Archive for the ‘Event Risk’ Category

Affordable Housing Bonds Are Good Investments (If You Can Find Them)

April 12, 2018

Smith’s Affordable Housing Finance Conference returned to Fort Lauderdale, Florida, this year. It was another great year for housing bond investors, as the S&P Muni Bond Housing Index illustrated by posting a 250.85% Ever To Date Total Return and 2.95% Annual Total Return.

More than double your money AND no worries about credit problems given the very strong average credit quality.

Compare those investment parameters to the increasingly volatile stock market moves over the past week and its easy to see why housing bonds play a role in the municipal investment process. (https://us.spindices.com/indices/fixed-income/sp-municipal-bond-housing-index)

The U.S. stock market has gone berserk in the face of national public policy positions that undermine global trading strategies. It shouldn’t come as any surprise since Smith’s Regulars know that stocks are inherently more volatile.

Law of Unintended Consequences
With hopes of improving Portland’s brand-new mandatory affordable housing policy, Portland City Council recently agreed to woo developers with its original (optional) affordable housing policy: the Multiple-Unit Limited Tax Exemption (MULTE). The old plan would incentivize (read optional) residential developers to lease 20 percent of their apartments to low-income renters.

The Portland City Commission’s decision comes at the end of the city’s year-long slog to create and retain affordable housing after passing its “Inclusionary Housing” (IH) policy. The new program requires any new apartment building with 20 or more units to lease a chunk of those units below market rate.

Sure, those “below market rate” units are not really that affordable when compared to other cities around the country.

But, instead of spurring a wave of affordable new housing across the city, the IH policy has practically ground the affordable housing construction to a complete halt.

Months before the IH policy went into effect on February 1, 2017, developers wanting to avoid the onerous rule, submitted building permits for no less than 19,000 units across the city. Since then? Only 12 buildings (containing a total of 682 units) have applied for new permits from the city’s Bureau of Development Services. In the past, the city fielded permits for between 3,000 to 6,000 new units a year—making 2017’s numbers look even more pathetic.

Norworst
If you think Portland’s affordable housing crisis bad, take a look at Seattle, where during a one-year period in 2015–16, Seattle rents increased by 9.7 percent — four times the national average. In 2017, the cost of an average two-bedroom topped $2,000. The results have been predictable: nearly half of Seattle renters are currently “housing-cost burdened,” meaning they spend more than 30% of their income on rent.

A recent Zillow study cited the connection between even modest rent increases and resulting homelessness. King County’s 2017 One Night Count tallied 11,643 homeless people, which is second only to New York and Los Angeles in homelessness.

Seattle’s Housing Affordability and Livability (HALA) program claims it will create 6,000 affordable housing units over the next ten years.

To put it into some context, Seattle’s population has risen by an average of 15,000 every year since 2010, growing by nearly 21,000 in 2015–16 alone.

Touted by Seattle politicians as the result of a tough negotiation between the city and developers, it’s little more than a giveaway, as the overwhelming majority of apartments constructed as a result of the “Grand Bargain” will be sold and rented at market rates.

Indeed. The affordability mandate is currently as low as 2% in some parts of Seattle.

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Smith’s Political Event Risk Grading Alert: U.S. Sanctuary Cities (-1)

February 14, 2017

Smith’s Political Event Risk Grading Alert was issued the first week of February for U.S. Sanctuary Cities (-1).

Smith’s Research & Gradings (SRG) publishes its SRG Political Event Risk Grading whenever Smith’s Sentinel System triggers a predetermined response. SRG was founded in 1992 to provide principles-based, independent, conflict-free (Paid By Investor/Stakeholder) analysis.  One of the principles is to provide credit analytics that are “Universal” so investors can compare risks across all classes of investments.

Smith’s Gradings have three components: 1) long-term payment probability gradings 2) recovery gradings, 3) event risk gradings.

Smith’s reported a Political Event Risk Alert for the United States Treasury Debt at Smith’s Affordable Housing Conference in March of 2011. “Probability of Sovereign Debt Crisis Now Escalating to Over 40%”, according to Terence M. Smith, CEO, SRG.  He noted the “Weak US$ Policy vs. Weak Chinese Yuan”.

Smith’s Political Event Risk Covers (classes):
1) Currency inconvertibility (CI) and exchange transfer (FX);
2) Confiscation, expropriation and nationalization (CEN);
3) Political Violence (PV) or War (including revolution, insurrection, politically motivated civil strife, terrorism);
4) Breach of Contract, Contract Frustration (CF), Contract Repudiation.
5) Wrongful Call of a Guarantee (WCG).

The 2016 Presidential election of Donald Trump was as much about the middle class revolting against the political  class in Washington, D.C., and the concentration of wealth in America, as it was about “Making America Great Again.”   President Trump is not much of a Republican, really, which is why he could move so swiftly to secure the borders and address immigration.

