Bogleheads

[cookie36]

Anyone worried about the California economy enough to get out of this fund?
I hear the bond rating may be reduced and not sure if this is the place to have any money,
What do you think?

[sscritic]

I think the current prices reflect all of those concerns. Some people are worried and want to sell; others see high yields and want to buy looking for current income and appreciation from lower interest rates when California rights itself.

[Taylor Larimore]

[Petrocelli]

Based on the premise that you should buy when others are selling, I bought shares in a Vanguard California bond fund last week. I will get a tax-adjusted yield of over 6%. Not bad.

I would not sell. If you are worried about the fund, you should not buy.
_________________
Petrocelli (not the real Rico, but just a fan)

[bigH]

[ilan1h]

I have almost all my bond money in this fund and am somewhat nervous. I am tempted to get out especially because there are no taxable consequences in bailing out. I rather anticipate that this fund will decline a bit more and then start moving up rather rapidly when the situation appears to stabilize. I think that the chance of California defaulting on its bonds must be close to zero.

[JMacDonald]

Hi,
In the LA Times: http://latimesblogs.latimes.co....the-s.html

[azxcvbnm321]

The Constitution can mandate whatever it wants but where is the money going to come from? All this trouble and the legislature still refuses to cut State worker benefits, salaries, or jobs. The voters just had a massive tax increase and aren't willing to go along with another.


I think people could see declines in bond prices, but California will not default.

[Murray]

If I remember correctly, last week VCAIX got pounded after the Gov refused to let more bonds be issued to make up the budget gap. It's down close to 2% in the past several weeks ... it's still up more than 3% on the year!
This fund doesn't take a lot of chances over its benchmark and its manager is very, very conservative. At a time like this, he's been extremely careful. In this environment, you might be better-off with VCAIX over a pure index-based fund ... probably with higher expenses and with less-experienced management oversight.
Personally, I'm a buyer in this environment ... if I'm fortunate enough to find my position below its targeted allocation!

[sscritic]

[superlight]

I've got 6% of my net worth in VCAIX, which I guess is pretty low. I enjoy it at tax time (which might be a "non financial reward" in an emotional sense).

I'd like to double up, to 12%, which is still a low allocation ... but I'm waiting for lower prices and/or some kind of budget resolution.
_________________
"Simplicity is the ultimate sophistication."

[Petrocelli]

[Shawn]

About 10% of my portfolio is in CA muni's. Roughly half is in VCAIX and the other half is in BCHYX, a high yield fund at American Century (which I've owned for 10 years). I've increased my CA muni exposure somewhat over the last year, and plan to add a little more next month.

Am I worried? Not any more than usual. I acknowledge that these funds could be significantly hurt should there be several defaults in California. However, I think the present price reflects this risk. In fact, I think the present price overstates this risk. I look around me and see tremendous bloat in state and local governments (e.g., a CA state agency paid for my car repairs last November).

I thought about national muni's, which would be more diversified, but California is a fairly diversified state as it is. Including the tax advantage (I'm in the now 9.55% CA tax bracket), I gain about 50 basis points for staying with CA muni's. For me, that's worth the risk.

But I am not you. The question isn't whether I'm worried. The question is whether you're worried, and if CA muni's are right for your risk and portfolio situation.

[Valuethinker]

[Helot]

Now the ratings agencies are threatening to downgrade the state, possibly to junk status.

http://www.reuters.com/article....nnel=10531

[ilan1h]

The interesting thing is that despite the disastrous situation the vanguard fund is down only 2-3%. This comes after a season where many of my positions plummeted up to 60% on bad news. Sure I recognize that these are munis and not equities, but I am assuming that this limited decline is evidence that most serious players understand that Calif can not default on its bonds. As far as I'm aware no state has declared bankruptcy in 150 years. In fact, it's likely that the CA int fund will go down a little bit more and then return to normal levels after an agreement in the budget is reached. I am wondering whether or not it would make sense to sell the fund and buy an actual GO bond. The yields are high right now and one could lock in a fairly good rate for 10 years or more. Could this be an advantage over simply owning a fund which will go down, then up and ultimately wind up completely unchanged.

[nonnie]

"the ratings of all the credit agencies are 'worth squat'" said Tom Dresslar, state Treasurer Bill Lockyer's spokesman. He went on to say"They've been screwing taxpayers for decades and yet they maintain this vast, unjust power over markets and taxpayers across the country."

A spokesman for the state Department of Finance said he had never seen a "multi-notch" warning. "If this isn't a wake-up call, I don't know what is," he said.

Full story:

http://www.sfgate.com/cgi-bin/....18AJ4U.DTL

[azxcvbnm321]

The only chance of a default is if there are cash flow problems. If a bond issue matures and California doesn't have the money to pay principal because it can't roll over the debt, then you will see a default. There might be laws that prohibit rolling over more debt in certain circumstances, that scenario is unlikely from what I understand.

The govt. unions here in California are fighting tooth and nail for their regular wage INCREASES, not to mention any cuts. New proposals for a Statewide property tax is being floated as well as additional fees for everything from going to parks and reserving space to museums and driving on the roads. Shortly, the carpool lanes will become fee based congestion lanes that will charge drivers depending on how bad the traffic is. Since traffic is always bad, I expect high fees. Supposedly carpools would still get to drive for free, but the rules that define what a carpool is will be changed. A minimum of three or four people will be required to qualify.

