Hunter Biden Ordered To Produce Five Years Of Financial Records; Baby-Mama Must Disclose Stripper Tips
Hunter Biden has been ordered by an Arkansas judge to produce five years of financial records in his paternity case – a period which includes the majority of his time on the board of Ukrainian gas giant Burisma, which paid Biden’s firm over $80,000 per month.
Hunter’s baby-mama, stripper Lunden Roberts, will also have to disclose how much she made in tips at a DC strip club where the two met, according to the Daily Mail – reporting on location in Batesville, Arkansas.
Originally Judge Don McSpadden, who is presiding over the court in Batesville, Arkansas, had only asked for three years’ records.
But now he says he needs five years of records before making a decision on how much the former vice-president’s son should pay to support his child.
On Tuesday, McSpadden sent out a blunt letter to attorneys in the case — including the one that Biden fired minutes before a hearing on Monday. –Daily Mail
Roberts is asking for $11,000 in legal fees as well as child support for their child – who she has argued qualifies for Secret Service protection as the grandchild of former Vice President and 2020 candidate Joe Biden.
“Baby Doe’s paternal grandfather, Joe Biden, is seeking the nomination of the Democratic Party for President of the United States of America. He is considered by some to be the person most likely to win his party’s nomination and challenge President Trump on the ballet in 2020,” reads a filing by Roberts. “The members of the Biden family either are protected or eligible to be protected by the United States Secret Service as a direct result of Joe Biden’s political status.”
“Baby Doe’s paternity could put the child and those close to the child at risk of harm for the same reasons the Biden family is protected by the United States Secret Service.”
The 49-year-old Biden and 28-year-old Roberts were given 10 days to produce their financial records, though they will be sealed from the public.
Roberts, a resident of Southside, Arkansas, has already provided one set of records, but Judge McSpadden says he wants more.
“I have viewed Ms Roberts affidavit of financial means online and saw that she is employed at a family business probably for a salary of less than minimum wage,” he wrote. “Therefore for now I want the affidavit of financial means and supporting documents to cover the last five years. This would include monies received from any source for both parties whether it be support of any kind, gifts or salary, which would include bonuses, tips or gratuities.”
The court in Batesville, Arkansas, is expected to decide all matters in the case at the next hearing, expected for January 7, McSpadden told Roberts’s lawyer Clint Lancaster and former Arkansas attorney general Dustin McDaniel, who had been representing Biden.
The judge made it clear he wants the case over quickly. ‘I do not want to have this [drag] out nor do I want to have to drag out the monies these individuals may have received in any form or fashion.
‘I anticipate paternity as well as custody, support and visitation being established at our next hearing,’ he wrote.
He added: ‘I will do what I believe is in the best interest of the child.‘ The sex of the child has not been released.
‘This matter has been filed in this court. Again, my major and main if not only concern is this child,’ McSpadden added. ‘Issues are no longer up to the parties.
‘I am going to treat this case like any other paternity case that comes before the court. Hopefully the parties will see fit to look out for the interest of this child.’ –Daily Mail
Biden’s appointment to the board of Burisma while his father was overseeing Ukraine policy for the Obama administration is at the heart of current impeachment proceedings against President Trump – who has been accused of interfering in the upcoming election for asking Ukraine to investigate the matter.
Last week, the Washington Post‘s editorial board came out against sanctuary cities. No, not the kind of sanctuary cities that refuse to enforce federal immigration law. The Post‘s editors have no problem with that. Instead, the Post came out against the efforts by some local governments to oppose state- and federal-level enforcement of restrictions on gun ownership.
The Post didn’t go easy on these efforts either. The editorial likened the gun-owner sanctuary efforts to “vigilantism” and “frontier justice,” with the obvious implication being these people are one step away from organizing lynch mobs. Moreover, we’re told the movement is “nonsense fanned by mischief-makers with an agenda,” and will lead to “chaos.”
Recognizing the obvious double standard the Post is proposing for immigrant sanctuaries and gun-owner sanctuaries, the authors try to explain it all away:
The distinction between the two sanctuaries is basic. Localities that have passed resolutions declaring themselves Second Amendment sanctuary jurisdictions are threatening to ignore laws enacted by duly elected state legislatures and signed by governors. Immigration-focused sanctuary localities are breaking no law; rather, they are refusing purely voluntary cooperation in service to federal law enforcement.
It’s pretty hard to split this hair any finer. The Post‘s distinction here seems to be that local nullification of federal law is acceptable, but local nullification of state law is not.
