The first National Convention of the Democratic Party was a three- day affair held in Baltimore in 1832 with delegates attending from every state except Missouri. The incumbent president, Andrew Jackson was nominated for a second term, and former Secretary of State Martin Van Buren of New York defeated John Calhoun to become the vice presidential running mate. The delegates adopted a platform and a number of rules that led to a framework that has since been used by all parties every four years. But over time, delegates could never have contemplated conventions like the ones we are having in 2020 with pre-taped videos, Zoom, empty ballrooms, no hats, no balloons, no streamers, buttons, pennants or cheers, no visible runners or horse-traders. There are 4,750 delegates to the four-day Democratic convention concluding this week. Next week’s virtual Republican convention will include an estimated 2,551 delegates.

For the financial markets, Election Day cannot come soon enough. Traders and investors loathe uncertainty yet, between the pandemic and the polling, the country is enveloped in it right now. Everyone from the top CEOs at investment banks to the young worker just starting to build a retirement account is now speculating on how they will be affected by the November 3 results – if there are results available that night or soon thereafter. If there are widespread ballot integrity issues and we have a repeat of the Bush-Gore contest from 20 years ago with recounts and litigation and unclear outcomes lasting for 34 days or two months, all U.S. markets could slide. It is hard to imagine a contested election lasting beyond Inauguration Day on January 20, 2021, but we have recently seen a lot of developments that were heretofore unimaginable. Two of the more likely possible outcomes would have the greatest impact on stock, corporate, and commodity market volatility for several months, in our view. Under several scenarios, we would also expect some temporary spikes in Treasury prices and yields as the world digests the victories and losses. The steady performer, in our opinion, will likely be municipals. Let us take a minute to explain why.

In a scenario where the incumbent president is re-elected and the House and Senate remain under current control, we anticipate more partisan gridlock blocking further efforts at tax reform. SALT state residents as well as earners in most income brackets will continue to present strong demand for tax-exempt bonds and nontraditional buyers attracted by the yields and credit quality of taxable munis versus corporate credits badly battered by coronavirus will buoy prices. State and local cries for pandemic recovery aid could produce an infrastructure bill with authorization for a national issuer/guarantor or perhaps a subsidized taxable muni product that will prove to be interest to both domestic and foreign buyers. With the Fed remaining in its role as backstop for all markets and protector of liquidity, equities should continue to rally, Treasuries remain in heavy global demand, and municipal yields remain low, bolstered by favorable technical conditions.

Should a new president be elected with control of the House and Senate unchanged, partisan gridlock will thwart attempts at most major policy reversals. Markets would expect a new series of executive orders and actions in the realm of trade, health care and the environment but we can also see the lingering effects of the pandemic likely producing by necessity an agreement on infrastructure as well as state and local aid. This is a neutral to positive environment for municipals but other markets should expect unstable conditions for several months as the details of Democratic priorities and initiatives are rolled out and dissected.

A new president with control of both houses of Congress and a clear mandate would probably lead to action on tax increases, health care reform, tighter environmental regulations, and major stimulus for state and local governments. Nothing happens overnight, but the markets are forward looking and will likely overreact right away. Assuming the absence of another Black Swan, changing fiscal and tax policies are likely to produce prolonged municipal rallies. Demand could be dampened in several states if the state and local tax deduction cap is lifted. But the most volatility would likely be seen in stock, commodity and other markets as new policies take shape and ramifications considered.

Should the incumbent be re-elected and have control of both houses of Congress there might be a clear mandate for further tax reform and the further loosening of regulations, all favorable to equity and commodity markets. Munis could become less attractive. However, there is a wide enough range in philosophies within the Republican party such that consensus on taxes, health care, spending, trade, immigration and other thorny issues may not be so easily reached. In any event, we would expect that pandemic-driven needs for federal assistance will help bolster state and local credits, permit the return of tax-exempt refundings and raise yields enough to offset any loss of interest in tax-exemption as a result of any further tax cuts.

There are 75 days to Election Day. Back in the here and now, investors are focused on the end of summer, very basic back-to-school issues, high-priced assets, and record-setting debt levels and new issuance. Month-to-date investment grade corporate issuance already totals $110.5 billion and high yield corporate issuance so far in August exceeds $47 billion. The U.S. Treasury is on track for a record refunding this month; debt issuance was $2.753 trillion in the second quarter and $947 billion is planned this quarter. The federal government is projected to have a budget deficit of $3.7 trillion during the fiscal year about to end on September 30.

