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Why Policy Has Failed

Put down the Sunday newspaper; grab a pot of coffee; and call 'mom' and tell her she has to read this. Doug Rudisch has written a far-reaching summary of the true state of the world and 'why policy has failed'. Simply put, there is no faith in the system; real underlying faith and trust in the system, as opposed to the confidence born from economic steroid injections or entitlements. There also is a subtle but important distinction between faith and trust versus confidence. Faith and trust are longer term and more powerful concepts.There is more going on than a temporary lull in animal spirits that current fiscal and monetary policy will cure. If that was the case, it would be working already... We have ended up with a system where the worst of the risk takers have the ability to take the most risk and are currently taking it at extreme levels. We wish we could be more prescriptive and offer more solutions for the problems. But in order to solve a problem, you must first realize you have one. With respect to the Fed, we don’t think the U.S. realizes it has a problem.

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AG Holder To Recuse Himself From AP Leak-Gate Investigation

From one farce to another:


Yesterday, the Associated Press revealed the Department of Justice had been secretly monitoring both the personal and work phones of numerous AP editors and reporters. So just what did Holder know? For now, it is not known if Holder authorized or even knew about the investigation.

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The Market Isn't Prepared For This

Yesterday was another less than convincing session. Indices off recent tops and Europe weaker. Treasuries tumbled then rallied part way back on less than stellar retail sales report. It rather feels like we are going through the motions with little conviction one way or another (even with today's mini-melt-up). Markets crave direction. What I'd like to see is the JGB curve bull-flatten to restore faith in Global easing and the asset grabathon. Don’t fight Kuroda – it will happen.. but when? That's the macro-trade. But the short-term trade may be to hedge some risk, like the Nikkei's recent gains, and think about how to hedge bursting bubble risks in the credit markets. Or is there something bigger going-on just behind the horizon? A "No-See-Em" that is about to confirm a particular market direction? After all... the global economy is either growing, is set for growth, or this recession is becoming a long-term depression. So let’s take a look at what's going on for signs of the hidden menace...

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White House Holds Press Briefing: Will AP Questions Be Permitted?

Will it be Benghazi? or the IRS Witch-Hunt? Or the AP Hack? Or how great the economy must be doing since stocks are surging? Or will anyone who asks questions be subject to immediate audit? Or are all questions moot? After all the White House knows precisely what will be asked long in advance...

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PIMCO's Bill Gross Goes Churchillian

When the head of the world's largest bond fund starts paraphrasing war-time phrases, you know nothing is what it seems...

It seems to us that this can only end one way and the fight on the beaches this time will be between economic reality and central-bank-inspired mass hypnosis.

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Russia Captures US Embassy Worker In Act Of CIA Recruitment; CIA's "Dropbox" Gmail Address Revealed

Following the just concluded recent visit by John Kerry to Russia, one may have been left with the impression that the tensions of the Cold War are dead and buried. Just the opposite it appears. In what may be a well-timed and orchestrated announcement, moments ago Russia announced that it had caught an American, Ryan Fogle, a third-secretary at the US Embassy in Moscow, "red-handed" as he tried to recruit a Russian intelligence officer to work for the CIA. There goes any leverage the US may have had in attempting to persuade Russia to relent on the joint-Western push to "liberate" Syria. Just as Russia, run by a former KGB spy, had intended all along, and just another slap in the face of the US department of state, which lately can't seem to find its way out of a scandal-ridden (and redacted) paper bag to save its life. But perhaps most amusing is that in the attached letter given to the recruitment prospect, the CIA give out the email address to be used to indicate interest in working for Langley as follows: How the times have changed.

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Households Cut Another $110 Billion In Debt Even With $577 Billion In Q1 Mortgages Originated: Most Since 2007

It is not immediately clear how much of the net drop in mortgage balances from $8.033 trillion to $7.932 trillion was due to defaults as opposed to actual pay downs and non-credit rating impairing deleveraging. We do know that a whopping $577 billion in new mortgages were opened in Q1, the highest since Q3 of 2007.  Which means that some $680 billion in mortgages should have been extinguished in one quarter. If this happened primarily via defaults and discharges, one can only wonder just how the bank balance sheets were not decimated in Q1. As a reminder, half a year ago we observed that the bulk of US mortgage debt reduction has come from defaults not from actual deleveraging.

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Is Lumber The New Baltic Dry?

Lumber is limit down once again. It has been falling now for two months in a very 'non-housing-recovery'-like manner. Of course, when Lumber prices are rising, everything is bullish and it merely serves to confirm the exuberance and bias to optimism that we should all have. However, just like the Baltic Dry Index, when it's falling it is a bullish sign that the market is over-supplied in anticipation of good things to come. With Lumber's two-month lead over stocks signaling the equity market may well be a little ahead of itself, it seems the supply-demand balance is off in the construction materials business (which one is off - supply or demand) but have no fear, just as with the Baltic Dry, it will come back if we just keep hoping. Or did the actions of a central-bank inspire confidence once again in the 'wrong' industry and spark another mal-investment boom?


