So June new home sales come in at 330,000 on expectations of 310,000: a decent beat by 20k or so, and a "record" increase from the May revised 267k. However, this "beat", and massive 23.6% MoM surge only occurred due to prior downward (of course) revision which took away 57k from the past two months! The May number was revised down from 300k, or by 33k, to the lowest sales number on record of 267k. And April, not to be undone, two months after the initial release, has received its second downward adjustment, this time down by 24k from 446k to 422k. So let's get this straight: this was the worst June on record, following the worst month on record in new home sales ever, the beat was completely drowned out by 57k worth of prior revisions, the average new home price slid another 1.4% to $213,400, yet just because the new home supply is down to "just" 7.6 month from 9.6 in May it is enough to push stocks to the moon (of course this completely ignores that existing homes sales are back to 9 months, and shadow inventory is more than double that. Who cares - machine language does not add, it only multiples). Another day, another insane day in stocks, which are now programmed toignore reality, and just focus on the propaganda headline spin.

• Asian stocks rise to one-month high on European stress tests.
• EU to adopt new sanctions package against Iran's nuclear program.
• European Union stress tests found banks need to raise €3.5B ($4.5B) of capital.
• Japan's stocks rise after Europe stress tests end, Yen slides.
• Global economy slowing to 3.25% from 4.7% recent average.
• IMF, EU inspectors in Greece for fiscal checkup required by rescue loans.
• Oil hover near $79 in Asia as strong US corporate earnings boost investor optimism.
• BP resumes efforts to drill relief well in Gulf of Mexico.
• Clorox expects to receive $750M for STP and Armor All.
• Deutsche Bank may report lower Q2 profit as Europe’s sovereign debt crisis led to a decline in trading revenue.
• Dubai Financial Market Co. Q2 profit tumbled 80% to 25.9 million U.A.E. dirhams ($7M).
• Embattled BP Chief Hayward to depart, Robert Dudley to succeed.

Morgan's Huw van Steenis shares his team's view on the "stress test" catalyst that is supposed to finally put ever-bullish MS in the money, and diffuse the pent up rage of its client base for losing it billions with all those short bond recommendations. The MS report has some quite objective observations: "Given the size of the fiscal and banking sector problems in Europe and elsewhere, a quick and easy solution is unlikely. However, we think a circuit breaker, such as a restructuring and recapitalisation of the banking system, is needed because unlimited liquidity provision by the ECB does not get to the root of the problem. In our view, for the recovery to get onto solid ground both financial and fiscal stability need to be restored equally. The sovereign debt crisis has shown how closely intertwined financial and fiscal stability are. In our view, Europe has been making good progress in mapping out how it intends to restore sustainable budget positions. But there are still concerns amongst investors about financial stability. In this context the stress test is key." Yet unfortunately, as expected, the conclusions are that all is well, despite the test obtaining largely different and far stronger conclusions than even MS' internal pre-testing setup. Nonetheless, a good one document summary of all the findings of the test together with some in depth commentary for those who just need that upside catalyst.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 26/07/10

Markets rise when the preponderance of participants are buyers, and fall when the preponderance of participants are sellers. One of the key ways to anticipate the pendulum swings of participant behavior, and therefore price behavior, is to evaluate sentiment. Sentiment, more than fundamentals or technical analysis, trumps everything. When too many players are on the same side of a trade they eventually find themselves in a crowded position where most everyone around them has the same motivation – to reverse their position when the tide changes. Little by little, as participants slip out the back door by changing the bias of their position, the pendulum of price swings more sharply against the remaining herd in the crowded trade. Inevitably, something akin to panic sets into the herd as they begin to aggressively reverse their position for financial survival. The primary ingredient that causes price to catapult, up or down, is sentiment oscillation and capitalization from one sentiment extreme to the other. An astute market technician, investor or trader will look for those flash points where conditions are ripe for a market reversal. It sounds easy to do, but remember that when the analysis is very convincing, the preponderance of market participants will disagree. It seems that to be effective at market timing one needs to listen not to what others are saying, but to what the sentiment data represents as truth. With these thoughts as a foreword, let’s see what the current sentiment situation is for the SP-500.

Is something (abnormally) fishy in the state of precious metals manipulation? GATA's Adrian Douglas (recently famous for facilitating the emergence of whistleblower Andrew Maguire) seems to think so, after his observation that the LBMA has decided to block "access to statistics relating to the trading activities of its member bullion banks. This information has been available to the public since 1997 but as of this week it is available only to LBMA members." His conclusion: "There is a cover-up of back-door injections of liquidity of physical gold, and the LBMA now is trying to conceal trading information. I interpret the LBMA's move to secrecy as a sign that the opportunity to get real metal is closing fast." Read on for his argument...

In today's NYT, Gretchen Morgenson does a good summary of how Goldman was demonstratively net short net short AIG (or net long its CDS, depending how one looks at it) via nearly 100 counterparties to the tune of just over $1.7 billion in net notional, after Chuck Grassley released several previously classified documents disclosing Goldman's CDS position as of September 15, 2008, the day of Lehman's bankruptcy. As Gretchen summarizes: "According to the document, Goldman held a total of $1.7 billion in insurance on A.I.G. from almost 90 institutions. Its exposure to A.I.G. at that time was $2.6 billion. Goldman bought most of the insurance from large foreign and domestic banks, including Credit Suisse ($310 million), Morgan Stanley ($243 million) and JPMorgan Chase ($216 million). Goldman also bought $223 million in insurance on A.I.G. from a variety of funds overseen by Pimco, the money management firm." While the topic of how the world's biggest asset management firm in the face of Pimco (and specifically its massive Total Return Fund) could have a net short CDS position (i.e., unlimited downside exposure), and how this is supposed to demonstrate prudent capital management, is ripe for evisceration, we will leave it for another day, as there is something more notable in the Grassley disclosure that has to be discussed. While Gretchen is correct that the external position of Goldman's exposure vis-a-vis AIG is indeed a total of $1.7 billion in long CDS, if one were to actually present the gross number, the truth would be starker: as the Grassley document reveals, the firm's gross exposure for its IG flow and structured finance desks goes from a positive $1.7 billion net exposure, to a ($2.9) billion net exposure, a massive $4.8 billion swing! What is it that in one fell swoop moved the firm from having a huge long bet on AIG, to a major short CDS position, one that nearly entirely covered the firm's $2.6 billion in legacy risk exposure? Enter Goldman's Counterparty Valuation Adjustment desk.