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Mutual Daily Mutterings

Quote of the day…


“Let me see if I’ve got this Santa business straight. You say he wears a beard, has no discernible source of income and flies to cities all over the world under cover of darkness? You sure this guy isn’t laundering illegal drug money?”– Tom Armstrong






Chart du jour…Fed rate hike pricing








Overview…”Thanksgiving lull…”

  • US physicals were closed for Thanksgiving, while futures rose, still digesting recent better-than-expected macro prints.  The US economy appears to be forging ahead, with investors seemingly confident the post COVID recovery continues unabated, offsetting jitters over inflation and a faster tapering of Fed stimulus.  European stocks edged higher despite rising COVID infection rates, boosted by utilities and real estate companies, while bond yields fell on safe haven demand and likely continued central bank support.  Global trading volumes were muted.  Crude oil posted a small loss after OPEC said a planned coordinated release of reserves by major consuming nations may swell a crude surplus expected early next year.
  • Talking heads….”the market mood is rather OK-ish after the Fed minutes…at this point, it makes sense to expect an earlier, and maybe a steeper rate normalization from the Fed.”  Goldman Sachs has nailed its monetary policy views to the mast, predicting the Fed will speed up tapering and rate hikes next year (that’s becoming a somewhat crowded and popular trade).  Nevertheless, GS expect tapering to be doubled to $30bn per month by January and rate hikes from June, and then again in September, December and twice in 2023.  The prospect of tapering ending in March, and a hike in May is plausible according to GS.
  • Inflation update… the average Thanksgiving dinner in the US this year will be +14% more expensive than a year ago.  Cranberries are up +11%, bread rolls +15%, pumpkin pie +10%, and the big bird itself, the turkey is +24% more expensive than a year ago.  Supply chain blockages and labour shortages have been pegged as the culprits.
  • COVID update…”Europe is the pandemic’s epicentre again as inflections spike to a record in Germany and governments consider stay-at-home mandates to stem the tide. Austria has gone for a full lockdown and threatened to make vaccinations compulsory, while Italy and Germany are toughening measures on the unvaccinated”.  France is also masking face masks compulsory again in many places.


The Long Story….

  • Offshore Stocks – nothing to talk about in a US sense, other than futures being a touch higher.  European markets gained ground after a week or two of general softness.  Utilities (+1.7%), REITS (+1.3%) and Tech (+0.9%) drove gains on the day.  Some firms are benefiting from the pandemic and post-lockdown recovery….Reuters reported that “Remy Cointreau jumped 13.4% to a record high after it raised its full year profit outlook as strong demand for its premium cognac drove a stronger than expected operating profit in the first half.”  Shares in rivals rose: Pernod Ricard rose 2.5%, while Diageo rose 1.0%”. In US markets, despite elevated valuations and the sense that growth is peaking – globally – investors have poured almost US$900bn into equity ETFs and long-only funds in 2021, beating the combined total of the past 19 years, according to EPFR Global data.  The love affair with stocks and resulting rally has US stocks at record valuations, which is causing some street analysts to a more bearish footing.  I’ve been there for a while personally, just waiting for the weight of markets to catch up.   A possible sign of skittishness: investors have pulled money from stock funds only twice this year — the second time was in the past week.
  • Local Stocks – meh, another dull day with the ASX 200 struggling to break free from recent trading ranges.  Struggling to find any enthusiasm to write anything here today.  But, I’m a professional…so, the ASX 200 clawed +0.1% higher yesterday with just over half of stocks gaining ground with Tech (+2.4%) leading, followed by Materials (+0.9%) – the dominant influence on the index for the day.  The main detracting sector was Financials (-0.9%) with banks again under selling pressure.  AMP (-5.0%) took it in the neck also, as did BEN (-3.4%), and I can’t really see why…well, AMP has issues, but nothing specific on the day.  Futures are pointing to a very modest loss at the open.



  • Offshore Credit – European markets looking vulnerable as COVID infection rates begin to re-accelerate.  The narrative is turning to one of worry…”a new wave of junk downgrades looms over Europe as the region shudders under one of the worst outbreaks of the pandemic.”….and…”with European lockdowns back on, fallen angels are a worry.”  For those readers not fully up to speed with the street lingo, a “fallen angel” is not an angel cast out of heaven, but rather companies that were once investment grade, downgraded into sub-investment grade territory.  For the record there has only been one ‘fallen angel’ downgrade in the past six-months, so it’s not an epidemic yet.  Either way, concern is building…”the downgrades are another sign of cracks emerging in the European credit market that’s been buttressed by central bank bond buying for years and even more so during the pandemic. But now that support is set to diminish as soon as March — and the prospect is pushing up borrowing costs and volatility.”
  • Local Credit – traders…”mixed session today, with focus largely around supply. Lower beta cash closing unchanged, with higher beta marginally wider. New A$500mm Ampol (Baa1) 60-NC-5.33yr T2 printed at +325 bps….in secondary, front-end spreads continue to trend sideways, whilst longer end paper continues to leak wider.”  Major bank senior looks unchanged across the curve, and same in tier 2 space.  As you were, nothing to see here, move on.
  • Bonds & Rates – a modest sell off in local yields, again slave to global influences more than anything else.  US markets closed, so no leads there. European yields rallied a touch.  I’ve got nothing today – I doubt retail sales will move the market, if anything a modest drop in yields.



  • Macro – the day ahead – Locally, Australia prints October retail sales (+2.2% consensus vs +1.3% in September).  US markets will likely still be very quiet after Thanksgiving.
  • Steak Knives…from Bloomberg…”bankers are repackaging everything from fast food franchises to fitness-centre fees into bonds at the fastest clip since the global financial crisis as investors chase yield and inflation protection”…. “there is robust underlying recovery values for everything from cars to homes. The underlying collateral of a lot of ABS does well with inflation….in a low-yield, high-inflation environment, securitized debt is attractive versus short-term corporate debt on both a spread and yield basis.”   In an earlier life I managed a high yield credit fund at INGIM, this was around 2008 – 2009, so GFC days.  There was a particular sales person within one of the US banks that I avoided like the plague, he was like a used car salesman on steroids.  I had his number memorised so I knew not to answer.  Any-hoo, he snuck through via someone else and I had to speak to him.  He wanted to know what he could sell me for the fund.  In the clearest possible terms, I said “vanilla high yield corporate paper”.  So, he rang me the next day to spruik a securitisation structure where the underlying collateral was the TV rights to the series, “Law & Order”…a good listener obviously.



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Scott Rundell, Chief Investment Officer

T: +61 3 8681 1907



Mutual Limited Daily Update

Mutual Funds

MCTDF – Mutual Cash Fund
Gross running yield: 0.29%
MIF – Mutual Income Fund
Gross running yield: 1.38%
Yield to maturity: 0.89%
MCF – Mutual Credit Fund
Gross running yield: 2.69%
Yield to maturity: 1.82%
MHYF – Mutual High Yield Fund
Gross running yield: 4.91%
Yield to maturity: 3.98%