Sigh. I have written and published more than 600 of these erudite pieces – across a baker’s dozen years – and seldom if ever has the task been more challenging.
And I blame you. For not giving me anything about which to write. Nobody to whom I am particularly attached died this week. I have ZERO interest in this Weinstein thing, and important topics such as the decertification of that swell Iranian nuclear deal that Obama cut, and Trump’s unilateral removal of health insurance premium subsidies, are doing little but causing my eyes to glaze over. The markets don’t care about these things, so why should I?
I therefore thought I’d use our time together this week to take a random walk across some recent random events, which, taken together, perhaps tell us more about our present state than we might otherwise care to know.
This Friday marked the last voyage of sorts of a routine Finnair flight from Copenhagen to Helsinki. The same route remains in place, but under a different numerical scheme. As such, it was the last flight 666 to HEL. And it took place on Friday the 13th. The journey transpired without incident, but I think we all owe a shout out to the brave souls – passengers and crew – who had the intestinal fortitude to take a ride that particular triply jinxed aeronautical bird.
On a more encouraging note, the Nobel Committee awarded the 2017 Prize in Economics to the University of Chicago’s Richard Thaler. Not to blow my own horn (always a difficult task, but now a nigh impossible one), but Dr. Thaler is the 7th, former professor of mine to cop the prize, joining the likes of Merton Miller, George Stigler, Robert Mundell, Gary Becker, Eugene Fama and William Vickrey in this pantheon. Congratulations are due and owing both — to Professor T and to the Nobel folks, who almost (BUT NOT QUITE), have atoned for the mortal sin of having given the award to the odious Paul Krugman in 2008.
Continuing on in Ivory Tower configuration, I read with interest that Hillary Clinton is in discussions with Columbia University regarding a teaching post. I offer my premature “welcome aboard” to Secretary C – with one caveat: I haven’t taught a course in Lion-land for nearly two years. I may do so again in the future, but put it this way – It’s not gonna be because I reached out to them.
This Thursday, we will celebrate(?)the 30th anniversary of the 1987 Crash, and though I can’t say for sure, my sense is that the market has recovered nicely in the intervening three decades. In noting the milestone, this week’s Barron’s got pretty weepy-eyed with nostalgia, going so far as to reprint the late, great Alan Abelson’s “Heard on the Street” column, first published on the weekend after the event. As evidence of how much times have changed, the column features quotes from one John Tudor Jones, my former boss, who (or so the story goes) was correctly positioned going into the drubbing, and who went on to tear a new one into the markets for the next generation and beyond. This all would’ve been a nice touch by Barron’s, had it only gotten Mr. Jones’ first name right.
I finish my random walk with an important financial development, and one that no one, no matter how remote their proximity to the markets, could’ve failed to notice. Here, of course, I refer to the absolute melt-up in the CME’s Random Length Lumber contract:
What gives? My scan of the news flow suggests that the full-on bid is in part catalyzed by some tariff beef with the Canadians, but I have a different theory. The tradeable contract calls for the delivery of 110,000 feet (+ or -) of 2x4s. And, given the news flow as I observe it, one can certainly envision a surge in demand for this commodity, to be inserted into the nether regions of bad actors too numerous to inventory in this publication.
Beyond Lumber, of course, other markets are ascendant as well, most notably those winged butterflies in our equity complex. Another week, another set of records, and all transpiring through the gentlest climb that humankind can experience in a world where (to the best of my knowledge), the acceleration due to gravity remains at a rate of 9.8 meters per second squared. Realized volatility is headed in the opposite direction, and the SPX now features a rolling, annualized standard deviation of returns of approximately 3.5%.
Will anything change this trajectory? With 10 weeks left in this wacky year, I kind of doubt it. The Gallant 500 did manage to breach into a forward-looking 18 handle – for the first time in quite a spell:
But there’s no reason I can identify why we can’t go the whole route and break the dot.com zenith of 24. All we have to do is repeat our playbook from ’99. Anyone for www.mydiscountbroker.com?
There are a few other interesting price developments, including a flattening of the yield curve to levels not witnessed, well (it must be said), not witnessed since the last recession:
So, are we headed toward recession? I don’t see it on the horizon. And I definitely don’t see any rationalization of index volatility, valuations or yield curve characteristics – at least until the calendar turns.
I’m a little more optimistic about a return to the norms for the Lumber markets. After all, even though we could all benefit from the 2×4 treatment, this form of discipline and amusement, like everything else in this godforsaken world, is subject to the laws of diminishing returns.
TIMSHEL