"I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everyone." James Carville, Clinton campaign strategist, 1993

Intimidating debt markets back in 1993? How about nowadays? When Mr. Carville paid reverence to the bond market, U.S. marketable debt totaled about $16 TN. Non-financial debt was at $13.1 TN, with Households on the hook for $4.2 TN, Corporations $3.8 TN, State & Local governments $1.1 TN and the federal government $3.3 TN. The Fed's balance sheet ended 1993 at $424bn.

Fast-forward to June 30, 2012. Total U.S. marketable debt ended Q2 at about $55 TN, an increase of 238% since 1993. Non-financial debt increased 212% to $38.9 TN. From 1993 levels, Household debt jumped 207% to $12.9 TN. Corporations have increased borrowings to $12.0 TN, an increase of 215%. State & Local government debt of $3.0 TN was up "only" 159%. Federal marketable debt ended Q2 at $11.1 TN, up 231% since 1993.

Total Financial sector Credit market borrowings increased from 1993's $3.3 TN to $13.8 TN, with ABS up 298% to $1.86 TN, Agency/GSE securities up 295% to $7.54 TN, Broker/Dealer borrowings up 437% to $2.05 TN, and Wall Street "funding corps" up 593% to $2.29 TN. Total outstanding Corporate and Foreign Bonds jumped from $2.05 TN to $11.96 TN (up 483%). The value of Corporate Equities rose 285% from $6.30 TN to $24.22 TN. The Fed's balance sheet inflated 580% to $2.88 TN.

Since 1993, Private Pension Fund Assets grew 180% to $6.39 TN. State & Local Pensions were up 187% to $1.04 TN. Nothing, however, compares to the growth experience by the hedge fund community, which grew from about $50bn in 1993 to recent estimates approaching $2.2 TN (growth of 4,300%).

I have argued that economic structure matters. I have further posited that a defining feature of contemporary economies (especially with respect to the consumption and services-based U.S. economy) is the capacity to absorb enormous amounts of Credit expansion/purchasing power without major impact on traditional measures of consumer price inflation. Moreover, I have attempted to explain how, when Credit expands, this finance flows into the economy before much of it finds its way out into the "global pool of speculative finance." I have further argued that this ever-expanding pool of unwieldy finance is this Credit Bubble cycle's most dangerous inflationary manifestation.

The Greenspan Federal Reserve sold its soul back during the 1998 bailout of Long-Term Capital Management. Even prior to 1998, Fannie and Freddie had been playing the critical role as liquidity backstop to the hedge fund community in the event of market stress. I wrote some years ago that speculators could take highly-leveraged positions in MBS confident that the GSEs were willing to pay top dollar for this paper - especially during bouts of market tumult. The Federal Reserve took a decidedly more "activist" approach to market interventions during the 2001/2002 corporate debt crisis and recession. After reading Dr. Bernanke's and others' "inflationists" writings, I recall a CBB about a decade ago where I suggested that the Fed was determined to have hedge funds unwind their short positions in Ford and other corporate bonds - and furthermore entice them into going (leveraged) long. And, sure enough, the funds did adjust and made a ton of money. The Fed was subtler back then, but they were sowing the seeds for the recent backdrop where they've essentially guaranteed anyone that speculates in MBS or Treasury securities (corporate bonds, municipals debt, equities?) seemingly risk-free speculative returns.

I was always impressed that ECB President Jean-Claude Trichet would categorically - and repeatedly - state that "the ECB never pre-commits on interest rates." The Fed has for years now operated otherwise, believing it advantageous to signal its intentions specifically to the marketplace. This has proved quite advantageous for some, but clearly much to the disadvantage of system stability. The ECB seemed to better appreciate that illuminating too much to the speculator community would simply ensure destabilizing speculation - and attendant Bubbles - based on the expected course of ECB policymaking.

Betting on the predictable path of Federal Reserve policy must by now be one of the more lucrative endeavors in history. In a CBB a decade ago I made the flippant comment about the financial and economic landscape, writing "The titans of industry run money." Never did I imagine back then that hedge fund assets were on their way to $2.2 TN, Pimco to $1.7 TN and Blackrock to $3.6 TN. Betting successfully on Fed policymaking has created billionaires . And, more importantly, those that have played this extraordinary policymaking backdrop most adroitly today control unimaginable sums of financial assets - in the hundreds of billions and even Trillions. There's been nothing comparable in terms of the concentration of financial power and speculation since the late-twenties.

