Today's Headlines

Bloomberg:

• Syria Is Headed for Western Strike, Russia Says. The U.S. and its allies are on a “slippery slope” to military intervention in Syria that will have “extremely dangerous” consequences for the region, Russian Foreign Minister Sergei Lavrov said. Any military intervention without UN Security Council approval would be “a gross violation of international law,” Lavrov told reporters in Moscow today. He ruled out a Russian military response. World leaders from Washington to Istanbul called for action to punish Syrian President Bashar Al-Assad for what they said was his use of chemical weapons as United Nations inspectors attempted to probe the allegations. Some Syrian opposition groups say 1,300 people were killed in the Aug. 21 attack in the Damascus suburb of Ghouta. “Western leaders are making statements that indicates that they won’t wait for the results of this commission, they have already decided everything,” Lavrov said. “It’s a very dangerous slippery slope that our Western partners have gone on before. I hope common sense prevails.”

• Punitive Syria Military Strike Is No Game-Changer in Assad’s War. Anything short of a “sustained” military campaign against Syrian President Bashar al-Assad for his alleged use of chemical weapons probably wouldn’t tip the balance in favor of rebels, according to research firm IHS. “An intervention on a small scale would be a punitive measure, intended to show that there is a price to be paid for using chemical weapons,” Firas Abi Ali, Middle East analyst at IHS in London, said today. “It would mean his military capability would become weaker but would not improve the ability of the insurgents to take urban areas and hold them.” A lengthy military operation, though, would hand an advantage to Islamist militants fighting Assad, an objective Western powers would be reluctant to seek, Abi Ali said. 

• Europe Stocks Drop as UniCredit Falls on Italy Wrangling. European stocks fell for the first time in three days amid political wrangling in Italy and as orders for U.S. durable goods declined more than forecast. UniCredit SpA, Italy’s biggest bank, retreated 3.5 percent as members of former premier Silvio Berlusconi’s People of Liberty party threatened to topple Prime Minister Enrico Letta’s government. Royal KPN (KPN) NV advanced 3 percent as the Dutch phone carrier won the support of minority shareholder America Movil SAB for the sale of its German business after acquirer Telefonica SA sweetened its bid. The Stoxx Europe 600 Index lost 0.1 percent to 304.48 at the close of trading, as two shares declined for each one that advanced. The volume of shares changing hands was 57 percent lower than the 30-day average as markets in London were closed for a holiday.

• Leveraged Debt Exceeds $2 Trillion in Repression: Credit Markets. It took three decades for the amount of speculative-grade debt to reach $1 trillion. It took about seven years to reach $2 trillion as investors sought relief from the financial repression brought on by near-zero interest rates. The market for dollar-denominated junk-rated debt has expanded more than eightfold since the end of 1997 from $243 billion, according to Morgan Stanley. That compares with a quadrupling of the investment-grade market to $4.2 trillion as tracked by the Bank of America Merrill Lynch U.S. Corporate Index. While Federal Reserve policies have pushed investors toward riskier investments to generate high yields, allowing even the neediest companies that might otherwise default to access capital markets, concern is rising that missed payments may soar when benchmark rates begin to increase. Martin Feldstein, a past president of the National Bureau of Economic Research, said last week that low rates should be allowed to rise because they’re driving investors into risky behavior. 

• Durable-Goods Drop Imperils Outlook for U.S. GDP Pickup. Orders for durable goods dropped in July by the most in almost a year, calling into question the strength of the projected pickup in U.S. growth. Bookings for goods meant to last at least three years fell 7.3 percent, the first decrease in four months and the biggest since August 2012, the Commerce Department said today in Washington. The retreat was broad-based, with demand excluding the volatile transportation category unexpectedly falling. The setback last month proved to be more broad-based than economists estimated with bookings also falling for items such as computers and appliances. Orders excluding transportation equipment declined 0.6 percent after a 0.1 percent gain in June. Demand for non-defense capital goods excluding aircraft, a proxy for future business investment in computers, electronics and other equipment, fell 3.3 percent in July, the biggest decrease in five months. Shipments of those products, a measure used in calculating gross domestic product, declined 1.5 percent after falling 0.8 percent in June. The setback indicates business investment was gaining little traction at the start of the third quarter. 

