Category: zerohedge

 

There are many fine benefits of camping out.  You might try it this weekend.  The month of May is certainly a fine time to camp in much of the Northern Hemisphere.  It is so easy even a caveman could do it.

What follows are some modest suggestions.

When I say camping out, I mean under a blanket, or maybe in a sleeping bag, on the ground, maybe with a pad, definitely not in a trailer, not in an RV, and not even in a tent.  If it rains, pull out a tarp, or at most a bivey sack.

Find a place that allows open fires and is away from the road, parking lot, and crowds.  Even the shortest of hikes will often dramatically reduce the number of other campers.

Leave the cell phone, internet, and the rest of the world behind.

Bring along a kid, or several.

My God, just look at the stars!

Stare at the campfire.  Poke it with a stick.  Watch the embers float into the night sky.  Think about your ancestors.

Allow your body and mind to experience the cold, hot, wet, hard, dirty world that we are all designed to live in.

Drink some cold water from a stream.  Filter, boil, or treat it if you must.

Cook meals over a fire, not on a stove.  Use your knife to sharpen a willow branch then cook something on it, like a bratwurst that you put in your pack when it was still frozen.  Bake a foil-wrapped potato in the hot coals.  Start the fire in the morning and make coffee or tea.

Take a shit in the woods, and wipe your ass with some leaves.

Take a bath or swim in a river or lake.

Make love in the tall grass, or on the sand.

Take a nap in the sunshine.

What could possibly be better?

Peace!

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At the SALT conference, MB Advisors founder and CEO Milton Berg gave an epic interview with Erik Schatzker in which Berg predicted that we are on the verge of a 30 year bear market in both equity and fixed income, and he also gave some sage advice to the average retail investor on what to do with their money at this point.

This is how Milton Berg explains his prediction

“I think we’re at the cusp of a bear market in both stocks and bonds that will last up to thirty years. This is on a real basis, not on a nominal basis, inflation adjusted basis.”

Here is the reason why Berg believes you can invest in the market today, go to sleep, wake up thirty years later and have made no money…

“Well, it is not unheard of in history. As you know there was a bear market in bonds lasting maybe forty years that began in the mid-40’s and ended in 1980. We’ve had a twenty, twenty five year bear market in Japan going back to 1989. We’re the most overvalued market in history, there’s more leverage throughout the world than there’s ever been in history, central banks have lost all their ammunition, basically because there is so much credit outstanding throughout the world. It’s not unheard of to have a long-term bear market. There will be a lot of money to be made both on the downside and the upside within the bear market.”

Milton then explains that world-wide, this is currently the most over valued equity market in history

“World-wide, looking at all the equity markets we’re definitely at the most over-valued. P/E ratios on the New York Stock Exchange are just above the P/E ratio at the trough of 2009, the median P/E ratio. Markets are way over valued. If you look at where yields were thirty, fourty years ago when you got five, six, seven percent and now you’re getting one percent, one and a half percent yield, way over valued.”

When asked what would happen if central bankers were to follow through on their whatever it takes promises, Berg gave the most rational response, which is that everything is relative.

“If whatever it takes means Zimbabwe, or hyperinflation Germany, stocks will do well, but not relative to the inflation rate.“

Furthering his comments around central banks, Berg delivered some truthiness to the fact that creating more debt won’t fix anything in the system, and as a matter of fact, will simply make the outcome worse once the bubble pops.

“They’re doing something that makes no sense with negative rates, but there’s so much credit in the system that just allowing people to borrow more money doesn’t really help the system. It just causes a greater bubble, which ultimately will deflate. It’s one big world-wide bubble, the central banks are all acting in unison, so once this bubble pricks it’s going to be pretty terrible.“

Milton finishes by giving the average retail investor some sage advice:

“The typical investor should be out of stocks and out of bonds, wait for a crisis, and buy during the crisis. Put your money under the pillow and wait until the next crisis.”

Milton is spot on, and here is a reminder of just how far down it is from here if markets enter bear territory (and could serve as a quick sanity check on current valuation levels).

 

 

The full Bloomberg interview:

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If we understand property taxes as a "lease from the local government for the right to gamble on another housing bubble arising," we see "ownership" in a different light.

