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Argentina Proposes IMF-Humiliating ‘Debt Re-Profile’ As It Soft-Defaults For 9th Time Since Independence

August 28, 2019

Argentina Proposes IMF-Humiliating ‘Debt Re-Profile’ As It Soft-Defaults For 9th Time Since Independence

Less than a week after we suggested The IMF is in for humiliation over the collapse of Argentina – just months after its unprecedented $56 billion liquidity crisis bailout – it appears the South American nation is set to default for the ninth time since its independence in 1816.

Amid a 20% crash in the peso and a collapse in government bonds, which pushed the implied risk of default above 80%, IMF delegates arrived in Argentina on Saturday and, as Bloomberg reports, immediately began meetings with policy makers, facing a deja vu choice from two decades ago: risk making the turmoil even worse by withholding a $5.3 billion installment due next month – or cough it up, and risk even more losses with the IMF bailout program on the verge of collapse.

“The IMF has put a lot in – not just money, but prestige,” said Hector Torres, a former executive director at the Fund who represented South American countries.
“The fact that the arrangement is not performing well right now is an embarrassment,” he said. And the September installment is “going to be a difficult call.”

Then earlier today, things got worse as Argentina bond spreads widened to the most in 14 years after opposition leader Alberto Fernandez ripped the debt-laden country’s accord with the International Monetary Fund. Fernandez said much of the IMF loan had been wasted on financing capital flight out of the country.

In a statement following a meeting with IMF officials, Fernandez said he agreed with the objectives of the IMF deal, but added that the IMF and the current government generated the current crisis and are now responsible for reversing the “social catastrophe.”

…click on the above link to read the rest of the article…

Over $10 Trillion In Debt Now Has A Negative Yield

March 25, 2019

Over $10 Trillion In Debt Now Has A Negative Yield

NIRP is back.

On Friday, when Germany reported disastrous mfg and service PMI prints, the 10Y German Bund finally threw in the towel, with the yield sliding back under zero for the first time in three years. When that happened, and when the 3M-10Y yield curve inverted in the US right around that time, just over $400 billion in global debt changed the sign on its yield from positive to negative.

As a result, the total notional of global negative yielding debt soared on Friday, rising above $10 trillion for the first time Since September 2017, and which according to Bloomberg has intensified “the conundrum for investors hungry for returns while fretting the brewing economic slowdown.”

Paradoxically, the amount of negative-yielding debt has nearly doubled in just six months, and confirms that the global asset bubble is back because as Gary Kirk, a founding partner at London-based TwentyFour Asset Management, said “money managers face increasing pressure to reprise the yield-chasing mentality synonymous with quantitative easing.”

“This obviously tempts those investors holding cash to move along the maturity curve — or down the rating curve — to seek yield, which is once again becoming a scarce commodity,” he said. “It’s a classic late-cycle conundrum.”

Despite the Fed’s renewed herding of investors into the riskiest assets, Kirk is so far “resisting the temptation” to snap up longer-dated credit obligations that will be the first to default when the next recession hits, and prefers duration bets in interest-rate markets.

Others won’t be so lucky: as we noted last Friday, the ‘reverse rotation’, or flood into fixed income instruments, is accelerating and fund flows confirmed the fresh panic for yield just as the specter of QE4 returns as investors in the latest week parked $6.6 billion into investment-grade funds, $3.2 billion into high-yield bonds and $1.2 billion into emerging-market debt, according to EPFR data.

…click on the above link to read the rest of the article…

Default Or Exit: A Battle Between Italy And The EU Is Inevitable

March 8, 2019

Default Or Exit: A Battle Between Italy And The EU Is Inevitable

There is a dual Italian crisis brewing in the European Union. On the one hand, it is a political, or even geopolitical, crisis. Italy is undermining the unity of the European Union; blocking the EU’s recognition of those behind the coup in Venezuela as the legitimate authority; preventing the expansion of sanctions against Russia; and even supporting the ‘yellow vest’ movement in France, which is arousing the anger of the French government.

