Well we all need, someone, we can feed on,
And if you want it babe, you can feed on me,
Yeah we all need, someone, we can bleed on,
And if you want it babe, you can bleed on me
— The Glimmer Twins
Nope, this note ain’t about Bob, nor pertainin’ to his 80th Birthday. So, yeah, shame on me.
Let’s us instead take a moment – this moment — to celebrate what I believe to be the Stones’ finest record. If you replace the “Country Honk” with “Honky Tonk Women” (they’re basically the same song, with the latter given the sublime rock and roll treatment that it so richly deserves), it wouldn’t even be close. Mostly, those of us (pretty much everyone on the planet) who ruminate over these matters are fixated on the debate as to whether “Sticky Fingers” or “Exile on Mainstreet” legitimately owns the top spot. And I will allow that the band probably reached its musical apex on those albums. But they also contain some clunkers (I mean, I know it’s blasphemy to say so, but is, for instance, “Moonlight Mile” even listenable?). Meanwhile, from Song 1/Side A (“Gimme Shelter”) to the last number on Side B (“You Can’t Always Get What You Want”), (again swapping in “Honky Tonk Women”) I’ll take LIB every time.
For what it’s worth, a similar calculus applies to my evaluation of the Beatles’ Catalogue. I think it’s pretty much agreed that they peaked at the end of their run, but among those who obsessively follow the Fab Four fan pages (pretty much everyone on the planet), best album designation reflects a split decision between “Sgt. Pepper”, “Abbey Road” and (unjustifiably in my judgment) “Rubber Soul”. But if you add two of their masterpieces – recorded during the same sessions but released as singles and never included on the album (“Strawberry Fields and “Penny Lane”) – it’s no contest. Pepper by a landslide.
I personally have a deep soft spot for their penultimately recorded/last released album – “Let It Be”, with its under-appreciated gems such as “The Two of Us”, “Dig a Pony”, etc., (to say nothing of the masterpiece title track or the magnificent “Long and Winding Road” and “Across the Universe”), but nobody gives it consideration.
I thus find “Let It Be” and “Let It Bleed” to be two of the most underappreciated records of that era – bittersweet messages of farewell to the decade of the sixties, which also give warning of a more problematic, less idealized vibe waiting around the bend. They were recorded contemporaneously, and illustrate almost to the point of perfection, the whole Beatles/Stones dichotomy.
On the one hand, we have the lovable (if disintegrating) Fab Four, warbling divinely about visits from Mother Mary, waking up to the sound of music, and winding roads always leading to your door. On the other, there are the scruffy Stones — in the midst of sacking the lead guitarist that formed the band (who died a month later, mysteriously, in his own swimming pool), riffing on about junkie friends, shoot ‘em dead, brain bell janglers, and, of course, enticing us as follows:
We all need someone, we can dream on, and if you want it babe, you can dream on me, Yeah, we all need someone, we can cream on, and if you want it babe, you can cream on me
Yes, upon further consideration I insist. Please do. Cream on me, that is. The way only you can.
And gun to my head, I’ll have to pick Let It Bleed as the superior, more relevant musical statement.
“Bleed’s” messaging may, in fact, be perfectly timed for many of the custodians of the portfolios I track, which ended the forgettable month of May, ’21 with an even more forgettable year-to-date performance profile, leaving their overseers burning like a red coal carpet, mad bulls that’s lost their way.
And I’m here to tell you that the way it’s all gone down is one that is particularly painful to your scribbling risk manager. Because it’s not like these books are getting blown apart; rather, they are simply suffering a sustained interval of losing more than they’re making.
In the trade, we call this the “slow bleed”, and, for a number of reasons, there’s nothing more agonizing for a risk manager than the “slow bleed”. First, we always get blamed for this sh!t. But hey, that’s OK, because what on earth is anyone paying us for other than the ability to blame us when things go wrong?
More problematic is that there’s not much in the field of risk management to be done to address the “slow bleed”. Often, and as is the case at present, there’s nothing wrong with underlying portfolio construction, which, in fact may hold more promise than it has held in many a month. Moreover, the losses in these cases often have little to do with sub-optimal risk management. But when you’re in a cycle where you make 25 basis points on Monday, lose 60 on Tuesday, gain more than a percent on Wednesday, are flat on Thursday and drop 1.5% on Friday – ending the week (if my math is correct) down nearly a percent, and then it’s lather, rinse, repeat, for several weeks, whatcha gonna do?
Do you, for instance, let it bleed? I’ll give my opinion at the conclusion of this address.
