|
|
Post by doctorwho on Dec 23, 2011 10:38:25 GMT -6
Does it take into account the Crain's article that people are leaving Illinois is very high numbers- top 5 in country in people loss. |
|
|
|
Post by macrockett on Dec 23, 2011 15:38:29 GMT -6
Ever speculate as to what would be the most likely cause of the financial collapse of the United States? Personally I believe it will be the trifecta. Our Federal Debt, Medicare unfunded liabilities on the Federal and State level, and the growing unfunded liabilities of States' unfunded pension obligations. More on this later. -------------------------------------------------------------------- Ok, lets start this with the article in USA Today (today) reflecting on the annual Treasury Report (2011). Here is what USA had to say: -------------------------------------------------------------------- Dec 23, 2011 Treasury report shows U.S. debts growing By Richard Wolf, USA TODAY Updated 2h 43m ago The Treasury Department gave President Obama an early Christmas lump of coal on Friday: the 2011 financial report of the U.S. government, which shows rapidly rising debts and was immediately deemed unauditable by the Government Accountability Office. The report from Treasury Secretary Timothy Geithner shows the government owes $17.5 trillion to its creditors, retirees, veterans and others.
Over a 75-year period, the hole grows to $65 trillion, according to former comptroller general David Walker -- $550,000 for every household.
The dual problems -- financial books that are deeply in the red and impossible even for accountants to understand -- top the list of priorities left undone by the president and Congress as they leave Washington for the holidays.
Little wonder Treasury released the financial statement and GAO's response on the Friday before Christmas.
"If the U.S. government was a public company, the board would be calling an emergency meeting and the CEO would be conducting conference calls to calm nervous investors who might otherwise be shorting the stock and dumping their holdings in the company's debt," Walker said.
"It's time for both Congress and the president to get serious and focus their attention on addressing our country's deteriorating financial condition."
The report is no surprise: While Obama and Congress finally settled on a two-month extension of the payroll tax cut, unemployment insurance and Medicare payments to doctors, they have been unable to cut much from future budget deficits. The GAO refused even to issue an opinion on the report for three reasons:
"Serious financial management problems at the Department of Defense that made its financial statements unauditable.
The federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies.
The federal government's ineffective process for preparing the consolidated financial statements."Comptroller General Gene Dodaro also cited weaknesses involving an estimated $115 billion in improper payments, information security across government and tax collection activities. Said Dodaro: "Even though progress has been made, our report illustrates that much work remains to be done to improve federal financial management." -------------------------------------------- Of course this isn't unusual, they didn't opine on last year's report either. I guess Geithner has problems beyond his own tax returns.... Here is the report: www.treasury.gov/about/organizational-structure/offices/Mgt/Documents/FY%202011%20Treasury%20AFR%20Nov15%20Final.pdfHere is GAOs statement on the Treasury Report: gao.gov/press/financial_report_2011dec23.htmlHere is what the CBO says about out deficit and the future outlook: www.cbo.gov/doc.cfm?index=12316This is just the here and now, not addressing the unfunded liabilities. More later. |
|
|
|
Post by southsidesignmaker on Jan 4, 2012 16:41:32 GMT -6
Home sales numbers looking better in Naperville area By David Sharos For The Sun January 3, 2012 11:22AM Updated: January 4, 2012 2:34AM napervillesun.suntimes.com/business/9790638-420/home-sales-numbers-looking-better-in-naperville-area.htmlFew would argue that home sales continue to be one of the better economic indicators, and as the new year gets going, the local market here in Naperville suggests that the future looks relatively stable. Local real estate agents say that these days, steady to slight gains should be seen as good news. “You have a combination of unprecedented low interest rates as well as prices that have dropped in an adjusted market, and there really has never been a better time to buy,†said Michele Nixon, a managing broker and certified relocation consultant for Prudential Starck Realtors of Naperville. “You’re seeing a decrease in the foreclosure inventory, and investors are taking advantage of the good values in the market.†A look at the last three years may be even more illuminating: The number of unsold units stood at 1,500 in January of 2010 and 1,400 in January of 2011. Nixon said that currently 900 properties currently remain unsold in the Naperville market heading. Home sale data also supports Naperville’s consistent if not slightly improved performance. “From January through December of 2010, the number of sales totaled 1,547 units or an average of 130 per month,†Nixon said. “Current data through last month 1,481 units or 134 per month (being sold). In the meantime, median prices have still come down.