- Fitch revised its sector outlook for not-for-profit continuing care centers (CCRCs) to 'deteriorating' as rising labor costs and weakening residential real estate prices pressure operations. The slowing pace of growth in this sector has been hitting these types of units hard. Bonds in this sector have historically had a high default rate and are mostly uninsured. I suspect this will continue as the entrance to these facilities continues to slow while rising family fees become unbearable. We do not trade in this sector.
- Some economists see a recession in the second half of 2023. The strong jobs data will slow, resulting in the FED "rethinking" its overall perspective regarding raising rates. A slowdown in the economy will be measured by GDP growth. We will see a mild recession followed by a rebound in the second half of the year. MUNIs should do well in this environment, and if we start to see lower GDP growth, the FED will ease back on its stance regarding rates.
- Core inflation is slowing, yet core service price increases remain high. Powell reiterated the Central Bank’s intention to leave rates near the coming peak until inflation falls. On a 3-month annualized basis, core goods prices are unchanged and back in the range of the last decade. CPI numbers will indicate this and help the FED "decide" what to do with the upcoming move. I suspect we will see 50bps for a while and perhaps another 50 or 25 in January. If we see 50 in December, I expect a small rally in all asset classes and a good runway for all those involved in trading MUNIs.
- Equity markets are struggling for direction as traders are weighing all the above. MUNIs are bucking the trend due to the oversold issues we saw leading into November. MUNIs have held up for 30 days despite the equity market getting hit" this is telling you something. Buyers like what they see, like the AA-rated aspect (not insured), and want the 4.00+%, which makes the taxable equivalent to that of ~6% attractive in this market.
- President Biden's Chief of Staff Ron Klain said the White House sees inflation easing but warned against a default on the US national debt as lawmakers head toward another impasse on raising the borrowing limits of our nation. This issue comes up often and is a bargaining tool for both sides. IMO it is a shame we need to discuss a potential default in our country, but here we are after seven months of debating the same thing again.
- Texas collected $3.96B of sales tax revenue in November, the highest monthly tally on record. With persistently elevated inflation continuing to drive pricing, this comes as no surprise, as it generates more revenue. I suspect you will see other states report similar results. As we have indicated to clients and prospects, revenues are at all-time highs, thus creating a boom for municipalities. This point is another reason why many, including myself, believe 2023 should be a good year for municipalities from a credit quality standpoint.
- S&P revised its sector view for US nonprofit hospitals to “negative” as stubbornly high labor costs for the medical field and investment losses erode the balance sheets. They do not expect margins to recover until mid-2023 at the earliest.
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