Barclays

Real Capital Analytics (RCA) released their US commercial real estate transaction data for July last night. The only way to interpret the data is - ugly. After a dismal June (down 33% YoY), July did not see any bounce and in fact plunged 20% YoY with transactions totaling $14.6bn. As Barclays notes, the takeaway is generally negative, as the growth trend has weakened considerably since March ( which was +62% YoY). What is interesting to us is that with Treasury yields so low, the cap-rate 'spread' makes commercial real estate relatively attractive and yet no-one's buying.

We have discussed the broad divergences between high-yield credit and equity markets (the former not enjoying the ebullience of the latter) and noted the dismal volume and average trade size of the most recent surge to new highs. Barclays points out one more concerning factor in the rally - the very unusual underperformance of lower quality, higher beta credit. Typically, the B-rated-and-below credits will majorly outperform in any real risk-on rally (just as they did in the first quarter of the year), however, in the last 2-3 months of equity exuberance, this has not been the case at all - as it seems the rally has been used to position in higher quality names (and remain liquid). Just another glimpse of the matrix under the surface.

Silver, wine, art and gold – or SWAG – may be the solution for investors looking to protect their wealth in the coming years according to perceptive Reuters Columnist, James Saft. In an interesting article and an interesting video for Reuters, Saft coins the term “Investing 201” which means having SWAG in your portfolio in order to protect investors from “a grim decade of money printing and financial repression.” SWAG, as in silver, wine, art and gold, are real assets that might just outperform if official policy causes the money supply to surge according to Saft. This is the idea of Joe Roseman, who says SWAG will do very well over what could be a very troubled next decade. "These assets effectively act as a money supply index tracker," said Roseman, who for 16 years was a money manager and economist at Moore Capital, run by the legendary Louis Bacon. "If the authorities are going to bail themselves out, money supply will expand. Every single time governments have been here, this is exactly what they have done."

For whatever reason, yesterday's unsourced Spiegel report that the ECB is actually contemplating open-ended monetization with arbitrary yield targets on various European nations is the talk of the town, if only for a few more hours until, just like last year, the proposal is summarily dismissed, only to be reincarnated once Spanish yields pass north of 8% again. In the meantime, it has allowed those very well paid sell-side strategists to present their erudite opinions, which naturally do not matter in the grand (and not so grand) scheme of things as long as Germany sticks to the 9-9-9 plan.

What do the following have in common? LIBOR, Bernie Madoff, MF Global, Peregrine Financial, zero-percent interest rates, the Social Security and Medicare entitlement funds, many state and municipal pension funds, mark-to-model asset values, quote stuffing and high frequency trading (HFT), and debt-based money? The answer is that every single thing in that list is an example of market rigging, fraud, or both. How are we supposed to make decisions in today’s rigged and often fraudulent market environment? Where should you put your money if you don’t know where the risks lie? How does one control risk when control fraud runs rampant? Unfortunately, there are no perfect answers to these questions. Instead, the task is to recognize what sort of world we happen to live in today and adjust one’s actions to the realities as they happen to be. The purpose of this report is not to stir up resentment or anger -- although those are perfectly valid responses to the abuses we are forced to live with -- but to simply acknowledge the landscape as it is so that we can make informed decisions.

Think the attempted fake suicide by Bayou Capital's Sam Israel which dominated the headlines for a few days in 2008 was strange? You ain't seen nothing yet: as the following excerpt of Octopus, The Secret Market And The World’s Wildest Con by Guy Lawson via the Daily Mail explains, that was merely the anticlimatic culmination of an amazing tale of bogus London traders, 'secret' Bond markets, frontrunning the Fed, fake CIA and MI6 spies, ponzi schemes and staged murders.

With newsflow today non-existent, and the market acting somewhat bizarrely (i.e., not soaring on endless revenue misses and GDP forecast cuts, and in fact, selling off) we take this opportunity to share some philosophical "deep thoughts", although not from Jack Handey, but from the latest issue of the Edelweiss Journal.

Last week we presented the aftermath of the very much unannounced "Conference of Beijing" as a result of which Africa has been slowly but surely converting to a continent controlled almost exclusively by China. However, there was one thing missing: even as China has been virtually the sole source of infrastructure funding in Africa, the continent has long been a legacy dollar preserve, which obviously means renminbi penetration and replacement would be problematic to say the least. As it turns out, this too is rapidly changing: as the WSJ reports, Africa is increasingly just saying "nein" to the USD. "African countries are trying to shoo the U.S. dollar away, even if it means threatening to throw people who use greenbacks in jail. Starting next year, Angola will require oil and gas companies to pay tax revenue and local contracts in kwanza, its currency, rather than dollars. Mozambique wants companies to exchange half of their export earnings for meticais, hoping to pull more of the wealth in vast coal and natural-gas deposits into the domestic economy. And Ghana is seeking similar ways to reinforce "the primacy of the domestic currency," after the cedi plummeted more than 17% against the dollar in the first six months of this year. The sternest steps come from Zambia, a copper-rich country in southern Africa where the central bank has banned dollar-denominated transactions. Offenders who are "quoting, paying or demanding to be paid or receiving foreign currency" can face a maximum 10 years in prison, the central bank said in a two-page directive in May." Is it time to dump the EUR in hopes of a short covering rally that continues to be elusive (just as Germany wants) and buy Zambian Kwachas instead? We will wait for Tom Stolper to advise Goldman clients to sell the Zambian currency first, but at this rate the USDZMK may well be the most profitable currency pair of the next 3-6 months.

