Since Detroit’s Chapter 9 filing in late July, it has slipped off the front-pages to some extent. The Chapter 9 process is underway and Barclays provides a deep-dive look at the various liabilities involved in the bankruptcy. From the pension obligation certificates (POC), which they believe could be subject to the most volatility over the course of the bankruptcy process and will likely recover no more than 30 cents on the dollar, Barclays' muni team expands on the various aspects of the eligibility process, historical precedents (such as Stockton, CA), and the tough decisions that investors face in deciding between short-term goal of certainty of payment or a long-term goal of maximizing returns. The judge has set a mid-March 2014 deadline for the city to file its plan of adjustment.
- JPMorgan Nears Settlement With SEC on London Whale Loss (BBG)
- Without even a wristslap: Iksil to face no U.S. charges in 'Whale' probe (Reuters)
- China’s Credit Expansion Slows as Li Curbs Shadow Banking (BBG)
- China slowdown shows signs of abating (FT), even as...
- Australia central bank Lowers Growth Outlook as Economy Transitions From Mining (BBG)
- SAC Business Plan Goes to Judge, Plan Would Allow Firm to Maintain Business Operations but Restrict Its Ability to Move Assets (WSJ)
- Another buyer of Herbalife? - Norway’s oil fund plans to turn active (FT)
- Mark Carney plays down scepticism over interest rate policy (FT)
- Orders Evaporate for Celebrity Perfumes (WSJ)
As Detroit begins to sort through the ill-begotten public liabilities that have driven it to bankruptcy, an important opportunity is at hand to revitalize the city that was once the epicenter of American entrepreneurship and manufacturing, while setting an example for other municipal governments that appear to be headed toward a similar fate. Here is an “Austrian moment” in the making, a potential libertarian awakening guided by the market-oriented, non-interventionist principles of the Austrian school of economics. For years, Detroit’s expenditures vastly exceeded its revenues. But, as long as investors were willing to purchase risky bonds, neither politicians nor unions would admit how unsustainable Detroit’s situation was. Detroit’s bankruptcy is thus exactly what the financial system needs.
Goldman Sachs and the London Metal Exchange have had a case brought against them both in a court in the US regarding anti-competitive behavior in aluminum storage, with a monopolistic effect thrown in for good measure.
Over two years after Zero Hedge first accused Goldman and JPMorgan of becoming monopolists in the commodity warehousing business (see "Goldman, JP Morgan Have Now Become A Commodity Cartel"), and two weeks after the NYT's reminder the world of just this leading to the latest Kangaroo Court congressional hearing on the matter, which may or may not have resulted in JPMorgan announcing it would exit the physical commodities business, the long overdue legal fight began this Friday when lead plaintiff Superior Extrusion sued Goldman and London Metal Exchange owner HKEx for engaging in "anticompetitive and monopolistic behaviour in the warehousing market in connection with aluminium prices" and accusing the firms of violating the Sherman anti-trust act. Precisely what Zero Hedge said, some 26 months ago.
In a nutshell:
- Relatively low unemployment rates for the “Western Leaders” aren’t just an artifact of recent strength in, say, energy production and commodities. These states have consistently outperformed the rest of the country.
- Abysmally high unemployment rates for the “Eastern Super-laggards” have also persisted for over two decades, exceeding all other parts of the country.
- The “Northern Coastal and Great Lakes Laggards” and “Western Laggards and Southeast” fall somewhere between the other two regions, but always favoring the southern states over the northern states.
Not surprisingly, California, Nevada and Florida are more volatile than the other regions, cycling well above and then back toward the Western Leaders in each of the past two decades. Also, the unemployment problems in California and Nevada have been consistently worse than Florida’s unemployment. These trends may or may not persist in coming years. But if your goal is to anticipate the next Stockton, San Bernardino or Detroit, watch the unemployment data closely and pay particular attention to the cities listed here.
Imagine there was a time when bottled water didn't exist in our catalog of popular commodities. Perhaps the trend started in 1976 when the chic French sparkling water, Perrier made its introduction. There it was seductively bottled in its emerald green glass amongst the era of disco and the spectacle of excesses... who could resist right?! What could be more decadent than to package, sell and consume what most consider (in the western world) a common human right easily supplied through a home faucet! It’s absurd that the cost of designer water is at a "280,000% markup" to your tap water and it's reaching record heights in consumption.
When Detroit filed for bankruptcy, the city's demands for a Federal bailout promptly rose to the surface and then just as promptly dissipated following a polite but stern rejection by the president, almost too fast and without any fight, according to some. Or maybe that is only how it appeared. According to the NYT, Detroit's advisors may be looking at a completely different source of Federal "assistance" - a much more indirect one, even if at the end of the day, it is taxpayers who end up footing the bill. Obamacare.
