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California And Greece: A Technical Comparison Of Catastrophe Risk
Regime changes are fun: last year it was California that the "smart money" was betting on for secession, earthquakes, default and a wholesale apocalypse. Over the past 3 months, attention has shifted to California's much smaller cousin in Europe - Greece, whose CDS, having been dormant during most of the credit crisis, has recently overtaken California by a substantial amount. Yet what in Greece's staggering budget deficit and untenable debt load was unknown 6 months ago that is known today? Absolutely nothing, as none of the recent developments should be construed as "news", yet with everyone talking about it, CDS traders are more than happy to capitalize on the hoopla and crush the bulls. The point here being that if traders think Greek default risk is material, how should the world's 7th largest economy feel? Yes, they legalized grass, but somehow we doubt that is a viable model to bridge the gap from here to insolvency. And with the Massachusetts referendum now shutting the door on any future bailouts, those of states most certainly included, we wonder: shouldn't the entity with the $10 billion deficit be trading just a little wider of little old Greece? California CDS have been on a tear, and after hitting a low of 160 bps, are now back to 273. Their high was 400 in the depths of the post-Lehman shitstorm. And while the Federal picture since then has improved only thanks to the Fed's wanton destruction of the middle class, for states it has only been an increasingly bumpy downhill ride.
With both Greece and California now pariahs in their respective contexts, we fully expect that California will retain its rightful place, somewhere decidedly wider than the Aegean country.
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What are the CDS spreads for Spain, Portugal and Ireland? Lets not let the other Pigs of the hook...
unfortunately the way to play all this is long the dollar for the foreseeable future
good luck going long the dollar with 36 states lining up to follow California down the toilet...
come on The risk bid will just begin to show its true force once the muni's are backed up with the full faith and credit.
Thats when the fun begins.
too funny!
California is like the federal govt but without the ability to create money out of thin air. They are in deep trouble but I have a feeling the fed govt will have one more slight bailout addition for the states to help a litte this final year. Something where they fund billions of the state's medicaid payment share again but that will still leave California bankrupt regardless.
great look, TD. way to keep blazing this path.
kudos on the excellent timing of your calls in the space.
It would be highly interesting to assemble a list of California's upcoming budgetary milestones in the coming year (and their dates). Namely, when the shortfalls will start to hit national headlines (again), and when state-funded disbursements will be most likely to get held up (again).
TD,
Nuff with this Greece bashing...no souvlaki for you!
In the grand scheme of things, Greece is irrelevant, ergo this post: it is merely a catalyst. If not there, the avalanche will start elsewhere.
When those Bear Stearns hedge funds blew up in 2007, I knew the domino effect was on its way. Not in my wildest dreams, however, could I have imagined how bad it was going to get, but the amount of counterparty risk was incredible. If the PIGS (Portugal, Ireland, Greece, Spain) start crumbling, this could be the start of another ugly bout of financial turmoil. But Trichet et al. will not let these PIGS get slaughtered. I could be wrong, but this feels like another Dubai to me.
Leo PIGS always get slaughtered - their only hope is to trot into the forest
no souvlaki... I can live with that, just don't take away the moussaka.
Califleece
Yes, they legalized grass, but somehow we doubt that is a viable model to bridge the gap from here to insolvency.
Sure, at least the folks there can put on a decent buzz unlike most of the rest of the country that has to live with vodka & bars (or the Greeks with Ouzo) as the bonfire that is local government funding burns merrily along. Still, I would rather have to deal with the financial problems in California than with the US as a whole.
It's one of the last arrows in CA's quiver - at least the benefits are tangible and help keep the proles docile.
If they could export it that would really something. But that would require "secession, earthquakes [in D.C.], default and a wholesale apocalypse first".
The California marijuana crop is a bigger export cash cow than any other crop produced in that or any other US state.
You're retarded and clearly do not know anything about the cultivation of marijuana. Ever heard of something called corn, or soybean, or wheat, perhaps cotton. When marijuana gets its own futures contract let me know. The price is only what it is because it is illegal. Ounce of dope in Afghanistan, 5 bucks US, just got back from defending their fields...
hahahahahahahaha I have been around the industry for many years.
And as a 100% disabled war vet from the Panama/DS I welcome you home as I await my son getting his deployment orders.
Wow, a whole $5? A friend of mine was just visiting La Paz, Mexico, and 17 pesos landed him two softball-sized portions. I guess security is expensive in Afghanistan...