So far this month, equity gains have reversed all the losses suffered since the coronavirus sell-off in March. The Dow is up 5.1% in August, the S&P 500 has just hit an all-time high, and the Nasdaq has gained 4.3%.  Oil prices are up 6.5% to $42.89 a barrel and gold prices have climbed 1.6% to $2,006 an ounce. Treasuries have weakened; the 2-year yield is up 4 basis points to 0.14%, the 10-year has added 14 basis points and stands at 0.66%, and the 30-year at 1.39% is up 20 basis points.  Municipal yields have inched up an average of 2 basis points. At this writing, the 2-year AAA municipal general obligation bond yields 0.14%, the 10-year is at 0.67% and the 30-year is at 1.39%.  Muni investors are adding $32 billion of cash from maturing and called bonds this month and, with a record low amount of dealer supply, have been adding to muni bond fund holdings; funds have taken in new money for 15 consecutive weeks. So far this month, there has been $19.5 billion of new muni issuance, $8.4 billion of which has come as taxable. Last week, the Arizona Industrial Development Authority was in the market with a $250.7 million issue for Legacy Care structured with a 2050 term maturity that priced at 7.75% to yield 7.836%. The National Finance Authority had a $129.4 million B rated resource recovery refunding deal for Covanta due in 2043 that priced at par to yield 3.625%. Florida’s Capital Trust Agency sold $17.6 million of non-rated bonds for Team Success School of Excellence that featured a 35-year maturity priced with a coupon of 5.00% to yield 4.99%. This week’s calendar is expected to add another $12.5 billion to the total, with $4.2 billion of new taxable supply. Among the high yield financings on the slate is a $131.8 million noon-rated deal for MRC Stevenson Oaks senior living community in Fort Worth, a $59.1 million BB+ rated transaction for Milford Regional Medical Center in Massachusetts, and a $14.2 million non-rated issue for UCP Charter Schools in Orlando.

Municipal bonds advanced in price again last week on the strength of extraordinary cash balances and an absence of sufficient supply. Yields fell to their lowest point in 70 years. Looking for places to reinvest the $22 billion from bond redemptions and maturities on August 1, 2020, investors added another $1.4 billion to tax-exempt mutual bond funds last week and $229 million to muni ETFs. The modest new issue calendar of $8.1 billion was quickly absorbed by buyers who are waiting impatiently in line for more. The State of Hawaii brought a $995 million AA+ rated taxable general obligation deal with a maximum yield of 2.293% in 2040. Phoenix Children’s Hospital had a $245 million A1-rated financing with a final term maturity in 2050 yielding 2.12%. In the secondary market, MMA reported on the sticker shock, citing 5% San Francisco general obligation bonds due in 2025 traded at yields as low as 0.07%. In the high yield sector, the Academy of Advanced Learning charter school on Aurora, Colorado came to market with an $8.5 million BB rated transaction that priced at par to yield 4.375% in 2027. The Bond Buyer Municipal Bond Index (based on 40 long-term bond prices) fell two basis points to 3.52% from the week before. The 20-bond GO Index (20-year general obligation yields) dropped seven basis points to 2.02%. The 11-bond GO Index (higher grade 11-year GOs) declined to 1.55%. The Revenue Bond Index decreased seven basis points to 2.44%.

Munis are not the only products in great demand. Initial public offerings are on track to hit highs not seen since the 2000 tech boom.  Equities, as defined by the Dow Industrial, gained slightly more than a thousand points last week to close at 27,433. Gold prices hit an all-time high last week with spot prices climbing as high as $2,070 an ounce. U.S. corporate high yield bond fund inflows totaled $4.39 billion last week and the primary market saw $21 billion of new high yield bonds issued; the year-to-date volume now totals $260 billion. The average yield on investment grade corporate bonds at 1.82% is at an all-time low. There is also an unquenchable thirst for U.S. Treasuries where new issue supply is much heavier and there is a worldwide hunt for yield as the level of negative yielding debt exceeds $14 trillion. This is indeed fortunate as the Treasury plans to sell a record $112 billion in notes and bonds in this week’s refunding auctions. The three-month Treasury finished last week at a 0.09% yield, the 10-year Treasury at 0.56% and the 30-year Treasury at 1.22%

All of  this remains hard to reconcile in the context of quarterly U.S. earnings reports and economic data which, while above expectations, are nevertheless ghastly; rising coronavirus counts that terrify teachers, troopers and tight ends; the looting and riots damaging so many of America’s great cities; trade combat, more often described as “tensions”, with China; pollsters paid to support divisive narratives; fall election lineups featuring consequential face-offs; and inscrutable political strategies holding up the next national fiscal aid package, just to name a few. This is our status quo through Labor Day — and perhaps until November 3. 

