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Is Los Angeles unique or just the first?

City Controller Wendy Greuel declared an "urgent financial crisis" and said the only way to continue paying bills in the short term was to begin to drain the city’s already limited emergency reserve. Greuel said the city would need to pull money from its $191 million in reserve funds immediately to pay its bills next month. She expects the city to be out of money, and probably in the red, by June 30. Some officials fear that using that money would not only leave the city without reserves in case of emergencies, it would also probably trigger another downgrade in its Wall Street credit ratings.

Cities all over the nation are scrambling to pay their bills and that’s nothing compared to the disasters state budgets face. A study released Monday by Stanford University estimates that California’s three largest state-operated, public-employee pension funds — the California Public Employees’ Retirement System, California State Teachers’ Retirement System and University of California Retirement System— currently face a total shortfall of more than $500 billion. Gov. Schwarzenegger warned Monday that pension-fund shortfalls could lead California, which faces a $20 billion budget gap in the coming fiscal year, to divert more funds from other state programs to cover pension costs.

Fortunately for the dollar, we are by no means the most screwed-up economy on the planet. The Euro is dropping to new lows this morning amid speculation that a plan for Greece to obtain European Union and International Monetary Fund help in cutting its budget deficit may falter (again). The report that Greece “isn’t keen on the IMF being involved in any bailout would seem to throw the whole plan into question,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “As an investor, do you really want to hang around and see what’s happening next? The Greece story is definitely a negative for the Euro.”

The Dollar is not doing so well against the Aussie Dollar, which rose to 92.14 this morning as the ACB raised their main interest rates to 4.25%, its fifth rate increase in six meetings. Even more shocking to most Americans is the Canadian "Loonie," which is now trading at $1.0008 to the dollar - almost on par to the dollar and down from 1.26 Loonies to the Dollar last March! So let’s not get too full of ourselves, America - Canada is quietly taking over North American economic leadership

With our own Fed Funds rate lower than Japan’s (0.3%) at the moment, we’ll be getting a read of the Fed’s Minutes this afternoon and looking for signs that the US will be as brave as the Bank of England (0.5%) or the ECB (1%) in raising rates to within 1/10th of Australia’s levels. Our last rate change was an "emergency" 0.75% drop on Dec. 16th, 2008, when the Fed slipped in what is now adding up to a $1.5Tn gift to their banking buddies who are able to borrow at 0.25% (subsidized by we, the people) and play the markets, buy commodities or simply put their money into countries that pay much higher rates like Brazil (8.75%), Egypt (8.25%), South Africa (6.5%), China (5.31%), India (5%) or Australia (4.25%). China is pegged to our currency, for goodness' sake - that’s a pretty good way to play the carry trade!

Speaking of things that get carried - despite the huge run-up in commodities this month, the Baltic Dry Index has fallen almost 20% as there is less and less actual demand for said commodities. This is especially true in the oil segment, where the number of tankers storing oil in order to create the false impression of demand and inflate prices has fallen from 168 in November to "just" 104 at the end of February and you can see the rapid delcine in rates on the BDI as oil shot up over $80 and investors like JPM, MS and C cashed in their winnings in another excellent use of taxpayer bailout dollars. Now we face a serious tanker glut as there hasn’t been any actual, non-speculative demand for anything in two years.

Commodity pushers led the Asia/Pacific Index to new highs this morning as oil was jammed back over $86.50 in overnight trading and copper broke the magical $8,000/ton mark, which is about $3.63 on our futures. The Nikkei was unable to hold their highs as the Yen bounced back slightly, finishing the day at just under 94 Yen to the dollar and that cost the Nikkei another 56 points this morning but fortunately, they gained 60 points in the last 45 minutes of trading or things might have looked ugly! The Hang Seng is still closed and India was dead flat so we have a continuing rally in the MSCI that is based mainly on trading closed markets, forming a massive, speculative bubble that makes EDZ a really great hedge today after closing right at $39 yesterday.

Europe is well off a strong open and now (9am) flatlining ahead of the US open. British PM Brown called for a general election on May 6th, which is hurting the Pound ($1.515) on concerns that it may result in a hung Parliament, with no party holding a clear majority and, unlike the US, EU investors are not big fans of gridlock. Here’s a great video of Brown and Cameron going at it over the last election. The Euro also went down sharply, driving oil up a whopping 28% in two months against that currency, and bond yields in Greece climbed back to Jan 29th highs (when the markets were tanking). As in Asia, the commodity pushers were having a good old time with BP (BP) and Shell (RDS.A) gaining 1.5% on the day, and miners once again leading the indexes. “The market is clearly betting on the improvement in the economy,” said Kilian de Kertanguy, who helps oversee about $3.1 billion at Cholet-Dupont Gestion SA in Paris. “Each time economic data support an amelioration, stocks are rising.”

This morning’s amelioration in the US is coming from our Retail Sales, with the ICSC Report showing a 4.7% year/year improvement. As I pointed out last week, this is a fantastic number if we ignore the fact that last year was down over 10% from the year before AND it wasn’t Easter last year (a week later) AND the sales report doesn’t take into account that 10% of the competition went out of business so all we are really measuring is a redistribution of what’s left of consumer spending to the surviving stores. Look for the MSM to sum this all up as "great sales numbers."

We’ll see if this "great" news is going to be enough to finally get us to that magic 11,000 mark on the Dow. Our other resistance points have not been holding up and we continue to watch the NYSE, which hit the roof at 7,600 yesterday, as our strongest directional indicator while we wait for the Russell to catch up (700) and give us the all-clear to get a little more bullish. Until then - we remain cautious and in cash.

Source: Topics for a Toppy Tuesday