Last week's report to the Secretary of the Treasury from the Treasury Borrowing
Advisory Committee (TBAC) of the Securities Industry and Financial Markets
Association included a broad economic overview and recommendations. Matthew
E. Zames of JP Morgan is the Chairman of the TBAC and Ashok Varadhan of Goldman
Sachs is the Vice Chairman of the TBAC. It was an astonishing report, not
only in its recommendations, but the insights it provided to the thinking behind
the U.S. Treasury's actions. First, the TBAC provided an overview: "Monetary
policy has remained active. At the January FOMC meeting, the Federal Reserve
unveiled new Committee forecasts for the path and timing of interest rates.
Moreover, the FOMC statement pushed back the guidance on the time for the first
rate hike, from mid-2013 to late 2014 at the earliest. The revised guidance has
further served to keep
.....
Chicago Civic Federation Reports Illinois May Face $34.8 Bln. Backlog of
Unpaid Bills
Prior to the release of the Governor's annual budget recommendation, the
Institute for Illinois' Fiscal Sustainability at the Civic Federation released
its analysis of the State of Illinois' fiscal condition last week. The FY2013
Roadmap reviewed Governor Quinn's three-year budget plan, a rough five-year
budget projection for FY2013 to FY2017 and provided recommendations for the
Governor and General Assembly to improve the state's financial condition. The
full 53-page report is available at www.civicfed.org/iifs. The Civic
Federation's Illinois research institute warned that Illinois could face an
unprecedented $34.8 billion backlog of unpaid bills if action is not taken
immediately by the Governor and General Assembly to stabilize the State's
finances in FY2013 and beyond. The Federation's five-year forecast incorporates
known spending pressures in the areas of Medicaid, health care and pensions
while keeping other areas of spending flat and takes into account future revenue
expectations including the scheduled reduction in income tax rates beginning in
FY2015. The increase in the State's unpaid bills is driven by an
unsustainable rise in State Medicaid costs and rising pension costs. The Civic
Federation urged aggressive implementation of Medicaid reform legislation passed
in January 2011. In its analysis, the Federation also recommended for the first
time that current Illinois retirees and employees hired before January 1, 2011,
receive reduced annual increases to their pension benefits. The full 53-page
report is available at www.civicfed.org/iifs. "The Governor and General
Assembly must act now," said Laurence Msall, president of the Civic Federation.
"Failure to address unsustainable trends in the State's pension and Medicaid
systems will only result in financial disaster for the State of Illinois."
The Federation's five-year budget projection shows the State's backlog of ...
First
Niagara Community Bank Offers Pure Play on Regional Economic Growth
SMITH's Research & Gradings bank gradings has as one of its fundamental
principals that community banks cannot be graded higher than the communities
that it serves. There are exceptions to this rule, to be sure, but SMITH's bank
gradings have provided savers with deposits of over $9 bln. the necessary
assurance of the safety and soundness of the institutions. First Niagara as
a community bank proves SMITH's bank grading profile. SMITH's grades First
Niagara Bank: 58/10/-14 When First Niagara completes its acquisition of
nearly 200 HSBC branches, the regional bank will have an enhanced leadership
position in the Northeast, with nearly 430 locations, net of planned branch
consolidations. The enhanced franchise will include $30 billion in total
deposits, $38 billion in assets and more than 6,000 employees serving consumers,
business and communities across New York, Pennsylvania, Connecticut and
Massachusetts. The transaction will also provide First Niagara with number-one
retail market share across Upstate New York, virtually doubling its number of
branches in New York State to more than 200, including a leadership presence in
Buffalo, Rochester, Syracuse, Binghamton, Albany and down the Hudson Valley.
At the end of January, First Niagara Bank, N.A. announced...
Last Week's Edition
Oil
Shale: Tapping into Untapped Reserves
There is gold in them thar hills...black gold. Texas Tea. Oil, that is. Them
thar hills, of course, are the Rocky Mountains. Although estimates may vary as
to how many barrels of oil are contained in oil shale reserves, no one would
reasonably disagree that the U.S. has enormous quantities of shale oil.
That's what SMITH's Research & Gradings wrote back in 2006 following the
publication of regulations for oil shale and tar sands resources. The US
Office of Naval Petroleum and Oil Shale Reserves estimated there are some 1.6
trillion
barrels of oil contained in oil shales around the world, with 60–70% of reserves
(1.0–1.2 trillion barrels) in the United States. The U.S. Geological Survey
reports that most US oil shale is concentrated in the Green River Formation in
Wyoming, Utah and Colorado. These oil shale resources underlie a total area of
16,000 square miles (40,000 kmē).
For municipal bond investors, the pay dirt will be the purchase of deals done in
places like Jefferson County, Colorado.
It was not until the oil crisis of the 1970s and the US becoming a net importer
of oil that efforts to mine/refine the shale oil were done in earnest. Military
uses were deemed less important and commercial .....
Fed's Bernanke: The U.S. Housing Market Policy
Restoring the health of the housing market is a necessary part of a broader
strategy for economic recovery, according to a report released by the Federal
Reserve's Chairman Ben Bernanke. SMITH's Research & Gradings has excerpted
sections of the 34-page report and SMITH's Cadre of Housing Regulars are
encouraged to download and read the entire report. The Fed's report provides a
framework of ideas that Federal policymakers may want to consider rather than
providing any specific prescriptions to cure the ailing housing market.
The ongoing problems in the U.S. housing market continue to impede the economic
recovery. House prices have fallen an average of about 33 percent from their
2006 peak, resulting in about $7 trillion in household wealth losses and an
associated ratcheting down of aggregate consumption. At the same time, an
unprecedented number of households have lost, or are on the verge of losing,
their homes. The extraordinary problems plaguing the housing market reflect in
part the effect of weak demand due to high unemployment and heightened
uncertainty. But the problems also reflect three key forces originating from
within the housing market itself: a persistent excess supply of vacant homes on
the market, many of which stem from foreclosures; a marked and potentially
long-term...
Morgan
Keegan 2012 Outlook
Michael Ross, CFA, managing director and senior municipal trading desk analyst
at Morgan Keegan & Co. was kind enough to recently meet your correspondent in
New York City. The venue was Figs & Olives Restaurant in midtown Manhattan.
Mr. Ross is a regular member of Smith's All-Star Analysts team. He is
understandably proud of the team of municipal analysts that he has built at
Morgan Keegan: Andy Foust, VP Municipal Trading Desk Analyst: Hannah DeQuadros,
VP Municipal Trading Desk Analyst; and Duwayne Walker, VP Municipal Trading Desk
Analyst.
Of course, the big question on my mind at the time was the pending sale of
Morgan Keegan by Regents Bank. But, at the time, the question remained
unanswered.
Mr. Ross sent us the Morgan Keegan Outlook 2012 and we have provided you with
selected highlights.
Top on the Morgan Keegan list of factors impacting the municipal bond market for
2012 include headline risk and the pending bankruptcy cases for Jefferson County
and American Airlines. He said, "We think headline risk will be less onerous in
2012 than in prior years, but will not fade away. The Jefferson County, Alabama
bankruptcy...
