Jim Grant Interviews Alan Fournier: "Pension Funds Are So Desperate For Yield, They"re Systemically Selling Vol..."

In the latest installment of RealVision"s interview series featuring Jim Grant, longtime publisher of Grant"s Interest-Rate Observer, the newsletter publisher sits down with Alan Fournier, the billionaire founder of Pennant Capital, to discuss one of the most widely discussed topics across modern asset markets: Volatility - or rather, the systemic risks posed by not only the paucity of volatility in modern markets, but how risk parity and low-vol targeting strategies have created imbalances that could lead to massive dislocations should volatility spike.

In the beginning of the talk, Fournier and Grant discuss how volatility has been artificially suppressed for so long that it"s essentially become an asset class unto itself. Investors have devised all these new volatility targeting strategies - like risk parity, for example, that have generated outsize returns since the financial crisis. But many don"t recognize the underlying risks. With so much money piled into the short-volatility trade, a large enough spike could trigger extremely painful selloffs in both bond and equity markets.

JG: And one would expect that if interest rates are going to turn, it might be kind of a noisy and dramatic turn.

 

Are you plugging in the interest rate aspect to this as well the bond market side of things?

 

AF: Well the thing that concerns me the most about this sort of overall technical setup, if you will, is that the reason people own bonds is they don"t correlate with stocks. So if something bad happens in the stock markets, bonds rally, right? So risk parity, some stocks in a levered bond fund, it"s been fabulous because that"s been what we"ve seen for the last 15 or 20 years. Well if we get a turn, which is just driven by a normal business cycle and that correlation comes apart, who knows what happens? But there"s a lot of money that"s been dedicated to these kinds of strategies, whether they"re vol targeting, risk parity. We"re in sort of a spooky time.

 

JG: You use the phrase the setup, which I think is a wonderful way of expressing the notion of an overall context of things, how the forces are aligned or misaligned. And so many of those forces in this particular cyclical moment seem to be unusual if not unprecedented. Certainly the level, the nominal level and real level of interest rates is one of those forces. The positive preoccupation with the efficacy and with the certainty of outcome of passive investing must be another, right?

 

AF: Yes.

 

JG: And the peace and quiet in the markets as reflected in readings in both the MVE Index, which registers bond activity, and the VIX Index, which measures agitation in the stock market, those things are at record or near level lows. So Alan, how do you see the constellation of these forces?

 

AF: Well, we joke on a trading desk when we come in the morning if the futures are down-- like today they were down a bit this morning. But we joke about what time they"re going to go positive during the day, and usually it"s after the Europeans go to the pub or something at around 11 o"clock. By 2 o"clock they"re positive.

 

And I just mentioned this because it"s very unusual and something I"ve never seen in 30 years or so of doing this that sort of nothing rattles this market. And I think some of it is the vol being depressed.

 

JG: Now let"s explain this. So volatility now, it"s like a thing. It used to be stocks and bonds.

 

AF: It used to be observed based upon how options are priced. Now it"s actually a source of income.

 

JG: Right. It"s like an asset class.

 

AF: It"s a bond.

 

JG: But it"s movement. It"s kind of capitalized movement, right?

 

AF: Right.

Toward the beginning of the interview, Fournier shared a story with Grant about how a high-net worth broker recently asked for meeting to pitch a suite of new "short volatility" investment products. After grilling the broker about the details of how the products are managed, he asked how the funds are protected in case of a sudden spike in volatility. The broker waved his question aside and said there products are all adequately hedged.

After doing some more due diligence, Fournier discovered that the broker was wrong. And it"s not that he lied, Fournier surmised - it"s that the broker didn"t have an appropriately deep understanding of how the products work.

AF: Yeah. So I"m going to tell you a little story which is interesting, which is suggestive of the idea that we"re pretty late in this tick-tock game.

 

JG: All right, I"m ready.

 

AF: Well a friend of a friend asked to come see me who is a high net worth broker at one of the investment banks. And he said, "Look, I know I can"t help you in the stock market because you"re doing your own thing in your fund and get that, but maybe we can help here with fixed income." I said, "Sure, come on by. Let"s talk."

 

He comes in and I ask the question, "So what are people doing for income?" And he said, "We have this great product that sells vol." And I said, "Oh, how does that work?" And, well, it was a very basic explanation. Selling puts, selling calls, straddles, blah, blah, blah. And I said, "What happens if the market goes down?" And he said, "Well, there are ways they protect against that." I was like OK, and I just was very curious. So I said, "Send me the documentation." So he sends me the brochure with all the legal details and so forth, and there"s really no protection. They"re just selling vol and collecting income, which has been successful.

In the most unsettling excerpt from the interview – for mom and pop investors, that is – Fournier shared a story about a talk he gave to a group of pension-fund investment-committee members. Some investment bank trying to scrounge up brokerage business had taken the group of these investors on a tour of Washington, D.C., and Fournier was recruited to speak about his experiences in the hedge fund industry as sort of a keynote for the day’s events.

So, Fournier told a story that emphasized the risks of selling volatility.

Afterward, his audience sat there, stone-faced. As he would come to find out, many of their funds were running vol-selling strategies which – as we’ve explained time and time again – are much riskier than most investors realize.

And these are pension funds – purportedly some of the most risk-averse institutional investors.

JG: So when you sell vol, what do you do exactly? Do you sell puts on the VIX Index?

 

AF: Yes, and different tenors. And there are strategies that will sell vol at a level and buy vol further down and try to dampen potential crash risk and those kinds of things. But essentially you"re just collecting income by being a house, selling puts.

 

So a few weeks later another investment bank invites me to come and speak to some pension investors. And they were taken them to Washington to sort of hear what was going on down there. And then they brought them up  to New York and I was sort of the end of the day, talk to a hedge fund practitioner kind of thing. And I sat there and I told the story about how this guy was trying to sell me vol, expecting some kind of reaction from them.

 

JG: And they said so?

 

After doing some more due diligence, Fournier discovered that the broker was wrong. And it"s not that he lied, Fournier surmised - it"s that the broker didn"t have an appropriately deep understanding of how the products work.

 

JG: This is a group of--

 

AF: Pension funds, large European pension funds. And he said, "Yeah, but they have a strategy where, when you get a selloff, they sell more into the selloff." So if the VIX spikes from 10 to 15, you sell more. And then you continue to have this tremendous monthly pattern of income.

 

So as I was walking out of there I thought, my goodness, the central banks have succeeded in pushing people out on the risk curve. They"re taking people that are managing the pensions of state pensioners and they have them in negative earning sovereign instruments. And now they have them-- they"re so desperate for some yield, they"re systemically selling volatility, which is remarkable.

