Today’s News July 8, 2015

• Meanwhile, In "Success Story" Portugal

  Somehow, with over 33% of young people unemployed, Portugal is held up to be a ‘success story’ for Merkel’s Europe’s grand plan. With their stock market tumbling and bond yields (and spreads) soaring…

   

  

   

  Perhaps it’s time to realize nothing is fixed at all… as this image exposes all too clearly…

  

  Source: @sturdyAlex

  No, this is not a line at an Athens ATM; it is a soup kitchen in Porto, Portugal.

  

  

  

  

  

• Moron Madness

  Submitted by Jim Quinn via The Burning Platform blog,

  

  We’re back from our vacation in Wildwood. I hoped for more relaxation, but it wasn’t to be. I rode my bike most mornings. I walked miles on the boardwalk with my wife and kids. We played the Cape May par 3 golf course. I went deep sea fishing with my youngest son. I made it to the beach twice. We made it to the Shamrock a few times, but we had more fun on the outdoor deck at Westy’s Pub. Watching an 85 year old couple who were barely 4 feet tall dancing like they did in the 1950’s to current pop hits was worth the price of admission. The scene brought a smile to the faces of anyone in the vicinity.

  

  I ate more pieces of white pizza from Mack’s than I can remember.

  

  How I resisted getting more than one cup of peanut butter ice cream with chocolate jimmies at Kohr’s, I’ll never know.

  

  We saw two outstanding displays of fireworks while we were there. The weekly fireworks are launched on the beach at my street, so we just need to go to the top deck or stand in the street to see the colorful display. The wind was blowing from the ocean, so the debris and ash floated onto our deck.

   

  

  

  

  I always have mixed feelings about Wildwood. I love sitting on the deck early in the morning drinking my coffee and listening to the seagulls squawking. It is peaceful and relaxing sometimes. The weekends tend to be loud, with obnoxious day trippers invading. The paintball game on the boardwalk a block from my house perfectly describes the sights on the Wildwood boardwalk. Moron Madness (you shoot at a guy dressed up as Osama bin Laden) is an apt description for the Wildwood boardwalk.

  

  It is tough to generalize about the thousands upon thousands of people walking/waddling on the Wildwood boardwalk. In the early morning hours, before 9:00 am, you see joggers, bikers, and mostly in-shape people on the boardwalk. This is the time when I find the boardwalk to be enjoyable. It’s quiet. The sun is coming up over the ocean. The dozens of tattoo parlors haven’t opened for business yet, and the freaks are at a minimum.

  

  By 11:00 am the obese, tattooed, pierced, XXXL bathing suit wearing land whales have disconnected from their CPAP machines to hunt for donuts, soda and breakfast sandwiches.

  

  No one is safe as the thundering herd shuffles along, blocking bikers and joggers, as they grapple for position in front of the Dunkin Donuts on the boardwalk at my block. As they breathlessly anticipate the enjoyment of inhaling a dozen chocolate donuts with sprinkles, the incessant Mr. Softee music from next door is whispering to them – come buy a triple fudge sundae for lunch. It’s only $3.49. How can you pass up that deal?

  

  This is just the beginning of temptation for the thousands of morbidly obese blobs straining the wooden structure known as the Wildwood boardwalk. The boardwalk is a veritable smorgasbord of funnel cake, fried oreos, fried cheesecake, tornado fries, lemonade, curly fries, corn dogs, zeppolis, fudge, cotton candy, salt water taffy, ice cream waffles, churros, pizza topped with cheese fries, triple fudge sundaes, and of course a large diet coke. How can 300 pound women in bikinis pass up the opportunity to do some carbohydrate binging?

  

  

  The funniest “upscale” purveyor of toxic junk food is Wildwood’s only French establishment – La Bakerie. Where else could you find a Nutella Crepe, S’mores Crepe, Fried Snickers, Fried Twix, or Fried Nutter Butter? It’s like you’re actually in Paris.

  

  

  I can’t help it that I’m an observer. I observe businesses, vehicles, street signs, clothing choices, and the people wandering the vast swaths of ‘Murrica. Liberals, progressives, Obama lovers, and control freaks have a problem with my observations because they don’t believe any behavior, clothing choice, or life choice should be judged, scorned or ridiculed. What we have here is a failure to communicate. I see ignorant, stupid, obese people who make bad life choices every day. They reveal themselves by their actions and their appearance. They stand out like a sore obese thumb in Wildwood. As I’ve noted earlier, there are many normal people in Wildwood, but it appears abnormalcy is winning. The dichotomy is most apparent on the weekends and holidays.

  The reason for this is quite simple. It costs $1,500 to $2,500 to rent a condo for a week in Wildwood. Only families with one or two working parents can afford to spend a week in Wildwood. This virtually eliminates black people. First off, there are few black two parent families. Secondly, there are even fewer black families with parents that work for a living. Therefore, you only see middle aged white parents and their kids strolling the streets and boardwalk during the week. When the weekend arrives Wildwood is inundated by day tripper white and black trash. Wildwood is the only free beach below Atlantic City. Stone Harbor, Sea Isle, Avalon, and Ocean City charge $5 or $6 per day per person to access their beaches. The Free Shit Army doesn’t like to pay, so they gravitate to Wildwood. Luckily, SNAP cards are not accepted at the food joints on the boardwalk, or Wildwood would look like West Philly.

  I actually enjoy taking a jaunt on the boards during the weekend to make note of the freaks, land whales, rapper wannabes, and the ignorant unemployable tattooed masses. I don’t have to exaggerate one iota regarding the sights that threatened to burn my corneas. My wife and kids can confirm all of my observations. Why do 250 pound girls think they can pull off wearing a bikini? Is there no shame? You shouldn’t be banned from the beach because you’ve eaten yourself to the size of a hippo, but for christ sake wear a one piece bathing suit and a moo moo. Why are so many poor people so fat? The number of waddling morbidly obese  unmarried women and their uncontrollable horde of bastard children is mind boggling. And why do these people find it amusing to feed seagulls on the boardwalk creating havoc and a bird shit attack on innocent bystanders? Do they have no sense of decorum or civility? Anyone who feeds a seagull on the boardwalk is an outright idiot.

  

  Idiots abound during the weekends in Wildwood. Moron madness sums it up nicely. The proliferation of tattoos amongst the ignorant is astounding. I certainly can understand soldiers getting a tattoo on their arm representing their unit or service as a form of comradeship. I understand motorcycle club members identifying themselves by a distinct common tattoo. But young girls with multiple tattoos on their legs, arms, necks, and backs is revolting and stupid. We saw an attractive young girl at the Shamrock bar with a full leg tattoo. When my wife saw it close up while in the restroom, she noticed it was faces of ghouls and vampires. What happened in her childhood to lead her to deform herself in such a manner? It reminds me of cattle being branded by farmers, except the cattle are human beings being herded and corralled by their government keepers and they brand themselves.

  I’m baffled as to why so many people feel the need to mutilate their bodies. These are lower class people with limited financial resources. Some of them have thousands of dollars worth of ink deforming their bodies. The combination of ignorance, illiteracy, mathematical incompetence, and no self respect is a toxic mixture destined to keep these people trapped in poverty and unemployable. I have a theory about why the poor feel the need to tattoo themselves. We live in an egocentric facebook culture where everyone is competing to be noticed. People are desperate for attention. The rich don’t get tattoos. They drive BMWs. They wear Rolex watches. They wear Armani suits. They live in McMansions. The poor can’t afford bling, real estate, or luxury cars. But they can finance tattoos with their credit card. The easily led, ignorant, lemming like masses are just following the lead of the other ignorant masses. You can’t teach stupid.

  The funniest aspect of the boardwalk is the tramcar – I hear “watch the tramcar please” in my sleep. After wolfing down a few fried oreos, washed down by a 32 oz lemonade, the tattooed masses hail down the tramcar to drive them the ten blocks to their motel rooms. They are too ignorant to understand the irony of being transported on something called the Boardwalk. 

  

  There is nothing particularly wrong with the people enjoying themselves on the Wildwood boardwalk. They aren’t bad people. They aren’t committing crimes. They are spending money and keeping the economy going. But, I can pretty much guarantee you that not one of these people has ever visited The Burning Platform or would even understand the issues we debate every day. They are willfully ignorant. They don’t want to think about hard stuff. They have been dumbed down by our public education system. They have become obese by eating the toxic frankenfood peddled by mega-corporations. I noticed one heifer with one of those ugly Apple iWatches on her immense wrist. Where do these supposedly poor people find $500 to waste on an egocentric useless bauble. Ignorant Americans are addicted to status symbols because their lives are so shallow and their intellects are deficient. True self worth comes from within, not from what you wear, drive, or paint on your body.

  They have been brainwashed by their government with decades worth of propaganda that has sedated them, made them fearful of phantom terrorists, and supportive of blowing up people in foreign countries without a declaration of war. They actually believe the armed police forces roaming our streets kept us safe from a terrorist attack on the 4th of July. Their pea sized brains are unable to process the fact that more people have died in bathtub accidents since 9/11 then have died at the hands of terrorists. They don’t question, think or care about future generations. They don’t understand the long term financial implications of a country with $200 trillion of unfunded liabilities. They don’t even understand the term liability. It’s almost enough to make a man go to the Boardwalk Chapel and pray for the souls of the ignorant masses.

  

  At least the merchants on the boardwalk are creative and retain a sense of humor. I’m sure some progressive politician from Washington D.C. would be offended by being told to grab a wiener. Or maybe in our new gay America, this joint would be celebrated by the LGBT community.

  

  Coincidence or not? You decide.