We're constantly told ours is an ownership society in which owning a home is the foundation of household wealth. The concept of ownership may appear straightforward, but consider these questions:

1. If the house is mortgaged, what does the homeowner "own" when the bank has the senior claim to the property?

2. If the homeowner owes local government $13,000 a year in property taxes, what does the homeowner "own" once they pay $260,000 in property taxes over 20 years?

The answer to the first question: the homeowner only "owns" the homeowners' equity, the market value of the home minus the the mortgage and closing costs.

In a housing bubble, homeowners' equity can soar as the skyrocketing value accrues to the homeowner, as the mortgage is fixed (in conventional mortgages).

But when bubbles pop and housing prices return to reality-based valuations, the declines also accrue to the homeowner's equity.

If the price declines below the mortgage due the lender, the homeowners' equity vanishes and the property is underwater. The property may still be worth (say) $400,000, but if the mortgage(s) total $400,000, the owner owns nothing but the promise to pay the mortgage and property taxes and the right to claim a tax deduction for the mortgage interest paid.

To answer the second question, let's consider an example. In areas with high property taxes (California, New Jersey, New York, Illinois, etc.), annual bills in excess of $10,000 annually are not uncommon. If we take $13,000 annually as a typical total property tax in these areas (property taxes can include school taxes, library taxes, and a host of special assessments on top of the "official" base rate), the homeowner "owns" the obligation to pay local tax authorities $130,000 per decade for the right to "own" the house.

In states without Prop 13-type limits on how much property taxes can be raised, there is no guarantee that property taxes won't jump higher in a decade, but for the sake of simplicity, let's assume the rate is unchanged.

In 20 years of ownership, the homeowner will pay $260,000 in property taxes. Let's compare that with the rise in their homeowners' equity.

Since home values are high in high-tax regions, let's assume a $400,000 purchase price with an $80,000 down payment and a conventional 4% 30 year mortgage of $320,000.

In 20 years of mortgage and tax payments, the homeowners paid about $197,500 in interest to the bank (deductible from their income taxes), and about $170,000 in mortgage principle, leaving them total homeowner's equity of the $80,000 down payment and the $170,000 in principle, or a total of $250,000.

Since they paid $260,000 in property taxes in the period, have they gained anything? If we look at the property as merely leased from the local government for the annual fee of $13,000, then was "ownership" a good deal for the local government or for the homeowner? If the homeowner subtracts the lease fee (i.e. property taxes) from their equity, they are underwater by $10,000.

The real estate industry answer is that "ownership" is great because the skyrocketing appreciation accrues to the homeowner. If the house doubles in value from $400,000 to $800,000 in a decade, who cares about the $130,000 in property taxes paid? If we subtract this $130,000 lease fee, the homeowner would still pocket a hefty profit: $800,000 sales price minus the $400,000 purchase price, the $130,000 in property taxes, the costs of 10 years of maintaining the home and the selling commission and closing fees.

So in effect, anyone "owning" a home with high property taxes is leasing the property from the local government for the "right" to gamble that a new housing bubble is underway.

But of course real estate doesn't always go up. Overseas buyers can vanish (or be arrested by angry mobs at home before they abscond to North America with their dirty money), mortgages rates can click higher despite central bank manipulation, and the economy can tank, causing household income to crater and home buyers to dry up.

The "ownership" gamble is a big loser if real estate declines over the 20 years. If our example property declines in value from $400,000 to $300,000 in 20 years instead of doubling (or property taxes rise another $4,000 a year as local governments demand their pound of flesh to cover rising pension costs), the net equity of the "owner" declines to a $110,000 loss after 20 years.

The conventional response to this "ownership" gamble is that renters have no upside. But this is not true. Renters can leave for cheaper regions without losing equity or having to wait for their house to sell. Renters can negotiate lower rent somewhere else.

If we understand property taxes as a lease from the local government for the right to gamble on another housing bubble arising, we see "ownership" in a different light. As the saying goes, buyer beware, especially if there's no limit on how high desperate local governments can jack up their lease fees, i.e. property taxes.

My new book is #3 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition) For more, please visit the book's website.

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The oil headline scanning algos have completely lost it. While in the past it used to be just oil “production freeze” headlines that sent crude surging, now any old headline will do. Case in point, the price action since noon today.

