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A sign stands in front of California Public Employees' Retirement System building in Sacramento. The fund has shown that it won't give an inch in bankruptcy.
One of the biggest questions to be answered by the bankruptcies of two large California cities, Stockton and San Bernardino, is "How hard will CalPERS fight?" CalPERS is the gigantic pension fund for California's public workers, managing more than $230 billion. And it's now being accused by a Bermuda-based bond issuer of getting favorable treatment in Stockton's Chapter 9 proceeding.
A Stockton proposal to creditors in May, which was made before Chapter 9 proceedings began, showed the city on the far outskirts of the San Francisco Bay Area was ready to fully pay pension fund payments but largely abandon payments on $121 million of pension obligation bonds backed by Assured Guaranty.
Assured calculated that the loss on bond principal would be 83 percent. That amounts to $100 million, which Assured would have to cover.
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Bill Gross, CIO of PIMCO, hits a shot during the AT&T Pebble Beach National Pro-Am at the Spyglass Hill Golf in 2012. Let's just hope co-CIO Mohamed El-Erian wasn't watching.
Two of the most generously compensated money managers in the world labor just down the road from Los Angeles, at Newport Beach bond colossus PIMCO, which oversees a staggering $1.8 trillion in assets. Co-Chief Investment Officers Bill Gross and Mohamed El-Erian make, respectively, $200 million and $100 million a year.
At least according to Geraldine Fabrikant's recent profile of (mostly) El-Erian in the New York Times. As Felix Salmon notes in a post that has now provoked some debate, Reuters reported last year that Gross and El-Erian were only making $33 million each. Then, as now (Felix checked), PIMCO disputes these figures. But Felix doesn't think they're totally out of whack, at least where Gross is concerned:
Certainly that kind of payday is within the realms of possibility, given that his firm manages $1.8 trillion, and his Total Return Fund has $263 billion under management: $200 million is just 0.01% of the former, or 0.08% of the latter. On the long-only buy side, the way you get paid for performance is that your performance attracts new money, and the new money pays management fees. And so long as Pimco’s assets under management are going up rather than down, I can see how Gross’s pay might do likewise. But still.
AP Photo / J. Scott Applewhite
The Federal Reserve Building in Washington, DC.
The Federal Reserve released the minutes from its most recent Open Market Committee meeting today. Bottom line: There will be no additional round of "quantitative easing," or QE3. This means the Fed won't print more money to buy bonds and drive down long-term interest rates.
At the Huffington Post, Mark Gongloff had the best take:
This affront to humanity sent the stock market tumbling immediately, making it seem almost as if the market's rally to multi-year highs had less to do with actual economic growth than with an addiction to Fed stimulus.
At the worst moment for the market this afternoon, the Dow Jones Industrial Average was down about 130 points, or about one percent, while the S&P 500 stock index was also down about one percent. Both markets were on track for one of their worst days of the year.
Gold, silver and platinum, which have thrived under a free and easy Fed, fell even harder. Gold at last check was down nearly 2 percent to $1650.40 an ounce.
U.S. Treasury bonds fell, too, as the Fed's minutes disappointed market hopes that Bernanke & Co. would soon launch another program to print money and buy bonds. The 10-year Treasury note recently yielded 2.25 percent, which is still ridiculously low, thanks in part to the Fed still keeping its promise to hold short-term interest rates near zero until sometime around the Second Coming.
My continuing effort to track the eurozone crisis via Storify continues. And the outlook for the single currency just gets worse and worse. Greece, Italy, and Spain have joined Ireland and Portugal in the basket-case category. France is under threat as its borrowing costs rise, and now even Germany is having trouble getting investors to buy its bonds.
On the plus side, I think we're running out of countries in Europe to see infected by this.