Strategies for a Changing Market Texas Public Funds Investment Conference Texas Association of Counties Houston, TX November 7, 2019 Ellis Phifer, CFA, CMT Managing Director (901) 579-4831 ellis.phifer@raymondjames.com Intended for Institutional Clients Only See Slide 29 for Important Disclaimers & Disclosures FIXED INCOME RESEARCH
2 IT’S NOISY OUT THERE
IF THAT WASN’T ENOUGH 3
4 SO…
QUESTIONS TO START When will the U.S. economy experience its next recession? o 2019? o 2020? o 2021? o 2022? o Beyond 2022? 5
QUESTIONS TO START Where are interest rates generally heading? o Higher? o Lower? 6
QUESTIONS TO START Where do you invest along the yield curve? o 0 to 3 years? o 0 to 5 years? o 0 to 10 years? 7
8 YIELD CURVE EXPECTATIONS
9 Reserve Balances Banking System WHAT’S WITH THE REPO HEADLINES? Federal Reserve Balance Sheet
10 INTEREST RATE CYCLES: DÉJÀ VU?
11 ECONOMIC EXPECTATIONS
12 ECONOMY: PMI
13 ECONOMY: EMPLOYMENT
14 Unemployment vs. Wage Growth ECONOMY: WAGES
ECONOMY: WORKERS BELIEVE THEIR WAGES WILL NOT DROP Fewer and fewer workers think their wages will fall 15
ECONOMY: CONSUMER BALANCE SHEET Household Debt (as % of Disposable Income) Household Debt Payments (as % of Disposable Income) 16
17 ECONOMY: LABOR QUALITY SHORTAGE
ECONOMY: EASY CREDIT PLUS LOAN GROWTH Commercial Bank Lending & Lending Standards 3-Month Growth Rate 18
19 ECONOMY: LEI SLOWING BUT STILL POSITIVE Leading Economic Indicators (LEI)
IT STARTS AT THE TOP Stay Manage Diversify Edify Invested Liquidity 20
IT STARTS AT THE TOP •Different: o Maturities o Call Structures Mix of Callables and Non- Callables Diversify o Sectors [Agencies, MBS, DUS, Corporates, Discount Notes, CDs, Commercial Paper] o Coupons 21
IT STARTS AT THE TOP Stay •Not staying invested means you Invested are timing the market. •There is a cost of waiting. •Cashflow and liquidity are the main goals. Manage Liquidity 22
IT STARTS AT THE TOP •Learning about new, approved Edify security types. 23
STRATEGY IMPLICATIONS • Capture yields with longer lockouts and mortgage securities (Pass-thrus, Agency CMBS [DUS], Callables). • Increased uncertainty and no inflation should keep rates low. • Curve should remain fairly flat but with a positive slope. • Best values will fluctuate over time so stay tuned. 24
RELATIVE VALUE OPPORTUNITIES: ALONG THE CURVE 25
26 RELATIVE VALUE OPPORTUNITIES: MORE FOCUSED 10/9/19
27 RELATIVE VALUE OPPORTUNITIES: MORE FOCUSED 10/24/19
SUMMARY • Federal Reserve must address confidence (by easing) and liquidity concerns (more repos). • Economy is still growing, albeit at a slower pace than last year. • Global economy is more of a concern. • Plenty of news events still in front of us (trade talks, government funding, Brexit, etc.). • Recession chances have increased. 28
DISCLAIMERS AND DISCLOSURES The information contained herein is based on sources considered to be reliable but is not represented to be complete and its accuracy is not guaranteed. The opinions expressed herein reflect the judgment of the author at this date and are subject to change without notice and are not a complete analysis of every material fact respecting any company, industry or security. Raymond James & Associates, Inc. and affiliates and their officers, directors, shareholders and employees and members of their families may make investments in a company or securities mentioned herein before, after or concurrently with the publication of this report. Raymond James & Associates, Inc. may from time to time perform or seek to perform investment banking or other services for, or solicit investment banking or other services from any company, person or entities mentioned herein. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any security. Raymond James & Associates, Inc. makes no representation as to the legal, tax, credit, or accounting treatment of any transactions mentioned herein, or any other effects such transactions may have on you and your affiliates or any other parties to such transactions and their respective affiliates. You should consult with your own advisors as to such matters. 29
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