Month: July 2016

With three UK-based property funds, among them Standard Life, Aviva and M&G, all “freezing” assets in the past 2 days and suspending redemptions over fears of a swoon in UK housing prices, spreading panic shockwaves around the globe that the Brexit dominoes have come home to roost (to mix and match metaphors), it may not be a bad time time to jump across the Atlantic and look at US real-estate and in particular, commercial properties. As CMBS specialist Trepp wrote today in its weekly TreppWire commentary, the “Trepp CMBS delinquency rate moved noticeably higher in June, as the rate was pushed up by loans that reached their maturity date but were not paid off.” It was the fourth straight month that the rate has crept higher following two large decreases in January and February. The delinquency rate for US commercial real estate loans in CMBS is now 4.60%, an increase of 25 basis points from April. 

This is in line with recent warnings from the Fed which just two weeks ago cautioned not only about another stock bubble when on June 21 it said that “forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades” but again warned that commercial real estate remains the most troubled sector: “valuation pressures have remained notable in the commercial real estate sector, to which some small banks have substantial exposures.” This includes not just bricks and mortar malls, which are losing bankrupt retail tenants by the hour, but also the collapse in the shale sector.  It also includes a sudden spike in vacant office space.

Over the weekend, the Fed’s warning was validated not just by Trepp, but also by Morgan Stanley, whose Richard Hill looked at the latest CMBS 2.0 remittance reports and observed that in June, “delinquent loans rose by $142MM, including a potential reps breach.” As Hill puts it, “this delinquency increase was the greatest ever.” The silver lining: so too was the decline in specially serviced and watchlist loans, as near insolvent loans rolled off to delinquent status.

Here is the key highlight from MS’ summary of newly delinquent loans:

15 loans totaling $221MM became newly delinquent in June. In total, 71 loans with a balance of $760.6MM were delinquent in June, resulting in a delinquency rate of 32bp. The $142MM month-over-month increase in the volume of delinquent loans was the greatest ever – it eclipses the $116MM increase in March 2016 and compares to an average monthly increase of $40.7MM.

Some other observations on the state of CMBS 2.0:

• Specially serviced: There were four loans totaling $43.3MM that were newly transferred to ‘specially serviced’ this month, but the volume of loans declined by the most ever to $1B, resulting in a specially serviced rate of 42bp. There are currently 13 loans totaling $206MM that are delinquent but not specially serviced, including the largest loan to become newly delinquent this month. Looking forward, we expect the two CMBS 2.0 loans totaling $293MM to be imminently transferred to special servicing, given their exposure to JQ Hammons Hotels, which filed for bankruptcy on Sunday.
• Watchlist: 206 loans totaling $2B were added to the watchlist in June, but the volume of loans declined to $17.5B, resulting in a watchlist rate of 7.37%. The month-over-month decline in balance of specially serviced loans was the greatest ever and compares to a 12-month average increase of $580MM. However, the outstanding balance remains higher than what was observed in February 2016.
• Appraisal reductions: 21 loans totaling $161MM realized Apprisal Reduction Amounts (ARA) this month. 10 of these loans totaling $62.1M were first-time appraisal reductions while 11 totaling $99.3M were updated appraisals. Seven of the ten loans with first-time ARAs are secured by properties located in ‘oil boom’ regions.
• Prepayments: 29 loans totaling $456MM paid off in June and, in total, 424 loans with a balance of $9.2B have now been paid off. The largest pay-off this month was the $85MM loan secured by the Keystone Marquee Office Portfolio (DBUBS 2011-LC2A) at its maturity date.
• Defeasance: 22 loans with a balance of $345.5MM were defeased in June. In total, 291 loans with a balance of $5.8B have now been defeased, of which 213 loans totaling $3.4B remain outstanding. The largest loan to defease this month was the $1655MM loan secured by One South Wacker Drive (WFRBS 2013-C11 WFRBS 2013-C12), which is scheduled to mature on 1/1/2018

So is it time to start worrying about US commercial real estate? Well, with massive retail and shale bankruptcies, vacant malls around the nation, and rapidly evacuating offices, absolutely. Only in this day and age worrying means buying as much risk assets as one can afford, because the worse things are the greater the likelihood of an imminent bailout: of even a 1% correction in stocks by central banks. Case in point: frontrunning.

