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Following closely on the heels of our recent (now must read) discussion of the potential illegality of Draghi's OMT, Reuters is reporting the somewhat stunning news that the ECB and Bundesbank are getting lawyers to check the legality of the new bond-buying program. Germany's Bild newspaper - via the now ubiquitous unnamed sources - said in-house lawyers were checking both what proportions the program would have to take on and how long it would have to last for it to breach EU treaties (that specifically ban direct financing of state deficits). While Draghi - full of bravado - likely said whatever he felt was necessary at the time to stop the inversion in the Spanish yield curve, it is becoming clearer that, as usual, the premature euphoria (in the complacent belief that central banks can solve every problem with a wave of the magic CTRL-P wand) was misplaced. Bild goes on to note that this matter could be referred to the European Court of Justice - and the ECB/Buba were preparing for such an event. Of course, since every other rumor in recent months, most of which have originated in credible media, has proven to be a lie, it is likely this is also merely leaked disinformation to push the German case, i.e. anti-Europe.

Imagine if the world found out that China’s growth and recovery post 2008 were largely based on fraudulent data and garbage development projects fueled by easy money and rampant corruption on the part of Chinese officials?

Anyone who thought that anti-Japan protests would quietly go away on the 81st anniversary of the Japanese invasion of Manchuria may have to reevaluate. First, overnight the HKEJ said that China is preparing economic sanctions against Japan, and as the situation again escalates, Reuters reports that at least two of 11 Chinese ocean surveillance and fishery patrol ships sailing near East China Sea islets claimed by both Tokyo and Beijing have entered what Japan considers its territory, public broadcast NHK said on Tuesday, quoting Japan's Coast Guard. Subsequently, NHK reported that "a Chinese fisheries patrol ship has departed after approaching Japan's territorial waters off the Senkaku Islands in the East China Sea. The Japan Coast Guard remains on the alert, saying the Chinese vessel may enter the area again. The Coast Guard spotted the boat some 43 kilometers north-northwest of the largest island, Uotsuri, early Tuesday morning. The Coast Guard confirmed the boat had left the area before 10:30 AM. It said at around 11:10 AM, the vessel again approached Japan's territorial waters off another island and left soon afterward. In response to warnings from Japan's Coast Guard, the Chinese vessel replied the islands are inherent Chinese territory and that its mission is legitimate." Watch this space carefully, especially once the Chinese armada of 1000 fishing boats, which is already en route to Senkaku, engages in a stand off with Japanese battleships: "China's state-run radio has reported 1,000 fishing boats have left the provinces of Zhejiang and Fujian for waters near the Senkaku Islands. But Japan's Coast Guard says it has not yet spotted a large fleet in the area." It will quite soon. Elsewhere, sentiment across mainland China is getting the opposite of better, fast.

Suddenly the delicate balancing of variables is once again an art and not a science, ahead of a week packed with binary outcomes in which the market is already priced in for absolute perfection. Per DB: We have another blockbuster week ahead of us so let's jump straight into previewing it. One of the main highlights is the German Constitutional Court's ruling on the ESM and fiscal compact on Wednesday. On the same day we will also see the Dutch go to the polls for the Lower House elections. Thursday then sees a big FOMC meeting where the probabilities of QE3 will have increased after the weak payrolls last Friday. The G20 Finance Ministers and Central Bank Governors will meet on Thursday in Mexico before the ECOFIN/Eurogroup meeting in Cyprus rounds out the week on Friday. These are also several other meetings/events taking place outside of these main ones. In Greece, PM Samaras is set to meet with representatives of the troika today, before flying to Frankfurt for a meeting with Draghi on Tuesday. The EC will also present proposals on a single banking supervision mechanism for the Euro area on Tuesday. If these weren't enough to look forward to, Apple is expected to release details of its new iPhone on Wednesday. In summary, it will be a good week to test the theory that algos buy stocks on any flashing red headlines, no longer even pretending to care about the content. Think of the cash savings on the algo "reading" software: in a fumes-driven market in which even the HFTs no longer can make money frontrunning and subpennyiong order flow, they need it.

While there is still some debate whether the proper alternative nomenclature of the Greek ultranationalist party Golden Dawn is "neo-nazi", there is no debate that the party, which is a manifestation of every broken Greek hope and dream, after posting a shocking result in the recent Greek parliamentary election which saw it coming in fifth and entering parliament after, continues to soar in popularity and is now the third most popular party in Greece with 12% of the vote. Above it are only two other parties: the conservative New Democracy which won the June elections with 29.6% of the vote, which is now down to 28%, and on top, in an ominous development for EUR-bulls, is the anti-bailout and anti-memorandum leftist coalition Syriza, which has threatened to end the bailout, and effectively to take Greece out of the Eurozone, setting off the much dreaded dominoes.