Of course, whether or not local governments are breaking a law depends on each state’s constitution and the nature of “home rule” in each state. Indeed, in California, Judge James Crandall, appointed by Democratic Gov. Jerry Brown, ruled against California’s law mandating local enforcement of immigration law. Crandall argued the law was “an unconstitutional invasion into the rights of the city.” He also said “the operation of a police department and its jail is a city affair. For the state to say one size fits all for policing isn’t going to fit everybody.” This state law was enacted — to use the words of the Post editors — “by duly elected state legislatures.”
Does the Post agree or disagree with the judge’s logic? If the Post’s editors disagree, then on what grounds to they justify support for local governments that ignore state laws mandating compliance with immigration enforcement? If the editors agree with the ruling, then on what grounds do they deny a local government’s freedom to enforce gun laws as they wish?
Several states, including Florida, have adopted laws that prohibit sanctuary cities. According to this source, at least one local government in Florida has declared itself a sanctuary for illegal immigrants. Shall we expect an editorial from the Post denouncing this flouting of state laws? That seems unlikely.
Moreover, since the Post is now coming out in favor of state and local indifference toward federal law, will the Post‘s editors be throwing their support behind state-level efforts to nullify federal Obamacare laws or federal gun laws?
Obviously, that’s not going to happen, and we should not expect any consistency on this from the Post. To anyone who is paying attention, it is clear the Post truly has a double standard here, and has been casting about for ways to justify support for one type of local nullification, while opposing a different kind.
What the Post should have done was just come out and state what is likely the editorial board’s real position: namely that restrictions on gun ownership are good, and restrictions on immigration are bad.
The conclusion: it is moral to ignore laws restricting immigration. But it is immoral to ignore laws restricting gun ownership.
Although this position on guns is certainly wrong, the Post‘s editors could at least have been respected for saying what they really meant. Instead, they fall back on a disingenuous claim that they support the law, and that anything else is “chaos.”
This ersatz conservatism was no doubt an attempt to appeal to people who fancy themselves as “reasonable” or “moderate.” Indeed many of these sorts of people continue to support the War on Drugs with nonsense about how we’re all obliged to follow clearly unconstitutional federal drug laws until those laws are changed. Nonetheless,the Post‘s approach is inherently dishonest and double-dealing.
A truly consistent position is to let states and locals decide for themselves on all of these issues.
If California establishes — yet again — that states can ignore and even inhibit federal arrests and prosecutions in the states, then it becomes all the easier for other states to refuse to enforce federal gun laws, federal drug laws, Obamacare, or federal mandates that states provide welfare programs and “free” taxpayer-funded services to non-citizens.
The only tool the federal government should have in these cases is to cut off funding. This is a very powerful tool, mind you, but it is also hardly a given that every state would face disaster if facing a cut in federal spending. Nor is this a one-way street. for political reasons, the federal government wants to spend money in the states just as much as the states want to receive it.
We should take this even further, of course, and support broad “home rule” powers for individual cities and counties, so they can decide for themselves what state laws to enforce, and which to nullify. Only by decentralizing and localizing political power can we hope to have laws that actually reflect to a reasonable extent the values of the local population. Radical decentralization also makes it easier for those who disagree with these policies to escape them through physical relocation. The alternative is more of what we already have: both state and federal governments impose the will of the majority in the legislature on the minority. Often, this is a near fifty-fifty split, yet we’re suppose to believe, for example, that all 39 million Californians in a place larger than Britain are obliged to follow state laws because, say, 51 percent of the population supports those policies. And if you’re in the minority? Tough luck, forever. Oh, and you’ll have to move hundreds of miles away to live under different laws.
If the Post really supported democracy, it would want more of it. That is, it would want more legislative bodies — whether city councils, county commissions or state legislatures — to decide matters for themselves. And that includes laws covering guns.
Blocking SWIFT Access Would Be “Declaration Of War”: Russia Warns Against US ‘Nuclear Option’
Last year during the height of controversy over the Kerch Strait incident, while two dozen Ukrainian sailors were still being held by Russia, Washington’s special envoy to Ukraine at the time, Kurt Volker, floated the possibility of Washington blocking Russian banks from SWIFT. He told Voice of Americaat the time that it was considered “a nuclear option” and it would have huge costs which would even inadvertently impact US allies.
“People refer to it as a nuclear option. It would have costs for everybody involved,” he said. “Big costs for Russia, but big costs for allies as well. Ultimately, we have to keep it on the table as a possibility because we just can’t continue to see Russia launch further steps of aggression in its neighborhood like this.”
No doubt it’s still in Washington’s playbook as a ‘nuclear option’ long after the Kerch Strait incident was diffused with an historic prisoner swap, and the Kremlin has taken note.
