There are three dimensions to the broader investment climate: the trajectory of Fed tapering, the ECB's response to the draining of excess liquidity and threat of deflation, and Chinese reforms to be unveiled at the Third Plenary session of the Central Committee of the Communist Party.
There has been much media insinuation in recent months that just because Spain's economy has virtually shuttered, and imports have slid to unprecedented low levels in the process pushing the (adjusted) GDP beancount positive for the first time in 3 years, that things are somehow getting better. What the media has roundly ignored is that as a result of the collapse in consumption and end demand, courtesy of an unemployment rate that at least according to Eurostat just rose to a new record high, the companies that actually operate in Spain and form the basis for any real economic growth, are shuttering at an unprecedented pace. Of note: Spanish electrical appliance maker Fagor, which employs 5,700 people worldwide, or in a few shorts months, employed, is one step closer to bankruptcy after its Polish subsidiary filed for protection from its creditors. The company, which claims to be the fifth-biggest electrical appliance company in Europe, had trading of its debt suspended after its mother firm - private Spanish conglomerate Mondragon - refused to pour in money to rescue the company.
- Morning Humor from Hilsenrath - Fed Balance Sheet Not Seen Returning to Normal Until at Least 2019 (WSJ)
- Health Policies Canceled in Latest Hurdle for Obamacare (BBG)
- Was there anything RBS was not manipulating? RBS Said to Review Currency-Trading Practices Amid Probe (BBG)
- Sebelius to Testify Before House Panel (WSJ)
- And more humor: Spain's Statistics Institute Confirms End of Recession (WSJ) ... and now we await the triple dip
- Finally some credible reporting on Yellen's "foresight" - Yellen feared housing bust but did not raise public alarm (Reuters)
- Japan government moves closer to Fukushima takeover (FT)
- China to step up own security after new NSA allegations (Reuters)
- Blackstone Vies With Goldman in Spain Rental Housing Bet (BBG)
- In new U.S. budget talks, Republican proposal has flipped the script (Reuters)
It is a common view that the shutdown, the debt-limit debacle and the repeated failure to enact entitlement and pro-growth tax reform reflect increased political polarization. John Taylor believes this gets the causality backward. Today's governance failures are closely connected to economic policy changes, particularly those growing out of the 2008 financial crisis. Despite a massive onslaught of legislation and regulation designed to foster prosperity, economic growth remains low and unemployment remains high. Claiming that one political party has been hijacked by extremists misses this key point, and prevents a serious discussion of the fundamental changes in economic policies in recent years, and their effects.
Earlier this afternoon, it was Steve Cohen's final fall from grace. Now, Bloomberg reports that Brazil's one time super billionaire, and now negativeworthaire, Eike Batista, whose sprawling petroleum empire was once valued in the tens of billions, is set to file for bankruptcy tomorrow.
- BRAZIL'S OGX SAID TO PLAN BANKRUPTCY PROTECTION FILING TOMORROW
We are confident that just like in Europe, there is no bank with any exposure to either OGX, Brazil, or whatever potential intercreditor avalanche will tear down many more Brazilian companies once this first insolvent domino finally tips over.
You know the old rule of thumb about laws - the more high-sounding the legislation, the more destructive its consequences. Case in point, HR 3293 - the recently introduced Debt Limit Reform Act. Sounds great, right? After all, reforming the debt seems like a terrific idea. Except that’s not what the bill really does. They’re not reforming anything. HR 3293?s real purpose is to authorize the government to simply stop counting a massive portion of the US national debt.
As the Detroit bankruptcy hearing heats up following news that the city's unsecured creditors, among them pensioners, are set to recover pennies on the dollar, 16 to be precise, the question of which are the next cities to follow in the footsteps of bankrupt Motown, becomes relevant once again. Courtesy of the WSJ, and the second part of its series on "U.S. Cities Grapple With Finances", here is a list of the US cities that when push comes to shove metaphorically, and when the money runs out literally, will have no choice but to knock on the door of the local regional bankruptcy court and submit that long-prepared bankruptcy petition. Specifically, here are the cities that have 10 days or less in cash on hand available. Because, unless one is the Fed, cash and lack thereof is all that matters.