†Naperville’s consistently high national ranking as a desirable community, enhanced by a strong school system and Park District, continues to attract buyers, says Jeff Stainer, a broker for Re/Max action who works largely in the Naperville market. The first quarter of this year showed poor sales performance, he said, but the remaining quarters showed a marked improvement. The sales demographic, Stainer notes, is also changing. “Today, about 39 percent of the home transactions I am dealing with are cash sales,†Stainer said. “A lot of people are not relocating as much and have been saving money in the place they’ve been leasing or renting. We’re also seeing a lot of buyers from countries like Korea and China that are moving here into the area. “My last deal in River Run in Naperville involved a Korean buyer who had 60 percent cash down, and when the bank took too long for the underwriting, he just got the rest of the money in Korea and paid cash for the whole deal,†he said. Unlike communities like Plainfield which experienced a lot of new housing starts only to see builders abandon projects when the economy tanked, Naperville has seen better days recently thanks to more controlled building by developers like Nick Stanitz, owner and president of Oakhill Builders. Stanitz is currently developing a 27-home project at Stillwater and is building only as properties are sold. “The 2010 year was really slow for us as we built only four homes, but this past year, the number nearly tripled and we’re seeing a lot more interest in buyers that are part of the relocation market,†Stanitz said. “When people are looking to move to the Chicago area, a lot of the relocation people recommend Naperville because they know if the person moves again, there’s a good chance the home will sell pretty quickly. “There are great amenities here and the demographics here in Naperville are excellent,†Stanitz added. “A lot of the credit also goes to the mayor and the City Council. They are very proactive about working with area builders like me, and our success is due to them.†|
|
|
|
Post by southsidesignmaker on Jan 4, 2012 16:43:30 GMT -6
2011 car sales end with a surge Kevork Djansezian / Getty Images bottomline.msnbc.msn.com/_news/2012/01/04/9951393-2011-car-sales-end-with-a-surgeBy Joseph Szczesny, TheDetroitBureau.com Countering earlier concerns about a double-dip recession, U.S. auto sales wrapped up a skittish 2011 on a positive note, surging in the final weeks of the year, with Detroit’s automakers helping drive the overall market to its highest level since the start of the long economic downturn. Overall sales of new cars, trucks and crossovers increased by 10.2% during 2011, largely paced by a surge in demand for domestic brands. General Motors, Chrysler Group LLC and Ford Motor Co. all finished 2011 with double-digit increases over the previous year. Vollkswagen also reported a 26% gain for 2011 as its new lineup of cars – especially the American-made 2012 VW Passat – has clicked with customers. advertisement Chrysler Group reported U.S. sales of 138,019 units, a 37% increase compared with sales in December 2010 and the group’s best monthly volume since May 2008. Ford Motor Co. also reported a 16% increase, while GM reported a modest 5% increase. For the year, Chrysler Group sales totaled 1.37 million units, up 26% versus sales in 2010, the largest percentage sales gain of any full-line manufacturer. The Chrysler, Jeep, Dodge, and Ram Truck brands each posted solid sales gains during 2011 compared with 2010. Ford sales finished 2011 with a 17% increase as the flagship “Blue Oval†brand saw sales top 2 million units for the first time since 2007. Meanwhile, with Chevrolet gaining momentum from a variety of new and older models, GM reported a 14% increase. “The year finished on a high note, with industry sales momentum strengthening as the year came to a close,†said Ken Czubay, Ford vice president, U.S. Marketing, Sales and Service. “We saw Ford sales strengthen as well, posting our best December retail sales month since 2005 and closing the year as America’s best-selling brand.†Reid Bigland, Chrysler Group US Sales chief, noted December marked Chrysler Group’s 21st-consecutive month of year-over-year sales gains and seventh-consecutive month of sales increases of at least 20%. “Chrysler Group finished a year of growth on a strong note with our December retail sales soaring 45% to our highest dealer retail sales in four years,†Bigland said. “Looking back, we were the fastest-growing automaker in the country, increasing our market share 1.3%age points during 2011,†he said. The group’s 37% December increase was driven in part by strong sales of the Chrysler 300 flagship sedan, Chrysler 200 mid-size sedan, Dodge Charger and Avenger sport sedans, Ram pickup truck, and the Jeep Grand Cherokee, Wrangler, and Compass. Despite concerns about rising inventories, Chrysler Group finished the month with a comfortable 64-day supply of inventory (326,087 units). U.S. industry sales figures for December are projected at an estimated 14 million SAAR. Royal Oak-based Saab Car USA also reported selling 270 vehicles, down significantly from the 1,074 units sold in December, 2010. However, Saab managed to increase its overall sales in the U.S. despite the financial troubles that forced it into bankruptcy. Porsche Cars USA also reported a 15% increase in sales for 2011. |
|
|
|
Post by southsidesignmaker on Jan 4, 2012 16:47:31 GMT -6
It has taken the better part of 5 years but we have finally noticed some legs under this recovery in our own business. I can only hope that it continues, though personally I am not spending as if it will continue.