In one of the most interesting excerpts from the interview, Fournier explains how a chance breakfast meeting inspired him to switch from long subprime lenders to short a few years before the housing crisis began.

The timely switch allowed Fournier to book winning trades on both the long side – he cashed in as home prices climbed toward their pre-crisis peak – and against during the collapse. He was inspired to change his position after learning from a subprime mortgage broker how the loans the broker was selling worked.

After their discussion, it quickly became apparent to Fournier that the whole subprime lending model was reliant on home-price appreciation, and the minute housing prices peaked, there could be a very significant credit event.

JG: This is where we have different lines of work Alan, because in the years 2001, "02, "03, "04, "05, "06, Grant"s Interest Rate Observer deplored these queues of people lining up irrationally and uneconomically to buy the houses, the makers of which you were long.

 

It takes all kinds of people to make a world. I’m not throwing stones.

 

AF: We also got long subprime lenders. And we got to know them well. And early on it was clear that this was going to be a booming opportunity for subprime lenders. I mean, you were taking debt that was costing folks very high rates on credit cards and pulling equity out of homes. And so that was a natural arbitrage that created this big opportunity. And then using subprime to fund the purchase of second homes, driving up real estate prices. And I was actually at a breakfast with a company coming public that I ended up investing in where I asked them a number of questions about how these loans work. And it became very clear that the whole key to those loans was home price appreciation. And at that breakfast, I kind of logged this view, that, wow, when this turns, it"s going to be a very significant credit event.

 

JG: Let me, if I may just interrupt to observe, how unusual it is for someone who has been long, a big theme, to turn around and successfully to change views and become short, successfully, that same theme. It"s done sometimes at a bar in recounting fabulous fabled stories, but rarely in real life. Tell me about kind of the intellectual flexibility this requires. When did you decide to kind of jettison the bullish view on subprime?

 

AF: Well, it was a matter of first developing understanding of what was going on and how this reflexive process, classic Soros reflexive process was interacting with the real world. And it was very simple. Easy credit drive up home prices. The fact that home prices was growing up was making credit easier. And so it was a matter of how long that would play out and when it would end. We had the patience to wait. And we made some money in long side of some of the subprime lenders during this period. And it was really gaining the knowledge of what these CDO and CDS securities were that was an eye-opening opportunity for me.

So Fournier switched from being long doomed mortgage lenders like American Home Mortgage to shorting the mortgage-backed security products that would eventually slide all the way to zero.

Later in the interview, Grant asks Fournier for his thoughts on bitcoin.

In a heartening display of modesty and intellect, Fournier demurred, instead of offering a barrage of chaotic, unqualified opinions like some of his peers have tended to do.

“That’s something I don’t understand well.”
 

Elon Musk Pulls An ICO

By Chris at www.CapitalistExploits.at

First up, this beauty received by one of the crew here at HMS Capitalist Exploits:

Marketing an ICO...

Killer!

The Tesla ICO

Speaking of ICOs, last week something amazing, breathtaking, and revolutionary happened. We had another ICO... the very first of its kind.

An Initial Car Offering.

Pundits said it was an unveiling of the Tesla semi truck, but we now all know it was actually a thinly veiled capital raise.

Like many good things in life, this also began with foreplay.

Customers and shareholders are like women ovens - they need to be warmed up first.

So a few weeks before launching the ICO, the oven was dialled up:

Amazingly, I woke up this morning and, though having watched the unveiling, I looked around me and couldn"t notice anything different (though my dog had this strange look in his eyes).

My mind was surprisingly still in my skull and had not been sent into an alternate dimension, which was disappointing as I was quite excited by the prospects of that.

Anyway, so once the engine was warmed, we were treated to the de-robing of this.

I thought at first I"d missed it. Then I watched it again. And no, I hadn"t.

There was zero explanation of how Tesla would get all the dough to build this creature, where it would build it, and how (given the competition all have existing production plants, positive cashflows, dough in their treasuries, and access to credit markets) Tesla miraculously thinks that by the time it gets there it will have all of these things as well as the technology (that does not yet exist) to pull it off.

But then my nerves were calmed when they offered a warranty on the product. Wait, what? A warranty BEFORE they have a product? Killer!

I guess there"s a first time for everything.

But that wasn"t to be all.

No, then came the real showstopper as Elon went a step further in prostituting promoting Tesla. The fastest sports car in the world. And it may even just fly.

The kid in me did backflips. I sooo want a car that flies. Don"t you?

But then I remembered that there was a time when I really wanted the Easter bunny to be real, too.

Now, being older and wiser, I realise that rabbits screw up your lawn and chocolates make you fat, and I want nothing to do with either of them.

What I would like to know is how they found the time to muck around developing both a sports car and a giant truck when they can"t get a little Model 3 out?

Maybe that"s just me being a grouch. Heck, what do I know about cars? Mine"s 5 years old and smells of kids sweaty football socks which are buried in the back there somewhere.

Thankfully, I didn"t have to wait too long to figure out how they intend to fund some of this:

Now, when I saw this I"ll admit to having made the sort of noise a cat would make if fed through a mangle.

I realised then that Tesla was trying to pull off an ICO.

You see, the thing with 99% of ICOs is they"re kinda like the deals on Kickstarter, which means that you don"t actually get anything. It"s more like a donation... or part of a rewards points system. You know, like your air points where you get to trade them for a flight to Greece for a dirty weekend away or to upgrade your flight to first class so you can sit next to all the folks who eat lobsters in their bathrobes.

This works spectacularly well for anyone uneducated in investment markets. And that, my friends, is perfect for Tesla. Because you know what?

That"s about 90% of the population.

For the other 10%, here are some things to consider.

I"ll gladly admit to not really knowing a lot about cars. I like them very much as long as they take me where I want to go and do all the cool things that modern cars do.

But try explain to me about all the ins and outs of the bits inside and my brain does that man thing - it stops working and starts thinking about sex.

But what I do know a thing or two about is numbers and markets. And frankly, when Musk starts talking about these things he may as well be speaking Nepalese and explaining how to cook a yak stew because it"s all complete gibberish.

Tesla by the Colours

Last week when we were staring at Margot Robbie (don"t tell me you didn"t stare), and we said:

It was overconfidence that led the pointy-shoed suits on Wall Street to package subprime mortgages up, believing that a pile of isht when added to other piles of isht through the magic of diversification turns isht into non isht.

Like Margot explained in the Big Short (and bear with me as I"m extrapolating here): If we use Wall Street logic, you take the colour red and add it to more red... much more... you can get green.

