HJ Sims Market Commentary: Bicameral Minds

by Gayl Mileszko

The three-pound human brain is divided into symmetrical left and right hemispheres with about 100 billion neurons and 100 trillion connections between them. Our right brain controls our left hand and our left brain controls the right. The right hemisphere takes in sensory input from our left side and vice versa. Studies show that both sides of the brain are used regularly and both are adaptable to change, tailor made for learning. The left brain is better at language, logic and math, while the right brain is better at emotions and the arts but no side is dominant. Neuroscientists tell us that the two hemispheres are tied together by bundles or nerve fibers. One psychologist has theorized that there was a time in human evolution when there was no connection between the two chambers, that ancient people had a bicameral mind in which one side of the brain made command decisions and the other side listened and obeyed. The voices coming from inside could easily have been perceived as orders from the gods or guidance from wise ancestors that must be followed.

Voice Votes 

These days we are inundated by voices coming at us via smartphones, television, radio and street talk from sources that are not always so sage or divine. Some are confusing, contradictory official government dictates and others are subtle ads with subliminal messages that cause us to make impromptu purchases. This week, a lot of voices are trying to make themselves heard at the 76th session of the United Nations General Assembly in New York. Stock and commodity exchanges have been volatile on news and rumors circulating at the speed of sound or light about central bank actions, inflation, viral surges or an imminent default by the biggest issuer of high yield notes in Asia. The Federal Open Market Committee meets in a more genteel setting to discuss their dual mandate and policies that will impact untold numbers of households and businesses around the world. Members of Congress in our bicameral legislature are vying for airtime in the debate on measures to fund the federal government and suspend the limit on the federal debt, bitterly divided on issues again more as the clock ticks toward government shutdown and default.

Two Minds on Federally Funded Programs

Many of us are of two minds about the momentous decisions being made in Washington in the coming weeks. We want our favorite federal programs funded but we know that the debt and deficit are out of control. Each taxpayer’s share of the national debt is now up to $951,000. We love it when our financial markets rally every day but we know that the Fed’s fairy tale-like support and intervention will have to come to an end and we fear something between an extended correction and a crash. During a pandemic that caused 22.2 million job losses and has now caused more deaths than the 1918-1919 Spanish flu, the S&P 500 Index has risen 61% from 2,711 to 4,357. The Dow is up 47% from 23,185 to 33,970. The Nasdaq has gained 87% from 7,874 to 14,713. Oil prices went from $31.73 a barrel to negative $37.63 to $70.29. Bitcoin has shot up an astounding 741% from $5,212 to a high of $63,530 and since settled at $43,855. In the bond markets, the 2-year Treasury yield has fallen 28 basis points to 0.21%, and the 10-year Baa rated corporate bond benchmark is down 77 basis points to 2.91%.

The Municipal Bond Market

HJ Sims was in the market last week with a $53.3 million BBB-minus rated refunding for Landis Homes in Lititz, Pennsylvania. Bonds were issued through the Lancaster Industrial Development Authority and structured with five term maturities. The maximum yield bonds in 2056 had a 4.00% coupon priced to yield 2.75%. The New Hope Cultural Education Facilities Finance Corporation brought a $507.2 million non-rated deal in three series for Sanctuary LTC. The senior bonds due in 2057 priced at par to yield 5.50%, the taxable bonds due in 2031 priced at 6.50% to yield 6.644%, and the subordinate bonds due in 2057 sold at par to yield 7.00%. Among other senior living transactions, the California Municipal Finance Authority sold $120 million of A-minus rated revenue bonds for the HumanGood California Obligation Group featuring 2049 terms bonds priced at 3.00% to yield 2.54%. And the City of Apple Valley, Minnesota had an $18.1 million non-rated transaction for Orchard Path with a 40-year maturity priced at 4.00% to yield 3.33%

New Offerings

At this writing, the 10-year AAA municipal general obligation bond yield at 0.94% is 67 basis points lower than on March 13, 2020 when the pandemic was first declared here. The 30-year benchmark yield has plummeted 78 basis points to 1.54%. Bonds are scarce and secondary market trading is at the lowest level in decades as investors hold onto their higher yielding munis. Cash from redemptions and maturing bonds has been pouring into mutual funds and exchange traded funds for 28 straight weeks to the tune of $87.4 billion. Now that the Congress has returned from summer recess, the talk of higher taxes delights the market that provides a haven from them. Borrowers are thrilled by preliminary action taken in the House Ways and Means Committee to restore advance refundings, authorize additional private activity bonds along with a higher cap on bank qualified bonds, and create another subsidized taxable bond program. Volume typically increases in the last few months of the year and this year looks to be no exception. Last week’s $13.8 billion of sales was the second highest of the year. And this week, we are looking at another $11 billion. The negotiated calendar includes a wide assortment of offerings: there are 4 social bond deals, 2 green bond financings, a sustainability bond issue, one coming with a corporate bond ticker and a six-month forward delivery. For fans of senior living, there are several refunding and/or new money sales on tap for Canterbury Court in Atlanta, Williamsburg Landing in Virginia, EveryAge in North Carolina, Friendship Village in Tempe, Wake Robin in Vermont, and both St. John’s Communities and Presbyterian Homes in Wisconsin.

To help you sort through the voices and make the best investment choices based on your needs, goals and risk parameters, we invite you to contact your HJ Sims representative today. We mind your portfolios so you can mind everything else.

We encourage you to reach out to your HJ Sims representative for guidance in reviewing your portfolio.

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