More importantly I will expect government agencies to continue to cut as their "pendulum is about 5 years" behind the private sector.
|
|
|
|
Post by southsidesignmaker on Jan 4, 2012 16:58:10 GMT -6
Manufacturing Picks Up Steam In December www.npr.org/2012/01/03/144616314/manufacturing-picks-up-steam-in-december?ps=rsby The Associated Press text size A A A January 3, 2012 Manufacturing grew in December at the fastest pace in six months and hiring at U.S. factories picked up. The data helped bolster the view that the economy gained momentum at the end of last year. The Institute for Supply Management, a trade group of purchasing managers, said Tuesday that its manufacturing index rose to 53.9 from 52.7 in November. Readings above 50 indicate expansion. Stocks surged in the first day of trading for 2012, in part because of reports that manufacturing grew in China and India in December, two of the world's largest economies. The report on U.S. factory growth added to those early gains on Wall Street. The Dow Jones industrial average rose more than 250 points in the first hour of trading. Broader indexes also posted gains. U.S manufacturing has expanded for more than two years. Factories were one of the first areas of the economy to start growing after the recession officially ended in June 2009. The latest ISM survey showed that U.S. factories should start the year strongly. Factories hired last month at the fastest pace since June, the survey found. A measure of new orders rose, a good sign for future output. And exports also increased last month, though it's not clear how long that will last. Europe's economy is faltering amidst a debt crisis. Consumers are gaining confidence and are spending more. Some economists forecast that car sales increased in December after a strong month of sales in November. That should boost output among automakers and also steel companies, tire makers and others that supply the industry. Orders for long-lasting manufacturing goods jumped in November, the Commerce Department said last month. Most of that increase reflected a huge rise in commercial aircraft orders, a volatile category. Still, demand for core capital goods, which are often a proxy for business investment plans, fell for the second straight month. Business spending has been a key driver of economic growth in 2011. If businesses cut back on spending, economic growth is likely to slow. Businesses are less likely to retreat, however, if the economy continues to improve. The Conference Board said last week that its consumer confidence index rose in December to the highest level since April. That's important because consumer spending accounts for about 70 percent of the economy. And the number of people applying for unemployment benefits each week is dropping steadily, evidence that companies are cutting fewer jobs. Weekly applications have dropped by 10 percent in the past three months. Employers are hiring more workers, too. The economy generated an average of 143,000 net jobs a month from September through November. That's almost double the pace for the previous three months. The economy likely grew at an annual rate of 3 percent or more in the final three months of this year, analysts say. That would top the 1.8 percent growth rate in the July-September quarter, and the 0.9 percent growth rate in the first half of the year. Analysts forecast a modest expansion of 2.4 percent in 2012, an Associated Press survey of economists found. |
|
|
|
Post by EagleDad on Jan 5, 2012 12:29:18 GMT -6
Home sales numbers looking better in Naperville area.... [...] A look at the last three years may be even more illuminating: The number of unsold units stood at 1,500 in January of 2010 and 1,400 in January of 2011. Nixon said that currently 900 properties currently remain unsold in the Naperville market heading. [...] “From January through December of 2010, the number of sales totaled 1,547 units or an average of 130 per month,†Nixon said. “Current data through last month 1,481 units or 134 per month (being sold). So the author of this article concluded based on 400< houses in inventory, 4 more sales per month, and an anecdotes that "Home sales numbers looking better in Naperville area...."?!? Man our local papers are really hunting for news. I'd like to see a graph of new home sales by quarter over the last 5 years accompanying that article. That would really tell how much things are "looking better". |
|
|
|
Post by doctorwho on Jan 5, 2012 13:08:25 GMT -6
