Trump Defends Son’s Meeting as ‘Opposition Research,’ Obamacare Replacement Effort Gets Even More Confusing Somehow, Emmy Nominees Announced: P.M. Links

  • Trump and MacronIn France, President Donald Trump defended Donald Trump Jr.’s meeting with a Russian lawyer during the campaign as “opposition research.”
  • Once they struggled to present alternatives to Obamacare. Now Republicans have too many alternatives.
  • Apparently Hillary Clinton ally and pundit Paul Begala thinks President Donald Trump should consider bombing Russia in response to their election meddling. That might sound crazy, but Russia wouldn’t be able to interfere with other countries’ democratic processes if the entire world were a smoking, radioactive crater. That’s some next-level strategy!
  • Florida State Attorney Aramis Ayala was pulled over by police and they didn’t really have a decent explanation why they ran her tag in the first place (she was not accused of any traffic violations). The body cam footage of the encounter has gone viral.
  • A federal court has overturned the 2015 corruption conviction of former Democratic New York State Assembly speaker Sheldon Silver.
  • The Emmy nominees were announced today. The Leftovers and Legion were robbed. Robbed!
  • Fresh Kid Ice, founding member of 2 Live Crew, a rap group near and dear to supporters of the First Amendment, has died at age 53.

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Treasury Turmoil Returns As Fed-Flip-Flop Sends Stocks To Record Highs, VIX Below 10

Yellen's speaking again… give it all you've got!!

 

Stocks stalled early on (around 1010ET) thanks to inflation comments from Yellen, but that dip was bid back to the highs…then they took a little spill when Fed's Brainard admitted "asset valuations do look a bit stretched" around 1400ET. Once again the rally-monkeys came out – even as it became clear that GOP will not have the votes for the revised healthcare bill…

Nasdaq up 5 days in a row – the longest streak since May… Early Small Caps weakness was ramped all the way back into green…

 

Futures show that in general markets went nowhere today…

 

On the week, Trannies are hovering just into the green as Nasdaq outperforms…

 

Retail was bid today (best day of the year), because suddenly they're all fixed, and financials were higher ahead of tomorrow's earnings..

 

FANG Stocks spiked up to a key resistance level then faded to end the day lower…

 

VIX was clubbed back to a 9 handle once again every time Nasdaq dared to dip red…

 

Treasury yields shot higher this morning and extended their rise through Yellen's testimony…

 

With 30Y spiking almost 8bps off the lows to return to unchanged for the week, before bonds rallied into the close…

 

The Dollar Index slid once again (but saw quite a reversal overnight…

 

AUD is the best performer among the majors this week (along with the Loonie) as EURUSD remains unch…

 

Despite headlines of OPEC compliance crashing to six-month lows, WTI had a sudden early bid and that ignited momentum back to pre-DOE levels, back above $46…

 

Gold rolled over from earlier gains as the dollar rallied this afternoon, but the precious metal closed only marginally lower…

 

Bitcoin leaked back lower again…

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VIX To Double Within A Year, Natixis Warns

Vol-sellers beware. That's the message from Natixis Global Asset Management’s Brett Olsen and Nicholas J. Elward, in their latest note, as they warn "it stands to reason that the market will see a reversion to the mean and find the VIX trading in the 20+ range before too long."

There has been much discussion lately about how stock market volatility is at near historic lows. The Chicago Board Options Exchange Volatility Index® (or VIX), a measure of implied or future volatility, is at a level of roughly 10 as of June 30, 2017. If one looks at the history of the VIX, it has typically averaged closer to 20.

Over the last 20 years, there has been only one other period of volatility this low, over the 2004–2006 timeframe. This period was characterized by economic expansion and a strong stock market as the economy moved out of the 2000–2003 tech bubble burst. This period of calm came to an end with extremely high volatility as we entered the Great Recession of 2008.