Just around 12:37pm Eastern, Bloomberg blasted the following machine-readable headlines:

• IRAQ DEP. MIN. SEES CRUDE PRICE RISING ON INCREASE IN DEMAND
• IRAQ SEES RENEWED TALKS ABOUT OUTPUT FREEZE AT OPEC MEETING

Which as we promptly noted, pushed oil instantly from $46 some 20 cents higher.

Here we go again. Oil bounce on every algo’s favorite headline: IRAQ SEES RENEWED TALKS ABOUT OUTPUT FREEZE AT OPEC MEETING

— zerohedge (@zerohedge) May 12, 2016

 

This was to be expected.

What however caught us and oil traders completely off guard is what happened precisely one hour later, at 1:36pm, when the very same Bloomberg, quoting the very same Iraq, blasted a headline which not only refuted what Iraq had “said” before, but suggested even more oil was about to flood the market. Some 1.2 million barrels in fact.

• IRAQ CRUDE OUTPUT IS 3.8M B/D, SAME AS IN APRIL: DEP. OIL MIN. 
• IRAQ PLAN TO BOOST CAPACITY TO 5M B/D DEPENDS ON OIL PRICE

In a world of “logic”, Gallium Arsenide or otherwise, one would imagine that the second headline would undo the impact of the first one. Nope.

What happened instead is that as the first headline sent oil – expectedly – higher, so did the second one!

 

In other words, we just had a “market test” according to which algos buy oil on both “production freeze” and “production boost” headlines, confirming that algos not only don’t even scan the headlines, they just look for only one key words, in this case “Iraq”, which then proceeds to unleash yet another momentum-igniting buying spree.

Trade accordingly.

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Economic inequality and the absolute destruction of the middle class is something that we've covered for many years (recently here), and being that central bank policies only exacerbate the issue, readers of Zero Hedge are undoubtedly well acquainted with topic. As usual, it took a while, but it does appear as though the mainstream media is finally catching up, as CBS recently published a piece on the erosion of the middle class in the United States.

While there are some families that have moved into the upper-income bracket, the fact remains that overall, middle-income households (defined in the article as families of three with a household income between $42,000-$125,000) are lower in 203 of the 229 U.S. metropolitan areas studied, and there is no bias, the change has affected everyone.

From CBS

While the middle class is losing ground across urban America, the dynamic is complex: Some families dropped into the lower-income bracket, but many others climbed up from middle class and into the upper-income bracket. Overall, the share of adults living in middle-income households fell in 203 of the 229 U.S. metropolitan areas Pew studied.

 

"It is a very, very widespread phenomenon. North, south, or west, the middle class was losing ground in almost every metropolitan area," said Rakesh Kochhar, associate director of research at Pew. "It wasn't that more populated areas or poorer communities were disproportionately affected. This was a change affecting almost every community in the country."

 

Middle class can be a confusing definition, given that almost all Americans describe themselves as part of the economic group. While it can be considered a state of mind, middle class also indicates a certain economic status, such as having a basic level of financial security. In Pew's analysis, members of the middle class are those with annual household income between two-thirds to double the nation median, or about $42,000 at the low end to $125,000 at the upper limit for a family of three.

 

By that measure, the share of Americans living in middle-income households shrank from 55 percent in 2000 to 51 percent in 2014.

Interestingly, out of the 4% that shifted out of the middle class, 3% went into the upper-income bracket, while 1% dropped down into the lower-income bracket. America's middle class is in fact being pulled apart from both sides of the spectrum.

So where did those families end up? A fair number of them climbed into the upper-income range. The share of wealthy households rose from 17 percent in 2000 to 20 percent in 2014. Poor households also rose, from 28 percent to 29 percent during the same time period.

 

"The other commonality isn't just the shrinking of the middle class, but a movement both up and down the ladder," Kochhar said. "There's a polarization. There are more in the upper tier and more in the lower, and fewer in the middle."

In addition to a shifting middle class, Americans are also making less money than they did in 2000, which is key to understand since all of the pundits continue to paint a rosy economic picture – many people simply are not living that reality.

Along with the hollowing out of the middle class, Americans are generally making less money than they did in 2000. The median income of U.S. households in 2014 was $62,482 compared with $67,673 in 2000. Earnings for all groups — low income, middle class and upper income — suffered during that time.