True..
http://wallstcheatsheet.com/breaking-news/economy/the-economics-of-marij...
They legalized grass, eh?
What was the subject, again???
Ya. And a little 411. The first is taxes..(back to the article). The second, higher education opportunities. Finally, the local ordinance and guidelines. For the tie in look at Sonoma county and remember the CNBC program....
http://ballotpedia.org/wiki/index.php/Oakland_Marijuana_Tax,_Measure_F,_...
http://www.oaksterdamuniversity.com/
http://clerkwebsvr1.oaklandnet.com/attachments/10571.pdf
http://www.safeaccessnow.net/countyguidelines.htm
They legalized medical weed, but hope to get total legalization on the November ballot. Not sure what the Federal law says, but assume that trumps the state. Miles is correct as I understand it, the crop is huge.
Miles is incorrect, the crop is tiny compared to what comes out of oh say Mexico, Afghanistan, Canada...if cali legalizes, the price will crater
perhaps the price to the farmer, but not the individual... the govt will fill the gap with a heavy tax.
i'd also expect a fairly elastic demand curve.
plus, legalization would in itself support significantly greater demand - particularly if it's available at your local whole foods!
The California marijuana crop is a bigger export cash cow than any other crop produced in that or any other US state. - Miles
I knew there has been some confusion with some US residents as to what actually constitutes the US, but I gotta tell you that Canada, Afghanistan & Mexico are not part of the United States. Yes it's true and I hope I am not confusing you too badly.
The price did not crater one bit in any state that has dispensaries or the ability to lawfully cultivate the crop within the constructs for personal use. This will be even more true now that government is getting into the act of collecting taxes on sales.... and will most likely leave this to the various states as the feds concentrate upon increasing the velocity of money. The big questions now are when will big ag & pharma be able to get states to give them the exclusive "right" to cultivate since the law in CA, OR, CO, WA & MI all require extremely small crop size, how will the process of creating universal "grading" standards will come into play, what will be allowed to be called "organic" and the changing of state tax laws to require individuals to declare all of their revenues for taxation purposes. Look at state law in Nevada concerning unlawful enterprise and reporting requirements.
I would hope you remember that there isn't one crop in the US that actually is grown & sold without real government intervention. Look to the pricing history of sugar in the USA as a guide for how the legal pricing of marijuana crops develops. BTW, just because you don't see the (THC) symbol at the CME does not mean there are no futures contracts being traded. Fact is that nearly every significant American marijuana cultivation enterprise uses a pure, otc futures hedging.
Yeah and that weed is crap, Mexican weed in California, especially in Humboldt county is synonymous with dirt, shit, crap, something you turn into hash.
Read the Constitution Screwball.. Fed laws trump states ??.. Only if so enumerated in said doc.
Nikki .
Woo hoo, we're a pariah.
Perhaps, it is as simple as the probability of the Feds bailing out Cali, vs EU bailing out Greece.
Republican/Democrat......you say neither i say niether....Neither will let the worlds 7th largest economy go down.
The ultimate question as always:who bails the federal government out?
Musical chairs continues.....I can not believe we play these child games! What an abusive family the NWO is! The Feds (big brothers) love to beat up on the red-headed step childs (states of the US and the former "tigers") and this washes money from one currency to the other. However if they want "the game to continue"-Jack Welch and Oliver Sarkozy, then they have to keep up the charades. Imagine if they said, "Its over" and cashed in their chips now. Nobody would believe it, let alone understand it.
Get yours while you can US, it is Khalifornia's turn next.
States won't get bailed out because their debt is not part of "Treserve's" money laundering and counterfeiting operation.
Keep an eye out on Illinois, who is closer to bankruptcy than most people realize.
A bit about that here.
http://www.chicagobusiness.com/cgi-bin/mag/article.pl?articleId=32910&se...
'While California has an even bigger budget hole to fill, Illinois ranks dead last among the states in terms of negative net worth compared with total expenditures.'
-data_monkey
Illinois doctors requiring patients with State of Illinois health insurance to pay up from because they are tired of not getting paid by the State.
I am not that financial savvy but can someone explain in plain english why California is being compared to Greece. Wouldn't California as an independent country be solvent? Lots of their revenue is taken in federal tax, and get back like 70c to the dollar. If they keep the whole dollar where is the problem?
