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THE WOLF STREET REPORT: Nothing’s Fixed – What’s Behind the Corporate Debt Bailout

THE WOLF STREET REPORT: Nothing’s Fixed – What’s Behind the Corporate Debt Bailout

Over the past two years, nobody knew what would trigger the next financial crisis, but just about everyone knew it would involve the record pile of corporate debt. And so it happened. Now the Fed fixed it…

The Lockdown Wouldn’t Be So Devastating If Our Economy Wasn’t So Rigged, Brittle and Exploitive

The Lockdown Wouldn’t Be So Devastating If Our Economy Wasn’t So Rigged, Brittle and Exploitive

An economy of rackets designed to enrich the few at the expense of the many is brittle because self-serving rackets snuff out competition, accountability and transparency.

What’s remarkable about the lockdown isn’t the hue and cry about the economic damage–it’s the absence of any critical curiosity as to how our economy became so fragile that only the wealthiest contingent can survive a few weeks on savings or rainy-day funds.

A healthy, resilient economy would be able to survive a few weeks of lockdown without a multi-trillion dollar bailout of every racket in the land. A society that wasn’t threadbare financially and socially would be able to function and accept individual sacrifices for the common good.

Rather than being organized to serve the common good, our economy and social order is little more than overlapping rackets: rigged “markets” operated by quasi-monopolies to enrich the few at the expense of the many; brittle bureaucracies bound by thousands of pages of mindless “compliance” and exploitive neofeudal structures in which debt-serfs are paid just enough to service their debt but not enough to afford skyrocketing costs for housing, healthcare, higher education, childcare, junk fees and taxes.

While everyone is busy screaming about the damage done by the lockdown, nobody’s asking why costs are so high that few can survive a few weeks on their own means. Nobody dares look at the soaring costs imposed by cartels and monopolies (including government and government-funded rackets such as healthcare and higher education) because it might shine a light on the money-trough they’re feeding from. (Crush every racket but mine…)

If costs weren’t so crushing, more households and enterprises might have savings. Empires don’t collapse because everyone ran out of money; they collapse when the costs exceed earnings.

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

There Is Just One Question: Will The Fed Activate A Coordinated Central Bank Bailout On Sunday

There Is Just One Question: Will The Fed Activate A Coordinated Central Bank Bailout On Sunday

With global markets in freefall, the S&P opening 3% lower and cementing its worst week since the global financial crisis; the Dow (or is thar Down Joanes) plunging more than 4,000 points this week, traders (especially levered ones) are left with just one option to stave off a career (and personal fortune)-ending margin call: praying, though not to god but rather to the Fed.

To be sure, the Fed itself has given enough reasons for this: on Monday the biggest uber-dove in history, former Minneapolis Fed and the Fed’s only negative “dot” ever, Narayana Kocherlakota penned a Bloomberg op-ed saying the Fed should cut not once but twice, and do it on an emergency basis ahead of the March FOMC meeting.

Then, this morning, one day after he penned a similar Op-Ed, former Fed Governor Kevin Warsh – who has finally crushed his “hawkish” facade as he guns to replace Powell as the Fed’s Chair – echoed Kocherlakota when he said he expects the Fed and other central banks around the world to act soon in response to the coronavirus outbreak. Warsh, no longer even pretending to give a rat’s ass about efficient markets and price discovery that is independent of Fed manipulation, recommended the Fed act as quickly as Sunday to assuage financial markets that have been in an aggressive swoon all week as the virus has spread.


“Chairman Powell needs to reach out to his counterparts around the world and buy some time. That’s what a quarter-point could do.” Former Fed Gov. Warsh says the Fed should respond quickly to coronavirus fears: “I think the sooner they cut the better.” https://cnb.cx/2wT2oTj 


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

China Braces For December D-Day: The “Unprecedented” Default Of A Massive State-Owned Enterprise

China Braces For December D-Day: The “Unprecedented” Default Of A Massive State-Owned Enterprise

Something is seriously starting to break in China’s financial system.