There are several factors that could cause the VIX to increase in the coming months; personally, we believe it may double. Here are four reasons why:

1) Geopolitical unrest – There continues to be concern among many market analysts around North Korea, Russia and a variety of Middle Eastern nations – including Turkey, Iran, Saudi Arabia, Syria, and Iraq. Depending upon what a small number of political leaders decide to do in their countries, in their regions, and even more widely, we could suffer increased global unrest, which may cause increased global stock market volatility. In addition to the actions taken by political leaders, the threat of terrorism remains unpredictable and could contribute to rising volatility.

 

2) Instability in the American political landscape – Ever since the election of Donald Trump in November 2016, we have seen strong stock market returns. The Trump administration has promised investor friendly policies, such as tax reform and deregulation. There are also expectations of more infrastructure spending, which could help increase business growth and employment in the United States. However, despite these expectations, there have been many distractions as these legislative goals are being pursued, including the ongoing investigation into the Trump campaign’s connections with Russia and continued disagreements between and among legislators of both parties. Each of these distractions has the potential to create further frustration among both business leaders and voters alike. Moreover, it remains possible that the investigations into the Trump administration could result in material changes in executive branch leadership. Current political dynamics have the potential to translate quickly into increased market turbulence.

 

3) Advance to the back-end of the US business cycle – The U.S. is in the 8th year of an economic expansion, one of the longest in history. According to historical data, most business cycles last an average of about 6 years. Considering the age of the current expansion, a sustained market correction – and the increased stock market volatility that could come along with it – may loom.

 

4) Retrenchment of central banks’ easy credit policy – The U.S. and many other countries across Europe have seen declining or very low interest rates dating back nearly 10 years. However, this business-friendly credit environment may be coming to an end in the U.S., and we expect soon in Europe as well, as interest rates are set to rise. In addition to this, the U.S. is likely to begin tapering its bond buying program later this year, which has also had an impact on keeping rates low. The ending of the Federal Reserve’s quantitative easing (QE)2 program will eliminate an artificial stabilizer in the economy. We expect this could increase the probability of higher stock market volatility in the near future.

 

[ZH: and as we have noted previously, the collapse in China's credit impulse means volatility to set to come no matter what…]

 

 

Readying for the road ahead

With these volatility-increasing risks before us, we strongly believe the VIX could double within a year. This predication is just that, a prediction, based on the above risks and the fact that the level of volatility is currently at near historic lows.

Nevertheless, we believe it stands to reason that the market will see a reversion to the mean and find the VIX trading in the 20+ range before too long.

In order to prepare for this greater level of volatility, investors should carefully review their portfolios so they are aware of the risks they are taking. A range of investment strategies, including lower volatility investment strategies, are available to investors looking to reduce risk and increase diversification in their portfolio.

Read their Latest Insights page for more analysis of current market conditions.

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The Shocking Reason Why The US Just Spent A Record $429 Billion In One Month

On Thursday morning the CBO released a surprisingly upbeat assessment of Donald Trump’s proposed budget, calculating that it would cut the cumulative US deficit by 30% over the next decade, preventing the US debt from spiraling out of control (even further).

That. however. may be an overly optimistic assessment, especially following the release of the latest monthly budget data, which showed that not only did the US deficit surge to $90 billion, far above the $38 billion consensus estimate, and a “NM” compared to the $6.3 billion budget surplus in June of last year, but the US also saw the biggest one month outlay on record, at $429 billion, 33% higher than the $323 billion in outlays one years ago.

What prompted this massive surge in outlays?

The biggest reason for the outlier print is that according to Stone McCarthy, outlays increased by at least $54 billion relative to baseline because the Treasury revised up its estimates of the subsidy cost of housing and student loans it guarantees.

The cost of those loans is treated in the budget on a present value basis, not a cash basis. Treasury periodically revises these costs. (It should be noted that the associated increase in outlays doesn’t impact Treasury borrowing or debt under the debt limit.) If not for these special factors, Treasury would have reported another small surplus for June… however it did not.

On the revenue side, things were just as bad with the US Treasury collecting only $338.7BN, just 9% higher than the $330BN in June of 2016.

What makes the surge in the deficit especially surprising is that June is often a surplus month, as the Treasury receives large corporate and non-withheld individual tax payments in that month.

