It’s over. I release you. For all time.
Just kidding. But I am here to declare a robust, global hiatus from the dreary doldrums of risk management.
I’m late, of course, to the party. But then again, isn’t the risk manager always the last to know?
I’m not sure what pushed me over the edge, but let’s just call this past week’s energetic rally, which took all our gallant indices to new zeniths — before pausing (though not retreating) on Friday, a contributing factor.
Yup, they bought ‘em all week. Against a backdrop of misses on Industrial Production, Capacity Utilization, Housing Starts, Building Permits, Philly Fed, and Manufacturing PMI. Bought ‘em as 10-year yields touched the previously unthinkable level of 170 basis points — up 44% from where they were as July gave birth to August.
Interest rates are on the rise across the globe, with perhaps the most alarming jurisdiction being the Netherlands, where benchmark yields crossed into positive territory this past week, and now reside at a usurious 0.028%:
And that’s not the only problem emanating from the land of wooden shoes and dirty canals. Mid-week, Bloomberg reported that the country’s iconic paint maker – Akzo Nobel — is running out of blue, FFS! One wonders if this will impact their ability to produce color wheel-adjacent hues like purple and green.
But more pressing matters come to mind when one considers the impact on the national psyche, as embodied in the (somewhat plagiaristic) Dutch Flag:
The Standard of Holland: Before and After Version:
I don’t know about you, but the flag on the right brings me down. On the other hand, the original is an exact replica of France’s banner – rotated 90 degrees counterclockwise. So maybe they get what they pay for.
Stateside, we have similar issues with which to contend. Chicago-based confectionary manufacturer Ferrara Candy just disclosed that it was on the receiving end of a ransomware attack, which may (or may not) impact operation. Boring, right? Except for the small detail that: a) the enterprise is responsible for 85% of the nation’s candy corn production; and b) Halloween is less than a week away. And, as a public service, I will inform y’all that Lewis Black’s famous claim – that all the candy corn in the world was manufactured in the year 1911 — is a four Pinocchio fib. Nay, they pump it out like madmen on the banks of the Chicago River. Day and night – except, perhaps, when somebody ransoms their wares.
And while I am loathe to mention it, how bout that Trump SPAC? Issued under the rather menacing handle of Digital World Acquisition Corp, it is a ten-bagger over the two days of its trading history. The objective of the enterprise is to provide free form, uncensored social media content. My own view is that particularly given Trump’s online frustrations: a) they better do some heavy acquiring, and b) should consider accumulating some combination of Apple, Amazon, Microsoft and Google, so as to ensure that they can actually gain entry into the cloud-based oligarchy that controls the architecture for these forums. If DWAC continues its current trajectory, they should have the jack to buy them all be for the month ends.
Considering all the above, I Out. At least for now.
But I’d encourage the rest of you to mind your P’s and Q’s. We’re entering the tall grass of the earnings season, with all the behemoths – the very entities which DWAC must access to achieve success — reporting this very week. My casual dialogues suggest a socialized consensus that they’re gonna blow the doors of the joint, and, certainly, market flows reflect such confidence. Let’s hope they’re right.
I’d also be keeping my eye on non-renewable commodities; not only Crude Oil, but also metals such as Copper, Zinc, Aluminum and Lead – all of which have been rocking raging rallies of late. Back in my risk management days, these price trends were viewed to be ominous signs of non-transitory inflation. But those times, apparently, are gone.
However, I still got my eye on some of this sh!t. In renewable commodity realms, it may be useful to remain aware that Milk is now selling at a 5-year high.
Want Milk? It’ll Cost You:
Now, I don’t drink milk – mostly because it only makes me thirstier. But somebody must be choking it down, or it wouldn’t be up 50% over the past year.
I don’t think that huge price increases in stuff that people actually use is likely to be a temporary phenomenon. Supply shortages exist – across such realms as microchips, industrial metals, and other essential inputs. Food prices are going up, as is the cost of labor, which remains scarce. Energy expenses are soaring. Basic economic theory suggests that these trends will feed on one another and will not simply reverse themselves.
Housing costs, which involve and/or are impacted by all the above, are up nearly 20% year-over-year. But don’t worry; as pointed out by others, these trends are no longer included in our inflation metrics. Be glad they’re not, though, because if they were, inflation would be running at > 10%.
As all of this unfolds, estimates of economic growth are decidedly on the wane:
The official Atlanta Fed Q3 GDP estimate is now 0.5%, a noticeable downturn from the 6% which the outfit was joyfully prognosticating in early August — before that above-mentioned 44% climb in ten-year note yields.
But I grant all of you permission to buy whatever you want here. The capital, commercial and consumer economy face enormous headwinds, as measured in terms of rising costs, supply shortages, logistics logjams, and (if the boys and girls in Georgia are correct) waning overall output. Interest rates are rising, and risk asset valuations are at all-time highs.
There’s a word that describes all of this, a mashup between one that applies to an event where no females are present, and the standard term for rising prices. It is on the lips and keyboard fingertips of many economically sensitive souls out there. But it is too vulgar to include in this family publication.
And, anyway, we’re on an indefinitely extended risk management holiday right now, so don’t you fret.
But don’t get too comfortable either, because I am inclined to declare an end to the end of risk management at any time of my own choosing. And (as Dr. John reminds us): “if I don’t do it, somebody else will”.
Probably, it will be your investors/capital providers. So, be forewarned.
TIMSHEL