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Smith's Research & Gradings
Volume: 
XXVIII
Issue: 
13
Author: 
August 3, 2020

Smith's Research & Gradings

Should State and Local Bailout Come With Strings?

One of the great lessons from the Puerto Rico bankruptcy was never to draw to an inside straight — in other words, state and local government politicians need to play the hand that is dealt.

The Governor of Puerto Rico was called to testify before the Senate Committee, whose chairperson asked "Who is in charge?" All the Governor needed to say was "You".

Instead, The Governor insisted the $120 bln. in federal funds be provided to him without any strings. Any conditions to the aid would violate Puerto Rico's sovereignty. He had $70 bln. in par value of defaulted bonds to prove it. He rang-up $30 bln. from Hurricane Maria. He had 15 bln. in unfunded pensions. Puerto Rico received $2 bln. in grant money and $3 bln. in federal loans for specific pre-approved projects.

Clearly, the temptation to "not waste an emergency" can result in politicians running up spending just when cutting costs and expenses are required.
Analysts and investors need to be aware of the political event risks when considering a municipal bond.

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Stay on top of the latest global news that can impact your investment strategy.

Outlook Positive

SpaceX blasts through a major milestone with first manned mission

This joint public/private venture between NASA and SpaceX begins a new chapter in space exploration. How will this effect future commercial demands in space?

Outlook Negative

California High Speed Train May Jump the Tracks

Oracle co-founder Larry Ellison and Tesla founder Elon Musk both agree when it comes to California's $77 billion high-speed rail project—the project is going to jump the tracks.

California Confronts the Gap

The state has a long history of closing budget gaps. This time should be no different. The reasons for the gaps vary over time. This time is different due to the delay in tax collections in the state to November of 2023 due to the climate change induced events that had taken place. What is the same factor this time is that capital gains declined appreciably in 2022 into 2023 due to the downturn in the markets. The turnaround for the markets did not take place until late 2023.

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