Ironically, this historic financial windfall even accelerated following 2008's near financial collapse, as policy effects on financial markets reached only greater dimensions. Those that played it most successfully amassed only more incredible fortunes. And the stakes over just the past few months have enormous. And those with the best sense - or, more likely, the best information - of how things were going to play out in Frankfurt and Washington added further to their kitty. And, predictably, additional assets to manage flow to the victors.

ECB President Mario Draghi is clearly a very intelligent man. He is an MIT trained economist with the most impressive credentials. He has decades of experience as a professor, World Bank official and governor of the Bank of Italy. Mr. Draghi was also a vice chairman at Goldman Sachs for several years (2002-2005). Clearly, Draghi understands markets and the dynamics of speculative finance. When he warned against betting against the euro and European bonds the marketplace took notice. Amazingly, the ECB has gone from being adamantly opposed to pre-committing on rates to openly determined to pre-commit to huge open-ended market interventions and support operations. After holding out, the ECB finally sold its soul - and the speculators have been giddy.

Bill Gross has been rather open about it: "We're buying what the Fed and ECB are buying." And Mr. Gross and others have been buying Spanish and Italian bonds, with a brilliant plan to sell them back to the ECB at higher prices. There's a very large global contingent keen to place such bets, after similar trades in U.S. Treasuries and MBS have made gazillions.

In the face of alarming economic deterioration, European debt has become a hot commodity. The euro has become a hot currency. Reuters reported Thursday that the Euro zone is considering a bond insurance plan. The idea is for the ESM to "guarantee the first 20 to 30% of each new bond issued by Spain." Friday from Reuters (Andreas Framke): "The European Central Bank envisions buying large volumes of sovereign bonds for a period of one to two months once its 'OMT' programme is launched..."

From those among us questioning how the euro can trade so resiliently in the face of potential financial and economic calamity, I have this thought: The Draghi Plan has been in the process of transforming Spanish, Portuguese, Italian and other problematic debt into possibly the most appealing speculative asset in the world today. After all, all this paper provides a relatively decent yield (especially in comparison to bunds, Treasuries, or securities funding costs), and now at least the 1-3 year debt enjoys a commitment of open-ended liquidity/price support from the ECB. If the Draghi Plan does transform this debt from a fundamentally attractive short to a must have speculative long in the eyes of the powerful leveraged players, well, then the Draghi Plan truly has been a "game changer."

There's a lot that will likely go really wrong in Europe, perhaps even in the short-term. Greece is an unmitigated disaster, and Spain is running a close second. There was further dismal economic news this week, most notably from France. But that hasn't in the least diminished recent keen speculative interest in European debt. Indeed, after the Fed sold its soul, I've often believed that the speculators became adept at recognizing periods of rising systemic stress and market vulnerability as opportunities to load up on Treasuries and MBS. And then it becomes a game, "OK Federal Reserve, make the value of these securities (or spread trades) go up or we'll dump them." They've haven't had to dump. The ECB has similarly opened itself up to blackmail. "Be ready with the OMT as promised - or we dump." "Spanish and Italian politicians, play ball or we'll dump." "Mr. Weidmann and the Bundesbank, step in line - or we dump!" "All policymakers everywhere, play or we dump." At least in Europe, this is developing into one fascinating multifaceted game of chicken.

Well, I've been ranting for awhile now about the "biggest Bubble in the history of mankind." At this point, things increasingly remind me of 1999 and 2006. Bubble Dynamics eventually reached a degree of excess that was too conspicuous to deny. Yet the stakes are so much greater today. The amount of global debt is so huge and the quality so poor. It's completely systemic and global. Dangerous excesses have gravitated to the core of Credit and monetary systems. Policymakers are now "all in" in a desperate gambit to hold financial and economic fragility at bay. And, dangerously, highly speculative markets seem determined to extend their divergent path from economic fundamentals. It's frightening how enormous and enormously powerful dysfunctional global markets have become.