They can use that other 30 cents to build a military.
Yeah... and we can call it the California Peace Brigade, man. ;)
California has a whole Corps Guard formation (the active army only has four of these formations), numerous air wings, major harbors, military infrastructure, nearly all of the essential national intelligence gathering equipment production, the ability to launch vehicles into space from Vandenberg and recover returning space vehicles at Edwards. Their military would be better equipped for a nation of that size than any other comparable nation....
....and thanks to Hollyweird, Kali can generate all the propoganda films necessary to properly indoctrinate the peoples.
....and thanks to Hollyweird, Kali can (continue to) generate all the propoganda films necessary to properly indoctrinate the peoples.
And can make them an export of great value in creating goodwill with other governments around the world....
NPR on California Dreaming
http://www.npr.org/templates/story/story.php?storyId=122607699&ps=cprs
Actually, as usual, California will be the first of many.
The real test of "Too Big to Fail"
speaking of being bankrupt
http://www.theglobeandmail.com/report-on-business/lenders-foreclose-on-i...
They are going to host the olympics in a month
The opening paragraph says it all. Even with government money they cant say in business.
If push comes to shove the FED will buy some state municipal debt. The FED is hiding what they own and could probably lie if they had to. No one will realize a state bailout is happening, so there won't be any political fallout.
And what is wrong with that? Quantitative easing isn't as evil as you all make it out to be. Read Graham Turner's book, No Way to Run an Economy.
It's funny that people think the Fed is still in control of the situation, just the same as in 2007.
Exactly
I do see hemp that can bridge the gap. Imagine the possibilites
Now that Brown has won, Obama and Pelosi know that the public will not allow them to bailout states like CA and IL. The public unions will be forced to take pension and pay cuts!!
Then we can have some real deflation.
That will be a war.
The unions will abuse the strike card.
More likely the unions will be glad to have a job. The California Supreme Court wanted to put the whole state public service payroll, not just the unions, on minimum wage plus benefits.
Municipality employees would still be collecting whole salaries and benefits, though.
It's still much better than collecting unemployment and there is no guarantee that unemployment will even be there next month.
Hey dumbshit, this is bigger than Obama and Pelosi, this was a blatant expansion of the monetary base through credit expansion starting in 1985. Its not democrat or republican and if you think it is, you're as dumb as they come. The tech bubble happened under a democratic president and republican congress. The housing boom happened under both republicans. If Brown is your savior just kill yourself now.
California isn't going to default on debt, it can't. The state constitution puts bond holders in front of everyone. Vendors, state workers, welfare receipients and everyone else goes right to the back of the bus when the state runs out of cash. Its already happened once and the bond holders didn't miss a penny. So we are going to have our usual train wreck, contractors are going to get IOU's, state workers are getting furloughed, school districts and cities are going to get shafted, etc, etc, but the bonds get paid.
I wonder if the oncoming bankruptcy will work the same way for the Federal government as it did in California. In Calfornia the state Supreme Court decided that if the state legislature wasn't going to raise taxes and/or cut services and balance the budget, the Supreme Court would just put the entire public payroll on minimum wage and benefits.
Can you see the whole federal payroll on minimum wage and benefits? Most of the older and more expensive people would just retire.
Unfortunately, California did not, as you say, "legalize grass." A proposal (AB 390) to legalize and tax marijuana in California was approved by a key committee of the Assembly on Tuesday, Jan 12, but it's not expected to get further consideration by the Legislature until next year.
However, there MAY be a ballot initiative in November. The “Tax, Regulate and Control Cannabis Act of 2010” has garnered about 680,000 signatures, more than the 433,971 required to be placed on the state’s ballot. The measure must also be certified by the secretary of state before it can officially be placed on the ballot. It would allow adults 21 and older to possess an ounce of marijuana and cultivate 25 square feet for personal consumption. Cities and counties would be allowed to decide how and if to tax commercial sales and cultivation.
Except that federal law still prohibits everything, right?
Malaka you talk about Greece
You work a whole year in California to go to Greece for a week if you are lucky.Stop compairing apples and oranges
Malaka in California you have to work a whole year so you can go to Greece for one week if you are lucky.....So stop comparing apples and oranges
go have a souvlaki
By the way Tyler I think the california debt problem is actually 29 billion... but thats what I last read about a week ago.
Rumor is that Brown will NOT run for Governor. Surprise!