• Tag Archives Liabilities
  • It’s Over for Sears Canada

    Brick and mortar meltdown. Sears Canada hired the same leading bankruptcy advisory firm on June 12 that had represented Target Canada in its insolvency proceedings. Ten days later, it filed for bankruptcy protection to restructure its capital and its operations, shutter dozens of it 225 stores and lay off nearly 3,000 employees, but planned to continue operating. Today it said that the restructuring efforts failed, and that it would seek court approval to liquidate, shutting all its remaining stores and laying off its remaining 12,000 employees.
    Retailers are notoriously difficult to restructure. Once they’re this deep in trouble, after years of losses, they own few assets and are burdened with debts, as everything has been sold or pledged to creditors. Their suppliers, who’ve been burned too many times, are getting skittish. Lenders are getting desperate. And acquirers can be impossible to find. Most retailer bankruptcies start out as restructurings but end as liquidations.
    To stay alive while losing money for years, Sears Canada has sold off most of its real estate holdings, and the most valuable assets are already gone. What’s left are C$1.1 billion ($880 million) in liabilities.

    This post was published at Wolf Street on Oct 10, 2017.


  • What Is Your City’s Debt Burden?

    What is your local government’s debt burden? Or in other words, how much of your local government’s annual revenue would be fully consumed by its liabilities?
    That’s a question that J. P. Morgan took on in its recent analyst report The ARC and the Covenants 3.0, in which it considered the total debt burdens of the governments of US cities, counties, and states.
    Read Transcending Government – A Future of Competitive Governance Driven by ‘Governance Entrepreneurs’
    Here’s an excerpt from the report’s Executive Summary, in which the private bank explains its interest in the results of the analysis and what liabilities are included in each level of government’s total debt, which goes into the calculation of their ‘IPOD’ ratio, which is their estimate of the true burden of debt local governments throughout the United States:
    As managers of $70 billion in US municipal bonds across our asset management business (Q2 2017), we’re very focused on credit risk of US municipalities. Last year, we completed our tri-annual credit review of US states. While a few states have very large debts relative to their revenues, many are in decent shape. This summer, we completed a review of the largest US cities and counties. In general, US cities and counties have substantially more debt relative to their revenues than US states. While most have several years to undertake remediation measures, some very difficult choices will be required in order for them to meet all of their future obligations. And when these choices become untenable and rare municipal bankruptcies do occur, bondholders have usually received lower recoveries than pensioners.

    This post was published at FinancialSense on 10/09/2017.


  • Central Banks at Risk of Default?

    Central banks do not play games with the markets but it sure feels like we are being played by someone! Earlier this year the Bank of Japan, Federal Reserve and the European Central Bank all had similar balance sheets at around $4.5 trillion. As we know, over the past ten years all three have risen from lower levels but have seen faster expansion by the BOJ and the FED gaining pace to now catch the ECB. Foreign exchange rates are always subjected to inherent volatility that is thrown into the mix. However, given the recent extremes on all fronts, there has been uncanny similarity around end of Q1′ 2017.
    Typically, a central bank balance sheet would off-set Assets against Liabilities and capital.

    This post was published at Armstrong Economics on Oct 4, 2017.


  • Is That a Feature or a Bug?

    We have covered many reasons why bitcoin is unsound and not money. It’s a ledger of unbacked liabilities. It is designed to have finite quantity but therefore indeterminate and hence volatile value. This makes it unusable for borrowing or lending and hence savings, but a great a vehicle for conversion of one person’s wealth into another’s income. It is not a commodity – discussion of the usefulness of the network notwithstanding – nor is it backed by a commodity or any asset. It is a perfect, cryptographically secure record – of itself. People use it to get rich quick. In other words, it’s the very model of a (post)modern monetary marvel (OK, Keith is not the next Gilbert and Sullivan).
    And bitcoin has a questionable feature. Transactions are irreversible.
    First it should be addressed that irreversible transactions have an appeal to merchants. Everyone who sells on eBay knows the frustration of shipping merchandise to a customer only to have the customer claim it was never received. Merchants would surely love the idea that once payment is made, it cannot be unmade.
    However, there are good reasons why our payments system was designed as it is. Sometimes there is a clear mistake. No one has an interest in allowing the payee to keep $100,000 when $10,000 was the purchase price of the used car. No one wants to see Jon Schmidt get the money that was intended for John Smith. There is also the occasional case of fraud. If someone breaks into your account, you want recourse to recover the lost funds. Irreversible transactions are not a dream come true for consumers who are defrauded by merchants.

