Let’s begin with some Newtonian physics, and before y’all run for cover, I’m referring to the basic, arithmetically-driven laws of motion; not the calculus he is also purported to have invented. In terms of the latter, I myself (truth be told) have done more spit-balling than spitting mad game, but on the whole have few regrets. Calculus, like many God-given/human enabled tools, can be as complicated or as simple as one chooses to make it. With apologies to Robert Frost, I have taken the road (i.e. simpler) more travelled, and that indeed has made all the difference.
But more pertinent to our present concerns, it is with a mostly serene mind that I report to you that last week’s across-the-board rally notwithstanding, the SPX 2019 annualized return has dropped over the course of the week from 263% to 144%, the NDX’s from 308% to 177%, and Russell 2000’s from 582% to a beggarly 300%.
Annualized index returns, in other words, are adopting the path described by Newton’s proverbial Apple (as driven in part by the sad recent stock performance of the orb’s consumer electronics namesake). Still and all, with year-end gains projecting out well into the triple digits, where I come from, this is referred to as spitting mad game.
In fact, for my money, last week’s action across many markets was the most gratifying thus far this young year. After a pre-MLK Day interval of rocket rides, I believed that the stage had been set for perhaps a modest correction – one which never transpired. When trading resumed on Tuesday, they tried – and failed – to smack ‘em, and tried again on Wednesday morning. But by that afternoon, the Gallant 500 began a regathering cycle that was sufficiently robust as to enable it to end the week above its 50-Day Moving Average, and place it within a stone’s throw of the 100 Day and 200 Day equivalents. Moreover, all of the action transpired within a top-to-bottom range of barely 2.0%. Part of the gospel which I have so long preached to you is that sustained rallies require intervals of quietude – low volatility – to confirm their validity. So this past week’s dull action, ending as it did with indices at or their (holiday-shortened) weeklong highs, is just what was needed, validation-wise. In the (again) Newtonian world of investment, this is the functional equivalent of spitting mad game.
So my hats off to mad game spitting investors everywhere, who showed their cajones, among other ways, by shrugging off even weak performances at the earnings podium, and buying ‘em anyway:
That’s right, friends, even those CEOs who dropped tepid numbers and/or sheepishly suggested that their business outlooks required a downward expectations boot were rewarded, on balance, with heartwarming rounds of purchases.
However, I hasten to remind my readers that we’re not even a quarter of the way through this rather critical earnings season and that what has yet to be revealed is likely to be more pertinent than what has already been disclosed.
From this perspective, we’ve got an important week indeed coming up kids, with many of the stone cold ballers of the U.S. equity complex reporting, in frenzied sequence, midweek. The action starts in earnest Tuesday afternoon, with Apple’s Tim Cook hopefully atoning for that buzz-killing letter bomb on our collective @sses he dropped on January 2nd. Wednesday, we hear from Microsoft (and, for what it’s worth, Facebook), and Thursday brings tidings from the soon-to-be-single-and-less-wealthy Mr. Bezos. I am fervently hoping that these guys and gals are preparing to lay some irrational projectile saliva on the rest of us, particularly taking the form of uplifting forward guidance. I don’t much care how fat the bottom lines are, but will be paying particular attention to the prognosis for the growth of their business service units, as these will be highly instructive from a broader economic, mad game spitting perspective.
The Mad Games continue in other relevant dominions as well. Without much fanfare, the FOMC meets this week, but I expect Chairman Powell’s rate hiking mouth to be dry. To the extent, however, that he does hock one up, we can hope that it has the same viscosity/consistency as that of Friday’s WSJ reports that the Fed is rethinking its balance sheet reduction commitments, and may not engage in further sell downs at all – at least for the time being. I can’t emphasize enough how helpful this would be, so perhaps the following pictures will reinforce the point:
Ghost of CB Balance Sheet:
Past Future (?):
To synthesize, any way you look at it, over the past decade, whenever Central Banks have been net buyers of paper, it has created a rising tide for our Gallant 500. Conversely, as they have divested (to mix metaphors) it has created headwinds of problematic proportions. And, as to Wednesday’s FOMC presser, I will cop to being a bit nervous. It would appear that anytime the Fed changes its tone in either direction, the market overreacts. To the extent (as I’m fairly sure is the case) that Chair Pow would just as soon NOT be influencing pricing on a day-to-day basis, he may very well at least obtusely seek to refute published reports of a pause. By my count, he’s reversed himself 3 or 4 times since Thanksgiving alone, and the whole thing is getting to be rather wearisome, now, isn’t it?
