Month: September 2019

Authored by Simon Black via SovereignMan.com,

On Friday evening, the government here in Puerto Rico made an announcement to local retirees that many of them would have their pensions cut.

Poof. Just like that.

The pension cut is part of a debt restructuring plan to help Puerto Rico emerge from bankruptcy, which they declared in May 2017.

Bankruptcy is complicated, so I’ll explain a bit here.

When individuals, corporations, and even local government take on so much debt that they can no longer make payments, they go through a specific legal process called bankruptcy.

During the bankruptcy process, a judge temporarily relieves the bankrupt from making any principal or interest payments on their debt while all sides work out a solution.

The bankrupt puts all of their assets and liabilities on the table, and then works with the bondholders to figure out a plan that everyone can live with.

Sometimes they’re successful. Occasionally you’ll hear about a big company (often an airline) ‘emerging from bankruptcy’.

This means the company was able to work out a deal with its bondholders, i.e. the company agrees to sell some assets and cut costs in order to pay the bondholders, but the bondholders agree to take a loss and only recover, say, 50 cents on the dollar.

Once the deal is settled, the debt is struck off the company’s balance sheet and they begin operating normally again.

Sometimes, though, a deal cannot be reached. And the Bankruptcy Court appoints a special representative to liquidate the company’s assets and split up the proceeds among the bondholders.

But governments can’t exactly do that. Bankruptcy courts don’t have the latitude to sell off police cars, fire trucks, and elementary schools in order to repay government bondholders.

And that’s why Puerto Rico’s debt negotiations have taken so long.

Puerto Rico has more than $70 billion in debt, worth nearly 70% of GDP. And making payments on that debt was consuming nearly 30% of government tax revenue every year.

That’s totally unsustainable, and declaring bankruptcy was inevitable.

When they declared bankruptcy in 2017, it was the biggest bankruptcy case in US history. And definitely one of the most complicated.

Again, the court couldn’t exactly ‘liquidate’ Puerto Rico and pay out the funds to bondholders.

So there’s been more than two years of negotiation between bondholders and all the various officials, pensions, unions, etc.

And on Friday they announced the deal.

Bondholders will take a huge cut of more than 60%. But, as part of the deal, many local retirees in Puerto Rico will see their pensions cut.

Pension payments are an enormous part of the Puerto Rico budget. And since the government here doesn’t have the option of conjuring more money out of thin air, they had no choice but to cut pensions in order to free up cash to pay bondholders.

This is absolutely a sign of things to come in the United States.

Just like Puerto Rico, the US government is heavily in debt. It’s actually much worse.

Puerto Rico’s debt-to-GDP was ‘only’ 70%. The federal government’s debt exceeds 100% of GDP.

And, just like Puerto Rico, the #1 most expensive item in the federal budget is retiree benefits (Social Security and Medicare).

The difference is that Uncle Sam is able to kick the can a lot farther down the road. They have the ‘benefit’ of going deeper into debt because the Federal Reserve will just print more money to buy US government bonds.

But even that has limits.

Social Security is already cashflow negative, and the program’s giant trust funds are starting to deplete their cash reserves.

There are simply too many retirees receiving benefits and not enough people paying into the system. It’s simple arithmetic.

Even the United States Treasury Secretary admits this; he, along with the Secretary of Labor, Secretary of Health and Human Services, etc. publish an annual report forecasting that Social Security’s trust funds will run out of money in about 15 years.

They’re practically giving you a date to circle on the calendar.

This isn’t just a US problem either. A recent report from Citibank estimated that, among the world’s 20 wealthiest nations, the total pension gap is an eye-popping $78 TRILLION.

That makes Puerto Rico’s problem tiny by comparison. And realistically there’s just no way for  governments to solve a problem that large.

Their only hope is to do what Puerto Rico did: default on their promises and cut pensions.

Few people pay attention, though. It’s too far out in the future.

But just because something is far off doesn’t mean we should put it off.

One of the most effective solutions is setting up a more robust retirement structure, something like a Solo 401(k) or SEP IRA.

