By Gayl Mileszko
Gratitude
Today marks the 23rd anniversary of the deadliest terrorist attack on American soil since Pearl Harbor. Starting at 8:46 am, we heard family members once again solemnly pronounce the names of the thousands of those killed in New York, Arlington and Shanksville. It is not a milestone year, but those whom we lost, those who survived, those who rushed in to aid others will always be remembered. Memories of this day should spark conversations in venues ranging from schools, to offices, to senior living communities, and legislative and executive chambers across the land. 9/11 is a date that we as a nation will never forget.
“Speech has power. Words do not fade. What starts out as a sound, ends in a deed.” -Abraham Joshua Herschel
We are just seven trading days into September, and the market volatility reflects our concerns, our hopes and fears, our impatience and frustration. This week is actually something of a déjà vu. In addition to our painful, annual somber gatherings and memorials, we are hearing Members of Congress begin a six-plus month-long argument on how to fund more than $7 trillion of federal government operations for the new fiscal year that begins in less than 3 weeks. There was also somewhere around 90 minutes’ worth of bluster, dodging, canned quips, hyperbole, falsehoods, and attempted gotchas from presidential wannabes last night in the latest presidential debate. Fortunately, or unfortunately, it may have been the only chance we had to evaluate our next commander-in-chief before Election Day. This morning, the latest inflation data came out along with its different spins. The indices have very little bearing on reality for most Americans but Wall Street analysts rely upon these numbers to guide investors. Looking at the same reports, some see inflation rising, reducing the chance of a 50 basis point rate cut next week. Others see a cooling trend and find labor data a more significant factor. Everyone is anxious to get next week’s Federal Open Market Committee meeting and the first rate cut in more than a year behind us, with a statement and dot plot clarifying the timing and size of the next reductions. All in all, there is quite a lot for us as investors, and Americans, to process.
“Alexander Hamilton started the U.S. Treasury with nothing, and that was the closest our country has ever been to being even.” – Will Rogers
Under a process that dates back almost 50 years, the U.S. government has been funded by 12 or 13 appropriations bills covering the ever increasing number of cabinet departments, federal agencies, and new commissions as well as all of the much larger mandatory spending programs. The levels and terms are hammered out in conference by House and Senate negotiators, always with some amount of White House input, approved by each chamber, then sent to the President for signature or veto. But in every year since 1997, some or all of these bills have been wrapped into an omnibus measure providing cover for politically controversial provisions and including all the specially earmarked funds needed to secure votes from those who can be swayed. In more contentious years, discretionary spending has continued under “clean” extensions, at prior year levels and terms, as a stopgap while the horse trading continues. In the current fiscal year, 2024, which began on October 1, 2023, a series of continuing resolutions ran through March 9, 2024, when 6 of 12 bills totaling $459 billion were enacted together, and March 23 when the remaining 6 totaling $1.2 trillion were signed into law. Government shutdowns are now routinely threatened just about every September, December and March. We expect the same to begin again this month, perhaps peppered with even more salty language. But very little, if any, mention will be made of our $1.516 trillion deficit, or the $35.35 trillion debt which well exceeds our national GDP of $28.65 trillion.
“What we learn from history is that people don’t learn from history.” – Warren Buffett
Wall Street watches the goings on under the U.S. Capitol dome every year — at first with bemusement, then with increasing alarm, despite the fact the partisan fights have always ended with a compromise that funds the government and lifts the debt limit. Nevertheless, federal government spending accounts for about one quarter of our GDP, so any interruption has a major impact on our economy. Goldman Sachs once estimated that the hit to growth could amount to 0.2 percentage points per week during a shutdown. The halt to funding can also delay the release of significant economic data that impacts futures trading. And, oftentimes now, the debate over appropriations is further entangled with the expiration of the debt limit. Then, the whole world watches the polarized squabbles and podium-pounding standoffs over arbitrary ceilings on borrowing in complete astonishment. We are the only country in the world with a law setting a specific limit on our national debt. And we, the global superpower, the world’s largest economy, the backer of the world’s reserve currency, the United States of America, reveal that we cannot properly manage our fiscal affairs — or our growing deficit and debt burdens. The result is a widely perceived weaknesses in our leadership and governance, focused on the unnecessarily complex budget process we use. The repeated threats of default on debt payments are widely circulated, shocking those with far fewer sovereign assets. The S&P and Fitch downgrades now place our nation’s rating below that of Microsoft and Luxembourg, eroding confidence in the security of our securities. This is something that cannot be reversed with political rhetoric. It may soon have an adverse impact on the outcome of future Treasury auctions and trading.