    This post was published at GoldSeek on Monday, 2 October 2017.


  • Household Wealth Hits A Record $96.2 Trillion… There Is Just One Catch

    In the Fed’s latest Flow of Funds report, today the Fed released the latest snapshot of the US “household” sector as of June 30, 2017. What it revealed is that with $111.4 trillion in assets and a modest $15.2 trillion in liabilities, the net worth of US households rose to a new all time high of $96.2 trillion, up $1.7 trillion as a result of an estimated $564 billion increase in real estate values, but mostly $1.23 trillion increase in various stock-market linked financial assets like corporate equities, mutual and pension funds, and deposits as the market soared to new all time highs thanks to some $2 trillion in central bank liquidity injections this year.
    Total household assets in Q2 rose $1.8 trillion to $111.4 trillion, while at the same time, total liabilities, i.e., household borrowings, rose by only $15 billion from $15.1 trillion to $15.2 trillion, the bulk of which was $9.9 trillion in home mortgages.

    This post was published at Zero Hedge on Sep 21, 2017.


  • This $700 Billion Public Employee Ticking Time Bomb Is Only 6.7% Funded; Most States Are Under 1%

    We’ve spent a lot of time of late discussing the inevitable public pension crisis that will eventually wreak havoc on global financial markets. And while the scale of the public pension underfunding is unprecedented, with estimates ranging from $3 – $8 trillion, there is another taxpayer-funded retirement benefit that has been promised to union workers over the years that puts pensions to shame…at least on a percentage funded basis.
    Other Post-Employment Benefits (OPEB), like pensions, are a stream of future payments that have been promised to retirees primarily to cover healthcare costs. However, unlike pensions, most government entities don’t even bother to accrue assets for this massive stream of future costs resulting in $700 billion of liabilities that most taxpayer likely didn’t even know existed.
    As a study from Pew Charitable Trusts points out today, the average OPEB plan in the U. S. today is only 6.7% funded (and that’s if you believe their discount rates…so probably figure about half that amount in reality) and many states around the country are even worse.
    States paid a total of $20.8 billion in 2015 for non-pension worker retirement benefits, known as other post-employment benefits (OPEB). Almost all of this money was spent on retiree health care. The aggregate figure for 2015, the most recent year for which complete data are available, represents an increase of $1.2 billion, or 6 percent, over the previous year. The 2015 payments covered the cost of current-year benefits and in some states included funding to address OPEB liabilities. These liabilities – the cost of benefits, in today’s dollars, to be paid in future years – totaled $692 billion in 2015, a 5 percent increase over 2014.
    In 2015, states had $46 billion in assets to meet $692 billion in OPEB liabilities, yielding a funded ratio of 6.7 percent. The total amount of assets was slightly higher than the reported $44 billion in 2014, though the funding ratio did not change. The average state OPEB funded ratio is low because most states pay for retiree health care benefits on a pay-as-you-go basis, appropriating revenue annually to pay retiree health care costs for that year rather than pre-funding liabilities by setting aside assets to cover the state’s share of future retiree health benefit costs.

    This post was published at Zero Hedge on Sep 20, 2017.


