"It was the best of times, its was the worst of times." Charles Dickens

All across major cities in the United States, protesters of criminal justice reform made their voices heard regarding poor police treatment of minorities. Using the protests for cover, looters used the opportunity to vandalize businesses at a level not seen previously. When large swathes of Madison Avenue, Midtown Manhattan, Soho, Brooklyn, Wilshire and Beverly Boulevard in Beverly Hills, Santa Monica Boulevard in Santa Monica, and the Miracle Mile in Chicago, are ransacked with very little opposition from the supervising authorities, it is certainly a unique situation. Other cities where the looting was notable included Seattle, San Francisco, Minneapolis, Philadelphia, Buffalo, and here in Las Vegas. As a shareholder in many companies, quite a few of them saw property damage along with the stealing of inventory. Those assets cost money and have to be replaced, and the damages need to be repaired. If you own stock in a large publicly held company, it probably has financial losses in quite a few locations, and the cost will come out of your pocket, in some form. Keep that in mind as we will return to it in a moment.

In the capital markets, corporations have been borrowing record amounts of money by issuing debt. As an example, Amazon borrowed ten billion dollars by issuing 2 tranches below 1% which mature in 2023 and 2025. Two more were placed below 2% and mature in 2027 and 2030. The final two have interest rates below 3% and mature in 2050 and 2060. Pretty good terms, eh? Other corporations that recently tapped the bond market include Nike ($6 billion), Nvidia ($5 billion), Home Depot ($5 billion), CVS ($ 4 billion), Proctor & Gamble ($5 billion), and Lowes ($4 billion). You often read about how debt is considered a major problem in the world, especially with the enormous amount of sloshing around the world. What often gets lost is the capability of the issuer to pay back the debt, when the borrowing is due, and the crucial point, the rate the issuer is borrowing at and how that is calculated. In the case of Amazon, when you can borrow for thirty years at below 3%, essentially you are borrowing money for free. Of course, when you have plenty of income coming in, paying back what is borrowed is not a problem. The point for investors is to evaluate the potential that the issuer will use the money from the debt in a way which will yield much higher returns than the rate they borrowed at. If a company issues debt at 5%, and the capital is used to fund a project that yields 10% or more, the debt is used quite productively, especially if it takes a short period of time to generate the return. Just something to be aware of, so don’t let it blow your mind.

Elsewhere in the market, the May jobs report stunned investors as 2.5 million jobs were added when it was thought nearly 8 million would be lost. The ECB announced it will add another $675 billion to their bond buying program. Beaten down sectors of travel and leisure, lodging, energy, financials, and the casino sector picked up on news that air travel is starting to see some uptick. With April loads at rock bottom (down 99.5%), news that loads now reach 30% show a nice resurgence. If the trend continues, and the jobs report might be evidence that there is more economic strength than previously thought, it may be the case that consumer spending might not quite as bad as what investors feared. As the summer wears on, whether the consumer opens their wallet is going to be a focus for all types of investors. On the economic front, I thought I would mention a nice article in the Wall Street Journal which does a good job of highlighting some examples of how people are using their retirement accounts to fund their businesses or lives while working through the various challenges that the virus, or the way government leaders have handled it, have brought. I know many readers are quite interested in the retirement account area. Now let’s turn back to the protesting situation, if you don’t mind.

One of the facts which should be considered is that many of the states or cities that have long histories of questionable police conduct have long been Democratic strongholds. Illinois, California, San Francisco, Seattle, Portland, and New York all qualify. One not mentioned is Minneapolis, which has been run by Democratic mayors for over 40 years. When the existing mayor decided to let protesters have their way with free access to a police station, it sent a message to those looking to take advantage of the situation that this was a nice opportunity. In New York, the ineptitude of Governor Quo mo and hapless New York Mayor Bill De Blasio wreaked havoc on businesses in the center of the most valuable real estate in the world. It took place after at least five days of protests. If they wouldn’t call for more police, using only four thousand of a 40k force, or ask for help from the national guard after nearly a week of escalating protests, it tells you they pretty much gave looters a free pass. The same holds true in Philadelphia, and Washington D.C., too. As someone who worked in an inner city, I can sympathize with those who feel the George Floyd case mandates a serious look at criminal justice reform. However, if what the public sees is violence, looting, and the destruction of private property, the logic and reason of the argument gets lost by the terrible message sent from the crimes. On that note, stay safe and I hope you are enjoying your summer.

Thank you for reading the blog this week, and if you have any questions about investing, please email me at information@y-hc.com.
Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation.  The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.