Tag: news

It is likely just a coincidence that just a month after we reported that China’s real consolidated debt/GDP was far greater than the 280% or so accepted conventionally, and was really up to 350% if not higher after the recent record loan issuance surge, moments ago Moody’s officially downgraded its outlook of China’s credit rating from stable to negative, citing three key risks:

1. The ongoing and prospective weakening of fiscal metrics, as reflected in rising government debt and in large and rising contingent liabilities on the government balance sheet;
2. A continuing fall in reserve buffers due to capital outflows, which highlight policy, currency and growth risks;
3. Uncertainty about the authorities’ capacity to implement reforms – given the scale of reform challenges – to address imbalances in the economy.

While these were topical about a year ago for the financial media, and about 6 months ago for everyone else, we can’t help but notice that as expected Moody’s has said nothing at all about China’s biggest current risk factor – its collapsing labor market and surging unemployment. That’s ok, we are confident even the rating agencies will be up to speed with what we have been reporting since last November before the year is done.

Below is the full report:

Moody’s changes outlook on China’s Aa3 government bond rating to negative from stable; affirms Aa3 rating

Singapore, March 02, 2016 — Moody’s Investors Service has today changed the outlook to negative from stable on China’s government credit ratings, while affirming the Aa3 long-term senior unsecured debt, issuer ratings, and (P)Aa3 senior unsecured shelf rating.

The key drivers of the outlook revision are:

1. The ongoing and prospective weakening of fiscal metrics, as reflected in rising government debt and in large and rising contingent liabilities on the government balance sheet.
2. A continuing fall in reserve buffers due to capital outflows, which highlight policy, currency and growth risks.
3. Uncertainty about the authorities’ capacity to implement reforms — given the scale of reform challenges — to address imbalances in the economy.

At the same time, China’s fiscal and foreign exchange reserve buffers remain sizeable, giving the authorities time to implement some reforms and gradually address imbalances in the economy. This underpins the decision to affirm China’s Aa3 rating.

RATINGS RATIONALE

RATIONALE FOR ASSIGNING A NEGATIVE OUTLOOK

FIRST DRIVER — WEAKENING FISCAL METRICS AND SIZEABLE CONTINGENT LIABILITIES

The first driver of the negative outlook on China’s rating relates to the government’s fiscal strength which has weakened and which we expect to diminish further, albeit from very high levels.

The government’s balance sheet is exposed to contingent liabilities through regional and local governments, policy banks and state-owned enterprises (SOEs). The ongoing increase in leverage across the economy and financial system and the stress in the SOE sector imply a rising probability that some of the contingent liabilities will crystallize on the government’s balance sheet. In addition, we believe that continuing growth in contingent liabilities — along with stated government objectives to introduce more market discipline — suggests that support from the government and the banking system will increasingly be prioritized, based on the relative importance of each entity for the implementation of strategic national policy goals.

While not our base case scenario, the government’s fiscal strength would be exposed to additional weakening if underlying growth, excluding policy-supported economic activity, remained weak. In such an environment, the liabilities of policy banks would likely increase to fund government-sponsored investment, while the leverage of SOEs — already under stress — would rise further.

We do not expect all or even a significant proportion of contingent liabilities to crystallize on the government’s balance sheet in the short term. However, their existence and increase in size reflect economic imbalances. In particular, high and rising SOE leverage raises the risk of either a sharp slowdown in economic growth, as debt servicing constrains other spending, or a marked deterioration of bank asset quality. Either of these developments could ultimately result in higher government debt and additional downward pressure on the government’s credit profile.

In addition, government debt has risen markedly, to 40.6% of GDP at the end of 2015, according to our estimates, from 32.5% in 2012. We expect a further increase to 43.0% by 2017, consistent with an accommodative fiscal stance that will likely involve higher government spending and possible reductions in the overall tax burden.

At the same time, we expect debt affordability to remain high as large domestic savings will continue to fund government debt.

