Did we really make it through that mess of a third quarter? In fact, through three messy quarters of a hyper-messy year?
Apparently so. Because all my trusty Apple devices have rolled their calendars to October. And they are never wrong. About anything.
We thus, somehow, managed to survive the rising tides of Delta, our having turned ignominious tail in Kabul, a menacing (er, transitory) inflation surge, the official announcement of a looming Fed taper, the uneven, still-uncertain ushering in of massive potential spending and tax increases, and various other plagues — too numerous and gruesome to inventory in this family publication.
As one example of the last of these, tickets for Tom Brady’s prodigal return to Foxboro topped $5,000. To put this in perspective, the amount is equivalent to over one month of the median salary of the schlubs that toil for pay in this great nation. Here’s hoping that those who forked out $5K will get the full 4Qs of their money’s worth at Foxboro.
And, in terms of the markets, equity indices are about flat, falling for September, which, Ironically, was the best month for the portfolios I track since spring – the reality that almost all of them were leaning long notwithstanding.
Nat Gas prices are up a tidy 50%. Unless you are in, say, the UK, where costs have almost tripled:
Shipping rates are also richer by about half, wherein, those who pay the freight buy the privilege of watching their cargo sit — unmoored and unloaded — adjacent to docks in ports such as Anchorage (where the anchors are nothing if not hard pressed) and Los Angeles. Yields on the U.S. 10-Year Note have risen from 1.17% to 1.53% — a tidy 30% increase.
All eyes, as has been the case for longer than I care to contemplate, are currently on Washington, where the powers that be are stiving heroically to spend an additional > $5T and raise taxes by > $3T. The leader of the regime went on record, though, this past week, to literally state that the new spending “would cost zero dollars and not increase the deficit”. Sure.
Most loyal readers understand where my political sentiments lie, but as dissembling as I think Biden has been throughout, he arguably just completed his worst “pant-on-fire week”, as, in addition to the abovementioned whopper, he failed to recall receiving guidance from the Joint Chiefs of Staff that we maybe should leave a few troops around the Kabul airport to ensure our exit didn’t turn into a bloody mess.
On the whole, it was a period to forget, and I myself have certainly had less frustrating summers. But here we are, still able to fog mirrors, and facing what should be an interesting and challenging 4th Quarter. And, in honor of the occasion, I present the following 4 Qs as our theme for the remainder of the year.
The first is my favorite: Quincy. Because it makes me all nostalgic about my boyhood days observing presidential election of 1824, when John Quincy Adams won the prize, beating out rivals such as (his successor) Andy Jackson, Henry Clay and the eventual Vice President: John Caldwell Calhoun. It was an interesting contest. Adams became the first president elected with a majority of neither the popular nor the electoral vote. Calhoun holds the distinction of being the only VP to serve in the role for two successive presidents from opposing parties.
Still and all, I don’t think Adams would’ve won the election if not for the following campaign slogan: “With John Quincy Adams, you get everything you got with John Adams, plus a little more in the way of Quincy”.
Our second Q is Quantitative. It’s an important, relevant modifier, particularly these days. The Fed is threatening to cut Quantitative Easing later this quarter, and I reckon we’ll see about all that. Meantime, the quantitative models have been running in troublesome amok all year, and I don’t see this ending soon. Because you can’t trust quant models. And they don’t care that you don’t trust them. Or that you blame them for bitching up your returns.
Number three is Quagmire. Which is what we face: a global capital economy that can only be described as sluggish, but which is throwing off inflation signals that must catch the concern of even the most apologetic, trans(itory) economists out there. My view is that the economic issues are much larger, and entirely misaligned, with the risk signals emanating from the capital markets. The world of commerce and the body of consumers it serves, has not come close to recovering from the acute case of covid it suffered, and we can’t yet say that the infection has run its course. The plague opened a window for incremental government control of our affairs, through which bureaucrats are striving, mightily, and with some success, to squeeze their fat asses. They are not overly fond of Private Enterprise – if they were why would they be so intent on their re-regulate and replace strategy? And they may be able to show their disdain in material ways.
But, as their bean counters have informed us, expectations for continued economic renaissance are on the wane, while, contemporaneously, the masses have spent down the windfall 2020 savings rise gifted to us:
Meanwhile, Inflation, particularly in the energy complex, continues to rage. And, when you put it all together, it adds up to a risky economic mix for the rest of the year and beyond.
Yet the markets don’t reflect these hazards. Yes, they’ve felt a little weighty of late, but with all that liquidity still sloshing around, there still is not a sufficient inventory of securities for the world’s investment pools to absorb them at rational prices. Case and point, the usage of the obtuse special Fed Repo facility broke all records on Thursday, with a > $1.6T subscription level:
I simply don’t see a path to harmonize economic and market risks, and this, my friends, is a quagmire.
So, if all of this is leaving you a bit Queasy (Q #4), you’re not alone. But I won’t say that you’re in good company, if for no other reason that you can count me among your numbers.
It all calls for extreme caution in terms of your investment activities. They’re on the rampage in Washington, and, while we don’t know how that will play out, we can be reasonably confident that it won’t be to our unmixed delight. We’ve got earnings season coming up, which used to be important, and only still is insofar as it will be woe betide to any CEO who steps up to the podium with disappointing news.
In result, I wouldn’t be holding on too tight to any specific investment hypotheses here because conditions are fluid and can change very rapidly.
Time, perhaps, to channel our inner John Quincy Adams, who, never allowed adversarial grass to grow under his feet. After the defeat of his father for a second term, and prior to his presidency, he served as Ambassador to Russia and then Secretary of State (helping to create the Monroe Doctrine). When his fouryear term in the White House ended, he returned to Washington as a member of the House of Representatives, and actually died on the floor during a Congressional Session. He gave one helluva speech, railing against the Mexican American War, then collapsed and turned tits up for all eternity.
History treats his VP – Mr. Calhoun – less kindly. A few years back, his alma mater (Yale University) founded by and named after a slave trader, cancelled him – due to his stance on slavery.
It’s all kind of Quazy, now, isn’t it? But it’s what we’re stuck with, so let’s do the best we can, shall we?
It should, at any rate, be an interesting Fourth Quarter, but rather than closing where I began, with an assertive “Four Q!”, I will take my leave with my time honored, entirely more hopeful salutation.
So, y’all:
TIMSHEL (and Four Q!)