Friday, October 1, 2010

Making Money Your


Lee Fang of Wonk Room has the story and the video.


Well before the conglomerate Koch Industries plunged $1 million into Prop 23 — a ballot initiative in California to essentially repeal the state’s revolutionary clean energy climate change law AB 32 — the Wonk Room revealed that front groups controlled by Koch had been working to promote Prop 23. Americans for Prosperity, the front group founded and financed by Koch Industries’ executive David Koch, had organized Tea Party rallies in favor of Prop 23 and produced online ads distorting California clean energy. The Pacific Research Foundation, also funded by Koch-run foundations, produced junk studies promoting Prop 23.


Today, Center for American Progress Senior Fellow Van Jones spoke to ThinkProgress about Prop 23 and the oil interests polluting the energy debate. Asked about the influence of Koch in supporting Prop 23, Jones slammed the company for “trying to shove” its politics on California. To respond to the Tea Parties and other radical right groups, many of which have been organized by Koch and big business fronts, Jones encouraged the public to “stay involved and to get involved,” because otherwise the people “screaming and yelling at these Tea Party events” will win control of government. He added, “I don’t think you want the Tea Party running your community, running your family, running your government”:


JONES: Koch Industries has promoted awful environmental policies. They’ve been literally poisoning rivers, poisoning streams, and making money off of that. They’ve promoted now this awful economic idea that if you grow new industries in California you somehow hurt the economy. That’s nuts. And now they’re promoting bad politics by backing I think extreme movements in the United States. Here you have a bad actor, three strikes and you’re out. They’re bad on the environment in terms of their practices, they’re bad in terms of their economic philosophy they’re trying to shove down the throats of California, and they’re bad in their politics in terms of their supporting extreme political ideas in America. I think if you start connecting those dots, California voters are very sophisticated, and I don’t think any of them think the people who run Koch Industries wake up in the morning thinking how can Californians have better jobs?


JONES: If you think things are bad now, what will happen when the people are screaming and yelling at these Tea Party events are actually in charge of your government, and in charge of your life, and in charge of your kids’ future? That is, maybe you have some hope fatigue, but you got a lot of reason to be fearful enough I think to stay involved and to get involved. I don’t think you want the Tea Party running your community, running your family, running your government.


Watch it:



As Jones states, Koch is not only corrosive to our politics because of its funding of angry and paranoid Tea Parties, but the company also manipulates the political system to pad its profits. For instance, Business Week reported on how Koch Industries used then-Sen. Bob Dole (R-KS) to try to suppress an investigation into Koch Industries’ massive theft of oil from Indian reservations. In another case, Koch Industries faced a $55 million civil suit for causing more than 300 oil spills over a five-year period. Again, Dole, a major recipient of Koch money and support, sponsored a bill that would allow Koch to easily defend itself from the oil spill charges. After Koch helped to elect George Bush in 2000, the Bush Justice Department abruptly settled a criminal case with $350 million in penalties Koch faced for discharging toxic chemicals from a refinery in Corpus Cristi, Texas.


Why is the “Kochtopus” flexing its muscle of campaign donations, Tea Parties, and front groups to enact the clean energy-killing Prop 23? In its corporate newsletter, Koch Industries explicitly states that the low carbon fuel standard California is set to adopt to comply with AB 32 carbon emissions regulations would harm its bottom line because Koch imports mostly high-carbon crude oil from Canada. Another Koch newsletter warns that its Pine Bend Refinery in Minnesota specializing in high-carbon Canadian crude would become much less profitable for Koch if low fuel standards mirroring AB 32 are adopted around the country.


Related Posts:



  • Koch Industries among hosts of Carly Fiorina fundraiser

  • The NY Times on AB 32: “Who wins if this law is repudiated? The Koch brothers, maybe, but the biggest winners will be the Chinese, who are already moving briskly ahead in the clean technology race.”


09/10/10 North Weymouth, Massachusetts — Harrisburg, Pennsylvania, is defaulting; Half Moon Bay, California, is disincorporating; and the City of Miami, Florida, declared a “state of fiscal urgency,” then broke contracts with workers. Yet, Pennsylvania, California, and Florida municipal bond funds managed by Blackrock are trading at or near 52-week highs.