 

For instance, the upper-income group earned median annual income of $173,207 in 2014, down 7 percent from more than $186,000 in 2000. Middle-class and lower-income families saw their incomes shrink 6 percent and 10 percent, respectively.

 

Those findings may help shed light on the discontent that many Americans, regardless of income, are feeling these days. Despite improving economic metrics such as lower unemployment, many workers feel as if they're still struggling to get ahead. In a December poll, Pew found that most Americans feel the government isn't doing enough to help the middle class.

Here is where the middle class is concentrated in metropolitan areas:

Lower income…

And upper income…

* * *

Needless to say, as the central planners continue to unleash their incompetence on the world, the wealthy will continue to accumulate wealth, the poor will continue to become poorer, and although some in the middle class do move up a bit, the fact remains that the middle class itself is being destroyed. The purchasing power of those that the U.S. consumption economy depends on so much will continue to be eroded, and ultimately the impact on the real economy will be felt, even more than it is today.

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Authored by Josh Harkinson, originally posted at MotherJones.com,

If the nationalists get their way, this November might be the last time Texans vote for a US president.

 

On Wednesday, the Platform Committee of the Texas Republican Party voted to put a Texas independence resolution up for a vote at this week's GOP convention, according to a press release from the pro-secession Texas Nationalist Movement. The resolution calls for allowing voters to decide whether the Lone Star State should become an independent nation.

Texas was, in fact, its own country for nine years before joining the United States in 1845, and while the idea of returning to independence has never been taken seriously by most people, it remains popular as a romantic notion and marketing hook. Lone Star beer is the "national beer of Texas." Texas Monthly is the "national magazine of Texas." In a 2009 rally, then-Gov. Rick Perry hinted that the state could secede if "Washington continues to thumb their nose at the American people." He later backed off the idea. (Representatives of the state GOP and Texas Nationalist Movement could not be reached for comment.)

The Texas Nationalist Movement, once considered a quixotic fringe group, has added hundreds of members in the years since the election of Barack Obama. According to the Houston Chronicle's Dylan Baddour, at least 10 county GOP chapters are coming to the convention supporting independence resolutions. But this will be the first time in the state's 171-year history that they will actually vote on one. It's very unlikely to win. Then again, that's what people said about Donald Trump.

*  *  *

As we detailed previously, via SHTFPlan.com's Mac Slavo, secession, a formal declaration of independence, is by tradition the right of every Texan and American, and the Fed has doubtlessly crossed the line too many times to count. Fed up Americans are looking for ways to voice their anger, and Texans have a notoriously short fuse, a history of independence and tendencies to secede. But the powers that be may have also fueled a trap on sovereignty. What is shirked at the federal level may be accepted at the international level.

The bankers and social engineers are practiced at ruling by divide and conquer to avoid personally confronting pitchforks and angry townspeople. There is a plan underway, which has already been exposed, known as the North American Union.  Sponsored by Wall Street firms like Goldman Sachs and organizations like the Council on Foreign Relations, the agenda is creating a globalized world that will use immigration to upend politics, shift demographics, supply corporate labor and fracture society.

Like NAFTA before it, the plan will destroy jobs and displace millions of workers, creating new waves of migration across the border. Further integration will restructure shipping, energy and transportation, all while building a scapegoat for the engineered economic collapse that will rile up the masses.

Like a doctor setting a fracture, the underwriters of the North American plan to actually break up regions of America to ‘enhance’ the management and control of society at many levels. According to author Jerome Corsi:

Understanding the plan to merge the U.S., Mexico and Canada, says Corsi, is “the only context in which the current immigration travesty makes sense – and it must be stopped.” This aim to create a North American Union between the United States, Mexico and Canada is the real reason behind “comprehensive immigration reform.”

 

“A North American Union would not just be the end of America as we know it,” claims Corsi, “but the beginning of an EU-like nightmare – a bureaucratic coup d’etat foisted upon millions of Americans without their knowledge or consent.”

Thus, the big banks and power brokers are interested in Texas secession, or at least could exploit it easily:

How might secession transition from a fringe idea to a country-ender? In my conversations with economists, political scientists, and futurists, three broad themes came up that I found the most persuasive: economic collapse, the rise of localism, and North American reshuffling.