  

  Some boardwalk stores actually provide some hope. Teaching the masses on the boardwalk to disobey might take more than a shirt. I would estimate that 75% of the people strolling along the Wildwood boardwalk have never heard of Edward Snowden, let alone what he did. And of those who have heard of him, most buy the government storyline that he is a traitor. But 99.9% of these morons know the courageous story of Bruce Jenner’s transformation into a freak called Caitlyn. They are oblivious to the military industrial surveillance state they occupy. The militarization of local police forces doesn’t reach their radar screens. Miley Cyrus twerking videos are more important.

  They have no worries about the fact that Obama and the captured corrupt politician snakes slithering around the halls of Congress have added $7.6 trillion to the national debt since 2009, a 75% increase in six years. They care not that their president uses drones to murder people in foreign countries. They think having troops in Afghanistan, Iraq, Syria, Libya, and dozens of other countries around the world is keeping them safe. They are happily unaware that the American empire overthrows governments on a regular basis if they don’t do what we tell them to do.

  It seems that everyone on the Wildwood boardwalk embraces the surveillance state. They all have tracking devices attached to their hands. Vacation used to mean leaving the office, disconnecting, relaxing, and recharging your batteries. With the proliferation of iGadgets, the masses have been trained by the Bernaysian propagandists to have the attention span of gnats. Rather than enjoying themselves on vacation, they have to prove to the world they are having fun. They “need” to check-in on Facebook. They must post selfies from the bar. They have to take a picture of their meal and tweet it to the world. The vacuous multitude are gloriously distracted from reality by their technological chains. The State is ecstatic, as the plebs wallow in bread and circuses (funnel cake & roller-coaster rides), and provide an electronic tracking signal for the NSA to exploit when necessary. The willfully ignorant masses will not disobey en-mass until they are no longer getting monthly government transfers, ATM machines stop spitting out $20 bills, and their credit cards come back declined.

  

  After observing for too long, I needed a break. We had one particularly enjoyable walk that we captured in a few pictures. As you walk down the boardwalk towards North Wildwood the rides and games fade into the distance. It gets quieter and less congested. When we reached the end of the boardwalk we decided to keep going for another 15 blocks to The Rocks at 2nd & JFK Boulevard. There was no one on the path with us. It became quiet and peaceful. The moon was full and reflecting on the rippling waves of the Atlantic Ocean.

  

  The sun was setting in the West providing an orange glow over the lighthouse and the bay in the distance.

  

  The scene couldn’t have been more breathtaking. No people. No technological distractions. No noise pollution. Just the sea, the wildlife, the sand dunes, and a shining orb in the sky.

  

  But then we had to walk back to reality. That is the dichotomy you experience in Wildwood. There is much to enjoy and savor, but it is overwhelmed by moron madness. I’ve come to believe that Aldous Huxley’s fears have been manifested on the boardwalk of Wildwood and across our entire nation. The masses don’t read books. We are inundated with so much useless information, we have been reduced to passivity and egotism. The truth is buried in a sea of irrelevance and our culture is based upon triviality. Our almost infinite desire for distractions and pleasure have produced a profoundly abnormal society. The ignorant masses are acting normally only in the context of living in a sick, demented, abnormal society.

  “The real hopeless victims of mental illness are to be found among those who appear to be most normal. “Many of them are normal because they are so well adjusted to our mode of existence, because their human voice has been silenced so early in their lives, that they do not even struggle or suffer or develop symptoms as the neurotic does.” They are normal not in what may be called the absolute sense of the word; they are normal only in relation to a profoundly abnormal society. Their perfect adjustment to that abnormal society is a measure of their mental sickness. These millions of abnormally normal people, living without fuss in a society to which, if they were fully human beings, they ought not to be adjusted.” ? Aldous Huxley, Brave New World Revisited

  

  

  

  

  

• The Obama Jobs Recovery Spin (Explained In 1 Cartoon)

  We explained this in words (here and here), but here are the pictures…

   

  

   

  Source: Investors.com

  

  

  

  

  

• Europe's Spiralling Game Of Chicken – Politics Always Trumps Economics

  Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

  There are decades where nothing happens; and there are weeks where decades happen.
  – Vladimir Lenin (1870 – 1924)

  In 1914, Europe had arrived at a point in which every country except Germany was afraid of the present, and Germany was afraid of the future.
  – Sir Edward Grey (1862 – 1933)

  Last week’s email, “1914 is the New Black”, was the most widely read Epsilon Theory note to date, and given the weekend ’s events it bears repeating, as the echoes of 1914 are growing louder and louder. We are, I think, likely embarked on the death spiral phase of a game of Chicken, just as in the summer of 1914. The stakes are, for now at least, not nearly as cataclysmic today as they were a century ago, but the social and political dynamics are eerily alike.

  I’m often asked how to get a better take on a historical event like the lead-up to World War I, and the answer is that there’s no substitute for immersing yourself in what people were actually saying and writing at the time the events transpired. If you’re lucky, perhaps you’ll pick a period that also attracted the attention of a gifted historian like a Robert Caro or a David McCullough. Second best, I’ve found, is to find a gifted editor or anthologist to smooth the path a bit. One such anthologist is Peter Vansittart, who collected a wide range of original texts in his classic books, “Voices: 1870 – 1914” and “Voices from the Great War”. I’ve taken some of those texts and appended them below. They speak for themselves, I hope, to illustrate the defining characteristic of a spiraling game of Chicken – all sides begin to speak in terms of “having no choice” but to take aggressive actions to defend their own interests.

  Before the quotes, though, three other historical observations:

  1. The Austrian ultimatum to Serbia – long seen as the proximate cause of World War I – was accepted by the Serbian government almost in its entirety. Unfortunately, that “almost” part made all the difference. An important anecdote to remember the next time someone calls your attention to Tsipras’s acceptance of 90% of the Eurogroup reform ultimatum.
  2. Anti-establishment voters are always underrepresented in establishment polls. Noted segregationist and Alabama governor George Wallace won the 1972 Democratic Party primary in Michigan despite showing third in polls. Daniel Ortega and his Sandinista regime lost the 1990 Nicaraguan election by 10 percentage points to Violeta Chamorro despite leading by more than 10 points in every pre-election poll. The Syriza NO landslide was no surprise here, and this is an important phenomenon to keep in mind when you start to see opinion polls from Italy and France published over the next few days.
  3. Politics always trumps economics. My favorite 1914 quote in this regard is from Lord Cunliffe, governor of the Bank of England from 1913 – 1918, who famously declared that war was impossible because “The Germans haven’t the credits.” So what if Greek banks run out of euros? The Greek government will make their own, or maybe issue California-style IOUs and dare the Eurogroup to boot them out of the currency. If you think that an ECB squeeze can put this political genie back in the bottle, you’re making the same classic error as Walter Cunliffe did.

  And now the quotes.

  I held a council at 10:45 to declare war with Germany. It is a terrible catastrophe but it is not our fault. An enormous crowd collected outside the palace; we went on the balcony both before and after dinner. When they learned that war had been declared, the excitement increased and May and I with David went on to the balcony; the cheering was terrific.
  – King George V (1865 – 1936)

  England alone carries the responsibility for peace or war, no longer us.
  – Kaiser Wilhelm II (1859 – 1941)

  In this most serious moment I appeal to you to help me. An ignoble war has been declared to a weak country. The indignation in Russia shared fully by me is enormous. I foresee that very soon I shall be overwhelmed by the pressure brought upon me and be forced to take extreme measures which will lead to war. To try and avoid such a calamity as a European war, I beg you in the name of our old friendship to do what you can to stop your allies from going too far. — Nicky
  – Tsar “Nicky” Nicholas II (1868 – 1918) in a letter to his cousin, Kaiser “Willy” Wilhelm II

  Now Tsarism has attacked Germany, now we have no choice, now there is no looking back.
  – Kurt Eisner (1867 – 1919)

  Necessity knows no law; we must hack our way through.
  – Theobald von Bethmann-Hollweg (1856 – 1921) in a speech to German Reichstag

  The few neutral states are not sympathetic toward us. Germany has not a friend in the world, she stands utterly alone and has only herself to depend on. … How different it all was a few weeks ago, when we launched so brilliant a campaign – now a bitter disillusionment is setting in. And how much we shall have to pay for all that is being destroyed!
  – Helmuth von Moltke the Younger (1848 – 1916) in a letter to his wife

  In this war it is a question … of German civilization against barbarous Slavdom.
  – Helmuth von Moltke the Younger (1848 – 1916)

  The year 1914 in America seemed the crest of a wave of passionate idealism among young people, and of passionate selfishness among middle-aged people.
  – John Cowper Powys (1872 – 1963)

  July 25: Unbelievably large crowds are waiting outside the newspaper offices. News arrives in the evening that Serbia is rejecting the ultimatum. General excitement and enthusiasm, and all eyes turn towards Russia – is she going to support Serbia? The days pass from 25 to 31 July. Incredibly exciting; the whole world is agog to see whether Germany is now going to mobilize.

  July 31: Try as I may I simply can’t convey the splendid spirit and wild enthusiasm that has come over us all. We feel we’ve been attacked, and the idea that we have to defend ourselves gives us unbelievable strength … You still can’t imagine what it’s going to be like. Is it all real, or just a dream?
  – diary of Herbert Sulzbach, “With the German Guns” (1935)

   

  

  

  

  

  

• China Crashes Most Since 2007 Amid "Panic Sentiment"; Over Half Stocks Suspended, PBOC Promises "Liquidity Support"

  Some context…

  China has lost 15 Greeces in market cap in three weeks

  — zerohedge (@zerohedge) July 8, 2015

  For a record 12th day in a row, Chinese margin debt balances have dropped with today's 8.5% collapse the largest in history. As of last night, there were around 570/1694 Shenzhen stocks halted/suspended and hundreds more on the Shanghai bourse leaving more than 54% of all Chinese stocks frozen ($2.6 trillion or 40% of value). China continues to try to manage leverage down (raising margin requirements on stock futures) while encouraging speculation (easing rules for insurers to buy blue chips and financing the purchase of smaller company shares directly) and CYNK'ing the entire market – if it's not open, you can't sell it and the price cannot fall! It's not working as CSI-300 futures are now down 7.9% in the preopen.

