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• MSM always "ahead" of the curve: Fed’s Messages Raise Volatility in Threat to Profits (BBG)
• Bernanke Plays Down Link Between Jobless Rate, Fed Moves (WSJ)
• Draghi to Carney Face Test Backing Guidance on Rates (BBG)
• House Republicans Vote to Delay Obamcare Mandates (Reuters)
• China media accuses Japan PM of dangerous politics (Reuters)
• China will replace America as the leading superpower, global attitudes survey finds (SCMP)
• Nonqualified mortgages make up as much as $1.5 trillion of the $10 trillion home-loan market (BBG)
• Dell $24.4 Billion Buyout Plan Is a Nail-Biter as Vote Looms (BBG)
• Republicans could see more bruising Senate primaries (Reuters)
• GM delays Chevy Cruze debut by a year (Reuters)
• Peltz needs support for PepsiCo restructuring dealsa (FT)
• Sweaty Wall Streeters Skip Booze for Spin-Class Meetings (BBG)

Stocks in Europe recovered from a cautious start to the trading session and gradually edged back into positive territory, though the DAX index in Germany under performed following less than impressive earnings by SAP. Company’s shares fell around 3% after the company trimmed its outlook for 2013 software revenue, blaming slowing economic growth in China. Elsewhere, Akzo Nobel shares fell 5% in early trade after the company said that its Q2 net profit almost doubled from the same period last year thanks to the sale of its North American paints division and a tax gain. Going forward, market participants will get to digest the release of the weekly jobs report, Philadelphia Fed survey for the month of July and earnings report releases from Morgan Stanley, Verizon, BlackRock and Google. Finally, today is the second day of Bernanke's semi-annual testimony.

Bernanke today testifies on monetary policy before the House Financial Services Committee (formerly the Humphrey-Hawkins). The testimony will be released at 8:30 am NY with Q&A after his testimony. Tomorrow he testifies before the Senate Banking Committee but the prepared remarks are the same for both days. Indeed it’s likely that the Q&A will be where all the fun starts. As DB says, he will likely try to pull off the trick of continuing to prepare the groundwork for tapering but try to give bond markets something to help them fight off the pressure of higher yields. With no post-meeting press conference planned for the July 30th/31st FOMC, and Bernanke not scheduled to speak publicly until he appears at the Global Education Forum event on August 7th, this week’s testimony may well be the only remarks we hear directly from the chairman for some weeks.

What are we supposed to do with all the “Dow 15,000” hats now? Keep them handy for another trip on the “Index Round Numbers Express” or just put them up on eBay in the “curios and collectibles” section?  ConvergEx's Nick Colas suggests one way to think about the question is to deconstruct the Dow into its 30 components and see which stocks got us to these still-respectable YTD levels in the first place.  For example, Colas notes that just seven stocks – MMM, BA, JNJ, AXP, DIS, HD, and HPQ – make up more than half the gains for the Dow in 2013.  Most of these names have a distinctly cyclical flavor, of course. And while the Dow has its share of “Defensive” names, it pays to remember that the top 10 companies by weighting take up 54% of the Average.  And they need a decent economy to grow earnings...

• Turmoil Exposes Global Risks (WSJ)
• China Money Rates Retreat After PBOC Said to Inject Cash (BBG)
• Fed Seen by Economists Trimming QE in September, 2014 End (BBG)
• Booz Allen, the World's Most Profitable Spy Organization (BBG)
• Abe’s Arrows of Growth Dulled by Japan’s Three Principles (BBG)
• China steps back from severe cash crunch (FT)
• Smog at Hazardous as Singapore, Jakarta Spar Over Fires (BBG)
• U.S. Weighs Doubling Leverage Standard for Biggest Banks (BBG)

• As Goldman's money-printing tentacle Carney arrives, everyone else leaves: Tucker to Leave BOE (WSJ)
• So much for pent up demand: Refinancings Plunge as Bond Yields Rise (WSJ)
• Singapore Censures 20 Banks for Attempts to Rig Benchmark Rates (BBG)
• Behind the Big Profits: A Research Tax Break (WSJ)
• While working for spies, Snowden was secretly prolific online (Reuters)
• Turkey to Await Ruling on Park as Erdogan Meets Protesters (BBG)
• Iran votes for new president, Khamenei slams U.S. doubts (Reuters)
• NSA revelations, modified wheat cast a pall on U.S. trade talks with Europe (WaPo)
• Euro zone inflation subdued as employment keeps falling (Reuters)