So let"s run through Tesla by the colours, and then after that we"ll run through it by the numbers. Sounds fair?

• SolarCity: Red


• Gigafactory: Red


• Model 3: What Model 3?


• Model 3 in full production: Red


• Tax credits: Green... ah isht... no, make it red

Excellent!

So red + red + red + red + red = Green.

Tesla by the Numbers

Let"s take Q3 cashflow and toss in interest charges for 2017 (which is only fair — after all, someone has to pay them).

With that we realise that Tesla burned through about US$1.7bn or about US$500m a month.

Now, let"s be super conservative and say capital expenditures remain at 2017 levels, which is absurd and impossible given the new initial car offering and that semi truck, too (it"ll be far higher).

Anyway, let"s give it to them.

Well, let"s say they can find 1,000 fools buyers to drop a quarter million bucks on a pre-order for a car that they hope to receive some years in the future. Let"s say they can do that.

That"ll put US$250m into Tesla"s treasury, which will buy them less than 3 weeks. Killer!

I"m going to go out on a limb here and say that in the first quarter of 2018 Tesla"s going to lose US$1bn. Crazy, I know. How long for? It"ll go on until it doesn"t.

And here"s something to think about...

Here"s Venezuela"s 5-year sovereign CDS spread:

You may ask, why Chris are you posting this in an article about Tesla?

Well, Venezuela — like Tesla — made promises it couldn"t keep.

What I"d really like to know from you today is this:

Cast your vote here and also see what others think will happen

- Chris

“If you wouldn’t be short a multi-billion-dollar loss-making enterprise in a cyclical business, with a leveraged balance sheet, questionable accounting, every executive leaving, run by a CEO with a questionable relationship with the truth, what would you be short? It sort of ticks all the boxes.” — Jim Chanos

--------------------------------------

Liked this article? Then you"ll probably like my other missives on

this topic as well. Go here to access them (free, of course).

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Venezuela Officially Declared In Default

Today at 11am, the ISDA Determinations Committee sits down to decide whether an event of default has occurred due to the delayed principal payment on the Petroleos de Venezuela SA, or PDVSA, bond that matured Nov. 2, in the process triggering PDVSA (and perhaps Venezuela) CDS, and officially declaring Venezuela in default.

We won"t have to wait that long: moments ago, Wilmington Trust, the Trustee of the 8.5% bonds due 2018, issued by Corpoelec, Venezuela"s electricity company, declared that the missed interest payment originally due October 10, and whose 30 day grace period expired on November 9, and for which no pament was sent or received, officially constitutes an event of default.

From Bloomberg:

From the statement:

Wilmington Trust, National Association is communicating the following to you in its capacity as successor trustee (the “Trustee”) to The Bank of New York, as trustee, under the Indenture dated as of April 10, 2008 (the “Indenture”) for the $650,000,000 8.50% Senior Notes due 2018 (the “Notes”) of C.A. La Electricidad de Caracas (the “Issuer”). In a letter to the Trustee and various other parties dated November 30, 2012, National Electricity Corporation, S.A. (CORPOELEC) advised that it is the successor by merger to the Issuer. Capitalized terms used herein but not defined herein shall have the respective meanings set forth in the Indenture.

 

Please be advised that the Paying Agent with respect to the Notes has advised the Trustee that the payment of interest on the Notes that was due on October 10, 2017 was not received by the Paying Agent. The Issuer’s failure to pay interest on the Notes when due on October 10, 2017 constitutes a Default under the Indenture. The Paying Agent has further notified the Trustee that the interest payment was not received by November 9, 2017.

 

The Issuer’s failure to pay the overdue interest on the Notes on or before November 9, 2017 constitutes an Event of Default under Section 5.1(ii) of the Indenture. Pursuant to Section 5.1(b) of the Indenture, if an Event of Default shall occur and be continuing and has not been waived, the Holders of at least 25% in principal amount of Outstanding Notes may declare the principal of, and premium, if any, accrued interest and Additional Amounts, if any, on all the Notes to be due and payable by notice in writing to the Issuer and the Trustee specifying the Event of Default and that such notice is a “notice of acceleration”, and the same shall become immediately due and payable.

It is unclear if this formal default declaration makes today"s ISDA determinations committee decision moot, however it now looks quite certain that Monday"s meeting between creditors and the country"s vice president and chief debt negotiatior, who also happens to be a US-sanctioned drug kingpin, will no longer be necessary.

Today"s news will not come as a surprise to CDS holders, who had already priced in a 99.99% probability of default in 5 years.

The full statement is below:

Saudi CDS Spikes, Currency Crumbles But Stock Market Miracles Abound

In the few short days since Saudi Arabia erupted in a "pre-emptive coup", the nation"s credit risk has spiked dramatically higher, bets on a devaluation of the Riyal have surged, oil has jumped, and the Tadawul All-Share Index is... unch.

Saudi Credit Risk has spiked...The cost of insuring exposure to the country’s debt against default has spiked the most in seven months in the two days since it arrested dozens of princes, billionaires and public officials as part of an anti corruption drive

 

3-month Riyal forwards have plunged...

 

And the recently issued 3.625s of March 2028 have tumbled...

 

But the stock market has miraculously been panic-bid every day this week since the purge...

 

Driven by a surge in Saudi Banks!

"rigged"?

 

 

Default Time: Venezuela Announces It Will Restructure All Debt After Tomorrow"s Final Payment

One week ago, we and many others wondered, if the time has finally come for Venezuela, which was facing a "no grace period" $842 million principal payment for bonds issued by state-run energy company PDVSA, to default on its billions of unrepayable obligations. As we reported then, the liquidity crisis for Venezuela was especially acute because even if it did make the first PDVSA payment, it was facing a second, even larger one today, when PDVSA had to make another $1.121BN payment.

Well, despite a several day transfer delay, Venezuela did make the first payment, however it was not clear if Caracas would also make today"s payment, although as Reuters reported earlier, "markets remained optimistic that President Nicolas Maduro’s government will make the payment, though investors expect delays. PDVSA last week struggled for days to deliver funds for a separate bond payment amid confusion over which banks were charged with transferring the money."

PDVSA bonds were down slightly in early trading on Thursday, while Venezuelan bonds were mixed, according to Thomson Reuters data.

However, as we previewed again last week, and as Reuters confirmed today, "most economists say a default is increasingly likely in the medium term as Venezuela’s collapsing socialist economic model has left the once-prosperous population destitute and led to deterioration of the OPEC nation’s vital oil industry."