  • *CHINA TRADING HALTS FREEZE $2.6 TRILLION, 40% OF TOTAL VALUE

  

  China appears to be trying to manage leverage…

  • *CHINA RAISES MARGIN REQUIREMENT FOR CSI 500 INDEX FUTURES
  • *SHANGHAI MARGIN DEBT FALLS 8.5%, BIGGEST ONE-DAY DROP ON RECORD

  

   

  The problem is the collateral value is falling faster than the margin debt leaving "leverage" still at record highs…

  

  While encouraging speculation…

  • *CHINA EASES RULES FOR INSURERS TO INVEST IN BLUE CHIPS: XINHUA
  • *CHINA SECURITIES FINANCE TO BUY MORE SMALLER COS. SHRS: CSRC

  China news is domninated by dozens of pages of this…

  

  • *CHINA TRADING HALTS LEAVE 43% OF ENTIRE STOCK MARKET FROZEN
  • *1,249 CHINESE COMPANIES HAVE HALTED TRADING IN SHARES
  • UPDATE: Trading halts have left 1544 companies, equivalent of 54.7% of the Shanghai Composite and Shenzhen Composite, suspended today. (@GregorHunter)

  With what we estimate is around 850-900 Shenzhen Composite stocks suspended (over half of the 1694 stocks in the index) and almost 25% of Shanghai Composite stocks, it appears China has resorted to the endgame in managing a collapse…

  if it's not open, you can't sell it and the price cannot fall!

  In other words – the whole Chinese market just got CYNK'd

  Time to CYNK the entire Chinese stock market

  — zerohedge (@zerohedge) July 3, 2015

  * * *

  It's not working…

  • *CSI 300 JULY FUTURES PLUNGE 7.9% IN SHANGHAI
  • *CHINA'S SHANGHAI COMPOSITE INDEX SET TO OPEN 7% LOWER

  

   

  It looks like today could see China go red for the year…

  

  *  *  *

  China weakness and European rhetoric wearing S&P futures lower (down 11 points from cash close)…

  

  *  *  *

  Another day another attemnpt to stabilize…

  

   

  Just add this to the list of interventions…

  

  Perhaps if you just stare at it long enough, it will rise…

  

   

  Just remember this crash is telling us somethinmg about China…

  The stock market knows more than any individual investor, and China's is no exception.

  As NYU Professors Jennfier Carpenter and Robert Whitelaw told CNBC in January…

  This optimism should be taken seriously. This run-up is not a bubble, and so investors should not fear another crash.

   

  Our research shows that after a rocky first decade, which earned China's stock market a reputation as a casino, stock prices in China predict future profits as well as they do in the U.S. Moreover, this predictive power is highly correlated with China's corporate investment efficiency, suggesting that stock prices are teaching corporate managers important lessons as well. However, capital in China is still allocated almost entirely by its massive banking sector. It is time to untie the hand of the stock market, reform listing standards, streamline the IPO approval process now holding up over 600 firms seeking equity capital, and let the stock market allocate capital, too.

  Shut Up!!!

  As we detailed earlier – none of this was real or indicative of any real economic growth – it was all speculative ponzi and will not end well…

  Exhibit 1 – Based on 'fundamentals', The Shanghai Composite has a long way to go…

  

   

  Exhibit 2 – If Dr. Copper is right about the state of the world, The Shanghai Composite won't find support until it has fallen another 60%…

  

   

  Exhibit 3 – Judging by historical analogs, The Shanghai Composite will need to destroy all gains in the last 2 years before 'value' is once again seen…

  

   

  Chinese investor psychology has shifted. Period. The more the government intervenes to lift stock prices explicitly, the more local and professsional leveraged investors will use any strength to unwind their positions (profitably or unprofitably).

  

  

  

  

  

• China Now Risks "Financial Crisis"; Loses Could Be "In The Trillions" BofA Says

  “Regarding the deleveraging process in the market, in our view the government started too late & without adequate preparation for the potential downside. We suspect because it didn’t know the true extent of shadow margin financing activities.” 

  That’s BofAML’s take on why Beijing is now throwing the kitchen sink at a Chinese equity market that’s sold off to the tune of 30% in the space of just three weeks, vaporizing $3 trillion in market value in the process.

  Zero Hedge readers are by now well versed in the relatively brief history of unofficial, backdoor Chinese margin lending. This shadowy world, which includes umbrella trusts, structured funds, and P2P lending, has served to funnel somewhere in the neighborhood of CNY1 trillion into Chinese equities.

  Apparently, the powers that be in China — who are quite adept at monitoring “threats” to the Party line and are quick to remove all traces of “objectionable” material from the internet — completely missed the giant margin bubble that was allowed to inflate outside of brokers’ books. A far more realistic explanation of course is that Beijing was well aware of what was going on but let it continue due to the fact that China’s world-beating equity rally was the only thing distracting the country from flatlining economic growth and a bursting real estate bubble.

  Whatever the case may be, the margin mania unwind is upon us and as noted earlier today, nothing seems to be able to stop it. Not suspending compulsory liquidation for unmet margin calls, not billions in committed market support from brokerages, not a PBoC backstop for the CFSC, and not even a ban on selling by the Social Security Council (we’ll see when the SHCOMP opens on Wednesday morning if banning bearish language has any effect). 

  As Chinese stocks climbed ever higher earlier this year, some commentators began to ask if a stock market collapse would have implications for the broader Chinese economy. In short, just about the last thing the country needs amid slumping global (not to mention domestic) demand is for a crisis of confidence in local equity markets to spill over into the real economy and derail consumer spending just as Beijing attempts to transition the country away from a smokestack model and towards an economic future characterized by services and consumption.

  Generally speaking, the consensus was that any fallout from the bursting of the equity bubble would largely be confined to the financial markets. Now, analysts are very quietly starting to suggest that if the sell-off doesn’t end soon, it could metastasize and spread “far beyond the stock market.”

  *  *  *

  From BofAML:

  The A-share correction: The damage could spread far beyond the stock market

  A dent to market’s faith in government role

  We believe that the biggest damage caused by the A-share market’s roller-coaster ride since the middle of last year has been to investors’ faith in the government’s ability to manage asset prices (stock, RMB, debt and even property) reasonably smoothly. The difficulty the government has faced to stabilize the stock market has demonstrated the downside of that faith. As a result, we expect many of these assets to be re-priced lower going forward. Also,the ripple effect from the market correction has yet to show up – we expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis.

  Many assets in China may get re-priced lower

  We question the implementation of government policy in urging people to buy stocks. Regarding the deleveraging process in the market, in our view the government started too late & without adequate preparation for the potential downside (we suspect because it didn’t know the true extent of shadow margin financing activities) and it resorted to administrative control when the market turned down. So far, government measures have appeared to us to be behind the curve. As a result, we expect investors to assign less value to various perceived government “puts” going forward. The fall in the stock market could also make the government even more cautious towards QE and potentially using the property market or debt market to hold up growth, in our view – a burst of any of these bubbles, if fully developed, will be far more difficult to deal with than what’s happening in the stock market.

  Real economy & corporate earnings will suffer

  The net result of this volatile market is a transfer of wealth from the people on the street to the wealthy, including many major shareholders, who cashed out. We expect this will likely hurt consumption down the road. More critical is a potential distortion to credit flows due to the impairment to financial institutions’ balance sheets – as experience with Japanese banks shows, even if they don’t have to mark to market and book losses, their lending attitude may turn more cautious. Of course, the impact of a full-blown financial crisis in China, if it materializes, on the economy would likely be severe. On corporate earnings, other than the drag from slower growth, many companies may have to book stock-market related losses over the next few quarters by our assessment.

  A possible trigger for a financial crisis in China

  If the market continues to fall sharply, stock lending related losses could run into Rmb trillions, of which, banks and brokers may have to bear a meaningful share. These potential losses can be especially dangerous to brokers whose capital base is less than Rmb1tr. Even more important, the opaqueness of China’s financial system and the lack of clear definition of risk responsibility mean that contagion risk is high, similar to the subprime crisis. We had always considered the risk of a financial crisis in China as high. What has happened in the stock market has likely increased the risks considerably and also brought forward the timeline by our assessment – the leverage is much higher now and economic growth rate, potentially lower.

  *  *  *

  We’ll leave you with following chart from Morgan Stanley which should be enough to dispel the notion that the deleveraging in China might have run its course:

  

  

  

  

  

  

• Merkel Mocks Greece And The Referendum: There Is Money, But The Deal Is Much Harsher Now (And No Debt Haircut)

  Another day came and went with no breakthrough in negotiations between Athens and Brussels as new Greek FinMin Euclid Tsakalotos reportedly showed up to Tuesday’s Eurogroup with nothing to discuss. 

  With the ECB tightening the screws on Greek banks and the German finance ministry as well as German lawmakers tightening the screws on Angela Merkel, the Chancellor is drawing a hard line toward the Greeks in the face of calls for debt writedowns from the IMF, Greek PM Alexis Tsipras and the Greek people. 

