KPIG Radio / The Profit Motive July 6

KPIG Radio / The Profit Motive July 6

Stocks shrugged off some disappointing news to open the holiday shortened week higher, only to slip late and look to finish about even. The June ISM Services Index slipped 1.6 points to 53.8, consensus was for a small improvement to 55. Internally Business activity, new orders and employment all fell as the index shows more signs of slowing going into the 3rd quarter. Reis Inc. reports that the US Office Vacancy rate hit a 17-year high of 17.4% during the second quarter. Effective rents fell .9% during the same period and are 5.7% lower than a year ago.

But it’s not all bad news today. For only the second time this year the FDIC didn’t send at least one bank to the receivers though the year to date total stands at 80 as per Bankrate.com.

California’s manufacturing sector continues to expand nicely with a reading of 62 in the 2nd quarter, strength was noted across the board including a second consecutive month of expansion for employment.

Moral hazard is created when people and or institutions are rewarded for bad and or reckless behavior. Despite the fact that state and municipal tax collections have been going down the drain for the last few years. That state and municipal finances have gone from bad to worse along with the expected credit ratings downgrades that follow these sorts of events and that the companies that insure municipal bonds are effectively bankrupt because their potential obligation to pay claims far exceeds their ability to actually pay them. We have this little gem courtesy of Bloomberg. US bank holdings of municipal bonds have hit a 25-year high following 84 billion in additional holdings since 2003 bringing the total to just over 216 billion at the end of the 1st quarter. This represents an increase of 64% for this particular asset class over the last 7-years.
Outright default isn’t required to lose large sums on bond holdings; credit downgrades will also do the trick, yet another example of the banks gross recklessness, stupidity or both depending on your point of view. Then again having already been bailed out once, by us taxpayers, too big to fail and most of the other “teeth” in the so called financial reform bill having been compromised away compliments of an army of well funded lobbyists and our Congress critters lack of backbone and the strength of character to do what is both good for America and their constituents, I can’t say as I’m really surprised. Which serves to illustrate that they need to be reminded as to whom they actually serve because they’ve clearly forgotten that it is in fact the electorate.