For the Week:

The S&P500 gained 1.4% (up 16.2% y-t-d), and the Dow rose 1.3% (up 11.4%). The Banks were up 3.7% (up 30.5%), and the Broker/Dealers were 3.2% higher (up 2.4%). The Morgan Stanley Cyclicals jumped 2.3% (up 13.3%), and the Transports rallied 3.1% (up 0.5%). The Morgan Stanley Consumer index gained 2.0% (up 12.3%), and the Utilities increased 0.7% (up 0.8%). The S&P 400 Mid-Caps gained 0.7% (up 13.3%), and the small cap Russell 2000 rose 0.7% (up 13.8%). The Nasdaq100 was up 0.5% (up 23.5%), while the Morgan Stanley High Tech index was about unchanged (up 16.3%). The Semiconductors added 0.3% (up 5.2%). The InteractiveWeek Internet index gained 1.2% (up 15.4%). The Biotechs jumped 3.0% (up 47.0%). Although bullion gained $9, the HUI gold index ended the week unchanged (up 3.1%).

One-month and 3-month Treasury bill rates ended the week at 10 bps. Two-year government yields were up 3 bps to 0.26%. Five-year T-note yields ended the week 5 bps higher at 0.67%. Ten-year yields rose 11 bps to 1.74%. Long bond yields jumped 14 bps to 2.97%. Benchmark Fannie MBS yields jumped 30 bps to 2.14%. The spread between benchmark MBS and 10-year Treasury yields widened 19 bps to 40 bps. The implied yield on December 2013 eurodollar futures increased 4 bps to 0.415%. The two-year dollar swap spread was little changed at 14 bps, and the 10-year dollar swap spread was little changed at 6 bps. Corporate bond spreads narrowed. An index of investment grade bond risk declined 4 to 95 bps. An index of junk bond risk declined 14 to 487 bps.

Debt issuance remained very strong. Investment grade issuers this week included GE $7.0bn, Bank America $1.75bn, Wellpoint $1.5bn, Toyota Motor Credit $1.5bn, Realty Income $800 million, NYSE Euronext $850 million, Darden Restaurant $450 million, Weingarten Realty $300 million, Eastern Mass Electric $250 million, and Northern States Power $100 million.

Junk bond funds saw outflows slow to $109 million (from Lipper). Junk issuers included Crown Castle International $1.65bn, Cemex $1.5bn, HDTFS Inc $1.2bn, Tenet Healthcare $800 million, Getty Images $550 million, Petco $550 million, Vanguard Natural Resources $550 million, Edgen Murray $540 million, Sabine Pass LNG $420 million, Manitowoc $300 million, Basic Energy Services $300 million, Lin Television $290 million, Wavedivision $275 million, David's Bridal $270 million, LOGO $210 million, Swift Energy $150 million, and Alta Mesa $150 million.

I saw no convertible debt issued.

International dollar bond issuers included Heineken $3.5bn, BBVA $2.0bn, Algeco Scotsman $1.8bn, GDF Suez $1.5bn, Kommunalbanken $1.45bn, Bank Nova Scotia $1.35bn, Societe Generale $1.25bn, Quebecor Media $850 million, Severstal $750 million, APT Pipelines $750 million, Export Bank of Turkey $750 million, Telephonica Chile $500 million, Smiths Group $400 million, First Quantum $350 million, Russian Standard Bank $350 million, Montpelier $300 million, CHC Helicopter $200 million, and Lancashire Holdings $130 million.

Spain's 10-year yields fell 22 bps to 5.65% (up 61bps y-t-d). Italian 10-yr yields declined 4 bps to 5.03% (down 200bps). German bund yields rose 8 bps to 1.52% (down 31bps), and French yields jumped 10 bps to 2.27% (down 87bps). The French to German 10-year bond spread widened 2 bps to 75 bps. Ten-year Portuguese yields sank 76 bps to 7.98% (down 479bps). The new Greek 10-year note yield fell 102 bps to 18.02%. U.K. 10-year gilt yields gained 4 bps to 1.77% (down 22bps). Irish yields fell 10 bps to 4.79% (down 347bps).

The German DAX equities index rallied 2.5% (up 25.4% y-t-d). Spain's IBEX 35 equities index rose 3.2% (down 7.1%), and Italy's FTSE MIB surged 5.2% (up 5.2%). Japanese 10-year "JGB" yields were unchanged at 0.77% (down 21bps). Japan's Nikkei was little changed (up 4.8%). Emerging markets were mixed. Brazil's Bovespa equities index declined 1.0% (up 3.2%), while Mexico's Bolsa jumped 2.6% (up 13.1%). South Korea's Kospi index slipped 0.1% (up 9.3%). India's Sensex equities index added 0.9% (up 22.5%). China's Shanghai Exchange was closed for holiday (down 5.2%).

