The Blog of Evermore

The Looming Impact of State and Local Government Budgets

August 5th, 2010

In late 2008 and early 2009 we saw the impact of a rapid downsizing within the private sector. The unemployment rate soared and expenditures were cut. This year, the private sector has stabilized for the most part; but is this just the eye of the storm?

A new source of strain on the economy is coming by way of state and local government budgets that lawmakers are currently trying to cobble together. The impact of this recession is only now hitting governments with full force. The combination of lowered sales, income, and property tax revenue combined with increased social spending means that there will be drastic cuts required in upcoming fiscal budgets. This translates into more unemployment, reduced payrolls and painful cuts in services. These cuts will not only impact state and local employees and the citizenry, it will also impact the private sector.

So caution is still in order. I have roughly the same allocations I had before and have been happy with my telecom investments as the 7% yield I’m getting on AT&T and Verizon coupled with their recent run-up makes for a nice return in this market. I also ditched the last of my Dover Motor Sports around $2.00 and have since seen it fall almost 25%.

I’ve also seen my agriculture ETF (DBA) rebound back to and above my December, 2009 entry price. I was down for quite a while but my patience was rewarded. The ongoing drought in Russia and surrounding region has caused a spike in wheat prices that has helped with that investment. I had a little more in the ETF than I was comfortable with, so I let go 40% to bring it down to a more reasonable percentage of my portfolio.

There’s not a whole lot out there that looks attractive right now. I did just buy some Corning (GLW) at $18.84. They have a reasonably strong balance sheet and they have a product they call “Gorilla Glass” that could help improve the bottom line over the next couple of years. It is a very strong glass that enables manufacturers to create products such as flat screen TV’s without the need for a surrounding frame, thus reducing the weight of the television and probably just looking pretty cool. For some company information on the product click here

Given that Corning was trading at about 9 times projected earnings, they pay a very modest dividend and they are positioned well if we ever do start bringing fiber to the curb, I figured it was a reasonable risk. At this point I’ve just dipped my toe.

Entry Filed under: Finance