- Bloomberg polled money managers yesterday about the recent slide in MUNIs; 95% of the respondents indicated they see opportunity at these levels and will start to buy slowly as we move through the week. In the market's favor, credit quality continues to be robust. With the economy on the mend and FED pandemic relief money replenishing the coffers of states and cities, overall credit ratings will hold as discussed. The DRL Group continues to focus on shorter to medium duration paper; we have been heavy buyers over the last two weeks.
- To the point above, overall, Muni credit is strong and will remain strong. As individual investors see this, they will move capital into this market to hedge against illiquid and riskier investments. An example of tax collections in various states; in TX, total sales tax collections totaled $3.85B in January, 25% more than a year earlier, setting a monthly record. Texas collections were fueled by continued business and consumer spending, surpassing pre-pandemic levels. These increased tax collections will benefit MUNIs as we move through the 1st Q of 2022.
- The Governor of IL will be seeking to produce tax cuts for the citizens of his state. Grocery tax, gasoline levies, and rebating homeowners' property taxes are all things in the works. He recognizes inflation, and citing the dollar does not go as far as it did. IL earned its first credit rating upgrade in 20 years last year; however, it is still the lowest-rated state in our country. Overall, tax cuts might be the answer; however, if budget surpluses start to move down, I would expect S&P to cut this state over time if they are not fiscally responsible.
- Jeffrey Gundlach indicated this week that he sees headwinds for the equity markets supported by QE and now face FED tapering. He noted in a webinar that he does not see a recession yet; however, he sees one building. I would tend to agree with this. As I speak to our clients, many are putting money into "hard assets" while not paying attention to yields, equity prices, crypto, and other asset classes that could signal a problem. I see consumer confidence free-falling, which looks currently somewhat recessionary. Being aware of this issue is essential while making good choices in investments. Overall, FI has not done well for the year; however, we are only in the first month. Yields rose sharply starting about three weeks ago, but one would think it is in anticipation of a rise in rates.
- Household spending grew 3.3%, slightly stronger than expected, spending more on consumer services than goods. Business spending was on IT-type ideas, which has been strong through the pandemic.
- Business investment expanded 2% vs. 1.7% prior. This fact added 28bps to GDP growth. These points should be good for the markets; however, inflation and rates continue to take center stage across the board.
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