Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
For those constantly talking about imminent doom of the U.S. (or Japan) or whomever – countries that in fact can print their currency in nearly infinite doses and have huge levels of GDP, the story of Detroit is constructive. Today after the close it was announced the city will file for bankruptcy. The only question is why it took so long. The majority of its industry and population has fled. Unemployment is best “guessed” at something in the mid 40%s. Don’t ask about the public schools – almost the worst in the country. And safety is of course a massive issue as D.C. and Detroit often vie for murder capital of the country. This along with all the usual pension issues, tax issues, streetlight, police, firefighter issues … you name it… issues everywhere. This is a city where no national supermarket felt safe to place a store for decades (just try to think about that for a moment, not a single one) – despite the land area being the size of 3 Boston’s. But with all that it took until now to file a bankruptcy; something that was probably due 20+ years ago. It shows how long a can, can truly be kicked.
- Detroit’s bankruptcy is by far the largest of its kind in U.S. history, in terms of the city’s population of about 700,000 and the amount of its debts and liabilities, which Orr has said could be as high as $20 billion. Because of the stakes involved, and the impact on residents statewide, as well as 30,000 current and retired city workers and Detroit’s ability to stay in business, the case could be precedent setting in the federal judiciary. It could also set an important trajectory for the way troubled cities nationwide settle their financial difficulties.
- The city has lost more than half of its population over the past 60 years. In 1950, the city was the fifth largest city in the country with a population of around 1.8 million. Today its population is estimated at just under 700,000.
As an aside if you did not see this video clip on a typical city block in Detroit posted a few years ago please view – you will be shocked and not believe it is America. Yes we see awful conditions in many of our major cities, tucked away in places most in the investing sphere rarely or never venture – but literally these clips (and it’s not 4-5 blocks but blocks upon blocks) look like a post apocalypse world where nature has begun to take over from the humans that once lived there – although on these blocks usually 3-4 residents still unfortunately must live.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/index.php/the-fund/holdings
