HJ Sims Market Commentary: Every Endeavor

by Gayl Mileszko

Over the past 18 months, we have all refashioned our lives, some several times, by choice or circumstances related to health or work or family. We created safe cocoons and, as a result of vaccines and COVID fatigue, burst out of them. Many have crawled back inside again for fear of variants, to escape from irritants like politics, or in response to inflation. Whether due to closures or mandates, illness or need, rising crime or misinformation, we are seeing many of our institutions in a brand new light: schools and banks, law enforcement and military, churches and governments, business and labor, medical care and media. The pandemic has made us more grateful than ever for some of them. It has also pointed to the need for major improvements in others, and so we must set about making them as earnestly as we can.

Plans for Telosa

Several billionaires have looked to start fresh and are attracted to new frontiers in space. Another one has set about building a brand new American city. It is to be called Telosa, a sustainable 5 million person metropolis that is being created from scratch in desert land yet to be acquired. Marc Lore, a former Walmart executive, is still scouting for locations but his vision is for a new model for society, an eco-friendly place with sustainable energy production and a drought-resistant water system, designed in a way that enables all residents to live within a 15-minute commute from home to work, school and favorite pastimes. His utopia is said to be one with shared ownership of the land, transparent governance, and a circular economy. The central landmark is to be the Equitism Tower, a cone-shaped skyscraper with aeroponic farms. If the $400 billion plan proceeds as expected, Telosa would welcome its first residents by 2030.

Telosa draws its name from the Greek word telos which means “end”, “greater purpose”, or “the full potential of a person or thing”. The teleologist Aristotle used the term in exploring the meaning of the supreme end of man’s endeavor. More than 2,300 years later, human endeavors abound, many extreme, yet few supreme. The 24/7 news cycle keeps us abreast of them all, and the tendency is to focus on the failures. This week, the spotlight is on Washington, showcasing the partisan divides that appear to threaten everything from Social Security checks to the integrity of the U.S. dollar, and reveal weaknesses in debt management and international standing. 

Yields on the Rise

U.S. Treasury yields have been rising since last week’s Federal Open Market Committee meeting and a bond market selloff is underway at this writing. Stocks are once again in that familiar place between a correction and a rally, mostly relieved that there is no change in monetary policy impacting today’s trading session. Investors got the signal that the Fed will begin slowing the pace of asset purchases as soon as November. Since 2008, they have injected trillions of dollars that came out of thin air into the financial system, producing a balance sheet that is now at $8.5 trillion. The purchases have suppressed interest rates and fueled record-setting rallies. Even though the start to tapering is being clearly telegraphed, markets are already feeling the pains of withdrawal and the ensuing series of rate hikes.

An Eventful Month: September

Consumers are feeling the pains of higher prices on every household purchase. In September, confidence faded for a third straight month, abetted by flashbacks of 1970’s inflation and worries that the increase in COVID variant cases darkens assessments of current economic conditions and future prospects. The month began with the sudden and costly withdrawal from Afghanistan, the aftermath of a hurricane, unremitting wildfires and imminent deadlines for action on government funding, the debt limit, the border crisis and domestic infrastructure. Although some large companies announced delays in re-opening offices, most schools re-opened, new vaccination mandates were announced, and pandemic unemployment assistance and mortgage forbearance ended. We have seen the resignation of the Dallas and Boston Fed  presidents in the wake of stock trading disclosures, North Korean long range missile tests, a new US-UK security alliance with Australia that snubbed France, German elections, the FDA booster dose vote, the debt crisis of China’s second-largest real estate developer Evergrande, and China’s crackdown on all cryptocurrency-related activity. The month comes to an end along with the federal fiscal year on Thursday, when every endeavor will be made to round up votes and kick the cans down the road for another few months.

Current Market Conditions

Oil prices have risen 14% this month to $75.45 a barrel and are up 138% since the pandemic began. Everything else looks like it will finish in the red this month. Stock indices are down between 3% and 6%. Gold prices are down 4%, silver 6% and Bitcoin 18%. Meanwhile on the bond side, the bellwether 10-year Treasury yield is just under 1.50% and the 30-year is up over 2%, having risen 19 basis points and 11 basis points, respectively, since the end of August. The Baa corporate bond benchmark yield is up 19 basis points to 3.09%.

Municipal Bonds at Quarter End

Tax-exempts have weakened alongside their taxable counterparts despite highly favorable technical conditions and elevated tax talk. The 2-year AAA municipal bond yield is 6 basis points higher on the month at 0.17%, the 10-year at 1.11% is up 19 basis points and the 30-year at 1.65% is up 13 basis points. But as of last Wednesday, cash flows into municipal bond mutual funds continued at a frenzied pace with $1.55 billion of new investment, including $408 million into high yield funds. The nearly $10 billion calendar of new issues included a $265 million non-rated tobacco asset securitization that had 2050 term bonds priced at 4.00% to yield 2.18%. Among five senior living financings with long 4$ coupons, there was a $124.8 million non-rated sale for Canterbury Court in Atlanta that featured a 2056 maturity yielding 3.49%. Friendship Village of Tempe came to market with a $104 million non-rated transaction structured with 2046 term bonds at a yield 2.90%. Williamsburg Landing in Virginia sold $71.3 million of non-rated bonds with a maximum yield of 2.76% in 2050. The Redstone Presbyterian SeniorCare obligated group in western Pennsylvania brought a $47.2 million non-rated refunding issue that had a 2047 maturity yielding 3.10%. EveryAge, based in Newton, North Carolina had a $22.2 million BBB-minus rated deal with a 30-year maturity at a yield of 2.59%. And the Dakota County, Minnesota Housing and Redevelopment Authority sold $13.5 million of non-rated bonds for the Quill Project in Hastings that had 3.55% coupons priced at par in 2039.

HJ Sims works with our clients to meet their goals and find value in every market. Rates, while rising at least for the time being, are more attractive to income investors while still at historically low levels for borrowers. Please reach out to your HJ Sims representative today. We aim for amazing in every endeavor.

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

Exclusive Opportunities For Our Clients