It now appears that that is indeed the case, and the long overdue Venezuela default, which has been speculated ever since 2014, is finally nigh, because during a nationwide TV address, Venezuela"s socialist president Nicolas Maduro said the country will seek to restructure its global debt after the state-owned oil company makes the PDVSA payment due at midnight. Maduro blamed a financial blockade that is preventing the nation from rolling over its debt, according to Bloomberg.

“I decree a refinancing and restructuring of all foreign debt and all Venezuelan payments,” Maduro said. “We’re going to a complete reformatting. To find an equilibrium, and to cover the necessities of the country, the investments of the country.”

“We have had to face a real global financial persecution,” Maduro said, adding that OPEC member Venezuela had paid $71.7 billion in debt since he came to power in 2013, despite losing $100 billion in revenues to falling oil income. Too bad he didn"t blame the "speculators" for the collapse of his socialist paradise.

“If Venezuela wants to refinance one of its bonds, it is prohibited by the global financial dictatorship,” Maduro added according to Reuters, warning that “they will never suffocate us. We will never surrender to the U.S. empire,” he added, also criticizing Colombia for allegedly blocking a shipment of medicines under U.S. pressure.

The good news is that bondholders of the PDVSA bonds maturing Thursday will get paid in full: according to Maduro, the government will make the last $1.1 billion PDVSA principal payment due overnight. The bad news, is that everyone else is about to get a big, juicy haircut, or as Bloomberg reports, "from there on out, the nation will renegotiate its debt with banks and investors, he said in a national address."

Of course, since there is no such thing as a "unilateral restructuring" in the world of debt, and since the country has effectively previewed it will be haircutting its creditors few if any of whom will agree to Maduro"s terms, another way of putting what Maduro just said is that Venezuela is - finally  - about to default.

Now this is a problem for Venezuela"s creditors because, well, they are owed a lot of money.  In total, Venezuela has $143 billion in foreign debt owed by the government and state entities, with about $52 billion in bonds, according to Torino Capital, even as Venezuela"s international reserves - including the nation"s gold - have sunk to just $10 billion, a 15 year low. The table below shows only the upcoming coupon and maturity payments:

What is bizarre is that unlike most of its Latin American neighbors, during 18 years of socialist rule, Venezuela has always paid its foreign debt on time, including during the recent crippling economic crisis that has spurred widespread food shortages. Or rather had.

Maduro made the announcement in a televised address in which he emphasized that Venezuela has always honored its obligations, and had the money to continue doing so, but was being hampered in its efforts by the financial penalties the U.S. imposed this year for what it said were anti-democratic moves by his administration.

He may have a point:  In many ways the default was inevitable. Financial sanctions imposed by Donald Trump in August made it virtually impossible to raise money from many international investors, and led to a collapse in Venezuela oil exports. Those sanctions, which prohibit U.S.-regulated institutions form purchasing new bonds, will also limit the current regime from sitting down with U.S. investors to restructure its debt. It’s an unprecedented situation for bondholders, who have limited recourse to negotiate for payment as long as sanctions are in effect.

Vice President Tareck El Aissami - one of the individuals targeted in the sanctions - was named by Maduro as head of bond restructuring efforts. He will convene bondholders of all international debts owed by the sovereign and PDVSA. But wait, there"s more, because earlier this year, the Treasury Department alleged that the same El Aissami - who was elevated to vice president in January - protected drug lords and oversaw a network exporting thousands of kilograms of cocaine.

El Aissami spoke on TV, saying that the "refinancing", by which he probably means default, will allo Venezuela to invest in social functions, and added that Euroclear has blocked Venezuela"s payments.

Meanwhile, as a long-awaited Venezuela default is now reality, there are those - including economists such as Ricardo Hausmann - who will be delighted by the country"s aggressive move to impair its creditors, having urged the government to stop payments on its bonds. They say the debt load is unsustainable, and sending dollars to foreign investors while cutting back on imports of food, medicine and basic goods for the Venezuelan people is immoral. In the hyperinflationary banana republic case of Venezuela, they just may have a point.

Venezuelan bonds trade at an average price of 36 cents on the dollar due to widespread investor concern that the nation was headed for default. Benchmark bonds due in 2027 have plunged from about 50 cents on the dollar a year ago to 38.7 on Thursday.

As for whether or not Venezuela is about to default, from a purely technical CDS and ISDA standpoint, any distressed restructuring of debt - which is what is about to take place - is equivalent to a credit event. Which means all those who loaded up on CDS in the past three years are about to have a long-overdue payday.

China Issues First Dollar Bond Since 2004, Bails Out Corporate Liquidity

Despite downgrades from the rating agencies, China is issuing its first sovereign dollar bond issues in 13 years on an unrated basis (what do the agencies know anyway) and at tight spreads to US Treasuries. The 5 and 10-year issues come just over a month since S&P cut the nation’s rating one level to A+ on 21 September 2017. Moody’s had already cut to single A.

Bloomberg reports that China began marketing its first sovereign dollar bonds since 2004 following a week when Chinese leaders in Beijing outlined a greater role for the nation on the world stage. The Ministry of Finance is offering $1 billion of five-year notes at a spread of 30 to 40 basis points over Treasuries, and the same amount of 10-year debt at a premium of 40 to 50 basis points, according to people familiar with the offering, who aren’t authorized to speak publicly…China is offering the bonds unrated, in a break with traditional practice by sovereigns in the region when they sell dollar notes. S&P Global Ratings last month followed Moody’s Investors Service in cutting China’s sovereign rating, citing soaring debt and increased economic and financial risks. The debt sale is one of the most eagerly anticipated in Asia this year…

The sovereign itself has been a rare issuer in foreign currencies and has only ever sold the equivalent of about $11 billion of such notes, according to data compiled by Bloomberg.

The order books exceeds 22 billion dollars, according to Bloomberg.

The lack of a formal rating on the Ministry of Finance of the People’s Republic of China’s dual-tranche U.S. dollar bond offering isn’t impeding the sale as the order books are reported to exceed $22 billion at initial price guidance as the books move to Europe…

 

Key comparable bonds include Japan Bank for International Cooperation’s $1.25 billion 2.875% due July 2027 which was quoted around T +43 basis points, State of Israel’s $1 billion 2.875% due March 2026 which was quoted around T +41 basis points and Germany’s KFW’s $2 billion 2% due May 2025 which was quoted around T +4 basis points…

 

China’s first sovereign dollar bond offering since 2004 is being lead managed by Bank of China, Bank of Communications, Agricultural Bank of China, China Construction Bank, CICC, Citigroup, Deutsche Bank, HSBC, ICBC and Standard Chartered Bank

The scarcity of similar Chinese bonds was a factor having a positive impact on spreads as one analyst told Bloomberg.

