HJ Sims Market Commentary: End of an Era

by Gayl Mileszko

To the dismay of many drop-a-dime snitches and fried clam aficionados, the past few weeks have seen the removal of the last remaining public pay phone in New York City at 745 7th Avenue and the closure of the last Howard Johnson’s restaurant in Lake George, New York. Howard Deering Johnson founded the iconic orange roofed chain of motor lodges and eateries featuring trademark fried clams, hearty meat platters, and 28 flavors of ice cream in the Wollaston neighborhood of Quincy, Massachusetts more than 90 years ago. Over time, he strategically sited more than a thousand restaurants, both company-owned and franchised, near highways and turnpikes, offering fast served comfort food in family friendly atmospheres. “Go happy. Go HoJo” was the slogan known to millions of motorists. After the company went public in 1961, he came to operate the largest restaurant chain in the U.S. The motel side of the business, launched in Savannah in 1954 and sold in 1979, grew to include more than 520 motor lodges. Many still operate under the Wyndham banner. But the business derived 85% of its revenue from travelers and it was crushed by the 1974 oil embargo and ensuing inflationary period that kept Americans off the road. Rising costs and fierce competition from fast food outlets have now forced the closure of the last of the HoJo restaurants.

Ends and Beginnings

We have witnessed the end of many eras in recent decades. The end of the current one cannot come fast enough for most of us. It is marked not only by high inflation but by the global pandemic, business closures, mass shootings, extreme political polarization, cyberattacks and the Russia-Ukraine war. Investors see thunderclouds of risks hovering over consumers and businesses: fiscal and monetary policy, supply distortions, labor shortages and trade turmoil, to name just a few more. But just as Howard Johnson managed to open dozens of franchises despite the hardships of the Great Depression, the Americans entrepreneurial spirit has been on full display throughout the latest crises. An explosion of new business applications began in the summer of 2020 and, by the end of the year, a new record was set. The Census Bureau reported that it was surpassed in 2021 when nearly 5.4 million applications were filed, 53 percent more than in 2019.

Spirits and Dispirits

The spirit of American investors has been elevated by rallies in stocks and bonds for the better part of the last 30 years. This year has been dispiriting for most everyone as returns are negative nearly across the board. At the close on Monday, the Nasdaq was down 23% year-to-date, the S&P down 13%, the Dow down 8.6%. Treasuries have lost more than 9%, investment grade corporate returns are down by 12% and high yield corporate bonds have lost 8%. In the municipal bond sector, investment grade returns are down 7.5%, high yield returns are down 6.8%, and taxable munis have lost 15.3%. For those who are long-term holders, who do not weep over day-to-day evaluations of portfolio holdings, and who are attracted to the lower prices and higher yields, inflation has nevertheless eroded dividend and interest income. It has soured the outlook savers and retirees as well as for many companies and non-profit service providers. Recent American Health Care Association/National Center for Assisted Living surveys of 879 nursing home and assisted living operators found that their costs have risen by more than forty percent in one year. A mid-year survey of chief economists from 27 global and regional financial institutions offers little comfort for the coming months: the consensus expectation is that 2022 will end with the Consumer Price Index at 6.3%.

Flavors of Uncertainty

For many, the natural response to heightened risk, uncertainty and market volatility is to move to the sidelines until things calm down. But there is not much calm on the horizon and plenty of new flavors of uncertainty as the Federal Reserve begins to reverse nearly 14 years of unprecedented market intervention. An awful lot of cash has now been stockpiled as we approach mid-year. Some of it is being used to meet day-to-day living expenses that have escalated month-by-month for more than a year. But some is finding its way into individual stocks and bonds as well as exchange traded funds. HJ Sims can help with both opportunistic as well as long-term investing guidance.

Recent High Yield Municipal Bond Financings

In the municipal bond sector, charter schools have been all the rage, dominating the high yield calendar. The California School Finance Authority just sold $25.2 million of BB rated taxable “Cinderella” revenue bonds for River Springs Charter School in Temecula that are convertible to tax-exempt in July of 2025; the final maturity in 2046 was priced at par to yield 6.00%. The Arlington Higher Education Finance Corporation issued $25 million of non-rated revenue bonds for New Frontiers Public Schools in San Antonio structured with a single term bond in 2051 priced at par to yield 5.75%. And the Miami-Dade Industrial Development Authority brought a $23.8 million Ba2 rated financing for Academir Charter Schools that included 2061 term bonds priced at 5.50% to yield 5.60%.

