I’m warning you. For the second to last time. It’s my pen-ultimatum.
So just don’t do it. Because this warning, is, by definition, a prelude to my final admonition, which will be my last one.
Or not.
I’m ambivalent as to what I’m warning you against, because (let’s face it), there’s an embarrassment of rich choices in this regard. But I’ll reckon we’ll get to all of that.
Mostly, I just like the way that the mashed-up term: pen-ultimatum, trips of my tongue. And keyboard. Also, I would be remiss in any failure to mention that this past week marked the penultimate 7-day cycle of by 5th decade of cooling my heels on this here planet. I really can’t express this in any other manner. It’s simply too depressing.
On the other hand, I figure that a pen-ultimatum, issued at the end of the penultimate week of my fifties, may actually lift my spirits a bit. So that’s what I’m gonna do. Issue a pen-ultimatum.
At least I’m going out with a bang (or not). Because it was quite a week. Global equity indices soared throughout, with the Gallant 500 actually (albeit temporarily) breaching new terrain mid-day Friday, before retrenching to encampments adjacent to these boundaries. The same was true in other jurisdictions. Heck, even the UK’s FTSE 100 surged by > 200 bp, and this in advance of important Brexit decisions about which even the experts have no idea as to the outcome.
Madam X (the U.S. 10-Year Note) retained her ambiguous, alluring indifference, but her strumpet-like protégé: Vixen VIX, demonstrated her oft-manifested easy virtue, yielding further ground across the cycle. At 12.65, she now resides in as supine of a position as hasn’t been witnessed since late April, when the partying start of 2019, was (unbeknownst to the rest of us) about to come to an abrupt halt.
About the only financial buzz kill I could identify all week was the following floater in the punchbowl. As illustrated in the following chart, the anti-oxymoronic upper end of the Hamptons Real Estate Market, is newly awash in inventory:
Read ‘Em and Weep: Hard Times for H Sellers
Now, what is bad news for the sellers is of course good news is of course good news of buyers. But let’s face it: we ain’t buyers in those hoods. And, on a more encouraging note, about three years ago, I did manage to liquidate a property — not in the range contemplated in this chart, but in a proximate zip code.
And I’m glad that I got out. And part of my pen-ultimatum is that you avoid the temptation to dive into these fabulous realms – at least at this pass.
But I reckon I should let go of my Alzheimer’s-enabled ramblings and revert to my main point: I’m convinced there’s more risk in this here market than the tape (or, for that matter, your latest suite of risk reports) are suggesting. In terms of the latter, us purveyors of risk analytics are steeped in the notion that the recent past is somehow a sound predictor of the future. Sometimes this is true; sometimes not. However, while there’s been a lot of idiosyncratic price action over the last few weeks, the factor dynamics that drive these metrics have been benign, and project out a more stable market configuration than I believe they can sustain as the year winds down.
To wit:
We’re nearly half-way through Q3 earnings, and though they be mixed at best, investors are at present untroubled by associated tidings. Probably, this pattern will ensue through the remainder of the cycle, including next week, when a whole passel of leaders (Apple, Alphabet, Facebook) and a greater number of laggards (Falling Stars Sears, General Electric; a boatload of others) report. Pen-ultimatum pricing patterns suggest that while, as always, it’s woe-betide to disappointers: 1) it may be best for CEOs not to overstuff their messaging with too much glee (left-hand chart); and 2) if they care about their current valuations, the more said CEOs have pleased 45 and kept their home fires burning (i.e. done most of their biz in the U S of A), the better off they are:
Forgive me for offering a blinding glimpse of the obvious, but the graph on the right sort of suggests that all of this trade agita just might be actually hitting the real capital economy. And near as I can tell: a) there’s no more clarity at this moment than there has been at any point in the saga in terms of any resolution with China; b) the Xi/Trump vibe could absolutely turn negative at any moment; and c) if b) happens, equities have a lot of room to fall.
The FOMC issues its next policy drop on Wednesday, and another short-term rate cut appears to be fully on the cards. Friday morning (when the All Saints’ Day Sun is high in the Eastern sky), we receive our first glimpse of Q3 GDP, and boy, ought that be interesting. The conflating of these events by the punditry suggests that: 1) the Fed may rest a spell at that point; and 2) the favors of Madam X, having been delivered at increasingly discounted yields since roughly the point when I turned the big 3-0, are about to become dearer.
Well, OK; but I’m still taking the under on what is yielded by Madam X. Maybe we are at the pen-ultimatum moment on low rates, but I’ve heard that warning so many times that I am benumbed and incredulous on that particular issue.
The markets also seem to be entirely serene about domestic politics, which, to these aging eyes at any rate, appear to be devolving to a transgenerational lack of decorum. The President is certain to be impeached. That bell has rung. Extra-constitutional hearings that set this up are occurring on a round the clock basis. Lots of unknowns here, kids. The Iowa Caucuses are just over three months away, and as to the leading candidates that embody the only alternatives to a second term for the Big Guy? They feature a dude that actually committed the transgressions for which the Big Guy will be impeached, and a few who are outflanking one another in hysteria in terms of which of them can tax the most, regulate the most and redistribute the most of the hard earned funds of the productive class of the economy.
I would add a brief word about my home state of California. Where I was born. Six decades ago. A couple of years back, the State experienced historic flooding that could do nothing to eradicate a drought in its precious Central Valley farmlands. Now, it’s facing the prospect of a blackout for three million souls that is intended to prevent wildfires that are nonetheless raging as I type these words out. When you have droughts during flooding, and wildfires during blackouts, well, something ain’t right.
Is this an environment where it is wise to load the boat on risky securities issued by private enterprise? Investors seem to think the answer is yes. And they may be right. For a time. But I may have to warn them against this in the near future. And then warn them again. Somewhere down the road. So call this my pen-pen-ultimatum on stocks.
One way or another, I think there’s a volatility pressure cooker that cannot be kept in check across the nine short weeks that remain to this crazy year. There’s likely to be some pretty wild, two-way action coming our way during that interval. I just don’t know when the lid pops off, so this is likely not the last warning I’ll issue. In this respect, it, too, is a pen-ultimatum.
I’d urge extreme care as we navigate the final weeks of this rapidly expiring year. What doesn’t look too risky now could turn hazardous in the extreme – in the manner of a blink of an eye.
However, because this is a pen-ultimatum, I don’t want to go overboard in terms of issuing dire warnings. You can, indeed, relax in a certain manner. If you find that dream dwelling you’ve always wanted, as long as it’s not in the High End of the Hamptons, you have my blessing to secure it. Heck, I may even be willing to spot you the application fee, and maybe you’ll let me accompany you on your final walk-through. Fair warning, though. I intend to visit you there. Often.
Feeling, as I do, somewhat wistful as this mixed-blessing anniversary of my birth inexorably approaches, I feel an obligation to remind everyone that we signed up for a multitude of mixed blessings when we came down the shoot in the first instance. All of us will experience a combination of gratification and frustration. Of joys and sorrows. Of certainty and confusion. Our best hope lies in the path of treading carefully, and capturing what is there for us, without doing harm anyone else. Sometimes, what we reach for is within our grasp; sometimes not. Sometimes, we don’t know the answer, because it resides in the future, which is unknowable.
But I’m advising you to tread carefully across these seas of uncertainties. And to my friend Michael (who is wonderful) I’m here to tell you that it may require everything you’ve got inside you to row your boat ashore. Whatever that means.
These are my warnings to you, my loves. And the odds on likelihood is that I’ll have to issue at least one more warning of this nature before we’re through.
But given that this is a pen-ultimatum, it is entirely fitting and proper that I do so.
TIMSHEL