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BlackRock head of municipal bonds group Peter Hayes weighs in on the state of California's finances.
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You axiom I thought.
You know this those bond yields yes -- talking about that come off their highs a little bit just the last couple minutes this is looking at a -- shut down and that might be one of the reason gonna pop and in in stocks today -- California yields yes has been in the headlines for.
Well forever for its big budget problems but -- could it presents some investment opportunities.
As well.
Our next guest says absolutely.
Resoundingly yes Peter -- -- head of municipal bonds.
At BlackRock and he is joining us now.
But just looking at the returns on mutual fund categories -- California -- -- category and has been on fire this year.
There isn't there really is you would have come into this year thinking that crystal Munis really -- a total return or thought I was a total return asset class.
If you look at the robust returns of 2011.
And you say what's gonna happen in 2012 -- more about in coming here we -- with some pretty strong.
Year to date returns so far.
Also almost 6% more than a long it's just so long regular bond fund right it's amazing it's about durations to some degree so longer duration as you pointed out is as important.
Long term interest rates have been falling a lot of that in line obviously with treasuries but demand strong fund flows continue investors want bonds.
They want -- yield they -- income and they're finding it to some degree of California it's kind of interesting because any time something's going wrong anywhere in politics -- No business sports and -- -- -- that Abbas in the media did you hear about all time every day is this is California now OK and we were just not talking about a there.
California's been okay the difference with California's every year the budget process comes right around this time you know remember most states.
The exception of two have to constitutionally balance a budget.
So they get it done.
The process is.
Difficult and painful and sometimes lengthy and that's why the headlines right here -- -- big economy so their budget deficits when they do print them.
Tend to be on the big side there headline grabber is an in this case we're talking they went from eight to nine to ten to fifteen billion.
By missing in the tax revenue side but there's a lot of spending cut implementations another.
Things are being undertaken by the governor so it's it's gonna happen but in the meantime the headlines do get creative do you think they're downsizing and and governments is done in terms of me the number of job cuts that say -- on local.
It it's really -- I would say the peak was probably 2000 begin in 20082009.
-- world where the peak.
The interesting part is that at the state and local -- do continue with the margin to shed jobs and -- not having the ability to really had them back.
Even though on the revenue side revenues are increasing so.
I think the worst is over but it's clearly been a drag on the economy now if -- revenues turned down a lot because of the economy gets smaller because of Europe progressives -- -- they talk about.
Then that's another -- -- -- those cuts -- There are still individual ministers -- -- state and local the local level we've talked about Stockton California recently mean there are individual.
Issues right that are and in -- -- it's gonna be the way it is just popping up individual cities that have problems are supposed to.
The -- that is our view we think that the states are -- states have a lot of ways say they can balance their budgets by raising taxes rather than the lot of ways that they can do that.
Local government -- the most flexibility they really rely on property tax collections which is relying on the housing market which doesn't seem to be coming back anytime soon.
So they remain stress -- your right I think that's that'll -- you'll see these one offs.
We're seeing in Stockton California.
That's about overbilled and leverage as a result of the housing boom earlier in the decade so -- gonna continue on if the judge is listening don't get rid of those property taxes in North Dakota right -- here.
Thank you -- -- severely thank you back.
