The elite nations were nicknamed BRIC (Brazil, Russia, India and China). The very un-elite nations are referred to as PIGS (Portugal, Ireland, Greece and Spain). I propose a change to the membership of the elite.
China is in danger of losing its exalted status. Blasphemy? Not at all. The reasons for this have been discussed in these very pages http://markostake.blogspot.com/2010/03/non-bull-in-china-shop.html.
While the Chinese economy grew at 10.3% in the second quarter over the year before, this was significantly less than the 11.9% realized in the first quarter. Beijing has undertaken efforts to cool down its economy, which shows signs of inflation and a property bubble. Recent measures enacted include increased required down payments and extreme restrictions on buying additional properties.
Although the slowdown was expected, other recently-released figures indicate that the economy could be cooling more quickly than forecast. Industrial production, which grew by 13.7% in June relative to the prior year, was much lower than May's 16.5% annualized increase.
The World Bank also cites factors such as a declining labor force due to China's demographics and lower increases in total factor productivity as reasons to expect China's growth rate to slow. It expects potential annual growth to be about 8.4% between 2010 and 2015, down from 9.6% from 1995 to 2009. From 2016 to 2020 the rate could fall further to 7% on average. If the property bubble should burst and get ugly, this will undoubtedly reduce growth prospects even more.
India, on the other hand, does NOT have the same demographic issues plaguing China, which has taken steps to limit its birth rate. Long-term growth requires a pyramidal population structure.
India has not been growing as fast as China, but its growth may be more sustainable and healthy. The Indian economy grew by 8.6% last quarter. It is not believed to be in danger of over-heating.
Brazil and Russia are among the very few countries with increasing oil reserves and output, a very critical asset during a time of "Peak Oil" and a growing possibility of military conflict in the Middle East.
Therefore, I'd like to propose that the elite nations now become known as RIB (Russia, India and Brazil).
The Chinese miracle may very well be coming to a pre-mature ending. The Shanghai Composite is looking very unhealthy.
Marko's Take
Thursday, July 15, 2010
Monday, July 12, 2010
Bullion or Mining Stocks?
All of us Gold Bugs wonder how best to allocate resources. It's no secret that mining stocks have proved to be a MAJOR disappointment for several years.
Over the last two years, the table below demonstrates how poorly mining stocks have performed relative to the metal itself. The HUI Gold Bugs Index,is the key benchmark for publicly traded Gold and Silver miners.
Time Frame HUI Peak Gold Peak
March, 2008 515 $1,025
December, 2009 510 $1.225
June, 2010 500 $1,250
As is clear, mining stocks have failed to keep pace with the metal itself in a very major way.
The basic argument for investing in mining companies, as opposed to bullion, is that they have leverage relative to the metal. This has not been the case in recent years. In fact, despite accelerating earnings, they've performed rather dismally.
Gold, in my opinion, is, for the time being, the better bet. Its use as an alternative currency during a period of extreme worldwide monetary debasement is proving far more valuable. Mining stocks are still equities and subject to the extremely bearish winds now in motion for the stock market. There will be better opportunities to re-enter.
If we are entering another deflation scare, it's important to be aware that even the metal itself may be subject to some temporary pressure. There will probably be a better entry point for the metal itself, although, at this time, its chart still looks VERY constructive.
Federal Reserve chairman Ben Bernanke is a student of the Great Depression and is very aware of the relationships between money supply growth, economic activity and asset performance. Undoubtedly, as this new market smash fully expresses itself, the FED will be forced to undertake even more drastic measures to re-liquify the economy than it already has. Bernanke earned the nickname "Helicopter Ben" for proclaiming, on numerous occasions, that he would be prepared to drop money out of helicopters if that's what it took to get money circulating again. He may have to make good on that one.
In its desperation, the FED wil probably over shoot and, in so doing, sow the seeds of hyper-inflation. Then, all the ingredients for Gold to achieve vastly higher levels will be in place.
This is one of the reasons that successful investing is so damn tough. You can be completely correct in a forecast and STILL lose money. All of us precious metals mining stock investors have stood back, watched the bullion advance and have been totally unable to cash in.
Extreme caution continues to be warranted here.
Marko's Take
Over the last two years, the table below demonstrates how poorly mining stocks have performed relative to the metal itself. The HUI Gold Bugs Index,is the key benchmark for publicly traded Gold and Silver miners.
