Financial Types, Risk Takers, Classic Rockers, lend me your eyes. I come to bury Petty, not to praise him. For the good in men’s catalogues bombards our playlists, while their drek is oft interred with their bones. So let it be with Petty….
And that’s about as far as I can go to mash up Willy Shake and TP.
I noted Petty’s passing with mixed emotions. Of course, it was sad that he died – for the heartbroken Heartbreakers, his family and his fans. I will also give him his props for his visceral understanding of the difficult-to-define-but-unmistakable-when-you-encounter-it rock idiom, and for doing his best to pay it forward.
But, perhaps (nay, almost certainly) unfairly, I hold him accountable for rising higher in the rock pantheon than I believe he earned. Some of this is quite personal, so bear with me if you can. For me, the allure of music of all types (and perhaps rock and roll as much as any other genre) begins and ends in the composition phase. I fell into a lifelong state of obsession because of the songs. And, having written a few myself, I have recognized the supreme challenge of achieving success in this regard. To write something original, astonishing, and yet pleasing to the finite vocabulary of the human ear, is akin to being a consistently successful NFL QB. From this perspective, rock exploded to divine altitudes over a brief period between, say the mid-60s and the early 70s. As long as our aural cavities remain useful receptacles, we’ll be rocking to the sublime output of the period, as produced by (yeah, you guessed it) the Beatles, Dylan, the Stones, Hendrix, Janis, the Doors, Zep, Pink Floyd, the Who, the Dead, the Kinks, etc. But that once in many centuries era of discovery ended as quickly as it began. The Beatles broke up in a hissy fit. Jimi, Jim and Janis all inevitably perished. Zep and Floyd had topped out by the mid-70s, and they and the rest of them geniuses (here, of course, I’ll carve out Dylan, but I AM talking to you, MICK) have spent the subsequent decades mailing it in.
Not to worry, proclaimed the musical press. The torch has been passed to a new generation, and they will carry on like never before. The group designated to lead the charge included Springsteen, U2, Bowie, Queen. And Petty. Of these, I believe that only Bowie (and perhaps Queen) lived up to this promise. But Petty, as much as any other performer, grabbed the spotlight. And though it would have been, particularly in retrospect, a ridiculous demand that he or his peers create sonic pleasures on the order of, say, “Blonde on Blonde”, “Abbey Road” or Neil Young’s “After the Goldrush”, they clearly fell short of this standard. After Petty died, I conducted a little mental experiment and came to the conclusion that there aren’t more than one or two songs in his catalogue (“Refugee” comes to mind) he ever recorded that would’ve been good enough to be included in, say, Goldrush alone. I took this personally, because these failures denied me the delights afforded to our older brothers and sisters, whom I envied for the unexcelled pleasure they must’ve experienced when they purchased “Sticky Fingers” on the day of its release, and placed it, for the first time, on the turntable. By the time I got hip to any of this (and I was an undisputed early adopter), all I got was the accessible but deteriorating stylings of “Goats Head Soup”. And it was all downhill from there. We carried on as best we could, but guys like Petty let us down. I’m not done yet. Petty also kind of irritated me because of his elevation to the status of peerage by his
betters, most notably Dylan, Jerry Garcia and especially George Harrison. Oh George, you know in your heavenly heart of hearts that he wasn’t your equal, but you treated him as one. And while he not only benefitted but did the best he could with this gift, he (and by implication, you) he never merited this status.
And now he’s gone, and the world cries its crocodile tears (meanwhile, the death of a better songwriter/guitar player: Steely Dan’s Walter Becker, passed largely unremarked by the world at large). Something tells me we’ll survive the blow. This is the worst I have to say about Mr. Petty, and I beg your forgiveness for having said it. I do wish him a sweet and blissful rest, and will do my penance by using his lyrics (which rarely demanded much thought on the part of his listeners) to set our theme for this week.
We can begin, as Petty might’ve wished, by offering the observation that whatever else can be said about Mr. Market, for the time being at least, it won’t back down. Nay, it continued its heavenward climb, with each of our favorite indices setting four consecutive all-time highs last week. Year-to-date, domestic and indeed global equity benchmarks, while reaching never-before-manifested elevations, are doing so at improbably high Sharpe Ratios of >2.0 and gravity defying Sortinos of ~5.0. At the moment, you can stand them up at the gates of Hell, and they’ll stand their ground; won’t be turned around. Then came Friday morning, and the mixed tidings of the September Jobs Report. Investors had dampened expectations due to the storm drenching experienced in our southern realms, but the number came in below the bottom end of the range: Private Payrolls actually declined by around 40,000 gigs, the first drop in this metric in 7 years. U.S. equity investors did indeed take notice of this, and actually ginned up a decline in the index – to the tune of 0.01% — 1 basis point – on the Dow Jones Industrial Index (the Naz, true to its name, actually closed up). It might be fair to state that thus far the selloff fails to rise to the dignity of either the ’29 or ’87 crashes.