SECOND DRIVER — ERODING EXTERNAL STRENGTH

The second driver relates to China’s external vulnerability. China’s foreign exchange reserves have fallen markedly over the last 18 months, to $3.2 trillion in January 2016, $762 billion below their peak in June 2014.

At the same time, reserves remain ample, particularly in relation to the size of China’s external debt. However, their decline highlights the possibility that pressure on the exchange rate and weakening confidence in the ability of the authorities to maintain economic growth and implement reforms could fuel further capital outflows. In particular, a fall in reserves — corresponding to sustained deposit outflows — could raise pressure on the deposit-funded banking sector.

Measures to address falling foreign exchange reserves and downward pressure on the renminbi have negative implications for the economy and financial sector. First, a tightening of capital controls in response to sustained outflows would damage the credibility of the authorities’ commitment to liberalizing the capital account, an essential element of financial sector reform.

Second, allowing reserves to fall to preserve the value of the currency — when pressures exist — would tighten liquidity conditions in China at a time when parts of the economy are slowing sharply and when the debt-servicing capability of some corporates is impaired.

Third, preserving foreign exchange reserves and allowing a sharp depreciation of the currency would likely fuel further capital outflows.

THIRD DRIVER — RISKS OF A LOSS IN POLICY CREDIBILITY AND EFFICIENCY

The third driver concerns institutional strength. China’s institutions are being tested by the challenges stemming from the multiple policy objectives of maintaining economic growth, implementing reform, and mitigating market volatility. Fiscal and monetary policy support to achieve the government’s economic growth target of 6.5% may slow planned reforms, including those related to SOEs.

Incomplete implementation or partial reversals of some reforms risk undermining the credibility of policymakers. Interventions in the equity and foreign exchange markets over the past year suggest that ensuring financial and economic stability is also an objective, but there is considerably uncertainty about policy priorities.

Without credible and efficient reforms, China’s GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavourable. Government debt would increase more sharply than we currently expect. These developments would likely fuel further capital outflows.

RATIONALE FOR AFFIRMING CHINA’S Aa3 RATING

The very large size of China’s economy contributes to its credit strength. Moreover, although GDP growth is slowing, it will remain markedly higher than most of China’s rating peers. The size of the buffers available to face current fiscal and capital outflow challenges allows for a gradual implementation of reform and therefore supports an affirmation of the rating at Aa3. These buffers include a relatively moderate level of government debt, which is financed at low cost, and high domestic savings and still substantial foreign exchange reserves.

We expect a gradual economic slowdown, made possible by the capacity and willingness of the authorities to support growth. Moreover, although contingent liabilities are large, they do not pose an imminent risk to the government’s balance sheet. In a largely closed financial system, buffer erosion would most likely be gradual, providing time to address key areas of reform.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody’s could revise the rating outlook to stable if we concluded that government policy was likely to succeed in balancing competing priorities and thereby arrest the deterioration in China’s fiscal metrics and reduce contingent liabilities for the sovereign most likely through effective restructuring of SOEs in overcapacity sectors.

Moreover, a moderation in capital outflows due to improved confidence in the economy and policies as well as advancement of reforms — in particular in the SOE and financial sectors, including some further opening of the capital account — would be consistent with returning the outlook to stable.

Conversely, Moody’s could downgrade the rating if we observed a slowing pace in the adoption of reforms needed to support sustainable growth and to protect the government’s balance sheet. Tangibly, this could happen if debt metrics weaken, contingent liabilities increase, or progress on SOE reform stalls. Sustained capital outflows or a marked tightening in capital controls without tangible progress on reform implementation would also be consistent with a downgrade of the rating.

via Zero Hedge http://ift.tt/1oNFKlN Tyler Durden

Submitted by Dale Steinreich via The Mises Institute,

In the wake of numerous cases of lead poisoning through Flint, Michigan’s government-managed water supply, some commentators immediately began looking for ways to blame the private sector. Shortly thereafter, David Brodwin of U.S. News and World Report wrote “Flint: The Big Cost of Small Government.”

According to Brodwin, what caused lead-tainted water to gush forth from faucets in Flint were “attacks on investment in public infrastructure and on regulation of all kinds.” For these he blames “right-leaning libertarian interests,” although he does not name a single one.