 

[…]

 

Let’s say there’s an American revolution—who leaves first? Once the feds “start imposing just huge taxes,” [Peter] Schiff says, the states that have to pay more in than they’re getting back out will pull their stars off the flag. Schiff lists Texas and California as potential pull-out candidates, whereas “Florida probably wants to stay because of all the Social Security money.” […]

 

North America’s borders have remained pretty much static for the last century… But this stability shouldn’t imply that our dividing lines make sense. In 1981’s Nine Nations of North America, Joel Garreau argued that the continent’s borders don’t reflect how we live. Garreau’s nine nations map—which highlighted regions where people share common values, culture, and natural resources—wasn’t intended to be predictive of a future breakup [Ed. Note: yet could be spot on].

 

Take away the artificial borders and we’re all just North Americans… If America ends, so will Canada and Mexico. And if Canada or Mexico goes down the tubes, we won’t be long for this continent either. (Source)

Taken the wrong way by the media, secession and ‘fightin’ talk’ about immigration allow the system to play off the sentiment of the locales and provide friction to open up action. This strategy creates new problems, and give new agency powers to those who could offer to provide solutions. These are new realms for experts to manage, and corporations to service. Remember that calls to secession have been led by bought out “yee haw” politicians like Rick Perry. The gun toting standoff rhetoric has been largely manufactured by scripted suits funded by lobbyists.

Nonetheless, a breaking point is bound to come somewhere, at sometime. As one commenter put it:

“Most Texans do not want to break away from the United States. Most Texans consider themselves Americans. But if ever being American means sacrificing our liberties, we will just prefer to be Texans.”

Is this why FEMA has been training Texas police to deal with riots?

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Following yesterday’s record-breaking, blockbuster 10 Year auction it would have been difficult to follow the unprecedented scramble for benchmark OTR paper, and sure enough it was.

Moments ago the Treasury sold $15 billion in 30 Year paper in what may have been one of the weaker ultra-dated bond auctions in recent months, when it printed at 2.615%, tailing the When Issued by 0.7 bps, the first 30Y tail since February, and about 2 bps higher than the 30Y auction in April. 

The internals were likewise weak: the bid to cover was only 2.199, well below the 2.40 in April and the lowest since February. Finally, the allocation did not inspire much confidence, with Indirects taking down 59.7% which while hardly low, was certainly nowhere near the record we saw in yesterday’s 10 Y auction. With Directs allotted 8.8%, or the lowest since last September’s 7.4%, this meant that Dealers were left with 31.5%, the most since February.

Why the disappointment? Perhaps because there were no 50 or 100-year bond sales in Europe today; or perhaps all the duration demand had exhausted itself yesterday. Whatever the reason, following the unexpected revulsion in stocks today, the mood appears to have shifted to the Treasury complex as well, which has seen some weakness following today’s auction.

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In the 15^th century moneylender’s had their benches broken when they run out of their hard-earned cash on other people’s backs and hence the origin of ‘bankruptcy’. The broken benches, smashed stopped them starting up business again. Back then insolvency was public and it was irrevocable. Although, like everything where there’s a will, there’s a way and the broken benchers probably still got back into their moneylending line of business to fleece a few more before they went down the tubes again. That was the beginning of when banks started to become too big to fail.

Just recently France got another telling off from Moody’s and ended up beng downgraded. While the rest of Europe has managed to drag (almost) itself out of recession and see some sort of growth, France is still in the doldrums and suffering for its lack of initiative and lack of stimulus. It was downgraded from Aa2 to Aa1, despite the outlook being stable. The report from Moody’s stated that the problems will continue since France is not addressing the problems at the root of the matter, resulting in structural unemployment as well as weak profits for companies and losses in global markets. The report stated: “The current economic recovery in France has already proven to be significantly slower — and Moody’s believes that it will remain so — compared with the recoveries observed over the past few decades. In part, this is due to the erosion of competitiveness and loss of growth potential following the global financial crisis. It is becoming increasingly clear, in the rating agency’s view, that these problems will continue to constrain growth long after the cyclical recovery from the crisis is completed. In Moody’s opinion, France’s potential annual growth rate is at most 1.5% over the medium term. France faces material economic challenges, such as a high rate of structural unemployment, relatively weak corporate profit margins, and a loss of global export market share that have their roots in long-standing rigidities in its labour and product markets.”

