Detroit

• Hurricane Isaac Whips Storm Surge on Path to New Orleans (Bloomberg)
• Republicans Vow to Transform Obama’s U.S. With Low Tax, Freedom (Bloomberg)
• Little-known Ryan to take center-stage at Republican convention (Reuters)
• An $800 billion stimulus tempest in a teapot: China State Researcher: Local Govt Investment Plans Largely Symbolic (WSJ)
• China Says Payment Delays, Defaults May Worsen (Dow Jones)
• G-7 Countries Call for Increased Oil Output to Meet Demand (Bloomberg)
• Creeping Socialism: Clegg calls for emergency tax on rich (FT)
• United Airlines computer problem delays 200 flights (Chicago Sun Times)
• Paulson, Investors Avoid Fireworks Despite Brutal Run (Bloomberg)
• Occupy Sets Wall Street Tie-Up as Protesters Face Burnout (Bloomberg)
• The nostalgic grass is always greener: Serbia Joblessness Swells as Milosevic-Era Leaders Return (Bloomberg)

The tried strategy of "Baffle them with BS" continues today following the release of the June (two month delayed) Case Shiller data. Because whereas last week we showed that New Home Prices are plunging, and the average new home price just dropping to its 2012 lows, when it comes to the Case-Shiller index, things are looking up. In June, the Top 20 composite index rose by 0.94%, well above the expected increase of 0.45%. How much of this is due to the REO-to-Rental program in which we are now seeing actively securitization of rental properties, which in essence is converting more and more of the Residential market into commercial real estate, remains unclear. For now it is clear that those entities with access to cash are buying up properties in beaten down areas in hopes these will be filled by renters. On the other hand, the truth is that summer months always see the biggest pricing gains, and following the May data revision, which rose at a revised rate of 0.97%, one may observe that the pricing increase has now peaked even according to delayed CS data, and has begun its traditional rolling over pattern. And a pattern it is. As the second chart below shows very clearly, housing is now merely in the dead cat bounce phase of a broad housing quadruple dip, each one having been facilitated by either Fed or ECB intervention. We give this one a few more months before it too resumes the downward trendline so very well known to Japanese homeowners, and falls in line with the data reported by the Census department.

Zero Hedge covered the topic of automotive channel stuffing long before it became a conversation piece, particularly as it pertains to Government Motors, a story which has recently taken precedence after being uncovered at such stalwarts of industry as German BMW and Mercedes, implying the German economic miracle may, too, have been largely fabricated. Another core topic over the years has been the artificial and inventory-stockpiling driven (in other words hollow) "growth" of China's economy, whose masking has been increasingly more difficult courtesy of such telltale signs of a slowdown as declining electricity consumption and off the charts concrete use. It was only logical that the themes would eventually collide and so they have: the New York Times published "China Besieged by Glut of Unsold Goods" in which, as the title implies, it is revealed that China is now nothing more than one big "stuffed channel."

• Investors Shift Money Out of China (WSJ)
• Rajoy Risks Riling ECB in Bid to Avoid Union Ire (Bloomberg)
• Romney-Ryan See Fed QE as Inflation Risk Amid Subdued Prices (Bloomberg)
• Spanish savers offered haircut then money back (FT)
• Must wipe all traces of illegality and settle for $25,000: Standard Chartered Faces Fed Probes After N.Y. Deal (BBG)
• Greece debt report backs cuts plan (FT)
• Greece seeks two-year austerity extension (FT)
• Brevan Howard Looks To U.S. To Raise Money For Currency Fund (Bloomberg)
• Can he please stop buying gold? Paulson, Soros Add Gold as Price Declines Most Since 2008 (Bloomberg)
• BOE Drops Reference to Rate Cut as It Considers Policy Options (Bloomberg)
• EU Banking Plans Asks ECB to Share Power, Documents Show (Bloomberg)

Retail gasoline prices in the U.S. Midwest were as much as 50 cents higher than in the rest of the country. By Monday, the price of a gallon of regular unleaded jumped 13 cents from last week in Detroit to settle at $3.99.  The spike in retail gasoline prices follows a series of pipeline spills in Wisconsin and refinery shutdowns in Chicago and elsewhere. The impact of the string of industrial incidents on consumers in the region may be short-lived, but retail prices rarely decline as fast as they increase. The 'cluster of bad luck' leaves refineries shut down at a time when the region is using "summertime gasoline," a blend not manufactured very much outside of the Midwest.

• Standard Chartered Falls Most in 24 Years on U.S. Iran Probe (Bloomberg)
• Iran accusations wipe $15 billion off StanChart shares (Reuters)
• Hilsenrath tells us that Fed Official Calls for Open-Ended Bond Buying (WSJ) - shocking indeed
• German opposition backs fiscal union, demands constitutional change and referendum (FT)
• Gary Gensler speaks: Libor, Naked and Exposed (NYT)
• IMF Pushes Europe to Ease Greek Burden (WSJ)
• Second TSE System Error in Seven Months Halts Derivatives (Bloomberg)
• Rice Hoard Offers World Respite as Food Costs Surge (Bloomberg)
• UK coalition in crisis over parliamentary reform (Reuters)
• Ethics probe could deal losing hand to Nevada Democrat (Reuters)

During an economic boom, exuberance finds itself lodged in all types of industries.  When profits soar, so does the public’s disregard for prudence.  And as tax revenues rise, politicians can’t help but give in to their bread and butter of buying votes.  In the case of a credit-expansion boom fueled primarily by fractional reserve banking and interest rate manipulation through a central bank, the boom conditions are destined toward bust.  Liquidation then becomes necessary as the bust gets underway and malinvestments come to light. What the city of Scranton has in common with San Bernardino, Detroit, et al. is that its dire fiscal condition is due to one thing and one thing only: benefits promised to unionized workers, and, it appears, "the salad days of the government employee are coming to an end, as they have already in Greece, Italy and Spain." To those sick and tired of the tax-eater mentality that is destroying the very core of society’s productive capacity and moral base, those days can’t come soon enough.

