Must-Know News - Jan. 27

• 1) Airline Traffic Drop ‘Worst Ever,’ Fare Rebound Slow, IATA Says

“While the industry’s worst loss to date was almost $13 billion in 2001 following the Sept. 11 terror attacks, an $80 billion revenue decline last year was “vastly bigger” than anything previously experienced, IATA Chief Economist Brian Pearce said in a telephone interview. ”

• 2) Running out of budget gimmicks, states face grim years

“”This may be the most calamitous fiscal year states have known in decades,” reports Rob Gurwitt in Governing magazine, the 23-year old bible on coverage of state and local governance across the continent.

And the coming fiscal year, experts are predicting, may be almost as grim as the states run out of budget gimmicks, rainy day funds and the infusion of federal stimulus money that helped them, finally, to balance their current budgets. The states’ cumulative 2010 and 2011 budget shortfalls may be about $350 billion — a third of a trillion dollars — estimates the Center on Budget and Policy Priorities.

Why such grim news? Sales and personal tax receipts, which soared in the last decade because of the hot, credit-driven consumer economy, cratered with the recession. The pre-recession revenue levels, Governing reports, “will either take an unusually long time to recover, or never do so.” ”

“And then there’s the long-term debt that states have incurred–in bonds they’ve sold, in pensions and post-retirement health benefits, in replacement or maintenance of physical infrastructure that can’t be permanently ignored. Governing columnist John E. Petersen comes up with a startling $2.4 trillion of “aggregated indebtedness” the states carry.”

• 3) Swaps Trading Surges as National Deficits Rise: Credit Markets

“Traders are buying protection against defaults on sovereign debt at more than five times the rate of company bonds as governments fund ballooning deficits.

The net amount of credit-default swaps outstanding on 54 governments from Japan to Italy jumped 14.2 percent since Oct. 9, compared with 2.6 percent for all other contracts, according to Depository Trust & Clearing Corp. data. European countries led the jump, with the amount of protection on Portugal climbing 23 percent, Spain 16 percent and Greece 5 percent. ”

• 4) Roubini: Greece Is Bankrupt

““Greece is bankrupt,” Roubini told CNBC.com at WEF. “Look, they have to ask China to help them out.”

Greece is trying to get trying to entice China to buy 25 billion euros ($35 billion) in bonds, according to published reports Wednesday.

If the situation becomes dire enough the European Union will be forced to help bail Greece out because it’s such a threat to the monetary union, he said.”

• 5) Banks must raise billions to fend off crisis, says IMF

“It also indicated that with governments including the UK and the US borrowing so much in the next few years, there was an increasing chance of a sovereign debt crisis, something which could trigger chaos for public and private sectors alike.”

• 6) Fitch, ECB sound alarm on European national debts

“The Fitch credit rating agency and the European Central Bank issued strong warnings on Tuesday about the weight of European government debt threatening financial markets and economic recovery this year.

Fitch said that on average nearly one fifth of national output would be absorbed by debt costs, but in some countries such as Italy, France and Ireland it would be about one quarter. ”

“And at the ECB in Frankfurt, which is responsible for eurozone monetary policy and interest rates, chief economist Juergen Stark said: “We are seriously concerned about forecasts of strong rises in government deficits and the indebtedness of countries in the eurozone.”

He warned in a speech that this trend could lead ratings agencies to further downgrade government debt bonds and to further negative reaction in financial markets. ”

“Fitch estimated that 15 of the 27 countries in the European Union, and Switzerland, would have to borrow the equivalent of 19 percent of their annual national production this year to finance budget overspending and roll over existing debt. ”

• 7) Russia’s Sovereign Debt

“Russia will become the biggest issuer of sovereign debt in emerging markets during the next decade as its aging society pushes up pension costs, exceeding revenue from oil, Bank of America Merrill Lynch said in an note as part of its predictions for the next 10 years.

Russia will remain reliant on revenue from oil as it will have “limited success in investing the oil windfall,” the bank said. The country will also have another “bust” during the decade ahead and will also increase taxes on income to pay for pensions, it said.”

• 8) PIMCO: The US Falls Into The Sovereign Debt Ring Of Fire (chart)

“In the latest PIMCO investor letter, Bill Gross brings up a chart he likes to call “The Ring of Fire.”

As you can see, this chart/graph details the amount of debt a country has in relation to their GDP.

Countries in the fire zone are headed for hell in a handbasket.PIMCO predicts these countries, which include the U.S., will increase public debt to greater than 90% over the next few years, which will in turn stall growth.”

• 9) Debt of PIGS Weighs On European Union (CNBC)

“Critics are quick to point to sovereign-debt weak spots in a number of member countries and even speculate about a dismantling of the Euro Zone.

The Greek deficit debacle, right on the heels of the ratings downgrades for Ireland last year as well as somewhat similar problems in Portugal and Spain have made the unflattering acronym, PIGS, common parlance in global economic circles, such as that of the World Economic Forum’s annual meeting in Davos, Switzerland this week.”

• 10) U.S. May Retool Mortgage Program to Help Underwater Homeowners

“Jan. 27 (Bloomberg) — The Obama administration’s $300 billion Hope for Homeowners program may be retooled to help the growing number of Americans who owe more than their properties are worth as current anti-foreclosure efforts fail to account for these “underwater” borrowers.