• JAPAN’S 20-YEAR GOVT BOND YIELD FALLS TO ZERO FOR FIRST TIME
• JAPAN’S 30-YEAR YIELD FALLS TO RECORD 0.03%

And while we have been joking for the past 7 years that algos will push the S&P to +? in case World War III breaks out (on 1 offerless contract), this is looking increasingly more likely with every passing day. And now that Hillary is assured of being the next president, it just may happen in the not too distant future.

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Following James Traub's mind-numbingly-elitist rebuttal of the democratic rights of "we, the people" in favor of allowing "they, the elite" to ensure the average joe doesn't run with scissors, "It's time for the elites to rise up against the ignorant masses."

The Brexit has laid bare the political schism of our time. It’s not about the left vs. the right; it’s about the sane vs. the mindlessly angry…

The Guardian's David Van Reybrouck appears willing to take the fight for elite survival even further…proclaiming "our voting system worked well for decades, but now it is broken. There is a better way to give voice to the people…. you do not ask everyone to vote on an issue few people really understand, but you draft a random sample of the population and make sure they come to the grips with the subject matter in order to take a sensible decision. A cross-section of society that is informed can act more coherently than an entire society that is uninformed."

Brexit is a turning point in the history of western democracy. Never before has such a drastic decision been taken through so primitive a procedure – a one-round referendum based on a simple majority. Never before has the fate of a country – of an entire continent, in fact – been changed by the single swing of such a blunt axe, wielded by disenchanted and poorly informed citizens.

But this is just the latest in a series of worrying blows to the health of democracy, and Yahoo Finance Editor-in-Chief, Andy Serwer took to his Tumblr, to explain why, in his opinion, Democracy, you could argue, is pretty much like sunshine, cold beer and ice cream. They’re all great —until you have too much.

Too much democracy? That’s not possible, is it?

In fact it may be. Some economists and political scientists are suggesting as much in the wake of the Brexit vote and the subsequent wave of “Leave the EU” sentiment that’s sweeping across Europe. And you can look to a big honking use case right here in the US to make that argument.

It’s way too early to tell how Brexit will affect the economy of the UK at this point — although early days have been rocky enough with the crashing pound, stumbling stock market, and political chaos. But I would argue the biggest negative of Brexit will be the messiness and uncertainty that ensues. The UK will be forced to rewrite tax rules, as well as draft and implement new legislation. It will have to craft a new relationship with Europe. And the UK will more than likely haggle over referendums in Scotland and Northern Ireland. An OECD report says Brexit could cost the UK 3.3% of its GDP by 2020.

Despite those headaches and risks, “Leavers” across Europe — including those in France, the Netherlands, Italy, Hungary, Austria and Finland— have taken up the call. A Citibank note says “… political risks in Europe are high and probably rising, in our view, and ‘referendum risk’ contributes significantly to these risks …” Those risks include outright withdrawal from the EU, scuttling of EU policies, and shying away from EU-centric policies that could bolster local economies. Citi notes that Italy and Hungary will likely both have referendums on matters pertaining to the EU this year.

So what does this have to do with the US, besides the collateral damage of a potentially basket-case Europe — (no small thing that, by the way)? Because while referendums are actually rare in the UK, (the Brexit vote is only the third to cover the whole UK), they are much more common in the US.

Twenty-six states — mostly Western ones — plus Washington, D.C., allow for initiatives and referendums. And over the years, there have been various successes and failures, never mind wackiness. (One of my favorites was the 2006 Arizona Voter Reward Act which would give a single Arizona citizen $1 million in every general election. It was defeated.) But other ballot initiatives of course are more serious, and in some states referendums and such have had real teeth, nowhere more so than in California, where they have been elevated to a powerful form of governance, with high-profile propositions.