  • MERKEL SAYS IF GREEK REFORM PROPOSALS ARE SATISFACTORY AND PRIOR  ACTIONS TAKEN, SHORT-TERM FINANCE CAN BE PROVIDED: RTRS
  • MERKEL SAYS SHORT-TERM GREEK FIX HINGES ON LONG-TERM PROPOSALS
  • MERKEL SAYS GREECE NEEDS MULTI-YEAR PROGRAM 
  • MERKEL: GREEK PROPOSALS HAVE TO GO BEYOND WHAT BAILOUT INSTITUTIONS DEMANDED BEFORE REFERENDUM
  • MERKEL SAYS GREECE WILL NEED STRONGER MEASURES TO PLUG FINANCING GAP BECAUSE OF ECONOMIC DETERIORATION
  • MERKEL: EU TO DEAL WITH GREEK DEBT BURDEN AT END OF PROCESS
  • MERKEL SAYS EURO LEADERS DIDN’T DISCUSS AID PACKAGE SIZE
  • MERKEL SAYS SHE ISN’T ‘ESPECIALLY OPTIMISTIC’ ABOUT GREECE
  • MERKEL RULES OUT DEBT ‘HAIRCUT’
  • MERKEL SAYS ECB BRIEFING SIGNALED GREECE NEEDS SUNDAY DECISION

  More from Reuters: 

  German Chancellor Angela Merkel said on Tuesday she hoped to have sufficient reform proposals from Greece this week to be able to ask the German parliament to approve negotiations on a new long-term aid programme for Athens.

   

  She said all 28 European Union leaders would meet next Sunday to discuss support for Greece provided Prime Minister Alexis Tsipras put forward detailed reform proposals along with a loan request by Thursday that were considered satisfactory.

   

  If the reform list was adequate and Greece took some prior actions to enact first measures, Merkel said she was sure that short-term finance could be provided to help Athens over its immediate funding needs.

  In other words, Merkel just told the Greeks yes, there is some money, but forget debt haircut, and the new deal is far harsher than what was on the table because the Greek economy is now imploding. Also, the deal will be 2-3 years at least to start, so even more austerity is on the table. So to all those who voted “Oxi”, if you want your deposits unlocked well… tough.

  The headlines keep coming hot and heavy, in which we find that Europe now thinks it is Greece’s god:

  • MALTA’S MUSCAT SAYS `SUNDAY IS JUDGMENT DAY’

  As Bloomberg reports, “Sunday now looms as the climax of a five-year battle to contain Greece’s debts, potentially splintering a currency that was meant to be irreversible and throwing more than a half-century of economic and political integration into reverse. “We have a Grexit scenario prepared in detail,” European Commission President Jean-Claude Juncker said, using the shorthand for expulsion from the now 19-nation currency area.

  And just so it is clear who is calling the shots, here is Juncker explaining:

  • JUNCKER: LAST MOMENT FOR GREEK GOVT WILL BE MONDAY MORNING

  What happens then?

  “Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system,” European Union President Donald Tusk said. “If someone has any illusions that it will not be so, they are naive.”

  And just in case Greece decides to disobey, Europe is ready to treat Greece as an African nation:

  • JUNCKER: EU COMMISSION HAS HUMANITARIAN PLAN FOR GREECE IF NEED

  The only good news for Greece, which was just clearly reduced to a vassal nation state of Europe, is that Merkel did not demand Tsipras’ head on a silver platter. Then again, if he does indeed fold, it may be the Greek people themselves who ask for it instead…

  

  

  

  

  

• Cronyism Pays: Eric Holder Triumphantly Returns To Law Firm That Lobbies For Banks

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Trying to determine Barack Obama’s most corrupt, crony appointee presents a virtually impossible task. Every single person he’s appointed to a position of power over the course of his unfathomably shady, violent and unconstitutional presidency, has been little more than a gatekeeper for powerful vested interests. Obama’s job was to talk like a marxist, but act like a robber baron. In this regard, his reign has been an unprecedented success.

  All that said, if anyone is a top contender for the worst of the worst of the Obama Administration, it’s Eric Holder. As head of the Department of Justice, he was the one man who could’ve played an enormously positive role in American society, by punishing those responsible for creating the financial crisis that destroyed tens of millions of lives globally. Instead, he chose to actively protect the financial oligarchs and ushered in a tragic new era for these United States. One in which the world suddenly realized that the U.S. is little more than a glorified oligarchy. Essentially an aggressive Banana Republic armed with nuclear weapons and the swagger of a third world dictator.

  Holder’s list of failures and evidence shameless cronyism are virtually endless. I’ve covered many of them on this site. Here are just a few:

  The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally

  Eric Holder Announces Task Force to Focus on “Domestic Terrorists”

  Eric Holder and the DOJ Have Spent Millions of Taxpayer Dollars on Unreported Personal Travel

  Elizabeth Warren Confronts Eric Holder, Ben Bernanke and Mary Jo White on Bankster Immunity

  Even Washington D.C. Insiders Admit Eric Holder is a Bankster Puppet

  Eric Holder Claims Emails Using Words ‘Fast and Furious’ Don’t Refer to Operation Fast and Furious

  For all his hard work protecting and coddling criminal financial oligarchs, Eric Holder was always going to be paid handsomely once he left office. That time has come. From the Intercept:

  After failing to criminally prosecute any of the financial firms responsible for the market collapse in 2008, former Attorney General Eric Holder is returning to Covington & Burling, a corporate law firm known for serving Wall Street clients.

   

  The move completes one of the more troubling trips through the revolving door for a cabinet secretary. Holder worked at Covington from 2001 right up to being sworn in as attorney general in Feburary 2009. And Covington literally kept an office empty for him, awaiting his return.

   

  The Covington & Burling client list has included four of the largest banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

   

  Covington was also deeply involved with a company known as MERS, which was later responsible for falsifying mortgage documents on an industrial scale. “Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JPMorgan Chase and several other large banks,” according to an investigation by Reuters.

   

  The Department of Justice under Holder not only failed to pursue criminal prosecutions of the banks responsible for the mortage meltdown, but in fact de-prioritized investigations of mortgage fraud, making it the “lowest-ranked criminal threat,” according to an inspector general report.

   

  When the firm moved to a new building last year, it kept an 11th-story corner office reserved for Holder.

  For all intents and purposes, he never really left Covington. He just took a sabbatical to protect the banksters for a few years.

  Holder is set to become among the highest-earning partners at the firm, with compensation in the seven or eight figures.

  Of course, Mr. Holder is not the only shameless crony to join Covington. It seems the firm almost makes a point to hire the most compromised, Washington D.C. parasites they can find. As the New York Times noted:

  Covington already employs a number of former Justice Department officials, including Lanny Breuer, the former assistant attorney general for the department’s criminal division under Mr. Holder; Mr. Breuer’s successor, Mythili Raman; and Michael Chertoff, a former assistant attorney general and secretary of Homeland Security.

   

  History shows that Breuer wouldn’t challenge bankers if they threw his own mother out on the street. Meanwhile, Chertoff is famous for trying to make a fortune by scaremongering the American taxpayer into buying his worthless Rapiscan naked body scanners.

  Moving along, let’s try to look on the bright side. With Holder gone, his replacement couldn’t possibly be worse, right? Wrong.

  Recall: Meet Loretta Lynch – Obama’s Attorney General Nominee Who Might be Even Worse than Eric Holder

  Now I’d like to say farewell to Eric Holder the only way I know how…

  

  

  

  

  

• Presenting China's Plunge Protection Playbook

  Earlier today we were amused (but not at all surprised) to learn that Beijing’s latest strategy in the fight to rescue collapsing Chinese stock prices involves forbidding local media from using terms like “rescue the market” and “equity disaster”. Here’s a concise recap of the situation: 

  Officials in Beijing are in the throes of Politburo panic after watching some $3 trillion in market value disappear into thin (and probably polluted) air over the last three weeks. Amid the turmoil, China has resorted to an eye-watering array of policy maneuvers, pronouncements, and plunge protection schemes aimed at arresting the slide. 

   

  Nothing has worked; not suspending compulsory liquidation for unmet margin calls, not billions in committed market support from brokerages, not a PBoC backstop for the CFSC, not even a ban on selling by the Social Security Council. And when banning selling doesn’t work, you have to ban talking about selling.

   

  
  

  Indeed, it’s truly amazing to consider the lengths China has gone to over such a short period of time in a futile attempt to resurrect the margin-fueled equity bubble that has served as a convenient distraction for a country that might otherwise be focused on decelerating economic growth and a collapsing real estate bubble. 

  Because there’s still a long way to go before the panicked deleveraging in backdoor margin lending channels runs its course, we expect to see Beijing resort to still more desperate measures to arrest the slide. Meanwhile, Morgan Stanley — whose “don’t buy this dip” call might well have been the straw that broke the dragon’s back so to speak — is out with a detailed history of China’s plunge protection playbook. Below is a visual representation followed by the detailed breakdown.

  

  From Morgan Stanley:

  Taking action to stabilize the A-share market

  June 27: RRR cut and rate cut

  The People’s Bank of China (PBOC) announced cuts in the benchmark 1-year lending rate of 25bps to 4.85% and the 1-year deposit rate of 25bps to 2.00%, effective June 28, 2015. Meanwhile, the central bank also cut the RRR applied on qualified financial institutions with a focus on rural and/or SMEs loans by 50bps, and that on finance companies by 300bps. This is the first combined interest rate and RRR cut taken during this round of policy easing. Morgan Stanley expects the move to release around Rmb230bn of liquidity into the system.

  June 29: Up to 30% of US$570bn pension fund likely to be invested in stock market

  “Basic Rules of Pension Insurance Fund Investment Management ” has started to solicit feedback from the public. According to the preliminary draft, up to 30% of the fund could be invested in equities and equity-related investment products.

  June 30: 13 major private fund managers jointly voiced bullish views on A shares

  Thirteen major China private fund managers jointly announced that the core foundation for the A-share rally has not changed – stable monetary policy, structural reform, asset reallocation by Chinese households. The risk-return profile has improved after the recent correction and provided good investment opportunities for mature, rational investors. The joint announcement was organized by China Asset Management Association.

  June 30: Easing of regulations/rules on margin financing

  1. On existing margin financing through unofficial channels: CSRC announced that total underground margin financing is estimated to be Rmb500bn. The total amount of mandatory position closing during the previous two weeks was only Rmb15bn.

