August 1, 2004 — The 32,000 increase in payrolls in July, following just 78,000 in June (revised from 112,000) was disappointing and the reaction in the bond market was swift. However, given the volatile month-to-month history of the payroll data and the fact that the weakness is not substantiated with other employment data, we would caution against extrapolating too much out of one or two readings. We do not believe the underlying trend in employment growth has suddenly changed, more likely we are seeing an adjustment for a bit of exaggerated strength earlier in the year. The break in momentum as well as the divergence between the Establishment and Household surveys does bring up a couple important questions – namely, what is the trend and which survey is giving us the correct indication of that trend?

June 1, 2004 — For bond market participants, the recent employment numbers have essentially shifted the question of Fed tightening from “when”, to “how aggressively” will the Fed raise rates? Although the March employment report sparked a repricing in the bond market, it was the April and May numbers that offered the needed confirmation that we are seeing a sustained recovery in the job market. This final piece of evidence has effectively put the Fed back into play, with expectations now that the Fed will raise interest rates between 75-100 basis points by year-end, with the first hike coming as early this month. While we have written several times over the last year and half about the impact of rising rates, and strategies for that environment, we thought it was worth revisiting with a specific focus on the corporate sector.

April 1, 2002 — In recent years new wave security analysis techniques, such as pro-forma earnings and price-to-sales ratios, were used to justify frothy security valuations. Terms such as cash flow, leverage and liquidity were passé. Investors shunned fixed income in favor of the next hot IPO. But now times have changed because in today’s world the equity market increasingly takes its cue from the bond market. Indeed, investors are struggling to find their way in a post-Enron world where balance sheets and income statements do not appear to be worth the paper they are written on. Moreover, auditors’ independence and objectivity have been called into question, further weakening investor confidence. A study by the Wall Street Journal indicates that 73% of the total fees paid by companies to their auditing firms in the Dow Jones Industrial Average during 2001 were for non-audit services. What about the rating agencies one may ask? Moody’s and Standard & Poor’s have increasingly come up a day late and a dollar short in protecting investors. In 2001 ten issuers were rated investment grade one year prior to default and Enron retained its investment grade rating up until one month prior to default.

February 1, 2002 — Investors today are faced with an increasing array of difficult challenges and trends. This is particularly true for those that seek investment opportunities in the U.S. domestic bond market. With a market valuation of nearly $15.5 trillion at year-end 2000, representing over 50% the world bond market, one would think that finding a high quality (AAA) corporate bond to invest in would be an easy exercise. “Au contraire mon frer”, even though the corporate bond market represents nearly one third of the U.S. domestic bond market, finding an “old fashioned” Aaa rated U.S. industrial, utility or bank bond is almost the equivalent of sighting a Sasquatch in the woods.

April 1, 1997 — As many economies around the world have become more developed, their respective capital markets have become more sophisticated and efficient. Hence, past concerns of U.S. domestic investors regarding economic stability and creditworthiness have become less pronounced. However, for many U.S. domestic investors, going international has been regarded as a risky strategy, primarily because of the exposure to currency volatility.