Welcome to CrushTheStreet.com’s Weekly Market Wrap-Up!
Our top story for this week is the increasing number of major American cities teetering on the edge of bankruptcy. With most of the mainstream media attention allocated towards exploding tensions in the Middle East, as well as dramatic though far less bloody scenes from the FIFA World Cup, there is precious little space to dissect critical domestic issues, even if they are much more pertinent to everyday Americans.
The crowded media environment has been a safe-haven for the current administration, which has been riddled from both ends of the political spectrum for a variety of reasons. One major issue that has largely been ignored is the looming financial crisis of the city of Flint, Michigan.
Crisis in Flint
Once the epicenter of a booming auto industry in the mid-1900’s, Flint has ascended to the top of a very dubious honor : the most dangerous city in America. In 2012, Flint suffered 66 homicides, tying a record it hit two years prior. Adding insult to injury, Forbes has ranked the dilapidated city as one of the most dangerous places for women.
However, most of the migration away from Flint did not occur until the late seventies. Up until then, opportunities were far more abundant, with the United Automobile Workers union triumphing over General Motors in a workers strike in 1936, catalyzing an era of labor union dominance.
Prior to the collapse, GM’s Flint operations employed 80,000 people in 1978. At that time, New York City was widely considered the most violent place in America. A few years later, things unraveled dramatically as GM began setting up factories in Mexico. By 2006, the number of Flint employees at the iconic auto manufacturer declined by 90-percent.
The city is hardly recognizable now, with 38-percent of residents living below the poverty line, combined with an astronomical 16-percent unemployment rate, almost 10-percent above the national average. Flint officials are currently submitting a court appeal to cut its retiree health care benefits ; if a judge rules against the effort, the city government will likely be forced into bankruptcy.
Sadly, Flint appears to be following a tragic trend of improper planning and poor fiscal management. Prior to Detroit’s infamous implosion, the largest local government bankruptcy filing was in Jefferson County, Alabama, in November 2011. Since then, similar court proceedings continue for Stockton, San Bernardino, and Mammoth Lakes, all California cities.
The financial markets appeared to absorb these and other negative fundamentals, with the broader indices opening sharply lower, while the NASDAQ was on track to suffer its worst performance since April 25th of this year. Fears of trouble at Portugal’s largest bank were reassessed, causing a strong bounce-back in the afternoon session, although the benchmark S&P 500 still closed down 4/10ths of a percent.
The precious metals complex continued its strong run, suggesting that the risk-off environment may linger for some time. Gold moved closer to the 1,350 mark while silver led the charge, up nearly one-and-a-half percent against the prior. Palladium was the day’s laggard, moving slightly down to 875. Digital currencies had a soft run this week, with bitcoin hovering above the $600 dollar range.
And that will do it for this edition. Thanks for watching and we’ll see you next week!