America, writes Brodwin, has fallen under an “obsession with tax cuts [which] has reduced budgets to the point where they can no longer sustain basic infrastructure.” Attacks on regulation supposedly caused the failure of the Michigan Department of Environmental Quality to do its job. “Either its staff was buffaloed by those in power, or its professionals had been replaced by political hacks willing to ignore the mission of the agency.” Brodwin does not support these assertions with evidence.

But then comes a strange concession from Brodwin: “Local officials of the federal [Obama administration] Environmental Protection Agency failed as well.”

Brodwin’s conclusion is that “[i]f we don’t address the underlying ideologies that led to this problem, we’ll face it again and again, all over the United States.”

If you are wondering at what point in its history Flint, Michigan jumped onto the cutting edge of free-market thinking and practice, join the club.

Obviously Brodwin’s contradictory essay doesn’t begin to explain how small government caused lead-tainted water to pour out of Flint’s taps. From an economics perspective, what all the facts of the Flint case clearly point to is the all-too-typical failure of central planners to adequately think through the most important implications of a decision.

On 25 March 2013, Michigan state officials and the Flint city council (by a 7–1 vote) decided to switch the city’s water source from the Detroit Water and Sewerage Department (DWSD) to the new Karegnondi Water Authority (KWA), which would not begin operating until 2016.

In the meantime, an alternate source of water had to be found. The 26th of June 2013 was when the actual decision by the city (signed by the state-appointed emergency manager, Ed Kurtz) was made to hire an engineering firm to put Flint’s water plant into full-time operation, thus switching Flint’s water supply from Detroit to the Flint River. (The river was already Flint’s back-up water source.)

What city, county, and state officials all failed to do was take measures to ensure that the river’s corrosive water was sufficiently treated so that it did not absorb toxic lead from Flint’s water network.

Far from being unusually negligent for a government, this sad story is unfortunately understandable and predictable. Unlike the numerous suppliers of private bottled water, central planners have no competitive pressures to rigorously think through any and all of their decisions.

One civil servant in Spain, for example, just recently ended a stint of not showing up for work for six years. Successfully executing such a stunt in a private-sector job in a competitive industry is just about impossible.

Sebring, Ohio; Jackson, Mississippi; and the Trouble with Government Water

While most readers of this site will have undoubtedly heard a lot about the lead-tainted water in Flint, Michigan, the stories that comparatively few will have heard about are lead in the water in Sebring, Ohio and last Wednesday (February 24) in Jackson, Mississippi.

Again, what should come as no surprise is that the same type of government bungling that put lead in Flint’s waters is on full display in Sebring and Jackson as well.

On 17 February 2016, the Ohio Environmental Protection Agency fired two of its employees and demoted a third. The first employee who was terminated failed to verify that lab test results were received by a field office. In turn, this employee’s boss was terminated for not double checking the work of said subordinate who had a long record of incompetent job performance.

The third employee, the one demoted, was a manager who failed to notify his bosses that Sebring officials ignored warnings about their town’s lead-contaminated water.

None of the three individuals are being publicly identified. So much for state transparency.

In Jackson, Mississippi, of a hundred homes tested in January of 2016, almost a dozen had tap water with levels of lead that require correction. Fifty-eight of these homes had been tested in June of 2015 but the Mississippi State Department of Health did not (as required) notify Jackson officials that some homes had forbidden levels of lead in their tap water until January of 2016.

The Progressive Jihad Against Bottled Water

Progressives have placed a spotlight on Flint but not Sebring and Jackson because their ideology precludes them from acknowledging systemic problems with government and its central-planning process. Progressive economists such as Brodwin lay the blame at the feet of libertarian ideology. Worse than their delusions about the state, the ultimate dream of progressives is to outlaw just about all competition to government water.

They (including filmmaker Michael Moore) are apoplectic about Flint (and by extension Sebring and Jackson) residents consuming bottled water: it has to be transported in on “pollution-spewing” trucks and it creates waste and environmental damage in the form of empty plastic bottles.