Russia’s Central Bank, via Wiki Commons.
On Thursday Prime Minister Dmitry Medvedev took Washington to task over the prior warning, telling reporters that Moscow is well aware of discussions to take sanctions further, even cutting off the country’s access to some 11,000 banks and financial institutions in over 200 countries by blocking SWIFT. This is exactly what the Trump White House did vis-à-vis Iran months after it pulled out of the 2015 JCPOA.
Medvedev said such far-reaching action would be tantamount to a declaration of war. According to statements reported in Russian media:
Speaking to reporters on Thursday, Medvedev recalled the West once seriously considered the option, and Moscow is aware of it.
“This would in fact be a declaration of war, but nevertheless it was discussed,” the Russian prime minister said, adding that this is one of the reasons why the government is looking into ways to protect the Russian part of the internet.
Though unlikely barring further major escalation between the US and Russia, the possibility is so much on the Kremlin’s radar because it was also threatened in 2015 at the height of tensions over the war in eastern Ukraine.
At that time, citing threatened financial sanctions “from the West” — specifically impacting access to the prime global interbank system, Medvedev let it be known that Russia’s response would be “without limits”.
“We’ll watch developments and if such decisions are made, I want to note that our economic reaction and generally any other reaction will be without limits,” he said in those prior comments. Indeed the unforeseen consequences of such a major global power (and energy provider to much of Europe and now even China) being suddenly isolated to that extent along with its fierce reaction, would likely create a global financial Armageddon and uncontrollable ripple effect.
Meanwhile Russia has over the past months flirted with the possibility of joining INSTEX — the special purpose vehicle set up by Europe to facilitate trade with Iran — and has thrown its political weight behind the project as it gains momentum with more EU countries joining in the past days.
A report issued on Dec. 4 by the Financial Stability Oversight Council (FSOC) highlighted potential problems resulting from stablecoins gaining wider recognition.
The FSOC was set up in 2008 to combat risks to the financial sector after the financial crisis. The panel is headed by United States Secretary of the Treasury Steven Mnuchin. Its voting members include Jay Clayton, the chairman of the Securities and Exchange Commission (SEC), as well as Heath Tarbert, who recently took over as chairman of the Commodity Futures Trading Commission (CFTC).
FSOC: stablecoins “could affect wider economy”
In its annual report for 2019, the regulators stated:
“If a stablecoin became widely adopted as a means of payment or store of value, disruptions to the stablecoin system could affect the wider economy. Financial regulators should review existing and planned digital asset arrangements and their risks, as appropriate.”
The FSOC additionally mentioned Bitcoin (BTC) and other cryptocurrencies as part of its coverage. It appeared unable to draw concrete conclusions about the phenomenon, acknowledging that trading data was “sparse and may be unreliable.”
The panel also expressed doubts over so-called distributed ledger technology (DLT) — a byword for digital currency projects notionally related to blockchain.
“The ultimate success of the technology, including applications in the financial sector, is not yet certain,” the report stated. The FSOC continued:
“Some early efforts have not resulted in the anticipated efficiency gains and other promised benefits, and as a result, have been scaled back, refocused, or abandoned.”
Cryptocurrency suspicions continue
As Cointelegraph reported, Mnuchin has been vocal as a critic of Bitcoin, alluding that the seminal cryptocurrency is likely a passing fad. In a July interview he said:
“I won’t be talking about Bitcoin in 10 years, I can assure you that […] I would bet even in 5 or 6 years I’m no longer talking about Bitcoin as Treasury Secretary. I’ll have other priorities […] I can assure you I will personally not be loaded up on Bitcoin.”
U.S. lawmakers continue to focus on the perceived risks stemming from the cryptocurrency sector, including associated schemes such as Facebook’s unlaunched Libra digital currency.
Pelosi Snaps At Being Accused Of Hating “Cruel, Coward, Rogue” President Trump
Update (1150ET): It did not take long for President Trump to respond to Pelosi’s outburst…
Nancy Pelosi just had a nervous fit. She hates that we will soon have 182 great new judges and sooo much more. Stock Market and employment records. She says she “prays for the President.” I don’t believe her, not even close. Help the homeless in your district Nancy. USMCA?
As we detailed earlier, having accused President Trump of “abuse of power” and calling for the House to draft articles of impeachment for “using the office of the President for personal gain,” pointing out that The Founders “could not have foreseen such a rogue president;” and then calling the president a “coward” for not helping kids on gun violence, blasting him as “cruel” for not helping DREAMers, and slamming him for being “in denial” over climate change; a reporter at Speaker Pelosi’s weekly press conference dared to ask if she “hated” President Trump.