Munis are the most decentralized and still the most "good old boy" part of the Capital Markets. Relationships are paramount in the municipal markets, and in non-competitive situations, who you know often trumps what you know in doing business. Municipals are a unique space. For many years people and institutions paid less attention than they should to the financial statements of municipalities. Detroit is now teaching us several lessons and you can feel the sand shifting yet again. General Obligation bonds no longer have the first call on assets. The psychology of the Municipal market is also shifting in the sand. It was once a widely held belief that the State would stand behind any large Municipal credit in its domain. Detroit is proving this to be an inaccurate observation. There was even the notion that if the Municipal credit was large and systemic enough that the Federal government might step in to help. Detroit is exemplifying that this was a second mistake in thinking. We are now learning that each Municipal credit is a stand-alone situation which is a break from the traditional thinking of days past.
If you want to frighten Baby Boomers, just show them the list of statistics in this article. The United States is headed for a retirement crisis of unprecedented magnitude, and people are woefully unprepared for it. At this point, more than 10,000 Baby Boomers are reaching the age of 65 every single day, and this will continue to happen for almost the next 20 years. The number of senior citizens in America is projected to more than double during the first half of this century, and some absolutely enormous financial promises have been made to them. So will we be able to keep those promises to the hordes of American workers that are rapidly approaching retirement? Of course not. The pension nightmare that is at the heart of the horrific financial crisis in Detroit is just the tip of the iceberg of the coming retirement crisis that will shake America to the core.
When Standard & Poors is not engaged in "Puffery" (a defense which admits "our entire business model is worthless") it pretends to analyze credits and assign ratings, usually with both humorous and systematically catastrophic results. Just as it has done in the chart below. In the aftermath of the Detroit filing, one may be interested to see just how the rating agency, which had Greece rated at "A" months before the Eurozone's bananaest-republic member had its first bailout, evaluated America's various states since the start of the 21st century through 2012. Among the best: Florida. Worst: California. Michigan, whose main city just went bankrupt: AA-. And with countless cross-default provisions and collateral waterfalls upon a multi-notch downgrade, one can be certain that as reality finally comes to the muni space with roughly a 3 years delay, that this too will have a happy ending.
The raw economic truths from the Street. What's the difference between your common street thug or hustler and the K Street/Wall Steet/Central Banker? Read this to find out...
For the second consecutive day futures have drifted lower following a drubbing in the Nikkei which was down nearly 3% to just above 14K (time to start talking about the failure of Abenomics again despite National CPI posting the first positive print of 0.2% in forever and rising at the fastest pace in 5 years) and the Shanghai Composite which dropped to just above 2000 once again, after PBOC governor Zhou saying that China has big economic downward pressure and further reiterated prudent monetary policy will be pursued. This is despite Hilsenrath's latest puff piece which pushed the market into the green in yesterday's last hour of trading and despite initial optimism which saw stocks open higher following forecast-beating EU earnings gradually easing and heading into the North American open stocks are now little changed. It may be up to the WSJ mouhtpiece to provide today's 3pm catalyst to BTFATH, or else it will be up to the circular and HFT-early released UMichigan confidence index to surge/plunge in order to push stocks on any red flashing news is good news.
First we had Schordinger markets in which value is either zero or whatever the Fed says it is; then we got Schrodinger economies when China was both expanding and contracting at the same time; now we have Schrodinger military coups which are both a coup and not a coup, at least as far as the US is concerned. According to AP: "The Obama administration will tell lawmakers Thursday that it won't declare Egypt's government overthrow a coup, U.S. officials said." So why will the US claim the obvious military overthrow of Morsi and his Muslim Brotherhood was a "democratic" process? Simple: it will allow the United States "to continue providing $1.5 billion in annual military and economic aid to the Arab world's most populous country." And why will the US continue providing Egypt with $1.5 billion in annual military aid? Simple: so Egypt can continue buying more Made In Lockheed Martin F-16 fighter jets to spread the Nobel Peace Prize winner's diplomatic agenda in the middle east. Because one must always think of the children GDP.
Moments ago, an unlikely grouping between a 33-year old Republican, Rep-Justin Amash, and an 84-year old Democrat, Rep-John Conyers, resulted in a House vote, that if passed, would have suspended the NSA's "indiscriminate collection of phone records" and effectively ended the program's statutory authority. Yet despite significant lobbying by the White House, security experts and representative on both sides of the aisle, the vote came within a startlingly close 12 votes of passage. A majority of Democrats, 111, voted for Amash's amendment despite the full court press while 83 Democrats voted no. The GOP vote was 94-134. That the vote did not pass is not surprising. However, that it came to just 12 votes of passage is the stunning development and shows a sea change of how Congress approaches both personal privacy and the broader implications of the Patriot Act. All of it thanks to the action of one man who at last check was still stuck in the transit terminal in Moscow.