Jak odnieść sukces inwestując w aktywa materialne, z dala od tłumów, mediów i zgiełku.
2N
nuggets of financial self-defence
Financial blog on news and global macroeconomic themes regarding the world economy. The blog's primary focus pertains to inflation, deflation, and hyperinflation, especially currencies, gold, silver, crude, oil, energy and precious metals. Other macro discussion topics include interest rates, China, commodities, the US dollar, Euro, Yuan, Yen, stagflation, emerging markets, politics, Congressional and statewide policy decisions that affect the US and global markets.
Zaktualizowano: 16 godzin 39 min. temu

Greece Boils Over; No Rules, Just Right; German Rabbits

nie., 26/04/2015 - 05:20
The inevitable in Greece gets closer and closer. Looking back, I wonder how many rabbits in the hat there were. More importantly, how many still remain?

I believe the answer to the latter question is zero.

Yet, I also point out the propensity of German chancellor Angela Merkel to prolong the "not on my watch" inevitable. Meanwhile, the pot has is far more advanced than "simmering".

Greece Boils Over

The Financial Times reports EU Frustration Over Greece Boils Over at Eurogroup Meeting. Months of mounting tensions between Greece and its creditors boiled over at a high-level EU meeting on Friday with eurozone finance ministers angrily accusing their Greek counterpart of backtracking on commitments and failing to grasp the deep differences that still divide them.

Athens is running desperately short of cash and many eurozone officials fear that, without an agreement to release some of the remaining €7.2bn in its bailout programme, the government could default as early as mid-May.

Eurozone officials briefed on the closed-door, three-hour meeting said Yanis Varoufakis, the Greek finance minister, specifically warned that cash was so tight that government coffers might run dry in a matter of weeks.

The antagonism between Mr Varoufakis and other ministers became so severe during the eurogroup session that Slovenia’s finance minister suggested if bailout talks did not progress more quickly the eurozone should prepare a “Plan B” to deal with a Greek default.

The contentious session undermined claims by Greek officials that a Thursday meeting in Brussels between Alexis Tsipras, the Greek prime minister, and Angela Merkel, his German counterpart, had narrowed the differences. The claims briefly sent the euro rallying in morning trading, but those gains evaporated after news of the differences emerged.Default Necessary but Grexit Not?

Financial Times writer Wolfgang Münchau says Default Necessary but Grexit Not. Until last week, discussions with Greece did not go well. That changed when the circus of international financial diplomacy moved to Washington for the spring meetings of the International Monetary Fund and the World Bank. Then it became worse.

My hunch is that this show will go on for quite a while. The Greeks want to merge the talks on the extension of the current, second, loan programme with the talks on the new third one. For that to work they will require temporary bridging finance to get through the summer. This sounds like somebody has a plan. But this is not my impression. I have never seen European finance officials so much at a loss.

The big question — whether Greece will leave the eurozone or not — remains unanswerable. But I am now fairly certain it will default.

My understanding is that some eurozone officials are at least contemplating the possibility of a Greek default but without Grexit. The complexity is severe, and they may not have had the time to work it out. But it may be the only way to avert utter disaster.

On whom could, or should, Greece default? It could default on its citizens by not paying public-sector wages or pensions. That would be morally repugnant and politically suicidal for the Syriza-led government. In theory, it could default on the two loans it received from its EU partners, though it is not due to start repaying the first of those until 2020, and the second in 2023. It could also default on the remaining private-sector bondholders but that would not be a good idea. Greece might need private sector investors later.

It could also default on the IMF and the European Central Bank. The IMF is expecting a series of repayments. The ECB wants its money back in the next few months on debt it holds on its books. Defaulting on the IMF and ECB is the only option that would bring genuine financial relief in the short term. Nobody has ever done that. It might trigger Grexit.

Then again, it might not. Default is not synonymous with exit. There is no EU ruling that says you have to leave the eurozone when you default on your debt. No Rules, Just Right

There is no "rule" that says "Default is synonymous with exit".

There is common sense. If Greece does not run a primary account surplus (ability to meet funding needs except for debt interest and debt repayments), then how the hell is Greece going to meet those needs?

IMF? US? Russia? ECB? Man in the Moon?

The answers are no, no, no, no, and no.

In French, it's non, non, non, non, et non.

German Rabbits

All that's left is a rabbit in German hat.
Or not.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

New Problem, Old Tracks

sob., 25/04/2015 - 04:26
The San Francisco Bay Area Region Transportation system (BART) has a major problem: aging tracks that border on unsafe.

The San Francisco Chronicle details the problem in BART has New Problem: Old Tracks.
The nearly half-century-old system needs to replace its worn steel rails and cross ties. The problem has produced derailments, a drop in train speed in several trouble spots, and a repair schedule that will close the tracks in Oakland over an estimated 11 weekends.

Track maintenance is nothing new for transit systems as equipment and track wear out. But the scale of the problem and BART’s essential role in carting nearly 400,000 daily riders to work, school and appointments make the task important. It’s imperative that the system focus on improving service as quickly as it can — or risk public concerns about safety and reliability.Rail Refresher Solution

The following video sent by reader Justin is the exact solution. Meet the "Rail Refresher"



That is one of the most amazing pieces of equipment I have ever seen.
How many workers will it replace?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

ECB Buys Negative Yield Covered Bonds; Trade Guaranteed to Blow Up

pt., 24/04/2015 - 20:32
In a move 100% guaranteed to blow up at a later date, the ECB Said to Start Buying Covered Bonds With Negative Yields.
The European Central Bank started buying covered bonds with negative yields as its asset-purchase program reduces the supply of the highly rated debt, according to two people familiar with the matter.

The central bank bought the debt in the past two weeks, said the people, who asked not to be identified because the information is private. The notes were from Germany, one of the people said.

The ECB has bought 69.7 billion euros ($75.5 billion) of covered bonds since October as part of its latest measures designed to stimulus growth in the euro area. The accumulation of assets is driving down yields and the central bank now holds about 15 percent of the market, according to ABN Amro Bank NV.

“The ECB has caused this situation by being a big buyer and has exacerbated the already negative net supply of covered bonds,” said Joost Beaumont, a fixed-income strategist at ABN Amro in Amsterdam. “If the ECB buys more, yields will go still lower and that’s going to affect the ECB itself.”

The ECB, which is also buying government bonds and asset-backed debt, has said it will buy negative-yielding securities up to its cash deposit rate of minus 0.2 percent.

An ECB spokesman declined to comment on its covered debt purchases.

“Supply in positive yields is getting scarce and the ECB may have no other choice to fulfill its targeted purchase volume than to buy negative-yielding bonds,” said Tobias Meyer, an analyst at Norddeutsche Landesbank in Hanover, Germany.Trade Guaranteed to Blow Up

I agree with Beaumont's comment this is "going to affect the ECB itself".

In fact I will go one further and suggest this is a "trade guaranteed to blow up", I just cannot say when or even in precisely what ways.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Durable Goods Orders Up but Core Capital Goods Negative Again

pt., 24/04/2015 - 19:08
Durable goods orders are somewhat of a mixed bag today, but beneath the headline rise, weakness is easy to find.

The Bloomberg Consensus was for a 0.5% rise, and the actual result was a whopping 4% gain due to transportation.

Yet, transportation for last month was revised lower, and excluding transportation durable goods orders shrank.

More importantly, core capital goods orders declined for at least four consecutive months.

Let's dive into the Census Report on Durable Goods for more details. Here is a table of key items I made from the report.

