HYBRID VIGOR: VOL 2 ISSUE 35 "The Moment of Truth"

Millions, especially in the world’s financial center, have watched for years. They were on the verge of giving up more than once. There have been indicators that it would happen, only to find last-minute disappointment. The last time we got this close, it ended with the key person standing flatfooted and taking no action, seemingly mesmerized by what was being thrown at him.

But this month, it could happen again.

A Fed rate hike? Are you kidding? I’m talking about the Mets and the pennant!

That said, it has to be disconcerting to purists (if they’re not disconcerted beyond hope already) that the Fed might fail to make even a measly quarter-point change because of its worries about volatile markets. Being sensitive to fragile conditions is all well and good, and being creative is great, but letting the tail wag the dog for too long makes for a very unstable dog.

The suspicion in this corner is that a quarter-point hike might cause at most a momentary selloff, followed by a strong bid as participants felt things hadn’t gotten too flaky after all. The fashionable view now seems to be a hike of 10 to 15 basis points. Not crazy in a low-rate environment, but baby steps might be too much of a sign of weakness.

At any rate, we in convertibles need to hope for whatever it takes to get our asset class front and center, or as front and center as it can be, for capital raisers. We know we have the demand. We want rates higher—but, just as important, we don’t want too much rate volatility. That doesn’t help us theoretically or in any other way. So let’s hope for, as I used to say to my daughters when they were learning to walk, a “big kid step.”

And, as I also like to say, Cespedes for the rest of us. Let’s hear it for the best Cuban import since...you fill in the blank. 

(This is the cover letter for the subscription-based weekly Hillside's Hybrid Vigor newsletter. For a complete copy, please contact John Anderson at + 1 (646) 712-9289 x 107).