Time Frame HUI Peak Gold Peak
March, 2008 515 $1,025
December, 2009 510 $1.225
June, 2010 500 $1,250
As is clear, mining stocks have failed to keep pace with the metal itself in a very major way.
The basic argument for investing in mining companies, as opposed to bullion, is that they have leverage relative to the metal. This has not been the case in recent years. In fact, despite accelerating earnings, they've performed rather dismally.
Gold, in my opinion, is, for the time being, the better bet. Its use as an alternative currency during a period of extreme worldwide monetary debasement is proving far more valuable. Mining stocks are still equities and subject to the extremely bearish winds now in motion for the stock market. There will be better opportunities to re-enter.
If we are entering another deflation scare, it's important to be aware that even the metal itself may be subject to some temporary pressure. There will probably be a better entry point for the metal itself, although, at this time, its chart still looks VERY constructive.
Federal Reserve chairman Ben Bernanke is a student of the Great Depression and is very aware of the relationships between money supply growth, economic activity and asset performance. Undoubtedly, as this new market smash fully expresses itself, the FED will be forced to undertake even more drastic measures to re-liquify the economy than it already has. Bernanke earned the nickname "Helicopter Ben" for proclaiming, on numerous occasions, that he would be prepared to drop money out of helicopters if that's what it took to get money circulating again. He may have to make good on that one.
In its desperation, the FED wil probably over shoot and, in so doing, sow the seeds of hyper-inflation. Then, all the ingredients for Gold to achieve vastly higher levels will be in place.
This is one of the reasons that successful investing is so damn tough. You can be completely correct in a forecast and STILL lose money. All of us precious metals mining stock investors have stood back, watched the bullion advance and have been totally unable to cash in.
Extreme caution continues to be warranted here.
Marko's Take
Thursday, July 8, 2010
8 More Reasons To Avoid Stocks
After 2 days of scaring the wits out of anyone, including me, I thought that I'd review some of the additional possible trigger events for a stock market collapse that do NOT include eclipses or full moons.
Not in any particular order, these are all potential dangers for the stock market meltdown that I've written about over the past couple of days.
1. Military conflict in the Middle East
Without re-iterating why this situation is so dangerous, you can read some of the latest developments here http://markostake.blogspot.com/2010/06/showdown-with-iran-looms-closer.html.
2. Either a major default or a complete disintegration of the Euro-Zone.
For some recent information, try this piece on the countries' out-of-control budget deficits http://markostake.blogspot.com/2010/05/euro-zone-budget-deficits-go-parabolic.html.
3. A key state, county, or city default.
For more information, you can read the lastest here http://markostake.blogspot.com/2010/07/50-states-50-budget-nightmares.html.
4. Or, the inability of the United States, as a whole, to pay its debts.
For more information on this mess: http://markostake.blogspot.com/2010/05/us-budget-deficit-continues-to-spiral.html.
5. A trade war with China.
Read about it here http://markostake.blogspot.com/2010/06/us-sino-trade-frictions-intensify.html.
6. An inevitable and growing shortage of oil.
Yes, "Peak Oil" is not a myth. Don't believe me? Read this: http://markostake.blogspot.com/2010/05/peak-oil-update.html.
7. Intensifying problems in our financial system, most notably, the banking sector. http://markostake.blogspot.com/2010/05/banking-sector-problems-accelerate.html. Obama's most ill-advised new financial reform bill will only make things worse! http://markostake.blogspot.com/2010/06/obamas-latest-folly-financial-reform.html.
8. The commercial real estate sector (not to mention residential).
You can read about that here http://markostake.blogspot.com/2010/04/commercial-real-estate-losses-next-shoe.html.
If you've read this far, let me leave one more for you to ponder: The American Empire is on its last legs. This is a long one, but well worth reading to put everything above in historical context. http://markostake.blogspot.com/2010/06/12-steps-of-empire.html.
Now a truism that a lot of folks hold onto, is the notion that it's darkest before the dawn. Trust me, we will soon know dark!
Marko's Take
Not in any particular order, these are all potential dangers for the stock market meltdown that I've written about over the past couple of days.
1. Military conflict in the Middle East
Without re-iterating why this situation is so dangerous, you can read some of the latest developments here http://markostake.blogspot.com/2010/06/showdown-with-iran-looms-closer.html.