Three days after we described the self-destructive doom loop that is tearing apart China’s smaller banks,  where a second bank run took place in just two weeks – an unprecedented event for a country where until earlier this year not a single bank was allowed to fail publicly and has now had no less than five bank  high profile nationalizations/bailouts/runs so far this year – the Chinese bond market is bracing itself for an unprecedented shock: a major, Fortune 500 Chinese commodity trader is poised to become the biggest and highest profile state-owned enterprise to default in the dollar bond market in over two decades.

In what Bloomberg dubbed the latest sign that Beijing is more willing to allow failures in the politically sensitive SOE sector – either that, or China is simply no longer able to control the spillovers from its cracking $40 trillion financial system – commodity trader Tewoo Group  – the largest state-owned enterprise in China’s Tianjin province – has offered an “unprecedented” debt restructuring plan that entails deep losses for investors or a swap for new bonds with significantly lower returns.

Tewoo Group is a SOE conglomerate, owned by the local government and operates in a number of industries including infrastructure, logistics, mining, autos and ports, according to its website. It also operates in multiples countries including the U.S., Germany, Japan and Singapore. The company ranked 132 in 2018’s Fortune Global 500 list, higher than many other Chinese conglomerates including service carrier China Telecommunications and financial titan Citic Group. Even more notable are the company’s financials: it had an annual revenue of $66.6 billion, profits of about $122 million, assets worth $38.3 billion, and more than 17,000 employees as of 2017, according to Fortune’s website.

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

THE WOLF STREET REPORT: What’s Behind the Fed’s Bailout of the Repo Market?

THE WOLF STREET REPORT: What’s Behind the Fed’s Bailout of the Repo Market?

Whose Bets are Getting Bailed Out by the Fed’s Repos & Treasury Bill Purchases?

Argentina Is Officially In Default Again: S&P Downgrades Credit Rating To SD

Argentina Is Officially In Default Again: S&P Downgrades Credit Rating To SD

The IMF just broke its own record of incompetence: less than a year after its record, $57 billion bailout of Argentina was finalized, S&P just downgraded the country from B- to Selective Default – the equivalent to a default rating – following the government’s “reprofiling” of its debt on August 28, when it unilaterally extended the maturity of all short-term paper due to the continued inability to place short-term paper with private-sector market participants. Some $101 billion in debt is affected.

However, the selective default state will last for just one day, as only a few hours later, S&P will upgrade Argentina from SF to CCC-. As S&P explains, “under our distressed exchange criteria, and in particular for ‘B-‘ rated entities, the extension of the maturities of the short-term debt with no compensation constitutes a default. As the new terms became effective  immediately, the default has also been cured. Therefore, we plan to raise the long-term ratings to ‘CCC-‘ and the short-term ratings to ‘C’ on Aug. 30, in line with our policies.”

Here is the full summary of today’s action, per S&P:

  • Following the continued inability to place short-term paper with private-sector market participants, the Argentine government unilaterally extended the maturity of all short-term paper on Aug. 28. This constitutes default under our criteria, and we are lowering the local and foreign currency sovereign credit ratings to ‘SD’ and the short-term issue ratings to ‘D’.
  • The administration is also sending legislation to Congress seeking support from the Argentine political class to engage in a re-profiling of the remaining debt, so we are lowering our long-term foreign and local currency issue ratings to ‘CCC-‘ on heightened risk of a default under our criteria.

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

Peter Schiff Explains “What Happens Next” In 47 Words

Outspoken critic of The Fed and one of the few that can see through the endless barrage of bullshit to how this really ends, has laid out in a tweet “what happens next”…

Likely sequence of events:

1. Bear market;

2. Recession;

3. Deficits explode;

4. Return of ZIRP and QE;

5. Dollar tanks;

6. Gold soars;

7. CPI spikes;

8. Long-term rates rise;

9. Fed. forced to hike rates during recession

10. A financial crisis without stimulus or bailouts!

h/t @PeterSchiff

Greece Planning Bad Debt Bailout For Its Banks After Market Crash

It seems like it was just yesterday that Greek banks, which carry some €89BN of bad loans on their balance sheets, passed the ECB’s latest confidence building exercise, known as the “stress test.”

