- We have discussed yields in many conversations; however, credit quality is equally important. With trillions of dollars issued during the pandemic, states are currently flush with cash and have surpluses that they would never have imagined. Much of this money went towards infrastructure and education. Some states have started to use the funds for other items. AZ is using a portion of its funds to boost purses at three of its horse tracks, Alaska is paying for social media influencers to promote their state's seafood, and so on. I suspect we will hear more about this; however, the fact remains that municipalities continue to be in great shape as revenues continue to increase.
- An example of the above point is lA County, property values are expected to rise a record $100B this year, providing a boon to MUNI coffers on the back of a hot housing market. This issue will translate to $1.86T in net value for taxable properties in the county, which is a 6% increase. NYC expects to end the current fiscal year with a $2.2B surplus as revenues exceed projections. This type of financial boon is a recurring trend throughout the country; again, positive news for these markets.
- Also positive for MUNIs, sales tax revenue increased for 35 states. Collections increased by 22% to $27B in March from the same month in 2021. Maryland rose the most, up 123.5%, and NC fell the most, 13.4%. General sales tax gross receipts rose 24% to $22.8B and accounted for 84.5% of the sales tax receipts.
- Goldman Sachs Senior Chairman Lloyd Blankfein commented on CBS's Face the Nation Sunday, telling companies and consumers to prepare for a US recession. He said it is a "very, very, high risk" that it would happen. If a recession happens, I suspect you will see "risk-off" type trades such as MUNI's and T bills perform well as investors seek liquid, safe assets.
- Pimco is again touting MUNIs; the firm’s head of MUNIs said they have gotten so cheap that they are now appealing to buyers who do not even benefit from tax exemption like banks and insurance companies. Pimco also said, "The big price move in the MUNI market is an overcorrection," indicating they are bullish on Munis at these levels. They also believe that most Fed rate moves have already been priced into the current market. A growth slowdown could cause the FED to back off rates which would help the fixed income assets battered by its hawkishness.
- MUNI investors are turning to tax-loss harvesting based on where pricing is now. Bondholders are selling securities that have tumbled in value and are now reinvesting in similar securities. These losses will offset realized capital gains, and if losses exceed gains, they can offset as much as $3000 of ordinary income based on that tax year. Should the losses be more significant than $3000, the amount can be used to offset future gains. I suspect this year could be one of the best opportunities ever for tax-loss harvesting for MUNIs.
605-B Park Grove
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