Here, I refer not to Cleveland, which is on Lake Erie. But rather to Chicago, nestled on Lake Michigan.
And not to the City itself, which I don’t consider a mistake. I lived there for 25 years, and, on balance, am quite fond of the place.
Particularly the waterfront. When I was just a little guy, I used to think that my maternal grandfather owned Lake Michigan. In my mind, he had a key for a cover that he’d place atop the water each winter and remove when weather conditions called for it. I remember accompanying him on these errands, so long, ago. Was it just a dream? It seemed so very real to me (stolen from John Lennon).
And when I got a bit older, I thought that the lake belonged to me. Lord knows I spent enough time there to claim, at any rate, squatter’s rights. All seasons. In blistering heat and subzero, blustery frost. I swam there, ran there. Got wasted there. Lots. Was arrested there. At least twice. Maybe more; can’t remember.
But my favorite times on Lake Michigan were late afternoons in the Summer (natch), when, each day, hundreds of percussionists would gather on the Fullerton Rocks, and knock out rhythms that would bounce off the water, kiss the skyscrapers, and sing to the heavens. The sun would beat down like it does on the Hudson River (near which I currently reside) and explode into a splash of sound – all against the backdrop of the best damned urban waterfront that I’ve ever encountered.
So, if I believed, in a long-gone, substance-induced era, that Lake Michigan was mine, I came to this honestly. But now I find that I was deeply mistake(n). It actually belongs to the City’s current mayor: The Honorable Lori Lightfoot. And if anyone doubted this, she settled the issue definitively when she shut down the waterfront for all recreational activities. Until. Further. Notice. This happened on March 26th, so I’m a little late to the pile-on party.
But here goes nothing. All hail Lori Lightfoot. LL. The Lady of the Lake. Like her forebear in Thomas Mallory’s “Le Morte D’Arthur”, she wields the power of the sword and, of course, the water. Wizards and Kings kneel at her feet.
I should also remind everyone that her predecessor, Rahm, was a childhood chum of mine. We spent many hours together up in the general vicinity of Foster Beach. He famously warned against letting a good crisis go to waste, but that was long after our carefree innings at the water’s edge had ended. To my knowledge, he has yet to weigh in on LL’s decision, and I’d like to think, if for no reason than auld lang syne, he’d have gone in a different direction.
So why did Lady Lori shut down one of my fave spots on the planet? Probably because she could.
And the same can perhaps be said of Lord Powell, Royal Executor of our National Bank, who astonished and delighted the masses by announcing his outfit’s intention of diving into the murky waters of ETFs, Junk Bonds and other financial instruments of dubious construction – up to >$2 Trillion of them.
I’m not sure how well this will turn out, but there’s an argument that the action will save more lives than, say, the lockdown of the Chicago lakefront. Thus far, the State of Illinois has registered just over 500 Covid deaths, as benchmarked against an average annual influenza mortality rate of approximately 3,500. On the other hand, the baller $2T Fed move should probably be measured in proportion to the $75T of private debt that American individuals and institutions are carrying. It’s bound to help, but will it cause enough of a dent to have justified the silencing of the conga players on the Fullerton Rocks? I reckon we’ll find out. And yes, I’m going to continue to beat my own, er, bongos to the tune that: a) there’s a galactic amount of risk out there; and b) that if it manifests as losses, they are most likely to materialize in and around the credit markets. You just can’t shut down a levered economy like we have (however necessary the step might have been) and expect the boys (and girls) to keep the beat.
Increasingly, there is a focus on the ratings agencies, and how the catastrophe will impact their scoring of credit worthiness. There are some early returns here, which, if not surprising, are nonetheless alarming:
Notably, over 80% of these downgrades apply to paper that is already below investment grade, much of it featuring payment triggers that kick in when the ratings agencies drop the hammer. What could possibly go wrong?
I’m glad you asked, because the answer is that many of these borrowers have either been shut down or forced into deep curtailment as a result of the crisis. They may not, probably don’t, have the means to fork over the required cash. So the banks get stiffed, call in the loans, call in others. Welcome back, 2008! Can’t say we’ve missed you, but what the heck? You’re back, you crazy knucklehead.