When progressives succeeded at banning bottled water at the University of Vermont in 2013, the number of empty plastic bottles being discarded on campus actually increased as students, staff, and faculty members switched from consuming bottled water to less healthy bottled soft and other drinks. In other words, even in Bernie Sanders’s government-worshipping Vermont, consumers did everything they could to avoid government taps.

Before Lead, There Was Viagra and Anti-Psychotics

Years before the Flint, Sebring, and Jackson contaminations, an AP investigation in 2008 discovered everything from antibiotics, antidepressants, sex hormones, erectile-dysfunction drugs, to tranquilizers in the water supplies of twenty-four metropolitan areas with 41–46 million Americans exposed.

Consuming government water is a bad idea. At its very best, it has a repulsive over-chlorinated swimming-pool smell and even worse off-putting saturated chemical taste. At its worst it can be tainted with everything from trace or higher levels of Viagra or estrogen to dangerous levels of lead. Only a complete fool would regularly and solely consume it to the exclusion of its private alternatives.

via Zero Hedge http://ift.tt/21B5DH7 Tyler Durden

Authored by Sean Corrigan, originally posted at TrueSinews.com,

There has been much head-scratching of late as to why, with interest rates lower than they have been since the Universe first exploded out of the Void, businesses are not undertaking any where near as much investment as that hoped for beforehand by the academic cabal whose ‘effective demand’ and ‘transmission channel’ fixations have helped drive rates to today’s mind-boggling levels.

This is obviously a complex topic in which there are many different factors at work – not the least of which is that the prevalence of overly-low interest rates for much of the recent past has meant that all too much of such investment as is now desired has not only already been done, but done in what has turned out to be so misguided a fashion, that there is less appetite – as well as fewer means, in many cases – to undertake much more of it today.

If the cure for higher prices – as the saying in commodity markets goes – is higher prices, then the cause of lower rates is almost certainly lower rates!

Be that as it may, on a more fundamental level, it might also be possible to tease out at least one aspect of the answer to the conundrum with the aid of a little straightforward logic, as we shall now attempt to do here.

In theory, positive interest rates reflect the primal truth that goods fit for our enjoyment today are worth more to their potential consumer than those same goods which are only available tomorrow. Moreover, since producer goods are otherwise inedible, unwearable, uninhabitable, etc., in their present form, they only derive their value in respect of their quality of being innate consumer goods-to-be.

Hence, the means of producing the day’s goods for some future date are always to be discounted back using that same ratio (which is none other than the natural rate) as the one which prevails between consumables-now and consumables-then. Doing so gives us a positive IRR (or, if you prefer, assuring that NPV>0) for the process.

Here it goes without saying that since the natural rate is inherently unobservable, the market interest rate will be used in its place – an unavoidable substitution which demands that this latter quantity be subject to as few falsifications as possible (a vexed topic suitable for a forthcoming, much deeper treatment).

This calculation therefore presents the entrepreneur with his bare minimum hurdle – one which, in practice, he will routinely wish to exceed in order to earn that additional surplus which constitutes his true economic, rather than his accounting, profit, as well as to compensate him for the risks he must run and the uncertainties he must bear along the way.

Negative rates, however, tell our man the converse to the above: they implicitly prize tomorrow’s goods more highly than today’s. This means that a productive combination today should command a HIGHER price when assembled than will the combined cash value of the stream of goods and services to which it is expected to give rise over the course of time.

That being the case, why on earth would any sane company boss make sizeable new expenditures whose IRR is deemed to be negative in cash terms – and which will therefore both deplete his equity and sap his means of paying dividends to the firms’ owners – when he can, as is becoming widely bemoaned, make alternative use of the same financial means to boost the price of his shares by swapping some of them for an obligation which he is effectively being rewarded for taking on, so making his hapless bond-holders pay his wages for him instead?

