LIBOR

• Gunman kills 14 in Denver shooting at "Batman" movie (Reuters)
• Full retard meets Math for Retards: Spain Insists $15 Billion Aid Need for Regions Won’t Swell Debt (Bloomberg)
• World braced for new food crisis (FT)
• Banks in Libor probe consider group settlement (Reuters)
• U.S. banks haunted by mortgage demons that won't go away (Reuters)
• Ireland Bulldozes Ghost Estate in Life After Real Estate Bubble (Bloomberg)
• China will not relax property control policies (China Daily)
• Russia, China veto U.N. Security Council resolution on Syria (Reuters)
• Kim to reform North Korean economy after purge (Reuters)

Consumers are paying an easy $35 dollars per barrel over what they would otherwise dole out for a barrel of oil if fund managers didn`t use the benchmark futures contracts as their own personal ATMs.

The subject of revolution is a touchy one.  It’s not a word that should be thrown around lightly, and when it is uttered at all, it elicits a chaotic jumble of opinions and debates from know-it-alls the world over.  The “R” word has been persona non grata for quite some time in America, and until recently, was met with jeers and knee-jerk belligerence.  However, let’s face it; today, the idea is not so far fetched.  We have a global banking system that is feeding like a tapeworm in the stagnant guts of our economy.  We suffer an election system so fraudulent BOTH sides of the political spectrum now represent a hyper-rich minority while the rest of us are simply expected to play along and enjoy the illusion of choice.  We have a judicial body that has gone out of its way to whittle down our civil liberties and to marginalize our Constitution as some kind of “outdated relic”.  We have an executive branch that issues special orders like monarchical edicts every month, each new order even more invasive and oppressive than the last.  And, we have an establishment system that now believes it has the right to surveil the citizenry en masse and on the slightest whim without any consideration for 4th Amendment protections. Unless tomorrow brings a miraculous shift in current totalitarian trends, revolution may be all we have left...

Market-top economics could be an entire university course, if people cared enough about such phenomena.  Most only consider the signs of a market top months or years after a crash when some unyielding economics researcher puts the pieces together.  As human-beings we have developed an uncanny ability to rationalize what we know to be bad news and convince ourselves, "This time is different," despite the fact that it usually never is. In a previous article we provided analysis on economic/equity decoupling (cognitive dissonance) and showed that the economy as we know it cannot persist--we are either due for a literal gap-up in leading economic conditions, or we are due for a serious correction in US equities.  With today's 5.4% slip in existing home-sales, let's go with the latter.

Sometimes you just have to laugh, and with the ongoing debacle of Liebor - it's even more true as now the Swiss hedge fund community is dragged into the miasma - or else you'll cry. As the conspiracy theories morph into conspiracy fact, who better to explain that LIBOR is not the "mythical half wild-bore, half lion that was rumored to have killed Achilles' brother Jimmy" but is the "benchmark for all money-lending on errr, let's say Earth", than The Daily Show's Jon Stewart. From the concrete evidence that banks deliberately manipulated the world's most important interest rate - for the good of themselves. As Jon says, "never trust anything that rhymes with wankers". How did they do it? and what will the fallout be?

In an exclusive report Zero Hedge yesterday presented the connection between the 16 BBA member banks, and something far more sinister: the sleepy, quiet (just as they want it) universe of Swiss hedge funds and private banks. One of our key focuses was on a gentleman named Michael Zrihen. We said: "So allegedly Zrihen, who now works in Geneva (keep a note of this), manipulated Libor at CA, and is now at Lombard Odier - "Geneva's oldest firm of private bankers and one of the largest in Switzerland and Europe." There is no news on whether Zrihen has been let go by Lombard Odier. Yet." We now have news. As of moments ago:

• LOMBARD ODIER SAYS MICHAEL ZRIHEN `NO LONGER TRADING'
• LOMBARD ODIER SAYS ZRIHEN JOINED THE FIRM IN DEC 2010
• LOMBARD ODIER SAYS HAS NO ROLE IN EURIBOR, LIBOR SUBMISSIONS

As a reminder, this is just the tip of the Swiss Liebor rabbit hole. Many more hedge funds will be implicated.

