Wednesday, December 10, 2008

To Be A Fly On The Wall of the NJ Governor's Office Today Would Have Been Fun

Goldman Sachs made a fairly bold call today regarding the financial status of various states. For those that don't know - Governor Corzine of NJ is the former CEO of Goldman Sachs. So when Goldman today essentially recommended shorting the debt of various states (CA, NJ, FL, OH, MI and others) you can imagine the pleasantries that were exchange across the Hudson River. Since apparently every Governor in the US is now subject to wire tap - I'm sure tape of this call will surface soon enough.


"Goldman Sachs Group Inc., one of the top five U.S. municipal bond underwriters, is angering politicians and public-finance officials in New Jersey, Wisconsin, California and Florida by recommending that investors purchase credit-default swaps to bet against 11 states’ debt.


Bets against public debt, once unheard of on bonds considered safe enough for retirees, have soared as the National Conference of State Legislatures projects recession-fueled budget crises will cause $97 billion of shortfalls nationwide over the next 18 to 24 months.


It’s “disturbing” to advise investors to bet against the financial health of a state whose bonds Goldman helps sell, Assemblyman Gary S. Schaer, a Democrat who chairs the Financial Institutions and Insurance Committee, said last week in a letter to Chief Executive Officer Lloyd C. Blankfein.


“New Jersey needs to maximize its presence in the credit markets, not to see its presence undermined.” Schaer wrote.


Credit-default swaps, conceived to protect bondholders against default, pay a buyer face value in exchange for the underlying securities or the cash equivalent should an issuer fail to adhere to debt agreements. They increase in value as perceptions of credit quality deteriorate.

Goldman recommended buying credit-default swaps on “a basket of liquid State General Obligation credits with current and worsening fiscal outlooks,” including California, Florida, Nevada, Ohio, Wisconsin and Michigan.


The firm also recommended the derivatives on states with “significant unfunded pension” and other retiree obligations, including Illinois, Connecticut, Hawaii, New Jersey, Massachusetts and Nevada.


The practice of betting against such states is “distasteful,” said Frank Hoadley, Wisconsin’s director of capital finance in Madison."


I tend to agree that it's in poor taste to bet against a state, but finance is finance. Some of the states with trouble are easy to see - FL, CA, OH, MI - but it's painful to watch NJ, CT, MA and Hawaii facing troubles as a result of their pension issues.


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Remember all those images of people lined up around the block on Black Friday? And all of the stories that highlighted a growth in Black Friday sales? I think we said it was important to wait for the real data to come out before we draw any conclusions.


Well, the best data available on Black Friday finally came out today. Sales of consumer electronics (the big ticket items that everyone was chasing on Black Friday) recorded their first ever year over year decline.


"U.S. consumer technology* brick and mortar sales experienced the first-ever decline during the week of Black Friday. Revenue was down more than 8 percent from November 23 through November 29, 2008 compared to the same time period last year, according to NPD’s weekly tracking service".


According to NPD consumer tech sales actually fell below the level of 2006. Sometimes the breathless race to report a story causes the media to lose sight of the truth.


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Another reason to be an environmentalist....





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Finally, when you need a little inspiration consider the story of the 73 year-old college basketball player.... He rocks.

Cheers!

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