In retrospect that may have been premature, because as Bloomberg reports, over 8 years after its first bailout Greece is finally considering a plan to help its banks become viable, and speed up their bad-loan disposals in a bid to restore confidence in the crushed sector.

At its core, the Greek plan is the now familiar “bad bank” structure, in which banks get to spin off their NPLs into a separate, government-guaranteed SPV (although in the case of Greece, it is not clear if a government guarantee is all that valuable). The SPV would then be funded by selling bonds to the market.

While the details are still being worked out, an asset protection plan would see lenders unload some bad loans into special purpose vehicles, taking them off banks’ balance sheets. The SPVs would issue bonds, some guaranteed by the state, and sell them to investors, the people said, asking not to be named as the information isn’t public.

The move came after a furious selloff in Greek stocks, and especially banks, which was the culmination of a YTD plunge which has seen Greek banks lose more than 40% this year amid doubts they can clean up their balance sheets fast enough. The banks, which amusingly all cleared the ECB’s stress test earlier this year despite being saddled with tens of billions of NPLs, have been under mounting pressure from supervisors to cut their bad-debt holdings.

According to Bloomberg, the plan appears to have been borrowed from Italy, which conducted a similar exercise to stabilize its own banking sector.

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

Argentina Gets Record $57 Billion As IMF Boosts Bailout, Creates “No Intervention” Zone For The Peso

Just a few months after the IMF announced in June what was a record-setting $50 billion, 36-month bailout agreement with Argentina, the International Monetary Fund said it would expand the credit line to $57 billion in an attempt to halt the economic and financial crisis that has sent the country’s currency plunging over 50% this year, and pummeled the third-largest Latin American economy. In exchange, Argentina will set a “no intervention” zone for the peso from 34 to 44, meaning the exchange rate will be flexible but not floating.

The revised standby agreement is “aimed at bolstering confidence and stabilizing the economy,” IMF chief Christine Lagarde said Wednesday in a joint statement with Argentine Economy Minister Nicolas Dujovne.

The agreement, which is subject to IMF Executive Board approval, “front loads IMF financing, increasing available resources by US$19 billion through the end of 2019, and brings the total amount available under the program to US$57.1 billion through 2021,” according to statement.

Argentina had started renegotiating the terms of the bailout deal last month when it became obvious that the original funds would be insufficient, and when President Mauricio Macri asked to speed up payments in the original agreement. Meanwhile, as part of the deal, Argentina would be required to fulfill certain stipulations under the agreement, which would need congressional approval by way of the 2019 budget. In exchange, the IMF would cover a significant portion of Argentina’s financing through next year, according to Moody’s.

As part of the government’s efforts to cut its debt, which is projected to reach 70% of GDP next year. Macri and finance minister, Nicolas Dujovne unveiled economic reforms earlier this month, including highly unpopular spending cuts and export tax increases demanded by the IMF.

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

Tenth Anniversary Of Financial Collapse, Preparing For The Next Crash

Tenth Anniversary Of Financial Collapse, Preparing For The Next Crash

Ten years ago, there was panic in Washington, DC, New York City and financial centers around the world as the United States was in the midst of an economic collapse. The crash became the focus of the presidential campaign between Barack Obama and John McCain and was followed by protests that created a popular movement, which continues to this day.

Banks: Bailed Out; The People: Sold Out

On the campaign trail, in March 2008, Obama blamed mismanagement of the economy on both Democrats and Republicans for rewarding financial manipulation rather than economic productivity. He called for funds to protect homeowners from foreclosure and to stabilize local governments and urged a 21st Century regulation of the financial system. John McCain opposed federal intervention, saying the country should not bail out banks or homeowners who knowingly took financial risks.

By September 2008, McCain and Obama met with President George W. Bush and together they called for a $700 billion bailout of the banks, not the people. Obama and McCain issued a joint statement that called the bank bailout plan “flawed,” but said, “the effort to protect the American economy must not fail.” Obama expressed “outrage” at the “crisis,” which was “a direct result of the greed and irresponsibility that has dominated Washington and Wall Street for years.”