In Ohio today, President Obama will announce the latest World Trade Organization suit against China, this time addressing "unfairly" imposed duties on U.S. auto exports.  The Administration will argue that these duties violate international trade rules. Whether or not China will reply that buying US 10 year paper at 1.6% is also unfair remains to be seen. But at least someone is happy. As reported earlier, ADP reported just 4,000 manufacturing jobs were added in the US in the last month: these are the same people who are supposed to be doubling US exports in Obama's latest 5 year plan. Good luck. Anyway, here is the take of the Alliance for American Manufacturing to this simplistic attempt to trade union for long-term stability with America's largest trading partner.

Forty five years after the War on Poverty began, there are 49 million Americans living in poverty. That’s a solid good return on the $16 trillion spent so far. It’s on par with the 16 year zero percent real return in the stock market. We have produced a vast underclass of ignorant, uneducated, illiterate, dependent people who have become a huge voting block for the Democratic Party. Politicians, on the left, promise more entitlements to these people in order to get elected. Politicians on the right will not cut the entitlements for fear of being branded as uncaring. The Republicans agree to keep the welfare state growing and the Democrats agree to keep the warfare state growing -bipartisanship in all its glory. And the middle class has been caught in a pincer movement between the free shit entitlement army and the free shit corporate army. The oligarchs have been incredibly effective at using their control of the media, academia and ideological think tanks to keep the middle class ire focused upon the lower classes. While the middle class is fixated on people making $13,400 per year, the ultra-wealthy are bribing politicians to pass laws and create tax loopholes, netting them billions of ill-gotten loot. These specialists at Edward Bernays propaganda techniques were actually able to gain overwhelming support from the middle class for the repeal of estate taxes by rebranding them “death taxes”, even though the estate tax only impacts 15,000 households out of 117 million households in the U.S. The .01% won again.

Remember April? That's when the US stock market peaked. It also occurred right after March when the peak effect of the record warm winter weather hit, resulting in peak forward pulled demand. Sure enough, today's Case Shiller index confirmed that: in April the Top 20 SA Composite Index rose by a respectable 0.67%: not a bad sign considering until February it had declined for 20 consecutive months. The issue, however, is that the April increase was already lower than the March revision, which in turn had seen a 0.73% increase which was the highest since August 2009. Which means precisely what the chart below indicates: a continuous lower trendline in home prices, with delayed monthly noise based on what the S&P does. And with the S&P plunging in May, expect a comparable response in housing price when the data is finally released. At the end of July. By then, however, we may have bigger issues. Finally, those hoping that the Fed is looking at this indicator as permissive of more negative feedback easing, will be disappointed: the Fed will need to see at least one full period of a sustained decline. So far not so good.

Rampant overproduction, channel stuffing, and an inventory glut: the China auto bubble is hissing.

While the WSJ article on the Fed paints a picture of controversy enshrining the usual hawk Vs dove sort of frame work ( or is that Hatfields Vs McCoys? Montague Vs Capulet)… what strikes me is the sense of agreement I get in reading this thing. Everyone at the Fed is on the very same page. John Hilsenrath is correct in concluding that there is a policy dilemma, but he does not connect the dots and say that it is a dilemma without much consequence. Yet it is quite clear that even those who would like the Fed to do more, are very disappointed with the results from what they already have done. If you ordered dessert and it was bad would you order more? The Fed would.

All you need to read

Following the now long-gone LTRO induced risk ramp through March, many of the C-grade economists out there predicted that housing would bottom in March (this time for real) and it would be smooth sailing from there. Alas, the just released March Case Shiller data puts this latest speculation very much in doubt (once again), following a miss of consensus expectations in the Top 20 Composite of a 0.20% increase, printing at half that, or 0.09%, and more importantly, a decline from the February rate of increase, which was 0.15%. The non-seasonally adjusted number declined by 0.03%, the 7th consecutive drop in a row. All this begs the question: did housing just quadruple dip, with a February local extreme in the Sequential rate of change. As the chart below shows, we had comparable peaks in the summer of 2009, in April 2010, and again in April 2011, following which the downward slide resumed every single time once the temporary benefits of monetary and fiscal easing subsided. Also, recall that March was the last month receiving benefits of a record warm winter: in effect a mini demand pull program. And now comes the hangover. Bottom line: based on a broad index, housing is about to decline once again, and make a total joke out of all those who, yet again, made "bold" annual housing bottom predictions.

A reminder of the sharp increase in demand for gold and silver, particularly store of wealth demand, in recent years was seen in the figures released by the China Nonferrous Metals Industry Association in Shanghai today. China’s gold consumption rose 33% to 761 tons in 2011 and China’s silver consumption rose 6.8% to 6,088 tons last year. China’s gold consumption rose 190 metric tons last year to 761 tons, Wang Shengbin, China Gold Association Vice Chairman, said in a speech in Shanghai as reported by Bloomberg. China’s jewelry consumption jumped 28 % to 456.7 tons last year, gold bar consumption surged 51% to 213.9 tons and gold coin consumption gained 25% to 20.8 tons, Wang said. China’s silver consumption, including industrial use, jewelry and coins, rose 6.8% to 6,088 metric tons last year, the vice chairman said. The amount shows a surplus given China’s output of 12,348 tons last year, which gained 6.3%, Wang said.