Tag: news

The majority of Twitter content coming out of the United States, 92% of it, is created by just 10% of Twitter users, and 69% of those users are Democrat or Democratic-leaning independents, according to new research by Pew.

Most U.S. adults on Twitter post only rarely. But a small share of highly active users, most of whom are Democrats, produce the vast majority of tweets. The Center’s analysis finds that just 10% of users produced 92% of all tweets from U.S. adults since last November, and that 69% of these highly prolific users identify as Democrats or Democratic-leaning independents. –Pew Research

Several factors contribute to this phenomenon, says Pew, including that more Democrats use Twitter than Republicans, and the 10% most active Democrats produce roughly twice as many tweets per month (157) than the 10% of most active Republicans (79). [If it were the other way around, Russian bots would surely be to blame.]

Those who use Twitter on both sides of the aisle tend to be younger and more highly educated than those who don’t use the platform – with some 37% of adult Democrats on Twitter falling between the ages of 18 and 29, compared to just 22% of Republican users in the same age bracket.

Twitter users of each party contain more college graduates, and are more likely than non-users to say they use multiple online social media platforms.

Although nearly identical shares of Republican Twitter users (60%) and non-users (62%) describe themselves as very or somewhat conservative, Democrats who use Twitter tend to be more liberal than non-users. Some 60% of Democrats on Twitter describe their political leanings as liberal (with 24% saying they are “very” liberal), compared with 43% among those who are not Twitter users (only 12% of whom say they are very liberal).

Beyond posting volume, Democrats and Republicans also differ from each other in their actual behaviors on the platform. For instance, the two accounts followed by the largest share of U.S. adults are much more likely to be followed by users from one party than the other. Former President Barack Obama (@BarackObama) is followed by 42% of Democrats but just 12% of Republicans, while President Donald Trump (@realDonaldTrump) is followed by 35% of Republicans and just 13% of Democrats. –Pew Research

Another interesting takeaway is that most Twitter users rarely tweet – with the media US adult on the platform tweeting just once per month during the time period covered by the study. The median Democrat has 32 followers, vs. 21 for Republicans.

Democrats also appear to be more active when it comes to other aspects of their Twitter behavior, such as average number of accounts followed (126 vs. 71).

When it comes to who’s following who, Presidents and other major political figures are the most followed by US adults.

U.S. adults on Twitter follow a wide range of other users on the site. The 3,518 Twitter users in this analysis follow a total of almost 750,000 unique accounts. For the most part, there is very little overlap in the accounts that different users follow. Only 10,151 of these 750,000 accounts are followed by more than 10 users in this sample. But some high-profile accounts – typically public figures from entertainment and politics – are followed by substantial shares of U.S. adults on the site.

Certain popular accounts are followed by comparable shares of Democrats and Republicans. Late-night host Jimmy Fallon (@jimmyfallon), for instance, is followed by 16% of Democrats on the site and 11% of Republicans. But it is more common for these popular accounts to be followed by a larger share of members from one party than the other. –Pew Research

 

Also interesting – among Democrats, Vice President Joe Biden and Sen. Kamala Harris have around an equal following, however far more Republicans follow Trump than Pence.

Read the rest of the report here.

Authored by Wolf Richter via WolfStreet.com,

Another batch of crazy housing data yesterday. Crazy in the sense that the housing market, or rather part of it, namely the higher end of it, has gone totally crazy and that by now everyone knows that this isn’t “sustainable,” that “there’s no way it can last forever,” as Redfin CEO Glenn Kelman told CNBC. And he pointed out what everyone has already been pointing out, that “part of what is fueling this boom is that the economy has just split into two, and rich people are able to access capital almost for free, so, of course, they’re going to use that money to buy homes.”

But “there’s just another group of Americans who are still struggling, who can’t access the credit because we’ve raised credit standards, and you have high unemployment. I just think those two trends, at some point, have to collide.”

It’s the now well-established phenomenon of the “K-shaped recovery,” where one part is doing well, and the other part is getting crushed.

