Got me a new phone.
Specifically, an I-Phone 8.
It has a lot of nice features, like stuff to do with the camera. And the apps. And other sh*t as well that they told me about at the store, but I forgot most of it.
I just thought you might like to know. And case you can’t tell by now, I am immensely proud of my new I-Phone.
So much so that I flew Joe Montana in from the West Coast to stand next to me, in a picture of my recently acquired prized possession.
That’s Joe on the right. I, on the other hand, am on the left. Sharp-eyed observers will notice a portable device in my hand.
And you are correct. It is my brand spanking new I-Phone 8. Of which I am immensely proud. I would go so far as to characterize this pixel-captured moment as one of the finest I’ve ever experienced, falling short of divine ecstasy only insofar as it was not captured for posterity on my brand new I-Phone 8.
But if I did that, took the picture on the 8, then, by definition, it would’ve been nigh impossible to include the device in the visual frame, and as such, would’ve rendered Joe’s 3,000-mile journey somewhat quixotic. So I think I made the right decision here. Because (or so it is said) if you’ve got it, you may as well flaunt it, and whoever said this must’ve been referring to the 8.
But in reality, the time had come to make the move. I’d been rocking a 6 for the last couple of years, and, other than the irritations associated with its inability to hold a charge, its faulty speaker, and the various cracks across its façade, I had no particular complaint. It had a good run, but it’s time had come and gone. And, as Apple has discontinued the production of the 6 Series (including the 6-S and 6-Plus) swapping out for the same model wasn’t an option. For any of readers worried on my behalf that I may have moved too precipitously, I present the following photo (take, of course, with my brand new I-Phone 8) as Exhibit A:
Exhibit A: My Wounded Warrior I-Phone 6
Yup, that’s my poor, abused 6. So long, amiga. You won’t be forgotten.
In the modern era, a man’s relationship with his phone is a rather intimate affair, and when he ditches his stalwart but aging electronic companion for the sleek, newer model, there is always some mixed regret. But even here, I didn’t assume what they call in the investment world a “full position”, as doing so would have compelled me to go the whole route and grab myself an X. But what the hell is an X anyway? For Greek Mathematician Pythagoras it is the square root of the length of a non-hypotenuse side of a triangle (as in X2 + Y2=Z2 – aka the Pythagorean Theorem).
Separately It has served for many generations as the default signature of the illiterate.
Beyond this, and in general, it is the vexing, mysterious, eternal variable for which humanity must solve. And at the Verizon Store (and I won’t lie: this was a major driver of my decision), it fits into the following equation:
X = Cost of I-Phone 8 + ~$250 = Cost of I-Phone
8 on the other hand, is easier to understand. It is 2-cubed. It is the answer, in fact the only one that exists in the mathematical universe (using its Cubed Root: 2 as a substitute for that infernal X), to the following equation:
(X*X)*X = (X+X)*X.
It also serves as a cheery homonym for consumed solid sustenance (i.e. “ate”), whereas in homonym-land X can only matches, winsomely, a former love interest.
It’s linkage to Joe should be relatively easy to identify for the intersection of the sports-aware and the mathematically mature. During his glory years with the Niners, Joe wore the number 16, or twice 8. So for those keeping score, in one sense, two of my new devices equals one Joe Montana. Of course, you don’t get the 4 Super Bowl rings or the 7 Pro-Bowl appearances with the 8, but on the other hand, and to the best of my knowledge, you cannot, with your fingertips alone, direct Joe to find you the shortest route to Hackensack, NJ.
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At the point of this correspondence, there are 8 full trading sessions left to this year (plus a couple of holiday halves). And what a year it’s been! Financial Assets have been rallying to beat the band, and if you weren’t long (and I wasn’t) well then all I can say is too bad for you (us). Of course, the news isn’t all good (is it ever?). Holders of agricultural commodities, for instance, have experienced the indignity of witnessing a benchmark basket of their inventories breach an all-time low, having shed fully half their value over the last 5 or so years, and enduring a downdraft of more than 5% this month alone – all as captured in the following chart of the Energy-deemphasized Continuous Commodity Index:
Continuous Calamity (er, Commodity) Index
Now, I admit this ain’t so good for some of my “earthier” constituents, but let me ask you: how bad are things if, in a raging bull market, the raw materials that we put into our tummies or wear on our backs are now cheaper than they’ve ever been?
Not so bad, right? And let’s face it: who invests in ags anymore? I mean Soy Beans and Wheat and Cotton are certainly quaint little markets, but us men and women of the world, it is hardly consummate with our grace and dignity to allocate risk to these realms.
