California Cash Flow Crisis Update

In the giddy smoke from all the green shoots, people kinda forgot that the largest U.S. state is on the verge of bankruptcy. Zero Hedge is happy to remind them.

Publish at Scribd or explore others: Business & Economics Research california debt

Hat tip Credit Trader

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Doomsday Expectations Growing

In a piece that would be hilarious if it wasn't serious, Bloomberg discloses that as a result of crushed consumer confidence, more and more Americans are preparing for the metaphorical (and literal) end of days.

"A growing number of Americans are stocking the basement with Spam and
marketable gold, while they peek out from behind the curtains with their firearm
of choice,” analysts led by Chris Mier in Chicago wrote in a Feb. 26 note.
“Hormel’s plants are now running on weekends to keep up with demand."

As a "bizarre indicator" of end of days, Bloomberg shows a chart comparing the YTD returns of gold, gunmaker Strum Ruger and Spam shares, compared to the S&P500, juxtaposing it with consumer confidence.

Solaris Asset Management CIO Tim Ghriskey says, “If people believe the end of the world is coming and we’re in for anarchy, people are going to load up on weapons and Spam for their fallout shelters." Not surprisingly, Strum Ruger Q4 revenue jumped 72%, with a comparable ramp up in sales for Smith & Wesson. One could argue Q4 sales increase on expectations of stricter gun laws by Obama, however as analyst Eric Wold says "In recessionary times, people get concerned about safety, concerned about potential break-ins. You see gun sales ramp up on that."

Some more random musing by Paul Kedrosky and his take on Pascal's wager in light of a possible apocalypse here.

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California Fails to Close Budget Gap, Faces "Financial Armageddon"

In what could be the final blow to California's crumbling economy as it faces a $42 billion budget deficit, the WSJ reports that a vote to reach a complex plan to close the budget was unsuccessful by 1 vote.

Many Republicans are unwilling to raise taxes to deal with the state's historic deficit, but at least three GOP votes were needed in each house for the two-thirds majority required to pass the budget.

"My guess is everybody's arm is getting twisted," said Sen. Dave Cox, a Republican who had been among the Democrats' best hopes for a deal. "My answer is no, and I'm not looking for additional information. I've made my decision."

After Predator hunter Dutch (aka Schwarzenegger) had said that he would start laying off 10,000 state employees if a deal was not reached by Friday as the state is facing "financial Armageddon", he later backed off on these threats as it seemed a deal was imminent. However, turns out late last night things went from bad to worse as no decision was forthcoming in the California state Assembly, and members were being held hostage until a decision is reached.

The lack of Republican votes in the Senate pushed the session into the early morning hours of Sunday. Assembly Speaker Karen Bass, a Democrat, locked down her chamber about 3:30 a.m., forcing lawmakers to remain.

"We're short a Republican vote over there [in the Senate]," Ms. Bass said. "Somebody that committed backed away. That means we're not going anywhere.
Sorry, guys."

After meeting all night and into midmorning, the Assembly called a three-hour recess at 10 a.m. but members were ordered not to leave the building. A half-hour later the Senate also recessed until 1 p.m., but allowed members to leave.

Assemblyman Tom Ammiano, also a Democrat, said the Senate deadlock was causing some in the Assembly to have second thoughts about the unpopular plan.

Republican Assemblyman Chuck DeVore said the package didn't "go far enough to reform government, to reduce redundant agencies and reduce waste, fraud and abuse. We are asking the taxpayers of California for too much of their hard-earned money in an attempt to cover over a problem of our own making," he said.

Democrats have decried the $15.1 billion in cuts in the budget-balancing package, more than half of which would come from education, while Republicans are unhappy about $14.4 billion in temporary tax increases.

Seems Arnie has cornered himself and his state in a plan that is unpopular with both parties, and every day of delays brings his state closer to a full blown default.

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If You Live in Cali, Dont Bet on That Tax Refund

The Governator Wasn't Kidding. California is on the verge of bankruptcy. Looks like not only will the state have to pay with IOUs, or worthless pieces of paper as they are better known, for all state purchases, but apparently tax refunds will be delayed as well. First by 30 days, then, indefinitely.

California CDS last traded around 400... We will bet $0.69 it won't stay there too long.

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