Perspectives Blog

The truth about April’s budget surplus

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | May 16, 2013

Surge in tax receipts allows the U.S. Treasury to report the largest budget surplus in five years. What is good for the Treasury and the budget presents some burden on households; taxpayer refunds are down 3.5% this year versus last. Recent deficit improvement may give a false sense of security and delay critical entitlement reforms. Washington finally had some good news to report, specifically on the budget deficit. The Treasury reported a $1…

Stormy conditions in Puerto Rico

Columbia Management, Investment Team | June 25, 2013

…gorous research is essential to identify those opportunities that feature investment-grade characteristics. In December 2012, we expressed concern about Puerto Rico’s fiscal health given its sizable and persistent structural budgetary imbalance, low pension funding ratios, increasing debt burden, weak economic conditions and uncertainty related to the newly elected governor’s economic and fiscal policies. Since December, Puerto Rico’s fiscal con…

Defense industry outlook – Looking past the headlines

Ben Blomberg, Senior Equity Analyst | March 17, 2014

The outlook for U.S. defense contractors has been improving despite all the negative headlines. Army spending is under pressure, but Navy and Air Force spending remain well supported. The recent Ryan-Murray deal is a substantial positive, with a more predictable DoD outlook. Defense investors have had their share of bad news around the trajectory of defense spending, starting with the Budget Control Act of 2011, followed by the failure of the…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Research | January 2, 2014

…Detroit bankruptcy filing this summer, contributed to investors’ concerns about other weak municipal issuers. Puerto Rico’s financial problems have been simmering for decades. The Commonwealth has an ailing economy, recurring budget deficits and severely underfunded pension systems. Unlike most other municipalities, PR issues debt to pay annual operating expenses. The chart on the following page provides a snapshot of Puerto Rico’s unrestricted n…

The taxman cometh

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

…kely to cause real pain to taxpayers as they deal with potentially much larger tax bills, even if their income remained stagnant year-over-year. The two major sources of the increased pain emanate from the increase in the top federal income tax bracket from 35.0% to 39.6% and from the new Net Investment Income Tax (NIIT) of 3.8% which was enacted as part of the Affordable Care Act. The NIIT is a particularly unpleasant and unexpected surprise giv…

Puerto Rico’s turbulent ride

Michael Taylor, Senior Municipal Analyst | September 26, 2013

…hallenged Puerto Rico’s economic contraction and fiscal decline is persistent, well-documented and widely acknowledged within the municipal marketplace. Over the past decade the government has routinely employed non-recurring budgetary measures, including the utilization of one-time bond proceeds to fund Commonwealth operations, both unusual for state-equivalent obligors and a clear sign of underlying credit weakness. The Commonwealth’s long-dela…

The bean counting on second quarter GDP

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | July 25, 2013

h the manufacturing index averaging 50.2 in the quarter, the weakest quarter since the recession ended. Government spending cuts have started as the sequester takes hold. Of course, the flip side here is an improvement in the budget deficit, as outlays fell 2.5% in the quarter and the rolling 12 month deficit fell to the smallest amount since 2009. Additionally, inventory change, one of the largest swing factors for the GDP, looks to be soft this…