The changes would be at least the third lease on life for the program, which began in October 2008 during the Bush administration and has so far helped just 96 of the 400,000 homeowners originally targeted. ”

• 11) Treasury official, experts wary of commercial real estate crisis

“Nancy Wentzler, chief economist and deputy comptroller in the Office of the Comptroller of the Currency (OCC), said that while banks started showing slight improvement in their balance sheets in 2009 compared to 2008, the recovery is fraught with risks and commercial real estate is still in the doldrums.”

“”We are all waiting for commercial real estate to really hit its stride in terms of credit quality problems and that’s very likely to come as we make our way through 2010,” Wentzler said.”

“Kiplinger said commercial real estate is dealing with excess capacity, with too much office space, too much warehouse space and falling rents. The value of commercial real estate, which is based on cash flow from rent, has fallen by 35-40 percent and it is getting worse in many communities.

“It’s the shoe that hasn’t fallen,” Kiplinger said. “It will be just as big as the residential real estate debacle over the last couple of years and it is not really on everybody’s radar screen quite yet.”"

• 12) Rising Commercial Loan Problems Threaten Regional Banks

“The numbers are pretty alarming. This year, about 36% of the $270 billion in commercial real estate loans maturing this year are underwater - a situation where the mortgage balance exceeds the value of the underlying property. And things will get worse before they get better. By 2011, 49% of the maturing loans will be underwater, rising to 63% in 2012 and 61% in 2013, before cresting at 57% in 2014.

Between 2010 and 2014, a whopping $770 billion in maturing commercial real estate loans are expected to be underwater. The situation is so grim that even long-time players in the commercial real estate game are predicting that we are facing something akin to a “lost decade” for the U.S. commercial real estate market. ”

• 13) Commercial real estate prices likely to continue falling: Moody’s

“Prices of commercial real estate properties were battered in 2009, and those price declines are likely to continue.

According to Moody’s Investors Service, CRE prices rose 1 percent in November. But that trend won’t be sustained, Moody’s managing director Nick Levidy said.”

• 14) More Idahoans on food stamps than ever

“The Idaho Department of Health and Welfare is processing 9,000 new food stamp applications each month, said Tom Shanahan, a department spokesman. More than 176,600 people are enrolled in the program - more than double the 2007 level.

“We’re setting records every month,” Shanahan said. “Food stamps are a good indicator of the number of people living near poverty. We’re seeing the effects of layoffs and high unemployment.”"

• 15) Video: Ron Paul on CNBC’s Squawk Box:

“Debate on Bernanke, the Fed, and Stimulus

Congressman Ron Paul schools Pennsylvania congressman Paul Kanjorski on the “merits” of the Federal Reserve and government bailouts.”

• 16) Pennsylvania Capital Should Weigh Bankruptcy, Controller Says

“Jan. 26 (Bloomberg) — Harrisburg, Pennsylvania, the capital of the sixth-largest U.S. state by population, should skip a $2.2 million debt service payment due Feb. 1 and consider bankruptcy, City Controller Dan Miller said.

Harrisburg faces $68 million in payments this year in connection with a waste-to-energy incinerator and should weigh Chapter 9 protection from creditors or state oversight through a program known as Act 47, Miller said today. Chapter 9 bankruptcy allows municipalities to reorganize rather than liquidate. ”

• 17) Housing recovery could take a decade, economists warn

“Even as the housing market shows signs of improvement, including in new data released Tuesday, economists warn that it could take up to a decade for many homeowners to regain equity in their homes, while some people in the hardest-hit regions of the country may not see a recovery during their lifetime. ”

• 18) Report: Restructure or eliminate county government (Milwaukee County)

“The long-awaited Public Policy Forum report on how to restructure and possibly eliminate Milwaukee County government was released Wednesday with a sober warning that the county’s budget problems are only going to get worse in coming years unless drastic measures are implemented.”

“The Milwaukee-based Public Policy Forum estimates the county’s structural deficit will increase from $48 million in 2011 to more than $106 million by 2014. The projected deficit is an indication that the county’s finances are crumbling and valued services such as parks, transit, mental health and public safety face severe degradation without prompt action, according to the report.”

• 19) Pension time bomb troubling to Spring-Ford (PA)

“Compared to 2009-10, the Spring-Ford school district faces a 72 percent, or $2.1 million, increase in the amount of money it must pay to the PSER for the 2010-11 school year, said Timothy Anspach, the district’s business manager.

This year, the district contributed 4.78 percent of what it spends on salaries to PSER. Next year, that amount will jump to 8.22 percent. In 1011-12, it’s predicted to rise to 10.59 percent. In 2012-13, it is estimated to be 29.22 percent. In 2013-14, it will be 32.09 percent. And by 2014-15, 33.6 percent ($6.9 million) of salaries will go to PSER.”

• 20) Himes and state legislators warn of budget crunch (CT.)

“The Connecticut General Assembly will convene next Wednesday for a new legislative session, where it will attempt to close a $500 million budget deficit this fiscal year. The state faces a projected $12.5 billion deficit through 2014.

State leaders can no longer defer budgeting to cover long-term commitments, including an expected $40 billion in unfunded pension, health, and other benefits for state employees, State Sen. L. Scott Frantz, R-Greenwich, said.”

• 21) Ore. voters approve $727 million tax hike

“For the first time since 1930, Oregon voters approved a general tax increase on Tuesday (Jan. 26), signing off on a plan to raise $727 million by targeting corporations and the wealthy.

By approving two ballot initiatives — known as Measures 66 and 67 — Oregonians showed that they prefer to tax relatively well-off segments of the population instead of making deep budget cuts to education and other state services.”

- Saxplayer00o1