Salient

Having recently acquired important stakes or out-right ownership of major Canadian energy firms, Chinese companies are now continuing their penetration of Canada's energy sector by targeting the juniors. In particular, the Saskatchewan-based producer Novus Energy announced this week its agreement to be acquired for $320 million by Yanchang Petroleum International Ltd. Novus is a junior oil and gas company that targets light oil resource plays in Western Canada. Its assets are concentrated in the Viking Formation, a lithological unit in central and eastern Alberta and adjacent west-central Saskatchewan, as well as in southeastern and east-central Saskatchewan. The Viking Formation is well delineated with low-risk reserves including large amounts of "original-oil-in-place". The company plans to employ improved horizontal drilling and multi-stage hydraulic fracturing in order to increase recovery and diminish development costs. The deal follows by five months the visit by Canadian Trade Minister Ed Fast to Beijing, where he officially confirmed that Ottawa would welcome further continued investment from Chinese energy companies, even after the US$15.1 billion acquisition of the oil-sands operator Nexen.

UPDATE: The entire Boehner-based drop has been retraced. It would appears that one should sell on war but buy on even moar war... which makes some idiotic sense since a longer-protected episode will indeed provide the deficit surging room for moar QE.

It seems perhaps Senator McCain missed the most salient (surgical strike, non-regime-change) points of John Kerry's compelling case yesterday and has decided that:

US REPUBLICAN SENATOR JOHN MCCAIN SAYS DOES NOT BACK SENATE PANEL DRAFT RESOLUTION AUTHORIZING USE OF FORCE IN SYRIA

Maybe in order to deter McCain's strategy of going in blind "all in", raising all the way to nothing short of WWIII, someone should advise the confused presidential candidate he is no longer playing poker on his iPhone

The conclusions I have come to are somewhat threatening in the short term, but even more disconcerting in the intermediate term, as the developing image is exposing a crystal clear picture of the ominous resource wars looming directly ahead. Equally dismaying, are the "honorable distinguished gentlemen" presiding over this Middle East mayhem, which are showing themselves to be either grossly incompetent cretins or dangerous duplicitous megalomaniacs

History is very clear: societies that organize themselves around a tiny elite who thinks they should control the entire system suffer a 100% failure rate, without exception. Today’s system shares similar fundamentals to nearly every other case of failed empire. And it’s foolish to think that this time will be any different.

German Federal Office for Security in Information Technology: "Loss of Control Over the Operating System and the Hardware"

Characterizations of the invesmtent climate.  

While hardly news to frequent visitors, especially those who recall the following list, anyone who needs a 7 minute refresher into why the US middle class is on collision course with extinction is urged to watch the following brief video which highlights all the salient facts such as:

• 76% of Americans live paycheck to paycheck
• 27% of American have no savings at all
• 46% of Americans have less than $800 in savings
• The conversion of America into a part-time working society and the country's second largest employer - a temp agency.
• The college trap and the student loan bubble
• And of course, foodstamps, foodstamps, foodstamps and the nearly 50 million poverty-level Americans who need them to survive

Why seven minutes? Because everyone knows that just like you can't get "six minute abs", so it is impossible to recap the doom of America's middle class in only six minutes (or, gasp, less).

The USA is veering into a psychological space not unlike the wilderness-of-mind that Germany found itself in back in the early 20th century: the deep woods of paranoia where our own failures will be projected onto the motives of others who mean to do us harm. The USA cannot come to terms with the salient facts staring us in the face: that we can’t run things as we’ve set them up to run. We refuse to take the obvious actions to set things up differently. That disorder has infected our currency and the infection is spreading to all currencies. The roar you hear in the distance this September will be the sound of banks crashing, followed by the silence of business-as-usual grinding to a halt. After that, the crackle of gunfire.

“There is no cure for high prices, like high prices.” This is why the Middle East can never truly have a prolonged supply shortage. They will price their customers out of the market!

The catch 22 is that the Fed cannot exit now without markets and asset classes free-falling with markets at hundred year highs!

Cutting through the noise of JPM's earnings, here are the salient facts: the company beat the bottom line expectation of $1.45 with an $1.60 ex-DVA print. However, this number included the now traditional "puffery" benefit from loan loss reserve releases, specifically $950MM pretax ($0.15 EPS) from mortgage loan loss reserves and $550MM pretax ($0.09) from credit cards. Additionally, the company reserved a whopping $600 million for litigation, or about $0.09, and according to the firm this should be backed out from the bottom line. Of course, that assumes the litigation against JPM will not be an ongoing, non-onetime event. In other words, ex-releases, JPM misses, however it was right in line if one assumes the litigation reserve was indeed one-time. In summary, the firm had a total of $19.4 billion in loan loss reserves and the release of $1.4 billion was the biggest since Q3 2012. What is worse going forward was the slide in Mortgage Production pretax income which was $582mm, down a whopping $349mm YoY, "reflecting lower margins and higher expense, partially offset by higher volumes and lower repurchase losses." For those curious how the rate spike has impacted JPM, here it is: mortgage originations down 7% Q/Q, and firmwide it dropped to $52 billion. But perhaps the worst news is that despite the dramatic spike up in yields at the end of the quarter, JPM reported a Net Interest Margin that in Q2 was the lowest ever, dropping to just 1.05% on a market-based basis, the firm's defined NIM slid to 2.20%.

The first of three Fed speeches is out, and as expected, it contains nothing new save for the ongoing barage of stock market battering for daring to sell on last week's Bernanke warnings that the Fed's monthly flow is set to begin tapering in September. It continues to be as if the Fed is shocked to learn that nothing else matters in this "economy" and, of course, "market" than what the Fed will do and say.

Few others are better equipped to comprehend both the insider's and outsider's perspective on what the government, the Fed, and the banks are doing in this so-called 'recovery' we are experiencing than David Stockman. Nowhere does he detail this better than Chapter 31 of his new book 'The Great Deformation'. In this first part (of a five-part series), he explains just what happened after the US economy liquidated excess inventory and labor and hit its natural bottom in June 2009. Embarking upon a halting but wholly unnatural "recovery," doing nothing but igniting yet another round of rampant speculation in the risk asset classes. The precarious foundation of the Bernanke Bubble is starkly evident in the internal composition of the jobs numbers.

At some point, the Millennial generation will have to awaken to the fact that the only way to change its fate is to grasp political power and redirect the policy and mindset of the nation. Centralization is the black hole that is destroying the nation's social and economic vigor. Decentralization, transparency, accountability, adaptability, social innovation, a community-based economy - these are the key features of a sustainable social order. The existing social and financial order is crumbling because it is unsustainable on multiple levels. The Status Quo will cling to its false promises and corrupt centers of power until the moment the whole thing implodes. The central state is not the Millennials' friend, it is their oppressor.

While stocks could continue to climb higher that does not mitigate the underlying risks. In fact, it is quite the opposite. It is very likely that we are creating one, or more, asset bubbles once again. However, what is missing currently is the catalyst to spark the next major correction. That catalyst is likely something that we are not even aware of at the moment. It could be a resurgence of the Eurocrisis, a banking crisis or Japan's grand experiment backfiring. It could also be the upcoming debt ceiling debate, more government spending cuts, or higher tax rates. It could even be just the onset of an economic business cycle recession from the continued drags out of Europe and now the emerging market countries. Regardless, at some point, and it is only a function of time, reality and fantasy will collide. The reversion of the current extremes will happen devastatingly fast. When this occurs the media will question how such a thing could of happened? Questions will be asked why no one saw it coming.