Watch out, you might get what you’re after
Cool babies, strange but not a stranger
I’m an ord-in-ary guy
Burning down the house
— The Talking Heads
Can I get some love for the Heads? For a brief but important time (my college years) they were the best damned band in America (albeit a distant second in the world to THE CLASH). And not only the best, but maybe the most popular – at least on those college campuses of yore. If, for example, you found yourself at a party in 1980 in Madison, WI (as I often did), odds were that either the Heads or Springsteen were on the turntable.
Well, we all know what happened to the latter after that. From a popularity perspective at any rate, he immortalized himself. And, though he’s not my particular jam, mad props are owing to him for that.
The Heads were on similar trajectory at the time, and I always thought that they were one stadium tour away from taking over the joint entirely. But then the immensely-talented-but-always-difficult-to-dealwith David Byrne bounced. Left the band. Without telling them. It was kind of a Syd Barrett (who, though having created Pink Floyd, was never told he was fired; they just stopped picking him up for rehearsals and gigs) situation in reverse. Helluva shame in both cases, if you ask me.
In the meanwhile, their catalogue, including our title piece, holds up remarkably well. More than this, any number of their songs (“Stop Making Sense”, “Life During Wartime”, “All Night Long” come to mind) are in the pantheon of meriting pieces in this space on their own. And maybe we’ll get to them.
But let’s start with what we got, shall we? Dance with who brung us? “Burning Down the House”. Man, oh man, there are a lot of directions in which we can travel on this Chateau Flambeau Road. And, since I’ve just begun to write this note, is likely we’ll to get to several of them.
The hook first came to my mind when thinking (with incremental frustration) about national economic policy. It reminded me of several intervals in my historic run as an entrepreneur. If you’ve travelled this road, you are aware that when times of stress (inevitably) emerge, it sometimes becomes necessary to resort to minor league measures (say, pre-billing receivables) — to boost spirits and improve company optics. Then comes the moment when Sweet Temptation sweeps in and seeks to seduce you into doing something really stupid. Like borrowing money. But I’d always stop short of this (well, except for maybe one time) by telling myself that, yes, I’d already burned up all the furniture to stay warm, but I’ll be dipped in sh!t, before, in the name of the same objective, I will burn down the house.
And I do think that some of the genius ideas in Washington are spun in the same motifs. That they will come back to haunt us, that they could leave our progeny bereft of walls to keep out the wind and roofs to protect them from the rain. And I think that these risks must manifest in the market; perhaps soon.
But we’ll get to that in a bit. I feel first obliged to offer a few other timely analogues to our theme.
That whole Jan 6th experience fits almost a T. I mean, after all, the protesters did breach the HOUSE of Representatives. But unlike, say, those demonstrators acting up last summer, someone forgot to bring a match.
And on the topic of dwellings that were (almost) reduced to ashy rubble, I think we can all give thanks that this past week, yesterday’s “It” company: WeWork — that nerf gun/bean bag chair re-packager of overpriced urban commercial space, avoided the burning ignominy of complete collapse, through a financial rescue package which valued the Company at $9B. Note, this pricing is thin gruel compared to its peak valuation of $47B, but I reckon its holders are pleased, nonetheless. As am I. As should we all. Say what you will about WeWork; it busted the oligopoly of office leasing, breathing life into small tenant/firms everywhere. The pandemic changed the calculus here; landlords are now begging renters to move in. But it says here that we no less owe a debt of gratitude to WeWork. Long may it prosper.
Fittingly, the deal came in the form of the current “It” mode of financial structuring: the ubiquitous SPAC. We’ve covered this before, but the SPACers make their bones by first raising money, and then deciding what to do with it, with the only constraint being their obligation to purchase majority interest in a company within a designated period. Doesn’t matter which company, and who really cares? Looking at this sequence in the rearview mirror, it seems that the heavens had always destined WeWork to be SPACicized (SPACified?), and now they are. And I, for one, will wish Godspeed to all involved parties.