• College Costs Surge 500% in U.S. Since 1985: Chart of the Day.

• Copper Drops After U.S. Durable Goods Fall More Than Forecast. Copper fell the most this month on concern that a bigger-than-expected drop in U.S. durable-goods orders signals slower demand growth in the country, the world’s second-biggest user of the metal. Bookings for goods meant to last at least three years slid 7.3 percent, the Commerce Department said today in Washington. The median forecast of economists surveyed by Bloomberg called for a 4 percent drop. Orders waned for aircraft and capital goods such as computers and electrical equipment. Copper prices were down 8.1 percent this year through Aug. 23. “The durable-goods number was a big disappointment,” Brian Booth, a senior market strategist at Long Leaf Trading Group in Chicago, said in a telephone interview. “Copper prices started dropping once traders had a chance to leaf through the report.” Copper futures for delivery in December declined 1.1 percent to $3.32 a pound at 10:42 a.m. on the Comex in New York. A close at that price would mark the biggest loss since July 30.

Wall Street Journal:

• Brazil Real Weakens Intraday Despite Central Bank Swap Sale. Brazil's real extended weakening in intraday trade Monday as factors abroad eclipsed the central bank's swap sale early in the session to offer liquidity locally. As of 11:30 a.m. EDT, the real traded at BRL2.3950 after ending at 2.3534 Friday according to Tullet Prebon via FactSet. The latest weakening came despite central bank efforts to influence the market earlier in the day with a currency swap auction.

Fox News:

• US waits for allies to determine Syria response. Despite indications that the Obama administration is leaning toward a military strike in Syria, the U.S. could be hamstrung by its own desire to wait for the say-so from top U.S. allies. Defense Secretary Chuck Hagel said Monday that the U.S. would only act in coordination with the international community, according to Reuters.

CNBC: 

• This isn't 1997-98 again – but could it be worse? The current market rout in emerging Asia isn't another late 1990's-style financial crisis, most analysts agree, but some have larger concerns that the region may have lost its ability to offer investors "catch-up" growth with the developed world. "This is not 1997, but in many ways the current period is much more insidious and risky," Macquarie said in a report. 

• The 5% recovery: Why most are still in recession. How strong the economic recovery has been since the Great Recession ended in 2009 probably depends on viewpoint. For those in the top 5 percent, the recovery has been pretty good. As for the other 95 percent, well ... maybe not so much.

Zero Hedge:

• Hugh Hendry Latest Thoughts, Portfolio And Holdings Update.

• New Week Starts With Another Full Market Halt.

• Durable Goods Crater On Plunge In Airplane, Manufacturing And Computer Orders: Biggest Miss Since August 2012.

• China 'Officially' Admits PMI Data Inaccurate.

• Obamacare Enters Texas As Dallas Fed Employee Workweek Drops To 2009 Levels.

• Vince Reinhart Summarizes The Perils Of The Fed's Nine Month QE Winddown.

• Italian Bonds Plunge To Worst Day In 9 Weeks. (graphs)

Business Insider: 

• Wall Street Is So Obsessed With The Taper, It's Missing The Bigger Threat Coming Out Of Washington.

New York Times:

• BATS and Direct Edge to Merge, Taking On Older Rivals.

Washington Times: 

• PRUDEN: Up to our ears in Al Gore’s ‘climate change’ snake oil.

Quartz:

• China’s risky mortage lending is tacking a credit bubble onto a real estate bubble. China has a chronic debt problem. And its soaring housing prices—Beijing’s were up 18.3% in July compared with last year—are getting fairly bubbly. That cocktail is mighty similar to what caused the United States financial crisis—so could a US-style sub-prime debacle happen in China?