2. Either a major default or a complete disintegration of the Euro-Zone.
For some recent information, try this piece on the countries' out-of-control budget deficits http://markostake.blogspot.com/2010/05/euro-zone-budget-deficits-go-parabolic.html.
3. A key state, county, or city default.
For more information, you can read the lastest here http://markostake.blogspot.com/2010/07/50-states-50-budget-nightmares.html.
4. Or, the inability of the United States, as a whole, to pay its debts.
For more information on this mess: http://markostake.blogspot.com/2010/05/us-budget-deficit-continues-to-spiral.html.
5. A trade war with China.
Read about it here http://markostake.blogspot.com/2010/06/us-sino-trade-frictions-intensify.html.
6. An inevitable and growing shortage of oil.
Yes, "Peak Oil" is not a myth. Don't believe me? Read this: http://markostake.blogspot.com/2010/05/peak-oil-update.html.
7. Intensifying problems in our financial system, most notably, the banking sector. http://markostake.blogspot.com/2010/05/banking-sector-problems-accelerate.html. Obama's most ill-advised new financial reform bill will only make things worse! http://markostake.blogspot.com/2010/06/obamas-latest-folly-financial-reform.html.
8. The commercial real estate sector (not to mention residential).
You can read about that here http://markostake.blogspot.com/2010/04/commercial-real-estate-losses-next-shoe.html.
If you've read this far, let me leave one more for you to ponder: The American Empire is on its last legs. This is a long one, but well worth reading to put everything above in historical context. http://markostake.blogspot.com/2010/06/12-steps-of-empire.html.
Now a truism that a lot of folks hold onto, is the notion that it's darkest before the dawn. Trust me, we will soon know dark!
Marko's Take
Wednesday, July 7, 2010
Hindenburg Omen Confirmed... Or, Was It?
The Hindenburg Omen (HO) was described in yesterday's blog. For more on how it works, click here http://markostake.blogspot.com/2010/07/hindenburg-omen-foretells-coming-market.html.
For the HO to be confirmed, it must happen at least twice in a 36-day window. Did we get confirmation today? Well, that's a tough one. According to Yahoo Finance, there were 102 new highs and 85 new lows out of 3,946 issues traded. That means that the new highs test was met, but the new lows test came in at 2.155% of issues traded. The trigger criteria calls for 2.2%. Are we supposed to round up?
But, the HO is not nearly the only reason to fear a market meltdown. There are a whole slew of others. Some are out there, some are not.
A man named Steve Puetz (pronounced "pits") is a student of stock market crashes. He has concluded that solar eclipses combined with full moons were somehow connected to the timing of market crashes. He does NOT suggest that full moons close to solar eclipses cause market crashes. But, his research does demonstrate that a full moon occurring close to a solar eclipse, in particular, seems to affect investor psychology in such a way as to transform investor emotions into panic.
His research found that 8 of the greatest market crashes in history fell within a time period of 6 days before, to 3 days after, a full moon that occurred within 6 weeks of a solar eclipse. Yes, you read that right!
Could this be random? Statistically, he found that for all 8 crashes to accidentally fall within the required intervals would be less than one chance in 127,000.
It's important to understand that EVERY solar eclipse must, by definition, occur within six weeks of a full moon, which occurs every 4 weeks. The combination does NOT mean a waterfall decline will ensue, but it does suggest a timing window, should one occur.
Now, here's where things get verrrrry interesting, as Arte Johnson would say. In the year 2010, there are only 2 solar eclipses: One occurred in January, and the only other one will occur on July 11! The next full moon occurs on July 26th, with one to follow on August 24th. So, if we combine the research of Robert McHugh with that of Steve Puetz, this would suggest that a crash could occur at anytime!
Don't buy that one? I don't blame you. But, there is a lot more.
Dow Theory holds that when the Industrials make a new low confirmed by a new low in either the Transportations or the Utilities, a new bear market has been indicated. This signal has been given. Dow Theory does NOT predict crashes, just suggests that the primary direction of the market is down.
Let's not forget the horrific plunge in the nation's money supply. According to adjusted numbers crunched by John Williams of ShadowStats, inflation-adjusted M3 is declining at an annualized rate of 5.9%, the steepest since the Great Depression. This drop reflects sharply reduced lending by financial institutions and foresages extreme problems in the banking sector.
