Mish's Global Economic Trend Analysis

---

• Judge Rules Stockton CA Bankruptcy is Valid, City Acted in Good Faith
• Cash Cow: Of the 50 Largest US Companies, Who has the Cash? Who has the Debt?
• China PMI Shows Modest Improvement

Judge Rules Stockton CA Bankruptcy is Valid, City Acted in Good Faith Posted: 01 Apr 2013 12:50 PM PDT Today a judge ruled that the city of Stockton California is indeed bankrupt and that the city acted in good faith. Creditors asked the judge to void the bankruptcy, saying the city could raise taxes instead. I have been watching this story for a while. Here is some background on the Stockton bankruptcy as reported by Arizona Central. By outward appearances, Stockton, a city of nearly 300,000 on the Sacramento-San Joaquin River Delta, seemed in the mid-2000s to be emerging from decades of struggle. After the city's population grew by nearly 20 percent between 2000 and 2005 and real estate tripled in value, home prices plummeted 40 percent the following year before bottoming out at 70 percent. Within two years, Stockton had accumulated nearly $1 billion in debt on civic improvements, money owed to pay pension contributions and the most generous health care benefits in the state — coverage for life for all retirees plus a dependent no matter how long they had worked for the city.  By 2009, the city began slashing its budget to stay afloat. The police department lost 25 percent of its 441 sworn officers and the fire department was cut by 30 percent. City staff was cut by 40 percent. The city general fund budget, now $155 million, has been cut by $90 million over three years. The impacts were felt everywhere. Wells Fargo bank seized three parking garages when the city defaulted on the $32 million in bonds that financed them. Bond holders also seized the $40 million downtown high rise that was to become City Hall. Last summer, the city began negotiating with creditors, a requirement before entering bankruptcy. Ten employee unions agreed to temporary wage and benefits cuts. Retired employees have also been asked to pick up a larger share of health care premiums, closing a $540 million retiree health care cost liability. But the holders of the biggest share of the debt were the companies that in 2007 insured nearly $165 million in pension bond obligations to allow the city a lower interest rate and make them stable for investors. They were unable to negotiate a deal and want the city to avoid bankruptcy, which would likely allow Stockton to avoid repaying the debts in full. City Acted in Good Faith Today, Bloomberg reports a Judge Decided City Acted in Good Faith, Creditors Didn't The judge in a trial over whether the city of Stockton, California, can stay in bankruptcy said he found that the city negotiated in good faith with its creditors, and that the creditors didn't. Creditors, including Assured Guaranty Corp. and Franklin Resources Inc. (BEN) had argued that Stockton didn't qualify for bankruptcy because the city isn't truly insolvent, and that its leaders didn't negotiate a potential settlement in good faith. Negotiation is a "two way street," said U.S. Bankruptcy Judge Christopher M. Klein in Sacramento, addressing creditors who he said didn't negotiate in good faith. "You cannot negotiate with a stone wall." In the course of the hearing today, Klein has also said that the city's witnesses were credible and that the city was "by any measure" insolvent when it filed for protection from creditors. The city is slated to stop paying for retiree health care on June 30 as part of a spending plan the City Council approved in June, citing a $417 million unfunded liability. The benefit had allowed workers employed as little as a month to receive city-paid health coverage for life, for both the employee and his or her spouse, Bob Deis, the city's manager said. Stockton's unemployment rate was 18.7 percent in January, almost twice the state jobless rate of 9.8 percent, according to the California Employment Development Department. The national unemployment level that month was 7.9 percent, according to U.S. Labor Department data. This was a good ruling. The city is of course bankrupt and taxpayers should not have to pay for it more than they already have. Once again the main problem was untenable salaries for public unions and city workers. The housing crash simply brought the crisis to a head sooner. In addition to reduced healthcare benefits, the pension plan should be scrapped as well, but don't expect city officials to cut their own throats no matter how much they deserve it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Cash