YESTERDAY WAS THE INVERSE OF THE DAY BEFORE

Yesterday was the inverse of the preceding day.  Value out performed growth perhaps the result of consumer confidence data and the greatest jump in housing prices in more than three decades.  Most people gauge their financial well being by the value of their home and as noted many times values are rising significantly in secondary and tertiary markets.

Commenting about consumer confidence, confidence is at a post pandemic high, exceeding expectations, primarily the result of jobs.  The share of consumers that said jobs are plentiful increased to a 21 year high of 54.4%.  The closely watched labor differential also improved.  The share of respondents who said jobs were plentiful exceeded the share of these who said they were hard to get by the most since 2000.

The above data correlates to a strong economy for large spending decisions are typically predicated upon rising home values, decisions that are reinforced by confidence of continued employment.

The battle lines are now fully drawn.  Sentiment indicators, the vast majority of analysts, and the data are all strongly arguing inflation is not transitory.  The Federal Reserve and Wall Street believe otherwise.

Friday is the release of June’s unemployment data.  Considerable attention will be focused on wage gains and the labor participation rate (LPR).

The Federal Reserve is adamant that once enhanced unemployment benefits expire, there will be a massive influx of workers.  The issue at hand however is that once increased labor costs become embedded, it takes time for these costs to work its way through the system.  Many asking why is this time different?

Changing topics, as noted the other day ESG bond origination is surging.  Sustainability Linked Bonds (SLBs) is a type of ESG debt that helps companies become better corporate citizens and penalize firms with higher borrowing costs if they don’t meet certain environmental, social and governance metrics.  SLB origination is becoming the latest rage in the US.

Unlike traditional sustainable notes that finance specific projects, SLBs are financing vehicles that help companies obtain the subjective diversity/inclusivity targets, targets that are hard to quantify financially.

SLBs typically demand a higher interest rate and command greater origination costs and fees than sustainable notes that are already 2x to 4x more expensive to originate than traditional corporate debt.  The largest issuer to date is BlackRock as per Bloomberg.

I cynically ask where is the mention of the financial viability of such debt.  Is the underwriting flawed?  Unfortunately, only history will answer this question.

What will happen today?

Last night the foreign markets were down.  London was down 0.66%, Paris down 0.84% and Frankfurt down 1.02%.  China was up 0.50%, Japan down 0.07%   and Hang Seng down 0.57%.

The Dow should open nominally lower ahead of the upcoming labor data, fears of another COVID strain and general anxiety over where the direction the Administration is pushing the economy. The 10-year is up 5/32 to yield 1.45%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.