Market News Commentary - From The Desk of David Loesch 11.12.2020

• CA voters rejected a measure that would have made the most significant change to their signature tax limitation law; this is a setback to proponents hoping to raise more money for local governments and schools.  Prop 15 was failing 52% to 48%.  This proposition would have allowed property taxes on most commercial buildings worth more than 3MM to increase by allowing the levy to market value rather than purchase price.  Under the law, property taxes on both homes and businesses are limited to 1% of the purchase price, and annual asset taxable valuation is capped at 2%.  This issue has been ongoing with CA and its residents; and not the norm in most of the country.  For example, Disneyland pays taxes based on the purchase price of the land based on the 1970's value; however, it charges customers 2020 prices - many in the MUNI world do not agree with this type of tax application.
• CT expects to collect $18.8B in general fund revenue in this current fiscal year, a $326.6MM increase from last month's forecast.  CT also has raised revenue forecasts for the next two fiscal years by $875MM and $704MM, respectively.  This state is on the comeback, with lower taxes than NY. Many are moving into this state, for this reason, hence the updated numbers.  Overall, this is a positive for the bonds, and expect S&P to view this state as improving.
• High-yield bonds have rallied on vaccine hopes.  High-yield corporates started the rally with all “transportation” paper moving up, although this has not rolled into the airport debt or paper like MTA's.  A vaccine will be positive for such bonds, and I believe that as we march towards a solution, high-yield paper like MTA, airports, stadiums, toll roads, and parking garages will continue to improve.
• NY State will collect $3.8B more in tax revenue in the current fiscal year than projected.  Actual tax receipts are $1.1B higher as of now, with the increased taxes that the state has imposed. NY State continues to be one of the only states in our nation that you do not see a mass exodus of citizens with tax increases moving up.  This increase will continue through this year and next. We are buyers of this paper despite the high tax rates.
• NJ was downgraded over the weekend by S&P to BBB+; the outlook currently is stable.  The downgrade comes after the Governor signed a budget that counts on borrowing more than $4B for operating costs and boosts the income tax rate to 10.75% from 8.97%. On people earning at least 1MM per year.  This downgrade will pressure residents to move to neighboring states in the upcoming years, thus creating additional decreased revenues while decreasing debt service coverage.  I also suspect you will see further downgrades on states like this who tax their citizens to make up for a bad fiscal policy.
• An influx of cash into the largest MUNI bond exchange-traded funds suggests that investors are shifting back into High-Grade MUNI paper. Muni bond funds saw large inflows last week. Some funds saw their most significant inflows since 10/16; this is a direct result of moving from the equity markets into FI -  with the Senate's uncertainty and the presidential election secured by Biden, I believe you will continue to see this trend through the end of this year.
• With the election rapidly entering the rearview mirror, the focus will shift to the virus and getting the economy back on track.  

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 bonds that are non-rated (NR) 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.