Freddie Mac 30-year fixed mortgage rates fell 4 bps to 3.36% (down 58bps y-o-y). Fifteen-year fixed rates declined 4 bps to 2.69% (down 57bps). One-year ARMs were down 3 bps to 2.57% (down 21bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down 6 bps to 4.02% (down 80bps).

Federal Reserve Credit declined $11bn to $2.786 TN. Fed Credit was down $50bn from a year ago, or 1.8%. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 10/3) were little changed at a record $3.593 TN. "Custody holdings" were up $173bn y-t-d and $169bn year-over-year, or 4.9%.

Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg - were up $444bn y-o-y, or 4.3% to a record $10.662 TN. Over two years, reserves were $2.051 TN higher, for 24% growth.

M2 (narrow) "money" supply was unchanged at a record $10.138 TN. "Narrow money" has expanded 6.9% annualized year-to-date and was up 6.4% from a year ago. For the week, Currency increased $3.2bn. Demand and Checkable Deposits declined $14.4bn, while Savings Deposits rose $11.1bn. Small Denominated Deposits declined $3.5bn. Retail Money Funds increased $3.7bn.

Total Commercial Paper outstanding dropped $15bn to $759 million CP was up $15.8bn y-t-d, while having declined $10bn from a year ago, or down 1.0%.

Currency Watch:

The U.S. dollar index declined 0.7% to 79.34 (down 1.0% y-t-d). For the week on the upside, the euro increased 1.4%, the Danish krone 1.4%, the Swiss franc 1.1%, the Norwegian krone 0.8%, the Canadian dollar 0.5%, the Mexican peso 0.5%, and the Taiwanese dollar 0.1%. For the week on the downside, the South African rand declined 5.3%, the Australian dollar 1.8%, the New Zealand dollar 1.5%, the Japanese yen 0.9%, the Swedish krona 0.6%, the Brazilian real 0.2%, the British pound 0.2%, and the Singapore dollar 0.2%.

Commodities Watch:

The CRB index declined 0.5% this week (up 4.1% y-t-d). The Goldman Sachs Commodities Index declined 0.9% (up 2.3%). Spot Gold gained 0.5% to $1,781 (up 14%). Silver was unchanged at $34.57 (up 24%). November Crude dropped $2.31 to $89.88 (down 9%). November Gasoline gained 1.1% (up 11%), and November Natural Gas rose 2.3% (up 14%). December Copper gained 0.5% (up 10%). December Wheat dropped 5.0% (up 31%), and December Corn lost 1.1% (up 16%).

Global Credit Watch:

October 4 - Bloomberg (Ben Sills): "Liabilities that the Spanish government has held off its balance sheet are winding up on the taxpayers' tab, threatening Prime Minister Mariano Rajoy's efforts to haul the economy out of a five-year slump. Government debt will leap 17 percentage points to 85% of gross domestic product this year as the state absorbs the cost of bailing out banks, the power system and public contractors... The government, which offered guarantees and implicit backing to power users and local administrations through the economic boom that ended in 2008, has added to its liabilities during the crisis with the rescues of banks, regions and companies."

October 2 - Bloomberg (Dakin Campbell): "Spain's banks face a capital shortfall that could climb to 105 billion euros ($135bn), almost double the estimate the government provided last week, according to Moody's... The nation's lenders may need infusions of 70 billion euros to 105 billion euros to absorb losses and still keep capital ratios above thresholds outlined in legislation last year, Moody's analysts wrote... 'The recapitalization amounts published by Spain are below what we estimate are needed for Spanish banks to maintain stability in our adverse and highly adverse scenarios,' the analysts, Maria Jose Mori and Alberto Postigo, said..."

October 5 - CNBC (Holly Ellyatt): "You know that something is seriously wrong with your economy when you tell an audience of learned academics and students at an elite university that your country doesn't need a bailout, and the room rings with the sound of laughter. That's what happened when Spanish finance minister Luis de Guindos took to the stage at the London School of Economics (LSE) and became an unexpected comic figure... 'Spain doesn't need a bailout at all,' de Guindos said, straight faced and somber, as mirth spread throughout the audience..."

October 5 - Bloomberg (Angeline Benoit): "Spain said it's studying European procedures to intervene on secondary debt markets as the euro area's fourth-largest economy is 'penalized' by doubts about the region's single currency. 'In Europe, these interventions on secondary debt markets are more complex, they involve more complex procedures,' Deputy Economy Minister Fernando Jimenez Latorre told lawmakers in Madrid today, contrasting them with the 'fast' and 'significant' responses to market tensions of central banks in the U.S., the U.K. and Japan."