ItemMarFebJanFeb-Mar %ChgJan-Feb % ChgDec-Jan % ChgTotal New Orders240,175230,911234,272 4.0-1.41.9Ex-Transportation Orders159,917160,174162,227-0.2-1.3-0.9Ex-Defense Orders228,119222,394224,6522.6-1.02.2Transportation Orders80,25870,73772,04513.5-1.88.9Capital Goods Orders89,67385,58886,7234.8-1.37.1Non-Defense Capital Goods Orders80,21377,50479,2143.5-2.2-0.3Defense Capital Goods Orders9,4608,0847,509177.7-6.3Core Capital Goods Orders68,18968,53770,062-0.5-2.2-0.3Core Capital Goods Shipments69,61169,88969,789-0.40.1-0.6
Line items (except the last line which shows shipments) are new orders, in millions of dollars, seasonally adjusted. Core capital goods exclude defense and aircraft.

Once again this was another weak economic report excluding aircraft orders that have long lead times and are frequently cancelled.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Supersaturation and Store Cannibalization: McDonald's to Close 700 Stores, 350 Already Took Place First Quarter

pt., 24/04/2015 - 09:34
McDonald's is closing 700 stores this year, 350 of which took place first quarter. That sounds like a lot but it pales in comparison to the 32,500 stores in the chain.

Still it is a sign of Multiple Problems for McDonald's
On Wednesday, McDonald’s had reported an 11% decrease in revenue and a 30% drop in profit for the first three months of year, a continuation of its troubles in the last two years as it has struggled to compete with new U.S. competitors, a tough economy in Europe and a food safety scare in Asia.

McDonald’s CFO Kevin Ozan told analysts that the shuttered stores in China, where comparable sales fell 4.8% in the first quarter, had been underperforming for years. In Japan, where McDonald’s is still reeling from the food safety scare last summer, the closed stores were “heavy loss maker restaurants.” As for the U.S., comparable sales were down 2.3%, one of their biggest drop in years as chains like Chipotle ate into sales.

In the last few months, it has made a few moves that telegraph where it is heading, though it is pretty clear how big the challenge will be for the Golden Arches.

For instance, earlier in April the company announced it is testing out a larger, pricier, third-of-a-pound burger for $5, two years after dropping the similar Angus burger line because they were too pricey for McDonald’s diners. Despite that earlier failure, new CEO Steve Easterbrook expressed confidence his customers would go for premium burgers.

But he faces an uphill battle in winning over the millions of burger-eaters in the U.S. that have a dim view of McDonald’s offerings: Nation’s Restaurant News published a survey this month rating 111 limited-service chains on 10 attributes including food quality, and McDonald’s was ranked No. 110, ahead only of Chuck E. Cheese. In-N-Out Burger topped the list.

And he also has to get the thousands of franchisees, who own 80% of McDonald’s locations, on board as he works to transform the company, even as many are still smarting from his decision to raise wages at company-owned U.S. restaurants.Low Quality at Premium Prices

Can you sell low-quality "premium" burgers in a place that looks like crap? Other than its breakfast menu there is almost nothing I will touch at McDonald's.

Fools cheered when McDonalds and Walmart raised wages.

Here is the other side of the coin: Is McDonalds or any chain going to expand rapidly if wage pressures mount?

Store Cannibalization

Every hike in wages is another marginal store that won't make it, or will not get built in the first place. All these chains do is cannibalizing each other's business.

Every market share gain by Chipotle is a loss by McDonald's, Applebees, Burger King, or someplace else.

Supersaturation

Cities are supersaturated with fast food junk. Saturation also applies to grocery stores, sporting goods stores, Target, Home Depot, Lowes, etc.

I keep wondering when it ends.

I don't have the answer, but it will, and I actually suspect soon. The trigger could easily be the rise in wages. When it happens it will be sudden and "unexpected".

Expect another round of "no one could possibly see this coming".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Spain's Unemployment Rate Increases to 23.7%; 114,300 Jobs Vanish in First Quarter, Public Sector Jobs Rise

pt., 24/04/2015 - 00:28
The economic recovery in Spain has gone from jobless to jobloss. Spain shed 114,300 jobs in the first quarter of 2015.

Via translation from El Pais, Spain's Unemployment Rate Rose Slightly in the First Quarter.

The economic recovery has not been enough to create jobs. In the first three months of the year, the economy shed 114,300 jobs. The result has been a slight increase in the unemployment rate from 23.7% to 23.78% according to the Labour Force Survey (EPA) published by the National Employment Institute.

The rise in unemployment could have been higher if not for the significant decline in the labor force. This group has fallen by 127,400 people to 22.9 million.

As was the case in the previous quarter, again, the labor kick is a decline in private employment (143,500), since the public has grown to 29,200 jobs.

Spain Unemployment Rate



Key Points

  • Employed: 17.454 million
  • Unemployed: 5.444 million 
  • Labor Force: 22.9 million
  • Unemployment Rate: 23.78%
  • Youth Unemployment: 50.1%

Those are horrific numbers. The unemployment rate would be higher except for a decline in the labor force coupled with public sector hiring (likely an election ploy given national elections this Autumn).

The only way Spain can grow and hit budget deficit targets is via numbers like these. In fact, I strongly suspect Spain will miss its budget deficit target because of public sector spending.

How long before Spanish citizens have had enough? The next national election may be telling.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Kansas City Fed Manufacturing Report: Nearly a Clean Negative Sweep; US Dollar Effect in Spotlight

czw., 23/04/2015 - 19:27
Inquiring minds are digging into the Federal Reserve Manufacturing Report for the 10th District Region.

10th District Summary



Note the near clean sweep in the negative sense. Actually, inventories of materials rising in the midst of a decline in orders is not a good thing either.

New orders, backlog of orders, employment, and length of workweek have all crashed. Prices paid and received are deflationary.

US Dollar Effect in Spotlight

Effect of the strength of the US dollar is notable in the comments

  1. We are experiencing more volatility on revenue monthly. One month may be much higher than previous month or year and then the next month may be much lower, etc.
  2. The durable goods sector just isn't very good, impacted mightily by the price of oil. We are reducing headcount and spending where possible in an effort to withstand this phase of the economy for however long it lasts.
  3. Competition for business is fierce especially with the low cost labor and better logistics from Mexico. We are finding more and more customers moving manufacturing operations to Mexico.
  4. The manufacturers in the energy producing states are struggling to make adjustments given the speed at with oil prices dropped.
  5. Raw material suppliers have announced large increases in price, however, they keep moving the effective dates back. These announced increases are not supported by actual cost increases. Their sales are down so we are not taking the announced increases are seriously. If they do go into effect, our larger inventories will be a cushion.
  6. West coast port disputes have us out of stock on key items. No information available on when we will receive products. We will look at reducing our employee count next month if we do not receive goods in April.
  7. We import dry bulk cement from Asia and Europe so the strong dollar has given us more buying power. We also export the same type products to Canada where the strong dollar has hurt our margins and made it harder to compete.
  8. The strong dollar is good in that it's driving down commodity prices, but bad because it is making us less competitive globally. We're making fewer products but making more money on them. It has been bad for our employees because we have less work (and fewer employees). Overall , it’s a negative for us.
  9. The stronger dollar is undoubtedly creating more opportunity for foreign manufacturers. The impact has only begun to be felt in our bookings.

Comments number two, three, and nine are telling.

Recession?

I stick with my assessment made in January and commented on twice recently.


Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

New Home Sales Down 11.4% Overall, 15.8% in South; Median Price Declines

czw., 23/04/2015 - 17:58
The Bloomberg consensus estimate for new homes sales was an overly-optimistic 518,000. Instead, it's bad news again as new home sales fell a very steep 11.4 percent to a 481,000 annual rate.

  • New home sales -11.4%
  • New homes sales in South -15.8%, West -3.4%, Midwest +5.6%, -33.3% Northeast
  • Median price fell 1.5% to $277,400.
  • Year-on-year, the median price is down 1.7%.
  • Sales are up 19.4% year over year, a discrepancy that points to price discounting by builders
  • Today's report echoes last week's housing starts & permits data and points to stubborn weakness in the new homes market.

