LIBOR

• The number of bond funds that own stocks has surged to its highest point in at least 18 years (WSJ)
• Clubby London Trading Scene Fostered Libor Rate-Fixing Scandal (WSJ)
• Cheap money bankrolls Wall Street's bet on housing (Reuters)
• Bank of Japan reveals concerns over easing policy (FT)
• iPads and low-end rivals propel higher tablet shipments  (Reuters)
• China Cyberspies Outwit U.S. Stealing Military Secrets (BBG)
• Draghi Fuels Bets on Rate Cut With Risk of Limited Impact (BBG)
• China guides renminbi to fresh high against US dollar (FT)
• Japan is preparing to start up a massive nuclear-fuel reprocessing plant (WSJ)
• Apple’s Ive Seen Risking iOS 7 Delay on Software Overhaul (BBG)
• UBS faces calls for break-up at investor meeting (Reuters)

As we reported well over a year ago coupled with some subsequent thoughts on what the inevitable launch of floating rate notes (FRNs) by the US Treasury means for the US bond market, we now learn that the launch of FRN Treasurys is imminent and the first US FRN note may come to the public as soon as a few months from now. As the Treasury's refunding statement issued moments ago announced, "we plan to issue a final rule on floating rate notes in the coming months, with the first FRN auction estimated to occur in either Q4 2013 or Q1 2014.  This timeframe reflects Treasury's best estimate for implementing required auction regulations and IT systems modifications. Treasury will provide additional information regarding the timing of the first auction at the August refunding."

The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix. Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.

• Reinhart and Rogoff: Responding to Our Critics (NYT)
• Differences with centre-right delay Italy's Letta (Reuters)
• Italy's Letta moves forward to shape government (Reuters)
• China’s leaders warn on financial risks (FT)
• Norway oil fund makes big move from bonds to stocks (FT) - worked wonders for the Bank of Israel
• Smuggling milk is the new smuggling heroin in HK: Milk Smugglers Top Heroin Courier Arrests in Hong Kong (BBG)
• RenTec's mean reversion models fail on BOJ lunacy: Yen Bets Don't Add Up for a Fund Giant (WSJ)
• From 'Fabulous Fab' to Grad Student (WSJ)
• BOJ in credibility test as divisions emerge over inflation target (Reuters)
• Boston Bombing Suspect Moved from hospital to prison (WSJ)
• Provopoulos Says ECB May Never Need to Use Bond-Buying Program (BBG) which is good because, legally, it doesn't exist

The paper price of gold crashed to $1,325 in the wake of this huge trade. It is now hovering around $1,400. Our first reaction is to suggest that this is only an aberration, and that the fundamentals of the depreciating value of paper currencies will eventually take the price of gold much higher, making it a buying opportunity. But what we can't predict is whether big players might again deliver short-term downturns to the market. The momentum in the futures market can make swings surprisingly larger than the fundamentals of currency valuation would suggest; but the fundamentals will drive the long-term market more than these short-term events. The fight between pricing from the physical market for bullion and that from the "paper market" of futures is showing signs of discrimination and disagreement, as the physical market is booming, while prices set by futures are seemingly pressured to go nowhere. In short, we think this is a strong buying opportunity.

The $20 billion gold futures sale and concentrated selling of gold futures on the COMEX on Friday and Monday is far more likely to be “nefarious” than the gold fixings in London. The CFTC’s track record to date has not been great and regulatory capture remains a real risk with the CFTC seeming to be reluctant to hold Wall Street banks who may be involved in price manipulation in the futures market to account. After the Libor revelations, it is surprising that there is not more scrutiny and hard questions asked of banks and regulators in this regard. Separately, large institutional fund manager Blackrock said that there was “no visible central bank activity” as the gold price plunged.  They said that gold's fundamentals remain strong and that the fall in price was driven by an outflow of "hot money" and that gold prices are now near the marginal cost of new supply which should provide strong support at these levels and lead to higher prices again. 