Wednesday’s action is also graced by an important sit down between U.S. and Chinese trade representatives, and we have already covered in this space the vital impact of either positive or negative vibes emanating from those quarters. After all this, we can anticipate Friday’s Jobs Report, which will be released after all in the wake of our elected officials’ miraculous decision to set aside their intractable differences to re-open the Federal Government for a 3-week détente. Though it pains me to admit it, while both sides were clearly spitting, the Mad Game award for this round must be awarded to Speaker Pelosi. She didn’t budge an inch, and, after the LGA air traffic controllers began what was sure to be a widening and deepening job action (causing the one thing that no one can abide: inconvenience to NYC air travelers), Trump appears to have had no choice but to cave. No doubt, in the wake of all of this, he’s spitting something, but my guess is that it has the look and feel of metallic spikes typically embedded in wooden planks. This, in turn, bodes less than delightfully for those trying to invest across the backdrop of a political landscape that appears much more likely to heat up further before it begins to cool down. If I’m reading published reports correctly, Trump, Pelosi, McConnell and Schumer are now gonna take a well-earned blow, and leave the next round to a set of scrubs that – let’s face it – will be hard-pressed to bitch things up more than the first team has already done.
There is, in addition, lots of mad-game-spitting of the unhinged kind transpiring with respect to the 2020 Presidential Election in general, and the Democratic nomination in particular. For the first time in perhaps my adult lifetime, I’m actually enjoying the spectacle, and looking forward to watching it unfold. Perhaps as the best news of all, our boy Bernie announced on Friday, and thank god for that. My guess is he still sets the standard in terms of staking out the party’s core message. Namely, the position that much of America, and throughout its history, is little more than a criminal enterprise, and that the only path forward is for us to beg the world’s forgiveness and confiscate the assets of certain domestic socioeconomic classes, in order to distribute them to those are deemed to be more worthy. He faces at least 20 competitors, and I doubt that he will win (wrong age, wrong skin color, wrong gender), but anyone who wants to beat him is going to have to out-Bernie Bernie. Watching it all unfold ought to be quite a hoot, to say nothing of the bennies associated with the ultimate standard bearer being stuck with a policy agenda that only the editors of Mother Jones Magazine could love. In light of 45’s continuing and likely-to-continue string of errors – forced and unforced – for those like me who still have a soft spot for the blessings of free enterprise, this is nothing short of a miracle.
And it’s all starting to come to pass like Christmas in late January. The Mayor of New York (himself a White House wannabe) recently informed the world that the City has plenty of money, but it just needs to be confiscated from its owners and placed in different hands (presumably at his discretion). A newly elected Congresswoman from the same jurisdiction who shall remained unnamed but who sports the singular credential of an undergraduate degree in economics from the venerable Boston University has put forth a really swell idea to establish a “tippy top” tax rate of 70%. Both are outflanked in policy hysteria by the now Senior Senator from Massachusetts – who has achieved tenured professorship status at not one, but two, Ivy League institutions, and who is herself a declared candidate for the 2020 Presidential Election. In addition to having this past summer sponsored a bill that would put all forms of governance for large American corporations under a Washington scoring system with heavy weightings assigned to such factors as climate change policies, gender awareness and progressive sensibilities, she has topped herself by proposing a 2% annual wealth tax. My guess is that some of her paymasters may be a little less than fully enthusiastic on the prospects of sharing the love in such a manner. Still, in terms of spitting mad redistributionist game, it’ll be hard to top Professor Warren’s stunt.
In the meantime, equities roll along, and bonds continued to be hoovered up like there’s no tomorrow. Also, some late mad game spitting transpired in the often overlooked Gold market, which rocketed to highs last seen in June of ’18 – all during the afternoon of Friday’s session:
I’m really not sure what’s going on here, but if I find out, I’ll get back to you. However, I will state that the frenzied buying of gold typically portends an ill wind of some kind, blowing somewhere out on the horizon. And lord knows there are plenty of ill wind candidates from which to choose.
I’m not going to worry about this too much – yet.
Instead, I’ll just hope that the mad game spitting cycle continues, with one caveat. If you spit anything into an ill wind, it is likely to come back to you in unpleasant ways. And this mis amigos, is about all the useful risk management advice I can offer on this winter’s day.
TIMSHEL