On November 27, 1942 – 75 years ago this past Monday — Johnny Allen Hendrix was born in the town of Seattle. Sometime during his 4th year, his parents changed his name to James, and, as everyone knows, during his brief but remarkable adult life, he used the handle of Jimi. For those who cared to notice, he changed the world.
Five days after his birth – 75 years ago yesterday by my count– a group of scientists working under the bleachers at the University of Chicago’s Amos Alonzo Stagg Field, initiated the humanity’s first ever successful nuclear chain reaction. The results were de minimus; the blast barely able to knock down a precariously positioned series of dominoes, but the concept had been proved. Pretty much no one able to fog a mirror could fail to notice that this milestone, too, changed the world.
The bigger part of me would like to believe that these events are related, because such a connection would imply that our affairs are governed by more than our finite, fallible responses to pseudo-random natural stimulus, and as such, bring us closer to God.
But I just don’t know.
However, as I ponder this series of Diamond Jubilees, it strikes me that chain reactions abound. Investors entered the week somewhat obsessed with two concepts. In no particular order, these were: pending tax legislation, and Bitcoin. The latter is based upon a chain reaction-like technology called Blockchain, which, whatever happens in the realms of digital currency, is likely to dominate our telecommunications affairs — until something better comes along. As for Bitcoin, though it hardly needed it, the virtual currency received an enormous boost this week, when the Commodity Futures Trading Commission (CFTC) approved its listing on derivatives exchanges, and both the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) responded by immediately announcing the launch of Bitcoin futures and options later this month. The Merc is my professional home, it’s where I grew up, and I owe it a debt of gratitude that I cannot reasonably expect to repay – at least in this world. So I wish them all the fortune that Heaven allows with their new product line.
And that – at least for now – is about all I have to convey about Bitcoin.
Those such as myself, with ids more firmly rooted in the past, focused their attention on the tax bill, and the ebbs and flows of valuations across asset classes appeared, most of the week, to be tied to the real-time prospects for its passage. By Friday morning, the majority announced that it had the votes –sufficient “ayes” to move it through the Senate, and thus to pass it back into Committee, where Obamacare-like, it will likely be altered beyond recognition: through a dainty little do-si-do with the lower chamber. This is a process called a Reconciliation, and more than that you don’t want to know. Thus, as the noon-hour approached, everyone’s eyes were giddily affixed on yet another stroll to all-time valuation records. But then…
…Sometime just after 11 a.m. EDT word came down that drive-by National Security Advisor Michael Flynn had pled out to the Mueller investigative team, and that, as part of the deal, he was prepared to give up some big names with respect to this whole Russia thing – including, perhaps (or so it was speculated) even the Trumpster itself. The ladies on “The View” broke into spontaneous on-air celebration, but the equity market sold off. Hard. Or at least what passes for Hard in these low volatility times. A little over an hour later, it stabilized, and then gathered itself sufficiently to close near flat for the session.
Touchingly, my phone sort of blew up Friday afternoon, as risk takers from every corner of the universe sought my wisdom on the episode. I’m not sure I had much to offer, but to those not looking for regime change, I could at least furnish the comfort associated with the unfolding reality that Flynn’s plea involved Perjury (as opposed to something more nefarious like Conspiracy with a Foreign Adversary), that the active sequence appears to derive from a point after the election (when, presumably, the act of an incoming National Security Advisor discussing matters with a Russian Ambassador cannot be viewed as a fatal breach of diplomatic protocols), and that if a real smoking gun had been revealed through the Flynn plea, the markets would be likely be crashing harder. This was about all I knew. And all I know.
On the other hand, the whole matter is beginning to eerily resemble the manner in which Watergate took down Nixon. Special Prosecutors start at the outer layers, and seek to create a chain reaction, which pushes their initiative closer and closer to their Ground Zero target. Yes, from my perspective, this here affair is assuming a similar trajectory, but I have little insight as to whether it limits itself to impacts that can be contained inside the walls of a small laboratory underneath a bad football team’s home bleachers, or expands, in Nagasaki-eqsue fashion, to threaten the destruction of whole civilization. As a risk manager, my sense is that the story will continue to ebb and flow, and that until the end game is revealed with greater clarity, most of the associated market action is not much more than unhelpful noise.