• Investigators hunt for clues in marathon bombing (Reuters)
• Investigators scour video, photos for Boston Marathon bomb clues (Reuters)
• 'Act of Terror' Kills at Least Three, Injures About 140 as Bombs Wreak Carnage on Marathon Crowd (WSJ)
• Brent Crude Below $100 (WSJ)
• Slower China Growth Signals Days of Miracles Are Waning (WSJ)
• Central Banks at Ease Limit Risk Political Backlash (BBG)
• Merkel plans to quit midterm, says author (FT)
• Monte Paschi Prosecutors Seize $2.3 Billion of Nomura Assets (Businessweek)
• Treasuries back on investors’ buy lists (FT)
• J.C. Penney Said to Seek Ways to Separate Real Estate for Cash (BBG)
• Climate scientists struggle to explain warming slowdown (Reuters)
• Putin Calls for Stimulus Plan After Recession Alarm (BBG)
• TIPS in Longest Selloff Since ’08 as U.S. Bancorp Cuts (BBG)

• Helicopter QE will never be reversed (Evans-Pritchard)
• Bank of Japan Launches Easing Campaign under new leadership (WSJ)
• Draghi Considers Plan B as Sentiment Dims After Cyprus Fumble (BBG)
• Spain threatened by resurgent credit crunch (FT)
• U.S. Dials Back on Korean Show of Force (WSJ)
• Gillard Urges Aussie Firms to Emulate German Deutschmark Success (BBG)
• Bank watchdog warns on retail branches (FT)
• Xi's Russia visit confirms continuity of ties (China Daily)
• Portuguese Government Survives No-Confidence Vote (WSJ)
• Mortgage rates set for fall, Bank of England survey shows (Telegraph)
• Russia’s bank chief warns on economy (FT)
• Fed member hints at summer slowing of QE3 (FT)

In the theory of rational expectations, human predictions are not systematically wrong. This means that in a rational expectations model, people’s subjective beliefs about the probability of future events are equal to the actual probabilities of those future events. Now, we think that rational expectations is one of the worst ideas in economic theory. It’s based on a germ of a good idea - that self-fulfilling prophesies are possible. Mainstream economic models often assume rational expectations, however. And if rational expectations holds, we could be in for a rough ride in the near future. Because an awful lot of Americans believe that a new financial crisis is coming soon - 75 percent of respondents said that it’s either very or somewhat likely that the country could have another financial crisis in the near future.

A day after former Cypriot President Vassilou was found to be among many elite Cypriot (politicians and businessmen) who had loans written-off by the major (now insolvent) banks; it appears the rot is far fouler than expected. In a somewhat stunning (or purely coincidental) revelation, ENETEnglish reports that Cypriot newspaper Haravgi claims that current President Nicos Anastasiades' family businesses transferred 'dozens of millions' from their Laiki Bank accounts to London just a week before the devastating depositor haircuts were unleashed upon his people. Of course, the denials are loud and Anastasiades has demanded an investigation into the claims; we are sure the government-selected 'independent' committee will be as thorough as the Libor anti-trust investigators. As a reminder, as we noted yesterday, here are Cyprus' gun control laws.

With all the recent chatter about an overhaul and dismantling of Too Big To Fail banks (spoiler alert: it will never happen, but it will take a lot of theater before that is made quite clear) many can be excused for believing the balance of power has shifted away from the megabanks (and their tens of trillions in over the counter derivative "weapons of mass financial destruction" so ably facilitating the Stockholm Syndrome of global mutual assured destruction with each passing day) and in the favor of the people, represented by the legislative and the judicial. Last night we got a quick reminder that absolutely nothing has changed in the true lay of the land, that the adjusted golden rule is still in place (yes, the banks still have all the gold and set all the rules), and that banks are still the undisputed rulers of the land when U.S. District Judge Naomi Reice Buchwald agreed to dismiss claims that the 16 banks targeted by various LIBOR lawsuits broke federal antitrust laws. In so ruling, the potential cost to the banks from an adverse overall resolution would be crippled. The ruling also is likely to reduce the financial inventive for new plaintiffs to join investors, cities, lenders and other parties that have already filed lawsuits.  In brief, the banks won again just when it mattered, just when it seemed they may, for once, be on the defensive, and just when the concept of accountability and responsibility for years of conspiratorial and criminal collusion to manipulate a rate impacting hundreds of trillions of IR-sensitive instruments, was about to rear its ugly head. Because in the New Normal crime and punishment is simply a book by Dostoyevsky.

