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Nuveen Guilty of Deceit and Anti-Competitive Conduct

Preston Hollow Capital, an independent specialty municipal finance company based in Dallas, outlined its response to the recent ruling by the Delaware Chancery Court, which found Nuveen guilty of using "threats and lies in a successful attempt to damage [Preston Hollow Capital] in its business relationships." The ruling was delivered on Thursday, April 9, 2020 in a 60-page Memorandum Opinion from Vice Chancellor Sam Glasscock III.

Vice Chancellor Glasscock found Nuveen liable for the anti-competitive and injurious actions of its team led by Nuveen Head of Municipals, John Miller, in intentionally and illegally interfering with Preston Hollow's business relations with its primary lender and six major Wall Street investment banks.

Jim Thompson, Chairman and Chief Executive Officer of Preston Hollow Capital, stated, "Municipal borrowers deserve a truly competitive marketplace where they are able to select the capital provider that meets their needs in funding their vital projects, not the needs of a large money manager like Nuveen. This is, in essence, the very injustice that the Vice Chancellor exposed. His ruling meticulously details Nuveen's campaign of anti-competitive, untruthful, unfair and destructive conduct carried out by Miller and his team against Preston Hollow in our marketplace. It's important to remember that the real 'winners' are municipal borrowers across the country, as we expect Nuveen to heed the Court's stern admonition that it would be 'exceedingly unwise for Nuveen to mount a similar campaign of malicious behavior' against Preston Hollow going forward."

Nuveen said in an emailed statement the firm “respectfully disagree[s] with the court’s finding that Nuveen tortiously interfered with Preston Hollow’s business.”

 

The Case for High-Grade Municipal Bonds

The High Grade Municipal Bond Portfolio managers basked in the warm sunshine of steady credit quality while high-yield municipal bond funds saw massive outflows.

Mark Paris, CIO, Head of Municipals at Invesco, hosted an investor call on March 30, 2020. Eddie Bernhardt, head of managed accounts joined him for the presentation.

 Invesco purchased Rochester Funds last year and 2019 was a period of consolidation after the acquisition.  The newly combined entity has over $60 bln. in  Municipal Assets Under Management. Mr. Paris heads up a municipal bond team that includes 15 portfolio managers including Jim Phillips, Jack Connelly and Scott Cottier. Invesco's municipal credit research is lead by Mark Gilley, CFA (27 years of experience) and the team includes Angela Uttaro, Mark Stockwell, Mary Jane Minier, and Robert Bertucci.  The Quant Research & Portfolio Analytics are lead by Casey Ryan and Michal Milewski.

Invesco emphasized the demand for tax-exempt municipal bonds had experienced unprecedented growth.  The reasons for the record weekly inflows were due to a myriad of factors, starting with the Trump Tax-Reform's elimination of State and Local Tax Deductions. Falling interest rates and collapsing credit spreads contributed to a strong performance for municipal bond funds.

 

Special Covid-19 Credit Updates: Malls and Retail Shopping

"The American Dream Mall was a nightmare to begin with and it is never going to work in the new normal," according to a senior portfolio manager in Boston.

Indeed. The American Dream Mall is the poster child for what went wrong during the last bull market in high-yield municipal bond: Excessive amounts of debt; Bloated feasibility studies; Revenue streams that are thin and tenuous.

Moreover, there is a case being made that retail shopping centers and malls were never going to work. "If there is any lesson from the COVID-19 crisis it's that people are shifting to shopping on the internet," a portfolio manager from New York said. "Amazon is doing a record business."

 

Online Shopping Spree

Overall, demand for retail delivery is booming with shopping app global downloads hitting 106 million during the week of March 29 and April 4, 2020, according to App Annie, which provides App Intelligence. App Annie says online shopping at the beginning of April was up 15% from the weekly average in January 2020. Downloads in the U.S. alone were 14.4 million — up 20% from the same period.

The big winner was Walmart Grocery, which jumped  a whopping 460%.  Amazon saw a 20% growth in average daily downloads from January.

The record demand for online grocery shopping amid the COVID-19 pandemic has sent the apps for grocery pickup and delivery services up the charts. Walmart Grocery, as a result, has now hit an all-time high in downloads — grabbing the No. 1 ranking position across all Shopping apps in the U.S. on April 5, 2020, and surpassing Amazon by 20%, according to App Annie.

