Monday Musings: November 25, 2019

Nov 25, 2019

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Public Trust Credit Team
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Hong Kong witnessed the largest turnout in the city's history as approximately three million voters showed up to support pro-democracy candidates

In a major rebuke to Beijing, voters pushed forward the pro-democracy movement, securing 17 of 18 district councils. This is a dramatic shift after being unable to secure a single council four years ago at the last local election, making it a landslide win in Hong Kong. With approximately three million voters showing their discontent for the Chinese government, the people of Hong Kong made their voice pronounced as they demand greater democratic rights from Beijing and represent 70% of registered voters. In all, the pro-democracy group secured 389 of 452 elected seats, far more than ever won by pro-democracy candidates and a stark collapse for the government allies group. The resounding win for the pro-democracy movement comes after increasing violence in Hong Kong and nearly six months of unrest in the region. Beijing has been relatively muted regarding the outcome and must now navigate between furthering suppression on pro-democracy protesters or extending a political path for Hong Kong.

Modestly expanded indebtedness but companies maintaining dry powder

Among high-grade non-financial corporate issuers, “heavy borrowing in September pushed gross leverage up to 2.62x in 3Q from 2.59x in 2Q for US non-Financial non-Utility issuers … much of the extra borrowing was left in cash, as net leverage was little changed at 2.12x in 3Q compared to 2.13x in 2Q,” according to BofA Merrill Lynch Global Research. This development is an interesting twist in companies’ use of cash, a topic extensively covered by Credit Team in various editions of the Credit Market Update. Companies have substantially increased their leverage profiles in order to fuel share repurchases and dividend increases (to bolster stock prices) while also considering some mergers and acquisitions. This action transfers risk from equity to debt holders. If cash hoarding continues, there could be a meaningful change in balance sheets and the investment markets as cash will be deployed into short-term securities, debt repayment, or research and development. In any case, if this trend continues, it would represent a meaningful change in behavior and could signal a change in outlook.

Holiday short week plus recipe ideas and suggestions

Due to the Thanksgiving holiday, this will be a short week in the bond market, and it is projected to be a fairly benign week. In light of this, and in case any of our readers may be searching for a last minute, crowd-pleasing recipe, the Credit Team has provided a list of their Thanksgiving favorites. For 2019, their favorites dishes, family traditions, and suggested recipes are:

Homemade tamales. The evening before Thanksgiving brings a large family gathering of my mom and aunts who make dozens and dozens of pork red chili, green chili, and cheese tamales!

Marcelo Alaniz

Twice baked potatoes - because they are like the "turducken" of the potato world. Helpful hint: have a seasoned chef/family member make it for the correct effect.

Patrick Edler

Pumpkin pie - I always save room for dessert!

Raphaele Hunter

I don't like Thanksgiving food.

Sean Fitzgerald

Smoked turkey using a kamado style grill. Helpful hint: wrap the bird in foil and towels; let it rest in a cooler for one hour before slicing.

Kevin Berents
All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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