A break from our recent practice of tidbits. There’s a story you should read – the similarities just might make you take notice. From there, I delve into the “recovery” and provide a bit more around our recently introduced Geo Score.
A Story to Consider
I’m going to take liberties with something I read this week – I am going to change names but the point will be surprisingly relevant. Here goes:
All was well until the crisis hit. They could no longer fund operations and obligations and turned to creditors, partners and their government for help – nothing doing, not even negotiations. They turned to an “outsider” for help – perhaps his relationships and experience could help right the ship or extract a “deal.” He went near and far and found no friends. They ended up with a “deal” that caused banks to fail and depositors suffer losses of up to 60% (bank deposits!). Businesses that were going concerns one day were out of business days after the crisis erupted – employees lost their jobs and benefits. Unemployment will soon reach 20%.
The citizens were shocked that no one came to their aid – how could this happen? Some who thought their retirement was safe ended up losing 50% or more of what they thought was safe.
The citizens thought they had stability (based on the history of how society behaved) and rules protecting them only to learn new situations required new rules – and they were being made up as they went along.
In this case, I am referring (loosely) to Cyprus and how, according to John Mauldin, “Europe is making up the rules to deal with the crisis.”
Go ahead, substitute Detroit or any of the other municipalities testing the limits (some by choice others saddled by obligations of their predecessors). Many in our market once deemed General Obligation bonds and Pension obligations to be sacrosanct. Perhaps it is time to rethink how we look at those credits – perhaps economic data, pointing to a deteriorating wage and employment data, or demographic data, pointing to shifting populations, will have greater impact on those sacrosanct obligations of the municipality.
Below I sample several relevant data points for select cities and also include their DIVER Geo Score.
DIVER Analytics, Data Access Module; BLS; US Census; Geo Score by Lumesis, Inc., Patent Pending.
By the way, if you didn’t notice, Detroit’s DIVER Geo Score : 0. Ok, you could have guessed that. What’s the score of your favorite States, Counties and cities?
Recovery Strength and Data Trends v. Data Points
For the moment, lets put aside Fed Chair Bernanke’s testimony this week, comments by Fed Officials the past few weeks and Ben’s statements a few weeks back that roiled the markets – if he was running for office (or if he decides to do so later in life) some might accuse him of waffling! Last week, we learned that consumer spending “moderated” in June, that retail sales grew at a slower rate than expected “amid higher taxes and weak growth in wages” [I do recall suggesting one be on the lookout for the impact of these very factors]. And did you know that consumer spending drives about two-thirds of the demand in the economy.
Before I get to some data trends, I thought the following passage from Marc Faber, The Gloom, Boom & Doom Report, was worth sharing:
… I have come to believe that the best performers are those that are well informed but who don’t react to every bit of news [data]… In fact, since everyone in the financial sector seems to be obsessed with obtaining any type of economic or financial news instantly, maybe a better approach would be to obtain the news [data] after a … time delay.
First off, as it relates to the impact of the June numbers, I suggest that the trend is what is critical and not simply June’s numbers. Unfortunately, as we have made clear over the recent weeks (see our recent commentaries regarding GDP Growth and Tax Receipts and Income), the trends don’t seem to be terribly positive.
Now to this month’s State Unemployment figures. We’ll start with the rate for June and drill down a bit for you. Blue, green and yellow are better than the “National average” (tough to swallow when the real rate – including underutilization is more like 15%). .
DIVER Analytics, Map Module, Bureau of Labor Statistics.
And now, for a look at some trend and peeling back the onion. As regular readers know, stopping at the rate is less than half the story. While the rate is below the “National Average” in certain States, where is there Job Growth, Labor Force Growth and a decline in Labor Underutilization – combined, I surmise signs of economic health. Sixteen States meet these criteria. To add to the degree of difficulty, I threw in Labor Underutilization of less than 10% -- four States that are in seemingly pretty good shape.
DIVER Analytics, Filter Module; BLS
For good measure, how do these States stack up using our Geo Score :
Lumesis, Inc. Patent Pending
Our Geo Score contemplates employment –related data but also considers housing and income data. The DIVER Geo Score was developed by Lumesis to assist our users in better understanding the overall economic health of a particular geographic area. We believe this to be important in the analysis of municipal credit as the health of an economy will translate into tax receipts and government expenditures.
Speaking of Housing, as we continue to hope that the trend of the past year or so continues, keep an eye on interest rates. As we all know, Bernanke’s comments a month or so ago drive mortgage rates up about a full percentage point. The impact on affordability – for a $200,000 loan – about $115 per month. Stated another way, someone who thought they could afford a house at $250,000 can now pay only $225,000. Use the same calculus, more or less, for the refi crowd. The impact will be felt on housing prices, ta receipts and beyond. Stay tuned as we await housing price data over the coming months.
Have a great week.
Gregg L. Bienstock
CEO & Co-Founder, Lumesis, Inc.
This Week’s Data :
- Job Growth, June 2013, State
- Labor Force, State, June 2013
- Unemployment and Unempl. Rank Change, June 2013, State
- UPDATED: DIVER Geo Score, State, Current & Trend, July 2013
- Weekly Initial and Continued Jobless Claims, State, 7/6/2013
- Drought Intensity, County, 7/16/2013
- UPDATED: Default Filings - Issuers, State, 2013
- UPDATED: Special Event: Tornadoes, County, 2013
- UPDATED: Bankruptcy Filings - Issuers, County, 2013