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The world's largest hedge fund is not as sanguine about the hope that remains in the markets today. The firm's founder, Ray Dalio, who has written extensively on the good, bad, and ugly of deleveragings, sounds a rather concerned note in his latest quarterly letter to investors as the "developed world remains mired in the deleveraging phase of the long-term debt cycle" and has spread to the emerging world "through diminished capital flows which have weakened their growth rates and undermined asset prices". Between China, Europe, and the US, which he discusses in detail, he sees the lack of global private sector credit creation leaving the world's economies highly reliant on government support through monetary and fiscal stimulation. The breadth of this slowdown creates a dangerous dynamic because, given the inter-connectedness of economies and capital flows, one country's decline tends to reinforce another's, making a self-reinforcing global decline more likely and a reversal more difficult to produce. After discounting a relatively imminent return to normalcy in early 2011, markets are now pricing in a meaningful deleveraging for an extended period of time, including negative real earnings growth, negative real yields, high defaults and sustained lower levels of commodity prices. Lastly he believes the common-wisdom - that the Germans and the ECB will save the day - is misplaced.

The latest development in yesterday's Bulgarian bus bomb explosion, is the identification of the alleged bomber. According to Times of Israel he is Mehdi Ghezali, "reportedly a Swedish citizen, with Algerian and Finnish origins. He had been held at the US’s Guantanamo Bay detainment camp on Cuba from 2002 to 2004, having previously studied at a Muslim religious school and mosque in Britain, and traveled to Saudi Arabia, Afghanistan, and Pakistan. He was also reportedly among 12 foreigners captured trying to cross into Afghanistan in 2009."

Don’t believe the EIA’s gentle forecast.

Whitney Tilson may have met his match. Canadian commodities hedge fund Salida Capital is no stranger to media notoriety: last October none other than Zero Hedge wrote that "Fund Blamed For Gold Sell Off, Salida Capital, Tumbles 37% In September, 49% YTD" after the fund's infamously timed bet on more easing by the Fed backfired and resulted in losses so severe it was enough to warrant liquidation rumors across all commodity classes, which in turn set off follow on liquidations worries in a self reinforcing feedback loop. In retrospect, anyone who read the caveats about the Toronto-based asset manager would have been wise to get the hell out of dodge, because the firm that simply had used massive amount of leverage to generate ridiculous returns such as +35.84%, -66.50%, +188.55%, 44.88%, and -53.39%, is now down 75% in the last 12 months, meaning anyone who invested $100 with the fund, is down to just $25 (and realistically less when management fees are accounted for). It also means that the fund's Sharpe ratio is borderline negative. Finally, it is precisely such fantastically leveraged contraptions on coin toss-based outcomes that even further undermine what little credibility and standing the last vestiges of real, alpha not beta-focused, asset managers remain in this New Normal of ubiquitous central planning.

There have been quite a few stories comparing the post-WWII American economic "renaissance" with expectations that the same confluence of beneficial circumstances may repeat now, resulting in the same benign outcome. Many of these stories touch upon the key points debated in today's everyday politics: taxes, massive debt overhang, and the treatment of private business. Sadly, most of these stories are also just that: mythical representations of an idealized reality, which however have no analogy to what actually happened in the 1950s. In other words, none of the conditions that were in place in 1950 which allowed net US debt to decline from 80% of GDP to just 46% in one decade, are here now.

There are a number of cultural and governmental impediments to prosecuting WCCs. One of which is the corrupting influence of money to neuter regulations and to co-opt politically appointed regulators and prosecutors. Another is perception. Wealth in our country is equated with royalty or a high station in society, so people have a hard time seeing the white collar criminal as the deviant that he is. People have a hard time wanting to punish someone who looks nice, has nice clothes, drives a nice car, lives in a good neighborhood, went to a prestigious school, belongs to exclusive clubs, etc. vs. someone who does not have those things. If you're poor in this country, that's almost a crime in and of itself to some people. Conversely, rich people have all sorts of credibility, whether its deserved or not. Why should I listen to an actor about a topic that's not related to acting? Sure, he may have some interesting things to say, but he shouldn't be given automatic credibility on the subject and yet many people do just that. Romney became rich bankrupting companies and selling their assets and yet people look to him to "run our economy"? What politician can ever say that they can run an economy? The Soviets tried to do just that and look what happened to them.

Another reason WCCs may not be prosecuted is that individuals, organizations, governments, and even society at large may be vested in the criminal activity either wittingly or unwittingly.

There are various reasons why not only we at Zero Hedge are big fans of Hugh Hendry. One of them of course is his uncanny ability to not only tell the truth, but to bash his competitors faces into it (as Joseph Stiglitz so vividly recalls), even if it means running squarely against the consensus. The other reason are self-aware statements such as this one via the FT today: "What I found was that when I speak in person, and especially when it’s television and timing is so acute, it gives the impression that I am cavalier and, if you will, full of myself,” says Mr Hendry, speaking by phone from his office in Bayswater, central London." Hendry was obviously discussing his self-imposed media blackout which unlike other prominent financiers is not being used for book sales promotion purposes but appears quite genuine. It also means he won't get to collect $200/appearance fees as a guest contributor on CNBC but we digress. "The danger when people look at that from a distance is that they try to align that with the guy that they’ve just given $50m or $75m to and it’s not the same person." iI is sad that none of the other talking muppet heads and "daily pundits" who appear on financial comedy TV to merely blow smoke up assorted holes and talk their books, don't share Hendry's revelations a little more often.

