Barclays

• Europe’s crisis will be followed by a more devastating one, likely beginning in Japan. (Simon Johnson)
• Porsche, Daimler Indicate Europe’s Car Crisis Spreading (Bloomberg)
• No progress in Catalonia-Madrid talks (FT)
• Hilsenrath speaks: Fed's Kocherlakota Shifts on Unemployment (WSJ) - luckily QEternity made both obsolete
• Lenders Reportedly Consider New Greek Haircut (Spiegel)
• Fed Officials Highlight Benefits of Bond-Buying (WSJ)
• ESM to Launch without Leverage Vehicle Options (WSJ)
• Japanese companies report China delays (FT)
• Borg Says Swedish Taxes Can’t Go Into Ill-Managed European Banks (Bloomberg)
• Greek Leaders Struggle With Spending Reductions (Bloomberg)
• Asian Stocks Rise as iPhone 5 Debut Boosts Tech Shares (Bloomberg)
• China government's hand seen in anti-Japan protests (LA Times)

What might happen to your favorite ETF in a crisis?  As the the half life for the next Fed-induced bubble happily converges with the six month mark on Mr. Bernanke's QE3, these things never matter...until they do

• Obama, Romney tiptoe around housing morass as they woo voters (Reuters) ... just as ZH expected
• Poll Finds Obama in Better Shape Than Any Nominee Since Clinton (Bloomberg)
• Romney on Offense, Says Obama Can’t Help Middle Class (Bloomberg)
• Fed’s Fisher Says U.S. Inflation Expectations Rising (Bloomberg)
• Citigroup Warns Irish Investors to Plan for Losses (Bloomberg)
• Central Banks Flex Muscles (WSJ)
• China says U.S. auto trade complaint driven by election race (Reuters)
• Brussels sidesteps China trade dispute (FT)
• How misstep over trading fractions wounded ICAP's EBS (Reuters)
• Ex-CME programmer pleads guilty to trade secret theft (Reuters)
• Income squeeze will persist, says BoE (FT)
• South African miners return to work, unrest rumbles on (Reuters)

Those who expected a major response following the surprising, and "preemptive" easing by the Bank of Japan which has now joined the freely CTRL-Ping club of central banks, and went to bed looking for a major pop in risk this morning will be disappointed. The reason is that with every passing day that Spain does not request a bailout, all those who bought Spanish bonds on the assumption that Spain will request a bailout look dumber and dumber (a dynamic we explained nearly two months ago). As a result, the EURUSD has been dragging ever lower, and is now playing with 1.30 support. Providing no additional clarity was Spanish deputy PM Soraya Saenz de Santamaria who said Spain will decide if and when to trigger an ECB bailout once all details have been analyzed. Well the details have been more than analyzed, and Spain has been more than happy to receive the benefits of its bailout, it has yet to trigger the cause. Ironically in a Barclays study,over 78% of investors see Spain requesting a bailout by year end (even though as we explained over the weekend Spain really has to do this ahead of its major cash drawing bond redemption schedule in October when it may well run out of cash). And so, just like the US Fiscal Ceiling, the global markets are expecting some Catchy 22 deus ex machina, where traders can get their cake and politicians can eat it too. Alas, there never is such a thing as a free lunch. And what is making the much needed outcome even less probable is that Spanish bonds this morning are actually trading tighter once again making a bailout less than likely. The Spanish zombie has left its grave and is now romping through the neighborhood unsupervised.

As Cantor's Peter Cecchini notes today "when things are this senseless, a reversion to sensibility will occur again at some point." His view is to be long vol and as the disconnect between the economic cycle and stocks continues to grow, we present three mind-numbing charts of the exuberant hopefulness that is now priced in (oh yeah, aside from AAPL actually selling some iPhones in pre-order). Whether it is earnings hockey-sticks, global growth ramps, or fiscal cliff resolutions, it seems the market can only see the silver-lining. We temper that extreme bullish view with the fact that all the monetary policy good news has to be out now - for Ben hath made it so with QEternity.

