Jul 12, 2012, 09:07 AM
Another good reason to hold physical PMs
As most of you all probably know, it has been announced that three different California cities have announced plans to file for bankruptcy protection, all in just a few weeks time of one another. I am willing to bet that there will be more in the future, and not just in California. For years everyone thought muni bonds were ultra safe investments, but maybe that is not the case anymore?
Back in late 2010, a financial/banking analyst named Meredith Whitney made a call that there would be a bunch (as in 50 to 100) of cities and counties with muni bond defaults coming in 2011. If any of you watch CNBC you have probably seen her before (good-looking blonde gal who seems real smart). Her call didn't materialize as she predicted and many pundits were coming out of the wood work saying she was off base and wrong (some as recent as this past spring). I believe many of her critics were happy to call her out, in part due to the fact she gained much recognition back in 2008 for predicting problems in some of the major banks before all of that SHTF.
But when we have three municipalities filing for bankruptcy in less than a month, something tells me her call was spot on, but just too early. I don't know the specifics exactly, but if a municipality files under Chapter 9, I would imagine that the bondholders wind up with far less than what they would have received had the municipality not gone bankrupt. There are different kinds of muni bonds (general obligation vs. special, etc) and they receive different treatment in the bankruptcy, but in any event it does not sound like it would be fun holding a muni's bonds when they decide to file bankruptcy.
For now, states are not allowed to file for bankruptcy but that could be changed by Congress if they decided to do that from what I understand. I would not be surprised to see that happen down the road if things keep going as they are.
In any event, these bankruptcies are daily reminders of the benefits of holding at least some (or most) of one's net wealth in physical PMs instead of some paper asset that is dependent on a third party in some way to make good on it (also known as counter party risk).
All just my opinion.
Jul 12, 2012, 10:03 AM
Ya Jim as a CA resident now for 9 years I am just simply amazed by the sheer idiocy of the people running this state and local governments.
San Bernadino is the most recent of the 3, announcing Chapter 9 yesterday. SB was once one of the best cities in Southern Cal to raise a family, now its a burgeoning meth lab community.
The biggest problem is the public employee unions that have a stranglehold on the cities, counties, & state with their exhorbetent payscales, benefits, and pension plans.
Look at San Bernadino
Projected 2012 revenues - 120 Million
Projected 2012 obligations for city employees, benefits, funding existing pensions, and paying out retired pensions + retiree benefits = 126 Million
Projected 2012 Budget for S.B. - 166 Million
They can't even pay their own employees because the unions have somehow over the years gotten these insane compensation packages.
They stated that 13 of the past 16 years of financials for the city were essentially falsified.
CA is running a $16B deficit and the State Assembly approves the "Train to nowhere bullet train that actually isn't a bullet train" and is going to cost the state over 100B that we don't have. The first leg of the train to nowhere is being built in the central valley region between 2 agricultural regions.....sounds smart right? \
Instead of going from the valleys to the Westside or Riverside county to LA where people actually commute to and from......NAH lets put it in the middle of fertile farmland, disect a bunch of farms through imminent domain and build the train to nowhere !!!!Its not evening following the major I-5 interstate corridor, but going through towns etc when the original mandate on the Proposition was to have a train from LA to San Fran in 2 hours 40 minutes. Now the best case proposal is like 3 hours 40 minutes, which doesn't even meet the proposition which it is required to in order to approve funding.....but hey this is the land of Spend, Spend, Spend, build unfathomable debt to get re-elected and let somebody else worry about it!
Oh and by the way they've already spent over $500M and have nothing to show for it, no land acquired, or anything, but they have had several executive comittees resign after they get shamed in the media for all of the waste and YET the State Assembly PUSHES FORWARD with the WASTE.
Sorry for a bit of a tangent....but I agree, this is just the tip of the iceberg, several other states are in almost as bad of financial shape as CA and I'm sure there are dozens of municipalities that have been falsifying financials for years and didn't want to bear the shame of being the 1st to file Chapter 9. However, now that the title is not theirs to bear, I bet we will see the 50-100 easily and probably many more.
Moral of the story....
Stack, Stack, Stack, and save your pennies, prepare for your own retirement and living needs because the teet is running dry!
Jul 12, 2012, 10:30 AM
yes things are looking pretty grim in alot of places, but there is some positive actions out there. new jersey and wisconsin for example are taking steps in the right direction.
Jul 12, 2012, 10:33 AM
Yes that is true Rex, much to the dismay of the Socialists, need more firm footed politicians with spines like Walker and Christie.
Jul 12, 2012, 05:51 PM
Just on the news tonight, Chicago is ready to file Chapter 9 it's starting to go downhill.
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