Archive for the ‘Municipals Bonds’ Category

America – The New Europe?

Friday, September 13th, 2013

Defaulting on bond payments isn’t just for Europe anymore.  Detroit and several cities in California have defaulted on bond payments.  Now Puerto Rico may be in trouble, as its bonds are trading as if they are going to default.

This week, the yield on Puerto Rico’s general obligation bonds (PR G.O.) pushed up over 10%.  That led the Government Development Bank on Tuesday to announce that it would scale back bond sales for the rest of 2013.

Puerto Rico’s bonds offer a double tax advantage, which should help hold their yield down.  Yet when considered on a tax-equivalent basis, PR G.O. yields this week exceeded CCC corporate yields, based on the Merrill CCC Index YTW.

Puerto Rico’s junk bond status reflects a weak economy, but it also signals that the island is in deep financial trouble.  And the problems extend beyond Puerto Rico, given that it is part of a growing list of state and local governments with financial troubles.


News You May Have Missed

Friday, October 26th, 2012

With the election season in full swing, dominating the airwaves, Internet and print media, you may have missed some of the other news from the past week.  Here are a few lowlights:

What Recession?  We recently reported that the unemployment rate miraculously improved to under 8% just before the election.  Now, according to a preliminary report, annual growth in gross domestic product (GDP) is miraculously above 2%.

An unemployment rate under 8% is none too impressive and neither is a growth rate of just above 2%, but we live in times of low expectations – and these benchmarks, if achieved honestly, would indicate that the economy is moving in the right direction.

But have they been achieved honestly?  And are they accurate?

According to, over one third, or 0.71% of the growth was contributed by an increase in “Government Consumption:’

“This was the biggest rise in government spending in 3 years, and only the first contribution by Uncle Sam to its own GDP print since Q2 2010. So in much the same way as the September jobs print soared courtesy of government employee hiring, this same government is now juicing its own numbers to make itself look better.”

Recall that Q2 GDP was revised down from 1.7% to 1.25%.  Revisions to Q3 GDP will be released after the election.

As for the unemployment rate, none other than former GE CEO Jack Welch questioned the employment numbers in a Wall Street Journal op-ed.  Even if you accept the numbers from the U.S. Bureau of Labor Statistics, gains were in “involuntary part-time” help – meaning people who were looking for full-time work are now flipping burgers to make ends meet.

Because the unemployment rate excludes those who have stopped looking for work and includes those who are underemployed in part-time jobs, others put the real unemployment rate at 14.7%.  An analysis by The Wall Street Journal, which factors in historical shifts in the labor market, puts the rate at 9.3%.

Whatever analysis you accept, many Americans are still out of work and economic growth is well below what it should be.

Muni Massacre.  Moody’s Investors Service cut its credit ratings on more than $200 billion worth of municipal bonds through the first nine months of 2012, exceeding the total for 2011 – and “there’s no end in sight.”

Moody’s cites increased risk because of the “difficult economic and industry environments.”  And we thought the economy was improving!

Stimulus spending.  If government spending does, indeed, stimulate the economy, we should now be growing at a record pace.  U.S. debt has reached $16.6 trillion, while total GDP is $15.76 trillion.  In other words, debt exceeds GDP by 2.4%.

Lower Profits, Home Building.  The stock market’s performance continues to be erratic at best, reflecting economic data that one day sounds hopeful and the next day sounds hopeless.

Profits have been generally disappointing, as previously reported, but at least the housing market has been rebounding, as we announced last week.  However, anyone who jumped into homebuilders’ stocks to take advantage of the improving market would have to be disappointed by this week’s performance, as the SPDR S&P Homebuilders ETF dropped 1.2% this week.

The ETF dropped because the National Association of Realtors (NAR) reported that the speed of growth in housing sales decreased last month.

NAR Chief Economist Lawrence Yun said, “Home contract activity remains at an elevated level in contrast with recent years, but currently appears to be bouncing around in a narrow range. This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013.”

Sorry for being such an optimist last week!