One theory explaining the shortfall in revenues reflects taxpayers delaying the recognition of income in 2016, anticipating tax cuts this year. That revenue should eventually be recovered. About a third of the revision was on the outlay size, with a large chunk due to changes in the estimated subsidy costs described above. Based on the CBO revisions, we think the deficit for the fiscal year, which has three months left, will be in the $650 billion to $700 billion range.

Combining these two means that YTD, the deficit jumped to $523.1BN vs $399.2BN last year.
While many analysts had a deficit base case for fiscal 2017 at roughly
$575BN (the year ends on Sept 30), the CBO recently revised its
projection for the fiscal 2017 up by $134 billion to $693 billion. Most of the CBO revision reflects weaker than expected revenues.

To summarize: what the unexpected surge in government outlays means is that quietly and mostly behind the scenes, the student debt bubble has begun to burst, and the Treasury is “provisioning” for it in real time, with all US taxpayers once again on the hook.

Finally, since the $1+ trillion student loan bubble is expected to end up with discharges of 35% if not higher, it means that over the next several years, the budget deficit will be incrementally boosted by approximately $350 billion as America’s taxpayers are once again taken to the cleaners, this time to bail out million of liberal arts majors who for one reason or another just can’t pay back their student loans.

h/t @SMRA

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Is Wall Street Funding A Shale Failure?

Authored by Nick Cunningham via OilPrice.com,

The latest figures from the EIA show that despite some hiccups, the shale rebound is still on track. Last week, the sharp drawdown in inventories made headlines, but buried within the weekly figures was a bounce back in oil production, reigniting fears that the market will take much longer to balance.

(Click to enlarge)

The U.S. shale industry has already added almost a half million barrels per day since the end of last year, taking production up to 9.3 million barrels per day (mb/d). But production is expected to continue to grow rapidly, with projections putting output at a record-high 10 mb/d by next year.

The coming wave of new supply will only be possible with the generous help of Wall Street. According to the Wall Street Journal, major banks and investors have showered the industry with credit and equity, pouring an estimated $57 billion into the sector over the past 18 months. All of that money is being translated into a sharp rise in drilling even as oil prices slump.

But while individual companies hope to attract investors and boost profits by ratcheting up production, the industry as a whole is shooting itself in the foot. Some less efficient drillers are increasing production but losing money on every barrel produced.

There is a growing recognition that loose money and easy credit is helping contribute to another downturn in prices. “The biggest problem our industry faces today is you guys,” the CEO of Anadarko Petroleum, Al Walker, said at an investor’s conference in June, according to the WSJ. “It’s kind of like going to AA. You know, we need a partner. We really need the investment community to show discipline.”

Investors hungry for yield are throwing money into companies who then drill more, and the surge in production is hurting the industry as a whole. Despite efficiency improvements, the shale industry is expected to be cash flow negative by a combined $20 billion this year as oil prices sink.

The energy sector, by some estimates, has been the worst performer this year for investors, so many are getting burned even as they keep the money taps open. Whether in terms of commodity prices (energy fell 11 percent in the S&P Goldman Sachs Commodity Index) or individual companies (73 of the 90 companies in the MSCI World Energy Sector Index saw their share prices decline in the second quarter), the oil and gas industry has not been a great space to be in.

(Click to enlarge)

Investors are slowly waking up to the idea that they may not be able to make juicy profits by betting on a sharp rebound in oil prices. There is some early evidence that Big Finance is pulling back, with new equity issuance down recently.

Even if Wall Street starts to cut back on its investments in shale, it will take time for that spending contraction to show up in the production data. There is a roughly six-month lag time between the decision to begin drilling and oil showing up in the market, so the rush of new drilling that began in the first half of 2017 will ensure that production likely continues on its upward trajectory for the rest of the year.

But lower prices will ultimately cut into U.S. production, even if that doesn’t occur until 2018. According to Bank of America Merrill Lynch, a $1 per barrel increase or decrease translates into the addition or subtraction of 100,000 bpd of supply. As a result, “[w]ithin a $20 band, you get an almost 2m b/d swing,” said Francisco Blanch, Bank of America’s global head of commodities research, according to the FT. So while 2017 production will probably continue to increase, the outlook for 2018 is still sensitive to prices.