For those of you old enough to remember, the watershed moment of the California Proposition movement was 1978 with the passage of Proposition 13, which capped real estate taxes. (Remember Howard Jarvis — the leader of the movement — on the cover of Time Magazine: Tax Revolt!)

The success of that vote ushered in a golden age of referendums for the Golden State, although that may be a mischaracterization. Since then the state has voted on hundreds of referendums on gun control, abortion, marijuana and the death penalty. But mostly the initiatives have tended towards the fiscal: i.e., taxes, budgets and bond issues. To some this has been a shining era of democracy. Others are not so sanguine, saying Prop. 13, for example, helped lead to the gutting of education budgets.

One thing that is undoubtedly true is that this so-called direct democracy model has made governing more difficult. The Economist delved into this in great length in a 2011 special report:

“This citizen legislature has caused chaos. Many initiatives have either limited taxes or mandated spending, making it even harder to balance the budget. Some are so ill-thought-out that they achieve the opposite of their intent: for all its small-government pretensions, Proposition 13 ended up centralizing California’s finances, shifting them from local to state government. Rather than being the curb on elites that they were supposed to be, ballot initiatives have become a tool of special interests, with lobbyists and extremists bankrolling laws that are often bewildering in their complexity and obscure in their ramifications. And they have impoverished the state’s representative government. Who would want to sit in a legislature where 70-90% of the budget has already been allocated?”

The best evidence of the effects of this dysfunction perhaps is that during this period, California experienced a precipitous decline in its credit rating. In 1980, California had an AAA rating. By the early 1990s it had fallen to single A, and it bounced around that level for decades until as recently as 2014, when it was the second-lowest rated state in the nation. (This is a state, of course, with Silicon Valley, Hollywood, oil and gas, timber, minerals and the richest farmland in the nation.) Say what you will about Jerry Brown (twice!), Arnold Schwarzenegger and Pete Wilson, but it ain’t all the governors’ fault. In fact it may be Jerry Brown’s multiterm experience with government by referendum that has allowed him get a handle on the state’s finances and help boost its credit rating back up to AA (from S&P), its highest rating since 2001. But that’s hardly consolation.

Direct democracy does have a shining example of efficacy, and that is Switzerland, though there certainly are reasons particular to that country — homogeneity being one — that explain why it has worked there.

Otherwise, I would argue that direct democracy is best used sparingly, for local initiatives perhaps. A big drawback of direct democracy is that those who want change — no matter its validity — are much more fired up than those who want to maintain the status quo, and therefore many more of the “Changers” go to the polls, as was perhaps the case in the Brexit vote. Think about the consequences of that.

I know it sounds horribly anachronistic, but checks and balances, branches of government, and slow, messy and deliberate governance actually have their place. It is true that both in the case of Britain’s relationship with the EU and with real estate taxes in California in the 1970s, real change was needed. In cases like this, and probably just in general, politicians need to step up more briskly than they are typically comfortable doing. But putting the onus all back on the people may not be the answer. One thing’s for sure, it certainly has its consequences.

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For the first time since March 2014, Gold is back above $1370, spiking higher as China opens. While silver has been celebrating way above Brexit spike highs, gold's initial reaction was far bigger and that spike high has now been taken out.

 

Across Asia things are moving fast. Bond yields in Taiwan are breaking to record lows, JGBs are at fresh record lows with 20Y yields reaching zero for the first time…

• *JAPAN'S 30-YEAR YIELD FALLS TO RECORD 0.015%
• *JAPAN'S 10-YEAR YIELD FALLS TO RECORD MINUS 0.27%
• *TAIWAN 10-YEAR GOVT BOND YIELD FALLS TO RECORD-LOW 0.695%

 

And USDJPY plunged to a 100 handle again…

 

And then China devalued The Yuan fix significantly…to the weakest agaionst the USD since Nov 2010

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Submitted by Martin Armstrong via ArmstrongEconomics.com,

 

To indict someone, the criteria is supposed to be “intent.” Comey has used that to pretend there is no evidence that Hillary “intentionally” erased anything. Comey also stated that Hillary’s lawyers erased her emails using a keyword search program and they did not “read” the emails. He added that he would not recommend charges against Hillary or her aides.

