Three California cities – Stockton, San Bernardino and Mammoth Lakes – have filed for bankruptcy so far this year.

They are not likely to be the last, Moody’s said it this article from Associated Press

Moody’s reports that some cities are turning bankruptcy as a new strategy to take on budget deficits and avoid obligations to bondholders, an emerging dynamic that could have ripple effects throughout the investment community.

The municipal bond market has long been characterized by low default rates and relatively stable finances, Moody’s said, but that outlook is beginning to change as bankruptcy becomes a tool for cash-strapped cities.

As a result, the agency will reassess the financial position of all cities in California, which issues about 20 percent of the municipal bond volume nationwide, “to reflect the new fiscal realities and the governmental practices.”

The agency also will examine the outlook for municipal bonds in other troubled states, according to Robert Kurtter, managing director of public finance at Moody’s.

Moody’s would not say which states it will review, though Kurtter mentioned Michigan and Nevada as possibilities. Friday’s report noted that cities across the country are in financial distress but said that a greater share of bankruptcies are expected in California.

In California, officials rushed to downplay the report.

“Moody’s has an obligation to review changing circumstances, but we would just suggest that their assessment of the framework and ground activities is perhaps exaggerated,” said Chris McKenzie, executive director of the League of California Cities.

The state treasurer’s office also cautioned against overacting to three bankruptcies among California’s 482 cities.

“No city’s going to blithely skip into bankruptcy court to avoid its obligations,” said treasurer’s office spokesman Tom Dresslar, who called the report “a little hyperbolic.”

More than 10 percent of California cities have declared fiscal crises, according to the Moody’s, with the most troubled areas lying inland in the middle of the state and east of the Los Angeles area.

Kurtter said the declarations of emergency were “a reflection of the broader fiscal stress in the state.”

Moody’s floated the idea Friday of an across-the-board ratings adjustment for California cities, a move McKenzie warned “would have a terrible impact on taxpayers.”

The agency will consider ratings downgrades for embattled counties, school districts and special districts.

The report highlighted growing doubts in some corners about whether cash-strapped cities are making good-faith efforts to pay their debts.

“Credit analysis is based on the ability to pay and the willingness to pay,” said Paul Rosenstiel, Principal at DeLaRosa & Co., a San Francisco-based municipal bond investment-banking firm.

Investors have historically assumed that cities are willing to pay their debts because they want continued access to the bond market, Rosenstiel said.

Now, some are not so sure.

“What is being considered is whether the willingness to pay is something that needs to be factored in more than in the past – and if so, how would you measure it?” he said.

Lower bond ratings would increase borrowing costs for cities at a time when many already are struggling financially because of a steep drop in tax revenue. Because of that, Friday’s report is raising alarms for city leaders who fear that it could trigger a crisis of confidence that would hinder their ability to borrow for needed projects.

“Every city in the state is looking on with some concern,” said Dave Vossbrink, spokesman for the city of San Jose. “Governments of all kinds borrow money, usually to build infrastructure that lasts a long time. It’s like getting a mortgage to build roads, a sewage plant, whatever it might be.”

San Jose has shuttered libraries and laid off police officers to cut costs, and residents voted this summer to cut the pension benefits for city workers. But while the city is taking steps to reassure investors of its fiscal health, there is frustratingly little it can do to control larger fears about the municipal bond market.

“We know that even though we have a good reputation for our own affairs, if you are in a marketplace where some of your counterparts may be in a less desirable position, then it could have some bearing,” Vossbrink said.

Moody’s said it will review all California cities in the coming weeks and conduct in-depth reviews of stressed cities in September, with reports issued as the reviews are completed.

According to Moodys

Just listened to a very interesting podcast over at marketplace.org

In an interview with Economist Michael McDonough from Bloomberg.

McDonough offers a theory regarding the correlation of Trash to the Health of the Ecomomy as a trailing indicator:

Ryssdal: Yeah, that’s right. Explain to me how this works, because it’s not like iron and steel — which are the biggest components of all this stuff — and demolition. It’s not like that has anything to do with consumers buying more stuff and then throwing more stuff away.

McDonough: That’s what’s great about this indicator. It’s holistic because it’s not isolated to a single part of the economy. It’s people throwing things out, it’s buildings being demolished — it’s everything. The current levels are indicative that you may be seeing a weakness in new construction. I mean, if you’re going to build a new building, there might be a building that’s already there. If you buy a couch, you might be throwing out an old couch. If you go out to McDonald’s and you buy something, you’re going to throw something out. So the fact that it is as weak as it is right now means something’s wrong in the economy, potentially, in the underlying economy.

Ryssdal: So what kind of trash we talking here? Is this everyday household waste?

McDonough: You know, it’s a whole mix of trash, actually. What you have is almost half of what the trash is iron and steel waste, and then the next biggest component is your demolition and your municipal waste. So places like New York City, Seattle — these guys are putting a lot of their trash onto trains, shipping it out to other states, and then dumping it there.

Ryssdal: And we should say that’s where the data comes from, right? You get it from the American Association of Railroads or something, and those guys actually measure carfuls of stuff?

McDonough: Exactly. On a weekly basis — that’s what’s even more interesting about it. When you think about the concept of using trash as a proxy for GDP, it’s not a leading indicator. If anything, maybe it’s a slightly lagging indicator, because you have to wait for people to throw things out, possibly. More than likely, it’s a coincident indicator. Except, you know, for GDP, you need to wait a month or two after the quarter ends before you actually get that figure.

If this is indeed an indicator, and it shows in the past it has been, then I see a significant divergence forming for Q3 GDP announcement

Nice infographic here from the folks at memeburn on the battle for internet supremacy. What always surprises me in these comparisons is that you’re talking about 3 different business models –

AAPL wins hardware which is great as long as you keep customers in that replacement cycle with pads and phones every few years. Their itunes revenues contribute a little, but not much in comparison to valuation.

GOOG rules the search space and hence, the ad dollars. The move to mobile contiues to hurt their revenues, however. Here in KC they’re trying to get into ISP business with Google fiber. That may open up some interesting opportunities down the road

MSFT owns the business world. 90% of all the corporations use MS products from Servers to Office. It’s not a market that’s at risk either, in spite of what salesforce.com (CRM) or Linux (RHAT) users would have you believe. Xbox adds a little to the bottom line, but again it’s just a blip in comparison

Great article today in the Wall Street Journal – as FB sets new lows day after day with the lockup period expired, founder Mark Zuckerberg is holding daily Rah Rah sessions with employees to raise spirits

Mr. Zuckerberg has long exhorted employees not to pay attention to the stock price, instead pushing them to focus on developing the social network. But in a companywide meeting earlier this month, he conceded that it may be “painful” to watch as investors continue to retreat from Facebook’s stock, according to people familiar with the meeting.

The meeting was part of a new effort over recent weeks to buck up morale.

Mr. Zuckerberg’s turnabout may have steeled employees ahead of Thursday, when some early Facebook investors—but not employees—were able to cash out for the first time since the company’s initial public offering in May.

Facebook shares hit a new low on Thursday, falling 6.3% to $19.87 as more than 271 million shares—or nearly 13% of those outstanding—became eligible for sale.

Looking at TLT –  notice a couple interesting things –

1. The last time bonds crashed they found support at their 200 DMA and rallied to new highs

2. Price today bounced off the 50% Fibonacci retracement from the March 19 low

Summary – not a bad place for a buy here and the 200 DMA makes a good stop loss