Corruption

After 30 years of torrid expansion, perhaps the single most consequential factor in China’s economy is how much of it is a “black box”: a system with visible inputs and outputs whose internal workings are opaque. China’s recorded history stretches back thousands of years, but in terms of applicable financial and economic parallels to the current economy, there is no precedent. China’s leadership is truly in uncharted waters. This in itself heightens the risk of miscalculation and basing policies on faulty premises.

In this case, it’s not just about theft and destroying the world economy. Giant financial firms can apparently just “settle” even when grotesque human rights abuses occur. This is how “justice” works in America.

"We have armed investigators on the property, we're setting up covert cameras, we're documenting all license plates," the head of Global Investigative Group told NBC, referring to the "investigation" taking place in South Florida, where vandals, furious at Walter Palmer who killed a protected lion, placed marinated pigs' feet on the dentist's vacation home driveway.

Today, following another spike in negative news, it appears that the credit markets have finally woken up, and a quick look at Brazil's CDS shows that following today's spike to 314bps, the country's implied default risk is back to levels last seen in April of 2009! We expect more credit market participants to notice the depressionary developments in brazil, and as the country's CDS continue to blow out, many will start asking themselves: is Brazil the next Argentina?

Low oil prices and the battle against Islamic State (IS) are pushing Iraq toward a financial crisis. Only fundamental reforms, especially decentralization of power, can resolve the challenges facing Iraq today.

We’re living in two worlds, you and I. There’s the world we see (or are made to see) and then there’s the one we sense (and occasionally catch a glimpse of), the latter of which is a far cry from the propaganda-driven reality manufactured by the government and its corporate sponsors, including the media. Indeed, what most Americans perceive as life in America - privileged, progressive and free - is a far cry from reality, where economic inequality is growing, real agendas and real power are buried beneath layers of Orwellian doublespeak and corporate obfuscation, and “freedom,” such that it is, is meted out in small, legalistic doses by militarized police armed to the teeth. All is not as it seems.

News that bonds and stocks of Abengoa SA - the Spanish renewable-energy company - plunged after a plan to shore up capital failed to reassure investors that it can stop burning cash is likely to have passed many by. But coming just one day after President Obama unleashed his Clean Power Plan, the fact that the company received over $230 million in US taxpayer subsidies in 2014 - despite two ongoing federal investigations - may raise an eyebrow or two as images of Solyndra's government-sponsored farce come to mind.

Just days after WSJ revealed that Deutsche Bank's $2.5 billion LIBOR settlement could be in jeopardy due to the apparent mishandling of chat records dating back to 2005, Bloomberg says Loretta Lynch’s Justice Department has launched a criminal probe into the bank’s alleged role in facilitating a series of trades which may have allowed Russian clients to launder billions through the bank's trading desks.

• Unhappy Voters Shake Up Presidential Race (WSJ)
• China stock exchanges step up crackdown on short-selling (Reuters)
• China Dethroned as World’s Most Liquid Stock Market After Curbs (BBG)
• Xiaomi retakes the smartphone lead in China as Apple slips (Engadget)
• Impact of EPA’s Emissions Rule on Industry to Vary (WSJ)
• Citadel’s Ken Griffin Leaves 2008 Tumble Far Behind (WSJ)
• Greece says expects bailout deal by Aug 18 (Reuters)

We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history. Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. Deflation and depression are mutually reinforcing, meaning the downward spiral will continue for many years. China is the biggest domino about to fall, and from a great height as well, threatening to flatten everything in its path on the way down. This is the beginning of a New World Disorder…

There's Always Been Some Corruption ... But Now Things Have Just Gotten Silly

"Having lived in [western] Europe, I realise that they often confuse Nazism with nationalism, which for us Ukrainians is more akin to patriotism. It’s not about considering your own ethnic group as superior, but being proud of it, and of defending your country."

As opposition lawmakers accuse Tayyip Erdogan of blocking efforts to form a coalition government, Ankara says the PKK orchestrated a suicide attack that killed three Turkish soldiers. Meanwhile, Erdogan says Vladimir Putin is ready to "give up on" Bashar al-Assad in Syria.

Both bubbles (rents and housing) are vulnerable to popping. The real test of valuation is: what's it worth in a recession, after all the easy money and the jobs that depended on easy money have vanished?

• Deadline Draws Near for Puerto Rico (WSJ)
• U.S. to defend Syrian rebels with airpower, including from Assad (Reuters)
• Alpha Natural Resources to Seek Chapter 11 (WSJ)
• Iran’s Rouhani Says Nuclear Deal ‘More Than What Was Imagined’ (BBG)
• Cables Show Hillary Clinton's State Department Deeply Involved in Trans-Pacific Partnership (IBTimes)
• Win or Lose, U.S. Stocks Get Biggest Earnings Bang Since ’12 (BBG)
• Weaker China factories argue for more policy support as stocks swoon (Reuters)