  2. On regulations/rules regarding margin financing through unofficial channels: CSRC announced that brokerage firms are allowed to provide data feed connection to web-based securities services operated by qualified third parties.

  Service providers that have been involved in rule-violating activities will need to go through reforms and rectifications. During this period, the service provider can continue providing service for the existing margin balance, but not grow any new business.

  3. On regulations/rules regarding margin financing through brokers: One major Chinese broker, Guo Tai Jun An, announced on its website that it had decided to adjust up the collateral conversion ratio for selective CSI 300 Index constituent companies (equity holdings that could be used as collateral for margin financing) and adjust down margin maintenance requirement, effective starting from July 1.

  July 1: Easing of regulations and rules on margin financing

  1. CSRC announced new rules on margin financing through a new version of “Brokerage Firm Margin Financing Business Management Rules”.

  a) Removes the requirement of margin calls with two business days when investor’s collateral market value falls below 130%, and that total value of collateral (existing + additional) needs to be above 150% of the financing amount.

  b) Allows brokerage firms and their clients to decide between themselves the requirement for the deadline and amount for margin calls.

  c) Allows more flexibility for brokers to treat investors’ collateral – forced liquidation is not mandatory any more.

  d) Brokerage firms are allowed to roll over existing margin financing contracts that are not longer than six months.

  2. The Shanghai Stock Exchange announced that real estate and equity ownership can be used as additional collateral if margin calls get triggered.

  July 1: Increase of shareholding by listed companies

  1. Increase of shareholding by major shareholders: Between June 15 and July 4, major shareholders of 182 A-share listed companies have increased their shareholding through secondary market purchase. There were more 20 listed companies announcing shareholding increases on July 3.

  2. Shares repurchase by A-share listed companies: China Vanke A (000002.SZ), TCL Corporation (000100.SH), Media Group (000333.SZ), BOE Technology (000725.SH), Bright Oceans Inter-Telecom Co Ltd (600289.SH)

  July 2: Reduction of equity trading transaction fee

  The Shanghai Stock Exchange, Shenzhen Stock Exchange, and China Securities Depository and Clearing Corporation Ltd announced reductions to A-share trading transaction fees: from 0.03% of transaction face value to 0.002% for Shanghai Stock Exchange, from 0.00255% to 0.002% for Shenzhen Stock Exchange, effective from August 1.

  July 3: China Securities Finance Corp Ltd (CSFC) capital increase and share expansion

  CSRC announced that CSFC will expand its registered capital from Rmb24bn to Rmb100bn. CSFC will raise funding from multiple channels in addition to stabilize capital market.

  * CSFC was founded in 2011 under the context of beginning of margin financing business in China. It is the only investment business entity in China that has been approved to practice margin refinancing. Its business is mainly focuses on: 1) raise financing to lend to brokers for their margin financing business; 2) provide a platform for insurance companies, mutual funds, strategic shareholders of listed companies to lend out their equity holdings.

  CSFC’s major shareholders include: Shanghai and Shenzhen stock exchanges, China clearing, CFFEX, Dalian Commodity Exchange and Zhengzhou Commodity Exchange. Besides the refinancing business, it also tracks and monitors the overall margin financing business in China, analyzes market and credit risks, etc.

  July 3: Reduction of IPOs in terms of both numbers and the amount of capital raised

  CSRC announced at its press conference that the number of IPOs and the amount of capital to be raised through IPOs will be significantly reduced subsequently.

  July 4: 28 approved IPOs got suspended

  Twenty-eight approved IPOs that have been scheduled for subscription in July will be suspended. Subscription fund is returned to investors’ investment accounts on July 6.

  July 4: 21 major Chinese brokerage firms to invest Rmb120bn in blue chip ETFs

  Twenty-one major brokers announced that they will jointly offer minimum Rmb120bn to buy blue chip ETFs. These companies promised not to sell their positions as long as the SH Composite Index is below 4500.

  July 4: 25 major Chinese mutual funds to invest in equity funds managed by themselves

  Twenty-five mutual funds jointly announced:

  1) Chairmen and general managers of these funds promised to actively purchase equity funds managed by their own companies and hold shares for at least one year.

  2) Re-open funds whose subscription has been closed to offer investors more investment options

  3) Expedite equity funds’ application and distribution, and build positions with newly raised funds according to the funds’ mandates.

  * China Asset Management Association announced that by July 6 2015 57 mutual funds are reported to have committed Rmb2.2bn to equity funds managed by themselves. in total 62 mutual funds (including the 25 ones mentioned above) have made public announcements supporting the 25 mutual funds’ proposal.

  July 5: China HUIJIN’s investment in A-share ETFs

  China Central HUIJIN Investment Company announced on its website that it has been purchasing open-end A-share ETF index funds on the secondary market, and that it will continue relevant market operations.

  July 5th : CSRC announcement of tighter measures against market manipulation and rumor distribution activities

  CSRC announced at its press conference that:

  1. Plans for upcoming IPOs: There will be no new IPOs in the near term after the 28 approval IPOs got postponed. Processing of new IPOs will not stop; however, the number of new IPOs and the capital to be raised through these IPOs will be reduced significantly.

  2. Actions against shorting index future: CFFEX (China Financial Futures Exchange Inc) has restricted opening positions on CSI500 Index future contracts for some investment accounts. CSRC has required CFFEX to strengthen its inspection actions and coverage to collaborate with CSRC on illegal transactions and market manipulating trading activities.

  3. Actions against rumors: CSRC has initiated securities law targeted law enforcement actions against creating and distributing stock market rumors.

  July 5: China Securities Finance Corp Ltd (CSFC) to stabilize the market with liquidity support from PBOC

  CSRC announced that China Securities Finance Corp Ltd (CSFC) will raise funding through multiple channels and play an active role trying to stabilizing the market. PBOC will provide liquidity support for this purpose.

  * There is no specific limit attached to the liquidity support mentioned in CSRC’s announcement.

  July 6: CSI500 Index Future to have trading limit of 1200 lots

  China Financial Futures Exchange (CFFEX) announced a daily trading limit for CSI 500 index future (IC500), effective on July 7 2015. Investors can only buy up to 1,200 lots of CSI 500 index future contract for either long or short positions.

  

  

  

  

  

• Financial Nonsense Overload

  Submitted by Dmitry Orlov via Club Orlov blog,

  “Those whom the gods wish to destroy they first make mad” goes a quote wrongly attributed to Euripides. It seems to describe the current state of affairs with regard to the unfolding Greek imbroglio. It is a Greek tragedy all right: we have the various Eurocrats—elected, unelected, and soon-to-be-unelected—stumbling about the stage spewing forth fanciful nonsense, and we have the choir of the Greek electorate loudly announcing to the world what fanciful nonsense this is by means of a referendum.

  As most of you probably know, Greece is saddled with more debt than it can possibly hope to ever repay. Documents recently released by the International Monetary Fund conceded this point. A lot of this bad debt was incurred in order to pay back German and French banks for previous bad debt. The debt was bad to begin with, because it was made based on very faulty projections of Greece's potential for economic growth. The lenders behaved irresponsibly in offering the loans in the first place, and they deserve to lose their money.

  However, Greece's creditors refuse to consider declaring all of this bad debt null and void—not because of anything having to do with Greece, which is small enough to be forgiven much of its bad debt without causing major damage, but because of Spain, Italy and others, which, if similarly forgiven, would blow up the finances of the entire European Union. Thus, it is rather obvious that Greece is being punished to keep other countries in line. Collective punishment of a country—in the form of extracting payments for onerous debt incurred under false pretenses—is bad enough; but collective punishment of one country to have it serve as a warning to others is beyond the pale.

  Add to this a double-helping of double standards. The IMF won't lend to Greece because it requires some assurance of repayment; but it will continue to lend to the Ukraine, which is in default and collapsing rapidly, without any such assurances because, you see, the decision is a political one. The European Central Bank no longer accepts Greek bonds as collateral because, you see, it considers them to be junk; but it will continue to suck in all sorts of other financial garbage and use it to spew forth Euros without comment, keeping other European countries on financial life support simply because they aren't Greece. The German government insists on Greek repayment, considering this stance to be highly moral, ignoring the fact that Germany is the defaultiest country in all of Europe. If Germany were not repeatedly forgiven its debt it would be much poorer, and in much worse shape, than Greece.

  The brazen hypocrisy of all this cannot but have a destabilizing effect on Europe's politics, with the political center cratering and being replaced with radical left-right coalitions. Note how quickly France's right-wing presidential front-runner Marine Le Pen applauded the result of the Greek referendum organized by Greece's left-wing government. The disgust with officialdom that pervades the European Union is beginning to transcend political boundaries, making for strange bedfellows.

  In the end, finance—at any level—has to be about rules and numbers, or it becomes about nonsense. Break enough of your own rules, and your money turns to garbage, because in a world where money is debt and debt is garbage, money is garbage. But there is a proven method for solving this problem and moving on: it's called national bankruptcy. Greece is bankrupt; if its resolution brings on the bankruptcy of Spain, Italy and others, and if that in turn bankrupts the entire Eurozone, then that's exactly what must happen.

  But something else might happen instead. The Eurocrats are already appalled by the Greek show of democracy, and will work hard to derail any such democratic effort in the future using all of the means of political and economic manipulation at their disposal—all simply to muddle along for a bit longer, making the end-game, when it finally comes, all the more painful. I am sure that the Eurocrats plan to follow model of the British Civil Service, which reached its maximum staffing level right when the British Empire ceased to exist. Let's look for ways to not help them do this.