In his wake, the Republicans (the real ones) are moving to quickly move to consolidate legislative power.  And, once one grasps why he was elected, the likelihood that the U.S. Senate and Congress will become even more conservative is inevitable. To quote a well-respected friend on Wall Street, “The political correctness of the Democratic Party is what defeated them because no one told the truth during the polling. Everyone lied about Hillary and the polls were wrong when they said she was going to win.”

Sanctuary Cities
Steve Salvi, Founder of Ohio Job and Justice PAC, has the oldest non-governmental website that tracks Sanctuary Cities. He started in 1997.

Mr. Salvi explained that in 1996, the 104th U.S. Congress passed Pub. L. 104-208, also known as the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA). The IIRIRA requires local governments to cooperate with Department of Homeland Security’s Immigration and Customs Enforcement (ICE) Agency.  Despite the IIRIRA, hundreds of urban, suburban, and rural communities have ignored the law and adopted so-called “sanctuary policies.”

Generally, sanctuary policies instruct local or state government employees not to notify the federal government of the presence of illegal aliens living in or passing through their communities, counties, or states. These policies may also blur the legal distinction between legal resident aliens and illegal aliens, so illegal aliens can have access to the same taxpayer funded programs and benefits available to legal permanent resident aliens.
Sanctuary policies exist in two forms, formal and informal.

Already, in the wake of President Trump’s comments,  many sanctuary cities have taken steps to revoke formal sanctuary policies, such as Fairbanks and Juneau, Alaska.  However, some people express skepticism about these “formal” repeals being substituted with informal sanctuary policies.

U.S. Senator Jeff Sessions has been one of the strongest advocates for immigration law enforcement in the U.S. Congress. He introduced Senate Bill 1640 (S. 1640) in June, 2015, to address Sanctuary Cities.  Senator Sessions’ bill gives states and local governments the authority to enforce immigration laws. It is named the Davis-Oliver Act, after two law enforcement officers who where murdered by illegal aliens.  Congressman Trey Gowdy introduced a companion bill in the U.S. House (H.R. 1148).

SRG will remain vigilant to monitor the political event risks facing investors in the bonds of sanctuary cities.

 

Iowa: Smith’s Avian Influenza Event Risk Alert (-1)

May 26, 2015

Deadly avian influenza viruses have affected more than 33 million turkeys, chickens and ducks in more than a dozen states since the start of 2015.

Iowa, which produces 20% of the nation’s eggs (layers), has been hit hard. More than 40% of its egg-laying hens are dead or dying. The high density of layer birds at the egg farms explains why the flu, which can kill 90 percent or more of a flock within 48 hours, has decimated more birds in Iowa than in any other state.
The most recent Census of Agriculture reported 233,770 poultry farms in the United States in  2012.  In 2014, the U.S. poultry industry produced 8.54 billion broilers, 99.8 billion eggs, and 238  million turkeys. The combined value of production from broilers, eggs, turkeys, and the value of  sales from chickens in 2014 was $48.3 billion, up 9 percent from $44.4 billion in 2013.

South Dakota reported its first possible infection on a chicken farm with 1.3 million birds last Thursday.(See Map)

Smith’s Regulars can contact Pam Kilbourn for quotes on how to immunize investment portfolios using Smith’s Avian Influenza Event Risk Gradings. (pamkilbourn@smithsresearch.net)Avian Influenza

Egg Prices Expected to Increase
China, Japan, and Mexico have banned poultry imports from the United States.  Already, U.S. consumers may have noticed a rise in the price of eggs.

When a egg farm is identified as having the avian flu,  the extermination of the birds requires hiring a company to  gas the entire barn with carbon dioxide.

Even when the Avian flu has been identified at a farm, the hens are still laying eggs in barns that had yet to be emptied.  Those eggs are being sold as a liquid product after undergoing a federally required extra pasteurization.  The liquid eggs are used in many food products, including cakes, ice cream, and cookies.

Once the barns are cleared, a mandatory 28-day period must pass before it is tested. Once the test comes back negative, then the barns can be put back into production.

The U.S. Department of Agriculture believes consumers may see an increase in the price of foods using liquid eggs, too.

Pathogens
HPAI, or “high path” AI, spreads rapidly and is often fatal to chickens and turkeys. The HPAI H5N8 virus originated in Asia and spread rapidly along wild bird migratory pathways during 2014, including the Pacific flyway.  In the Pacific flyway, the H5N8 virus has mixed with North American avian influenza viruses, creating new mixed-origin viruses. These mixed-origin viruses contain the Asian-origin H5 part of the virus, which is highly pathogenic to poultry.

The N parts of these viruses came from native North American avian influenza viruses found in wild birds.  USDA has identified Eurasian H5N8 HPAI and mixed-origin viruses, H5N2 and a novel H5N1, in the  Pacific  Flyway.  The HPAI H5N2 virus strain has been confirmed in several states along three of the four North American  Flyways:  Pacific, Central and Mississippi.