October 4 - Bloomberg (Gabi Thesing and Jeff Black): "Mario Draghi is waiting for Spain to get back to him on whether his plan to save the euro is needed. One month after the European Central Bank president unveiled an unprecedented bond purchase program to rescue Europe's embattled southern fringe, Spanish Prime Minister Mariano Rajoy is showing reluctance to ask for the aid he pushed for with Italy on concern about the terms attached to it... 'We're back at this game of brinkmanship between the ECB and governments again, and it's a case of who makes some concessions first,' said Nick Matthews, senior European economist at Nomura... in London. 'The markets will continue to play a significant role here and Draghi needs them to turn up the pressure.'"

October 3 - Bloomberg (Lisa Abramowicz): "Pacific Investment Management Co. and BlackRock Inc. are among U.S. investors buying up bank bonds in Europe's most indebted nations as central-bank chief Mario Draghi wins back the confidence of the world's biggest money managers."

October 4 - Bloomberg (Ben Sills): "Spain was told by Europe's economic overseers that its 2013 plan to cut the deficit to 4.5% of gross domestic product relies on excessively optimistic assumptions, two people familiar with the issue said... Spain's 2013 budget assumes the economy will shrink 0.5%, less than the 1.3% contraction predicted by 21 analysts surveyed by Bloomberg..."

October 1 - Bloomberg (Patrick Donahue): "Europe faces a month that may decide the success of the European Central Bank's bid to end the debt crisis as leaders navigate a tougher approach from creditor countries, unrest in Spain and a looming report on Greece. With the first of three summit meetings that European Union President Herman Van Rompuy has called 'crucial' taking place in Brussels on Oct. 18-19, investor sentiment toward the euro area that surged in September is on the wane."

October 5 - Bloomberg (Gonzalo Vina and Emma Ross-Thomas): "Spain is already carrying out the policies that the European Central Bank would demand in return for buying its bonds, Economy Minister Luis de Guindos said as young Spaniards heckled him during a speech in London... He described the ECB's plan to buy bonds of nations that agree to a rescue program as a 'proposal' tied to conditions that 'aren't very far from the situation we have now in Spain' in terms of budgetary and economic policy."

October 3 - Bloomberg (Charles Penty and Angeline Benoit): "Spain wants banks, insurers and other investors to control its so-called bad bank, a vehicle that will drive down house prices, Economy Minister Luis de Guindos said. 'The bad bank is going to acquire assets at very conservative prices, and I believe it's going to make the real estate market more dynamic in Spain and it is going to put homes on the market at lower prices,' de Guindos told a parliamentary committee..."

October 5 - Bloomberg (Sandrine Rastello): "The International Monetary Fund won't disburse its share of the Greek bailout if the country's debt is not deemed sustainable or if other creditors don't pledge to fill a financing gap in the aid package, a fund spokesman said. IMF Managing Director Christine Lagarde last week warned that the level of Greek debt would have 'to be addressed,' pushing European policy makers to consider writing off some of the aid to the country. While the fund is sticking to a target of 120% of gross domestic product by 2020, the Greek government forecast this week that... debt will climb to 179.3% of GDP in 2013."

October 2 - Bloomberg (Scott Rose): "UBS AG Chairman and former European Central Bank Governing Council member Axel Weber said the euro region's festering debt crisis will 'continue to linger' as the ECB fails to ease market disquiet and volatility. 'While many expect that the ECB's strong action would bring stability to financial markets, the risk is that the pattern of short-term rallies and long-term uncertainty will stay with us for some future,' Weber said... Weber, who during his tenure at the ECB opposed the central bank's previous bond-buying plan, predicted the monetary union will overcome the crisis even as there won't be a "quick fix." 'The underlying fundamental perspective is not great at the moment... Austerity programs which are badly needed to restore market confidence and create fiscal room to maneuver will take a toll on the economy."

October 5 - Bloomberg (Rodney Jefferson and Lukanyo Mnyanda): "Europe's sovereign debt crisis is making the clocks tick faster for Scottish money managers. 'This is not 18-month asset allocation territory, it's 18 days perhaps,' Andrew Milligan, head of strategy at Standard Life, said... 'There's money to be made at different times in the relative spreads of different bonds.' As fissures widen in the euro region, investors who typically bet on long-term trends in the fixed-income market are becoming more nimble and switching more frequently..."

