(New York)

There are currently a lot of fears about corporate credit’s ability to sink the economy and markets. There has been an absolute massive surge in issuance since the Financial Crisis, and a great deal of that issuance happened in credits just on the bottom fringe of investment grade. And while a good amount of that debt may founder and sink into junk, it won’t be enough to hurt the economy much. The reason? It is because US households have not increased their leverage significantly in recent years, which is likely to prove a saving grace for the economy. Growth in household debt has been lower than inflation, a sign of relative health.

FINSUM: While corporate credit can get markets in trouble, so long as the American consumer is not deleveraging, things will probably not get too bad in the wider economy.

(Washington)

Investors may not be thinking about it much, but that does not mean the US deficit is not continuing at massive levels. This year will see another $1 tn shortfall in the US budget, a fact that the US Treasury will have to make up for by issuing lots of debt. This will be the second straight year of $1 tn Treasury issuance. So far the market has been happy to absorb the extra debt, and as such, the Treasury is planning to maintain a similar schedule of issuance this year.

FINSUM: The market seems to be a long way from having its fill of Treasuries, but at some point yields will move higher simply as a force of extra supply.

(Seattle)

That is an eye-opening thought, is it not? Some investors and analysts are arguing that in light of FedEx’s stock being so beat up, Amazon should swoop in and buy the company. Amazon has been building its logistics operations for years, but buying FedEx could give it a big boost if it wants to become a shipping giant. One analyst summarizes it this way, “FedEx is inexpensive at 10.6x and 6.5x forward price-to-earnings and enterprise value to earnings before interest, taxes, depreciation and amortization multiples, respectively … Amazon could make an accretive acquisition of the best global network for a fraction of the cost of building it themselves”.

FINSUM: As mind-boggling as Amazon owning FedEx sounds, this idea appears quite logical and plausible.

(Washington)

Those nearing retirement are likely comforted that rates have risen and returns from fixed income are much higher than the near zero coupons of the 2008-2015 era. Pension funds are finding it easier to meet their return goals, and generally speaking, the environment for retirees is on much better footing. However, the risk of a return to zero interest rates in the next recession seems very high, according to independent research. The Fed tends to raise rates slowly and cut them quickly, so the threat of a return to zero rates seems very plausibe the next time the economy goes into reverse (maybe 2020?). Even the Fed staff itself acknowledges this likelihood.

FINSUM: The risk of a protracted return to zero interest rates is not inconsiderable and is likely one of those late night stress points for those nearing retirement (and their advisors!).

(New York)

Climate change risk has slowly but surely crept into the consciousness of even the most mainstream investors. As its prominence has risen, so too has its ability to impact share prices. With that in mind, here are some of the individual shares most vulnerable to such risk. The names are not what you would expect. For instance, Norwegian Cruise Lines and Royal Caribbean Cruises, along with pharma companies Merck and Bristol-Myers-Squibb were identified as the most at risk. “There are many ways to measure how climate change affects your portfolio. One is to see how the physical facilities of the S&P 500’s constituent companies are affected by hurricanes, sea-level rise, and heat stress”, says Barron’s. One head of ESG commented on the list that “you’re exposed” no matter where a company has its headquarters”.

FINSUM: Norwegian is most exposed because it has so many facilities in Miami, where the risk of rising sea levels is very high. Sorting out these risks is a major challenge and it would behoove advisors to seek out the main data providers for such risk, like Four Twenty Seven.