Mish's Global Economic Trend Analysis

Ukraine Update: Not Quiet on the Eastern Front; Sanitized US News; Wakeup Call From Poland
How to Eliminate Illegal Competition
The Chicago Penalty
ECB Squeezes Greece on Collateral; Humorous Lies of the Day; Capital Controls Likely Soon

Ukraine Update: Not Quiet on the Eastern Front; Sanitized US News; Wakeup Call From Poland

Posted: 22 Apr 2015 08:31 PM PDT

Judging from Western media, one might think nothing much is happening in Ukraine. Facts are wildly different as we will discuss momentarily.

Rush to Judgment

As a prelude to current events, please recall the hype when Russian opposition leader Boris Nemtsov was gunned down in March. Western media rushed to judgment. Heck, even friends who should know better rushed to judgment.

Every Western news agency, even some I would have expected better of, was quick to point the finger at Putin.

I commented on Boris Nemtsov on March 6 in Rush to Judgment and Extremely Inaccurate Reporting.

With that backdrop, let's turn our attention to some recent events.

Death Squads Kill Four News Reporters in Ukraine

On April 17, Death Squads Killed Four News Reporters in Ukraine in 24 Hours.

Over the last two days in Ukraine, there have been four prominent killings. On Wednesday, it was former member of Parliament from the Regions Party, leader of the All-Ukrainian Officers' Union, and one of the founders of the AntiMaidan, Oleg Kalashnikov. On Thursday, it was journalist Sergei Sukhobok, one of the founders of the ProUA and Obkom websites. That same day, former editor of the major newspaper Segodnia, well-known journalist Oles' Buzina, was shot dead in his own backyard; and the body of editor-in-chief of the Netishinskii Herald, Olga Moroz, was found dead in her apartment, bearing signs of a violent death.

Three journalists in one day. Four political figures in 24 hours. Where is the human rights crowd? Where is the international community? Where are the declarations of Merkel, Obama, Cameron, etc.? Where is the wave of indignation from the Western press? Where?

Page 18

What did those journalists have in common? They were all against the war effort or considered "pro-Russian".

Had four anti-Putin journalists bit the dust in Russia, this would have been front page news for six straight days.

The New York Times devoted exactly one paragraph to the Ukraine killings on page A18 of the Friday, April 17th edition.

A Ukrainian journalist with a vocal pro-Russian stance was killed in Kiev, the capital, by unidentified gunmen on Thursday, a day after a pro-Russian lawmaker was killed in a similar attack. The journalist, Oles Buzina, 45, publicly opposed the protests that led to the ouster of President Viktor F. Yanukovych in 2014. The current president, Petro O. Poroshenko, called for a swift investigation and declared that the recent killings were "conscious provocations" intended to "destabilize domestic politics in Ukraine." President Vladimir V. Putin of Russia said Ukraine's government was allowing a campaign of political violence against supporters of the previous government.

Note the slant by Poroshenko. Supposedly Putin is killing pro-Russia supporters!

This is what constitutes "reporting" in the US.

Wakeup Call From Poland

Please consider Polish General 'Calls Back Support' of Ukraine over Nationalist Glorification

Retired General Waldemar Skrzypczak, an influential figure in the Polish military, says he withdraws all words of support for Ukraine due to the country's sliding towards nationalism. Earlier he advocated supplying heavy weapons to Kiev.

The angry U-turn in attitudes towards the Ukrainian government was published on Friday in the Gazeta Prawna newspaper. Skrzypczak said he is outraged with a law that the Ukrainian parliament passed hours after Polish President Bronisław Komorowski spoke before the MPs to express support for Ukraine.

The law gave benefits to all people who fought for Ukraine's independence throughput history. Those include fighters of the Ukrainian Insurgent Army, or UPA, which was responsible for mass killings of Polish citizens in 1943-44. The tragic events are known as Volhynian slaughter in Poland.

"I wonder on what foundation is Ukrainian President Poroshenko building the future of Ukraine. Bloodthirsty nationalism? It's frightening. I have long been telling that Ukrainians must get rid of nationalism, because otherwise cooperation with Poland would be very difficult if possible at all," he said.

As early as January, Skrzypczak was calling on the Polish government to send some armor from its reserves to Ukraine to help its government 'fight against Russia.'

Sanitized US News

The above was from RT, but the translation would be the same from any source. Don't like RT? How about Newsweek?

Please note that Newsweek (Polish Edition) reports Poland Claims US Is Responsible for Destabilization in Ukraine.

