All that is now, and all that is gone, and all that’s to come,
And everything under the sun is in tune,
But the sun is eclipsed by the moon
— Roger (#%&%$) Waters
I don’t know about you, but a part of me is eager for this madcap summer to end. Oh, I’ve had some seasonally pleasing moments – playing with my grandsons, working in a little shuffleboard, and engaging in other age-appropriate behaviors. But a review of doings outside my increasingly narrowing personal sphere, the interval allotted to denizens of the Northern Hemisphere to bask in bright skies and warm temperatures is starting to grow long in the tooth. I won’t waste much space reviewing the events that led us to this pass; I choose, rather, to focus on the present and even more so on the immediate future.
This week’s note draws reference from one of the all-time-top moments in rock and roll history: the sequence of Brain Damage/Eclipse that marks the end of Pink Floyd’s astonishing magnum opus: “Dark Side of the Moon”. Now, hard-core Floyd-heads might argue the point – placing efforts like “Atom Heart Mother”, “Piper at the Gates of Dawn” or even, dubiously, “The Division Bell” at the top of the Pink Catalogue. From some perspectives, I might even agree with them. But what is (or should be) true for all concerned is the following: “Dark Side of the Moon” is a perfect record. Not. A. Wasted. Note. So even if you’d rather listen to “Meddle”, “The Wall”, “Wish You Were Here” or “Animals” it’s important that everyone gives “Moon” its props.
For the purposes of this presentation, I have plucked out the final two songs of DSOTM, due to their relevance to our current conundrums. Moreover, I have reversed them, for reasons to be made clear below. So let’s get to it, shall we?
While reasonable minds can debate whether the collective id of our visible community is suffering from Brain Damage, it is a matter of near-certainty that an Eclipse – a mother of an eclipse, is headed our way. Tomorrow, in fact. Astronomers are describing it as a once-in-a-century event. It is expected to cast us into temporary darkness as it makes its way along the jet stream, arriving in Oregon mid-morning and reaching the East Coast around tea time – all before, presumably, continuing its celestial path over the Atlantic Ocean. I’m not an expert on these matters, but as a risk manager, it is my obligation to warn you, as it passes overhead, not to look at the sun. I’m willing to cop to being a bit nervous about this, because: 1) I’d very much like to take a peek myself; and 2) I’m utterly incapable of constructing one of those makeshift devices that offer a safe visual image. And it’s not as though I haven’t tried. Several of my grade school teachers tried to assist me, with sorrow, horror and amusement, as they reviewed the many cereal boxes I destroyed in the effort. These weren’t among my finest academic moments. In fact, they rank among my worst, surpassed only by my solo attempt (others were in groups, but no group would have me) to dissect a starfish in high school. After inspecting my, er, handiwork, my elderly Greek biology teacher saw fit to pick up the smallest corner of my misanthropic sea creature with thumb and forefinger, and shriek, multiple times, and to the entire class, that I had mutilated the poor thing.
And that’s all I have to say about eclipses. Just don’t look at them directly, OK? Let’s turn to the topic of Brain Damage, and here we must start with the author of the piece: one George Roger Waters. Nominally, he’s one of my favorite musicians. And now I must avoid him. Almost never in the history of popular culture has an artist lived such a charmed life and ended up so nasty and so angry. In addition to bearing witness to the timeless genius of his output being proved across the decades, he’s made perhaps more money over the last few years than maybe any performer this side of J and Bey. His wandering Wall tour brought in a cool $450 Million (eclipsed only by U2 and the Stones, each of which who had to split their boodle, while Roger grabbed the entire gate). And now he’s back at it. Again.
But he’s very angry. At the establishment in general and at Israel in particular. In fact, he’s outraged, so much so that he has spent some of his hard won ticket proceeds to construct floating pigs with the Star of David affixed on their shanks. Classy, Roger. He bullies other musicians into boycotting Israel, and, while some have caved, others have told him to pound sand. The Stones, for instance, reacted to his demands by adding extra shows in Tel Aviv. Bravo, Mick and Keith. Seldom in my awareness has a more elegant message been sent from one artist to another to respect his betters.
So I’m here to confirm what Roger so beautifully conveyed to us in 1973: yes, Roger, the lunatic is in your head.