Short sales look timely. Still, there are advantages to a buy side study. First, when the time comes, the opportunities will be broader. Second, the decision to buy will be more a case of negation than attraction. Ruling out unsavory bonds when selecting what to buy will often replicate the process of choosing what to short.


Looking through the wreckage of the 1930s and of the 1970s, there was probably more money lost by premature investments than made by those who waited. This was on the short and long side. New York City is a case in point. Its bust in the 1970s was expected. The stock market had tumbled, a commercial real estate binge of unparalleled excess had desecrated the skyline (new commercial space constructed between 1968 and 1970 exceeded 100% of the city’s commercial building between the World Wars), and – this is as predictable as night following day – from 1968 to 1970, 18 of the largest U.S. corporations left the city and 14 more announced their departure. These included American Can, PepsiCo, General Foods, U.S Tobacco and Shell Oil. Over 1.1 million New Yorkers emigrated from the city in the early and mid-1970s.


In other words, it was so obvious that New York City could not pay its bills that it was too obvious. Anecdotally, there were more investors who shorted New York City too early than those who waited and made money.


By the mid-1970s all New York City bonds were trading for approximately $25 ($100 being par). This was 1933 again, when all City of Miami bonds (yields ranged from 4-3/4% to 5-1/2%, maturities from 1935 to 1955) were quoted at $26. In both cases, the market sulked; yet, in both cases, there were bargains for those who were willing to read legal documents. One such case will be discussed below.


All finance is a reenactment. In his seminal study, Municipal Bonds: A Century of Experience (1936), A. M. Hillhouse wrote: “The major portion of over-bonding by municipalities arises out of real estate booms.” As precedent, Hillhouse quoted H. C. Adams, who wrote in 1890 (Public Debts): “he bonding of a town, and the expenditure of the money procured in showy works, is the occasion of gain to those who speculate in real estate….” Hillhouse, having quoted Adams’ observations of a previous property-boom, municipal-bond bust, should have known better than to write: “There will be no justification for a city [in the future to use] the excuse… that its tax revenues have dried up in times of falling property values.” So, if you miss this one, your children will have the same opportunity.


As for the current wasteland, revenue bonds are a choicer flock to choose from than general obligation bonds. The following distinction between the two is extracted from my seminal study (The Coming Collapse of the Municipal Bond Market): “Revenue bonds are repaid using the revenue generated by the specific project the bonds are issued to fund (fees from a public parking garage, for example).” General obligation bonds are thought to be safer, at least they are advertised as such, because “they are backed by the full faith and credit of the issuing municipality. This means that the municipality commits its full resources to paying bondholders, including general taxation and the ability to raise more funds through credit. The ability to back up bond payments with tax funds is what makes general obligation bonds distinct from revenue bonds.”


However, it is not possible to draw blood from a stone and we will soon see municipalities that can not meet their bond commitments unless they discover an oil field larger than BP’s folly. Half Moon Bay, California, may already meet this ignoble state. From recent reports, the budget and books are so unintelligible that the city is disincorporating and may become an appendage to San Mateo County. Half Moon Bay’s bonds and yawning deficit will presumably be the burden of San Mateo County.


As a side note, the depth of incompetence on display in this instance would not be tolerated in a grammar school Citizenship Day. Given the state of the country, there will be even more amazing feats of fiscal suicide. Another participant is Standard & Poor’s, which stamped a AA- rating on $18 million of Half Moon Bay debt issued in 2009. Bondholders note: do not expect logic to guide negotiated workouts.


As for the bondholder, there are several difficulties here. Disincorporation has few if any legal precedents in California. (“It’s an option that hasn’t been tried in the state since 1972, when the tiny city of Cabazon (about 2,000 people) disincorporated.” – San Mateo County Times, August 27, 2010) The Cabazon precedent is not one to take on faith. Half Moon Bay and San Mateo County may have competing interests. A judge may have different ideas yet about how Half Moon Bay should resolve an $18 million lawsuit that the city lost related to development rights on a 24-acre property.