Madness!

via Zero Hedge http://ift.tt/1QSf0NF Tyler Durden

it was just last Friday, when roughly at the same time that Dennis Gartman flipflopped to bullish (just as the rally stalled, and just before turning bearish again ahead of today’s torrid rally) we reported that in what came as a surprise to us, that just as Jeff Gundlach was warning about the impending failure of central banks, the lack of a “bullish case for oil”, about a bear market for stocks, and about an imminent surge in gold in early February, the DoubleLine manager was buying stocks.

As Reuters first reported, Jeffrey Gundlach “said on Friday that his firm purchased some U.S. stocks two weeks ago after their rocky start in January.”

His reasoning was simple: buy the bear market rally.

“I thought it was a good buy point two weeks ago Wednesday and so we bought some,” Gundlach told Reuters. Gundlach, who oversees $90 billion in assets for the Los Angeles-based DoubleLine, said the firm was at “maximum underweight” since last August.

Two days later, and following the biggest rally to start the month of March in history, Gundlach is happy to count his profits and once again cash out.

In an interview with Reuters Jennifer Ablan after DoubleLine Capital’s February flow figures were released (it was a $2.2 billion inflow) , Gundlach said the firm is now considering closing out some of its long positions in the stocks that they purchased three weeks ago.

Is the bond trader now just a closet equities daytrader? We wond’t know, but since the S&P 500 has jumped 8% in that period, why not takes some profits.

“That’s what we’re talking about,” Gundlach said about booking some gains after their short-term rally.

Gundlach still maintains that the U.S. stock market is in a bear market but had made those equity purchases because the conditions in the second week of February with “wickedly negative equity sentiment were such that risk/reward favored a potential tradable rally and also made such a low allocation less advisable.”

The time to buy the dip, however, has passed: “I am bearish. There are just wiggles and jiggles in the markets.“

via Zero Hedge http://ift.tt/21Ggbl4 Tyler Durden

Bush and Cheney launched two disastrous and totally unnecessary wars which increased terrorism and undermined America’s standing in the eyes of the world.

Hillary Clinton is at least as bad …

She is largely responsible for the war in Syria, which is plunging the Middle East and Europe into chaos.

The New York Times confirms that Clinton is responsible for the violent regime change in Libya, which was also completely unnecessary.

Hillary is largely responsible for the bombing of Yugoslavia … another wholly unnecessary war.  Diana Johnstone writes:

In her star-struck biography of the First Lady, Hillary’s Choice, Gail Sheehy reported Hillary’s plea in favor of bombing Yugoslavia in 1999 as a major point in her favor. According to Sheehy’s book, Hillary convinced her reluctant husband to unleash the 78-day NATO bombing campaign against the Serbs with the argument that: “You can’t let this ethnic cleansing go on at the end of the century that has seen the Holocaust.”

 

This line is theatrical and totally irrelevant to the conflict in the Balkans. As a matter of fact, there was no “ethnic cleansing” going on in Kosovo at that time. It was the NATO bombing that soon led people to flee in all directions – a reaction that NATO leaders interpreted as the very “ethnic cleansing” they claimed to prevent by bombing.

Joshua Marshall notes:

At least 15,000 Kosovars gathered in the central square of Pristina, the country’s capital, to demand the government’s resignation. In January, thousands of protesters clashed with police, hurling Molotov cocktails, setting a major government building and armored police cars on fire, and wounding 24 police officers.

 

The aim of this protest was to overthrow the government with violence, as the government said in a statement. The U.S. ambassador chimed in, “Political violence threatens democracy and all that Kosovo has achieved since independence.”

 

This violence gets little attention from the American media in part because, unlike the Ukrainian demonstrators who overthrew their democratically elected government in 2014, Kosovo’s protesters are targeting a pro-Western government that eagerly seeks membership in the European Union.

 

But it’s no wonder that Kosovo’s political fabric is so rent by violent confrontations. The rump state was created by a violent secessionist movement led by the Kosovo Liberation Army (KLA). That guerrilla band of Albanian nationalists was covertly backed by the German secret service to weaken Serbia. Its terrorist attacks on Serbian villages and government personnel in the mid-1990s prompted a brutal military crackdown by Serbia, followed by NATO’s decisive intervention in 1999.