Home sales numbers looking better in Naperville area.... [...] A look at the last three years may be even more illuminating: The number of unsold units stood at 1,500 in January of 2010 and 1,400 in January of 2011. Nixon said that currently 900 properties currently remain unsold in the Naperville market heading. [...] “From January through December of 2010, the number of sales totaled 1,547 units or an average of 130 per month,†Nixon said. “Current data through last month 1,481 units or 134 per month (being sold). So the author of this article concluded based on 400< houses in inventory, 4 more sales per month, and an anecdotes that "Home sales numbers looking better in Naperville area...."?!? Man our local papers are really hunting for news. I'd like to see a graph of new home sales by quarter over the last 5 years accompanying that article. That would really tell how much things are "looking better". that really is a hell of a stretch- 4 more sales equals it's getting better ? Let me guess what party the writer belongs to ? --- I wish they'd list how many of that were short sales ? A lot of that going on and killing the comp value of all homes around them check out zillow is you want a cold slap in the face |
|
|
|
Post by EagleDad on Jan 5, 2012 21:12:11 GMT -6
Doc, not only that but it leaves out December (as I understand it a usually crappy month for home sales) and then extrapolates and average.
Expect to see much more of this in the coming months. Some are scrambling in the media to suddenly paint a rosy picture on the economy, as it seems some chickens may be coming home to roost.
Much of be about how great it is that things are improving (incrementally), leaving out how even though the water is shallower in the toilet, it still smells a whole bunch like sh!t.
|
|
|
|
Post by macrockett on Jan 6, 2012 13:57:38 GMT -6
Things might not be as "rosy" as the "press" believes, at least according to Moody's. Also see IL Dept of Revenue November Report www.revenue.state.il.us/#t=tab1 --------> www.revenue.state.il.us/AboutIdor/TaxResearch/NovemberFY2012RevenueReport.pdfIn the last table of the report, you can see FY 2012 sales tax revenue (the second biggest source of revenue for the State), is running over $300 million short of where it was in FY 2008. The good news is personal income tax revenue is up! ....and going straight to unfunded pension shortfalls.... Rating Action: MOODY'S LOWERS STATE OF ILLINOIS' G.O. RATING TO A2 FROM A1, ASSIGNS A2 RATING TO PLANNED $800 MILLION ISSUANCE Global Credit Research - 06 Jan 2012 OUTLOOK REVISED TO STABLE; $32 BILLION OF OUTSTANDING STATE DEBT AFFECTED New York, January 06, 2012 -- Moody's Rating Issue: General Obligation Bonds, Series A of January, 2012; Rating: A2; Sale Amount: $525,000,000; Expected Sale Date: 1-11-2012; Rating Description: General Obligation Issue: General Obligation Bonds, Taxable Series B of January, 2012,; Rating: A2; Sale Amount: $275,000,000; Expected Sale Date: 1-11-2012; Rating Description: General Obligation Opinion
Moody's Investors Service has lowered the State of Illinois' general obligation bond rating to A2 from A1 and revised the state's outlook to stable from negative. The A2 rating has also been assigned to $800 million general obligation January 2012 Series A and Taxable Series B bonds that the state has scheduled to price on January 11. Proceeds will finance school, transportation and other capital projects. We have also downgraded to A2 from A1 the rated portion of the state's $2.47 billion of outstanding Build Illinois sales tax revenue bonds, and to A3 from A2 $2.48 billion of Metropolitan Pier and Exposition Authority and $73 million of Civic Center Program bonds.SUMMARY RATING RATIONALE
The downgrade of the state's long-term debt follows a legislative session in which the state took no steps to implement lasting solutions to its severe pension under-funding or to its chronic bill payment delays. Failure to address these challenges undermines near- to intermediate-term prospects for fiscal recovery. It remains to be seen whether the state has the political willingness to impose durable policies leading to fiscal strength, though in the recent past it has reached consensus on difficult decisions, such as temporary income tax increases enacted last year that stabilized state finances and reduced the state's need for non-recurring budgetary measures. Illinois retains the sovereign revenue and spending powers common to all U.S. state governments. These powers, along with Illinois' legal provisions giving G.O. debt service priority over other state spending, support the move to a stable outlook.