As Citi's Matt King recent showed, when it comes to stepwise, quantum leap repricings of widely held credits, the revelation is usually a very painful, sudden and very dramatic one. This can be seen nowhere better than in the default of Lehman brothers, where while the firm's equity was slow to admit defeat it was nothing in comparison to the abject case study in denial that the Lehman bonds put in. However, as can be seen in the chart below, when it finally came, and when bondholders realized they are screwed the morning of Monday, Septembr 15 when the Lehman bankruptcy filing was fact, the move from 80 cents on the dollar to under 10 cents took place in a heartbeat.It is the same kind of violent and anguished repricing that all unsecrued creditors in the coming wave of heretofore "denialed" municipal bankruptcy filings will have to undergo. Starting with Detroit, where as Reuters reports, the recovery to pensioners, retirees and all other unsecured creditors will be.... 16 cents on the dollar!... or less than what Greek bondholders got in the country's latest (and certainly not final) bankruptcy.
The number one American export is U.S. dollars. It is paper currency that is backed up by absolutely nothing, but the rest of the world has been using it to trade with one another and so there is tremendous global demand for our dollars. The linchpin of this system is the petrodollar. For decades, if you have wanted to buy oil virtually anywhere in the world you have had to do so with U.S. dollars. But if one of the biggest oil exporters on the planet, such as Saudi Arabia, decided to start accepting other currencies as payment for oil, the petrodollar monopoly would disintegrate very rapidly. For years, everyone assumed that nothing like that would happen any time soon, but now Saudi officials are warning of a "major shift" in relations with the United States. In fact, the Saudis are so upset at the Obama administration that "all options" are reportedly "on the table".
The rest of the world has had enough of the monopoly of the credit-rating agencies that are largely biased towards the US economy and it’s about time that it all came to an end.
Troika Wants To Strip Greece Of Defense, Auto Industries, Greece Balks: The Troika-Greece Can-Kicking Toxic LoopSubmitted by Tyler Durden on 10/23/2013 09:14 -0400
While the world awaits with bated breath until the moment that Greece can no longer afford to pretend it is solvent and has to apply for its third bailout from Europe, or else threaten to take down Deutsche Bank and its tens of trillions in gross derivatives, the world has to listen to the constant jawboning from the Troika which for the past nearly 4 years continues to express its displeasure with Greece, and yet still provides every Euro of funding the imploding country requests. In the latest iteration of this charade, the Troika has apparently flexed its muscles and made it clear that if Greece wants to receive the next round of cash, it will have to shutter the state-owned Hellenic Defense Systems (EAS) and the Hellenic Vehicle Industry (ELVO). In short: shut down the domestic defense and auto industries, and we'll talk. Oh, and if as a result you have to import your guns and cars from Germany (whose generous funding has kept you afloat so far), and have to take out Deutsche Bank loans to pay for them, so be it.
It is rare that investors are given a road map. It is rarer still that the vast majority of those who get it are unable to understand the clear signs and directions it contains. When this happens the few who can actually read the map find themselves in an enviable position. Such is currently the case with gold and gold-related investments.
Selling both the rumor and the news turns out not to work... but we cannot yet say whether a trend change is definitely in the bag. However, considering how absolutely dismal sentiment on gold is, considering the many similarities to the 2008 'retest' that could be observed recently (back then, gold was also declared 'dead' by the mainstream) and given the fact that for a change, the gold market has not acted in the way that was widely expected, it continues to make sense to look for more signs of a trend change to emerge. Ideally declines should continue to be kept in check by support at $1275, while any rally that manages to exceed the $1350 level on a closing basis and confirmed by the gold stock indexes can probably be interpreted as a sign that the short to medium term trend has finally reversed for good.
Dispassionate discussion of some of the vexing issues.
The whole fulcrum of the bloated American state is beyond ready for a radical deconstruction. The same goes for most nation-states in the West. The continual borrowing, serviced indiscreetly by an accommodating central bank, has made an entirety of the populace fat and happy off of debt. This is no realistic method for operating any institution. Something has to give eventually. Any conservative who places high value on civil society over the intrusion of government should balk at the prospect of a higher debt load. It makes certain that the ruling political class will not cease in their effort to infiltrate private life. Unfortunately it appears as if some otherwise sharp minds have fallen prey to the liberal device of alarmism.