But there are other lunatics out there. For instance, there are, indeed, lunatics on the grass. Witness the insanity taking place at statues residing in parks across this vast national expanse. Much, of course, has been made of these episodes, and I’ve got little to add to the discourse. Undoubtedly, those involved are remembering games and daisy chains and laughs, but for heaven’s sakes, let’s take Roger’s advice and keep these loonies on the path.
The lunatic, in fact the lunatics, are also, by all accounts, in the hall. In fact, in our hall. One only has to peruse the corridors of the White House, Congress and the Court System to verify this reality. In this electronic age, the paper no longer holds their folded faces to the floor, but now it’s not every day, but every minute, that whatever passes for the paperboy brings us more.
All of which brings us back to the lunatics in our head. Oh they’re there alright, including, specifically, the lunatics of the investor class. But the past couple of weeks appear to have brought brief episodes of lucidity to their thoughts and actions. Improbably given recent market paradigms, they are actually reacting to troubling news with rational sequences of risk reduction. These cycles have been most evident on each of the previous two Thursdays, and I believe they portend some much needed incremental volatility in the coming weeks and months. This past week began with almost a full recovery of the preceding Thursday’s losses, but shortly thereafter, the recently suppressed but ultimately inexorable forces of gravity set in. By Friday’s close, equity indices had given back this recaptured ground, and a little bit more for good measure. And, while it is likely that the ten-odd trading sessions that remain to us between now and Labor Day will be characterized by a lack of liquidity, I see the following signs of a risk normalization cycle on the horizon:
- Earnings season is substantially over and cannot provide further tailwinds.
- On a related note, in the back half of the quarter, the data skews towards macro, and this is not necessarily accretive.
- August ranks 12th in terms of historical equity performance; September ranks 11th; October is 10th.
- Though bonds still catch a bid, there were some palpable holes in demand in recent auctions.
- For the first time in many months, investors seem to be reacting to negative news, be it domestic unrest, international terrorism, Washingtonian dysfunction, or other buzz killing dynamics that seem to come our way in never-ending sequences.
- I’m watching some of this Bitcoin nonsense, and while I don’t think that these types of instruments can withstand the inevitable political onslaught they face (hard for me to believe that the world’s leading countries and central banks will cede one of their most powerful governance tools to the private institutions that seek to compete with them), I do think that recent surges are in part driven by an increasing disgust with fiat currency regimes.
Post Labor Day and particularly in September, we’ve got a bunch of catalysts coming down the pipe, the balance of which, in my judgment, skew negative. The upcoming budget and debt ceiling standoff is beginning to look menacing. The likelihood is that Special Counsel Mueller will stir the pot further at some point in the next few weeks. While one can perhaps take some comfort in the arrival of General Kelly and the departure of Mr. Bannon, the Trump Administration has little time to get its act together and a lot of rope with which to hang itself. If any of the core senior appointees that retain a shred of credibility (Cohn, Mattis, McMaster, Tillerson, Hayley and very few others) decide they’ve had enough: a) it would be a dire political setback; and b) the markets – unlike the case over the last several months – are likely to react. We’ve had a blissfully (on a relative basis) quiet week with respect to the Korean Peninsula, but with our annual joint military exercises with South Korea set to begin on Monday, there is also considerable hazard in that quarter of the world.
Beyond all of this, we face the entirely wearying prospect of the annual Jackson Hole gabfest beginning later in the week. I will not elaborate here, but may have more to say about it in next week’s installment. Given the lunacy epidemic that is plaguing the entire planet, I’d prefer that they cancel this year’s tribute to the brilliance of the glib and powerful, but they don’t listen to me, so the event is likely to take place as planned. There’s not much accretive that can come out of this, and a reasonably likely set of outcomes that will be bothersome or worse. But like its Alpine equivalent (the possibly more wretched Davos confab, held each January) the show, high in the Teton Mountain range, will go on.
In light of it all, I end this piece by begging someone to raise the blade, to make the change, to rearrange me till I’m sane. Further, I wouldn’t mind if that same person or persons locked the door and threw away the key, because there’s someone in my head and it’s not me.
Roger first wrote these words about his much-lamented bandmate/mentor: Syd Barrett, who went certifiably crazy early on, and never regained his sanity. The band that Syd formed and for a time led did indeed start playing different tunes, and reached global superstar status, while Syd faded away and died. So maybe Syd’s on the dark side of the moon. But if so, we won’t see him, at least not tomorrow.
There’s this eclipse thing coming, don’t ya know?
TIMSHEL