  • Really Bad Ideas, Part 4: Federal Flood Insurance

    As Hurricanes Harvey and Irma wreaked their havoc over the past couple of weeks, several interconnected questions popped up, the answers to which make us look, to put it bluntly, like idiots.
    Why, for instance, are there suddenly so many Cat 4 and 5 hurricanes? Is this due to man-made climate change and is this summer therefore our new normal? The answer: Maybe, but that misses the point. There have always been huge storms (like the one that wiped Galveston, TX off the map in 1900, long before global warming was a thing), and barring another ice age there always will be. So the US east coast will remain one of Mother Nature’s favorite targets.
    A second (and vastly more pertinent) question is why we’ve been encouraging millions of people to move into this bulls-eye in recent decades. Since 2000, Houston and surrounding Harris County have added 1.2 million people. Since 1980 Florida has added 10 million people – most of them in the coastal corridor from Miami to Fort Lauderdale.
    Seems a little unwise, doesn’t it, to put tens of millions of people and millions of houses and cars where they’re guaranteed to be damaged or destroyed by inevitable future storms. But it’s not an accident. Government programs actively encourage this migration by picking up part or all of the tab for homes that are flooded by storms. The result: A massive and growing liability for future damage on top of all the other massive and growing liabilities for Medicare, Social Security, underfunded state and local pensions, etc. From last week’s Wall Street Journal:
    One House, 22 Floods: Repeated Claims Drain Federal Insurance Program
    Brian Harmon had just finished spending over $300,000 to fix his home in Kingwood, Texas, when Hurricane Harvey sent floodwaters ‘completely over the roof.’

    This post was published at DollarCollapse on SEPTEMBER 19, 2017.


  • Global Debt Bubble Understated By $13 Trillion Warn BIS

    – Global debt bubble may be understated by $13 trillion: BIS
    – ‘Central banks central bank’ warns enormous liabilities have accrued in FX swaps, currency swaps & ‘forwards’
    – Risk of new liquidity crunch and global debt crisis
    – ‘The debt remains obscured from view…’ warn BIS
    ***
    Global debt may be under-reported by around $13 trillion because traditional accounting practices exclude foreign exchange derivatives used to hedge international trade and foreign currency bonds, the BIS said on Sunday.
    Bank for International Settlements researchers said it was hard to assess the risk this ‘missing’ debt poses, but that the main worry was a liquidity crunch like the one that seized FX swap and forwards markets during the financial crisis.
    The $13 trillion unaccounted-for exposure exceeds the on-balance-sheet debt of $10.7 trillion that data shows was owed by firms and governments outside the United States at end-March.

    This post was published at Gold Core on September 19, 2017.


  • Mother of All Bubbles: Global Debt May Be Understated By $13 Trillion

    The US national debt was in the news last week as Pres. Trump signed a spending bill that raised the debt ceiling limit for the next three months and added approximately $318 billion to the national debt. Officially, the US debt surged to to $20.16 trillion. Of course, the actual figure for government unfunded liabilities runs even higher. And Trump wants to do away with the debt ceiling altogether.
    The US debt makes up just one part of a rapidly growing worldwide debt problem. Earlier this summer, US Global Investors CEO Frank Holmes called global debt ‘the mother of all bubbles.’ Now we have a report from the Bank of International Settlements saying worldwide debt may actually be understated by $13 trillion. Reuters reports the understatement is because ‘traditional accounting practices exclude foreign exchange derivatives used to hedge international trade and foreign currency bonds.’
    Bank for International Settlements researchers said it was hard to assess the risk this ‘missing’ debt poses, but that the main worry was a liquidity crunch like the one that seized FX swap and forwards markets during the financial crisis. The $13 trillion unaccounted-for exposure exceeds the on-balance-sheet debt of $10.7 trillion that data shows was owed by firms and governments outside the United States at end-March.’

    This post was published at Schiffgold on SEPTEMBER 18, 2017.


  • Government Nearing Default on Debt to Russia

    The government in question is that of Venezuela, which is nearing default as it is running out of resources to pay back the money it owes to its Russian creditors according to the terms it accepted when it chose to borrow money from them.
    MOSCOW, Sept 8 (Reuters) – Russian Finance Minister Anton Siluanov told reporters on Friday that Venezuela is having problems with fulfilling its obligations on its debt to Russia.
    ‘We have a request from our colleagues in Venezuela to do a restructuring,’ Siluanov said.
    Venezuela owed Russia $2.84 billion as of September last year.
    The Venezuelan government is now scrambling to restructure its foreign-held liabilities following sanctions put on the country’s President Nicolas Maduro and 20 other individuals, and also the Venezuelan government-owned oil company by the US Treasury Department after Maduro rigged an election to select representatives to rewrite the country’s constitution in his favor.

