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The divergence theme is likely to strengthen in the week ahead.  

Some people will never learn... ever. What is happening today is nothing more than rearranging the deck chairs on the Titanic. The iceberg has been struck, we’re taking on water, and this sucker is going to sink. Game Over.

The outlook for diesel looks grim after U.S. regulators found that the world’s second biggest car manufacturer cheated on its emission tests. Now that diesel is not as clean as it appeared (with stricter emissions tests and perhaps even stricter regulation to be expected), one has to ask; does this mean the end of diesel for light vehicles? This is not just alarming for the automotive industry, but could also lead to a structural demand shift in fuel products. That shift could not have come at a worse time for diesel.

Despite saying that press reports of the CEO leaving were "utterly ridiculous", he just did:

*VW CEO WINTERKORN STEPPING DOWN OVER WIDENING DIESEL SCANDAL
*VW'S WINTERKORN SAYS UNAWARE OF ANY WRONGDOING ON MY PART

One can only wonder what his "retirement" package will be.

Everything is so wonderful that a rate hike would equate to saying the Fed has won. Seven years of ZIRP and a few selling periods when the Fed stopped POMO’s and QE injections, we can easily say with extreme confidence that the Fed won. And by won we mean didn’t ruin the system entirely. Except they did.

Liar loans are back from the dead which means that if you look under the hood, you might just have a shoddy credit or two hiding in the collateral pool of your triple-A mortgage-backed paper. Meanwhile, in a further sign that we've learned nothing since the crisis, non-Agency RMBS is set to stage a comeback.

News That Matters

A non-bombastic discussion of market forces and what to expect next

What happens when we roll back into the next official recession, unemployment soars, and consumers really stop spending? What is revealed when you look under the hood of this economic recovery is that it is a complete and utter fraud. The recovery is nothing but smoke and mirrors, buoyed by subprime auto debt, really subprime student loan debt, corporate stock buybacks, and Fed financed bubbles in stocks, real estate, and bonds. The four retailers listed below are nothing but zombies, kept alive by the Fed’s ZIRP and QE, as they stumble towards their ultimate deaths. The coming recession will be the knife through their skulls, putting them out of their misery.

"Losses on car loans taken out by bad-credit borrowers are continuing to climb. What's driving the rise? Nomura has an idea."

The "one-off" adjustment has now reached its 3rd day as The PBOC has now devalued the Yuan fix by 4.65% back to July 2011 lows.

PBOC tries to reassure: *CHINA PBOC SAYS YUAN REMAINS STRONG CURRENCY IN LONG-TERM

· US data is set to remain in focus as participants continue to try to gauge the possibility of a September rate lift off

· Key data out of the Eurozone this week includes Q2 GDP as well as German ZEW

"The future is unknown and we are not dealing with markets that are free markets anymore...now we have government interventions everywhere. [But] in the last say twelve months, I have observed an increasing number of academics who are questioning monetary policies. That's why I think they will take the gold away and go back to some gold standard by revaluing the gold say from now $1000/oz to say $10,000 dollars. An individual should definitely own some physical gold. The bigger question is where should he store it? because... the failure of monetary policies will not be admitted by the professors that are at central banks, they will then go and blame someone else for it and then an easy target would be to blame it on people that own physical gold because - they can argue - well these are the ones that do take money out of circulation and then the velocity of money goes down - we have to take it away from them... That has happened in 1933 in the US."

Here is an overview of next week's events and data placed in the larger context.