CA Pensions Cost HOW MUCH?!?!?!

Inquiring minds are looking at an article from the CBS Los Angeles showing just how much the lavish public employee pensions are costing each Californian. In “Report: California Pensions Cost Each Resident $3,000“:

The Milken Institute, an independent think tank, said California’s pension obligations to retired state workers already cost each Californian $3,000 every year. By 2014, that cost could go up to $10,000 a year, the group’s report said.

“If we stopped everything today, we would be 500 billion dollars in the hole, of what we owe people that we’ve promised already,” said Marcia Fritz, a pension reform activist with

CalPERS, the state’s largest pension system, pays out pensions of $100,000 or more to more than 9,000 retirees. CalSTRS, the pension system for teachers, gives out retirement packages of more than $100,000 a year to more than 3,000 retirees.

Amazing the Meg Whitman never used this for campaign material. How could she have missed this?

Want to know how to realize just how bad this issue is? Read this:

No one from CalPERS would go on camera to comment on the report, but said, “We consider it to be a biased report based on artificial assumptions.”

When was the last time that you saw a union decide NOT TO DEFEND an issue?

California is about to re-elect their mistake from 1975? Retro is understandable when a generation is looking to enjoy the fun times and successes of their youth. But to want to re-live your catestrophic mistakes… that is very strange.

Requiem for the House Democrats

Inquiring minds are upon the WSJ Opinion Journal this evening as John Fund uses an interview with a unique Congressman to illuminate what went wrong with the Pelosi House:

Brian Baird, a six-term Democrat from Washington state. Even though he’s never won re-election with less than 56% of the vote, Mr. Baird is retiring because the brutal congressional commute makes it impossible for him to see his twin five-year-old boys grow up. He’s not sticking around, like so many former members of Congress, to lobby inside the Beltway. That allows him to be candid about Congress and his party.

But before Mr. Fund delves into the Congressman’s views, he sets the backdrop for Tuesday’s election:

It took Democrats in the House of Representatives 40 years to become out-of-touch enough to get thrown out of office in 1994. It took 12 years for the Republicans who replaced them to abandon their principles and be repudiated in 2006. Now it appears that the current Democratic majority has lost voter confidence in only four years.

How did this happen? And what does the increasing speed of voter backlash mean for Republicans who will likely take control next Tuesday?

Mr. Baird doesn’t disappoint. He speaks open and candidly about both the former Republican leadership and today’s Democrat leadership:

“It’s been an authoritarian, closed leadership. That style plus a general groupthink mentality didn’t work when Tom DeLay called the shots,” Mr. Baird says. “We’ve made some of the same damn mistakes, and we were supposed to be better. That’s the heartbreak.”


Mr. Baird recalls that he was “very excited” when his party took control of Congress in 2006, but he saw ominous signs early on. Before the 2006 election, he says, Mrs. Pelosi had 30 members working on a rules package to make the House more ethical and deliberative. “We abandoned all that work after the election, and leaders told us we should trust them to clean things up. I don’t know a single member of the Democratic caucus who saw the final rules package before they voted on it.”

Democrats also watered down efforts to practice fiscal responsibility. “We initially had numbers a bit more honest than the Republicans—we at least included war costs in the budget,” he says. “Now we’re authorizing programs for three years instead of five in an attempt to pretend we’re saving money.”

When President Obama was elected in 2008, Mr. Baird was again optimistic that Democrats could bring real reform. But fierce Republican partisanship and the White House decision not to focus on job creation as its “number one, two and three” priority dashed that hope.

“Obama decided we weren’t going to have a highway transportation bill because it might have required a gas tax increase,” he recalls. After passing a misdirected stimulus bill, Mr. Obama made the fatal error of pushing forward with other priorities: cap and trade, financial services reform, ObamaCare. Each became compromised quickly.

For some of the shortcomings of financial regulatory reform, Mr. Baird blames the disillusioning battle over ObamaCare. “When the House had to pass the Senate version of health care unchanged, some members asked why should they invest the mental effort in mastering the details” of financial reform. Mr. Baird found parts of the bill mind-numbing.”

