July 17. Unsustainable muni finance. Bernanke hints at more QE today…

–Bernanke semi-annual testimony before Congress today. (An outline of more QE or other measures…) Yesterday’s Retail Sales were another disappointing miss, -0.5. Today’s news includes CPI expected 0.0 with Core +0.2. Industrial Prod +0.3.
–They’re not taking ten year note yields to new record lows for no reason. Thirty year bond yield is closing in on 2.5% (2.55). Bonds are forecasting disaster. Stocks aren’t, though US equities can probably be considered safe have for the world at this point.
–The IMF downgraded its 2013 forecast to 3.9% from 4.1%, likely to happen again in a couple of months. Food costs are a big worry. Dec Corn was up again yesterday. CZ was around 520 in mid-June, now 787, a rise of 55% in a month.
–Though the US may benefit from safe have flows from Europe (and China), there are many problems here with unsustainable budgets. Here are a couple of examples: BBG “The California Public Employees’ Retirement System earned 1 percent in the past fiscal year as slumping global stock prices dragged down the largest U.S. pension. ….The return for the 12 months through June 30 marks the third time in the past five years that it has failed to reach the 7.5 percent threshold needed to meet projected obligations. When Calpers underperforms, the state and its municipalities must make up make up the difference.” We already know how CA’s municipalities are doing…I’m sure the remaining cities will be happy to make up pension fund shortfalls.
–And from Reuters: “Illinois faces some of the worst fiscal problems in the United States.” “… the state moved into fiscal year 2013 with an estimated $7.5 billion to $8 billion in unpaid obligations,” “The state also continues to delay issuing corporate tax refunds, and owes over $100 million to other state funds to repay previous borrowing,” the comptroller said in the report.
–But here’s the kicker. Even though income tax rose from 3 to 5%… “Illinois collected 38.2 percent more in income tax revenue, a gain of $4.3 billion, in fiscal 2012. …Corporate tax receipts increased by $610 million or 33 percent…
However, base revenue only rose $2.331 billion, or 7.4 percent, when declines in transfers and falloffs in federal revenue were taken into account, the comptroller said.” So a significant revenue increase and not even a dent in unpaid bills…

Posted on July 17, 2012 at 5:33 am by alexmanzara · Permalink
In: Eurodollar Options

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