Or as WOLF STREET commenter IdahoPotato called it vastly more accurately and unforgettably, the “FU-shaped recovery.” Meaning, people who got bailed out and enriched by the Fed’s $3 trillion that it threw at the markets to inflate the prices of stocks, bonds, housing, etc. are now happy as a lark, and to heck with the rest of the people that are getting crushed.

But this craziness in the housing market is not sustainable. The National Association of Realtors reported yesterday that sales of existing homes – single-family houses, condos, and co-ops – surged in September by 9.4% from August and by 20.9% from a year ago to a seasonally-adjusted annual rate of 6.54 million homes, the highest since 2006 (data via YCharts):

Seasonally, home sales normally decline in late summer and fall. But not this year. And the seasonal adjustments of the above numbers are designed for normal seasons. The NAR also releases raw(-er) sales numbers that are neither “seasonally adjusted” nor “annualized.”

On a not-seasonally adjusted basis and not annualized, 500,000 homes were sold in September, up 24.7% from September last year, the highest year-over-year increase in the data except for two months during the depth of the Housing Bust – April 2010 and November 2009 – when sales were compared to a year earlier when sales had collapsed. Sales went through some wild gyrations from 2009 through 2011.

And on this basis (not seasonally adjusted, not annualized), and compared to September 2018, homes sales were up by 34%.

The median price of existing homes in September jumped 14.8% year-over-year to $311,800. The median price is skewed by a shift in the mix, and the price increase could also partially a result of red-hot demand for higher-priced homes (data via YCharts):

“The uncertainty about when the pandemic will end coupled with the ability to work from home appears to have boosted sales in summer resort regions, including Lake Tahoe, mid-Atlantic beaches (Rehoboth Beach, Myrtle Beach), and the Jersey shore areas,” the report said.

I have heard similar stories from real-estate brokers, such as red-hot demand in very pricy Carmel-by-the Sea, in California, about 76 miles south from San Jose and 116 miles south from San Francisco. The demand is said to be particularly hot for homes in the $2-million-plus range.

But here is what I also heard: People bought their new home without first selling their old home. They still have their place in San Francisco, or wherever, and will eventually put it on the market, but meanwhile they plowed a few million bucks into a house in Carmel and moved. These stories are everywhere.

Total housing inventory of homes for sale at the end of September fell 1.9% from August and 19.2% from September, to 1.47 million homes, according to the NAR. Given the sales rate in September, this represented 2.7 months of supply, the lowest ratio in the data going back to 1999. Granted, with today’s technologies of advertising, selling, financing, and closing the sale of a home, sales take a lot less time than the did in 1999, but still (data via YCharts):

There is a shortage until suddenly there is a glut. This always surprises people.

This is happening in San Francisco — and something similar is happening in Manhattan and some other cities. The City was long described by its “housing shortage” that drove up prices and rents though there has been plenty of housing, but all high-priced, and people couldn’t afford it. And suddenly that “housing shortage” has turned into a glut. The city is flooded with a historic amount of inventory, including a record-breaking number of condos for sale, and there is a large offering of vacant apartments, and rents have plunged, with one-bedroom rents down 19% in five months.

The inventory of homes for sale spiked from “shortage” to “glut” in a matter of months. As of the week ended October 11, there were a record 2,476 homes listed for sale, up by 72% from the same week last year, with condos accounting for the lion’s share. Note how the glut has blown all seasonality out of the water (chart via Redfin):

These gyrations in the housing market are occurring as, at the lower end, homeowners are steeped in turmoil, with nearly 7% of all mortgages in forbearance, according to the Mortgage Bankers Association, and with delinquency rates of FHA-insured mortgages, which cater to the lower end of the market, skyrocketing to a record 17.4% in August, and with 23 million people still claiming state or federal unemployment insurance. That’s the other part of the “K-shaped” recovery.

Surging home prices like these are a terrible toll to pay for buyers, except for those where wealth is such that it doesn’t make any difference. As these home prices surge, the market will inevitably run out of buyers willing and able to buy, even at record low interest rates, especially in an economy like this.