Congressman Baird needs to figure out how to step up and communicate his true feelings, don’t you think?

A big “thank you” to Congressman Baird for his canidness on the last four years of boorish House behavior.

Blasts hit secret Iranian missile launch-pad

An Iranian Shahab-3 missile like the ones they lost in the 'mishap'

Inquiring minds are upon Iran where it has been learned that they have had a devastating explosion at a secret missile launching-pad on October 12th. In addition, Iran apparently is still fighting the effects (the regime went to great lengths to cover this up) of the ravages wrought to their nuclear and military control systems by the Stuxnet virus – which is still at work:

A top-secret Iranian military installation was struck by a triple blast Tues. Oct. 12 the day before Iranian president Mahmoud Ahmadinejad arrived in Lebanon. debkafile’s military and intelligence sources report the site held most of the Shehab-3 medium-range missile launchers Iran had stocked for striking US forces in Iraq and Israel in the event of war – some set to deliver triple warheads (tri-conic nosecones).

The 18 soldiers officially reported killed in the blasts and 14 injured belonged to the Revolutionary Guards (IRGC) main missile arm, the Al-Hadid Brigades.
The Imam Ali Base where the explosion occurred is situated in lofty Zagros mountain country near the town of Khorramabad in the western Iranian province of Lorestan. This site was selected for an altitude which eases precise targeting and the difficulty of reaching it for air or ground attack. It lies 400 kilometers from Baghdad and primary American bases in central Iraq and 1,250 kilometers from Tel Aviv and central Israel. Both are well within the Shehab-3 missile’s 1,800-2,500-kilometer operational range.

Our Iranian sources report that Tehran spent hundreds of millions to build one of the largest subterranean missile launching facilities of its kind in the Middle East or Europe. Burrowed under the Imam Ali Base is a whole network of wide tunnels deep underground. Somehow, a mysterious hand rigged three blasts in quick succession deep inside those tunnels, destroying a large number of launchers and causing enough damage to render the facility unfit for use.
In its official statement on the incident, Tehran denied it was the result of “a terrorist attack” and claimed the explosion “was caused by a nearby fire that spread to the munitions storage area of the base.” In the same way, the regime went to great lengths to cover up the ravages wrought to their nuclear and military control systems by the Stuxnet virus – which is still at work.
In actual fact, debkafile’s military sources report, Iran’s missile arsenal and the Revolutionary Guards have also suffered a devastating blow. Worst of all, all their experts are a loss to account for the assailants’ ability to penetrate one of Iran’s most closely guarded bases and reach deep underground to blow up the missile launchers.

The world is becoming very unstable. While this happened, the US has upped the strength of its Navy in the area also. The Obama administration is apparently doing a good job of forcing the issue. The President’s biggest hurdle is that he is perceived as a weak leader and Iran might believe his actions to just be a bluff.

Grim Proving Ground for President Obama’s Housing Policy

Inquiring minds are taking in the ruinous effect President Obama’s housing policy is having on his former senatorial district:

The candidate endorsed subsidies for private entrepreneurs to build low-income units. But, while he garnered support from developers, many projects in his former district have fallen into disrepair.

The squat brick buildings of Grove Parc Plaza, in a dense neighborhood that Barack Obama represented for eight years as a state senator, hold 504 apartments subsidized by the federal government for people who can’t afford to live anywhere else.

But it’s not safe to live here.

About 99 of the units are vacant, many rendered uninhabitable by unfixed problems, such as collapsed roofs and fire damage. Mice scamper through the halls. Battered mailboxes hang open. Sewage backs up into kitchen sinks. In 2006, federal inspectors graded the condition of the complex an 11 on a 100-point scale – a score so bad the buildings now face demolition.

Grove Parc has become a symbol for some in Chicago of the broader failures of giving public subsidies to private companies to build and manage affordable housing – an approach strongly backed by Obama as the best replacement for public housing.

It is quite a lengthy article but, again, well worth the time to find out what is happening with President Obama’s housing policy in his oldest laboratory. There is also a great video at the URL.

Where, when is the LTV Tipping Point?

