AWTM Newsletter

A Blue Sweep Could Be Good For The Markets

Posted by John E. Kaprich on Oct 21, 2020 3:02:52 PM
  • Prediction markets are predicting a Blue Sweep in the 2020 election.
  • Currently, the deadlock in Congress is preventing the passage of a fiscal stimulus bill. This could result in economic catastrophe.
  • Aware Asset Management believes a Blue Sweep could be good for the markets because the government will move in one direction to address COVID-19 and pass necessary fiscal stimulus bills.
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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

  • Aware thinks the big story is not which companies will see bonds downgraded, but rather that the corporate credit market looks more attractive than it has in 11 years.
  • Spreads are 2.5 times greater than they were six weeks ago. Right now, investors are getting paid handsomely for the risk they are taking.
  • Many of these companies have great business models and produce a lot of cash. Aware views this as a technical move that allows us to buy them on sale.

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
  • The Federal Reserve's two interest-rate cuts was a useless and desperate attempt to boost the economy and the market.
  • Making money cheaper doesn't help if there is no demand. The real problem is the lack of liquidity in the corporate bond market.
  • In terms of the economy, fiscal measures, the domain of Congress, are much more important than monetary moves.
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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.
  • As the size and complexity of financial data analysis increase, people find themselves working on problems beyond the capabilities of the most popular spreadsheet program _ Microsoft Excel. This is known as Excel Hell.
  • New tools address Excel's weaknesses. These are data-analysis programming languages that allow people to write computer code to act on the data. They may be challenging to learn, but they lead to great flexibility in analysis.
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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

 

  • Bond investors are addicted to low interest rates.
  • Low interest rates are not the panacea. Low rates may have prevented a recession, but they haven't juiced the economy. However, these low rates have caused many corporations to issue a massive amount of debt.
  • We believe this debt poses potential problems down the road. However, it will take a catalyst, such as an economic slowdown, to expose these problems.
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Topics: Investment Strategy

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