Nobel laureate Mario Vargas Llosa: ‘Love always comes with a price’

The writer talks about democracy, dictatorship and the consolations of literatura

John Paul Rathbone

It is just before the main course that Mario Vargas Llosa suggests we change the subject. Early spring sunshine is splashing across the white tablecloth, but our conversation has suddenly taken a dark turn. We are discussing, in Spanish, the news of the day. Donald Trump has promulgated by tweet the militarisation of the Mexican border, and I ask the Nobel Prize-winning novelist if the US president reminds him of the Latin American populists and demagogues he has spent a lifetime writing about.

“Trump is so Third World-esque. Who would have thought that the US would succumb to such demagoguery?” he replies. “As for the Republicans, well, it used to be the party of institutions and responsibility. The lowering of its trousers under Trump, as the Spanish saying goes, has been quite a thing to see.” A horrible image flits through my mind. “Shall we talk about happier things, though? It’s important to be optimistic. There is much to be optimistic about.” He chuckles, a deep rumble.

Age has mellowed the humour of Vargas Llosa. Now 82, he is known throughout the world for the extraordinary quality of his prose, his versatility as a writer, and his political engagement. A thinker who has battled all his life for democracy, the free market and personal liberty, he even ran as a candidate for the Peruvian presidency in 1990, losing a tight race to the subsequent dictator and human-rights abuser Alberto Fujimori — the antithesis of everything Vargas Llosa supports.

Yet I had slightly dragged my feet as I walked through the pigeon-pecked, stone-flagged plazas of central Madrid to the Basque restaurant that he had chosen. The Hispanic world’s most celebrated living intellectual has a reputation for arrogance. His writing is hyper-realistic, and often takes a sour view of human nature. Taut and sardonic, much of it is suffused with a sense of the chilling fogs and courtly malice that I associate with Lima — legacy of colonial Spain’s viceroyalty. “I write because I am not happy. I write because it is a way of struggling against unhappiness,” Vargas Llosa once remarked.

My unease fades, though, as soon as I push open the heavy wooden door to Julián de Tolosa, an old-school eatery. Inside is restfully quiet; for some, 2.30pm is still early for Spanish lunch, and most of the tables are empty. Cream-painted walls and wood panels lend the room the feel of a book, a first edition perhaps, and it would look fusty were it not so classically elegant — like Vargas Llosa himself.

He is already sitting in the far corner. Alert and straight-backed, he is spry in a grey-blue jacket, salmon shirt and red tie. Rather than a forbidding Grand Old Man of Spanish letters, he even looks jolly. Is it love? Three years ago, Vargas Llosa left his wife of 50 years for Isabel Preysler, the Philippines-born socialite whose first husband was Julio Iglesias, the pop star. Many have wondered how Vargas Llosa, author of Notes on the Death of Culture (2015), a collection of essays that rails against celebrities and media spectacle, could suffer to appear so frequently in the pages of Hola magazine, as he since has. Yet Vargas Llosa, a man of great passions, has described the romance as an “amour fou” and said that he has never been happier.

“How nice — what a pleasure,” he says warmly, standing to greet me. We pick at olives, sausage and thin-cut ham already laid out on the table, and exchange pleasantries. “But hombre! Why is your Spanish so good?” he flatters me, but with genuine curiosity. I explain that I grew up speaking the language. “Let’s get the important stuff out of the way first,” he says. “What do you like to eat? And to drink? The house wine is excellent.”

The maître d’ arrives, an attractive and vivacious woman. She blows a kiss across the table. “Don Mario, how nice to see you again.” (The restaurant, he explains, is a favourite haunt near his old apartment, now converted into a library since he moved to Preysler’s house, a mansion on the outskirts of Madrid that she built with her deceased third husband Miguel Boyer, the former economy minister.) We order red bean soup to start, and a house specialty, chuletón, a thick-cut bone-in steak, to share for the entrée. We dither over the sides — the white asparagus is not in season — and settle for slow-roasted red peppers and fresh Romaine lettuce hearts. The wine arrives. He insists I taste it — a rich and smooth Rioja. We chink glasses. “Salud!”