Legislators still are not cutting spending, they are afraid of the unions and are determined not to piss them off. Well a showdown is coming, something has to give.

Given a choice between cutting benefits for the unions or screwing the "rich" who own bonds and refuse to sacrifice , I believe that the current legislature would rather reneg on bond payments or do an Argentina and renegotiate. Of course it makes no economic sense and would harm California, but the current legislators really don't understand economics and frankly don't care. They are angry that the "rich" are dictating what they can do and are preventing necessary programs from being funded. There are hundreds of new programs in the works, someone out there needs something and until that changes, more programs are needed.

[Beagler]

[JMacDonald]

[OldSubmariner]

How can you discuss this disaster without discussing the political implications?

[azxcvbnm321]

How is stating facts political? Legislators have said as much in their statements about how the poor are suffering while the rich continue to be rich. I am merely discussing what they've said and the potential endgame, which is speculation I admit. As mentioned by others before, a default would be a political choice. When the government is in control, politics cannot be avoided. If only we could keep politics out of investments and the economy!

[Consider this a warning. Any more political comments and this thread will be locked. And if you can't talk about this subject without talking politics, then don't talk about it.]

[nonnie]

[JW Nearly Retired]

I know a lot of Californians since I live there. The leveragers and borrowers and spenders are in firm control. The state has added another 50,000 more state employees since Gray Davis was kicked out for financial troubles. That's another 5 maybe 10 billion in annual spending. Arnold couldn't stop the train. Nobody is being laid off from state employment. I sure wouldn't buy CA bonds.
JW

[Paladin]

[Paladin]

[Paladin]

[stjoe56]

[ilan1h]

Forgive me if I'm naiive on this issue, but I would assume that if a state defaults on its bonds it would be impossible for it to attract investors for the next 50 years. I personally know that I would never buy the bonds on state that defaulted on its issues. Since most states rely on investors to fund public projects this would be financial suicide in the extreme. Some people on this forum have pointed out that most investors have short memories and that even if California defaulted on its bonds that, after some time had passed, it would still attract bond buyers regardless. I find this reasoning hard to swallow and would imagine that no seasoned investor would ever take a risk on a dead-beat state once it had defaulted. The annual debt for covering these bonds is about $5 billion. No state would ever risk pariah status for a lousy $5 billion.

[Paladin]

[stjoe56]

[Beagler]

[nonnie]

Here's one of the brilliant (NOT-- in case anyone couldn't figure out I'm being sarcastic) solutions to our state's fiscal problems:
"For example, the state would push workers’ last paychecks of this fiscal year, ending June 30, by one day into the next fiscal year, saving $1 billion." SAVING?????
http://www.nytimes.com/2009/06....lobal-home

[Paladin]

[Petrocelli]

Whatever happened to the mantra of efficient markets? Everyone has known for months that California had budget problems. Isn't all this bad news already priced in to the bonds? For crying out loud, on a tax-adjusted basis, the fund is paying 6% on a tax adjusted basis for those in the highest bracket. Don't you think that reward comes with risk?

I bought and will hold.
_________________
Petrocelli (not the real Rico, but just a fan)

[Beagler]

Petro, as you know all risk is not rewarded.
_________________
"Complexity doesn't add returns or reduce risk. (Diversification does.) And simplicity doesn't increase returns or reduce risk. Portfolio construction of the right kind does." domus obfirmo sermo

[Petrocelli]

[aupanner]

NAV now up to 10.91, a 1yr high. Guess the markets think people will continue paying property taxes for a while longer.

[jsnbrnd]

[Petrocelli]

This thread was recently bumped to the top. It is a few months old.

Going against the herd, I bought Cal. Intermediate Bond Fund back on June 13. I have made 5.25% in less than three months.

As pointed out by comments above, investors generally overreact to bad news. That is usually the time to buy, not sell.

As an aside, I bought more today shares in the Cal. Intermediate and Intermediate Tax Exempt today. Also, I took a position in Vanguard's Cal. Long Term Fund. It is paying a tax-equivalent yield of over 7% for people in high tax brackets.
_________________
Petrocelli (not the real Rico, but just a fan)

[nance]

A question more on the lines of how VCAIX performs vs peers. Looking around FCSTX seems to have done better with less volatility over the last 2 years. (VCAIX is still negative, FCSTX up almost 5%)

Comments?

[aupanner]

[duhmel1]

[Shawn]

[nance]

VCAIX peaked at 11.05 on Oct 5, 2009 but has been falling recently. I see other muni funds going the same way. Any comments?

[superlight]

[duhmel1]

[superlight]

[JMacDonald]

Hi,
I recently bought the Vanguard HIgh-Yield Tax Exempt Fund (VWAHX) rather than the Calif. I-T (VCAIX) or L-T Tax Exempt Fund (VCITX). I did that because the High Yield Fund is more diversified than just having one of the Calif. funds. As for paying the taxes, I may lose a few dollars; but I prefer the diversification that VWAHX offers.
_________________
Best Wishes,
Joe

[duhmel1]