KeNo's Housing and Economic Portal: Tuesday November 3 Housing and Economic stories

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Illinois Cut by Fitch as Fiscal Crisis Worsens Without Budget - (www.bloomberg.com) Illinois was lowered to three steps above junk by Fitch Ratings amid a political stalemate that has left the state without a budget for nearly four months, worsening a financial crisis that has already triggered credit downgrades to cities and local agencies. The one-step downgrade to BBB+ from A- affects $26.8 billion of general-obligation bonds. Fitch said in a statement that its outlook is now stable. Illinois is already the worst-rated state with an A3 by Moody’s Investors Service, four steps above junk, and an equivalent A- by Standard & Poor’s. The nation’s fifth-most-populous state is grappling with more than $6 billion of unpaid bills because the Democrat-controlled legislature and Republican Governor Bruce Rauner can’t agree on a spending plan for the year that started July 1. The Chicago school district’s credit rating was cut to junk in August as it waited on state help to close its own deficit and securities sold by the city’s convention center slid after lawmakers were slow to appropriate funds, resulting in a seven-level downgrade by S&P.

China’s capital outflows top $500bn - (www.ft.com) Capital outflows from China topped $500bn in the first eight months of this year, according to new calculations by the US Treasury that highlight the shifting fortunes in the global economy. The outflows, which peaked at about $200bn during the market turmoil in August according to the estimates released on Monday, have also contributed to a shift by Washington in its assessment of the valuation of China’s currency, the renminbi. In its latest semi-annual report to Congress on the global economy, the US Treasury dropped its previous assessment that the renminbi was “significantly undervalued”. Instead, the Treasury said the Chinese currency was “below its appropriate medium-term valuation”. “Given economic uncertainties, volatile capital flows and prospects for slower growth in China, the near-term trajectory of the RMB is difficult to assess,” Treasury economists wrote. “However, our judgment is that the RMB remains below its appropriate medium-term valuation.”

US junk debt regains high-yield status - (www.ft.com) After years of investor enthusiasm, US high-yield debt is once again living up to its name. Yields on lower quality rated securities have soared since January as investors ask a pivotal question: are they being paid enough for the risk of owning junk-rated bonds? Junk bond yields, which move inversely to price, rose above 8 per cent in October for the first time since 2012 as investors retreated from funds focused on speculative debt, accelerating a four-month sell-off fuelled by fears of weaker growth hitting highly indebted companies in the sector. Investors who in years past eagerly sought exposure to the sector against a backdrop of low global interest rates and easy central bank policies, are now heading for the exit. The junk market in the past has often signaled big turning points in risk appetite among investors, and lowly rated companies are finding difficulty securing financing as investors demand greater compensation in the form of higher yields.

Brazil Pension Crisis Mounts as More Retire Earlier, Then Pass Benefits On - (www.nytimes.com) When Rosângela Araújo turned 44, she decided that she had worked long enough. So Ms. Araújo, a public school supervisor, did what millions of others in their 40s and 50s have done in this country: She retired, with a full pension. “I had to take advantage of the benefit that was available to me,” said Ms. Araújo, now 65. Her government pension stands at about $1,000 a month, five times the minimum wage. An exploding pension crisis here in Brazil, Latin America’s biggest country, is wreaking havoc on its public finances, intensifying a political struggle over the economy that already has the president fighting for survival. Brazilians retire at an average age of 54, and some public servants, military officials and politicians manage to collect multiple pensions totaling well over $100,000 year. Then, once they die, loopholes enable their spouses or daughters to go on collecting the pensions for the rest of their lives, too.

Saudi Arabia Cuts Spending, Slows Payments, Hits Spain Inc. - (www.wolfstreet.com) It’s almost a whole year since the House of Saud shocked the world by announcing its scheme to let market forces determine oil prices. It then did the unthinkable: it cranked up oil production. What followed was arguably the biggest price war of this fledgling century, as the price of oil fell by more than 50% in six months. For struggling energy consumer nations, the collapse of the oil price has been a godsend; for producer nations, it has been a source of incalculable economic pain and misery. When the Saudis had their all-in moment, it was widely assumed that Russia, as well as a host of other unsavory oil-dependent “regimes” (such as Venezuela), would be first to buckle. Eleven months on, Venezuela’s economic edifice is in tatters, Russia has lost billions of dollars in crude revenues, and the U.S. shale industry – broadly assumed to be the Saudis’ second target – is being kept alive only by increasingly difficult-to-come-by and expensive infusions of debt.

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