Nothing has changed, it has only gotten worse...

Much has been written over the course of the last few days/weeks about what Bernanke could do, has done, and the efficacy of said actions. Inflation, unintended 'energy' consequences, debasement, financial repression, scarcity transmission mechanisms all come to mind but realistically they are all just symptoms of what is really going on. As the following chart from Barclays shows, the real effect of LSAPs is to suppress the signaling effect of macro data from the real economy. During periods of extreme monetary policy, the stock market's beta to macro-economic data surprises is dampened massively - and hence the forced mal-investment and mis-allocation of funds occurs. However, given the now open-ended nature of QE3, this may change with the 'good news/bad news' logic leading to a stronger market (higher beta) response (since all bad news is automatically attenuated by QEternity and thus all the good news is out there).

• Italy Says It Won't Seek Aid (WSJ)... and neither will Spain, so no OMT activation, ever. So why buy bonds again?
• European Lenders Keep Ties to Iran (WSJ)
• Fink Belies Being Boring Telling Customers to Buy Stocks (Bloomberg)
• Dutch Voters Buck Euro Debt Crisis to Re-Elect Rutte as Premier (Bloomberg)
• China's Xi cited in state media as health rumors fly (Reuters)
• China vs Japan: Tokyo must come back 'from the brink' (China Daily)
• Manhattan Apartment Vacancy Rate Climbs After Rents Reach Record (Bloomberg)
• Well-to-do get mortgage help from Uncle Sam (Reuters)
• Princeton Endowment Expected to Rise Less Than 5% in Year (Bloomberg)
• Protesters Encircle U.S. Embassy in Yemen (WSJ)
• US groups step up sales of non-core units (FT)

Most people know that during this year's Coachella festival, Tupac made a surprising appearance, if not in the flesh for obvious reasons, then in hologram form. What fewer people know is that the firm that created Holo-Tupac is special effects producer Digital Domain Media, which after years of failed attempts to do so, finally went public in November with Roth Capital as underwriter (there is now an Urban Dictionary definition for 'Rothed') at a price of $8.50 (well below the preliminary range of $10-12/share) and at a time when its burn rate was well above 50% of revenues, and which filed for bankruptcy hours ago. In other words, the company destroyed over $400 million in market cap in under 10 months. What is known by very few is that this is yet another public equity disaster of this administration: as filed in the bankruptcy Affidavit, "the Company has worked closely with State and local government authorities in Florida to execute economic stimulus contracts designed to create jobs and stimulate Florida’s economy. As of the Petition Date, the Company had contracted to receive a total of approximately $135 million in such government stimulus financing, including $19.9 million in tax credits. This financing consists of cash grants, land grants, low-interest financing, and tax incentives." In other words, in addition to the government's remarkable track record in the alternative energy field, public equity is now in the digital movie studio subsidization business. End result: bankruptcy, of a publicly funded company, shortly after IPO and sadly the realization that US capital markets are now so broken that the combination of private and public funding can sustain a company for less than one year.

Presented for your viewing pleasure are ten of the most prescient indicators of the resilience of the consumer and his largest asset (liability) since the 'supposed' end of the recession. We thought the subtle hint at which of these trends is not like the others would help; but, just in case you missed it, it's the part of the economy that is government-backed, subprime-funded, over-inventoried, and entirely channel-stuffed. Aside from all that, entirely sustainable, we are sure.

We have already discussed what is priced into FX markets with regard QE3 - and as Barclays notes, we also saw a similar gain in momentum into QE1 and QE2 (only to fade post the announcement). Mortgage traders see a sizable QE3 more than priced in, which is especially notable given the consensus forming around the NEW LSAP being centered on the MBS market. Of course, global markets are imbibing more than just the hope of the Fed's extreme policy actions but the ESM ratification as well as handicapping ECB's OMT conditionality (and European growth expectations). Having said all that, it is worthwhile to get a sense of just what happened among the major risk asset classes into and beyond the prior QE (and Twist) announcements, and just what these markets have been doing in the lead-up to this much-anticipated announcement. It seems that no matter where one looks, as one wise old mortgage derivative trader put it "the rumor has been bought."