New Home Sales in Thousands



The Northeast contributes the least. The South contributes the most followed by the West so weather is not a significant factor.

Above New Home Sales table from Census.Gov.

Single Family Home Sales



Everyone seems to expect a return to the bubble years even though it's pretty clear where the range really belongs.

Demographically speaking, as boomers age, their houses will add to existing supply as they downsize, then pass away.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Seven Year Negative Returns in Stocks and Bonds; Fraudulent Promises

czw., 23/04/2015 - 09:05
It is extremely refreshing to see a large, prominent, and historically accurate fund manager lay it on the line.

GMO does that quarter after quarter, with no-nonsense projections.

As of March 31, their 7-Year Asset Class Real Return Forecast is as follows.



Serious Question for Pension Plans

Given pension plan assumptions of 7-8% annualized returns how many of them can survive negative returns for seven years? It's important to note that GMO is talking about "real" inflation-adjusted returns with an assumption of mean-reversion inflation to 2.2% over 15 years.

Still, that leaves US equities at zero to -1% returns and US bonds at negative 2.4% returns.

Even if GMO is wrong by say 3%, many pension plans will be in deep serious trouble at those returns.

Illinois Pension Plans

I keep harping about this issue, but it's an important one. In the state of Illinois, and in spite of an enormous rally in the stock market since 2009, Illinois pension plans are only 39% funded.

A "Special Pension Briefing" last November, shows the Illinois State Retirement Systems are in dismal shape.

Unfunded Liabilities

  • Teachers' Retirement System (TRS): $61.6 Billion
  • State Retirement Systems (SERS): $26.2 Billion
  • State Universities Retirement System (SURS): $21.6 Billion
  • Judicial Retirement System (JRS): $1.5 Billion
  • General Assembly Retirement System (GARS): $0.3 Billion

The above numbers show actuarial (smoothed) asset valuations.

Liability Trends - Not Smoothed




In spite of the massive stock market rally, Illinois liabilities increased every year since 2011.

For still more details, please see Illinois Pension Plans 39% Funded; Taxpayers On the Hook for $105 Billion in Liabilities; It Will Get Worse!.

Any notion that pension shortfalls can be balanced on the backs of Illinois taxpayers needs to vanish now.

How did Illinois plans became so underfunded?

In general, by promising far more than can possibly be delivered.

Summary of Liabilities and Unfunded Ratios




click on any chart for sharper image

Congratulations go to the Illinois General Assembly Retirement System (GARS) for having one of the worst, (if not the worst) pension plan in the entire nation. It is 16% funded.

No doubt, that increases the pressure of the General Assembly to put the burden of bailing out the system on the backs of Illinois taxpayers.

Fraudulent Promises

Pension promises were not made in good faith.

Rather, pension promises were the direct result of coercion by public unions on legislators, mayors, and other officials willing to accept bribes because they shared in the ill-gotten gains of backroom deals at taxpayer expense.

Illinois taxpayers cannot be held accountable for coercion of public officials by public unions. Fraudulent promises will be held "null and void" in any "non-stacked" court of law in the nation.

Given the 31% funding of the Illinois Judicial Pension Plan (JRS), the sorry state of Illinois pensions is likely headed to federal courts.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Ukraine Update: Not Quiet on the Eastern Front; Sanitized US News; Wakeup Call From Poland

czw., 23/04/2015 - 05:31
Judging from Western media, one might think nothing much is happening in Ukraine. Facts are wildly different as we will discuss momentarily.

Rush to Judgment

As a prelude to current events, please recall the hype when Russian opposition leader Boris Nemtsov was gunned down in March. Western media rushed to judgment. Heck, even friends who should know better rushed to judgment.

Every Western news agency, even some I would have expected better of, was quick to point the finger at Putin.

I commented on Boris Nemtsov on March 6 in Rush to Judgment and Extremely Inaccurate Reporting.

With that backdrop, let's turn our attention to some recent events.

Death Squads Kill Four News Reporters in Ukraine

On April 17, Death Squads Killed Four News Reporters in Ukraine in 24 Hours.
Over the last two days in Ukraine, there have been four prominent killings.  On Wednesday, it was former member of Parliament from the Regions Party, leader of the All-Ukrainian Officers' Union, and one of the founders of the AntiMaidan, Oleg Kalashnikov.  On Thursday, it was journalist Sergei Sukhobok, one of the founders of the ProUA and Obkom websites.  That same day, former editor of the major newspaper Segodnia, well-known journalist Oles' Buzina, was shot dead in his own backyard; and the body of editor-in-chief of the Netishinskii Herald, Olga Moroz, was found dead in her apartment, bearing signs of a violent death.

Three journalists in one day. Four political figures in 24 hours.  Where is the human rights crowd? Where is the international community?  Where are the declarations of Merkel, Obama, Cameron, etc.? Where is the wave of indignation from the Western press? Where?Page 18

What did those journalists have in common? They were all against the war effort or considered "pro-Russian".

Had four anti-Putin journalists bit the dust in Russia, this would have been front page news for six straight days.

The New York Times devoted exactly one paragraph to the Ukraine killings on page A18 of the Friday, April 17th edition.
A Ukrainian journalist with a vocal pro-Russian stance was killed in Kiev, the capital, by unidentified gunmen on Thursday, a day after a pro-Russian lawmaker was killed in a similar attack. The journalist, Oles Buzina, 45, publicly opposed the protests that led to the ouster of President Viktor F. Yanukovych in 2014. The current president, Petro O. Poroshenko, called for a swift investigation and declared that the recent killings were “conscious provocations” intended to “destabilize domestic politics in Ukraine.” President Vladimir V. Putin of Russia said Ukraine’s government was allowing a campaign of political violence against supporters of the previous government. Note the slant by Poroshenko. Supposedly Putin is killing pro-Russia supporters!

This is what constitutes "reporting" in the US.

Wakeup Call From Poland

Please consider Polish General ‘Calls Back Support’ of Ukraine over Nationalist Glorification
Retired General Waldemar Skrzypczak, an influential figure in the Polish military, says he withdraws all words of support for Ukraine due to the country’s sliding towards nationalism. Earlier he advocated supplying heavy weapons to Kiev.

The angry U-turn in attitudes towards the Ukrainian government was published on Friday in the Gazeta Prawna newspaper. Skrzypczak said he is outraged with a law that the Ukrainian parliament passed hours after Polish President Bronisław Komorowski spoke before the MPs to express support for Ukraine.

The law gave benefits to all people who fought for Ukraine’s independence throughput history. Those include fighters of the Ukrainian Insurgent Army, or UPA, which was responsible for mass killings of Polish citizens in 1943-44. The tragic events are known as Volhynian slaughter in Poland.

I wonder on what foundation is Ukrainian President Poroshenko building the future of Ukraine. Bloodthirsty nationalism? It’s frightening. I have long been telling that Ukrainians must get rid of nationalism, because otherwise cooperation with Poland would be very difficult if possible at all,” he said.

As early as January, Skrzypczak was calling on the Polish government to send some armor from its reserves to Ukraine to help its government ‘fight against Russia.’ Sanitized US News

The above was from RT, but the translation would be the same from any source. Don't like RT? How about Newsweek?

Please note that Newsweek (Polish Edition) reports Poland Claims US Is Responsible for Destabilization in Ukraine.

This is an English translation courtesy of Watching America Published in Newsweek (Poland) on 16 March 2015 by Marta Ciastoch Translated from Polish by Justyna Demuth.
“The U.S. has spent $5 billion on the Ukrainian revolution, the snipers who shot Euromaidan protesters came from the West, the annexation of Crimea was a justified action, and Nemtsov was killed by Americans,” claims Janusz Korwin-Mikke, a Polish member of the European Union, in the interview for a Ukrainian TV program “Shuster Live.”