On the other hand, the crisis is economic in nature. Italy is once more sliding into a recession (economic growth was negative in the country); Italian banks are again facing financial problems; and the business media has already estimated that the Italian economic crisis could blow up the entire European banking system.

There is a strong possibility that the EU’s leaders will soon be faced with a choice: try to save Italy (and the whole of Europe) from yet another crisis or set an example by punishing the Italian government for the country’s independent economic and foreign policies. In turn, Italian Prime Minister Giuseppe Conte’s government will most likely have its own dilemma to deal with: bow down and sell its principles to get help from Brussels or go all out and regain Italian independence. The choice will not be easy and either decision will be painful. Neither ending to this Italian drama could really be called happy. As this headline in The Telegraph quite rightly notes: “Crisis brewing in Italy will lead to default, exit from the euro, or both.”

…click on the above link to read the rest of the article…

Secret Money for Private Armies – Catherine Austin Fitts

January 14, 2019

Secret Money for Private Armies – Catherine Austin Fitts

Investment advisor and former Assistant Secretary of Housing Catherine Austin Fitts says it looks like a “global recession is coming.” Is that going to cause the debt reset we’ve been hearing about for years? Fitts says, “Make no mistake about it, there is no reason for the federal government to default or monkey with any debt because they can literally print the currency. The question is how do they make sure whatever they are printing really holds any kind of store of value. I think the reason you are seeing them reengineer the federal bureaucracy and financial transactions infrastructure is because they want much greater and tighter control to do whatever they do, and that includes to continue to debase the currency. They could do this (reset) entirely by debasing the currency. . . . What we are watching . . . is essentially a coup. We had a financial coup, and now we are watching a legal coup to consolidate that financial coup. I would keep my eye on the fundamental governance structure of the U.S. The important thing is not what they do. The important thing is who controls no matter what they do. Now, we have created a mechanism for them to control entirely in secret and create policies entirely in secret, including around the back of a U.S. President. . . . It’s pirating by the ‘just do it’ method. I said to someone the other day, what is it about secret money for secret private armies that you don ‘t understand?”

$21 trillion in “missing money” at the DOD and HUD that was discovered by Dr. Mark Skidmore and Catherine Austin Fitts in 2017 has now become a national security issue. The federal government is not talking or answering questions, even though the DOD recently failed its first ever audit. Fitts says, “This is basically an open running bailout. Under this structure, you can transfer assets out of the federal government into private ownership, and nobody will know and nobody can stop it.

…click on the above link to read the rest of the article…

The Art of Defaulting

December 5, 2018

The Art of Defaulting

… the debt-financed overspending of the 1960s had continued into the early 1970s. The Fed had funded this spending with easy-credit policies, but by paying back its debts with depreciated paper money instead of gold-backed dollars, the U.S. effectively defaulted.

Ray Dalio

Principles for navigating big debt crises

Ray Dalio of Bridgewater Associates is one of my role models in life and, when he writes a new book, I would normally visit Amazon.co.uk more quickly than you can count to ten, but not this time!

What? Have I fallen out of love with Ray’s way of thinking? Not at all, but I found out that his new book – Principles for Navigating Big Debt Crises – can actually be downloaded for free. Ray, being the class act he is, has decided that everybody should know how to navigate a debt crisis; hence he has chosen to make it freely available (as a PDF copy).

Much (but not all) of the content below is inspired by Ray’s thinking. He is not as explicit in his new book as I am below (and as he has been before) in terms of the timing of the next debt crisis, but it’s pretty clear that he also thinks the writing is on the wall.

If you want to read the wise words of a very smart man, I suggest you give yourself one for Christmas, which you can do here. Christmas presents rarely come cheaper than this.

Debt crises of different sorts

In the following, I will focus on what Ray calls major debt crises – crises that have caused a slump in GDP of at least 3% but, in reality, there are different types of major debt crises.

