In the wee hours of the morning on October 15, 1976, Don Carlo died, peacefully, in his own bed. By that time, he had run his eponymous Gambino family like the Israeli Special Forces for a full generation. He had hundreds of soldiers, thousands of associates and fear-driven respect across the globe. He ran a multi-billion-dollar enterprise that could bring the captains of many industries down to their knees with little more than a sniff from his beak-like nose.
One of his secrets was that he lived modestly, kept his mouth shut and wielded his immense power with as little fanfare as possible. The cops knew all about him, and harassed him as they could, but never laid a single finger extended from the long arm of the law on him.
But Don Carlo made one final, fatal mistake. Knowing he was about to check out, he named his cousin – Big Paulie, the brother of his wife (and also a cousin) as his successor. As Boss, Big Paulie was a train wreck. Lived large, squeezed his crews, took up publicly with his Filipino housekeeper (a shameful insult to his wife), allowed his palatial Staten Island mansion to be bugged by the Feds, and ended up with a 50-count open and shut RICO indictment staring down his (also beak-like) nose. As everyone knows, it all ended when a bunch of guys in Russian sable hats (some of whom may very well have been Russians riddled his body with bullets, just before Christmas, 1985, in front of a well-known Midtown steakhouse.
His assassin, as it turns out, was also his successor. Let’s call him Don John, and begin with the premise that he was the antithesis of the Don Carlo ideal. He was big and flashy and couldn’t keep his mouth shut. He relished in publicity, coveted the fleeting and dubious adulation of his minions, and was quick to violently punish anyone responsible for slights – real or perceived. The Feds targeted him obsessively s, and he seemed to relish his battles with them. He actually won a few rounds with the government, and couldn’t resist the temptation to crow about it. Eventually, they got him, hoisted him on his own petard of blabbering and well-deserved treachery among his inner circle. They sent him away for good, and he died, rather meekly in prison, a few years later.
I recount these well-known tales of New York mob history, because we have, as a nation, as a world, our own Don John to contend with: one Donald John Trump, 45th President of the United States. Like his namesake Don John Gotti, he is the polar opposite of the Don Carlo ideal. You’d think, being President, he’d have enough of the spotlight to suit him, but by all accounts, nothing could be further from the truth. He makes everything about him, even when he’d be better off shoving someone else onto center stage. Many of the Federales hate him to the point of obsession, and it’s clear they’re out to get him. From my perspective, he’s doing his level best to accommodate the realization of their objectives.
It strikes me that he stands a substantial and increasing possibility of being taken down by his enemies, and while he is certainly justified in calling this episode a witch hunt, it’s clear that if he falls, he will largely have himself to blame.
I offer this progressively wearying bit of political prognostication because I think that this is the biggest risk facing the markets. It is literally (or figuratively if you prefer) not possible to spit in any corner of this world and not hit something tied to the current D.C. investigations. They have taken on an accelerating momentum, and will not be easily stopped — even at a point when the enemies of the current administration would logically declare victory. If they achieve impeachment and take our good Don down, feeling increasingly emboldened, they will paint Pence as the illicit spawn of Hitler and Stalin, and, being naturally weaker, he will be an easier mark. At that point, nominally, the mantle would pass to Congressman Ryan, but (please forgive, yet again, the grassy knoll vibe here) I think there may be a plan afoot here to drag this out until just after the mid-terms, at which point, if the stars align perfectly for them, the Dems will have taken back the House, and can install Nancy Pelosi in the Oval Office.
Nancy Pelosi? If this happens, I think I’ll take a cue from the unfulfilled rhetoric of Barbra, Rosie and the rest, and check out of my digs in the amber grain waves.
Now, I admit all of this is far-fetched, but the problem, to use a favorite expression of the Prog orthodoxy, is that the situation is “non-binary”. The, er, Resistance doesn’t need to achieve the full smash outlined above to do their bidding. Every day we’re stuck in this cloak and dagger muck is one more day that the important reforms which presumably catapulted the Republican Party into its current position of hegemony will be stymied. I suspect that if the snowflakes and tree huggers can’t impose unconditional surrender on the rest of us, they’ll settle for some battlefield wins that bring both land gains and prisoners home.
It seems that this dynamic is indeed dominating the investment proceedings. Case and point: the FOMC and the macro economy. The last round of economic releases was, by all accounts, depressing. On Wednesday, the very morning of the Fed’s latest rate announcement, we were served up a ghastly trifecta of a negative CPI print, as well as the weakest Retail Sales numbers in 2 ½ years, and an equally tepid performance in terms of Business Inventories:
The Fed, nonetheless, went forward with its long pre-ordained ¼ point rise, accompanied by some tough talk about the balance sheet boogie monster. Subsequent to the announcement, we were treated to the mushy oatmeal of weak Industrial Production (flat), insufficient Housing Starts and disappointing Consumer Sentiment (both down).
Also during the week, ECB Chair Draghi spoke soberly of tapering, and the minutes of the Bank of England’s latest Monetary Policy Committee meeting told of a somewhat surprising sentiment to raise rates in that troubled jurisdiction.
But I suspect that CBers all around the world are very nervous here. One could hardly blame them for building some Trump-catalyzed deregulation and tax reform into their growth models: a prospect that now looks pretty iffy at best – at least for the foreseeable future. I think Yellen and Company stuck to the script because if they’d done anything else, it might’ve spooked the markets: a prospect which, for better or worse (read: for worse), they cannot abide. They spoke of one more rate increase this year, targeted for the December meeting, but right now, investors aren’t buying it, as another hike at that time is currently being priced at a < 40% probability. Also, significantly, post FOMC, longer term rates, not only here but across the globe, actually declined.
There was a great deal of jabber this week about the tightening in the 2s/10s U.S. Treasury spread, which is now as narrow as it’s been since 2009 (remember that frolicking year?), and let me tell you, friends, this type of squeeze does not tend to occur when economies are clicking on all cylinders:
U.S. Treasury 2s/10s Spread
My fear is that all of the above is informed by what may only be the beginning of the hit job on our current Don John. If matters accelerate, as well they might, then there’s virtually NO chance that government policy will be accretive to the investment process, and if the guys in the Russian hats do in fact take them down, as an old boss of mine likes to say (borrowing from the 1894 John Whitcomb Riley poem) it will be “Katy, bar the door”.
Of course, the equity markets barely register a pulse respecting these concerns, with domestic and global indices still hovering around all-time highs. There is continued concern about the recent cold streak of our favorite tech darlings, but never fear: the feature story in this week’s Barron’s assures us that the trend is transient, and they may be onto something. I mean after all, Amazon, through its purchase of Whole Foods, now pretty much sells us everything we might care to buy.
Often-times, though, to reverse a well-trodden idiom, it’s always brightest before the dusk. After most of Don John I’s myriad acquittals, he would go forth with much pomp among his minions, typically accompanied by fireworks that he generously funded out of his own ill-gotten treasury.
But in the end, they got him. And he helped them do it. And he died of cancer at the relatively young age of 62, while incarcerated in a Federal Prison in Springfield, MO. And the Gambino family never recovered its mojo.
All of this should serve as an object lesson for our current Capo di Tutti Capi: Don John II. But it’s a matter of supreme doubt as to whether he will heed the warning. So I pass the admonishment on to you. Rather than preening in front of any audience you can find, ‘tis better to go about your business with quiet dignity. If you do this, you stand a fair chance of shedding your mortal coil, peacefully, largely untouched by your enemies, and this, my friends, is an end to which we should all aspire.
TIMSHEL