A couple of years ago I had the privilege of seeing my younger daughter perform in her summer camp’s production of John Waters’ “Hairspray,” an upbeat but honest celebration of Baltimore in the early 1960’s. A remarkably good production it was, given how limited the time and resources were. You’ll rarely see a show with a better message—about winning by being true to oneself and pushing aside those who would rather label people than appreciate them.
In that light, what do we do with the turnaround that’s now two months old? As with the bull market that began in 2009, few seem to believe it, many want to label it a central-bank fiction, yet it fights off things that you would think would derail it. On the surface this morning figured to be rough on the back of an oil selloff, since energy’s recent strength (see Dennis Dowden’s summary in this issue) has led the markets higher. But the selloff was tamed and risk assets continue higher.
All that said, even with a willingness to embrace risk, there’s the stubborn 10-year Treasury yielding less than 1.80%. We’ve got so many people convinced that we need it more like 3% to revitalize convertible issuance that it feels sometimes like another kind of unstoppable beat, a low, slow, brutal pounding that continues to drive people out of the business. A shame, a real shame, because so many companies—from biotechs to resurgent energies to acquisitive investment-grades—could tap the market with deals structured to fit their particular requirements, deals that could be matched with hedges to result in only the desired dilution and no more.
We at Hillside are not immune—we’re doing more here with high-yield, small caps and special situations, recognizing that making a living from the convertible market has been a fool’s errand for a number of years now. But we still hear the longer-term beat of a valid asset class that should be able to find more of a home even in the lower-for-longer world and should shine again as the escape finally takes hold.
We expect to publish an abbreviated issue next week with the Passover holiday. You know you can always count on us to try our best to keep you posted. Beyond that, que sera, sera.
(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).