According to Williams, whenever real annual M3 growth has turned negative, the economy has followed. Every time real M3 has contracted, the economy has fallen into recession shortly thereafter, or, as in the case of the 1973 to 1975 recession, where the M3 contraction took place after the recession had started, the existing downturn has intensified. Double dip, anyone?
Ignore this at your market peril.
Marko's Take
For the HO to be confirmed, it must happen at least twice in a 36-day window. Did we get confirmation today? Well, that's a tough one. According to Yahoo Finance, there were 102 new highs and 85 new lows out of 3,946 issues traded. That means that the new highs test was met, but the new lows test came in at 2.155% of issues traded. The trigger criteria calls for 2.2%. Are we supposed to round up?
But, the HO is not nearly the only reason to fear a market meltdown. There are a whole slew of others. Some are out there, some are not.
A man named Steve Puetz (pronounced "pits") is a student of stock market crashes. He has concluded that solar eclipses combined with full moons were somehow connected to the timing of market crashes. He does NOT suggest that full moons close to solar eclipses cause market crashes. But, his research does demonstrate that a full moon occurring close to a solar eclipse, in particular, seems to affect investor psychology in such a way as to transform investor emotions into panic.
His research found that 8 of the greatest market crashes in history fell within a time period of 6 days before, to 3 days after, a full moon that occurred within 6 weeks of a solar eclipse. Yes, you read that right!
Could this be random? Statistically, he found that for all 8 crashes to accidentally fall within the required intervals would be less than one chance in 127,000.
It's important to understand that EVERY solar eclipse must, by definition, occur within six weeks of a full moon, which occurs every 4 weeks. The combination does NOT mean a waterfall decline will ensue, but it does suggest a timing window, should one occur.
Now, here's where things get verrrrry interesting, as Arte Johnson would say. In the year 2010, there are only 2 solar eclipses: One occurred in January, and the only other one will occur on July 11! The next full moon occurs on July 26th, with one to follow on August 24th. So, if we combine the research of Robert McHugh with that of Steve Puetz, this would suggest that a crash could occur at anytime!
Don't buy that one? I don't blame you. But, there is a lot more.
Dow Theory holds that when the Industrials make a new low confirmed by a new low in either the Transportations or the Utilities, a new bear market has been indicated. This signal has been given. Dow Theory does NOT predict crashes, just suggests that the primary direction of the market is down.
Let's not forget the horrific plunge in the nation's money supply. According to adjusted numbers crunched by John Williams of ShadowStats, inflation-adjusted M3 is declining at an annualized rate of 5.9%, the steepest since the Great Depression. This drop reflects sharply reduced lending by financial institutions and foresages extreme problems in the banking sector.
According to Williams, whenever real annual M3 growth has turned negative, the economy has followed. Every time real M3 has contracted, the economy has fallen into recession shortly thereafter, or, as in the case of the 1973 to 1975 recession, where the M3 contraction took place after the recession had started, the existing downturn has intensified. Double dip, anyone?
Ignore this at your market peril.
Marko's Take
Tuesday, July 6, 2010
Hindenburg Omen Foretells Coming Market Meltdown
Investors use a variety of data points to assess the likely future course of the market. Some are WAY out there, such as astrology, sunspots and cycles of the moon. Others are more traditional like charts, sentiment ratios and overbought/oversold indicators. Rarely do these types of indicators, which are followed by many, provide much value added. Most academic studies conclude that the market is a "random walk", meaning that, over the long-term, beating the market is deemed impossible.
For an indicator to even have a chance at being valuable, it must remain somewhat unknown, or understood by very few people. If it were widely followed, then investors would act on it and it would cease to remain useful. That's the basis of the "efficient market hypothesis".
One very valuable and arcane indicator goes by the name of "The Hindenburg Omen" (HO).
What, exactly, is a Hindenburg Omen? It occurs when several technical factors that indicate certain underlying conditions of the New York Stock Exchange (NYSE) are present simultaneously. The HO has been present before all of the stock market crashes and/or panics of the past 25 years. No significant sell-off, during this period, has occurred without the presence of a Hindenburg Omen.
