Smith's Research & Gradings
I Hear America Bonding
The 2018 All-Star Municipal Analysts Team recognizes excellence across all sectors of the public finance process, ranging from the largest states to the smallest charter schools, and from global investment banks to local municipal bond houses. Municipal analysis is practiced at these institutions to protect investors, preserve capital creation through the municipal bond market, and create public goods that support the uninterrupted delivery of essential services. Municipal analysis is incorporated into the investment process by gilt-edged rating agencies and commercial banks as well as massive institutional investors, bond insurance companies, and independent hedge funds.
The municipal bond market survived an existential threat from a tax-reform proposal in late 2017. However, the battle distorted and perverted the natural order of capital creation in the mighty municipal bond market. It took nearly six months for the issuance volume to be restored to a steady, healthy rate.
Coupled with the unprecedented political event risk of Federal tax-reform was the growing climate change volatility, evidenced by Hurricanes hitting Florida, The Carolinas, and drought-driven wildfires scorching California. The 2018 municipal bond market faced unanticipated challenges.
Today, the municipal bond market has emerged stronger and better prepared to handle political risks of all sorts, thanks in no small part to the work done by the community of municipal analysts. These professionals have found ways of discerning opportunity amidst the political risk.
Nuveen No. 1 Team
Smith’s All-Star Analysts Program includes a team category, which recognizes the contributions by all members of the analytical group. It is important to understand that Smith’s All-Star Program does not elect people to first, second or third teams – all votes are cast for an analyst to be on the first team.
Nuveen was the No.1 team in 2018. Formerly Nuveen Investments, TIAA purchased the asset manager, which was founded in 1898 by John Nuveen Senior in Chicago, Illinois. The municipal research group has grown in size as the scope of assets under management has surged.
Deal of the Year:
New York Transportation Development Corp:
Delta Air Lines, Inc — LaGuardia Airport Terminals C&D Redevelopment Project
In voting conducted by institutional investors, The 2018 All-Star Deal of the Year was awarded to the New York Transportation Development Corporation for the Delta Airlines, Inc - LaGuardia Airport Terminals C&D Redevelopment Project.
The New York Transportation Development Corporation issued $1.38 billion special facilities revenue bonds for Delta Airlines to fund a portion of the renovation of its LaGuardia Airport Terminals C and D and other facilities supporting its operations at LaGuardia. Citigroup Global Markets is the lead underwriter on the deal.
RECENT PUBLICATIONS (Click Here)
TODAY IN SMITH'S
5 Years Ago
10 Years Ago
15 Years Ago
20 Years Ago
The Working Group for the Fiscal and Economic Recovery of Puerto Rico announced that Governor Alejandro Garcia Padilla has presented to the legislature the Puerto Rico Fiscal Responsibility and Economic Revitalization Act, which will establish the Puerto Rico Fiscal Oversight and Economic Recovery Board.
The Act and the establishment of the Board will support Puerto Rico's efforts to address its immediate fiscal crisis by seeking to restore public confidence in the Commonwealth, while also remaining in compliance with the Commonwealth's constitution.
Along with the Working Group, the Board will facilitate a return to long-term fiscal sustainability and economic growth and provide Puerto Rico's creditors with assurance that conditions agreed to as part of any comprehensive debt restructuring agreement, as well as compliance with the Working Group's Fiscal and Economic Growth Plan, will be monitored by an independent, non-political body.
On September 25, 2008, Washington Mutual Bank (WaMu) became the largest U.S. bank to fail — It was closed by the Office of Thrift Supervision and the FDIC was named receiver.
In a transaction facilitated by the FDIC, JPMorgan Chase acquired WaMu's assets and most of the liabilities, including covered bonds and other secured debt. All depositors are fully protected and there will be no cost to the Deposit Insurance Fund.
Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.
The sale of WaMu's assets to JPMorgan Chase prevents the bank's collapse from depleting the FDIC's insurance fund. Because of WaMu's sub-prime mortgages and other risky debt, JPMorgan plans to write down WaMu's loan portfolio by about $31 billion.
SMITH's primer on municipal credit quality might well include the adage that G.O. bonds are as good as gold.
The G.O bonds have earned this outstanding reputation because many are secured by the full faith and credit of municipalities. This "ad valorem" pledge is backed by the entire amount of taxable property within the communities and an unlimited tax rate.
Default studies by Fitch, S&P, and Moody's, found the incident of non-payment for municipal G.O. bonds to be almost non-existent over the past 50 years.
However, in recent years, the non-ad valorem pledge (such as sales tax secured) has grown in popularity. These bonds don't require voter approval and the debt doesn't burden property owners .
And, of course, revenue bonds (i.e. self-funding) were all the rage in the latter half of the last century.
The Fed's decision to cut interest rates in an attempt to stimulate domestic economic growth could be interpreted as pandering to political pressure. After all, Mr. Johnny and Mrs. Jane Q. Public will be receiving those disappointing 401(k) statements just before the November elections and incumbents want to know what the Fed is doing about it.
As previously noted in these pages, the Federal Reserve is well suited to regulate growth. The Fed can crimp inflation and forestall an economic slowdown. But, it should not attempt to stimulate economic growth.
During the past three years, Smith's asserted that elements of inflation were present in the U.S. economy. We suggested the idea that "growth is as good as gold" actually inflated the average American's expectations about wealth. Over time, the theory became so widely held that a corollary developed to the aforementioned growth theory: momentum investing.
