ratings

"Six years after the recession ended, many U.S. states are hard pressed to balance budgets because of a sluggish recovery and their own policy decisions and in fact, thirty-two states faced budget gaps in fiscal 2015 or 2016 or both." Bloomberg reports. Indeed, state and local governments are so broke that "even Republican governors loath to raise taxes have proposed higher levies."

"Europe faces the risk of a second revolt by Left-wing forces in the South after Portugal’s Socialist Party vowed to defy austerity demands from the country’s creditors and block any further sackings of public officials", The Telegraph reports. In sum, the reason why concessions (any concessions) to the Greeks are a non-starter in Athens' negotiations with creditors is that the IMF, the European Commission, and most especially Germany, want to send a clear message to any other 'leftist radicals' who may be thinking about using the "one move and the idea of EMU indissolubility gets it" routine as a way to negotiate for breathing room on austerity pledges, will get exactly nowhere and will have a very unpleasant time on the way.

The uncertainty surrounding the inevitability, if not the exact timing, of multiple and possibly overlapping volatility drivers is itself a source of volatility. For the average person, these signs can be scary. Taking steps to avoid the circus as much as possible, such as extracting money from the markets, securing personal assets, and waiting out the swings, can be a source of emotional comfort and future financial stability.

"Democratic presidential candidate Bernie Sanders wants to take from the rich in order to make public college tuition-free for everyone else. On Tuesday, the Vermont senator will hold a press conference in the nation's capital at which he will introduce a plan to use a so-called Robin Hood tax on stock transactions to fund tuition at four-year public colleges and universities," Bloomberg reports.

• 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)

According to Fitch, nearly 40% of credit in China is outside bank loans, meaning that between forced roll-overs, the practice of carrying channel loans as "investments" and "receivables", inconsistent application of loan classification norms, and the dramatic increase in off balance sheet financing, the 'real' ratio of non-performing loans to total loans is likey far higher than the headline number.

Following an Illinois Supreme Court ruling that struck down a pension reform plan aimed at closing a $100 billion funding gap, Moody's downgrades Chicago to junk, giving the city the dubious distinction of being the only major city "in recent history" to carry such a low rating other than Detroit. Chicago now faces accelerated payments to creditors of more than $2 billion.

The last time AOL was involved in a mega merger was January 2000, when AOL acquired Time Warner for $182 billion in what was the mega deal of the last tech bubble, creating a $350 billion behemoth. Fast forward 15 years and here is AOL again in yet another period-defining if far, far smaller transaction once again, when moments ago Verizon announced that it would acquire AOL for $50/share, a deal value of $4 .4billion. And with that the golden age of digital (and in many cases robotic) content, has now been top-ticked.

At least 22 states are facing budget shortfalls thanks to a combination of fiscal mismanagement and falling oil prices. The negative impact on the public sector has been dramatic suggesting that in the event of a sustained economic downturn, citizens' patience for austerity could wear thin leading to political instability and social unrest. 

As data on non-performing loans at Chinese banks shows the biggest sequential increase on record in Q1, Fitch wonders if perhaps the data actually obscures a far larger problem. Official figures on China's NPLs are obscured by a number of factors and may be grossly understated the ratings agency suggests. Furthermore, Fitch says "a protracted downturn in property markets could threaten the solvency of Chinese banks, given their modest loss-absorption capacity."

• Full picture of Clinton charities' foreign government funding remains elusive (Reuters)
• Greece Readies for Another Week of Deadlines (BBG)
• Greece says deal will be 'difficult' at Eurogroup meeting (Reuters)
• Saudi Arabia’s Rulers Snub Arab Summit, Clouding U.S. Bid for Iran Deal (WSJ)
• Saudi Aramco Said to Plan Spending $80 Billion Overseas (BBG)
• The $900 Billion Influx That’s Wreaking Havoc in U.S. Bills (BBG)
• Cameron rules out another Scottish independence vote (Reuters)
• Banks Prep Defense for Anti-Wall Street Campaigns (WSJ)

The market is currently engaged in the longest bull run in history without a 10% correction. The decline in momentum, the weakness in economic underpinnings and lack of Central Bank interventions (not to mention the threat of an increase in overnight lending rates) certainly provide the necessary ingredients for a sharper than expected correction this summer.

Despite record-er stock prices, weather excuses for current economic weakness, and The Fed promising that growth is here and everything will be awesome, it appears the message has not reached the US Consumer. Gallup's U.S. Economic Confidence Index plunged 9 points last week (the largest week-to-week drop since last July) to its lowest weekly score since December. The main driver was a collapse of hope as 'outlook' fell to November lows.