“We believe that pricing will ultimately settle on the tight end of initial price guidance,” said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd., citing strong demand for emerging market bonds, and the scarcity value of a Chinese sovereign bond.

 

The announced guidance “is in line with our expectation,” he said. BNP Paribas SA said this week the five-year and 10-year bonds may price at 30 basis points and 40 basis points respectively over Treasuries. The 10-year note is set to price at a spread lower than South Korea’s bond of the same tenor. South Korea, rated two levels higher than China, sold a 10-year bond at a spread of 55 basis points in January, and it was about 74 basis points on Thursday.

Cynicism regarding the modus operandi of the Chinese authorities might have played a role too – this from Reuters.

The MoF has previously manipulated offshore bond sales by force-feeding them to compliant Chinese banks. This simulates demand without market substance. This time around, however, the securities may attract more foreign interest: as the mainland economy has recovered, foreign anxiety has genuinely eased.

Reuters emphasises the favourable (but incorrect in our opinion) repricing of Chinese risk and China’s motivation for the dollar bond issue.

Beijing’s dollar bonds show how Chinese risk has been repriced. The country is selling $2 billion of five-and 10-year sovereign dollar bonds, the first such issue since 2004. Despite recent downgrades by global rating agencies, these are likely to yield just 30 to 50 basis points above U.S. Treasury bonds. Local banks can guarantee demand if needed, but there is also a genuine reassessment of China risk underway. China does not need the money, but the borrowing serves multiple purposes. It helps stabilize cross-border capital flows, refills hard-currency reserves, and makes it easier for companies to refinance in dollars, since there will now be benchmark issues to price against. It is also a rebuke to the credit rating agencies, showing China can brush aside their warnings.

Indeed, the anticipation that China’s sovereign issue would “price tight” helped push spreads on state-owned corporate debt lower.

Despite investors falling over themselves to get hold of these Chinese sovereigns, we have sympathy for Reuters’ warning about dollar lending to China’s over-leveraged corporate sector.

Even so, this is an unrated issue by a country infamous for credit-fueled growth, weak rule of law, and selective respect for international norms.

It’s one thing to lend money to the Chinese government, but this will serve as a benchmark for pricing debt sales by other Chinese borrowers, some of them far more opaque.

Too late.

If the Treasury General Account on the Fed’s balance sheet is replenished to late 2016 levels and the Fed begins to taper, bank reserves will be extinguished and dollar liquidity is going to tighten significantly in the coming months - as we explained here.

With about $10 trillion of offshore dollar debt – with maybe a $1-2 trillion belonging to China -  this will make it more difficult for EM banks to roll dollar funding. China’s dollar borrowing by its corporate sector has been on a tear - with Bloomberg reporting record dollar-bond issuance of $144 billion by Chinese companies so far in 2017.

Finally, Bloomberg provided feedback on the Chinese sovereign bonds from analysts and investors.

AllianceBernstein (Brad Gibson) - If you look at CDS, the market has already priced in that China is a stronger credit than Korea. I suspect China could issue a $2 billion bond at any given spread to U.S. Treasuries. There will be strong Asian support for this bond as it is the first China sovereign dollar issue since 2004. Ultimately, China’s ability to service a $2 billion bond is unquestionable.

 

ANZ (Owen Gallimore) - We see the technical driven fair value as T5+20 (2.2% yield) and T10+25 (2.7%), a relatively flat 15bp Z-spread curve, with our expectation of non-Chinese demand for this ‘collector’s item’ in primary and onshore ‘policy’ demand in secondary. These levels would be moderately tighter than the similarly-rated Chile and Israel but more befitting China’s status in the world and proven policy firepower

 

Bank of Singapore (Todd Schubert) - The announced IPT is in line with our expectation. Given the still strong bid for Emerging Market bonds, the scarcity value of a Chinese sovereign bond and the favorable capital treatment from the HKMA, we believe that pricing will ultimately settle on the tight end of initial price guidance.

 

Columbia Threadneedle (Clifford Lau) - A lot of expectations and enthusiasm are built into this offering, so there’s been tightening of spreads going into the deal. We have taken some positions in the quasi-sovereign area, and would certainly consider participating in the new USD bonds offering, partly because it’s a rare and small deal.

 

Pimco (Luke Spajic) - Coming straight after the 19th Party Congress, the timing of issuance was spot on. The upbeat tone of the congress will be mirrored in the demand for bonds. Though the deal size is relatively modest, the symbolic nature of this issuance will give state owned enterprises, and banks, a marker for valuation. Over time, we would like to see a full sovereign curve be established with longer maturities. Demand will outstrip supply by significant multiple, so pricing is going to be at the tighter end. No surprise there.

 

JPMorgan Private Bank (Anne Zhang) The 10 year is in line with the comps released. In context, 5 year appears generous, however, I’d expect final pricing to be tighter from IPT. The market has built up the hype in the last week with very high expectation of very tight spread.

 

Nomura (Nicholas Yap) - Given the relatively small deal size (just USD2bn in total) and the fact that it will likely be well anchored by domestic financial institutions, China essentially possesses the ability to print the new bonds wherever it wants, and estimating fair value (FV) is arguably more of an academic exercise, one that we will nevertheless attempt to undertake! Comparing with suitable Asian and global sovereign peers, Nomura estimates fair value for the new China 5Y/10Y at around 25bp/35bp over Treasuries

The Time Has Come: Venezuela May Be In Default In Under 48 Hours

This past weekend, Venezuela failed to make $237 million in bond coupon payment, blaming "technical glitches" when in reality it simply did not have the money (or wish to part with it). Adding the $349 million in unpaid bond interest accumulated over the past month as of last Friday, that brings Caracas" unpaid bills to $586 million this month, just days before the nation must make a critical principal payment. And, as BofA sovereign debt analyst Jane Brauer writes, while the bank"s base case assumption is that Venezuela will make its debt service payments this year, "the probability of a short term default has increased substantially with coupon delays" and it could come as soon as this Friday, when an $842 million PDVSA principal plus interest payment is due, and which unlike typical bond payments does not have a 30 day grace period but instead is followed by a second $1.1 billion PDVSA coupon on Nov 2, also without a 30 day grace period.

