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States/Municipalities the next crisis to come

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February 14, 2010 – Comments (17)

I'm surprised how much investors have been focusing abroad in the international countries, when there is a crisis brewing right now with states and municipalities.  Many states are facing massive budget gaps and tax revenue downfalls.

 

As a Government employee, my current state is facing a 11% tax revenue downfall prior year comparison.  There's no point in worrying about Greece, when a massive problem exists at home.  Fortunately my state has not done furloughs, however; just about every other state has.  Hawaii is tearing a page out of California's playbook and delaying tax refunds until late July no matter how early they were filed.

Illinois's state pension is collapsing and has been for quite sometime.  The only way to keep it afloat is to issue more bonds.

This is starting to come to light, but I expect it to continue to exacerbate much further as time progress.  Greece is hardly a problem in lieu of what is happening domestically.

I hardly think municipal bonds are  the 'sure thing' contrary to past beliefs.  The insurance companies backing them are bankrupt themselves (aka MBIA/Ambac).

Indexes (S&P 100,400,500,600), (Russell 2000) are the place to be.  At least that is the closest thing to 'safety' IMO that you can get.  Plus you can short options against them, while collecting premium and capital appreciation.

 

 

17 Comments – Post Your Own

#1) On February 14, 2010 at 5:45 PM, bcchamp (33.31) wrote:

what about when they just keep your refund to pay to themselves

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#2) On February 14, 2010 at 6:56 PM, fmahnke (95.32) wrote:

"the only way to keep it afloat is to issue more bonds" Are you serious ?  Perhaps your unions have told you that it is not possible for you to make concessions..Only the private sector and social security receipients can make concessions. I guess it is because there are no other people available and willing to do the  work.

Some of us  private sector citizens just can;t understand this attitude.

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#3) On February 14, 2010 at 8:46 PM, paperpump (96.63) wrote:

Public sector employees make too much. They make more on average than private sector employees. This is ridiculous. That statistic doesn't include obama's proposed education breaks to public sector employees- "The plan, announced on Feb. 1, includes a revamped education budget that would forgive the debt of students who have been trying to repay federal loans for 20 years, and the debt of those who decide to work in public service after 10 years."

The government is a rapidly growing wasteful backwater of stolen production from the private sector.

TIME TO TRIM THE FAT.

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#4) On February 14, 2010 at 8:54 PM, Harold71 (22.68) wrote:

"the only way to keep it afloat is to issue more bonds"

Hehe, and exactly how long does this type of Ponzi scheme last? 

 As long as you can find some sucker to buy those bonds I guess.

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#5) On February 15, 2010 at 2:01 AM, amassafortune (29.67) wrote:

It's been a great run for public employees for the past 20 years, or so. Most have avoided the health care cost increases that for-profit business have passed along to employees. Raises have generally been regular and usually exceeded the rate of inflation. Retirement promises have been mostly kept and not scaled back as the private sector was shrinking. All this is about to change.

As hard as most public employees work, and as successful as many agencies have been at fulfilling their missions, the simple fact is that the private sector can no longer afford to support the public sector in the manner to which it is accustomed. 

Public employee packages are on the verge of being adjusted to more closely match private sector arrangements, not because the current arrangements are not deserved, but simply due to market forces. 

The private sector is on the hook for TARP, the bank bailout, social security, two or three wars.. you get the point. The money is not there and future money from taxes has already been promised and spent. Yes, public employees pay taxes too, but all tax money ultimately comes from private sector commerce, and there are 8.4 million fewer contributors at last count.

The only workable solutions are the actions that have worked for private businesses. After early proposals have gone through a couple rounds of rejections, expect something like the Ford solution to be implemented - some concessions for tenured personnel, buyouts to cut higher-wage workers, deep cuts for new hires, and a shift of health insurance and retirement contributions and responsibility to workers.

If I were a public employee, I'd want to lock in small cuts that covered me at least through 2016. This would help ensure that something like the Ford model is contracted, rather than the Delphi model. 

 

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#6) On February 15, 2010 at 9:34 AM, Superdrol (97.18) wrote:

lol.  Public employees make too much ? Wow.  What a joke.  Do you work for the Government ? Btw, the way I am a state employee, not a federal employee.  Also I'm not in a union, and our state is not unionized.  Fact of the matter is that the state and federal government as a whole have more issues and responsibilities vs. an independent private company.