Cow: Of the 50 Largest US Companies, Who has the Cash? Who has the Debt? Posted: 01 Apr 2013 08:37 AM PDT Here's the question of the day: How much actual cash is on hand at corporations? Fed by glowing reports from sell-side analysts, most investors are unaware that except for a handful of companies, there is no cash, only debt. Even counting short-term investments there is surprisingly little cash on hand. Courtesy of Mike Klaczynski at Tableau Software please consider the latest update to my periodic "Cash Cow" interactive report. The data for this sheet is from Yahoo!Finance. Scroll over any of the bars (not the company name) to see more details. Cash is a liability not an asset for banks, so I left off financial corporations in the default map. Certainly the $277 billion in cash on hand at Bank of America is not a sign of genuine strength or profitability.  As you can see, actual cash on hand at non-financial corporations is a net negative $850 billion. Five Cash Cows With Genuine Cash Apple (AAPL) $16.15 Billion  Chevron (CVX) $8.03 Billion  Google (GOOG) $7.57 Billion  Qualcomm (QCOM) $4.26 Billion Amazon (AMZN) $3.70 Billion The grand total of actual available cash (at the five companies that have any) is $39.71 billion. To add in short-term investments, click on the Select Metric drop-box that looks like this: Here are the results. 10 Cash Cows Counting Short-Term Investments Microsoft (MSFT) $54.09 Billion Google (GOOG) $40.88 Billion  Apple (AAPL) $39.82 Billion  Cisco (CSCO) $30.09 Billion Oracle (ORCL) 13.94 Billion Qualcomm (QCOM) $13.24 Billion Chevron (CVX) $8.30 Billion  Amazon (AMZN) $7.07 Billion Intel (INTC) $4.59 Billion Johnson & Johnson (JNJ) $4.03 billion Net Negative Cash Counting short-term investments, net corporate cash of the 50 largest companies is negative $543.67 billion. Total cash of the 10 companies that have positive balance sheet cash (counting short-term investments as a cash equivalent) is $216.05 billion. This is a far cry from the $trillions in sideline cash we are told is ready to come pouring into the market any time now. The facts of the matter are: Sideline cash is a direct function of debt Sideline cash cannot come into the market to propel shares higher because for every buyer of a security there is a seller, except for debt offerings and IPOs Yet, the concept of "sideline cash" as widely believed and highly touted by mainstream media is mathematically impossible. It is possible however, for a corporation to use its cash to buy back shares, but in that case, sideline cash will be transferred to another account (frequently the cash account of an insider who is bailing). Recall that investors wanted Apple to buy back shares last Autumn, thinking they were undervalued at $700. Today's price is $435. Had Apple been foolish enough to buy back shares when everyone seemed convinced the next stop was $1000, Apple's share price would undoubtedly be lower today, reflective of the amount of cash it wasted on buybacks. 2009 and 2010 provided excellent opportunities for corporations to buy back shares. Bargains have long since vanished. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

China PMI Shows Modest Improvement Posted: 31 Mar 2013 11:16 PM PDT The HSBC China Manufacturing PMI shows Modest improvement in operating conditions. After adjusting for seasonal factors, the HSBC Purchasing Managers' Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in t he manufacturing economy – posted 51.6 in March, up from 50.4 in February, signalling a modest improvement. Operating conditions in the Chinese manufacturing sector have now improved for five consecutive months. Production levels increased for the fifth month in a row in March. The rate of expansion accelerated from February to a solid pace, the second-fastest in two years. Behind the rise in output, total new orders rose solidly, and for the sixth month in a row. A number of respondents attributed growth to strengthened client demand. Meanwhile, new export orders also increased, albeit marginally. Volumes of outstanding business declined for the second successive month in March. The rate of backlog depletion was broadly unchanged from February, and remained slight overall. Staffing levels, however, were relatively unchanged from the previous month. After five months of recovery and renewed stimulus in China, the PMI index has crawled back above the break-even 50 mark. Yes, this is a "modest improvement" but the stimulus and infrastructure spending that is driving the improvement are unsustainble. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610