There are two key events in the coming week: first, on September 12, is the decision of the German Constitutional Court, aka the Krimson Kardinals of Karlsruhe, whether the ESM, or the ECB's primary market bond monetization program, is legal. A no vote would severely cripple the European "make it up as you go along" bailout and leave Europe's peripheral nations with little recourse, and Spain with even less cash as it faces a wall of bond maturities in both October and 2013. Then, on Thursday, the Federal Reserve will most likely underwhelm the market which is expecting a new substantial round of outright Asset Purchases, aka NEW QE, which however as we explained will almost certainly not occur due to various reason first described here last Friday. A third, and perhaps far more important event, will be the Dutch parliamentary election also on September 12, but more on that in a further post. For now, looking at Germany, and the piecemeal attempt to put back together the European house of monetary cards, we find that in Germany - the country taksed with funding the European implosion - the population has decided, by a 2 to 1 margin - that the constitutional court should just say "nein" to the ESM, and let Europe go on its merry way without German backing (because as a reminder, the primary source of ESM funding is Germany). From Spiegel: "A survey shows that the majority of Germans hope that the judges in Karlsruhe reject the permanent rescue fund ESM. 54% want a reversal of the Bundestag decisions on the ESM and Fiscal Pact, which should be legally halted. Only 25% believe that the court should dismiss the urgent appeals of the Euro-skeptics."

It took the ECB a year of endless behind the scenes Machiavellian scheming to restart the SMP program (which was conceived by Jean-Claude Trichet in May 2010, concurrent with the first Greek bailout). The markets soared with euphoria that this time will be different, and that the program which is a masterclass in central planning paradox, as it is "unlimited" yet "sterilized", while based on "conditions" none of which have been disclosed, and will somehow be pari passu for new bond purchases while it retains seniority for previous purchases of Greek and other PIGS bonds, will work - it won't, and the third time will not be the charm as we showed before. Yet it has been just 48 hours since the "bailout" announcement and already Europe is being Europe: namely, it turns out that nobody wants the bailout.

I was recently interviewed by a journalist for a local newspaper who was developing a story on the exponential rise of the “prepper lifestyle” in America, most especially in Western Montana.  Being an outsider to the Liberty Movement, she was naturally curious as to what motivated us to make what some in our culture would see as a drastic and bewildering leap away from the mainstream.  She was equally fascinated with our willingness to travel great distances and make substantial sacrifices to live in regions like the American Redoubt.  I will not deny, Montana has indeed become a “hotbed” of survivalism and Constitutionalism, or what the Southern Poverty Law Center would call “extremism and domestic terrorism”.  I lived in Pittsburgh for years while writing for Neithercorp and Alt-Market and rarely ran into like minded individuals aware of the tenuous status of our society.  Within days of moving to Montana, I was being recognized by complete strangers in supermarkets excited to discuss the inner workings of Keynesian monetary corruption, precious metals investment, and Alinsky disinformation tactics.  Yeah…I know…it’s weird. After living for a while in the Redoubt, you begin to forget that there are still many people in this country that are utterly oblivious to the epic dangers around them, as well as painfully helpless in knowing what to do when those dangers land on their doorsteps.  Speaking with the newspaper reporter, and my experiences at Paulfest in Tampa, Florida, reminded me that the world has yet to be reminded of the value of survivalism.  There is still a gap, a disconnect, a psychological twitch of the masses, and it compels me to explain, yet again, what they are missing.

Now that oil’s price revolution – a process that took ten years to complete – is self-evident, it is possible once again to start anew and ask: When will the next re-pricing phase begin? Most of the structural changes that carried oil from the old equilibrium price of $25 to the new equilibrium price of $100 (average of Brent and WTIC) unfolded in the 2002-2008 period. During that time, both the difficult realities of geology and a paradigm shift in awareness worked their way into the market, as a new tranche of oil resources, entirely different in cost and structure than the old oil resources, came online. The mismatch between the old price and the emergent price was resolved incrementally at first, and finally by a super-spike in 2008. However, once the dust settled on the ensuing global recession and financial crisis, oil then found its way to its new range between $90 and $110. Here, supply from a new set of resources and the continuance of less-elastic demand from the developing world have created moderate price stability. Prices above $90 are enough to bring on new supply, thus keeping production levels slightly flat. And yet those same prices roughly balance the continued decline of oil consumption in the OECD, which offsets the continued advance of consumption in the non-OECD. If oil prices can’t fall that much because of the cost of marginal supply and overall flat global production, and if oil prices can’t rise that much because of restrained Western economies, what set of factors will take the oil price outside of its current envelope?

