As Amazon flirts with a $500 billion market cap, letting Jeff Bezos try on the title of world's richest man on for size if only for a few hours, for Amazon's competitors it's "everything must go" day everyday, as the bad news in the retail sector continue to pile up with the latest Fitch report that the default rate for distressed retailers spiked again in July.
According to the rating agency, the trailing 12-month high-yield default rate among U.S. retailers rose to 2.9% in mid-July from 1.8% at the end of June, after J. Crew completed a $566 million distressed-debt exchange. Meanwhile, with the shale sector flooded with Wall Street's easy money, the overall high-yield default rate tumbled to 1.9% in the same period from 2.2% at the end of June as $4.7 billion of defaulted debt - mostly in the energy sector - rolled out of the default universe.
In a note, Fitch levfin sr. director Eric Rosenthal, said that “even with energy prices languishing in the mid $40s, a likely iHeart bankruptcy and retail remaining the sector of concern, the broader default environment remains benign."
He's right: after the energy sector dominated bankruptcies in the first half of 2016, accounting for 21% of Chapter 11 cases, in H1 2017 the worst two sectors for bankruptcies are financials and consumer discretionary.
Read the entire article
July 31, 2017
July 28, 2017
Amazon Hosts Robotics Competition To Figure Out How To Replace 230,000 Warehouse Workers
There is little doubt that Amazon operates some of the most technologically advanced warehouses in the world. As of the end of 2016, the Seattle Times noted that the company 'employed' roughly 45,000 robots spread across 20 fulfillment centers around the country.
As can be seen in the video below, the KIVA robots, a company which Amazon bought for $775 million in 2012, move product bins around the company's massive warehouses with relative ease. The bins are delivered by the KIVA robots on a just in time basis to human 'pickers' who grab whatever products are needed and finish the packing process before boxes are shipped off to customers.
But while they've seemingly mastered the art of moving bins around a warehouse floor with, for all essential purposes, miniature robotic forklifts, a solution to automating the simple task of picking individual items out of those bins has remained elusive. And, with 1,000's of very expensive, sickly and generally needy humans currently fulfilling that task, you can bet Amazon is eagerly pursuing that solution with some level of urgency.
In fact, just this weekend, Amazon will be hosting a robotics competition with 16 teams from around the world who will get a chance to show off their robotic "picking" technology for the chance to win a share of $250,000 in prize money. Per Bloomberg:
Read the entire article
As can be seen in the video below, the KIVA robots, a company which Amazon bought for $775 million in 2012, move product bins around the company's massive warehouses with relative ease. The bins are delivered by the KIVA robots on a just in time basis to human 'pickers' who grab whatever products are needed and finish the packing process before boxes are shipped off to customers.
But while they've seemingly mastered the art of moving bins around a warehouse floor with, for all essential purposes, miniature robotic forklifts, a solution to automating the simple task of picking individual items out of those bins has remained elusive. And, with 1,000's of very expensive, sickly and generally needy humans currently fulfilling that task, you can bet Amazon is eagerly pursuing that solution with some level of urgency.
In fact, just this weekend, Amazon will be hosting a robotics competition with 16 teams from around the world who will get a chance to show off their robotic "picking" technology for the chance to win a share of $250,000 in prize money. Per Bloomberg:
Read the entire article
July 27, 2017
Total Government And Personal Debt In The U.S. Has Hit 41 Trillion Dollars ($329,961.34 Per Household)
We are living in the greatest debt bubble in the history of the world. In 1980, total government and personal debt in the United States was just over the 3 trillion dollar mark, but today it has surpassed 41 trillion dollars. That means that it has increased by almost 14 times since Ronald Reagan was first elected president. I am searching for words to describe how completely and utterly insane this is, but I am coming up empty. We are slowly but surely committing national suicide, and yet most Americans don’t even understand what is happening.
According to 720 Global, total government debt plus total personal debt in the United States was just over 3 trillion dollars in 1980. That broke down to $38,552 per household, and that figure represented 79 percent of median household income at the time.
Today, total government debt plus total personal debt in the United States has blown past the 41 trillion dollar mark. When you break that down, it comes to $329,961.34 per household, and that figure represents 584 percent of median household income.
If anyone can make a good argument that we are not in very serious debt trouble, I would love to hear it.
And remember, the figures above don’t even include corporate debt. They only include government debt on the federal, state and local levels, and all forms of personal debt.
So do you have $329,961.34 ready to pay your share of the debt that we have accumulated?
Read the entire article
According to 720 Global, total government debt plus total personal debt in the United States was just over 3 trillion dollars in 1980. That broke down to $38,552 per household, and that figure represented 79 percent of median household income at the time.
Today, total government debt plus total personal debt in the United States has blown past the 41 trillion dollar mark. When you break that down, it comes to $329,961.34 per household, and that figure represents 584 percent of median household income.
If anyone can make a good argument that we are not in very serious debt trouble, I would love to hear it.
And remember, the figures above don’t even include corporate debt. They only include government debt on the federal, state and local levels, and all forms of personal debt.
So do you have $329,961.34 ready to pay your share of the debt that we have accumulated?
