Economist 7/1/16

  1. CANADA has long been a country for idealists. Before the United States entered either world war, thousands of Americans eager to fight in Europe joined the Canadian military. Decades later, Americans fled north to avoid fighting in Vietnam.In America, presidential elections seem to be a major source of grief. Google searches for “move to Canada” dramatically spiked when George W. Bush defeated John Kerry in 2004.This time the catalyst was the ascent of one Donald J. Trump; on March 1st, when the Republican presidential candidate won seven out of 11 primaries on “Super Tuesday”, searches for “move to Canada” hit an all-time high.While the actual number of Americans and Brits adopting maple-leafed passports over the last decade is rather low (15,000 combined a year on average), recent political events suggest that the case for Canada may have never been stronger.
  2. IN THE early hours of June 16th a pipeline belonging to Nigeria’s state-owned oil company exploded. This was the latest in a string of attacks claimed by the Niger Delta Avengers, a new group taking out pipelines and oil platforms in the southern, oil-pumping part of the country.Oil was discovered in its swamps in the late 1950s and remains Nigeria’s biggest export today. Yet much of the revenue has been squandered, leaving the Delta polluted and poor.In the early 2000s, young men rose up in a violent campaign for greater control of the region’s resources. Their Movement for the Emancipation of the Niger Delta (MEND) crippled crude production and drove international oil companies offshore. But they were bought off with an amnesty in 2009 and the attacks started to peter out.Today’s militants probably number just a few hundred men. Among their fast-swelling ranks are many fighters from the former days.The Avengers say they must continue; they think his anti-corruption campaign targets allies of his predecessor, Goodluck Jonathan, who hails from the Delta.
  3. On June 29th the upper house passed a bill, already approved by the House and backed by the president, allowing Puerto Rico to restructure its debts, two days before the Caribbean territory was set to default on a $2 billion payment.Default was the only option left for the island. The government does not have the money to pay the bill, according to Puerto Rico’s governor, Alejandro García Padilla. Nobody sane would lend it to them. But default was not itself the main worry; few will shed tears for the territory’s creditors.The real problem is that investors in Puerto Rican debt have filed lawsuits arguing that the island must pay them before buying things like fuel for police cars and medicine for hospitals.The bill halts the lawsuits until at least February 2017. In the meantime, it permits a debt restructuring, hitherto impossible partly because Puerto Rico is a mere territory.
  4. A two-thirds majority of bondholders will be enough to force all to accept a reduction in what they are owed. A “financial oversight board” will chaperone the island through the process and also monitor its budget, rewriting it if that is deemed necessary.Crucially, the bill covers the so-called “general obligation” bonds which the Puerto Rican constitution says must be paid prior to any other spending. The island is used to avoiding its own rules; a hole in the constitution’s balanced-budget requirement was one of the factors which caused the fiscal crisis in the first place.In the Senate, the cross-party bill faced more opposition from the left than it had in the House, where over four in five Democrats backed it on June 9th.
  5. Some companies are so favoured by investors that their bonds trade with negative yields: investors are buying their debt at a price that exceeds the value of the interest payments and principal.In part, the spread of negativity reflects the impact of monetary policy: central banks have imposed negative rates on the reserves commercial banks keep with them. Other interest rates have been dragged lower in tandem. But it also reflects the requirement for banks and insurance companies to own highly rated debt for regulatory reasons. As a result, there is a lot of demand for the debt of companies with the highest credit ratings, regardless of the returns on offer.Although owning these bonds guarantees a loss in nominal terms (ie, taking no account of inflation) if held until maturity, investors can still make money from them in two ways. If bond prices rise further, making yields even more negative, investors can sell for a nominal profit. Alternatively, if deflation becomes established in the euro zone, investors might make money in real terms

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