We continue to focus on the positives but look under all the proverbial hoods and kick all the tires in our daily analytic, surveillance, and trading work. We encourage you to contact your HJ Sims advisor to review the credit fundamentals in your portfolio, as well as in new offerings we see every day that may be suited to your risk profile and worthy of your investment.

The 1993 box office hit starring Bill Murray portrayed a TV weatherman from Pittsburgh sent with his producer to cover the annual shadow-no shadow show in Punxsutawney, Pennsylvania which, for 120 years, has produced legendary forecasts of early spring or extended winter. He soon becomes trapped in a time loop nightmare that causes him to relive the events of February 2 with the townies over and over and over again. The movie, which was actually filmed in Woodstock and Cary, Illinois with an unknown woodchuck, became one of the most popular romantic comedies of all time and “groundhog day” became our new term for being stuck in a job or life that is mind-numbingly repetitive and unpleasant.

Groundhog Day is the cycle that many of us find ourselves in for five going on six months now. On the personal front, we smack the same alarm button every morning not knowing if is in fact Wednesday or Sunday, April or August. We are mostly limited to our homes, in mostly small spaces, often with family but sometimes alone, and venture out at our risk with mask and gloves to work, shop, or just get some air. Like the character Phil Connors, some of us try counseling, take side jobs, reach out to help others in need, learn to play the piano, fall in love. Others eat and drink too much, lash out, spend unwisely, take crazy gambles. On the work front, our lives are mostly inextricably linked with the very same spaces, people, events and risks. In many ways, our days are as Yogi Berra once said, “déjà vu all over again”. And try as we might to find humor in our daily routines, exercise, socialize with our family and friends, or make plans for the future, these efforts, once so normal and natural, have become a tiresome chore amid restrictions that were tolerable for 15 or 30 or 60 days but now seem quite permanent. We suddenly long for the good old days, no matter how lousy they may have seemed back a mere six months ago, pre-Covid.

The financial markets have generally loved the Groundhog Day cycle since late March, in the same way they have loved all the vaccines administered by the Federal Reserve for the past 11 years. They have saved us from inflation, depression, and most undesirable losses. While federal and state pandemic control-related policies have devastated small businesses and caused communities to split over what to do about schools, prisons, churches, nursing homes, taxes and the kind of government we want after November 3, as investors we have been reliving a reel of rallies.

Last week, as Fitch Ratings lowered the outlook of the United States of America to “Negative” from “Stable,” the 10-year Treasury yield fell to its lowest level not in decades but in centuries — 234 years to be exact — at 0.52% and the $20 trillion market saw volatility fall to a record low. During July, the benchmark yield dropped 13 basis points, the 2-year sank 4 basis points to 0.10% and the 30-year plunged 22 basis points to 1.19%. At this writing, there is speculation that the entire Treasury yield curve will soon be under 1%.

The Nasdaq, just having hit its 30th record high in 2020, added more than 686 points in July, closing at 10,745. The Dow gained 615 points to finish at 26,428. The S&P 500 ended up 5.5% at 3,271. The Russell 2000 climbed 39 points to 1,480. Reuters recently reported that the average holding period for U.S. shares has dropped to 5.5 months versus 8.5 months in December; this is a new record low, beating the turnover seen during 2008 crisis and reflecting investor fear of missing out juxtaposed against the terror of owning overpriced stocks in illiquid market. Oil prices rose $1 a barrel to $40.27. Gold prices spiked 10.8% to $1,975 an ounce and has since crossed the historic $2,000 mark. Gold is up 35% this year, making it one of the best performing assets so far alongside silver which at $26.80 is up more than 50%.

