Daily Digest

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Daily Digest 7/23 - Another Recession On Its Way, Inside NJ's Pension Crisis

Wednesday, July 23, 2014, 9:16 AM

Economy

Economist who predicted busted housing bubble says another recession is coming

Nearly a decade ago, the now-59-year-old economist warned that U.S. housing was a bubble set to burst, and that the damage would push the country into a recession so severe the Federal Reserve would have no choice but to slash short-term borrowing rates to their lowest levels ever to stimulate the economy. That's exactly what happened. Now, Levy says the United States is likely to fall into a recession next year triggered by downturns in other countries, the first time in modern history.

Bay Area Club Uses Paint To Keep Grass Green During Drought

SAN JOSE (KPIX 5) — Lawns all over the Bay Area and across California are turning brown during the state’s record drought. A South Bay athletic club has found a way to keep their grass looking lush, without any water at all.

California drought: 'Water cops' being hired by Bay Area agencies to root out water waste

It's about to get more difficult to go unnoticed if your sprinklers are watering the street more than your lawn.
California's worsening drought and mandatory new state water rules are prompting Bay Area water agencies to beef up their conservation staffs -- the employees sometimes called "water cops."

Coming to a shore town near you? Inside New Jersey's pension crisis

Gov. Chris Christie (R) says the Garden State's pension system—which is expected to hit more than $54 billion in unfunded liabilities by fiscal year 2018—needs to be fixed because it's unsustainable long-term.

S&P warns Europe debt market near pre-crash levels

"Artificially low interest rates not only encourage an inefficient allocation of capital but create the incentive for excessive speculation in financial markets that ultimately risk doing more harm than good when boom turns to bust," Credit Analyst Paul Watters warned in S&P's quarterly European corporate credit outlook on Monday afternoon.

China’s terrifying debt ratios poised to breeze past US levels

The ratio has risen by 100 percentage points of GDP over the last five years. As Fitch has argued out in the past, this is more than double the rise seen in Japan over the five years before the Nikkei bubble burst in 1990, or in the US before subprime blew up in 2007, or in Korea before the Asian financial crisis.

Moody's cuts Pennsylvania rating to Aa3 on budget concerns

The state has about $50 billion of unfunded long-term pension liabilities. About 63 cents of every new dollar of state revenue goes to pay pension costs, Corbett, a Republican, has said.

Other Cities Poach Police From Detroit's Low-Wage Force

Slade notes that senior rank-and-file officers in Houston can earn nearly $74,000 a year.
In Detroit, patrol officers currently top out at about $47,000 a year, only a little more than the starting salary of cadets in Houston.

Detriot retirees back pension cuts in a landslide vote

General retirees would get a 4.5 percent pension cut and lose annual inflation adjustments. They accepted the changes with 73 percent of ballots in favor. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise.

U.S. judge orders Argentina, holdouts to meet until deal reached

Argentina does not want to pay the holdouts, who are led by Elliott Management's NML Capital Ltd and Aurelius Capital Management. The country argues doing so would open it up to as much as $15 billion in claims from other investors and further strain its financial condition. It said at Tuesday's hearing that negotiation requires "movement" on the part of the holdouts, though the investors have leveled a similar charge at the nation.

Gold & Silver

Click to read the PM Daily Market Commentary: 7/22/14

Provided daily by the Peak Prosperity Gold & Silver Group

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

10 Comments

saxplayer00o1's picture
saxplayer00o1
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Time2help's picture
Time2help
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Posts: 2766
Money Market Accounts

The "Gates" Are Closing: SEC Votes Through Money Market Reform

If anyone in the "know" has time, could they please translate this for us mere mortals?

Tall's picture
Tall
Status: Platinum Member (Offline)
Joined: Feb 18 2010
Posts: 564
The Secret to Real Sustainability

Lifecycle analysis and paying attention to the top energy consumers.

One item: In the U.S., homes and buildings account for the largest percentage of the total energy footprint — accounting for 72 percent of electricity use and 36 percent of natural gas. The simple act of properly insulating homes and buildings can have an enormous impact on energy use, more so than keeping the thermostat in check

http://ensia.com/voices/the-secret-to-real-sustainability/

james_knight_chaucer's picture
james_knight_chaucer
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Joined: Feb 21 2009
Posts: 160
Oh, I don't think it's

Oh, I don't think it's 'reform'. At least not as far as the customers are concerned. As far as I can tell, they propose to stop people withdrawing their money from money market accounts at times of stress to stop future Lehman type crashes.

saxplayer00o1's picture
saxplayer00o1
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Posts: 4065
davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5069
the gates are closing

Two things:

1) your "cash sweep vehicle" for your brokerage account will now look like a mutual fund with a share price, instead of appearing to be actual cash.  My guess is, during normal times the share price will probably be  "about" $1.00 but if things get bad and your fund has to meet a whole lot of redemptions all at once, its possible the price of each share might drop to $0.995 or $0.97 or worse, as your fund has to sell its short term bonds right into the teeth of a really illiquid market.

