[SK in CV]

China makes a lot more sense, except for the precise timing. It started while Bernanke was speaking.

July earnings could be interesting. If they surprise to the downside across the board, the Fed is really in trouble. Though I’ve seen no trend in warnings that would make that likely. Employment doesn’t reflect that either. It just looks like slow as a snail sluggish growth. If earnings get confirmed, I’d be surprised if this 5% adjustment doesn’t disappear over the course of the summer.

[SK in CV]

[quote=The-Shoveler]Why I said, I don’t think we will see the fed exit any time soon.

If they do they will be forced to reverse course very quickly IMO.[/quote]

That’s the thing that I really don’t understand about what’s happened in the market. They didn’t change course. Bernanke said the same thing he’s been saying for a year at least. Basically he’ll keep feeding the junkie until the methadone kicks in. It’s not the first time it’s happened, but I think this might be the biggest move after an FOMC meeting. As far as maintaining market stability, he’s really between a rock and a hard place. He farts and the market panics. He doesn’t fart, the market panics.

[SK in CV]

[quote=FlyerInHi]SK, let me make clear why pensions are the problem.

CAR said this to make it sound like municipalities make annual contributions and are done.
[quote=CA renter] Again, “taxpayers” (and every public employee is a taxpayer who is paying at least as much as everyone else, especially since they are W-2), DO NOT pay the pension benefits to these retirees. The benefits are paid entirely from the retirement funds, and those funds are funded primarily by investment returns, employee contributions, and employer contributions. The “taxpayer” costs come from the employer contribution side for current employees[/quote]

Of course, CAR left out health benefits to retirees.

SK, as you correctly pointed out, pensions funds are just conduits and public employers are on the hook for the defined benefits they promised. Defined benefits mean that short of renegotiating the contracts or there not being money, those defined benefits must be paid.

But we all know that pensions funds are short of money to pay benefits to everyone that was promised.

So, all else being equal, if you give local governments a bunch of new money (from repeal of prop 13), that money will go to pay the legal obligations first (employees, retires, bondholders). Otherwise, these guys will go to court. And of course, the courts will order local governments to pay up because the money is there. But if they is no money, the courts will force a compromise.

Discretionary spending on services to citizens will not improve, or only minimally improve, by just increasing taxes and keeping the status quo. There is nothing of value to ordinary everyday taxpayers to increasing taxes. (copying CAR by using bold).[/quote]

I could quibble with some details, but I don’t disagree with much here. None of this has anything to do with the paragraph I quoted, which was nonsensical. It wasn’t wrong. It was nonsense. It had no nexus. It was like saying “The water is wet, the dirt is dry, so triangle.”

We can only hope that if revenues increase, that any extra funds will go towards making retirement funds more solvent. They are NOT facing insolvency crisis now. There is plenty of money to pay all current benefits. Long term, they need to be fixed. Higher investment yields will help. That’s happened recently. Higher employee contributions will help, that’s happening. Lower current cost by reducing future benefits will help, that’s happening. Better mandatory funding by sponsors will help, that’s happening. It is a problem. It is not a problem that can’t be solved.

[SK in CV]

[quote=The-Shoveler]
Los Angeles barely escaped last year, I don’t think they have long.

[/quote]

“Some people said” they were on the verge of bankruptcy. It didn’t happen. LA isn’t closer to BK now, they’re much further away. And with rising RE prices, revenues will increase, and they’ll get further away.

Are they still at risk? Sure. I just don’t see a scenario that will cause another RE crash. “If” interest rates rise dramatically? How’s that going to happen? The Fed continues to control. As they have for decades.

[SK in CV]

[quote=The-Shoveler]OK I will take a stab at it knowing full well I am about to be flamed.

If they raise interest rates without wage inflation then the housing market will crash followed by state and city bankruptcies one after the other because their main source of revenue is property tax.

This will cause a lot of other economic issue etc…

A lot of people I think fail to put two and two together and think housing crash existed in some sort of vacuum.[/quote]

If mortgage rates went to 10% overnight, that might happen. But they won’t. Since the Volker days, the Fed is pretty quick to the trigger when there’s real heat in the economy. But we won’t see those 50 and 75 basis point moves without that heat.

I agree that wage inflation is more important that any price index. If we actually hit the Fed target of 6.5% unemployment, there will be some wage inflation to go with it. Though I don’t expect to see it by a year from now.

I’m not sure if you’re only referring to CA with regards to the municipal bankruptcies, other states have much better flexibility. If I remember correctly, we had a housing crash, and we didn’t have a rash of municipal bankruptcies. I think there were 3 in California, one having nothing to do with the housing crash. And maybe 5 across the rest of the country.

[SK in CV]

[quote=moneymaker]I agree that the Fed “wants” to continue the stimulus, however we are not in a vacuum here in the US. When safety and yields start increasing elsewhere will there be a choice. I think I heard US treasuries are being sold by some holding them, when that happens on a large scale, seems to me that it will be harder for the US to sell without raising yields. The government seems to be in a credit bubble.[/quote]

I don’t know about the credit bubble part. But the rest of it is exactly what is happening today. Treasuries are being sold, yield is going up. It’s not a safety thing, its a yield thing. The Fed has been the primary buyer in the bond market for a long time. There have been days when they were the only buyer.

But so long as we continue to have a large trade deficit, foreign central banks will have few options but to buy our paper. Today, they’re buying dollars.

And nobody wants gold today. At 32 month low.

