The September jobs report was late. The shutdown of the U.S. federal government put the release back by several weeks. Then, when the data finally showed up, it was uninspiring…at best. Some might say, “meh.” (For the uninitiated, “meh” is an exclamation used to express a lack of enthusiasm). At only 148,000, the headline payroll-growth number disappointed. The pace of U.S. payroll growth has definitively slowed in the last six months, which strengthens the argument for the Fed to postpone tapering their QE program into 2014.
The mediocre details of September’s late report broke down like this. Private sector payrolls increased by only 126,000. Definitely “meh.” Read more
Credit research is tough enough without trying to do it with one arm tied behind your back. Back in the day, credit analysts would diligently put together massive spreadsheets with all kinds of metrics that explained all aspects of a company’s financial performance and credit strength. These days, however, you have quant geeks trying to boil everything down to one number that “explains it all” so that picking relative value is somehow “easier.” The most common relative-value graph produced by the Street these days is a plot of leverage versus yields. Well, in our view, easy isn’t the best in the world of high yield credit. We’ve seen numerous “credit pickers” out there focused entirely on leverage, who have totally forgotten the rest of the important credit metrics, particularly, coverage. Read more
Yesterday, my colleague, Phelps Hoyt, gave some insight into how industry conferences play into the work of credit analysts at Principal Global Fixed Income. I want to expand a little on their role in our research process and the objectives I pursue when I’m able to attend an investor conference.
While many conferences are held at interesting or beautiful locations, last week, the desert oasis surrounding my hotel provided little more than a change of setting for my morning run. The busy schedule of each day had me going from breakfast at 7:30 a.m. until wrap-up of the evening reception at 10:00 p.m. I came to the conference with several objectives. First, meet with management teams in order to assess the outlook of their business. Second, build deeper relationships with contacts and management of these companies. Lastly, regain perspective that an ever-volatile market can suppress over time. Here’s how things went… Read more
Last week, I was fortunate enough to attend one of the most-respected high yield and leveraged finance conferences in the world; an event that remains the world’s largest and longest-running leveraged finance conference. Every year, the conference aims is to gather the most important issuers, investors and sponsors to discuss the themes that will shape the business in the year ahead. And while the planners designed an agenda with plenty of informative keynote sessions, I found that the most instructive and valuable sessions were the interactive panel discussions and one-on-one meetings.
As an example, on the evening before the conference officially kicked off, a group of investors had the opportunity to sit down with the finance executives of one of the largest high yield telecom issuers and learn first-hand of their business plans and how those will influence the company’s leverage and free cash flows. It was a great opportunity to get a direct view of all the information analysts and investors have had access to through conference calls and SEC reports, but in a clear and simple manner. Read more
If you need something from the Commerce Department or the Department of Labor this week, it’s probably best not to hold your breath. According to analysis from the New York Times, the government shutdown that is now a reality is keeping 87% of the Commerce Department’s staff furloughed at home and 82% of the Labor Department. Most essential federal employees will be at work, but estimates put the number of furloughed government employees around 800,000, with another million or so being asked to work without pay.
The government shutdown will have real impacts on the U.S. economy, though the silver lining (if there is one) is that the negative effects may be only transitory. Much of the impact, though, depends on the length of the shutdown and the coming showdown over the debt ceiling.
Based on current estimates, we’d expect between 0.1% and 0.2% to be shaved off of U.S. GDP for every week that a shutdown continues. Read more
Besides the masses of government employees that would be put on furlough if a U.S. federal government shutdown occurs, and the potential market volatility caused by uncertainty over both the budget and over healthcare reform, one of the big problems of a federal government shutdown is that there’s a lot of vital economic data that is produced by…you guessed it, the federal government. If a shutdown goes into effect, the U.S. government will shut down all “nonessential” functions. This would include the economists, statisticians, and data processors of the Labor Department’s Bureau of Labor Statistics. This is the organization that puts out the crucial monthly nonfarm payrolls report, which details the number of new nonfarm jobs and an estimate for the current unemployment rate.
The September report is currently scheduled to be released the morning of Friday, October 4th…that is, if the government is still running on Friday. Read more
With the recent news surrounding the Detroit bankruptcy lingering in investors’ minds, the Commonwealth of Puerto Rico has recently been the focus of industry press. The pieces tend to focus on many of the credit negatives of the commonwealth that have been known in the credit community for a long time; specifically, its stalled economy, structural budgetary deficit, high debt and pension liabilities, below-average socio-demographics, and declining population. These realities are represented in the commonwealth’s current general obligation (GO) ratings of Baa3 (Moody’s – 10th highest of 21 ratings), BBB- (S&P – 10th highest of 22 ratings), and BBB- (Fitch – 10th highest of 20 ratings). In addition, all three major rating agencies hold negative credit outlooks for the future of the island’s creditworthiness.
While some of the articles I’ve seen do a great job focusing on the systemic risks posed by the wide ownership of Puerto Rico in mutual funds, the ultimate risk of investors in these mutual funds is the potential for a significant decline in the value of their investment because of the overweight exposure in the funds to the debt of Puerto Rico. Read more