Vargas Llosa is renowned for his discipline as a writer, and is still prolific. A translation of his latest novel, The Neighbourhood, has just been published in English, while a collection of essays on classical liberal thought, La llamada de la tribu (“The Call of the Tribe”), came out in March.

Even so, it is poignant to spend time with the last survivor of the Latin American Boom, a literary movement that reinvented the novel in our time. Author of more than 50 books, Vargas Llosa has ranged from comic romps and erotic novels, such as Aunt Julia and the Scriptwriter (1977), to chilling studies of the psychology of power. The Feast of the Goat (2000), perhaps his most famous book, explores the cruelties and corruptions of personal integrity that happen under dictatorship.

This is a recurring theme in all his writing and, as told in his 1993 memoir, A Fish in the Water, one propelled by intense personal struggle. Its cause can be traced to a central event: the appearance, when he was 10 years old, of a father he had been told was dead. It was a terrible reappearance. His father, Ernesto, was a macho and a bully who hit his wife, beat his son, and sent him away, aged 14, to the Leoncio Prado Military Academy in Lima. The way I understand it, writing subsequently became a way for Vargas Llosa to confront both Latin America’s unfortunate realities and exorcise his own personal anguish — apparently successfully.

“The US may have fallen for demagoguery, but Latin America is enjoying a democratic wave,” Vargas Llosa says with obvious relish — and not just because the soup, comforting and warm, has arrived. “The appeal of military rule has gone. Nobody supports that any more, neither the US nor local elites.” He clasps his left hand into a fist as he speaks. “Socialism also no longer has any real traction . . . All the region, Cuba and Venezuela aside, are now practising democracies . . . faulty and imperfect, but democracies. This is a great step forward.”

I want to agree with his optimism about Latin America, and I think I do. Even so, the region faces a marathon of presidential elections this year. Like everywhere else, tempers are high, emotions strong, the anti-establishment mood prevalent and populist candidates are leading polls. I ask if we could take a whistle-stop tour of how he sees things.

Vargas Llosa sweeps a lock of silver hair off his forehead. He is optimistic about Brazil, despite the profoundly disruptive Lava Jato (“Car Wash”) probe that has seen dozens of senior politicians and business leaders tried and convicted for corruption — including, most controversially, two days after our lunch, former president Luiz Inácio Lula da Silva. “The anti-corruption movement is profoundly democratic. A monument should be built to those valiant judges!” Vargas Llosa exclaims.

What about Venezuela? “It’s tragic. Venezuela’s only positive is that it shows the rest of the region where not to go.” Argentina is one sign of this hopeful change. “Peronism is on its back heels.” But how about his native Peru, where Pedro Pablo Kuczynski, or PPK, resigned from the presidency in March amid corruption allegations? “PPK’s ending was sad . . . Still, Peruvian democracy remains alive. The vice-president has stepped up, legitimately. A corrupt democracy is better than a non-corrupt dictatorship — it leaves such a legacy of poison.”

Vargas Llosa was not always such a committed liberal. He had a youthful enthusiasm for the Cuban revolution but broke with Havana in the early 1970s. “I felt like a defrocked priest — liberated but lost,” he says. “Until I moved to London.” There, during the Margaret Thatcher years, he re-forged his political compass, reading deeply Adam Smith, Friedrich Hayek and Isaiah Berlin. Such classic liberalism, even among fans of his fiction, often jars in a part of the world where leftist views are still taken as a badge of intellectual honour. Yet nor is he quite a standard-bearer for the conservative right either. His controversial endorsement of Ollanta Humala almost certainly swung Peru’s 2011 election towards the leftist leader and against Keiko Fujimori, daughter of his arch-enemy. He also supports Colombia’s peace process with Marxist guerrillas.

The theme of drug-fuelled violence and how to best confront it brings us to Mexico, which faces an existential presidential election on July 1. Andrés Manuel López Obrador, an old-fashioned nationalist and self-regarding patriarch of the type that Vargas Llosa loathes, is leading the polls. Running against him is the long-ruling Institutional Revolutionary party (PRI), which Vargas Llosa famously described as “the perfect dictatorship”. Which, I ask, would he vote for?