There is only one event on pundits and traders minds today: the ECB's press conference, during which Draghi will announce nothing material, as the substance of the bank's message has been leaked, telegraphed and distributed extensively over the past three weeks before just to gauge and test the market's response as every part of this latest "plan", which is nothing but SMP-meets-Operation "Tsiwt" was being made up on the fly. And not even a weaker than expected Spanish short-term auction in which €3.5 billion in 2014-2016 bonds were sold at plunging Bids to Cover, sending yields paradoxically spiking just ahead of what the ECB should otherwise announce will be the buying sweet spot, can dent the market's hope that Draghi will pull some final detail out of his hat. Or any detail for that matter, because while the leaks have been rich in broad strokes, there has been no information on the Spanish bailout conditions, on how one can use "unlimited" and "sterilized" in the same sentence, and how the ECB can strip its seniority with impairing its current holdings of tens of billions in Greek bonds without suddenly finding itself with negative capital. Elsewhere, the Swedish central bank cut rates by 25 bps unexpectedly: after all nobody wants to be last in the global currency devaluation race. Ironically, just before this happened, the BOJ's Shirakawa said that he won't buy bonds to finance sovereign debt: but why? Everyone is doing it. Finally, in news that really matters, and not in the "how to extend a ponzi by simply diluting the purchasing power of money" category, Greek unemployment soared to 24.4% on expectations of a rise to "just" 23.5%. This means there was an increase of 1.3% in Greek unemployment in one month.

Gold’s seasonality is seen in the above charts which show how March, June and October are gold’s weakest months with actual losses being incurred on average in these months. Buying gold during the so-called summer doldrums has been a winning trade for most of the last 34 years. This is especially the case in the last eight years as gold averaged a gain of nearly 14% in just six months after the summer low. We tend to advise a buy and hold strategy for the majority of clients. For those who have a bit more of a risk appetite, an interesting strategy would be to buy at the start of September, sell at end of September and then buy back in on  October 31st. 

Confirming that the ECB soap opera must go on, German Bild reports overnight that Bundesbank head, and most vocal critic of Goldman's pro-inflationary European policy, conducted by the firm's Italian alum Mario Draghi, last week considered joining other such German luminaires as Axel Weber and Jurgen Stark in following the red Egress signs at the Bundesbank headquarters, ironically located in downtown Frankfurt. From Bild: "In recent weeks, Bundesbank President Jens Weidmann has repeatedly seriously considered his resignation." Citing unnamed sources, which is merely a polite way of denying the other side's just as credible "unnamed sources", Bild says Weidmann discussed the possible resignation with the Bundesbank's board. Bild condludes that Weidmann has decided against resignation for now because hwants to fight against the ECB’s bond-purchasing program at next week’s meeting, and that the German government has urged Weidmann to remain in post. In other words, just as has been expected all along Merkel may say this, or that, but in the end she will adamantly fight Goldman and its inflation spreading tentacles in Europe as long as she has to (with recent German data of accelerating inflation and unemployment merely helping her cause).

"We accept the world as it is presented to us. If True American really wished to discover the truth, I would be unable to prevent him from doing so. But he is much happier in my artificial world than he would be in the real world. Since there are so many painful consequences to seeking the truth, he quite rightly prefers to live in my artificial world."

Simple equation:free, open uncontrollable Internet versusshackled newspapers equals no newspapers. Let's get real.

— Rupert Murdoch(@rupertmurdoch) August 26, 2012

A beautiful post from Murdoch disclosing fully and unashamedly the big media agenda; the use of state power to shut down more efficient and better competition. Newspapers can survive by being creative and compelling, Murdoch. Just because your revenues are nosediving doesn’t mean that we should all lose our freedom to pay for your success.

It is one thing for various anti-Central Planning (and thus central bank) outlets to warn, over 3 years ago, that easy monetary policy is merely an enabling substance, and is addictive as any drug to a dysfunctional political establishment which is more than happy to avoid fiscal prudence if monetary policy is readily available to delay the inevitable day of reckoning when monetizing the debt will no longer work. It is a different matter entirely when the head of the world's only solvent central bank -  the German Bundesbank, which happens to be the biggest guarantor of that other mega hedge funds the ECB, and which of all developed economies also happens to have had the closest recent encounter with hyperinflation (unlike all the "other" theoretical experts who enjoy talking extensively about matters they have zero experience with). In an interview with German Spiegel magazine, Buba head Jens Weidmann, once again has loudly warned what as recently as 2009 very few dared to even think: namely that rampant and gratuitous deficit plugging using central bank debt issuance, and thus explicitly monetizing the debt, "can be addictive as a drug." Obviously, like any drug overdose, the aftereffects are always fatal.