…click on the above link to read the rest of the article…

The Italian people must understand that their country is at war

November 6, 2018

The Italian people must understand that their country is at war

The conflict between the European Union and Italy is a full-blown financial war. Euro countries cannot print their own money and for that reason they cannot have an endless deficit. Countries within the eurozone have to live within their means or else, without the intervention of the ECB, they will go bankrupt. Nobody knows the consequences of an Italian default and debt restructuring, but it can lead to the end of the euro.

To make the euro sustainable, the European financial elites want the Italians to reduce their spending and turn a budget deficit into a budget surplus. However, due to the country’s shrinking population the Italian budget deficit — as we have argued many times – can only increase. The European commission rejects the Italian budget because Rome wants to increase its debt far beyond the limit allowed by the ECB. “This is the first Italian budget that the EU doesn’t like,” wrote Deputy Prime Minister Luigi Di Maio on Facebook. “No surprise: This is the first Italian budget written in Rome and not in Brussels!”¹⁾Matteo Salvini added: “This (the rejection of the Italian budget plan by the EU) doesn’t change anything.”. “They’re not attacking a government but a people. These are things that will anger Italians even more,” he said.²⁾

The country has entered a demographic winter³⁾and sustainable economic growth is simply impossible, at least for the foreseeable future. As is the case with the whole of Europe, the continent needs a plan to support an ageing and declining population. As if not aware of it, the Brussels-Frankfurt establishment only wants Italy to stick to their austerity program, i.e. decrease public spending and do away with the current Italian administration, which refuses to comply.

…click on the above link to read the rest of the article…

The Global Distortions of Doom Part 1: Hyper-Indebted Zombie Corporations

October 8, 2018

The Global Distortions of Doom Part 1: Hyper-Indebted Zombie Corporations

The defaults and currency crises in the periphery will then move into the core.

It’s funny how unintended consequences so rarely turn out to be good. The intended consequences of central banks’ unprecedented tsunami of stimulus (quantitative easing, super-low interest rates and easy credit / abundant liquidity) over the past decade were:

1. Save the banks by giving them credit-money at near-zero interest that they could loan out at higher rates. Savers were thrown under the bus by super-low rates (hope you like your $1 in interest on $1,000…) but hey, bankers contribute millions to politicos and savers don’t matter.

2. Bring demand forward by encouraging consumers to buy on credit now.Nothing like 0% financing to incentivize consumers to buy now rather than later. Since a mass-consumption economy depends on “growth,” consumers must be “nudged” to buy more now and do so with credit, since that sluices money to the banks.

3. Goose assets based on interest rates by lowering rates to near-zero. Bonds, stocks and real estate all respond positively to declining interest rates. Corporations that can borrow money very cheaply can buy back their shares, making insiders and owners wealthier. Housing valuations go up because buyers can afford larger mortgages as rates drop, and bonds go up in value with every notch down in yield.

This vast expansion of risk-assets valuations was intended to generate a wealth effectthat made households feel wealthier and thus more willing to binge-borrow and spend.

All those intended consequences came to pass: the global economy gorged on cheap credit, inflating asset bubbles from Shanghai to New York to Sydney to London. Credit growth exploded higher as everyone borrowed trillions: nation-states, local governments, corporations and households.

While much of the hot money flooded into assets, some trickled down to the real economy, enabling enough “growth” for everyone to declare victory.

…click on the above link to read the rest of the article…

China Cuts Reserve Ratio, Releases 1.2 Trillion Yuan Amid Rising Trade War, Record Defaults

October 7, 2018

China Cuts Reserve Ratio, Releases 1.2 Trillion Yuan Amid Rising Trade War, Record Defaults

China’s central bank announced it would cut the Required Reserve Ratio (RRR) for most banks by 1.0% effective October 15 for the fourth time in 2018, a little over three months after the PBOC announced a similar cut on June 24, as Beijing seeks to stimulate the slowing economy amid the growing trade war with the US, a slumping stock market, a sliding yuan and a record number of bond defaults.