  

  

  

  

  

• Just One Chart

  Brace yourselves…

   

  

   

  Chart: Bloomberg

  

  

  

  

  

• VaRouFaKiS vs THe SQuiD…

  

  

  

  

• Surprise! CEOs Are Getting Rich By Buying Back Stock

  By now, there should be no doubt about who to thank for the record highs US stocks have put in this year. Investors should direct their appreciation first to the FOMC and second to corporate management teams, who stepped in to provide the all important “flow” once the Fed began to scale back its asset purchases. 

  Of course the Fed has been a powerful enabler when it comes to corporate buybacks. Ultra low rates have sent investors searching far and wide for yield, which in turn makes corporate credit an attractive option in a world where risk free assets often yield an inflation-adjusted zero or worse, have a negative carry. The strong demand for corporate issuance coupled with investors’ Fed-induced “beggars can’t be choosers” mentality means companies have been able to issue debt at rock-bottom rates.

  

  The proceeds from debt sales have been funneled into buybacks and dividends as myopic (not to mention price insensitive) corporate management teams have focused squarely on artificially boosting the bottom line and of course, on boosting their own equity-linked compensation. 

  

  We’ve recounted this narrative ad nauseam this year and we’ve also gone to great lengths to explain how this dynamic serves to undermine top line growth by curtailing capex and thus ensures that if a real, demand-driven recovery ever does actually materialize, companies will be ill-prepared to capitalize on it. 

  

  But again, that’s just fine for corporate management teams because it’s all about instant gratification these days and if you needed further proof that US equity markets have become the preferred channel for transferring debt sale proceeds directly into the pockets of top management, Bloomberg has all the evidence you need. Here’s more:

  Buybacks and dividends are rising to records in the U.S., and for many chief executives, that means a fatter pay check — even if sales aren’t growing.

   

  Eleven of the 15 non-financial U.S. companies that spent the most on buybacks last year base part of CEO pay on earnings per share or total shareholder return, or both, according to data compiled by Bloomberg. These metrics get a boost when businesses return cash to investors, giving companies like International Business Machines Corp. and Cisco Systems Inc. added incentive to dole out cash to stockholders.

   

  

   

  Linking compensation to buybacks and dividends can encourage managers to sacrifice funds that could be used for long-term investments, economist William Lazonick said. It also raises the prospect that executives are being paid for short-term returns rather than running a business well.

   

  Tying pay to performance has long been considered a shareholder-friendly move that gives executives an incentive to ensure that the company is on solid footing. Investors such as Warren Buffett have applauded payouts when they consider shares to be undervalued. Large pension funds have welcomed pay incentives, like when Walt Disney Co. in 2013 changed the way it calculates CEO Bob Iger’s stock awards.

   

  Yet dividends and buybacks can prop up per-share earnings and total shareholder return — lifting CEO pay as a result — even in cases where sales are falling.

   

  The focus on shareholder value has “led to this really corrosive feedback loop between executive compensation and corporate behavior,” said Nick Hanauer, co-founder of venture capital firm Second Avenue Partners LLC. “When everyone around a board room can justify essentially any behavior to generate a higher stock price, no stone shall go unturned.”

   

  
  

   

  Average CEO compensation for the top 350 U.S. firms by revenue has climbed to $16.3 million last year, according to data from the Economic Policy Institute. That’s up from $15.7 million in 2013.

   

  Overall in 2014, non-financial companies returned almost $1 trillion in share repurchases and dividends. As a percentage of gross domestic product, that’s among the largest payouts on record.

   

  Not all investors are applauding the bonanza.

   

  Amid a bull market, shareholders may not be as concerned as they should about the potential boost that buybacks and dividends can give to CEO pay, said Robert Barbetti, head of compensation advisory for J.P. Morgan Private Bank in New York.

  
  

  “Boards and compensation committees should be thinking very carefully about the incentive plans and objectives that work long term.” 

  Yes, maybe they should, but when the Elio Leonis of the world are setting the standard by raking in $1.8 million without ever having to work a day (or an hour for that matter), expecting executives to think beyond next week may be asking far too much.

  

  

  

  

  

• The Greferendum Shocker: Tsipras "Intended To Lose" And Is Now "Trapped By His Success"

  Call it game theory gone horribly chaos theory.

  It all started with a report by the Telegraph’s Ambrose Evans-Pritchard, whose release of on the record comments by Yanis Varoufakis (which we noted was rather surprising) that Greece was contemplating a parallel currency and potentially nationalizing Greek banks over the weekend, was supposedly the catalyst that got the Greek finmin fired. As a reminder, this is what Varoufakis told AEP on Sunday night: “If necessary… issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago.” And this is what the WSJ said on Monday morning:

  … the premier decided to act after Mr. Varoufakis told a U.K. newspaper late Sunday that Greece might introduce a parallel currency and electronic IOUs similar to those issued previously in California. Mr. Varoufakis quickly backtracked on his comments to the Daily Telegraph, but his prime minister had had enough, the people familiar with the matter say.

  That was the first indication that the wheels had officially come off the Greek wagon.

  Moments ago, we got confirmation of just that, when in another surprising twist it was again the Telegraph’s Evans-Pritchard who reported that the Greek prime minister who decisively and unexpectedly pushed for a referendum on the last weekend of June, “never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.”

  He got just that, and in a landslide vote at that even though “he called the snap vote with the expectation – and intention – of losing it.”

  Also according to the Telegraph, “the plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25th “ultimatum” and suffer the opprobrium.”

  He had good reason: according to another Varoufakis quote provided by AEP, “[the Troika] just didn’t want us to sign. They had already decided to push us out.”  In other words, as we speculated in mid-June, the only question was who gets stuck with the blame, and when Tsipras called the referendum, he made it quite easy for Europe; it was even easier when Greece collectively voted “Oxi” to a referendum spun in Europe as one whether or not to remain in the Eurozone.

  There is more: with Tsipras having already checked out it was a case of “after me, the flood”

  This ultimatum came as shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors’ cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

  But it is what happened next that took everyone by surprise: “Syriza called the referendum. To their consternation, they won, igniting the great Greek revolt of 2015, the moment when the people finally issued a primal scream, daubed their war paint, and formed the hoplite phalanx.”

  Suddenly the stakes are even higher for Tsipras, who is “now trapped by his success.” According to Costas Lapavitsas, a Syriza MP, “the referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise.”

  Ironically, that is precisely why the market soared today after it tumbled early in the morning, because it appeared that the Greek finmin was doing just: accepting a shoddy compromise. Of course, it wouldn’t be the first time: the Greeks had come home with “compromise” deals on many previous occasions only to have Syriza tear them apart. And this time the stakes are higher not only for Tsipras but the entire party, which realizes it faces a mutiny by the people, mostly the young ones, those with little to lose, if some 60% of them voted against a deal “at any cost” just to see the government fall back to just such an outcome.

  The Syriza MP Lapavitsas is correct when he says that  “Tsipras doesn’t want to take the path of Grexit, but I think he realizes that this is now what lies straight ahead of him.”

  In some ways Tsipras tried to backtrack: “The prime minister was reportedly told that the time had come to choose, either he should seize on the momentum of the 61pc landslide vote, and take the fight to the Eurogroup, or yield to the creditor demands – and give up the volatile Mr Varoufakis in the process as a token of good faith.”

  What would happen if Tsipras did decide to stick it to Europe, launch a parallel currency, sack the legacy central banker and nationalize the insolvent banks? We already laid out the key points previously but here it is again:

  They would “requisition” the Bank of Greece and sack the governor under emergency national laws. The estimated €17bn of reserves still stashed away in various branches of the central bank would be seized.

   

  They would issue parallel liquidity and California-style IOUs denominated in euros to keep the banking system afloat, backed by an appeal to the European Court of Justice to throw the other side off balance, all the while asserting Greece’s full legal rights as a member of the eurozone. If the creditors forced Grexit, they – not Greece – would be acting illegally, with implications for tort contracts in London, New York, and even Frankfurt.

   

  They would impose a haircut on €27bn of Greek bonds held by the ECB, and deemed ‘odious debt’ by some since the original purchases were undertaken by the ECB to save French and German banks, forestalling a market debt restructuring that would otherwise have have happened.

  None of that happened, instead Greece is now in full chaos mode.

  Events are now spinning out of control. The banks remain shut. The ECB has maintained its liquidity freeze, and through its inaction is asphyxiating the banking system.

   

  Factories are shutting down across the country as stocks of raw materials run out and containers full of vitally-needed imports clog up Greek ports. Companies cannot pay their suppliers because external transfers are blocked. Private scrip currencies are starting to appear as firms retreat to semi-barter outside the banking system.

  However, it is not just Greece which is sliding into total chaos – so is Europe itself, where the splits are becoming so obvious none other than the head of the German Institute for Economic Research said “What Is Happening Now Is A Defeat For Germany.”

  The entire leadership of the eurozone warned before the referendum that a ‘No’ vote would lead to ejection from the euro, never supposing that they might have to face exactly this. Jean-Claude Juncker, the European Commission’s chief, had the wit to make light of his retreat. “We have to put our little egos, in my case a very large ego, away, and deal with situation we face,” he said.

   

  France’s prime minister Manuel Valls said Grexit and the rupture of monetary union must be prevented as the highest strategic imperative. “We cannot let Greece leave the eurozone. Nobody can say today what the political consequences would be, what would be the reaction of the Greek people,” he said.

   

  French leaders are working in concert with the White House. Washington is bringing its immense diplomatic power to bear, calling openly on the EU to put “Greece on a path toward debt sustainability” and sort out the festering problem once and for all.

   

  The Franco-American push is backed by Italy’s Matteo Renzi, who said the eurozone has to go back to the drawing board and rethink its whole austerity doctrine after the democratic revolt in Greece. He too now backs debt relief for Greece.

  However, as if oblivious to these terminal developments within her own union, Merkel is already pushing onward and discussing plans for humanitarian aide and balance of payments support for the drachma: if there was any clearer indication that the Eurozone has been an abject failure, it would be the treatment of one of its member states as a 3rd world African banana republic even before it formally withdrew from its quasi-prison.

