Snoopy he lives in a doghouse outside of town,
And Metropolitan Life took his picture down,
Investors didn’t care – at least for a while,
But now the stock has tanked, you can see Snoopy smile
— with apologies to Rick Derringer and the McCoy’s
As foretold in these pages (and elsewhere), it was indeed a big week for investment data and flows. We’ve a lot of ground to cover, so we might as well get to it.
Let’s start with the big news, which I am perhaps the only prognosticator to identify: Snoopy’s back, and showing his ire. As reported in these pages a full 5 quarters ago, Metropolitan Life Insurance Company of New York (MetLife), made the retrospectively tragic decision to dump its iconic Snoopy logo – in favor of some sort of new age graphic/emoji thing. I warned the world it was a bad idea at the time, and for any doubters, I offer the following illustration, which should tell you all you need to know about this questionable stunt:
Metropolitan Life Insurance Company Logo: Before and After Version:
I mean, c’mon? Do I need to say anymore? Well, maybe I do. In terms of market valuation, the Company fortunes’ while not rising to the dignity of that of, say, Amazon, continued to rise in acceptable fashion:
But then came the Q4 earnings report, and whammo! It was good night nurse. The headline catalysts involved something about them taking a charge due to having under-allocated reserves associated with (among others) annuity obligations. But I have a difficult time understanding how a company, whose main job is to get these metrics right, and who, oh by the way, will be celebrating 150 years of continuous operation at the end of March, could’ve screwed the pooch so thoroughly this past 3 months.
My best guess, as indicated above, is that Snoopy finally decided to make his displeasure known. And felt. After all, he better than anyone, knows the ancient proverb (typically attributable to the sponsors of the French Revolution) that revenge is a dish best served cold. Sleeping on top of his doghouse as he does, Ol’ Snoop has probably felt the bitter, chilly winds of early 2018 as much as anyone, and may have figured that the time had come to make his move.
Moreover, if I’m correct on that score, then Charlie Brown’s BFF must’ve decided to throw some shade on the entire global capital market, which (in case you missed it) suffered its worst week in several years, with our major equity indices dropping, in round numbers, 4%. Most of the carnage, of course, transpired during Friday’s ghastly session, and after a jobs report that not only showed impressive gig creation, but also evidenced, for the first time in several years, some bona fide upward pressure on wages. The confluence of these factors catalyzed another pattern absent from the proceedings in more than a decade: a contemporaneous selloff of both stocks and bonds:
So perhaps investors can be forgiven for being a little bit spooked here – particularly with the infantile behavior of our betters in Washington appearing to be reaching new, heretofore un-breached crescendos. I’ll spare you any (or much) commentary on this memo psychodrama. But let’s just agree for now that the sequence: a) is at best an unhelpful distraction to our return generation efforts; and b) is not likely to have run its course just yet.
Moreover, I do have some concern that with everything else we see transpiring, investors may be ignoring the looming (this coming Thursday) next round of government shut-down pantomime. In fact, I myself am a little bit worried here.
If I read the fallout from last week’s nose to nose budgetary battle, Team Schumer emerged with some egg on its collective faces, and have vowed to stand firmer this time ‘round. I don’t see a framework for the two sides coming together a second time in little more than two weeks. Best case, they may push through another temporary resolution, but this whole thing is getting beyond distressing. Both sides are dug in on this Immigration throw down, and you can be sure that this demagogue dance won’t end this week. Plus, the memo thing has done nothing to lower blood pressures on both sides of the aisles. Finally, if, as is likely, there’s another very short-term extension, all it does is set up for a more serious round of Thunder Dome next month, when our Treasury projects that it will actually run out of money.
In light of the foregoing, it’s perhaps small wonder that, higher interest rates notwithstanding, the USD cannot catch a bid for love nor money, and that even our much-beloved High Yielders are taking in water:
USD Dollar Index and High Yield Bond ETF: America to the World: Don’t Touch our Junk!
But I’m here to tell you that all is not lost. In fact, I rather believe that the big Groundhog Day stock puke is on balance a positive development. If nothing else it shows that such a thing (>2% selloff in the SPX) is, at any rate, possible. Moreover, while all of this hand-wringing was transpiring, the Q4 earnings juggernaut continued apace. There are a lot of ways to illustrate this. For instance, as of now (about half way through the sequence) the SPX is projecting out an impressive >13% year-over-year gain. In addition, and with respect to the critical metric of forward guidance (for Q1 2018 and beyond) we are in the midst of the largest intra-quarter upward revisions to bottoms up earnings in more than 15 years:
So it strikes me as funny, in a perverse, 2018 sense of the term, that those who have been whining about a lack of downside volatility are now complaining when a little bit of it manifests itself. I’d be happy to blame Facebook, Twitter, CNN, MSNBC, CNBC, NBC, CBS and ABC for this inconsistency of logic. In fact, I’d be happy to blame just about anyone other than myself.
We are facing some rocky conditions, though, and if I was going to worry about anything, it’s the afore-mentioned unresolved budget dynamic – transpiring, as it is, against the backdrop of a political dynamic characterized by an anger that is augmented by nothing except perhaps more anger.
For these reasons, next week may continue to be a rocky one, but from where I sit, and though there may be more downside pressure in the coming days, I believe that incremental buyers of stocks at these levels or lower will soon have cause to believe they made a wise choice to dive in at these valuation thresholds.
Yes, Snoopy is still out there and may not be done demonstrating his wrath, but I suspect that even this hot flash will run its course. I believe our favorite beagle will indeed regain his equanimity and, when the weather warms up, will take his place at shortstop, extending his stature as the only competent player on a Peanuts squad that features only 16 opposable thumbs (not one of them belonging to him). If you doubt this, just ask him. But don’t expect an answer, because he probably won’t even speak to you.
Then again, he never does.
TIMSHEL