Read the entire article
July 26, 2017
Bank Of England Warns Of "Spiral Of Complacency" Over Soaring Consumer Debt
A few weeks ago, we wrote a note about how European auto lenders are becoming just about as ridiculously undisciplined as their counterparts in the United States. Apparently an ever-growing reliance of European millennials on lease financing has auto ABS investors worried about a potential crash in used car prices at some point in the not so distant future...that sound familiar to anyone? (See: It's Not Just Americans, Europe's New Obsession With Auto Leases Is "Catastrophic For Used Car Prices")
Then came an undercover investigation by the Daily Mail exposing just how "undisciplined" the auto lending market has become in England. Their undercover reporters visited a total of 22 dealerships and were repeatedly offered cars of various values with no money down and despite reporters admitting that they had no job and no source of income.
Reporters visited 22 dealerships in England and Scotland, saying they were in their early twenties and either unemployed, on low incomes or trying to buy a car despite having poor credit ratings. Half of the dealerships – including ones selling Audis, Mazdas, Suzukis, Fords, Vauxhalls and Seats – told them they could have a brand new car without paying a penny up front.
In each case they were offered Personal Contract Purchase (PCP) deals – a type of car loan that now makes up nine out of ten car sales bought on finance in Britain.
These deals offer smaller monthly payments than traditional car loans.
Read the entire article
Then came an undercover investigation by the Daily Mail exposing just how "undisciplined" the auto lending market has become in England. Their undercover reporters visited a total of 22 dealerships and were repeatedly offered cars of various values with no money down and despite reporters admitting that they had no job and no source of income.
Reporters visited 22 dealerships in England and Scotland, saying they were in their early twenties and either unemployed, on low incomes or trying to buy a car despite having poor credit ratings. Half of the dealerships – including ones selling Audis, Mazdas, Suzukis, Fords, Vauxhalls and Seats – told them they could have a brand new car without paying a penny up front.
In each case they were offered Personal Contract Purchase (PCP) deals – a type of car loan that now makes up nine out of ten car sales bought on finance in Britain.
These deals offer smaller monthly payments than traditional car loans.
Read the entire article
July 25, 2017
Banks Are Scheming To Dominate A Future Cashless Society
Visa recently announced its new Cashless Challenge program, which offers $10,000 to restaurants willing to transition into accepting only digital payments. As the largest credit card processor in the U.S., it’s no surprise Visa is spearheading this campaign.
Under the guise of increasing transparency and efficiency, they’ve partnered with governments around the world to help convert financial systems into cashless models, but their real incentive is the billions of dollars in extra transaction fees it would generate.
“We are declaring war on cash,” Visa spokesman Andy Gerlt proudly proclaimed after the program was announced.
The food-based small businesses Visa is targeting are among those that benefit most from accepting cash from customers. When transactions are for amounts less than $10, the fees charged cut significantly into profits. Only 28% of food trucks currently accept credit card payments because of the huge losses they incur from them. The bribe from Visa may seem appealing up front but will be mostly paid back to them over the next few years in fees alone.
Read the entire article
Under the guise of increasing transparency and efficiency, they’ve partnered with governments around the world to help convert financial systems into cashless models, but their real incentive is the billions of dollars in extra transaction fees it would generate.
“We are declaring war on cash,” Visa spokesman Andy Gerlt proudly proclaimed after the program was announced.
The food-based small businesses Visa is targeting are among those that benefit most from accepting cash from customers. When transactions are for amounts less than $10, the fees charged cut significantly into profits. Only 28% of food trucks currently accept credit card payments because of the huge losses they incur from them. The bribe from Visa may seem appealing up front but will be mostly paid back to them over the next few years in fees alone.
Read the entire article
July 24, 2017
"It Feels Like An Avalanche": China's Crackdown On Conglomerates Has Sent A "Shock Wave" Across Markets
The first to suffer Beijing's crackdown against China's private merger-crazy conglomerates, wave was the acquisitive "insurance" behemoth, Anbang, whose CEO Wu Xiaohui briefly disappeared as the Politburo made it clear that the "old way" of money laundering - via offshore deals - is no longer tolerated. Then, several weeks later and shortly after the stocks of the "famous four" Chinese conglomerates plunged after China officially launched a crackdown on foreign acquirers amid concerns of "systemic risk", it was HNA's turn, which as we described last week, risks becoming a "reverse rollup from hell", as HNA's stock tumbled, sending the LTV of billions in loans collateralized by the company's shares soaring and in danger of unleashing an catastrophic margin call among the company's lenders.
Then Beijing's attention shifted to the biggest conglomerate of them all: billionaire Wang Jianlin’s Dalian Wanda Group, which as the WSJ and Bloomberg reported was being "punished" by Beijing, and would see its funding cutoff after China "concluded the conglomerate breached restrictions for overseas investments."
The scrutiny could rein in Wang’s ambitious attempt to create a global entertainment empire, including Hollywood production companies and a giant cinema chain he’s built up through acquisitions from the U.S. to the U.K. Six investments, such as the purchases of Nordic Cinema Group Holding AB and Carmike Cinemas Inc., were found to have violations, said the people, who asked not to be identified discussing a private matter. The retaliatory measures will include banning banks from providing Wanda with financial support linked to these projects and barring the company from selling those assets to any local companies, the people said.
The move is an unprecedented setback for the country’s second-richest man, who has announced more than $20 billion of deals since the beginning of 2016. By targeting one of the nation’s top businessmen, the government is escalating its broader crackdown on capital outflows and further chilling the prospects of overseas acquisitions during a politically sensitive year in China.
Read the entire article
Then Beijing's attention shifted to the biggest conglomerate of them all: billionaire Wang Jianlin’s Dalian Wanda Group, which as the WSJ and Bloomberg reported was being "punished" by Beijing, and would see its funding cutoff after China "concluded the conglomerate breached restrictions for overseas investments."