Now, one might surmise that a weaker than weak jobs report might catalyze a bid in the interest rate complex – which, unlike equities – has been under what passes for some pressure of late. But one would be wrong on that score. Govies sold off modestly, adding nearly a big fat basis point to yields on the 10- year note.
The logical inference is that the “risk on” regime continues to dominate the proceedings. And there is some justification for this. While investment markets are nothing if not frothy, this here geriatric economic recovery appears be gathering steam. Other elements of the Jobs Report (Base Unemployment Rate, Average Hourly Earnings) brought tidings of labor market tightness. The Q3 Earnings Reporting cycle begins next week, and in addition to an encouraging sequence of positive pre-announcements, the likelihood is that investors will be in a hurricane-induced forgiving mood in terms of both results and forward guidance.
Here, I hasten to mention that the upcoming CEO recital series is what us ballers like to describe as the Kitchen Sink Quarter. Big shot Biz Executives often use the Third Quarter to throw the wettest blanket they can find on their proclamations, so as to look extra-good in Q4, when their compensation is set. Similarly, with just over 10 weeks left in this improbable year, professional investors are not likely to hazard the negative performance implications of divestiture of key holdings. The confluence of these dynamics leads me to believe that investors will be in a generous mood when they evaluate the words of wisdom issuing forth from corporate podiums across this great nation.
So what will make this market generate the Breakdown that Mr. Petty so plaintively requested? Well, my answer for the moment is: nothing on the visible horizon. If one can turn one’s eyes away from the horrors of Vegas or the hypocritical chicanery of one Mr. Weinstein, there are some fairly menacing but obtuse comments issuing forth from the White House lately. While short on details, they imply assertive action in some remote quarter of the globe – perhaps Iran or North Korea for instance. If so, perhaps investors won’t like what they hear, but I wouldn’t bet the ranch on it.
What I do think may be on the horizon is a more politically sensitized tone to the markets. After having whiffed entirely on Health Care, the Republican Caucus is turning its attention towards the Big Enchilada: Tax Reform. The early returns here look anything but promising. And though this is only my opinion, it appears to me that the chances for passing anything meaningful and/or accretive in this realm are about the equivalent of those tied to Health Care a few months ago.
Further, I feel that Wall Street is the main culprit here. Having for many months ignored or put an unjustifiably positive spin on all data flows, investors are incentivizing political actors to do — exactly nothing. If the current paradigm remains in place, come the holiday season, members of the 114th Congress will return to the welcoming arms of their constituents bearing the gifts of full employment, absence of inflation, and yes, record asset valuations. If anyone thinks that under these circumstances, our timid legislators will come together for any action bearing even a modicum of risk, they should think again.
Conversely, if investors were to band together and actually sell a few stocks, it is my belief that those lovable guys and gals in the Senate and the House would gather themselves in a manner reminiscent of the 73rd Congress, ushered in with the first inauguration of Franklin Delano Roosevelt. Within 100 days of convening, they had set the framework for the New Deal, created the Securities Act of 1933 (which still governs investment to this day), established the Federal Deposit Insurance Corporation and implemented Glass Steagall – a separation of banking from securities business that lasted until the ‘90s, when Sandy Weill found the law inconvenient to his plans to merge Citibank and Salomon Brothers, and convinced his pal Bill Clinton to strike it down.
That kind of presidential loving is hard to find – at least this side of Monica Lewinsky. So whatever else might be said of Sandy, perhaps we can all agree that he got lucky, babe.
But absent any kind of breakdown emanating from Tehran, Pyongyang or (scariest of all) Washington, I expect that the markets will remain in “buy” configuration, and encourage you to act accordingly. Investors aren’t likely to screw up the rest of the year, and it’s anyone’s guess when they belatedly wake up and send appropriate signals to Washington. At that point: a) it may be too late to salvage the market-friendly opportunities afforded by the results of the 2016 election; and b) investors are likely to overreact to the downside when, at long last, this reality hits them.
So, for those looking to capitalize upon such a downward reset, it is my duty to remind you of Mr. Petty’s glib admonition. The current free rising market paradigm cannot last forever, but the waiting is indeed the hardest part. For Tom, the waiting is over, but it did indeed last quite a while. The last time he recorded anything to which anyone paid any attention was 25 years ago. For the rest of us, the waiting continues. Markets continue to defy gravity, and every day we draw one more card.
Let’s play them wisely, shall we?
TIMSHEL