May 7, 2013
Muni Armageddon? SEC’s Warning Raises Valid, But Manageable,
Issues for Investors
On April 16, during a Securities and Exchange Commission-sponsored roundtable discussion of fixed income markets, SEC Commissioner Daniel Gallagher stated that a perfect storm is brewing in the muni bond market that could lead to “Armageddon” for municipal investors. Gallagher noted that an expected rise in interest rates combined with an increasing risk of municipal defaults could lead to massive losses for retail investor.
April 29, 2013
Pensions Continue to Apply Credit Pressure:
Moody’s Criteria and CalPERS Policy
Threaten Ratings
On April 16, the California Public Employees’ Retirement System (CalPERS) proposed changes that could result in increases of 50% to the amounts that local governments in California must contribute annually for pensions. The following day, Moody’s announced revisions to how it analyzes public pensions and placed the ratings of 29 local government issuers under review. Moody’s criteria change, focused on the size of unfunded pension liabilities relative to the overall size of the budget, triggered a review mostly of very highly rated issuers in the Midwest, Great Lakes and Southwest regions.
April 2013
Tortoise Talk - 2013: Off and running
With 2013 well underway, we continue to be excited about the North American energy renewal, with domestic production gaining momentum. While persistent headlines have drawn broad attention to this story, Americans are just now becoming aware of the positive implications for our economy and for North America’s growing relevance as a global leader in energy production. Just as significant, however, is the pace at which oil and natural gas production is driving meaningful pipeline infrastructure buildout to adequately and efficiently transport these natural resources from collection sites to areas of growing demand. In the last three years, the U.S. added thousands of miles of oil and gas pipelines, but substantially more is needed to provide transportation quickly and efficiently to refineries and consumers.
April 2013
Global Tactical Allocation Portfolio Commentary
The MTAP portfolios experienced a strong finish to the most recent quarter, outperforming the MSCI All Country World Index (ACWI) benchmark by 0.32% during the month of March. This outperformance followed significant realigning changes in the MTAP portfolios. The portfolios finished the first quarter of 2013 up 5.80%, trailing the MSCI ACWI, which returned 6.50%, by 0.70%.
April 15, 2013
Moody’s Criteria Change Jeopardizes School Bond Ratings in Arkansas and Pennsylvania
On April 10, Moody’s released new criteria for how it rates local school bonds that are enhanced by state intercept programs. We discussed the mechanics of these intercept programs in our recent report discussing the types of school bond enhancement programs currently in use ( Municipal Market Comments dated March 3, 2013). The new criteria raise the possibility that Moody’s could withdraw its ratings on state-enhanced local school bonds that do not have an underlying rating already or if Moody’s cannot adequately assess the District’s stand-alone credit quality. As a result, Moody’s has identified approximately 260 local school district issuers in Arkansas and approximately 50 local school district issuers in Pennsylvania whose ratings it has placed “Under Review”. Moody’s stated that it “will likely withdraw [its] enhanced ratings” on these bonds if it “determines that we do not have sufficient current information to assign a public underlying rating.”
April 8, 2013
Stockton’s Bankruptcy Continues to Evolve
On April 1, a federal court ruled that Stockton, California is eligible for Chapter 9 bankruptcy. The Stockton ruling garnered a significant amount of coverage in the business press as the largest U.S. city (population 291,000) to ever file for bankruptcy protection. However, the ruling does not signal a resolution of the City’s financial problems. Quite the opposite. Only now can Stockton begin to formulate a plan of reorganization. The City originally filed its bankruptcy petition on June 28, 2012, but the filing has been opposed by a group of creditors including holders of Stockton bonds and the insurers who enhanced those bonds. The City is now clear to begin to formulate a plan that the court will need to approve as treating all of the City’s creditors equitably.
March 26, 2013
Missouri Direct Deposit Intercept Program -
A Closer Look at Missouri’s Enhancement Program for Local School Bonds
Most local school district bonds issued in the State of Missouri (current ratings Aaa/AAA/AAA) participate in the Missouri Direct Deposit Intercept Program (MDDP). Created by the Missouri State Legislature in 1995, the MDDP assists local school districts with their capital financing needs by providing credit enhancement for districts’ bond issues. Qualifying bond issues earn the program credit ratings of Aa1/AA+/AA+, which are typically much stronger than the local districts’ own credit ratings. As a result, enhanced local school bond issues attract more buyers and are issued at lower interest costs than the districts’ could obtain on their own.