Inquiring minds are enjoying an article sent into by Jim, a Newport Beach, CA, mortgage broker. The article, “The LTV tipping point“, is well written and explains where the market is. The statistics defining the problem are immense:

The negative equity threshold and the point of no return

Nearly 2,500,000 California homeowners have a negative equity condition which imprisons them in houses that are black-hole assets. Each month of continued ownership sucks up sums of money in multiples of what the home would rent for – the home’s sole current value to the homeowner. Thus, a disconnect has developed between the primary use of the home to shelter the family and the secondary consideration as the family’s largest financial asset – due solely to the cyclical reversal of fortune for homeowners who bought or refinanced after 2002.

As upwards of 30% of California homeowners are now consumed by the negative equity trend which inverted the value of their home, the number of people choosing to walk away from their underwater properties is on the rise. Those rational homeowners who choose to walk away or strategically default (voluntarily defaulting on their home loan when they have the means to pay) account for nearly one out of every four defaults today in California and one in five nationally.

In it, writer Connor Wallmark explains where the actual point of inflection is currently:

This question is aggressively addressed in the May 2010 Federal Reserve Board (the Fed) study “The Depth of Negative Equity and Mortgage Default Decisions” written by Neil Bhutta, et al. The Fed’s study of homeowners in the four sand states (California, Nevada, Arizona and Florida) concludes that a loan-to-value (LTV) ratio of 162% is currently the magic “median” tipping point at which half the homeowners in their sample concluded the financial benefits of defaulting outweighed the adverse consequences of continuing to pay on their mortgage.

The homeowners in the study made no down payment and financed 100% of their purchase, making them acutely vulnerable to the slightest future decline in property values. Close to 80% of these homeowners defaulted during the period of 2006 through 2009.

Two widely recognized hypotheses explain why homeowners default. Under the strategic default theory, homeowners default purely as the result of their home’s negative equity, independent of any other factors.

Again, over the next 15 months or so, there will be a lot of hurt coming to the surface of the housing market. Be forewarned.

The entire article is well worth the time to read.

US Foreclosure Crisis Becomes More Widespread

Another house caught in the Foreclosure Sink Hole???

Inquiring minds are looking at the widening foreclosure crisis and that California is leading the way:

The foreclosure crisis in the US has spread across a wider area of the country, according to RealtyTrac, which monitors repossession activity.

The organisation said foreclosure notices increased across a majority of large metropolitan areas, including Chicago and Seattle.

Previously, these cities had seen relatively low levels of activity.

Separately, Wells Fargo said it would refile documents on 55,000 foreclosures after admitting technical mistakes.

Crisis spreading

RealtyTrac’s report said that California, Nevada, Florida and Arizona remained the worst affected areas.

They accounted for 19 of the top 20 metropolitan areas with the highest foreclosure rates between July and September.

The trend is the latest sign that the US foreclosure crisis is worsening as homeowners – facing high unemployment, slow job growth and uncertainty about house prices – continue to fall behind on their mortgage payments.

The controversy over whether banks mishandled eviction documents was not a factor over the July-to-September quarter monitored, said RealtyTrac.

Earlier in the week, data from rating agency Standard and Poor’s showed that US house prices also began falling again in August, mainly in response to the expired tax credit.

Meanwhile, the announcement from Wells Fargo that it would refile thousands of foreclosure documents is the first admission from the bank of possible problems in the way it repossesses homes.

In a statement released on Thursday, the bank said it had identified “instances where a final step in its processes relating to the execution of the foreclosure affidavits… did not strictly adhere to the required procedures”.

It added that it has no plans to halt its foreclosure process but said the refiling might cause some delays.

Between now and January 2011 is going to be a very rocky road in real estate. For the upscale areas of the Bay Area, LA/Orange County, and San Diego County are going to see massive price reductions over this time frame.

Pimco’s Gross: Run Turkey, Run!

Taxpayer being led to slaughter

Inquiring minds are upon Newport Beach, CA this morning. It seems that Bill Gross is upset at the political structure (which has been his playtoy for so long) and wants America to realize that the most important issue facing this nation is our debt. The fact that the mid-term elections occur on next Tuesday and that the Fed will make a huge announcement on Wednesday regarding Quantitative Easing is just too much for Mr. Gross to pass up. He feels Americans trivialize it by worrying about issues such as a osque at Ground Zero.