The scrutiny could rein in Wang’s ambitious attempt to create a global entertainment empire, including Hollywood production companies and a giant cinema chain he’s built up through acquisitions from the U.S. to the U.K. Six investments, such as the purchases of Nordic Cinema Group Holding AB and Carmike Cinemas Inc., were found to have violations, said the people, who asked not to be identified discussing a private matter. The retaliatory measures will include banning banks from providing Wanda with financial support linked to these projects and barring the company from selling those assets to any local companies, the people said.
The move is an unprecedented setback for the country’s second-richest man, who has announced more than $20 billion of deals since the beginning of 2016. By targeting one of the nation’s top businessmen, the government is escalating its broader crackdown on capital outflows and further chilling the prospects of overseas acquisitions during a politically sensitive year in China.
Read the entire article
July 21, 2017
Rare Earth Mania And China/US Trade Spat 2.0?
We doubt that many have heard of it, or know what it’s used for, but the price of Praseodymium-Neodymium (sold in oxide form) has been on a tear, up 43% ytd.
Neodymium and Praseodymium, collectively known as NdPr, are two of the family of seventeen rare earth elements (REEs). The price of several other REEs, like Terbium – Ticker SHRATBOX (really) and also used in very powerful permanent magnets - have been rising too (up 36% ytd).
Unfortunately for the rest of the world, especially the US, China has a monopoly on the rare earths market with 85-90% of global production.
REEs are strategically important due to their (small but critical) applications in products used for the defense and technology sectors - including today’s mainstay of human existence, the mobile phone. China’s dominance arose from undercutting almost every other mining and processing player in the decades prior to its WTO entry.
Read the entire article
Neodymium and Praseodymium, collectively known as NdPr, are two of the family of seventeen rare earth elements (REEs). The price of several other REEs, like Terbium – Ticker SHRATBOX (really) and also used in very powerful permanent magnets - have been rising too (up 36% ytd).
Unfortunately for the rest of the world, especially the US, China has a monopoly on the rare earths market with 85-90% of global production.
REEs are strategically important due to their (small but critical) applications in products used for the defense and technology sectors - including today’s mainstay of human existence, the mobile phone. China’s dominance arose from undercutting almost every other mining and processing player in the decades prior to its WTO entry.
Read the entire article
July 20, 2017
Wal-Mart Replaces More Than 4,000 Employees With Machines
The Wall Street Journal published a headline today that should strike fear into the heart of every crusaders in the fight for $15: “Robots Are Replacing Workers Where You Shop.”
As the story explains, Wal-Mart is replacing some of its non-customer facing workers with robots, like bookkeepers who were responsible for counting and storing the store's cash supply.
“Last August, a 55-year-old Wal-Mart employee found out her job would now be done by a robot. Her task was to count cash and track the accuracy of the store’s books from a desk in a windowless back room. She earned $13 an hour.
Instead, Wal-Mart Stores Inc. started using a hulking gray machine that counts eight bills per second and 3,000 coins a minute. The Cash360 machine digitally deposits money at the bank, earning interest for Wal-Mart faster than sending an armored car. And it uses software to predict how much cash is needed on a given day to reduce excess.
‘They think it will be a more efficient way to process the money,’ said the employee, who has worked with Wal-Mart for a decade.”
Read the entire article
As the story explains, Wal-Mart is replacing some of its non-customer facing workers with robots, like bookkeepers who were responsible for counting and storing the store's cash supply.
“Last August, a 55-year-old Wal-Mart employee found out her job would now be done by a robot. Her task was to count cash and track the accuracy of the store’s books from a desk in a windowless back room. She earned $13 an hour.
Instead, Wal-Mart Stores Inc. started using a hulking gray machine that counts eight bills per second and 3,000 coins a minute. The Cash360 machine digitally deposits money at the bank, earning interest for Wal-Mart faster than sending an armored car. And it uses software to predict how much cash is needed on a given day to reduce excess.
‘They think it will be a more efficient way to process the money,’ said the employee, who has worked with Wal-Mart for a decade.”
Read the entire article
July 19, 2017
As Farmers Go Broke, John Deere Ramps Up It's Captive Financing Operation To Keep The Ag Party Going
So what do you do when your John Deere and your entire business revolves around selling really expensive equipment to farmers who have been absolutely decimated financially by low crop prices and can no longer convince commercial banks that they're worthy of additional debt needed to buy fancy new tractors? Well, you take some plays from the automotive industry, that's what. Here's how it works:
Step 1: Setup a captive financing arm to underwrite all of the credit risk that no reasonable commercial ag bank would touch with a 10 foot pole.
Step 2: Boost your tractor sales volumes by financing every farmer who walks through your door with a soybean dream and pulse.
Step 3: When you run out of farmers willing to buy your brand new shiny green tractors then just start selling all your production volume to yourself and then lease it to customers at an attractive price. This way you can still show sales growth and never have to cut production volume.
Step 4: Finally, when it all goes horribly wrong because used tractor prices crash due to the flood of off-lease volume and brings down the new market with it then you take a one-time charge to write-off the losses, wall streets forgives you...it was just a 1x charge, right...and then you promptly rinse and repeat.
Read the entire article
Step 1: Setup a captive financing arm to underwrite all of the credit risk that no reasonable commercial ag bank would touch with a 10 foot pole.