2) That same "cash sweep vehicle" may impose restrictions on liquidation.  I.e. your money is locked up until the guys in control of the fund decide to let it go again.  In fact, that's true for all open-ended bond funds.  "Its hard to sell this stuff, there are no bids - we're shutting down redemptions."

For me, #1 is no big deal - losses happen.  Its #2 that causes me heartburn.  The thought of my "safe money" being locked up for an uncertain amount of time while they figure out what its all worth - its definitely not ideal.  Even if you eventually get 97 cents on the dollar, your money is tied up for a year while things wend their way through the judicial system (with The Reserve as an example case; broke the buck at the time of Lehman bankruptcy, and funds mostly distributed 14 months later upon the order of a judge).

http://en.wikipedia.org/wiki/Reserve_Primary_Fund

If you have a brokerage account and you want to keep it there, you might consider buying a short term bond ETF.  They have a low yield and some duration risk (VGSH, a US treasury short term bond fund from Vanguard - yield is 0.37% duration 1.9) but since ETFs are exchanged-traded vs the open-ended bond funds, you won't have the risk of a lockup.  I'm not sure if they'd rise in value or drop in a liquidity crisis.  The 1.9 duration says you risk losing 1.9% of your asset value with each rise in rates of 1%.

Bank accounts work too; but checking, not savings.  Savings accounts can also be locked up for a time at the discretion of the bank's management - a little known fact.

Its all safety on a sliding scale.  None of it is as reliable as cash.

And that cash can be confiscated by the police under civil forfeiture laws unless you prove you aren't a drug dealer.  Don't get pulled over and searched on your way to pay your bills with all that cash on you!  It is tough to pay your lawyers to get your money back when your money is sitting at the police station!

Wendy S. Delmater's picture
Wendy S. Delmater
Status: Diamond Member (Offline)
Joined: Dec 13 2009
Posts: 1982
low-paying cop jobs

NYC has the same problem as Detroit with low-paying police jobs. They are constantly training and losing people to better-paying municipalities. Not a optimum situation.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5069
money market fund redemption fee article

Here's an article I found dating back to the time of the initial proposal, one year ago.

http://www.etftrends.com/2013/06/short-duration-bond-etfs-in-spotlight-on-sec-money-fund-proposal/

It suggests that short term bond ETFs could be beneficiaries of the whole affair.

 

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 760
Do the new SEC rules for moneymarkets gate all brokerage assets?

Thanks T2H and Dave,

Do you think this means that brokerage accounts are themselves gated now?  

In order to sell a stock - even just to buy another one - the brokerage typically sweeps the money into a money market fund, as I understand it.  

Ditto for selling a stock and wanting to withdraw the money from the brokerage account; it seems that there is potential to gate the brokerage account in general with these new rules.

Cheers,

Hugh

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5069
new SEC rule - gating brokerage assets

HughK-

Do you think this means that brokerage accounts are themselves gated now?

Its a really interesting question.  I think the answer is "mostly yes" but with some workarounds.

I believe if you call your broker, you can sell individual positions and have them wire you the money.

You can also execute an ACAT to transfer your account to another broker, which would at least get you any shares you have in your account.

Or you can instruct your broker to liquidate all your positions and send you a check with the proceeds.

You also could sell one position and buy something else during the same day for about the same price using the "cash" in your account from the T+1 settlement - theoretically anyway.  In that way, you could sell off your bond fund in bits and pieces in order to fund purchases, and vice versa as well.  You can conduct your own "sweep", in other words.

My broker, Interactive Brokers, doesn't actually have a money market sweep account.  They store customer funds in a variety of different places, including (mostly) treasury bills, repos, and some bank deposits (some of which are the usual TBTF suspects).  If there are bail-ins, IB may well end up losing some chunk of customer cash.  Perhaps bank deposits are just used for settlement, and treasury bills are for the vast bulk that doesn't really get drawn down, in which case that would limit their exposure.

https://www.interactivebrokers.com/en/?f=ibgStrength

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