Perspectives Blog

Defense industry outlook – Looking past the headlines

Ben Blomberg, Senior Equity Analyst | March 17, 2014

…tanker and F/A-18 fighter aircraft. Exhibit 1: Procurement by service ($B) Source: DoD Exhibit 2: Long-term DoD budget outlook Sources: Citi, DoD Improved near-term outlook for defense spending The near-term outlook for defense spending has improved under the December 2013 Ryan-Murray bipartisan budget act (Exhibit 2). Budget decisions over the past few years have tended to cut monies from the outlook through FY22, but the exhibit shows how the…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | January 2, 2014

…ion system has gone down. Source: Puerto Rico Comprehensive Annual Financial Reports (CAFR), 2012. Unrestricted Deficit (Left hand scale) — accrued (cumulative) deficits. ERS Funded Ratio % (Right hand scale) — percent of Employee Retirement System accrued pension liability that has been funded. While PR leadership has made recent progress in raising revenue and reforming pension plans, the weak economy and ongoing structural budget imbalance re…

What’s the outlook for muni bonds?

James Dearborn, Head of Municipal Bonds | June 19, 2014

…a combination of factors, including slower first quarter growth, ongoing albeit smaller Fed purchases, a reduced federal deficit requiring less borrowing and attractive relative valuations compared to other bond markets. Apart from the bond friendly decline in rates, municipals enjoyed a confluence of additional factors that helped them outperform Treasuries. These supports include a dearth of new supply, with issuance down more than 25%; a resur…

The taxman cometh

James Dearborn, Head of Municipal Bonds | March 13, 2014

…d category of investment income it is levied against. For higher income taxpayers, these changes may drive their federal tax rate from a 2012 high of 35% to a 2013 and beyond high of 43.4% (a 24% increase). Note that state and local taxes are in addition to federal taxes. For investors facing the unpleasantness of having to write a check to cover these higher levies, please keep in mind that municipal bond interest income is: subject to neither…

Rebalancing the U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | January 13, 2014

…varying degrees by a huge fiscal drag from earlier year tax hikes that hit households and from spending cuts by federal and state governments. While painful, these cuts have rebalanced budget deficits. A year ago, the U.S. budget deficit was 6.5% of gross domestic product (GDP). It will likely fall to less than 4% of GDP in last year’s fourth quarter and looks to decline to something near 3% this year. Receipts are up 13% and outlays are down 5….

Death, taxes and Medicaid expansion

Harlan Sonderling, CFA, Senior Healthcare Analyst | September 8, 2014

…n the managed care industry. The 2010 Affordable Care Act (ACA) significantly expanded both eligibility for and federal funding of Medicaid, the means-tested healthcare program for low-income families and individuals. The program is jointly sponsored by federal and state governments and managed by the states, with each state having broad latitude to determine eligibility. ACA expanded Medicaid eligibility to nearly all adults with incomes below…

Interest rates in a highly indebted economy

Zach Pandl, Portfolio Manager and Strategist | October 13, 2014

In a highly indebted economy, there is no fixed cap on the level of interest rates. Any increase in interest rates must be consistent with tolerable debt service ratios, the existing stock of debt and private sector savings. It’s in this context where Fed officials’ delicate approach to the exit process looks most understandable. The deleveraging constraint Last week the Federal Reserve reported that U.S. households’ mortgage debt service rati…