Puerto Rico

In the wake of the Chicago downgrade, state and local governments are moving away from Moody's as the ratings agency questions pension fund return assumptions. 

The highly regarded former chairman of the Federal Reserve, Paul Volcker, has severely criticized the State Governments in the U.S. over “faulty practices” used to devise budgets which mask the true financial position of those states.

Ali and Frazier, Laurel and Hardy, Mayweather and Pacquiao, Liesman and Santelli, and now Schiff and Maloney. Peter and Mike join clash of the titan-like to discuss their investment strategies and expose the charts the government doesn't want you to seeas "people like Bernanke are taken seriously still and the people that did predict [the crisis] are dismissed as lunatics half the time." The wide-reaching conversation covers everything from gold and stocks to The Fed and The Dollar - Bernanke "took the coward’s way out because all he did was exacerbate the problems to postpone the day of reckoning." The air is coming out of the bubble, they warn, "Bernanke and Greenspan have absolutely destroyed America. People don’t realize what is coming..."

In real democracies, governments would do what the citizens who put them in office want them to do. The United States and other Western democracies make a mockery of that ideal. But, even so, there are limits; governments cannot defy public opinion on matters of great moment indefinitely. Enabling the Saudi ruling class, and the rulers of the other Gulf states, to direct American foreign policy to the extent that they do, and to get away with whatever they please, is hardly the least of it; but neither is it the only cause for concern.

• Once-Unthinkable Criminal Pleas by U.S. Banks Get Investor ‘Meh’ (BBG)
• The E-Mail That Helped Catch Barclays: ‘ISDAfix Is Manipulated’ (BBG)
• CFTC Said Preparing ISDAfix Probe Talks in Weeks: Credit Markets (BBG)
• Islamic State takes control of Syria's Palmyra in westward advance (Reuters)
• Tensions High as Greece Gets Smallest Aid Rise Yet (BBG)
• The Rise of the $50,000 Rental (BBG)
• U.S. says South China Sea reclamations stoke instability (Reuters)
• First Hanergy Now Goldin: Hong Kong Stocks Drop Like Stones (BBG)

Puerto Rico is racing the clock ahead of a July 1 deadline to pass a fiscal budget for 2016 and scrape together $360 million due to creditors. Without a budget, the commonwealth will face a partial government shutdown and may be unable to issue $2.9 billion in oil-tax bonds needed to pay The Government Development Bank.

• Tsipras Endgame Nears as Greek Bank Collateral Evaporates (BBG)
• Shi'ite forces ordered to deploy after fall of Iraqi city (Reuters)
• Ratings agency Fitch to downgrade many European banks (Reuters)
• Bubble Blowing to Continue So Long as Yellen Isn’t Raising Rates (BBG)
• Greece's Debt Battle Exposes Deeper Eurozone Flaws (WSJ)
• Obama to set new limits on police use of military equipment (Reuters)
• China April home prices fuel hopes of bottoming out, but long road to recovery (Reuters)
• Hedge Funds Close Doors, Facing Low Returns and Investor Scrutiny (NYT)
• ASIC's Greg Medcraft 'quite worried' about Sydney, Melbourne house prices (Fin Review)

• The fake: Avon-Offer Hoax Shows It’s Easy to Put One Over on SEC’s Edgar (BBG)
• And the real: US buyout group TPG snaps up UK discounter Poundworld (FT)
• El Niño near-certain to last through summer: U.S. climate center (Reuters)
• Oil Sands Land Becomes Alberta’s Hot Real Estate as Oil Rebounds (BBG)
• SEC a stumbling block in banks' forex guilty pleas: sources (Reuters)
• Pimco’s Stocks Chief Maisonneuve to Leave as Funds Closed (BBG)
• Bank of America’s Woes Test ‘Fixer’ CEO (WSJ)
• Puerto Rico Governor, Lawmakers Agree on Revenue Proposal (BBG)

If yesterday's laughable lack of volume (helped by the closure of Japan and the UK) coupled with hopes that the end of the buyback blackout period was enough to send stocks surging if only to end with a whimper below all time highs despite what is now looking like three consecutive quarters of Y/Y EPS declines according to Factset, today's ramp will be more difficult for the NY Fed and Citadel to engineer, not least of all due to the headwind of the overnight "incident" by China's stock bubble which saw the Shanghai Composite tumble by 4%, the most since January.

"A government shutdown is very probable in the next three months due to the absence of liquidity to operate," Puerto Rico's finance officials warn, in an effort to shock lawmakers into action and avoid a potential "PRimbo".

This will make every American feel much better about handing over that check today... as Simon Black notes today "I believe we have an obligation to starve the beast..."

At the New York Fed’s evocatively named workshop, “Chapter 9 and Alternatives for Distressed Municipalities and States.”

• As reported here first a month ago: The $9 Trillion Short That May Send the Dollar Even Higher (BBG)
• As an instant target for foes, Clinton may struggle to get message heard (Reuters)
• Emerging Stocks Rally 11th Day as Aussie Weakens on China (BBG)
• Puerto Rico, Investors Enlist Ex-IMF Officials (WSJ)
• Dollar’s Rise Reshuffles Global Economy (BBG)
• Indonesia eyes regular navy exercises with U.S. in South China Sea (Reuters)
• Banca Monte dei Paschi Breaches Exposure Limits to Nomura (WSJ)
• European Bond Buyers Find Negative Doesn’t Necessarily Mean Bad (BBG)

Based on Bloomberg data, Doral Bank is the 3rd largest (by assets) bank in Puerto Rico...or rather was. After a 58% collapse in the share price today, news broke after the close:

*PUERTO RICO'S DORAL BANK PLACED UNDER FDIC RECEIVERSHIP, BANCO POPULAR AGREES TO BUY DORAL BANK OPERATIONS

It appears Non-Performing Loans were over 40%. Popular will take the deposits (and 8 of Doral's 26 branches) and the FDIC eats the bad debt (estimates to cost the Deposit Insurance Fund (DIF) will be $748.9 million).

While PRexit is yet to hit the headlines, Puerto Rico bonds joined an illustrious club of ne'er-do-wells today with its 10Y yield spiking above 10%...