As Brauer writes, Venezuela has been in as similar situation of payment uncertainty in the recent past, with bond prices plummeting right before a big payment. For example, just before a big principal payment was due in April 2017 Venezuela received a $1bn loan from Russia just one week before the due date. At that time Ven 27s dropped 16% in a month (from $52 to $45) and recovered completely within a month.  Ven 27 has fallen to $35, as Venezuela has demonstrated that it will be a challenge to make all payments on time.  The difference between now and April is that coupon payment delays then came after, not before the payment.

Meanwhile, Venezuela has managed to redefine the concept of payment "on time" which now means "by the end of the grace period"

As we keep track of missed payments, the 5 missed payments, so far totaling $350mn all have a 30 day grace period, as did the $237mn payments over the weekend.

The concern is that the principal payments coming up have:

• No grace period in the bond indenture for an event of default


• Three business day grace period before triggering CDS

The concerning principal due dates are coming up, the first of which is this coming Friday, which means in less than 48 hours Venezuela could be in default unless it can find $842 million:

• Friday, Oct 27 PDVSA 2020 $842mn


• Thursday Nov 2 PDVSA 17N $1,121mn

The collateral against the first bond is PDVSA"s Houston-based refining and retail subsidiary, and in just a few hours, the bondholders may be the (un)happy new ownders of said subsidiary.

"This weekend, there"s either going to be a lot of bond holders and traders drinking champagne, or there"s going to be a lot of stressed fund managers," said Russ Dallen, managing partner at Caracas Capital Markets

And to help everyone involved, here are some key tables, courtesy of BofA:

1. Table 1. Ordered by due dates, missed payments and payments due today for Venezuela sovereign and wholly-owned quasi sovereign issuers.


2. Table 2. Sorted by grace period end dates for missed payments and those due today


3. Table 3. Debt service due dates for the next 9 months


4. Table 4. Bond Attributes and face needed to block CACs

Table 1

Table 2

Table 3

Table 4

Kobe Steel Scandal Goes Nuclear: Company Faked Data For Decades, Had A "Fraud Manual"

Last week we reported that in the latest instance of criminal Japanese corporate malfeasance, Japan"s third-biggest steel producer admitted falsifying data about the quality of steel, aluminum, copper, iron powder and other products it sold to customers across virtually every single industry. The news sent the company"s stock tumbling 43% from levels before the scandal broke, to the lowest price since 2012.

The downstream impact was quickly felt, with selling hitting names across the global supply chain...

 

... while the NYT reported that the fallout has the potential to spread to hundreds of companies. As of a week ago, the extent of the problems at Kobe Steel was still unfolding, and prompte the Nikkei newspaper to conclude that "the falsification problem has become an issue that could destroy international faith in Japanese manufacturing."

Well, as of moments ago that tipping point was this much closer, when the same Nikkei reported that some Kobe Steel plants in Japan had been falsifying product quality data for decades, well beyond the roughly 10-year time frame given by the lying steelmaker. According to the Japanese newspaper, "employees involved in the data manipulation used the industry term tokusai to refer to shipping of products that did not meet the standards requested by customers", the Nikkei source said. Though tokusai usually refers to voluntary acceptance of such products, plants sometimes sent substandard goods without customers" consent. The word was apparently in use at some plants for 40 to 50 years.

But wait, it gets better.

Not only did the company, having already been caught, lie to shareholders and rule-abiding employees how long this illegal behavior had been going on, but - in a glaring example of corporate idiocy - had effectively enshrined and codified its fraudulent ways, as the cheating procedures eventually became institutionalized in what was essentially a tacit fraud manual, allowing the practice to continue as managers came and went.

Meanwhile, the Nikkei also reports that everyone could have been in on it, as data manipulation may have occurred with the knowledge of plant foremen and quality control managers. Some shipments even came with forged inspection certificates.

Kobe Steel has tapped senior officials in the aluminum and copper business - where most of the misconduct took place - to serve on its board. How far up the chain of command knowledge of the fraud may have extended in the past remains an open question.

According to the latest update, systemic data falsification took place at no less than four Japanese production sites and appears to have affected virtually every product made by the company: the scandal has spread to the manufacturer"s mainstay steel business, with revelations Friday that steel wire was also shipped without inspection or with faked certificates. Meanwhile, the number of affected customers has swelled from around 200 to roughly 500.

One can only imagine the "honesty", measured in alpha, beta and gamma radiation, if Kobe was also behind the Tepco nuclear disaster, where of course as we leaned over the past 6 years, the amount of data fabrication was just as unprecedented. It is almost as if there is something rather rotten with Japan"s entrenched, corporate ways...

But not to worry: in an amusing twist, Kobe Steel has promised it will complete safety inspections for already shipped products in two weeks or so. A report on the causes of the fraud and measures to prevent a recurrence will come out in a month or so; we can"t wait to read the lies in that one. The steelmaker is conducting a groupwide probe that includes interviews with former senior officials. Because if there is anything Kobe will be successful at, it is diligent, honest self-reporting.

Where the company is certainly lying however, is when it told analysts earlier on Monday that "liquidity is not an issue" according to Bloomberg. Judging by the explosion in Kobe Steel CDS in recent days...

... one more gaffe by the scandal-plagued company, and Kobe Steel will be insolvent. As for all those who are considering providing liquidity to this fraud of a company, good luck with lying to yourselves that you will ever see any of that money back.

Meanwhile, The "Next Big Short" Is Quietly Blowing Up

Back in March, when we detailed the ongoing catastrophic deterioration in the US retail sector, manifesting itself in empty malls, mass store closures, soaring layoffs and growing bankruptcies - demonstrated most vividly by the overnight bankruptcy of Toys "R" Us, the second largest retail bankruptcy in US history after K-Mart - we said that "just like 10 years ago, when the "big short" was putting on the RMBX trade, and to a smaller extent, its cousin the CMBX, so now too some are starting to short CMBS through the CMBX, a CDS index which tracks the values of bonds backed by various commercial properties. They are betting against securities backed by malls in weaker locations where stores could close in quick succession, triggering debt defaults."

We dubbed this retail short via CMBX the next "Big Short" trade, and others promptly followed.

In a subsequent post just a few days later, we underscored why the correct way to short the great retail collapse was not so much through stocks, but CMBX:

The trade, as we discussed before, is not so much shorting the equities where a persistent threat of a short squeeze has burned the bears on more than one occasion, but going long default risk via CMBX or otherwise shorting the CMBS complex. Based on fundamentals, the trade indeed appears justified: Sold in 2012, the mortgage bonds have a higher concentration of loans to regional malls and shopping centers than similar securities issued since the financial crisis. And because of the way CMBS are structured, the BBB- and BB rated notes are the first to suffer losses when underlying loans go belly up.