“Mexico’s terrible violence and corruption are due to lingering toxins from the PRI,” he says, weighing the lesser evil. “But, holding my nose, I think I would vote for its candidate. López Obrador represents a terrible step backwards.” He slaps his forehead. “I can’t believe I said that. Me, choose the PRI! Of course, there is also a third choice, [the centre-right candidate] Ricardo Anaya. He’s young and smart.”

Whereupon the conversation segues north to the US border and Donald Trump, Vargas Llosa suggests we change the subject and, happily, our steak arrives. I offer to take the bone, blackened from a good charring, leaving the tender filet to my guest. It is delicious: Spanish meat, slow-cooked over a live fire, for some reason does not enjoy the same reputation as Argentine, Brazilian or US beef. I also refill our wine glasses; the house Rioja really is very good. The conversation settles into an easy flow as we turn to literature.

He tells me, encouragingly, that he still finds writing difficult and that his first drafts always leave him feeling inadequate. “Even your newspaper columns?” I ask. Vargas Llosa’s first job was as a 15-year-old cub reporter covering Lima’s gruesome crime beat for El Comercio, and he has written a regular column for El País, the Spanish newspaper, for more than 20 years. “Yes, even those. But I like journalism. It is what I have always done. It allows you to meet other tribes, which was especially important for me in the small middle-class world of my Lima youth.”

The maître d’ suddenly reappears, looking agitated. “Don Mario, sorry to interrupt. The two Colombian ladies sitting over there insisted I deliver a message. They want you to know how much they enjoy your books.” He thanks her for the compliment and nods at their table, four down from ours. The courtesy of Vargas Llosa’s manners, like his discipline for work, is well-known: Hugh Thomas, the Hispanist, once told me that Vargas Llosa was “the most charming” of the Boom generation of Latin American writers. Apropos of the Colombians’ flirtatious tribute, though, I ask about the eroticism that runs through much of his writing — from the love letters and pornographic tales he wrote for fellow cadets at military school in return for cigarettes, to his latest novel, a thriller set in Lima during the dark years of Fujimori when the wives of two rich businessmen end up in bed during a curfew. “Well, you know how it is in Latin America. Eroticism is unavoidable just walking down the street.”


The steak is cleared, and we order arroz con leche and two espressos. “It’s such a good dessert,” he says, sprinkling cinnamon on top. “It’s so good a dish, in fact, that the French, Spanish and Portuguese consider it their own.” We each spoon from the shared plate until the rice pudding is finished, and I ask him the question that I have left for last.

I am sympathetic to the force of an amour fou, I tell him, yet how does he suffer the paparazzi and home-decor spreads that he hates so much and have now become part of his new life?

“Well if you understand amour fou, then you have experienced it and know,” he teases me. “Love always comes with tests. Otherwise, it is not love. Tests make it stronger. They help to forge love. But love always comes with a price. Everything comes with a price.”

“Even literature?” I ask. “No. Literature, especially reading, has only brought me satisfaction,” he murmurs.

Vargas Llosa tells me he is starting a new novel, and I wonder if he will ever stop writing, as Philip Roth did as he approached 80. “Writing is what I do. It is my life,” he replies immediately. “To be alive but dead is the worst possible thing, although it happens to many people.” Vargas Llosa then bows his head low to the table in a gesture of the abundant grace and humanity that I had not expected to see two hours earlier. “In fact, I hope to die writing.”

John Paul Rathbone is the FT’s Latin America editor

Was the Stock-Market Boom Predictable?

While the conventional wisdom holds that it is never possible to "time the market," it might seem that major shifts – like the quadrupling of the US stock market over the last decade – should be at least partly foreseeable. Why aren't they?

Robert J. Shiller

NEW HAVEN – Should we have known in March 2009 that the United States’ S&P 500 stock index would quadruple in value in the next ten years, or that Japan’s Nikkei 225 would triple, followed closely by Hong Kong’s Hang Seng index? The conventional wisdom is that it is never possible to “time the market.” But moves as big as these, it might seem, must have been at least partly foreseeable.

