A Tale of Two Coasts

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Asset Management  |  August 15, 2015  |  
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The best of times, the worst of times. It was the age of wisdom, it was the age of foolishness. –“ Tale of Two Cities” by Charles Dickens

The last few years have seen the world of municipal bonds splinter into many different levels of risk with divergent underlying financial trends and political developments.

On the Pacific coast, we would highlight the improving trends of California and attractiveness of many municipal bonds there. The state economy has reached GDP of $2.3 Trillion (for 2014), a state surplus in the fiscal year just ended, solid economic growth led by Silicon Valley, and two ratings upgrade by S&P in the past year. Dare we say that the politicians on the ‘left coast’ are becoming fiscally conservative? Let’s say they are showing more wisdom.

Off the Atlantic coast, we see the opposite trends in public finance. Headlines show the increased fiscal stress in the commonwealth of Puerto Rico. The situation there can be described in terms of the 50 states:

Puerto Rico has the population of Oklahoma; the per capita income is less than Mississippi (the lowest of the 50 states) and total debt of $72 Billion is similar to New York (obviously a large state with the highest debt).*

*Puerto Rico comparison is from Nuveen Investments