Step 2: Boost your tractor sales volumes by financing every farmer who walks through your door with a soybean dream and pulse.
Step 3: When you run out of farmers willing to buy your brand new shiny green tractors then just start selling all your production volume to yourself and then lease it to customers at an attractive price. This way you can still show sales growth and never have to cut production volume.
Step 4: Finally, when it all goes horribly wrong because used tractor prices crash due to the flood of off-lease volume and brings down the new market with it then you take a one-time charge to write-off the losses, wall streets forgives you...it was just a 1x charge, right...and then you promptly rinse and repeat.
Read the entire article
July 18, 2017
Cashless Society Alert: Visa Will Be Giving Up To $500,000 To Restaurants That Go ‘100% Cashless’
The push toward a cashless society is becoming more of a shove. Before today I had never heard of “The Visa Cashless Challenge”, but after reading about it I have to say that I am quite alarmed. Visa is trying to “encourage” businesses to go cashless, and one of the ways that they will be doing this is by “awarding up to $500,000 to 50 eligible US-based small business food service owners who commit to joining the 100% cashless quest”. The food industry is still one of the last bastions where cash is used very heavily, and so it makes sense that Visa would want to target that segment. Of course the more people that use cards to pay for meals, the more money that Visa will make.
When I go to restaurants, I almost always use cash, and I know a lot of other people that very much prefer to use cash in those situations as well. But if Visa has their way, soon all of us will be forced to use some form of digital payment instead. The following is an excerpt from the press release that Visa issued about this new “challenge”…
Today Visa (NYSE:V) announced it is launching a major effort to encourage businesses to go cashless. Aiming to create a culture where cash is no longer king, the program will give merchants increased ability to accept all forms of global digital payments. Visa will be encouraging and helping merchants go cashless by using innovation to their advantage in order to stay competitively connected to their customers.
To encourage businesses to go cashless, Visa is announcing The Visa Cashless Challenge, with a call to action for small business restaurants, cafés or food truck owners to describe what cashless means for them, their employees and customers. Visa will be awarding up to $500,000 to 50 eligible US-based small business food service owners who commit to joining the 100% cashless quest.
“At Visa, we believe you can be everywhere you want to be, and that it should be easy to pay and be paid in more ways than ever – whether it’s a phone, card, wearable or other device,” said Jack Forestell, head of global merchant solutions, Visa Inc. “With 70% of the world, or more than 5 billion people, connected via mobile device by 20201, we have an incredible opportunity to educate merchants and consumers alike on the effectiveness of going cashless.”
Read the entire article
When I go to restaurants, I almost always use cash, and I know a lot of other people that very much prefer to use cash in those situations as well. But if Visa has their way, soon all of us will be forced to use some form of digital payment instead. The following is an excerpt from the press release that Visa issued about this new “challenge”…
Today Visa (NYSE:V) announced it is launching a major effort to encourage businesses to go cashless. Aiming to create a culture where cash is no longer king, the program will give merchants increased ability to accept all forms of global digital payments. Visa will be encouraging and helping merchants go cashless by using innovation to their advantage in order to stay competitively connected to their customers.
To encourage businesses to go cashless, Visa is announcing The Visa Cashless Challenge, with a call to action for small business restaurants, cafés or food truck owners to describe what cashless means for them, their employees and customers. Visa will be awarding up to $500,000 to 50 eligible US-based small business food service owners who commit to joining the 100% cashless quest.
“At Visa, we believe you can be everywhere you want to be, and that it should be easy to pay and be paid in more ways than ever – whether it’s a phone, card, wearable or other device,” said Jack Forestell, head of global merchant solutions, Visa Inc. “With 70% of the world, or more than 5 billion people, connected via mobile device by 20201, we have an incredible opportunity to educate merchants and consumers alike on the effectiveness of going cashless.”
Read the entire article
July 17, 2017
95% Of Europeans Reject EU Efforts To "De-Cash" Their Lives
But the IMF has suggestions on how to win the War on Cash...
In January 2017 the European Commission announced it was exploring the option of imposing upper limits on cash payments, with a view to implementing cross-regional measures as soon as 2018. To give the proposal a veneer of respectability and accountability the Commission launched a public consultation on the issue. Now, the answers are in, but they are not what the Commission was expecting.
A staggering 95% of the respondents said they were opposed to a cash ceiling at EU level. Even more emphatic was the answer to the following question:
“How would the introduction of restrictions on payments in cash at EU level benefit you, or your business or your organisation (multiple replies are possible)?”
In the curious absence of an explicit “not at all” option, 99.18% chose to respond with “no answer.” In other words, less than 1% of the more than 30,000 people consulted could think of a single benefit of the EU unleashing cross-regional cash limits.
Read the entire article
In January 2017 the European Commission announced it was exploring the option of imposing upper limits on cash payments, with a view to implementing cross-regional measures as soon as 2018. To give the proposal a veneer of respectability and accountability the Commission launched a public consultation on the issue. Now, the answers are in, but they are not what the Commission was expecting.
A staggering 95% of the respondents said they were opposed to a cash ceiling at EU level. Even more emphatic was the answer to the following question:
“How would the introduction of restrictions on payments in cash at EU level benefit you, or your business or your organisation (multiple replies are possible)?”
In the curious absence of an explicit “not at all” option, 99.18% chose to respond with “no answer.” In other words, less than 1% of the more than 30,000 people consulted could think of a single benefit of the EU unleashing cross-regional cash limits.