The problem is that no one can prove why a boom happened, even after the fact, let alone show how it could have been predicted. The US boom since 2009 is a case in point.

In looking at the US stock market, it is important to bear in mind that its participants are overwhelmingly US investors. According to a US government study published last year, despite some growth between 2009 and 2017, the share of the US stock market owned by foreigners was still only about one-seventh in 2017. But if all people heeded financial advisers’ counsel and were completely diversified, people outside the US, who held more than two-thirds of the world’s wealth as of last year, would own over two-thirds of the US stock market as well. Home-country bias, or patriotism, is a big factor in the stock market. So, to understand the US stock market’s strength, we need to consider the thinking of its participants.

There seems to have been an overreaction in the US to a temporary drop in earnings. S&P 500 earnings per share had been negative (a very rare event) in the fourth quarter of 2008, both for “reported earnings” and for “operating earnings,” and those numbers were just coming in around March 2009, when the index reached its nadir.

You might think that an intelligent observer in the US in 2009 would have recognized that the decline was temporary, and would have expected earnings – which are relevant to forecasting long-term growth of stock prices – to recover. But the real question is whether the observer could have based a very optimistic forecast for long-term earnings growth on the rebound from that negative earnings moment. We now know that long-term measures of earnings growth did not change a lot. Ten-year average S&P 500 earnings per share from 2009 to 2019 were up only 71% from the previous decade. The quadrupling in the S&P 500 price index was thus driven not by higher earnings but by much higher valuations of earnings.

It is true that real interest rates are down since 2009, with the ten-year US Treasury Inflation-Protected Security yielding 0.8% in February, down from 1.71% in March 2009. But all of that decline occurred by 2010 and could not justify any of the strong uptrend in stock prices since then.

In 2009, some people in the US were using very strong language to express their fear. One heard that a “financial supernova” was coming. A ProQuest News & Newspapers search for “derivatives” and “financial weapons of mass destruction” (a phrase attributed to Warren Buffett) shows that these two terms first appeared together in 2003 and gained intense popularity by 2009, only to fade to near nothing by 2018.

Those who were prescient enough to know that derivatives markets weren’t going to blow up the economy might have known that any drag on the market from the fear that they would could not be sustained for ten years. But a forecast based on such prescience is hard to quantify or defend publicly.

The fact that economists on the whole had not predicted the 2008 financial crisis was much emphasized at the time and led to some lost faith. Many people were worrying in March 2009 that stocks had a lot further to fall.

Under my direction, the Yale School of Management has been collecting data on the opinions of both institutional and individual investors in the US since 1989. One of the questions is: What do you think is the probability of a catastrophic US stock-market crash, like that of October 28, 1929 or October 19, 1987, in the next six months, including a crash caused by financial contagion from other countries? In early 2009, the percentage of people who gave a probability greater than 10% reached a record high (since 1994).

Likewise, ProQuest News & Newspapers counts of the frequency of the phrase “Great Depression” soared to unprecedented heights. There were more mentions of “Great Depression” in 2009 than there were during the Great Depression.

But then, with no stock-market crash and no extreme depression in sight, these fears were replaced by their opposite: deeper admiration of business success. A new narrative emerged, featuring a new wave of billionaire geniuses whose appearance in the 1990s was interrupted only briefly by the financial crisis. The publication in 2011 of the number-one best seller Steve Jobs,Walter Isaacson’s biography of the Apple founder, is one example. Elon Musk has stirred excitement with futuristic companies such as aerospace manufacturer SpaceX and Neuralink, which is developing implantable brain-computer interfaces.

The accession of a flamboyant businessman, Donald Trump, to the US presidency is evidence of the strength of many Americans’ identification with business heroes. Starting in 2004, Trump spent much of his time developing his business persona as the star of the reality TV show The Apprentice, and then, from 2008, The Celebrity Apprentice. His campaign marshaled this enthusiasm, and his claim that he would “Make America Great Again” appealed to the optimism of US investors.