In addition, there is lots of supply waiting in the wings, including: A portion of the homes whose mortgages are in forbearance and delinquent will have to be sold to cure the delinquent mortgage; homes whose owners moved into their recently-bought new home will end up on the market; and homes owned by investors for vacation rentals will end up on the market if vacation rentals continue to be a drag in those cities. This surge in supply can happen suddenly, as it has happened in San Francisco.

And then there are interest rates. Oh no… Not again. They’re going to be negative, right? Um, the Bank of Canada announced it will cease buying mortgage-backed securities after October 26, having realized that it has gone overboard, seeing the same kind of insane surge in the Canadian housing market that is taking place in the US.

Which makes me wonder: Will the Fed, after the election (it never changes policy shortly before an election), start muttering musings in the same direction concerning its MBS purchases? It too is seeing this housing insanity, and after having already quietly mothballed its corporate bond-buying program, its repos, and its dollar liquidity swaps, it would be an unsurprising next step.

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Authored by Luis Farias via RealClearPolitics.com,

Joe Biden and the Democratic Party want Americans to see this year’s presidential contest as a referendum on Donald Trump, but the election of 2020 is about bigger things — bigger, even, than assessing a sitting president’s record in office.  

The stakes in this election involve the American way of life itself, and all that it promises, including personal freedom, domestic tranquility, and economic opportunity. It’s time for Americans to pick a side and decide whether our country will forge a path toward to renewed prosperity or whether it wants to travel down the road of greater government control and constrictions on political and personal freedom. 

Even as the coronavirus remains a dominant issue, both in public health and in politics, we must ask ourselves how much longer we can afford to live imprisoned by fear and uncertainty. Becoming a mask-wearing nation deprived of basic liberties is not living; it is death by a thousand cuts. People — Americans, especially — simply are not meant to live confined like laboratory animals.

Yet, at a time when more and more Americans want the economy to reopen, Joe Biden is calling for a national shutdown. His agenda would worsen circumstances that have already been linked with increased drug and alcohol consumption as well as domestic abuse. And his Big Government agenda would deal another brutal blow to jobs and businesses, just as the U.S. economy is attempting to get back on its feet. Further weakening the U.S. would only embolden our enemies abroad and imperil democracy and free markets everywhere.

Dealing with a global pandemic is not the only area in which the Left’s ideas have proved harmful. Democrats were slow to condemn the violence and chaos that ensued after the death of George Floyd in Minneapolis in May. Throughout a summer of riots and mayhem, candidate Biden and his party had little to say as violent criminals rampaged through our cities. Those who want to live and raise families in safe urban communities will get no help from Democrats.

In the weeks and months ahead, will you be safe inside your home if rioters come knocking? Will you, your family, and neighbors be able to go outside without the threat of harm? Do you trust criminals to police themselves? Any candidate who does not stand up against these destructive and destabilizing forces is an enemy of safe communities and law and order.

Yes, some police reforms are needed. But we can’t work toward them when violent protesters are allowed to terrorize innocent people and tear apart the fabric of our society. If the choice for 2020 is still not clear, then consider the monumental work that must take place if we are to rebuild our economy.

Today, Americans are hurting badly, though the media don’t report on it much. Last month’s Bureau of Labor Statistics numbers revealed that 19.4 million were “unable to work because their employer closed or lost business due to the pandemic.” Against all odds, the Trump administration has managed to get our economic engine going again. The Democrats’ shutdown-obsessed economic prescriptions will destroy a budding recovery.  This is no ordinary election; this is a time for choosing. And, many voters, including many Latinos, are choosing Trump. The 32 million Latinos eligible to vote in this election will be critical in this election and future ones. Currently, polls show President Trump’s Latino support in the 30% range, an improvement over his 2016 numbers. Some wonder why Trump is winning Latino support when he took a strong stance on illegal immigration, but it’s no mystery: Hispanics love freedom and opportunity. We believe in the American Dream and in law and order. Many immigrants also come from countries where violence, corruption, tyranny, nepotism, poverty, and human and drug trafficking are commonplace. They know that putting more power in the hands of politicians does not translate to more power for the people. Latinos don’t want to give up what they have gained by coming to America.