As we also noted, cracks had started to appear. As of mid-March, prices on the BBB- pool of CMBS have slumped from roughly 96 cents on the dollar in late January to 87.08 cents last week, index data compiled by Markit show.

So fast forward 6 months to today, when Goldman Sachs - a firm known to dabble with prop positions in both RMBS and CMBS in the past - itself takes aim at the CMBX trade, and in a report by Marty Young, writes that the "CMBX market doubts viability of US retail malls," which highlighting the dramatic crash in select CMBX issues we touched upon over half a year ago.

Explicitly using the term coined here first, and calling it the next "big short", Goldman writes that while 2017 has generally been a year of low volatility and tight spreads across most asset classes, the CMBX market has been a notable exception. Spreads on CMBX 6 BBB- have widened 300bp since the start of the year and now trade 385bp wide to CDX HY (Exhibit 1). More notable, the trade appears to be accelearting to the downside, and in the past six weeks alone, spreads have moved more than 100bp.

In other words, in a world in which all asset classes appears to be only going up, CMBX, and specifically the CMBX 6 BBB- tranch, has indeed emerged as this year"s "Big Short."

What has driven such a significant sell-off, Goldman asks, and then provides the following answer. 

A market narrative has emerged that CMBX 6 BBB- is the next “big short” of brick-and-mortar retail. The “death of retail” story is nothing new, but fresh fears have arisen this year that 2017 marks the tipping point. Following an inexplicably weak holiday retail season and a raft of store closures and bankruptcies this year, concerns are growing that the pace of deterioration has inflected higher for brick-and-mortar retailers. Although the disruption from e-commerce has been clearly visible for more than a decade, store-based retailers have been unprepared for the onslaught of online retail (“The Store of the Future,” Profiles in Innovation, August 2, 2017). The market’s increasing anxiety over regional malls and traditional anchor stores is also evident in retail stocks. Exhibit 2 shows that as equity markets have grown enthusiastic about the big names in e-commerce, they have grown only more negative on department stores. These struggling anchors in turn threaten the mall ecosystem. Markets have been acutely concerned with Sears in  particular this year: Exhibit 3 shows that, with a spread level of roughly 3500bp, the CDS market is implicitly pricing a high likelihood that the company experiences distress.

For those who are unfamiliar with the basis of the trade, Goldman lays them out, as well as providing a detailed perspective on whether this "Big Short" has (much) more room to run.

First, what is it?

CMBX 6 BBB- is a synthetic, equal-weighted index of 25 CMBS mezzanine bonds that were rated BBB- at issue and issued between March and December of 2012 (CMBX 6 has AAA through BB tranches, but in this report we focus on the BBB- layer as it has been the focus of markets this year). Retail is the largest underlying property type (39%), which explains the exposure to negative retail sentiment. Office (27%) and lodging (11%) properties are second- and third-largest property types, respectively. The average loan-to-value (LTV) of the underlying collateral was approximately 64% at origination, with a debt service coverage ratio (DSCR) of approximately 1.9x. While the average deal was comprised of a pool of 64 loans, the top 10 loans account for nearly 55% of each deal on average, with the largest loan averaging approximately 10%. Most of these loans have a maturity of ten years, and thus will mature in 2022.

The tranched nature of CMBX reference entities is critical from a pricing perspective and distinguishes the product from corporate CDX. Since the most junior tranches in a CMBS deal incur losses first, there is a potential convexity to the spreads on CMBX BBB- as they need to price the possibility that these tranches could be completely wiped out. Put differently, even though CMBX 6 contains roughly 1,600 loans overall, the performance of the BBB- tranches is tied significantly to the lowest-quality mortgages in the portfolio, which is not offset by a strong performance of the aggregate portfolio. This is what makes CMBX 6 BBB- particularly vulnerable to the headwinds facing regional malls.

Exhibit 4 shows in four charts how a unique market narrative has formed around CMBX 6 BBB-. First, the spread on the BBB- tranche of CMBX series 7 ? a largely similar product comprised of CMBS issued in 2013 ? has also widened meaningful this year, but the move has been far more pronounced for the 6 series. Second, while the spreads on the synthetic index have widened hundreds of basis points since January, the spreads on the CMBS cash bond underliers have widened only a fraction of that. This deviation between cash and index could, to a degree, represent stale pricing marks on the cash bonds, given the limited trading volumes in the bond space. However, there have been enough trade prints in the sector to indicate that the pressure on spreads has been felt more acutely in index than in cash. Third, when CMBS investors have come under pressure in the past, spreads have widened at every level of the quality spectrum. This time, however, the more junior tranches have clearly underperformed, suggesting markets are pricing a scenario in which distressed assets default en masse. Fourth, the open interest in CMBX 6 BBB- has increased significantly this year, consistent with the story that this is the new "big short."

Goldman next lays out the "bear case" which as one can imagine, is substantial.

Retail malls face significant pressure from online retail, which continues to grow at roughly 15% each year, as well as fast-fashion chains and off-price retailers. Moreover, many of the anchor stores on which malls depend appear to be experiencing difficulties, and 2017 has seen the big department stores announce a host of store closures. The CDS market appears to be pricing in a high probability of distress at Sears, which would send a tremor through the mall ecosystem. And some malls have co-tenancy clauses that can amplify the impact of the department store distress by allowing other tenants to reduce their rent if an anchor closes. The slew of store closures is not limited to anchor stores, as malls are grappling with the poor performance of many national retailers. Given its significant retail exposure, CMBX faces the same headwinds that currently plague mall REITs.

The nature of the CMBX product makes it especially vulnerable to a retail downturn. First, as we noted before, CMBX is a tranched product, which means that if losses for a deal are severe enough (i.e., exceed the tranche detachment point), the recovery rates on the bonds can be 0%. By comparison, high yield corporate bond defaults usually have material recovery value. Second, the 25 deals that comprise CMBX 6 are not homogenous and the high-risk mall loans are not evenly distributed among them. If the high risk loans were spread evenly across the 25 deals, it is likely that, even if we assumed 100% losses on all of these loans, no one deal would incur sufficient losses to affect CMBX 6 BBB- in the aggregate (i.e., deal-level losses would never reach the attachment points). However, the high concentration of high-risk loans in a handful of deals threatens large losses on the product as a whole from a relatively small number of defaults.