Despite weakening state and local credit fundamentals resulting from the Covid-depressed economy, the municipal bond market is soaring higher based on technical factors that include light tax-exempt supply, strong demand, buyers significantly outnumbering sellers since march 17, lots of excess cash from summer bond calls, coupons and maturities, light dealer inventories, and a steady stream of inflows for 12 consecutive weeks into muni bond ETFs and mutual funds. In July, $7.5 billion was added to mutual funds and the muni rally continued. July issuance was actually the highest in 34 years at $42.6 billion but 35% of the total came in the form of taxable bonds. Year-to-date issuance of corporate bonds by non-profits is twelve times higher than it was last year. The general market was up 1.3% with strong performances by zero coupon bonds. The high yield sector gained 1.2%, and taxable munis outperformed with returns of 2.3%. During the month, the 2-year tax-exempt AAA municipal general obligation bond yield went from 0.27% to 0.13%, the 10-year from 0.90% to 0.65% and the 30-year from 1.63% to 1.37%. The 10-year muni-Treasury ratio currently stands at 124.8%.

In the muni primary market last week, the Public Finance Authority sold $18.4 million of BB-minus rated charter school revenue bonds for Founders Academy of Las Vegas that came with a 2055 maturity priced at 5.00% to 4.59%. In the high yield corporate market, Seaworld Entertainment had a 5-year non-call deal, upsized from $400 to $500 million, with more than $2 billion of orders that priced at par to yield 9.50%. In the corporate bond sector, investment grade bonds gained 2.9% in July while high yield climbed 3.9% and more than half of high yield borrowers had total returns that higher than that, up to 24.8%. Higher rated issuance slowed to $65 billion and high yield deal volume totaled only $25 billion. This week, investors will see 20% of the companies in the S&P 500 index report quarterly earnings. There are approximately $30 billion of investment grade deals on the calendar and $13 billion of high yield deals have priced already as of Wednesday morning. The muni slate totals approximately $7.3 billion.

U.S. markets are not reflecting the condition of an economy that posted gross domestic product of negative 32.9% in the second quarter and is still struggling with how to track and contain the SARS-CoV-2 virus. But performance must be viewed in a global context where negative yielding debt totals $14.3 trillion and there is a worldwide hunt for any yield. In addition, the Fed is suppressing rates at zero, extending its crisis lending through December, and pledging to do whatever else it takes to overcome a downturn characterized by the Chair as the most severe in our lifetimes. The Fed’s balance sheet has expanded to $7 trillion and may well grow to $11 trillion by year-end. There is no agreement between the House, Senate and White House on the terms of the next stimulus, but this has long been expected to wrap up by Friday when the Senate recess is scheduled to begin. The good news will help to reduce fallout from the weak July jobs numbers also expected on that day and the damage wrought by Hurricane Isaias up and down the East Coast.

The investment ballpark, much like every stadium across the country, looks different at this point in the season. It has changed as a result of the coronavirus and is still morphing as major players study the whole lineup of social unrest, campaign platforms, and this start-and-stop economic recovery with its unprecedented unemployment, school and business closures, and financial pressures that caused nearly one third of all Americans to miss their housing payments due on July 1. In the same way that Major League Baseball has been struggling with health and safety issues affecting players and fans to determine the future of the game amid alarming increases in cases, conventional financial analysts taking in all these unsettling conditions might deem most investments ill-advised at this time, perhaps none more so than the obligations of state and local government whose revenues have plummeted alongside incomes and sales.

There are some 65,000 individual municipal borrowers with about a million different credits outstanding. Many are general obligations of state and local governments stressed by six months of tax streams that have dried up and a gush of unexpected social spending. Some are backed by specific revenues that have been more impacted than others. Common problems for all are compounded for some by issues stemming from trade wars, court decisions, violent crime, and population moves. Many government and nonprofit borrowers began the year with robust rainy day funds — but plenty of others did not and their best laid plans have been scuttled by Covid-19 related shutdowns. Urgent needs and wish lists have been exchanged with Congress, but the terms of a fifth federal aid package have yet to be determined at this writing. In the meantime, in spite of all the facts and headlines, the 11-week rally continues and municipal bonds are advancing steadily once again. Last week, the 10-year tax-exempt AAA general obligation benchmark yields fell another 4 basis points to 0.71% right alongside U.S. Treasuries, which fell like a sinking fastball from 0.63% to 0.59%. The 30-year muni yield also dropped 4 basis points to 1.43% while the long bond boosted its slugging percentage such that its yield fell a full 10 basis points to 1.23%.

