Ford

The ear-piercing screech of the German export machinery as it down-shifts....

A courageous act in face of the punishment the Fed inflicts on them. But it doesn't bode well for the economy.

Lately various media outlets have been swamped with stories and allegations of precious metal manipulation ranging from the arcane, to the bizarre to the outright ridiculous. At issue is not that these claims of price fraud are unfounded - they very well may be completely true - but without a notarized facsimile of an actual trade ticket signed by Brian Sack, or his replacement Simon Potter, or any of the BIS traders confirming they are indeed selling gold on behalf of the Fed, BOE, ECB, SNB or BOJ simply to keep the price of the metal down, what such constant factless accusations (and no, sorry, a chart showing that the price of gold may go up or go down sharply indicates merely that and nothing about the underlying factors for such a move) do is to habituate the broader public to the real issues surrounding precious metal, and other asset class, manipulation. So instead of searching for circumstantial evidence which one can easily find everywhere, we decided to go straight to the source. To do that we go back to a post we wrote back in September of 2009, based on an internal previously confidential Fed document, which conveniently enough explains everything vis-a-vis gold manipulation and leaves nothing to speculation or misinterpretation. Zero Hedge presents the smoking gun that may provide responses to all the various open questions regarding the Fed's Modus Operandi in the gold arena which answer the core question - motive - courtesy of a declassified memorandum, written by none other than the then Fed Chairman, and addressed to the president of the United States.

There was not much in the GDP report that was unexpected, except durable goods.  The decline in durable goods was comparable to Q2 2011, right down to the primary driver of that weakness - motor vehicles.  However, there was no earthquake in Japan this year to disrupt supply chains, production schedules and brand availability.  Just like last year, marginal economic growth overall seems to be backfilled with a tide of inventory.  The trouble with inventory at the margins of growth is that it is essentially a build-up of forward demand, and therefore susceptible to reversal should overdone production move out of alignment with final demand.  Both monetary and fiscal policies actively seek to pull forward demand, meaning this inventory-driven activity conforms to policy goals. It's almost like the 1960's and 70's, with motor vehicles and government spending driving the marginal economy again.  All that’s missing is for Ralph Nader to show up and write about how cars are dangerous.

While it would appear that all news is good news; good news (or no news) is better news; and old-news is the best news; here is your one stop summary of all the notable bullish and bearish events in the past seven days.

• ECB's Nowotny - ESM banking license could be advantageous (Reuters) - just keep regurgitating headlines until they generate a short squeeze
• IMF Says China Downside Risks Significant as Growth Slows (Bloomberg)
• Moody's cuts outlook on EU stability facility to negative (Reuters)
• Rome places spending controls on Sicily (FT)
• Big banks' glory days feared to be gone for good (Reuters)
• China's CNOOC scoped Nexen, partnered, then pounced (Reuters)
• Germany backs Spanish austerity plans (FT)
• Are 2012 Games one too many for London? (Reuters)
• Euro Crisis Spreading East Damps Growth, Development Bank Says (Bloomberg)
• Japan Flags Yen-Sales Impact as BOJ Eyes More Easing (Bloomberg)

The three "de's:" deregulation, desupervision, and de facto decriminalization.

In a classic example of "speak of the devil", we were barely done with hitting save on our earlier article (in a series going back to 2011) describing the relentless (and innovative) machinations conducted by GM to perpetuate the myth of swift sales absorption when in reality it is nothing the age-old gimmick of channel stuffing, that we got notice that General Motors was being sued by a group of IPO investors (nursing losses of about 40%), for precisely this: "In connection with the IPO, and in order to assuage concerns that GM was predicting revenue based on production rather than actual sales, GM falsely assured investors that it was actively managing its production by monitoring its dealer inventory levels. Additionally, GM assured investors that in 2011 it would improve inventory management, which would improve average transaction price. These statements were false when made. In July 2011, reports began to surface that GM had engaged in an extraordinary inventory build-up. In particular, an article published by Bloomberg on July 5, 2011 revealed that GM may have been unloading excessive inventory on dealers, a practice known as "channel stuffing," in order to create the false impression that GM was recovering and sales and revenues were rising." Luckily, since this is a class action lawsuit, anyone else out there who bought GM on the belief that the company would not engage in precisely the behavior that we have shown month after month to occur, is invited to enjoin the plaintiffs and to sue the company that exists only courtesy of taxpayer generosity (and more importantly, courtesy of labor unions subverting priority rights in bankruptcy, in exchange for presidential votes). Finally, and if nothing else, this lawsuit will certainly force the general co-opted media to pay some more attention to a topic that is quite sensitive for the administration: the business model of the one company that the president is so proud and happy to have saved from the clutches of evil bondholders.

