First there was Delta; then came Lambda. Next… …Omicron.
Well, not really. I have no knowledge that anything of the kind is in the offing.
If there is another variant on its way, I can only hope that they do the right thing and name it after the 15th letter of the Greek Alphabet.
Because, for a couple of reasons, Omicron is my favorite note in Great Hellenic Symphony of Symbols. For one thing, it sounds cool — Aristotelian cool — and if you doubt this, just say it a few times: O-mi-cron, O-micron.
Feel me yet? I thought so.
In addition, I carry considerable empathy for the benign neglect which the symbol, for eons, has endured. Nobody talks about Omicron. It brings about images of… …nothing. It doesn’t even have a fancy formation. It’s just the same, boring O that exists in all Romantic and Germanic languages.
And nowhere is Omicron so rudely ignored as in the field of risk management, otherwise a veritable orgy of Greek symbology. There’s Alpha. And Beta. And Gamma. And Delta. And Theta. And Sigma. And, of course, Vega. Which isn’t even a Greek letter.
But no Omicron. Actually, strike that. Some financial journals designate the credit spread sensitivity of outof- the-money convertible bonds as Omicron Risk.
In other words, Omicron is relegated the risk backwater – asignifying a metric that applies, and only partially, to a complex derivative security that almost no one ever trades, and even then, only when these instruments are out of the money and thus at the low ebb of their value ranges.
This, in my judgment, is insufficient, failing, as it does, to rise to the majestic dignity of the coolest letter in the Greek Alphabet.
So, before we even cover the topic of the Omicron Variant, I’m gonna take the summer dog-day opportunity to throw off the yoke of this insult, and to elevate Omicron Risk to its appropriate level of risk prominence.
I thus now define Omicron Risk as a condition under which an excess of funding liquidity, as conjured up in response to a global health crisis, causes inflation, widespread economic disruption, and a complete breakdown in time-honored protocols for the relative valuation of financial assets.
At the moment, the Omicron Risk meters are flashing red.
But then again, the portfolios I track have been bleeding great globules of Omicron since an unspecified point this past Spring. And here’s the thing: you cannot hedge Omicron Risk; there is no factor that tracks it, and, arguably, when it raises its wrath, you can’t trade or invest in any constructive fashion.
The tip of the Omicron spear is sharp and painful, but it spreads out from its point, and creates carnage across the entire investor nervous system. We tend, naturally, to focus on the Equity Complex, but consider, if you will, its impact on other asset classes.
For example, in what was a difficult week for the equity markets (which somehow ended on a more optimistic note), everyone was in a tizzy about a Fed minutes report which (unsurprisingly) suggested that the taper could come in this calendar year. Almost contemporaneously, though, the size of the Central Bank’s Overnight Repo Liquidity Facility surged to $1.2T, with projections out to over double this amount.
Meanwhile, what did Madame X do? She rallied – dropping her yield skirts a couple of basis points – no doubt to distract us from a focused reading of those pesky Fed minutes.
So, all eyes turn to a possible taper announcement this week at Jackson Hole (now designated as the wealthiest jurisdiction in the country). Only, now, the event won’t even take place at its historic venue. On Friday, the sponsoring KC Fed announced that the event will be, you know, virtual.
In result, perhaps 2021’s most anticipated Fed speech – in a year where not much has mattered other than Fed babble – will now have no live attendees.
Mean bitch, that Omicron. Or sumbitch? In the present ambiguously gendered social paradigm, who’s to say?
And as I survey the thin gruel served up as sustenance by the capital economy, all I can observe is a Mulligan Stew – featuring such dubious ingredients as a Fed taper, a renewed set of lockdowns, pressing inflation, and a policy portfolio hell bent on raising taxes and imposing new regulations and other bureaucratic dainties. If it passes, it will be on the whim of a hard-pressed VP and signed by a Chief Executive with sufficient cognitive ability to do what his paymasters ask of him – and little else.
Or not. We just don’t know.
All of which has caused the Omicron Risk Variant to expand beyond its natural host: portfolio managers, and begin to infect the historically antibody-rich community of sell-side analysts:
Nothing for nothing, but don’t the funneled projection bands seem awfully wide to you? According to Morgan Stanley, the Gallant 500 could decamp by year end at a 37 handle, a 48 handle, or somewhere in between.
On the other hand, they could very well be right.
But in the meanwhile, there ain’t much to do but wait it out. J-Hole-Virtual goes down in the back half of the coming week. It may be a game changer. But it may not. After that, it’s a couple of long weeks until Labor Day. Not much to do if the Fed weasels out. Which I expect them to do. If, on the other hand, they shock (my) world and make specific statements about their shopaholic ways, take explicit actions to cut up their credit cards, matters could become very interesting.
And though it breaks my heart to state this, it might very well be the case that the worse the trajectory of a possibly resurgent virus, the higher risk assets may climb. In early 2020, covid knocked the markets to the floor. Then, the government filled our jeans with jack, which we enthusiastically invested. If they send us all to our rooms again, what alternative do we have but to repeat the cycle (including an untapering of the taper)?
It’s all a little bit like this whole Delta Variant, now, isn’t it? Unpleasant, unproductive and (above all) unpredictable. Just like the last round. Only different. Now, in addition, we can anticipate the delights of the Lambda.
After that, who knows?
Probably more mutations. I started this here note pining for the next variant to be named after the big O. The 15th letter of the Greek alphabet.
But in its conclusion, I am thinking better of it.
Particularly as redefined by this note, we’ve got enough Omicron out there to last a lifetime.
TIMSHEL