Several factors contribute to the string of rising bond prices. First, the Federal Reserve has not only held rates near zero but also positioned itself as the equivalent of a baseball backstop for both municipal and corporate bonds with liquidity programs that have lulled markets into thinking they are protected from wild pitches. Second, whether or not historic data is relevant to the current times, analysts continue to point to an “error rate” for munis that remains extremely low. Moody’s data from 1970 through 2019 shows that the average five-year annual default rate for its rated municipal bonds was 0.08%. Corporate bonds, which have lower ratings, had a 6.7% default rate over the same period. Third, cash that has been sitting on the sidelines continues to pour into the mutual funds and ETFs from households and institutions; Lipper reported $2.1 billion of municipal inflows and $11 billion of taxable bond fund inflows for the week ended July 22. Fourth, many corporations have paused or cut stock dividends, causing some to exit the equity markets and look to the bond markets for less volatile and more reliable sources of income.

A fifth factor, and one of the most significant, involves the supply/demand imbalance. The low rate environment and need to bolster liquidity to survive a pandemic of uncertain length and effect, has caused a record surge in taxable bond issuance. The U.S. Treasury has borrowed more than $3.4 trillion as of June 30 and plans another $677 billion of debt issuance by the end of the third quarter. Corporation have issued more than $1.2 trillion of investment grade debt and $230 billion of below-investment grade debt so far this year. The year-to-date supply of municipal bonds totals $239 billion, up 25% from last year at this time, despite the pullback in issuance during volatile conditions in March. But an increasing percentage of this debt is coming in the form of taxable issues for hospitals, colleges and large borrowers refinancing debt under the 2018 tax law. So far this year there have been about $69 billion of taxable munis issued; this month, taxable munis are expected to exceed 50% of new issuance according to Municipal Market Advisors. This exacerbates the supply/demand imbalance for tax-exempts which are being sought in great part to offset the loss of state and local tax deduction. The loss was felt by millions again on July 15, the tax filing deadline that was extended due to the coronavirus.

Major bondbuyers — life, property and casualty insurers, pension funds, and foreign institutions have become switch hitters — crossing over into the muni space historically dominated by U.S. households. As sovereign and corporate yields have plummeted under fiscal and monetary policy, and negative yielding debt approaches $15 trillion, tax-exempt and taxable U.S. muni yields are waving buyers in like a third base coach. The 30-year A rated taxable muni yield was 2.94% on Monday, versus 2.76% for the comparable A rated corporate maturity and 1.88% for the comparable A rated tax-exempt.

As we approach August 1, the municipal market is expected to see the largest of the year’s major coupon, call, and principal maturities deliver even more cash to an undersupplied market. Investors will not find as much in the way of pinch runners as they would like. Yields are lower across the board. Dealer inventories are at also at historic lows. Many of the bonds in the few bid-wanted “rosters” in circulation have yields so low that they are in fact negative after accounting for fees and inflation.

The new issue market has been the only game in town for buyers of yield. This week’s calendar will likely come in under $7 billion, so there will not be enough to go around. Last week in the high yield sector, we saw five charter schools. Warren Academy of Michigan came to market with a non-rated $9.6 million limited offering structured with a 30-year maturity that priced at a premium 5.50% to yield 5.45%. Landmark Academy in Michigan sold $13.4 million of BB rated bonds that had a maximum yield of 5.00% in 2045. The College Prep Middle School in Spring Valley, California placed $12 million of non-rated bonds at par to yield 5.00%. MAST Community Charter School in Philadelphia had a $27.7 million financing with BBB-minus rated bonds structured with a 2050 term maturity priced with a 5.00% coupon to yield 3.32%. And Renaissance Charter in Florida borrowed $66.1 million in a non-rated financing that included 30 year bonds priced at 5.00% to yield 4.375%. The Sweet Galilee at the Wigwam assisted living community in Anderson, Indiana brought a $22.4 million non-rated transaction priced at par to yield 5.375% in 2040. The White River Health System in Arkansas had $32.6 million BBB-minus rated bonds issued through the City of Batesville that had a final maturity in 2032 priced with a coupon of 3.25% at a discount to yield 3.35%. McLean Affiliates in Simsbury, Connecticut brought a $64.8 million BB+ rated bond financing due in 2026 and priced at par to yield 2.75%. And Navistar International Corporation had a $225 million B3 rated financing priced at par to yield 4.75% in 20 years.