The quadrupling of US stock prices since 2009, as well as Trump’s election, thus appears to reflect, at least in part, a process of fear abatement and re-enchantment with American business culture. But it is hard to forecast such trends – even the biggest – in the stock market, not only because forecasting is a highly competitive business, but also because spontaneity plays such an important role in human behavior.

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

Argentina is on the brink

By: Colby Smith

When Mauricio Macri was elected Argentina's president in 2015, he was hailed as a pro-market, pro-reform leader willing to make the difficult policy decisions that would eventually re-right the country's struggling, inflation-wracked economy.

One extended currency crisis and the largest IMF programme in history later, and his administration's approach to muddling through market volatility while keeping constituents happy is failing ahead of the all-important presidential election in October.

On Wednesday, the cost of insuring against an Argentine debt default surged to its highest level since Macri took office three-and-half years ago, cementing the country's title as the world's second-riskiest sovereign borrower behind Venezuela:

Argentine bond spreads over Treasuries soared nearly 90 basis points, and the yield on a bond due in just two years rocketed to roughly 18 per cent. The much-derided century bond fell to a record low, and the peso tumbled almost 4 per cent against the dollar.

The sharp moves come as Macri's re-election prospects look decidedly dimmer, and government officials scramble to contain both record-breaking inflation and an increasingly volatile currency with little success.

Once again, the most recent reading of inflation surprised to the upside. In March, consumer prices rose 4.7 per cent month-over-month. On an annualised basis, headline inflation now sits near 55 per cent, as this chart from Citi's Fernando Jorge Diaz shows:

To redress this, Macri's administration has leaned on unorthodox economic policies in a “desperate” attempt, as one investor puts it, to clamp down on the runaway inflation that has undermined the country's recovery ever since last year's currency crisis. The most recent comes in the form of price controls. While this may help to anchor inflation expectations in the short-run, it sends a worrying signal to investors with painful memories of the former administration's penchant for economic unconventionality.

Here's what Ashmore Group's Jan Dehn has to say about Macri's recent decision to freeze prices for up to 60 products:

Consistent with its longstanding tradition of mismanaging its economy, the Argentine government last week abandoned its most recent attempt at macroeconomic orthodoxy in favour of the kind of heterodox policy measures, which have been to blame for Argentina’s long record of dismal economic performance.

The problem with such “myopic” economic policies, according to Dehn, is that they may alleviate Macri's increasingly dire political problems in the immediate term, but do very little to redress inflation — one of the underlying sources of his unpopularity among voters.

Government officials have also struggled to keep the currency on an even keel. About a week ago, the central bank unveiled changes to its currency band, which is a range for the peso's dollar exchange rate between which it will not intervene. While the previous band incorporated a 1.75 per cent depreciation in the peso by year-end, the central bank plans to leave the band unchanged at 39.8-51.4 pesos per dollar until 2020. After yesterday's slide, one dollar fetches 43.9 pesos.

Again, this new plan may help to contain an inflationary spiral in the coming months but, according to Ed Glossop at Capital Economics, it may handicap the country later on:

The new measures raise the risk that the peso does not fall far enough to offset the erosion of competitiveness resulting from high domestic inflation and wage growth. The previous band was designed such that the real exchange rate would hold steady or weaken modestly by year-end.

In order for the peso to remain competitive, Glossop reckons the nominal exchange rate will need to weaken to the upper-bound of the currency band. If it instead strengthens to the lower-part of the band, it may become overvalued versus the dollar, necessitating a sizeable, and potentially destabilising, adjustment at a later date.

Not all of the government's policies have failed. With an ultra-tight monetary stance, the central bank has effectively engineered a massive rebalancing of the country's trade balance — a key issue for investors not too long ago. In March, Argentina recorded an impressive $1.18bn trade surplus, driven by a 33.7 per cent year-over-year decline in imports. Just last year, the country was sporting a gaping $554m trade deficit.

The problem is that a trade surplus doesn't win elections, a point made by pollster Alejandro Catterberg of Poliarquia Consultores at an event hosted by JPMorgan in Washington DC this month:

The problem is that many of those fundamentals are basically Chinese for the regular people on the street. They don't understand what a fiscal deficit means, they don't know what a current account is . . . The economic variables that influence their electoral decisions are how much peso volatility there is, how much inflation there is, poverty and consumption. In these four categories, people believe that things nowadays are worse than when Macri started.