The People’s Bank of China announced on Sunday local time that it lowered the required reserve ratio for some lenders by 1 percentage point according to a statement on its website. The cut, which will apply to a wide range of banks including large commercial banks, joint stock commercial banks, city commercial banks, non-county rural banks and foreign banks, will release a total of 1.2 trillion yuan ($175 billion), of which 450 billion yuan will be used to repay existing medium-term funding facilities which are maturing, and the remaining RMB 750bn will help offset the seasonal rise in liquidity demand during the second half of the month due to tax payments, according to the PBOC.

But the real reason behind the RRR cut is that it is intended to boost sentiment before the onshore equity market re-opens on Monday after the week-long holidays, as well as to support liquidity conditions at a time when global interest rates have suddenly spiked to multi-year highs..

Commenting on the cut, Goldman economists said that while they had been expecting one RRR cut per quarter in H2, “the 1pp magnitude surprised us on the upside.”

…click on the above link to read the rest of the article…

“Something Has to Break” as China’s Onshore Defaults Hit a New Record

October 4, 2018

“Something Has to Break” as China’s Onshore Defaults Hit a New Record

Recent news from China has been really ugly.

But what can you expect? They’re trying to fight a trade war against the U.S. – deal with slowing growth – and survive against a stronger U.S. dollar.

And because of these problems – China’s major stock exchanges have really suffered this year.

But – contrary to what the mainstream says – I think things are going to get much worse. . .

For starters – the latest Chinese Manufacturing PMI (purchasing manager index) showed a continued downturn. Both in the NBS and Caixin Indexes.

Clearly the trade-war with the U.S. is being felt. And with little progress in negotiations between the U.S. and China – expect the near-and-midterm to continue being weak.

Now – Unfortunately – this slow down in the Chinese economy and the loss of sales and income are coming at a bad time. . .

Especially for their corporations.

The combination of a slowing economy, a stronger dollar, and a tightening Federal Reserve is putting pressure on indebted Chinese firms.

This is putting China’s elites between a rock and a hard place. . .

That’s because with the trade-war raging on and a tightening Fed – the Communist Party of China will want to ease and help their economy.

The Peoples Bank of China (the Chinese central bank) can cheapen the yuan to try and boost exports. And as I wrote before – the weaker yuan will offset Trump’s tariffs.

For example – if the U.S. places 20% tariffs on all Chinese goods – China simply must devalue the Yuan by 20%. This would offset the increased costs from the tariffs – keeping the price for U.S. consumers unchanged. Basically rendering the imposed tariff worthless.

But the problem with this is Chinese firms have significant dollar-denominated debts. So a stronger dollar makes their debt-burden much harder to service.

…click on the above link to read the rest of the article…

In Shock Move, India Nationalizes Giant Shadow Bank At Center Of Market Rout

October 1, 2018

In Shock Move, India Nationalizes Giant Shadow Bank At Center Of Market Rout

One week after we reported that India’s NPL crisis finally erupted after IL&FS, a major shadow bank at the heart of India’s economy defaulted in one day on three debt payments, India’s government announced on Monday that it would immediately seize control of a shadow lender whose defaults have caused widespread upheaval at mutual funds.

The nationalization is virtually unprecedented: the nation’s corporate affairs ministry has sought to take control of a company on just two prior occasions, and only followed through once, with Satyam Computer Services in 2009. A bid by the government to take control of debt-laden realty firm Unitech in late 2017 was stalled by the Supreme Court after the move was challenged.

According to Bloomberg, officials ousted Infrastructure Leasing & Financial Services Ltd.’s entire board and a new six-member board will meet before Oct. 8, the National Company Law Tribunal said on Monday. India’s richest banker Uday Kotak and ICICI Bank Chairman G.C. Chaturvedi will be part of the proposed board, which will elect a chairperson themselves.

An AAA-rated entity for decades, over the last few years IL&FS, saw an increase in its debt levels. The situation worsened in the last two months with both the parent company and its subsidiaries defaulting on a number of repayment obligations. Banks and insurance companies have the largest exposure to IL&FS.

For India to resort to such a dramatic move, the panic must have been palpable: the nationalization, which unfolded within the span of a hectic day in Mumbai, underscores the government’s concern about IL&FS’s defaults spreading to other lenders in the world’s fastest-growing major economy.