Pelosi snapped…
“I don’t hate anybody. I was raised in a Catholic house, we don’t hate anybody – not anybody in the world. So don’t you accuse me of any [hate],” Pelosi said during her weekly press briefing in the Capitol.
“As a Catholic I resent you using the word ‘hate,'” she continued.
“Don’t mess with me when it comes to words like that.”
Watch the full clip here as The Speaker lost it…
Q: “Do you hate the president?”@SpeakerPelosi: “I don’t hate anybody…As a Catholic, I resent your using the word hate in a sentence that addresses me. I don’t hate anyone…So, don’t mess with me when it comes to words like that.”
By all accounts, credit markets remain on fire. 2019 is already a record year for corporate bond issuance, beating the previous record set in 2017 by a sizable margin. Demand for the debt of governments and government-related issuers remains extremely strong as well, despite non-existent and often even negative issuance yields. Even now, with economic activity clearly slowing and numerous threats to the post-GFC recovery looming on the horizon, the occasional rise in credit spreads is routinely reversed. And yet, under the placid surface problems are beginning to percolate. Consider exhibit A:
The chart shows option-adjusted credit spreads on three rating categories – while spreads on ‘BB’ rated (best junk bond grade) and ‘BBB’ rated (weakest investment grade) bonds remain close to their lows, spreads on ‘CCC’ rated bonds continue to break higher – considerably so. An increase by 473 basis points from their late 2018 low indicates there is quite a bit of concern.
It is actually rare for credit spreads on these rating classes to drift apart to such a significant extent at a time when spreads on better-rated bonds are still close to their lows. Normally the exact opposite happens – when spreads are tightening, they also tend to tighten between the different rating classes – only when spreads are widening across the board will spreads on lower rated bonds display a tendency to widen to more rapidly than those on better-rated ones.
This bifurcation is actually a subtle warning indicating that the credit cycle may finally be coming to its end. It is “subtle” in the sense that it is generally not yet perceived as a sign that trouble is brewing – rather, it is dismissed as a sign that bond buyers have become slightly more selective (a good thing). In view of a record year for corporate bond issuance it is probably not surprising that concern remains muted.
To be sure, high yield defaults remain very low – and while they are forecast to increase, a major surge in defaults is currently not expected. However, these superficially placid conditions are masking growing turmoil – as so often, the devil is in the details. Consider the following data point released by S&P in mid October:
According to S&P the number of “weakest links” is at a level last seen in November of 2009, when the speculative-grade default rate stood at 10.5%. This is an astonishing datum, to say the least.
Weakest links are defined as issuers rated ‘B–’ or lower by S&P Global Ratings with negative outlooks or ratings on credit watch with negative implications. As S&P helpfully explains:
“The default rate of weakest links is nearly eight times greater than that of the broader speculative-grade segment, and the rise in the weakest links tally may signify higher default rates ahead.”
Readers may be surprised to learn that contrary to 2015-2016, oil and gas companies are not leading the pack – consumer products companies are (52 issuers or ~20%). Energy companies are in second place, representing around 10% of the total, followed closely by media companies and restaurant chains.
All of these sectors are held to be under pressure due to industry-specific problems, but that doesn’t change the fact that a great many companies have obviously over-leveraged their balance sheets. The growth in “weakest links” in the strongest developed economy is testament to the proliferation of zombies central bank policies have created in recent years.
S&P nevertheless expects the US junk bond default rate to reach a mere 3.4% over the coming year, which is actually still a fairly benign number. Presumably this is not factoring in the possibility of a recession. It seems to us there is a substantial risk that this forecast will be subject to upward revisions as time goes on.
Leveraged Loans, Private Equity and Banks
In recent years enormous amounts have poured into private equity and venture capital funds. Not surprisingly, the rising popularity of unlisted alternative investments (read: illiquid investments) has made it more difficult for them to deliver the large returns that initially attracted investors. Leveraged loans play an important role in private equity buyouts – but recently the situation in leveraged loan land has deteriorated noticeably. Here is a brief summary from Almost Daily Grant’s, a publication of Grant’s Interest Rate Observer:
“Signs of trouble abound. According to S&P’s LCD unit, 282 issuers within the S&P/LSTA Index suffered a rating downgrade in the year-to-date through Oct. 11, up from 244 for all of last year and just 33 in 2017. That has pushed the proportion of leveraged loans rated triple-C (“In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitments on the obligation.”) to 7.5% of loans outstanding at the end of September, according to S&P. That’s the highest level since 2013 and up from 6.3% in June. Needless to say, the increasing prominence of private equity in tandem with a cyclical credit deterioration presents a delicate backdrop.”
