March 25, 2013
Economic themes: Cyprus Bailout, FOMC, Housing, Jobless Claims.
- Cyprus Bailout: The small Euro region economy secured a €10 billion bailout in exchange for agreeing to reduce the size of its banking system, including shutting down Cyprus Popular Bank, whose bondholders and uninsured depositors are likely to take significant losses. Deposits of less than €100k will allegedly be protected, though larger depositors, believed to include many wealthy Russian account holders, could lose anywhere from 30-70%.
- FOMC: The Fed maintained their accommodative monetary policy, leaving the record low Federal Funds rate unchanged at 0 – 0.25%, with the implication they will take a wait and see approach moving forward. They are still striving to maintain their course until unemployment drops below 6.5%, so long as inflation stays below 2.5%. We continue to see moderate economic growth, though the impacts of sequestration remain undetermined. Quantitative easing will continue at $85 billion per month.
- Housing: February housing starts increased by 0.8%, building permits increased by 4.6%, and existing home sales increased by 0.8%. The figures were led by multifamily components, as well as improvements in both the Midwest and Northeast. Housing numbers have been somewhat volatile over the winter, though show a positive trend, which could provide a boost to employment in the summer months.
- Economic highlights for the week ahead:
- Tuesday, 3/26/2013: Durable Goods Orders, New Home Sales, Case-Shiller HPI.
- Thursday, 3/28/2013: GDP, Jobless Claims.
- Friday, 3/29/2013: Personal Income and Outlays, Consumer Sentiment.
Municipal market themes: Stockton Bankruptcy, Bell Trial, California Revenues, Las Vegas.
- Stockton Bankruptcy: The much anticipated, and potentially precedent setting, Stockton Bankruptcy trial kicks off Monday pitting bondholders against pension beneficiaries. The constitutionally protected pension payments are near impossible to sustain, are increasing at a faster rate than any form of tax revenue, and there appears to have been a lack of taxpayer representation at the negotiation table.
- Bell Trial: Five of the six Bell officials were found guilty of misusing public funds to inflate their salaries. The new City leaders called the decision, “a long-awaited day of justice for the City of Bell and its residents.” The trial for the alleged “ringleaders” of the scandal, former City Manager Robert Rizzo and former Assistant Manager Angela Spaccia, is expected to begin in the next couple of months.
- California revenues: Through February, state revenues have exceeded forecasts by $4.7 billion, or 8.7%, though was slightly pulled down by higher than forecasted tax refunds in February.
- Las Vegas: Fitch affirmed the City’s ‘AA’ general obligation rating, and ‘AA-’ certificate of participation rating, and maintained the negative outlook citing structural deficits, though the ratings agency believes the City will avoid large drawdowns on their reserves.
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