March 2013
Global Tactical Allocation Portfolio Commentary
The global equity markets took a break from their upward climb in February. The MSCI All Country World Index ended the month essentially flat, 0.03%. This was the worst month for the index since October of 2012. It seems the spotlight of worry was squarely on Europe during the month as corruption allegations for Spain’s Rajoy and unsettling elections in Italy heightened uncertainty regarding the European recovery. Aside from the United States, where the S&P 500 Index returned 1.36% in February, most global indexes were negative for the month.
February 2013
Nuance Concentrated Value Perspectives Discussion
Another month and yet another positive result for Nuance Concentrated Value and the market. Given the sharp move upward in the market just this year and over the last four years, we continue to field many questions about the market being at all time highs and if the market is overvalued. Our answers to these questions continue to focus on our view of the stocks we own for our clients. Despite what has been an amazing upward move since 2009, we continue to find excellent businesses to purchase for our clients at lower than average valuation levels.
March 11, 2013
State Credit Enhancement Programs for Local School Bonds
School district credit enhancement programs allow states to provide credit support for local school district bond issues, providing lower borrowing costs for school districts. Under these programs, states will direct certain revenues under state control to pay debt service for local school bond issues, if needed, and provide financial oversight of local school districts. Currently, 27 states provide some type of enhancement program to strengthen the credit quality of local school district bonds, with some states having multiple programs. Enhancement programs allow school districts to receive higher credit ratings for bond issues than they might otherwise receive on the basis of their own credit. Improved credit quality and consistency of credit structure across many issuers’ offerings provide greater investor appetite for issues at lower interest rates.
March 4, 2013
The Sequester and Potential Municipal Market Impacts
With Congress unable to agree on alternative spending measures, the federal budget sequestration was triggered on March 1. Sequestration is the term for the mandatory federal spending caps that were put in place by the Budget Control Act of 2011 (BCA), the law that resolved the July 2011 debt ceiling showdown. The across-the-board nature of the cuts were intended to be a motivation for both parties in Congress to seek a longer-term solution to federal spending fights, but that effort has not materialized. Instead, the federal government will now be forced to make across-the-board cuts to discretionary spending of $85 billion in the current fiscal year, with little discretion as to how those cuts are allocated.
February 26, 2013
American / US Airways Merger Threatens Airport Ratings
US Airways (LCC/NYSE; rated B3/B-/B-) and American Airlines (AMR/unlisted; wr/D/D) recently announced plans to merge, creating the largest airline in the world. The move is part of American’s efforts to bring the company out of bankruptcy and restructure as a viable and competitive airline. The combined companies will operate under the American Airlines name. Following the announcement of the merger, Fitch Ratings released a special report that outlines some of the airports that are at risk of losing significant amounts of passenger traffic as the two airlines consolidate their operations.
February 2013
Global Tactical Allocation Portfolio Commentary
January was a significant “risk on” month as most major markets ended the first month of 2013 in positive territory. The S&P 500 Index turned in a strong performance for the month, with a 5.18% return. This new risk appetite might have resulted from the continuing improvements in the U.S. housing market or the fact that the “fiscal cliff” and election are now in the history books. It may also be attributed to market participants simply pulling cash “out of the mattress.” This upbeat mentality also manifested itself in the non-US Developed Countries as the MSCI EAFE index returned 5.27% for the month. The emerging markets, as represented by the MSCI EM Index, struggled in the month relative to the aforementioned indices, returning only 1.38%. South Korea’s poor performance contributed significantly to the low January returns for the MSCI EM index. The MTAP was up 4.01% in January, underperforming both the MSCI All Country World Index, at 4.61%, and the S&P 500 Index, at 5.18%.
January 2013
Nuance Concentrated Value Perspectives Discussion
The Nuance Concentrated Value Composite is a classic value investment product investing primarily in the equity or equity-linked securities of United States based companies. The product will typically maintain 15-35 positions in the securities of companies that, in the opinion of the Nuance Investments Team, have leading and sustainable market share positions, above average financial strength, and are trading at prices materially below our internally derived view of intrinsic value.
February 15, 2013
Municipal Market Comments
Missouri Remains Strong Despite Moody’s Negative Outlook
February 11, 2013
Municipal Market Comments
California and Illinois: The Lowest-Rated States Heading in Very Different Directions
January 28, 2013
Municipal Market Comments
State Ratings Trends
January 2013
Tortoise Talk - 2012 Year in Review
We continue to be optimistic about the North American energy sector and the potential for energy independence. Technology has changed the game in ways that dramatically benefit the North American energy sector. New techniques have enabled producers to unlock significant amounts of crude oil and natural gas across the U.S. and Canada, driving more efficient production, greater drilling success and faster drilling times. We believe these advances lay the groundwork for a decades-plus opportunity.