The way forward out of these extraordinarily challenging times is not by taking the path of Big Government but rather to expand individual opportunity. We need to get people back to work, and get Americans back to fostering the most powerful, vibrant economic engine the world has ever known. Although COVID-19 has turned life and politics upside down, we remain Americans. We do not give up. We do not burn down our own house. We fight for a better tomorrow, and we win. 

* * *

Luis Farias is a Latino small-business owner and head of operations (Western Hemisphere) for DTS Security USA, Inc. He is also founder of the apparel brand, “Target Your Impossible and Make It Possible.”

Covid resurgence risks are flashing, as new infection cases rose 4% W/W, to a record ~350k per day (vs. 228k/254k/283k in Jul/Aug/Sep) largely due to record test numbers, yet this is more than offset by a diminished and stubbornly low mortality rate (2.8% vs. peak: 7.2%), which may be due to better treatment as well as a younger population catching the virus, further mitigated by vaccine/treatment progress…

… while hospitalizations due to covid remain very much under control…

… and ICU units in the US were less full during the second wave, even as patients in hospital were similar. While the curve is again starting to edge up, it’s not to critical levels.

In an attempt to reconcile the curve’s persisting beyond year-end, JPMorgan’s MW Kim presents several potential 2021 scenarios. Noting further progress in vaccine/treatment, the strategist highlights:

1. the mortality rate could decline below 2% by 1H21E;
2. infections could be less clustered, sporadic and perhaps smaller-scale in third/fourth waves;
3. lockdowns may decline as a primary response in 2021 due to their economic burden, rising public stress on social distancing, and fiscal budget limitations.

Additionally, due to the improvement in treatment and growing social preparedness, JPM argues that public health strategy should shift from “infection control” to “patient treatment.”

With that in mind, here are the top ways in which the response to covid in 2021 will differ markedly from 2020, according to JPMorgan.

Public Health Strategy: 2020 will not be 2021

The primary public health strategy in 2020 has been to suppress the infection curve, as the initial reported mortality rate was very high (peak of 7.2% in late April). Thus, reducing human-to-human contacts (or pulling back the secondary infection rate, “R0”) via stricter social distancing and/or lockdown has worked to reduce infections and thus to control the mortality risk YTD, in JPM’s view. However, this approach proved to be costly, with a greater burden on the economy and rising social stress from tolerating the social distancing. Also, following hospital capacity strengthening and better medical treatment, the mortality rate is under far better control. Besides more realistic target R resetting close to 1, the public health focus is to shift toward “patient treatment,” as society has accumulated more knowledge/experience with COVID-19 (i.e., less uncertainty or unknown risk).

Looking ahead, JPMorgan suggests dour things in next year’s public health strategy:

1. First, testing should be free or largely subsidized by government to encourage large-scale testing of susceptible groups. The asymptomatic carriers of COVID-19 can still transmit the disease to a similar degree as symptomatic patients. According to a study in The Lancet, in early April, Belgium’s ministry of health implemented a mass testing campaign in long-term care facilities. 8,343 people tested positive among the 280,427 people who were tested (3%). 6,244 of the positive cases (75%) were asymptomatic. Similar viral loads have been reported between symptomatic and asymptomatic cases, making the transmission and spread of the virus possible for both groups. Thus, extensive testing is the key method for identifying asymptomatic cases at an early stage and controlling virus transmission.
2. Second, potential drug candidates should be fully included under public/private insurance coverage. As more treatments are being developed for COVID-19, it could be possible for government to extend treatment services under insurance coverage. One potential complication is that as many COVID-19-related potential drugs are still awaiting approval, existing insurance coverage plans seem to not fully cover detailed drugs for treatment. This could be protocol to be amended once efficacy is partially confirmed in certain groups of infection populations (i.e., milder symptom groups, asymptomatic groups, etc.) to shorten the recovery period and, thus, reduce the infection curve/scale. According to WHO, out-of-pocket payments may create a financial barrier to accessing health services. Co-payments do not selectively deter “unnecessary” use, but reduce the use of all health services, particularly among people with chronic conditions and poorer people. Therefore, with co-payments in place, people may delay seeking treatment or be prevented from obtaining health services, which would make it more difficult to control outbreaks
3. and put more people at risk. Indicatively, at this stage, China has fully removed treatment expenses for COVID-19. Ireland has removed user charges for remote primary care consultations with people who may have COVID-19. Belgium has initiated teleconsultations in primary care and removed user charges for this new method. France has simplified administrative requirements for people with chronic conditions benefiting from co-payment exemptions. Estonia has drawn on private facilities to increase access to testing that is free from co-payments.
4. Third, the current infection control strategy of temporarily closing hospitals, workplaces and schools following infection reporting should be amended in a way that does not involve closing. Currently, public places are closed following infection case reporting to test all available susceptible people. When infections have large clusters, this approach can be helpful in interrupting the transmission rate. However, as observed in the second/third waves in Korea and HK SAR, infections become sporadic with smaller clusters. Thus, the current manual on infection control could lead to large economic/social burden if the infection curve repeats in 2021 with more random outbreaks, as current testing needs two to three days to generate results. Furthermore, as even JPMorgan admits, by far, the overall mortality risk of the working population and young age group looks reasonably low, and it is hard to identify all asymptomatic cases. As a certain level of social distancing is to continue in 2021, keeping public activities open might be a better  risk-reward decision according to JPM. Additionally, JPM expects new methods of low-cost and rapid testing to be developed and utilized in public places in the next year. Potential developments in rapid testing with results out in less than five minutes and widely used in workplaces, schools, etc., is a well-expected scenario. These efforts could reduce overall infection risk levels in public places and, thus, overall infection risks in the community.
5. Fourth, large-scale antibody testing (~1-5% of the total population) would allow a better understanding of a community’s immunity status. At this stage, the effective period of antibodies remains unclear, so we expect further research on antibodies, along with larger-scale antibody tests, to be carried out next year.

* * *

Picturing the curve in 2021

JPMorgan summarizes the key expected trends in the curve of infections below, and predicts that “overall risk levels of infection development and mortality should decline further after this winter.” adding that it does not expect lockdowns to be a major public health strategy to interrupt the transmission rate in 2021. Test and tracing are expected to be efficient and could be better accepted by the public. That said, the largest US bank remains cautious on full-scale international travel even beyond 2020.

Infections: 40mn YTD, recovery: 70%

JPMorgan expects a series of infection waves potentially globally/in Asia until a vaccine is available to large populations. Contrary to earlier concerns, the second-wave infection scale and mortality risk appear more controlled across Asian countries compared to DM countries. This could be driven by limited human mobility YTD, flexible public policy resetting target R below 1 with  sustainable social distancing and strong controls leveraging technology in EM Asian countries. That said, the shape of the global infection curve could be milder and smaller after this winter due to developments in treatment (faster recovery), smaller  susceptibility under rising public awareness, and faster public responses on secondary infection rate (R0) control.

Mortality: 2.8% (vs. peak: 7.2%)

JPMorgan believes that the mortality rate (= death/infections) could decline below 2% by the end of 1H21 (vs. current: 2.8%), if current developments continue. More importantly, the bank does not expect “excess deaths” in 2021, as was observed in developed countries this year. COVID-19 has led to a small impact on Asian countries’ annual mortality rates. Reported deaths due to COVID-19 are only 0.01-0.18% of annual deaths in Asian countries. According to Euro MOMO data, 17 of the 24 countries in Europe have shown improving mortality rates following the spike in early April.

Incidentally, here is a chart putting the death toll of covid in the context of the world’s top-20 pandemics:

Curve control

Beyond 2020, JPMorgan does not expect partial/full lockdowns to be a key public health strategy. Managing R0 around 1 (R0 ≤1) under reasonable social distancing levels and medical treatments to shorten the recovery period could be more in focus. Medical treatments could be another strong way to control the curve, as the secondary infection rate would be simplified as a function of transmission rate and the recovery rate among the susceptible. If the average recovery period were to shorten from about two weeks currently to less than one week, this would open a new window for curve control, the economy and the public stress level on social distancing.