[SK in CV]

[quote=FlyerInHi]CAR, I keep on talking about pensions being thr problem because pensions are not defined contributions but defined benefits. So increases in revenue don’t go to services but get apportioned to pensions.

[/quote]

This makes absolutely no sense whatsoever.

Just sayin…

[SK in CV]

[quote=no_such_reality]
Slightly different. Yours implies they are acting like a child getting denied something they want but won’t really affect them.

Mine implies they’re addicted and going to have real problems when the juice stops.

I think the later is true and not the former.[/quote]

I’m not sure I made any such implication, you may have inferred it nonetheless. It will have some effect. But what Bernanke said was that he won’t pull back on the juice until there is other juice to take it’s place. (higher employment, higher GDP growth, higher inflation) Bernanke’s predictions of future growth of these measurements are consistent with recent Fed history. I suspect overly optimistic. Anyone having watched the Fed reduce projections time and time again over the last 3 years should recognize that. The only slightly bullish thing that he actually said is that the economy faces diminished risk of deflation. In another context, that’s like a doctor telling a patient his likelihood of survival has improved from 10% to 20%. Better than it was, but hardly pretty.

It’s a good day for bond shorts to close out, reverse, and be prepared to do another 180 over the next 90 days. I think its gonna get back up to 138 or 139.

[SK in CV]

[quote=no_such_reality]
No SK, this is a junkie spasming over the hint that the juice is going to stop in the future.[/quote]

I’m pretty sure that’s the same thing I said, with only slightly different words. The only thing that makes it a petulant reaction is that that the hint wasn’t significantly different than it has been in the past.

[SK in CV]

No. This is the petulant market reacting to the Fed saying almost exactly the same thing they’ve been saying month after month for what seems like years. The free flow of candy MIGHT begin to be reduced sometime before the end of the year, if, and only if, inflation, GDP growth and unemployment hit projections. Inflation remains very low. Unemployment remains very high. GDP growth remains positive but sluggish. This is classic over-reaction to nothing changing.

[SK in CV]

[quote=no_such_reality]Budget Bill could limit public’s access to Government Documents

[quote]SACRAMENTO — Gov. Jerry Brown is poised to sign legislation that could reduce the public’s access to basic government records that have long been used to scrutinize the actions of elected officials.

The proposal, a late insert into the state budget that lawmakers passed last week, would allow local officials to opt out of parts of the California law that gives citizens access to government documents.

Under that law, officials now must respond to a request for records from a member of the public within 10 days and are required to make the documents available electronically. The change, which Brown requested as a cost-cutting measure, would allow the officials to skip both requirements with a voice vote.

The same vote would permit them to reject requests without explanation and would no longer require them to help citizens identify existing information.

Brown and other defenders of the legislation predict that it would have little effect — that most local governments would choose to abide by the old rules. But the California Newspaper Publishers Assn. called the measure a stealth attack on government transparency and a blow to the public’s right to information.

…
[/quote][/quote]

Almost nothing is really is as simple as it seems. This is another move by Sacramento to make municipalities pick up the tab. This doesn’t apply to state government records, only local. Under existing law, the state reimburses localities for expenses related to disclosure, because the state mandated it. As revised, the state no longer picks up the tab, and leaves it up to local governments to disclose or not disclose. It’ll be interesting to see if localities continue with the old way. I wouldn’t be surprised if some do, those that are corrupt, less likely. San Diego? Any guesses?

[SK in CV]

[quote=bearishgurl]
Perhaps the reason why half your old haunt (in the western half of DC has changed hands since 1978 is because of the many canyon rim and “view properties” there which were/are VERY marketable and allowed their owners to “retire” who otherwise would not have had the funds to do so 🙂

[/quote]

No. All the homes on the street I lived on, on the canyon rim either transferred numerous times over the years, or the original owners died, except for two. Two are still occupied by the original owners. All the rest died while living in their homes. One other is occupied by a disabled daughter of the original owner. Those homes, btw, have not appreciated much since the late 90’s. We sold my mother’s house for less than it was appraised, for my father’s estate tax return. He died in 1989.

[SK in CV]

[quote=The-Shoveler][quote=SK in CV][quote=FlyerInHi]So far, it’s the employee unions going to court on technical contractual grounds to stop the will of the voters and the decisions of politicians. It’s their right, so let the process unfold.

[/quote]

Where is this happening?[/quote]

Where have you been!!

Stockton, San Diego, the list grows

Why One Union Is Fighting Pension Reform

Proposition B (June 2012) passed with 65 % of vote , that’s a landslide folks[/quote]

Thanks. I haven’t lived in San Diego for 2 years, so I haven’t seen anything on this. I have followed the Stockton BK, and I’m not sure anything happening there fits your fact pattern.

[SK in CV]

[quote=FlyerInHi]So far, it’s the employee unions going to court on technical contractual grounds to stop the will of the voters and the decisions of politicians. It’s their right, so let the process unfold.

[/quote]

Where is this happening?

[SK in CV]

[quote=FlyerInHi]CAR, for example Los Angeles and other local governments need to fix their budget and pension problems alone. You want to make it conditional on a state wide prop 13 repeal and changes in the Federal Reserve system. It’s a boneheaded argument.

[/quote]

In fairness, she did not make it conditional. She offered it as a possible aid in solving the problems.

Adding equity to the property tax structure would help. The Fed thing? eh. The problems are more policy than structure.

[Author]

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