January 22, 2013
Municipal Market Comments
Muni Insurer Assured Guaranty Downgraded by Moody’s
January 2013
Global Tactical Allocation Portfolio Commentary
December was overwhelmingly dominated by the impending U.S. fiscal cliff. As the likelihood of a resolution increased the world’s markets began to trend toward the positive. These storm clouds seem to have been more prevalent over the United States as the S&P 500 Index was outperformed by most international benchmarks. The MSCI All Country World Index bested the S&P 500 in December, 2.27% versus 0.91% respectively. The S&P 500 was also outpaced by the MSCI EAFE Index, 3.20% and the MSCI Emerging Markets Index, 4.89%. MTAP ended the month up 3.88% outperforming both the MSCI ACWI and the S&P 500 Indexes.
January 14, 2013
Municipal Market Comments
Columbus Highlights Risk in BABs
January 7, 2013
Municipal Market Comments
2013 Municipal Outlook
December 2012
Nuance Concentrated Value Perspectives Discussion
The Nuance Concentrated Value Composite is a classic value investment product investing primarily in the equity or equity-linked securities of United States based companies. The product will typically maintain 15-35 positions in the securities of companies that, in the opinion of the Nuance Investments Team, have leading and sustainable market share positions, above average financial strength, and are trading at prices materially below our internally derived view of intrinsic value.
December 2012
Nuance Mid Cap Value Perspectives Discussion
Over the four years since the inception of Nuance Investments, we have been pleased to continue providing our clients with above-average returns with below-average risk. As always seems to be the case in this investing world, uncertainty breeds opportunity and 2012 did not disappoint. From the uncertainty surrounding the fiscal cliff, to slowing growth overseas, to the uncertainty of the election, to the continued debt burden hovering over countries around the world; uncertainty was once again commonplace. Importantly, the word “uncertainty” is not new to Nuance and your team. That term has been used each and every year since our inception and in each year we can remember since we began buying and selling stocks for clients long ago. Throughout Nuance’s life, examples of “uncertainty” persist.
December 2012
Global Tactical Allocation Portfolio Commentary
November was dominated by politics both in the U.S. and abroad. Even though the equity markets ended close to where they began the month, there was quite a bit of volatility in between. After the U.S. election was over, the markets went on to focus on the fiscal cliff. International markets broadly outperformed domestic markets in November: the MSCI EAFE was up 2.42% and the MSCI Emerging markets indices were up 1.18%, while the S&P 500 was only up 0.58%. MTAP ended the month up .22% while the MSCI All Country World Index (ACWI) was up 1.28%.
December 17, 2012
Municipal Market Comments
Municipal Taxation in the Spotlight as 2013 Looms
December 10, 2012
Municipal Market Comments
Texas Permanent School Fund Credit Update
December 3, 2012
Fixed Income Market Comments
HP Fundamentals Offer Solid Intermediate-Term Credit, Despite Moody’s Downgrade
November 26, 2012
Municipal Market Comments
Voter Reject Michigan’s Emergency Manager Law
November 16, 2012
Market Insight
The U.S. presidential election may now be history, but investors still face a wall of worry as 2012 winds to a close. In addition to uncertainty about the balance of power in Washington, the markets have grown increasingly volatile as uncertainty escalates around the debt ceiling, burgeoning government debt, now at $16 trillion and growing, and a slew of monetary policy, tax and regulatory issues—the most pressing among them, of course, the looming year-end “fiscal cliff.”
November 2012
Global Tactical Allocation Portfolio Commentary
The global macroeconomic backdrop continued to weigh on equity markets in October. The excitement over QE3 began to dissipate, and investors became more concerned over the presidential election and the fiscal cliff. Most domestic markets and emerging markets were down for the month of October while many European and Asian markets traded higher. MTAP ended the month trailing its benchmark, the MSCI All Country World Index (ACWI), by 49 basis points. U.S. equities, as measured by the S&P 500, were down 1.85% on the month while the MSCI ACWI was down .67% and MTAP was down 1.16%.
November 14, 2012
Municipal Market Comments
California Credit Quality Expected to Benefit from Election Day Tax Hike; Long-Term Outlook More Clouded
November 5, 2012
Municipal Market Comments
Despite Its Historic Impact, Sandy Not Expected to Trigger Rating Downgrades
October 29, 2012
Municipal Market Comments
Threats to Municipal Tax Exemption Could Loom in Washington
October 22, 2012
Fixed Income Market Comments
Credit Metrics Suggest Bond Markets Could Be Near a Top
October 15, 2012
Municipal Market Comments
Federal Budget Cut Impacts on Munis Unclear
October 2012
Tortoise Talk: A look at 2012 to-date
We enter the fall of 2012 with a myriad of ongoing and emerging economic and geopolitical events dominating the headlines. Sluggish economic reports, a pending presidential election, turmoil in the Middle East and a potential fiscal cliff are all contributing to market uncertainty.
