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Has California's Recovery Stalled?

One in eight Americans lives in California, where unemployment stands at 12.1 percent. Only Nevada is worse.

Golden Gate Bridge
Photo by: Thierry
Golden Gate Bridge

The Golden State was once an innovative leader — California brought you Steve Jobs. What to do to regain that vibrant past is the subject of the Milken Institute State of the State Conference in Beverly Hills Thursday.

RBC Capital Markets released a report last week which asked, "California Economy: Recovery Stalling?" The report suggests housing trends are improving in terms of sales volume, but job formation since February has "been rather disappointing."

Personal income tax revenues are increasing, but overall state revenues are more than $700 million below projections for the first three months of the fiscal year.

All is not doom and gloom. Bank of America said, "Made-in-California exports grew 19 percent in 2010 and 13 percent in the first half of 2011, led by strong growth in computer and electronic products, machinery, and manufactured commodities." A study by the Milken Institute found the state is keeping more of its native-born high-skilled workforce, and foreign high-skilled workers are coming to California and staying.

"I think in California, things are on the mend," said Scott Minerd, chief investment officer at Guggenheim Partners.

Housing is more affordable, he said, and wage growth is slower than the national average, making the state cheaper for employers. As for investing in the state's bonds, Minerd says 10-year California general obligation bonds have yields around 4 percent, double what you get for Treasuries, with a low likelihood for default.

"The bonds have good capacity to improve in prices," Minerd told CNBC. He said California bonds yields have historically been 85 percent higher than Treasurys, not double. "It looks like a great place to be putting your money."

Here is more of Minerd's outlook, including what happens when, not if, China's growth slows. "It will hurt California more than the rest of the country," he said.

Also offering solutions is Frank Baxter, chairman emeritus of Jefferies and former U.S. Ambassador to Uruguay. Baxter is now involved in education reform, helping to form charter schools using a "blended learning model." This does away with the traditional teacher standing in front of 30 students, a model going back to the 19th century.

"Rip van Winkle would recognize the public school system," he said.

Baxter's schools use technology to allow one teacher to teach 48 students, with better results. Here he explains how, and the challenges he faces in a state with no money and a strong teachers' union. "There's always a lot of resistance," he said.