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Markets Commentary

The State of New Jersey

New Jersey currently has the dubious distinction of having the second lowest credit rating in the nation at A1 by Moody’s Investors Service (ahead of only Illinois). Standard & Poor’s has the state as the third lowest rating at A+ (ahead of California and Illinois). Both agencies carry on negative Outlook on the ratings. The financial issues in New Jersey are not new or unique, but are difficult to resolve. The State has an unemployment rate of 6.9% versus the 6.3% for the entire nation. According to the Tax Foundation (a non-partisan research think tank, based in Washington, DC.), NJ has the second highest tax burden in the nation, trailing only NY. The 500 pound gorilla in the room remains the unfunded pension liability which currently stands at $52 billion.

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Nobody has been more critical of the regulators (SEC, FINRA) than I have, so when it seems they are for once out ahead of a problem I must give them their due.There is a looming problem coming in the credit markets. Bond funds have become huge as more investors are looking for some kind of interest based return. Meanwhile through a combination of regulatory oversight and business decisions Wall Street has become smaller. This is not a problem as long as the market is quiet and interest rates stay in a narrow band.

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