Nevertheless, the current oversupply woes have forced investment banks and other oil analysts far and wide to downgrade their oil price forecasts. For example, Bernstein Research slashed its price forecast for 2017 and 2018 from $60 and $70 per barrel, respectively, down to just $50. Bernstein doesn’t see oil averaging $60 per barrel before 2019.

Drastic cuts to oil price forecasts are spreading. BNP Paribas just axed its 2018 forecast for Brent by $15 per barrel to a lowly $48.

If those depressed price levels stick around, Wall Street will likely grow tired of shale drilling and start taking its money elsewhere.

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Rand Paul Thinks the GOP’s New Health Care Bill Is Worse Than Obamacare

Senate Republican leadership released a revised health care bill this morning, and Sen. Rand Paul (R-Kentucky) is not a fan.

Asked today by The Hill‘s Rachel Roubein whether the new legislation is “worse than Obamacare,” Paul said “yes.”

Paul has opposed every iteration of the GOP’s health care legislation on the grounds that none of them have gone far enough toward repealing Obamacare. Instead, Paul has argued that the Republican health care plans leave Obamacare’s essential structure in place while bailing out insurance companies.

The health care legislation represents a significant overhaul from the version released last month. And in some ways it looks even more like Obamacare than previous iterations.

The new draft keeps some of Obamacare’s taxes on high earners in place, and adds an additional $70 billion in funds intended to help states stabilize insurance markets, much of which would probably end up going to insurance companies.

The bill does include a concession to more conservative lawmakers, who have been pressing GOP leadership to include a provision that would allow insurers to sell plans that don’t comply with all of Obamacare’s regulations, provided they also sold regulated plans.

A variant of that provision, which was initially backed by Sens. Ted Cruz (R-Texas) and Mike Lee (R-Utah), is included in the bill, but it’s not exactly the same as the one favored by Cruz and Lee. Lee, who recently told Reason’s Matt Welch that the Cruz-Lee amendment was a must in order to get his vote, has indicated that so far he is undecided about the new legislation.

Paul, on the other hand, is clearly a hard no on the current draft. He is joined in opposition by Senator Susan Collins, a moderate Republican from Maine. Collins indicated on Twitter today that she will not vote yes on a motion to proceed with the bill. The bill must garner at least 50 votes on a motion to proceed in order to proceed to debate, and there are only 52 Republicans in the Senate.

The opposition from Paul and Collins, in other words, means that every single other Republican senator must support the bill—otherwise it will be dead before it hits the floor. With Lee and a handful of other GOP senators still undecided (and seemingly rather ambivalent about the merits of the legislation), it’s going to be very close. And in the end, it could be two of the GOP’s most staunch opponents of Obamacare, Paul and Lee, who cast crucial votes to kill the bill that Republican leadership has billed as Obamacare repeal.

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Ignore the Haters. Russia is Not Our Enemy

Trump and PutinThose hoping for an early end to the Trump administration received a gift this week as Donald Trump Jr. disclosed an exchange with a Russian lawyer. The Russian hacking story now promises to dominate headlines for the remainder of Trump’s presidency, however long it lasts.

For the duration, talking heads will be telling us that Russia is an adversary and a hostile threat. But regardless of whether the president was involved, Russia hating, while great for the military-industrial complex, is inimical to world peace and broader American prosperity.

The intelligence and military leakers and Trump’s political enemies believe friendly relations with Vladimir Putin’s government are dangerous. But since Russia can annihilate our country, the greater danger is not engaging with Putin.

The anti-Russia hyperventilation covers the political spectrum. Republican Sen. John McCain told an interviewer that Putin is a greater threat than ISIS, accusing Russia of trying to change election results in America, France and elsewhere. But Putin’s regime is not decapitating or urging lone wolves to massacre Americans on US soil. And as for Russian manipulation, the pro-Russian candidate Marine LePen was crushed in the May presidential election in France.

