Monday, April 19, 2021

Moody’s Pegs Venezuela in “Deeper Phase” Of Financial Insolvency

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by Zainab Calcuttawala, Oil Price:

Venezuela is now in a “deeper phase of economic stress,” Moody’s Investor Service said on Wednesday, according to The Oil and Gas Journal.

Falling oil production and tough economic sanctions have increased pressures on the nation’s financial capacity. Mismanagement and underinvestment in the country’s oil and gas industry is causing defunct facilities to produce low quality oil that does not meet the requirements of its usual buyers.

Moody’s sees “a negative feedback loop between declining production across all economic sectors, accelerating scarcity of hard currency, and an economic policy mix defined by price controls and forced discounting that exacerbate supply shortages and hyperinflation.”

Venezuela’s production is falling faster that high barrel prices can fill the revenue gap, the credit rating agency added.

“The fall in production will only exacerbate cash-flow stress,” Moody’s research note reads. “While oil prices have rallied in recent months, the decline in oil production will more than offset the would-be increase in dollar inflows from oil exports. This has negative implications for both debt repayment capacity and Venezuela’s already grim economic outlook.”

Hyperinflation will continue at the 4000 percent level through 2018 due to the financial deterioration.

President Nicolas Maduro is still intent on milking the digital currency fad to help alleviate the cash shortage and circumvent U.S. sanctions. After proposing an oil-backed national cryptocurrency called the petro, Maduro is now calling for an OPEC-wide one that would also include other large producers.

Speaking to media in Caracas after a meeting with OPEC’s secretary-general Mohammed Barkindo, Maduro said earlier this week, “I will make an official proposal to all OPEC members and non-OPEC states to work out a joint cryptocurrency mechanism backed by oil.”

Read More @ OilPrice.com

Mortgage Defaults Rise First Time Since Financial Crisis but Refi Surge Likely

by Mish Shedlock, The Maven:

Defaults are up for the first time since the great financial crisis. But as rates fall, a refi surge will help millions.

Keiser Report: Trend reversals (E1110)

from RT:

Max & Stacy discuss Obamacare death spirals and towns left to die post-trade deals. In the second half, Max continues his interview with Gerald Celente of TrendsResearch.com about paradigm shifts: from cryptocurrencies to electric cars.

Charities “Have Lost Billions” And 1 Out Of Every 5 Churches In America “May Not Survive”

by Michael Snyder, The Economic Collapse Blog:

Whenever a major economic downturn happens, churches and charities always get hit really hard.  Cutting back on giving is often the very first step that people take when it comes time to reduce expenditures, and that is extremely unfortunate.  But of course you can’t get blood out of a rock, and there are tens of millions of Americans that have lost jobs in 2020 and so they don’t have any extra money to give at this point.  Approximately 59 million Americans have filed new claims for unemployment over the past 24 weeks, and we are seeing absolutely massive lines at food banks all around the nation.  In such an environment, it was inevitable that there would be a collapse in charitable giving, and it is being reported that major U.S. charities have already “lost billions in revenue”

The Dangers of Zero

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by Clint Siegner, Money Metals:

Zero is an important number in the psychology driving demand for bullion. There are periods when investors find the argument that gold or silver prices “will never go to zero” compelling.

The 2008 financial crisis and the years immediately following it are the most recent example. The fear of conventional securities and even the fiat dollar becoming worthless was palpable for many in the metals markets. Bullion demand hit record levels.

  Investors have chased bull markets for fear of being left behind.
Investors have chased bull markets for fear of being left behind.

While demand for gold ETFs and futures contracts has been strong in 2016 and 2017, some investors in the physical market for coins, bars, and rounds seem to have overlooked the modest gains of the past two years and are anxious instead to participate in bull markets elsewhere. If they are worried about anything, it is the possibility of missing out.

Gold and silver’s appeal as a safe haven is in temporary eclipse.

The metals markets are awaiting the moment when investors lose their conviction about ever higher stock prices and once again grapple with the idea that prices do fall.

Indeed, the value of some securities can, and does, fall all the way to zero. Companies miss expectations or fail outright. Bond issuers occasionally default and fiat currencies eventually die. Investors discount risk in the euphoria of a bull market.

In fairness, it is also possible for investors to focus too much on the downside.

Given the Fed’s absolute unwillingness to allow overall asset prices to fall and remain at low levels, the fear driving investors in the years following the Financial Crisis certainly looks now to have been overblown. A more meaningful threat is a devaluation in the purchasing power of the Federal Reserve Note – NOT broad-based declines in nominal asset prices.

  The Fed will not allow nominal asset prices to crash, but it won’t guarantee our currency retains value.
The Fed will not allow nominal asset prices to crash, but it won’t guarantee our currency retains value.

