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The banking industry continues to be under economic pressure as housing remains in the doldrums and commercial real estate problems accelerate. After they were bailed out, the big banks went back to speculative proprietary trading and have blown additional mini bubbles in the stock and commodity markets. To add insult to injury, there is little demand for loans as households are paying off debt and business is unsure of what the rules of the game out of Washington are going to be. The simple fact is that we have an FDR-like administration following a Keynesian model that will not spark a sustainable economic recovery over the long term.

But let’s take a cursive look at state and local government problems, which have not received much attention as of yet. Note the following storylines:

1. School crisis in Nevada: Governor seeks to cancel collective bargaining with schools because state is broke.
2. Police pay dispute in Miami.
3. Workers protest in New Mexico.
4. Budget crisis in Los Angeles.
5. Financial advisors are cutting back exposure to California tax-exempt bonds.
6. Massive layoffs coming in NYC, Nevada, California, Colorado, Arizona, and everywhere.

The above are just a few examples we have seen out of a much broader set. Last year, many of the state and local entities were helped by the stimulus package. This was supposed to give them time to reallocate their resources, but, alas, little or nothing was done. This will be the year (most states are on a fiscal year rather than calendar) things come to a head. We are not sure how Wall Street and Washington will be able to spin this. The story this paints just may be that the recession is over, but the depression continues.

Central Plains Advisors, Inc.

Information contained in these commentaries is based upon information obtained from sources both external and internal which we consider to be reliable, but the accuracy of the information and the recommendations contained herein cannot be guaranteed, nor do they constitute a solicitation for the purchase or sale of any securities mentioned herein. Information contained in this commentary may not be reproduced in any form without written permission from Central Plains Advisors, Inc.

Disclosures: As benchmarks for comparison, the indexes used represent an unmanaged, passive buy-and-hold approach. The volatility and investment characteristics of the benchmarks cited may differ materially from those of CPAI. Please be advised that the comparison to the S&P 500 is not an apples to apples comparison, as they are a different class of assets. The account performance figures reflect the reinvestment of dividends and capital gains. Past performance may not be indicative of future results and does not guarantee positive returns. The performance results for 1991 through 2004 have been independently compiled by CPAs from information provided by CPAI; CPA compilation of 2005 through 2008 are pending. The period of 1991-1999 was one of generally rising stocks and bonds. The period of 2000-2003 was one of generally lower stocks, but rising bonds. The period of 2004-2007 was one of rising stocks and bonds. The year 2008 experienced a stock market crash and average bond market.