Reuters:

• Russia slashes economic growth forecasts, second time this year. Russia cut its economic forecasts for the second time this year, increasing pressure on Vladimir Putin to revive growth that has faded since a state spending splurge helped secure his election to a third Kremlin term. The Economy Ministry slashed its forecasts for 2013 and 2014 after growth in the second quarter of this year was the slowest since the slump of 2009, documents obtained by Reuters on Monday showed. The news broke as the president made one of his many tours to key industrial regions - this time to Kemorovo in the Kuzbass coalfields - to demand greater urgency in developing Russia's vast resource base. The lower growth forecast reflects home-grown problems of weak industrial output - now expected to barely grow this year - slowing investment and a waning of the feel-good factor that helped Putin win a third term as president in March 2012. Not even oil prices at a historically-high $110 per barrel have been enough to avert the slowdown in the world's top energy producer - even if Russia's external surpluses and low debts do shield it from the current turmoil in other emerging markets. The Economy Ministry cut its 2013 forecast to 1.8 percent from 2.4 percent, also hit by weaker exports and consumption growth. The forecast was below median expectations of 2.5 percent growth in a regular Reuters poll of economists. It downgraded the 2014 outlook to a range of 2.8-3.2 percent from 3.7 percent.

• Brazil economy facing "mini-crisis" -Mantega. Speaking at a meeting of business leaders in Sao Paulo, Mantega added that despite the challenges of recent currency volatility and weaker economic growth both domestically and abroad.

Financial Times:

• The debt dragon: Credit habit proves hard for China to kick. The Chinese government says its debt problem is under control, but the people of Pianpo village have cause to disagree. Over the past year they have seen their water cut off, rubbish piling up in the streets and their wages going unpaid as debt has mounted. An elevated motorway soars over the villagers’ concrete homes, meant to connect them to central Guiyang, one of China’s fastest-growing cities. Instead, the slip road to Pianpo ends in a patch of gravel.

The Guardian:

• Iraq: at least 46 killed in bomb attacks. Car and roadside bombings in Baghdad and northern city of Baquba follow one of country's worst spates of violence. A series of bomb attacks across Iraq has killed at least 46 people and wounded at least another 80, medical officials have confirmed. The blasts in Baghdad and the northern city of Baquba on Sunday were caused by car and roadside bombings, according to police and local officials. The death toll was put at 46 or 47 by different police and hospital officials. The deadliest of the attacks took place in the centre of Baquba when a car bomb exploded outside an apartment block killing at least seven people, although some reports estimated up to 11 died in the blast. Another 34 people were wounded. A second bombing in Baquba, close to a wedding party convoy, killed four and wounded 17. Iraqi authorities said there was a further bombing inside a coffee shop in Baghdad's Shaab neighbourhood, which killed three and wounded 16. There were reports that a car bomb at a market in the south-eastern and largely Shia neighborhood of al-Ameen killed three civilians and wounded 13 others.

Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.


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Repubblica:

• Italy-German Spread to Rise in Crisis, Roubini Says. New York University Professor Nouriel Roubini says in interview with la Repubblica that a crisis of PM Enrico Letta's govt would push the Italian 10-year yield spread with German bunds over 300 basis points in a few days. Market conditions for Italian bonds will worsen this week, he said.

Xinhua:

• China Urbanization Drive Has Hidden Risks. China's local government plans to raise funds for urbanization contain hidden risks. Local governments, under high pressure to raise funds, are relying on revenue from land sales. Property curbs have "noticeably" reduced construction funds, citing a local official from Shandong province's Qingdao city. Real estate bubbles are appearing because some property developers are shifting to small- and medium-sized cities, resulting in huge urban construction investment without market demand. A single real estate project in Guizhou province's Kaili city has room to house 200,000 people, half of the city's total population. Some local governments and real estate companies collude to horde land and profit from land price appreciation.