“Although we did not find clear evidence that Secretary Clinton or her colleagues intended to violate laws governing the handling of classified information, there is evidence that they were extremely careless in their handling of very sensitive, highly classified information,” Comey declared.

It was Comey who indicted Frank Quattrone for claiming he instructed his people to erase emails in his technology-industry banking group at Credit Suisse Group’s Credit Suisse First Boston, based upon a single email that read “clean up those files” in December 2000. That was more than enough for his “intent” requirement to obstruct justice. This further illustrates the double standard of justice for them vs. us.

Comey has said that he could not find anyone else who had been prosecuted for such a thing, but then added after clearing Hillary that this is not to say everyone in the government can do this or that they would not prosecute someone else for the same thing. Comey said,“[O]ur judgment is that no reasonable prosecutor would bring such a case.”

Comey presented a scathing rebuke of Hillary’s conduct that anyone else would have certainly been indicted for. For Obama to have announced in advance he would campaign for Hillary, it was clear that this was a cover-up and he knew the results before today. For Comey to say, “Although we did not find clear evidence [of any intentional misconduct] there is evidence that they were extremely careless of very sensitive, highly classified information.” It is the jury’s role to determine if there is any evidence and the case should have been presented for a Grand Jury to decide if she should have been indicted. That, of course, is off limits as well.

Comey went on to all but acknowledge that Russia hacked Hillary’s emails:

“With respect to potential computer intrusion by hostile actors, we did not find direct evidence that Secretary Clinton’s personal e-mail domain, in its various configurations since 2009, was successfully hacked. But, given the nature of the system and of the actors potentially involved, we assess that we would be unlikely to see such direct evidence. We do assess that hostile actors gained access to the private commercial e-mail accounts of people with whom Secretary Clinton was in regular contact from her personal account. We also assess that Secretary Clinton’s use of a personal e-mail domain was both known by a large number of people and readily apparent. She also used her personal e-mail extensively while outside the United States, including sending and receiving work-related e-mails in the territory of sophisticated adversaries. Given that combination of factors, we assess it is possible that hostile actors gained access to Secretary Clinton’s personal e-mail account.”

For Comey to claim neither the Department of Justice nor the White House knew what he was going to announce, seriously undermines his trustworthiness in this matter. Of course, Obama knew or he would not have scheduled to campaign for Hillary since, if indicted, she would have had to be on bail to stay out of jail to even campaign. This is by no means credible. But nobody would have expected Hillary to be indicted when the Democrats control the executive branch. Had Hillary been indicted, she could not have run for office, for even that statute says such a person would be disqualified for such an office. The entire election would have been a fiasco and the Democratic Party would have collapsed. This is what Bernie was holding out for and why he had his talk with Obama who informed him forget it — there would be no indictment for Hillary.

“From the group of 30,000 e-mails returned to the State Department, 110 e-mails in 52 e-mail chains have been determined by the owning agency to contain classified information at the time they were sent or received. Eight of those chains contained information that was Top Secret at the time they were sent; 36 chains contained Secret information at the time; and eight contained Confidential information, which is the lowest level of classification. Separate from those, about 2,000 additional e-mails were “up-classified” to make them Confidential; the information in those had not been classified at the time the e-mails were sent,” Comey said.

Then, Comey contradicted Lynch in making it clear that the final decision was her’s: “As a result, although the Department of Justice makes final decisions on matters like this, we are expressing to Justice our view that no charges are appropriate in this case.”