When it comes to insight into what is on Ben Bernanke, nobody is quite as capable as the firm that runs not only the NY Fed, but virtually every other central bank in the world: Goldman Sachs. Below we present Jan Hatzius' thoughts on what to expect when Bernanke takes the stand at 10 am today when he delivers the first day of his semi-annual Humphrey Hawkins presentation to Congress. Many expect him to hint at more QE, and lately a tempest in a teapot (to use the parlance of our times) has erupted over the possibility that the Fed will lower IOER to 0 or even negative. Here is what Goldman has to say about that: "we do not expect an IOER cut at this time." In fact, Goldman is rather skeptical Bernanke will hit at much if anything, especially with bond yields already at record lows: after all, how much more frontrunning of the Fed's bond or MBS purchases is there? Instead look for much more grilling on the Fed's role in Lieborgate: congress is now realizing it is woefully behind its UK political cousins when it comes to reaping points from years of global Libor manipulation. More importantly, Maxine et al have finally finished all those "Libor for absolute corrupt idiots" books they ordered almost a month ago so they are truly prepared.

From the Treasury: "Here are the facts.  The Office of the Inspector General (OIG) recently released 11 investigative reports covering conduct that occurred as early as 2000.  In four cases, the OIG concluded that there was no evidence to support the allegations.  In one case, the misconduct was committed by a private citizen (a Treasury office was burglarized).  That leaves six cases in question.  Although any misconduct is unacceptable, this is a small number that does not fairly reflect a Department with tens of thousands of employees. None of the employees at issue were political appointees or senior officials, and there is absolutely no evidence of any pattern or trend."

On the last day of May, when we first learned via Bloomberg that there was even the scantest likelihood that JPM may have been massaging its CDS marks within the (London-based of course) CIO organization - the backbone of hundreds of billions in notional exposure, and thus a huge counterfeited benefit to trader bonuses and corporate earnings - we wrote, "The Second Act Of The JPM CIO Fiasco Has Arrived - Mismarking Hundreds Of Billions In Credit Default Swaps" in which we explained precisely how this activity would and did take place, precisely why other traders caught doing the same are on the verge of being thrown in jail, precisely why everyone else does it, and precisely why the biggest CDS self-reporting and client/banker owned-organization (this is where images of Libor should appear), MarkIt, may well be implicated in everything - very much in the same way that the BBA is the heart of Lie-borgate. Because unlike all other allegations of impropriety, most of which rely on Level 2 and Level 3 assets whose valuations are in the eye of the oh so very sophisticated beholder (in this case JPM) who has complex DCFs and speaks confidently when explaining marks to naive, stupid outsiders (in other words baffles with bullshit), when it comes to one of the last places where Mark to Market is still applicable and used: the OTC CDS market, and where daily P&L records are kept, it will take any regulator, enforcer, or criminal investigator precisely 1 minute to find out if there was fraud, or gambling, going on here. Most importantly, it opened up the firm to a criminal investigation. Which as Reuters reports, is precisely what has now happened.

Maybe I'd have more followers if I tore a page out of the BI playbook, but I think I'd rather try to keep following ZH's lead and just try to write well, succinctly, and - if possible - with a bit of novelty.

Those trigger happy US sailors are causing some diplomatic headaches again for Hillary Clinton who this time has no Syrian anti-aircraft missiles to blame, by firing on a friendly ship, killing one and injuring three, off the coast of Dubai. Per the AP: "A U.S. Consulate official in Dubai says an American vessel has fired on a boat off the coast of the United Arab Emirates, killing one person and injuring three. The official gave no further details, but it appears the boat could have been mistaken as a threat in Gulf waters not far from Iran's maritime boundaries. An Emirati rescue official confirmed the casualty toll. The officials spoke on condition of anonymity because of the sensitivity of the incident between the two allies. The U.S. Navy's 5th Fleet, which is based in Bahrain, said it was investigating the Monday shooting. The U.S. Embassy in Abu Dhabi had no immediate comment." So far so bad, but where it gets even worse is that over the weekend, Russia finally decided to make its own voice heard in the middle east, and after over a year of the west condemning Syrian "eradication" of its own insurgents and keeping Russia on the defensive, Russia has decided to shine a light on none other than America's favorite regional ally: Saudi Arabia, which as we reported recently, has once again taken to quelling religious protests in Qatif and other eastern cities. Apparently Russia has had enough of this one-sided reporting of regional "insurgencies."

By now it really, really should be obvious. While the insolvent "developed world" is furiously fighting over who gets to pay the bill for 30 years of unsustainable debt accumulation and how to pretend that the modern 'crony capitalist for some and communist for others' system isn't one flap of a butterfly's wings away from full on collapse mode, China is slowly taking over the world's real assets. As a reminder: here is a smattering of our headlines on the topic from the last year: ""World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees", 'The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap", and finally, "Chile Is Latest Country To Launch Renminbi Swaps And Settlement", we now get the inevitable: "Central bank pledges financial push in Africa." To summarize: first Asia, next Latin America, and now Africa.

Scandal After Scandal, Lie Upon Lie ... What's Going On?

As we wait anxiously for the not-too-hot and not-too-cold but just right GDP data from China this evening, we thought it instructive to get some sense of the reality in China. From both the property bubble perspective (as Stratfor's analysis of the record high prices paid just this week for Beijing property - by an SOE no less - and its massive 'microcosm' insight into the bubbliciousness of the PBOC's attempts to stave off the inevitable 'landing'); to the rather shocking insight that Diapason Commodities' Sean Corrigan offers that 'Hot Money Flows' have left China at a rates exceeding that during the worst of the Lehman crisis; take a range of key indicators – from electricity usage, to Shanghai container throughput, to nationwide rail freight ton-miles, to steel output – and you will notice that none of these shows a rate of growth during the second quarter of more than 4% from 2011, and some are as low as 1%. Whatever fictive GDP number we are presented with this week, the message is clear: “Brace! Brace! Brace!”