    This post was published at FinancialSense on 09/15/2017.


  • GOLD HAS BROKEN OUT – DON’T BE LEFT BEHIND

    The coming gold and silver moves in the next few months will really surprise most investors as market volatility increases substantially.
    It seems right now that ‘All (is) quiet on the Western Front’ as Erich-Maria Remarque wrote about WWI. Ten years after the Great Financial Crisis started and nine years after the Lehman collapse, it seems that the world is in better shape than ever. Stocks are at historical highs, interest rates at historical lows, house prices are booming again and consumers are buying more than ever.
    HAVE CENTRAL BANKS SAVED THE WORLD?
    So why were we so worried in 2007? There is no problem big enough that our friendly Central Bankers can’t solve. All you need to do to fool the world is to: Print and expand credit by $100 trillion, fabricate derivatives for another few $100 trillion, make further commitments to the people in forms of pensions and medical, social care for amounts that can never be paid and lower interest rates to zero or negative.
    And there we have it. This is the New Normal. The Central Banks have successfully applied all the Keynesian tools. How can everything work so well with just more debt and liabilities? Well, because things are different today. We have all the sophisticated tools, computers, complex models, making fake money QE, interest rate manipulation management and very devious intelligent central bankers.
    Or is it different this time?

    This post was published at GoldSwitzerland on September 7, 2017.


  • Pension Ponzi Exposed: Minnesota Underfunding Triples After Tweaking This One Small Assumption…

    Defined Benefit Pension Plans are, in many cases, a ponzi scheme. Current assets are used to pay current claims in full despite insufficient funding to pay future liabilities… classic Ponzi. But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit. Everyone from government officials to union bosses are incentivized to maintain the status quo…public employees get to sleep better at night thinking they have a “retirement plan,” public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.
    So what allows this ponzi to persist? It all comes down to one simple assumption: Discount Rates. You see, if you simply discount future liabilities at a high enough discount rate then you can make any massively underfunded pension ponzi look like a stable, healthy retirement gold mine.
    In fact, just over a year ago we took a look at what would happen if we calculated the true underfunded level of America’s public pensions at more reasonable discount rates. The result showed that the media’s highly referenced underfunding of $2 trillion soared to something closer to $5-$8 trillion when more reasonable discount rates were employed.

    This post was published at Zero Hedge on Sep 1, 2017.


  • Already Gone! US Public Pension Funds As Low As 31% Funding Ratio (New Jersey, Kentucky and Illinois The Worst)

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    Three states in the US are below 40% in terms of funding ratio: New Jersey, Kentucky and Illinois. And the funding ratio has deteriorated in 43 states. And the funding ratio deteriorated in each of the worst 15 states.
    (Bloomberg) -The news continues to worsen for America’s public pensions and for the people who depend on them. The median funding ratio – the percentage of assets states have available for future payments to retirees – declined to 71.1 percent in 2016, from 74.5 percent in 2015 and 75.6 percent in 2014. Only six states and the District of Columbia have narrowed their funding gaps; New York did best, going from 90.6 percent to 94.5 percent. D. C. is now overfunded.
    By contrast, New Jersey, Kentucky and Illinois continue to lose ground and now have only about one third of the money they need to pay retirement benefits. And three states had double-digit declines in their pension funding ratios in the past year: Colorado, Oregon and Minnesota – though some of this can be attributed to actuarial changes in the way pension liabilities are calculated.

    This post was published at Wall Street Examiner by Anthony B Sanders ‘ September 1, 2017.