Global Bubble Watch:

October 5 - Bloomberg (Joshua Zumbrun and Aki Ito): "The Federal Reserve signaled it's moving toward linking its outlook for near-zero interest rates to specific economic conditions such as a decline in the unemployment rate. The move would represent a shift from the Fed's policy of tying low rates to the calendar. At its last meeting, the Federal Open Market Committee extended its time horizon at least through the middle of 2015 from late 2014... Policy makers such as Charles Evans, the president of the Chicago Fed, have said the central bank should promise to keep rates low until the unemployment rate falls to 7%..."

October 5 - Wall Street Journal (E.S. Browning): "The stock market is reaching toward new highs on the fourth anniversary of the financial crisis, but many people refuse to be lured back. Even as stock indexes have doubled in value since the market low in March 2009, investors have yanked a net $138 billion from mutual funds and exchange-traded funds that invest in U.S. stocks, according to the Investment Company Institute... Investors over the same period put $1 trillion into bond funds, a traditionally lower yielding but safer investment."

October 5 - Wall Street Journal (Matt Wirz): "The massive 'junk'-bond boom is raising alarm bells among some large money managers, who warn the market is showing signs of overheating. So much money has flooded into the junk-bond market from yield-hungry investors that weaker and weaker companies are able to sell bonds, they say... Also worrying money managers is that some new sales have similar hallmarks to those that preceded the financial crisis in 2008... High-yield debt has returned 21% to investors... in the past 12 months and 12% this year, making it one of the best performing markets in the U.S. Yields offered by the average junk-bond company plumbed record lows last month of 6.15%."

October 2 - Bloomberg (Christine Idzelis): "Buyout firms are directing companies they own to take out loans to finance dividends at the fastest pace in almost two years, as investors seek bigger risks to get the 9% returns offered in the speculative-grade market for bank debt this year. Banks arranged $7.9 billion of U.S. loans fueling payouts to private-equity firms last month, the most since $8 billion in November 2010..."

October 2 - Canadian Press: "Vancouver home sales fell 32.5% in September compared with a year ago..."

October 2 - Bloomberg (Lyubov Pronina and Alastair Marsh): "Investors are buying record amounts of notes paying returns based on ruble bonds as Russia prepares to open the market to foreigners, triggering inflows Goldman Sachs Group Inc. estimates may reach $30 billion. Sales of the structured notes reached $641 million between July and September, the most since Bloomberg began compiling the data in 1999."

Japan Watch:

October 5 - Bloomberg (Toru Fujioka): "The Bank of Japan held off from more easing after adding to stimulus last month, preserving its policy firepower despite increased political pressure and signs of an economic contraction. The BOJ kept its asset-purchase fund, the main policy tool amid near-zero rates, at 55 trillion yen ($700bn), the bank said..."

India Watch:

October 5 - Bloomberg (Rajhkumar K Shaaw, Santanu Chakraborty and Shikhar Balwani): "The plunge and rebound in Indian stocks that pushed the S&P CNX Nifty Index down 16% over eight seconds underscored concern about financial markets. Trading in the Nifty and some companies stopped yesterday in Mumbai for 15 minutes after the 50-stock gauge tumbled as much as 16%."

Latin America Watch:

October 4 - Bloomberg (Adriana Brasileiro and Peter Millard): "Lucia Faro is working harder these days. For the past three years, the realtor was flooded with unsolicited calls from clients eager to buy apartments in Rio de Janeiro, the beachfront metropolis that will host the 2016 Olympics and some of Brazil's 2014 World Cup games. Now, she is doing the calling, working her four phones most of the day... 'Buyers would just pour in until not too long ago,' says Faro, who has been selling new apartments in Rio's beachside Barra da Tijuca neighborhood for five years. 'Now, I have to chase them, and I'm offering bonuses in some cases to convince them to buy a unit.'"

European Economy Watch:

October 1 - Bloomberg (Gabi Thesing): "The unemployment rate in the euro area reached the highest on record as the festering debt crisis pushed the economy toward a recession, prompting companies to cut jobs. Unemployment in the economy of the 17 nations using the euro was 11.4% in August, the same as in June and July after those months' figures were revised higher..."