U.S. Corporations are in the process of reporting second quarter earnings which, while devastating, are in many cases slightly better than feared. Through last Friday, more than a quarter of S&P 500 companies have announced results. Losses larger than those taken at the height of the last recession have not, however, steered investors away from the stock or corporate bond markets. The Dow gave up 202 points last week to close at 26,469. The index is down 7.25% on the year but has crawled back from its March low of 18,591. The S&P 500 lost 9 points but has erased nearly all its early season pandemic loss and is nearly flat in 2020. A handful of all-star technology stocks have caused The Nasdaq to outperform; although the index fell 140 points last week, is up 15.5% this year. Oil held steady at $41.29 but is off 32% since January. Gold has rallied to record highs; last week prices per ounce rose $92 or 5% and are currently 28% or $473 higher than where they started the year.

HJ Sims has been working with a number of nonprofit and for-profit borrowers to help them take advantage of current market conditions and opportunities. Our traders and advisors have been proactive in working with our investing clients on portfolio reviews, swaps and recommendations for strategically putting free cash to work. We are closely following some of the trends in credit impairments and encourage careful and regular professional surveillance of holdings to ensure that current risk limits and future income needs are in line. Those taking summer staycations, those with time to spare when MLB games are postponed, and those doing quarterly or mid-year reviews can benefit from a conversation with their HJ Sims advisors.lk

One hour east of Austin, the small post-industrial city of Rockdale, Texas has been suffering through a bit of an identity crisis. Its roots date back to 1873 and its history is largely tied to the expansion of railroad lines hauling local cotton and coal. The salad days for this community began in 1920 when oil was first discovered. Life there only got better in 1952 when the Aluminum Company of America opened the largest smelting operation in the country, eventually producing 1.67 million pounds of aluminum a day for use in everything from U.S. skyscrapers to fighter planes. A Saturday Evening Post article immediately featured Rockdale as “The Little Town That Rained Money”, and these were happy days for everyone. Governing recently reported that, together with the adjacent power plant and mine, Rockdale Works employed about 2,000 locals at its peak. But in 2008, the company announced that it was shutting down all aluminum production due to market conditions. The plant started laying off workers and finally closed in 2014.

Things reached rock bottom for the small city and surrounding Milam County when both local hospitals closed, but then two miracles occurred. The high school football team won the 2017 state championship and the big Chinese company Bitmain arrived with a $500 million plan to build a mammoth plant with 325,000 cryptocurrency mining computers on the old Alcoa site. Unfortunately, the price of bitcoin plummeted in 2018, and the project was dramatically scaled back.

There was national media coverage of Rockdale’s bad turn of events, however, and the area came to attract the attention of another company: the Whinstone Group, a subsidiary of Germany’s Northern Data AG. Whinstone is now constructing one of the largest bitcoin computing mines in the world in Rockdale. So, there are now two crypto mining operations setting up rows of tall computer servers running the lengths of multiple hometown “Tiger” football fields. These mining machines will be used to build a blockchain needed to unlock as much as possible of the limited supply of bitcoins that becomes available. The world’s top operators run thousands of miners and consume massive amounts of electricity to obtain the cryptocurrency, but facilities in this city, county and state are now becoming global competitors. Texas has formed a Blockchain Council to make the state a leader in national blockchain growth, education and business development. Rockdale is simply hoping to become the Little Town That Rained Cryptocurrency.

Bitcoin, first proposed by an anonymous programmer in a 2008 white paper, is a decentralized, independent, digital currency, not regulated or associated with any one country or authorized by a central issuer. It made the headlines this week when Twitter was hacked and several noteworthy user accounts were used to post a crypto giveaway scam. Some consider cryptocurrencies to be worthless or fraudulent and there has been talk of a U.S. ban, but others such as the former chair of the Commodity Futures Trading Commission are lobbying for a U.S. central bank digital currency.