(Side Note: Comey must be feeling pretty smug right now. After bumbling his way through the 2016 election cycle – screwing up everything within his reach and p*ssing off everyone involved, he knew he wasn’t going to hack it in the Trump Administration. So he gets himself fired, and testifies before Congress in such a way as to, by his own admission, invoke the Special Counsel clause. He then dances off to Howard University (?) in an endowed chair, cops a 7 figure book deal, and sits back and enjoys the action. Nice work, Big Jim.)
Meanwhile, as all of the above was transpiring, other chain reactions were assaulting our senses. Take the sex harass pushback paradigm for example, a chain reaction that, depending on your point of view, originated with Weinstein. Or further back, to Cosby. Or even further back, to Clinton. Or even earlier, to Kennedy. Or, if as is probably the case, extending into the past all the way to the point when we first emerged from the primordial ooze. One way or another, it rolled on in an arguably accelerated fashion. This past week alone, it claimed a ubiquitous master of network news and a nice old fellow who takes to the radio to read stories he’s written about life in the heartland. It now is poised to devour the previously esteemed Music Director of the New York Metropolitan Opera and even perhaps that slick dude from “Entourage”. Where it ends, no one can say, but I suspect it will keep tongues wagging amongst the chattering class for many months to come.
Perhaps more importantly, and lest we forget him, L’il Kim emerged, after a 3-month hiatus – to lob a missile based upon the same chain reaction technology developed under that Chicago football field, into the Sea of Japan. Experts were quick to point out that his claims to be able to send WMDs pretty much anywhere within the civilized world had some merit. Trump said he’d take care of it, and here’s hoping he does. But one could, er, pardon him if he’s a little distracted these days, and as for me, I don’t see many alternatives that don’t involve us turning his palaces and military installations into non-functional parking lots. Not a pleasant prospect to ponder.
Yes, it’s all just a tad depressing – particularly as these freak show/peep shows are serving to distract us from what appears to be an accelerating global growth dynamic. With our biological bandwidth completely consumed by the machinations of Mueller, Flynn, Flake, Lauer, Kim and whoever it was that gave us Bitcoin, we missed a pretty fly string of economic releases. Home Sales/Valuations, Consumer Confidence, Business Confidence, Manufacturing Flows, and (last but not least) GDP all came in at the upper end of consensus or beyond. A close reading of the tape suggests that a successful round of tax legislation has not been fully priced into the market, and as such, if the Ruling Party can just get this one thing done, we’re probably looking at significant incremental upside between now and year end.
We do need to remain leery of these bloody chain reactions, though, but even here the news is not all bad. Last week’s note featured a diatribe about the outgoing Director of the dubious Consumer Finance Protection Bureau’s effort, as he exited, stage left, to name his own successor. The President justifiably countered this stunt, putting his own man into the job, and then, sure as the moon turns the tides, the outgoing Consumer Tsar’s heir apparent went to the courts to block the presidential appointment. However, for perhaps the first time in this administration’s tenure, the courts actually sided with the Executive Branch – under the obtuse notion that the nation’s Chief Executive is within his rights in naming his own staff. This drama may not be over, but let’s hope it is. Some of you will disagree with this notion, but the idea of a federal agency being able to set its policy into perpetuity – by simply having the current office holder name his or her own successor (and so on) is not the type of chain reaction that I believe the framers had in mind for us – all those years ago.
Other chain reactions will, presumably, endure, some visible to the eye; others not so much. 75 years ago, a poor black boy was born in Seattle, and grew up to set the music world permanently aflame. A week later, a bunch of scientists finished their efforts to create a process for setting the hottest physical fires known under the sun. The former, though dead for more than a generation, continues to delight and amaze; the latter, at least in its early days, was applied to end the most terrible war that mankind has ever known. Perhaps these things are connected through some cosmic chain reaction. Perhaps not. And all I can add, in conclusion, is a heartfelt…
…TIMSHEL