Democrat Hillary Clinton accused the Trump campaign of conspiring with Russia to “weaponize” leaked information against her with the WikiLeaks’ dump of John Podesta email messages. Clinton’s collusion assertion is based on her questionable assumption that WikiLeaks is an agent of Russia. Since WikiLeaks operates out of an embassy in London, one might expect our British allies to have leaked Putin’s instructions to Julian Assange by now.

McCain, Clinton and others are amplifying the US intelligence community’s public indictment of Russia for election meddling during the closing days of the Obama administration. That report also claims that Russian agents hacked Podesta’s email and released them through WikiLeaks, but does not provide hard evidence.

Intelligence community assertions should be treated with skepticism. After all, this community concluded in 2002 that Saddam Hussein had WMD’s. Further, a senior member of the intelligence community, James Clapper, lied to Congress in 2013 when he denied that the NSA collects data on Americans.

Even assuming the allegations are true, they do not lead to the immediate conclusion that Russia is an enemy. Friendly countries spy on one another and try to influence each other’s elections all the time. President Obama called on British voters to reject Brexit, and the NSA appears to have bugged German Prime Minister Angela Merkel’s mobile phone.

Israel spies on the US and tries to influence our elections. Jonathan Pollard’s espionage “has few parallels” according to the CIA, which concluded he had “put at risk important U.S. intelligence and foreign policy interests.” In 2012, Israeli Prime Minister Benjamin Netanyahu attempted to scuttle President Obama’s re-election effort.

Most of the intelligence community memo focuses on the activities of RT, a Russian media group that operates a cable news channel, a web site and social media properties in the US. RT is accused of spreading propaganda and fake news that impacted our election. But such media are neither new nor unique to Russia.

Our Voice of America, the British Broadcasting Corporation, and other state media have been around for decades. Among the personalities on RT America are Larry King, Jesse Ventura, and former Air America hosts Thom Hartmann and Ed Schultz – none of whom appear to be stooges for Vladimir Putin. Further, as Simon van Zuylen-Wood noted in his excellent overview of RT, the network “is watched by so few people that Nielsen doesn’t bother to publish its ratings.”

To be sure, Putin has some very undemocratic inclinations. But the US has maintained and continues to maintain friendly relations with despotic nations. President Richard Nixon visited China in 1971, not long after Mao Zedong killed tens of millions of people with his Great Leap Forward and Cultural Revolution. Today, there is widespread support for friendly relations with Saudi Arabia – an undemocratic nation that stones women to death for adultery.

It is also true that Russia is a rival for influence on the world stage. This perhaps is why our generals, intelligence operatives, representatives, think tanks and the media so dislike Putin. While the foreign affairs intelligentsia views the world as a power-playing chessboard, this approach to geopolitics is contrary to the interests of ordinary Americans who don’t benefit from international conflicts.

When President Trump met with Russian Foreign Minister Sergei Lavrov and Ambassador Sergey Kislyak in the oval office a few weeks ago, he shared intelligence about a plot by Syrian-based ISIS operatives to place laptop bombs on civilian airplanes. Russia’s presence in Syria may have helped thwart this plot. And it had an incentive to do so: ISIS previously downed a Russian civilian airliner in the Sinai Desert.

As president, Donald Trump has the legal right to declassify the intelligence. But some unelected bureaucrat in the US national security establishment decided that Trump’s actions were inappropriate and leaked the story to The Washington Post. It is possible the leak alerted ISIS that its plot had been compromised, encouraging the terrorists to protect their bomb-building efforts from further scrutiny. The potential victims of this leak are civilian passengers of US airlines – the presumed target of the ISIS plot.

Russia also provided intelligence that, had it been handled properly by the FBI, could have prevented the Tsarnaev brothers from bombing the Boston marathon.

Rather than cooperating, however, the national security establishment not only seeks conflict with Russia, it looks for enemies around the world. Hostilities provide lucrative contracts and a sense of mission to those advancing them – but imposes huge costs on the rest of us. US troops are now engaged in Afghanistan, Iraq, Syria, Libya, Yemen and Somalia.