The cryptocurrency creation process is hard to explain as are the transactions which are performed in a network maintained by miners who process and verify them through algorithms. But there is no doubt that institutional demand for the end product is growing; Grayscale’s Bitcoin Investment Trust reported $1 billion of inflows in the most recent quarter. In addition, the pandemic has caused something of a coin shortage such that some banks are offering $5 for every $100 worth of coins brought in from piggy banks and couch cushions. Many businesses are no longer accepting paper currency for fear that it can be a vector for spreading coronavirus.

These days, we find that our lives and routines are changing in so many ways, perhaps permanently. Alternative currencies may in fact continue to become more popular. Major companies including AT&T, Expedia, Microsoft, and PayPal already accept cryptocurrency. At the time of this writing, one bitcoin is worth $9,361.16, up from $5,082.26 in mid-March, but down from its all-time high of $18,571.57 in late December 2017.

Money is all forms is central to every discussion at present. Federal grants and loans have rained on America since March. The Administration and Congress are debating a fifth aid package to extend unemployment assistance and provide additional funding for essential service providers. Furloughed workers are taking withdrawals from retirement accounts. Households are adjusting budgets to meet the new realities created by the pandemic. Students considering a return to campus are negotiating with colleges for more financial aid. Caribbean nations are selling residency certificates, passports and citizenships for major contributions. Corporations are borrowing at record paces. State and local governments, agencies, and nonprofits faced with major revenue losses are taking on new debt at very low rates and lots of investors are wrestling for access to their bonds. OPEC+ is adjusting production limits to maintain prices in the $40-$50 range. Law firms are filing wrongful Covid-19 death tort lawsuits in pursuit of high-dollar damages or settlements. With only 100 days to go until election day, political candidates are asking for lots more donations.

Earnings season began and the first few 2Q20 reports were terrible, as expected, but not as awful as some feared. Covid-19 cases have been increasing, the prospects for recovery remain uncertain, and many cities and states are starting to reverse some re-openings. But traders continue to look to every bright side. The Nasdaq has hit another all-time high and has gained 4.4% since the start of July; the Dow is up 3.3% and the S&P 500 has gained 4%. The investment grade corporate bond calendar totaled $11 billion last week, bringing the year-to-date total to an astonishing $1.2 trillion. The high yield corporate slate, led by Carnival Cruise and Norwegian, added up to $6 billion and mutual fund inflows exceeded $840 million. On the commodity side, gold futures have seen 6 weeks of gains. Oil prices have climbed 3.4% to $40.59 a barrel and gold is up 1.5% to $ 1,810 per ounce.

The U.S. Treasury has also strengthened in July, although not as much as tax-exempts. The 2-year is flat on the month at 0.14%, the 10- year yield is down 3 basis points to 0.62% and the 30-year at 1.32% has fallen 9 basis points. In the municipal bond market, customer selling was at the low point of the year last week and investors are refusing to part with their higher coupon holdings. Primary dealer inventory is at all-time lows. The new issue calendar this week should exceed $8 billion but that will not be able to satisfy the relentless four month-long demand. As of the close on Friday, the 2 -year muni AAA general obligation benchmark yield has fallen 10 basis points to 0.17% so far in July, the 10-year yield has fallen 15 basis points to 0.75% and the 30-year at 1.47% is down 16 basis points. The only thing placing a lid on a bigger rally is the unbelievable upswing in higher risk equity markets.

The open prairies, sandstone quarries, and coal mines gracing the land halfway between the cities of Seattle and Portland in Washington attracted many American settlers back in the 1860s and the Town of Tenino became a popular whistle stop on the Northern Pacific Railroad route. The Town’s fifteen minutes of fame came some seventy years later during the Great Depression when the Citizens Bank closed, all bank accounts were frozen, and cash became very scarce. In December 1931, the local chamber of commerce came up with the idea of issuing Tenino Wooden Dollars to restore confidence and spur commerce. The scrip was printed in one-dollar denominations and was redeemable in Thurston County stores during the month it was issued. The alternative currency circulated for two years. Ninety years later, the community decided to break out those old wooden presses again to help workers who have lost income due to the pandemic. Residents are eligible for up to $300 a month to spend for necessities and services from local providers. The bills are made of wood veneer, issued in $25 denominations, and engraved with the Latin phrase Habemus autem sub potestate, translated as “We’ve Got This Handled.”

