Amid the crescendo of athletes and entertainers heroically using their highly paid platforms to lecture the less informed among us on topics of morality, the time has come for me to join the chorus. As everyone presumably is aware, I’m known throughout the world – primarily for my singularly tasty guitar chops, but the truth is that I occasionally sit down at the keyboard bench, and hope for the best. Here, I face the following problem: I can only play songs in the Key of C. The main reason for this is that on a piano, the C Major scale features all white, and no black key notes. And though I’m not proud of this, I am forced to admit that those pesky black keys throw me off. So when banging away at the 88 finger machine, I tend to stay at home. In the Key of C.
All of this got me to thinking: is the Key of C racist?
I sure hope not, because (trust me on this) C is an important key – particularly for Rock and Roll. Without it, some really good songs either disappear entirely, or need modification away from their current state of perfection. A small sample of the types of compositions impacted (and likely not for the better) would include (in my judgement) C King Bob Dylan, whose Hard Rain”, “Like a Rolling Stone”, “Just Line a Woman” and “Blowing in the Wind” reside in C-space. In addition, there’s the Stones’ “You Can’t Always Get What You Want”, “Let it Bleed”, “Brown Sugar” and “Can You Hear Me Knockin”. The Beatles use C for (among others) “Across the Universe”, “Let it Be” and “The Continuing Story of Bungalow Bill”. And the list goes on and on. There’s the Allman Brothers’ “Whippin’ Post”, Jerry Jeff Walker’s “Mr. Bojangles”, The Eagles’ “Take it to the Limit”, Bowie’s “Space Oddity”, Blue Suede’s “Hooked on a Feeling”, and of course, Brewer and Shipley’s “One Toke Over the Line”.
I could go on, but presumably you get the idea.
I should also mention that one of my all-time heroes (and no, I don’t care what you think about this): Former Secretary of State Condoleezza Rice, a virtuoso pianist in her own right, once famously said that all music eventually converges back to the Key of C. As a sharecropper’s daughter who rose to great heights, one would have a difficult time accusing her of racism, so for the time being, I think it would be wise to get of the Key of C’s nut.
If we can do this, perhaps in these touchiest of times, we can cut each other some slack on a broader range of subjects. Maybe, for instance, we can stop calling each other nasty, hurt feeling names. But I don’t hold out much hope on that score. Especially with the news flow dominated by two military chieftains derisively calling one another Rocket Man (original song in the Key of G) and a Dotard, respectively. I could even live with this if there weren’t the small matter of nukes being involved. But they are. Involved, that is. Nukes, that is.
In fact, as the clock moves inexorably forward into Autumn, this Trans-Pacific lack of civility is perhaps the biggest risk factor that we as investors face. And it would not be wise to discount it, because, of course, this is serious business.
Deadly serious.
And I’m having a hard time envisioning how the world avoids an unpleasant showdown here. By all appearance, we’re a hair trigger away from a full blown military confrontation, and unless one side backs down (unlikely) that’s where we’re headed – perhaps sooner rather than later.
But presumably, you’d prefer to obtain geopolitical insight from other sources, so suffice to say that from a market perspective, other looming, vexing hazards appear to be on the wane. The government didn’t shut down – yet. The White House appears to be adopting at least a marginally more adult-like demeanor. Two horrible storms hit our southern shores in terrifying sequence, but both storm centers appear to be constructively starting the slow process of rebuilding and recovery. Political unrest appears to be at least marginally on the wane across the globe.
QIII/17 ends this Friday, and shortly thereafter, we’ll be looking at earnings, GDP and other metrics that present themselves at routine 3-month intervals. With respect to the former, it would appear that the perky trends of preceding quarters may continue. As of now, positive pre-announcements are coming in at the fastest pace in, well, in quite a spell.
In fact, they are clocking in at record levels:
In general, I think that the risk environment has improved materially as we enter the 4th Quarter, and I wouldn’t be surprised if some of our favorite markets start on a small tear. Of course, I make this proclamation after a flat week for the SPX, but this bothers me not at all. After spending four full months within the 24 handle, the Gallant 500 is likely to move somewhere, and I don’t think the direction is going to be down.
Some of my thinking derives from a strengthening belief that the global shortage of marketable securities is becoming more acute with each tick of the clock. There are simply too few stocks and bonds available to meet incremental investor demand. If you doubt this, consider the reality that on Wednesday, the FOMC did indeed announce the beginning of its long-anticipated divestiture process. Think of this as a reverse QE. To wit, just as the Quantitative Easing process involves creating new currency to purchase existing securities, so too does Balance Sheet Reduction destroy currency (in the form of Central Bank Reserve reduction) for the purpose of selling existing securities. QE drove rates down dramatically; the announcement of Balance Sheet Reduction drove them up – to the tune of 3 whole basis points!
But life is pretty sweet if you’re a Central Banker these days. You own assets and carry liabilities at rates of your own choosing, so you can do pretty much what you want with impunity. If the spirit moves, you can print new units of your own currency. Perhaps this is why there was such a wild bid on the stock of maybe the Central Bankiest of Central Banks: The Swiss National Bank. It is the only organization of its kind that trades on public markets, it borrows at negative rates, and its stock has doubled this year:
I’d say that even at ~CHF 4,000, the stock is still a buy, but good luck getting your hands on any. There are only 100,000 shares outstanding. Compare this to, say, Fifth Third Bank of Cincinnati, OH, the 15th largest bank holding company in America, which has 736 million shares on the open market.
But as to the broader market, again, all signs now point upward to me, and if it weren’t for the looming Rocket Man/Dotard throw down, I’d say that we might be poised to go on a major ripper.
Yes, stocks are overvalued by many metrics, but absent some paradigm shift (which will have to transpire eventually), they are likely to stay that way for the foreseeable future, and if I’m correct on that score, then there’s no reason they can’t climb considerably higher before the inexorable forces of gravity set in.
I’d also remind you that next week, holiday-impeded by Yom Kippur, may feature a tape painting cycle designed to squeeze out a few extra basis points of performance at the end of a deceptively difficult quarter.
It should be game on after that, and I see good opportunity to put a nice cherry on top of this Soggy Sundae of a year. But not on the short side.
So I’d ask everyone to keep their collective chins up, and if we can be a little nicer to one another, that would be a good thing as well. Let’s start by eradicating the claims of racism against the Key of C Major, which I do not believe discriminates against any racial, ethnic or social cohort. And just to show you how important C Major is, I’ve saved the best for last. The Abbey Road Medley – the last recording ever made by the Fab 4, while modulating here and there, makes its home in C. We’d do well to heed the final phrase the group ever sang: “In the end, the love you take, is equal to the love, you make”.
But even this doesn’t capture its essence as well as the following sublime chord sequence:
Amaj/Gmaj(add A)/Fmaj/Dmin7/Cmaj
And then, in painfully poignant denouement:
Cmaj/Cmaj(add 9)/Dmaj/Cmin7/Fmaj/Cmaj
It’s true that to play this lick on piano, you’ll be forced to utilize a few black keys (particularly that tricky Cmin7). But trust me; it will be worth it, because it simply doesn’t get any better than that
TIMSHEL