“Most citizens of Crimea were, by their own democratic choice, in favor of joining Russia,” argued the Polish KORWIN party leader. He emphasized that the existence of an independent Ukraine is critical for Poland, but whether Crimea remains a part of Ukraine or not, does not really matter. “Ukraine could exist without Crimea, and would, had not the U.S. invested $5 billion to destabilize it,” says Mr. Korwin-Mikke, adding that Ukraine’s loss of Crimea, followed by the loss of Donetsk and Luhansk, is a result of U.S. actions. Mr. Korwin-Mikke appealed to Ukrainians in order to make them realize the true intentions of the USA, which pretends to be allied with Ukraine, but, in fact, uses it against its own conflict with Russia.The US is supporting neo-Nazis and murderous thugs in Ukraine because we prefer those thugs over Russia.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

How to Eliminate Illegal Competition

śr., 22/04/2015 - 21:22
Tired of illegal competition? Well, who isn't?

And the Quitman Georgia police department has an ad that can help.



By the way, I believe in legalizing drugs. I just found this humorous.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspotMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

The Chicago Penalty

śr., 22/04/2015 - 20:23
Chicago Pays Price to Get the Deal Done

Comparisons on the Bond Buyer in regards to Tuesday's offerings show Chicago Schools Pay Price to Get Deal Done.
The top yield of 5.63% on a 25-year maturity landed 285 basis points over the Municipal Market Data's triple-A benchmark.

While the board's rating remains in investment grade territory, its yields aren't.

Tuesday's MMD scale Tuesday put a mid-level, triple-B rated credit at a 3.78% yield on a 2039 maturity, underscoring just how severe a penalty the district paid. The Chicago Board of Education is rated between the BBB-minus level and A-minus.

Secondary trades on the board's $6 billion of debt jumped 140 basis points in recent weeks with 10-year paper trading around 250 basis points over MMD and 15 year paper trading at 300 basis points over.

The two tranches offered a C series for $275 million and an E series of $20 million in green bonds. Both carried a general obligation pledge plus an alternate revenue pledge of state aid.The Penalty

Not only did Chicago have to pay a 285 basis point penalty over top rated bonds, it paid 185 basis points over similarly rated bonds even though the bonds contained an alternate pledge of state aid, and even though Illinois law does not "yet" allow bankruptcy.

Why?

Default risk.

Rauner pledged "The taxpayers of Illinois are not going to bail out the city of Chicago, that ain't happenin. But there are things we can do to help them restructure and get their government and their schools turned around, and I'd like to help them.".

Illinois taxpayers should commend Rauner for that stance.

Few Institutional Buyers

Here's a pair of telling comment from the article about who may be taking the risk:

"The 2035 is a discount structure, that typically signifies to me that you got some alternative buyers looking for some pop on the run, so they will try to trade on the headline news," said a Midwestern trader. "The structuring had a fairly deep discount. Only $10 million in the 2035, a little telling on the premium structure, which tells me you only have a few institutional buyers."

"The question that is on everyone's mind is did the Kroll rating do anything? Overall, it has wide spreads but you can really tell by the dollar amount who the buyers are," the Midwestern trader said.

Is this similar to the institutional shun and dump of GM bonds ahead of GM's bankruptcy?

Recall that high-yield GM bonds were dumped on unsophisticated mom and pop investors ahead of that debacle.

No Miracles Coming

I repeat what I said yesterday in Yield on Chicago School Bond Offering Hits 5.63%; Debate Over Risk; Miracles Not Coming; Bankruptcy the Sensible Option.

How is a state that has a $9 billion budget deficit hole going to bail out a single school district that is $1.1 billion in the hole?

The obvious answer is that it won't and can't. There are no miracles to be had. The Chicago Public School system is bankrupt. All it will take to trigger bankruptcy is for the legislature to allow just that.

That said, the law does mandate that parties in a chapter 9 bankruptcy dispute attempt to negotiate a settlement.

Realistically speaking however, history shows that unions will not concede benefits as they believe them to be sacrosanct, even though court decisions prove otherwise.

Detroit made a huge mistake time-wise attempting to forestall the inevitable. Rauner needs to give an out of court settlement a chance, but for the sake of Chicago and Illinois, that chance should be of limited duration.

Bankruptcy the Only Sensible Option

Since downstate voters will not want to bail out Chicago, we may easily be approaching the point the Illinois legislature realizes it has no choice other than to allow municipalities the option of declaring bankruptcy.

This won't come easily for the legislature, but it's the right thing to do. Upstate vs. downstate politics may be enough to tip the tide.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspotMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

ECB Squeezes Greece on Collateral; Humorous Lies of the Day; Capital Controls Likely Soon

śr., 22/04/2015 - 09:10
Funding as Long as Banks Stay Solvent

The amusing headline of the day comes from ECB Executive Board Member Benoit Coeure who told Greek newspaper Kathimerini on Wednesday in an interview ECB to Fund Greek Banks as Long as They Stay Solvent.
The European Central Bank will continue to provide liquidity to Greece's banks as long as they remain solvent and have sufficient collateral, ECB Executive Board Member Benoit Coeure told Greek newspaper Kathimerini on Wednesday in an interview.

He said imposing capital controls was "not a working assumption" for the ECB, while speculation about Greece leaving the euro was "out of the question."Coeure failed to say that Greek banks are "solvent" (using the word loosely) only as long as they get funding.

Humorous Lies of the Day

  1. Capital controls not a working assumption 
  2. Greece leaving the euro "out of the question" 

Does Coeure really believe he is fooling anyone with such nonsense?

Greek Leaders Under fire for Ordering Councils to Hand Over Cash

Greek mayors are upset (and no one can possibly blame them) for the government ordering cities to turn all their cash over to the central government.

The Financial Times reports Greek Leaders Under fire for Ordering Councils to Hand Over Cash.
Greece’s anti-austerity government faced the first serious rebellion over its handling of a deepening fiscal crisis after it caved in to international pressure and ordered local authorities to hand over their spare cash.

A group of prominent mayors reacted furiously to the move on Tuesday, which followed repeated demands from Greece’s official creditors, saying it amounted to an illegal seizure of municipal funds by the Syriza-led central government. The mayors said the order by decree violated the constitution and they threatened legal action in Greece’s highest court.

George Kaminis, the non-partisan mayor of Athens, said the order was a blow to the independence of local government and could “asphyxiate” the normal running of the capital. “Apart from the fact that this move is clearly unconstitutional, it takes local authorities by surprise . . . and threatens their capacity to contribute to social cohesion and urban development,” Mr Kaminis told a meeting of EU mayors in Vienna on Tuesday. ECB Squeezes Greece on Collateral

Rounding out our trifecta of Greek news, ECB Squeezes Greece on Collateral.
As Greece scrambles to secure a financing deal with Europe before running out of cash, the European Central Bank is tightening the vise on the country’s ailing banks by curtailing access to desperately needed emergency loans.

The European Central Bank is now demanding that the value of the collateral that Greek banks post at their own central bank to secure these loans be reduced by as much as 50 percent, according to people who have been briefed on these discussions but who were not authorized to discuss them publicly.

With the value of the collateral being reduced so significantly, banks will be hard pressed to obtain the money they need to survive.

For more than three months, Greece’s largest banks have been forced to borrow short-term, higher-interest money from their central bank — a process called emergency liquidity assistance — because the E.C.B. deemed it too risky to extend credit to the banks itself.

The banks, in turn, have to provide adequate collateral to obtain these loans, which now stand at 74 billion euros, $79.7 billion, or more than half the amount of Greek domestic deposits.

Controversially, Greek banks have even begun to issue bonds to themselves and, after securing a government guarantee, have used the securities to secure short-term financing — a practice that was excoriated by Yanis Varoufakis before he became the Greek finance minister.

On April 8, for example, the National Bank of Greece self-issued €4.1 billion of six-month bonds that carried state backing. But with Greece on the verge of default — Mr. Varoufakis has frequently said his country is bankrupt — those guarantees are no longer worth much.