A Hindenburg Omen is triggered when the daily number of NYSE new 52 Week highs and the daily number of new 52 week lows both exceed 2.2% of all issues traded. In Tuesday's trading, BOTH new highs and new lows met that criteria.
A brilliant newsletter writer named Robert McHugh, has done a tremendous amount of analysis on this indicator and used statistical analysis to perfect its signals. According to McHugh, the traditional trigger, to be truly indicative, has several more filters. These filters include a rising 10-week moving average and negative market breadth, as measured by an index called the McClellan Oscillator. Both criteria are present today.
Even with these additional filters, the HO has still failed on occasion. McHugh has developed 2 additonal filters to make the signal deadly accurate. Condition 4 requires that new 52 week NYSE highs cannot be more than twice new 52 week lows. However. it is acceptable for new 52 week lows to be more than double the highs. This was met today.
McHugh's research has determined that there have been 2 incidences where the first 3 conditions existed, but new highs were more than double new lows, and no market decline resulted.
The 5th condition for a Hindenburg Omen to be completely valid is that there must be more than one signal within a 36-day period. McHugh found 8 instances over the past 25 years where there was just one isolated Hindenburg Omen signal over a 36-day period. In 7 of the 8, no sharp declines followed. Most HO's occur in swarms.
But, before we totally follow McHugh off a cliff, be aware that he is also a disciple of Elliot Wave Analysis, a completely useless notion of market movement.
McHugh also projects that the market is ultimately going to trade to near zero. Perhaps he's read too many books on 2012!
Tuesday was HO number 1, so a warning flag has been raised. It is nowhere near a foregone conclusion that a market plunge is imminent. However, there were other very bad technical signs in Tuesday's trading.
The Russell 2000, a very broad measure of small capitalization stocks, completed an "outside day reversal". These occur when a stock or index trades above the high of the previous day, reverses and then closes lower than the prior day's low. These are far from inflammable, as Archie Bunker might say, but tend to be correlated with more movement in the direction of the close. Since the Russell closed down, we can logically expect more downside imminently, although we don't know how much further the short-term momentum will carry.
The timing of a decline following an HO can begin the day after or as long as 4 months after the signal. In the current situation, the confirming signal may occur at a lower level. In fact, market crashes NEVER start from a top. They generally occur at least 20% lower than the top. In 1987, for example, the Dow Jones Industrial Average peaked at 2,700 and change. The crash began with the index a full 20% lower than its peak. The same can be said for the market crash that occurred during the Great Depression.
So, assuming we've raised your level of concern, what should an investor do with this information? At the very least, HEDGE! Take a position in a security that can gain if the rest of your portfolio declines. This can be accomplished by purchasing some aggressive inverse ETFs. My personal favorite is FAZ, a 3x negative play on the financial sector. If you want to hedge using the Russell 2000, an ETF with the symbol TWM will give you a great play on any downside.
FAZ, which currently trades around $18 per share, traded at $2,000 per share in late 2008! It has that much leverage. So, employing one of these, assuming the market melts down, can result in huge gains! Same goes for TWM. There are inverse, leveraged ETFs covering nearly every industry and every index.
This is no time for investors to put their heads in the sand. While the most dire prediction may not come to fruition, ignore this signal at your own investment peril.
Marko's Take
Subsequent to this piece, more information on the HO has emerged. For an update on this indicator, please click this correction: http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
For an indicator to even have a chance at being valuable, it must remain somewhat unknown, or understood by very few people. If it were widely followed, then investors would act on it and it would cease to remain useful. That's the basis of the "efficient market hypothesis".
One very valuable and arcane indicator goes by the name of "The Hindenburg Omen" (HO).
What, exactly, is a Hindenburg Omen? It occurs when several technical factors that indicate certain underlying conditions of the New York Stock Exchange (NYSE) are present simultaneously. The HO has been present before all of the stock market crashes and/or panics of the past 25 years. No significant sell-off, during this period, has occurred without the presence of a Hindenburg Omen.
A Hindenburg Omen is triggered when the daily number of NYSE new 52 Week highs and the daily number of new 52 week lows both exceed 2.2% of all issues traded. In Tuesday's trading, BOTH new highs and new lows met that criteria.
A brilliant newsletter writer named Robert McHugh, has done a tremendous amount of analysis on this indicator and used statistical analysis to perfect its signals. According to McHugh, the traditional trigger, to be truly indicative, has several more filters. These filters include a rising 10-week moving average and negative market breadth, as measured by an index called the McClellan Oscillator. Both criteria are present today.