October 8, 2012
Municipal Market Comments
Federal Budget Cuts Could Impact BABs Market
October 2012
Global Tactical Allocation Portfolio Commentary
Equity markets moved up after the European Central Bank (ECB) and Federal Reserve (Fed) announced stimulus plans in early September. The ECB outlined a plan to buy sovereign bonds of countries that request aid and the U.S. will embark on its third round of quantitative easing by buying $40 billion of mortgage-backed securities each month. Markets across the globe moved up 2.5% to 4% after the announcements before retreating the last week of the month. MTAP ended the month trailing its benchmark, the MSCI All Country World Index (ACWI), by 33 basis points. U.S. equities, as measured by the S&P 500, were up 2.58% on the month while the MSCI ACWI was up 3.15% and MTAP returned 2.82%.
October 2012
Hedge Fund Manager Perspectives on Current Market Opportunities, Challenges, and
the Problem with Monetary Morphine
As our clients know, the team at Palmer Square is continually communicating with seasoned and emerging hedge fund managers about current opportunities and challenges in the marketplace. Those conversations are augmented by the fact that we have full transparency on over 75% of our assets under management which allows us to utilize risk systems which monitor how our managers are executing on those opportunities and dealing with market challenges.
September 24, 2012
Municipal Market Comments
State of Oklahoma Credit Update
September 14, 2012
Municipal Market Comments
State Credit Ratings Trends
September 10, 2012
Municipal Market Comments
Commonwealth of Puerto Rico Credit Update
September 2012
Global Tactical Allocation Portfolio Commentary
Equity markets continued their upward move in August. U.S. equities, as measured by the S&P 500, were up 2.25% while the MSCI All Country World Index ended the month up 2.17%. MTAP was able to gain 100 basis points on its benchmark, the MSCI ACWI, returning 3.23% on the month.
September 4, 2012
Municipal Market Comments
State of Illinois Credit Update
August 27, 2012
Municipal Market Comments
Municipal Issuance Up in 2012 as Refundings Drive Volume
August 2012
Convertible Bond Arbitrage (unlevered): An Attractive All-Weather Strategy
which Seeks to Provide a Source of Alternative Income and Non-Correlated Returns
In an environment dominated by uncertainty, historically low interest rates and "risk-on, risk-off," an unlevered convertible bond arbitrage strategy offers investors the potential to capture meaningful yield and potential upside while maintaining strong downside protection. In fact, greater market volatility actually increases the opportunity set for this strategy to create value. In this thought piece, we will provide some basic background on convertible bonds and convertible bond arbitrage while also discussing the merits of the strategy, how managers strive to earn consistent returns, risk management and ways in which investors can implement the strategy within their portfolios.
August 20, 2012
Municipal Market Comments
Rating Agencies Highlight Risks in Health Care Bonds
August 2012
Global Tactical Allocation Portfolio Commentary
The last four trading days of July pushed equity markets into positive territory for the month. On July 26th, Mario Draghi, President of the European Central Bank, stated that “the ECB is willing to do whatever it takes to preserve the euro…” This comment rallied markets across the globe as optimism spread that the ECB would step in to aid the struggling European banks and economies. U.S. equities, as measured by the S&P 500, were down (1.67%) through July 25th but rallied 3.11% to end the month. World equities followed suit as the MSCI ACWI was down (2.73%) through the 25th and returned 4.21% after Draghi’s comments.
August 6, 2012
Municipal Market Comments
SEC Proposes Major Regulatory Changes for Muni Market
July 2012
Investing in Today's Environment - Are CLOs an Attractive Credit Investment?
In today’s low interest rate environment, investors are frequently searching for asset classes which offer not only yield, but also some price protection or benefit were interest rates to begin rising. Most frequently, investors cite three types of credit that can achieve these goals: floating rate bank loan funds, high yield bonds, and convertible bonds. Palmer Square is quite active in all three of those credit areas and believes all are important tools for portfolio construction. For this piece, we would like to highlight a fourth area within credit that is often overlooked or completely misunderstood since the ‘credit crisis’ that disrupted global markets in 2008: Collaterized Loan Obligations (“CLOs”). In this paper, we will provide a brief description of a basic CLO; discuss the opportunity and specific types of CLO investments which we believe offer strong risk/return characteristics; and finally, provide a general framework for CLO manager selection.