…click on the above link to read the rest of the article…

Goldman Warns Of A Default Wave As $1.3 Trillion In Debt Is Set To Mature

September 23, 2018

Goldman Warns Of A Default Wave As $1.3 Trillion In Debt Is Set To Mature

Ten years after the Lehman bankruptcy, the financial elite is obsessed with what will send the world spiraling into the next financial crisis. And with household debt relatively tame by historical standards (excluding student loans, which however will likely be forgiven at some point in the future), mortgage debt nowhere near the relative levels of 2007, the most likely catalyst to emerge is corporate debt. Indeed, in a NYT op-ed penned by Morgan Stanley’s, Ruchir Sharma, the bank’s chief global strategist made the claim that “when the American markets start feeling it, the results are likely be very different from 2008 — corporate meltdowns rather than mortgage defaults, and bond and pension funds affected before big investment banks.”

But what would be the trigger for said corporate meltdown?

According to a new report from Goldman Sachs, the most likely precipitating factor would be rising interest rates which after the next major round of debt rollovers over the next several years in an environment of rising rates would push corporate cash flows low enough that debt can no longer be serviced effectively.

* * *

While low rates in the past decade have been a boon to capital markets, pushing yield-starved investors into stocks, a dangerous side-effect of this decade of rate repression has been companies eagerly taking advantage of low rates to more than double their debt levels since 2007. And, like many homeowners, companies have also been able to take advantage of lower borrowing rates to drive their average interest costs lower each year this cycle…. until now.

According to Goldman, based on the company’s forecasts, 2018 is likely to be the first year that the average interest expense is expected to tick higher, even if modestly.

…click on the above link to read the rest of the article…

India’s NPL Crisis Erupts: A Major Shadow Bank Defaults On Three Debt Payments

September 23, 2018

India’s NPL Crisis Erupts: A Major Shadow Bank Defaults On Three Debt Payments

IL&FS Investment Managers, a unit of India’s Infrastructure Leasing & Financial Services (IL&FS) – an Indian infrastructure development and finance company and one of the nation’s largest “shadow banks” – which announced three debt defaults on Friday, said on Saturday morning its Managing Director Ramesh Bawa had resigned as managing director and chief executive officer as a management exodus begins. The company’s independent directors – Renu Challu, Surinder Singh Kohli, Shubhalakshmi Panse and Uday Ved – had also submitted their resignation papers.

The company first defaulted on commercial paper, then on short-term borrowings known as inter-corporate deposits according to Bloomberg. It has also failed to pay Rs 4.5 billion ($62 million) in ICDs to government-backed lender Small Industries Development Bank of India.

As we noted on Friday, IL&FS revealed a series of three defaults on its non-convertible debt obligations and inter-corporate deposits.

With the meltdown of IL&FS in motion, another unit, IL&FS Transportation Networks, reported that its chief financial officer, Dilip Bhatia, was demoted to chief strategy officer, for the goal of divestment of assets. The regulatory filing said Bhatia would relinquish his responsibilities as CFO with immediate effect, and the company will search for a replacement.

The shockwaves spread further on Friday, when IL&FS Financial Services, another unit of the IL&FS group, said its managing director and chief executive had resigned.

Why is this important? IL&FS’s outstanding debentures and commercial paper account for 1% and 2% respectively, of India’s domestic corporate debt market as of March 31, according to Moody, while its bank loans made up about 0.5% to 0.7% of the entire banking system loans.

And while bad loans in the Italian banking system have received a ton of attention from investors, India is not far behind and India’s economic recovery is built on an even shakier foundation.

…click on the above link to read the rest of the article…

Good Times…

September 13, 2018

Good Times…

My son wanted to know why it is that Venezuela (a topic that gets discussed around the dinner table at home) chose such painfully, obviously asinine policies.

After much thought I explained it thus.

Hard times create strong men. Strong men create good times. Good times create weak men. Weak men create hard times.CLICK TO TWEETI’d seen it before somewhere and so I dug it up. Here it is in a different form.

