July 5. Illinois on the brink

July 5.  Employment figures were a disappointment.  Hourly wages were down 0.1% underscoring deflationary threat.  Factory Orders also soft.
–Article in NY Times outlines how bad the situation is in Illinois.   “Their pension is the most underfunded in the nation,” said Karen S. Krop, a senior director at Fitch Ratings. “They have not made significant cuts or raised revenues. There’s no state out there like this. They can’t grow their way out of this.” 
 
http://www.nytimes.com/2010/07/03/business/economy/03illinois.html?_r=2&partner=MYWAY&ei=5065

–From Prudent Bear: It is worth noting that credit protection (5-yr CDS) is higher for the states of California (342bps), Illinois (360bps), and Michigan (283bps) than it is for troubled Portugal (280bps).  New Jersey (276bps) and New York (276 bps) are priced above Spain and just a little less than Portugal.  A strong case can be made that these debt markets are on the cusp of a crisis of confidence.   
–When viewed as % of GDP, the above 5 states are about 30% of National Total (2008 figures).  Rough calculations are CA at 12.5%, NY at 8.0%, NJ 3.3%, IL 4.5%, MI 2.6%.  Add in Florida which is now reeling due to the Gulf oil spill…FL is about 5%. So around 1/3 GDP is from states with budget crises. Money for these states has to come from the Fed’l government.    
–Somewhat interesting to note that even as stocks probe new lows, near eurodollar contracts are not acting as if another credit crunch is in the offing. Recently, as stocks sold off strain was reflected in money markets by selling pressure in near contracts. However, on Friday near contracts (EDU0 and EDZ0) were strongest on the board.

Posted on July 31, 2010 at 8:43 am by alexmanzara · Permalink
In: Eurodollar Options

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