China has proposed to broaden trading of precious metals in its local market in order to help China become a "major gold trading centre" (see News). The Wall Street Journal was briefed about China's plans by "a person involved with the matter." The paper reports that "the move could increase liquidity and help Beijing gain stronger pricing power for key commodities like gold". China is the largest consumer and now the largest producer of gold in the world and has aspirations to become a major gold trading center on a par with London and New York. China is also the fifth largest holder of gold reserves in the world after the U.S., Germany, France, Italy. Chinese officials have spoken of China’s aspirations to have gold reserves as large as the U.S. in order to help position the yuan or renminbi as a global reserve currency. Indeed, it would be only natural for China to aspire to have their currency become the global reserve currency in the long term. In the longer term, being a major gold trading center would make China a more powerful financial and economic player and indeed could allow them to influence commodity and other important market prices. Indeed, Reuters reported that becoming a major gold trading center "would boost the country's clout in setting global prices".

• U.S drought wilts crops as officials pray for rain (Reuters)
• Obama backs aid for drought farmers (FT)
• Greek leaders identify two-thirds of spending cuts (FT)
• Central bankers eyeing whether Libor needs scrapping (Reuters)
• Markets Face a Life Sentence of Hard Libor (WSJ)
• World Bank chief warns no region immune to Europe crisis (Reuters)
• China big four banks' new loans double in early July (Reuters)
• Nokia Loss Widens as Smartphone Sales Slump (WSJ)
• Bundesbank Expected To Buy Australian Dollars In 3Q (WSJ)

In retrospect, this may be one of the funnier "research" notes to have come out of Barlcays in the past 5 years.

A bank clerk who dreamed of becoming a model stole £46,000 from the tills — and spent it on plastic surgery and shopping sprees. Rachael Claire Martin, 24, used the cash to fund a boob job, dental work and liposuction, as well as hair extensions and nights out. Steal thousands from a bank? You face criminal charges, a trial and jail time.

When that same bank manipulates a $600 trillion market by rigging the LIBOR rate for profit? No criminal charges, no trial, no jail time.

We hope she achieves her dream of becoming a model. And We hope the LIBOR-riggers spend a very long time in jail — but in reality there’s not much chance of that.

That Lieborgate is about to spill over and take down many more banks is well known: as previously reported that the world's biggest bank Deutsche Bank, has become a rat for the Liebor prosecution having turned sides. The reason: "Under the leniency programs of the EU, companies may get total immunity from fines or a reduction of fines which the anti-trust authorities would have otherwise imposed on them if they hand over evidence on anti-competitive agreements or those involved in a concerted practice." However, just like in the case of Barclays (with Diamond), JPM (with Bruno Iksil), UBS (with Kweku) and Goldman (with Fabrice Tourre), there always is a scapegoat. Today we find just who that scapegoat is. From Bloomberg: "Regulators are investigating the possible roles of Michael Zrihen at Credit Agricole, Didier Sander at HSBC and Christian Bittar at Deutsche Bank, the person said on condition of anonymity because the investigation is ongoing. The names of the banks and traders were reported earlier today by the Financial Times." Of course, as so very often happens, the link between the investigated firm, and the person in question no longer exists - after all what better brute way to tie up loose ends, than to fire the person in question at some point in the past: "Michael Golden, a spokesman for Deutsche Bank, confirmed that Bittar left the bank last year and declined to comment on the investigation." And since neither Bloomberg, nor the earlier FT article have any discussion of just where Mr. Bittar ended up, knowing quite well there is very likely a full-scale investigation forming into his Libor transgressions. The first place we went to, naturally, was LinkedIn, not because we expected to find his profile there: very few higher echelon bankers actually post their resumes on LinkedIn, but because we were fairly confident that the very useful function of seeing whose other profiles had been looked at in the context of even a "fake" Bittar, would provide us with clues. Sure enough that's precisely what happened.

