Conference nyoss1::market_investing

    I have heard some of the CA discount brookers are buying these IOUs on
    a 5% discount. Now, consider it is a pretty good investment for 5%
    return, IF the CA state government can get its acts together, and IF
    they can collect enough tax to pay off these IOUs, and IF they can do
    it in a reasonable period of time (say 6 mo.), and IF they don't go
    into chapter 11, and IF....  But, can they do all that? Your guess is
    as good as mine! Some of the banks in CA already stopped this practice
    (cashing IOUs). 
    
    BUT, on a bright side, if everything go bust, at least you can write
    them off on your tax return.   :-)
    
    Mike

    This is a good argument in defense of speculators.
    
    The person who is willing to go into the market, putting their own cash
    on the line, is doing EVERYONE a favor.  By bidding for CA-IOUs, in the
    unashamed hope of cashing them in later, the speculator is increasing
    the price (more bidders == higher prices) for notes that might otherwise 
    have to be sold at a deep discount to pay workers or buy groceries.
    
    The speculator is taking the risk out of the game for someone else.  
    In return for taking on that risk the speculator hopes to make a profit.
    All those IFs in .1 are possible and if any one of them comes to pass
    the speculator is the loser.
    
    Me, I'd wait until the current state Senate proposal is zapped by the
    assembly, likely causing a spike up in the discount (say to 7.5%).
    Then buy a bundle.  Of course, it IS risky...
    
      John

    I thought the state of California was accepting the promissory notes as
    legal payment for debts to the state as face value.

    Since the notes in circulation do not exceed the aggregate receivables
    to the state (nearly all of it taxes), I wonder why the spread is as
    high as 5%.
    
    I guess that they need to be converted to cash in order to become
    interest bearing.

    
    Re: .3
    
    The spread is 5% wide is for those cash broker as you already guess
    it need to be converted into cash for meaningful calculation.
    
    Some small outfit (like dental office, food supply, or individual
    state worker etc,) they need the cash and redeemed their CA IOU
    with Pawn broker for 95% the face value of CA promissory notes.
    
    Re: .1
    
    I agree with you there's likelihood that CA may go under or budget
    will never reach agreement. However, the interest keep accrued on 
    IOU and will be paid by CA someday. As long as they have budget, they
    can get loan from bank, institution etc. It's the same process MA
    went through two yrs ago. CA is in debt already now, the same for
    MA, it's just different magnitude, and bond rating varies for both
    state.
    
    Probably, the most risk is how long CA will reach budget by current
    negotiation ?
    
    Look this way, Uncle Sam is in deep deficit for years, and loyal
    citizen keep their faith by puting their money in C.D, and T.Bill,
    T.Notes, don't they trust that Uncle Sam will go under someday, and
    their paper worth nothing ?  
    
    In my impression, it's the same risk/award game between CA and U.S
    notes. Those CA IOU is same degree tradeable as T.Bill, with different
    interest %,and face value. However, CA IOU don't have maturity day
    as T.Bill does unless budget is compromised.
    
    Michael.. (No risk, no gain)
    
    
    
    

re: 270.4

>   ...the interest keep accrued on IOU ...
      
      Is there INTEREST being paid on these???
      
      Somebody  correct  me if I'm wrong, but I thought they were only a
      promise to redeem and face value "someday". If I'm right, the only
      way  to  profit on these is to by them below face value (i.e. at a
      discount) and sell them back later at full  face  value.   (or  at
      least for more than you paid for them.)
      
      It seems to me that 5% isn't much more than the handling costs for
      the transaction, at least for face values on  the  order  of  most
      paychecks.  I bet that in a market that could effeciently sell you
      a large quantity of thes the discount would be less than 5%.
      
      Rith   now  this  looks  like  a  playground...  ah,  I  mean,  an
      opportunity for investors with at least an order  of  manitude  or
      two more speculative case than I have.

    re: .4
    
    Well, I don't think I would compare Uncle Sam to the California stste
    government. The main difference between buying T-Bills/T-Notes and
    buying CA-IOUs is that the U.S. government has the power to print money
    (if it needs to) and the CA state goverment doesn't. So, what does this
    mean to me? If I buy a T-Bill, I know I can count on Uncle Sam to pay
    me back when it's due. He may have to oil up the old printing press to
    do it - But, I know he WILL do it. (Inflation is NOT discussed here.)
    But, for these IOUs, I do not have that kind of back up (or "guarantee",
    if you will). I guess you said it right, you want the glory, you have
    to take the risk. Now, my understanding is also sorta like .5. I 
    thought these IOUs are only worth of their face value. Let's say if (a
    BIG "if" here) the CA government can get their act together and pay off 
    these IOUs in six months. A 10% annual return on investment is good
    (for this year). But, I can hardly call it "glory".  
    
    Mike  

    
    In today's paper, it seems governer Wilson is going to sign the budget
    tommorrow.
    
    Re the interest on IOU, the paper said CA already paid $3 billions
    in bills with IOUs. Interest on the IOUs has cost tax-payer neraly $9
    Millons since Jul/1st.
    
    Now, let's calculate, that's roughly .3 % based on above.
    
     May be someone from CA can share more light into this ?
    
    Michael..

    .3% for two months? It's less than 2% anually. Boy, I know the interest
    rate is low now. But, I didn't know it was that LOW.   :-(