 

James Comey was the chief prosecutor in the Southern District of New York between 2003 and 2005. He had no problem keeping me in Federal Prison on contempt of court without any charges, indictment, or a civil complaint describing any crime whatsoever that they even admitted openly in court. There were never any charges or complaint filed, and they publicly stated, “[T]here is no description of criminal liability.” Yet, Comey allowed me to be held in prison, entirely arbitrarily, with absolutely nothing whatsoever; Comey completely violated my civil rights, those of my family, and all 240 employees. So he is not someone who upholds the Constitution when it goes against government or the banks. As they say, the Department of Justice is really “Just Us” in reality. He has proven that once again.

Comey also allowed a LIFETIME GAG ORDER on me to prevent me from providing any assistance to my clients in Japan to sue the bankers. Now the State Department has asked for a two-year stay in turning over any of Hillary’s emails. Why  would they do that if there is nothing criminal? This only proves that this is a cover-up, as always, because the Democratic Party cannot allow Hillary to go down for they would lose everything. Sorry, but Comey has a track record of defending the banks even when they stole billions and pleaded criminally guilty before having to pay them back. He kept me in prison on contempt to turn over assets for a “possible” restitution, but when I got into the Supreme Court, I was released and no such charges were ever filed nor did I ever have any restitution. They then tried to prevent “The Forecaster” from being shown in the USA.

So much for any honesty from the Department of Justice. It is the Department of “Just Us,” as they say.

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Charting Eisteinian madness… “doing the same thing over and over again and expecting different results.”

As Bloomberg reports, a Federal Reserve measure of expectations for U.S. inflation for the next decade touched the lowest ever, even as policy makers attempt to stoke growth in the world’s largest economy. The index, which tracks five-year inflation expectations starting five years in the future, fell to 1.31 percent on June 27, the lowest since at least 1999, data compiled by Bloomberg show.

 

Simply put, it’s not working, stupid!

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By Wolf Richter, WOLF STREET:

The San Francisco housing bubble – locally called “Housing Crisis” – needs a few things to be sustained forever, and that has been the plan, according to industry soothsayers: an endless influx of money from around the world via the startup boom that recycles that money into the local economy; endless and rapid growth of highly-paid jobs; and an endless influx of people to fill those jobs. That’s how the booms in the past have worked. And the subsequent busts have become legendary.

The current boom has worked that way too. And what a boom it was. Was – past tense because it’s over. And now jobs and the labor force itself are in decline.

Until recently, jobs and the labor force (the employed plus the unemployed who’re deemed by the quirks of statistics to be looking for a job) in San Francisco have been on a mind-bending surge. According to the California Employment Development Department (EDD):

• The labor force soared 15% in six years, from 482,000 in January 2010 to its peak of 553,700 in March 2016.
• Employment skyrocketed 23%, from 436,700 in January 2010 to its peak of 536,400 in December 2015. That’s nearly 100,000 additional jobs.

This increase in employment put a lot of demand on housing. Low mortgage rates enabled the scheme. Investors from around the world piled into the market. And vacation rentals have taken off. As money was sloshing knee-deep through the streets, and many of the new jobs paid high salaries, the housing market went, to put it mildly, insane.

But the employment boom has peaked. Stories abound of startups that are laying off people or shutting down entirely. Some are going bankrupt. Others are redoing their business model to survive a little longer, and they’re not hiring. Old tech in the area has been laying off for months or years, such as HP or Yahoo in Silicon Valley, where many folks who live in San Francisco commute to.

So civilian employment in May in SF, at 533,900, was below where it had been in December. The labor force in May, at 549,800, was below where it had been in July 2015. Some people are already leaving!

The chart shows how the Civilian Labor Force (black line) and Civilian Employment (red line) soared from January 2010. As employment soared faster than the labor force, the gap between them – a measure of unemployment – narrowed sharply. But now both have run out of juice:

During the dotcom bust, the labor force and employment both peaked in December 2000 at 481,700 and 467,100 respectively. Employment bottomed out at 390,900 in May 2004, a decline of over 16%!