Read the entire article
July 14, 2017
Visa Trying to Bribe Merchants to Stop Taking Cash
The war on cash is escalating. A big driver isn’t central banks who want to be able to inflict negative interest rates on savers, or Treasuries who see cash transactions as hiding revenues from their tax collectors, but the payment networks that want to kill cash (and checks!) as competitors to their oh so terrific (and fee-gouging) credit and debit cards.
However, one bit of good news is there doesn’t appear to be much enthusiasm on the buyer, as in merchant, end.
First, the overview from the Wall Street Journal:
Visa Inc. has a new offer for small merchants: take thousands of dollars from the card giant to upgrade their payment technology. In return, the businesses must stop accepting cash.
The company unveiled the initiative on Wednesday as part of a broader effort to steer Americans away from using old-fashioned paper money. Visa says it is planning to give $10,000 apiece to up to 50 restaurants and food vendors to pay for their technology and marketing costs, as long as the businesses pledge to start what Visa executive Jack Forestell calls a “journey to cashless.”
Read the entire article
However, one bit of good news is there doesn’t appear to be much enthusiasm on the buyer, as in merchant, end.
First, the overview from the Wall Street Journal:
Visa Inc. has a new offer for small merchants: take thousands of dollars from the card giant to upgrade their payment technology. In return, the businesses must stop accepting cash.
The company unveiled the initiative on Wednesday as part of a broader effort to steer Americans away from using old-fashioned paper money. Visa says it is planning to give $10,000 apiece to up to 50 restaurants and food vendors to pay for their technology and marketing costs, as long as the businesses pledge to start what Visa executive Jack Forestell calls a “journey to cashless.”
Read the entire article
July 13, 2017
Is This The Generation That Is Going To Financially Destroy America?
Did you know that the federal government is going to spend more than 4 trillion dollars this year? To put that into perspective, U.S. GDP for the entire year of 2017 is going to be somewhere between 18 and 19 trillion dollars. So when you are talking about 4 trillion dollars you are talking about a huge chunk of our economy. But of course the federal government doesn’t bring in 4 trillion dollars a year. At the beginning of Barack Obama’s first term, we were 10.6 trillion dollars in debt, and now we are nearly 20 trillion dollars in debt. That means that we have been adding more than a trillion dollars a year to the national debt. When you break that down, that means that we have essentially been stealing more than a hundred million dollars from future generations of Americans every single hour of every single day to pay for our debt-fueled lifestyle. Even Federal Reserve Chair Janet Yellen is warning that this is not sustainable, and yet we just keep on doing it.
Nobody can pretend that what we have today is the kind of limited federal government that our founders intended. When federal spending accounts for more than 20 percent of GDP, it is hard to argue that we haven’t moved very far down the road toward socialism. As I mentioned above, total federal spending will surpass 4 trillion dollars for the first time ever in 2017…
Both the Congressional Budget Office and the White House Office of Management and Budget project that federal spending will top $4 trillion for the first time in fiscal 2017, which began on Oct. 1, 2016 and will end on Sept. 30.
In its “Update to the Budget and Economic Outlook: 2017 to 2027” published last week, CBO projected that total federal spending in fiscal 2017 will hit $4,008,000,000,000.
Read the entire article
Nobody can pretend that what we have today is the kind of limited federal government that our founders intended. When federal spending accounts for more than 20 percent of GDP, it is hard to argue that we haven’t moved very far down the road toward socialism. As I mentioned above, total federal spending will surpass 4 trillion dollars for the first time ever in 2017…
Both the Congressional Budget Office and the White House Office of Management and Budget project that federal spending will top $4 trillion for the first time in fiscal 2017, which began on Oct. 1, 2016 and will end on Sept. 30.
In its “Update to the Budget and Economic Outlook: 2017 to 2027” published last week, CBO projected that total federal spending in fiscal 2017 will hit $4,008,000,000,000.
Read the entire article
July 12, 2017
Connecticut Capital Hartford Downgraded To Junk By S&P
One week ago, Illinois passed its three year-overdue budget in hopes of avoiding a downgrade to junk status, however in an unexpected twist, Moody's said that it may still downgrade the near-insolvent state, regardless of the so-called budget "deal." In fact, a downgrade of Illinois may come at any moment, making it the first U.S. state whose bond ratings tip into junk, although as of yesterday, credit rating agencies said they were still reviewing the state's newly enacted budget and tax package. The most likely outcome is, unfortunately for Illinois, adverse: "I think Moody's has been pretty clear that they view the state's political dysfunction combined with continued unaddressed long-term liabilities, and unfavorable baseline revenue performance as casting some degree of skepticism on the state's ability to manage out of the very fragile financial situation they are in," said John Humphrey, co-head of credit research at Gurtin Municipal Bond Management.
And yet, while Illinois squirms in the agony of the unknown, another municipality that as recently as a month ago was rumored to be looking at a bankruptcy filing, the state capital of Connecticut, Hartford, no longer has to dread the unknown: on Tuesday afternoon, S&P pulled off the band-aid, and downgraded the city's bond rating by two notches to BB from BBB-, also known as junk, citing "growing liquidity pressures" and "weaker market access prospects", while keeping the city's General Obligation bonds on Creditwatch negative meaning more downgrades are likely imminent.