• What bread... What circuses... JPMorgan Chase Faces Full-Court Press of Federal Investigations (NYT)
• European Regulators to Charge Banks Over Derivatives (WSJ) ... but forgive us if we don't hold our breath
• Cyprus readies capital controls to avert bank run (Reuters)
• Damage ripples through Cypriot economy (FT)
• G4S readies guards as Cypriot banks prepare to open (Reuters)
• Global pool of triple A status shrinks 60% (FT)
• Customers Flee Wal-Mart Empty Shelves for Target, Costco (BBG)
• BOE Says U.K. Banks Have Capital Shortfall of $38 Billion (BBG)
• U.K. Banks Facing Capital Shortfall (WSJ)
• Cyprus Details Bank Revamp (WSJ)
• Kazumasa Iwata Joins Kuroda Naysayers as BOJ to Meet (BBG)
• BRICS Nations Need More Time for New Bank, Russia Says (BBG)

• Euro zone call notes reveal extent of alarm over Cyprus (Reuters)
• Stagnant Japan Rolls Dice on New Era of Easy Money (WSJ)
• Cyprus, European data batters shares and euro (Reuters)
• UK cuts taxes to revive stagnant economy (FT)
• "Quality Control" Rat Body Linked to Blackout at Fukushima (NYT)
• North Korea issues fresh threat to U.S., South probes hacking (Reuters)
• South Korea Says Chinese Code Used in Computer Attack (BBG)
• Osborne paves way for Carney to retool Bank of England (Reuters)
• Carney Gets ‘Escape Velocity’ Mandate With Limiter (BBG)
• Osborne Pledges Five More Years of U.K. Austerity (BBG)
• Bernanke Saying He’s Dispensable Suggests Tenure Ending (BBG)
• Senate Passes Bill to Fund Operations (WSJ)

• Cyprus works on Plan B to stave off bankruptcy (AP)
• Cyprus seeks Russian bailout aid, EU threatens cutoff (Reuters)
• Freddie Mac Sues Multiple Banks Over Libor Manipulation (BBG)
• Bernanke Seen Keeping Up Pace of QE Until Fourth Quarter (Bloomberg)
• Italian president seeks way out of political stalemate (Reuters)
• Chinese factories struggle to keep staff (FT)
• South Korean banks, media report network crash (CBC)
• BlackBerry Inventor Starts Fund to Make Star Trek Device Reality (Bloomberg)
• Osborne Should Be Fired, Voters Say in Pre-Budget Poll (Bloomberg)
• Obama Begins First Visit to Israel as President (WSJ)
• Anadarko finds ‘potentially giant’ oilfield (FT)
• Britain's Osborne boxed in by austerity on budget day (Reuters)
• MF Global reaches agreement with JPMorgan (FT)

• Cypriot Bank Levy Is ‘Ominous’ for Bondholders, Barclays Says (BBG)
• Euro, Stocks Drops; Gold, German Bonds Rally on Cyprus (BBG)
• Total chaos:Cyprus tries to rework divisive bank tax (Reuters)
• More total chaos: Cyprus Prepares New Deposit-Tax Proposal (WSJ)
• Euro Slides Most in 14 Months on Cyprus Turmoil; Yen Strengthens (BBG)
• Osborne to admit fresh blow to debt target (FT)
• Even the Finns are giving up: Finnish Government May Relinquish Deficit Target to Boost Growth (BBG)
• Moody’s Sees Defaults as PBOC Warns on Local Risks (BBG)
• Australia Faces ‘Massive Hit’ to Government Revenue, Swan Says (BBG)
• Inside a Warier Fed, Watch the New Guy (Hilsenrath)
• Obama to Tap Perez for Labor Secretary (WSJ) - and with that the "minorities" quota is full
• Finally, this should be good: BuzzFeed to Launch Business Section (WSJ)