Now, though I’m not proud of this, I’ve got a bit of a soft spot for ratings agencies. They and I share the common burden of earning our keep by assessing risk. But know this: they are conflicted. The only reason anyone pays them is for the purposes of facilitating their desire to sell debt – ideally at favorable prices. It thus follows that the purchaser(s) of these services are likely to be happier camper(s) when they are treated kindly, or at minimum, Moody’s/S&P/Fitch Justice is tempered with Mercy.
And now they face quite a conundrum. By any objective measure, the default risk they are paid to assess has taken a quantum leap upward. But do they really want to bring out their ratings axes right now? Will they? How can they not? What happens when the do? Truly, I don’t wish to think on it.
And then there are those forlorn enterprises that have already reached the depths of pre-default ratings purgatory – the CCCs, or, as we in the biz affectionately refer to them: The Triple Hooks:
If you’re a 3-Hook, the only downward migration that exists is to the Dreaded D. Which stands for Default. In these realms, no one but the bravest and greediest will lend to you – even during good times. Which these ain’t. And you don’t join this club without having made your bones by already stiffing creditors.
This here chart tells the story of Captain Hook being entirely shut out of the credit markets. He’s got no cash but what he can borrow anyway. So it doesn’t take much imagery from Peter Pan to envision the unpleasant fate that awaits him – one which spills over to employees, investors, customers and the like.
But it does make one’s timbers shiver to contemplate the risks that hover over the entire capital market – debt, equity, the whole shebang. Meanwhile, the Gallant 500 and their fellows just clocked in with their best week since 1974. Remember ’74? Ignominious Vietnam retreat? Watergate? If so, kindly refresh me, because I spent most of that year chugging quarts of Miller on the banks of Lake Michigan.
Bear in mind that this rally transpired as Weekly Jobless Claims hit a horrific 6.6M, bringing the three-week total to a handy 16.8M: a number that is, once again, almost certainly understated due to the practical logistical problems of processing these applications in the era of social distancing.
So why are investors hoovering up stocks? (say it with me) Because they can. But you can color me skeptical about these actions. At ~2800, the Gallant 500 has recaptured nearly half of the ground it yielded during the brutal Month of March, and another couple of weeks like the (holiday-shortened) one just completed, and we’ll be in full Emily Litella “never mind” mode.
Well, maybe, but I am rather inclined to think that we’re more likely to test the lows than the highs over the next few weeks. On the other hand, I’ve logged into Bloomberg the last two Sunday nights expecting futures to open limit down. So, who’s the schmuck? It’s me, but I’ve been called worse, you know.
And this schmuck says that markets are as risky as he’s seen them. And he’s seen a lot of risky markets.
With that, I reckon I will begin my leave-taking ritual. Please know that I miss you terribly and would be with you if I only could. But we will be together soon, and then forever.
And if I had my way, this summer, I would take you with me to the Fullerton Rocks, to be serenaded by its indigenous tabla players. But first Lady Lori of the Lake will have to open the joint for business. And even then, if I’m not mistaken, the percussionists were long ago chased off of the premises, residing now, only in our memories. Local boy John Prine checked out this week as well, and, on the whole, it’s been a tough spell for my homies in the Windy City. But it’s been tough in NY as well; almost certainly worse.
So maybe, instead, we can take a stroll along the Hudson River. It’s still open for promenade, and I know a place we can walk. In fact, I know of two such spots. If it rains, we can talk in the car.
I bounced from Chi some time prior to the removal of the rhythm section, but, Lady Lori, I nonetheless implore you to do the right thing and open the gates to the Chi-town waterfront. It is an obligation passed down to you from civic leaders of the past, including Daniel Burnham, who once said: “The Lakefront by right belongs to the people. Not a foot of its shores should be appropriated to the exclusion of the people.”
I think you should heed his words, but if they don’t ring true to you, do it because you can. And I don’t want to insinuate anything here, but you should perhaps bear in mind that Mallory’s Lake Lady met with a rather nefarious end.
But if my entreaties fall on deaf ears, I can always recall the spirit of Irving Manaster, my maternal grandfather, who, as his one legacy to me, bequeathed the keys to the cover of Lake Michigan to my keeping. Now, if I can only just remember where I last set them down.
Happy Easter, and, as always…
TIMSHEL