Feb 25, 2008

SCARY STUFF - San Francisco Bay Area Cash Concerns (per FigPartners): This weekend in The San Francisco Chronicle , there was an article about a local municipality currently facing a cash crunch caused in part by evaporating revenues from property taxes. The city of Vallejo is contemplating a bankruptcy filing and we do not think it will be the last municipality to do so in either the Bay Area or the Central Valley. So far, Vallejo has reduced staffing at libraries and emergency call-centers, rotated fire station closures and indefinitely deferred maintenance to streets and public parks. Increased business taxes and decreased city employment are likely next. The sudden inability for home owners to pay their mortgages – let alone property taxes – and the swift decline in property values has combined to put municipal governments in a pinch. While most all governments in California will face similar cash shortages, those that financed current capital expenditures (i.e. streets and schools) with future property tax dollars will likely be hurt the most and there are a lot of them. Contra Costa County – perhaps the biggest county in the Bay Area – is experiencing the sharpest increase in foreclosures and several cities in the Central Valley built entirely new downtowns in the last few years. The double whammy of increased taxes and lower quality of life will undoubtedly impact California’s small business and community banks. The effect will be most felt by banks in municipalities that declare bankruptcy, but it is something to keep an eye on.

Finally two India-focused ETFs The WisdomTree India Earnings Fund (EPI) began trading on the NYSE Arca this morning, trading a million shares straight out of the gate. On Monday or Tuesday, PowerShares will follow up with its own India ETF: the PowerShares India Portfolio (PIN).

The suits begin: HSH Nordbank alleges that UBS did not manage the assets in line with its "prudent investment objectives".