Testing

Schools and offices are expected to remain open in 2021. Regular testing is to be largely implemented, as test results could be checked in a short period. The most common COVID-19 testing is laboratory-based RT-PCR, which takes about four to eight hours for results to be delivered. Although accuracy is as high as 100%, this technique requires specialist kits, trained professionals and time. Also, testing is limited to certified laboratories only. In addition to traditional laboratory testing methods such as RT-PCR, dd PCR and loop mediated isothermal amplification (LAMP), several other rapid point-of-care (POC) testing technologies have been used to detect SARS-CoV-2 (see Table below). These fast-testing technologies detect the presence of SARS-CoV-2 in 5-30 minutes. However, WHO recommends traditional molecular testing methods (e.g., RT-PCR) for the identification and laboratory confirmation of COVID-19 cases. In order to return to work/school, testing daily or weekly for all groups prior to entering a public place could be essential. At this stage, this ideal process, similar to a daily temperature check, is not possible, as tests cost ~US$20-40 each and take 15-30 minutes at best to get results, and test accuracy may not be 100%.

Border control

Borders are expected to gradually re-open, according to JPM, even as quarantine requirements (7-14 days) and daily flight quota controls for testing at arrival continue in 2021. Some countries have launched “travel bubbles,” which are partnerships between nearby countries that have demonstrated considerable success in containing COVID-19 within their respective borders. These countries re-establish connections by opening up borders to one another and allowing people to travel freely within the zone without undergoing on-arrival quarantine. On 15 October, Singapore and Hong Kong said they had reached a preliminary agreement to establish a travel bubble, allowing travelers of all kinds to bypass quarantine.

To summarize, this is how JPM pictures Covid in 2021:

Infections: expect a series of waves rippling globally/in Asia. The infection curve could be milder and smaller after winter passes,

• factoring in a faster recovery, smaller susceptibility and a faster public response.
• Mortality: The bank expects a mortality rate (= death/infections) decline below 2% by end-1H21 (vs. current: 2.8%).
• Curve control: JPM does not foresee lockdowns as a key public health strategy beyond 2020. Managing R0 ≤1, rather than full suppression, could become a primary focus.
• Testing: Schools and offices are expected to remain open in 2021. Regular testing is likely to be widely implemented as test results become available faster (link).
• Border control: While borders will gradually re-opening, quarantines (7-14 days) and daily flight quota controls at airports will continue in 2021.

With social media censorship hitting peak Orwell to combat ‘disinformation’ surrounding the November election, the industry’s army of fact checkers have become brazen in their quest to make sure the public isn’t exposed to dangerous thoughts.

To help one understand the inner-workings of these highly credentialed, non-partisan, definitely agenda-free arbiters of reality (such as the COVID virus-leak debunker who worked at the Wuhan Institute of Virology), comedian JP Sears a typical fact checker has provided a captivating look into the surely well-lived lives of our intellectual gatekeepers.

As an example of saving us from ourselves – this video of a Maryland elections worker who looks around, not to see if the coast is clear, and then doesn’t open a ballot and appear to mark something in it – has been debunked because, according to WaPo, “Elections officials in Maryland’s Montgomery County said a thorough investigation revealed no evidence of fraud or misconduct.”

You probably shouldn’t watch and decide for yourself:

Here’s the ‘debunking’:

Kevin Karpinski, counsel for Montgomery County’s elections board, told board members on Wednesday the allegation of misconduct is unfounded. Karpinski said he interviewed the canvass worker shown in the clip, spoke to other volunteers who were working at the time and reviewed every ballot that the worker had helped to sort.