The workforce continued falling long past the bottom of employment. SF is too expensive for people without jobs to hang on for long. Eventually, they bailed out and went home or joined the Peace Corp or did something else. And this crushed the SF housing market.

But by the time the labor force bottomed out in May 2006 at 411,000, down 15% from its peak, the new housing boom was already well underway, powered by the pan-US housing bubble. In SF, this housing bubble peaked in November 2007 and then imploded spectacularly.

So now, even if employment in San Francisco doesn’t drop off as sharply as it did during the dotcom bust, in fact, even if employment and the labor force just languish in place, they will take down the insane housing bubble for a simple reason: with impeccable timing, a historic surge in new housing units is coming on the market.

According to the SF Planning Department, at the end of Q1, there were 63,444 housing units at various stages in the development pipeline, from “building permit filed” to “under construction.” Practically all of them are apartments or condos.

This chart shows that the development boom is not exhibiting any signs of tapering off. Planned units are entering the pipeline at a faster rate than completed units are leaving it; and the total number of units in the pipeline is still growing:

Many units will come on the market this year, on top of the thousands of units that have hit the market over the last two years. Once these 63,444 units are completed – if they ever get completed – they’ll increase the city’s existing housing stock of 382,000 units by over 16%.

If each unit is occupied by an average of 2.3 people, these new units would amount to housing for 145,000 people. This is in addition to the thousands of units that have recently been completed as a result of the current construction boom, many of which are now on the market, either as rentals or for sale.

This surge in new, mostly high-end units has created an epic condo glut that is pressuring the condo market, and rents too, to where mega-landlord Equity Residential issued an earnings warning in June, specifically blaming the pressures on rents in San Francisco (and in Manhattan).

Manhattan’s condo glut also has taken on epic proportions. Sales of apartments in the second quarter dropped 10% year-over-year, to the lowest since 2009. And condo prices plummeted 14.5% in 3 months. Ugly! Read…  It Gets Real: Manhattan Apartment Sales Plunge

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“There’s just doesn’t seem to be many blacksmith jobs these days.”

At first glance, this would be a ridiculous thing to say. Of course there aren’t many blacksmiths around. We live in a modern society and machines do a way better job of making things from metal anyways.

However, as VisualCapitalist's Jeff Desjardins points out, it also raises an important point.

What if machines are better at driving long-haul trucks? What if machines are better servers at McDonald’s? What if robots did your taxes for you?

While some of these ideas are contentious today, in the future we may look back thinking that our fears were ill-placed. The truth is that the job landscape is constantly in flux as technology changes.

Some of today’s jobs with high automation potential may be the future “blacksmiths”, and we should not be surprised if they go away. The best thing that we can do is to understand these trends and build a set of skills that will be in demand in any market.

The Trend is Your Friend

The following graphics from NPR shows the evolution of jobs over time in the United States.

The first divides jobs into four main categories: white collar, blue collar, farming, and services. It shows how the composition of the overall job market has changed over the last 165 years:

The second shows the same information, but plotted by the total number of jobs:

There were 10 million farmers in America in the early 20th century.

Now there’s closer to one million, and yet those farmers produce way more food. Technology may have “killed off” the majority of farm jobs, but at the same time new technology created jobs in the service, blue collar, and white collar industries.

We may now be at a similar inflection point for other careers – this interactive graphic shows some of the jobs that have been on the decline in recent years.

(click image for interactive version)

 

In 1960, a whopping 11% of the workforce was employed in factories. Today only 4% are employed in factories.

In the late 1970s, almost 5% of the workforce was secretaries. Today, we’re at about half that, but professionals can be just as productive without a secretary thanks to better computer software.

Yes, there are globalization issues at play here as well, but even a modern domestic factory such as the Tesla Gigafactory (which has the largest building by footprint in the world) will only employ about 6,000 people. The majority of the work will be done by robots.

And while it seems scary to think about the rise of machines and a faster pace of technological advancement, it’s important to recognize that these types of sweeping changes to the job market have happened throughout history.