And until he can find a way to make progress on these issues, the situation is only going to get worse from here.

The Downside Potential For The S&P 500 Is Starting To Look Very Appealing

by: Bang For The Buck
- The bond market has started to price in rate cuts and earnings estimates are revised downward, but the equity market remains elevated.

- 2019 economic growth seem far weaker than what we have seen historically, which has yet to be priced in by the market.

- The housing and auto sectors are unlikely to contribute to further growth and looks to remain flat in the best of scenarios.

Investment Thesis
The global economy is slowing which I have discussed in several articles before, but now we are also starting to see more and more signs that point towards a slowing U.S. economy. There are now enough factors that I think will force the S&P 500 (SPY) and the overall U.S. stock market to face reality. I have consequently put a short position on the S&P 500 and will discuss the factors behind that decision below.
Bond & Equity Markets
We have seen longer U.S. treasury rates decrease significantly over the last 6 months. The initial reason was the equity market sell-off and more recently the Fed reversal due to lower inflation data and concern over the global economy.
Chart Data by YCharts
Figure 1 - Source: YCharts
This is also reflected in the in the probability of a rate cut during 2019 as displayed in the below graph.
Figure 2 - Source: The Daily Shot
Over the same period, we have also seen analysts lowering 2019 earnings estimates for large, mid, and small caps significantly. Despite this, the S&P 500 has continued to climb since the end of December.
Chart Data by YCharts
Figure 3 & 4 - Source: MarketWatch & YCharts
We are consequently left with high valuations at a time when both the bond market and analysts are expecting the economy and growth to slow. While valuations might not be as indicative over the short term, it does mean there is plenty of downside potential should the market turn.
Figure 5 - Source: Shiller PE
On the 28th of March, the Q4 2018 GDP Growth was revised down to 2.2% from the prior 2.6%. While Q1 GDP Growth is normally not the strongest quarter, the Atlanta Fed is now estimating Q1 GDP Growth to come in at 1.5% which is weak in a historical comparison.
Another interesting data point which indicates slowing growth, is government tax receipts.
Naturally, the recent tax cuts have had an impact here. But they don't explain the downward growth trajectory for several years as the below chart indicates.
Figure 6 - Source: Sven Henrich - Twitter
Housing Market
We have recently seen some of the more extreme regions suffering declining house prices. It remains to be seen if lower mortgage rates can revive these markets. Many other regions have also seen stagnated prices, which might not detract from the economy, but will no longer contribute to further economic growth.
Chart Data by YCharts
Figure 7 - Source: YCharts
More forward-looking indicators like housing starts and building permits do not suggest a booming housing market either. Over the last few months, they have been at the lower end of a two-year range.
Chart Data by YCharts
Figure 8 - Source: YCharts
The U.S. consumer has also started to show signs off stress. We have seen more weak retail sales numbers coming though during the last few months. We see higher level of credit card delinquency rates for smaller banks further out on the risk curve and more Americans than any other time are delinquent on auto loans. While the auto loan delinquency rate is more extreme for lower income households, it is coming through in the aggregated statistics as well.
Figure 9 & 10 - Source: Bloomberg
We are seeing slow global economic growth in many regions. The bond market is starting to price in rate cuts, earnings estimates are being revised downward, and I think it is unlikely that the U.S. consumer will be able to pick up the slack given the statistics seen in housing and other credit data.
I expect we will start to see the macro factors come through in 2019 reported earnings. Given the fact that valuations are still elevated, the risk reward on the downside looks far more attractive than on the upside. I have consequently started to short the S&P 500 where the global data points can surprise even more to the downside.
It is certainly possible that the Fed can cut rates or return to quantitative easing with force, to boost the market. But I think we are unlikely to see that until the equity market has had a more significant correction.

Who In Their Right Mind Would Lend Money To Chicago?

When you see that Italy’s debt is rising, the logical question is, who the hell is dumping good money after bad into such an obviously failed state? The answer is that by lending money to Italy (or Greece, Portugal, Spain, or France) you’re really lending money to Germany, since the latter will have to bail those other countries out shortly.