Communities with less than 2,000 people like Tenino, as well as cities with more than 1.5 million across the country and around the world have been taking maximum advantage of state, federal and private aid but have also been coming up with their own creative solutions to handle a wide range of individual needs as the pandemic rages. A focus on the health and safety of neighbors, customers and employees is in fact contributing to the demise of coin and currency usage. Cashless, contactless transactions have been increasing as case counts have surged. At this writing, there are more than 3.4 million confirmed cases in the U.S. and there have been 136,463 deaths. The Centers for Disease Control reports an overall cumulative Covid-19 hospitalization rate at 107.2 per 100,000, and the median cost of each stay is $45,000. The number of employed workers has fallen to 137.8 million, down 14.7 million from the 152.5 million reported in February. More than 32.9 million Americans were receiving some type of unemployment assistance as of June 20. At the end of the month we will have the first estimate of second quarter growth but it is estimated to show a drop of at least 30%.

U.S. financial markets appear convinced that there is a fall safety net beneath them, fashioned with the shock absorbing synthetic mesh of the Federal Reserve and the U.S. Treasury. Many investors feel certain that a worsening of the pandemic will only produce more stimulus, making COVID-19 in the words of one trader “inversely related” to market performance. But the massive social and economic disruptions and mitigation response that have produced a $2.7 trillion U.S. budget deficit and $7 trillion Fed balance sheet nine months into the fiscal year seem destined to create at least a few market bubbles.

For five months now, we have been relying on government officials to handle decisions affecting just about every waking hour of our lives. They exercise unprecedented control over our whereabouts and activities and, in the process, we have lost so many of our most pleasant summer distractions. Vacations are being postponed, barbecues limited, beaches closed. We miss seeing our favorite seasonal competitions for baseball’s all-star MVP, the Tour de France’s yellow jersey, the British Open’s Claret Jug, and Wimbledon’s trophies. Instead, we listen to the field chatter of central bank officials, follow the wrestling matches involving teachers’ unions and epidemiologists and parents over fall school openings, make wagers on the changing names of professional football teams, and cheer or boo some of the more unusual alliances formed in recent U.S. Supreme Court opinions. In one such ruling last week, the Court decided that nearly half of Oklahoma is Native American reservation land allocated under an 1866 treaty, suddenly raising a host of new tax, zoning, and law enforcement issues for 39 counties.

This week, taxpayers are scrambling to finish 2019 returns after a three-month blanket extension granted for state and federal filers. Traders are watching the first reports of second quarter corporate earnings, assuming that the worst of the coronavirus impact will be reflected therein, more interested in the forward guidance offered by chief executives and progress on vaccine trials. It is hard to say at this point whether the markets have baked in some of the uglier possible scenarios. The S&P 500 is currently trading at 25 times estimated earnings, the highest point since the era of the dot-coms. It has risen 42% since its low point in March 23. A record $184 billion was raised in U.S. equity capital markets in the second quarter according to Refinitiv IFR data. Investors are also fueling rallies in the bond markets. The $1.2 trillion of investment grade corporate bond issuance in the first half of the year is the highest on record. Municipal bond mutual fund and ETF flows have been positive for 10 consecutive weeks, and the ICE BoAML tax-exempt muni index has seen 10 straight weeks of positive returns.

The municipal bond calendar may total as much as $14 billion this week, with nearly $5 billion coming as federally taxable bonds, led by hospital, college, port and airport deals. The 30-day visible supply exceeds $19.1 billion, a high reached only on seven other occasions according to Municipal Market Advisors. On the corporate bond side, investment grade issuance is expected to come in at $20 billion, bringing us closer to a July total of $100 billion. The high yield corporate calendar changes daily; so far this year, new issue volume adds up to more than $219 billion. At this writing, the 10-year Baa corporate bond yield stands at 3.28%, 11 basis points lower on the month. The 2-year AAA rated municipal general obligation bond yield at 0.24% is down 3 basis points on the month while the 2-year Treasury yield is basically flat at 0.15%. The 10-year muni benchmark yield at 0.81% has fallen 9 basis points, outperforming the Treasury 10-year counterpart, nearly flat at 0.64%. The 30-year muni benchmark yield at 1.53% is 10 basis points lower as compared to the 30-year Treasury at 1.33%, which is down 8 basis points in July. The long muni has not seen a 2-handle or 2% yield since May 7; the long bond has not seen a 2-handle since February 19.