Under E.C.B. rules, the central bank of Greece assumes full responsibility for the credit risk when it issues these emergency loans.

But the E.C.B. carefully monitors them, setting limits and scrutinizing the collateral.Capital Controls Likely Soon

What's that collateral that the ECB already has on deposit from the Bank of Greece really worth?

Regardless of the answer, we now have an official denial on capital controls.

If you have money deposited in Greek banks, get it out now. Capital controls seem all but certain, perhaps within days.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Caught on Video: Police Smash Woman's Phone as She Tapes Crime Scene; How to Stop "I am Above the Law" Mentality

śr., 22/04/2015 - 04:42
In yet another cops are above the law incident Watch U.S. Marshal Crush Camera. Nosy neighbors caught a video of a law enforcement officer in California snatching a bystander's phone and smashing it after U.S. Marshals realized she was recording their bust of a biker gang meeting. The 53-second video, taken from across the street, shows a gun-toting marshal grabbing the woman's phone out of her hand, throwing it to the ground, and finally kicking it. According to a spokesperson for the marshals, the video "is being reviewed."

How to Stop "I am Above the Law" Mentality

The only way to stop this kind of "above the law" mentality is to immediately suspend, without pay, any police officer guilty of such behavior. A second offense is grounds for dismissal. As an added incentive, fired officers should lose 100% of all accrued benefits.

And in this case, repayment for the phone should come directly out of the suspended officer's paycheck (at say a 500% of damages rate).

I am open to negotiation on the terms mentioned above. But the terms must be severe enough to cause an immediate attitude change.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Yield on Chicago School Bond Offering Hits 5.63%; Debate Over Risk; Miracles Not Coming; Bankruptcy the Sensible Option

wt., 21/04/2015 - 20:25
Today a $295.7 million bond offering by the beleaguered Chicago Board of Education hit the market.

The Yield Hit 5.63%. That is 285 basis points higher than Municipal Market Data's benchmark triple-A scale.

Debate Over Risk

Municipal Market Analytics (MMA) says Despite it All, Chicago Schools' Default Risk is Low.
Peel away the layers of negative headlines and patient investors will find low default risks and underlying credit strength in this week’s $300 million Chicago Board of Education deal, according to Municipal Market Analytics.

“BOE debt is well insulated from default risk by significant 'belt and suspenders' protections,” MMA wrote in a market piece authored by Matt Posner & Kevin McGuigan Friday. “We understand that negative headlines, downgrades and Chapter 9 speculation have all damaged value but believe the case can be made for a considerable underlying credit strength that exists for patient investors.”

The bonds’ value has been hurt by a stinging series of negative headlines, from multi-notch bond rating downgrades to Gov. Bruce Rauner’s comments that no state bailout looms and bankruptcy is an option.

“Regardless of statements by the governor, Chapter 9 is likely a low probability outcome, allowing for a less cynical reading of CPS’ otherwise strong pledged security,” MMA wrote Monday in its weekly outlook authored by Matt Fabian, Lisa Washburn, and Bob Donahue.

“This security presents only minimal payment default risk,” Monday’s outlook piece said.Debate Over Risk

I strongly disagree the MMA's assessment. While it's true that municipal bankruptcies are rare, the odds of this deal working out well are poor.

The only saving grace at the moment is that Illinois does not allow municipal bankruptcies.

And Rauner pledged "The taxpayers of Illinois are not going to bail out the city of Chicago, that ain't happenin. But there are things we can do to help them restructure and get their government and their schools turned around, and I'd like to help them.".

Simple Facts

  • The Chicago Public School System has a $1.1 billion budget bole in a $5.9 billion budget
  • The 2015 budget kited two months of property taxes from the fiscal 2016 budget
  • A $228 to $263 million derivative time bomb just triggered on the Chicago Board of Education
  • Chicago Public Schools may be out of cash in 30 days
  • Corruption investigations plague the school board
  • The school district faces a pension payment in 2016 of about $700 million.

No State Rescue

Where is the school district going to get $1.1 billion? Where is it going to get a $700 million pension payment?

The state? Think again.

Illinois Budget Deficit is $9 billion

Don't expect the state of Illinois to come to the rescue!

Crain's Chicago Business says Illinois' Budget Deficit is Twice as Bad as You Think.
Illinois' fiscal woes are significantly deeper and more serious than generally realized, with the state facing a $9 billion operating deficit in the fiscal year that begins July 1.

That's the horrific bottom line of a report released late today by researchers at the University of Illinois Institute of Government and Public Affairs, a study that may raise the eyebrows even of Gov. Bruce Rauner, who has been warning of huge financial problems ahead.

The conclusion: The actual deficit is about twice what is commonly reported, with the hole in the current fiscal 2015 budget not $2 billion to $3 billion but $6 billion, and rising to a projected $9 billion in fiscal 2016 and hitting $14 billion by fiscal 2026, assuming no changes in law or spending practices. No Miracles Coming

How is a state that is $9 billion in the hole going to bail out a single school district that is $1.1 billion in the hole?

The obvious answer is that it won't and can't. There are no miracles to be had. The Chicago Public School system is bankrupt. All it will take to trigger bankruptcy is for the legislature to allow just that.

Bankruptcy the Only Sensible Option

Since downstate voters will not want to bail out Chicago, we may easily be approaching the point the Illinois legislature realizes it has no choice other than to allow municipalities the option of declaring bankruptcy.

This won't come easily for the legislature, but it's the right thing to do. Upstate vs. downstate politics may be enough to tip the tide.

Right Idea

Rauner has the right idea on taxes, on bankruptcy, and on a bailout of Chicago.

Not a penny of taxpayer money should go to fund a lost cause. I find it hard to believe that Emanuel himself does not know the school system is truly bankrupt.

When you are bankrupt, the only sensible thing to do is admit it.

That said, the law does mandate that parties in a chapter 9 bankruptcy dispute attempt to negotiate a settlement. Bankruptcy law must be adhered to. Realistically speaking however, history shows that unions will not concede benefits as they believe them to be sacrosanct, even though court decisions prove otherwise. Detroit made a huge mistake time-wise attempting to forestall the inevitable. Rauner needs to give an out of court settlement a chance, but for the sake of Chicago and Illinois, that chance should be of limited duration.

For more details on the miserable state of affairs of the Chicago Public School System, please see Credit Swap Event Triggers for Chicago Schools: Out of Cash in 30 Days, Cooking the Books to Oblivion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspotMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Euribor Goes Negative, Banks Paid to Borrow from Each Other; ECB Risks Freezing Repo Market

wt., 21/04/2015 - 18:04
Banks Paid to Borrow From Each Other

Via massive QE purchases of bonds, ECB president Mario Draghi is flooding Europe with cash that European banks don't want and cannot use.

One curious result of unwarranted QE is a negative interbank lending rate: Banks Paid to Borrow as Three-Month Euribor Drops Below Zero.
Banks in the euro area can now get paid to look after each others’ cash for three months as the European Central Bank’s bond-buying program floods the region’s money markets with excess liquidity.

The euro interbank offered rate, or Euribor, for that time period dropped to minus 0.001 percent on Tuesday, according to data from the European Money Markets Institute. That’s the first negative reading since Bloomberg started collecting the data at the end of 1998. The index represents the average rate at which the region’s banks say they see each other lending in euros for three months.

Money-market rates have declined after several moves by the ECB. In June it introduced a negative deposit rate, meaning that commercial lenders were required to pay a fee to park their excess cash overnight with the Frankfurt-based institution. The ECB lowered the rate to minus 0.2 percent in September. Then in March this year the central bank started buying government bonds under a 1.1 trillion euro ($1.2 trillion) quantitative-easing program aimed at boosting growth and staving off deflation.