• Finland (which with Holland account for 50% of the Eurozone's AAA rated countries), just says "Ei" to stripping ESM subordination (Bloomberg)
• Libor Rate Scandal Set to Spread (WSJ)
• #ByeBarclays flashmob descends on bank (FinExtra)
• What is financial reform in China? (Pettis)
• Cities Consider Seizing Mortgages (WSJ)
• China Beige Book Shows Pickup Unseen in Official Data (BBG)
• China’s New Rules May Curb Credit Growth, CBRC Official Says (BBG)
• India Said to Pay in Euros for Iranian Oil Due to Rupee Hurdles (BBG)
• Wealthy Hit Hardest as France Raises Taxes (FT)
• Euro Bank Supervisor Faces Hurdles (WSJ)

• Most Germans Reject Ceding Sovereignty to EU, Stern Poll Shows (Bloomberg)
• How Stockton went broke: A 15-year spending binge (Reuters)
• Manchester United Shoots for $100 Million IPO (WSJ)... with 4x leverage and Jefferies as underwriter
• Iran says can destroy U.S. bases "minutes after attack" (Reuters)
• Poison claims spark call for Arafat exhumation  (FT)
• Diamond Would Be Catch for Investment, Private Equity (Bloomberg)
• Investors may shun big Libor lawsuit and go it alone (Reuters)
• New Particle Found, Consistent With Higgs Boson (WSJ)
• Chinese riot police clash with protesters  (FT)
• Euro-Area June Manufacturing, Services Output Contracts (Bloomberg)
• Utilities Struggle to Restore Power in East (WSJ)
• Dark economic clouds gather anew over Obama campaign (Reuters)

A confluence of factors is forming a perfect storm for the oil market to face some major headwinds for the next 5 years. 

While it is seeming common knoweldge that the state of the economy has a significant bearing on the outcome of the presidential election in the US, Barclays notes that in the case of an incumbent running, economic performance appears to be most important. The three presidents who failed in a re-election bid in the post-war period (Gerald Ford in 1976, Jimmy Carter in 1980 and George Bush, Sr. in 1992) did so against a backdrop of weak growth, high unemployment, and low consumer confidence. These same factors all pose significant headwinds to the current incumbent. To overcome them, history suggests that unemployment would need to keep trending down and consumer sentiment would need to strengthen prior to the vote in November.

For how much longer can they try to hide it?

There are two significant events that will be decided in the forthcoming days. Each will change the face of the European Union. The first is Greece; a little country with a total debt of $1.3 trillion and likely to default. The calculations in Athens are how to get more money out of Germany and the calculations in Berlin is whether a default is less costly, both politically and economically, than giving Greece more money. Debt forgiveness has never even been mentioned so I think we can rule out this possibility as it would have been floated by the German public for review and reaction. The Troika shows up Monday in Athens, they will find all targets missed, all promises unkempt and all hopes for salvation dashed upon the Greek floor along with the plates. The Greeks will beg and plead and threaten and the Germans will decide. In the end I think Greece will be allowed to stay in the EU to preserve the dream, that they will default, that they will return to the Drachma and that they will receive some kind of debtor in possession financing so that the country does not collapse. That is my best guess. Cheaper tourism and cheaper ships will help with their competiveness but it will be years before Greece is allowed back into the Eurozone as a voting member. The second item on the docket is Spain. They need a total of around $350-400 billion dollars to straighten out their banking system and their regional debt. Money lent to the banks in some fashion, not currently allowable under the various policies but you never know, or money lent to the sovereign to be lent to the banks will be just the first tranche of funding. It will be followed by more money lent to the regions of Spain which may take another novel approach but no matter. Spain is about to be run out of Germany no matter how all of the trivialities play out and so the impositions of the Men in Black are about to be put in place. So long to the importance of Madrid and thanks for all of the entertainment. You have been caught and are about to be hung out to dry and enjoy the ice wine that Germany will provide for your congratulatory dinner. Rajoy was right, a “Great Victory for Europe;” serving ice wine in Madrid.

• Prepare for Lehmans (sic) re-run, Bank official warns (Telegraph)
• Fed Seen Extending Operation Twist While Avoiding Bond Buying (Bloomberg)
• US Watchdog Hits at ‘Risky’ London (FT)
• G20 Bid to Cut Cost of Euro Borrowing (FT)
• Romney Says Rubio Being Examined as Possible Running Mate (Bloomberg)
• Hollande Says Worth Exploring ESM Bond Buys (Reuters)
• US Upbeat After Eurozone Debt Crisis Talks (FT)
• BOJ Members Say Japan Could Be ‘Adversely Affected’ by Europe (Bloomberg)
• China Steps Said to Grow Bond Market, Add Issuer Scrutiny (Bloomberg)
• How Asia Will Fare if Europe Cracks (WSJ)