California recently closed its budget, but in January the state will need to begin working on its next one.
According to the LA Times, a $19 billion hole is already projected, and here’s the problem: The easy budget cuts and the easy tax hikes are already in the books.
The are other problems, too. The new governor, whoever that is, will be reluctant to waste political capital (Schwarzenegger had the benefit of being a lame duck) and fresh legislators will once again have to learn how the whole process works (California has term limits, meaning nobody ever sticks around long enough to know how it works).
Also, the public has unrealistic expectations:
In a survey of 1,000 Californians conducted in June by the Pew Center on the States and the Public Policy Institute of California, half of respondents believed state spending could be cut 20% or more with no impact on services. The report points out that the state would have to eliminate the equivalent of its entire prison system, all welfare programs and all transportation spending to save that much.
The authors went to Mike Genest, Schwarzenegger’s former budget director, for some perspective.
"Reality hasn’t caught up with the voting public," Genest told them. "Politicians have made it sound like there are other alternatives, like we can simply get rid of fraud, waste and abuse and [have] a spending freeze and … have the same kind of government we’ve always had. … That’s just not true."
Anyway, assuming a big GOP sweep in November in DC, there won’t be much help coming from the Feds. Barring another tax-revenue-creating bubble, this should be quite a horror show.
The California Public Employees’ Retirement System (Calpers) and the California State Teachers’ Retirement System (Calstrs) were hit by the real estate slowdown and the slump in global equities. Calpers said the fall in the value of its assets was the most severe in its history.
“This result is not a surprise; it is about what we expected, given the collapse of markets across the globe,” said Joe Dear, investment chief at Calpers.
The value of Calpers assets fell 23.4 per cent for the year to June 30, raising concerns that state employees and local governments might have to increase their ontributions to cover the shortfall.
But Calpers presented a bullish view. “The system has more than enough cash through contributions and income from investments to meet our present liabilities, so we are in a good position to ride out the current downturn and come out stronger,” said Mr Dear.
The market value of Calpers assets was $180.9bn (£110bn) on June 30, down from $237.1bn on the same date the previous year. The value of the portfolio had fallen to $160bn in March of this year but rebounded by $20bn by the end of June thanks to a partial recovery in equity markets.
Both organisations shifted a portion of their portfolios out of equities and into fixed income and real estate during the year to take advantage of lower prices.
Calpers also said it was “realigning relationships with hedge funds and private equity partners”. This would lead to “reduced fees, better alignment of interests, and more mutually beneficial long-term relationships”.
The value of Calpers real estate and private equity investments fell by 35.8 per cent and 31.4 per cent respectively in the year to June 30.
Calstrs was hit by the same macro-economic factors, with the value of its assets falling from $162.2bn to $118.8bn in the 12 months to June 30.
The organisation wrote down the value of its property holdings rather than spread the
You know, all this time we’ve been saying that the difference between California and the Federal Government was that California couldn’t print currency to get out of a pinch.
But really, isn’t printing currency exactly what issuing IOUs is? Granted, it’s not the most solid currency given with the state you’re dealing with, but it’s something.
Anyway, we’ll get to find out, because California has missed (surprise!) its deadline for closing its budget gap and is now set to hand out IOUs instead of actual money.
Reuters: The notes will mark the first time in 17 years the most populous U.S. state’s government will have to resort to the unusual and dramatic measure.
Democrats who control the legislature could not convince Republicans late on Tuesday night to back their plans to tackle a $24.3 billion budget shortfall or a stopgap effort to ward off the IOUs. The two sides agree on the need for spending cuts but are split over whether to raise taxes.
The state still has some cash, but that will be reserved strictly for its bondholders and education spending (the kids!). But vendors, college students, state agencies will get some paper.
Please, please, please let there be an after-market in these IOUs. We’d love to see how they’re valued and how businesses will conduct exchange using them.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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The first estimate of GDP for the second quarter of 2014 came roaring in at 4% annualized growth. The following is an initial analysis as written by Neil Irwin from the NYT:
"First, here’s the overall growth number. As it shows, the 4 percent rate of economic expansion in the April-through-June quarter was the strongest since last summer and the third-strongest quarter in the expansion that began five years ago.
But there is an important qualifier. Of the 4 percent reported growth, 1.66 percentage points was attributable to businesses increasing their inventories. But when companies ma...
Having waited until after the US equity markets closed, Portugal's troubled Banco Espirito Santo unveiled an enormous EUR 3.577 Billion loss - that is 15 times larger than the loss the bank suffered a year earlier. The data - to end-June, before the crisis really got going - already shows notable deposit flight, a 73.1% plunge in banking income, and a EUR 3 billion collapse in repoable assets (i.e. liquidity). On the heels of this Portugal's securities regulator has enforced a short-selling ban on BES... we suspect they would not have done that if all was systemically well in Portugal.
Memo to CAPE Slaves
Courtesy of Joshua M Brown
You don’t hear much out of the adherents of CAPE these days, as even its most ardent fans have given up on it as a timing tool.
Earlier this year and during much of last year, I’d taken the Cyclically Adjusted Price-Earnings ratio to task for various reasons, most notably the fact that it didn’t allow for accounting changes (GAAP losses are recorded differently), structural changes in our economy (are we all still farmers?), structural changes in the makeup of the stock market (isn’t software inherently more profitable than railroading?), taxation (dividends get preferential treatment versus ordinary income) etc. See ...
Shares in packaged foods producer Kellogg Co. (Ticker: K) are in positive territory on Monday afternoon, trading up by roughly 0.20% at $65.48 as of 2:20 p.m. ET. Options volume on the stock is well above average levels today, with around 12,500 contracts traded on the name versus an average daily reading of around 1,700 contracts. Most of the volume is concentrated in September expiry calls, perhaps ahead of the company’s second-quarter earnings report set for release ahead of the opening bell on Thursday. Time and sales data suggests traders are snapping up calls at the Sep 67.5, 70.0 and 72.5 strikes. Volume is heaviest in the Sep 72.5 strike calls, with around 4,600 contracts traded against sizable open interest of approximately 11,800 contracts. It looks like traders paid an average premium of $0.37 per contrac...
Once again, stocks have shown some inkling of weakness. But every other time for almost three years running, the bears have failed to pile on and get a real correction in gear. Will this time be different? Bulls are almost daring them to try it, putting forth their best Dirty Harry impression: “Go ahead, make my day.” Despite weak or neutral charts and moderately bullish (at best) sector rankings, the trend is definitely on the side of the bulls, not to mention the bears’ neurotic skittishness about emerging into the sunlight.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, incl...
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We tried holding up stock prices but couldn’t get the job done. Market Shadows’ Virtual Value Portfolio dipped by 2% during the week but still holds on to a market-beating 8.45% gain YTD. There was no escaping the downdraft after a major Portuguese bank failed. Of all the triggers for a large selloff, I’d guess the Portuguese bank failure was pretty far down most people's list of "things to worry about."
All three major indices gave up some ground with the Nasdaq composite taking the hardest hi...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
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