HYBRID VIGOR: VOL 2 ISSUE 43 "Even a Stopped Clock..."

Last week Bloomberg’s Lisa Abramowicz, a terrific young reporter and columnist (and, yes, a friend of Hillside Advisors), noted that the junk-bond banking boom is ending, more with a whimper than a bang. She noted that one firm that will go nameless here, having “significantly expanded its corporate-credit bond team just two years ago, eliminated most of its high-yield sales and trading positions Thursday.”

Doesn’t it sometimes feel like the top executives of the big banks manage their firms like they’re playing on DraftKings or FanDuel or some other weekly fantasy sports site? For as little as a dollar you can win over $2 billion! Really, sometimes you’d think these guys are trying to mess up.

“The era of easy money for less-creditworthy companies is over now, even before the Federal Reserve fully withdraws the punch bowl,” Lisa wrote. “Banks will need to look elsewhere for the next reliable blockbuster.” I suggested to Lisa that, while I’m admittedly biased, it might be time to give convertibles another look. Stocks are again near all-time highs, the market is plenty hungry, and high-yield’s loss could be convertibles’ gain. Not to mention that it would be a helluva lot healthier for the aggregate corporate balance sheet.

Oh, we’ve had so many teasers in recent years, it’s hard to get too worked up no matter how much it looks like we might be heading back to something vaguely resembling the market in which we learned the ropes. Then again, we know of certain high-profile media figures—again, no names—who’ve been saying for years that financial assets will collapse, that only people with gold bars buried in their backyards will survive, that the coming depression will make the 1930’s look like a mild recession. And every time the markets stumble, they come on proudly and say “you ain’t seen nothing yet.”

Funny how managing money that way doesn’t seem to work too well.

Anyway, the point is, if those guys get to have their one note, then we get to have ours. And we’ll say it again—the death of convertibles has been greatly exaggerated. It’s a shame that so many of the loudest calls of doom are coming from inside the house.

(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).