Libor is not a market determined interest rate, rather it is a trimmed mean from a survey of banks participating in a survey conducted on behalf of the British Bankers Association (BBA). There are a number of problems inherent in the survey-based Libor calculation. Chairman Bernanke was asked in testimony several times yesterday whether Libor should be dropped as a benchmark interest rate. His answer was Libor should be repaired or some market determined interest rate should be embraced as an alternative. He offered up 2 market-determined replacement possibilities for Libor: (1) Repo Rates; and (2) OIS rates. Both are market determined interest rates, but neither in our minds captures the essence of what Libor is supposed to measure. Stone & McCarthy's preference for a Libor alternative would simply be the eurodollar rate.

From UBS: "We think that a creditor nation is less at risk of hyperinflation than a debtor nation, as a debtor nation relies not only on the confidence of domestic creditors, but also of foreign creditors. We therefore think that the hyperinflation risk to global investors is largest in the US and the UK. The more the fiscal situation deteriorates and the more central banks debase their currencies, the higher the risk of a loss of confidence in the future purchasing power of money. Indicators to watch in order to determine the risk of hyperinflation therefore pertain to the fiscal situation and monetary policy stance in high-deficit countries. Note that current government deficits and the current size of central bank balance sheets are not sufficient to indicate the sustainability of the fiscal or monetary policy stance and thus, the risk of hyperinflation. The fiscal situation can worsen without affecting the current fiscal deficit, for example when governments assume contingent liabilities of the banking system or when the economic outlook worsens unexpectedly. Similarly, the monetary policy stance can expand without affecting the size of the central bank balance sheet. This happens for example when central banks lower collateral requirements or monetary policy rates, in particular the interest rate paid on reserves deposited with the central bank. A significant deterioration of the fiscal situation or a significant expansion of the monetary policy stance in the large-deficit countries could lead us to increase the probability we assign to the risk of hyperinflation."

There is a strange delayed reaction between the initial exposure of weakness in the financial system and the public’s realization of the truth, sort of like Wile E. Coyote dashing off a cliff in the cartoons only to continue running in mid-air above the abyss below.  It is a testament to the fact that beyond the math, there is an undeniable power of psychology in our economy.  The investment world naively believes it can fly, even with the weight of endless debt around its ankles, and for a very short time, that pure delirious oblivious belief sustains the markets.  Eventually, though, gravity always triumphs over fantasy…

The Financial Services Authority (FSA) primary role is to make retail markets for financial products and services work more effectively, and so help retail consumers to get a fair deal. In June 2006, the FSA created its Retail Distribution Review (RDR) programme which they are enacting in order to enhance consumer confidence in the retail investment market. The RDR has a target for full-implementation of 31 December 2012. The RDR is expected to have a significant impact on the way in which financial services are delivered to retail investors in the UK. The primary delivery mechanism of financial services to retail customers is via approximately 30,000 Independent Financial Advisers (IFAs) who are authorised and regulated by the FSA. They are expected to bear the brunt of the force of the RDR. Gold bullion is set to benefit from the axing of commission for IFAs and the implementation of the RDR “should be regarded as a game changer” for gold as an investment in the UK, according to the World Gold Council. Managing director of investment Marcus Grubb, says: “These extremely challenging times mean it’s impossible to quantify the risks for UK investors. They are facing an unprecedented combination of threats to their assets including extreme and unexpected market shocks that can trigger widespread value destruction.” “As UK investors reduce allocations to traditional investments such as equities and bonds and increasingly dash to cash, they face a double whammy, with the potential for stagnation of capital due to the lack of returns from cash and the increased possibility of inflation as a result of ongoing monetary stimulation.”