By October 2008, the Troubled Asset Relief Program (TARP), or bank bailout, had recapitalized the banks, the Treasury had stabilized money market mutual funds and the FDIC had guaranteed the bank debts. The Federal Reserve began flowing money to banks, which would ultimately total almost twice the $16 trillion claimed in a federal audit. Researchers at the University of Missouri found that the Federal Reserve gave over $29 trillion to the banks. These are historically these are signs of a coming recession.

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

Peso Set To Disintegrate After IMF Tells Argentina To Stop Supporting Currency

On May 11, three days after Argentina secured a $50 Billion IMF bailout – the largest in the fund’s history – we jokingly noted that with the peso resuming its slide, an indication the market did not view the IMF backstop as credible, the ECB would need to get involved.


ARGENTINE PESO EXTENDS LOSS, HITS NEW ALL-TIME LOW AT 23.16/USD
Time to add ECB to IMF bailout


In retrospect, it now appears that this may not have been a joke, because with the Peso plummeting, and surpassing the Turkish Lira as the worst performing currency of 2018 having lost half its value YTD…

… with the bulk of the collapse taking place in August…

… Christone Lagarde had some very bad news for Buenos Aires and Argentina president Mauricio Macri: the IMF now insists that after burning through billions in central bank reserves, Argentina should stop using funds to support the peso, and float it freely.

According to Infobae, the Argentine foreign currency reserves have declined below the level demanded by the IMF, with Argentine authorities selling $2.5BN to support the peso in August; meanwhile the overall level of reserves has slumped even more, approaching the levels before the IMF bailout and failing to prop up the peso which, as shown below, has collapsed in a move reminiscent of what is taking place in hyperinflating Venezuela.

Worse, the Argentine Peso suffered its latest sharp drop in the days after the central bank unexpectedly hiked rates to 60% – the highest in the world – and another indication that the market is firmly convinced that not even the IMF backstop will force Argentina into a painful, and politically destabilizing structural program.

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

Turkey Rules Out Capital Controls As Germany Says IMF Bailout “Would Be Helpful”

During this morning’s conference call organized by Citi, HSBC and other banks with “thousands”  of investors, Turkey’s Treasury and Finance Minister Berat Albayrak – the Jared Kushner of Turkey  – eased nerves when in an attempt to bolster confidence, said that capital controls were ruled out as a policy option for Turkey. As a reminder, capital controls are widely seen as the “worst case scenario” for Turkey as they could precipitate “self-fulfilling contagion”, and lead to broader capital flight from the EM space.

Albayrak also said that reining in inflation and narrowing the current-account deficit were policy priorities, although he provided no details on how we would do that absent raising interest rates – an outcome that Erdogan has decried as unlikely – with both an IMF bailout and capital controls off the table.

Discussing Turkey’s runaway inflation, Albayrak said the central bank alone wouldn’t be able to rein it in without tighter fiscal policy, although he has yet to provide any details on what options are on the table. In the meantime, GDP is set to slow further in the medium term from 7.4% expansion last year.

Still, after losing as much as a quarter of its value in the past few weeks after the U.S. sanctioned members of President Recep Tayyip Erdogan’s government, it continued to recover losses both before and after this morning conference call, rising to the highest level since last Friday, after Turkey cracked down on short sellers. Albayrak’s speech appears to have been successful, and the lira gained trading 4.0% stronger at 5.70 per dollar.

Meanwhile, as Albayrak was hoping to preserve some stability, a German government source told Reuters on Thursday that “the Federal Government believes that an IMF program could help Turkey.

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

We’re Gonna Need A Bigger Bailout – Argentine Peso Plummets To New Record Low

The Argentine Peso collapsed again today – plummeting below last week’s record low to 29/USD.

Desk chatter suggests that no one turned up this morning as the central bank announced it would increase its daily spot auctions to USD150mn on Thursday and Friday.

Despite continued efforts by the BCRA to sell USD on behalf of the Treasury, this intervention is unlikely to revert the trend, as Citi notes that the central bank has been left with a weak balance sheet to fight-off a speculative attack.

Argentine bank stocks are also plummeting…

Critically, as Daniel Lacalle recently wrote, the recent collapse of the Argentine Peso and other emerging currencies is more than a warning sign.