Just where do present circumstances leave the debt holder? That is, the owners of Half Moon Bay’s $18 million issue of Judgment Obligation bonds. And what of the free-for-all that follows? Propzero.com, jumping into the Half Moon Bay debate, suggests that disincorporation “may be the answer for many California cities struggling with too many spending commitments and not enough money. Digging out of budget holes may be harder than simply shutting things down.”


As goes Half Moon Bay, so goes the country, or so it seems. If San Mateo County is stuck with the Judgment Obligation bonds, and a large annual deficit, it is a sure bet the county will appeal to the state; Governor Schwarznegger will appeal to President Obama; and the president will appeal – to Congress?


It was easier to bottom fish among CDOs that were trading at $15 (as a group) in 2008 than to wager on these contingencies. Revenue bonds are comparatively easy to understand. In a large-scale, municipal-bond swoon, revenue bonds will sell off. That will be true even if these are water bonds, supported by the revenue that customers pay for services; even if these revenues cannot be touched by the grasping Yoga Instructors’ Union. (Half Moon Bay residents are distraught at the loss of municipal yoga instruction – San Mateo County Times.)


We return to New York City to note the lack of perceptiveness in a time of chaos. In April 1975, the city  defaulted on a short-term note. It missed an interest payment (maybe more than one, it isn’t clear). The coupon was eventually paid, but the “New York City default” was highly publicized.


The Municipal Assistance Corporation (MAC) was formed. In The Bond Book, Annette Thau explained that MAC bonds were not obligations of New York City: “The revenues to pay debt service were backed, not by the taxing power of the city, but by the state of New York, and by a special lien on the city’s sales tax and… on a stock transfer tax.” These were revenue bonds that initially yielded “10% as compared to 8% for securities with comparable rating and maturity.”


Thau went on to tell her readers that the winning team does its homework: “This episode demonstrates why it pays, literally, to be very precise about exactly which revenue streams back debt service. In this instance, MAC bonds were tarred by the woes of the city, even though they were not obligations of the city….”


Revenues used to pay MAC bondholders could not flow to the city until the coupons were already met. This is true of services in different municipalities today. Utilities often fall in this category. Advanced critical reading skills are a prerequisite to distinguish a $25 from a $75 bond.


What of critical services in municipalities without predictable sources of revenue? In July, Indianapolis, Indiana, decided to sell its water and sewer utilities. In August, San Jose, California, discussed privatizing its water utility. There are many other such discussions. The media reported both the Indianapolis and San Jose decisions as sales. From precedent, the transactions may be more complicated than that.


It would be unusual for a local government to relinquish all control. There are many different possible arrangements with investors. At one end, there have been attempts to issue corporate stock in the municipality. This was proposed in Coral Gables, Florida, during the 1930s. It did not work but investment bankers are more inventive today. (Or, maybe not. Assets to be pledged by Coral Gables included “the municipal golf course and club house, the Venetian pool, the Coliseum….” Maybe not the one in Rome, but investment bankers are inventive.)


Probably the most likely arrangements are Public-Private Partnerships. In such partnerships, the investor, a “concessionaire,” steps in after bonds stand no chance of repayment. These might be for a vital service such as a water system, airport, or toll road. Concessionaires pay off all or a portion of the debt in exchange for the right to operate the asset for a negotiated return. Internal rates of return generally fall between 13% – 20%. This is a very simplified description.


There are many other investment approaches that haven’t been mentioned. Those mentioned are merely outlined. If it is not obvious, it must be emphasized how preliminary this discussion has been before making an investment. The most important advice here, on the short or long side, is to be patient, to understand the documents of the security, the laws and covenants that bind related parties, and to know the history of municipal bond defaults. This will open the investor’s imagination to the most improbable scenarios.


Regards,


Frederick Sheehan,

for The Daily Reckoning


[For more of Frederick Sheehan's perspective you can visit his blogs here and at www.AuContrarian.com. You can also purchase his book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009), here.]




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Lee Fang of Wonk Room has the story and the video.


Well before the conglomerate Koch Industries plunged $1 million into Prop 23 — a ballot initiative in California to essentially repeal the state’s revolutionary clean energy climate change law AB 32 — the Wonk Room revealed that front groups controlled by Koch had been working to promote Prop 23. Americans for Prosperity, the front group founded and financed by Koch Industries’ executive David Koch, had organized Tea Party rallies in favor of Prop 23 and produced online ads distorting California clean energy. The Pacific Research Foundation, also funded by Koch-run foundations, produced junk studies promoting Prop 23.