This is an English translation courtesy of Watching America Published in Newsweek (Poland) on 16 March 2015 by Marta Ciastoch Translated from Polish by Justyna Demuth.

"The U.S. has spent $5 billion on the Ukrainian revolution, the snipers who shot Euromaidan protesters came from the West, the annexation of Crimea was a justified action, and Nemtsov was killed by Americans," claims Janusz Korwin-Mikke, a Polish member of the European Union, in the interview for a Ukrainian TV program "Shuster Live."

"Most citizens of Crimea were, by their own democratic choice, in favor of joining Russia," argued the Polish KORWIN party leader. He emphasized that the existence of an independent Ukraine is critical for Poland, but whether Crimea remains a part of Ukraine or not, does not really matter. "Ukraine could exist without Crimea, and would, had not the U.S. invested $5 billion to destabilize it," says Mr. Korwin-Mikke, adding that Ukraine's loss of Crimea, followed by the loss of Donetsk and Luhansk, is a result of U.S. actions. Mr. Korwin-Mikke appealed to Ukrainians in order to make them realize the true intentions of the USA, which pretends to be allied with Ukraine, but, in fact, uses it against its own conflict with Russia.

The US is supporting neo-Nazis and murderous thugs in Ukraine because we prefer those thugs over Russia.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot

How to Eliminate Illegal Competition

Posted: 22 Apr 2015 12:22 PM PDT

Tired of illegal competition? Well, who isn't?

And the Quitman Georgia police department has an ad that can help.

By the way, I believe in legalizing drugs. I just found this humorous.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot

The Chicago Penalty

Posted: 22 Apr 2015 11:23 AM PDT

Chicago Pays Price to Get the Deal Done

Comparisons on the Bond Buyer in regards to Tuesday's offerings show Chicago Schools Pay Price to Get Deal Done.

The top yield of 5.63% on a 25-year maturity landed 285 basis points over the Municipal Market Data's triple-A benchmark.

While the board's rating remains in investment grade territory, its yields aren't.

Tuesday's MMD scale Tuesday put a mid-level, triple-B rated credit at a 3.78% yield on a 2039 maturity, underscoring just how severe a penalty the district paid. The Chicago Board of Education is rated between the BBB-minus level and A-minus.

Secondary trades on the board's $6 billion of debt jumped 140 basis points in recent weeks with 10-year paper trading around 250 basis points over MMD and 15 year paper trading at 300 basis points over.

The two tranches offered a C series for $275 million and an E series of $20 million in green bonds. Both carried a general obligation pledge plus an alternate revenue pledge of state aid.

The Penalty

Not only did Chicago have to pay a 285 basis point penalty over top rated bonds, it paid 185 basis points over similarly rated bonds even though the bonds contained an alternate pledge of state aid, and even though Illinois law does not "yet" allow bankruptcy.

Why?

Default risk.

Rauner pledged "The taxpayers of Illinois are not going to bail out the city of Chicago, that ain't happenin. But there are things we can do to help them restructure and get their government and their schools turned around, and I'd like to help them.".

Illinois taxpayers should commend Rauner for that stance.

Few Institutional Buyers

Here's a pair of telling comment from the article about who may be taking the risk:

"The 2035 is a discount structure, that typically signifies to me that you got some alternative buyers looking for some pop on the run, so they will try to trade on the headline news," said a Midwestern trader. "The structuring had a fairly deep discount. Only $10 million in the 2035, a little telling on the premium structure, which tells me you only have a few institutional buyers."

"The question that is on everyone's mind is did the Kroll rating do anything? Overall, it has wide spreads but you can really tell by the dollar amount who the buyers are," the Midwestern trader said.

Is this similar to the institutional shun and dump of GM bonds ahead of GM's bankruptcy?

Recall that high-yield GM bonds were dumped on unsophisticated mom and pop investors ahead of that debacle.

No Miracles Coming

I repeat what I said yesterday in Yield on Chicago School Bond Offering Hits 5.63%; Debate Over Risk; Miracles Not Coming; Bankruptcy the Sensible Option.

How is a state that has a $9 billion budget deficit hole going to bail out a single school district that is $1.1 billion in the hole?

The obvious answer is that it won't and can't. There are no miracles to be had. The Chicago Public School system is bankrupt. All it will take to trigger bankruptcy is for the legislature to allow just that.

That said, the law does mandate that parties in a chapter 9 bankruptcy dispute attempt to negotiate a settlement.

Realistically speaking however, history shows that unions will not concede benefits as they believe them to be sacrosanct, even though court decisions prove otherwise.

