Archive - Jul 30, 2014 - Story

Argentina defaults; Russia, Ukraine, Libya, Israel, Gaza, Iraq all in a state of (hot or otherwise) war, the worst Ebola epidemic in the history of Africa, and now Obama is getting sued.

"...the numbers that they crank out to make everybody feel good are almost as phony as the numbers that the Argentine government cranks out... I would say that inflation is realistically in the 8-10% range here in the US—and it’s going much higher. The growth is all a fantasy. It’s all a result of the assumption that there is no inflation, when there really is because what we have is inflation masquerading as economic growth. But the bottom line is the economy is really contracting, that’s why the labor force is shrinking, that’s why we’re using less energy, that’s why the people’s standard of living is going down, and real incomes are falling and job opportunities are disappearing. It’s because we’re in a recession and no one wants to admit it."

As Ebola spreads mercilessly across the world, it appears Florida has a problem that sounds just as awful. As CBS reports, Florida health officials are warning beachgoers about a seawater bacterium that can invade cuts and scrapes to cause flesh-eating disease. At least 11 Floridians have contracted Vibrio vulnificus so far this year and two have died, according to the most recent state data.

Following this evening's lengthy finger-pointing lecture from Argentina's Kicillof, Argentina formally defaulted. Shortly thereafter the hoped-for private bank bailout deal also failed leaving the default process likely to take a while. So how has Argentina defaulted three times in the last 28 years? Simply put, the problem is not Judge Griesa’s ruling. The problem is that Argentina had decided to once again prefer deficits and unrestrained government spending to paying its obligations.

The question of whether 'tapering is tightening' is often discussed but what is really meant is - when the Fed tapers, will risk assets suffer (and bonds benefit)? The answer is - yes. As Gavekal finds, long-dated US government bonds are following the reduction in QE nearly perfectly so far. The link between Fed asset accumulation and these various bond yields is unmistakable, especially for longer duration bonds, and this simple model shows how even lower bond yields may be in the offing as the Fed puts on the breaks. For junk bonds, this seems to portend higher spreads, which may help to put the recent widening of spreads in context.

• State Department has confirmed that one U.S. citizen died from Ebola in Nigeria after being infected in Liberia. 
• Victim who died in Lagos was bound for U.S., and was an American citizen
  
• U.K. Foreign Secretary Philip Hammond said the virus poses a threat to Britain, and will hold an emergency meeting.
• Ebola center run by Americans closed after Liberia disturbances
• Two Peace Corps volunteers under observation after coming into contact with individual who later died of Ebola
• Sierra Leone’s top Ebola doctor dead after contracting virus

Huxley’s Brave New World dystopian America had a good run from 1950 until 2000. Our keepers kept us fat, dumb, distracted, and in debt up to our eyeballs. Since 2000 Orwell’s 1984 dystopian Surveillance States of America seems to be taking shape, under the watchful eye of our very own Big Brother, the NSA. Fear, punishment, slogans (See Something Say Something) and appeals to non-thinking patriotism have replaced freedom, liberty, individual rights, the Constitution, personal responsibility for our own lives and questioning authority. Are you a believer? “One believes things because one has been conditioned to believe them.” – Aldous Huxley – Brave New World; Or a truth seeker? “You shall know the truth and the truth shall make you mad.” – Aldous Huxley

It's all over but the crying: having explained Argentina's position (i.e. not giving to so-called vulture funds), Economy Minister Kicilloff explains:

• *KICILLOF SAYS HEDGE FUNDS NOT WILLING TO GIVE DELAY ON RULING
• *KICILLOF SAYS HARD TO BELIEVE ARGENTINA IN DEFAULT IF HAS FUNDS
• *KICILLOF SAYS ARGENTINA CAN'T COMPLY WITH COURT RULING
• *HOLDOUTS DIDN'T ACCEPT ARGENTINE OFFER: KICILLOF

As Bloomberg notes, by defaulting today, Argentina may trigger bondholder claims of as much as $29 billion -- equal to all its foreign-currency reserves. Just remember that the last 2 days have seen 'smart money' buy Argentine bonds and stocks to all-time record highs.

If you like your disposable income... forget it. Health-care insurance premiums for individuals in California rose between 22% and 88% in 2014 from last year, even after the federal health-care overhaul. This has led, as Bloomberg reports, to Proposition 45 - a bill that would grant regulatory say on proposed premium increases. "Unless Proposition 45 is passed we are going to continue to see dramatic year-over-year increases," warned Insurance Commissioner Dave Jones.

Fortune has smiled on judo coach Arkady Rotenberg, bringing his businesses Google-like growth and a key role in staging the Winter Olympics. It has now brought down on him the wrath of the U.S. and European governments.

Something doesn't add up...

More blowback... UK Foreign Secretary Philip Hammond suggests imposing sanctions on Russia are a shared sacrifice that European nations must make. While the sanctions were "designed to maximize the impact on Russia and minimize the impact on EU economies," he warns his fellow Britons that, "It will affect our economy..." As RT notes, London will likely be hit hardest among the EU powers because of its intimate financial relationship with Moscow and we are already seeing UK home prices fall as oligarch flows slow.

Ask yourself the following set of questions: Do people seem better informed today in the developed world? Smarter? Is the discourse more sophisticated? The answer is a resounding “no” to all those questions... In the absence of [a basic ground in history, political science, philosophy and civilization], all of these Twitter and Facebook bits alight on a population that lacks the tools to sort or analyze what they are reading while scrunched over their Androids... This overabundance of information and opinion is not a positive development in our view (although we are certainly not suggesting it be curtailed or controlled by governments).

After an exuberant day in Argentine bond and stock markets, we are nearing a decision. With a handful of hours left until it's all over, various 'deal's have been proposed today from Argentine bankers as a last-minute rescue package. S&P has already decided that it's a done deal:

• *ARGENTINA CUT TO SD FROM CCC- BY S&P
• *ARGENTINA DEFAULTED ON $13B IN FOREIGN DEBT, S&P SAYS
• *ARGENTINA MISSED $539M BOND PAYMENT, S&P SAYS

And now, Argentine Economy Minister Axel Kicillof will speak in a press conference at country’s consulate in Manhattan (ironically a block from the holdouts' office).