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Bill Lockyer Goes Direct To Retail Investors With The "Terrific" Opportunity To Front Run Institutional Investors In Cali Bonds

Tyler Durden's picture


After recently pulling a $2 billion bond issue due to an internal Snafu (and, as the rumor goes, due to a material lack of institutional demand), California has been advertising (and, ironically, using Google contextual ads on Zero Hedge for just that purpose, possibly running on this very page) the very same bond issue, direct to retail investors, and making it seems like retail is getting a great deal by getting on the same (deserted) floor as institutions, and even frontrunning the major institutional investors (which incidentally would not touch these bonds with a 12 foot pole). While we sympathize  with Bill Lockyer's problem of being the Treasurer of a default state, we are not very sure that going direct to retail is the best option (or, all that legal either). If anything, it underscores just how horrendous the fiscal situation in California is, and how anyone buying into this bond issue should be prepared that the next round just may not find enough greater fools to extend the perpetual refi Ponzi (forget about repayment at maturity).

From the website:

Welcome. Thank you for visiting Buy California Bonds.

California bonds finance investments in our schools, roads, housing,
parks, levees, public facilities and other crucial infrastructure
projects. They also finance the research and development of stem cell
therapies to treat and cure diseases which ravage lives and families.

As Treasurer, I am responsible for managing all of the State’s bond
sales. I want to make it easy for individuals to make these investments
– and pay the same price as large institutional investors. This website
will show you how to buy infrastructure bonds, lease-revenue bonds to
build State-government buildings, bonds to fund stem cell research, as
well as shorter-term notes that help the State manage its cash flow.

The bulk of these bonds will help finance infrastructure projects.
California voters have approved the issuance of more than $65 billion
of bonds to improve and build new schools, roads, housing, parks and
levees. Over the next few years, the State will be selling these bonds
to raise the money to build these projects.
By investing in these bonds, you will help turn the projects you
approved at the polls into reality – adding to our quality of life and
the vibrancy of our economy.

On this website, you will learn more about California bonds and
notes, and about how to become an investor. Please visit us again soon.
This site will be updated regularly to feature upcoming bond sales,
with information specific to the types of bonds being offered.

Bill Lockyer

We would warn investors to be very cautious (there is a reason institutional investors have no interest) if they wish to invest in this bond issue.

Here is the spin from Lockyer that is expected to incite people to invest in Cali's $2 billion issue:

Individual investors enjoy advantages when they buy bonds or notes during the early order period

  • Individual investors get to place their orders before institutional investors, such as mutual funds or insurance companies.
  • They earn the same investment return as institutional investors who buy the same bonds or notes.
  • They
    do not pay the upfront brokerage fee/commission. (Individuals should
    check with their broker to learn about any other transaction or account
    maintenance fees.)

To buy bonds or notes, follow these simple steps:

Step 1 – Have a brokerage account

  • You must have an account with one of the brokerage firms
    participating in the bond or note sale. Bonds and notes cannot be
    purchased directly from the State. If you do not have an account at one
    of the participating firms, you may open one and purchase bonds or
    notes during the early order period. (If you have a brokerage account,
    go to Step 2.)
  • Investors are encouraged to begin the New
    Account process well in advance of the sale. Depending on the
    brokerage, internal new account procedures may take some time to
  • Each firm has its own requirements for opening an
    account. The State does not endorse any particular brokerage firm.
    Additionally, the State does not guarantee that any one of these firms
    will open an account for an investor.

Step 2 - Learn about the bonds or notes

  • Bonds or notes can only be offered through an Official
    Statement. Download and read the Preliminary Official Statement to
    learn about the bonds or notes, including their security, maturity
    dates, the types of projects they finance and other information you may
    find important to help you make an informed investment decision. This
    website is not an offer to sell any bonds or notes.
  • Find out the credit ratings California bonds or notes have received.

Step 3 - Place your order

  • Contact the broker with whom you have an account, either
    online or by phone, to get more information about how to buy bonds or
    notes during the early order period.

(Seriously, between Ally, JPM, Citi, DB and now Cali, how many other websites bash their advertisers as regularly as ZH. A new head of biz dev may be needed soon).


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Sun, 03/07/2010 - 22:33 | 257353 truont
truont's picture

It is ironic that the State of Kalifornia put a banner ad on ZeroHedge on Friday, promoting their Cali bonds. I thought, this is the last site Kalifornia should be pitching their crap to. They try to pay their state employees with IOUs? Seriuosly? Boy, let me invest in THAT!!!!