Even with these additional filters, the HO has still failed on occasion. McHugh has developed 2 additonal filters to make the signal deadly accurate. Condition 4 requires that new 52 week NYSE highs cannot be more than twice new 52 week lows. However. it is acceptable for new 52 week lows to be more than double the highs. This was met today.
McHugh's research has determined that there have been 2 incidences where the first 3 conditions existed, but new highs were more than double new lows, and no market decline resulted.
The 5th condition for a Hindenburg Omen to be completely valid is that there must be more than one signal within a 36-day period. McHugh found 8 instances over the past 25 years where there was just one isolated Hindenburg Omen signal over a 36-day period. In 7 of the 8, no sharp declines followed. Most HO's occur in swarms.
But, before we totally follow McHugh off a cliff, be aware that he is also a disciple of Elliot Wave Analysis, a completely useless notion of market movement.
McHugh also projects that the market is ultimately going to trade to near zero. Perhaps he's read too many books on 2012!
Tuesday was HO number 1, so a warning flag has been raised. It is nowhere near a foregone conclusion that a market plunge is imminent. However, there were other very bad technical signs in Tuesday's trading.
The Russell 2000, a very broad measure of small capitalization stocks, completed an "outside day reversal". These occur when a stock or index trades above the high of the previous day, reverses and then closes lower than the prior day's low. These are far from inflammable, as Archie Bunker might say, but tend to be correlated with more movement in the direction of the close. Since the Russell closed down, we can logically expect more downside imminently, although we don't know how much further the short-term momentum will carry.
The timing of a decline following an HO can begin the day after or as long as 4 months after the signal. In the current situation, the confirming signal may occur at a lower level. In fact, market crashes NEVER start from a top. They generally occur at least 20% lower than the top. In 1987, for example, the Dow Jones Industrial Average peaked at 2,700 and change. The crash began with the index a full 20% lower than its peak. The same can be said for the market crash that occurred during the Great Depression.
So, assuming we've raised your level of concern, what should an investor do with this information? At the very least, HEDGE! Take a position in a security that can gain if the rest of your portfolio declines. This can be accomplished by purchasing some aggressive inverse ETFs. My personal favorite is FAZ, a 3x negative play on the financial sector. If you want to hedge using the Russell 2000, an ETF with the symbol TWM will give you a great play on any downside.
FAZ, which currently trades around $18 per share, traded at $2,000 per share in late 2008! It has that much leverage. So, employing one of these, assuming the market melts down, can result in huge gains! Same goes for TWM. There are inverse, leveraged ETFs covering nearly every industry and every index.
This is no time for investors to put their heads in the sand. While the most dire prediction may not come to fruition, ignore this signal at your own investment peril.
Marko's Take
Subsequent to this piece, more information on the HO has emerged. For an update on this indicator, please click this correction: http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
Monday, July 5, 2010
The State Budget Electoral College
With elections coming up, Republicans and Democrats are fighting to control Congress. In my mind, the voters reaction to the new hardships imposed by state austerity programs will direct the election. Interestingly, the most problematic states are the largest, with the most electoral votes.
California with 55 and New York with 31 lead the pack of basket cases. Interestingly, both states are very left-leaning and Democrats have FAR more to lose. Voters could easily turn on the liberal legislatures and make wholesale changes to party affiliation. Other very troubled states include Illinois with 21, Michigan with 17, New Jersey with 15, North Carolina with 15 and Pennsylvania with 23. Together these 7 states represent a total of 167 electoral votes or 60% of the total needed to win, 270.
Eight U.S. states, including Illinois, California, Pennsylvania and New Jersey, face credit downgrades because of budget stalemates. A 9th, New York, has been without one since its year started April 1. Credit downgrades increase borrowing costs and makes the budget deficits worse.
All are gripped by political deadlocks over how to resolve a massive collapse in tax revenue that included a $67 billion decline in the 12 months ended June 30, 2009, according to the Census Bureau. The Nelson A. Rockefeller Institute of Government called that the biggest on record.
California, the lowest-rated state by Standard & Poor's at A-, was warned on June 8 that its $69 billion of debt outstanding might be cut unless the dogfight between Governor Arnold Schwarzenegger and the legislature over an $18.6 billion 2011 budget shortfall isn't solved.