Worldwide warfare has driven national security spending toward $1 trillion a year. With a national debt approaching $20 trillion, this is a financial cost our country can ill afford. And since 2001, the US has suffered almost 7,000 deaths and over 52,000 wounded in foreign hostilities.

Democrats 50 years ago were peace organizers, fired by Martin Luther King’s condemnation of the Vietnam War. And Barrack Obama won the presidency promising to withdraw from Iraq.

But in their desire to rid the White House of Donald Trump, Democrats have forsaken their anti-war heritage. Instead, they are teaming up with Republican hawks and the Deep State to drive a wedge between the US and Russia.

Libertarians are the logical champions of peace and prosperity, but some have expressed sympathy for coercive US government actions to counter Russian influence. These include targeted sanctions and funding for groups in Eastern Europe that supposedly promote liberal democracy.

Although portrayed as a penalty on foreign powers, sanctions prevent US individuals and companies and individuals from doing business with those countries. A new Senate bill, S.722, prevents US companies from working on gas pipelines between Russia and Western Europe. The bill also appropriates $500 million of US taxpayer money to a “Countering Russian Influence Fund,” to be spent in Eastern Europe. The legislative language lists six possible uses for this money which sound good, but are vague and open to broad interpretation.

Libertarians recognize the state usually abuses the powers we give it. We should never advocate for restrictions on trade or appropriation of tax money for so-called democracy promotion. Peace and non-interventionism are core tenets of libertarianism that too many self-identified libertarians seem to forget. We must avoid repeating the mistakes we made in the runup to the Iraq War.

Regardless of one’s position on Trump, Congress has not declared war on Russia. Russia has not invaded us. Russia is not our enemy.

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Did Police Just Take Down the Biggest Dark Web Drug Market in History?

Alphabay, the largest drug market on the dark web, has been offline since July 5. It’s still unclear why it’s gone, but new evidence is fueling speculation that law enforcement may have been responsible.

Initially, participants on the site’s subreddit suspected that one of two things had happened: Either administrators had taken the servers offline for maintenance—perhaps to address the kind of security flaw that led to the release of user data earlier this year—or they’d conducted what’s called an “exit scam,” in which a site’s proprietors shut down a market without warning and disappear with whatever cash is stored in their users’ on-site wallets. A cryptomarket called Evolution conducted just such an exit scam in 2015, when two administrators allegedly made off with 40,000 in bitcoin, then equivalent to about $12 million. (It would be roughly $94 million in U.S. currency today.)

But now a new theory is emerging: The site may have been brought down by a globe-spanning law enforcement operation.

On July 5, the first day users found themselves locked out of Alphabay, the Montreal Gazette got wind of two Montreal raids conducted by the Royal Canadian Mounted Police and the FBI. The crackdown, the Gazette reported, was “reportedly in connection with the sale of merchandise on the ‘Dark Web’ of the internet.”

The raid theory gained steam yesterday when users learned that a 26-year-old Canadian national named Alexander Cazes had allegedly hanged himself in a Bangkok jail cell to avoid extradition to the U.S. The charges? Drug trafficking. The date of Cazes’ arrest? July 5.

“If Cazes is indeed the AlphaBay administrator, this news doesn’t bode well for the marketplace and all of the money still locked inside its wallets,” JP Buntinx points out on the cryptocurrency and infosec news site The Merkle. “It is unclear if anyone else has access to the necessary resources so that the platform can be relaunched in the future. It is also unclear as to what Cazes may have told the authorities in regards to AlphaBay, its users, or other people working on the platform.”

The July 5 raids in Montreal and arrest of Cazes in Bangkok followed on the heels of the Drug Enforcement Administration’s arrest of an alleged Alphabay vendor based in Missouri this May.

Prior to closing, Alphabay was processing nearly a million dollars in transactions per day. That made Alphabay the biggest cryptomarket on the dark web. But it’s not the only one, and users are already migrating to other sites.

