Market News Commentary - From The Desk of David Loesch 03.11.2021

• As we all know, the $1.9T deal has passed; it will be sent to the President’s desk today or Friday to be signed.  States and Local governments are poised to receive at least $360B from the stimulus bill. This amount is enough to virtually assure that the budget cutbacks will not weigh on the economic rebound for any state. For example, CA is eligible for $21.6B, and TX stands to receive $17B.  The big difference between Mnuchin’s relief stimulus compared to this one is that the states will have “no choice”; they will get the money, and it will be structured like a PPP loan.  This transaction reminds me of TARP; the recovery was swift while our government bailed out the banks.  The money in 2021 will be more than enough to cover any tax loss for any state caused by the pandemic.  Be prepared - the government will seek ways to service this debt by raising revenue.
• With the above, traders are betting on a “low supply” for the balance of the year in MUNI debt issuance.  States and municipalities will not “need” to access the primary markets to get deals done.  Most issuance will come from the private sector and schools, as they are not eligible for funds at this time.  This "lack" of issuance will create a "lack of product" over the next several months and should push pricing up in our markets.
• MUNI investors withdrew $568MM from MUNI bond funds in the week ended 3/3/21. However, the prior week showed inflows of $846MM.  These numbers are small in value compared to the markets; however, it is evident that investors were "spooked" last week with the market selloff; I suspect you will see a reversal this week with a positive inflow of funds.
• Treasury Secretary Janet Yellen dismissed fears that the $1.9B plan will cause inflation as she seeks to push the recovery deeper into the US labor markets.  She indicated in an interview this week; the FED has tools to deal with inflation should it present itself.  As discussed before, Yellen is a “super dove” and has the attitude of “tax and spend” like our current administration.  Yellen has learned from her predecessors' past mistakes in the '80s and will keep inflation in check during the next four years.  The Biden team knows they cannot afford to have inflation much above 2.125%, and I suspect this will be the case for the foreseeable future.
• If you have not been following the yields on debt paper outside the US, I encourage you to compare. Our 10T this morning is trading at 1.52%.; we are, by far, the most attractive return on investment compared to The Bund -.36%, Japan- .109%, UK .694%, and France -.125%.  If you are a large fund, or a large investor, or anyone else for that matter who has a wheelbarrow of cash, where would you put it?  Our T markets have sold off too much; compared to other countries; we look cheap.  Yes, we will need to issue $1.9T of bonds to pay for the package this week; however, once the market absorbs this, I think the T markets move back down in yield. The market is "pricing in" a flood of paper hitting the street; everyone knew that the deal was going to get done, and here it is.  What happens after this deal?  MUNI's should move up.

David Loesch

dloesch@drlgroup.net

www.drlgroup.net

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

281.398.8600 (direct)

281.398.8607 fax

This report has no regard to the specific investment objectives, financial situation, or needs of any particular recipient. This report is based on information obtained from sources believed to be reliable, but no independent verification has been made, nor is its accuracy or completeness guaranteed. This report is published solely for informational purposes and is not construed as a solicitation or an offer to buy or sell securities or related financial instruments. Opinions expressed herein are subject to change without notice and the division, group, subsidiary, or affiliate of MACC., which is under no obligation to update or keep the information current. The securities described herein may not be eligible for sale in all jurisdictions or to specific categories of investors. MACC accepts no liability for any loss or damage of any kind arising out of the use of this report. Please contact your tax advisor regarding the suitability of tax-exempt investments in your portfolio. Income from municipals may be subject to state and local taxes as well as the Alternative Minimum Tax. Corporate and Municipal securities are subject to gains/losses based on the level of interest rates, market conditions, and credit quality of the issuer. As with any security, there is an inherent market risk possibility as to principal if the security is not held to maturity. The non-rated (NR) bonds should be considered for investment by knowledgeable and sophisticated investors. Additional information will be made available upon request.

Securities are offered through Mid Atlantic Capital Corporation (MACC), a registered Broker-Dealer, Member FINRA/SIPC.

The DRL Group. is not a registered entity or a subsidiary or control affiliate of MACC.

Bonds are subject to market and interest rate risk if sold prior to maturity. Prices and availability may change at any time without notice. Insured bonds are subject to the claims-paying ability of the insurance company.

Reminder: Email sent through the Internet is not secure. Do not use email to send us confidential information such as credit card numbers, change of address, PIN numbers, passwords, or other important information. Do not email orders to buy or sell securities, transfer funds, or send time-sensitive instructions. We will not accept such orders or instructions. This email is not an official trade confirmation for transactions executed for your account. Your email message is not private in that it is subject to review by the firm, its officers, agents, and employees. Unless expressly stated in this email, nothing in this message should be construed as a digital or electronic signature.