This ain’t the Garden of Eden,
There ain’t no angels above
And things ain’t like what they used to be
And this ain’t the summer of love
— Blue Oyster Cult
Following, with some ambivalence, on the worldwide BOC sensation I created a couple of weeks ago, I reach back into to their catalogue, for inspiration in these troubled times. I love the Cult; always have/always will, but with the band blowing up all forms of social media after I wrote about them in late July, I wonder if I should continue to enable this somewhat perverse global obsession.
Alas, though, duty calls, and I must answer. So here, we reference the first song from the band’s last flirtation with greatness: 1976’s “Agents of Fortune”. The record opens with our title track, which deals with the obvious: 1976 wasn’t the Summer of Love. Nine years had passed since the phrase came into being, the tragic end to the poorly conceived and horribly executed Viet Nam War. There were race riots, the murders of MLK/RFK, the violent Democratic National Convention. Nixon was elected and re-elected, and then came Watergate. The clumsy, misanthropic Gerald R. Ford took his place, and (though it was unambiguously the right decision) disgusted everyone by pardoning Tricky Dick. In ’73, OPEC laid down an oil embargo, and the world was introduced, perhaps for the first time ever, to the concept of an Energy Crisis. The economy was in the doldrums, and in general, everyone was in a sour frame of mind. It was indeed a sorry contrast to the fabled, sunny months of 67: the original Summer of Love.
This year, as it happens, marks SOL’s 50th anniversary, bringing forth galaxies of happy reminiscences of an era that began and ended much too quickly. And now, with students beginning their dreary mark back to school and Labor Day fast approaching, we are perhaps in a better position to draw comparisons between the summer season of 50 years ago, and the one rapidly fading before our eyes.
It strikes me that the comparison is more of a mixed bag than one would nominally suppose.
On the one hand, music has taken a dramatic turn for the worse. ’67 brought us the peak of the Beatles, and the emergence of Hendrix, the Dead, the Airplane and Janis. Coltrane died in July, but Miles Davis and Ornette Coleman were in full flower. Even the Bubble Gum stylings of the Monkees, the Strawberry Alarm Clock and Paul Revere were of a higher quality than they had a right to be. The Monterey Pop Festival blew everybody’s mind and set the stage for the epic music jubilees that followed.
Fast forward to the present day. The (admittedly fabulous) Biebs holds two spots in the Billboard Top 10, which also features DJ Khaled, Childish Gambino and Cardi B (Cardi B?). Movies were also better back then, as ’67 produced The Graduate, Cool Hand Luke, In the Heat of the Night, The Dirty Dozen and too many others to name. This year, we are plagued with the 397th releases in the Planet of the Apes, Guardians of the Galaxy and Spiderman series.
TV news featured titan journalists Cronkite, Chancellor, Huntly and Brinkley. Now, were served up (name your poison) Rachael Maddow, Sean Hannity, Mika and Joe.
But there are also similarities. Race relations were at a low ebb, and (improbably) about to get worse. In Washington, a single party held the presidency and both houses of Congress, and managed to pass no bills of import that year. A lewd, blunt President was quickly losing the confidence of the electorate, so much so that a year later he decided not to run for a re-election bid that should’ve been a cake walk. We were immersed in conflicts in remote parts of Asia, and we faced burgeoning nuclear threats and were standing nose to nose in rhetorical conflict with both Russia and China.
And what about the markets? Well, they were ascendant after a rough patch in ’66, which itself had been preceded by an uneven run up that had transpired for across much of the first half of the decade. The economy was growing, and both unemployment and inflation were low:
But two trends dominated the American psyche: 1) increasing doubts about the country’s place in the global pecking order, and 2) social issues. With respect to the latter, angry mobs held violent protests in every major city, rudely expressing their, er, displeasure with matters ranging from race relations, police brutality, sexual freedom and wealth/income inequality.
Unrest notwithstanding, U.S. equity indices were pushing to all-time highs, on the heels of a 3 decade upward climb.
Does all of this have a ring of familiarity? I thought it might.
Indeed, I think it might be fair to assert that there more similarities between the Summer of Love and present conditions than meet the superficial eye. Moreover, if history repeats (or, in any event, rhymes), then the next few years are likely to offer a rocky ride.
Meanwhile, it was an interesting week in the markets. U.S. and indeed global indices experienced their worst interval of the year, and, on balance, I believe this was a welcome development. Of course, the headline catalyst was brinksmanship rhetoric issuing forth from two historically infantile national chieftains: L’il Kim and Don John. But the pricing dynamic/trajectory was instructive. It’s difficult to determine which of these players on the world stage outflanked the other in terms of undignified demeanor, but until Wednesday, equity investors, as has been their wont, barely took notice.
Then, on Thursday, the Gallant 500’s Maginot Line of support began to show some cracks. It opened down about 100 bps and closed on its lows – some 50 basis points below this threshold. It was the equity complex’s worst single day showing since the election.
I spent some time trying to discern what had changed between Wednesday and Thursday, and pretty much came up empty. As had been the cycle for days, Trump tweeted and Kimmy-boy blustered. But this time, equity investors blinked. I am not in a position to offer useful insights as to how serious this crisis really is, but I will state one strong opinion in this regard: it is highly irregular for the commander of an army to telegraph to the whole world the precise locus of his intended attack. As such, come what may, it is my belief that, on balance and for the moment, there are probably fewer safer places on the planet than the U.S. Protectorate of Guam.
But as for the markets, it occurred to me after Thursday’s close that the equity complex had reached an inflection point: either this inexorably giddy corner of the investment universe had finally effected a much-needed upward adjustment in the Risk Premium, or investors would view Thursday’s nominal but shocking 1.5% correction as a buying opportunity, and we’d be off to the races again. But Friday’s session brought little in the way of clarity. The SPX actually rallied a titch, while, contemporaneously, the VIX managed to retain the lion’s share of Thursday’s > 40% jump.
In addition, the USD remained under pressure, with its weighted index residing at the lowest levels in a year:
Rates around the globe were also hard pressed, presumably as the Kim/Trump show causes a global flight to the relative safety of government bonds. And even High Yield investors got in on the risk aversion act, showing some long suppressed and much needed signs of happy feet:
Thus, while the market gods were not so forgiving as to provide us with any clear messaging: a) they never do; and b) the preponderance of cross asset class price action suggests that two-way volatility of a more dramatic nature is in the offing. Further to the point, and as widely reiterated across the financial press, the historically worst performing month for equity indices is August, and that the second worst is September.
So I think we may be coming close to a rationalization of the volatility paradigm, and will certainly overshoot the mark if the leader of either the Democratic People’s Republic of Korea or the United States of America finds himself unable to resist using the weaponry dubiously placed at his disposal.
But as to the larger question of whether or not this is the Summer of Love, I can only state my own views, noting that when the season that brought us the phrase took place, I was all of 7 years old. 50 summers have since come and gone, and while I can’t rightly figure out at what age this places me, it’s a fair bet that it puts me pretty far along. I don’t mind stating I feel the years in my bones.
Thus, as always, I yield to the wisdom of BOC. No, this ain’t the Summer of Love, and perhaps it’s just as well that it’s not. After all, with respect to certain historical intervals, no matter how much we enjoyed them, it is wise to “sit so patiently, waiting to find out what price, you have to pay to get out of, going through all these things twice”.
TIMSHEL