And if you haven’t started yet and feel like you’re getting a late start, you can move up to $56,000 in qualifying income per year into these types of retirement structures.

So even if you’re already 60, you could put away a ton of money for your retirement over the course of 5-10 years with something as simple as driving around for Uber on the weekend, or selling cupcakes on the side, or just about anything else out there in the Gig Economy.

If you’re young, this is even more important.

An 18-year old who puts $5,000 into an IRA this year could see that money grow to more than $250,000 over the next 50 years.

Yes, that’s a long way off. But time is on your side. And the earlier you get started, the better off you’ll be.

The government has no hope of fixing this. Young people will spend their entire lives paying into a broken system that won’t be there when it comes time for them to collect.

The only fix for this pension problem is taking matters into your own hands. And saving a little bit of money now will literally pay enormous dividends in the future.

For the first time Iraq’s government has issued formal charges blaming Israel for a spate of attacks on Iraqi soil over the past months. Iraqi Prime Minister Adel Abdul Mahdi said on Monday the result of weeks-long investigations into multiple airstrikes and violations of Iraq’s airspace show Israel’s military to be the culprit. 

“Investigations into the targeting of some Popular Mobilization Forces positions indicate that Israel carried it out,” Abdul Mahdi told Al Jazeera. Though Tel Aviv was long suspected of prior ‘mystery’ airstrikes on Iran-backed paramilitary bases in July and August, with even Netanyahu strongly hinting responsibility in an Aug. 30 campaign speech, Mahdi’s condemnation marks the first high level allegation from a top Iraqi official. 

The ‘mystery’ explosions that have rocked ammunition depots and bases in and around Baghdad have been stepped up through September, including incidents on Sept. 9, 19, and 22, resulting in dozens of killed and wounded; and more recently last Friday on Imam Ali base near the border with Syria.

In total international reports count nine strikes on Iraq’s Popular Mobilization Forces (PMF) — in some cases while they were allegedly operating just across the country’s western border with Syria. 

Iraq’s prime minister also raised the spectre of war amid a broader standoff between Tel Aviv’s and Tehran, saying “many indicators show that no one wants war in the region except for Israel,” according to a translation by Reuters.

Israel has long accused Iran of hosting IRGC officers and missiles, with Israeli and Saudi media also claiming Lebanese Hezbollah maintains a presence in the Boukamal region, which was bombed reportedly by either Israeli drones or jets last week. 

There’s currently speculation that the Trump administration may have greenlighted stepped up Israeli attacks on Iranian proxies in the region as an alternative to direct war with Iran. 

This after defense officials have voiced concern Iran is utilizing Iraq’s PMF units to aid Syrian forces in establishing a security corridor stretching along the Syrian-Iraq border, or so-called Iranian “land bridge”.

Authored by Irina Slav via OilPrice.com,

When earlier this year China announced subsidies for 22.79 GW of new solar power capacity, those following the country’s renewable energy story must have started to worry. The capacity subsidized is half the amount approved in 2017, at 53 GW. And chances are that solar and wind additions will continue to fall.

Subsidies are one reason. In January, Beijing said it will only approve solar power projects if they are cost-competitive with coal. Judging by the size of subsidies announced in July, more than 22 GW in projects can boast cost-competitiveness with coal.

Yet there is another reason: curtailment. China-based journalist Michael Standaert wrote in a recent story for Yale Environment 360 that China’s solar and wind farms continue to produce electricity that is wasted because there is not enough transmission capacity.

Renewable energy is a top priority for China as it fights one of the worst air pollution levels in the world while subject to an uncomfortably high degree of reliance on energy imports, namely oil and gas. At the same time, it is one of the biggest—if not the single biggest—driver of global energy demand as its middle class grows fast and with it, energy demand. Now, it seems, energy demand is taking the upper hand.

China has substantially increased subsidies for shale gas exploration and methane separation from coal, Standaert writes. He also quotes a former IEA official as saying, “Though China is the largest clean energy market in the world, wind and solar only accounted for 5.2 percent and 2.5 percent of China’s national power generation in 2018.”