The ratio of loan downgrades to upgrades has soared
The growth in private equity (PE) AUM has increased buyouts of listed companies and pushed up the prices at which they are done (the result of too much money chasing deals), but now the strategy is running into a problem: monetizing these investments has become increasingly difficult. Fewer and fewer deals are making it to the IPO stage, which is – apart from saddling the targets with debt so they can make large dividend payments – the main goal of PE investments.
The percentage of distressed leveraged loans is on a strong upswing as well – note that the high levels in 2016 coincided with a raft of bankruptcies in the energy sector in the wake of the 2014-2016 oil price collapse.
As noted above, leveraged loans have become a favored form of debt in PE buyouts, and lately a number of deals either did not get done at all, or only after major concessions were made. This makes it more difficult to bear the debt and lowers the prospective returns of PE investments. Grant’s again:
“Higher price tags figure prominently in the downshift in return expectations. S&P’s LCD unit reports that the average U.S. leveraged buyout carried a purchase price equivalent to 12.9 times Ebitda in the third quarter to bring the year-to-date average to 11.5 times. That’s up from 10.6 times Ebitda last year and 9.7 times in 2007. But, the actual valuation expansion might be far higher, as a Sept. 19 report from S&P Global found that so-called add-backs (i.e. applying hypothetical future cost-savings today) represented 49% of reported Ebitda at deal inception.
Those increasingly fancy valuations (along with abundant use of thefinancials-flattering add-backs) coincide with rising debt burdens. A Nov. 21 research note from Morgan Stanley found that 57% of companies which have undergone an LBO carry net leverage above six times Ebitda. That’s up from 51% in 2007. With rising encumbrance comes an increased risk of impairment, as a survey of p.e. lenders from research firm Credit Benchmark suggests a 6% default probability for leveraged loans issued by private equity-owned firms, up from 5.44% a year ago and well above the 2.36% default likelihood of leveraged loans from their publicly-traded counterparts.
Meanwhile, the blistering rally in asset prices this year has provided little support for the ranks of leveraged loan issuers, with cash flow coverage falling to 3.1 times interest expense in the third quarter according to LCD, down from 3.6 times at year-end 2018 and the weakest coverage since at least the third quarter of 2016.”
There may be a period of regret on the way for investors in private equity. However, the risks posed by leveraged loans are more broadly distributed. In fact, they are systemic.
Leveraged loan data from the BIS, published mid-year – leveraged loans are packaged in CLOs, which attract a broad range of investors due to the yield pick-up they offer. The more capital has rushed into this segment over the years, the more debt covenants and debt coverage have deteriorated.
Leveraged loans are not only important for the PE business, they are also sold to various institutional investors packaged as CLOs (collateralized debt obligations). The banks that create these CLOs in turn are themselves major holders of leveraged loans and CLO tranches. Typically banks will hold the senior tranches, which are the least risky – but we would point out that many “AAA” rated senior tranches of CDOs and CMOs ultimately failed to protect investors when the housing bubble faltered in 2007-2008.
After all, the high ratings of the senior tranches of CLOs and similar structured products are not based on the ratings of the underlying loans, but on overcollateralization and the seniority feature. In 2007-2008 neither of them was sufficient. As a financial stability report published by the BoE informs us:
“Banks originate leveraged loans, a large share of which they distribute to non-bank investors including to collateralised loan obligations (CLOs) for securitisation. In total, banks retain exposures to over half of the leveraged loan market through loans that they have originated but not yet distributed (‘pipeline exposures’), loans they choose to retainon their balance sheets and CLO holdings.
The share of new leveraged loan issuance with no maintenance covenants has more than tripled since 2007, and remains close to record highs globally at almost 60% in 2019.Other traditional investor protections in loan terms have also been relaxed (such as restrictions on borrowers’ ability to transfer collateral beyond the reach of the lender), potentially increasing losses to lenders in the event of default. Borrowers are also increasingly indebted globally, with the average reported debt to EBITDA ratio of the borrowers issuing new leveraged loans around levels observed in 2007. There has been growing use of adjustments (‘add-backs’) to how earnings are calculated at the point a loan is made, which could further understate leverage. Add-backs and subsequent borrowing are typically not captured in public measures of leverage and if included leverage is likely to be above 2007 levels. For example, PRA supervisory data indicate that the share of new lending with leverage above seven times would increase from 18% to 28% if these were included.
