Detroit

And this is how Obama creates jobs. Bankruptcy lawyer jobs that is.

49 states to go till DOW 36k RT @zerohedge: S&P500 hits all time high as Detroit files. America in a nutshell

— Stalingrad Poorski™ (@Stalingrad_Poor) July 18, 2013

Change you can believe in with Detroit filing Chapter 9. But, really, adjusted for AFS, one-time items and a stock buyback which was pending but never fully effected, it is only a Chapter 11 and thus bullish.

City of Detroit files for Chapter 9 bankruptcy

— Detroit Free Press (@freep) July 18, 2013

Wait, wait, we know: it's the weather's fault. Also, soaring gas prices mean much more weather is coming.

Presenting default you can believe in, as the largest municipal bankruptcy in US history, involing the one-time iconic "motor city" which now has a population of 700,000 and some $20 billion in liabilities, is about to become reality. But fear not: the Detroit bankruptcy, like rising rates, are entirely due to the economic recovery.

The odds of an out-of-court settlement between Detroit's emergency manager and its creditors are "extremely slim," as the WSJ reports that the troubled city's D-Day draws ever closer to becoming the largest muni default in US history. The last straw on Detroit's camel's back of bankruptcy was following discussions last week between Kevyn Orr (Detroit's emergency manager) and the White House as any hope of a federal bailout to evert bankruptcy fizzled. Folowing Detroit's default in June - demonstrating its insolvency - and its "negotiations in full faith" with creditors set the scene for a pending day in court. The current plan (for now rejected by creditors) means a 90% loss for muni-worker retirees, 81% loss for unsecured creditors, and a 75% loss for secured creditors leaving a "free fall" bankruptcy filing - one without a clear plan or much agreement beforehand with creditors - the most  likely outcome "because there is no other way out of here if we don't reach consensus."

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Every night Americans prove that they are willing to do absolutely horrible things to their fellow human beings.  Most of the time, we never even hear about the sick and twisted things that happen on the side streets and dark alleys of America.  Once in a while a particularly twisted story will get picked up by the news, but usually most Americans are pretty much able to isolate themselves from the depravity that is happening all around them.  Unfortunately, the social decay that is eating away at our society like cancer is spreading. America is not the kind, loving and gentle place that is portrayed in our movies and on our television shows.  The sad truth is that America is becoming colder and meaner with each passing day.  Yes, there are definitely some Americans that are kind and compassionate, but they are in the minority.  As our economic decline becomes even more severe, the hearts of even more Americans are going to grow cold.

All over the United States, frustrated homeowners are banding together, arming themselves and patrolling their own streets.  One of the primary reasons this is happening is because police budgets all over the nation are being slashed at a time when violent crime rates in the United States are increasing and many our our largest cities are being transformed into crime-infested war zones.  So instead of waiting for government to come up with a solution, many Americans are taking matters into their own hands.  For example, one community group in Milwaukie, Oregon has started posting flyers with an ominous message for potential criminals: "This is a Glock block. We don’t call 911." 

Late last week, Detroit's emergency manager Kevyn Orr, outlined his plan to stop a disaster becoming a catastrophe in the slumping city. The initial suspension of payment on pension obligation bonds is just the start as Orr warns unsecured creditors may only receive up to 10 cents on the dollar as about $2.5 billion in general unsecured debt won't be recovered. Rather incredibly, the city's General and Police and Fire retirement systems have a combined underfunding of $3.5 billion made worse by "aggressive actuarial assumptions," and "investing in risky development projects around the city and loans that will never be repaid." Under more realistic assumptions the funding status of the two pensions drops from 83% and 100% to 65% and 78% and he notes that "if these pension funds' assets had just been invested in a conservative way," as opposed to the political and reach-for-yield driven extravagance, "they probably would be fully funded now." The bottom line is not just creditor haircuts but,"significant cuts in accrued, vested pension amounts for both active and currently retired persons."

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Eventually the money runs out.  Much of America was shocked when the city of Detroit defaulted on a $39.7 million debt payment and announced that it was suspending payments on $2.5 billion of unsecured deb.  Anyone with half a brain and a calculator could see this coming from a mile away.  But people kept foolishly lending money to the city of Detroit, and now many of them are going to get hit really hard. But what Detroit is facing is not really that unique.  In fact, Detroit is a perfect example of what the future of America is going to look like.  We live in a nation that is rotting, decaying, drowning in debt and racing toward insolvency. Just like Detroit, a day is rapidly approaching when America will not be able to kick the can down the road anymore. Sadly, our politicians don't seem inclined to do anything about it and most of the population seems to think that our exploding national debt is not a significant problem. By the time it becomes clear how wrong they were, it will be far too late to do anything about it.

The impact of substantially higher interest rates are not good for the economy or the financial markets going forward.  In the short term consumers, and the financial markets, can withstand small incremental shifts higher in interest rates.  There is clear evidence historically to suggest the same.  However, sustained higher, and rising, interest rates are another matter entirely. Before we get too excited, it is important to keep in perspective the recent "surge" in interest rates that has gotten the market's attention as of late. In reality, this is nothing more than a bounce in a very sustained downtrend. While there is not a tremendous amount of downside left for interest rates to go currently - it also doesn't mean that they are going to substantially rise anytime soon.  Weak economic growth, an aging demographic, rising governmental debt burdens and continued deflationary pressures can keep interest rates suppressed for a very long time.  Just ask Japan.