Today, Center for American Progress Senior Fellow Van Jones spoke to ThinkProgress about Prop 23 and the oil interests polluting the energy debate. Asked about the influence of Koch in supporting Prop 23, Jones slammed the company for “trying to shove” its politics on California. To respond to the Tea Parties and other radical right groups, many of which have been organized by Koch and big business fronts, Jones encouraged the public to “stay involved and to get involved,” because otherwise the people “screaming and yelling at these Tea Party events” will win control of government. He added, “I don’t think you want the Tea Party running your community, running your family, running your government”:


JONES: Koch Industries has promoted awful environmental policies. They’ve been literally poisoning rivers, poisoning streams, and making money off of that. They’ve promoted now this awful economic idea that if you grow new industries in California you somehow hurt the economy. That’s nuts. And now they’re promoting bad politics by backing I think extreme movements in the United States. Here you have a bad actor, three strikes and you’re out. They’re bad on the environment in terms of their practices, they’re bad in terms of their economic philosophy they’re trying to shove down the throats of California, and they’re bad in their politics in terms of their supporting extreme political ideas in America. I think if you start connecting those dots, California voters are very sophisticated, and I don’t think any of them think the people who run Koch Industries wake up in the morning thinking how can Californians have better jobs?


JONES: If you think things are bad now, what will happen when the people are screaming and yelling at these Tea Party events are actually in charge of your government, and in charge of your life, and in charge of your kids’ future? That is, maybe you have some hope fatigue, but you got a lot of reason to be fearful enough I think to stay involved and to get involved. I don’t think you want the Tea Party running your community, running your family, running your government.


Watch it:



As Jones states, Koch is not only corrosive to our politics because of its funding of angry and paranoid Tea Parties, but the company also manipulates the political system to pad its profits. For instance, Business Week reported on how Koch Industries used then-Sen. Bob Dole (R-KS) to try to suppress an investigation into Koch Industries’ massive theft of oil from Indian reservations. In another case, Koch Industries faced a $55 million civil suit for causing more than 300 oil spills over a five-year period. Again, Dole, a major recipient of Koch money and support, sponsored a bill that would allow Koch to easily defend itself from the oil spill charges. After Koch helped to elect George Bush in 2000, the Bush Justice Department abruptly settled a criminal case with $350 million in penalties Koch faced for discharging toxic chemicals from a refinery in Corpus Cristi, Texas.


Why is the “Kochtopus” flexing its muscle of campaign donations, Tea Parties, and front groups to enact the clean energy-killing Prop 23? In its corporate newsletter, Koch Industries explicitly states that the low carbon fuel standard California is set to adopt to comply with AB 32 carbon emissions regulations would harm its bottom line because Koch imports mostly high-carbon crude oil from Canada. Another Koch newsletter warns that its Pine Bend Refinery in Minnesota specializing in high-carbon Canadian crude would become much less profitable for Koch if low fuel standards mirroring AB 32 are adopted around the country.


Related Posts:



  • Koch Industries among hosts of Carly Fiorina fundraiser

  • The NY Times on AB 32: “Who wins if this law is repudiated? The Koch brothers, maybe, but the biggest winners will be the Chinese, who are already moving briskly ahead in the clean technology race.”


09/10/10 North Weymouth, Massachusetts — Harrisburg, Pennsylvania, is defaulting; Half Moon Bay, California, is disincorporating; and the City of Miami, Florida, declared a “state of fiscal urgency,” then broke contracts with workers. Yet, Pennsylvania, California, and Florida municipal bond funds managed by Blackrock are trading at or near 52-week highs.


Short sales look timely. Still, there are advantages to a buy side study. First, when the time comes, the opportunities will be broader. Second, the decision to buy will be more a case of negation than attraction. Ruling out unsavory bonds when selecting what to buy will often replicate the process of choosing what to short.