STRENGTHS - Sovereign powers over revenue and spending - Statutory provisions giving priority to debt-service over other state expenditures CHALLENGES
- Severe pension funding shortfall
- Chronic use of payment deferrals to manage operating fund cash
- Weak management practices reflected in pension under-funding and payment delays
Outlook
The state's stable outlook reflects its sovereign powers over revenue and spending, as well as statutory provisions establishing priority of payment for G.O. debt service. Although the likelihood of effective, proactive movement on major challenges appears minimal at present, the state's stable outlook also relies on a demonstrated ability to make politically difficult choices as the need arises.
WHAT COULD MAKE THE RATING GO UP
- Adoption of a credible, comprehensive long-term pension funding plan
- Substantial progress in reducing payment backlog, and legal framework or plan to prevent renewed buildup of late bills
WHAT COULD MAKE THE RATING GO DOWN
- Early phase-out of 2011 tax increases without offsetting binding expenditure actions, increasing the structural gap
- Further deterioration in pension funded status or failure to make legally required contributionsPRINCIPAL RATING METHODOLOGY The principal methodology used in this rating was Moody's State Rating Methodology published in November 2004. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 31 January 2012. ESMA may extend the use of credit ratings for regulatory purposes in the European Community for three additional months, until 30 April 2012, if ESMA decides that exceptional circumstances arise that may imply potential market disruption or financial instability. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com. For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. Information sources used to prepare the rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, and confidential and proprietary Moody's Analytics' information. Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating. Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests. Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter. Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery. Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Edward Hampton Vice President - Senior Analyst Public Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Marcia Van Wagner Vice President - Senior Analyst Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 © 2011 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved. |
|
|
|
Post by macrockett on Jan 6, 2012 14:08:08 GMT -6
If you want a real macro look at the U.S. listen to Bridgewater Associates, the largest hedge fund, with $125B AUM. Sum it up with two words, massive debt. Bridgewater Takes Grim View of 2012 WSJ, 1/3/2012 By TOM LAURICELLA Bridgewater Associates has made big money for investors in recent years by staying bearish on much of the global economy. As the new year rings in, the hedge fund firm has no plans to change that gloomy view. Robert Prince, co-chief investment officer at Bridgewater, and his managers at the world's biggest hedge fund firm are preparing for at least a decade of slow growth and high unemployment for the big developed economies. Mr. Prince describes those economies—the U.S. and Europe, in particular—as "zombies" and says they will remain that way until they work through their mountains of debt.
"What you have is a picture of broken economic systems that are operating on life support," Mr. Prince says. "We're in a secular deleveraging that will probably take 15 to 20 years to work through and we're just four years in."
