“Long ago, and oh so far away, I fell in love with you, before the second show”
— from “Superstar” (by Leon Russell and Bonnie Bramlett)
Don’tcha remember you told me you loved me, baby? ‘Course you do. How could you forget?
It was after the first, but before the second, show.
And as for me, your words are burned into my brain. In fact, as I also distinctly recall, you said you’d be coming back this way again, baby.
And you never did.
Well, at least I still have the song, but at this point, the singer could’ve been anybody. Perhaps it was Delores O’Riordan, the fabulous, fetching lead singer of the Cranberries, who left us so tragically and unexpectedly last week.
Or maybe, reaching back further, it was the even more fabulous and (to me) more fetching Janis Joplin. I mean, after all, Friday marked the 75th anniversary of her birth. Yes, on the whole, I think we’ll go with Janis, because, after all, there was only one Janis.
As part of her vast legacy, Janis, along with Brian Jones, Jim Morrison, Jimi Hendrix, Robert Johnson, Amy Winehouse and so many others, is a charter member of the 27 Club – Superstars that shed their mortal coils during their 27th year. On the brighter side of the ledger, we still can hear her voice.
Or maybe it’s just the radio.
In any event, we can also take comfort, this winter weekend, that one of our most stalwart companions managed to escape the fate of the other 27ers listed above. And here, of course, I am referring to our old buddy, Mr. Spoo, who not only survived 27, but in fact breezed through it, unphased, in little more than two weeks. To wit: he blasted for the first time into the XXVII handle on the first trading day of the New Year, and never looked back. Instead, like the precocious elementary school student who finds his grade’s current class load to be somewhat redundant to his erudition, he skipped right into the 28th parallel — without breaking a sweat.
Visually, this sort of thing looks like this:
SPX 27: We hardly knew ye!!!
But Mr. S is not alone in terms of his precocity. Yes, he’s up an impressive 511 basis points in a 2018 that is still in its infancy, but he’s actually trailing his main frenemies General Dow (+547) and Captain Naz (+627) in terms of his scores.
Perhaps all of this is getting a little bit silly. The recently reconstituted propeller heads at General Risk Advisors Jet Propulsion Laboratory (located in the shopping mall next to the train station in Wilton, CT) have calculated that year-to-date, the annualized return for the Gallant 500 exceeds 136%. We tried to do the same calcs for the Dow and the Naz, but the propellers on our hats flew right through the ceiling and are now following the Jetstream over Greenland.
Now, my loves, there are very few specific prognostications that I am willing to make in these troubled times, but one of them is as follows: across the fullness of 2018, the SPX will have difficulty generating a return of 136%, or even 130%. In fact, my own models indicate that it will do well to hit 120%. As such, I am recommending against the purchase of 2018 SPX calls with a strike price above 6,000 (unless, of course, you can buy them at a cheap vol).
And after all, it’s not like there aren’t a few things that could go wrong in the ~11.5 months left to this year. If you’re like me, you awoke this morning to the tragic, unthinkable news that the big D.C. dogs were still unable to come to a budget deal, and that as such, the custodians of that galactic, precision engine known as the United States Federal Government will begin, like Dave did to HAL in the movie “2001: A Space Odyssey”, the solemn process of shutting it down. For most of us, this pantomime has long since passed its “sell-by” date. And yes, for what it’s worth, I do believe that Chuck and Nancy have overplayed their hands (and probably know it) by shoe horning a resolution of this DACA drama into what should be an entirely mechanical proceeding. You can’t really blame them much, though. We do have an important election looming, and, dating back to the Paleoanthropic Era of the Clinton White House/Gingrich Congress, these shutdown affairs have redounded to the political detriment of the Republican Party, and to the benefit of their opposite numbers.
My guess is that we’ll quickly get past this crisis, only to relive it again in a matter of weeks. And even if the debate lingers unresolved, about the only inconvenience this is likely to evoke is a possible delay in the release of economic data – particularly the first look at Q4 GDP, currently scheduled to be announced on Thursday. A postponement of the distribution of this report would be, however, somewhat disappointing, because: a) the models are perking up; and b) the markets should sure use a shot in the arm (couldn’t they?).
But even so, we’ll still have earnings reports upon which to obsess, and, with 10% of the precincts having reported, the numbers are thus far encouraging. True, the banks had to do a one-time set-aside, but virtually everywhere else, the bells be a-poppin’. It starts to get interesting over the next couple of weeks, and, as always, I’d pay as close attention to guidance as I would to profits and sales.
In particular, I’m looking for signs of what I believe to be shaping up as the biggest capex spend since before the crash.
Briefly, elsewhere, there appears to be welcome pressure on government bonds, commodities are showing signs of life, but that poor old dollar appears to lack the ability to source a bid for love or money.
DXY: Whistling Dixie
So maybe it’s our Dead Prez singing that line: “don’tcha remember you told me you loved me baby?”. Well, it says here that somewhere, some way, a bid on the greenback will materialize. And, while we’re on the subject, it is at least theoretically possible that Mr. Spoo will someday find himself “on offer”. At prevailing levels of 2810, this means if it happens soon, he could find himself back in the 27s.
And, in conclusion, if history has taught us anything, the 27 Club is not for the faint of heart, so take care, be forewarned, and, as always…
TIMSHEL