Must-Know News - Jan. 26

• 1) N.J. Faces $2 Billion Budget Gap, Forecaster Says

“Jan. 25 (Bloomberg) — New Jersey, the third-most indebted U.S. state, faces a $2 billion budget gap in the current fiscal year, the Office of Legislative Services said. The figure is double the estimate of former Governor Jon Corzine. ”

• 2) NYC Faces $1.3 Billion Cut Under Paterson, Mayor Says

“Jan. 25 (Bloomberg) — New York City faces $1.3 billion in cuts and would have about 19,000 fewer city employees under the state budget that New York Governor David Paterson proposed for next fiscal year, Mayor Michael Bloomberg said. ”

……………….2A) NYC may lay off 19,000 workers if state cuts aid

“NEW YORK, Jan 25 (Reuters) - New York City will have to lay off more than 10,000 public workers, in addition to 8,500 teachers, if the state legislature approves the $1.3 billion of cuts the governor proposed in his deficit-closing budget, Mayor Michael Bloomberg said on Monday.”

• 3) AP Source: Federal deficit projected at $1.35T

“WASHINGTON – The latest congressional budget estimates due Tuesday predict a $1.35 trillion deficit for this year, a top Capitol Hill aide says.

The Congressional Budget Office figures confirm the massive problem facing President Barack Obama and his Democratic allies just days before his Feb. 1 budget submission. The White House says Obama will propose a three-year freeze on domestic agency budgets, though the savings would barely make a dent.

The deficit would slide to $480 billion by 2015, CBO says, but only if tax cuts on income, investments and large estates are allowed to expire at the end of this year. Most budget experts see deficits as far higher once tax cuts and other policies are factored in.”

• 4) U.S. companies need to refinance $513 billion this year

“AlixPartners said it found in another study that 600 major companies in the UK, France, Germany and Italy are facing $569 billion of debt that will be up for refinancing this year as well.

All of this comes before what some turnaround experts call the “wall of debt maturities” from late 2011 through 2014, which could lengthen the line for refinancing. Many companies have also “rescheduled” their debt obligations this year, pushing them out to 2012 and beyond as lenders have been willing to amend and extend loans in recent months.

“My suspicion would be in the latter part of the year there will be a much tougher credit environment,” Fitzsimmons added.”

• 5) Senate Democrats Draft $82.5 Billion Jobs Plan

“Top Senate Democrats have drafted an $82.5 billion “jobs” plan that would help small businesses, boost spending on road construction and mass transit, and give local governments money to retain teachers.

The draft document proposes $20 billion for a job creation tax credit and $12.5 billion to retrofit homes and businesses to make them more energy efficient. It has not been publicly released but a summary was obtained by The Associated Press.”

• 6) Default-Bet Anomaly: Firms Over Countries

“Worries about the heavy debts of a number of countries have gotten so extreme in some places that investors are betting that some businesses in those nations are more creditworthy than the nations themselves.

Five-year credit-default-swap contracts that protect $1 million of debt of Spanish banks, such as Banco Santander SA, cost about $10,500 annually; but it costs about $12,000 to buy similar protection for Spain’s debt itself. Above, a Banco Santander branch in Madrid,

The investors are making the bets using credit-default swaps, which pay off when a bond defaults.”

“The anomaly reflects nervousness about all the debt racked up by various nations, as well as relative optimism about some top-rated companies with healthy balance sheets.”

• 7) It’s official: CalPERS loses $500 million on New York apartment deal (Blog)

“The California Public Employees’ Retirement System officially has lost a $500-million stake in the biggest deal ever in the U.S. for a single piece of residential property.

The owners of Stuyvesant Town and Peter Cooper Village, a complex of 56 buildings with 11,000 rental units near the East River in Manahattan, have agreed to turn the property over to creditors after defaulting on $4.4 billion in debt.”

• 8) Verizon to Cut More Than 10,000 Jobs After Sales Miss Estimates

“Jan. 26 (Bloomberg) — Verizon Communications Inc., the second-largest U.S. phone company, plans to cut more than 10,000 jobs at its fixed-line unit this year after posting fourth- quarter sales that missed analysts’ estimates. ”

• 9) Schwarzenegger Addresses California Economic Crisis at Press Club (pensions)

“Now, another priority that is extremely important and I’ve talked about that also in my State of the State, is pension reform. No single issue threatens the fiscal health of this state more than our exploding pension obligations. Over the last 10 years our pension costs have gone up by 2,000 percent, from $150 million a year to $3 billion a year. There were certain assumptions made in 1999 of what will happen to our economy and what will happen to our revenues or to the stock market, predicting 28,000 stock market. Well, now we are, since 2009, we are somewhere between 7,000 and 10,500 or so, so the predictions are totally off. That means hundreds of billions of dollars of unfunded liabilities and it means that our $3 billion that we are spending now, or funding now, will go up to $10 billion, $12 billion.”

• 10) S&P cuts Japan outlook to ‘negative’ (Posted earlier by Farmer Brown here)

(Reposting, since this could turn into a major news item. Here’s the report from Bloomberg)

“S&P yesterday lowered the outlook on Japan’s AA sovereign credit rating to “negative” because of diminishing “flexibility” to cope with the world’s largest public debt and concern about the lack of a plan to rein in budget deficits.”

• 11) Taliban Urged to ‘Reintegrate’ With $500 Million, Merkel Says

“Jan. 26 (Bloomberg) — Governments seeking to stabilize Afghanistan are planning a $500 million program to lure Taliban fighters back into civilian society, German Chancellor Angela Merkel said. ”

………….11A) Taliban ‘buy out’ fund to cost hundreds of millions

“LONDON // An international fund amounting to hundreds of millions of dollars will be established this week in a bid to buy off Taliban leaders in Afghanistan.

An outline for the strategy, which will be principally funded by the US, Japan and Britain, was reported to have been drafted at a meeting in Abu Dhabi two weeks ago of top-level diplomats from 20 countries.

The announcement of the establishment of the Peace and Reintegration Trust Fund, which will seek to “split the Taliban” by luring into mainstream politics any leaders not connected to, or ready to break their links with, al Qa’eda is due to be announced at the end of Thursday’s summit on Afghanistan in London.”

- Saxplayer00o1