The point is, try not to be the 21st century version of a “blacksmith”.

Source: VisualCapitalist

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In what has become a laughable attempt at pretending the Clintons were unable to influence the FBI to not bring charges; we now know that she did everything she said she didn't do.  As we noted earlier,  from Giuliani to Ryan, the comments and responses to the Presser earlier were everywhere to be found.

And only a week after we all learned of the Bill/Loretta meeting on the runway, we learn that along with HIllary committing no action that the FBI could find reason to bring criminal charges against, we also discover that she lied in complete lock-step with the very actions Jim Comey was highlighting.

To make it real clear for everyone, here is ReasonTV with a side-by-side audio/video comparison of what Hillary said in March 2015 and what we all heard today from the FBI's Comey:

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That Brazil is a complete economic and political disaster is well known to readers at this point. However, when we noted nearly a year ago that Olympic swimmers would be swimming in feces, it was at least somewhat assumed that the issue would have been largely addressed by now – it turns out that's not the case.

With the Olympics set to begin in just one month, CBS News reports that raw sewage is still flowing from Rio's neighborhoods right into the water. "We had seven years and our authorities didn't do almost anything, because this is a toilet." said biologist Mario Moscatelli as he pointed at the water, which according to CBS contains viruses up to 1.7 million more times hazardous than any beach in the US.

If that isn't bad enough, the so-called "super bacteria" in the waterway is apparently resistant to antibiotics. Renata Picao, a professor at Rio's federal university whose study found the super bug said "these bacteria should not be present in these waters. They should not be present in the sea."

CNN has more

A group of Brazilian scientists have detected a drug-resistant bacteria growing off of some of Rio de Janeiro's most stunning beaches, one month before the city is due to host the 2016 Olympic Games.

 

According to lead researcher Renata Picao, the "super bacteria" entered the city's waterways when sewage coming from local hospitals got channeled into the bay.

 

"We have been looking for 'super bacteria' in coastal waters during a one-year period in five beaches," Picao told CNN during a visit to her lab. "We found that the threats occur in coastal waters in a variety of concentrations and that they are strongly associated with pollution."

 

The news comes as Rio prepares to host hundreds of thousands of athletes and tourists during next month's Summer Olympics.

 

Among the beaches flagged were Flamengo and Botafogo, which border the bay where Olympic sailors are scheduled to compete.

 

"It's a nice sailing area but every time you get some water in your face, it feels like there's some alien enemy entering your face," German Paralympic sailor Heiko Kroger said during a recent visit to Rio. "I keep my nose and my lips closed."

 

Kroger believes the super bacteria may have caused a severe skin infection in one of his teammates during recent training.

 

Picao believes the city's "fragile" sanitation infrastructure is responsible for the presence of the super bacteria.

 

"This bacteria colonizes the intestine and it goes along with feces to the hospital sewage," Picao said. "We believe that hospital sewage goes into municipal sewage and gets to the Guanabara Bay or to other rivers and finally gets to the beach."

 

According to Rio's water utility, Cedae, the criteria established by the World Health Organization have been followed.

 

"Fifty one percent of the city's sewage is now treated," production director Edes de Oliveira told CNN. "Seven years ago it was only 11 percent."

Given all of that, Picao isn't recommending changing the venue because "we don't know the risks yet" – well, if the risk is an alien enemy entering your face every time the water touches it, as Heiko Kroger explained it, then changing the venue may want to be on the list of options.

With the background properly set, and given that the Olympics is still on – for now – the US rowing team will be using suits designed by Boathouse Sports that will help keep the sewage off the rowers. As the AP reports, the new seamless one-piece suit is knitted with an anti-microbial finish, that will also have water-repellent features to keep the rowers cool and dry – and hopefully, free from shit.

The most technologically advanced unisuit yet #seamless #antimicrobial #nowaste #madeinusa https://t.co/icpmzalMpj http://pic.twitter.com/ySJjnb4rNw

— Boathouse Sports (@BoathouseSports) June 27, 2016

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