In a later post, Surviving California will examine this part of Mr. Gross’ letter to the troops and his inability to understand the world past his pocketbook. But today, we take a look at his debt worries. After all, in this…his worries are our worries:

There’s another important day next week and it rather coincidentally occurs on Wednesday – the day after Election Day – when either the Donkeys or the Elephants will be celebrating a return to power and the continuation of partisan bickering no matter who is in charge. Wednesday is the day when the Fed will announce a renewed commitment to Quantitative Easing – a polite form disguise for “writing checks.” The market will be interested in the amount (perhaps as much as an initial $500 billion) as well as the targeted objective (perhaps a muddied version of “2% inflation or bust!”). The announcement, however, has been well telegraphed and the market’s reaction is likely to be subdued. More important will be the answer to the long-term question of “will it work?” and perhaps its associated twin “will it create a bond market bubble?”

Whatever the conclusion, not only investors, but the American people should recognize that Wednesday, even more than Tuesday, represents a critical inflection point in determining our future prosperity. Of course we’ve tried it before, most recently in the aftermath of the Lehman crisis, during which the Fed wrote $1.5 trillion or so in “checks” to purchase Agency mortgages and a smattering of Treasuries. It might seem a tad dramatic then, to label QEII as “critical,” sort of like those airport hucksters, I suppose, that sold whale blubber for a living. But two years ago, there was the implicit assumption that the U.S. and its associated G-7 economies needed just an espresso or perhaps an Adderall or two to get back to normal. Normal just hasn’t happened yet, and economic historians such as Kenneth Rogoff and Carmen Reinhart have since alerted us that countries in the throes of delevering can take many, not several, years to return to a steady state.

The Fed’s second round of QE, therefore, more closely resembles an attempted hypodermic straight to the economy’s heart than its mood elevator counterpart of 2009. If QEII cannot reflate capital markets, if it can’t produce 2% inflation and an assumed reduction of unemployment rates back towards historical levels, then it will be a long, painful slog back to prosperity. Perhaps, as a vocal contingent suggests, our paper-based foundation of wealth deserves to be buried, making a fresh start from admittedly lower levels. The Fed, on Wednesday, however, will decide that it is better to keep the patient on life support with an adrenaline injection and a following morphine drip than to risk its demise and ultimate rebirth in another form.

We at PIMCO join with Ben Bernanke in this diagnosis, but we will tell you, as perhaps he cannot, that the outcome is by no means certain. We are, as even some Fed Governors now publically admit, in a “liquidity trap,” where interest rates or trillions in QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan. Ben Bernanke, however, will try – it is, to be honest, all he can do. He can’t raise or lower taxes, he can’t direct a fiscal thrust of infrastructure spending, he can’t change our educational system, he can’t force the Chinese to revalue their currency – it is all he can do, and as he proceeds, the dual questions of “will it work” and “will it create a bond market bubble” will be answered. We at PIMCO are not sure.

Mr. Gross does a fine job explaining the problem this country faces with its huge national debt. What is shuddering to inquiring minds is that last line…

“We at PIMCO are not sure.”

This is surreal. But Mr. Gross takes us on a nightmarish train of thought:

Still, while next Wednesday’s announcement will carry our qualified endorsement, I must admit it may be similar to a Turkey looking forward to a Thanksgiving Day celebration. Bondholders, while immediate beneficiaries, will likely eventually be delivered on a platter to more fortunate celebrants, be they financial asset classes more adaptable to inflation such as stocks or commodities, or perhaps the average American on Main Street who might benefit from a hoped-for rise in job growth or simply a boost in nominal wages, however deceptive the illusion. Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. Public debt, actually, has always had a Ponzi-like characteristic. Granted, the U.S. has, at times, paid down its national debt, but there was always the assumption that as long as creditors could be found to roll over existing loans – and buy new ones – the game could keep going forever. Sovereign countries have always implicitly acknowledged that the existing debt would never be paid off because they would “grow” their way out of the apparent predicament, allowing future’s prosperity to continually pay for today’s finance.