First, let’s look at the market conditions that are, in my judgment, at the root of all this monkey (man) shine. Though you wouldn’t know it from the chatter in my circles, our equity indices are a) hovering around all-time highs; b) (mostly) up double digits for the year; but c) trading in very narrow ranges for Q2 — now 2/3rds in the books. The Gallant 500, for instance, has been sleepwalking between a 41 and (modest) 42-handle throughout. Most of the data we care about (or should) is already in the books as well. And, between earnings/economic data, and the madness of the current policy debates, it’s all confusing as hell.
Preceding installments have warned, Casandra-like, of astonishing acceleration in pricing patterns of stuff we actually use, like Wheat, Corn, Iron Ore, Led, Tin, Aluminum – even Baltic Shipping — and of the vexing, intractable problems that the economy would face if these trends were to continue. But then, as if on cue, each and every one of these markets put in a V-top. Even Baltic Dry (let’s have a look, shall we?):
Baltic Shipping – Not for Landlubbers:
I still got nothing I need to send by boat across the oceans, but reckon I can take comfort, nonetheless, in the reality that those who do are not witnessing their increasingly pricey cargo being pitched on endless, cresting waves of rising logistics expense.
But I’m still troubled. Why did the price increases reverse themselves, all at once, in the beginning half of May? Is it a temporary anchor drop? A respite from an inexorable journey, that so many out there portend, to rising oceanic levels? Or, conversely, a reversion towards more rational price conditions?
I reckon we’ll find out. But in the meanwhile, were I you (and I am), I’d be keeping a close eye on these here tidings. Because if the surge to higher elevations resumes, then we’ve got a genuine problem with inflation on our hands. If, conversely, physical commodity prices stabilize, then we’re looking at a capital economy that can continue to manufacture excess liquidity – already at historic levels – to its heart’s content.
And lord knows there’s plenty of that out there. Excess liquidity, that is. As was prophesied by the Monetary. Gods, the Fed’s overnight auctions of Treasury Paper hit record levels this week – at a cool ~$500B. The bids at these affairs tend to become most frenzied at the end of each quarter, so the likelihood is that last week’s records won’t stand for very long. Somehow, improbably, there’s just too much cash chasing too little paper, so institutions are wild-eyed to get into this complicated game, the fact that it produces zero return notwithstanding.
Again, I cannot imagine why the Central Banks would discontinue this action if there’s no true inflation blowback with which to contend. I mean, after all, on the other side of the District of Columbia, is there any inclination to stop spending and redistributing until there are true consequences for the sponsors of this largesse? One wouldn’t think so.
And, turning to that subject, in classic pre-holiday “Clinton Tax Return drop” form, Biden released his $6T budget plans on Friday afternoon. I know it’s blasphemy to suggest that he reverted to this old trick, but why, otherwise, would he publish such a monstrosity just as everyone was bouncing for a holiday weekend that may be as sorely needed by the masses as any in recent memory?
It features millions of new unionized federal jobs, created, to take care of the sick, administer to the elderly, watch junior while mummy and/or daddy tramp off to their jobs at the solar and wind farms, and audit our tax returns – all in the name of, er, infrastructure. In addition, of course, it jacks up capital gains taxes, retroactive to last month, to an astonishing 43.4% — and that’s just at the federal level. When you add on state and local levies, and then throw in the proposed dismantling of the Intellectual Property rights of American innovators, you could wonder if the package might not dampen the enthusiasms of latter-day Edisons and such. Which would certainly be a shame in my book, because, to my way of thinking, we need nothing so much as latter day Edisons. As many of them as we can spin up.
But the market, by its actions, seems untroubled by it all, in my judgment primarily owing to that enormous and growing gift of excess liquidity. We are figuratively drowning in cash with no place to put it.
Other than the markets.
None of this puts me into a “there will be an answer, let it be” mood. If investors are a bit troubled by all that is going down, they (as I like to say) come to this condition honestly. But I think that on balance, we gotta stick to our guns here, cover up, and withstand the bloody little flesh wounds that continue to come our way.
So, I’ve been advising my clients to hold on to core positions, and, if necessary, trim or shed everything else. Does this rise to the dignity of “let it bleed”?
Perhaps. But I’ve just got a feeling (a feeling deep inside) that there’s a next big leg up in this rally, which may not transpire immediately, but which is coming, nonetheless to a (recently reopened) theater near you.
“Yeah, we all need, someone we can lean on, and if you want it babe, you can lean on me”. So opens the title track to this week’s feature album, and it’s a sentiment I echo. But only to you.
To the rest, while I won’t advise them, unilaterally, to let it bleed, I do think that a few more drops of that internal crimson fluid emanating out of our portfolio veins may indeed stanch the flow, leading to better fortunes, a little further down the road.
I’m not Mother Mary, lord knows, but these are what pass for my words of wisdom for the moment, my friends. Now it’s time to let it be.
TIMSHEL