AWTM Newsletter

A New Risk: Lower Pension Funding Raises Debt Levels

Posted by Ian C. Carroll on Sep 22, 2020 5:03:09 PM
  • As bond yields dropped dramatically, so did the funding levels at traditional defined
    benefit pension plans.
  • Lower pension plan funding increases the already elevated levels of debt and provides
    yet another headwind for credit quality.
  • If a company increases its pension plan contributions, this will lower the cash flow
    available to bondholders and capital expenditures, and weaken balance sheets.
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Topics: Investment Strategy

Congress Needs To Keep Spending Money

Posted by John E. Kaprich on Aug 26, 2020 11:29:58 AM

  • COVID-19 continues to have profound effects on the U.S. economy.

  • Without material improvement in the labor market, the economy will continue to require
    aggressive monetary and fiscal stimulus.

  • With economic demand still weak, unless the U.S. Congress pushes through an aggressive
    policy of fiscal stimulus, the U.S. could suffer an economic catastrophe.
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Is What's Good For Equity, Good for Credit?

Posted by Ian C. Carroll on Jul 23, 2020 1:14:49 PM

  • The fact that both equity and credit indices are rallying simultaneously may lead people to believe that the same things are good for equity and credit investors.
  • Equity and credit investors have different motivations, but the Federal Reserve's market manipulations have made credit investors mimic equity investors in their risk taking.
  • Yet, with credit spreads wide, we feel the signals given by the bond market have a greater value than those from the equity market
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It's Not The Fed's Job to Boost Asset Prices

Posted by John E. Kaprich on Jun 25, 2020 2:10:17 PM

  • The Federal Reserve has succeeded in stopping the liquidity crisis that gripped markets.
  • Flooding the markets with liquidity has led to an asset bubble that benefits the rich and widens the wealth gap.
  • It's not the Fed's job to prevent investor losses and prop up zombie companies, this creates a new set of problems that could lead to economic catastrophe.
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The Fed Put Is Necessary For Markets To Function

Posted by Ian C. Carroll on May 28, 2020 11:38:18 AM

  • The Fed Put is the belief that the Fed will rescue the market
  • The Fed has two main tools in its toolbox: cut interest rates and buy securities
  • The Fed's recent moves were necessary to help stabilize markets and the economy
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Corporates Look More Attractive Than They Have in 11 Years

Posted by John E. Kaprich on Apr 15, 2020 7:03:08 PM

A lot of the material being written about the fixed-income market's correction examines which companies will see their bonds downgraded and the possible effect this will have. But, we think the big story is that the corporate credit market looks more attractive than it has in 11 years.

As we sit home amid the Covid-19 Pandemic, the outlook is scary because we have no idea how long the economy will be affected. The closest comparison we have is the Spanish Flu of 1918, a disease that spread rapidly and killed millions. Since the markets back then were not as developed as today, the past offers little guidance on what to expect. And this uncertainty is spooking markets.

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It's The Liquidity, Stupid.

Posted by Ian C. Carroll on Mar 24, 2020 4:59:21 PM

Over the past few weeks the bond market has been on a rollercoaster of such velocity that it's leaving investors with whiplash.

The Federal Reserve's two interest-rate cuts, totaling 150 basis points, was a useless and desperate attempt to boost the economy and the market. That it barely registered shows the Fed's impotence. Making money cheaper doesn't help if there's no demand. The problem is people aren't leaving their homes. But it doesn’t hurt either, and could speed the recovery when it comes.

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Are You in Excel Hell?

Posted by Pritam Dalal on Mar 3, 2020 11:12:18 AM

The ability to process and analyze data has never been more important. Spreadsheets - in particular Microsoft's Excel - are a primary data-analysis tool for finance professionals. However, as the size and complexity of financial data analysis increase, we quickly find ourselves working on problems beyond Excel's capabilities. Still many people persist in using the tool with which they are familiar. This leads to a syndrome known as Excel Hell.

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The Bond Market is Addicted to Low Rates

Posted by John E. Kaprich on Feb 3, 2020 7:31:44 PM

I don’t know if the market is just damned drunk on low interest rates or hung over. But, it still hasn't come to grips with: “Why keep interest rates so low when it doesn’t seem to affect growth or inflation?"

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Topics: Investment Strategy

No Recession in 2020; Support Your Risky Assets

Posted by John E. Kaprich on Dec 30, 2019 8:00:00 AM

Predicting the future is a hazardous occupation. No one correctly predicted that the 10-year U.S. Treasury's yield would spike to 3.25% in late 2018, before falling to 1.45% in less than a year. But that's what fixed-income money managers do. We seek to invest for the future by navigating through rugged environments.

Unlike December 2018, when the Federal Reserve was still raising interest rates, Fed tightening is no longer a concern. After three cuts in the Federal Funds Rate over the last six months, concern over what we believe is faulty monetary policy has disappeared.

So as another year ends, and people look to rebalance their portfolios, we offer our outlook for 2020.

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Topics: Investment Strategy


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