 

The Federal Reserve Note has lost more than 97{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of its value in the past 100 years, with an acceleration in this decline since the 1970s. That’s 97{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the way to zero.

We’ll find out in the years ahead whether the historic intervention by central banks around the world cushioned economies from the worst effects.

Read More @ MoneyMetals.com

Broke And Desperate, Part 1: Chicago Pawns A Crown Jewel

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by John Rubino, Dollar Collapse:

A new bond issue from Chicago is rated AAA. That’s great because it means the city’s finances are on the mend, right?

Nope, just the opposite. Here’s the story:

Bondholders fret as alchemy turns Chicago’s junk to gold

(Bloomberg) — Chicago’s public pension debt is $36 billion and growing, it’s facing $550 million in budget deficits over the next three years and this summer the state had to bail out a school system that was flirting with insolvency.

Yet next month, the nation’s third-largest city — whose bonds were downgraded to junk by Moody’s Investors Service two years ago — will start selling as much as $3 billion of debt that another rating company considers as safe as U.S. Treasuries.

That’s because Chicago is selling off its right to receive sales-tax revenue from Illinois to a separate public corporation, which will issue new bonds backed by those funds, a structure called securitization. Because bondholders will be insulated from the city’s finances and have a legal claim to the sales-tax money, Fitch Ratings deems the bonds AAA.

Some investors fear Chicago’s approach may kick off a wave of securitizations by fiscally stressed municipalities that would increase their risk by siphoning away cash that backs bonds secured only by a promise to repay. Last month, Connecticut, which had a $3.5 billion two-year deficit, approved a budget that authorizes new debt backed by state income tax so it could receive a higher rating than the state’s A+ general-obligation bonds.

“You are, through a process of alchemy, creating AAA rated debt,” said Christopher Dillon, a municipal bond portfolio specialist at T. Rowe Price Group Inc. “They’ve lowered their borrowing cost in the near term, but long term, it’s just a continued degradation of the full faith and credit at the general-obligation level.”

DETROIT CASTS A SHADOW
Since Detroit’s bankruptcy four years ago, investors in the $3.8 trillion municipal market have given greater scrutiny to securities backed by a government’s good word instead of a secure revenue stream. When that city emerged from court, holders of “limited” general-obligation bonds received 42 cents on the dollar for their investments, compared with 100 cents for owners of Detroit’s water and sewer debt.

Institutional Investors from Pacific Investment Management Co. to Standish Mellon Asset Management Co. have said they favor revenue bonds, which don’t compete for resources with public pensions, over general-obligation debt.

Creating separate entities to issue higher-rated debt isn’t a new phenomenon. New York City, Philadelphia, Washington, Nassau County and Buffalo, New York, have all issued higher-rated dedicated-tax bonds to save money. But Chicago’s sale comes as many cities face pressure from deeply underfunded pensions and opting for bankruptcy has lost some of its taint after a handful of governments did so after last decade’s recession, though Illinois municipalities aren’t allowed to take that step.

Chicago’s new bondholders will have a first claim to more than 90 percent of the approximately $715 million of sales-tax revenue collected each year, according to a presentation to Chicago’s aldermen. The state, which collects sales taxes, will send the revenue directly to the bond trustee. Any excess revenue will go to the city.

PUERTO RICO FIGHT
Some investors say the legal battle now being waged in federal court between Puerto Rico’s general-obligation debt owners and sales-tax bondholders shows that legal structures like the one set up in Chicago are no guaranty when a borrower goes bankrupt or encounters severe financial distress.

In 2006, Puerto Rico passed a law creating a separate entity to issue sales-tax backed bonds with a legal structure similar to Chicago. The commonwealth approved a 5.5 percent sales tax and sent a portion to an entity known as Cofina. The new tax-backed bonds issued by the agency had a bigger margin of safety to pay debt service and garnered A+ ratings, five levels higher than Puerto Rico’s general-obligation bonds at the time.

This year, Puerto Rico entered into a form of bankruptcy and Cofina bondholders discovered the debt might not be so secure.

In June, the island said it may need more than $400 million in sales-tax revenue held by Cofina’s bond trustee for government operations. Cofina bondholders are fighting the move in bankruptcy court. General-obligation bondholders assert the money belongs to them, arguing that the territory’s constitution guarantees them a first claim on the government’s resources.

“We’re seeing these structures don’t always stand up the way they were designed to in bankruptcy,” said Tamara Lowin, director of research at Belle Haven Investments. “The market’s not putting as much faith in them as they have in the past.”

Chicago will use the proceeds of the new bonds to pay off old, higher-coupon paper, thus cutting its overall interest costs for a little while. But since it runs a chronic deficit, it will soon be back in the market to borrow more, at which point it will have to pay up – since those AAA bonds are siphoning off so much money. Then the downward spiral will resume, with no more tricks available to delay the inevitable.

Read More @ DollarCollapse.com