Governing by the Rule of 51
Most participants in the markets and pundits who follow events agree that given the level of unemployment among other factors that more needs to be done by the means of additional stimulus. The administration’s goal to include state and local aid and transportation aid is welcomed by many but not all. Since the proposal was first introduced, some states have done better on actual results than their original estimates last year. California and Wisconsin both come to mind but there are probably a few more. Holiday spending moderated but it was not down as much as it could have been. Employment has picked up. But many candidates have left the labor force.
I have done a lot of soul searching on the topic of how much more stimulus should be taken on by the federal level. I lean in the direction of doing more, but, I have always been focused on the federal debt levels. Repaying all the debt to be issued will require more revenue actions in the future whatever they may be.
The good news is that the economy is poised to grow by 5% or 6% or more This level of growth is welcome after the patterns of last year.
The vaccination rate has advanced considerably, although, there is still a lot of angst out there about the pace of the distribution. Having more of the populace vaccinated is key to lowering unemployment appreciably.
I continue to be amazed that the 10-year and 30-year Treasury levels move so much, and the equivalent municipal levels remain unchanged.
I recognize that demand is overwhelming supply at present. Issuance typically ramps up in March and the higher level of issuance would be anticipated to have a distinct effect on the tone in the market.
March 14 appears to be the deadline or just before the Ides of March for another round of stimulus due to the expiration of unemployment benefits at that time. The basic idea was to have a bipartisan package ready beforehand.
Despite a genuine desire to come up with the best package on a bipartisan basis, there are many obstacles along the way. The impeachment proceedings may serve to have the effect of pulling the parties further apart away from the immediate task at hand. Any hard feelings may be carried over to other legislative tasks. The hope is to conclude the impeachment consideration in swift but complete fashion.
MTA has been one of the best governmental entities in giving a voice to why additional aid is required. The specificity the authority has provided is welcomed. I believe it would be helpful if other governmental entities are more up front about articulating their needs but also providing a clear rationale for doing so. Perhaps, states have done a relatively good job in doing so, but cities and other localities need to do more. I do recognize and appreciate that at times the message has been formulated but it may not be receiving the attention it well deserves. Alas, there have been a lot of laments of late about the demise of local reporting.
Refunding activity on a taxable basis remains strong. Current refunding activity is also strong due to where rates are at present. I cannot believe that spreads would tighten much more than where we are now. Nothing appears on the horizon to cause a radical change including any Fed action. Only an external shock of some kind would force a change in direction.
As for the potential for an external shock, I believe that it is a positive that we are re-engaging our global partners.
Returning to the topic of the stimulus, it does appear that the fail safe for doing something significant will hinge on the vote of the majority of the 51.
John Hallacy
John Hallacy Consulting LLC
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