Keep that in mind as you read this, from yesterday’s Wall Street Journal:

Cash-Strapped Illinois, Chicago Seek Billions From Investors

Illinois and its biggest city kick off hundreds of millions of dollars in borrowings this week, a test of investors’ willingness to lend to stressed governments prone to spending more money than they bring in. 
The state launched borrowings with about a $440 million bond deal on Tuesday, followed by a sale topping $700 million by Chicago. Analysts expect what could be billions more especially from the state, as it puts together funds to do everything from paying retirees’ pensions to launching capital projects. 
Illinois borrowing Illinois Chicago bonds
Before buying bonds from the nation’s lowest-rated state and its biggest city, investors have to assess their continuing mismatches between expenses and revenues along with pension burdens, which are slated to eat up a growing share of both budgets in coming years. Municipalities nationwide are grappling with how to pay bondholders while also meeting the rising costs of retirement benefits, but few are as financially strained as the nation’s third-largest city and the state. 
Chicago pension Illinois Chicago bonds
Illinois leaders have floated borrowing at least $4.5 billion more through next year, according to its financials. Rather than using most funds to build bridges or improve infrastructure, the Prairie State plans to use many of its bonds to pay off outstanding debts or put money toward pension benefits that have already been earned. For example, a proposed $1.5 billion borrowing tentatively scheduled for June would help pay for a pile of unpaid bills the state still owes. Lawmakers failed to pass a budget for two years under the former governor, worsening this backlog. 
Rahm Emanuel’s last bond deal as Chicago’s mayor will be used to pay off previous short-term borrowing alongside projects including sidewalk improvements and traffic signal installation. He considered selling $10 billion of debt to fund pensions, but it will be up to his successor—elected this April—to decide whether to move forward. 
Illinois’s rating sits just above junk level. Chicago holds a speculative grade from Moody’s Corp. and investment-grade scores from S&P Global Inc. and other firms. Chicago didn’t hire Moody’s for its latest bond deal. 
Despite their precarious finances, the city and state’s leaders have turned to the bond market at what some analysts say is an opportune time. Investors have poured money into municipal bonds in recent weeks, vying for a relatively limited supply of debt, analysts say, and lifting prices while pushing down the yields of even some existing Illinois and Chicago bonds. 
That background helps ensure demand for the new bonds, analysts said, in the latest example of how investors’ voracious appetite for debt can help governments find willing lenders despite fiscal stress.

Here’s the key passage that ties Illinois/Chicago back to Italy:

“Despite their precarious finances, the city and state’s leaders have turned to the bond market at what some analysts say is an opportune time. Investors have poured money into municipal bonds in recent weeks, vying for a relatively limited supply of debt, analysts say, and lifting prices while pushing down the yields of even some existing Illinois and Chicago bonds.”

Why would such obviously crappy paper be such an easy sell? Because investors are looking ahead to the next Great Reflation, in which the Fed and other major central banks are forced to unleash a tidal wave of new credit to bail out the bad debts incurred in the previous round of monetary experimentation.

If the express goal is to keep bad debts from blowing up the global financial system, then by definition Illinois/Chicago will be bailed out, since they personify the concept of “bad debt”. So today’s junk munis are tomorrow’s Fed balance sheet assets. Which is another way of saying they’re taxpayers’ responsibility, not Chicago’s.

Why the cult of the early riser still captivates

Do you really have to get up at 5am to get ahead?

Jo Ellison

No place for screen time: clarity of focus found in the dawn light © Getty Images

Will getting up before the sun has cracked its first rays make you a better, more brilliant person? In his book, The 5am Club: Own Your Morning, Elevate your Life, “leadership guru” Robin Sharma argues the case. The book is the 13th publication in an oeuvre that also includes the titles Who Will Cry When You Die? and The Monk Who Sold His Ferrari, which has sold more than three million copies to date.

