“He’s a good man. And thorough”. That’s what Maude said. And she must have believed it because she said it twice.
But as is widely understood, she wasn’t talking about the Dude; in fact, she is speaking to the Dude. We’ll get to that later.
But first back to the Dude. Most of us agree he is indeed a good man, but is he thorough? The jury is out on that one. He tried – and failed — to stop Walter from flashing his piece on the lanes. He tossed the ringer in the wrong location and then lost the actual package. No, they never did “kill that poor woman”, but hey, she kidnapped herself, right? He has devoted his life to Thai Sticks and bowling, but while we bear witness to his consuming several Sticks, we never actually see him roll.
He went to see Marty’s dance cycle, but he left early, and was at least two weeks late with the rent, which, for all we know, he never bothered to pay it at all. And if he didn’t it’s now 20 years (240 months) overdue.
I mention all this because this past week marked the 20-year anniversary of the release of Coen Brother’s cult masterpiece “The Big Lebowski”. And all I can say is that if you’ve seen it, you no doubt get the references I’ve laid down, and if you haven’t, odds are you never will.
But we celebrated more than the TBL’s China (20th) Jubilee last week. Nine years ago this past Friday (March 9th), the Spoo (aka the SPX Index) closed at a crash-induced and previously unimaginable low of 676.53. Some 8 years and 10 ½ months later (January 26, 2018) it reached its most recent zenith of 2872.76 – an impressive gain of 337% and change over the period. We’ve given back a little bit since then, but not much. And now, since that dark day in 2009, the valuation recovery has survived 9 full trips around the sun. Tradition equates a 9th Anniversary with Copper in the U.S. and Pottery in the U.K. But the Chicago Public Library – which somehow has designated itself as a primary source for these protocols – has established that gifts for a 9th Anniversary should be Leather Goods.
Those Keepers of the Dewey Decimal Cards at the Harold Washington Library Center at 400 South State Street may be on to something here, so we’ll designate this date of celebration as The Rally’s Leather Goods Jubilee, because, among other reasons, it just feels right.
Yes, my loves, it’s been a good rally, but is it thorough?
Here, we should all bear in mind that thoroughness is an ideal, akin to, say, the Golden Rule: – something which we all should rightly aspire, but which mere mortals are less than likely to achieve in totality. Still and all, the closer we get to thoroughness (as is the case with treating others in a manner we would wish them to treat us ourselves) the better off we are. So I propose we settle for a standard of near-thoroughness and see where we stand.
At the moment, while, as indicated above, the Spoo has yielded a modest amount from high ground, its current valuation levels come at a point of negligible financing costs, (if the published statistics can be believed) begin inflation, and strong corporate performance.
But here is where The Dude and The Spoo part company, because, as also has been well established, the former has both a biological and behavioral disposition against employment. His longest recorded, compensated tenure with any organization appears to be his stint as a roadie for Metallica (buncha @ssholes). So I’m not sure that he is burning a Celebratory J in the wake of Friday’s surprisingly robust Jobs Report. Therein, our fabulous employment engine ginned up a gratifying >300K new February gigs, and the Report also featured a modest-but-sustained upward push in Hourly earnings, positive revisions for the two prior months, and (problematically for the Dude) an increase of >800,000 able bodied citizens to our Labor Participation Rolls. Perhaps the good news, here, is that of all the forces likely to impel the Duder to dust off the old resume, peer pressure may be bottom on the list.
As others have pointed out, and in perverse contrast to our experience a month ago, investors reacted positively to these tidings. As recently as Groundhog Day, a strong January Employment summary evolved into a catalyst for the first double digit Spoo retrenchment in a number of years. As such, I believe that anyone at their posts at 8:30 a.m. EST on Friday, who might’ve feared that a strong showing by the BLS would be met with an angry market response would’ve been justified in these fears.