Banks’ loan book exposures are mainly through revolving credit facilities (effectively overdrafts) and, to a lesser extent, holdings of term loans. Together they account for around 47% of the total leveraged loan market. Banks’ exposures through holdings of typically senior tranches of CLOs account for around 9% of the total leveraged loan market.
Many banks also have indirect exposures via facilities to credit and private equity funds which invest in leveraged businesses. Some banks also offer warehousing facilities, which are loans to CLO managers to finance the setting up of their CLOs.
Total direct and indirect exposures for some international banks active in this market are significant. For a sample of global systemically important banks (G-SIBs) active in this market, their exposure is on average around 75% of common equity Tier 1 (CET1) capital. Banks could face the risk of credit and mark-to-market losses on these exposures.”
(emphasis added)
Exposure of 75% of CET-1 capital is not exactly chickenfeed. Any significant deterioration in leveraged loans will force banks to get rid of some of their exposure in order to remain in compliance with the strict post-GFC Basel III capital adequacy requirements. This would put greater pressure on prices, forcing even more deleveraging.
Leveraged loan exposure of several systemically important banks – as a percentage of their total credit exposure as well as of their tangible net asset value
Below are a few more charts illustrating the growing risks in leveraged loans. The first one depicts the recent deterioration in leveraged loan prices in a more granular manner. It also includes the effect of the slump in the oil patch from 2014 to 2016 in full:
Percentage of leveraged loans priced below 90 and below 80. The recent rise is reminiscent of the beginning of the 2014-2016 mini-crisis
The next chart is from the BoE and shows that the proportion of corporate borrowers with a net debt/EBITDA ratio in excess of 4 has increased to levels last seen in 2007. Keep in mind that this does not reflect the above mentioned “add-back” effects, which lead to lower ratios being reported on the basis of estimated or planned future improvements (i.e., imaginary figures). The BoE report this chart was taken from was published in mid-year so it is reasonable to assume that the situation has worsened further since then.
Net debt/EBITDA essentially indicates how many years it would take to pay back a company’s debt based on its current debt levels and income. Note that the chart includes only listed non-financial companies and does not include real estate, energy and mining companies. If the latter were included, the figures would look worse.
The next chart shows the distribution of leveraged loans by rating classes and how many loans have found their way into CLOs. The largest share is taken up by loans rated ‘B’.
Leveraged loans by rating classes and how many are packaged in CLOs
And lastly, we have noticed that despite the fact that leveraged loan investors are generally considered to be quite sophisticated, such loans are in practice often re-priced quite suddenly – which is to say, investors were surprised by adverse developments befalling the borrowers. Two such re-pricing events are shown below, one of a Clover term loan and a more recent one of a Party City term loan due in 2022 that was only issued last year (Party City conducted aggressive share repurchases and was reportedly also quite adept at the EBITDA add-back game).
Leveraged loans falling prey to sudden re-pricing
Conclusion
To sum up, there are growing signs of distress in certain forms of high-yield debt. As long as default rates remain low, this is not perceived as a big problem, not least in view of the fact that the market recovered quite smartly from the 2014-2016 downturn. However, as we previously reported, a veritable wall of maturities is looming in high-yield debt in the years 2020-2024.
This means that many of the so-called “zombie” companies that can only survive by constantly refinancing their debt will depend on investors continuing to “chase yield” with abandon. The strong demand for new debt issuance seen this year will have to continue or become even stronger. Central banks across the world are once again pursuing looser monetary policy, which supports this process. Despite this, global liquidity conditions actually remain relatively tight so far, which implies that economic activity is likely to slow further. The probability that the party may be ending is clearly rising.
* * *
Addendum: CDOs in 2007 vs. CLOs in 2018
A table from the BIS that compares several features of CDOs in 2007 to CLOs in 2018:
This is probably not going to make anyone feel better about the risks posed by CLOs.
World’s Largest Commodity Trader Plummets To Three Year Low On Bribery Probe
Glencore Plc, the world’s largest commodity trader, tumbled almost 9% to a three year low and was briefly halted following news that it was being investigated for bribery by U.K. authorities, deepening the company’s long-running legal troubles.
The announcement by the UK’s Serious Fraud Office adds to separate corruption probes that Glencore is facing in the U.S. and Brazil, which have sent the company’s stock sliding in recent years. Without providing much detail, the SFO said it’s looking into suspicions of bribery by the company, its employees, agents and associated persons.
Glencore said it will cooperate with the probe, but didn’t provide any further details.
“This is an obvious negative for the Glencore investment case,” RBC analyst Tyler Broda wrote in a research note. “We believe this clearly will hamper sentiment in what remains a complex investment case for investors.” He also said that the language of the U.K.’s investigation, albeit with limited detail, suggests it could be wider in scope. That potentially raises the penalty, if Glencore is found guilty or reaches a settlement.