  Some within Syriza realize that it is all coming to an end, no matter if the can is kicked one more time (which it increasingly looks like it may be despite the referendum’s landslide vote):

  Mr Lapavitsas said Europe’s own survival as civilisational force in the world is what is really at stake. “Europe has not show much wisdom over the last century. It launched two world wars and had to be saved by the Americans,” he said

   

  “Now with the creation of monetary union it has acted with such foolishness, and created such a disaster, that it is putting the very union in doubt, and this time there will be no saviour. It is the last throw of the dice for Europe,” he said.

  … and yet, in the very end, the Greek prime minister who bluffed and unexpectedly won, now appears willing to concede just about everything to Merkel. Because even if the Telegraph’s entire article is based purely on speculation, it doesn’t explain the easy with which Tsipras seems to have folded not only on implementing reform as part of the harsher deal proposed by Merkel, but his admission that further debt relief now appears unlikely:

  • TSIPRAS PLEDGES GREEK REFORMS AS PART OF ANY AID DEAL
  • TSIPRAS SAYS GREECE SUBMITTED PROPOSALS TODAY
  • TSIPRAS SAID MORE RESTRAINED IN REQUESTING DEBT RELIEF

  And from the president of the European Council:

  .@atsipras committed to present a new request for a programme within the framework set by the ESM Treaty, incl. strict policy conditionality

  — Donald Tusk (@eucopresident) July 7, 2015

  Because in the end money talks, in this case €120 billion in hijacked unsecured liabilities known “deposits” and politicians walk. As for those millions of Greeks who gave Europe the symbolic middle finger on Sunday, their reaction when they just find out they were sold down the river once again will be all that matters.

  Yet in the end, Varoufakis’ line may again be the most important one: “they had already decided to push us out.” If true, then as Juncker threatened earlier not only will the last day for the Greek government be Monday, but so will the last day for Greece in the Eurozone.

  

  

  

  

  

• Why GM Is Back Below Its IPO Price – Pictures From GM's China "Parking Lot"

  Despite broad and deep price cuts introduced earlier in the year, GM's sales in China were roughly flat in June continuing the streak of weakness since March (when GM changed its reporting to retail sales from wholesale delivery). This is the weakest start to a year for China auto sales since 2012 and GM's share price is now back notably below its 2012 IPO price. Judging by the massive volume of cars 'parked' in GM's Shenyang Liaoning lots, it is clear that automakers learned nothing from the last "if we build it, they will come" channel-stuffing inventory surging dysphoria that, among other things, led to their last bankruptcy… if only Chinese buyers would take up the credit terms like Americans.

  GM's stock is back below its IPO price…

  

   

  As sales in China slump… (as Reuters reports)

  General Motors Co vehicle sales in China were roughly flat for June as broad price cuts introduced earlier in the year failed to boost demand.

   

  GM and its Chinese joint-venture partners sold 246,066 cars in June, virtually unchanged from the same month a year ago, the U.S. automaker said in a statement on Monday.

   

  That compares with a 4 percent year-on-year drop in May sales and a 0.4 percent dip in April, when the automaker switched to reporting retail sales rather than wholesale data for China.

   

  GM has largely failed to counteract sluggish auto sales so far despite slashing prices on 40 models in May by up to 20 percent, as China's economy grows at its slowest rate in 25 years. The automaker also faces rapidly shifting tastes among Chinese consumers, now showing a pronounced preference for small, affordable sport-utility vehicles.

  As it appears there just is no more room to stuff inventories in its Shenyang, Lianing province parking lots  (as China has become the new car graveyard over the last 3 years)

  

  

  

  

  

  

  

  

  

  *  *  *

  And with allthis inventory, sales are a problem…

  For the market overall, sales for January to May rose only 2.1 percent from a year earlier, giving 2015 the slowest start since 2012, according to the most recent statistics available from the China Association of Automobile Manufacturers (CAAM).

  And finally, there is an even bigger probelm…

  • *CHINA PASSENGER CAR SALES HIT BY STOCK-MARKET ROUT, CUI SAYS
  • *CHINESE CANCELLING CAR PURCHASES ON STOCKS ROUT, PCA'S CUI SAYS

  

  

  

  

  

• Disorderly Collapse – The Endgame Of The Fed's Artificial Suppression Of Defaults

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The Federal Reserve under Alan Greenspan and then Ben Bernanke has escaped, largely, responsibility for the panic in 2008 mostly because there is no direct link between monetary policy and the housing bubble. The most stinging criticism that comes out of the era is Greenspan’s “ultra-low” interest rate setting for federal funds, but there is no smoking gun in the form of the “printing press” or bank “reserves.” In fact, bank reserves remain, somehow, the central focus of monetary policy even today when they should be taken for how big a mess the Fed created of the prior bubbles.

  There is no printing press in the basement of the Marriner Eccles building or even at the Open Market Desk of FRBNY in NYC. That does not mean, however, that monetary policy is absolved from the center of the biblical expansion of “dollar” reach and debasement (in both definition and scale). When you look at bank reserves, the immediate reaction, often more visceral than cerebral, is that there should be an enormous bout of inflation by now; that was, in fact, the first public and expressed criticisms of the QE’s.

  That view of “reserves” conflates what they actually represent. In the operational format alone, reserves are only what the Open Market Desk is doing of monetary policy at that time. In terms of the serial asset bubbles, they represent the onboarding of immense “money dealing” that took place in the latter 1990’s and early and middle 2000’s under the implicit but never-tested promises of monetary policy. In other words, the rise in reserves now was only to make explicit, in arrears, what was expected from bank balance sheets during the bubbles themselves.

  

  In that respect, the increase in reserves post-crisis was not to unleash new inflation, consumer or asset, but rather to enumerate, and only partially, what it took to get past inflation going and maintaining. The Fed was only, through the QE’s, taking belated ownership of that which it implicitly aided of past “dollar” existence. Linking monetary policy to that inflation was not just the federal funds rate, but how that “communication” (as Janet Yellen tells it) was used in actual “money supply” circumstances.

  In March 2007, Richard Claiden, CFO of Primus Guaranty, delivered a presentation at the Richmond Fed’s Credit Markets Symposium that showed this monetary linkage in unequivocal detail. Credit spreads on the Dow Jones OTR 5-year CDX had fallen from near 80 bps in early 2003, at the bottom of the dot-com “cycle”, to almost 30 bps by early 2007.

  

  The reason for that massive compression was what is familiar to any financial observer of the post-QE3 environment. Not only did Mr. Claiden refer to a “reach for yield” in March 2007 he also quantified what is perhaps the least appreciated aspect of wholesale monetary influence: clustering defaults.

  

  In the attempt to diminish the influence of the business cycle, the Fed uses monetary policy to influence bank and bond investors with regard to liquidity and risk. One of the major expressions of that is to artificially induce default clusters; there was a massive default wave in the nascent wholesale finance industry out of the dot-coms but then a serious absence of persisting defaults despite a relatively weak recovery thereafter. That disparity is covered by monetary policy influence which, in addition to “reach for yield” via rate repression, keeps many weaker businesses afloat long past the point at which they “should” fail. That isn’t, however, a permanent reduction of what orthodox economics perceives of a negative factor (when in fact it might rather be recognized, rightfully, as necessary creative destruction) only a temporary assuagement of defaults that instead cluster into the next cycle – which happened to be, not by coincidence, much, much bigger.

  Mr. Claiden and Primus were no outside observers to this problem, and his firm was expecting an uptick in spreads as mortgage problems grew somewhat more acute. The founder of Primus was the man who practically invented the swap, or at least the standardized version of it that became the bedrock of the entire derivatives industry. In May 2007, Tom Jasper, the CEO who in 1985 launched and became the first co-chairman of ISDA, was “toasting” to wider credit spreads and a much fatter return for Primus. The mortgage problems, he figured, would be grand for Primus’ main business which was writing credit protection.

  Because spreads were so thin and had grown thinner throughout Greenspan’s “conundrum”, Primus was forced (in their profit models) to lever up significantly. At the end of 2005, the company, which was a publicly-traded and listed stock, reported a total swaps portfolio of single name entities of $13.4 billion, a 28% increase over the end of 2004. That $13.4 billion came upon a base of just $69 million in cash and $560 million in available-for-sale securities. That was 21x leverage.

  By the time Bear Stearns had failed, Primus had $24.3 billion in swaps and just $774 million in cash and assets; or 31x leverage. Since Primus only sold protection on “high quality” companies, in other words those with the highest ratings, there was little perceived risk even with spreads thought to be rising in 2007. In fact, a good proportion of the protection was written against financial firms, meaning the largest banks including Lehman. As you would expect, the firm nearly went bankrupt by October 2008 and the panic, but survived long enough to be finally and fully unwound last year (again, models and math that were no match for reality). Mr. Jasper left the firm in 2010.

  While the current state of Primus’ liquidation gives us another anecdote about the eurodollar decay post-crisis, it was its buildup that turned monetary policy into actual money supply as it is/was understood and used in the eurodollar/wholesale model. Those credit default swaps that Primus was supplying at dirt cheap spreads allowed, artificially and mistakenly, other financial firms and banks to reduce risk in their credit portfolios – at least that was the way it was calculated in their models which translated directly into real financial power or what passes for money these days. That meant those firms, through the “supply” of risk absorption provided by Primus and others, could invest, warehouse and hold much more in terms of par and notional credit for a given “capital” base – the math became the means by which credit expanded so precipitously, traded as exchanged liabilities often in the form of derivative contracts.