The rating attributed to France is expected to remain as is for the next 12 to 18 months, which means that there will be no improvement in the French economy for another 2 years probably.

But, France is nowhere near as bad as some countries. There are some that are almost on the verge of implosion and they have soaring debts. What will happen to them and who are they?

7. Belarus

The outlook for this country is negative according to Moody’s and government debt for 2015 stands at 39.6% of GDP. The credit rating for Belarus is Caa1. The last-dictator of Europe, President Alexander Lukashenko, who has been in power for over 20 years, now refuses to privatize national industries still in good-old Communist style. It has suffered greatly due to the sanctions imposed upon Russia as its economy is closely linked to the Russian Federation’s. Its currency has also suffered and is now linked and indexed to the Russian ruble (40%), the US dollar (30% and the euro (30%).

6. Argentina

Argentina’s outlook is also negative and the credit rating currently stands at Caa1, with government debt at 49.5% of GDP for 2015. The inflation rate in the late 1980s stood at 12,000% and they are still suffering the consequences of the terrible years that set them back then. In 2001, the government defaulted on $100 billion in debt when it was unable to see its exports rise because it had pegged its currency to the US dollar. The country defaulted again in 2014 and in the up-coming elections all candidates are looking to see a rise in foreign investment to get themselves out of trouble.

5. Jamaica

This country has a credit rating that stands at Caa2 and 132.8% of government debt as a percentage of GDP (2015). GDP per capita currently stands at $8,784 also. The country has a positive outlook since its credit rating recently went from Caa3 to Caa2. There is greater confidence in the economy due to the simplification of tax returns and the implementation of a new minimum business tax.

4. Belize

This country has an outlook that is stable and a rating of Caa2. Government debt this year stands at 75.7% of GDP and GDP per capita is $8,321. Its GDP is currently at $1.8 billion. In 2012, the country defaulted on the repayment of $23 million, after having run up debts to the tune of $540 million.

3. Venezuela

This country has a credit rating of Caa3 and its outlook is stable today with government debt at 39.6% of GDP. Per capita GDP stands at $16,346. Fuel prices have had an adverse effect on this country’s economy and caused increases in debt, since nearly 94% of earnings are from oil today for this country.

2. Greece

Government debt here stands at 172.7% of GDP (2015) and per capita GDP is $26,773. The rating is currently under review for Moody’s and the present credit rating stands at Caa3. Greece defaulted on the repayment of $138 billion of its bailouts of 240 billion euros in 2012. The country has one of the highest unemployment rates in the history of the world sometimes hitting 25% (and even 60% for youth employment). What changes will take place with the election of the left-wing party Syriza and Prime Minister Tsipras, then his resignation and now his stunning victory and regaining of power in a second election within eight months?

1. Ukraine

 Ukraine has a credit rating of Ca and a negative outlook. Its government debt stands at 94.1% of GDP ad its per capita GDP amounts to $8,278 today. This country has the worst credit rating of all country in the world and it is the second lowest credit rating possible. The likelihood of default stands at 100% according to Moody’s.

 

There are only seven countries in the world with a credit rating that is worse than C in the world today. These are the seven countries that will go bankrupt if they don’t find a solution to their problems.

The Ancient Greeks had it off to a tee. Bankruptcy didn’t even exist as a term and when a man ended up falling into debt then it was his wife, children and servants that ended up in debt slavery. They would have to work and were forced into physical labor in order for his debt to be paid back. It was only in Athens that the families of debtors were saved by the Laws of Solon, forbidding an Athenian from being enslaved. But, it was ok to enslave foreigners or people who were not from Athens. Sometimes that slavery would last for the lifetime of the wife and children, given to the creditor since the debtor had made a mistake. What’s changed these days when someone goes bankrupt? It’s just someone else that ends up paying for it all rather than the person or the institution that did the dirty deeds in the first place. When the banks go bankrupt, we don’t break their benches any more. We just tell them not to worry and that they will get a good old-fashioned bailing out from the Federal Reserve. When the banks lend too much because they want to make a killing, we let them do it again because they were visibly having so much fun doing so.

Even before capital markets took off internationally, countries were going bankrupt and Spain, France, Portugal and Prussia regularly went bankrupt because their eyes were bigger than their bellies with regard to world expansion. They never had the money, but they just ran into debt and went bankrupt.  Back then, they never concealed it. Today, things are different. Bankruptcy fraud is the order of the day with asset concealment or destruction of documents, conflict of interest ad redistribution arrangements as well as falsification.