As Bloomberg adds, The new probe also ramps up pressure on Glencore’s billionaire Chief Executive Officer Ivan Glasenberg. He told investors earlier this week to prepare for more leadership changes and hinted that his own departure may come sooner than previously anticipated.
The investigation will be also be a major test for the U.K. prosecutor, which has stumbled with some cases. Three Tesco Plc officials caught up in an accounting scandal were cleared after a pair of trials and the agency has dropped some high-profile probes into individuals at companies including Rolls-Royce Plc and GlaxoSmithKline Plc.
For trading powerhouse Glencore, which in recent years has emerged as the commodity equivalent of Deutsche Bank which appears to have involvement in virtually every single financial crime committed over the past two decades, the investigations have raised fundamental questions about how the business of commodities trading is conducted around the world, according to Bloomberg, as its traders have traditionally been willing to do business in many of the world’s most impoverished and corrupt countries. And they have long relied on agents – even more corrupt intermediaries who work on commission – to help them secure deals.
Last year, Bloomberg reported that the agency was preparing to open an investigation into Glencore and its work with Israeli billionaire Dan Gertler and former Democratic Republic of Congo President Joseph Kabila. Gertler and Kabila have been implicated in previous British and American bribery investigations. The U.S. imposed sanctions on Gertler in 2017, saying he’d used his friendship with Kabila to corruptly build his fortune.
Gertler and Glencore first invested together in a Congolese mine in 2007 and developed a close partnership over the years in the Mutanda and Katanga Mining copper and cobalt operations. While Glencore has cut its business relations with Gertler, it still must pay him royalties for the mines.
Glencore is also being investigated by the U.S. DOJ and Brazilian authorities in the Car Wash scandal. The company has also been subpoenaed by the Justice Department for documents relating to possible corruption and money laundering in Nigeria, the Democratic Republic of Congo and Venezuela. The U.S. Commodity Futures Trading Commission is also investigating the company for possible corrupt practices.
In response to the DoJ investigation, which the company said it’s cooperating with, Glencore set up a board committee to respond to a U.S. probe, that included chairman and former BP Plc Chief Executive Officer Tony Hayward.
“It’s more of the same, but now it’s getting attacked from a different angle,” said Hunter Hillcoat, a London-based analyst at Investec Securities Ltd. “Glencore was already trading at a discount because of the DoJ, but when this news comes out it gets whacked again.”
Glencore has lost over 20% of its value in 2019, dramatically underperforming the trading giants in its peer group, BHP, Rio Tinto and Angelo American.
And how do we pay for these spiraling out of control costs? By borrowing more, of course.
If we had to choose one “big picture” reason why the vast majority of households are losing ground, it would be: the costs of essentials are spiraling out of control. I’ve often covered the dynamics of stagnating income for the bottom 90%, and real-world inflation, i.e. a decline in purchasing power.
But neither of these dynamics fully describes the relentless upward spiral of the cost basis of our economy, that is, the cost of big-ticket essentials: housing, education and healthcare.
The costs of education are spiraling out of control, stripping households of income as an entire generation is transformed into debt-serfs by student loan debt. The soaring costs of healthcare are a core driver of higher costs in the education complex (and government in general), and to cover these higher costs, counties raise property taxes, which add additional cost burdens to households and enterprises as rents rise.
Rising rents push the cost structure of almost every enterprise and agency higher.
Then there’s the asset inflation created by central bank ZIRP (zero interest rate policy) which has inflated a second echo-bubble in housing that has pushed home ownership out of reach of many, adding demand for rental housing that has pushed rents into the stratosphere in Left and Right Coast cities.
The increasing dominance of monopolies and cartels has eliminated competition in sector after sector. Monopolies and cartels skim immense profits even as the value, quality and quantity of their products and services decline: The U.S. Only Pretends to Have Free MarketsFrom plane tickets to cellphone bills, monopoly power costs American consumers billions of dollars a year.
Thanks to their political influence, monopolies and cartels have legalized looting, raising prices and evading anti-trust regulations because they can pay whatever it takes in our pay-to-play political system.
Let’s look at a few charts that illustrate the relentless rise in costs:
Do you reckon these two charts are connected–soaring costs and ballooning administrative payrolls?
