- NY State raised its estimate for personal income tax collections by $2.1B annually through fiscal 2025 and slashed projections of future budget gaps. NY and other states are in a solid financial position based on many items, particularly sales and income tax.
- Blackrock indicated it would keep a "defensive" posture on municipal bonds in place into the Fall months when the market is typically weaker because of new debt sales. Blackrock did indicate they are concerned about the rich valuations and tight credit spreads, which we are seeing, and a less historically favorable supply/demand and interest rate cycles in the Fall. I suspect we will see valuations move down a bit based on this news.
- One of the most consequential items in the Biden package moving through Congress is the reinstatement of the Advanced Refunding Option, eliminated initially as part of the Republicans 2017 tax overhaul. This option allowed cities to cut their debt costs and, at one point, accounted for nearly 1/3rd of all issuances in the state and local bond market. And, if passed, it is beneficial for the MUNI bond market. The Advanced Refunding is the most material change in the bill and could unlock over $100B in new issues as we move into 2022.
- House Democrats indicated that they will "undue" the SALT cap based on the new bill going through Congress. This bill was enacted in 2017 and viewed as "short-sighted" at the time, and this issue may become a bargaining chip to get the Biden bill passed through Congress.
- The hiring of Timothy Little as a Municipal Specialist for a position in the FED Market Division is an interesting hire. The job was advertised early this year, calling for someone to monitor and analyze the Muni market and procure and contribute to policy analyses. I believe this is the first time the FED has hired someone to study our markets specifically. This hire is a good thing. The team will analyze developments across domestic capital markets to help the FED deal with the implementation and transmission of monetary policy. They will also analyze risks associated with events such as 9/11 or the pandemic to gauge better how MUNI debt reacts. I think this is a net positive for all markets.
- The spread of the COVID 19 Delta Variant, higher inflation, and persistent supply challenges have prompted economists to downgrade US growth prospects for the remainder of the year. Many forecasters lowered their economic growth projections for the 3rd Q to 5.00% from 6.8% and trimmed their 4Q estimate to 5.3% from 5.6%. As these numbers are revised down, I suspect you will see added pressure on the MUNI markets.
- The surprisingly weak payroll growth in August should keep taxable MUNIs attractive to foreign investors. BOA indicated that the current environment should, in principle, be a reasonable period for foreign investors to buy taxable MUNIs in anticipation of the dollar rallying over the following Q. This fact will be a positive impact on our markets as we move through the balance of this year
- Tax increases are now starting to be discussed in Congress to pay for these large stimulus packages. The latest Democratic proposal will raise the Corporate Tax to 26.5%, less than the 28% Biden sought. The top rate for cap gains tax will move to 25% instead of the proposed 39.6%. I suspect you will see much debate on these subjects over the next several months.
David Loesch
dloesch@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 believed to be reliable based on information obtained from sources, 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. 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 before 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.