Mon, 03/08/2010 - 11:28 | 257701 hedgeless_horseman
hedgeless_horseman's picture

I posted this "news" here last week, referencing their radio ad, except with a ten foot pole comment instead of 12 foot, and now it has been scrubbed.  Oh well, we are all Tylers, I guess.

I hope this keyboard can withstand the salt from my tears.

Mon, 03/08/2010 - 13:15 | 257843 seventree
seventree's picture

The ad is on my screen right now. "Offer ends March 10!"

Sun, 03/07/2010 - 22:43 | 257356 Jim in MN
Jim in MN's picture

Waiter, there's a giant stinking turd in my Chardonney....

Mon, 03/08/2010 - 04:18 | 257533 Anonymous
Anonymous's picture

"By investing in these bonds, you will help turn the projects YOU approved at the polls into reality"

as a reality CHECK that's pretty hilarious.....

Mon, 03/08/2010 - 05:26 | 257549 Anonymous
Anonymous's picture

That would be Bill Lockyer.
When he led the CalPERS retirement fund he decided tbey would follow a politically correct philosophy of investing. It worked for a while. But hey, in that market all the strategies worked.
Now we face stark choices.

Sun, 03/07/2010 - 22:56 | 257366 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

There has been so many earthquakes lately it is weird.

Sun, 03/07/2010 - 23:53 | 257402 macfly
macfly's picture

Really, and I live in LA, so I've really been taking note. Time to restock the 'end of the world' kit!

Mon, 03/08/2010 - 00:04 | 257411 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

It won't hit until September/October, you still have time.

Mon, 03/08/2010 - 01:49 | 257473 CombustibleAssets
CombustibleAssets's picture

Except for that one in April 1906.

Mon, 03/08/2010 - 04:55 | 257543 Anonymous
Anonymous's picture

and you haven't heard the last of that comment

Sun, 03/07/2010 - 23:05 | 257372 Anonymous
Anonymous's picture

So, are these debentures? Where are they on the payment and liquidation line?

Sun, 03/07/2010 - 23:08 | 257374 RobotTrader
RobotTrader's picture

I guarantee that thing is going to be 400% oversubscribed:

Demand for this junk will be voracious.  Buyers will include:

1.  Yield starved widows and orphans

2.  Enterprising speculators seeking to make a killing

3.  Uncle Gorilla (aka the Federal Reserve)



Mon, 03/08/2010 - 07:58 | 257623 Anonymous
Anonymous's picture

Gawd, that is SO true. I live in California, and the last time they did this, you'd hear these people crowing about it if you listen. Sometimes among friends, but also in the newspaper and on TV.

One couple on a TV financial show had most of their retirement funds in these bonds. Absolutely unbelievable.

Sun, 03/07/2010 - 23:20 | 257377 irieblue
irieblue's picture

Tyler, with Federal laws that prevent states from declaring bankruptcy, what is the likleyhood that these bonds will never get repaid? California has never defaulted on it's debt, and by Federal Law is not allowed to do so.

Sun, 03/07/2010 - 23:32 | 257383 Tethys
Tethys's picture

I think when the $hit hits the fan, you will be amazed at how quickly 'federal laws' are changed.  Or become irrelevant.

Mon, 03/08/2010 - 00:22 | 257419 Anonymous
Anonymous's picture

Please remind me of what federal laws have been enforced the last few years ??... No need to change what you don't intend to enforce.

Robo is right.. The yield starved greater fools willrush in.

I for one sold almost all my muni exposure 2 weeks ago.


Mon, 03/08/2010 - 10:07 | 257657 Anonymous
Anonymous's picture

"I for one sold almost all my muni exposure 2 weeks ago."

Smart. The way that market works is: Get out while the market let's you out, not when you want to. Once you want out of the muni market, you can't get out. The bid side disappears completely. It's the most illiquid major market in the world.

Sun, 03/07/2010 - 23:37 | 257390 Anonymous
Anonymous's picture

It's written into the state constitution that GO bonds are second in line to be paid after education, and the taxes must be raised in order to make the payments. AFAIK it doesn't specify which taxes, or how that fits in with the Prop 13 requirement of 2/3 majority to increase taxes. So default would require the state constitution to be changed, or for it to be ignored.

That never happens, does it? I mean this is America after all.

Oh wait ...

Mon, 03/08/2010 - 00:23 | 257420 lawton
lawton's picture

Didnt the feds themselves default in reality in the 30's by refusing to honor an iron clad contract that payment can be requested in gold and then devalued the currency ?

