Puerto Rico

Behold: the effect of an across the board minimum wage hike...

“The commonwealth has committed itself to a ‘scorched earth’ strategy of blaming its fiscal and structural problems on lenders, Congress and others, in an effort to deflect responsibility and obtain retroactive application of bankruptcy laws.”

All we can do is point out the risks, so that people can at least prepare on an individual level. A major lesson everybody should take to heart from the Cyprus experience is this: when the next crisis strikes, do not believe any of the promises uttered by government or central bank officials. You will be lied to in the critical moments, and you could stand to lose a lot if you believe the lies.

• Global share market settles after stormy start to year (Reuters)
• Stocks Extend Losses as Yen, Gold Rise on Lingering China Unease (BBG)
• China battles to shore up stocks, yuan after globe-shaking slide (Reuters)
• Volkswagen faces billions in penalties as U.S. sues for environment violations (Reuters)
• Obama tightens gun rules, requires more background checks (Reuters)

As Wilbur Ross so eloquently noted, for Puerto Rico "it's the end of the beginning... and the beginning of the end," as he explained "Puerto Rico is the US version of Greece." However, as JPMorgan explains, for some states the pain is really just beginning as Municipal bond risk will only become more important over time, as assets of some severely underfunded plans are gradually depleted.

As 2016 begins, there are clear signs of serious debt/default squalls on the horizon. We can already see the first white-capped waves.

Elections, elections, and more elections is the 'regime change' meme for 2016 but, as Bloomberg details, the key events of the year ahead vary from a California marijuana referendum to Brazil's Olympics, and from Davos to SCOTUS. No matter what, 2016 holds a lot of opportunity for volatility, and without The Fed's safety net, who knows what that means for markets...

• Oil ends 2015 in downbeat mood; hangover to be long, painful (Reuters)
• Recession, retrenchment, revolution? Impact of low crude prices on oil powers (Guardian)
• Midwest Flooding Might Make the Oil Glut Worse (BBG)
• From Oil Glut to Shortage? Some Say It Could Happen (WSJ)
• Ten Years After Blowup, Amaranth Investors Waiting to Get Money Back (WSJ)
• China Fires a Warning Shot at Yuan Speculators With Bank Bans (BBG)

“To make a total payment will be almost impossible. If a partial payment is made: what bonds should we pay? It is an assessment that is being done. It is highly unlikely that there will not be default, in whole or partially.”

• Oil rebound fizzles, sending global shares lower (Reuters)
• Saudi Arabia Won’t Change Oil Production (WSJ)
• China suspends forex business for some foreign banks (Reuters)
• Republicans come up short in search for diverse voters in 2016 election (Reuters)
• Oil Prices Become a Problem for U.S. Steelmakers (BBG)
• Oil-Producing States Battered as Tax-Gushing Wells Are Shut Down (BBG)

With just two days left in 2015, the main driver of overnight global stocks and US equity futures remains the most familiar one of all of 2015 - crude oil, which, after its latest torrid bounce yesterday has resumed the familiar "yoyo" mode, and again stumbled dropping below $37 on yesterday's surprising API 2.9 million crude inventory build, as well several more long-term "forecasts" by OPEC members, with Kuwait now budgeting for $30 oil, while Venezuela's Maduro said the oil price fell to $28/bbl and is "headed downward." As a result U.S. futures declined and European stocks fell, extending their worst December drop since 2002 in thin volume on the last full trading day of the year.

• Global Stocks Take Breather After Oil-Fueled Rally (WSJ)
• Junk Investors Evade the Trade (WSJ)
• How the Third Avenue Fund Melted Down (WSJ)
• Oil Traders Set to Pounce as U.S. Prepares to Lift Export Ban (BBG)
• JPMorgan Says Japan Inc. Must Prepare for Yen Below 100 a Dollar (BBG)

After a furious three day "dash for trash", no volume, no breadth, commodity-driven rally, even Santa is now exhausted and overnight US equity index futures were little changed with European and Asian shares mixed. The dollar has declines as gold, silver gain, with WTI initially continuing its recent meteoric rise (up over 8% in the past three days, nearly hitting $38), only to reverse and give up all overnight gains moments ago. Copper falls after Chinese stocks see a second day of weakness, down 0.7% while an unexpected tumble in the USDJPY to 7 weeks lows has dragged the Nikkei (-0.5%) and its futures down.

"To make a total payment will be almost impossible. If a partial payment is made: what bonds should we pay? It is an assessment that is being done. It is highly unlikely that there will not be default, in whole or partially."

Puerto Rico may be teetering on the verge of default but that doesn't mean public sector employees won't be going home with some extra cash for the holidays. Ten days before $1 billion in interest payments come due and two weeks after resorting to an absurd revenue clawback end-around to make a $354 million payment, the commonwealth just paid out $120 million in bonuses.