"The downgrade to 'BB' reflects our opinion of very weak diminished liquidity, including uncertain access to external liquidity and very weak management conditions as multiple city officials have publicly indicated they are actively considering bankruptcy," said S&P Global Ratings credit analyst Victor Medeiros. Hartford has engaged an outside law firm with expertise in financial restructuring. Officials also mentioned that the city would initiate discussions with bondholders for concessions to implement a debt restructuring if it didn't receive the necessary support in the state's 2019 biennial budget.
S&P also said that Hartford may be downgraded again if the state passage of a budget is significantly delayed, or if the city were not to receive sufficient support in a timely manner that would enable it to manage liquidity and allow it to meet obligations in a timely manner.
Read the entire article
And yet, while Illinois squirms in the agony of the unknown, another municipality that as recently as a month ago was rumored to be looking at a bankruptcy filing, the state capital of Connecticut, Hartford, no longer has to dread the unknown: on Tuesday afternoon, S&P pulled off the band-aid, and downgraded the city's bond rating by two notches to BB from BBB-, also known as junk, citing "growing liquidity pressures" and "weaker market access prospects", while keeping the city's General Obligation bonds on Creditwatch negative meaning more downgrades are likely imminent.
"The downgrade to 'BB' reflects our opinion of very weak diminished liquidity, including uncertain access to external liquidity and very weak management conditions as multiple city officials have publicly indicated they are actively considering bankruptcy," said S&P Global Ratings credit analyst Victor Medeiros. Hartford has engaged an outside law firm with expertise in financial restructuring. Officials also mentioned that the city would initiate discussions with bondholders for concessions to implement a debt restructuring if it didn't receive the necessary support in the state's 2019 biennial budget.
S&P also said that Hartford may be downgraded again if the state passage of a budget is significantly delayed, or if the city were not to receive sufficient support in a timely manner that would enable it to manage liquidity and allow it to meet obligations in a timely manner.
Read the entire article
July 11, 2017
"... A Recession Has Always Followed": Is This The Real Reason The Fed Is Suddenly Panicking
"Why is the Fed so desperate to raise rates and tighten financial conditions? Why has the Fed shifted from a dovish to a hawkish bias?"
That is the question on every trader's, analyst's and economist's mind in the past month. Is it because the Fed is suddenly worried it has inflated another massive equity bubble (major banks now openly warn their clients the market is in frothy territory, if not inside a bubble), or is the Fed just worried that it will fall too far behind the curve and be unable to regain control of the economy once inflation spikes, without creating a recession (in what will soon be the second longest, if weakest, economic expansion of all time).
This is also what BofA's chief economist Ethan Harris tried to answer over the weekend, when he recalled that while from 2013 to 2016 the Fed seemed to have a "dovish bias" signaling a slow exit from super easy monetary policy, but pausing at any sign of trouble, this year the Fed appears to have shifted to a "hawkish bias:" signaling a slow exit, but only pausing if the outlook changes significantly. He says that this was most evident when the Fed hiked rates and signaled balance shrinkage at its June meeting despite weak growth and inflation data.
Why the change of Fed feathers? In BofA's view, three factors are at play, in increasing order of importance.
First, the Fed is worried a bit about financial stability and overheating markets. However, the bank puts a relatively low weight on this argument, as Chair Yellen and her allies have repeatedly underscored the idea that macro prudential policy is the first line of defense against asset bubbles and monetary policy is a distant "Plan B", although to this we can add that macroprudential policy has yet to demonstrate its effectiveness in preventing even one asset bubble.
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That is the question on every trader's, analyst's and economist's mind in the past month. Is it because the Fed is suddenly worried it has inflated another massive equity bubble (major banks now openly warn their clients the market is in frothy territory, if not inside a bubble), or is the Fed just worried that it will fall too far behind the curve and be unable to regain control of the economy once inflation spikes, without creating a recession (in what will soon be the second longest, if weakest, economic expansion of all time).
This is also what BofA's chief economist Ethan Harris tried to answer over the weekend, when he recalled that while from 2013 to 2016 the Fed seemed to have a "dovish bias" signaling a slow exit from super easy monetary policy, but pausing at any sign of trouble, this year the Fed appears to have shifted to a "hawkish bias:" signaling a slow exit, but only pausing if the outlook changes significantly. He says that this was most evident when the Fed hiked rates and signaled balance shrinkage at its June meeting despite weak growth and inflation data.
Why the change of Fed feathers? In BofA's view, three factors are at play, in increasing order of importance.
First, the Fed is worried a bit about financial stability and overheating markets. However, the bank puts a relatively low weight on this argument, as Chair Yellen and her allies have repeatedly underscored the idea that macro prudential policy is the first line of defense against asset bubbles and monetary policy is a distant "Plan B", although to this we can add that macroprudential policy has yet to demonstrate its effectiveness in preventing even one asset bubble.
Read the entire article
July 10, 2017
38 Incredible Facts About The Modern U.S. Dollar
We’ve previously showed you 31 Fascinating Facts About the Dollar’s Early History, which highlighted the history of U.S. currency before the 20th century. This was a very interesting period in which we looked at the money used by the first colonists, the extreme bust of the Continental currency, the era of privately-issued bank notes, and Congress’ emergency issuance of the fiat “greenback” during the Civil War.
However, as The Money Project - an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money - notes, the modern era of the U.S. dollar is just as interesting. We have it starting in 1913, when the Federal Reserve Act was passed by Woodrow Wilson. Not only did it establish a new central bank, but it also gave the Fed the authority to issue the Federal Reserve Note, which is (for now) the dominant form of U.S. currency both domestically and abroad.