“Excess liquidity keeps flowing into the system week by week because of the QE program,” said Nikolaos Panigirtzoglou, a strategist at JPMorgan Chase & Co. in London. “Banks find themselves inundated with deposits but they don’t want to pay the ECB for parking their money there. Instead they’d rather lend the cash in the interbank market.”

“It’s good news for borrowers, not so good news for lenders,” O’Hagan, Paris-based head of European rates strategy at the French bank. “Mr. Draghi wants us to spend the cash, not keeping it in Euribor. The purpose of QE is to get us to take on some risk.” ECB Risks Freezing Repo Market

An ICMA official says ECB Risks Freezing Repo Market.
The European Central Bank (ECB) risks secured-lending or repo markets grinding to a halt unless it works more closely with national central banks (NCBs) to improve liquidity, a senior trade association official told Reuters.

Godfried de Vidts, the chair of the International Capital Market Association's European Repo Committee, said unless the ECB took action within the next few months, investors might start avoiding euro zone bonds.

"Investors could become reluctant to invest in euro zone debt," he said, noting that his committee had voiced its concerns to officials at the ECB. "We are scared about the market freezing," de Vidts said.

In recent weeks, one 10-year Bund became so scarce that market players paid up to 2.5 percent to lend cash in exchange for the German bond, dealers said.

De Vidts said the ECB's "securities lending" framework also relies too heavily on NCBs offering their own lending programs, and many of them have not yet put systems in place.

NCBs are responsible for 80 percent of purchases under QE, with the ECB directly buying the remaining 20 percent in the roughly 7-trillion-euro euro zone government bond market.

"We are driving without headlights in the dark," said de Vidts, proposing that the ECB centralizes the scheme in Frankfurt.

"You are getting this scenario - which is a nightmare for the repo market – of a re-nationalization of a market that had developed to become European."

Last week, ECB President Mario Draghi said the bank saw no evidence QE was creating a shortage of bonds, or that this might happen in the future.Come Hell or Frozen Water, Program Will Continue

De Vidts believes excess liquidity might cause a freeze. On April 15, Mario Draghi made the claim "Stimulus is Working".

"European Central Bank President Mario Draghi said the bank’s stimulus efforts are beginning to take hold in the European economy and batted away concerns in financial markets that the bank may have to end its more than €1 trillion ($1.1 trillion) asset purchase program early."

If it's working, why wouldn't Draghi welcome ending the program early? Of course if it blows up in his face with unintended consequences, he may be forced to end it early.

Either way, Draghi has put himself into a box that says he will continue his plan come hell or frozen water.

The market may have something to say about that, perhaps sooner rather than later.

Stunning Arrogance

The arrogance of central bankers  in spite of the fact they recently brought the world to the edge of financial collapse is stunning. Now they have created equity and junk bond bubbles of massive proportion and don't even see it.

The program must continue. Why? Because we said so. All in the foolish belief they need to stop consumer prices from falling.

Even the BIS recognizes the foolishness of the idea that falling consumer prices are damaging. For discussion, please see Historical Perspective on CPI Deflations: How Damaging are They?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

America's Pension Problem: Gordon Long Interview of Mish

wt., 21/04/2015 - 05:07
I had the pleasure of being interviewed once again by Gordon Long as part of his financial repression series. The topic of this interview was "America's Pension Problem".

Interview



Synopsis - By Gordon Long - Edited by Me
Mish Shedlock talks about the magnitude of the mounting Pension Problem in America and uses his home state of Illinois as a prime example. According to a State Budget Solutions, last year’s state unfunded pensions reached an all-time high of $4.7 trillion. This funding gap state public pension plans are underfunded by $4.7 trillion, up from $4.1 trillion in 2013. Overall, the combined plans' funded status has dipped three percentage points to 36%. Split among all Americans, the unfunded liability is over $15,000 per person.

Pending Pension Crisis

"Illinois Pension's in general are 39% funded. This is after this massive rally we have had since 2009 in financial assets. Some of the worst ones are only about 20% funded."

"Various cities in Illinois have problems, Chicago being one of them. The City of Chicago has a huge pension crisis right now. We have things in Illinois like "Home Rule Taxes" where cities can levy their own taxes in addition to the state. That is why we have varying sales tax that range anywhere from 6.25% to 10%, depending on locality."

"I have been working with the Illinois Policy Institute on pension and bankruptcy issues. There are a number of cities in Illinois that are ready to file bankruptcy. The problem is they can't file bankruptcy because the state doesn't allow it."

"The fundamental problem is they have made more promises than they can possibly keep"

Gaming the System

The problem is "you have police and fire workers who can retire after 20 years and collect up to 70% of their earnings based on the 5 highest years salaries. We see a lot of pension spiking in the last few years where for example police work overtime (which counts towards their best five years) so these workers stand to collect far more in retirement (total years in retirement) than they actually ever made while working (total years worked).

"Tax payers are actually funding the employees portion of the pensions by excessive wages and direct contributions ".

"Chicago floated General Obligation Bonds to fund current expenses. That is illegal. We have bonds here in Illinois that are tax exempt on the basis they are supposed to be funding long term infrastructure expenses that are funding short term needs."

Obscene Property Taxes

"Taxes in Illinois are already obscene. A homeowner on a $600,000 home can expect to pay $14-15,000 per year - every year on property taxes. Do you really own your own home in Illinois?"

"Pensions are so underfunded in Illinois that they are going to go bust in the next slowdown. I believe one (a slowdown) is on the way."

Looming Crisis Globally

Negative interest rates are sweeping the globe. How will states, cities and towns fund themselves and their pension obligations in an era of potential negative nominal bond rates?

Returns on the heavily weighted funds' bond holdings are being potentially destroyed while state bond offerings are likely to face mounting issues such as the monstrous overhang levels of unfunded pension liabilities.

"How will states, cities and towns fund long term asset assumptions of 7% given or exceptionally low or year negative yield bonds?"Repression Series

Gordon's financial repression series is up to about 900,000 video downloads.

Guests include Marc Faber, John Rubino, Paul Craig Roberts, Doug Noland, Chris Martenson, Grant Williams, Doug Casey, Axel Merk, Dave Stockman, Steve Keen, and many others.

My previous interview was Gordon Long Video Interview of Mish: Topic - Financial Repression (and How to Defend Yourself From It).

At the end of the current interview, I briefly mention several trades I am currently in: Russia, Japan, gold and miners.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Greece to Seize Local Government Cash; Two Year Bond Yield Tops 28%

pon., 20/04/2015 - 22:17
Greece to Seize Local Government Cash

Robbing Peter to pay Paul took another leap forward in Greece today as Tsipras to Seize Public-Sector Funds to Keep Greece Afloat.
Running out of options to keep his country afloat, Greek Prime Minister Alexis Tsipras ordered local governments to move their funds to the central bank.

"Central government entities are obliged to deposit their cash reserves and transfer their term deposit funds to their accounts at the Bank of Greece,” according to the decree issued Monday on a government website. The “regulation is submitted due to extremely urgent and unforeseen needs."

Credit-default swaps suggested about an 81 percent chance of Greece being unable to repay its debt in five years, compared with about 67 percent at the start of March, according to CMA data.

The move is a sign of the “dire liquidity situation for the Greek financial system as the government pools all liquidity available,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. The “next step may be forcing all public-sector entities, including public-sector companies to do the same,” he said.

Greek officials, including Deputy Prime Minister Yannis Dragasakis, remained defiant over the weekend, saying the government won’t betray its electoral promises and worsen the pain that came from previous austerity measures.Unforeseen?

Somehow Tsipras labeled this event as "unforeseen" even though it was blatantly obvious the moment the Troika refused to relax terms on Greece back in January.

Stealing money from cities like Athens to pay state workers will ensure city workers don't get paid. Precisely what good will that do but prolong the shell game?