What’s more, Kevin Tu, now a fellow at the Center on Global Energy Policy at Columbia University, tells Standaert that “Against the backdrop of an ongoing U.S.-China trade war and a slowing Chinese economy, political priority of climate change in China is unlikely to become very high in the near future, indicating great difficulties for Beijing to further upgrade its climate ambitions.”

In short, renewables won’t cut it when you need cheap power to feed growing energy demand. By the way, China is not alone in this situation. Energy demand is rising on a global scale and this means emissions are rising, too.

In its latest International Energy Outlook, the U.S. Energy Information Administration poured cold water on the hopes of many climate change fighters by estimating global energy demand will increase by as much as 50 percent between 2018 and 2050. That’s under the EIA’s reference case scenario, that is, the middle ground between the scenario of high economic growth, under which energy demand growth will be even greater and the scenario of low economic growth, which could give the planet a breather.

Unsurprisingly, Asia will be the biggest driver of this growing demand and China specifically as its economy continues to expand at rates higher than the mature economies of the OECD. As it expands, Beijing—as other governments around the world—would need to juggle between satisfying this growing energy demand and cutting emissions.

It seems like an impossible task. To do it, China would need to solve the curtailment problem and make solar and wind even cheaper, and not just for households but for the industrial sector: it is this sector that will account for most of energy demand growth to 2050.

House Intelligence Committee Chairman Rep. Adam Schiff (D-CA) is gunning for transcripts of President Trump’s phone conversations with Russian President Vladimir Putin, citing concerns that Trump may have jeopardized national security, according to Reuters. 

“I think the paramount need here is to protect the national security of the United States and see whether in the conversations with other world leaders – and in particular with Putin – that the president was also undermining our security in a way that he thought would personally benefit his campaign,” Schiff said on NBC‘s “Meet the Press.” 

The Democratic-led House last week launched an official impeachment inquiry into Trump in the aftermath of a whistleblower complaint from an individual within the U.S. intelligence community that Trump solicited interference by Ukraine in the 2020 election for his own political benefit.

The whistleblower’s complaint cited a telephone call in which Trump asked Ukrainian President Volodymyr Zelenskiy to open an investigation of former Vice President Joe Biden, a leader among Democratic candidates seeking to challenge Trump in 2020, and his son Hunter. Hunter Biden sat on the board of a Ukrainian gas company. –Reuters

In response to Schiff’s comments, the Kremlin insisted that US lawmakers would require Russia’s consent to publish transcripts of any conversations between Trump and Putin. 

“Of course their publication is to some extent only possible by mutual agreement of the parties. This is a certain diplomatic practice,” said Kremlin spokesman Dmitry Peskov. 

“To be more specific, perhaps, diplomatic practice in general does not envisage their publication. If there are some signals from the Americans, then we will discuss (them).”

Interestingly, Schiff hasn’t requested transcripts of any calls between former Vice President Joe Biden and former Ukrainian government officials. 

With the WeWork IPO now dead and buried, and as attention shifts to the company which for years was world consciousness elevating Adam Neumann’s personal piggybank (he cashed out to the tune of $740 million, while stranding his thousands of employees with worthless stock) many are noticing what we highlighted last week, namely that WeWork now has just a few months of cash left.

We Co. had $2.5 billion of cash as of June 30. At its current rate of cash burn—about $700 million a quarter—it would run out of money some time after the first quarter of 2020 @eliotwb https://t.co/uOM6SR3xcp

— Scott Galloway (@profgalloway) September 30, 2019

As we noted recently, the most immediate task facing WeWork is that once the IPO was called off, it unraveled a $6 billion financing package. It is also the gargantuan challenge facing the company’s two new co-CEOs brought in to replace Neumann – Sebastian Gunningham and Artie Minson – who have to find a way forward for a company that was until just a few weeks ago one of the world’s most valuable private startups with a valuation of $47 billion… but has not only never made a penny in profit but saw its losses grow the more its revenue increased.

Meanwhile, as we also reported, in an attempt to shore up its rapidly shrinking cash balance, WeWork has been in talks with Goldman and JPMorgan about a new $3 billion loan, but that’s as good as dead: any new deal requires the company to successfully IPO, which we now know is not happening. 

