Market Commentary: A Wretched Disease Strikes “The Terrific”

Published March 12, 2019

If ever there was a textbook pitcher, an icon for baseball, a hero to millions of young fans in the 70s and 80s, and all around class act, it is George Thomas Seaver of Fresno, California. “Tom Terrific” as he was known, is a three-time Cy Young Award winner and 12-time All-Star who led the New York Mets to their first World Series championship in 1969. Seaver, also known as “The Franchise”, spent 19 years with the Mets, Reds, White Sox and Red Sox, recording 311 wins and 3,640 strikeouts. He retired from the game in 1987 and his uniform number (41) was retired by the Mets in 1988. Last week, Seaver announced that he is suffering from dementia and will retire from public life. He plans to continue to work in his vineyard in Calistoga, California where he is said to produce a terrific cabernet.

In the medical textbooks, dementia is the general term for a group of symptoms associated with a decline in memory and other thinking skills severe enough to interfere with the activities of daily life. Alzheimer’s disease is the most common type, accounting for approximately 70 percent of these cases. According to the Alzheimer’s Association, every 65 seconds someone in the U.S. develops this incurable, progressive, neurodegenerative brain disease. It is the sixth leading cause of death here and the most feared. In a recent Merrill Lynch study of 3,000 Americans, 34% confided that their biggest fear was not dying alone, broke, young or in pain but dying with dementia. One in 10 people age 65 and older has Alzheimer’s as do more than half of people older than 85.

There are generally seven stages of Alzheimer’s symptoms and the disease does not discriminate. President Ronald Reagan told the world about his diagnosis in 1994 and he died 10 years later of pneumonia complicated by Alzheimer’s. It is a wretched disease and takes a devastating toll on family members and friends as well as communities and taxpayers. More than 16 million of us are providing unpaid care for someone with dementia, and last year alone the cost of care exceeded the entire economy of Finland at about $277 billion, more than two-thirds of which was covered by Medicare and Medicaid. The total lifetime cost of care for someone with dementia was estimated in 2017 to be $341,840. HJ Sims is proud to dedicate its expertise in working with non-profits and corporate sponsors to finance memory care facilities that enhance the lives of those affected.

There are some reductions in funding for Medicare and Medicaid relative to current law contained in the Trump Administration’s newly released 2020 budget proposal, which also includes major cuts in federal spending for transportation, housing, agriculture, education, energy and labor while increasing funding for defense, homeland security and veterans programs. The financial trade press continues to dissect the President’s requests while reviewing events in Europe and China as well as recent U.S. economic data. The European Central bank cut its economic growth outlook to 1.1% from 1.7% and re-launched a quantitative easing program after three months. The British Parliament has another landmark vote on Brexit. The U.S. trade deficit in goods hit the highest level on record at $891.3 billion as trade talks with China continue. The U.S. February employment report surprised many economists with payroll growth of only 20,000 but wages rose 3.4% year over year and the unemployment rate fell to 3.8%. New home sales grew 3.7% from November to December, and January housing starts were up. This week, we await inflation, durable goods and industrial production data.

It has been a good start to the month for bonds. As of the close on Friday, Treasury yields have dropped across the board: the 2-year has fallen 5 basis points to 2.46%, the 10-year decreased 9 basis points to 2.62% and the 30-year was down 7 basis points to 3.01%. The AAA general obligation municipal bond ended flat at 1.58% while the 10-year fell 4 basis points to 2.06% and the 30-year benchmark was down 9 basis points to 2.89%. Along with yields, volatility has declined. So has the size of the municipal bond market. The Federal Reserve Board flow of funds data for the fourth quarter of 2018 shows that holdings have declined from $3.879 trillion at the end of 2017 to $3.821 trillion. Household, bank, and broker dealer holdings slightly declined, while insurers, money market funds, mutual funds, and exchange traded funds all increased their holdings.

Last week, there were $4.4 billion of municipal issues in the primary market. Trading averaged $12.6 billion per day, and Puerto Rico Sales Tax and general obligation bonds were among the most actively traded. Municipal bond mutual funds continued to attract cash inflows for the ninth consecutive week; $1.5 billion of net investments were made, including $412 million in high yield funds, while $4 billion was withdrawn from U.S. and global equity funds. This week, the municipal slate totals $5.5 billion and is led by a $654 million taxable and tax-exempt financing for the Regent of the University of California. The 30-day visible supply totals $6.96 billion.

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