Illinois, the5th-most populous state, had its credit rating lowered twice this month, on June 11 by Fitch Ratings to A from A+ and by Moody's on June 4 to A1 from Aa3.
Other states involved in budget fights include Louisiana, Massachusetts, Delaware and North Carolina, according to data compiled by Bloomberg News.
Five of the states choose governors this November: California, Pennsylvania, Illinois, Massachusetts and New York.
New Jersey Democrats are wrestling with Republican Governor Chris Christie over his proposed $29.3 billion budget. He proposes to balance it with $820 million in school-aid cuts and reductions in property-tax rebates. An extension of an income-tax surcharge on millionaires passed by the legislature on May 20 was vetoed by the governor minutes afterward.
So, it appears that more local issues are going to be the pivoting factor in deciding the election. On this basis, the Republicans, if they can hone their message of fiscal discipline, might be able to gain stronger footholds in Blue States. That is, if the voters can be persuaded that George W. Bush's profligacy was merely an aberration.
Marko's Take
California with 55 and New York with 31 lead the pack of basket cases. Interestingly, both states are very left-leaning and Democrats have FAR more to lose. Voters could easily turn on the liberal legislatures and make wholesale changes to party affiliation. Other very troubled states include Illinois with 21, Michigan with 17, New Jersey with 15, North Carolina with 15 and Pennsylvania with 23. Together these 7 states represent a total of 167 electoral votes or 60% of the total needed to win, 270.
Eight U.S. states, including Illinois, California, Pennsylvania and New Jersey, face credit downgrades because of budget stalemates. A 9th, New York, has been without one since its year started April 1. Credit downgrades increase borrowing costs and makes the budget deficits worse.
All are gripped by political deadlocks over how to resolve a massive collapse in tax revenue that included a $67 billion decline in the 12 months ended June 30, 2009, according to the Census Bureau. The Nelson A. Rockefeller Institute of Government called that the biggest on record.
California, the lowest-rated state by Standard & Poor's at A-, was warned on June 8 that its $69 billion of debt outstanding might be cut unless the dogfight between Governor Arnold Schwarzenegger and the legislature over an $18.6 billion 2011 budget shortfall isn't solved.
Illinois, the5th-most populous state, had its credit rating lowered twice this month, on June 11 by Fitch Ratings to A from A+ and by Moody's on June 4 to A1 from Aa3.
Other states involved in budget fights include Louisiana, Massachusetts, Delaware and North Carolina, according to data compiled by Bloomberg News.
Five of the states choose governors this November: California, Pennsylvania, Illinois, Massachusetts and New York.
New Jersey Democrats are wrestling with Republican Governor Chris Christie over his proposed $29.3 billion budget. He proposes to balance it with $820 million in school-aid cuts and reductions in property-tax rebates. An extension of an income-tax surcharge on millionaires passed by the legislature on May 20 was vetoed by the governor minutes afterward.
So, it appears that more local issues are going to be the pivoting factor in deciding the election. On this basis, the Republicans, if they can hone their message of fiscal discipline, might be able to gain stronger footholds in Blue States. That is, if the voters can be persuaded that George W. Bush's profligacy was merely an aberration.
Marko's Take
Thursday, July 1, 2010
50 States, 50 Budget Nightmares
It never ceases to amaze me as to just how all-encompassing the financial meltdown is. Virtually all of Europe is clinging on by a financial thread. China is wrestling with a property bubble and the slowdown in the economies of its export partners. The United States is running a $1.5 trillion budget deficit. The cracks in the financial dam don't stop there. They extend to all 50 states, and nearly all cities and counties.
The easy places to trim spending have been exhausted long ago, forcing states to resort to very non-traditional measures such as selling ads on automobile licence plates, taxing sugary soda and borrowing from pensions. Education was previously thought to be untouchable, but is now being gone after aggressively, including mass layoffs of teachers, administration support and vital school programs.
Of the 50 states, only Vermont, must balance its budget annually. The combination of cuts, tax hikes and accounting tricks have become familiar in state legislatures as the one-two punch of recession and housing downturn have dramatically reduced tax revenue for several years now.
For 2009 to 2012, states have faced nearly $300 billion in budget deficits, according to figures from the National Association of State Budget Officers.
