Archive for the ‘business’ Category

Chile: Bachelet’s proposal for failure

Tuesday, September 1st, 2015

Following Michelle Bachelet’s proposed labor reforms, companies are leaving the country and employers are laying off workers. Hana Fischer explains why:
Bachelet’s Labor Reforms Have Already Failed, in Uruguay
Empowering Unions a Sure Path to Economic Doom

The proposed labor reform currently being debated in the Chilean Senate presents several issues that are a concern:+

  • Inter-company unions will be in charge of collective bargaining for all workers.+
  • Employers will be prohibited from granting union benefits to non-unionized workers.+
  • Union leaders will be allowed to disrupt a company’s activities, because employers will be banned from replacing workers on strike.+
  • The reform would deny an employee the option to return to work, on an individual basis, after 15 days on strike, and consequently his right to continue working.+
  • Employees would be prohibited from censuring union leaders during a strike.+

52% of Chileans oppose the proposed law.

$5 says Bachelet will still go ahead.

Brazil and other fallen BRICs

Friday, August 28th, 2015

All in all you’re just another brick in the wall.
Pink Floyd

Brazil never learns from its boom-to-bust cycles, which are tied to commodity cycles. John Lyons and Paul Kiernan of the WSJ write,
How Brazil’s China-Driven Commodities Boom Went Bust

Developing nation’s big bet on China turns sour as China’s appetite for exports dims; ‘looking at a lost decade’ As the title explains, the phenomenon is not exclusive to Brazil, but repeats itself in the whole of Latin America.

Brazil fell under what some economists call the “resource curse,” a theory describing how countries with abundant natural resources sometimes do worse than countries without them. The idea is that the money from commodity sales can lead to overvalued currencies and shortsighted policy-making, leaving such countries badly exposed when the resource boom finally ends.

Read the whole sad story, which ends with,

Even now, Brazil is looking to China for help.

In that, again, the hemisphere is never learning. Even Chile, Colombia and Peru, who have free-trade deals with the U.S. and EU, are now looking at moves that hinder their economies.

Sing it, guys!

Puerto Rico: Don’t expect payment anytime soon

Monday, August 24th, 2015

Mary O’Grady describes,
Puerto Rico Plays Chicken With Its Creditors

Failure to negotiate in good faith could cost the island the help it seeks from Washington.

On Sept. 1 the state-owned Puerto Rico Electric Power Authority (Prepa) faces a deadline for restructuring more than $8 billion in debt. If it can’t come to an agreement with creditors, a previous forbearance agreement will expire and the company will face default.

On Sept. 1 the state-owned Puerto Rico Electric Power Authority (Prepa) faces a deadline for restructuring more than $8 billion in debt. If it can’t come to an agreement with creditors, a previous forbearance agreement will expire and the company will face default.

In that event, bondholders could be expected to go to court to begin the process of receivership, as the bond contracts stipulate.

This high-stakes negotiation comes when Puerto Rico is asking Congress to give its municipalities and public agencies access to the chapter 9 bankruptcy protection the 50 states have. A Prepa default would be disruptive and possibly increase the odds that Congress will agree.

But failure on the part of the utility to negotiate in good faith also could backfire and jeopardize support in Washington for giving Puerto Rico chapter 9 protection. It could also reduce sympathy on the mainland for the write-down of other Puerto Rico debt issues—which total some $63 billion—that Gov. Alejandro García Padilla says he needs to get the island growing again.

Read the whole article.

The thing is, the governor has little to lose by defaulting.

  • I have stated in the past  that you can be assured the Puerto Rican government will continue to spend like crazy because 20% of the workforce is in government jobs, which gives the ruling party a built-in constituency. As I have pointed out before, it’s in the governor’s best interest to keep them happy, even if it means to default on all debt in order to meet payroll.
  • If the U.S. refills the ATM, García Padilla will claim credit for it; if the U.S. doesn’t, he has someone to blame.
  • People who don’t agree with the economic policy are exercising their right to move to places where the U.S. economy is brighter, thereby removing a large number of what would be opposition votes.
  • High debt-high spending make the island less appealing for statehood status.

Bottom line: No improvement in the horizon.