November 19, 2018, Vol. XXVI, Issue 21-22 Municipal Edition
The Global Economic Doctor
November 13, 2018, Vol. 3, Issue 18
The Week Ahead – Volatility, Politics and Data or Ho, Ho, Ho!
Looking back at last week’s financial market performance one sees a lot of red next to equity prices, a none-too-subtle reminder that uncertainty has become a major driver in global financial markets. The VIX Index closed on Friday at 23.23, one of the highest points of the year. And the DOW took a pounding. Look for more in the week ahead.
Certainly the first week of December was crammed with market-moving events that pushed that volatility:
• The Canadian arrest of Chief Financial Officer Meng Wanzhou of the Chinese telecommunications company, Huawei;
• A fierce battle over Brexit in the UK parliament, which has raised questions over a hard Brexit is looming and an end of Prime Minister May’s tenure in 10 Downing Street;
• The start of the center-left Lopez Obrador administration in Mexico, which appears will be guided by a “Mexico first” approach in economic policies;
• France was hit by the Yellow Vests (riots and demonstrations), again. This movement is a blow against what many rural and small-town French regard as an out-of-touch French president and political elite, too much taxation and poor economic prospects;
• Russia and Ukraine remain with daggers pointed at each other over access to the Sea of Azov, with the Russians still holding 3 Ukrainian navy ships;
• Commercial satellite photos reveal North Korea is actively expanding a long range missile base. Although the Kim Jong-un regime is dismantling other bases and seeking to portray itself as moving in the right direction, the reality on the ground is that the North Koreans have little intention to abandon their nuclear program;.
• President Trump announced that he is “tariff man” (a remark that helped send global stock markets down); and
• The investigations surrounding the Trump administration heated up considerably.
The weekend provided no relief as it was filled with talk show discussions about the consequences of President Trump’s being named as “Individual-1”, who directed lawyer Michael Cohen in 2016 to make illegal payments to two women claiming they had affairs with the then candidate. In sum, the last news cycle has been one of high and low politics, a salacious mix of governmental intrigues, angry citizens; sex scandals, and political posturing.
What does this portend for the second week of December? Sadly, we are in for more of the same. Important things to watch are the likelihood of a vote on Brexit in the UK parliament on December 11; the European Central Bank holds its meeting on interest rate policy (expect no change and rates to remain at -0.4%); and there is a steady stream of economic data. The last is important as it includes the Small Business Optimism Index for November (which could be down marginally) and retail sales data for November (which is expected to see a small 0.3% rise).
Probably the two most significant items in week two of December are Brexit and the spillover of the Meng Wanzhou arrest. This is not to downplay the ongoing back and forth between China and the United States on a whole host of issues or the chances of President Trump heading toward impeachment, but the UK Parliament is scheduled to take an actual vote on Prime Minister May’s Brexit plan on December 11. This is significant. If the vote passes the UK will have a deal in place that is likely to minimize what will still be disruption in trade and investment. However, if the plan fails, it could be taken as a vote of no confidence, which could force Prime Minister May to resign and a new government to be formed or more likely a new election, which could see leftwing Jeremey Corbyn’s Labour Party win. We believe there is a chance that the proposal will fail, but there could a compromise bill advanced (but that would require more talks with the EU). No matter what happens, the outcome will have a significant impact on the UK economy, trade in Europe, and financial markets.
As to the arrest of Meng Wanzhou — it is part of a larger Sino-American dialogue on the state of their relationship. The U.S. asked Canada to arrest and extradite the Chinese executive due to Huawei’s alleged violations on Iran sanctions. In particular, Washington accuses her of lying to U.S. banks to circumvent U.S. sanctions on Iran. Chinese companies are regarded as being very close to the Chinese government and are perceived by many in intelligence agencies as an extension of the Chinese state. Consequently, Meng’s arrest has become a major diplomatic incident and is seen in China as an effort to increase pressure on Beijing in its negotiations over trade. China already summoned the U.S. ambassador Terry Branstad on Sunday to lodge a “solemn protest.”
China has been pushed back on the defensive by the U.S. action. Robert Lighthizer, the U.S. Trade Representative, said the case “shouldn’t really have much of an impact” on talks between the two countries, as it “is a criminal justice matter.” Considering that China has done the same to foreign executives, the issue is looked upon as very political in Beijing. We expect that the issue will become a little more contentious next week before a solution is found.
One last note, the passing of President George Hebert Walker Bush was a loss to this country. He represented many of the fine qualities all statesmen should aspire, integrity, honesty, firmness under pressure and being a gentlemen. Those are qualities surely missed in today’s world.
Smith's Research & Gradings, has become a bellwether research company, often predicting significant trends and spotlighting controversial subjects sometimes months before they come to light elsewhere. Smith’s provides independent research and third-party analysis for institutional investors. Smith's analysis is an indispensable part of Wall Street and the world's capital markets.
"Smith's ability to analyze and comment on market conditions is highly regarded. "
“Smith's is at the central nerve center of the municipal bond community. Terry Smith is the most visible proponent of municipal research in the industry. Terry has done so much for so many in the business and has had a great impact on the profession.”
“Keep doing what you are doing. You have excellent programs”
“Smith's Conference series provide unique forums for investors and issuers to discuss matters of mutual interest”
The size of this event made networking so appropriate. This was one of my most beneficial events that I've attended since I started in my role 2 years ago.
Smith's Research & Gradings
P.O. Box 1195
Great Falls, VA 22066