Mon, 03/08/2010 - 02:17 | 257485 Rusty_Shackleford
Rusty_Shackleford's picture

Pretty much.

Mon, 03/08/2010 - 03:31 | 257517 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

'71 as well.  Because of the excess printed dollars, and the negative U.S. trade balance, other nations began demanding fulfillment of America’s “promise to pay” - that is, the redemption of their dollars for gold. Switzerland redeemed $50 million of paper for gold in July.  France, in particular, repeatedly made aggressive demands, and acquired $191 million in gold, further depleting the gold reserves of the U.S. I even heard that because the US was failing to pay, France had to send their war fleet into the NY harbour to get paid in gold one last time right before that gold window closed.  Tricky Dick indeed, hahaha!

Mon, 03/08/2010 - 06:04 | 257559 swamp
swamp's picture

Tricky Dick? He was the puppet for Volcker:

"From 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions leading to the U.S. suspension of gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system."

Currently, the Fed is defaulting again by refusing to give Germany its gold — the gold Germany stole from the Greeks, and more, all housed in NYC.

Mon, 03/08/2010 - 16:06 | 258115 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

PAV is a wolf in sheeps clothing, watch out for tall paul.

Sun, 03/07/2010 - 23:23 | 257379 Anonymous
Anonymous's picture

Barring some armtwisting Emanuel de facto default, the courts simply impose property taxes in order to pay bonds. States cannot default, as I gather, because they are not "persons," either corporate or individual, and bankruptcy is for "persons." But the courts can step right in and impose taxes to pay for the bonds.

It was great sport for states in the nineteenth century to issue bonds and then merrily default. It proved so disruptive to investment that the Court forbade it.

But if we get to a situation in which the court is imposing taxes to pay for bonds, you can imagine what the rest of the economy will look like. Very bad.

Sun, 03/07/2010 - 23:25 | 257380 deadhead
deadhead's picture

In some ways i feel like i am reliving the dot com boom/bust....the difference is that at the time there was at least some crazy hope that some of the companies would "make it" and there was the (legitimate) possibility that the world was entering a new era.

now, we have an echo bubble created in companies and gov't entities that we are all too familiar with during one of the greatest banking and debt crises in the past 80 years, a situation that the world has seen before, yet pretends it has all come and gone within the course of less than 2 years.  Shame on the politicians/Fed/financial communities for stoking yet another ponzi scheme through lies and propaganda and caveat emptor to you future bagholders.  

Sun, 03/07/2010 - 23:29 | 257381 Marley
Marley's picture

Beware B rate movie stars from California bearing simple minded solutions.

Sun, 03/07/2010 - 23:32 | 257382 DavosSherman
DavosSherman's picture

Was Lockyer's last job at Enron or 17th floor of the Lipstick Building? Move over Lloyd, more people doing God's work.

Sun, 03/07/2010 - 23:32 | 257384 SteveNYC
SteveNYC's picture

Apparently "Precious" just won an Oscar........I can see tomorrow's headlines:


"Precious" Wins Oscar, Market Rallies 200pts

Sun, 03/07/2010 - 23:39 | 257385 Tethys
Tethys's picture

I'm pretty sure this is one of the signs of the Apocalypse.

P.S.   ZH has been on fire this weekend - great job, guys.  Quite the antidote for when the absurdity of it all starts to wear thin - thanks for making me laugh.

Sun, 03/07/2010 - 23:35 | 257387 Gordon_Gekko
Gordon_Gekko's picture

I will prefer death to buying not only California, but ANY type of bond whatsoever.

Sun, 03/07/2010 - 23:42 | 257394 Gordon_Gekko
Gordon_Gekko's picture

You mean invest in this? I don't think so!

Mon, 03/08/2010 - 02:24 | 257488 Anonymous
Anonymous's picture

WHAT THE HELL!!!! I can see my house!

Mon, 03/08/2010 - 03:00 | 257504 Hephasteus
Hephasteus's picture

Looks like a good fixer upper.

Nvidia is leaving california and moving their offices to India. Leaving behind their standford university butt buddies.I bet they all have goodbye sex and exchange video cards and stupid books full of bullshit theories.

Mon, 03/08/2010 - 03:29 | 257514 Anonymous
Anonymous's picture

What ?!? When/where did you hear this?

Sun, 03/07/2010 - 23:42 | 257395 Anonymous
Anonymous's picture

Alt Topic Title: California Dreaming

Indeed quite the trip to see that big ad here after reading of all the off balance sheet enronesque sovereign gamesmanship with the clear signs of squid entrails dripping forthwith. Will the last person in the bond shack please turn our the lights...

