(The apparent peak back in March that I referred to in #6 turned out to be the end of a lower sub-wave. Now that the first lower trend line has been broken through, yesterday’s peak looks much more probable to be the top.)

According to Elliot wave analysis, the steep decline today will likely continue below 1540 by the end of next week, then lower and lower over the next 1-3 years. This won’t be a “buying opportunity” but an extended downward corrective wave of the past century’s climb in stock prices. Upward corrections will occur, but they’ll be brief interruptions of the overall downward trend, not the beginning or resumption of a bull market, at least not for the next year or so.

The S&P is expected to drop below 100 and the Dow below 1000 by the ultimate bottom in a few years. Even if a different scenario plays out, the drop will very likely be greater than in 2008,

This is why I sent out an email several months ago to hundreds of community members (including some regular readers here), encouraging them to shift their investments from equities and other financial instruments to cash, in order to better weather this deflationary event.

I realize that this is off-topic and unusual, but this is an unprecedented event getting underway. I’m sharing this in an attempt to “be generous” to my community.

The cumulative method restricts the DDA’s TIF more than the year-to-year method. So the cumulative method returns more to the taxing jurisdictions than the year-to-year method. The city is among those taxing jurisdictions.

From the city treasurer, here’s a graph: [.jpg of chart showing DDA TIF capture using different methods]

And here’s the numbers for the next two years with each method:

Method: Year-to-Year                   
Refunds                                                         
       City       County      WCC       AADL      Total Ref    DDA TIF
FY14   $429,409   $149,392    $94,257   $40,163   $713,221     $3,964,457
FY15    $11,958     $4,160     $2,625    $1,118    $19,862     $4,774,758

===============================
                     
Method: Cumulative                     
Refunds                                                      
       City       County     WCC        AADL      Total Ref    DDA TIF
FY14   $613,919   $213,583   $134,757   $57,421   $1,019,680   $3,657,998
FY15   $635,108   $211,673   $139,195   $58,539   $1,044,515   $3,773,043

“Downtown Development Authority (DDA). The DDA was created to finance rehabilitationand redevelopment in the downtown area. Commissioners of the DDA are appointed by the Mayor and approved by City Council. Development plans are approved by Council and Council must approve all modifications to the plan. The DDA’s primary source of funding is tax increment financing revenues. Bonds secured by those revenues are issued by the City on behalf of the DDA, which does not have the ability to issue debt…”

If some event is triggered by the retirement of a DDA bond, that thing will never happen. All bonds issued for DDA projects are actually City of Ann Arbor GENERAL OBLIGATION bonds. Bonds for DDA projects are issued by the City of Ann Arbor, backed by the full faith & credit (not to mention property tax revenues) of the City of Ann Arbor. The existence of “DDA bonds” is an urban myth akin to sitings of Elvis in Kalamazoo.

Even the CAFR has this wrong: go check out what revenue bonds the city has issued, and see if any apply to any DDA project (hint: there are none. Only water department bonds are revenue bonds, payable only from your water bill.). That is, go see if any bonds are revenue bonds “secured” by DDA revenues, rather than by the full faith and credit of the City of Ann Arbor.

BTW, did I mention that I saw Sasquatch down in West Park? He was carrying a briefcase full of “DDA” bonds.

The problem of the DDA will not be solved until the problem of city council is solved. If you want change, you have to change who is sitting in council’s seats.

Over the years, Council has ignored its obligation to vet mayoral appointments. The consequences of this failure are serious, as appointees must be independent of self-interest in matters that come before their board or commission. Politically speaking, they must not be beholden to a mayor, or simply chosen for appointment because they will vote a certain way instead of bringing an unbiased and independent view to the board’s deliberations. The appointment process as described in the Ann Arbor city charter helps prevent politically-motivated appointments. If observed, it will help ensure a fair and representative selection of citizens to serve on our boards and commissions.

A case in point is the DDA (Downtown Development Authority) whose members are appointed by the mayor. DDA is a major organization with significant power over the way our city addresses commercial development. Because Council has not vetted DDA appointments, DDA’s actions on behalf of Ann Arbor’s voters has caused considerable controversy.

DDA members — insulated from the vetting process — can bring an agenda to the table that is in conflict with the expressed needs and desires of the residents of Ann Arbor. DDA appointees have no term limits; and so as long as the mayor supports them, it is impossible to get rid of them when they do not represent the residents of Ann Arbor vs. special interest groups. The result is an arrogance by DDA members about their duties, responsibilities to the public, and even the (limited) mandate of the DDA itself.

For example, a couple years ago DDA member Joan Lowenstein advocated a scheme by which the DDA could create rate hikes for public parking without the council’s approval. She suggested — publicly — that the DDA could “shield” the city council from having to vote on measures that might be unpopular with the public. Following this public embarrassment, Ms. Lowenstein’s reappointment was approved by Council with descent from one member, Mr. Kunselman.

How can we fix this unfortunate situation? City council members should take their city charter mandate seriously and assume responsibility for mayoral appointments to boards and commissions. Let’s urge them to do so.

One thing ignored in the discussion of valuation is that it isn’t just the general operating fund that is being siphoned off by the DDA. It is also all the millages, including the road millage and the solid waste millage. So the expenses due to the downtown development fall to the rest of us.

I’m agnostic about Steve Bean’s projections but I hope that the fiscal integrity of the City of Ann Arbor is not being put on the green line for any overly optimistic scenario. I’ll never forget our county budget director’s projections “the best predictor of the future is the past” in the early 2000s. (It showed a straight-line increase of about 45 degrees.) The county went into a lot of debt which the current BOC is now struggling with while they eliminate departments.

To update you and others who might be interested in the current state of the markets, per Elliott Wave analysis the Dow appears to have topped and resumed its overall downward trend. (I say appears because it’s possible that it could rebound upward one more time, but it’s unlikely.) The S&P 500 and NASDAQ Composite are out ahead of it somewhat. All are poised for a big move downward.

Holding cash (as opposed to other financial assets) is the best option for most people over that time period. Short-term US Treasuries are an option as well, as interest rates are beginning to climb. Professional traders are already shifting into short positions (betting that the stock market will go down), leaving institutional and individual investors holding equities that have already reached their maximum price.

Bringing it back to your question and the subject of Dave’s column, the magnitude of the coming market decline would suggest that sale prices will drop drastically to less than half of current values–maybe much less than half. Valuations would need to follow, I suppose, but that process would probably lag behind somewhat.

What I’m suggesting with regard to Dave’s analysis is that years X+1 through X+3 (assuming X=2013) will see steadily decreasing valuations (followed by many years—if not decades—of sub-current levels). If this doesn’t seem realistic (to use the middle-range alternative), look at what’s going on in Europe and is headed here.

Great data and analysis. Thanks.