But they would’ve been wrong. Investors swooned at the strong jobs showing, taking our titular index up nearly 50 points, and driving it to within striking distance out of that dangerous 27 handle. This topped off a giddy week that added ~3.6% to valuations. It perhaps also bears mention that these uplifting trends took place over a 5-day sequence where the markets were also compelled to absorb a number of theoretical threats, including this tariff nonsense, the contemporaneous resignation of Economic Advisor/Adult in the Room Gary Cohn, and ECB Chair Draghi’s (albeit ambiguously worded) announcement that European Quantitative Easing (EQE) is certain to end in this calendar year.
So why is all of this now good news, when a scant four weeks ago, the markets took such a dim view of similar tidings? Well, at the top of my list is that nothing under the sun seems to carry sufficient fortitude to actually lift yields on the Treasury Curve. A month ago, the strongest signs in many a month that the long-sought-after wage inflation might be emerging acted to move the interest rate (and, for that matter, equity) needle a titch. But 10-year yields have actually backed off since their end-of-January highs, and one now wonders if even merciful Allah himself can normalize the yield curve. It therefore stands to reason that whatever fear exhibited by the capital markets respecting higher inflation and more elevated rates has abated considerably.
But in the broader universe of Fixed Income, there are indeed some concerns that might serve to kill the collective buzz of anyone less chill than the Dude. Investment Grade bonds are feeling some gravitational pull (higher borrowing costs), as are, to a lesser extent, their poor relations in Junk-land:
Investment Grade and High Yield: Name Your Junk
In addition, when all was said and done, Q4 earnings failed to evoke the anticipated reaction of Pavlovian purchases. Earnings growth clocked in at an eye-opening 14.8%, and Revenues expanded by a respectable, arguably impressive 8.2%. Somehow, though, investors appear to have expected more – particularly on the Revenue side, as evidenced by the following metric – purloined from FactSet:
If this confuses you, suffice to say that Spoo companies that reported upside revenue surprises actually experienced counterintuitive price declines of 0.4%, as compared to an average historical gain of 1.3%.
Disappointers got hurt as well, but according to the metric by amounts roughly equal to the historical average recorded with respect to such transgressions.
But if I’m right, not much of this will matter across the three weeks left to the month of March. There are a few odd data streams to which we should adhere as the quarter winds down, including Inflation, Retail Sales, and Industrial Production – all set to drop next week. The following week features a modestly anticipated FOMC statement – where the Committee’s intention to raise rates another quarter point is all but a forgone conclusion.
However, all of this is fairly low drama – particularly in comparison to what begins to transpire once the calendar turns to April. I won’t reiterate what I believe is riding on the performance of the public and private economies with respect to these data streams; suffice to say it’s substantial.
One might even go so far as to suggest that by the end of April, we may know a great deal more about whether Spoo, good though he almost certainly is, can be appropriately characterized as thorough.
However, TBL fans will tell you that the “good and thorough” man to whom Maude alluding was in fact a doctor that Maude referred to the Dude — after her goons clumped him in the head. Though he had to be pushed, the Dude eventually went to see him, and this man of medicine, after checking out the dudely noggin, asked him to drop his pants.
Though it compels me to offer an un-dudely Spoiler Alert, Maude wanted to ensure that the Dude’s
reproductive parts were in sufficiently sound working order to enable him to assist her in her procreation objectives. History shows that everything checked out fine, and, presumably, their shared progeny (no doubt, if God’s Will were done, a masculine one) will be celebrating his 20th birthday later this year.
Here’s hoping a similar fate is in store for the Spoo. To be sure, he’s likely to throw both strikes and gutters as events unfold, but we can certainly wish him Godspeed. And so we will. Spoo: I like your style. May your rally abide for another decade or more, and may we all do the same, perhaps enduring long enough to tell the tale to the Dude’s grandson.
But between then and now there are a lotta ins, a lotta outs, a lotta what have yous… …lotta strands to keep in the old duder’s head. So I reckon we’ll just have to find out for ourselves.
TIMSHEL