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Smith's Demographic Event Risk Alert:

The Perils of the Pagoda

Smith's Research & Gradings (SRG) Outlook for 2020 highlights a major demographic change in America and its implications for municipal bond investors. Subscribers are familiar with Smith's Research entitled "The Silver Tsunami and Senior Living" and more recently "The Perils of the Pagoda".

SRG allows investors to monitor events as slow moving as droughts and as fast moving as terrorist attacks. To provide investors with greater confidence, SRG provides enhanced contextual understanding with decades of demographic information and economic data.

"Demographic Turning Points for the United States: Population Projections for 2020 to 2060" was the title of a presentation made by Lauren Medina, Population Division of the U.S. Census Bureau 2019. She spoke at a meeting of the Southern Demographic Association in New Orleans, Louisiana, on October 24, 2019. She announced, "For the first time, older people are going to outnumber young people."

 Additional highlights included the US population is projected to grow by 79 million from about 326 million today to 404 million in 2060.  She projected the U.S. will cross the 400-million person threshold in 2058.

What is really important for Smith's Cadre of Regulars to understand is the rate of population growth is projected to slow down and why it is going to slow down. It all is driven by the Cohort-Component Method, which the U.S. Census Bureau uses to predict population growth.

It's complicated. Really complicated. What SRG subscribers need to know is that each component is projected separately by age, sex, race, Hispanic origin,and nativity.


Credit Rating Agencies Rebuke FT Columnist

In a rare public rebuttal of the media, heads of  the Credit Rating Agencies sent in articles to the Financial Times. Moody's President, Michael West, wrote to the Financial Times to clarify important facts regarding Moody's Investors Service's credit ratings and their value to the market as presented in Patrick Jenkins' Inside Business column "Credit ratings, like unstable boilers, can bring down the house" (January 14).

Yann Le Pallec, Head of Global Ratings Services, S&P Global Ratings, wrote a letter entitled, " Ratings agencies have made big changes since the financial crisis."

Mr. Jenkins raised a red flag in the Financial Times about the credit rating agencies and their "dodgy" business model. He compared the credit rating agencies to slick car mechanics and plumbers who work on home heating mechanisms. He said, "The realm of credit ratings is more heavily stacked against users than the flaky plumber or mechanic could even dream. It is the equivalent of a boiler manufacturer paying the plumber who recommends and installs its equipment — a bargain until the boiler blows up and destroys your house."

Mr. West wrote, "Moody's credit ratings are, in fact, predictive, forward-looking opinions based on quantitative and qualitative analysis, combining empirical and statistical research with the credit judgments and opinions of experienced analysts. Our methodologies, all of which are publicly available, are assessed and updated regularly to ensure they remain relevant. Credit ratings are meant to be used as part of a broader set of risk considerations, not as the sole basis of any investment decision or regulatory requirement."


American Dream as Disruptor

An Institutional Investor at Smith's High Yield Municipal Bond Conference asked the audience to raise their hands if they owned American Dream bonds.  Only one person in the audience raised a hand.

American Dream is a credit that municipal analysts have loved to hate.  Or, as Frank Sinatra used to say, some people get their kicks stomping on other people's dreams.

Why? Because retail shopping is dead. Internet sales are the future of consumerism in America.

American Dream is Huge

Despite the Chicken Little analysis, the American Dream Mall opening has been a huge success by all local accounts. The amusement park is completely sold out during the weekends. Huge crowds seem to content to wait in long lines.

The ski slope is a monster hit. Given the unseasonably warm temps during December and early January, anyone in the Tri-State Area who wants to strap on their boards needs to go to American Dream Mall. And, the reviews of the snow are great too.

American Dream Mall's ice rink is so packed that people cannot find enough room to fall down.

The American Dream Water Park (which is fabulous) is not even open yet.

No wonder American Dream's most recent leasing report showed the project is 89% leased as of 12/31/2019. Whoa. That is a sizable increase from the 82% leased rate in the June 2019 filing. Another 7% of the current retail leases are still under negotiation, and when those leases are included, the operator, Five Stars, reported a whopping 96% of the mall is leased.

