By: K(en(neth Louis) G(rant)
Yale Economist Arthur Okun: “Money must be carried from the rich to the poor in a leaky bucket”
Grateful Dead Guitarist Bob Weir: “I may be going to hell in a bucket but at least I’m enjoying the ride”.
This is exchange, between the professor and the musician, actually took place. I was there. In the room. We were in Memphis. Or Nashville. Or Knoxville. Don’t remember, but it was definitely in Tennessee.
OK; not really. I made it up. But gosh oh mighty, it’d be cool if it happened like that.
I think about the Dead routinely, but lately, my mind turns to Okun. I wish he wasn’t right, but I think he was. The bucket leaks. I’m more on the fence as whether (or not) we’re actually going to hell, whether the mode of transport is indeed a bucket, and, if so, if the bucket conveying us there is a leaky one. But maybe we don’t need to find that our right now, because the answers will come to us, one way or another, in God’s own time.
When Okun first busted out this riff, his point was that impelled wealth transference leads to less being received than is taken away. I think this is a sound insight, particularly when viewed against a related hypothesis (so compelling that it’s actually called Okun’s Law) which suggests that when such redistribution transpires through forces of incentivization (e.g. a profitable company hiring a productive employee), the multiplier effects are actually positive. Everyone gains. In these instances, and in keeping with our theme, the bucket doesn’t leak; instead, its content grows in volume.
Sadly, this news came too late for Hank Williams, who once complained to us (as only he could): “my bucket’s got a hole in it, I can’t buy no beer”.
Maybe for the rest of us, there’s still time. As we embark upon a likely journey that will change the way we roll, as we use the economy to right past wrongs, as we allow capital and resources to be allocated, not by market forces, but rather to effect someone’s preferred social outcomes, we could do worse than remember Okun. And his bucket. And his Law.
Meanwhile, leaky buckets abound. The pandemic and its mitigants? Leaky buckets. 8 months into a pandemic and them covid buggers are leaking like crazy through our porous masks. Positive diagnoses and hospitalization rates are climbing to new records, and it ain’t even gotten (that) cold yet.
When (if) we get a vaccine, that, too, will be a leaky bucket.
That politics and the pending election is a leaky bucket in my judgment beyond dispute. Voting processes and protocols are being altered in real time. In Pennsylvania, for instance, not even the Supreme Court was willing to stop the ballot-gathering process from being extended to three days after Election Day, and now, the Penn Supremes have decided that the mail-in signatures don’t even need to match.
So, a few Keystone votes are bound to leak in here or there. Got a problem with that?
Further, I must point out, in wearying, repetitive fashion, that even if the Big Race has a clear winner, dozens of contests at levels below are likely to be thrown into dispute. There are almost certain to be endless recounts and court challenges. I can’t imagine that any of it can be untangled for many weeks, and here I must also remind everyone that the Inauguration Date for the Senate and House is not January 20th, but rather January 4th – seven short weeks after the election itself.
As such, there is a strong possibility that the 117th United States Congress will be unable to convene, on schedule, with its full complement of (dubious) characters. Both sides are incentivized to delegitimize it, and it says here that both (or, at least one – the loser) will. It will, under these circumstances, be difficult to leak out much legislation for several months. But you won’t find me complaining much about that.
I’m hesitant to add the media to our list, but only because I don’t think the analogue fully captures their LB ethos. They are, in reality, more leak than bucket. They whiz out opinion as fact and then tell us or (try to) what it means. They exaggerate stories that fit their narratives, while suppressing news that don’t. So, I’ll throw them into our inventory, while reversing noun and modifier: the media is a buckety leak.
And all of these are mere drops in the bucket of reasons that the markets themselves are nothing but a bunch of leaky buckets. Where to start? Well, much to my embarrassment and annoyance, domestic interest rates are leaking yield in an upward direction. I have a problem with this; the dude minds. This will not stand. Mostly because I don’t like being wrong, but my beefs don’t end there. Uncle Sam, that old mixer, is gonna need to borrow like never before. So are states and municipalities; all will struggle to come up with the extra rate juice. Corporate and individual borrowers will face the same cruel fate.
The USD is leaking towards multi-year lows, losing its innards against even such dubious substitutes as Grains and Cryptocurrencies (remember them? Their buckets, of late, overfloweth). And this even with rates rising, a counterintuitive trend that would have given Okun, had he not died forty years ago, fits. Because higher rates are, according to the textbook, not supposed to extract from, but rather inject vigor into, the Dead Prez.
I now move, reluctantly, to the realms of credit, the gargantuan buckets of which are not now observed to be leaking, but which are under so much pressure that the tiniest dent could cause their bottoms to fall out. However, the prospects of continued economic disruption, higher taxes and increased meddling into the affairs of borrowers, notwithstanding, I see no cause for particular concern on this account.
All of which brings us to the equity bucket. Not much noticeable leakage there, but I cannot help but worry that there’s too much stress on that particular pail to hold its volume much longer. If (when) a leak does spring, it is not likely to be a small one.
Probably, though, that’s a problem to address down the road a bit. In the meanwhile, we’re in earnings season, and this coming week, all of the big dogs (you know to whom I refer) are set to lift their legs and leak out their Q3 results. Here’s hoping that the sequence is not, at least in a colloquial sense, a golden shower.
Of course, standing on the other side of these forces is the Fed, on record as being willing to allow purchasing power leak – in the form of inflation – at a significantly greater pace than that which has been implied in their policy position of years passed. Their ability to goose, and then sustain, valuations, through a near-financial collapse, and then a global economic shut-down, has been one of the miracles of our lifetimes. They’re almost certain to be busting out bigger buckets in the very near future, and I’m sure you’ll join me in my wish that these vessels are of solid constitution.
I should also mention that this coming Thursday brings tidings of the first Humpty Dumpty Q3 GDP estimate. You know, if you’ve been paying attention that this particular egg fell off the wall earlier this year, and that all the king’s soldiers and men, as led by the Fed, have since been scrambling to reconstruct it. The precedent is not a happy one, but I’d hasten to remind readers that, Lewis Carol did manage to patch Humpty together for a cameo in his most famous work. If you doubt this, you can visit him, cast in bronze, just north of the pond in the Central Park Conservatory. And, given the current “Through the Looking Glass” vibe we must all endure, I think you should. Check out Humpty, that is.
But if you’re like me, you’re worried about current seepages, and even more so about leaks that may spring, through events unfolding in the coming weeks and months. My best risk management advice is to keep some resources in reserve, some powder dry – outside of your portfolio bucket. I’m not suggesting that it is either now leaking, or about to, but, at minimum, if other such containers become porous, while yours happens to hold firm, you may find yourself with unique, historic replenishment opportunities.
I reckon I’ll cut it short here. All of this is making me thirsty, but my problem is not Hank’s. He couldn’t buy no beer, while I (due mostly to a cruel twist of DNA) can’t drink none. Bobby may have been right about us going to hell in a bucket, but I can’t really enjoy the ride, because I’m not going there, at least for now, with you by my side.
And all I want to do is be with you. Always. All the time.
About the only short-term solution I can muster is to focus on the work and ask you to do the same. Because this, at minimum, is something we can do, joyfully, and together. Plus, like Churchill said, if we’re going through hell, let’s just keep going.
Maybe it’s time to have that beer anyway. And, if leaking ensues, we’ll just chalk it up to the whims of biology.
Because, when all is said and done, we are all, each of us, leaky buckets.
Unless, of course, you’re Humpty Dumpty, in which case you’re a broken, if not yet scrambled, egg.
TIMSHEL