Oranges and lemons, Say the bells of St. Clement’s.
You owe me five farthings, Say the bells of St. Martin’s.
When will you pay me? Say the bells of Old Bailey.
When I grow rich, Say the bells of Shoreditch.
When will that be? Say the bells of Stepney.
I do not know, Says the great bell of Bow.
— Old English Nursery Rhyme
We begin on this sleepy pre-holiday weekend with a (may God strike me down if it’s not) true story. So there I was this past Wednesday, kind of dawdling between meetings, when a cheerful looking gentleman of Sub-Continental extraction approached me and told me that he wanted to speak because he thought I had a kind face. The encounter took place on the corner of Madison and 54th: not a location where being accosted by a stranger is likely to lead to wildly enriching outcomes. But I had a little time to kill and thought I could handle myself, so I hung with him for a bit. And he shared with me the following insights: 1) that he could tell I’d been going through some hard times these past few years; 2) that my greatest, er, fault was too much good-hearted generosity; and 3) that I was on the brink of a major positive reversal of fortune — due to arrive at some point this summer. He then informed me he was a psychic (no duh!) and started asking me random questions. He talked me into trying a little experiment, where he scribbled a few words on a small purple piece of paper, and then crushed it into my hand. He continued to hit me with random queries, including my favorite country (being polite and, as he said, good-hearted, I named India – a country I’ve never visited). Next he asked me my favorite color. I told him “orange”, which was a lie. I heard somewhere that as a matter of settled science, virtually everyone’s favorite color is blue. This is more or less true for me (and at any rate, orange is certainly not my fave), so I thought I’d try a bit of sneak to trip him up.
Finally, he asked me my favorite number and I replied “3”. Now, while I’ve nothing against ”3”, over the course of a lifetime I have NOT singled it out as my preferred digit. I reckon, though, I’ll take “3” about as much as any other integer at the lower end of the counting range (I’m particularly into the bit about how the components of every multiple of 3 adds up to 3 or a multiple thereof). So gimme 3. All. Day. Long. He wrote down my answers, in my full view, on another purple sheet and asked me to open up the paper still crumpled in my hand.
Well, naturally, the document read “Orange” and “3”, so it was time for him to hit me up for some cash. He told me average schmoes usually give him $50, but that fat cats (presumably like me) often lit him up with a double Benjamin. I reached into my pocket and handed him a fiver, and started to walk away. He didn’t follow me, but did call out his complaints as I left his presence. I turned around, looked at him and
said “I’m not that good-hearted”.
End of story.
Perhaps one or more members of my streetwise and erudite readership can enlighten me as to how he pulled this off, but I DO know it was a scam. I mean, after all, if a guy is REALLY that good at predicting in advance what some total stranger might say to him – true or not – about his favorite color and number, and said individual is in want of incremental funds, then he presumably has myriad opportunities at his disposal more lucrative than the bit of 3-Card Madison Avenue Monte described herein.
Perhaps, for instance, he could predict the path of the markets, or, more narrowly, the results of individual stock earnings in the looming reporting cycle ,and invest accordingly. I know that’s what I’d do if I was him, but then again, I’m not him.
So I don’t know what’s going to happen when the second half of 2017 opens for investment business tomorrow, then shuts down for our national Independence Day celebration, only to resume, in fits and starts, by Wednesday. I do suspect that we’re in for a fairly wild sequence of action, unfolding perhaps across the remainder of 2017. We enter these proceedings with a large number of potential market moving
catalysts, some of which began to come into play over the last several days, and across a week I expected to be pretty somnolent.
Perhaps most significant of these was Chairman Draghi’s unexpectedly hawkish commentary – issuing forth from Portugal of all places – and suggesting, ever so gently, that EQE might not last forever. His remarks sent Continental investors into a flurry of selling of debt instruments in the realms over which he lords, a dynamic that even spilled into this here jurisdiction. His minions subsequently attempted to offer some calming qualifications to his remarks, but, at least in the FX and Interest Rate corners of the investment universe, these did not have much of a soothing effect.
And Draghi has company. It seems over the last couple of weeks almost all of the world’s leading Central Bankers have turned hawkish. And one wonders why, because, as for me, I’m not seeing the moonshot that appears to be in everyone else’s field of vision with respect to the global capital economy. So I am kind of fading all of this brouhaha about rising interest rates. I think the U.S. could probably sustain a >4% rate on, say, it’s 10 year note, and lord knows this boy could use a little extra yield for that ocean full of liquidity upon which he rides. By but the path to a doubling of said rates would in my mind be a rocky one, chock full of collateral damage, and I simply don’t see the political will for any of that sort of thing. And if this is true in the U.S., it applies, in spades, to other jurisdictions.
But bonds were on offer across the globe last week, with attendant rising yields, and contemporaneously, perhaps not coincidentally, the moribund Energy Complex perked itself up, with Crude Oil rising nearly 10% over a handful of trading sessions. And within the Commodity Sector, Oil was not alone, or even the leader. Though perhaps largely ignored by most of the fancy pants trading universe, Grains were en fuego last week:
Corn: Wheat: Soy Beans:
Meanwhile, with precisely half the year now in the books, the SPX is up about 8¼% and, across my long and storied career, I cannot remember such a solid semi-annual performance being so difficult to monetize. The weekend newswires are laden with despair about the 2nd half, and perhaps they’re onto something. Too many ratios are at 10+ year highs to enumerate in this space, and that sort of thing
obviously cannot go on forever. Presumably, the primary catalyst for the strong showing in Months One through Six was the anticipation of all of those blessings from an investor friendly set of policies emanating out of Washington. And let me ask you: how promising does that little theme look right now?
So I’ll cut the Debbie Downers a little slack here. But to whatever extent the equity markets will feel gravitational pull in the coming months, it sure doesn’t look or feel like it’s about to crash. I wouldn’t complain about a little give-back here, but NOTHING about our current conditions suggests to me that the bottom is about to fall out of the stock (or for that matter) bond markets.
I do however believe we’re in for an interesting summer, and that risk factors in every asset class could move in either direction. I hope this energizes everyone, because that is what makes this here game the great game it is.
My best risk advice is to stay on your toes here and shade towards the reactive. If you’ve got a strategy ,and compatible portfolio in place, by all means keep it and continue to do what you’re doing. But in terms of incremental, on-the-margin adjustments, I’d lay back a bit. I feel that come what may, market conditions are likely to look much different six weeks hence than they do today.
As for me, after my 3/Orange episode, and knowing that the slot machine payoff for such a combination is 600:1, I did the only rational thing I could think of. I loaded up on quarters, hightailed it to the open embrace of the one-armed bandits at my favorite casino: Foxwoods Resort in fabulous Ledyard, CT. I hit three triple oranges in a row, and now have enough to retire, so this will be my last column.
OK; I made that last bit up, but the Page 1 anecdote, on my immortal soul, is the plain truth. And I hope that my Punjabi friends’ proclamation of a run of luck does indeed come to pass for the kid. Stranger things have happened, you know, and my new bestie, among his myriad talents, is clearly an impeccable judge of character.
TIMSHEL