It could be the arrival of a “sudden stop”. As I explain in Escape from the Central Bank Trap (BEP, 2017), a sudden stop happens when the extraordinary and excessive flow of cheap US dollars into emerging markets suddenly reverses and funds return to the U.S. looking for safer assets. The central bank “carry trade” of low interest rates and abundant liquidity was used to buy “growth” and “inflation-linked” assets in emerging markets. As the evidence of a global slowdown adds to the rising rates in the U.S. and the Fed’s QT (quantitative tightening), emerging markets lose the tsunami of inflows and face massive outflows, because the bubble period was not used to strengthen those countries’ economies, but to perpetuate their imbalances.

The Argentine Peso, at the close of this article, lost 17% annualized is one of the most devalued currencies in 2018. More than the Lira of Turkey or the Ruble of Russia.

What explains this drop?

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

Argentina Peso Plunges To New Record Low

Last night, Argentina got 50 billion pieces of good news, when the IMF agreed to provide the troubled Latin American nation with a $50BN standby loan, the largest even in IMF history. It also got some bad news, when the central bank announced it would remove the 25/USD barrier it had imposed in early May to prevent an escalating currency crisis.

Well, this morning, contrary to expectations that the Argentina Peso would rise on the IMF loan, ARS resumed its selloff, and promptly breached the central bank’s 25/USD barrier, and plunging 2.3% to 25.55 .

The breach of the barrier shows that confused traders are seeking to find the “fair value” of the ARS after almost a month of living with a virtual cap. The move is also surprising as it contrasts with the positive impact from the IMF deal seen in sovereign bonds market, with Argentina’s century bond’s due 2117 dropping modestly by 18bps, to 8.02%

Meanwhile, there is the political blowback to consider: as Bloomberg notes, after the kneejerk reaction and market stabilization at a new level – assuming there is one – traders will start watching the steps govt will make to achieve the new fiscal targets as Argentina is well known for protests, and the latest round of IMF austerity in the form of cuts in jobs and government spending is unlikely to be achieved peacefully.

Meanwhile, as Bloomberg’s Sebastian Boyd writes, “given the pace of inflation, the peso needs to weaken just to maintain the real exchange rate, and arguably it should fall more than that. But today is going to be interesting. It looks as if the market wants to test the bank’s resolve again.”

As we reported yesterday, Argentina will seek a fiscal deficit/GDP of 2.7% this year and 1.3% in 2019; below the previous targets were 3.2% and 2.2%, respectively; the country is expected to balance its budget in 2020.

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

Argentina Bailed Out With Biggest Ever Loan In IMF History

Just a few weeks after Argentina became ground zero for the coming Emerging Market crisis, when its currency suddenly collapsed at the end of April amid soaring inflation, exploding capital outflows and a central bank that was far behind the curve (as in “13% of rate hikes in a week” behind)…

… the IMF has officially bailed out the country – again – this time with a $50 billion, 36-month stand-by loan, and coming in about $10 billion more than rumored earlier in the week, it was the largest ever bailout loan in IMF history, meant to help restore investor confidence in a nation that, between its soaring external debt and current account deficit, prompted JPMorgan to suggest that along with Turkey, Argentina is in effect, doomed.

As the JPM chart below shows, the country’s total budget deficit, which includes interest payments on debt, was 6.5% of GDP last year, much of reflecting a debt binge of about $100 billion over the last two and a half years. The primary fiscal deficit in 2017 was 3.9%.

The loan will have a minimum interest rate of 1.96% rising as high as 4.96%.

“We are convinced that we’re on the right path, that we’ve avoided a crisis,” Finance Minister Nicolás Dujovne said at a press conference in Buenos Aires. “This is aimed at building a normal economy.”

Dujovne said that about $15 billion from the credit line would be immediately available to Argentina after the package is approved by the IMF’s board, which is expected on June 20. The rest would be dispersed as needed as Argentina meets its targets.

Shortly after the news the loan was finalized, Dujovne made some additional, more bizarre comments, saying that “the amount we received is 11 times Argentina’s quota, which reflects the international community´s support of Argentina,” almost as if he was proud at just how insolvent his country “suddenly” become.

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

Olduvai IV: Courage
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