• Global shares pummeled, dollar slumps as rout gathers pace (Reuters)
• Hong Kong to Handle NSA Leaker Extradition Based on Law (BBG)
• Lululemon chairman sold $50 million in stock before CEO's surprise departure (Reuters)
• Companies scramble for consumer data (FT)
• Traders Pay for an Early Peek at Key Data (WSJ)
• When innovation dies: Apple looking at bigger iPhone screens, multiple colors (Reuters)
• Washington pushed EU to dilute data protection (FT)
• Japan-U.S. drill to retake remote island kicks off (Japan Times)
• EM economies in danger of overheating, World Bank says (FT)
• Don't forget the Indian crisis: Chidambaram seeks to quell concerns over rupee (FT)

Those who believe the economy is recovering are ignorant of the facts. Other than the Great Depression no US recovery (and I don’t believe we are in a recovery) taken longer. Eventually it may take more than a decade like the 1930s. Or perhaps it will be like Japan which is in its third decade of “recovery.” The truth is that our economy is spent, exhausted and filled with misallocations and distortions made much worse by government interventions. There is no recovery, nor will there be one until a massive purge (usually referred to as a depression) occurs. This event will result in bankruptcies that release scarce, misallocated physical capital from unproductive and unwanted areas to places where it is needed and can be utilized efficiently. Rather than allow this pre-condition to an economic recovery and a growing, efficient economy, politicians want to prevent it. They use smoke, mirrors and propaganda (lies) to hide the reality of our sick economy. Their obfuscations continue, but the effective life is limited.

After everything that Barack Obama, the U.S. Congress and the Federal Reserve have tried to do, there has been no real economic recovery and now the U.S. economy is suddenly behaving as if it is 2009 all over again.  A whole host of recent surveys indicate that the American people are starting to feel a bit better about the economy, but the underlying economic numbers tell an entirely different story. If we were going to have an "economic recovery", it should have happened in 2010, 2011 and 2012. Now we are rapidly approaching another major economic downturn.

Is there a better phrase to describe modern government than “a seedy circus which is perpetually in debt?” It is perfect. Government is exhausted. It, like Whipsnade’s circus, is  out of resources, ideas and solutions. Government has painted itself into a fiscal and financial corner from which there is no escape. As a result of its profligacy, government is no longer able to sustain itself. That is the real reason for the Fed’s quantitative easing program(s). Taxes and traditional government bond sales no longer provide enough money to run the monster. QE, more properly described as counterfeiting, is a euphemism to disguise the insolvency of the government. Without the Federal Reserve, government would have to pare down dramatically. Government is now a facade, with guns. It has failed miserably at governance and shifted its focus to survival.

Just three weeks ago we noted Apollo Group's Leon Black's comment that his firm was "selling everything not nailed down," and that he sees "the market is pricey... in our view, priced for perfection." It seems he is not alone in the 'buy-low-sell-high' crowd. If wonderful times are ahead for U.S. financial markets, then why is so much of the smart money heading for the exits?  Does it make sense for insiders to be getting out of stocks and real estate if prices are just going to continue to go up?

Against this economic slowdown, stocks are priced quite richly. There is a word for when markets are totally disconnected from reality: it’s a bubble.

What is going to happen when the greatest economic bubble in the history of the world pops?  The mainstream media never talks about that.  They are much too busy covering the latest dogfights in Washington and what Justin Bieber has been up to.  And most Americans seem to think that if the Dow keeps setting new all-time highs that everything must be okay.  Sadly, that is not the case at all. Right now, the U.S. economy is exhibiting all of the classic symptoms of a bubble economy. What we are witnessing right now is the calm before the storm.  Let us hope that it lasts for as long as possible so that we can have more time to prepare. Unfortunately, this bubble of false hope will not last forever.  At some point it will end, and then the pain will begin.

So much for the “recovery” theory. If you look at the real economy, things are getting worse and worse. When even Wal-Mart reports that people are spending less (remember that corporate email that February sales were a “disaster”?) you KNOW things are bad.

Since before the tech bust, we’ve been suggesting that while Americans “think” they’re getting richer... they’re actually heading in the other direction. They’re getting poorer. This proposition has been easier for folks to entertain since housing busted and the financial crisis reversed the “wealth effect” in 2008. With that in mind, let’s take a look at the logic of the American Empire and what you can expect in the year(s) ahead.