Looking through the wreckage of the 1930s and of the 1970s, there was probably more money lost by premature investments than made by those who waited. This was on the short and long side. New York City is a case in point. Its bust in the 1970s was expected. The stock market had tumbled, a commercial real estate binge of unparalleled excess had desecrated the skyline (new commercial space constructed between 1968 and 1970 exceeded 100% of the city’s commercial building between the World Wars), and – this is as predictable as night following day – from 1968 to 1970, 18 of the largest U.S. corporations left the city and 14 more announced their departure. These included American Can, PepsiCo, General Foods, U.S Tobacco and Shell Oil. Over 1.1 million New Yorkers emigrated from the city in the early and mid-1970s.


In other words, it was so obvious that New York City could not pay its bills that it was too obvious. Anecdotally, there were more investors who shorted New York City too early than those who waited and made money.


By the mid-1970s all New York City bonds were trading for approximately $25 ($100 being par). This was 1933 again, when all City of Miami bonds (yields ranged from 4-3/4% to 5-1/2%, maturities from 1935 to 1955) were quoted at $26. In both cases, the market sulked; yet, in both cases, there were bargains for those who were willing to read legal documents. One such case will be discussed below.


All finance is a reenactment. In his seminal study, Municipal Bonds: A Century of Experience (1936), A. M. Hillhouse wrote: “The major portion of over-bonding by municipalities arises out of real estate booms.” As precedent, Hillhouse quoted H. C. Adams, who wrote in 1890 (Public Debts): “he bonding of a town, and the expenditure of the money procured in showy works, is the occasion of gain to those who speculate in real estate….” Hillhouse, having quoted Adams’ observations of a previous property-boom, municipal-bond bust, should have known better than to write: “There will be no justification for a city [in the future to use] the excuse… that its tax revenues have dried up in times of falling property values.” So, if you miss this one, your children will have the same opportunity.


As for the current wasteland, revenue bonds are a choicer flock to choose from than general obligation bonds. The following distinction between the two is extracted from my seminal study (The Coming Collapse of the Municipal Bond Market): “Revenue bonds are repaid using the revenue generated by the specific project the bonds are issued to fund (fees from a public parking garage, for example).” General obligation bonds are thought to be safer, at least they are advertised as such, because “they are backed by the full faith and credit of the issuing municipality. This means that the municipality commits its full resources to paying bondholders, including general taxation and the ability to raise more funds through credit. The ability to back up bond payments with tax funds is what makes general obligation bonds distinct from revenue bonds.”


However, it is not possible to draw blood from a stone and we will soon see municipalities that can not meet their bond commitments unless they discover an oil field larger than BP’s folly. Half Moon Bay, California, may already meet this ignoble state. From recent reports, the budget and books are so unintelligible that the city is disincorporating and may become an appendage to San Mateo County. Half Moon Bay’s bonds and yawning deficit will presumably be the burden of San Mateo County.


As a side note, the depth of incompetence on display in this instance would not be tolerated in a grammar school Citizenship Day. Given the state of the country, there will be even more amazing feats of fiscal suicide. Another participant is Standard & Poor’s, which stamped a AA- rating on $18 million of Half Moon Bay debt issued in 2009. Bondholders note: do not expect logic to guide negotiated workouts.


As for the bondholder, there are several difficulties here. Disincorporation has few if any legal precedents in California. (“It’s an option that hasn’t been tried in the state since 1972, when the tiny city of Cabazon (about 2,000 people) disincorporated.” – San Mateo County Times, August 27, 2010) The Cabazon precedent is not one to take on faith. Half Moon Bay and San Mateo County may have competing interests. A judge may have different ideas yet about how Half Moon Bay should resolve an $18 million lawsuit that the city lost related to development rights on a 24-acre property.


Just where do present circumstances leave the debt holder? That is, the owners of Half Moon Bay’s $18 million issue of Judgment Obligation bonds. And what of the free-for-all that follows? Propzero.com, jumping into the Half Moon Bay debate, suggests that disincorporation “may be the answer for many California cities struggling with too many spending commitments and not enough money. Digging out of budget holes may be harder than simply shutting things down.”


As goes Half Moon Bay, so goes the country, or so it seems. If San Mateo County is stuck with the Judgment Obligation bonds, and a large annual deficit, it is a sure bet the county will appeal to the state; Governor Schwarznegger will appeal to President Obama; and the president will appeal – to Congress?