Once upon a time in the not-too-distant past people ended up going to a debtors’ prison for falling into debt. Back in the 19^th century it was a common way to deal with those that owed too much money to others; forced into labor to pay off what they owed to their creditors. Of course, at the same time, the wife and children fell into poverty because there was no safety net to fall back on. When released from prison, they were forced in debt bondage and became indenture servants or serfs.

How many of the bankers should end up as debt-bondaged serfs? What should happen to the countries that just willingly allow themselves to fall into debt? 

 

 

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Following today’s Brazilian Senate vote, which as reported earlier was expected to vote overwhelmingly to endorse Dilma Rousseff’s impeachment and did just that in a 55-22 vote, Rousseff appealed to the public in a televized broadcast and condemned the move to impeach her as a “coup” and a “farce“, denying she has committed any crimes.

She was addressing the nation on TV for the first time since senators voted overnight to suspend her for budgetary violations and put her on trial after being accused of illegally manipulating finances to hide a growing public deficit ahead of her re-election in 2014. Rousseff responded that her government was “undergoing sabotage”.

In her TV speech in front of supporters at the presidential palace, Mr Rousseff said that she may have made mistakes but had committed no crimes, adding: “I did not violate budgetary laws.” She said: “What is at stake is respect for the ballot box, the sovereign will of the Brazilian people and the constitution.” Branding the process “fraudulent”, she vowed to fight the charges against her and said she was confident she would be found innocent.

Rousseff accused the opposition of leading the impeachment because they had vehemently opposed all the advances she and her predecessor, Luiz Inacio Lula da Silva, had made for the Brazilian poor and lower middle classes. After her speech she left the presidential palace and shook hands with supporters lining the pathway.

In terms of immediate next steps, the following flow chart highlights the key developments over the next 6 months.

 

Meanwhile, as Rousseff continues to fight for her political life, things in brazil are already in motion as another controversial figure, vice president Michel Temer became interim president as soon as Ms Rousseff was suspended. A few key bullet points summarizing his rocky relationship with Rousseff courtesy of BBC:

• The 75-year-old law professor of Lebanese origin was Ms Rousseff’s vice-president and was a key figure in the recent upheaval
• Up until now, he’s been the kingmaker, but never the king, having helped form coalitions with every president in the past two decades
• He is president of Brazil’s largest party, the PMDB, which abandoned the coalition in March
• In recent months, his role has become even more influential; in a WhatsApp recording leaked in April, he outlined how Brazil needed a “government to save the country”.

There is an amusing and unconfirmed anecdote circulating how Temer became president as summarized in the following tweet:

Brazil media says @MichelTemer fell asleep near end of 20 hr senate session, was awoken by fireworks and realized he was now president

— Stephanie Nolen (@snolen) May 12, 2016

 

What is less amusing, however, is that if Brazil is indeed seeking to cleanse its corrupt political class, Temer is hardly the right guy to do it. In fact, if markets believe that the Brazilian political situation will stabilize following the Rousseff “coup” as she calls it, we would be sellers for one simple reason. As AP puts it, the man who may become Brazil’s next president is almost as unpopular as the leader facing impeachment now, and stained by scandals of his own.

Just like in technocratic Europe, where unelected politicians are thrust upon the public to quietly transfer wealth, Vice President Michel Temer, who hasn’t won an election on his own in a decade, is famed as a backstage wheeler-dealer, and his critics say he’s leading the plot to replace his boss, embattled President Dilma Rousseff.  

And with Temer now the acting president, the AP frames the big question as follows: can he avoid ouster himself.

Among his documented transgressions, he signed off on some of the allegedly illegal budget measures that led to the impeachment drive against Rousseff and has been implicated, though never charged, in several corruption investigations.

The son of Lebanese immigrants, Temer is one of the country’s least popular politicians but has managed to climb his way to the top, in large part by building close relationships with fellow politicians as leader of the large but fractured Brazilian Democratic Movement Party.

Think Frank Underwood.

 

While the 75-year-old’s reserved manner has earned him the nickname of “butler,” he is not without flash. His wife is 32-year-old Marcela Temer, an ex-beauty pageant contestant who tattooed Temer’s name on her neck.