In Europe, "the debt crisis is long ways from over," he says. The economic and financial morass will mean interest rates in the U.S. and Europe will essentially be locked at zero for years.In this bleak environment, Mr. Prince says stocks remain vulnerable to "air pockets" from shocks, such as bad news out of Europe. But for longer-term investors looking out over the next decade, he says, equities may be a good buy. There is even money to be made in U.S. Treasurys, despite interest rates near record lows, and gold is likely to resume its climb as central banks print money to bolster their economies. Mr. Prince says. The views of Bridgewater are keenly watched by other investors, given the firm's elevated status in the competitive world of hedge-fund investing. Bridgewater's flagship Pure Alpha Strategy fund is considered one of the top funds in the world. As of the end of November, it was up 25% since the start of the year, according to people familiar with the situation. The average macro fund had lost 3.7%, according to Hedge Fund Research. Currently, the fund is positioned for higher gold prices, stronger Asian emerging-market currencies and lower yields across high-quality government bond markets, Mr. Prince says. In 2011, it profited from owning gold, but cut back on that position during the third quarter. It correctly pivoted from being bearish on U.S. Treasurys early in the year to positioning for a rally. It also benefited from rallies in core European bond markets and avoided ugly losses sustained by other macro funds that had bet the euro would fall against the dollar. Instead, it rightly bet that the euro would fall against the Japanese yen. Founded in 1976 by Ray Dalio, Bridgewater manages $125 billion and has 1,400 employees. Mr. Prince, 53 years old, joined in 1986. The firm's clients are institutions such as pension funds and endowments, along with foreign governments and central banks. Pure Alpha has been up each year since 2000, and has recorded just three negative calendar years since 1991. In 2008, the fund returned 9.4% after fees, and after a 2% gain in 2009—its smallest of the decade—Bridgewater posted a 44.8% return in 2010. From its offices by the Saugatuck River in Westport, Conn., Bridgewater plays much the same field as other so-called macro funds. But it tends to be more diversified than its competitors, with numerous smaller bets across a host of currencies, government bonds, stocks and commodities. In a conference room at Bridgewater's headquarters, where the water from the Saugatuck appeared to almost lap at the glass walls, Mr. Prince paints a grim picture of the challenges facing the U.S. and European economies. Recent better-than-expected news on the U.S. economy is unlikely to be the start of a healthy expansion, he says. The uptick in economic growth has been fueled by a decline in the savings rate, which, without material income and employment gains, is unlikely to be sustainable as long-term credit growth also remains weak, he says. The problem for the U.S, says Mr. Prince, is that it is on the wrong side of a long-term debt cycle. "We were in a leveraging-up period for 60 years, from the early 1950s to 2008," he says. This debt bubble was self-reinforcing on the way up, and "when it tipped over, it set about a self-reinforcing process on the way down." As evidence for the long slog facing the U.S economy, he notes that the level of leverage, as measured by comparing household income to net worth, is still higher than it was before 2008. "The most likely environment is moderate growth with wiggles up and down and this is one of those wiggles up," he says. Against this backdrop, the Federal Reserve will need to do more quantitative easing—buying of government bonds—but Mr. Prince says the purchases will probably be sporadic. Europe, meanwhile, is headed into a potentially deep recession, with policy makers boxed in by an interconnected banking and sovereign-debt crisis. "You've got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks," he says. In the U.S., leveraged investors who can borrow money at rates near zero could find a good deal in Treasurys, Mr. Prince says. Mr. Prince points to the example of Japanese government bonds. An investor who was leveraged three-to-one and bought Japan's bonds at a 2.5% yield in the mid 1990s would have earned a compound average annual return of 12% a year for 15 years, he says. Meanwhile, gold prices should resume a rally amid continued printing of money by the Fed and other central banks, Mr. Prince says. Those efforts effectively devalue those countries' currencies compared with gold. Mr. Prince also thinks stocks are attractive from a long-term perspective, especially compared with bonds or cash. Broadly, discounted earnings-growth rates, which reflect the expectations about future earnings implied by current prices, are negative, he says. A moribund economic outlook "is pretty priced in right now," he says. "If we have a long, drawn out deleveraging process without substantial air pockets, chances are equities are a pretty good bet, ironically." Write to Tom Lauricella at tom.lauricella@wsj.com Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com |
|
|
|
Post by macrockett on Jan 6, 2012 15:26:16 GMT -6
Might as well add Bill Gross' 2012 outlook. It's ...well gross. Two fat tails, debt (deflation) and inflation. You pick. This is what happens when arrogant world leaders think they can have it all and then attempt to "manage" market forces to deal with their excesses. Good luck with that. www.pimco.com/EN/Insights/Pages/Towards-the-Paranormal-Jan-2012.aspx |
|
|
|
Post by macrockett on Jan 7, 2012 10:15:12 GMT -6
Add The Bond Buyers take on the Moody's downgrade of Illinois yesterday, along with an earlier article wrt the pensions. What this means is the financial markets are stepping up the pressure on Illinois to get its house in order. Either take care of the pension issue and pay bills on time or be prepared to pay dearly for your lack of discipline. Greece, Portugal, Ireland, Spain and Italy ...meet your cousin, Illinois.
