- Some Federal Reserve Officials were open to the debate about "scaling back" the asset purchases. This "potential" taper talk is not uncommon, and I suspect we will hear a lot of this type of talk over the next several months. Powell has indicated that the FED will give the markets "plenty" of notification if any tapering occurs.
- $350B of the $550B will be distributed to states and municipalities this week and next. Yellen commented that the funds would head off a repeat of the painful budget cutting, which slowed our recovery last year. These funds will be great for weaker type credits such as NY, IL, NJ, and CA. As mentioned, Moody's is in the first stages of increasing credit ratings in many of these states.
- The State of CA is one of the largest benefactors of Federal Aid. Since February, most states (except NY) saw revenue turn around significantly, and overall budget deficits were far less than what was feared. This news is excellent for the muni market as many states will be flush with cash for the next year compared with the last two. See graph below for aid to states.
- The White House was encouraged by talks Tuesday with Republican Senators on a new infrastructure package. The GOP "alternative" plan attempts to keep the spending down and costs under control. Issuing trillions of dollars in debt is not the answer. However, with Yellen and Powell at the helm, I suspect the "tax and spend/spend, and tax" mentality will continue with the Biden Camp approving any deal that resembles this. Overall, this will be good for MUNI's as we move through the year. Money going to municipalities will be looked upon by rating agencies as favorable, and upgrades will most likely happen.
- Due to support from the American Rescue Plan Act, Fitch indicated that positive credit implications would likely be limited to states with credit ratings that currently have a negative outlook. It will depend on how they use the capital. Moody’s has said this as well. I suspect we will see upgrades if these states use the funds to build out projects and produce jobs that would increase tax revenues.
- With taxes on the minds of many, residents of NJ, MA, and CT will face the highest tax burdens over a lifetime. Those living in NJ will pay an average of $931K, well above the $87K for MA residents and $805K for CT residents. The average person will spend about 33% of their earnings on taxes. However, people in high-tax states like NJ are moving to places such as FL and TX. This exodus will eventually hurt these states as many move out or retire from their current employer. This kind of taxation will continue to be a tension point in the debates under the Biden proposal and will be watched closely by the rating companies. Overall, MUNI's in these states will benefit from the high taxes; however, one must consider the lack of revenue this might cause.
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. Based on information obtained from sources, this report is 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 investors' specific categories. 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. Please do not use email to send us confidential information such as credit card numbers, change of address, PINs, 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.