Gyroscopic Investing

http://www.forbes.com/sites/baldwin/201 ... ral-state/

Don’t buy a house in a state where private sector workers are outnumbered by folks dependent on government.

Thinking about buying a house? Or a municipal bond? Be careful where you put your capital. Don’t put it in a state at high risk of a fiscal tailspin.

Eleven states make our list of danger spots for investors. They can look forward to a rising tax burden, deteriorating state finances and an exodus of employers. The list includes California, New York, Illinois and Ohio, along with some smaller states like New Mexico and Hawaii.

If your career takes you to Los Angeles or Chicago, don’t buy a house. Rent.

Some of those states are pretty terrifying.  My parents are both teachers who work in Illinois but live in Indiana.  I really worry that their pensions aren't going to last through their entire retirement.  That whole system is hugely corrupt.

For example, my mother is getting ready to retire next year.  Because your retirement is based solely on your salary the last year worked, the teachers union gives huge raises for the last 5 or 6 years before retirement to inflate salaries and lock in a higher retirement.  It's simply not sustainable and nobody in the system seems to understand that a lower benefit that lasts the duration of your retirement is preferable to a higher benefit that is lost in a state bankruptcy.

In short, even if you don't live in the state you can still get burned.  When the California disaster finally collapses we're all going to feel the pain.

Benko wrote: http://www.forbes.com/sites/baldwin/201 ... ral-state/

Don’t buy a house in a state where private sector workers are outnumbered by folks dependent on government.

Thinking about buying a house? Or a municipal bond? Be careful where you put your capital. Don’t put it in a state at high risk of a fiscal tailspin.

Eleven states make our list of danger spots for investors. They can look forward to a rising tax burden, deteriorating state finances and an exodus of employers. The list includes California, New York, Illinois and Ohio, along with some smaller states like New Mexico and Hawaii.

If your career takes you to Los Angeles or Chicago, don’t buy a house. Rent.

It seems like you could have said the same thing about those state 20 years ago and yet the price of housing and other items in those states has steadily risen.

The exodus of employers from those states has been going on for decades.  State like Texas, Arizona, Tennessee and the Carolinas have benefited enormously from this shift.

To me this reads as a "flight to safety" argument. It's cogent. But it's always possible to make the opposite "value" argument. I.e. people are overreacting and the exodus mindset is creating buying opportunities. I live in California and I probably fall about in the middle.

RuralEngineer wrote: It's simply not sustainable and nobody in the system seems to understand that a lower benefit that lasts the duration of your retirement is preferable to a higher benefit that is lost in a state bankruptcy.

My understanding is that state's are "sovereign" and cannot declare bankruptcy, at least in the same way that a corporation (municipality) does.

This is not to say that your concerns are not completely valid, because I think they are.

murphy_p_t wrote:

RuralEngineer wrote: It's simply not sustainable and nobody in the system seems to understand that a lower benefit that lasts the duration of your retirement is preferable to a higher benefit that is lost in a state bankruptcy.

My understanding is that state's are "sovereign" and cannot declare bankruptcy, at least in the same way that a corporation (municipality) does.

This is not to say that your concerns are not completely valid, because I think they are.

I don't believe there is any functional difference between states and municipalities with respect to their ability to declare bankruptcy.

To be fair, I don't mean to imply that I expect all pension benefits to be revoked.  There would be blood in the streets.  I do expect benefits to be slashed drastically, for future pensioners and current beneficiaries as well as increases in required contributions.

I'm sure states like California or New York would love to find a way to print their own money. Muni bonds only go so far.

A fiat currency within a fiat currency!

Many of these death spiral states are in what was called "The Rust Belt" 25 years ago.  No one knows what the end game is yet, but someone is going to get hurt (in other words, residents, investors, public servants, property owners, businesses, whatever) when the courts finally decide the outcome.

11 ‘Death Spiral’ States Have More Takers than Makers
http://video.foxbusiness.com/v/19969375 ... an-makers/

Economics can predict what will happen, but not *when* it will happen. It could be another 50 years of rising housing prices as these states continue to kick the can down the road.

I can forsee some more Fed money printing ahead to help bail out these states.

TripleB wrote: Economics can predict what will happen, but not *when* it will happen. It could be another 50 years of rising housing prices as these states continue to kick the can down the road.

Do you think the pension obligations can be met over the course of the next 50 years?

States like IL are already severely delinquent in paying their subcontractors / suppliers.

50 years sounds pretty optimistic to me.

With all this, it is helpful to consider these things in inflation adjusted dollars (as a likely out at the federal level is massive dollar debasement...money printing)

I am grateful that I accepted the view many years ago that housing was severely overvalued and chose to be a renter.