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However, as The Money Project - an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money - notes, the modern era of the U.S. dollar is just as interesting. We have it starting in 1913, when the Federal Reserve Act was passed by Woodrow Wilson. Not only did it establish a new central bank, but it also gave the Fed the authority to issue the Federal Reserve Note, which is (for now) the dominant form of U.S. currency both domestically and abroad.
Read the entire article
July 7, 2017
Panicked BOJ Unleashes Bond Buying Bazooka: Offers To Buy Unlimited 10Y JGBs At 0.11%
During this morning's bond rout when a poor French auction sparked a high-volume selloff in German Bunds which also hit Japanese JGBs before slamming US TSYs, Goldman said that "with 10Y JGBs closing at 0.095 and getting hit at 10bp intraday, focus will be on how the BOJ will react tomorrow [i.e. now]. Opinions seem pretty split with some expecting an increase in purchase size in the 5-10 bucket, while others feel that the BOJ will let the 10Y run loose given the current sell off is more fundamental than event driven. With BOJ behind buying pace for 80tn reference anyway, personally I feel it doesn't hurt the BOJ to remind market of their presence."
Goldman was right: the BOJ, panicking after the overnight bond rout, not only reminded markets of its presence, but did so in dramatic fashion when it first boosted the amount of JGBs bought in the 5-10 year bucket from JPY 450BN to JPY 500 BN, and then for good measure unleashed the QQEWYC bazooka, announcing it would purchase an unlimited amount of 10Y JGBs at 0.11%, just a fraction above the BOJ's 0.10% line in the sand, only the second time it has done so in 2017 since February.
In immediate reaction, the benchmark Japanese TSY, which was trading north of 0.105% and flirting with 0.11%, promptly slid back to 0.095% now that it has become clear that all the hawkish posturing by central banks was just that.
Japanese market were relieved with the Topix paring losses to 0.3%, or 1,611.52 as of 10:23am in Tokyo, down from a drop as big as 0.7%, same as the Nikkei, which had dropped 0.7% earlier, then trimming losses by more than half, while the Yen, after trading at 113.250, immediately weakened by 25 pips to 113.50.
Read the entire article
Goldman was right: the BOJ, panicking after the overnight bond rout, not only reminded markets of its presence, but did so in dramatic fashion when it first boosted the amount of JGBs bought in the 5-10 year bucket from JPY 450BN to JPY 500 BN, and then for good measure unleashed the QQEWYC bazooka, announcing it would purchase an unlimited amount of 10Y JGBs at 0.11%, just a fraction above the BOJ's 0.10% line in the sand, only the second time it has done so in 2017 since February.
In immediate reaction, the benchmark Japanese TSY, which was trading north of 0.105% and flirting with 0.11%, promptly slid back to 0.095% now that it has become clear that all the hawkish posturing by central banks was just that.
Japanese market were relieved with the Topix paring losses to 0.3%, or 1,611.52 as of 10:23am in Tokyo, down from a drop as big as 0.7%, same as the Nikkei, which had dropped 0.7% earlier, then trimming losses by more than half, while the Yen, after trading at 113.250, immediately weakened by 25 pips to 113.50.
Read the entire article
July 6, 2017
The Fed Has An Alarming Low-Inflation Problem
With all the talk of central bank hawkishness in the last week, one might assume there was some inflation to point to. It is quite the opposite. It is one thing to talk about inflation being below the Fed’s target of 2%, it is an entirely different issue to see it flirting with deflation! Shorter-term trends of core-inflation are very near to 0%, levels we haven’t seen since the great recession and the advent of quantitative easing.
In its most common form, inflation is quoted by measuring its percentage change compared its level 12 months ago, the so-called year-over-year (YoY%) metric. But, shorter-term periods can be measured to get a sense of more recent trends as well as if there is acceleration or deceleration in the metric. The shorter the period measured, the more volatility the metric has, and so year-over-year (YoY%) has become the standard. It also has the added benefit of eliminating any seasonal effects.
In the charts below, we show the two top-tier measures of consumer price inflation, the Fed-preferred core PCE deflator, and the core CPI; with its common year-over year (YoY%) format, 6 months back annualized, and 3 months back annualized. Comparing the three gives a sense of acceleration of deceleration. If the 3mo. is less than the 6mo. is less than the 12mo., there is deceleration and vice-versa, there is acceleration.
Read the entire article
In its most common form, inflation is quoted by measuring its percentage change compared its level 12 months ago, the so-called year-over-year (YoY%) metric. But, shorter-term periods can be measured to get a sense of more recent trends as well as if there is acceleration or deceleration in the metric. The shorter the period measured, the more volatility the metric has, and so year-over-year (YoY%) has become the standard. It also has the added benefit of eliminating any seasonal effects.
In the charts below, we show the two top-tier measures of consumer price inflation, the Fed-preferred core PCE deflator, and the core CPI; with its common year-over year (YoY%) format, 6 months back annualized, and 3 months back annualized. Comparing the three gives a sense of acceleration of deceleration. If the 3mo. is less than the 6mo. is less than the 12mo., there is deceleration and vice-versa, there is acceleration.
Read the entire article
July 5, 2017
Chinese Manufacturers Are Scrambling To Replace Workers With Robots As Wages Soar
Tepid wage growth has been frustrating Americans for years. But if trends in China’s manufacturing sector have any bearing on the US, there’s an upside to stagnant pay: Workers get to keep their jobs – for now, at least.
