“When business in the United States underwent a contraction... the Federal Reserve created more paper reserves.

The excess credit spilled over into the market triggering a fantastic speculative boom... “

• June Eurozone industrial output drops, erases May gain (BBC News)
• $23 billion of 10 Years on deck (CNNMoney)
• Momo is now global - most stock optimism in two years (Bloomberg)
• China accuses US of protectionism in tire case (Yahoo, h/t Credittrader)
• Stocks: the latest Fed bubble (Fortune)
• A president as micromanager (WSJ)

• Asian stocks fall as weaker profits fuel valuation concern
• China's money market rates drop on signs Central Bank to delay tightening
• Fed may acknowledge faster growth, pledge to keep rate 'exceptionally' low.
• Europe industrial production unexpectedly drops, suggesting slow recovery
• French inflation rate remains negative for third month on energy and energy retail

Wednesday UK and Europe highlights. Coverage of the mayhem in the Asian markets today. Since I wrote the post, Indian market indices opened to the downside despite upbeat industrial output data, seems likes the standard theme today across Asia. Article will be updated to keep up with data releases (BOE inflation report, etc). More inside as usual.

Readers have been recently inquiring why it is that so many financial advisors have sprouted all over the place and are scrambling to represent bankrupt companies: after all the company is, well, "bankrupt" - how much money can financial advisors really make on these kinds of deals? The answer may be surprising, especially in light of the proliferation of various splinter financial advisors who had previously been part of larger firms.

Continued substantial rerisking continued in financial last week, however at a slightly moderated rate. From the $96.2 billion net notional decline in the week ended July 31, the last week saw a $54.4 billion decline. Total net notional change was one tenth that of the previous week at -$14.5 billion, with a marked derisking in consumer services at $25.1 billion. Other notable derisking spaces were Industrials and State Bodies.

"After all the finger pointing at greedy Wall Street big-wigs, a somnambulant FED, and “tulip-crazed” homeowners is over, the fact remains that the nexus of the housing market is Fannie Mae and Freddie Mac, aka, the GSE’s (Government Sponsored Enterprises). And just as the beginning of this crisis can clearly be marked to the date that their financial situation tipped south, so can we be sure that our problems will not be truly over until they have been stabilized." - Harley Bassman, ML

Spreads were broadly wider in the US as all the indices deteriorated (as HY underperformed IG and both closed at one-week wides). Indices typically underperformed single-names with skews widening in general (extending the trend of single-name weakness from the middle of last Friday) as IG underperformed but narrowed the skew, HVOL outperformed but widened the skew, ExHVOL's skew widened as it underperformed, XO's skew increased as the index outperformed, and HY's skew widened as it underperformed.

Late day sell off in stock translated into buying in treasuries - no surprise there. The AUD is doing whatever carry trade it does. VIX at the days lows. And the IG12 CDS index closes at 113 bps, 6.5 bps wider in a rush.

The current Fibonacci retracement visualized in both price change and time.

Classes affected: * 15 CMBS Classes of WBCMT 2006-C28;
* 10 CMBS Classes of MSC 2004-TOP13;
* 14 CMBS Classes of WBCMT 2005-C18;
* 14 CMBS Classes of JPMCC 2006-LDP8;
* 14 CMBS Classes of GSMS 2005-GG4;
* 17 CMBS Classes of GSMSC II 2007-GG10;
* 19 CMBS Classes of CSMC 2007-C4;
* 7 CMBS Classes of GCCFC 2003-C2;
* 18 CMBS Classes of CSMC 2007-C3;
* 12 CMBS Classes of BACM 2005-3;
* 11 CMBS Classes of BSCMS 2004-TOP14;
* 12 CMBS Classes of BACM 2006-6;

"The Second Circuit explained that the size of the transaction and the residuum of corporate assets are factors that a bankruptcy court must consider, but are “just one consideration . . . along with an open-ended list” of other issues, such as whether the sale was on terms advantageous to the estate and whether a plan of reorganization might be proposed and confirmed in the near future. Moreover, the Chrysler court specifically held that section 363(f) of the Bankruptcy Code allows a debtor to sell assets free and clear of “successor liability” for pre-petition tort claims."

- Yield 1.780% vs. Exp. 1.791%

- SOMA $5.7 billion

- Bid/Cover 2.89 vs. Avg. 2.7 (Prev. 2.62)

- Indirect bids 62.5% vs. Avg. 45.11% (Prev. 54.15%)

- Alloted at high 13.08% (BBG)

One dollar for whoever has access to the morning memos distributed today at Federal Reserve Capital LLC.