There is one final option: going to Masayoshi Son’s, SoftBank, the Japanese company that has already pumped in more than $10 billion, hat in hand and begging for a bailout. But is Son willing to jeopardize the future of his VisionFund, and perhaps his entire organization, to throw even more money after what is clearly a terrible investment?

For now, the answer is unknown. What is known is that the company lost $690 million in the first six months and is expected to generate a loss from operations approaching $3 billion as it burns through tens of millions in cash daily. Which means that according to analyst estimates, with its existing $2.5 billion in cash as of June 30, the company could run out of money by mid-2020.

And then there is the real liquidity crisis staring everyone in the face: as part of its tremendous growth, by the end of 2019 WeWork will have not only burned $6 billion since 2016, but will have accrued $47 billion of future rent payments due in the form of lease liabilities. On average it leases its buildings for 15 years. Yet as Bloomberg reported previously, its tenants are committed to paying only $4 billion, and on average have leases for 15 months.

in short, a WeWork solvency crisis (read: bankruptcy) would send a shockwave across the US Commercial Real Estate market. Correction, it would send a shockwave across the global commercial real estate market. The reason is that with over $47 billion in lease liabilities, WeWork is already one of the world’s largest lessees, trailing only oil exploration giants Petrobras and Sinpec, an astonishing feat for the flexible office space provider “which was founded less than a decade ago, bleeds cash, and doesn’t plan to become profitable any time soon.”

And then there is the not so subtle fact that WeWork is already the single biggest tenant in New York City, as well as Chicago, Denver and central London.

Said otherwise, a WeWork insolvency would send the Commercial Real Estate market in New York, London, and most major metropolises into a tailspin.

Which brings up the next logical question: who is exposed?

Luckily, commercial real estate expert TREPP has already done work when it comes to WeWork’s US-facing exposure in the CRE realm and has found that co-working giant is flagged as a top five tenant behind $3.3 billion in CMBS debt across 36 properties. Courtesy of Trepp, here is a summary of WeWork’s exposure by state, which as expected, shows New York and California as the top CMBS markets with WeWork exposure.

Drilling down on some of the key properties, we find the following Top 10 locations that will find themselves scrambling to undo their billions in contractual exposures to a potentially insolvent WeWork:

Here is a different way of representing the exposure, this time from the Deal side perspective:

Readers seeking the full list of WeWork exposure are urged to contact Trepp  directly.

For those asking why is any of the above information relevant, the answer is simple: in a year when a record 11,000 stores are expected to shutter…

​

… as a result of the ongoing “retail apocalypse” which today claimed its latest victim, fast-fashion pioneer Forever 21, which is set to close as many of 350 of its 800 stores around the world…

… commercial real estate is looking at an unprecedented rental payment “hole” as countless tenants file for bankruptcy and put their lease payments on indefinite halt.

Throw WeWork – and its $47 billion in lease obligations in the mix – and CRE is facing a CREsh of epic proportions, because in a bankruptcy, all those obligations would be frozen and squeezed among all the other pre-petition claims, which of course means that the commercial real estate market of cities where WeWork is especially active – like New York and London – would suddenly find itself paralyzed, as a deflationary tsunami is unleashed among one of the strongest performing markets since the financial crisis.

Whether that will in fact happen remains to be seen: after all, with so much hanging on whether the cashflow burning WeWork lunacy can continue, one could argue that when it comes to the commercial real estate market, the company has become too big to fail.

That’s precisely what Boston Fed president Eric Rosengren said on September 20, when he warned just how serious WeWork’s leveraged debacle has become. In a speech delivered to New York University, the Boston Fed head seems to have seen the light, fearing financial instability from WeWork and its ilk:

Mr. Rosengren noted the risks posed by commercial real estate, which have long been a concern of his, as a possible vector to amplify trouble.