We bipeds don’t change. I’ve come to realise not to fight it, just see it for what it is and make sure you’re positioned accordingly…for your friends family and those you care about. Speaking of which you should consider joining our family.

No special offers, no steak knives, no wild ridiculous promises – simply rational analysis and positioning for a macro world we’ve never encountered before. EVER! That’s both exciting and terrifying at the same time.

We’re Bad

At literally everything. We buy high, sell low, look to what Johnny next door is wearing, what car he drives. We get taken in and scammed by shysters, we believe in the unbelievable.

Which brings me swiftly to EM where fund managers desperate for yield dived into the fire over the last few years. Now the inevitable pain is hitting as default fears mount for “BATS” as the emerging-market rout deepens.

Turkey’s implied default odds climbed to highest since 2008 and over in the land of great steaks default risk in Argentina is …ahem…substantial.

As Bloomberg points out:

Argentina’s implied default probability over the next five years climbed this month to 41 percent, the highest since Mauricio Macri’s government ended the nation’s decade-long legal battle with most holdout creditors.
Turkey’s implied default odds during that span rose to 31 percent, the highest since the 2008 global financial crisis.
Brazil’s implied default odds increased to 18 percent, the highest since the country’s worst-ever recession deepened in late 2016.
South Africa’s implied default odds soared to 15 percent, the highest since Donald Trump’s election in November 2016.

…click on the above link to read the rest of the article…

The Rumors are that Turkey Will Default

August 30, 2018

The Rumors are that Turkey Will Default

The rumors running around is that Turkey will default as Erdogan decides to move to align with Iran and Russia and leave the West behind. While there have been speculative attacks on the Turkish economy and US tariffs and sanctions have been detrimental, the initial causes of this growing monetary problem are really all internal. Erdogan’s management of the economy has been a disaster. He has pretended to borrow too much money from foreign investors to stimulate the economy. It is true that the total debt rose to over $450 billion, about half of GDP. Turkish exports and the current account deficit rose to $50 billion. This has led to rapid inflation that has been at least an annual rate of nearly 7% on average during the last ten years. In truth, Erdogan was really trying to build the economy to fulfill his dream of reestablishing the Ottoman Empire and emerge as at least the dominant power over the Middle East.

Unfortunately, Erdogan is stubborn and he really has no way out. He wants his cake and consumes it all at the same time. The rumors running around the trading desks are that he will pull the plug and turn his back on the West. By doing so, he can then justify defaulting on the debt of the “corrupt” West who wants to subjugate Turkey. That will be the justification spin of things. It looks like this will remain volatile into October.

Looks Like Italian Default is Back on the Menu

August 18, 2018

Looks Like Italian Default is Back on the Menu

Italian Deputy Prime Minister Matteo Salvini was right to call out the EU over the failure of the bridge in Genoa this week. It was an act of cheap political grandstanding but one that ultimately rings very true.

It’s a perfect moment to shake people out of their complacency as to the real costs of giving up one’s financial sovereignty to someone else, in this case the Troika — European Commission, ECB and IMF.

Italy is slowly strangling to death thanks to the euro. There is no other way to describe what is happening. It’s populist coalition government understands the fundamental problems but, politically, is hamstrung to address them head on.

The political will simply isn’t there to make the break needed to put Italy truly back on the right path, i.e. leave the euro. But, as the government is set to clash with Brussels over their proposed budget the issues with the euro may come into sharper focus.

Looking at the budget it is two or three steps in the right direction — lower, flat income tax rate, not raising the VAT — but also a step or two in the wrong direction — universal income.

Opening up Italy’s markets and lowering taxpayers’ burdens is the path to sustainable, organic growth, but that is not the purpose of IMF-style austerity. It’s purpose is to do exactly what it is doing, strangling Italy to death and extracting the wealth and spirit out of the local population, c.f. Greece and before that Russia in the 1990’s.

So, looking at the situation today as the spat between Turkey and the U.S. escalates, it is obvious that Italy is in the crosshairs of any contagion effects into Europe’s banking system.

…click on the above link to read the rest of the article…

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