Entries by halyard

Halyard’s Weekly Wrap – 12/8/23

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This morning’s employment report delivered a curveball to market participants who had been looking for continued economic moderation. That was not to be the case. The economy added 199,000 new jobs in November, up from the previous month and 14,000 more than the consensus had been expected. Average hourly earnings rose 4.0% year-over-year, as it did the prior month. But what really grabbed the investor’s attention was the downtick in the unemployment rate, which came in at 3.7%, 0.2% below the previous month. The large change in household employment, 747,000 new jobs reported, and the change in the size of the workforce, 532,000 new entrants, was responsible for the decline.

Halyard’s Weekly Wrap – 12/1/23

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There were two news stories this week that made us double check the calendar to ensure that we hadn’t transported back sixteen years to pre-crisis 2007. The first had to do with the Federal Housing Finance Agency (FHFA) and the second was the proliferation of private credit.

Halyard’s Weekly Wrap – 11/24/23

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The upward trajectory of stock prices continued this week despite what some observers called hawkish Fed minutes. We’re hesitant to side with that view simply because there was no deviation from the comments that Chairman Powell communicated at the post-meeting press conference. The committee remains vigilante against any signs that economic growth or inflation is reaccelerating and will raise the Fed Funds rate again if needed.

Halyard’s Weekly Wrap – 11/17/23

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The October Consumer Price Index, at the headline level, was a welcome panacea for investors’ perception of inflation. Coming in at 3.2% year-over-year, CPI was universally greeted as good news and interest rates plunged across the curve. Looking beyond the headlines at some of the subcomponents raised suspicions that some of the data had been “fudged.” Specifically, the price of health insurance. For many, November is healthcare renewal season and it’s never cheaper to renew than it was the previous year. And certainly not 33.98% cheaper as measured by the BLS report due to a change in calculation methodology. That was one of the subcomponents that stuck out in Tuesday’s report. Nonetheless, the bigger picture is that inflation is falling, and the Fed can take solace in that fact. Moreover, that inflation report pretty much takes a rate hike at the December meeting off of the table as reflected in the Fed Futures market. Futures are now implying no further hikes and a rate cut of 25 basis points by next summer.

November 2023 – Monthly Commentary

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As we close out the year, investors seem to have concluded that the Federal Reserve has mostly accomplished their mission of containing inflation while simultaneously achieving an economic soft landing. We agree with the consensus. Year-over-year, the consumer price index was 3.1% in November, and we think that getting back to the Fed’s target of 2.0% will prove elusive for a few reasons. Principally, the changing workforce. The workforce is shrinking as the baby-boomers age out, and as it shrinks workers are finding they hold wage bargaining power, as evident by recent union gains and the rising minimum wages. To maintain profit margins, companies are forced to raise prices which creates the dreaded wage-price spiral. The Fed had hoped to avoid the occurrence by slowing the economy, but structural forces have prevented any slowing to date. Instead, the Fed is likely to need to raise their inflation speed limit to 3%.

Halyard’s Weekly Wrap – 11/10/23

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In last week’s Weekly Wrap we mentioned, mid-page and in passing, that the Treasury Borrowing Advisory Committee (TBAC) had advised the Treasury to skew borrowing needs away from long maturities to the T-bill sector. Since then, we’ve been discussing whether the TBAC understated their concern. They certainly did as yesterday’s disastrous 30-year bond auction showed. The auction cleared at 4.769%, 5.3 basis points above the 4.716% level at which it was trading at auction time. That represents approximately a 1% fall in price and a meaningful hit to those that bought the bond just minutes before. The bid-to-cover ratio, a measure of demand was 2.236%, the lowest since 2021, foreign demand fell, and the dealer community bought 24.7% of the issue, the largest take down since 2021. In a sense, the large dealer takedown is a blessing for longs. Paradoxically, when the dealers are holding a big position, they tend to defend it by not selling. It’s known in the industry as having strong hands.

Halyard’s Weekly Wrap – 11/3/23

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We had anticipated a volatile week given the barrage of economic releases and the Open Market Committee meeting but were surprised by the magnitude of the volatility. When we closed out last week the 2-year note, and 30-year bond were both trading above 5% and sentiment was decidedly bearish. The selloff continued into Tuesday with the 30-year touching 5.09%. But reversed on Wednesday with the ADP employment tally coming in at 113,000 newly created jobs, below the 150,000 expected. That started the short covering that dominated the balance of the week. For his part, Chairman Powell’s comments at the post-FOMC press conference were about as dovish as they’ve been since they started the hiking cycle although he didn’t rule out the possibility of one more rate hike. Despite that, the market interpreted his words as no more rate hikes.

October 2023 – Monthly Commentary

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The short maturity fixed income market is the most attractive that it’s been in years, though there are skeptics warning that rates could go higher still. We’ll craft the following paragraphs to argue why it’s an attractive time to take advantage of the current interest rate environment.

One argument against fixed income is that the intermediate fixed income index is at risk for its third consecutive year of losses. To be clear, we are not talking about intermediate fixed income. At Halyard Asset Management, we manage a short maturity fixed income product called Taxable Reserve Cash Management (RCM) that has a maximum maturity of 2 years for fixed rate securities and a targeted average maturity of approximately 13 months for the portfolio. Securities held include a mix of Treasury notes, Treasury bills, and corporate bonds, and a weighted average yield-to-maturity of 5.85%, as of 10/31/23. Since the 2010 inception of Halyard, the RCM has not had a one year in which the performance was negative! In the 157 months it’s been managed, only 26 months had a negative sign next to the result. That’s an 83%-win rate. Of course, past performance cannot guarantee future success. With that in mind let’s tackle some of the other arguments why one should avoid fixed income.

Halyard’s Weekly Wrap – 10/27/23

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As expected, the robust retail sales recorded over the last three months solidly contributed to the outsized Q3 GDP that came in at 4.9%, exceeding the 4.5% consensus expectation. The personal consumption component rose 4.0%, outpacing the 0.8% gain in the previous quarter. Digging into the details, the number isn’t as outrageous as at first glance. Firstly, the government measures the activity versus the previous quarter which, in itself, makes no sense. Every quarter has unique characteristics that impact spending patterns. Vacations in the third quarter, gift giving in the fourth. To adjust for that, the Bureau of Economic Analysis smooths the measure with a seasonal adjustment factor. We prefer, instead, to compare activity on a year-over-year basis and remove the smoothing. On a year-over-year basis, Q3 GDP expanded 2.9%, still an excellent outcome. Another consideration is that government spending represented about 25% of the gain for the quarter. At this stage of the expansion, we’d prefer to see that contribution closer to zero.

Halyard’s Weekly Wrap – 10/20/23

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The retail sales measure for September that was released on Tuesday influenced trading for the entire week. The expectation was that sales would rise 0.3% over the August tally. The actual result was a 0.7% month-over-month gain, with the August measure revised to 0.8% from 0.6%. The three-month period has been a blockbuster for retailers. The irony is that the narrative has changed since Amazon had their supersale in July. The sales event exceeded expectations, leading to forecasts that it cannibalized sales that would have occurred in August and September. That explanation has been recast that the Amazon sale actually reenergized consumers on-line shopping. Our take on it is that despite the sharp rise in interest rates over the last 18 months, the economy has yet to cool significantly.