By Gayl Mileszko
The Kobayashi Maru Test
In the 1982 film Star Trek II, the character and capability of Starfleet command-track cadets were tested in scenarios designed to simulate some of the decisions that they may have to make in crisis as starship captains in the 23rd century. In the training exercise on the USS Enterprise bridge, they received a distress call from the civilian fuel ship Kobayashi Maru, damaged and stranded much too close to the Klingon Empire. Knowing of the danger to their own crew and ship, do they violate the treaty governing the Neutral Zone and attempt a rescue, or do they face a mutiny if they retreat and bring about the certain destruction of the Kobayashi Maru? All efforts seem ill-fated. Brave cadets attempting a rescue quickly lose contact with the damaged ship and are fiercely attacked by three Klingon battle cruisers. Their own ship is badly damaged, and severe loss of life is sustained. The remaining crew are ordered to abandon ship and the simulation ends, leaving cadets to experience the emotional toll on decisionmakers in a no-win situation. Captain James Kirk, however, demonstrates that there is always a way to win. He revealed that he was able to pass that test on his third try by reprogramming the simulator to allow for a successful rescue option. His outside-the-box thinking made the young cadets rethink the notion of unwinnable positions. The phrase “Kobayashi Maru” has since come to refer to a desperate “no-win” situation, but it is also used to refer to a crafty way to upend the rules of the game and change the very conditions of the test.
Upending the Rules of the Game in Washington?
A lot of upending is being planned by the Trump transition team. To meet the “unprecedented and powerful mandate” for his agenda, the President-elect has named dozens of disruptors to assume major roles in his administration. Many will require Senate confirmation, and their hearings promise to be fascinating. His unofficial Department of Government Efficiency envisions massive cuts in spending, staffing, regulations and contracts. But current law, regulations, and practices make government inherently inefficient. The two tapped to lead the effort are ambitious, but will they be able to marshal enough resources, generate widespread support, and patiently attend to the innumerable details needed to execute? They are no doubt committed but they must also be acutely aware that they are not the first to seek massive reforms. America hopes that they will be successful in eliminating the fraud and abuse they encounter and that major “wins” can be racked up quickly and permanently given the President-elect’s clear charge. With respect to waste, well that is often in the eye of the beholder. Past efforts to eliminate “waste” have proved mostly unwinnable, coming up against powerful unions, constituencies and lobbies, complicated long-term contracts, the amount of time and number of steps involved in simply making, revising or reversing a single regulation.
The First 100 Days after January 20
Mr. Trump brings many lessons learned from his first term and has significant course corrections in mind. During his campaign, he made some compelling arguments against the size and pervasiveness of government, and he highlighted what we all know to be the enormous cost and widespread waste in Washington. The first hundred days will unquestionably involve a whirlwind, a frenzy of activity. Members of Congress still learning the new rules and leaders guiding their own branch of government, will be made dizzy by the volume of initiatives and proposals requiring action: draft legislation, personnel, and executive orders, all arriving at a time when Israel, Iran and its terrorist proxies, Russia, North Korea, and China scream for their attention. How much time and attention can actually be prioritized and devoted to the minutiae? With only a few years to achieve so many goals, the sheer amount of time involved in getting a single bill through the House, Senate and conference committee presents a major hurdle. In addition, it is quite clear that the Republicans about to hold the majority of both houses of Congress are by no means unified and have much loyalty to their own institutions and responsibility given their constitutional powers in all tax and spending matters. All eyes are on our recently elected leaders to come together, in make progress in reducing debt, deficits, and impediments to growth
Wall Street Eyes on Washington
The initial reaction of stock market traders to the Trump re-election was elation. The major equity indices, already in record-setting mode this year, rallied anew on expectations for lower corporate taxes, reduced regulation, America-first policies, and ensuing economic growth. The bond markets, however, saw the prospect of higher inflation inherent in lower tax and higher tariffs. Investors projected larger Treasury auctions with buyers demanding higher yields, conflicting with the Federal Reserve’s plans for lowering benchmark rates. Both markets over-reacted. So did several commodities along with the crypto sector. Seasoned professionals understand all the nuances of consensus, procedure, timing, diplomacy, and other factors involved in tax, tariff, spending and reform proposals. Some sectors fly high, correctly or incorrectly, on the belief that the have the support of the President-elect. Most remain worried about our escalating federal debt and deficit. At this writing, Bitcoin has hit an all-time high of $92,942, up 31% on the month and 55% on the year. Treasury yields are up by 11 basis points across the curve from the start of the month. The 2 year stands at 4.28%, the 10-year at 4.39% and the 30-year at 4.58%, all while the Fed target rate is in the range of 4.50% to 4.75%. However, AAA municipal bond benchmark yields have significantly outperformed their taxable counterparts, and have dropped by about bass points. The 2-year yield stands at 2.61%, the 10-year at 2.92%, and the 30-year at 3.77%. The 7-day SIFMA yield, is the outlier, having risen to 3.59% in the past week, 20 basis points above the average for 2024.
HJ Sims Navigates the Volatility, Brings Largest Senior Living Deal of the Year
As markets were still digesting the results of the presidential, congressional, state and local elections, HJ Sims came to market with a $455.1 million non-rated financing for a new 350-unit rental community in Irvine, California, with independent living, assisted living and memory care apartments to be known as The James. After having arranged site tours, introduced a great team of managers and developers, and engaged major buyers in credit-focused conversations, we felt confident in the deal we structured, issued through the California Public Finance Authority, with $442.1 million of tax-exempt bonds, $12.9 million of taxable bonds, and several subordinate series which were offered separately. Demand for the tax-exempts came from nearly 30 major accounts and exceeded supply, enabling us to reprice three of the six maturities of bonds, lowering those yields. We sold the 2059 term bonds, the final maturity, with a coupon of 6.375% to yield 6.55%. Please contact your HJ Sims representative for more information on The James as well as on our lineup of transactions scheduled for the next few months.
We Work to Create Win-Wins
As an investment banking and broker dealer firm with roots going back to 1935, we review proposals and products, credits and evaluations for a variety of clients and needs. We have an active SEC-registered investment advisory affiliate, and a mortgage funding subsidiary that originates, underwrites, and funds loans for healthcare and housing projects. We have a team including analysts, sales, trading, underwriting and operations professionals serving our banking and investing clients – both retail and institutional. We believe that our long history, exceptional talent, and market relationships provide us with the significant edge needed by borrowers with unique stories looking for low-cost market entry and investors looking for above market yields. Please reach out to your HJ Sims representative for more information on our offerings, forward schedule, and market assessments. We have worked hard to craft win-win outcomes in every market condition, and we are hard at work as this year winds down, making tailored recommendations for clients as the new Washington landscape evolves to affect fiscal and monetary policy, your rates and your outcomes of income.