KeNo's Housing and Economic Portal: Monday June 8 Housing and Economic stories

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Borrowing to Replenish Depleted Pensions - (www.nytimes.com) Facing a shortfall of more than $50 billion in his state’s pensions, and with no simple solution at hand, Gov. Tom Wolf of Pennsylvania is proposing to issue $3 billion in bonds, despite the role that such bonds have already played in the fiscal woes of other places. And he is not alone. Several states and municipalities are considering similar action as they struggle with ballooning pension costs. Interest in so-called pension obligation bonds is expected to intensify in the wake of a recent Illinois Supreme Court decision that rejected the state’s attempt to overhaul its severely depleted pension system. The court ruled unanimously that Illinois could not legally cut its public While the Illinois ruling is not binding on other states, analysts think it may influence lawmakers elsewhere to look to alternatives to cutting public pensions. The Illinois justices offered a list of all the times since 1917 that state lawmakers had ignored expert warnings and diverted pension money to other projects. They said, in effect, that the lawmakers had to restore the money.

PBOC Said to Drain Funds by Selling Repos to Selected Banks - (www.bloomberg.com) China’s central bank offered short-term debt to selected financial institutions, helping them deploy excess cash as an economic slowdown stifles demand for loans. The People’s Bank of China drained tens of billions of yuan from the financial system recently by selling repurchase agreements, according to two people familiar with the matter. The authority sold more than 100 billion yuan ($16 billion) of seven-, 14- and 28-day contracts, Reuters reported Thursday, citing people it didn’t name. An overnight money-market rate earlier slid below 1 percent for the first time since 2009. China’s lenders are awash with funds after the central bank reduced interest rates three times since November and eased reserve requirements to help an economy growing at the slowest pace since 2009. The PBOC likely refrained from offering repos in open-market operations to avoid signaling a tightening of policy, according to Standard Chartered Plc. Repos haven’t been auctioned at all so far this year, and funds were injected using reverse-repurchase agreements as recently as last month.

For Battered Brazilian Utilities, $8 Billion Bill Is Latest Blow - (www.bloomberg.com) Add one more item to the list of reasons investors still shun Brazilian power utility stocks: an $8 billion energy bill. That’s how much JPMorgan Chase & Co. estimates they had to pay last year to buy power in the spot market because of energy shortages caused by a drought and project delays. And that applied to all of them. Under Brazilian regulations, even generators that meet their supply contracts, like CPFL Energia SA and GDF Suez’s Tractebel Energia, must foot part of the bill when the entire industry falls short. The charge is the latest blow for an industry that lost $25 billion in market value since 2012, when the government forced power utilities to cut prices if they wanted to hang on to their generating licenses. This year, generators can expect to pick up a tab of as much as 35 billion reais ($11 billion), JPMorgan analysts said in a report in March.

The Tanker Market Is Sending a Big Warning to Oil Bulls - (www.bloomberg.com) Four months into oil’s rebound from a six-year low, the tanker market is sending a clear signal that the rally is under threat. A sudden surge in demand for supertankers drove benchmark charter rates 57 percent higher in the two weeks through May 20. OPEC will have almost half a billion barrels of oil in transit to buyers at the start of June, the most this year, while analysts say about 20 million barrels is being stored on ships in another indication the glut has yet to dissipate. The Organization of Petroleum Exporting Countries is pumping the most oil in more than two years, determined to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced. The world is pumping about 1.9 million barrels a day more crude than it needs, according to Goldman Sachs Group Inc. “Supply of oil continues to build,” said Paddy Rodgers, the chief executive officer of Antwerp, Belgium-based Euronav NV, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,” he wrote in an e-mail May 19.

Financial Vulnerability Haunts U.S. Families After Crisis - (www.bloomberg.com) Five years after the recession ended, many Americans still teeter on the financial brink, barely prepared to handle an emergency expense and aging toward retirements they haven’t saved for, a Federal Reserve report shows. About 47 percent of 5,896 respondents in the Fed’s 2014 household survey, taken last October and November, wouldn’t be able to cover an emergency $400 expense without selling something or borrowing money. While that marks an improvement from 52 percent last year, the report states that it shows many Americans to be “ill-prepared for a financial disruption.” The survey paints an image of fragile households, seemingly at odds with climbing consumer confidence and a healing economy. The findings demonstrate that the hangover from the financial crisis and downturn of 2007 to 2009 still weighs heavily on family balance sheets.

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