Business

When last we checked in on Puerto Rico’s seemingly intractable debt debacle, Governor Alejandro Garcia Padilla was pandering to Congress in an ill-fated attempt to secure some manner of federal intervention that would help to alleviate the strain on the island’s finances. 

Meanwhile, the commonwealth avoided a messy default on $273 million in GO debt by using an absurd revenue clawback end-around to make a $354 million payment on December 1. 

Just in case yesterday's weakness was mistaken for "well, it's just stabilizing before the next leg higher," US equity markets are pooping the bed this morning with the Dow down over 500 points from its post-Yellen highs, FANGs plunging red, credit collapsing, and bond yields slumping. Between the widely watched quad-witching, Fed policy error concerns, and the utter failure of the Bank of Japan's efforts to save the world, global stocks and bonds are flashing red warnings for the end of centrally planned markets.

That was not supposed to happen...

While correlation is not causation, one would have to be an ignorant unicorn-worshipper to believe that a collapse in America's manufacturing would not have some follow-through. Following the crash in Manufacturing, Markit reported America's Services economy massively missed expectations and plunged to 53.7, lowest since Dec 2014. New orders plunged to the lowest since January 2015 and employment tumbled.

One of the corporate catalysts which unleashed the market "wobble" in August, in addition to the confluence of macro and geopolitical events, was the dramatic repricing of risk for all the commodity traders in general and for Glencore in particular as the market caught up with what we had cautioned since early 2014: Glencore is the closest (and most readily tradable) proxy to China's commodity and credit crunch, due to its extensive and direct exposure to copper prices. 

It’s notoriously difficult to get a read on the health of China’s economy. 

The ambiguity is in large part attributable to the NBR’s tendency to goalseek the data in order to ensure that growth remains in line with the Party’s “targets.” To be sure, virtually no one believes the official numbers and when it comes to GDP, the situation is complicated by what we’ve called Beijing’s deficient deflator math, which causes China to habitually overstate economic growth during times of rapidly falling commodity prices.