  

  Without that supply, including and especially during the panic, the Fed has been forced to take over money dealing more directly, turning out numerical bank reserves in place of what was before just unspecified and held off-balance sheet, but very real, balance sheet capacity. The more the Fed suppressed via its interest rate measure, the more leverage firms like Primus had to supply to be profitable (or as profitable as their models demanded) – at the end of 2005, that 28% increase in the swap portfolio was how the firm increased ROE to 15%. If spreads had been more in line with actual economic reality, Primus may not have “needed” to use as much leverage and the “supply” of risk absorption capacity may have instead been itself reduced, halting even somewhat the massive expansion of subprime and others (since Primus was offering a great deal of swaps on financial firms, especially the bigger banks, those CDS were likely used as hedges against credit structures, including subprime, that were offered/sponsored by those very same firms; in other words, there is a great likelihood that Primus risk capacity was directly related to the subprime mortgage blowout, both up and then down).

  Nobody apparently learned much from the whole bubble-bust affair as banks and financial firms are at it again, this time in corporate debt. The artificial suppression of default, in no small part to perceptions of those bank reserves under QE (just like perceptions of balance sheet capacity pre-crisis), has turned junk debt into the vehicle of choice for yet another cycle of “reach for yield.” The supply, this time, is far less of the eurodollar variety and more through mutual funds – less banking, more personal sector. That may sound somewhat more comforting except that it is the weakened, perhaps fatally, eurodollar state that is, in the end, expected to support the whole corporate morass when the default cycle inevitably runs its course and the artificial cluster reappears. As retail investors might likely flee against expectations they never apparently conceived but should have given recent history, there won’t be much, if any, balance sheet capacity to boost appetites toward an orderly transition.

  In the past two bubble cycles, we see how monetary policy creates the conditions for them but also in parallel for their disorderly closure. It isn’t money that the FOMC directs but rather unrealistic, to the extreme, expectations and extrapolations. Once those become encoded in financial equations, the illusion becomes real supply. In that way, it appears as if central banks hold great power but little responsibility. The pathology, however, is there and apparent to any and all inquiry. All that is required is a contemporary frame of reference, including what and where the printing press is and resides.

  

  

  

  

  

• When Does The Chinese Carnage Stop? (In 3 Charts)

  Chinese investor psychology has shifted. Period. The more the government intervenes to lift stock prices explicitly, the more local and professsional leveraged investors will use any strength to unwind their positions (profitably or unprofitably). The question is – when does this carnage stop?

   

  Exhibit 1 – Based on ‘fundamentals’, The Shanghai Composite has a long way to go…

  

   

  Exhibit 2 – If Dr. Copper is right about the state of the world, The Shanghai Composite won’t find support until it has fallen another 60%…

  

   

  Exhibit 3 – Judging by historical analogs, The Shanghai Composite will need to destroy all gains in the last 2 years before ‘value’ is once again seen…

  

   

  But apart from that, this must be a buying opportunity, right?

  

   

  Because if you don’t buy the dip, you’re a f##king idiot…

  

  

  

  

  

• Thoughts On Greece … From Zimbabwe

  Late last month, after Greek PM Alexis Tsipras’ announcement that a referendum would be held on the terms of the country’s bailout, we noted that sadly, the supermarkets in Greece were beginning to resemble those of Venezuela as Greeks, anticipating an impending shortage of imported goods, stocked up on food staples:

  Many of the visuals and stories that emanate from Venezuela are to be expected, and are generally in line with the transformation of any normal nation to a socialist utopia. None however, are more poignant than the images of supermarkets and grocery stores that have been ransacked empty as a result of the collapsing currency, devastated supply chains and soaring inflation (supermarkets which have since imposed fingerprint scanners in what is no longer capital but food controls). We are sad to announce that what was once a Venezuela trademark has now transitioned to a country that until recently was among the most developed nations in the west: Greece. In clear rejection of Tsipras’ plea for calm, the Greek population stormed (now empty) ATMs, grocery stores and gas stations as they scrambled to obtain, or convert, paper currency into tangible products. 

   

  
  

  Now, with a depositor bail-in looking more likely by the day, and with redenomination risk rising materially, Greece is drawing unflattering comparisons to another country which knows the depths of economic despair all too well: Zimbabwe. 

  Presented below is a letter from writer, blogger, and Zimbabwean Cathy Buckle.

  *  *  *

  Dear Family and Friends,

  Seeing pictures of hundreds of people crowded around banks in Greece desperate to withdraw their own money from the banks has sent cold but sympathetic shivers down our spines here in Zimbabwe. Greek banks closed for a week, cash withdrawals from ATM’s restricted to a limited amount per person per day is all too familiar to Zimbabweans. We know exactly how this feels: the fear, anger, despair and disbelief that goes with watching your life savings evaporating and knowing there’s nothing you can do to save it.  How well we remember standing for hours at the banks and then only being able to draw out enough money to buy a single bar of soap.

  Zimbabwe has the dubious honour of being able to say “been there, done that” to almost every bad governance and economic crisis you can think of.  It’s been six years since Zimbabwe discontinued using the Zim dollar and began trading in the US dollar  and a few other international currencies but for the last few weeks we’ve been doing all the sums again, counting the zeroes and seeing if there’s anything we can salvage from our lost life savings.  

  When an announcement came in June that the old Zimbabwe dollar was to be demonetized there was a frenzy of rumours that this meant a new Zimbabwe dollar was going to be introduced. A return to the Zim dollar, old or new, is still probably the biggest fear of all Zimbabweans. As bad as things are for people now, at least we have an internationally accepted currency in our pockets and not a worthless currency which isn’t backed by gold reserves, which can be printed at will by an unaccountable government. 

  People outside of Zimbabwe have never really understood how we woke up one morning in February 2009 and found that all our bank balances had been reduced to zero. Regardless of whether we had millions, billions, trillions,  septillions or even octillions of Zim dollars in our accounts, it had all gone. Suddenly our bank balance was just ZERO and we were told to reactivate our accounts by depositing US dollars. Exactly the same thing applied to the huge piles of Zim dollars we had in boxes and bags in our homes : it had all become valueless paper, eroded to almost nothing by super-hyper-inflation and then suddenly worth ZERO.

  It’s taken six years for the government of Zimbabwe to put a value on the money that turned to ZERO in 2009 and frankly for most people, who had become paupers through hyperinflation anyway, it’s a pointless exercise. The Central bank announced that bank accounts with balances up to 175 quadrillion Zimbabwe dollars will be paid a flat amount of five US dollars; yes, just five US dollars. Bank balances of over 175 quadrillion will be paid at what we are told is the UN exchange rate of US$1 for every 35 quadrillion Zim dollars. (That’s US$1 ; Z$1,000,000,000,000,000 ) Cash customers can apparently walk into banks with their old Zim dollar notes and will, with “no questions asked,”  get US$1 for Zim$250 trillion.  For most of us the cost of the taking old notes to the bank will be more than the US cents we get back in our pockets.

  There is a “demonetization window” from the 15th June to the 30th September to exchange every 35 quadrillion Zim dollars we have into one US dollar and after that the Zim dollar will be officially dead, no longer legal tender.

  The Central Bank announcement says : “Demonitization is not compensation for the loss of value of the Zim $ due to hyper inflation, it is an exchange process.”  Compensation is a dirty word in Zimbabwe’s governance system  and it doesn’t apply at any level from farm seizures to compulsory 51% indigenization shareholdings to loss of life savings and pensions in hyper inflation.

  Looking at the conversion chart and seeing that I can get 0.04 US cents for every 10 trillion dollar note that I have, leaves my head swirling as lines of zeroes mount up on the page.  Is that a trillion, quadrillion or octillion I ask myself? I decide I’d rather keep the old bank notes in the cupboard so that I never forget what my government reduced me to after they’d stolen my farm and declared my Title Deeds null and void. So that I’d never forget what bad governance could do to a nation of  ten million people or how many thousands died needlessly while trying to survive Zimbabwe’s collapse.

  Until next time, thanks for reading, love cathy. 

  

  

  

  

  

• Dow Swings 670 Points In V-Shaped-Hope-Recovery Despite Commodity Carnage

  Dude….

  *  *  *

  This happened… Remember Greece doesn't matter…

  

   

  The Dow dropped 350 points from its overnight highs to stop almost perfectly at the close of Europe (1130ET) and then abruptly rallied a stunning 320 points back…

  

   

  The S&P tested Sunday night's lows and the 200DMA before exploding higher…

  

   

  Who could have seen that coming?

  "Greek deal" rumors upcoming, rejections imminent

  — zerohedge (@zerohedge) July 7, 2015

   

  On the day, cash indices reversed perfectly on Europe's close…

  

   

  Leaving stocks mixed on the week, with Nasdaq underperforming…

  

   

  It appears that Oil was the momo igniter for stocks…

  

   

  And VIX briefly hit a 15 handle – well below Thursday's closing levels…

  

   

  Bear in mind that Greek stocks did not partake in the idiocy… but once US stocks astrted to roll, Greece caught up (so now we are seeing US equities lead Greek stocks fundamentally higher!!!)

  

   

  As US Stocks ramp was all EURJPY-driven once again (just like yesterday)

  

   

  Note that post-Tsipras' "Greferendum" announcement, Bonds remain the big winners…

  

   

  Treasury yields plunged early as shorts squeezed and safety was bid but once Europe closed… sell sell sell…

  

   

  The US Dollar collapsed into the close as EURUSD surged (for now good reason) and as we noted above EURJPY was running stocks today…

  

   

  It's pretty clear what (or who) was helping things along…

  

   

  Commodity prices plunged early on (led by crude and silver)

  

  Oil prices carnaged early on, then bounced after EIA data suggested higher demand and chatter that the Irtan deal talks were falling apart (and Europe's close)…

  

   

  As a reminder, shale stocks have been collapsing since Einhorn tried to bury PXD… (but they all v-shape recovered today)

  

   

   

  Charts: Bloomberg

  

  

  

  

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