“Politics ain’t beanbag”
— Finley Peter Dunne (1867 – 1936)
I don’t like writing about politics, particularly in these days of unhinged, two-sided advocacy, and I’m not particularly enamored of Senator Al Franken (D, Minn). But duty calls. I found Franken to be a mildly amusing (if secondary) character in the early days of SNL, and would’ve preferred he left it at that. He could’ve carried on as a latter day Joe Piscopo, appearing in a handful of bad films and then taking his place among the back benchers in Branson, MO and Atlantic City, NJ. But Al had other plans. In 2008, he ran for Senator of his adopted home state: The Land of 10,000 Lakes – which once handed the governor chair over to Jessie (the Body) Ventura. He won by 300 votes over Incumbent Norm Coleman (a nice enough fellow, it would seem), but only after a recount and some controversy respecting hundreds of ballots discovered after the fact by a Democratic election official in the trunk of her car. He was re-elected with relative ease in 2014, so, for the better part of a decade, we’ve been forced to endure him as a member in full standing of the World’s Greatest Deliberative Body.
So be it.
That is, until this past week. Finding himself in the midst of a veritable tsunami of pushback against men who may or may not have been over-enthusiastic in their love overtures, he was forced to announce his resignation. While it was an accident of which I’m not proud, I must admit to having actually witnessed his departure speech on live TV, and let me tell you: he was none too happy about the turn of events. And I don’t blame him. But his, er, address was very odd. No mention of either his Party or his Nation, but a hard slap at the Republicans and a great deal of slavish praise for the State of Minnesota. Let’s be generous and give him a pass for that one.
Be that as it may, what has been reported may be just the cold tip of the nose of Frankie’s horn-dog activities, but his verifiable actions do not, I feel, justify his forced removal from high office. And this whole thing is getting frightening. What happens, for instance, when those seeking retroactive l’affaires de couer redress point their arrows not at Congress, but rather at an important institution such as the NFL? Or the NBA? Based upon the Franken Standard, these thug-ridden leagues, whose players’ favorite wooing tactics often involve nothing more than grabbing the objects of their desire and doing what they will to them, would not have enough players left on their rosters to last out the week. Heck, I’m not even sure that the SPCA could survive this type of anal probe into the macking histories of its principals.
King David, were today’s newfound protocols to be enforced upon him, would be strung from the highest cell-phone tower. As would Henry VIII. And as for Genghis Kahn, well, I don’t even want to think about what they’d do to him.
But I will offer a hearty tip of the hat to the Democratic Party for its thus far near-flawless execution of what I must acknowledge to be a clever political stratagem. It may work; it may not, but I really can’t blame them for trying. Franken is expendable because Minnesota is pretty Blue, and happens to have a Democratic Governor (do you think this would’ve happened if a Republican ran the State House in St. Paul and thus could name Al’s successor?), and his forced departure allows the party to own the zero tolerance standard with respect to overenthusiastic interactions between (or, for that matter, within) the genders. It costs them almost nothing to do so, and the positioning may (or may not) have legs. This coming Tuesday marks the special election in Alabama to fill out the term of misanthropic Attorney General Jeff Sessions. The accused child molester is almost certain to win, which is the whole point. I won’t plague you with a reiterated inventory of the problems that this evokes for the Republican Caucus, but they are considerable.
Then there’s the Trumpster, who, in trademark fashion has chosen to aggressively join a battle he could’ve avoided and is unlikely to win. After some initial hemming and hawing, he’s launched a full-throated support of his party’s tainted candidate. I reckon he has his reasons for doing so, and under the circumstances, he may not have had any choice. His only other alternative: a ship that sailed long ago, would’ve been to use his influence to remove Moore shortly after the primary. But now, one way or the other, he’s gonna own the Moore Senate run.
And, of course, they’re coming after him. It does not require an elaborate leap of conceptual analysis to suspect that his enemies are out in force looking for further examples of the type of rhetoric and actions captured in the (Billy) Bush tape. And the play, of course, will be to hold him to the Franken Standard. I’m not sure it’s gonna work, but already new claims of Trumpian sexual abuse are emerging, and there is a growing chorus of progressives who are calling on him to follow Franken’s gallant (though indisputably involuntary) example. Again, I’m skeptical as to the prospects for the success here; indeed, insofar as it may harden his base, it could actually backfire. But it is not helpful to the conservative policy agenda. And who’s to say that the progs won’t take this thing to the house: demonizing every single man, who, over the last couple of generations and in a moment of sub-optimal judgment, has placed his hands or his mouth in intimate proximity to someone who had not granted explicit, premeditated permission for him to do so? If so, Trump (and so many others) is a goner.
But what really hacks me off is that all of this nonsense may be acting as an obstacle to the otherwise serene path investors had blazed for themselves to tape-paint their way to maximum year-end returns. I can’t blame Franken and his handlers entirely for this disruption, but the episode carries the same motifs as other efforts bearing similar objectives. Last week’s misreporting of the Flynn plea cost some investors serious shekels, and some of these unfortunates are my friends and clients. More stories of this nature will be floated out there, like King Farouk wading into the Dead Sea, and the market will react.
I know that I am committing the unpardonable sin of striking a tone of sympathy here for the President and his allies, but c’mon people, can anyone assert with a straight face that sometime more than a year back, Trump actually explicitly enlisted Putin’s help in the Presidential campaign? To me, the idea becomes more absurd with each passing day. Consider, for instance, that even by the time the polls closed on the East Coast, the odds of Trump actually winning were about 20:1 against. His victory was something of a fluke, and, had he failed, does anyone think that the Clinton Administration would’ve let him off the hook for election tampering? Or that any of his high-powered buddies, all of whom stood to take a hit if he lost, would have had his back? Is he thus really stupid enough to have taken the risk of utter ruination, by using Putin to help him win an election he was almost certain to lose? And if he is that stupid, what does it say about the rest of us?