 

During the fighting the KLA drove tens of thousands of ethnic Serbs from Kosovo as part of an ethnic cleansing campaign to promote independence for the majority Albanian population. It recruited Islamist militants – including followers of Osama Bin Laden – from Saudi Arabia, Yemen, Afghanistan and other countries.

 

President Bill Clinton’s special envoy to the Balkans, Robert Gelbard, called the KLA “without any question, a terrorist group,” and a Council on Foreign Relations backgrounder added, “most of its activities were funded by drug running.”

 

None of that, however, stopped Washington from embracing the KLA’s cause against Serbia, a policy spearheaded by the liberal interventionist First Lady Hillary Clinton and Secretary of State Madeleine Albright. Without authorization from the United Nations, NATO began bombing Serbia in March 1999, killing some 500 civilians, demolishing billions of dollars’ worth of industrial plants, bridges, schools, libraries and hospitals, and even hitting the Chinese embassy. (“It should be lights out in Belgrade,” demanded New York Times columnist Thomas Friedman. “Every power grid, water pipe, bridge, road and war-related factory has to be targeted. Like it or not, we are at war with the Serbian nation.”)

 

Following Serbia’s capitulation, according to Human Rights Watch, “elements of the KLA’€ engaged in “widespread and systematic burning and looting of homes belonging to Serbs, Roma, and other minorities and the destruction of Orthodox churches and monasteries. This destruction was combined with harassment and intimidation designed to force people from their homes and communities. By late-2000 more than 210,000 Serbs had fled the province . . . The desire for revenge provides a partial explanation, but there is also a clear political goal in many of these attacks: the removal from Kosovo of non-ethnic Albanians in order to better justify an independent state.”

 

Former KLA leaders, including its political head Hashim Thaqi, went on to dominate the new Kosovo state. A 2010 report by the Council of Europe declared that Thaqi, who was then Kosovo’s prime minister, headed a “mafia-like” group that smuggled drugs, guns and human organs on a grand scale through Eastern Europe. The report’s author accused the international community of turning a blind eye while Thaqi’s group of KLA veterans engaged in “assassinations, detentions, beatings and interrogations” to maintain power and profit from their criminal activities.

 

***

 

In 2012, Madeleine Albright and a former Clinton special envoy to the Balkans bid to take control of the country’s state-owned telecommunications company despite widespread allegations of corruption, the attempted assassination of the telecommunications regulatory chief, and the murder of the state privatization agency’s chief.

 

***

 

In 2014, a three-year E.U. investigation concluded that “senior officials of the former Kosovo Liberation Army” should be indicted for war crimes and crimes against humanity, including “unlawful killings, abductions, enforced disappearances, illegal detentions in camps in Kosovo and Albania, sexual violence, other forms of inhumane treatment, forced displacements of individuals from their homes and communities, and desecration and destruction of churches and other religious sites.”

 

Under tough pressure from the United States and E.U., Kosovo’s parliament finally agreed last summer to permit a special court to prosecute former KLA leaders for war crimes. The court will begin operating this year in The Hague.

 

“The sad thing is that the United States and European countries knew 10 years ago that Thaqi and his men were engaged in drug smuggling and creating a mafia state,” said one European ambassador last year. “The attitude was, ‘He’s a bastard, but he’s our bastard.'”

Hillary also backed coups against the democratically-elected leaders of Haiti, Honduras and other countries.

And she helped create the idea of “humanitarian war”, where the U.S. brutally overthrows a government by military force … justifying the action by falsely claiming that otherwise civilians will be.

Hillary has also literally supported Islamic jihadis with arms, money and logistical support.

For example, the U.S. under Clinton supported Al Qaeda (and see this) so that it could overthrow Libya’s government.

And the U.S. under Clinton supported Islamic jihadis so that they would overthrow Syria’s government.

