Monday, June 17, 2013
Death of a City
What is happening to you America? Once upon a time, the United States was a place where free enterprise thrived and the greatest cities that the world had ever seen sprouted up from coast to coast. Good jobs were plentiful and a manufacturing boom helped fuel the rise of the largest and most vibrant middle class in the history of the planet. Cities such as Detroit, Chicago, Milwaukee, Cleveland, Philadelphia and Baltimore were all teeming with economic activity and the rest of the globe looked on our economic miracle with a mixture of wonder and envy. But now look at us. Our once proud cities are being transformed into poverty-stricken hellholes. Did you know that the city of Detroit once actually had the highest per-capita income in the United States? Looking at Detroit today, it is hard to imagine that it was once one of the most prosperous cities in the world. In fact, tourists now travel to Detroit from all over the globe just to see the ruins of Detroit. Sadly, the exact same thing that is happening to Detroit is happening to cities all over America. Detroit is just ahead of the curve. We are in the midst of a long-term economic collapse that is eating away at us like cancer, and things are going to get a lot worse than this.
This past week Detroit stopped making debt payments. Chapter 9 bankruptcy looms, the largest municipality in the nation to file for bankruptcy protection is on the horizon: an ominous portrait of severe cash flow shortages, junk credit ratings and at least $17 billion in long-term obligations that, if left unchecked, will eat up about 65 percent of the city’s total revenue by 2017. A city once home to 1.8 million residents now has a population of 700,000. Roughly one-third of the city is unoccupied.
Since 1954 more than 60 cities, towns, villages or counties have filed for Chapter 9. Of those 29 were dismissed or resolved before reaching a final plan. Large cities in trouble like New York and Cleveland in the 1970s and Philadelphia in the 1990s have found other paths outside of bankruptcy court to ease financial hardship. What will happen when a city the size of Detroit files bankruptcy is uncertain? This is a problem that will not go away; bankruptcy is on the horizon for cities like Newark, New Jersey; Pomona, California; and Gary, Indiana.
BONDS PLUNGE PUTS FED IN SPOTLIGHT - "The bond market's month long plunge has pushed long-term interest rates on mortgages and U.S. Treasurys to their highest levels in more than a year, sparking a debate: Is this a bursting bubble, the aftereffect of clumsy Federal Reserve communication or a welcome sign the U.S. economy is, at last, on the mend. Yields on the benchmark 10-year U.S. Treasury note now stand above 2.1 percent - still low by historic standards, but nearly half a percentage point higher than at the start of May. Rates on 30-year fixed-rate mortgages rose a hair above 4 percent this week ... Six months ago, they were below 3.5 percent. With stock prices, movements are easy to read: Up is good. Down is bad. Reading the bond market is trickier.
"One camp sees the recent fall in bond prices ... as confirmation of a bond-market bubble fueled by the Fed and bound to end badly, retarding an economy whose growth is already painfully slow. ... Another camp sees the same trends as a welcome move toward more normal interest rates and a signal of better times ahead. The anomaly isn't the recent rise, but the drop in yields at the end of April to levels lower than those recorded during the Depression. ... If the bond market were signaling panic or loss of confidence in the U.S. economy, proponents of this narrative say, stock prices and the U.S. dollar would be falling, too. But since bonds turned at the start of May, the Standard & Poor's 500-stock index has climbed 3.6 percent and the WSJ Dollar Index 2.3 percent."
WARREN BUFFETT'S RISING STAR - "When Tracy Britt arrived in Omaha, Neb., in 2009 to meet with Warren Buffett, she brought a Harvard M.B.A., a glittering resume and a boatload of ambition. But she also brought the famed investor a gift to highlight their shared Midwestern roots: a bushel of corn and a batch of tomatoes. The seed Ms. Britt planted that day yielded quick results: a job for Ms. Britt as Mr. Buffett's financial assistant at Berkshire Hathaway Inc ... Almost four years later, it has blossomed further, with Ms. Britt emerging as one of Mr. Buffett's top lieutenants and even serving as chairman of four companies within his $284 billion conglomerate. ...
"Ms. Britt, now 28 years old and more than five decades younger than her boss, occupies a role unlike any other within Berkshire. With an office next to Mr. Buffett's at Berkshire's headquarters, Ms. Britt helps with financial research, accompanies Mr. Buffett to meetings and occasionally drives him around town. The billionaire gradually tacked on additional responsibilities. The firms in which she serves as chairman, including building-products company Johns Manville Corp. and paint manufacturer Benjamin Moore & Co., total more than $4 billion in annual sales."
MORE AMERICANS GET COLLEGE DEGREES - "The number of Americans graduating from college has surged in recent years, sending the share with a college degree to a new high, federal data shows. The surge follows more than two decades of slow growth in college completion, which caused the United States to fall behind other countries and led politicians from both parties, including President Obama, to raise alarms. Last year, 33.5 percent of Americans ages 25 to 29 had at least a bachelor's degree, compared with 24.7 percent in 1995, according to the National Center for Education Statistics. In 1975, the share was 21.9 percent. ... The increases appear to be driven both by a sharp rise in college enrollment and by an improvement among colleges in graduating students. The trends could bring good news in future years, economists say, as more Americans become qualified for higher-paying jobs as the economy recovers."
MANAGEMENT 101 – How is it when a local University employee, whose title is Director of External and Summer Programs, takes a vacation during the middle of summer programs? You would think this position’s duties would require no vacation during the summer months. Another example of Management 101.
BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to: Danny Aiello (80), Senator Dianne Feinstein (80), Barry Manilow (70), Meryl Streep (64), Venus Williams (33).
JACK ASS OF THE MONTH – There are many candidates for this months’ Jack Ass award but we would like to single out Mr. Bill O’Reilly of Fox News for his Jack Ass actions of the past month. His repeated attempts to undermine and lie about the Obama Administration, his head in the sand view of Republican policies, and his overwhelming hypocrisy has earned him the Jack Ass award for this month. I admit he is entertaining, but not a source for accurate news information.
THE SWAMI’S TOP PICKS: NHL Playoffs, Stanley Cup Finals – Chicago Black Hawks in seven; NBA Finals – San Antonio Spurs in seven. Season to date (9-6)
DRIVING THE WEEK – Federal Reserve Open Markets Committee meets this week with a policy announcement and Ben Bernanke news conference on Wednesday. There is little to no chance the central bank will start pulling back on quantitative easing at this meeting. But nervous markets will hang on every syllable about when and under what circumstances the Fed will start slowing its current purchase rate of $85 billion in securities each month. HFE's Jim O'Sullivan: "Mr. Bernanke ... will emphasize that any change in policy will be dependent on the data; that they are not ready to move yet; that tapering is not tightening, just less easing; that the rate of purchases could also be increased; and that actual tightening is still a long way away."
QUOTE OF THE MONTH – “The truth will set you free. But first, it will piss you off.” Gloria Steinem
Next week: words of the month and summer reading.
Until Next Monday, Adios!
June 17, 2013