Bond roulette: Puerto Rico, Venezuela

Thursday, August 13th, 2015

Which Puerto Rico Bond Defaults Next? 46% Yields Provide a Clue Bloomberg lists the most recent trading prices of bonds that aren’t insured against default:

Puerto Rico defaulted for the first time on Aug. 3, when a little-known agency, the Public Finance Corp., paid investors just $628,000 of the $58 million they were owed.

The Finance Corp. is only one of the 17 arms of the U.S. territory that have sold tax-exempt bonds, according to the Government Development Bank. Unlike debt typically issued by countries, the securities carry varying degrees of risk because they’re backed by different sources of funds and legal safeguards.

So as the island burns through cash, there’s the obvious question: which bonds could be next?

By Insurer’s Calculation, Puerto Rico Debt Burden Is Lowest, but I’d listen to Moody’s,

Excluding the island’s utility bonds and adding the U.S. debt to each state based on their population, Puerto Rico has a lower debt-to-income ratio per capita than even Maryland or Virginia, which have top credit ratings, National [Public Finance Guarantee Corp.] said.

The analysis is in stark contrast with data from Moody’s Investors Service, which gives Puerto Rico the third-worst credit rating and says its net tax supported debt per capita is the highest among U.S. states and 11 times greater than Virginia’s. Moody’s projects recovery rates from 35 percent to 80 percent on commonwealth bonds.

VENZ/PDVSA: The Mixed Martial Arts of Bond Trading

To be clear, trading VENZ is to normal bond investing what mixed-martial-ats is to thumb-wrestling. It’s a crazy, high-risk world where a good day in the WTI oil market, or a couple of anodyne bureaucratic announcements, are enough in to set off a mad bull-rush, with venny traders tripping over one another to snap up paper.

For the rest of us, it’s all gambling. I could only find this scene dubbed in French – lay down your bets, ladies and gentlemen,

Colombia: Concepcion, the no-cash town

Monday, August 10th, 2015

The Small Colombian Town That Stopped Using Cash

Concepcion is the first place in Colombia where the vast majority of transactions involve electronic banking via mobile phones, staying well ahead of even northern Europe.

The mayor of Concepción has himself come to illustrate the comparative safety of this online system. “I went to the district of Rionegro to claim a significant sum of money from the town, and some thieves thought I had the money in the car,” he recalls. “But they couldn’t take any, as it was in the cell phone. They did take the phone, but the money stayed in the bank.”

The key word is, comparative safety.

Brazil: File this under “Lie down with dogs, wake up with fleas”

Thursday, August 6th, 2015

Inside Royal Bank of Canada’s Latin Misadventure

Dilemma surrounding RBC’s star Brazilian client highlights regulatory risks of potentially lucrative emerging markets (emphasis added)

As Royal Bank of Canada mounted an aggressive campaign to reel in business from Latin America’s growing class of superrich, a Miami-based banker made a big catch: Gilberto Miranda Batista, a former Brazilian senator with a $500 million fortune, three houses, four farms and a Rolls Royce.
. . .
In 2013, Mr. Miranda’s accounts attracted the attention of a U.S. banking regulator, the Office of the Comptroller of the Currency, which that year deemed RBC’s anti-money-laundering controls unsatisfactory, according to people familiar with the matter.

Dude.

RBC moved to close down this business late last year after facing government investigations in several countries, including the U.S., Uruguay, and France. Just as it was unwinding its operations, RBC was contacted by the Department of Justice and by the Department of Homeland Security about separate Venezuelan accounts, according to people familiar with the matter. Those people said the Venezuelan accounts had, like Mr. Miranda’s, been previously flagged by internal compliance officers.

This is a huge problem, as the prospective clients may likely attained their financial status by being involved in “troublesome” transactions.

Running out of people’s money: Puerto Rico UPDATED

Tuesday, August 4th, 2015

Puerto Rico just defaulted for the first time

The commonwealth paid a mere $628,000 toward a $58 million debt bill due Monday to creditors of its Public Finance Corporation. This will hurt the island’s residents, not Wall Street. The debt is mostly owned by ordinary Puerto Ricans through credit unions.

And (emphasis added)

On Monday, Puerto Rico had to make a monthly debt payment of $483 million. Puerto Rico paid all its debt due except the $58 million due to creditors of its Public Finance Corporation. The government is strategically choosing not to pay the PFC debt because the entities that own the debt, credit unions and ordinary Puerto Ricans, have little legal power to fight back in court.