  • Corporate Debt Threatens U.S. Economic Prospects

    According to recent studies, U. S. corporations’ debt levels could pose some serious headwinds for the United States’ economy in the next major downturn. In April, the International Monetary Fund announced the following red flags:
    The U. S. corporate sector has added $7.8 trillion in debt and other liabilities since 2010;
    Among S&P 500 firms, median net debt ‘is close to a historic high of more than 1 times earnings’;
    Looking at a ‘broader set of nearly 4,000 firms accounting for about half of the economy-wide corporate sector balance sheet, suggests a similar rise in leverage across almost all sectors to levels exceeding those prevailing just before the global financial crisis’;
    Debt is especially high ‘in the energy, real estate, and utilities sectors, ranging between four and six times earnings’;
    ‘The average interest coverage ratio – a measure of the ability for current earnings to cover interest expenses – has fallen sharply over the past two years. Earnings have dropped to less than six times interest expense, close to the weakest multiple since the onset of the global financial crisis.’

    This post was published at Wall Street On Parade on August 24, 2017.


  • This Silver Price Prediction Shows 3 New Bullish Targets in 2017

    Two weeks ago, the price of silver rallied to one-month highs above the $17 level, as U. S. President Donald Trump and North Korean leader Kim Jong Un exchanged direct threats. Trump notably said the small Asian country would be met with ‘fire and fury,’ which pushed Kim Jong Un to threaten Guam with missile strikes.
    But silver prices saw a modest decline last week despite a 1.4% bounce after the divisive Fed minutes on Wednesday, which indicated half of Fed officials are dovish while the other half are hawkish. The metal ultimately saw a weekly drop of 0.4% from Friday, Aug. 11, to Friday, Aug. 18.
    Oh and wait, there’s the debt ceiling as well. The federal U. S. debt now sits at more than $19 trillion – more than the total 2015 GDP of $17.9 trillion – and that’s without accounting for unfunded liabilities like Medicare and Social Security.
    Congress has until late September to get a deal done. The debt ceiling has been raised 78 separate times since 1960. But as we’ve seen over the last seven months, this is no typical administration, and if the debt ceiling isn’t raised on time, a ‘technical default’ could tank markets and boost flight-to-safety investments like silver.

    This post was published at Wall Street Examiner on August 21, 2017.


  • Margin Debt Sets Four New Peaks This Year – a Red Flag with a New Twist

    According to the latest data from the New York Stock Exchange, margin debt has hit new peaks four times this year, starting with a new record of $513 billion in January; $528 billion in February; $536.9 billion in March; and reaching a whopping $549 billion in April. The most recent reading for June shows a decline to $539 billion – but that is still an increase of 64 percent from the margin level of January 2008, the year of the epic financial crash on Wall Street.
    Spiraling margin debt, where investors pledge securities at their brokerage firm to obtain a loan, typically to buy more securities, is frequently associated with stock market crashes. The dot.com bust followed a margin buying binge in 1999 and early 2000. Margin debt exploded from $153 billion in January 1999 to $278.5 billion by March of 2000, according to data from the New York Stock Exchange archives.
    Loans using securities as collateral may be even more dangerous this time around. According to an enforcement action filed by the Massachusetts Securities Division on October 3, 2016, brokerage firms may be pushing securities based loans on their clients for purposes of mortgage funding, tax liabilities, weddings, and graduations. The enforcement action was brought against Morgan Stanley, the behemoth brokerage firm that gobbled up Smith Barney brokers, but the charges include an interesting statement from a former Morgan Stanley broker that suggests that another giant brokerage firm, Merrill Lynch, is offering similar loans. The statement from the broker reads:
    ‘Morgan Stanley told our office during the end of February [2015] and beginning of March to pitch this product to all its customers. Management said they were doing this to keep up with its major competitor, Merrill Lynch, who was already offering express credit lines. They told us that there was big money to be made by having our customers take out credit since the variable interest rate was profitable to the company and they could just sell out of the customers positions if the customer failed to make the payment. They told us to call our customers to tell them that they could use the credit line to buy a house, pay for a home improvement project, buy a car and/or pay for school, etc. They asked us regularly how many people we had put in these products and used measurement tools to compare us amongst our peers. I did not feel comfortable recommending every customer establish a credit line because I felt that my role as a Financial Advisor and Fiduciary was to help customers save and make money and not go into bad debt.’