“In the darknet, market ‘shocks’ are, ironically, common,” says Isak Ladegaard, a cryptomarket researcher at Boston College. “Seasoned cryptomarket buyers and sellers probably expected Alphabay to shut down at some point. That is why people have created, and maintain, comprehensive systems for market assessments, which include crowdsourced information, detailed descriptions of market features, and technical measures (e.g. downtime). I think most users know that when market A goes down, for whatever reason, they can easily look up and compare market B and C.

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Connecticut Capital Hartford Downgraded To Junk By Moody’s

Just two days after S&P downgraded Hartford to junk, Moody's has piled on, pushing the Connecticut State capital below investment-grade due to "the increased likelihood that the city will pursue debt restructurings to address its fiscal challenges."

One week ago, Illinois passed its three year-overdue budget in hopes of avoiding a downgrade to junk status, however in an unexpected twist, Moody's said that it may still downgrade the near-insolvent state, regardless of the so-called budget "deal." In fact, a downgrade of Illinois may come at any moment, making it the first U.S. state whose bond ratings tip into junk, although as of yesterday, credit rating agencies said they were still reviewing the state's newly enacted budget and tax package. The most likely outcome is, unfortunately for Illinois, adverse: "I think Moody's has been pretty clear that they view the state's political dysfunction combined with continued unaddressed long-term liabilities, and unfavorable baseline revenue performance as casting some degree of skepticism on the state's ability to manage out of the very fragile financial situation they are in," said John Humphrey, co-head of credit research at Gurtin Municipal Bond Management.

And yet, while Illinois squirms in the agony of the unknown, another municipality that as recently as a month ago was rumored to be looking at a bankruptcy filing, the state capital of Connecticut, Hartford, no longer has to dread the unknown: following S&P's downgrade to junk on Tuesday, Moody's just shifted Hartford's GOs to B2 from Ba2, with a negative outlook.

Excerpted Moody's note:

Moody's Investors Service has downgraded the City of Hartford, CT's general obligation debt rating to B2 from Ba2. The outlook is negative.

 

The rating was placed under review for possible downgrade on May 30, 2017. The par amount of debt affected totals approximately $550 million.

 

The downgrade reflects the increased likelihood that the city will pursue debt restructurings to address its fiscal challenges. Last week, the city hired a law firm to advise it on debt restructurings. City management has made public statements indicating they will need to have discussions with bondholders about restructuring its debt regardless of the outcome of the state's biennial budget as debt service costs escalate sharply leading to budget deficits over the next five years.

 

The rating also reflects the city's challenging liquidity outlook in the current fiscal year and weak prospects for achievement of sustainably balanced financial operations. The city currently projects a fiscal 2018 deficit of $50 million and is seeking incremental funding from the state to close that gap. The state has not yet adopted a budget specifying aid for the city for the fiscal year beginning July 1. Even if the state's biennial budget allocates sufficient funds to address the current and following years deficits and create a fiscal oversight structure, the budget is still unlikely to provide a pathway to structural balance over the longer term. City deficits, partially attributable to escalating debt service costs, are projected to grow to $83 million by 2023, making the city's weak financial position vulnerable to further deterioration.

 

Rating Outlook

 

The negative outlook reflects the possibility that the city will restructure its debt in a way that will impair bondholders. The outlook also incorporates uncertainty over state funding in the current fiscal year and beyond and the associated impact on reserves, liquidity and the ability to achieve sustainably balanced operations.

In short: the capital of America's richest state (on a per capita basis), will – according to both S&P and Moody's – be one of the first to default in the coming months.

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If Everything’s So Awesome, Why Are Investors Surging Into Tech-Stock Hedges?

Tech stocks are up once again – for the 5th day in a row, the longest streak since May – as the business media celebrates FANG's rennaissance (again)…

 

There's just one thing that is 'odd' about this rally, traders are piling into downside hedges on every uptick in prices…

As Bloomberg notes, options markets suggest a lack of confidence in the rally.

The cost of bearish over bullish contracts in the $13 billion Vanguard Information Technology exchange-traded fund rose to the highest level since late May, even as the fund pared most of its losses in the slump following an all-time high reached in June.

Gaining 20 percent this year, S&P 500 technology companies trade at 17.7 times projected earnings, compared with a five-year average of 15.

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