Broker Check

Market News & Commentary - From The Desk Of David Loesch 09.29.2022

September 28, 2022
  • Rumblings are beginning to be heard in the street about "weak states and cities" on tax collections being down as we are moving into a recession. CA earlier this month reported that tax collections, robust during the past two years, are coming in below forecast. NY MTA has been saying since the pandemic that it cannot get enough ridership as it is still 40% off from the high before COVID. Some call for a government bailout to happen should the situation deteriorate. Cites like Chicago, NYC and Philadelphia will lose 25-30% of their population over the next decade to states like Texas, should the politics and the economics continue to deteriorate.
  • As mentioned above, the number of states that saw year-over-year tax collection declines increased to 25 in June from 16 in May. I do not think this is a cause of concern currently; however, something to watch over the next year.
  • UK Gilt yields were on course for their sharpest monthly rise since 1957. Like what happened here, the UK government started to reverse course and step in. The Bank of England's move is a 180-degree shift in government policy due to

the collapse in their markets. Interestingly, the Bank of England will suspend its planned start of selling the Gilt next week, reverse course, and buy longer-dated bonds to calm the markets. It will be interesting to see if Powell addresses this issue in his next meeting.

  • US home sales unexpectedly rose in August, representing a break in an otherwise rapid descent this year for the housing market. No other market has been battered by the FED rate hikes more than housing. Mortgage rates have surged past 7% over the past week, compared to 3.20% in 2H 2019. The median home price in August was about 40% higher than the same month in 2019.
  • Goldman Sachs said yesterday they are sharply lowering oil price forecasts amid increasing signs of a global economic slowdown. A strong US dollar and weak demand will remain powerful headwinds to prices for yearend 2022. The benchmark is $108 for 2023, and the previous prediction for 2023 was $125. I suspect this will be true given the overall economy. I also think oil pricing will be considered by the FED and contribute to moving rates' overall thought process.
  • Damage to PR's power grid in the wake of hurricane Fiona could reach $1B. Seventy-one percent of the island's power has been restored. Many are calling for a complete restructuring of the grid. The information coming out of PR has been sparse. I suspect this contributes to the lack of news on PR, considering the confirmation hearing for the highway bonds was on 8/17. We continue to believe the callable bonds insured by AGM will be called, and the non-callable bonds should move into a "sinker" type structure.
  • S&P indicated yesterday they anticipate cities will need to raise their capital contributions for retirement accounts as the equity markets continue to deteriorate. Pension funding ratios for the 20 largest US cities increased to a median of 78.50% from 2021, up from 71.50% in the prior year. The gains are likely to be reversed because of poor market performance this year; this should not impact overall credit ratings at this time, however, should the market continue to fall, this could be an issue in 2023.
  • LA's public transit system has recovered from the pandemic faster than its counterparts, such as NY and Chicago. The transit system indicated that it would hit pre-COVID levels in 2023. Commuters have been slow to get back into the groove of riding mass transit; however, in the larger cities, many, including me, do not believe the bonds will have issues as government funds will continue to be used for operating costs.
  • Overall, this market is creating an opportunity for many clients to reinvest proceeds into paper 200+bps higher than only seven months ago. I suspect we will see further hikes as expected.


David Loesch

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