OK; never mind that last question.
But setting aside the gropers, grabbers, gabbers and gasbags for a moment, the main action on the power corridor between Washington and Wall Street is the tax bill. I am on record as warning my minions not to allocate risk based upon their views as to the final outcome, but most of these admonishments appear to have fallen on deaf ears. The sell side is giddily hawking “tax reform baskets” and a large number of similarly oriented ETFs have emerged. I see some of these creeping into client portfolios, and I am thus wishing for the best of fortune for my crew. But I don’t think there’s much edge to be had with these trades. The bill’s final details are being negotiated inside a magnetic field of lobbyists and special interest groups the likes of which the world has seldom seen. Whatever comes out is likely to be dramatically altered from that which has currently been proposed, and may not make its way through both houses of Congress in any event. Like I said, no edge to this trade.
Equity indices modestly broke new highs again this week, and the NDX did manage to briefly breach into the dainty and romantic handle of 69, but one feels the resistance here. By contrast, the global bond market remains en fuego, and nowhere more so than on the Continent. Swiss, German, Italian, French and even Dutch 10-year debt yields are plummeting to year-to-date lows, and one wonders who’s doing all of the bidding. Some of the professionals with whom I roll say it’s the ECB, but they’re buying the same amount they were a few weeks ago, when Bund yields reached a usurious 0.41%, in contrast to now, when these rates have dropped to a more reasonable 31 basis points. So there is incremental demand outside the environs of Brussels, but who is responsible for it and what do they want to accomplish?
Well, I have my theories, but you’ve heard them before. With all of that global cash sloshing around, there simply aren’t enough bonds to go around, so they get bid up. And, for what it’s worth, they’re taking equities along for the ride. None of this would likely be transpiring without the alchemy of QE, but there are other factors at play as well. Consider, if you will, the following tidbit. According to the unimpeachable models of the International Monetary Fund (IMF), 2017 global GDP growth is clocking in at a robust 3.6%. Virtually every country is participating:
Global GDP Growth – 2017
Now, as men and women of the world, let’s acknowledge the reality that most of these bennies are flowing to Institutions, Corporations, High Net Worthers and other fat cats. And are they spending these gains on brand new, all-aluminum Ford F-150s (god I want one of those)?
They are not. Rather, they are investing in tangible financial assets, and in doing so are competing not only amongst themselves, but also with Central Banks, the entire country of China, some Russian oligarchs and a few Arabian Petro-barons (one of which spent half a yard this week on a Da Vinci. It’s a nice painting of Jesus, but $500 $^#$@# Million?)
The World Bank (of which the IMF is a wholly owned subsidiary) estimates Global 2016 GDP at $75.6 Trillion, so a 3.6% increase adds between $2.5T and $3T, an amount equal to over half of the size of the Fed’s Balance Sheet, to the disposable wealth of the global community. Indisputably, much of this bounty is finding its way into the capital markets, which arguably didn’t need the boost.
But with the world’s economies on a remarkable, synchronized rocket ride, with Central Banks still printing billions of new money each month (and those that are not printing going along for the ride), with no commodity inflation to speak of, is it any wonder that asset inflation has taken hold at an alarming threshold?
The Federal Reserve Bank of the United States, the first to print QE money, and the first to terminate the process, is doing its level best to lift short term rates, in the presumed hope that longer term yields will rise in sympathy. While not widely reported, it has actually made a pretty good start at reducing its Balance Sheet. But it seems for now, no matter what the FOMC announces, no matter how many longer dated bonds they try to sell, prices for these instruments drift upward, or, at minimum, remain stable:
Fed Sells Down to 2014 Holding Levels with Little or Negative Impact on Long Term Yields:
So, again, I’m not convinced that this here rally, longstanding though it may be, is anywhere nearing its “sell-by” date. Of course, risk is not properly priced into valuations, and it will be eventually, but until it is, tangible assets will remain in short supply and are likely to continue to be bid to the heavens.
If that’s not good enough for you, you can always dive into (cue the obligatory reference to) Bitcoin. Tonight marks the historic opening of exchange traded futures on the virtual currency, an event, somewhat improbably, transpiring at the Chicago Board Options Exchange (CBOE). As mentioned in last week’s installment, the CBOE and the CME received contemporaneous approvals for Bitcoin listing, and the Merc’s contract is scheduled for unveiling on the 18th. CBOE, in its frenzy to be first, leapfrogged its cross-town rivals and is busting out its product tonight. Its product will settle to a Winklevoss Auction that currently sports average daily volumes of just over a million dollars, and if one was looking for yet another warning sign as to why this whole episode won’t end well – at least for some – that might be it.
And that, ladies and gentlemen, is all I have to convey about Bitcoin.
But for those with more traditional investment tastes (including yours truly), the valuation arrows appear to continue to be pointed heavenward. The signal to noise ratio has dropped some — in part to the political shenanigans described in great detail above. But the light appears to be flashing green.
As the great Finley Peter Dunne once pointed out “politics ain’t beanbag”. And he was right. Just ask Al Franken. And investment ain’t beanbag either. Just ask, well, just ask nearly anyone you known. Dunne’s son Phillip went on to a notable career as a Hollywood screenwriter, penning such enduring scripts as “The Agony and the Ecstasy” – a term that might apply to either discipline.
It would appear, for better or for worse, that we’re stuck with both.
TIMSHEL