• Germany says U.S. debt levels "much too high" (Reuters)
• Netanyahu ramps up Iran attack threat (Reuters)
• Burberry plummets by most ever, slashes guidance, rattles Luxury-Goods Industry as Revenue Growth (Bloomberg)
• FoxConn Again Faces Labor Issue on iPhones (NYT)
• Southern whites troubled by Romney's wealth, religion (Reuters)
• China's Xi not seen in public because of ailment (Reuters)
• Another California muni default: Oakdale, Calif., Restructuring Debt, Planning Rate Raise After Default (Bond Buyer)
• Spain's PM expects "reasonable" terms for any new aid (Reuters)
• Bernanke Proves Like No Other Fed Chairman on Joblessness (Bloomberg) - Ineffective like no other?
• John Lennon’s Island Goes on Sale as Irish Unpick Property Boom (Bloomberg)

The Summer of hope is over. Analysts return to their desks amid a grand-tour of conferences, industry gatherings, and company meetings, and - as has happened on average for the last twelve years - expectations are notched down from first-half-of-the-year 'hope' that this-time-is-different. Barclays' Barry Knapp notes that while macro risks seem more balanced than last spring, equity investors face a considerably higher risk in that of elevated earnings estimates. Since 2000, the worst month for analyst estimate revision momentum (net revisions) is also October, followed by September and December (tied). It stands to reason (though it’s tough to statistically ‘prove’) that equity investors and analysts return from vacation, attend conferences, and cut their earnings estimates. This, in turn, contributes to increased volatility and negative returns. While many will be focused on broader concerns – the ECB meeting, German Constitutional Court, presidential polls and macro data – equity investors are likely to hear a consistent message from the ~180 conferences: the global and domestic economic outlook is not robust enough to justify 11% y/y earnings growth in 4Q12 or 12% in 2013.

• Romney Promises to 'Restore' U.S. (WSJ)
• Dirty Harry Makes Surprise Appearance (WSJ)
• It has always been about the gold: Time for eurozone to reach for the gold reserves? (FT)
• EU Plan Said to Give ECB Sole Power to Grant Bank Licenses (Bloomberg)
• More attempts to marginalize Germanty: Brussels pushes for wide ECB powers  (FT)
• Justice may be blind but it has geographic limits: Apple Loses Patent Lawsuit Against Samsung in Japan (BBG)
• ECB Said to Use Greek Myth for Security on New Euro Banknotes (Bloomberg)
• Alberta deficit set to triple on slumping oil prices (Globe and Mail)
• Reid's ties to China-Nevada solar plan draw ire (Reuters)
• Bernanke may hint at QE without boxing Fed in (Reuters)
• Berezovsky loses against Abramovich  (FT)
• Spain Considers Bankia Re-Capitalization Without EU Money (Bloomberg)

• Merkel Adviser: Unlimited ECB Bond Purchases Would Violate Mandate (Dow Jones)
• Illinois' credit rating downgraded after pension reform failure (Chicago Tribune)
• Correspondence and collusion between the New York Times and the CIA (Guardian)
• ECB action prospects underpin Italian bond auction (Reuters)
• Ryan puts down calculator, picks up bullhorn (Reuters)
• Barclays Names New CEO (WSJ)
• Barclays’s New CEO: Analysts React (WSJ)
• September Offers 15 Days to Cement Crisis Solutions (Bloomberg)
• Iran's Nuclear-Arms Guru Resurfaces (WSJ)
• Rocket blasts off to put NASA radiation belt probes into orbit (Reuters)
• Citi to Settle Suit for $590 Million (WSJ)
• Swiss-Style Latvian Banking Hub Thrives on Ex-Soviet Cash (Boomberg)