Finally, a popular narrative that has helped drive this year’s spread widening is that Sears – commonly a tenant for many of the weaker malls in CMBX 6 – is itself at risk of imminent default. The CMBX market is worried that, if Sears defaults, it jeopardizes many of these weaker malls. For example, the Midland Mall in Midland, MI defaulted on its loan last year shortly after the Sears at that location closed. While it is  difficult to tie the default directly to the Sears closure, the loss of a large tenant likely increased the pressure on the mall. Earlier this year, J.C. Penney announced plans to close its store at Midland Mall, demonstrating the potential spiral that struggling malls face upon losing a tenant like Sears. Since many of the at-risk malls in CMBX 6 share the same few large tenants such as Sears, J.C. Penney, and Macy’s, a round of store closures or a bankruptcy filing from a single retailer could do disproportionate damage to the CMBX portfolio.

To be sure, Goldman then goes through the bull case, and looks at the remittance data, which - so far - show no major signs of trouble (readers can bother their friendly Goldman sales coverage for the full report), suggesting that it is possible that the CMBX market may be getting ahead of itself. Or perhaps, like in the case of TOYS bonds, which snapped from par to 20 cents in the matter of days, what the market is underestimating is the risk of a sharp, downward inflection point as the economy, and especially US consumer, slows down further, resulting in another step wise spike in defaults.

Goldman"s analyst reports as much and notes, that while the CMBX "big short" may work, it will require an inflection in performance. Here is the conclusion.

Brick-and-mortar retailers have been fighting competition from e-commerce for years. This long-running trend is visible in the rising e-commerce share of retail sales, declining same-store sales numbers, and increasing numbers of store closures. These trends, combined with the highly leveraged nature of CMBS deal structures, have fueled a bearish market narrative that has repriced the mezzanine tranches of CMBX significantly wider. This view has been particularly focused on scenarios where a subset of the lowest-quality malls generate a large number of mortgage defaults.

So far, such a deterioration in mortgage quality is not yet visible in recent vintage delinquency performance data. We find the bearish narrative persuasive, but to realize the defaults being priced by CMBX 6 BBB- will require a future deterioration in mortgage performance, which our analysis suggests would be a departure from historical predictive relationships. In our view, this “top-down” assessment highlights the critical importance of modeling the “bottom-up” credit stories. As described above, it is not hard to construct scenarios with significantly higher default losses than what we find using our narrative-free statistical analyses, and structured CMBS bonds would be highly exposed to such a collapse of the retail sector.

What Goldman is effecitvely saying is that absent a recession, or a market crash, the trade may have little widening left. Which, of course is ironic, because just several days ago, it was also Goldman that calculated that the risk of a market crash has soared to roughly 67%, as high as it was before the dot com and Global Financial Crisis crashes:

 

One final "hedging" observation from Goldman: in case the cautiously optimistic outlook is unwarranted, will a potential implosion in the CMBX 6 result in systemic risk? Here is Goldman"s answer:

The spread widening in mezzanine CMBX tranches – and not in more senior tranches – is pointing to an expectation of high default rates on a small number of low-quality malls. If this bear case were to be realized, it would not likely cause a systemic risk event comparable to 2008, due to the low amount of mall debt relative to the amount of residential mortgage debt outstanding prior to the financial crisis. If commercial mortgage losses were to occur due to severe declines in commercial property price across all sectors – including retail, office, apartment and hotel – the impacts could be greater, given the large amount of commercial real estate exposure on US bank balance sheets. But this is not the risk scenario that CMBX markets seem to be pricing.

Of course, if a Goldman is wrong, and a terminal collapse in CMBX 6 does prompt the next systemic crisis - which of course won"t be catalyzed by the losses in this segment of the Commercial Real Estate market but due to a sharper deterioration in the broader economy, all that would result in is another bailout from the Fed because as Deutsche Bank said earlier today:

"... by continually using stimulus to deal with crises and not letting
creative destruction take over, you make a subsequent crisis more likely
by passing the problem along to some other part of the global financial
system, and usually in bigger size. In a fiat currency world,
intervention and money creation is the path of least resistance. In a
Gold standard world, mining new gold was the only stable way of
increasing the money supply. we think this leaves the current global economy particularly prone to a cycle of booms, busts, heavy intervention, recovery and the cycle starting again. There is no natural point where a purge of the excesses is forced by a restriction on credit creation."

What Happened To "What Happened": Amazon Slashes Hillary's Book Price 40% Before It Hits Shelves

Last Friday, in an attempt at humor, we shared a satirical note from The Onion suggesting that Hillary had already begun work on a follow-up book, entitled "What Also Happened," intended to define precisely who was to blame for the failure of her first book, "What Happened."

Alas, if prices are any indicator of demand, which they"re pretty much universally accepted to be unless you"re discussing minimum wages with Bernie Sanders, then Hillary may want to double down on efforts to rush out the sequel as both Amazon and Walmart have decided to slash prices of "What Happened" by 40% before the books even hit shelves.

After Hillary"s publisher Simon and Schuster suggested a price of $30, Amazon slashed prices to $17.99 earlier today...

...and Walmart quickly matched...

Of course, the reviews have already started to pour into Amazon even though no one has a copy of the book yet.  Isaac apparently hated the book because he"s tired of hearing Hillary "blame her failure on sexism."

"What happened is she can not take responsibility for many of her own actions and blames her failure on sexism.

Ironically, it"s things like this that cause people on the fence go to the other side just to spite her."

Meanwhile, DirtBird thought the book was great...at balancing out his uneven table...

Finally, for those who are interested in what Hillary has to say in "What Happened" but just don"t have time to read a book right now, we found this summary to be a fairly accurate portrayal:

* * *

For those who missed it, here is The Onion"s uncanny prediction of Hillary"s latest failure from last Friday...

Fact or Fiction:

CHAPPAQUA, NY - Saying it would provide a candid account of her experiences writing an unsuccessful tell-all, sources confirmed Thursday that Hillary Clinton is already working on a follow-up book casting blame for the failures of her previous memoir What Happened.

“From my agent negotiating that underwhelming deal with Simon & Schuster, to the graphic designer’s lackluster cover art, to my so-called supporters who couldn’t be bothered to drop $17.99 for the hardcover copy - everyone had a hand in undermining my last book’s success,” reads a passage from the introduction to Clinton’s What Also Happened, which repeatedly decries her prior book’s “indecipherable” font and dedicates an entire chapter to lashing out at her copy editor for making her look like “an idiot third-grader.”

“I’ll never forget how Amazon buried me and how Barnes & Noble completely sabotaged me by displaying my book way in the back in that no man’s land by the CDs. Frankly, it’s obvious I got screwed on all sides.”

Accusing them of stealing her spotlight, the book reportedly concludes with a long list of every other celebrity who published a memoir in the past year.

Source: The Onion