Moody's Downgrades Illinois to A2
Friday, January 6, 2012
By Yvette Shields
CHICAGO — Illinois' move to raise new revenue through an income-tax hike last year could not stave off a downgrade Friday by Moody's Investors Service, which cited the state's failure to address its massive unfunded pension obligations and chronic bill-payment delays.
The agency lowered the state's general obligation rating one notch to A2 from A1 and assigned a stable outlook. It previously carried a negative outlook.
The action makes Illinois Moody's lowest-rated state.
The review came ahead of the state's competitive sale of $800 million of new-money, taxable and tax-exempt GOs set for Wednesday.
Fitch Ratings affirmed the state's A rating and stable outlook earlier in the week while Standard & Poor's affirmed its A-plus and negative outlook.
Moody's also downgraded Illinois' $2.47 billion of sales-tax-backed bonds to A2 from A1, while $2.5 billion of Metropolitan Pier and Exposition Authority and Civic Center bonds were downgraded to A3 from A2. A total of $32 billion of GO and other debt was affected.
"The downgrade of the state's long-term debt follows a legislative session in which the state took no steps to implement lasting solutions to its severe pension underfunding or to its chronic bill-payment delays," analysts wrote. "Failure to address these challenges undermines near- to intermediate-term prospects for fiscal recovery."
Analysts questioned Illinois' political willingness to impose "durable policies leading to fiscal strength." They did acknowledge the state's success in reaching an agreement on a temporary income-tax increase last year that is expected to raise $6.8 billion in new annual revenue. The increase helped stabilize finances and reduced the use of one-shot revenues to balance the budget.
The state's unfunded pension liabilities at the close of fiscal 2011 last June totaled $82.9 billion, up about $7 billion over the previous year, for a funded ratio of 43%. The unfunded liability is based on a actuarial model that smooths investment results over five years. Officials expects to close out fiscal 2012 in June owing billions in unpaid bills and other obligations.
A spokeswoman for Gov. Pat Quinn sought to focus attention on the Fitch and Standard & Poor's rating affirmations and use the Moody's downgrade as a means to push pension and spending reforms in the upcoming legislative session.
"All three rating agencies as well as the investors in our bonds are clearly telling us we need more pension reform. Moody's clearly acknowledges that prior administrations left pensions underfunded, creating this huge unfunded liability we face today," said Kelly Kraft.
Quinn also is expected to continue to press lawmakers to support additional borrowing to pay down bills.
---------------------------------------
Illinois Pensions In a Pickle
Details in Offering For $800M Deal
Wednesday, January 4, 2012
By Yvette Shields
CHICAGO — Illinois’ unfunded pension obligations grew by about $7 billion in fiscal 2011 but its funded ratio dipped just slightly to 43% from 45%, according to the state’s latest pension figures released Tuesday in the offering statement for its upcoming $800 million general obligation issue.
An income tax hike enacted in early 2011 that will raise $6.8 billion in new revenue annually helped ease the state’s cash flow and budget woes, but its unfunded pension obligations still pose a daunting challenge to efforts to stabilize its fiscal house. The state’s funded ratios were the lowest among states last year based on fiscal 2010 results.
The latest review based on fiscal 2011 figures shows Illinois’ unfunded liabilities rose to $82.9 billion for a funded ratio of 43.4% from $75.7 billion for a funded ratio of 45.4% in fiscal 2010. The review was based on a model in which investment returns are smoothed over a five-year period. Asset growth helped stave off larger declines in the funded ratio.
The state shifted several years ago to the smoothing model. On a fair market valuation, the funded ratio actually improved. Unfunded liabilities fell in fiscal 2011 to $83.1 billion for a funded ratio of 43.3% from $85.6 billion and a funded ratio of just 38.3% in fiscal 2010.
