden until the spread recouples).

It is time for the SEC to slap another token wrist. Now the the "regulator" has made it official that the punishment for fraud is roughly 3% of a firm's annual bonus pool for all godlike corporations, and millions of dollars, bars and jailtime for everyone else, it is time to tickle, pardon, we mean tackle, that other major fraud: Repo 105-type end of quarter window dressing, which we now know has been practiced not only by Lehman but by Bank of America. Because according to the just released primary dealer holdings data by the New York Fed, the end of quarter window dressing continues across all PD asset classes to this day. As the chart below shows, the week following the EOQ asset balance hit a total of $270 billion, which was a $15 drop from the week prior, the subsequent week has surged by $19 billion, and is now back to $289.5 billion. This is a two week swing only matched by... the prior quarter window dressing farce, when the roundtrip amount was $81 billion.

Watching my children grow older, now heading into the treacherous shoals of the teenage years, has been a visceral reminder of how the human mind develops. As young children, we see the world with fresh eyes and wonderment, and then quickly begin testing the physical and societal bounds as part of morphing into our more mature selves. As we age into our teens and beyond, the testing of boundaries evolves into a series of calculations. If I do “A,” we wonder, will it lead to “B” or maybe “Z”? From a young age, most of us are told to advance our education and otherwise better ourselves so that we will be able to find a good job, or a succession of good jobs, that will provide sustenance and security lasting most of a lifetime before retiring to dawdle about in our golden years. At least that is the modern view of life pursued by the vast majority of the citizenry in the developed world. But having spent some time in rural Argentina recently – where it seems to me that most people spend more time living and less time planning to live – I have had some time to ponder the assumptions embedded in this view. What if, I wonder, the whole modern construct of what passes for making the right moves in an advanced society is plain wrong?

As America slowly digests the empirical evidence that both our judicial (SEC settlement) and legislative (FinReg farce) branches are now dead and buried (we all know how the executive branch is faring), the only thing left is humor. In continuing with our deep throat screen captures of executive level individuals (Ben Bernanke here previously), we present Tim Geithner's desktop next, courtesy of a Zero Hedge reader.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 15/07/10

Ah, the perils of being a rich communist nation: everyone wants a part of the spoils. South China Morning Post reports that Honda's mainland China operations have been hit by a fresh strike, this time at the Atsumitec Company in the city of Foshan. The operation began on Monday, with 170 workers striking after management fired about 100, a worker who declined to give his name told reporters by telephone. “The local government has sent police to our factory and will be here in the afternoon,” he said. As SCMP reports, the strike follows a turbulent period in June, which saw hundreds of workers at a number of foreign-owned factories, many of those in the affluent Pearl River Delta, walk off the job demanding better pay. More than anything, the recent bout of strikes, in addition to putting increasing pressure on China's social tenuous fabric, demonstrate how just-in-time manufacturing, now highly popular among western manufacturers, can put companies at risk because it allows little margin for error when supply chains get disrupted. Should Chinese slave laborers, er, workers, continue aspiring to be able to work for even one fifth of US minimum wage, in their quest to replicate iPad mania so popular in the US, the problems may easily get out of hand. Furthermore, with labor costs rising dramatically, the impact on already tight export margins is going to be severe.