Two Year Bond Yield Tops 28%



The bond market is getting increasingly jittery over the current state of affairs as yield on two-year Greek bonds is now over 28%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Base Case Becomes Grexit; Contagion?

pon., 20/04/2015 - 20:11
At long last the deniers have thrown in the towel. Grexit is now the base case as Europe Braces for Messy Greek Endgame. It’s still possible that Greece can remain in the eurozone—though that is no longer the base case for many policy makers. At the very least, most fear the situation is going to get much, worse before it gets any better. No one now expects a deal to unlock Greek bailout funding at this week’s meeting of eurozone finance ministers in Riga—originally set as the final deadline for a deal. The new final, final deadline is now said to be a summit on May 11.

But among European politicians and officials gathered in Washington DC last week for the International Monetary Fund’s Spring Meetings, there was little optimism that a deal will be agreed by then.

The two sides are no closer to an agreement than when the Greek government took office almost three months ago. “Nothing, literally nothing has been achieved,” says an official. In fact, it is worse than that: so far, the bulk of Athens’s reform plans would actually cost money or reduce government revenues, according to eurozone officials.

They say that when you add up all the government’s proposals, the budget surplus required under the current program turns into a 10-15% deficit while debt soars far above the 120% of GDP targeted for 2022. There is no way that the eurozone—let alone the IMF—could disburse funds on the basis of such fantastical numbers.

The bottom line is that Athens won’t get any money unless it can reach a deal that satisfies the IMF that Greek debt is on a sustainable path and that it has a medium-term funding plan in place. The eurozone won’t disburse its own bailout funds without a deal that carries this IMF seal of approval. Likely Scenario

The likely scenario is exactly the same as it was in 2010, 2011, 2012, 2013, and 2014: default.

Various can-kicking exercises simply lasted that long.

So why now?

  1. The election of Syriza
  2. ECB belief that Grexit will not cause contagion.

Bear in mind, Grexit could cause a very messy breakup for the eurozone. That doesn't matter. What matters is belief. As long as the ECB thinks it has the "tools" to prevent major problems, then it will be prepared to let Greece go.

Greece's Varoufakis Warns of Grexit Contagion

Reuters reports Greece's Varoufakis Warns of Grexit Contagion. Greece's Finance Minister Yanis "Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of euro zone to carry on."

"I very much doubt that that is the case. Not just because of Greece but for any part of the union," he said, speaking in English.

"Once the idea enters peoples' minds that monetary union is not forever, speculation begins ... who's next? That question is the solvent of any monetary union. Sooner or later it's going to start raising interest rates, political tensions, capital flight."

His comments were recorded before those of Mario Draghi, the European Central Bank's president, who this weekend said the euro zone was better equipped than it had been in the past to deal with a new Greek crisis but warned of uncharted waters if the situation deteriorates. said in an interview broadcast on Sunday that if Greece were to leave the euro zone, there would be an inevitable contagion effect.Contagion?

One problem for Varoufakis is that no one believes him. They believe Draghi.

Will there be contagion? It's not a given but it's likely eventually, arguably later than sooner.

For example, if Greece exits the eurozone, then gets its act together on reforms, its economy will recover much faster than if it stayed in the eurozone. Shedding of debt obligations will do wonders, if handled properly.

In such a scenario, a choir of voices in Spain, in Italy, in Portugal, and perhaps even France will seek the same opportunity.

The eurozone fear should not be that Greece blows up, but rather that it doesn't. That will take some time to sort out. Grexit will be no overnight miracle for Greece, so no exit contagion, but there will be other problems for the eurozone effective immediately, including shared responsibility percentages for Greek debt.

Shared Liabilities in Billions of Euros



click on chart for sharper image

Liabilities from http://www.cesifo-group.de/ifoHome.html

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Credit Swap Event Triggers for Chicago Schools: Out of Cash in 30 Days, Cooking the Books to Oblivion:Rauner Ponders Bankruptcy; Emanuel Out to Destroy Middle Class

pon., 20/04/2015 - 11:38
Bad news on Chicago is deep and broad:

  • The Chicago Public School System has a $1.1 Billion Budget Hole in $5.9 Billion Budget
  • A $228 to $263 million derivative time bomb just triggered on the Chicago Board of Education
  • Chicago Public Schools may be out of cash in 30 days
  • Corruption investigations plague the school board
  • Chicago booted Moody's as a bond rater
  • Roadblocks impair pension reforms by the Illinois legislature
  • Rauner issued a statement he will not bail out Chicago on the backs of Illinois taxpayers
  • Chicago teachers threaten strikes demanding more money that isn't there

Let's investigate those ideas starting with the bond rating cuts that triggered the derivatives time bomb.

Bond Rating Cuts

On March 9, Moody's dropped Chicago School bonds two notches to Baa3, that last rank above Junk.

Chicago responded by dumping Moody's in favor of little-known rating agency Kroll, essentially shopping around for better results.

This is the way the system works. Ratings agencies lose business if they do not rate bonds high enough.  

On March 20, Fitch downgraded Chicago Board of Education Rating to BBB-, also one step above junk.

Synthetic Swaps

Chicago is involved in ill-advised synthetic fixed-rate interest swaps that have a negative value of $228 million according to Moody's and negative $263 million according to Fitch.

As part of the swap agreement, a forced termination event triggers when rating agencies lower the district's General Obligation bonds to below the mid-triple B level. That happened with Fitch's downgrade.

Swap Termination Triggers

The Bond Buyer reports Chicago Schools Face Swap Termination Events.
Under a termination event, the board would be required to pay any negative valuation on the swap, according to its offering statement. Fitch reported a more current negative valuation of $263 million and raised concerns over the district's ability to cover the payments, given its lean cash reserves on hand.

"Fitch believes the district will have to either renegotiate the terms of the swaps with the counterparties or bond for the funds, as cash balances appear inadequate to cover both termination payments and operations," the report said.Chicago Public Schools Broke

The Chicago Sun Times commented on the CBOE's fiscal state in CPS’ $228 Million Time Bomb.
Even as it confronts a federal investigation that’s embroiled its chief executive, Chicago’s public school system is facing the prospect of having to make payments to four financial institutions that would largely wipe out its cash reserves.

And they could demand those payments with just 48 hours’ notice, records examined by the Chicago Sun-Times show.

That possibility was triggered by the school system being hit with a dramatic downgrade in its credit rating last month.

As a result, the financial institutions can end the deals and demand termination payments within “two business days following notice of the amount payable,” the Chicago Board of Education said in a regulatory filing Friday.

If the investment banks decide to terminate the deals, the district “currently has” enough money to pay the termination fees, but the payments would leave CPS virtually broke, records show. They would eat up more than the $227 million projected to be left in the school system’s main reserve fund after this school year.

CPS has another $174 million in a “debt-stabilization fund.” But without specifying how long that money would last, school officials warned they are on the verge of tapping out their reserves.

“No assurance can be given . . . regarding the board’s future liquidity position,” school officials said in the filing with regulators.Chicago School Chief On Leave Amid Federal Probe

The Chicago Tribune reports CPS Chief Barbara Byrd-Bennett on Leave Amid Federal Probe
Chicago Public Schools chief Barbara Byrd-Bennett is taking a paid leave of absence in the face of a federal investigation that subpoenas show is taking a broad approach in its search for information about the district's decision to award a $20.5 million no-bid contract.

Among CPS employees called to appear before a grand jury is James Bebley, the school board's general counsel. Also receiving grand jury subpoenas were Byrd-Bennett's chief of staff, Sherry Ulery, and Rosemary Herpel, a district employee who worked with Byrd-Bennett during her earlier leadership stints in Cleveland and Detroit.Chicago Public School $1.1 Billion Budget Hole

Tribune writer Eric Zorn discusses the CPS Budget Hole of $1.1 Billion
I ran into Ald. Bob Fioretti, 2nd, at the Hideout on Friday evening and asked him if — come on, honestly, now that his campaign for mayor is over — he had workable, realistic solutions to the financial problems the next mayor of Chicago will confront.