Based on actuarial results, the funded ratios of the five systems range from a low of 21.2 % to a high of 46.5%. The funds have shifted their projected return rates on investments which impact the unfunded ratios. Recently, most funds have trimmed their annual return rates to between 7% and 7.75% from the 8% range. Charts in the offering statement show a 3% to 5% five-year average return rate and between 4.5% and 6.1% over 10 years.
Kelly Kraft, a spokeswoman for Gov. Pat Quinn, said he plans to soon convene a pension work group that will seek to “stabilize and strengthen the pension system with further reforms.” Changes passed in 2010 are expected to reduce the actuarially accrued liability by more than $200 billion by 2045.
Wells Fargo Securities senior analyst Natalie Cohen said decent returns may fend off further damage for local and state pension funds based on fiscal 2011 results, but she expects that reforms will remain on legislative agendas. “Some states and local governments are making headway with reforms and I think they will continue this year. It’s an issue that’s definitely on governments’ radar,” she said.
The state will sell the new-money bonds for capital projects on Jan. 11, according to the state’s director of capital markets John Sinsheimer. Acacia Financial Group is serving as financial advisor and Mayer Brown LLP and Pugh Jones & Johnson PC are bond counsel. The deal includes $525 million of tax-exempt bonds and $275 million of taxable bonds. They mature serially between 2013 and 2037 and may include terms. Rating agencies have not yet released updated reports. Illinois’ $31 billion of GOs are rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings. The pension funds cover 750,000 active members, retirees and beneficiaries.
The state’s 30 pages of pension and other post-employment benefits disclosure note that while the method used for figuring the state’s contribution rate complies with state statutes, it does not meet guidelines established by the Government Accounting Standards Board. The contributions fall short of the actuarially required contribution, or ARC.
Illinois contributed $4.3 billion in fiscal 2011 to the funds, short of the $5.9 billion ARC payment based on GASB guidelines. The state will contribute $4.9 billion in the current fiscal year, and $5.8 billion in fiscal 2013. The state funded its 2010 and 2011 payments with borrowing, but it ended that practice this year.
The systems’ unfunded liabilities “increased between the end of fiscal year 2010 and the end of fiscal year 2011 primarily as a result of insufficient state contributions, as compared to the actuarially required contribution,” the offering statement notes. Other factors include assumption changes by some of the systems.
Under the current plan to bring systems to a 90% level by 2045, funded ratios won’t rise above 50% until 2025, and without reforms the state faces huge increases to reach the 2045 goal.
The state last year hired Chapman and Cutler LLP to help it update and significantly broaden its pension disclosure from just a few pages to more than two dozen. Mayer Brown now assists a special state disclosure committee in keeping the section up to date. The state last year disclosed statements made on the impact of previously approved pension reforms that cut benefits for new employoees were the subject of an inquiry by the Securities and Exchange Commission.
Pending pension reform legislation aimed at cutting the state’s longterm liabilities and improving the health of the pension systems is among g the major issues facing Illinois lawmakers as they return to work this month. SB 512 was headed towards approval last spring before it stalled amid union opposition. The bill would protect the accrued benefits already earned by current employees.
© 2012 The Bond Buyer and SourceMedia Inc., All rights reserved. Use, duplication, or sale of this service, or data contained herein, except as described in the subscription agreement, is strictly prohibited. Trademarks page.
|
|
|
|
Post by EagleDad on Jan 7, 2012 19:12:42 GMT -6
Illinois will need to restructure public employee benefits soon, or face bankruptcy. I used to think they court not alter the pensions for this already in the system, but now I am seeing clear evidence that they need to make significant changes not only to those pending retirement, but (ack) those already in it :-( it unfortunately is just a completely unsustainable, self-imploding model currently.
|
|
|
|
Post by EagleDad on Jan 7, 2012 19:15:57 GMT -6
This is what happens when arrogant world leaders think they can have it all and then attempt to "manage" market forces to deal with their excesses. You must not mean US Mac, as lord knows their's no "World Leader" around in America these days. Our leadership was abdicated a few years back, |
|