Student loan debt is soaring above $1.5 trillion, guaranteeing profits to lenders and debt-serfdom to the students exiting with degrees that are in over-supply, i.e. possessing little scarcity value in an over-credentialed economy:
The echo housing bubbles in many locales exceed the nosebleed valuations of the previous bubble:
And how do we pay for these spiraling out of control costs? By borrowing more, of course:
Even at low rates of interest, the cost of servicing skyrocketing debt increases, leaving less net income to support additional borrowing.
What will it take to radically reduce the cost basis of our economy? A fundamental re-ordering that breaks up all the cartels and monopolies that push prices higher even as they deliver lower quality goods and services would be a good start.
France Paralyzed By Largest General Strike In Decades
In what appears to be the biggest disruption to French society since the gilets jaunes demonstrators nearly torched Paris last year, public workers across the country stayed home on Thursday, immobilizing public transit across the country as the first general strike in more than 20 years began.
The walkout was called by unions angry at President Emmanuel Macron’s pension reforms (not unlike how a planned – then scrapped – gas tax hike sparked the giles jaunes).
On the fist day of the strike, parts of Paris resembled a ghost town during what are typically busy morning-commute hours. Roads were empty, and train stations were deserted, according to the Times of London.
The biggest industrial action of Macron’s tenure is, so far, staggering in scale: 50% of French teachers are off work, nine out of ten trains were cancelled and eleven of the fourteen underground lines in Paris are closed. A total of 245 separate demonstrations have been announced across France as students, firefighters, healthcare workers and others joining in. Strikes at Air France forced a wave of flight cancellations, leaving thousands of travelers scrambling for a workaround. Air France cancelled 30% of its domestic flights and 10% of international short- and medium-haul flights on Thursday, RT reports.
Millions of workers are staying home.
In Paris, some resorted to bikes, skateboards or walking in the bitter cold as 90% of the trains in the country were closed.
Workers in Paris take to bikes, scooters and even skateboards to get to the office this mornin. And many more walking on a bitterly cold day. Big police presence at Gare Du Nord for protest later on Thursday. #grevedu5decembrepic.twitter.com/KsikwvchAv
Some joked that the strike had made Paris into a much more ‘eco-friendly’ city. Which is a great way of looking at the situation for thousands of progressives who have also joined in the climate action strikes.
Today #Paris is very quiet and ecological city (less cars and more bikes) due to the huge strike
The strike is expected to continue until Monday as the unions and Macron duke it out over the controversial pension reforms. Paris police are deploying 6,000 riot police to do battle with demonstrators who have decided to take their yellow vests out of the closet and back into action.
Huge police presence at Gare de l’Est in Paris where unions are congregating ahead of the march to Place de la Nation this afternoon. They fear a violent minority of extremists will try to hijack the demo. #grevedu5decembrepic.twitter.com/iIF4nchQ7O
Many of France’s most iconic tourist spots in Paris were forced to shut their doors because of the strikes. The Eiffel Tower and the Orsay museum remained closed on Thursday due to staff shortages, while the Louvre, the Pompidou Center and other museums were mostly closed as well (though some said certain exhibits would still be open).
Many noted that outside the typically packed Gare du Nord train station, there was an eerie silence, with taxi cabs lined up with their green lights on, struggling to find customers in the deserted streets.
The abundance of first-time cyclists created some confusion during the morning commute.
Haven’t seen so many cyclists in Paris since…. well the last Metro strike back in September. Two Parisian cyclists just crash into one another in front of me. “Sorry Im not used to this,” says the elderly man. “Me neither,” said the young woman. “We are all in the same mess” pic.twitter.com/dSR2cJmNHC
Of more immediate concern for Macron, dozens of gilet jaunes protesters are blocking fuel depots in the south and near the city of Orleans, leaving more than 200 petrol stations without fuel on Thursday, while another 400 are rapidly nearing the last of their inventory. These blockades could bring the country to its knees (since society still needs oil and refined petroleum products to function, despite what the Green New Deal supporters want), and might be the deciding factor that forces Macron to scrap his planned austerity ‘reforms’.
In addition to public transit, protesters blocked major thoroughfares in some parts of the country.
À Boulogne, un des rond-points de Capécure partiellement bloqué par un feu. Les manifestants ont commencé dès 3h du matin. Ça circule normalement pour les camions et voitures. #grevedu5decembrepic.twitter.com/UHploMJzn3
Protesters have now been demonstrating against the austerity measures imposed by Macron’s “Liberal” government for more than a year. Even as the EU threatens to reprimand Macron for overspending, his own people are threatening to oust him at the halfway point of his first term, making him the latest in a string of prime ministers who, after being elected with a popular mandate, swiftly lost favor with the people of France.
RT has a live stream in central Paris where police have gathered to prepare for a clash with protesters.