Now, however, with growth in doubt, it seems that the Fed has taken Charles Ponzi one step further. Instead of simply paying for maturing debt with receipts from financial sector creditors – banks, insurance companies, surplus reserve nations and investment managers, to name the most significant – the Fed has joined the party itself. Rather than orchestrating the game from on high, it has jumped into the pond with the other swimmers. One and one-half trillion in checks were written in 2009, and trillions more lie ahead. The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need – as with Charles Ponzi – to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not. This one is so unique that it requires a new name. I call it a Sammy scheme, in honor of Uncle Sam and the politicians (as well as its citizens) who have brought us to this critical moment in time. It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin. It is a Sammy scheme – you and I, and the politicians that we elect every two years – deserve all the blame.

Still, as I’ve indicated, a Sammy scheme is temporarily, but not ultimately, a bondholder’s friend. It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead-end where those prices can no longer go up. Having arrived at its destination, the market then offers near 0% returns and a picking of the creditor’s pocket via inflation and negative real interest rates. A similar fate, by the way, awaits stockholders, although their ability to adjust somewhat to rising inflation prevents such a startling conclusion. Last month I outlined the case for low asset returns in almost all categories, in part due to the end of the 30-year bull market in interest rates, a trend accentuated by QEII in which 2- and 3-year Treasury yields approach the 0% bound. Anyone for 1.10% 5-year Treasuries? Well, the Fed will buy them, but then what, and how will PIMCO tell the 500 billion investor dollars in the Total Return strategy and our equally valued 750 billion dollars of other assets that the Thanksgiving Day axe has finally arrived?

Mr. Gross agrees with that the debt has always been a Ponzi scheme but that somehow we should just play the game to the end? You don’t think that he might be a little biased in his thoughts in all this since his entire business and almost his entire fortune is wrapped up in this scheme, do you? He actually thinks we, as a nation, should keep up this masquerade? It is Halloween, but please!

His closing takes John Q. Public from Mr. Gross’ Wild Ride to Bill in Wonderland territory. In unbelievable audacity, Mr. Gross let’s his investor know he knows this is doomed to fail but he (Gross) will know just when to exit the The Mad Bond Trader’s Tea Party:

We will tell them this. Certain Turkeys receive a Thanksgiving pardon or they just run faster than others! We intend PIMCO to be one of the chosen gobblers. We haven’t been around for 35+ years and not figured out a way to avoid the November axe. We are a survivor and our clients are not going to be Turkeys on a platter. You may not be strutting around the barnyard as briskly as you used to – those near 10% annualized yields in stocks and bonds are a thing of the past – but you’re gonna be around next year, and then the next, and the next. Interest rates may be rock bottom, but there are other ways – what we call “safe spread” ways –to beat the axe without taking a lot of risk: developing/emerging market debt with higher yields and non-dollar denominations is one way; high quality global corporate bonds are another. Even U.S. Agency mortgages yielding 200 basis points more than those 1% Treasuries, qualify as “safe spreads.” While our “safe spread” terminology offers no guarantees, it is designed to let you sleep at night with less interest rate volatility. The Fed wants to buy, so come on, Ben Bernanke, show us your best and perhaps last moves on Wednesday next. You are doing what you have to do, and it may or may not work. But either way it will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.

If a country gets the politicians it deserves, then the same can be said of an investor – you’re gonna get what you deserve. Vote No to Republican and Democratic turkeys on Tuesday and Yes to PIMCO on Wednesday. We hope to be your global investment authority for a new era of “SAFE spread” with lower interest rate duration and price risk, and still reasonably high potential returns. For us, and hopefully you, Turkey Day may have to be postponed indefinitely.

Go ahead…play the game. You are only risking your entire net worth.

Employers Start Bracing for Higher Tax Withholding

Inquiring minds are reading the Bloomberg article on how next year’s probable (everyone can hope, can’t we?) higher taxes are already effecting change:

Employers in the U.S. are starting to warn their workers to prepare for slimmer paychecks if Congress fails to vote on an extension of Bush-era tax cuts.

