The Jersey Shore...

Don't let the title fool you, Im not talking about MTV's Jersey Shore...

Today, I decided to write about New Jersey's financial situation and the municipal bond market in the United States. Why? First, I was talking to one of my friends about pension liabilities today and second, because that even though this is such a huge market (2.86$ trillion), we don't hear much of it on the news since most retail investors aren't participants in this niche. So, let me give you an update of the muni bond market today and lets begin with New Jersey as it received its new rating downgrade from S&P a few days ago.

Lets start with some actual facts. Most issuers in the United States muni bond market, meaning the states and local government, are facing possible rating reduction by agencies because of their pension problem. Recent study show that states and government are now showing a 3.6$ trillion gap between their assets and penion liabilities. Last week, even the US Congress began to review whether federal law should allow states to enter into bankruptcy court protection, where as local government can already do under chapter 9.

New Jersey was downgraded to AA- by S&P last week and it's getting a step closer to the bankrupt state of California and Illinois, which are the only two states in the country with a lower credit rating. Standing along side with the other states that are facing billions of budget deficits in the next year ( Arizona, Kentucky, Louisiana, Michigan, etc), we just hope that New Jersey can better managed their budget situation in the year to come. Governor Chris Christie said last month that they won't need a door to the bankruptcy court, well I hope so for them, you know, Jersey is still the second wealthiest US state by income per person. However, this rating cut will definitly hurt them as managers are getting more uncomfortable and reducing net exposure to these states due to their increasing financial risk.

Now, the Terminator, Mr Schwarzenegger, who had the plan to sell 11 state owned building to receive cash flow and then leaseback these properties in order to reduce the budget deficit in California ( which is completly retarded if you ask me! ), Jerry Brown announced a different plan to cancel the sales and to borrow 830$ million from the special fund reserve instead. This is estimated to cost them 18$ million in interest and it should be repaid for 2014. So, the end of the line is, one juice head decide to sell state building like a court house at a low price and than lease them from investors at a high cost to cut its deficit in the short run to make himself look good as a governor, the new guy decides to borrow more money to fund the debt they already own so the next dude can deal with the problem...Seriously, maybe Meg Whitman has a better idea....

Keep following the page, I am busy the next two days but I will have an article up by friday talking about the famous crack spread that oil traders trade...