You wore out your welcome, with random precision, rode off the steel breeze…
— Roger Waters
Let’s throw one off to Syd (Barrett): enigmatic founder of Pink Floyd, memorialized, in song after song, by the brilliant but tiresome Roger Waters (don’t get me started).
Fair warning: I’m not moving in a straight line, here, people. Bear with me if you can.
Welcome, my friends, to the dead, dead deadliest part of winter (and not just from a temperature perspective): Presidents Day Weekend.
If you’re a like-minded sports fan, you are particularly feeling the chill.
The NFL season is over: a grim passage that kills me, by degrees, each year. Nothing now happens until the draft, which, for my team (The Chicago Bears) is their Super Bowl. Or would be if they weren’t perpetually trading away their top picks (including, of course, this year’s).
But that’s not until April, a month which also ushers in the maiden season of a newly constituted United States Football League (USFL). Which will play all its games in Birmingham, AL. At a venue named Protective Stadium. Which tells you all you need to know.
This three-day weekend: a shared celebration of Washington and Lincoln, coincides with the NBA All-Star Extravaganza – perhaps the most embarrassing, self-serving spectacle every conceived by mankind. It was Cleveland this year. At a venue named Rocket Mortgage Fieldhouse.
Which tells you all you need to know.
All of which leads us – in twisted path – to this week’s theme.
Because we just passed the scheduled (if pro forma) ritual of pitchers and catchers reporting for Spring Training duties. For reasons never adequately explained by anyone, “position players” arrive a few days later.
The battery squads of the thirty MLB teams were supposed to begin stretching exercises last Wednesday. But didn’t. Because there’s a lockout. The leagues’ Collective Bargaining Agreement expired ninety odd days ago, and, thus far, the billionaire owners and centimillionaire players have yet to agree to a framework to divvy up the ~$10B of revenue they extract from us each year.
Additional Disclaimer: they don’t get any of my cash. I used to like baseball but have found it unwatchable for more than a generation. Since lockout of 94/95, which extended so long that it cancelled the ’94 World Series.
As Ernest Lawyer Thayer informs us (“Casey at the Bat” you dolts), in the sport of baseball, “hope springs eternal”, so maybe they work it out. But I ask you, given the current vibe of distrust, animosity, fear, and greed, is it likely? Truly, I can’t think of a period in my lifetime where compromise and conciliation, in virtually all realms, were more difficult to envision.
So, I have a sneaking hunch that this here lockout extends well into the regular season, and, absent some divine intervention, that there may be no baseball season at all.
Since I wouldn’t have been paying attention anyway, I anticipate no personal hardship on this score. But I will cop to a happy vibe around this time of year, featuring mental images of fungo bats cracking, and, few weeks hence, stands full of the beer-swilling, hot dog munching proletariat, anticipating the action on the diamond(s).
But for now (and who knows how long), the diamond(s) will be empty.
And, therefore, unlikely to shine.
Perhaps for this reason (but probably for others) the markets are decidedly on their heels. Lots of “risk off” action out there – enough to take the glisten off any investment return-generating strategy.
It is impossible to miss the valuation threats out there – geopolitics, inflation, rising interest rates, and, in general, zero visibility as to how, in which far off galaxy, the capital economy can once again sparkle and shine.
I could go on all day about this, and others certainly have, but I’ll spare you the full range of my wretched thoughts and focus on what concerns me most for the moment.
The United States Government is now officially on record as anticipating a Russian invasion of the Ukraine. My guess is that if there were any doubts about this, Biden removed them at the podium on Friday. He talked tough; told Putin he better watch his ass. Putin’s gonna then back down? To a non-specific threat — issuing from a country that couldn’t, last summer, support an ally for even a fortnight after it withdrew its troops that had been there for twenty years? Not in this world.
No, we’re not gonna involve ourselves in a war over this, but the markets should continue to pay special attention, nonetheless. Particularly to the impact of the incursion on the Energy Complex (which, perversely, was flat to down this past week). The action is likely to push up Crude and Nat Gas prices, which will put enormous upward pressure – not only at the pump and through heating vents — but on inflation itself. And (by doing so) further force the Fed’s hand with respect to interest rate hikes.
The obvious kneejerk response is for the Fed to raise rates more aggressively than originally planned, and, in a gallant effort to outflank its competitors in hysteria, some of the strategists at JP Morgan are now predicting 9 (nine) consecutive monthly Fed Funds hikes – beginning in March and extending, by my count, about three months past Tisha B’av.
Other JPM prognosticators are predicting a recession for the back half of ’22. And, in aggregate, they’re probably right. Because history shows the near impossibility of counteracting inflation without setting off a recession.
It’s kinda like stealing First Base. Which is more unlikely now than in the recent past. Because MLB is locked down.
So, I’m keeping my most watchful eye on the Energy and Interest Rate Complexes – both of which are acting somewhat perversely in recent sessions. In the wake of the pending Russian adventure, and on the back of dismal, across-the-board Inflation data, Crude Oil sold off a bit, and longer-term Treasury Yields gave up important ground.
Plainly, investors are somewhat confused here, and their inability to cut through the conflicting signals is showing itself in heightened interest rate volatility:
I am among the flummoxed. So, I turned to my trusty Bloomberg and pulled up this here graph. I don’t understand what it is tracking; the closest I can come is that it depicts the time path of the volatility of one year forward swaptions on long-term Treasury instruments (See? I told you).
But it doesn’t take an expertise in macroeconomics or Differential Equations to infer that interest rate vol is on the rise, hovering at levels not seen since the Big Crash.
I suspect this confusion will continue and wish my rate trading droogies the best of fortune in unpacking this mess.
My gut tells me it ain’t good news, though, and that the great unwashed are beginning to catch on. Bloomberg also informs us that the put/call ratio is highest since the onset of the lockdowns:
Well, OK, but I don’t expect these puts to pay off. They never do. And, beyond this, I feel we are at the bottom of a range that is supported by the oceans of liquidity sloshing around the system, and resisted by, well if you don’t know by now, it’s pointless for me to explain it to you.
Yes, I’ve worn out my welcome with random precision, and will now ride off the steel breeze.
But I feel compelled to offer a more uplifting note of departure. Washington and Lincoln have drawn much shade lately, but still merit a national holiday. In San Francisco (home of the purloined from New York Giants), the School Board tried to remove the names of them guys from certain education facilities. They failed, and instead got themselves removed.
The 94/95 baseball lockdown ended in time for a full season the following year, and, shortly thereafter, Bonds, McGwire and Sosa were cracking out homers at a rate well beyond what had ever been evidenced in more than a century of preceding league play. All of them guys got busted for steroid usage, but, I ask you, isn’t that beside the point? The markets have been living off financial steroids for about 15 years now, after all, to the enrichment of most of my readership.
Baseball now rides clean (or portends to). The diamonds are dusky at the moment, but with hope that springs eternal, will someday shine again.
TIMSHEL