    This post was published at Wall Street On Parade on August 14, 2017.


  • What Ponzi Scheme? Public Pensions Average 0.6% Return In 2016 Despite 7.6% Assumption

    We’ve frequently argued that public pension funds in the U. S. are nothing more than thinly-veiled ponzi schemes with their ridiculously high return assumptions specifically intended to artificially minimize the present value of future retiree payment obligations and thus also minimize required annual contributions from taxpayers…all while actual, if immediately intangible, underfunded liabilities continue to surge.
    As evidence of that assertion, we present to you the latest public pension analysis from the Center for Retirement Research at Boston College. As part of their study, Boston College reviewed 170 public pension plans in the U. S. and found that their average 2016 return was an abysmal 0.6% compared to an average assumed return of 7.6%.
    Meanwhile, per the chart below, the average return for the past 15 years has also been well below discount rate assumptions, at just 5.95%.

    This post was published at Zero Hedge on Aug 2, 2017.


  • S&P 500’s Biggest Pension Plans Face $382 Billion Funding Gap

    People who rely on their company pension plans to fund their retirement may be in for a shock: Of the 200 biggest defined-benefit plans in the S&P 500 based on assets, 186 aren’t fully funded. Simply put, they don’t have enough money to fund current and future retirees. The situation worsened for more than half of these funds from fiscal 2015 to 2016. A big part of the reason is the poor returns they got from their assets in the super low interest-rate environment that followed the financial crisis. It’s left a hole of $382 billion for the top 200 plans.
    Of course, the percentage of workers covered by traditional defined benefit plans – those that pay a lifetime annuity, often based on years of service and salary – has been declining for decades as companies shift to defined contribution plans such as 401(k)s. But each time a pension plan is terminated, canceled or altered, thousands of workers are affected.
    Last month, the 70,000 participants in the United Parcel Service Inc. pension plan learned they won’t earn increased benefits if they work after 2022. Late last year DuPont Co. announced it would stop making payments into its pension plan for 13,000 active employees, and Yum! Brands Inc. offered some former employees a lump-sum buyout to offload some of its pension liabilities. General Electric Co. has a major problem. The company ended its defined benefit plan for new hires in 2012, but its primary plan, covering about 467,000 people, is one of the largest in the U.S. And at $31 billion, GE’s pension shortfall is the biggest in the S&P 500.

    This post was published at bloomberg


  • Incoming MASSIVE Quantitative Tightening

    No, the “risk” from “quantitative tightening” is not The Fed.
    Yes, the reduction of their balance sheet will be a tightening.
    But you’re a fool if you think this is the only — or even the largest source of such tightening over the next number of years — 10 to 15 years from now, in fact and starting effectively now.
    There is in fact, as of right now, $5.486 trillion worth of “tightening” that will take place between now and 2034 and it will probably start in permanent form within the next two years.
    Where is it?
    Social Security and Medicare.
    The system holds bonds as a buffer between demographics. This is a good thing, by the way, because there are baby booms and baby busts in any economy. By holding bonds during “boom” times the system has the assets to pay liabilities during busts.

    This post was published at Market-Ticker on 2017-07-21.


  • Brodsky: This Is A Red Flag Warning

    Red Flag Warning
    Two identifiable dynamics may signal significant market shifts imminently:
    1. The US debt ceiling will be debated soon and signs point towards a messy outcome.
    2. Recent economic data have been weak, confirming our thesis that US economic growth is slowing and will not be reversed until a recession is acknowledged.
    Debt Ceiling
    Excessive debt has a way of catching up with people and institutions, and the first true test for the US government may be at hand. Congress was expected to raise the debt ceiling by October or else Treasury could not fund all the government’s programs and current obligations. Yet talk of Trump tax reform in 2016 may have given taxpayers incentive to defer their liabilities. As a result, Treasury received about 3 percent less in revenues than expected, accelerating the timetable to debate and raise the debt ceiling. Progress on raising the ceiling will unlikely be made in August, as Congress is in recess.

    This post was published at Zero Hedge on Jul 17, 2017.