Individual investors have a unique opportunity now to buy sewer bonds – yup, that’s where they belong – issued by a bankrupt county to pay off holders of defaulted sewer bonds who’ll get a fashionable haircut as part of the deal – a deal made in bond-bubble heaven.
Entries in Debtor Nation (88)
In this episode of the Keiser Report, Max Keiser and Stacy Herbert slam the politics of debt. “Economics of Suicide” they call it. I’m in the second half. As always, high-octane, pungent, and funny! Warning: risk of whiplash.
By Michael Lombardi, Profit Confidential: Cities like Detroit tell their bondholders, “Sorry, we can’t pay you.” Budget deficits were out of control, they reached the breaking point, they filed for bankruptcy. Troubles of municipalities and cities are marching forward with full force.
By James Murray: Crows are considered the most intelligent birds. They can count to three. Anything over three is "many" to a crow. Humans are basically the same way. At some point, numbers get so big that they just become "many."
By Dennis Miller: In 2007, US Comptroller General David Walker pointed out on 60 Minutes that the US is suffering from a fiscal cancer. But politicians were unwilling to address it. Wall Street called him "Chicken Little." The national debt was $8.9 trillion. Now, it’s $17 trillion. And the cancer has metastasized to cities and states.
The US has abused its three phenomenal privileges – including the control of the only world currency – to put global financial stability at risk, “like a truck full of dynamite heading right toward us,” said the chairman of the International Advisory Board of the Universal Credit Rating Group. But a “new financial order” is forming. And there's a timeframe.
By David Stockman (Remarks at the Edmond Safra Center for Ethics, Harvard University): “The Federal budget has become a doomsday machine because the processes of fiscal governance are paralyzed and broken,” Stockman writes. “Under these conditions what remains of our free enterprise economy will buckle under the weight of taxes and crisis.”
That's the question for Treasury Secretary Lew and Fed Chairman Bernanke during the debt-ceiling charade; it seems they’re boxed into a contradictory situation where one of them will have to break one of the laws, whether they want to or not, writes Vincent Reinhart, managing director at Morgan Stanley and former head of the Fed’s monetary division.
Wall Street Brushes Off Debt-Ceiling, Republicans Beg To Differ, But Default Would be “Catastrophic,” And Nothing Is Priced In
Wall Street is convinced the government shutdown won’t hurt unless it drags out too long. It’s even more convinced that Congress would never be crazy enough to refuse to raise the debt ceiling in time and send the mighty and sole superpower, biggest debtor of all times, into default. That risk hasn’t been priced in. But a majority of Republicans begs to differ.
“This sort of political brinkmanship is the dominant reason the rating is no longer ‘AAA,’” S&P ratings agency wrote in a research note. More ominously, it warned that if Congress failed to pass a debt-ceiling hike before the out-of-money date in mid-October, it would cut the U.S. to “selective default.” And then there would be the post-default era.
By Michael Lombardi, Profit Confidential: I want to share a chart. It compares the S&P 500 to the number of Americans on food stamps since the “recovery” began. They are on the same skyrocketing trajectory! In fact, since late 2009, for every one-percent increase in food stamps usage, the S&P 500 increased two percent! This is very troublesome.
With Q3 GDP growth tracking 1.6%, Wall Street strategists, whose bullishness has been deafening despite realities on the ground, are starting to hedge their bets with some unusually candid analyses. Seeing overvalued assets everywhere, they’re struggling to point at solutions, other than a crash. And they predict a sour future for stocks and bonds.
Verizon will unleash a tsunami of money on Wall Street. To pay for its $130 billion acquisition of Vodafone’s share of Verizon Wireless, it will print $60 billion of its own inflated stock. It will borrow the rest – much of it via the largest bond sale in history, though it's drowning in debt. Now that sale is slamming the already deflating bond bubble.
Bonds Bleed: Largest Bubble In History Unwinds, But The “Great Rotation” Into Stocks Is Deceptive Wall Street Hype
The bond-fund massacre is spectacular. Antsy investors yanked $7.7 billion in August out of the world's largest bond fund, Pimco’s Total Return Fund. In July, they’d yanked out $7.5 billion, in June $14.5 billion. From May 1 through August 31, the fund’s assets shriveled 14%. Other bond funds got hit too. And September is shaping up to be even worse.
By Michael Lombardi, MBA for Profit Confidential: Treasury Secretary, Jacob Lew, wrote Congress that it should extend the debt ceiling “well before any risk of default becomes imminent.” Will Congress raise the debt ceiling again? Since 1960, it has raised it 49 times under Republican presidents and 29 times under Democratic presidents.
By Michael Lombardi, Profit Confidential: Detroit had no other options than to file for bankruptcy. Cities in California or Jefferson County, Alabama, have done the same for similar reasons: a budget deficit year-after-year as revenues declined and costs rose – especially pension costs. Bondholders got crushed. Now more cities are headed that way, including some BIG ones.
By Bud Conrad, Chief Economist, Casey Research: Foreigners recycling their trade surpluses with the US have been an important buyer of US government debt. But that buying collapsed during the financial crisis. Now, worried foreigners are once again bailing out. So far, the Fed is picking up the slack. But what if the Fed were to “taper” those purchases?
“We welcome the ruling party’s victory,” announced Hiromasa Yonekura, chairman of Sumitomo Chemical, and chairman of the Japan Business Federation, the country’s largest business lobby. He is one of the faces of Japan Inc. He’d been handed a gift: the ruling coalition controls both houses of parliament and will push Abenomics deep into the system.
Contributed by John Mauldin, Mauldin Economics: In bond markets around the world, governments are winning, and investors are losing. The Fed is helping the Treasury to borrow cheaply while the government expands its deficit spending and debt accumulation. Using inflation and low bond yields to reduce government debt is called financial repression.
“We’ve intentionally blown the biggest government bond bubble in history,” confessed Andy Haldane, Director of Financial Stability at the Bank of England. The bursting of that bubble was a risk he felt “acutely.” He saw “a disorderly reversion” as the “biggest risk to global financial stability.” Seatbelts are being fastened; the clicks can be heard around the world.