“I’ve been doing payroll for probably close to 30 years now, and never have we seen something like this where it gets that down to the wire,” said Dennis Danilewicz, who manages payroll services for about 14,000 employees at New York University’s Langone Medical Center. “That’s what’s got a lot of people nervous. All we can do is start preparing communications with a couple of different scenarios.”

Lawmakers won’t start debating whether to extend the cuts, which expire Dec. 31, until after the Nov. 2 elections. Because it takes weeks to prepare withholding schedules, the Internal Revenue Service will probably have to assume the cuts will expire and direct employers to increase payroll deductions starting Jan. 1, experts say.

“We’re kind of stuck between a rock and a hard place,” said Ron Moser, head of human resources for the school district of Kenmore-Town of Tonawanda, New York, which pays about 1,900 teachers, custodians and aides each month. In upstate New York, where winter heating costs are among the highest in the country, many school employees earn between $20,000 and $40,000 a year, he said, and losing $50 in a paycheck is “a significant dollar amount.”

Does anyone question what Nancy Pelosi and the rest of the Dems will say something to the effect of, “We didn’t raise taxes, the Republicans are to blame for making the tax cuts only temporary.” Even though it was the Dems that forced them to be temporary so that they could pass.

9th Circuit: Still Crazy After All These Years

9th Circuit says 'tomorrow' is 6 days away.

Inquiring minds are once again astounded at the shallowness of minds on the 9th Circuit Court of Appeals. FoxNews is reporting in yet another case, a ‘three judge panel’ showed they are ‘stupidity cubed’ by not allowing enforcement of a stated legal requirement:

A federal appeals court on Tuesday struck down a key part of Arizona’s law requiring voters to prove they are citizens before registering to vote and to show identification before casting ballots.

The decision by a three-judge panel of the 9th U.S. Circuit Court of Appeals found that the law requiring voters to prove their citizenship while registering is inconsistent with the National Voter Registration Act. That federal law allows voters to fill out a mail-in voter registration card and swear they are citizens under penalty of perjury, but doesn’t require them to show proof as Arizona’s law does.

The ruling left in place a requirement that voters provide proof of identity when casting ballots.

So…it is a legal requirement to show proof of identity to vote but not that you are legally entitled to vote? Does that mean a person could show a Mexican driver’s license? Or better yet, a Mexican passport?

For some reason, liberals think this passes for intelligence. It doesn’t…this side of third grade. It is never clever to say 1+1=3 outside of a senior level math class (or accounting class!). That is called “stupidity”. Even in a courtroom.

It has to be just a coincidence that the 9th Circuit is populated by Progressive Democrats and this ruling increases a Democrat voting base – illegal immigrants. You don’t think this might be politically motivated do you?

A huge voting block for the democrats

Someone should inform these solons of denseness that this is no game…and that if this continues they will see the electorate take matters into their own hand. This is not to be taken as any kind of threat…but an inevitability.

Is Economy Running Out of Gas?

Inquiring minds are looking at an insightful article by’s Rex Nutting entitled “Economy is running out of gas“. Mr. Nutting makes some very basic assessments about growth in the economy in the near future:

But it won’t. The economy is slowly readjusting and rebalancing, but in the meantime it’s also suffering from a lack of demand to keep everyone employed.

Our political system tried some half measures to keep demand up, but has apparently given up on even those.

The economy is running out of gas, and there’s no fueling station in sight.

Consumers are still hunkered down, and without further growth in consumer spending, businesses won’t have the profits they need to justify expanding their companies. Housing is still dead. Exports are benefiting from a weaker dollar /quotes/comstock/11j!i:dxy0 (DXY 77.78, -0.37, -0.48%), but foreign markets aren’t expanding as fast as they once were.

In basic terms, the economy is getting used to a reduced living standard:

And you can forget about any increased demand from the government.

Add it all up and you have to wonder: Where is the growth going to come from?

To answer that question in one word…nowhere. We are out of money. All levels of government, companies, and individuals have financed deficits for years and the jig is up.

This will take years to unravel.