Mon, 03/08/2010 - 00:00 | 257405 divide_by_zero
divide_by_zero's picture

pwnzi scheme

Mon, 03/08/2010 - 07:29 | 257614 Crime of the Century
Crime of the Century's picture

+1  Nice, that one is gonna have legs...

Mon, 03/08/2010 - 00:08 | 257407 MarketTruth
MarketTruth's picture

HUGE thanks Tyler!!!! Not for the article per se, but because you reminded me of a great ZZ Top album El Loco with the song "10 Foot Pole". Not that "Pearl Necklace", "Party on the Patio" or "Tube Snake Boogie" are bad songs either mind you.

Tidify da, sinmah gough dah hep haing ding fum gogamamo.
Stry da fings thadd awondt oont do butt any il thang thad a wondt meeto.
Shees my nurirng my nu esit seten' ra mind at a ros reshoo.
I don loo kadang doo my net loohah leten meen you

Hmm, I wouldn't touch her with a ten foot pole.

(Turning the stereo to 11 :) )
She was really bombed,
And I was really blown away,
Until I asked her what she wanted,
And this is what she had to say:
A pearl...

Mon, 03/08/2010 - 00:25 | 257421 digalert
digalert's picture

Ah yes California the IOU state. Where just last year for awhile, neither BAC, JPM or WF would touch those IOU's. Where's the line?

Mon, 03/08/2010 - 00:30 | 257422 lawton
lawton's picture

Arkansas defaulted on bonds during the great depression. I think they were the only state to do so.

Mon, 03/08/2010 - 00:36 | 257429 lawton
lawton's picture

Just saw this... I guess they are safe...

" Earlier this year, Lockyer said the only way California would default is a “thermonuclear war.”


Mon, 03/08/2010 - 02:00 | 257479 CombustibleAssets
CombustibleAssets's picture

 That and the inability to find the greater fool.

Mon, 03/08/2010 - 00:54 | 257439 Anonymous
Anonymous's picture

I heard the ad on the car radio the other day. It was quite strange, especially the disclaimer at the end asserting that I had NOT just heard a solicitation to buy or sell bonds.
Is it true that Cali will throw in an extra bond free if I just pay the extra shipping and handling?

Mon, 03/08/2010 - 01:10 | 257446 Rick64
Rick64's picture

And two sets of those ninja knives that cut anything on the shopping channel. Its a win win situation.

Mon, 03/08/2010 - 01:39 | 257464 Anonymous
Anonymous's picture

we have been bombarded with this crap (CA bond front runner) over the radio for quite a while

Mon, 03/08/2010 - 01:54 | 257475 Quantum Nucleonics
Quantum Nucleonics's picture

Bill's lucky that muni bonds are exempt from the Securities Act of '33.  If a private entity tried to sell securities this way they get beat down by the SEC.  Oh, wait, almost forgot who's running the SEC these days.  Never mind.


How can Moody's call these investment grade?  Oh, California is paying for the rating.  I'll take $100K worth, at 30 cents.

Mon, 03/08/2010 - 12:11 | 257755 Anonymous
Anonymous's picture

not 30 cents on the dollar I hope. 30 cents total maybe...

Mon, 03/08/2010 - 01:58 | 257477 CombustibleAssets
CombustibleAssets's picture

This morning's San Jose Mercury says the budget problem is so expansive that several experts contacted by the Mercury News wouldn't even hazard a guess on how large the actual deficit is!! 

It's not just the state; it's the individual citiy and county budgets too.

"A quick, unscientific look around the Golden State suggests that California's collective deficit may be double the state government's $20 billion budget gap."

"Now consider that California has 58 counties, 480 or so cities and nearly 1,000 school districts — plus dozens more special districts, like transit agencies and water boards. Amid California's harshest slump since the Great Depression, officials from one end of the state to another are preparing to close parks, fire teachers and police officers, and heave Hail Mary plans for tax hikes."



Mon, 03/08/2010 - 05:05 | 257546 Anonymous
Anonymous's picture

Just asking ------- Da YA think (giggle giggle) IT will end badly ----- Just asking thats all

Mon, 03/08/2010 - 05:06 | 257547 Anonymous
Anonymous's picture

Just asking ------- Da YA think (giggle giggle) IT will end badly ----- Just asking thats all

Mon, 03/08/2010 - 03:52 | 257526 Gromit
Gromit's picture

It's hard for me to envisage a California default while there are wealthy individuals, solvent corporations and functioning institutions inside California.