The SPAC market has felt some heat from investors of late; median valuations are down 20% over the last few weeks. One can smell the mahogany dining tables smoldering. Will the entire House of SPAC come down in flames? I hope not, because if it does, it’s likely to be at a time when a lot of other abodes are burning, and first responders put upon in ways with which they have not the resources to contend.
I try to avoid thinking too much about these contingencies. After all, what do you and I need? Not a house; not really. A snug little apartment (or two) on the Upper East Side, where we can dream our dreams and plan our plans, will suffice.
In addition, and by way of further diversion from what ails us, the next verse of our theme song helps:
Hold tight, wait ’til the party’s over,
Hold tight, we’re in for nasty weather,
There. Has. Got. To. Be A. Way
Burning down the house
But back to the markets, the unpacking of which is the solemn mission of this publication. I’m already on record in stating my belief that the entire show is being fueled — not by innovation, initiative, and hardwon execution, but rather by tactical device, delivered by Washingtonian policy makers, who are burning the furniture to generate a little bit of transient heat.
Endless money printing. Redistribution. Elected officials determining who merits the fruits of the labors of whoever chooses to work, rather than stay at home and use social media to inventory the on-going flaws of the system and our history. Up in flames goes the bed, the sofa, grandma’s armoire. I gotta admit — for the moment, it all feels toasty warm.
But I do fear that the bearing walls and floors joists are the next items to enter the ovens. Most of us probably can endure this; after all, Spring is in the air. But where does this leave our little darlings — once we (inexorably) pass into our dotage, and (shortly thereafter) into the Great Beyond? It’s worth pondering, if nothing else.
Markets don’t seem to be showing much care. In fact, if anything, flammable materials everywhere notwithstanding, some of our equity indices and other risk assets lumbered to yet another set of all-time highs this past week. It was a tough slog, but by late Friday afternoon, investors gathered together for a harmonious chorus of “Be it ever so humble…”. The strains of these notes were heard most directly in the palatial headquarters of General Dow and the state-of-the-art barracks of the Gallant 500. The lesser quarters of the lower ranking Captain Naz and Ensign Russ? Not so much. But I’m pleased to report that Madame X (the 10 Year Note) showed some welcome nesting instincts, as accompanied by the USD, which has demonstrated more domestic spirit over the last month than at any time since last Summer.
Meanwhile, we’re on the verge of April, with its promise of windy winds and widely varying temperatures. In terms of the markets, it ought to be an interesting ride. A major earnings cycle awaits, along with a critical sequence of macro reports, the content of which appear to be very difficult for our paid soothsayers to prognosticate:
The Atlanta Fed is, as Dick Vitale in this March Madness season might say, like a Dow Jones player: it’s up, it’s down, it’s up, it’s down, while the Street is feeling a bit more sporty about the whole thing.
Capitol Hill is likely to be Ground Zero for the emerging storm, as the clock is certainly ticking on key elements of the new regime’s policy agenda, featuring, as it does, another huge stimulus package, higher taxes, the federalization of the election process and other such sacred cows. They’ve got to move quickly, because they (of course) wanna take the summer off, and by fall, they will need to take the next voting cycle into full consideration. There’s major opposition on the other side, and it could get pretty nasty. I don’t know how any of this plays out, but I can encourage all my readers to pay close attention.
It’s probably not the best time to call for major portfolio renovations, and I’m gonna stop short of suggesting you do so. But some energetic spring cleaning, the ditching of some of those baubles and nic nacs in your book that hold some sentimental, but no practical value, might do you no harm. And in closing, I revert to where I started. With the Heads:
Here’s your ticket pack your bags, Time for jumpin’ overboard, Transportation isn’t here
Close enough but not too far, maybe you know where you are, Fightin’ fire with fire
Yes, Byrne is right. And not long after singing these words, he did indeed jump overboard. Without a word. Fighting fire with fire is indeed a time-honored practice in these parts. But as your risk manager, I do want you to know that I’m keeping a hose at the ready.
Just in case.
TIMSHEL