It was easier to bottom fish among CDOs that were trading at $15 (as a group) in 2008 than to wager on these contingencies. Revenue bonds are comparatively easy to understand. In a large-scale, municipal-bond swoon, revenue bonds will sell off. That will be true even if these are water bonds, supported by the revenue that customers pay for services; even if these revenues cannot be touched by the grasping Yoga Instructors’ Union. (Half Moon Bay residents are distraught at the loss of municipal yoga instruction – San Mateo County Times.)


We return to New York City to note the lack of perceptiveness in a time of chaos. In April 1975, the city  defaulted on a short-term note. It missed an interest payment (maybe more than one, it isn’t clear). The coupon was eventually paid, but the “New York City default” was highly publicized.


The Municipal Assistance Corporation (MAC) was formed. In The Bond Book, Annette Thau explained that MAC bonds were not obligations of New York City: “The revenues to pay debt service were backed, not by the taxing power of the city, but by the state of New York, and by a special lien on the city’s sales tax and… on a stock transfer tax.” These were revenue bonds that initially yielded “10% as compared to 8% for securities with comparable rating and maturity.”


Thau went on to tell her readers that the winning team does its homework: “This episode demonstrates why it pays, literally, to be very precise about exactly which revenue streams back debt service. In this instance, MAC bonds were tarred by the woes of the city, even though they were not obligations of the city….”


Revenues used to pay MAC bondholders could not flow to the city until the coupons were already met. This is true of services in different municipalities today. Utilities often fall in this category. Advanced critical reading skills are a prerequisite to distinguish a $25 from a $75 bond.


What of critical services in municipalities without predictable sources of revenue? In July, Indianapolis, Indiana, decided to sell its water and sewer utilities. In August, San Jose, California, discussed privatizing its water utility. There are many other such discussions. The media reported both the Indianapolis and San Jose decisions as sales. From precedent, the transactions may be more complicated than that.


It would be unusual for a local government to relinquish all control. There are many different possible arrangements with investors. At one end, there have been attempts to issue corporate stock in the municipality. This was proposed in Coral Gables, Florida, during the 1930s. It did not work but investment bankers are more inventive today. (Or, maybe not. Assets to be pledged by Coral Gables included “the municipal golf course and club house, the Venetian pool, the Coliseum….” Maybe not the one in Rome, but investment bankers are inventive.)


Probably the most likely arrangements are Public-Private Partnerships. In such partnerships, the investor, a “concessionaire,” steps in after bonds stand no chance of repayment. These might be for a vital service such as a water system, airport, or toll road. Concessionaires pay off all or a portion of the debt in exchange for the right to operate the asset for a negotiated return. Internal rates of return generally fall between 13% – 20%. This is a very simplified description.


There are many other investment approaches that haven’t been mentioned. Those mentioned are merely outlined. If it is not obvious, it must be emphasized how preliminary this discussion has been before making an investment. The most important advice here, on the short or long side, is to be patient, to understand the documents of the security, the laws and covenants that bind related parties, and to know the history of municipal bond defaults. This will open the investor’s imagination to the most improbable scenarios.


Regards,


Frederick Sheehan,

for The Daily Reckoning


[For more of Frederick Sheehan's perspective you can visit his blogs here and at www.AuContrarian.com. You can also purchase his book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009), here.]




Probably Bad <b>News</b>: Toy FAIL - Epic Fail Funny Videos and Funny <b>...</b>

epic fail photos - Probably Bad News: Toy FAIL. ... Fail, Owned and Pwn moments in pictures and videos. Share fails, pwns, and owns with the world on FAIL Blog. Lolcats � Loldogs � Celebs � Look-Alikes � News ...

How to be a data journalist | <b>News</b> | guardian.co.uk

Data journalism trainer and writer Paul Bradshaw explains how to get started in data journalism, from getting to the data to visualising it • Guardian data editor Simon Rogers explains how our data journalism…

Saamidd set for Dewhurst after course gallop - Horse Racing <b>News</b> <b>...</b>

SAAMIDD set up a mouthwatering clash with Frankel in the Dubai Dewhurst on October 16 after the Champagne Stakes winner came through his racecourse gallop on Thursday in decided style.


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