 

Sorry retards !

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#7) On February 15, 2010 at 9:58 AM, USNHR (68.69) wrote:

Wyoming's Republican government has a surplus.

All that entitlement spending must really suck for states such as CA, IL, and MI.

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#8) On February 15, 2010 at 10:36 AM, Superdrol (97.18) wrote:

There are a few states with surpluses.  Mine is one.  I'm sure Wyoming is another.  Same with Texas because they get so much tax money from oil, plus drugs from Mexico dosen't hurt either towards economic stimulation.

 

Fact is that either states go belly up, or Uncle Sam bails them out.  It's kinda like playing chicken.

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#9) On February 15, 2010 at 11:28 AM, USNHR (68.69) wrote:

Fact of the matter is that the state and federal government as a whole have more issues and responsibilities vs. an independent private company.

___________________________________________

All the more reason for limited government.

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#10) On February 15, 2010 at 11:38 AM, Superdrol (97.18) wrote:

Denouncing the Government has been a popular fad the past decade or so. In actuality, there are a lot of people right now who are only surviving on unemployment checks because they got kicked out of their jobs.  I happen to know a few of them personally.

Kinda funny when things get rough how people's attitudes change.

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#11) On February 15, 2010 at 12:13 PM, 100ozRound (29.70) wrote:

Hey, isn't Superdrol an anabolic steroid?  Strong username!! (Pun intended)

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#12) On February 15, 2010 at 12:50 PM, Superdrol (97.18) wrote:

Mos' def.  Manufactured by Anabolic Xtreme in 2005. 

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#13) On February 15, 2010 at 6:23 PM, Superdrol (97.18) wrote:

California will need a bailout.  Calling it now.

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#14) On February 15, 2010 at 9:08 PM, russiangambit (29.49) wrote:

Let's put things in perspective. How big is Californi's budget deficit -something like 20 bil? Yet last week Freddie announced they'll be buying back ( at face value ! I understand) mortgages that are 3 months delinquent to the tune of 70 bil. That is basically writing off 70 bil at taxpayer expense. And nobody of importance even squeaked at that. It is all a game of extend and pretend, shuffling money here and there, trying to mask the gaping hole.

The only reason the federal government is still solvent is because they are printing money and Chinese keep buying our debt. Without that they would've been in much worse shape than even California.

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#15) On February 16, 2010 at 9:13 AM, Superdrol (97.18) wrote:

Yeah I agree.  California after last year gained 'pro status' in the game kick the can.  A lot of other states though are trying to get to that same pro status that California has.  Probably New York and New Jersey might get their pro cards next.

The only reason why the Government (several countries) are solvent is due to politics.  Japan is leveraged beyond belief along with several other countries.  Japan is more important than Greece, IMO because it is a more developed country.

Despite the US being basically bankrupt, it is a non-issue at the moment because the dollar is looked at as a safe haven and our political/national status gives us better ability to weather the recession vs. any other country. 

 

So Nouriel Roubini, Peter Schiff, and the rest of the media pundits looking for their 15 minutes of fame in their permanent doom and gloom mindset are actually right/wrong.  They are right in the fact that their thesis is correct, however; they are wrong because they underestimate the power of politics.

I bought Goldman Sachs right before earnings because I 'valued' the company at a certain price.  Lucky for me, there was some new regulation being passed the next day that is going to affect their ability to make money, thus negating my fundamental analysis completely and the way I discounted the company.  Good 'ol politics.

 

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#16) On February 18, 2010 at 1:15 PM, Superdrol (97.18) wrote:

BOOM

 

http://finance.yahoo.com/taxes/article/108866/muni-threat-cities-weigh-chapter-9?sec=topStories&pos=4&asset=&ccode=

 

 

 

Liquidated majority of my munis back when the 10-yr bond was 3.2%

 

Indexes and CDs for me.

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#17) On February 18, 2010 at 2:01 PM, Superdrol (97.18) wrote:

http://www.msnbc.msn.com/id/35448576/ns/us_news-life

 

 

 

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