“The clash of ideas is the sound of freedom.” – Lady Bird Johnson
On Tuesday evening, ABC News broadcasted the first — and perhaps last — presidential debate by the two major candidates who had in fact never before met in person. Vice President Harris and former President Trump faced off on a stage at the National Constitution Center in Philadelphia before a TV, radio and streaming audience of tens of millions. Spincasters and pundits are busy today evaluating the clashes, performing their versions of fact checks, bemoaning the moderators and lack of policy detail to dissect, weighing how the records and leadership qualities were presented and received. Clips with highlights will dominate the airwaves over the next few days until the next major campaign development. Snap polls and election betting odds currently favor the Vice President, and see overwhelming odds for Republicans to retake the U.S. Senate and the Democrats to control the U.S. House. There are still 55 days ‘til November 5 and a lot can happen between now and then, but voters in the swing state of Pennsylvania will be able to cast their ballots as soon as Monday.
“One of these things is not like the others.” – Sesame Street
Wall Street and Main Street still lack information on many of the specific policies and priorities promulgated by one or both candidates for the Oval Office. We know almost nothing about the key staff and cabinet they will name to help to run their administration and execute their policies. Of the details we think we have, the differences could not be more stark. The strategy seems to require remaining as vague as possible so as to gain the middle, the majority who are undecided in the swing states; it is a common strategy for those on the top of the ballot at this point in the cycle. But voters as well as investors dissatisfied with the direction of the country clamor for clarification on issues of key importance to them. Inflation. Immigration and the border crisis. Taxes on unrealized gains, capital gains, corporate and individual income, estate, and more. Regulations. Use of executive orders. Independence of the central banks. Trade and Tariffs. Energy. Crime and policing. Education. Abortion. Health insurance. Social Security. Veterans. War in Ukraine. Israel-Palestine conflict. Foreign policy. NATO. The UN. Pardons. The federal workforce. Climate.
“To say you have no choice is to relieve yourself of responsibility.”–Patrick Ness
Going into this — or any – election, some of us will always be unsure, uncommitted, maybe leaning one way or another, but needing some prompt to get us to the polls. Tens of millions of eligible voters will not cast a vote this year. But the campaigns are working overtime on plans to get out the vote in key wards, precincts, districts and states so as to tip the outcome and set the country’s direction for at least the next 4 years. There may be lags in determining final election outcomes if the judiciary becomes involved, but the nation cries out for fast and decisive results. According to the U.S. Census, about 66% of the voting-eligible population (154.6 million) turned out in 2020, the highest percentage for any national election since 1900. But in three decisive Electoral College states (Wisconsin, Georgia, and Arizona) only about 43,000 votes or 0.03% of the votes cast nationwide comprised the margin of victory for Joe Biden. Every vote truly will count once again this year and these seven “swing states” have 93 electoral votes that carry extra sway: Arizona (11), Georgia (16), Michigan (15), Nevada (6), North Carolina (16), Pennsylvania (19), and Wisconsin (10).