He said, he had no idea how to address the estimated $1.1 billion budget deficit facing the Chicago Public Schools. That problem, he said, kept him lying awake at night.

CPS is out of tricks. For years the system has been relying on a variety of, um, strategies to make it appear that its budget is balanced, as required by law. Pension holidays. Spending down cash reserves. The fiscal 2015 budget incorporated two months of property tax revenue from fiscal 2016, if you can top that.

A property tax increase isn't the answer. The maximum allowable hike under state-imposed caps will only boost the bottom line by $50 million, according to CPS.Cooking the Books to Oblivion

Got that? Chicago is $1.1 billion in the hole, on a total budget of about $5.9 billion even though it kited two months of property taxes from the fiscal 2016 budget to help balance the budget!

What's next? Four months of kiting? Six?

This isn't legal, and here's another thing that isn't: floating tax-exempt municipal bonds to meet current operating expenses. Chicago did that as well.

And it's not like this is a one-time surprise either. On July 24, 2013, Crain's Chicago Business reported Chicago Schools to Burn reserves to Fill $1 Billion Budget Hole.

Summer 2015 Strike?

The school district faces a pension payment in 2016 of about $700 million. Where is that going to come from?

While pondering that question, please note the Chicago teachers unions want more money, and the contract will expire June 30, 2015.

In May of last year, and in reference to this year's mayoral election the Chicago Teachers Union Chief, Karen Lewis all but promised a strike.
Chicago Teachers Union President Karen Lewis today declared in unmistakable terms that the union will forgo the fourth, optional year of a pact negotiated to end the 2012 strike. That means the current contract will expire on June 30, 2015.

"I'm not looking to make anyone's election easy," Ms. Lewis added in a thinly veiled shot at Mayor Rahm Emanuel. "Particularly," she added, "someone who hasn't made our life easier."

The problem, Ms. Lewis said, is that, instead of asking the 1 percent to pay their fair share, Mr. Emanuel is allied with the rich, even though they're bent on "destroying our city like a swarm of Gucci-winged locusts."Chicago Pensions $20 Billion in the Hole

It's not just the school district in trouble. The Wall Street Journal reports on Chicago's Multibillion-Dollar Pension-Funding Shortfall.
Four pension funds in the nation’s third-largest city are facing a combined funding gap of about $20 billion after years of underfunding and market losses during the recession. In comparison, Chicago has a $3.5 billion annual budget for general operating expenses.

The situation is an example of how municipalities across the country still are struggling to fill gaps in their pensions, which sustained losses on investments during the financial crisis. The troubles are prompting investors to avoid debt from municipalities with large pension-funding gaps, like New Jersey, fearing officials would have to choose between promises made to bondholders and employees.

The pension gap in Chicago has some analysts warning the city could in a decade or more face the same fate as Detroit, which also had pension shortfalls before it filed for bankruptcy protection in 2013. Although Chicago’s economy is more robust, some investors said Chicago needs to address its pension situation.

“Chicago is Detroit 10 to 15 years from now, if they do not deal seriously with this pension problem,” said Tom Metzold, senior municipal portfolio adviser at Eaton Vance Management, with $28.3 billion of assets under management. Mr. Metzold said his firm has “virtually no holdings” in Chicago debt.Legislative Roadblocks

Illinois desperately needs pension reform, but a Legislative Roadblock is in the way.
Ill. Gov. Bruce Rauner's proposed $2.2 billion pension reform plan needs a thorough review to determine its long-term impact and whether it runs afoul of federal rules ahead of a legislative vote, two Illinois lawmakers said.

State Rep. Elaine Nekritz, D-Northbrook, and state Sen. Daniel Biss, D-Evanston are sponsoring  resolutions that seek a detailed analysis from the pension funds on the potential impact of the proposals and a federal review of their legality.

The two are considered Democratic point persons on pensions in the General Assembly. They helped craft past reform proposals aimed at stabilizing a system saddled with $111 billion of unfunded obligations and a funded ratio of just 39%.

"We need to make decisions on pension reform based on core principles of mathematics, law, and basic fairness," Biss said. "It is unjust to these employees and dangerous for the state to do anything less."I am wondering what planet Nekritz is on. Since when does any state get a federal review of state pension promises, except in a federal bankruptcy court?

Besides, Illinois does not have time, even if it was possible.

And speaking of "dangerous" what does one call 39% funding of state pensions?

Bond Perusal

On Sunday, I decided to take a look at trade data on EMMA, the Electronic Municipal Market Access site.

Here are four transactions from the first page.



click on chart for sharper image

I did not investigate those deals. Rather, I simply want to point out that A-rated Chicago munis yield as much as 7%. That is in the neighborhood of 300 basis points (3 percentage points) over comparable offerings in other states.

The CBOE is floating two more issues this week, about $89 million or so, each. It will be interesting to see what yield the school district has to pay.

Junk Bonds

Please note that Investors Crazy for High Yield Bonds.

Since general obligation bonds are backed by taxing authority, and since those bonds are A-rated, the Chicago yields are notable given the average junk bond yield is about 6.1%.

Other factors are in play, but the huge penalty Chicago has to pay stands out from more than one angle.

Emanuel a Huge Part of the Problem

The mayor is a huge part of the problem. Emanuel scoffed at Rauner's Suggestion that CPS Consider Bankruptcy, and he also nixed right-to-work.
The mayor was responding to comments Rauner made Tuesday in an interview with Ariel Investments President Mellody Hobson.

"I'm concerned that the Chicago Public Schools could end up needing to go bankrupt," Rauner added.

"That's very possible. We have a mess —" he added, before Hobson cut him off, asking what a CPS bankruptcy would mean. "That they would just have to restructure its debts and its contracts," Rauner said.

Emanuel's dismissal of the CPS bankruptcy idea came on a day that he and Rauner traded some familiar chest-thumping financial rhetoric.

The mayor called for the council to hold hearings and pass a resolution opposing the "right-to-work" zones proposed by Rauner, calling the governor's proposal "a race to the bottom." In right-to-work zones, workers can choose not to join unions or pay related dues in workplaces that have been organized by labor. While the resolution would only be symbolic, it would put aldermen and the mayor on record as firmly against a key piece of Rauner's economic platform.Prevailing Wages

The right-to-work law is only symbolic because of inane Illinois prevailing wage laws. Together, the current setup 100% guarantees that every project is bid and paid at the highest rate possible. Examples: Road work, school construction and repair.

Prevailing wages laws are also a part of the pension problem given higher salaries and wages contribute to higher pensions.

Emanuel Out to Destroy Middle Class;

"Our goal is to build up the middle class, not to pull a rug from underneath them. Our competition is not Mississippi, Alabama and Kentucky wages. I want to be clear that as long as I'm mayor, Chicago will not be a right-to-work city," Emanuel said.

For starters, Emanuel is making a promise that is not his to make. The legislature could (and should) make that choice for the entire state.

Moreover, overpaying for services and taxing everyone to death to pay for untenable pension promises is precisely the way to destroy the middle class, not save it.

Emanuel is clearly not interested in doing what is best for Chicago. Instead, he is bowing down to the unions even though it's clear the president of the teacher's union can't stand him.

Sensible Statement From Rauner

"The taxpayers of Illinois are not going to bail out the city of Chicago, that ain't happenin'," Rauner said, returning to a note he has hit in recent months. "But there are things we can do to help them restructure and get their government and their schools turned around, and I'd like to help them."

Rauner has the right idea on taxes, on bankruptcy, and on a bailout of Chicago.

Not a penny of taxpayer money should go to fund a lost cause. I find it hard to believe that Emanuel himself does not know the school system is truly bankrupt.

When you are bankrupt, the only sensible thing to do is admit it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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