• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Bond

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Default Cycle Now In Full Swing As Goodrich Petroleum Is Latest To File Chapter 11





This morning another troubled energy producer, Goodrich Petroleum announced a prepackaged Chapter filing meant to implement a financial reorganization after struggling to restructure its debt amid declining energy prices. This follows the filing of Energy XXI just 24 hours ago. Since the start of 2015, about 50 oil and gas producers have gone bankrupt, owing more than $17 billion, according to law firm Haynes & Boone LLP.

 
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Futures Fade As Chinese "Good News Is Bad News" For Fed, Oil Drops As Doha Concerns Emerge





Good news is still bad news after all. After last night's China 6.7% GDP print which while the lowest since Q1 2009, was in line with expectations, coupled with beats in IP, Fixed Asset Investment and Retail Sales (on the back of $1 trillion in total financing in Q1)  the sentiment this morning is that China has turned the corner (if only for the time being). And that's the problem, because while China was a good excuse for the Fed to interrupt its rate hike cycle as the biggest "global" threat, that is no longer the case if China has indeed resumed growing. As such Yellen no longer has a ready excuse to delay. This is precisely why futures are lower as of this moment, because suddenly the "scapegoat" narrative has evaporated.

 
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Former Fed Advisor Asks "Has The Fed Bankrupted The Nation"





In 1977, the total indebtedness of U.S. government, corporate and household borrowers was $323 billion. By 1985, that figure had grown to $7 trillion. Volcker left the Fed in August of 1987 after handing the reins over to Alan Greenspan. By year’s end 2015, U.S. indebtedness had swelled to $45.2 trillion. Tack on financials, which few do, and it’s $64.5 trillion and unabashedly growing. We are a nation transformed. What has today’s vast store of debt purchased? Certainly not freedom.

 
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"Someone Is Going To Be Very Wrong"





What is clear is that the Federal Reserve has gained control of asset markets by gaining control over investor behavior. “Are you afraid of a market crash? Yes. Are you doing anything about it? No.” Again, it’s back to fundamentals versus expectations. Someone is going to be very wrong.

 
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'They' Have Decided "We Can't Handle The Truth"





We all know why equity markets are zooming. The Bernanke put is standard operating procedure: globally. Whatever is out there’s got central bankers spooked. To use the cliche, they’ve decided we can’t handle the truth. But it’s impossible to fight a manticore you can’t see.

 
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$14 Billion In Junk Bond Defaults Push April Total To Highest Since 2014





Following yesterday's bankruptcy of Peabody Energy and today's Chapter 11 filing of XXI Energy, defaults among American junk bonds just topped $14 billion in April, the highest monthly volume in two years according to Fitch calculations, and that is only for the first two weeks. April's surge in bankruptcy filings is not unexpected: according to JPM's default tracker, the number of bankruptcies was on a tear in both the month of March and the first quarter.

 
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More Energy Defaults: Energy XXI Files Chapter 11; Gulf Keystone Delays Bond Payment





Following yesterday's historic bankruptcy of the world's largest coal miner Peabody Energy, the defaults continue hot and heavy overnight when first Energy XXI, which had already warned it would unlikely make its bond payments, filed for a prepack Chapter 11, and then Gulf Keystone announced it would delay a bond payment.

 
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SunEdison Investigates Self - Finds No Wrongdoing (Kinda); Defaults On Convertible Bond, Stock Soars 75%





'Nothing to see here, move along' is the message from embattled once-hedge-fund-darling SunEdison following its Valeant-esque self-investigation. Despite finding 'wrongdoing'   by a former employee in talks over a failed acquisition and that its own executives fostered an "overly optimistic culture," SUNE officials found no misstatements in financial statements. The stocks is 75% higher in the pre-market on this 'good' news (remember BTU?). However, despite the kinda sorta wrongdoing, Bloomberg reports the renewable-energy company already teetering on the brink of bankruptcy, missed a bond payment this month.

 
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U.S. Futures Flat After Oil Erases Overnight Losses; Dollar In The Driver's Seat





In another quiet overnight session, the biggest - and unexpected - macro news was the surprise monetary easing by Singapore which as previously reported moved to a 2008 crisis policy response when it adopted a "zero currency appreciation" stance as a result of its trade-based economy grinding to a halt. As Richard Breslow accurately put it, "If you need yet another stark example of the fantasy storytelling we amuse ourselves with, juxtapose today’s Monetary Authority of Singapore policy statement with the storyline that the Asian stock market rally intensified on renewed optimism over the global economy. Singapore is a proxy for trade and economic growth ground to a halt last quarter." The Singapore announcement led to a sharp round of regional currency weakness just as the dollar appears to have bottomed and is rapidly rising.

 
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The Global Economy Didn't Change Last Year, Views Of QE Did





The stock market is still viewed as if it were a discounting mechanism, a system where information is processed and priced to deliver insight about the fundamental state of liquidity, markets, and the economy. That view has always been debatable, but never more so than the whole of this century so far. What were share prices suggesting, fundamentally, in March 2000? Or October 2007?

 
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George Soros Warns Europe: Absorb 500k Refugees Costing $34Bn, Or Risk "Existential Threat"





The asylum policy that emerged from last month’s EU-Turkey negotiations has four fundamental flaws, according to Billionaire puppet-master George Soros, which combined pose an "existential threat to Europe." His solution is 'simple' - Accept 500,000 refugees per year costing $34 billion year (via "surge" funding through more borrowing, and a newly-created refugee crisis fund from increased VAT on member states) or else, in his words, "the European Union is in mortal danger?"

 
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America's New Impossible Trinity: You Can't Have Higher Wages, Steady Inflation And High Profits At The Same Time





America’s ongoing labour productivity slump has created a new impossible trinity – policymakers can only choose two of the following three desirable outcomes: higher nominal wage growth, steady inflation and high corporate profits. The theory behind this new ‘impossible trinity’ is intuitively simple. If workers’ wages rise faster than their productivity, the companies paying those higher wages face two choices. They can either pass on the extra costs to customers, thereby leading to higher overall prices and rising inflation, or they can absorb the extra costs resulting in lower profit margins.

 
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Gartman: "Share Prices Have Exploded Upward But We’ll Not Likely Become Net Long"





"we covered enough of the bonds and bought enough of the aluminium producer to effectively reduce our net equity exposure as close to zero as we could. When markets speak, we listen and the markets seemed to be speaking bullishly from the outset and especially after crude oil moved higher as noted above... we have chosen to become net market neutral but we’ll not likely become net long out or respect for that index and its history."

 
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Frontrunning: April 13





  • China trade surprise gives stocks a lift (Reuters)
  • JPMorgan profit hurt by drop in investment banking revenue (Reuters)
  • About 40,000 Verizon workers launch strike (Reuters)
  • Regulators Set to Reject Some Big Banks’ ‘Living Wills’ (WSJ)
  • More Startups Are Getting Lower Valuations Than Joining the Billion-Dollar Club (BBG)
  • Closures and court cases leave Turkey's media increasingly muzzled (Reuters)
 
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