• World’s Oldest Shipping Company Closes In Industry Slide (Bloomberg)
• Japan Growth May Slow to Half Previous Pace as Exports Wane (Bloomberg)
• China Export Growth Slides As World Recovery Slows (Bloomberg)
• Weidmann tries to muffle not spike Draghi's ECB guns (Reuters)
• Draghi lays out toolkit to save eurozone (FT)
• Concerns grow over prospects for sterling (FT)
• RIM Said To Draw Interest From IBM On Enterprise Services (Bloomberg)
• UN urges US to cut ethanol production (FT)
• Goldman Sachs Leads Split With Obama, As GE Jilts Him Too (Bloomberg)
• New apartments boost US building sector (FT)

Today we learned courtesy of Goldman's 10-Q, that the US justice department will not press criminal charges against Goldman Sachs. This, despite Senator Carl "Shitty Deal" Levin, in one of the most bombastic kangaroo court spectacles on live TV ever, asking for a criminal investigation after the subcommittee he led spent years looking into Goldman, and in which he said Goldman misled Congress and investors (and according to which billions in fraudulent RMBS misrepresentations are all still only Fabrice Tourre's fault, at that time under 30 years old). And so we pose the same answer, and provide the same anwer, as yesterday, only flipped around: "Confused Why Goldman Will Face No Criminal Charges? Here's Why."

It's very simple really. Please point out where on the below list of Top 20 contributors to a randomly selected US politician, in this case New York's Chuck Schumer, can one find Standard Chartered, Barclays, or HSBC?

The ECB's announcement that it stands ready to act, first despised then embraced by the market, has left as many questions as it answers. Barclays has prepared a simple flowchart of the known unknowns from what has been discussed so far - starting from our premise that things have to get a lot worse before they get better since any action is contingent on countries (cough Spain cough) first losing face requesting help from the EFSF.

Instead of having to fire 1900 people, Deutsche Bank will now have to only let go 1899. The reason: the second most prominent casualty of the Lieborgate scandal is now none other than Bob Diamond's daughter Nell, who made quite a splash in the aftermath of the Barclays Libor manipulation revelations when the social circuit butterfly tweeted that "George Osborne and Ed Miliband can go ahead and #hmd.” As it turns out after graduation from Princeton University in June 2011, and following a stint in UNICEF, the philanthropist, whose twitter profile is riddled with photos of shoes and runway poses, joined Deutsche Bank in November 2011, whether due to her natural curiosity into the minutae of Investment Banking, or for other reasons. Of course, considering her Princeton thesis was on "The Cultural Myth of Female Hair in the Victorian Imagination" (strinkingly comparable to "The Power Of Women's Hair In The Victorian Imagination" but we digress), it likely was the latter. As it turns out, 9 months after joining the firm full time (she had a part-time stint in the summer of 2010, following comparable stints at the Abernathy Macgregor Group, Nantucket Ice Cream Company, Abercrombie and Fitch), the young woman who sold "Rates" products (Libor and other IR derivatives? Surely that would be ironic at a bank which is now front and center into the Lieborgate investigation) at Deutsche Bank has decided to call it quits, in the process saving the job of at least one low level banker who now will not have to be let go because of the lack of an English thesis focusing on Female hair during Victorian times

• Monti Warns of Euro Breakup as Tussle Over Spain Aid Hardens (Businessweek)
• Italy doesn't need German cash, Monti tells Germans (Reuters) - at least we know who needs whose cash...
• Spain has time to Wait for Clarity on EU Aid -Econ Min (Reuters) - which came first: the Spanish bailout request or the denial to need a Bailout request? Ask the Spanish 2 year...
• Bundesbank Weidmann’s opposition to a proposed new wave of ECB bond purchases has support of Merkel’s CDU - Volker Kauder
• China media tell U.S. to "shut up" over South China Sea tensions (Reuters)
• Top Chinese Leaders Gather in Annual Summer Conclave (WSJ)
• Greece Agrees With Troika on Need to Strengthen Policy (Bloomberg)
• Coeure Says ECB Should Look at Getting Loans Into Real Economy (Bloomberg)
• Italy Central Banker Sees Potential Rate Cut as Euro Economy Slows (WSJ)
• A Dose of Dr. Draghi's 'Whatever It Takes' (WSJ)
• Greek bank head sent savings abroad (FT)