Monday, July 6, 2009

California Collapse

Good Evening Folks!

The market was eerily quiet today. The DOW and the other major indices pretty much flat lined for most of the the session as we continue to hover around 900 on the S&P.

We are seeing quite a tug of war at these levels between the bears and the bulls. This furious rally seems to have been stopped in its tracks for the time being. The million dollar question now is the next big move up or down from here? Neither side seems too confident.

As a result, I think many investors have decided to head to the sidelines for awhile and wait for a trend. I am sure you all know where I think we are headed next. Just look down at the floor and you'll have my answer:)

The question I have here is do we have one more move up to 1000-1100 before we see the cataclysmic wave down or does it happen right here around the 900 level.

I am leaning towards thinking that this rally is pretty much toast at these levels. I mean the ISM manufacturing data report came in firmly above expectations and the market barely noticed. This was a surprise to me especially given the fact that the market plummeted on Friday. Usually we tend to see a little bounce following such sell offs.

The move down today on the positive ISM number tells me that the "green shoots" confidence seen in the markets the last 3 months has waned significantly. The market would have exploded higher if this data had come out a month ago. I think many of the big boys are getting ready to push the sell button and take profits off after a 30% move higher.


Fitch decided to throw this bomb out this afternoon:

"NEW YORK, Jul 06, 2009 (BUSINESS WIRE) -- Fitch Ratings has downgraded the state of California's (the state) long-term general obligation (GO) bond rating to 'BBB' from 'A-'. The bonds remain on Rating Watch Negative. The rating action affects the state's GOs and lease appropriation and related bonds as detailed at the end of this release.

The downgrade to 'BBB' is based on the state's continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis. Since no agreement was reached by the June 30, 2009 fiscal year (FY) end, the state's controller has now begun issuing registered warrants (IOUs) for certain non-priority payments to preserve cash, and the budget gap to be addressed has increased to $26.3 billion from $24.3 billion. The use of IOUs for non-priority payments would offset cash shortfalls into September 2009 as now currently projected."
Quick Take:

Folks, if you own California munies I suggest you bail ASAP.

When is anyone in this country going to realize that we spent way beyond our means over the last 25 years? The "kick the can down the road" band aid approach that the California state government has taken by issuing IOU's is absolutely disgusting.

What ever happened to finding long term solutions to problems?


Here's an idea on where to begin:

You can start by not paying low level government workers 6 figure salaries! This is absolutely ridiculous!

These IOU's you created in an attempt to not face the music may end up takink you and your state down and out for the count! You are just asking for a bankruptcy with this nonsense! Do you realize your debt rating is now 1 level above junk?

Let me explain the ramifications of this: You will be able to use your munies as toilet paper if your debt gets cut to junk because they will be almost worthless!

Go give Iceland a call and see how they have enjoyed their economic collapse if your curious to see what it will be like.

Where's your sense of responsibility when it comes to the people in your state? There are thousands of businesses in Cali that a very dependent on the government.

The citizens of this state depend on you to pay your bills and act responsibly. The last thing any company that does business with you wants is to be paid in IOU'S! Hell, Why don't you just pay them in Monopoly money! Its worth about the same! I am sure non of the welfare recipients are too keen on the idea either.

Hey Arnold: Its time for you and legislature to stop being a bunch of cowards. You all were placed into office with the hopes that you would have the ability to make the tough choices if it came down to it.

Well guess what California? Its time to make some tough choices! Put up or resign if you don't have the character to do the right thing and piss off your lobbyists by making the right choices. We need leaders and hero's immediately before this damn country collapses.

Bottom Line:

Whats scary here is there are dozens of other states in the same predicament. Pensions funds, state munies, and the ability for a state to simply make payroll are all on the verge of imploding if states don't start cutting spending and increasing their taxes.

It sucks people, no one hates taxes more then me but we did this to ourselves and its now time to pay the piper.

Lets be honest guys and gals. At this point, this country is being held together by a bunch of band aids. The stock market would be below 5k by this point IMO if the Treasury didn't throw a few trillion of liquidity into the system.

It's time to wake up and tighten up our fiscal belts before its too late.


CT-Hilltopper said...

Connecticut is one of those states, as I'm sure you well know.

We don't have a budget yet either.

We just haven't started paying people with IOU's yet.

Peter said...

How about NY, they can't even agree to open the chamber door to have a session.

I don't agree with any tax increases, they will continue to allow inefficiencies and will act as acceptance of fat. I am sure any person who reads your blog could balance the California budget in about an hour. But of course politics would never allow this.

The states and Federal government need to be forced to downsize dramatically, cut pensions and lower salaries. Any tax increases will slow this process down. It is untenable to live in a society where government employees make considerably more than private ones, especially when benefits and pensions are included.

Of course the real sad thing about this all is our federal government is implementing California's failed model. Well, just because it did not work there does not mean that Obama and his band of geniuses can't make it work on a grander scale.

Jeff said...



RI is a mess. NY, MI, OH, PA is a mess.

The list goes on and on.

Jeff said...


Some great points.

O'reilly was interesting tonight. He led off by asking if America was going bankrupt.

It was sa nice piece. They concluded that Cali's demise may be a prelude to what happens to us next if Obama doesn't put away the checkbook.

Nice to see some MSM airtime on this stuff.

Regarding no tax increases Pete I'm not so sure. Can we big out of this mess without em?

Good points around tax hikes simply hiding more worthless spending.

theART said...



Minton Mckarkquey said...

It's pretty bad here in Cali. Our state government has no idea how to manage a budget. But Californians are all a bunch of die-hard Democrats so the incumbent politicians have no fear of losing their seats no matter how incompetent they are.

The difficulty with raising taxes is that they've already raised various taxes to disastrous effect. And you can't trust these guys to save the money they collect rather than just piss it away on more BS programs. Business taxes are already incredibly high here compared with other states, and sales tax in San Francisco is now over 9%.

The state budget has increased 40% in four years - the legislature is very good at creating double-digit increases but has no idea has to slash spending by the necessary amount.


Anonymous said...

California has been running the providers off to Arizona, Colorado and elsewhere for years and now there're not enough left behind to cover the dole.

The Moment of Truth comes Friday when banks stop accepting Schwartzies. Could be really ugly.

The state may well be a harbinger for the rest of America. I cannot imagine how this West Coast implosion will play out.

Jeff said...

Will cali end up being our black swan?

Bond auction was average at best. The close should be interesting today. More later

John Maynes said...

Jeff, it's time for your rants. :-)

Jeff said...

Post up


Minton Mckarkquey said...

FYI: interesting article about California in this month's Reason magazine -