When we first wrote in-depth about New York City a few weeks ago we never imagined that it might turn into a series. But, more red flags keep popping up and - call us crazy - but once strung together, there is clearly reason for concern. Previously we wrote about Mayor de Blasio's seeming inability to understand disruption (vis-a-vis taxi medallion projections and bad budgeting). We then wrote about Comptroller Stringer's handling of New York City pensions and the underperformance thereof. Now we note Oaktree Capital Management's Howard Marks' most recent investor letter... 

As always, the full letter is worth a read. But we want to highlight its closing section. Some choice quotes:

• "The bottom line is that the incentives for high earners to move in order to avoid SALT, always substantial, have increased. I expect this to have a strong impact on the economies of the high-tax states. What CEO will move his company to New York or California in the future? Won’t future company relocations and formations tend to favor the low-tax and no-tax states?"
• "I know a Republican congressman from New York who voted in favor of the tax bill. How could he?    Won’t his constituents turn against him and vote him out? He may figure that since he represents a low-income district, his voters won’t be hurt by the loss of SALT deductibility. And that may be true as far as direct effects go.  But the second-order consequences could easily see employers move away, taking their companies and the jobs of the congressman’s constituents with them. High-income people may move to chase lower state income tax rates, but folks with low incomes generally are much less able to do so."

And the kicker:

• "The other day a friend told me the top 1% of New York taxpayers pay 50% of the state income taxes.  If and when their emigration accelerates, states like New York may get into a negative spiral: a few big earners leave; the state has to raise tax rates to make up for the lost revenues; that increases the differential and causes more big earners to leave; which requires further tax-rate hikes, and so forth. High-tax cities and states may be greatly affected.  New York City residents may feel there are attractions that justify the high rates, but neighboring “bedroom communities” lacking those attractions may be affected even more."

All of these pieces start to add up.