“There are no rules here — we’re trying to accomplish something.” – Thomas Edison
The Fed Chair has long cited the bank’s reliance on data: readings on labor market conditions, inflation pressures and inflation expectations. Since rates have not changed since July 26, 2023, economists have questioned whether it has become TOO reliant, to the point that it has inhibited good decision making. Are the rules leading us into recession or causing too much unnecessary harm on housing markets or other sectors? This week’s CPI, PPI and jobless claims data and next week’s retail sales, manufacturing, and housing data will no doubt impact the monetary policy decisions of voters next Wednesday and may have bearing on the November election outcome. But reports coming from some government agencies, such as the Bureau of Labor Statistics, are viewed by traders with increasing skepticism due to the significant, successive, revisions to long lists of rosy releases. Markets – including those moved by programmed algorithmic buys and sells – often overreact nevertheless. And those paying monthly bills, pumping gas, perusing real estate or job listings, and buying groceries see inflation and employment rates from very personal perspective, and the big is impacts investment practices and voting choices. The Fed prefers the Personal Consumption Expenditures Index (PCE) as a key gauge, but its next measurement will not come until September 27, a week after next week’s policy vote. The next core PCE readings are scheduled for October 31, just days before the elections. As usual, there is no October Fed meeting. And, since the question of politics always hovers over Fed decisions in election years – will they cut, or cut more than expected, to please borrowers and make markets rally to boost the prospects of Vice President Harris and Democrats? — the Fed voters rescheduled their November meeting to begin after Election Day, on November 6 and 7.
“The Outcome is Income.” – HJ Sims
Last week, HJ Sims was pleased to underwrite a $20.3 million municipal bond offering for the Hughen Center and its Bob Hope charter schools in Beaumont, Port Arthur, Baytown and Pasadena, Texas. The bonds were offered through the Newark Higher Education Finance Corporation and had a triple-A guarantee from the Texas Permanent School Funds and we priced the final maturity in 2059 with a coupon of 4.375% to yield 4.52%. We came to market at a time when the stock market suffered one of its worst weeks in 25 years after weaker than expected Beige Book and jobs reports, a reduction in reported job openings, a slowdown in manufacturing, and the admission from Fed Governor Waller that he was open to “front-loading.” Bond markets soared as investor concern over the economy grew and risk appetite abated. For the first time since July 5, 2022, when the week closed we saw the Treasury 2-year yield (at 3.64%) fall below the 10-year yield (3.70%) Across the curve, Treasury yields dropped below levels at the start of the year. High yield muni benchmark index returns are up 7.42% this year, beating high yield corporates at +6.56%, taxable munis at +5.30%, and Treasuries at +4.18%. Municipal bonds saw $8 billion of volume in the primary market and $55.8 billion in the secondary. Tax-exempt buyers added a net of $970 million to muni ETFs and $956 million to funds. Tax-exempt money market funds now exceed $129.7 billion. Benchmark muni yields all fell, but not as much as their taxable counterparts. The SIFMA 7-day stood at 2.84% while the 2-year AAA general obligation bond yield finished at 2.37%, the 10-year at 2.63%, and the 30-year at 3.52%. The $8 billion primary calendar last week also included The Eugenio Maria De Hostos Charter School in Rochester, New York, which came to market with a $52.4 million Ba1 rated deal that featured a 2059 maturity priced at 5.00% to yield 4.95%. The Navigator Academy of Leadership in Florida brought a $41.4 million BB rated financing structured with 40-year term bonds priced at 5.00% to yield 5.10%. Skyview Academy in Highlands Ranch had a $25.4 million deal with the Aa3 Colorado state intercept feature that brought the 30-year pricing lower at 4.25% to yield 4.36%. iIn the senior living sector, Presbyterian Retirement Communities in Florida sold $82.2 million of A-minus rated bonds including a 2054 maturity that priced with a coupon of 5.00% to yield 4.41%.
La gratitude est la mémoire de notre cœur – Gratitude is the memory of the heart – Jean-Baptiste Massieu
This week, as we all pause to remember and honor the victims of 9/11, we encourage you to share your memories and experiences with your HJ Sims representative Join us in expressing our gratitude to those who sacrificed their lives for others and those who have prosecuted the perpetrators of this horror. But let us also celebrate the resilience of Americans, the strength of our character, the endurance of our founding principles, the unmatched power of our military, our indomitable economy, the enterprising spirit of our citizens, and the dominance of our financial markets. We continue to face and overcome challenges every day and move forward with brilliant minds, big hearts and open arms. May God continue to bless the United States of America, inspire us, protect us, bring out the best in our leaders, help us to spread hope and seek justice and peace in this uncertain world.