July 27, 2012
Municipal Market Comments
Do California Cities’ Bankruptcies Signal a Growing Credit Crisis in the Muni Market?
July 20, 2012
Municipal Market Comments
Pennsylvania Downgrade Affects Local School Bond Ratings
July 2012
Convergence Core Plus Fund Commentary
The Convergence Core Plus Fund closed out the first 6 months of 2012 up 11.32%, exceeding the Russell 3000 Index by 200 basis points at 9.32%. Now with a full 2.5 years of history as a mutual fund, the Convergence Core Plus Fund is ahead of the Russell 3000 index by 395 basis points on an annual basis. Importantly, the Fund has exceeded its benchmark in each of the prior two calendar years and also so far in 2012.
July 2, 2012
Municipal Market Comments
Accounting Rule Changes Put Public Pension Shortfalls in the Spotlight
June 2012
Global Tactical Allocation Portfolio Commentary
Markets rallied the last day of June as European Union leaders announced a deal that would allow the direct recapitalization of Spanish and Italian banks with European bailout funds. The last day surge accounted for more than half of the monthly gains in equity markets. U.S. equities, as measured by the S&P 500, were up 2.5% on June 29th and 4.12% for the month while the MSCI All Country World Index returned 3.03% on the last trading day and 4.94% on the month. MTAP ended the month up 4.12% and up 4.75% for the year.
June 2012
Global Tactical Allocation Portfolio Commentary
May was a disappointing month across all markets with U.S. stocks being down more than 6%. The selling was due to continued turmoil in the Eurozone, slowing growth in China and India as well as weak reports on the U.S. labor markets. MTAP ended the month down 7.80% while the MSCI All Country World Index ended down 8.97% and the S&P 500 Index ended down 6.00%. We continued to see the theme of U.S. markets outperforming international markets even with the correction we saw in May.
June 15, 2012
Municipal Market Comments
Potential Impacts of Bank Downgrades on Variable-Rate Demand Bonds
May 1, 2012
Fixed Income Fundamentals
Municipal Bond Default Risk
April 16, 2012
Fixed Income Fundamentals
The Risks in Passive Bond Mutual Funds and ETFs
April 2012
Global Tactical Allocation Portfolio - Quarterly Review
The first quarter 2012 was a continuation of the rally we witnessed during the last half of 2011.
March 19, 2012
Fixed Income Fundamentals
Why Invest in Premium Bonds?
March 9, 2012
Municipal Market Comments
S&P Criteria Changes Could Trigger a Wave of Upgrades
March 6, 2012
Municipal Market Comments
State Credit Ratings Trends
February 2012
Global Tactical Allocation Portfolio - 2011 Year in review
It was a difficult year for most active managers, as we saw many external forces weighing heavily on the markets. Beginning with the earthquake in Japan and for the remainder of the year, all of the headlines reflected the challenges in Greece and Europe as well as the debt burdens we face here in the United States.
February 21, 2012
Municipal Market Comments
President Obama's Budget Proposes Capping Deductibility of Tax-Exempt Interest
February 10, 2012
Municipal Market Comments
A Closer Look at the Threat of "Superdowngrades"
February 6, 2012
Municipal Market Comments
Credit Perspectives on the State of Illinois
January 10, 2012
Tortoise Talk - 2011 Year in Review
Headlines in 2011 were dominated by one macroeconomic event after another as Eurozone debt concerns, the U.S. sovereign debt downgrade and slower than anticipated economic growth all contributed to broad-based market uncertainty. While energy was no exception to short-term volatility, the market recognized quality as evidenced by the performance of energy infrastructure pipeline companies. As we enter 2012, we believe the key fundamental drivers for the energy infrastructure sector remain intact, with accelerated growth potential on the horizon as a result of game-changing activity taking place in North American oil and gas shales.
January 10, 2012
Municipal Market Comments
Wichita Loses Boeing; Long-term Credit Implications Uncertain
January 2012
Convergence Core Plus Fund Commentary
With concerns surrounding global macro risk, investors continue to look for viable alternatives to traditional equity investing. The Convergence Fund incorporates strategies and tools used by hedge fund managers and applies them to the core equity space. Our proprietary dynamic model not only evaluates the attractiveness of equity securities, but also measures and reacts to how investor preferences change throughout the market cycle. We believe this process has helped guide the Fund through these difficult and rapidly changing markets where more traditional methods have come up short. In addition, in our opinion, our ability to engage in short sales on underperforming companies has also supported the Fund, and added to its relative return in markets such as 2011 when classic valuation methods were not rewarded.