(This guest post comes courtesy of The Mad Hedge Fund Trader)
Those who followed my advice to “buy” California at the bottom by loading up on the state’s beleaguered tax free municipal bonds (click here for the call) will be excited by the latest report from controller, John Chiang. The Golden State’s revenues are suddenly running far ahead of even the most optimistic expectations, suggesting that the corner has been tuned on its seemingly endless fiscal crisis.
March receipts came in $356 million above expectations, pushing the general fund revenues ahead of budget by a total $2.3 billion in the current fiscal year. Corporate income taxes were the main cash cow, no doubt powered by a booming technology sector, running 15.8% ahead of forecast.
The Land of Fruits and Nuts is far from out of the woods. There is still a daunting $22.6 billion budget deficit to deal with, sales tax receipts are still down, and the Bureau of labour Statistics says there are 600,000 fewer employed than a year ago. Personal income tax receipts have also shrunk, suggesting that investors are sitting on longs and piling up big unrealized capital gains for the monstrous stock market rally.
Of course, it will be a long time before the legions of laid off teachers, firemen and policemen are hired back. The state is going to have to unload a few thousand prison guards before that happens. With California in the heat of the governor’ primary elections, this is good news no one seems to want to talk about. After a long famine, the state’s finances may finally be putting on some muscle. It is not too late to profit from this stealth recovery by picking up some municipal bond funds like (VCV), (NCP), and the (NVX).
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