In China – where real wages have doubled in the past decade – the opposite is true: Manufacturers, squeezed by rising labor costs and a paucity of skilled workers, are fueling an unprecedented boon in the adoption of automated technologies to cut down on the number of workers needed on factory floors, according to the latest findings of the China Employer-Employee Survey.
Ironically, the Communist Party’s willingness to support unprofitable businesses is compounding problems for Chinese workers, as many manufacturers are barely profitable to begin with.
As Bloomberg explains, China is no longer the cheap labor haven it once was.
Read the entire article
In China – where real wages have doubled in the past decade – the opposite is true: Manufacturers, squeezed by rising labor costs and a paucity of skilled workers, are fueling an unprecedented boon in the adoption of automated technologies to cut down on the number of workers needed on factory floors, according to the latest findings of the China Employer-Employee Survey.
Ironically, the Communist Party’s willingness to support unprofitable businesses is compounding problems for Chinese workers, as many manufacturers are barely profitable to begin with.
As Bloomberg explains, China is no longer the cheap labor haven it once was.
Read the entire article
July 4, 2017
Nasdaq Triggers Market-Wide Circuit-Breaker As AMZN "Crashes" 87% After-Hours
Nasdaq has issued a market-wide trading halt amid what appears to be a "glitch" that sent a number of the largest Nasdaq-listed stocks to crash or spike to exactly $123.47 per share.
This move crashed the value of companies including Amazon and Apple, sparked chaos in Microsoft, while sending Zynga rocketing up more than 3000%.
As Bloomberg reports, the apparent swings triggered trading halts in some securities, according to automatically generated messages. The halts are a mechanism exchanges use to limit the impact of particularly volatile sessions. A system status alert on Nasdaq’s website said that systems were operating normally at 8:23 p.m. ET. After-market hours on Nasdaq typically last from 4 p.m. to 8:00 p.m.
In a statement, Nasdaq said the glitch was related to “improper use of test data” sent out to third party data providers, and said it was working to “ensure a prompt resolution of this matter”. In cases of any clearly erroneous data, trades made are cancelled.
As a reminder this is not the first time 'glitches' have occurred on holidays... remember gold on Thanksgiving 2014.
Read the entire article
This move crashed the value of companies including Amazon and Apple, sparked chaos in Microsoft, while sending Zynga rocketing up more than 3000%.
As Bloomberg reports, the apparent swings triggered trading halts in some securities, according to automatically generated messages. The halts are a mechanism exchanges use to limit the impact of particularly volatile sessions. A system status alert on Nasdaq’s website said that systems were operating normally at 8:23 p.m. ET. After-market hours on Nasdaq typically last from 4 p.m. to 8:00 p.m.
In a statement, Nasdaq said the glitch was related to “improper use of test data” sent out to third party data providers, and said it was working to “ensure a prompt resolution of this matter”. In cases of any clearly erroneous data, trades made are cancelled.
As a reminder this is not the first time 'glitches' have occurred on holidays... remember gold on Thanksgiving 2014.
Read the entire article
July 3, 2017
India: Cash Is Back (But The Crisis Has Deepened)
Cash is Back
I know many wealthy and so-called educated people who have never used a bank card. Many simply won’t trust a machine. Most are incapable of learning how to use the cards. With people tired of corrupt, untrustworthy and unpredictable banks and payment portals incapable of providing reliable services, cash is coming back with a vengeance.
The economy, however, continues to be stagnant. Businesses continue to fail. If not for economic reasons, businessmen have grown tired of corrupt and rapacious bureaucrats and an extremely uncertain regulatory regime. Look at an Indian businessman and you will see an unhealthy, tired, soulless person.
Even today, vegetables sell for half as much as they normally do. Are poor people going hungry? Do not expect news on this in the media, which must toe the line of the Indian government.
Money — even in fiat currency form — is the blood of the system. Once the blood flow was stopped, even if it is fully revived later, clots will have appeared and organs will have failed. That is happening in India today. Job growth was already stagnant, but the situation is much worse now, making India’s so-called demographic asset, which never was an asset, a massive liability.
Domino effects continue to work their way up the food chain. Formal and big businesses are beginning to show signs of stagnation. Members of the salaried middle class are losing their jobs, but they have so far failed to connect the dots and continue to support Modi.
Read the entire article
I know many wealthy and so-called educated people who have never used a bank card. Many simply won’t trust a machine. Most are incapable of learning how to use the cards. With people tired of corrupt, untrustworthy and unpredictable banks and payment portals incapable of providing reliable services, cash is coming back with a vengeance.
The economy, however, continues to be stagnant. Businesses continue to fail. If not for economic reasons, businessmen have grown tired of corrupt and rapacious bureaucrats and an extremely uncertain regulatory regime. Look at an Indian businessman and you will see an unhealthy, tired, soulless person.
Even today, vegetables sell for half as much as they normally do. Are poor people going hungry? Do not expect news on this in the media, which must toe the line of the Indian government.
Money — even in fiat currency form — is the blood of the system. Once the blood flow was stopped, even if it is fully revived later, clots will have appeared and organs will have failed. That is happening in India today. Job growth was already stagnant, but the situation is much worse now, making India’s so-called demographic asset, which never was an asset, a massive liability.
Domino effects continue to work their way up the food chain. Formal and big businesses are beginning to show signs of stagnation. Members of the salaried middle class are losing their jobs, but they have so far failed to connect the dots and continue to support Modi.
Read the entire article
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