Indeed:

• The U.S. started plotting regime change and arming jihadis in Syria – in an effort to topple Assad – a decade ago

• Hillary Clinton – as secretary of state – admitted that arming the rebels would strengthen Al Qaeda

So while Bush and Cheney’s foreign policy was utterly despicable,  Hillary Clinton has wrecked destruction on the world stage on a scale which is comparable … if not worse.

via Zero Hedge http://ift.tt/1QpOuWd George Washington

Were you wondering what Alan Greenspan thinks about the outlook for monetary policy across the globe?

Neither were we, but Bloomberg was and Tom Keene and Mike McKee got the “privilege” of sitting down with the “maestro” on Monday afternoon to discuss a variety of topics including NIRP, which Greenspan says “warps investment behavior.”

While he isn’t willing to go so far as to condemn negative rates as “dangerous,” he does say the global race to the proverbial Keynesian bottom is “counterproductive.”

As far as the US economy is concerned, Greenspan isn’t optimistic. “We’re in trouble basically because productivity is dead in the water…Real capital investment is way below average. Why? Because business people are very uncertain about the future.”

Well yes, they most certainly are. Of course were it not for “the Greenspan put” and decades of policy largesse we might not have ever had a financial crisis in the first place (David Stockman will tell you all about Greenspan’s role in creating the conditions we now find ourselves in).

As for whether Dodd-Frank has solved anything, Greenspan says no: “The regulations are supposed to be making changes of addressing the problems that existed in 2008 or leading up to 2008. It’s not doing that. ‘Too Big to Fail’ is a critical issue back then, and now. And, there is nothing in Dodd-Frank which actually addresses this issue.”

And finally, here’s the punchline. Asked whether he’s optimistic going forward, Greenspan said this: “No. I haven’t been for quite a while. And I won’t be until we can resolve the entitlement programs. Nobody wants to touch it. And that is gradually crowding out capital investment, and that’s crowding out productivity, and it’s crowding out the standards of living where do you want me to go from there.”

Here are the clips in which Greenspan touches on everything from NIRP to faux Chinese GDP data to US crude production:

Now if only he hadn’t gotten us into this mess in the first place…

via Zero Hedge http://ift.tt/1QlpOAk Tyler Durden

It is often said that on Wall Street there are no guarantees. That is wrong: there is nothing more certain in the realm of big money than carnivorous predators surrounding and tearing apart any hedge fund that bleeds in the water by shorting its longs and forcing a squeeze of its shorts, until and past the point of max pain, which forces the fund to liquidate and hit any bid or lift any offer, traditionally at extremely preferential terms to everyone on the other side of the trade.

For the sake of simplicity, “predators” include any and all hedge funds, especially those which the target assumed it was friendly with and until recently was inviting to his or her “idea dinners.” In fact the only catalyst predators typically need is any confirmation that the prey is crippled, at which point the last dance begins. In other words, any “blood in the water” usually means the different between life and death; and in these violently fast markets, the time from life to death may be counted in milliseconds.

Which is why any time a distressed hedge fund finds itself in liquidity difficulties or faces a surge redemption requests, its first priority is to hide these as well as possible. The problem is that it still has to sell something to free up liquidity, and once it starts doing that, the prime brokers make sure it is marketwide news within minutes.

One such hedge fund, of course, is Bill Ackman’s Pershing Square, which thanks to just one stock, Valeant, has found itself in a heap of trouble, and as of a week ago was down -17.3% for 2016 after tumbling 20% in 2015; worse, after the latest rout in Valeant stock, we expect the fund to report it is down over 20% YTD when it issues its weekly update for the week ended March 1 overnight.

However, despite the massive performance rout Pershing Square has experienced, so far there had been no hints it may be impacting either the fund’s liquidity or, so far at least, redemption requests.

That may have changed today when earlier this afternoon, Pershing Square portfolio company (long 13.9 million shares) Canadian Pacific filed a $1.5 billion mixed Shelf statement which covered everything from Common to Preferred to Warrants and Units.

As a reminder, a shelf, or S-3 filing, is a type of public offering where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering. Instead, there is a single prospectus for multiple, undefined future offerings.