 

 

 

 

 

 

 

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Drug-resistant germs called Carbapenem-Resistant Enterobacteriaceae, or CRE, are on the rise and have become more resistant to last-resort antibiotics during the past decade, according to a CDC Vital Signs report.  The CDC warned the lethal bacteria are causing more hospitalized patients to get infections that, in some cases, are impossible to treat.   CRE are resistant to all, or nearly all, the antibiotics - even the most powerful drugs of last-resort;  CRE have high mortality rates, killing 1 in 2 patients who get bloodstream infections from them; CRE easily transfer their antibiotic resistance to other bacteria.

Smith's hierarchy of risk places drug-resistant strains of disease near the top of the event risk category due to the potential for an extinction-related event. Smith's is calling for the creation of a nationwide network for admissions.  Last year, health experts estimated 9,000 infections and 600 deaths were due to CRE.

 

 

 

 

President Obama's administration announced a major reworking of its troubled $75 billion plan to prevent foreclosures. Regulars may recall that last Spring, the Obama Administration announced its Home Affordable Modification Program (HAMP) with a great deal of fanfare, but it proved to be almost completely unworkable. The low numbers of long-term modifications is evidence that the U.S. Treasury program was flawed and that lenders did a poor job of implementing it.

The latest redesign of the program is structured to aid jobless homeowners and people who owe more on their mortgages than their homes are worth (which are described as "Upside Down Mortgages" or "under water"). The new effort will enable the government to reach its original goal of helping 3 million to 4 million homeowners avoid foreclosure by the end of 2012. That benchmark has, so far, proved impossible to approach. Only 170,000 homeowners have completed loan modifications, out of 1.1 million who began the government's Home Affordable Modification Program (HAMP) since it started last year.

 

 

 

 

The trading desk at J.B. Hanauer, a firm based in New Jersey, issued a sell recommendation for Tobacco bonds last week.

Smith's has maintained credit ratings on tobacco bonds since the inception of the securities at "55". When two of the three large tobacco companies merged, Smith's reduced its recovery rating component from "3" to "1". Smith's event risk rating has remained at "-1" (most negative) since inception.

Richard Larkin, of JB Hanauer, reported: GOOD NEWS IN 2005; BIG TROUBLE BREWING IN 2006.  Recommendation: Sell. Hold only in aggressive accounts.

He explained, "It looks like shipment & consumption trends for 2004 are among the best since the MSA was signed in 1998. Estimates for domestic shipments in 2004 project a decline of -1.7% to -2.7%, far below the seven year average annual decline of -4.2% since 1997. For tobacco bond cash flow, this will be a positive for 2005 debt service, and should result in a slight increase in MSA payments this year compared to last year, because of the built-in 3% positive inflation factor."

 

 

 

It makes a lot more sense to help people buy homes than to subsidize rental payments forever. They are not only gaining property but independence and the sense of belonging that ownership brings.

For the millions of low income families not enrolled in Section 8, we will create a new program - called the "American Dream Down Payment Fund."

When a low income family is qualified to buy a house but comes up short on the down payment, we will help them. If they and the bank can come up with 25 percent of the down payment, the government will pay the rest, up to $1,500. This simple reform could help over 650,000 families in five years purchase homes. I believe in private property.

I believe in private property so strongly, and so firmly, I want everyone to have some.

— Excerpt from a speech by George W. Bush titled the "New Prosperity Initiative."

 

April 20, 2020, Vol. XXVIII, Issue 6  Municipal Edition

 

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The Global Economic Doctor

 

Scott B. MacDonald, Ph.D.

April 14, 2020

 

Life in Times of Coronavirus

Under Pressure:  Food Supplies

Summary: Since the global outbreak of coronavirus in early 2020, there has been a move to stockpile food, increase prices, and in some cases, impose export restrictions. In the U.S., as the numbers of those infected and dying rises and unemployment rapidly rockets upwards, consumer behavior has turned more cautious and food distribution centers are swamped by hungry families. This situation is not helped by the closure of restaurants and concerns over distribution systems and the health of drivers who transport food and other household items. There are also increasing questions over food cultivation and the labor needed to bring crops to harvest. Although it is too early to be sounding the alarm regarding a food security crisis, the seeds for such a development are possibly being planted, which could lead to social turmoil. The risk is the creation of a food crisis when there really isn’t one – yet. This issue is likely to become more significant if the pandemic continues through the summer, dimming hopes of economic revival and raising the specter of food shortages.

 

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