Nay, my friends, the locus of action has been in more contemporary markets, such as Crypto. But I don’t really have anything useful to say about Crypto, and am thus compelled to revert to my fallback asset class: Equities. Fortunately, they have not disappointed, and my read on them is as follows.
I consider 2013, call it the last hurrah of US QE, to have been the real outlier year. The Gallant 500 returned ~30% to investors, in the process ginning up a modest volatility of ~10%. As these were the heady days of Zero Interest Rate Policy (ZIRP), I set a risk free rate at zero, and derive a Sharpe Ratio of approximately 3.0. Its 2013 Downside Deviation (defined as the standard deviation of negative observations) clocked in at a logic-defying, 7.31%, which translates into a Sortino Ratio ((Return – Risk Free Rate)/Downside Deviation) of ~4.1. Now, in my experience, any SPX Sharpe above 0.5 is a pretty strong showing, as is a Sortino above, say, 0.7. As such, I was loud at the time in my proclamations that we would never again in our lifetimes (or, remembering my codger-like status, in my lifetime) see such a Joe-to-Dwight Clark sort of performance out of the Index.
But I was wrong. Thus far in 2017, the S&P 500 is on pace to deliver 20.4% returns on a volatility of 6.7%. As we no longer are in ZIRP-land, I subtract 1% risk free rate, and derive a Sharpe of 2.9. But the analysis doesn’t end there; the 2017 SPX Downside Deviation currently resides at a sub-atomic 4.3%, implying a Sortino of 4.5.
Lightening has indeed stuck twice in the same place.
And who’s to say we can’t gather ourselves in the last two weeks and eclipse even the ’13 Sharpe threshold? At the point of this correspondence, Tax Reform appears to be on its way to passage, and whether this helps the capital economy or not (and it should, at least some), recent pricing action suggests that if Trump actually signs a bill, it may be good for a couple of hundred basis points to the upside on the benchmarks. If so, we may well breach into a 3 handle on the Sharpe, yet again.
This past week, we also killed off the cynical government power grab known as Net Neutrality. And Twitter/Facebook absorbed the blow. The tree huggers, when not screaming bloody murder, are weeping crocodile tears on this one. But they are being misled. The big dogs, whatever they state publicly, loved the barriers to entry/innovation and other bennies that devolved to them from deeming the frigging Internet a public utility that needed the same regulatory regime first put in place for telephones in the ‘30s, when AT&T had a monopoly. Expect, now, more capital investment and much better ranges of services and value propositions for consumers. In fact, I challenge any of my prog friends to come back to me within a year with any evidence that the repeal has harmed anyone. To balance matters, I will be glad to identify ways in which the new freedoms have been accretive to consumers.
Finally, and in keeping with the spirit of our weekly theme, I will take the opportunity of devoting the last section to a glimpse into my vision for next year: the 8th of this improbable decade.
I tend to view the early days of any given year as jump ball territory. The solemn, time-honored ritual of tape painting has run its course, , and beyond this, I view each marker year as its own novella, with the story unfolding at its own pace over a period of months. Part of me adheres to this paradigm, but then I remind myself about the glaring supply/demand imbalance which continues to socialize a bid on high quality assets. If you’re looking for more evidence of this, consider the M&A action over the past several weeks. Let’s say you like to Invest in Insurance Companies. Post the merger of CVS and Aetna, there’s one less of them to trade – unless, of course you wanted to own a pant load of drug stores as part of the package. Similarly, those predisposed to speculate on media content will soon no longer have the opportunity to take a piece of 21st Century Fox without also purchasing a healthier dose of Mickey, Donald (Duck not Trump), “Dancing With the Stars” and Monday Night Football.
So I rather think, albeit prematurely, that stocks and bonds will remain in short supply next year, and that their valuation paths will reflect this scarcity. Of course, a lot could go wrong across a 12-month interval which has yet to begin, but all other factors being equal, I don’t believe that high-grade securities “on offer” will remain so, at an point in the sequence, for extended periods of time.
No, this won’t last forever. Nothing ever does. So it may be worth considering getting some while you can, because when it’s over, it will indeed, as Yogi instructs us, be over. Consider, if you will, that the case of the fabulous I-Phone 8. It was released on September 22nd, and managed to remain at the top of the Apple product tree for approximately 6 weeks, whereupon it was displaced (November 3rd) by the X.
Or just ask my friend Joe. After winning 4 Super Bowls with the 49ers, injuries forced him to the sidelines. As fates would have it, he was replaced by a direct descendant of Church of the Latter Day Saints Founder Brigham Young: a chap who never looked back, and won himself 3 more Super Bowls on his own.
And for the record, Joe’s replacement Steve Young’s jersey number was 8.
Crazy, no?
TIMSHEL