 

Allies, such as former Rio de Janeiro Gov. Wellington Moreira Franco, say Temer’s ability to cut deals will help him unify the country at a time when deep polarization has exacerbated the worst crisis to face Latin America’s largest economy since the 1930s.  “Michel is a man of common sense,” Franco told The Associated Press. “He never wanted to be in this position, but he feels someone needs to end the division soon.“

We wonder how much it cost Temer to buy this “admission” from his friend.

Meanwhile critics, and there are many, say Temer is anything but a statesman simply looking out for the future of his nation.

“Captain of the coup,” former Finance Minister Ciro Gomes called Temer, using the term used by Rousseff to describe the impeachment process.”

If (Temer) becomes president, I will campaign for his impeachment the next day,” Gomes recently told reporters.

While Rousseff and Temer have long had a frosty relationship, their political alliance formally ruptured last week when Rousseff publicly accused him of plotting against her. Temer has said he won’t address the impeachment matter until the Senate decides.

And amid months of political maneuvering on all sides, one incident involving Temer stands out as bizarre: a 13-minute audio of him rehearsing an inauguration speech days before the impeachment vote. Temer said it was “accidently leaked,” though detractors say more likely it was done to gauge public sentiment.

As president, Temer would inherit a long list of problems. The economy is expected to contract by nearly 4 percent, the Zika virus has ravaged poor northeastern states, and sharp budget cuts combined with political instability are fueling worries about the country’s readiness to host the Summer Olympics in August. Just earlier this week, a famous Brazilian football player urged people not to come to the Olympics or risk bodily harm, even death.

* * *

Whether the Rio Olympics in just over two months are a disaster or not, however, one thing is certain – for months, the business community has been hoping that Temer would take over from the leftist Rousseff. But whether he’ll have the ability or appetite to take on major reforms, such as overhauling a costly pension system, is unclear.

“I think that Temer is not going to be able to govern if he assumes the presidency,” said Jandira Feghali, a Rousseff ally and Brazilian Communist Party representative, arguing that Temer won’t have legitimacy without a presidential election.

Like some 60 percent of Congress’ 594 members, Temer faces allegations of corruption, including in the massive kickback scheme at the state oil company Petrobras. In a recent plea bargain by a key senator, Temer was accused of supporting one of the company’s former directors involved in overpricing contracts for bribes. Investigators suspect the payments went to Temer and his party.

The vice president has also been accused of involvement in an illegal ethanol-purchasing scheme and of being on a list of secret payments made by constructor Camargo Correa, presumably for contract favors. Temer has denied wrongdoing.

As an elected official, he enjoys a high level of immunity; only the country’s highest court can decide to try him. A respected constitutional scholar, Temer got into politics in the 1960s. His first government job was in the education department for Sao Paulo, Brazil’s most populous state.

He worked during the administration of Gov. Adhemar de Barros, whose management style was described by many Sao Paulo residents as “steal but get things done.”

But Temer’s biggest problem is that at the end of the day, he is just as unpopular as Rousseff, if not more:

In 2006, the last time he ran for an election on his own, Temer was one of the least voted-for deputies from Sao Paulo. Still, because his party was crucial in the governing coalition, he became speaker a third time in 2009 and was Rousseff’s running mate in the 2010 and again in 2014.

 

Only 2 percent of Brazilians said they’d vote for him for president in 2018, according to a recent nationwide poll by Datafolha. The April 9 poll also found that 58 percent of Brazilians would want him impeached if he takes over for Rousseff. The margin of error was 2 percentage points, and 2,779 people were interviewed in 170 cities.

 

“If he goes out and says he won’t run for re-election, he’ll be given the status of a statesman,” said Marcos Troyjo, a professor at Columbia University’s School of International & Public Affairs. “That would give his government a grace period.”

So has the market once again gotten ahead of itself by soaring nearly 50% since the start of the year on hopes that Temer will “fix” things? Absolutely. Which is why there may have never been a clearer case of selling the news.

And while we wait for the algos to realize just how truly devastated Brazil’s depressionary economy is, here are another gratuitous photo of Michel “Butler” Temer’s 32-year-old wife, Marcela.

 

… and her sister, Fernanda Tedeshi, captured here during her time as a Playboy model.

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