Last year, politically heated budget fights forced 9 states to miss their deadlines and begin the fiscal year without an agreement. According to the National Conference of State Legislatures, 28 states have agreed to budgets this year and 16 had passed biennial budgets last year. Eight states, including California, have extended their sessions or held special meetings to negotiate budgets.
New York, whose fiscal year began on April 1, is the only state yet to have missed passing a budget on time. California, which had to resort to paying its bills with IOUs during last year, is expected to miss this week’s deadline.
The budget problems continue way down to the city level. Los Angeles is thought to be in danger of default and has resorted to closing city services several days per month. Los Angeles Unified School District has endured extremely steep cuts to bring the budget in balance. The desperation to balance the budget has led the city to use the Department Of Water And Power surplus to cover itself.
Most troubling to local governments is the combination of declining property taxes from the bursting of the real estate bubble combined with lower taxes from increased unemployment. In fact, the unemployment is a double-whammy since this triggers more spending for unemployment and other mandated programs.
Only 15 of the 49 largest cities in the U.S. saw year-over-year declines in their unemployment rates in May, according to new Labor Department data, while the unadjusted national rate, at 9.3%, was 0.2 percentage points above its year-ago level.
Across the country, jobless rates were higher in May than a year earlier in 222 of the 372 metropolitan areas, lower in 141 areas, and unchanged in 9. The Labor Department doesn’t seasonally adjust its data on city-level unemployment, making month-to-month comparisons difficult. Adjusted for seasonal factors, the U.S. unemployment rate was 9.7% in May.
Unfortunately, the situation has turned into the most troublesome vicious cycle. The more local governments are forced to cut back drastically, the more that the unemployment situation worsens, the more that pressure is maintained on home prices and the more that revenues to coffers are constrained. Then, more budget cuts, more unemployment...
Marko's Take
The easy places to trim spending have been exhausted long ago, forcing states to resort to very non-traditional measures such as selling ads on automobile licence plates, taxing sugary soda and borrowing from pensions. Education was previously thought to be untouchable, but is now being gone after aggressively, including mass layoffs of teachers, administration support and vital school programs.
Of the 50 states, only Vermont, must balance its budget annually. The combination of cuts, tax hikes and accounting tricks have become familiar in state legislatures as the one-two punch of recession and housing downturn have dramatically reduced tax revenue for several years now.
For 2009 to 2012, states have faced nearly $300 billion in budget deficits, according to figures from the National Association of State Budget Officers.
Last year, politically heated budget fights forced 9 states to miss their deadlines and begin the fiscal year without an agreement. According to the National Conference of State Legislatures, 28 states have agreed to budgets this year and 16 had passed biennial budgets last year. Eight states, including California, have extended their sessions or held special meetings to negotiate budgets.
New York, whose fiscal year began on April 1, is the only state yet to have missed passing a budget on time. California, which had to resort to paying its bills with IOUs during last year, is expected to miss this week’s deadline.
The budget problems continue way down to the city level. Los Angeles is thought to be in danger of default and has resorted to closing city services several days per month. Los Angeles Unified School District has endured extremely steep cuts to bring the budget in balance. The desperation to balance the budget has led the city to use the Department Of Water And Power surplus to cover itself.
Most troubling to local governments is the combination of declining property taxes from the bursting of the real estate bubble combined with lower taxes from increased unemployment. In fact, the unemployment is a double-whammy since this triggers more spending for unemployment and other mandated programs.
Only 15 of the 49 largest cities in the U.S. saw year-over-year declines in their unemployment rates in May, according to new Labor Department data, while the unadjusted national rate, at 9.3%, was 0.2 percentage points above its year-ago level.
Across the country, jobless rates were higher in May than a year earlier in 222 of the 372 metropolitan areas, lower in 141 areas, and unchanged in 9. The Labor Department doesn’t seasonally adjust its data on city-level unemployment, making month-to-month comparisons difficult. Adjusted for seasonal factors, the U.S. unemployment rate was 9.7% in May.
Unfortunately, the situation has turned into the most troublesome vicious cycle. The more local governments are forced to cut back drastically, the more that the unemployment situation worsens, the more that pressure is maintained on home prices and the more that revenues to coffers are constrained. Then, more budget cuts, more unemployment...
Marko's Take
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