Without naming any firms, Mr. Rosengren noted the particular concerns posed by co-working companies. He made this comment as the parent of office-sharing firm WeWork postponed its initial public offering amid investor doubts about its valuation and concerns about its corporate governance. Office-sharing firms are particularly exposed to risks should the economy run into trouble, and could wound landlords in the process, Mr. Rosengren said.

“In a downturn the co-working company would be exposed to the loss of tenant income, which puts both them and the property owner at risk if they cannot make lease payments to the owner of the building,” he said.

“I am concerned that commercial real estate losses will be larger in the next downturn because of this growing feature of the real estate market, which could ultimately make runs and vacancies more likely due to this new leasing model,” Mr. Rosengren said.

“The fact that the shared office model relies on small-company tenants with short-term leases, combined with the potential lack of recourse for the property owner, is potentially problematic in a recession. This also raises the issue of whether bank loans to property owners in cities with major penetration by co-working models could experience a higher incidence of default and greater loss-given-defaults than we have seen historically.”

Ironically, unless some last ditch source of emergency WeWork funding emerges – and there is about 6 months for that to happen – Rosengren’s warning about a crash in the commercial real estate market will come true. Why ironic? Because it will be none other than the Fed which will be “forced” to provide said emergency funding, making the global moral hazard hole even deeper in a world in which not even one too big to fail zombie company is allowed to fail ever again.

Isn’t it time the resistance learned from its (multiple mistakes)?

Last week, twelve-year-old black student Amari Allen said three boys from her school, who she said are white, cut off her hair on Monday.

Amari – who NBC Washington takes the time to note is a straight-A student and violin player – said the boys started bullying her at the beginning of the school year. She has attended the school since kindergarten and has always liked it. 

But on Monday, she was at recess and about to go down a slide when one of the boys grabbed her and put a hand over her mouth. Another boy grabbed her arms. A third boy cut off some of her hair.

Amari’s grandmother, Cynthia Allen, was stricken as she spoke about the ambush.

“It was like she just died. That’s how painful it was for me,” she said.

Amari’s grandfather also said it hurt him.

“My heart just broke,” he said. “I was just paralyzed. I couldn’t get myself together.”

Sounds awful!

BUT… the key to why this is more interesting is that the incident occurred at the evangelical Christian school where Vice President Mike Pence’s wife, Karen Pence, teaches part-time.

While race-based hate-attacks play well to the narratives the liberal media would like to paint about the racist deplorables who need to know their place in the world and leave it to “they” to run the world, one would think at least a second though would be given to the farce that was (and is) Jussie Smollett’s fake attack in Chicago.

But no… The media ran with it… with no questioning of its reality

NBC News’ wrote wrote…

“Three sixth-grade white boys at a Christian school in Virginia where Vice President Mike Pence’s wife works cut a black girl’s hair, calling it ‘nappy’ and her ‘ugly,’ the girl says.”

And then the truth came out…

Stephen Danis, the principal at Immanuel, said in a note to parents, according to The Washington Post:

“We can now confirm that the student who accused three of her classmates of assault has acknowledged that the allegations were false. We’re grateful to the Fairfax County Police Department for their diligent work to investigate these allegations,”

But somehow managed to shift the attention in the statement back to the “victim” of this fake non-crime…

“While we are relieved to hear the truth and bring the events of the past few days to a close, we also feel tremendous pain for the victims and the hurt on both sides of this conflict. We recognize that we now enter what will be a long season of healing.”

The girl’s family has apologized in a statement…

“To those young boys and their parents, we sincerely apologize for the pain and anxiety these allegations have caused,” Allen’s grandparents wrote in a statement, according to WaPo.

“To the administrators and families of Immanuel Christian School, we are sorry for the damage this incident has done to trust within the school family and the undue scorn it has brought to the school. To the broader community, who rallied in such passionate support for our daughter, we apologize for betraying your trust.”

…so that takes care of everything?

Just a reminder of what Amari’s grandmother said before it was exposed as a hoax:

“Some consequences should be implemented so that the school will send a strong message: We will not tolerate this, under any circumstances. No matter who you are,”

Indeed Cynthia!

Let’s hope someone learned something from this!

Because everyone knows, by now, you never go full Smollett!