CARD BLANCHE
Courtesy of Grant's Almost Daily
A headline today from The Wall Street Journal:
JPMorgan, Others Plan to Issue Credit Cards to People With No Credit Scores
SOLD TO YOU, JOHN Q.
Passive U.S. equity ETFs attracted some $17 billion in assets over the first four days of the week, data from Bloomberg show. That inflow comes despite a 4% selloff in the S&P 500 between Monday and Wednesday, the worst three-day showing of 2021.
A raging bull market has ingrained a buy-the-dip mentality in John Q. Public. “We are seeing the reappearance of a familiar pattern in which capital inflows through index-based ETFs give the market some support,” Nomura quantitative strategist Masanari Takada wrote this morning. “It is fair to say for now that equity investors in general, and speculative investors specifically, have managed to avoid letting themselves get overly spooked.”
While passive buyers show off their diamond hands, other constituencies tap the bid. Corporate insiders have sold $24.4 billion worth of shares in the year-to-date through May 7. That’s on pace to exceed the $30 billion in insider sales over the last six months of 2020 by about 15%. Chunky sales from big tech household names have been front-and-center in that uptick: Google co-founder Sergey Brin has sold $163 million of company stock over the past week (his first sales since 2017), while Oracle’s Larry Ellison liquidated $552 million worth of shares over that period. Amazon CEO Jeff Bezos has dumped $6.7 billion in AMZN stock so far in 2021, approaching his $10 billion disbursement across last year.
DOWNHILL FROM HERE
Help is on the way. The American Rescue Plan, the Biden Administration’s $1.9 billion covid-relief bill enacted in March, includes some $86 billion in federal grant funding for multiemployer pension plans (i.e., those covering employees from multiple companies, usually within the same industry), Citigroup estimates.
There is plenty of need for a financial boost. Beset by fast-growing deficits over the past decade, multiemployer plans face a “very high” likelihood of insolvency by 2026 with the “near certainty” of that outcome a year later, the Pension Benefit Guaranty Corporation warned in its most recent report last September. The PBGC deemed 124 such plans, representing roughly 1 million U.S. workers and 10% of the total multiemployer universe, to be in “critical and declining status,” projected to lack sufficient funds to pay full benefits within the next two decades.
That recently announced capital influx could reverberate in the bond market, Citi strategists Daniel Sorid and Jason Williams believe. The pair told Bloomberg in an interview yesterday that they expect multiemployer managers to allocate much of those funds to triple-B-rated corporate bonds, the last stop before junk, in an effort to generate as much income as possible. The triple-B-rated component of the Bloomberg Barclays Aggregate Bond Index yields 2.48%, compared to 2.21% for the wider investment grade gauge. Accordingly, that fresh arsenal of taxpayer funds will afford issuers the opportunity to extend their maturities and lock in funding. “If there was ever a time when 30-year credit should be having its moment in the sun, it’s now,” Sorid told Bloomberg.
While last year’s pandemic wreaked havoc on the multiemployer system, with those entities suffering their worst quarterly funding decline since 2007 according to Millman, trouble was brewing long before the bug bit. For instance, vested retirees or other noncontributing members accounted for a whopping 61% of the multiemployer beneficiary population as of 2015, up from just 17% in the 1970s. Then, too, unrealistically investment return assumptions, in the context of ground-scraping bond yields, understate the funding troubles within the multiemployer universe.
For a closer look at the woes of those defined benefit plans, and other side effects of ultra-easy monetary policy, see the Jan. 26, 2018 and April 5, 2019 editions of Grant’s Interest Rate Obsrerver.
RECAP MAY 14
Stocks enjoyed a second straight rally, with the S&P 500 advancing by 1.5% to wrap up the week with a 1.4% loss, while the Nasdaq managed a 2.2% rip to narrow its weekly decline to 2.4%. Treasurys were also bid, with the 10- and 30-year yields falling to 1.63% and 2.34%, respectively, gold jumped 1% to $1,842 an ounce and WTI crude climbed to $65.50 a barrel. The VIX bellyflopped below 19, extending to a 32% two-day drop.
– Philip Grant