Detroit made a huge mistake time-wise attempting to forestall the inevitable. Rauner needs to give an out of court settlement a chance, but for the sake of Chicago and Illinois, that chance should be of limited duration.

Bankruptcy the Only Sensible Option

Since downstate voters will not want to bail out Chicago, we may easily be approaching the point the Illinois legislature realizes it has no choice other than to allow municipalities the option of declaring bankruptcy.

This won't come easily for the legislature, but it's the right thing to do. Upstate vs. downstate politics may be enough to tip the tide.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot

ECB Squeezes Greece on Collateral; Humorous Lies of the Day; Capital Controls Likely Soon

Posted: 22 Apr 2015 12:10 AM PDT

Funding as Long as Banks Stay Solvent

The amusing headline of the day comes from ECB Executive Board Member Benoit Coeure who told Greek newspaper Kathimerini on Wednesday in an interview ECB to Fund Greek Banks as Long as They Stay Solvent.

The European Central Bank will continue to provide liquidity to Greece's banks as long as they remain solvent and have sufficient collateral, ECB Executive Board Member Benoit Coeure told Greek newspaper Kathimerini on Wednesday in an interview.

He said imposing capital controls was "not a working assumption" for the ECB, while speculation about Greece leaving the euro was "out of the question."

Coeure failed to say that Greek banks are "solvent" (using the word loosely) only as long as they get funding.

Humorous Lies of the Day

Capital controls not a working assumption
Greece leaving the euro "out of the question"

Does Coeure really believe he is fooling anyone with such nonsense?

Greek Leaders Under fire for Ordering Councils to Hand Over Cash

Greek mayors are upset (and no one can possibly blame them) for the government ordering cities to turn all their cash over to the central government.

The Financial Times reports Greek Leaders Under fire for Ordering Councils to Hand Over Cash.

Greece's anti-austerity government faced the first serious rebellion over its handling of a deepening fiscal crisis after it caved in to international pressure and ordered local authorities to hand over their spare cash.

A group of prominent mayors reacted furiously to the move on Tuesday, which followed repeated demands from Greece's official creditors, saying it amounted to an illegal seizure of municipal funds by the Syriza-led central government. The mayors said the order by decree violated the constitution and they threatened legal action in Greece's highest court.

George Kaminis, the non-partisan mayor of Athens, said the order was a blow to the independence of local government and could "asphyxiate" the normal running of the capital. "Apart from the fact that this move is clearly unconstitutional, it takes local authorities by surprise . . . and threatens their capacity to contribute to social cohesion and urban development," Mr Kaminis told a meeting of EU mayors in Vienna on Tuesday.

ECB Squeezes Greece on Collateral

Rounding out our trifecta of Greek news, ECB Squeezes Greece on Collateral.

As Greece scrambles to secure a financing deal with Europe before running out of cash, the European Central Bank is tightening the vise on the country's ailing banks by curtailing access to desperately needed emergency loans.

The European Central Bank is now demanding that the value of the collateral that Greek banks post at their own central bank to secure these loans be reduced by as much as 50 percent, according to people who have been briefed on these discussions but who were not authorized to discuss them publicly.

With the value of the collateral being reduced so significantly, banks will be hard pressed to obtain the money they need to survive.

For more than three months, Greece's largest banks have been forced to borrow short-term, higher-interest money from their central bank — a process called emergency liquidity assistance — because the E.C.B. deemed it too risky to extend credit to the banks itself.

The banks, in turn, have to provide adequate collateral to obtain these loans, which now stand at 74 billion euros, $79.7 billion, or more than half the amount of Greek domestic deposits.

Controversially, Greek banks have even begun to issue bonds to themselves and, after securing a government guarantee, have used the securities to secure short-term financing — a practice that was excoriated by Yanis Varoufakis before he became the Greek finance minister.

On April 8, for example, the National Bank of Greece self-issued €4.1 billion of six-month bonds that carried state backing. But with Greece on the verge of default — Mr. Varoufakis has frequently said his country is bankrupt — those guarantees are no longer worth much.

Under E.C.B. rules, the central bank of Greece assumes full responsibility for the credit risk when it issues these emergency loans.

But the E.C.B. carefully monitors them, setting limits and scrutinizing the collateral.

Capital Controls Likely Soon

What's that collateral that the ECB already has on deposit from the Bank of Greece really worth?

Regardless of the answer, we now have an official denial on capital controls.

If you have money deposited in Greek banks, get it out now. Capital controls seem all but certain, perhaps within days.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot

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