I've recently read sell side research which explains that Los Angeles District of Water and Power deserves its higher credit rating and ability to borrow at lower interest rates because it is more solvent than the State of California.

I say that's silly. If the State runs close to default it will tax water and electricity until it is as least as healthy as DWAP!

Mon, 03/08/2010 - 04:59 | 257544 Anonymous
Anonymous's picture

Don't worry, Jerry Brown will fix everything.

Mon, 03/08/2010 - 05:36 | 257551 Anonymous
Anonymous's picture

"It's hard for me to envisage a California default while there are wealthy individuals, solvent corporations and functioning institutions inside California."
True enough.
But isn't it true that there are fewer of each as the years go by?

Mon, 03/08/2010 - 11:07 | 257694 Gromit
Gromit's picture

Yes capital flight is a logical response to California's governance issues but it's a very nice place to live!

Mon, 03/08/2010 - 14:08 | 257932 tmosley
tmosley's picture

Nicer than what?  Somalia?

Mon, 03/08/2010 - 07:04 | 257572 sangell
sangell's picture

The political class in Sacramento may come to regret this if , as Robotrader suggests, yield crazed citizens fill their IRAs and 401k accounts with California bonds. Political affiliation or affinity will matter little when John Q. Public's own money is on the line. It will create a army of budget hawks, little Howard Jarvis' and Paul Ganns sprouting up everywhere.

Mon, 03/08/2010 - 07:43 | 257617 Anonymous
Anonymous's picture

You can't be suggesting that this is just another scheme to rob Peter to pay Paul.

Mon, 03/08/2010 - 12:39 | 257791 carbonmutant
carbonmutant's picture

Bondholders are the government's bitches.

Mon, 03/08/2010 - 07:56 | 257622 Ned Zeppelin
Ned Zeppelin's picture

If you buy a bond, they throw in an official California "Snuggie" for free. 

Smells like desperation to me.

Mon, 03/08/2010 - 08:16 | 257625 Instant Karma
Instant Karma's picture

I commented on this very thing last week, banner ads on ZH and all.

California needs to budget within its means. Who wants paper from a State that has already paid out in IOUs?

Until California (and others) addresses the core issue of structural insolvency resulting from too many State employees paid too much money and promised too many benefits, as well as too high a level of spending across the board, they will be teetering on the brink of bankruptcy.

Indeed, bankruptcy and reorganization with a lower cost structure would be a logical solution.

Other than a massive devalution of the US Dollar, I don't see a way out of our Federal budget mess (and the States), other than default and hitting the reset button. The math doesn't work as things stand, and that's all there is to it.

Higher taxes, and more government spending and regulation will accelerate the problem.

If the FED raises interest rates meaningfully, which they can't, the National Debt will quickly become unserviceable. It's just math. Therefore, the FED is stuck with low interest rates and quantitative easing (like Japan).

Thus, I believe hard assets are the place to be, particularly energy, and metals of all stripes. Stuff that is necessary and consumed. Gold is good too, and convenient, but it's likely that other hard assets will do better than gold. I like palladium and platinum due to their scarcity and utility. Silver works too.

Mon, 03/08/2010 - 09:23 | 257637 Anonymous
Anonymous's picture

A bond sale direct to retail investors by skipping the institutionals is like a movie that skips the theaters and is released directly to DVD.


Mon, 03/08/2010 - 11:13 | 257699 Anonymous
Anonymous's picture

Just wondering....can I use my California IOU's to purchase these bonds?

Mon, 03/08/2010 - 11:30 | 257715 Gromit
Gromit's picture

If they ever pay interest in IOUs I'll use it to pay California State taxes.

Not really wanting to shill for the ungovernable State of California, but i'll be buying more long bonds when they reach 6% again, equivalent to nearly 12% taxable now and god knows how much in a few years.

Mon, 03/08/2010 - 13:01 | 257822 seventree
seventree's picture

If they ever pay interest in IOUs I'll use it to pay California State taxes.

State vendors have already tried this. Tax authorities said no, we only accept real money.

Mon, 03/08/2010 - 13:33 | 257879 Gromit
Gromit's picture

Bondholders will sue and obtain a judgement (as could vendors) PDQ so there is the effective offset IMHO.

Mon, 03/08/2010 - 12:50 | 257807 bugs_
bugs_'s picture

RUUUNN!!! GOOO!!!! Get to the CHOPPAHHH!!

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mark456's picture

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