October 3: "The seasonally adjusted final Market France Composite Output Index - which measures the combined output of the manufacturing and service sectors - registered 43.2 in September, down from 48.0 in August. The latest reading was indicative of a substantial decline in activity and the steepest rate of contraction since March 2009. Service sector activity declined in response to a further fall in new business... The rate of contraction in new work accelerated to the fastest in five months... Combined with a steeper decline in new orders in the manufacturing sector, overall new business across the French private sector fell at the steepest rate for 41 months.... The rate of job shedding accelerated to the sharpest for 33 months... Composite data signalled the sharpest reduction in employment since December 2009."

October 5 - Bloomberg (Stefan Riecher): "German factory orders declined more than economists forecast in August as Europe's debt crisis damped the outlook for economic growth... From a year earlier, orders retreated 4.8%..."

October 1 - Bloomberg (Angeline Benoit): "Spanish registered unemployment rose for a second month in September amid a worsening recession. The number of people registering for jobless benefits rose 79,645 from August to 4.7 million... The Bank of Spain said Sept. 26 the euro area's fourth-largest economy is still shrinking at a 'significant' pace in the third quarter."

October 3 - Bloomberg (Nidaa Bakhsh): "Spain's diesel and gasoline consumption fell in August from a year earlier... Diesel demand decreased 5.7%... Gasoline use declined 6%..."

October 1 - Dow Jones (Gilles Castonguay): "Italian new car registrations fell 26% in September, the steepest decline since March... Since January, registrations have fallen 20% to 1.09 million units."

October 5 - Bloomberg (Andrew Frye): "Italian Prime Minister Mario Monti's Cabinet approved cuts to regional-government budgets aimed at curbing corruption and excessive spending, exemplified by accusations against a politician arrested this week. 'It's important that we save something worth even more than money, the trust citizens have in their institutions,' Monti told reporters... Monti was pushed to act after travel and entertainment expenses of regional politicians were detailed and lampooned on the front pages of Italian newspapers last month."

October 5 - Bloomberg (Stephan Faris): "Giarre, a town in eastern Sicily, sits above the sea on the slopes of Mount Etna. It was once a collection point for the wine produced on the hills above, which was rolled down its main street in barrels to the port below. Today, Giarre bears a far more dubious distinction. The city of 27,000 hosts the largest number of uncompleted public projects in the country: 25 of them, nearly one for every 1,000 inhabitants. So spectacular is the waste that some locals have proposed promoting Giarre's excess as a tourist attraction..."

U.S. Bubble Economy Watch:

October 5 - Bloomberg (Shobhana Chandra): "Consumer credit in the U.S. rose more than forecast in August, propelled by a surge in borrowing for education and automobiles. The $18.12 billion rise, the most in three months, followed a revised $2.5 billion decrease in July..."

October 4 - Bloomberg (Sarah Mulholland): "The $1 trillion of student loans in the U.S. are crowding out other forms of borrowing by consumers, potentially limiting the rebound in sales of securities tied to household debt. Educational loans rose to a record 35% of non-mortgage consumer credit in the second quarter, from 21% in the three months ended in December 2007, according to Wells Fargo... College costs that have more than doubled since 1995 are outpacing the rate of inflation and squeezing U.S. families."

Central Bank Watch:

October 1 - Bloomberg (Michael Heath): "Australia's central bank resumed cutting its benchmark interest rate to revive demand outside of a resource boom that may crest at a lower level than previously expected, sending the nation's currency to a three-week low. Governor Glenn Stevens and his board lowered the overnight cash-rate target by a quarter percentage point to 3.25%..."

October 1 - Bloomberg (Jeff Kearns): "Federal Reserve Bank of Chicago President Charles Evans said he isn't seeing threats of inflation and that the central bank can do more to boost growth and hiring even after it stepped up record stimulus last month. 'I don't think we've seen inflationary concerns,' Evans said... 'We want to average 2%, but at the moment we're under-running that.' Evans... said that the Fed can do more to support the recovery and that he sees unemployment in the range of 7% by the end of 2014... 'There's scope for doing more... I would have been doing more for a longer period of time.'"

Muni Watch:

October 3 - Bloomberg (Brian Chappatta and Joe Mysak): "Issuance in the $3.7 trillion U.S. municipal market may rise to $400 billion in 2013 from about $375 billion this year, said George Friedlander, senior municipal strategist at Citigroup Inc. States and localities sold about $408 billion in 2010, the biggest yearly amount since at least 2003..."