In effect, it gives the seller a green light to approach the market at will.

What was curious about the CP shelf is the following disclosure:

Canadian Pacific Railway Limited (“CPRL” or the “Corporation”) may from time to time offer common shares (“Common Shares”), first preferred shares (“First Preferred Shares”), second preferred shares (“Second Preferred Shares”), subscription receipts (“Subscription Receipts”), warrants (“Warrants”) and units (“Units”) of CPRL (collectively, Common Shares, First Preferred Shares, Second Preferred Shares, Subscription Receipts, Warrants and Units are referred to herein as the “Securities”) having an aggregate offering price of up to US$1,500,000,000 or its equivalent in any other currency. Certain funds managed by Pershing Square Capital Management, L.P. (“Pershing Square”) or its affiliates or their respective permitted assignees (collectively, the “Selling Shareholder”) may also from time to time offer and sell Common Shares pursuant to this prospectus. See “Selling Shareholder”.

And this:

SELLING SHAREHOLDER

 

As at the date hereof, based on publicly available information, the Selling Shareholder beneficially owns 13,940,890 Common Shares, which is approximately 9.1% of the outstanding Common Shares. The Selling Shareholder may sell some, all or none of their Common Shares covered by this prospectus.

 

Pershing Square, a registered investment advisor under the United States Investment Advisors Act of 1940, is the investment advisor to each of Pershing Square, L.P. (“PS”), Pershing Square II, L.P. (“PS II”), Pershing Square International, Ltd. (“Pershing Square International”) and Pershing Square Holdings, Ltd. (“Pershing Square Holdings” and, together with PS, PS II and Pershing Square International, the “Pershing Square Funds”). PS Management GP, LLC (“PS Management”) is the sole general partner of Pershing Square. Pershing Square GP, LLC (“Pershing Square GP”), a registered investment advisor under the Investment Advisors Act of 1940, is the sole general partner of each of PS and PS II. Pershing Square has investment discretion with regards to 13,940,890 Common Shares, which Common Shares are directly owned by the Pershing Square Funds. The Common Shares were acquired during the period from September 23, 2011 to February 2, 2012. William A. Ackman is the Chief Executive Officer of Pershing Square and the managing member of each of PS Management and Pershing Square GP. Mr. Ackman is also a director of CPRL. Paul Hilal, a former Partner at Pershing Square, served as a director of CPRL from 2013 until his resignation from CPRL’s Board of Directors on January 26, 2016. Pershing Square is a Delaware limited partnership and its address is 888 Seventh Avenue – 42nd Floor New York, NY 10019.

In other words, the selling shareholder quietly tacked on to the CP Shelf is not just the company, but a major investor, in this case the second largest investor in CP after T. Rowe Price which is Bill Ackman’s Pershing Square which owns just over $1.7 billion in common stocks, or roughly enough to fill the entire shelf.

Why go this circuitous route to sell shares directly? The simplest answer is also the most disturbing for Pershing Square LPs – Ackman’s liquidity breaking point has come, and the fund is quietly starting to liquidate positions directly to the market bypassing prime brokers. Of course, if that is indeed the case, then Ackman would promptly deny any interest in using this shelf for liquidation purposes.

Not surprisingly that is precisely what he did moments ago, when as Bloomberg reported:

• PERSHING HAS NO CURRENT PLANS TO SELL CANADIAN PACIFIC SHRS

Then why file it?

Perhaps Ackman is telling the truth, but we wonder how much lower the stock price of VRX will have to drop before Pershing does precisely the opposite when faced with a major margin call on its option-based position, and maybe a better question – how much lower can Pershing’s P&L drop before Ackman is finally flooded with terminal redemption requests by investors who by now must have lost all their hair using Ackman as a levered bet on the survival of a company which with every passing day smells increasingly more like fraud.

In the meantime keep an eye on Pershing Square’s weekly performance updated on the following site, because while the credibility of Ackman’s word is “fluid”, numbers – especially negative ones – are always ironclad.

via Zero Hedge http://ift.tt/1QS8dmY Tyler Durden