I am not usually in the habit of following the advice of leadership gurus and have a relatively low tolerance for books claiming to transform my life, especially when those books are framed as quasi-fictions featuring characters called the “Spellbinder”, but I was persuaded to have a look at Sharma’s latest offering when he messaged me directly on Instagram. I can only assume that he was using the social-media platform outside his “zero technology zones”: the hours between 4.45am and 8am and after 6pm, during which all phones must be abandoned.

To spare you having to read his 300-page manifesto, it boils down thus: club members must get up as soon as the alarm goes off at 4.45am before launching into “The Victory Hour”, which breaks down into 20 minutes of movement and hard physical exercise, 20 minutes of “reflection”, such as prayer, meditation or journal writing, followed by 20 minutes of “growth”, during which you might listen to “a podcast about leadership” or “consume an audiobook”.

This magical hour of solitude, contemplation and sweat allows one to focus on one’s goals and optimise one’s schedule for the day ahead, which is then split into 60- and 90-minute bursts of intensely focused work, with 10-minute intervals for mental growth, during which time the brain should roam freely. Sharma saves the afternoons for meetings and “lower value work” before going home to enjoy a “portfolio of joyful pursuits”, family time and/or nature walks.

Digital devices are banned on waking and well before bed, and eating is allowed only during very small windows, and frequently following 16-hour fasts. Despite scanning the schedule numerous times, I could find no allowance for watching television, unless it counts as a joyful pursuit, which I suspect it doesn’t. News watching is also curtailed to a bare minimum. And bedtime is scheduled for about 9.30pm.

Sharma doesn’t pretend the club is fun, at least not to begin with. He describes the process of adjusting as “torture”, and suggests that it will take 66 days of “habit installation” before you reach “the automaticity point” where the brain is fully rewired. But much of what he says does sound quite persuasive. The advocacy of stringent technological restrictions is now fairly standard among most leadership gurus, with everyone from writer, columnist and now sleep evangelist Arianna Huffington, to Russell Foster, professor of circadian neuroscience at Oxford university, pointing to phone use before bedtime as being key to the rise in rates of insomnia, depression and sleep deprivation. Sharma adds that our phone addiction has put us in a state of “digital dementia”, where we are so distracted by the white noise of “meaningless discussion” that we cannot complete even the most basic of daily tasks.

The 5am call time, however, is a bit much. I had hoped that with those nice chaps Jeffrey C Hall, Michael Rosbash and Michael W Young being awarded the Nobel Prize for medicine in 2017 for their work in unlocking the workings of the chronotype, the internal clock that programmes our ideal sleep time, we might have finally got over any more nonsense about early birds and worm-catching. But it seems the cult of “manly wakefulness” (as coined by inventor and sleep aversionist Thomas Edison in the early part of the 20th century) still lingers. People who rise early — Anna Wintour, Tim Cook, Michelle Obama and Jack Dorsey among them — are still admired as being more advanced specimens of human, even though there’s little evidence to prove it.

In his Ted talk “Why do we sleep?”, Professor Foster argues that there “is no evidence to suggest getting up early gives you more wealth at all”, but the sentiment that those who rise at daybreak are somehow better, more noble, more successful humans continues to persist — especially in the mind of my husband, who leaps out of bed just before the alarm goes off at 6.30am with irritatingly smug delight.

Have I joined the 5am club? Not yet. Although, in a burst of early-morning enthusiasm, I have started doing a 7am pilates class. And I have found that travelling through London before the school run begins in earnest does offer an awesome sense of quietude. Driving over Grand Union Canal bridge as the first tendrils of morning sun catch the treetops, I am filled with a kind of Captain Marvel invincibility.

But could I shift the alarm another hour earlier? Or go to bed at 9.30pm? Or stop watching television? Good God no, I could not.

Maybe I don’t have to. When I ask Sharma if he fancies letting me run the Victory Hour a little later he’s pretty generous about it. “Absolutely: It’s better than not running it at all,” he writes back. “And yet there is something truly magical about 5am. That’s why many of the great saints, mystics, writers, artists, etc rose before sunrise. The mind and heart are more open and pure then. And we can access more of our true power and potential.”

For now though, I’m leaving sunrise for the saints and martyrs. This sinner will only start at 6am.