Tag Archives: bankruptcy

“The System Will Have To Collapse”

The public pension fund system is approaching apocalypse.  Earlier this week teachers who are part of the Colorado public pension system (PERA) staged a walk-out protest over proposed changes to the plan, including raising the percentage contribution to the fund by current payees and raising the retirement age.   PERA backed off but ignoring the obvious problem will not make it go away.

Every public pension fund in the country is catastrophically underfunded, especially if strict mark-to-market of the illiquid assets were applied. Illinois has been playing funding games for a few years to keep its pension fund solvent.  In Kentucky, where the public pension fund is on the verge of collapse, teachers are demanding a State bailout.

If the stock market were sustain a extended decline of more than 10% – “extended” meaning several months in which the stock market falls more than 10% – every public pension in the U.S. would collapse.  This is based on an in-depth study conducted by a good friend of mine who works at a public pension fund.  He has access to better data than “outsiders” and I know his work to be meticulous.   Please note that the three big market declines since August 2015 were stopped at a 10% draw-down followed by big moves higher.  The current draw-down was stopped at 10% but subsequent outcome is to be determined. My friend and I are not the only ones who understand this:

The next phase of public pension reform will likely be touched off by a stock market decline  that creates the real possibility of at least one state fund running out of cash within a couple of years. – Bloomberg

I know a teacher in Denver who left her job that was connected to PERA in order to take a lump-sum payout rather than risk waiting until she retired to bankrupt pension plan. She took a job in the Denver school system, which is not part of the PERA system. She’s actually thinking about teaching in Central America, where there’s high demand for English-speaking teachers and the pay relative to the cost-of-living is much higher:

“Teaching sucks right now.  Teachers are underpaid for the work we’re doing.  After all of these years, I’m making about $60,000. That’s BS! I have a masters. Truthfully, the classroom is burning me out right now. The f#cked up world is spilling into kids’ lives. They’re largely defiant and off-track. I don’t have the energy to try to streamline whole classrooms.”   In reference to the pension system: “When the mother f#cking-f#ck is any of this going to be corrected?!?! I am beyond mad.  Ecuador has become an option, because this country is beyond f#cked up.”

Unfortunately, I was compelled to answer with the truth – a truth she already knows:  “It won’t be corrected. The system will have to collapse and then who knows what will happen. Criminals run everything now and the people who are supposed to enforce Rule of Law are well paid to look the other way. This has been building for at least 2 decades. It doesn’t help when the President is caught shoving a cigar up a staff interns vagina and then a joke is made of it in Congress. “Is oral sex, sex?” Answer: “it depends on what the meaning of the word ‘is,’ is.”

Now the corruption and fraud is out in the open and there’s nothing that can be done about it. The system will have collapse – its the final solution.

Tesla’s Irreversible Death Spiral Fait Accompli

The inevitable is finally starting to unfold. The downgrade to triple-C by Moody’s came as a surprise, at least to me. Historically Moody’s has been the last to downgrade collapsing companies. The most famous was its failure to downgrade Enron until about a week before Enron folded. Perhaps this time around it decided to get out in front of the obvious.

Tesla’s continued existence, despite obvious operational and financial problems that were growing in scale by the week, was enabled by the most lascivious monetary policy in U.S. Central Bank history. For me the coup de grace was the $1.5 billion junk bond deal floated last summer. It was emblematic of rookie money managers, unsupervised children in the sandbox, shoveling other people’s money into a cash-burning furnace.

Most managers running retail and pension money have no idea what a triple-hook rating means for any company with massive cash flow deficits operating in a financial environment in which the Fed is not printing trillions of dollars that can be recycled into bad ideas.

Even without the nearly $10 billion in debt on top of several billion in negative free cash flow, TSLA has billions in off-balance-sheet liabilities that don’t seem to exist as long as the Fed is injecting free cash into the financial system for inexperienced money managers to abuse.

All of that changes with a falling stock market and a triple-C credit rating. Now the obvious operational impossibilities and questionably fraudulent projections by Elon Musk will become quite relevant. If those don’t sink the ship, perhaps the SEC investigations, the ones that Musk forgot to disclose, will put an end to Tesla’s Waterloo. Unless the Fed reverses course and re-implements ZIRP and money printing, it will be next impossible for Tesla to raise the several billion it will need to keep its cancer-infested rodent moving its legs on the gerbil-wheel.

If you are invested in TRowe and Fidelity funds with large exposure to Tesla, I highly recommend selling them. At this point the only prayer the managers running those funds have is to throw more of other-people’s-money into Tesla’s furnace and pray for the Second Coming to save them.

Tesla is going to collapse. The collapse will likely occur in the next 12 months unless there’s some form of exogenous intervention. I doubt the Easter Bunny will deliver that sort of help this weekend. Moody’s “bold” downgrade to triple-C has sealed the fate.

Banco Espirito Santo Holding Company Takes A Dirt Nap – Files BK

Please note how this news was not reported until late in the afternoon EST time and well after all the markets around the world were closed for the weekend except  the NYSE.  It would have definitely rained hard on the European markets if the news were released during those market hourse:   BES Files BK

The Wall Street Journal reported it at 3:28 p.m. EST.

Interestingly, it would seem that the ratings were given a heads up yesterday, as S&P and Moody’s “coincidentally” downgraded the credit ratings a day ahead of the filing:   BES credit downgrade.

My only question is:  “Who holds the credit default swaps, baby?!”   Better check your bond mutual fund SEC filings…