I am assuming this is what is driving MGRC lower recently. Any thoughts?




AN ECONOMIC EARTHQUAKE HAS rattled California and its bonds.

Voters in the state rejected five measures last week to close a budget gap of $21.3 billion, opting only to approve a ballot initiative denying state politicians raises when the government faces a deficit. That means the state has to cut $5.5 billion out of the budget as soon as possible. And it needs $26 billion in cuts over the next two years.

The state's fiscal year begins July 1. Its economy would be eligible to join the G-7 as one of the world's biggest economies if California were a country.

California general-obligation bonds were quoted before the vote around 1.20 percentage points over the triple-A municipal benchmark scale. They were quoted Friday around 1.50 percentage points.

"This is the second time they face a significant [economic] hurdle" in this decade, and people are fed up, says Gary Pollack, managing director at Deutsche Bank Private Wealth Management.

Gov. Arnold Schwarzenegger won his office in a special election in part owing to a mammoth budget deficit that saw then-Gov. Gray Davis booted out. Now the state is seeking federal guarantees for $6 billion in debt.

"I don't blame them for inquiring," says Pollack. "A lot of corporations and banks got it." But, he adds, "I think they'll be able to get by" without it.