The Economist:

The PFC’s 99% missed instalment [sic] is unlikely to set off an immediate cascade of lawsuits or further defaults. Its paper is technically nothing more than a “moral obligation”, backed only by a flimsy letter of credit from the Government Development Bank (GDB), and is mostly held by pliant local investors like credit unions. Just three days before the PFC stiffed its lenders, the GDB duly made a $170m payment on its own debt. Nonetheless, the PFC’s default sharply accelerates Puerto Rico’s debt crisis: it extinguishes any hope that the island’s creditors might all emerge unscathed, and cuts off whatever access to short-term financing the government might have had left.

It may well have been Mr García Padilla’s intention to provoke a sense of urgency.. . .After the island passed its own version of Chapter Nine last year, federal courts struck it down, on the grounds that municipal bankruptcy falls exclusively under federal jurisdiction. That left the governor with no choice but to beseech America’s Congress to bring his territory under Chapter Nine, a plea that has so far fallen on deaf ears. By letting the weakest link in its payment chain snap, Puerto Rico has made the spectre of a chaotic, piecemeal default—which once seemed remote—immediate. In theory, that could spur Congress into taking swift action.

Even if the ploy of taking-oneself-hostage were to succeed, however, the extension of Chapter Nine to America’s overseas territories would not be a cure-all. That law would not cover the restructuring of Puerto Rico’s $13 billion of “general-obligation” (GO) debt, which is protected by a constitutional pledge that it must be paid before all other obligations,

What it comes down to is, Puerto Rico has triggered the biggest municipal default in US history (emphasis added)

It implies a sweeping default on much of its $72 billion debt burden, equal to 100% of Puerto Rico’s gross national product (GNP) and more than five times the debt ratio of California or Texas.

That’s what massive overspending looks like.

UPDATE
Former Puerto Rico Governor Luis Fortuño discusses how Puerto Rico can avoid defaulting on debt.

UPDATE 2
Instapundit calls it “RUNNING OUT OF OTHER PEOPLE’S MONEY.” Yes, but they government defaulted by screwing the people who elected them first, as I linked to above,

“The government is strategically choosing not to pay the PFC debt because the entities that own the debt, credit unions and ordinary Puerto Ricans, have little legal power to fight back in court.”

They ran out of their own people’s money, but you can be assured they will continue to spend like crazy because 20% of the workforce is on government jobs, which gives the ruling party a built-in constituency. As I have pointed out before, it’s in the governor’s best interest to keep those happy, even if it means to default on all debt in order to meet payroll.

Puerto Rico: The bets are on

Friday, July 24th, 2015

Wall Street, Seeing Opportunity, Invests in Struggling Hotels in Puerto Rico

On Thursday, the island received a lift from one of its biggest cheerleaders, John A. Paulson, the billionaire hedge fund manager, who is investing $20 million for the San Juan Beach Hotel. This week, Fundamental Advisors, another Wall Street investment firm, bought the iconic El San Juan Resort and Casino for $71 million from Blackstone.

Romantic fools, or do they know something we don’t?



Puerto Rico: Default looms

Friday, July 17th, 2015

Headlines today:
How Socialism Destroyed Puerto Rico, And Why More Defaults Are Looming

Puerto Rico’s PFC did not transfer funds for bond payment -filing. The PFC missed a payment of $93.7 million to a trustee. If it doesn’t make an additional payment on August 1, it could constitute a default.

Mother Jones thinks
Puerto Rico Is Doomed, and It’s Our Fault | Mother Jones. Don’t listen to Mother. The blame for Puerto Rico’s upcoming default rests squarely on the Puerto Ricans’ shoulders.
Stop the infantilizing.

NYSE down

Wednesday, July 8th, 2015

Latest:
2:40PM:
Was DUQU Virus Responsible for Today’s Widespread Computer Crashes?

1PM:
Is This What The First World Cyber War Looks Like: Global Real Time Cyber Attack Map

Earlier:
The NYSE halted trading due to “technical glitch”, but NYSE stocks are trading at NASDAQ. The NYSE says all open orders will be cancelled.

You can watch live at CNBC.

United Airlines computers were down earlier today.

Pretty sure there was a Tom Clancy novel about this.

ADD: apparently Zerohedge & WSJ down, too, now back up.