Market Movers and Fund Flows

This week traders have their eyes on wholesale inventories, jobless claims, May CPI, hourly earnings and consumer sentiment. We will all listen for remarks from Fed officials and follow primary election results in California, New Jersey, Mississippi, Iowa, Montana, South Dakota and New Mexico. At this writing, there are only 154 days until the mid-term elections in November. On Wednesdays and Thursdays, attention turns to fund flows for insight on retail demand. Last week saw the first inflows into municipal bond funds in 13 weeks ($325 million) although muni exchange traded fund flows have been net positive every week since April 21. High yield muni funds took in $1.2 billion just as Nuveen announced that it is re-opening its $19 billion flagship fund after closing it to new investors eight months ago. The sudden surge in demand for munis has increased the number of daily trades to a level that is approximately double the historical averages since 2009 according to Municipal Market Advisors. Taxable fixed income bond funds, on the other hand, have suffered outflows for 19 straight weeks, with the recent exception of high yield corporate funds which took in $2.7 billion last week, the eighth largest intake on record according to Refinitiv Lipper. Domestic equity funds have had 17 weeks of outflows but investors pulled $12.4 billion out of money market funds last week to buy exchange traded equity funds and exchange traded fixed income funds.

Muni/Treasury Ratios

We have seen an unusual divergence in muni and Treasury yields these past few weeks, with tax-exempts significantly outperforming their taxable counterparts. Across the muni curve, yields have dropped by about 50 basis points in the last 10 trading sessions while Treasury yields have risen: the 2-year at 2.27% is up 14 basis points, the 10-year at 3.03% is 25 basis points higher, and the 30-year at 3.19% has risen 21 basis points. The 2-year AAA rated general obligation bond benchmark yield currently stands at 1.75%, the 10-year is at 2.45%, and the 30-year is at 2.80%. The 10-year muni/Treasury ratio, comparing the triple-A rated general obligation municipal bond yield to the Treasury note yield, stands at 82.5%, just below the 10-year average. The 30-year ratio at 90.3% stands well below the 107.8% comparison just three weeks ago.

Municipal Sales This Week: Clark-Lindsey Village

This week’s municipal calendar is expected to total $8 billion, up from $6.6 billion for the period ended June 3 which was shortened by the Memorial Day holiday. HJ Sims is bringing a $30.8 million financing for Clark-Lindsey Village in Urbana, Illinois adjacent to the University of Illinois campus. The 40-year old life plan community with 264 units has a two-phase expansion and repositioning plan with construction completion estimated for early in 2024.


The technical conditions for municipal bonds look very strong with the recent reversal in fund flows, daily bids wanted dropping from the $2 billion historic highs, very active trading, supply down 14% from last year’s level, and a summer redemption schedule that will produce cash from principal, interest and coupons that will exceed the amount of new issuance by $61.7 billion according to Citigroup. On June 1, approximately $37 billion was paid out and, by the end of the month, redemptions, maturities and coupons will total $65 billion. Barron’s suggests in its June 3 publication that the acronym TINA (There is No Alternative) with reference to stocks has become shopworn. TARA (There is A Reasonable Alternative) is the new rallying cry in this period of rising yields and high inflation, and investors should consider munis as well as mortgage-backed securities as TARA trades.

Phone Your HJ Sims Representative

It was William Gray who invented the first public pay phone in 1889. It was installed at the Hartford Connecticut Trust Company, enabling those who could not afford their own phones to make personal and business calls as needed. He came up with the idea because he could not afford phone service but needed to call a doctor when his wife became ill and he was unable to find anyone willing to let him use their phone. In the early 2000s, there were still around 30,000 public street pay phones registered in New York City. The last one was just removed on May 24 and taken to the Museum of the City of New York. As you read this, odds are that you have one of the 294 million smartphones in the United States within reach right now. We invite you to call your HJ Sims representative for more information on our offerings and services.

For more information on our municipal offerings or questions about current market conditions, please contact your HJ Sims representative.

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