“I find no evidence whatsoever, any sort of attempt of voter fraud,” he said. –WaPo

Apparently Facebook thinks you should also avoid the New York Young Republican Club…

Apparently if you search on Facebook ‘New York Young Republican Club’ (@nyyrc) you receive a warning claiming we are associated with dangerous conspiracy theories such as QANON & are a threat to public safety. This is shameful. We are the oldest & largest Young Republican Club. pic.twitter.com/eNz95I5kSC

— Gavin Mario Wax 🇺🇸 (@GavinWax) October 24, 2020

So, remember to think the right thoughts, citizen. What you’re thinking right now may have already been:

Authored by John Rubino via DollarCollapse.com,

Somewhere back in the depths of the 20th century, a bunch of governors, mayors, and public sector union leaders got together and cooked up one of history’s greatest financial scams. They would offer teachers, cops, and firefighters extremely generous pensions but would avoid raising taxes to fund the resulting future obligations. Grateful workers would vote to re-elect their benefactors, while taxpayers would appreciate the combination of excellent public services and low taxes.

The beauty of the scheme flowed from its demographics: Most of the original public sector workers were young and therefore decades away from retirement, so the crime wouldn’t be discovered until long after the architects retired rich and revered.

Now, however, those baby boomer workers are retiring and the scam is revealed for all to see. Even in the absence of a pandemic lockdown, mass defaults on state and city obligations would be inevitable in the coming decade. But with the lockdown, they’re coming next year.

So what do the worst offenders do? What they’ve always done, of course, which is to look for ways to paper over the mess for one more election cycle. Illinois is the poster child for state financial mismanagement, with unfunded liabilities that have grown from virtually nothing to $137 billion in just the past two decades.

So it’s no surprise that its politicians are engaged in some truly ridiculous forms of damage control:

Illinois to sell $850 million of bonds as investors brace for junk status

CHICAGO (Reuters) – Illinois is scheduled to sell $850 million of bonds on Tuesday as investors demand fatter yields for the state’s debt due to increased worries over its deep financial woes, which were exacerbated by the coronavirus pandemic.

Ahead of the competitive sale of general obligation bonds due over the next 25 years, the spread for Illinois 10-year bonds over Municipal Market Data’s benchmark triple-A yield scale has widened by 10 basis points to 281 basis points since Oct. 1.

Howard Cure, director of municipal bond research at Evercore Wealth Management, pointed to “a legitimate fear that the state could go into junk status – although not default on its debt.”

“The state continues to delay tough decisions with a number of speculative revenues as part of its current budget, including additional federal aid, voter approval for a progressive income tax, and more Municipal Liquidity Facility (MLF) debt,” he said, referring to the possibility Illinois, which took out a $1.2 billion cash-flow loan in June from the Federal Reserve’s MLF, could borrow more.

Illinois is the lowest-rated state at a notch above junk due to its huge unfunded pension liability and chronic structural budget deficit. All three major credit rating agencies assigned negative outlooks to their ratings in the wake of the pandemic.

Earlier this month, a Citi research report said Illinois is “almost guaranteed” a credit rating downgrade to junk if a constitutional amendment to replace its flat income tax rate with graduated rates fails to pass on Nov. 3. The ability to tax high earners more would increase revenue by an estimated $3.1 billion annually.

In addition to uncertainty over congressional passage of unrestricted federal virus aid to states, Andrew Richman, senior fixed income strategist at Sterling Capital Management, said Illinois was experiencing a surge in virus cases ahead of its sizeable bond sale. The state reported its highest one-day total of 4,554 cases on Friday.

“Illinois had problems before the pandemic,” Richman said. “Things are getting worse not better.”

Still, John Mousseau, president and CEO of Cumberland Advisors, said the high yields will attract buyers.

“People will buy it. They are yield-starved,” he said.

Taking the scam to the next level

One part of one sentence jumps out of the preceding article: 

“The state continues to delay tough decisions with a number of speculative revenues as part of its current budget, including additional federal aid…”

The last remaining escape hatch for the worst-run cities and states is a massive (easily multi-trillion dollar) bailout by the only remaining entity with access to that kind of credit, the federal government. After the upcoming election, whichever party ends up in charge will face the specter of bond defaults and mass layoffs in Illinois, California, New York, New Jersey, Connecticut, and Kentucky, among many other places.

A Democrat-led federal government will happily provide the trillions necessary to keep this from happening, while a Republican administration will dither for a while before caving. Either way, the original crime is swept under the rug and the financial pressure is socialized, with all US taxpayers on the hook for previously-local mistakes.