Good morning folks.  April was as historic as March with the S&P 500 (SPX) up 12% following the epic crash in March.  The action came despite horrific economic and EPS news showing how powerful a relief rally following a crash can be – especially when the Fed gets behind risk assets.  As an example of the impact from the Fed intervention, Boeing (BA) capped a record corporate credit new issuance yesterday with an incredible $25 billion bond offering because it does not want to seek foreign aid.  Think about that statement.  Boeing put a historic amount of debt on their balance sheet so they wouldn’t fail and wouldn’t have to take government help.  That highlights exactly what we have been talking about in credit.  The Fed gave the company the ability to access the corporate bond market, which took the worst-case scenario off the table, but it is not money that was raised for growth.  It simply allows them to stay in business without government help.

In my view, this remains a time to not guess.  The Fed has backstopped the worst-case scenario, but it is likely to be a very long road to recovery, which means we don’t need to chase historic rallies.  Our plan remains the same – get more offensive as the market pulls back as long as credit maintains its improvement.  We don’t look for any pullback “level” but instead focus on the character of credit as weakness unfolds.

Have a great day.  Tony & team


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