“It looked like rain, so I took the liberty of rolling up your car windows”
— Eddie Haskell (Leave it to Beaver)
Welcome to a special, Multi-Media Memorial Day Edition of our weekly musings, featuring not only the written word, but references to both the small and big screen — from days gone by.
And our titular advice is worth heeding, especially in light of an article in this week’s Barron’s, suggesting day trading has replaced sports betting as the national pass-ime, and expressing doubt as to whether the latter can sufficiently sustain the (in my view elevated) valuation of risk assets.
While I am unable to corroborate the above-mentioned trend, I will express my concurrence with the subsequent sentiment. Day-trading, while if done with proper social distancing protocols, may help bend or even crush the curve. Sustain this improbable rally? I fear not.
But one of the men behind the keyboard (to whom you should pay scant heed) is me. No, I’ve not been day-trading (just typing away in MS-Word as always), but I am nonetheless hiding behind QWERTY. And, given my recently dismal risk prognostication performance, it would be wise to ignore me as well.
Know that I’m putting forward neither excuses nor justifications, but in terms of root causes, it seems that one of them is that MY ever-changing world in which we live in (thanks Paul) is rapidly melting away.
And if I’m right about this, then the week just ended was one of a melt acceleration. Though everyone knew this was coming, I took the formal announcement of Johnny John discontinuing sales of its iconic baby powder as a particularly crushing blow. My mother literally slathered me in the stuff, so much so that my longtime family doctor informs me that no less than 20% of my (recently dwindling) body mass is, and always has been, Johnson and Johnson’s Baby Powder.
Then came the passing of an above-reference idol of mine: Ken Osmond, who played the snarky, misanthropic Eddie Haskell in the 1950s masterpiece sitcom “Leave it to Beaver”. He crushed this role as the scheming cynic whose attempts to charm the local girls and parents always fell hilariously flat. Finally, I’d be remiss in not making reference to the postponement of the Indy 500, which normally takes place on Memorial Day Sunday, but is now (we’ll see) rescheduled for some time in August. I actually don’t really give a sh!t about the race. Not a fan of the sport in general. It did used to amuse me to try to convince my mother to attend a NASCAR event with me – preferably one that would involve an extended road trip to a rural track. She never agreed, and she’s been dead for 3.5 years. Her race is run, and the annual Brickyard ritual has been postponed. No wonder I’m off.
Since this here pandemic began to transform the economic landscape from a colorful (if scary) Land of Oz motif — into the black and white Kansas plain right before the tornado struck, I have anticipated further market carnage, and I’ve been wrong. I wasn’t overwhelmingly surprised to see a modest snapback of valuations — once it became clear that we weren’t ALL gonna die, but I didn’t think it would hold. It has. But even while the pandemic numbers can be interpreted as nominally encouraging, the economic fundamentals have fallen into full on collapse, that must, or should, look to investors like the scene Brad and Janet first encountered when they walked into Dr. Frank N Furter’s castle on that stormy night.
And the numbers keep deteriorating. A quarter of the work force idled. Profits disintegrating. Bankruptcies and delinquencies soaring. Broad swaths of the economy still in full-on shutdown.
But against this gruesome backdrop, the market music keeps playing. Let’s do the Time Warp again, shall we? Apparently, we shall. For the last several weeks, it looks like we’ve timewarped back to 2019. And it certainly begs the question as to how long this improbable dance can continue.
Well, maybe for a little while at any rate. The Gallant 500 and Captain Naz closed on Friday at levels significantly above their 100/200-day moving averages, and the futures even rallied, patriotically, on Memorial Day. Vixen VIX reposes at a still- elevated but less than fully provocative 28 handle. Investment Grade debt, with issuance and inventory continuing to shatter all know records, is trading at spreads reminiscent of that simpler time, when no one in the world gave a rat’s ass about the internal cell structure of Asian bats.
And it all has me continuing to worry my fingers off about the risks out there. So much so that I have chosen, as an act of public service to fallen soldiers, to delineate them. In brief, the following set of potential market hazards are all: a) flashing red; and b) overtly correlated on the downside:
Pretty impressive list, is it not? And I’m not even sure it’s complete. I may, in my haste and distraction, have neglected critical items that should be included in this inventory. But what strikes me most acutely is, as indicated above, the correlated downside I see for these risk factors. If any of the above manifest, one can make an argument that ALL will in all probability follow suit. If so, it’s “look out below”.
And while I certainly want to reinforce my main theme here and encourage you to ignore the words that I type, I can envision scenarios where the economic world looks and feels significantly more dismal than it does even now. When tens of millions are unemployed. Where children are denied the lifeblood of education and socialization. Where businesses, colleges and even hospitals are being shuttered, perhaps permanently. Where loved ones are experiencing such a perpetual state of blissful proximity that they are on the verge of killing one another.
Where we can’t move forward with our dreams and can barely even get together to plan them.
But pay no attention to me; I’m behind the man behind the keyboard.
My hunch is that our fates may be rendered much more visible this summer. The disease looks to be on the wane. This must continue. Or else. The impacts of the fund flow failures should hit with full force over the next couple of months. The state of the economy as of Labor Day, if history is any guide, will likely go a long way to determine the outcome of the election.
And, with respect to the last of these, I encourage you to take a look around you. Whether you prefer the type of governance currently in place in New York/California/Illinois/Pennsylvania, or shade towards the Texas/Florida model should inform your voting preferences. It’s pretty clear which side of the ledger my sentiments lie. But in case anyone is unclear, I’m completely in the camp of freedom of individual choice as opposed to living by diktats issuing from government bureaucracies. Come what may.
But you are free to form your own judgments, ideally without my input or influence.
By now I’ve probably exhausted my allotment of verbiage which you should ignore. With a couple of exceptions, of course. First, I will stand firm on my warnings that the markets are in unprecedented risk ranges here. Also, while I do think that you should pay no attention to me and my keyboard, I will nonetheless beg you to hang tight and trust me.
Otherwise, maybe we could just disappear, out of the spotlight and into blissful oblivion. Like the late Ken Osmond, who left show biz to become an LA cop. For a long time, rumors floated around that he turned himself into Alice Cooper. But he didn’t. And that’s probably a good thing. I won’t become a cop, but I wouldn’t mind becoming a recording artist. If so, I’d prefer to be a rocker, but busting out my rap game is another option.
G-Money anyone? Naaah. Given my recent market calls, it just doesn’t work.
And besides, none of you would or should be listening to me anyway.
Just be careful out there. Roll up the windows on your ragtop (even if you keep the top down). And (chaka boom, chaka boom)…
TIMSHEL