Uh Oh.....

The Governator just ordered California state departments to slash 10% from all spending, according to the LA Times. Here are a few of the meat and potatoes quotes:

State officials have warned the governor that the likely deficit for next year has jumped from a few billion dollars to as much as $10 billion

Recently, administration officials acknowledged that receipts through September -- just three months into the fiscal year -- were about $1.5 billion below projections.

Hmmmm..... Put these two quotes together and the numbers just don't add up. Reporters aren't known for their math skills, but $1.5 billion short per month = $18 billion. Heck, let's just round that up to $20 billion. Ouch! Doesn't look like health care for all Californians is going to fly.

In the past two months, I've noticed "For Lease" signs at commercial space sprouting up everywhere, like mushrooms after a nice rain. My friend Al noticed the same thing. California is a proxy for the U.S. economy. It was the frontrunner for the dot.com boom and bust, and is not the leading indicator for the housing bust.

In more vague news, the ABX and CMBX indexes are disintegrating. If we follow the same pattern as in August, before the end of the month, we will have another major panic, and there will be some golden opportunities to cover shorts and rotate into some dollar weakness plays. I would not be surprised to see gold fall to about $750, and then finish the year close to $1000.

I think that Treasury rates will test their 2002 lows of 1% in 2009. Also, China has reached the ridiculous stage. Petrochina listed on the Shanghai exchange and promptly tripled to a $1 Trillion market cap. That's bigger than Exxon and G.E. combined, and it's not even in the top 50 global companies in revenue. I suspect a nasty crash in 6-12 months. The Olympics next year could be very interesting. The Shanghai market is completely out of control, and out of all proportion to the GDP of China. Look at Exxon compared to the US economy, and then look at Petrochina compared to China's economy. If their stock market crashes, then they will lose an immense fortune.