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Just two weeks after House speaker John Boehner dramatically announced his premature resignation without cause from his position seemingly in an attempt to difuse the tension within the GOP, there has been another just as dramatic development when moments ago we learned that Boehner's chosen successor Kevin McCarthy has withdrawn his candidacy for the speaker position: "While I am grateful for the encouragement I’ve received, I will not be a candidate." This puts in jeopardy not only any future negotiations over US government funding when the continuing resolution expires in mid-December but more importantly puts into question what happens with the US debt ceiling when the US government runs out of emergency measures some time in early November as Jack Lew has warned is the deadline for getting a deal struck.

It was supposed to be the day China's triumphantly returned to the markets from its Golden Holiday week off, and with global stocks soaring over 5% in the past 7 days, hopes were that the Shanghai Composite would close at least that much higher and then some, especially with the "National Team" cheerleading on the side and arresting any sellers. Sure enough, in early trading Chinese futures did seem willing to go with the script, and then everything fell apart when a weak Shanghai Composite open tried to stage a feeble rebound into mid-session, and then closed near the day lows even as the PBOC injected another CNY120 bn via reverse repo earlier.

Deutsche Bank warned it expects to record a third-quarter loss of $7 billion, tied to a huge write-down in its corporate-banking-and-securities segment.  The bank said the charges are driven by the impact of expected higher regulatory capital requirements and its disposal of Postbank. It also said it will consider reducing or eliminating its common dividend for fiscal 2015.

DEUTSCHE BANK SEES 3Q NET LOSS EUR 6.2 BLN
DEUTSCHE BANK TO RECOMMEND DIVIDEND CUT OR POSSIBLE ELIMINATION

And now the real shocker: there is over US$100bn in gross financial exposure to Glencore. From BofA: "We estimate the financial system's exposure to Glencore at over US$100bn, and believe a significant majority is unsecured. The group's strong reputation meant that the buildup of these exposures went largely without comment. However, the recent widening in GLEN debt spreads indicates the exposure is now coming into investor focus."

Hedge fund manager exposes the ugly truth about America's energy revolution: it's like the housing bubble but larger!

As the following org chart of Glencore shows, the company - at least on the surface - appears to be far "simpler" than Enron was in the days preceding its biggest, for the time, and quite unexpected, bankruptcy.

In the real world, any casino (legal or otherwise) which refused to pay when the “house” lost would quickly be driven out of business

In a furious race to shore up as much liquidity as possible, Glencore - which a month ago announced a dramatic deleveraging plan - and its peers have been quietly scrambling to raise billions in secured funding. Case in point none other than Glencore's biggest competitor and the largest independent oil trader in the world, Swiss-based, Dutch-owned Vitol Group, whose Swiss unit Vitol SA earlier today raised a record $8 billion in loans.

“It feels like someone just flipped the switch to ‘off’ without any concrete reasoning,” one of the executives commented.

"In the event of a downgrade by Standard & Poor’s and/or Moody’s from current ratings to the level(s) immediately below...  there are $4.5 billion of bonds outstanding, where a 125bps margin step-up would apply, in the event that the bonds were rated sub-investment grade by either major ratings agency."

Late last week, after looking at Valeant soaring default risk as measured by the price of its blowing out CDS, soaring to over 30% even as its stock prices was surging, we wondered - does someone know something? It appears someone may have known that this weekend, the same Andrew Pollack whose NYT article exposing Turing's 5000% price increase resulted in Hillary Clinton promising to cap specialty biotech prices if elected, has come back for round two and after taking aim at Shkreli and Turing, much to the chagrin of Bill Ackman, Pollack is now taking aim at the biggest culprit: Valeant Pharmaceutcals.

"This earlier deadline raises the probability that the House will vote to raise the debt limit prior to the time Speaker Boehner steps down on October 30. If so, this would reduce the risk of a disruptive debate on the issue, because Speaker Boehner is more likely than his successor, in our view, to allow a "clean" debt limit increase without the debate over extraneous issues that have delayed enactment until shortly before the deadline in the past."

US financials' stocks are tumbling as 'investor' hopes for a rate-hike (and some dream about better earning potential for banks) drag XLF (Financials ETF) back to Oct 2014 lows. However, as have noted before, it is the message of the credit markets that has been correct all along (and stocks continue to catch down) as today's jobs data (and Glencore asset sales) poke Financials credit spreads to their highest since Oct 2013.