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POMO + Tepper + Tuesday = Total Equity Disconnect

It's Tuesday. It's a big POMO day. And sure enough, equities are in full-tilt melt-up mode. In the face of a stronger USD, rallying bond market, higher VIX, and widening credit spreads, the S&P 500 has smahed through yet another set of stops, squeezed shorts wherever you can see, and made new all-time highs. Mardi Gras indeed... though one wonders what happens when Europe closes and POMO is over. Will USDJPY 102 mark the 'top' in stocks today?

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Nasdaq-100 Breaks 3000, First Time Since 2000

Up 195% from the Nov 2008 lows, the Nasdaq-100 has now broken back above the magical 3000 level. A level first seen in Nov 1999 (back then it took 4 more weeks to hit 4000). How long until CNBC adds a countdown timer to the Nasdaq all-time high?

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Despite Abenomics Japan's Sharp Post Biggest Loss In 100 Years

As reported earlier, at least one prominent hedge fund manager, Dan Loeb, is very bullish on Sony (or at least has played his cards well enough to buy the stock 50% lower and is using today's ramp to offload to unwitting momentum chasers as he did with Herbalife). Whether he is merely using the opportunity to earn some activism brownie points on the background of the overall levitation of the Japanese stock market, or is genuinely convinced there is upside for Sony remains to be seen. However, anyone who thinks that Japanese corporates have no place to go but up, is kindly urged to take a look at one-time Japanese electronics titan Sharp, which posted a whopping loss of $5.36 billion, the biggest loss in the company's 100 year history.

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Michigan School Shuttered After Taking Money For Services Not Provided

The Buena Vista school district in Michigan accepted $402,000 of aid over three months from the state for a service is was not providing. As RT reports, the school district has taken the drastic steps of firing all of its teachers and shuttering its classrooms before the end of the school-year as the state tries to claw back (or seek an alternative plan) its ill-gotten gains. "We've hit a dead end," the local school district explains, unable to help the school of 400 mostly black and poor students, explaining that they are hesitant to bailout school districts and set a bad precedent. One parent exclaimed, "Our kids ain't really learning like they used to," adding that, "being out of school this early is going to hurt them a lot." The local democratic Representative  added helpfully, "we know from past history that students have been treated differently - going back to Brown vs Board of Education." Buena Vista teachers had offered to work without pay for a week, but that was not enough to keep the district's schools open. Instead, the district may offer a “skills camp,” a voluntary substitute paid for by federal grants, and run six hours per day for up to six weeks.

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David Tepper Blesses The Market And Awaits "Manufacturing Renaissance"

While every other hedge fund manager is bashing Bernanke, we finally found one who loves the Chairman, unabashedly. The last time the outspoken hedge fund manager appeared on CNBC it was to pump financials into his asset sale in Europe (and here). Today he could not have been more upbeat about the US economy, US banks, and US manufacturing as he is "overwhelmingly bullish," adding that "the numbers are truly amazing". Sure enough the 'Tepper rally' market responded with its ubiquitous lemming like surge as the Appaloosa manager (with $17.9bn AUM) says: The Economy is getting better; he is bullish On Japan; does not worry about Fed tapering - but does not like bonds (adding that the end of QE2 was bullish (though if you care about facts, it wasn't); his biggest holding is Citigroup; sees a great US manufacturing renaissance; and while the Middle East is a concern, expects only a 5% drop if there is war. If that's not enough for you to back up the truck, he believes the US budget deficit will shrink "massively' and housing will rise. The only thing he is not buying with both hands and feet - Apple. As he said - the numbers are truly amazing, though we suspect we are looking at different numbers.

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The Volkstesla Squeeze

Back in 2008, Volkswagen briefly became the most expensive stock in the world on what would become the case study of an epic short squeeze when following some (malicious) capital structure drama, the short interest became greater than the total outstanding float, sending the stock up 500% in a few short weeks. German billionaire Adolf Merckle committed suicide as a result. We may be in for a redux, courtesy of yet another car company: Tesla, whose most recent short interest as of 41.5%, has led to a surge in the stock price of nearly 300% in the past few weeks, and which covering rampage shows no signs of abating. Will Volkstesla be the new Volkswagen?

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DOJ's "Nixonian" Phone Spying Scandal Sets Labor Unions Against Obama

It is just a few hours old, and already the Department of Justice's (legal) AP phone spying scandal has generated unintended consequences, by alienating and confronting Obama with his traditionally strongest constituency: labor unions, in this case the Newspaper Guild. From the Guild's shocked statement: "There could be no justification or explanation for this broad, over-reaching investigation. It appears officials are twisting legislation designed to protect public safety as a means to muzzle those concerned with the public’s right to know." They sound legitimately surprised.

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