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What the Fed is clearly trying to do is reflate asset values in order to generate a more positive wealth effect on personal spending and pull the cost of debt and equity capital down in order to re-ignite business “animal spirits” and hence corporate investment and hiring. In a balance sheet or deleveraging cycle, success is not always guaranteed even by the most aggressive of monetary policies.

A lot of economic reports have come out in the past several days but the data that caught my eye were industrial production, retail sales, and business inventories. There is evidence that retail sales have been improving but in light of a negative consumer sentiment, is that true?

The Federal Reserve is pulling out all the stops in attempting to invigorate the American economy. The stock market is surging. Everything is surging. The optimists are crowing that all is well. Deficits don’t matter. We can borrow our way to prosperity. Cutting taxes will not add $4 trillion to the National Debt if not paid for with spending cuts. All is well. So, the question remains. Was David Walker wrong? Are we actually on a perfectly sturdy solid platform? Or, are we on the Deepwater Horizon as it burns and crumbles into the sea? Let’s examine both storylines and decide which is true.

FOMC minutes, retail sales, CPI, trade balance. The minutes of the Sep 21 FOMC meeting out on Tuesday will be worth watching closely for anything special about the rationale for highlighting the low level of inflation and also to gauge how strong the support was for the decision to signal readiness to make further asset purchases. Speeches by Fed officials Dudley and Bernanke on Monday and Friday respectively will also be watched.

I really dislike sounding inflammatory. Saying that things are going to go terribly wrong runs a risk of being classed with those who think the world will end in December 2012 because of something Nostradamus or the Bible says, or because that’s what the Mayan calendar predicts. This is different. In the real world, cause has effect. Nobody has a crystal ball, but a good economist (there are some, though very few, in existence) can definitely pinpoint causes and estimate not only what their immediate and direct effects are likely to be (that’s not hard; a smart kid can usually do that) but the indirect and delayed effects. In the first half of this year, people were looking at the U.S. economy and seeing that some things were better. Auto sales were up – because of the wasteful Cash for Clunkers program. Home sales were up – because of the $8,000 credit and distressed pricing. Employment was up – partly because of Census hiring, and partly because hundreds of billions have been thrown at the economy. The recovery impresses me as a charade. Let’s get beyond what the popular media parrots are telling us and attempt to derive some reasonable assumptions about how things really are and where they’re headed.

• BOE won't extend or replace its special liquidity scheme when it expires in early 2012.
• China's Manufacturing expands at faster pace as recovery sustains momentum.
• Crude oil trades near highest in seven weeks on signs of improving demand.
• Ecuador declares state of emergency; dubs protests an attempted coup d'état.
• Geithner says no threat of trade war with China or world currency conflict.
• IMF warned that reducing budget deficits, is likely to cut growth and raise unemployment.
• India's manf activity expanded at a slower pace in September, at 55.1 vs. 57.2 in August.
• ISM-Chicago's business barometer climbed to 60.4 in Sept- beating all estimates.
• Japan Consumer prices fell 1% in August as Yen strengthens, Economy slows.

A heavy day for data, with readings on consumer spending and spending, industrial activity, and construction. Also, a couple of Fed speeches on tap….

This morning our favorite Banksters goosed the EU markets by upping targets on international mining operators Kazakhmys, Lonmin and BHP and that got the European markets off to a flying start out of the gate, despite the fact that UBS had just DOWNgraded the same sector on Friday.

I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high, nearly reach the sky,
Then like my dreams they fade and die.

US Retail Sales came essentially in line with consensus at 0.4% versus expectations of 0.3%. As usual, the downward prior revision game continues, as the previous number was revised from 0.4% to 0.3%. And once the latest number is revised lower again next month the impact on the market will be actually positive as the next month once again come better then "prior." Retails sales came in at 0.6% on expectations of 0.3%, with the previous also getting revised lower to 0.1% from 0.2%. And auto sales dropped both M/M and Y/Y. And not surprisingly, this number completely disagrees with Gallup polling, which showed August declines of 5.9% and 7.2% on the 14 Day and 3 Day rolling averages, compared to July.

Like a rabid bulldog that refuses to let go, Goldman's Ed McKelvey has bitten on the fact that the US economy continues to deteriorate, despite the occasional data point which the feedback loopers latch on to, only to find out the data was either manipulated or "estimated", and provides a "roadmap" for how the ongoing depression will manifest itself over the next two quarters. As his economic team has been more correct than all others, investors will be paying far more attention to his estimates, than those of a now ridiculous David Greenlaw of Morgan Stanley, who after downgrading the economy three weeks ago, upgraded Q3 GDP from 2.1% to 2.4%. High Frequency Forecast adjustments anyone? According to McKevley the ongoing weakness in the economy will manifest itself along these five key verticals: consumer spending, housing start weakness, industrial activity, ongoing labor market deterioration, and deflation. Of course, this should be sufficient to get bizarro stocks higher by a few percent today. Then again, nobody gives a rat's ass what stocks do anymore.

The back-to-back super-sized traffic jams near Beijing has landed China on the top spot among the cities with the world's worst traffic. While the world seems quite fixated on the length--miles and number of days--of these mega jams near Beijing, there's also a serious message--the under-capacity of China’s infrastructure.

Your one stop shop for the week's summary of bullish and bearish events and news.

• Asian stocks rise on China manufacturing, Australia's growth; Yen weakens.
• Australian economic growth accelerates more than estimates; Currency gains.
• China's manufacturing expands at faster pace in Aug - rises to 51.7 from 51.2.
• Currency trading tops $4 trillion a day as dollar's share drops, BIS says.
• FDIC finds more than a tenth of U.S. banks - 829 - at risk.
• Pennsylvania's capital of Harrisburg to skip a $3.29M payment on its debt.
• Treasuries decline as Asian stocks advance, US to announce auction size.
• US consumer confidence rose just 2.5 points in August, to 53.5.

Goldman's Ed McKelvey is trying to salvage his team's reputation as the biggest gloom and doomer on Wall Street by explaining why facts and not noise will be responsible for a revised drop of Q2 GDP by not 50%... but 45% of something. What is more interesting are the reasons for the contraction: i) A significantly reduced pace of inventory accumulation; ii) An even wider trade deficit than was first estimated; and iii) A small shift in the composition of final sales to domestic purchasers. Yet those expecting this note to be a start of an optimistic shift, prepare to be disappointed. As McKevley says, "such a conclusion would be premature given the information currently available on the economy’s transition into the third quarter," and in looking at Q3 GDP, the firm gets even gloomier than ever: i) Growth in real consumer spending appears to have softened from an already sluggish pace; ii) Real residential investment has resumed falling at a double-digit pace, iii) Real business investment is roughly on track for our 10% annualized growth assumption, but with risks now tilting to the low side, iv) The trade deficit ended the second quarter in a deep hole, and the conclusion is :"Thus, the key components of private final demand suggest that our 1.7% estimate for annualized growth in real final sales this quarter is more likely to be too high than too low." A lot of words for not saying we are in a double dip.