 Bottom line: all the medium to large retail spaces have been 100% leased out. The relative small 0-20k square feet retail spaces are the only remaining available spots. The retail component is expected to come online by March.








5 Years  Ago

10 Years Ago

15 Years Ago

20 Years Ago

Fitch Ratings has downgraded Russia's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'BBB-' from 'BBB'. The issuer ratings on Russia's senior unsecured foreign and local currency bonds have also been downgraded to 'BBB-' from 'BBB'. The Outlooks on the long-term IDRs are negative. The Country Ceiling has been lowered to 'BBB-'from 'BBB'. The Short-term foreign currency IDR has been affirmed at 'F3'.

The economic outlook has deteriorated significantly since mid-2014 following sharp falls in the oil price and the ruble, coupled with a steep rise in interest rates. Western sanctions first imposed in March 2014 continue to weigh on the economy by blocking Russian banks' and corporates' access to external capital markets. Having grown by just 0.6% in 2014, Fitch now expects the economy to contract by 4% in 2015.


One in every 365 housing units received a foreclosure filing in December 2009.

RealtyTrac, one of the leading online marketplaces for foreclosure properties, recently released its Year-End 2009 Foreclosure Market Report, which shows a total of 3,957,643 foreclosure filings—default notices, scheduled foreclosure auctions and bank repossessions—were reported on 2,824,674 U.S. properties in 2009, a 21% increase in total properties from 2008 and a 120% increase in total properties from 2007. The report also shows that 2.21% of all U.S. housing units (one in 45) received at least one foreclosure filing during the year, up from 1.84% in 2008, 1.03% in 2007 and 0.58% in 2006.

The company reported there were, 349,519 foreclosure filings on U.S. properties in December, a 14% jump from the previous month and a 15% increase from December 2008.


Credit improvements were the big story in 2004. While the overall trend will continue in 2005, there may be some major problems.Tops on the list of potential credit problems is the non-rated municipal bond market.

During 2004, the size of the municipal bond market went from $1.2 trillion to $2.6 trillion in par value outstanding.  The jump in the volume was due to improvements in the reporting of CUSIP information.  Paradoxically, while the par value increased, the number of CUSIPS remained at slightly more than 1.3 million, but the number of municipal offerings outstanding dropped to 148,000. The new data makes sense if the number of CUSIPs were somehow confused with the number of issues in the past. Slightly more than 400,000 CUSIPs are non-rated.


Muniland was stunned when Linda Ruthhardt, Commissioner of Insurance of the Commonwealth of Massachusetts, was appointed the temporary receiver for Harvard Pilgrim Health Care. Her decision to force the HMO into receivership was facilitated by the Massachusetts State Legislature's enactment of a law that provides emergency protections to covered lives of troubled HMOs. Governor Paul Celluci signed the bill into law on November 24. The legislation included emergency provisions that gave it immediate effect.

The decision by the Insurance Commissioner to force the HMO into receivership is understandable since the management reported an unanticipated $60 million hit to expenses. What's more, the bad news followed an unanticipated $100 million hit.



January 20, 2020, Vol. XXVIII, Issue 1  Municipal Edition









The Global Economic Doctor


Scott B. MacDonald, Ph.D.

January 9, 2020


Outlook 2020 Series, No. 2


Will Food Prices Be a Spoiler for the Global Dinner Party?

Summary: One of the most famous sketches by the British comedy group Monty Python involves a man who is being questioned incessantly by an annoying person and finally says that he did not “expect a kind of Spanish Inquisition.” Upon that statement a group of men dressed in 15th century Spanish Catholic robes storm into the house and proclaim, “Nobody expects the Spanish Inquisition!”  The same could be said for a shock to global food prices, nobody expects food price inflation! However, one of the potential risk factors for 2020 could be stealth inflation in food prices, caused by a combination of factors, including the spread of African Swine Fever (ASF), swarms of locusts, droughts and massive fires. This raises major questions for economic policymakers as well as investors throughout the world’s largest economies and countries; how prepared are they if food prices spike? The answer is probably that they are not.

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