YYUR,YYUB,ICUR,YY4ME
— Time Honored Acronym of Unknown Origin
This here “poem” dates back to my childhood, and, perhaps, to an even more ancient era (if one exists). For all I know, its original author might’ve chiseled it into his or her cave dwelling.
Maybe you are familiar with it. If not, hopefully, your inner cryptographer can help you to decipher.
For those deficient in these skills, I offer the following hint. Convert the YY to “two Ys”, and then to “too wise”. The meaning of the rest of the string should then become apparent for even the most obtuse among you.
I landed on this path while following (what else?) the news out of the Ukraine, and its magnificent leader: Volodymyr Zelensky(y). One hears a great deal about him lately, and, those (like me) who obtain their news mostly from the printed (rather than the spoken) word, could hardly fail to notice that the numbers of “y”s at the end of his last name varies from publication to publication. The fabulous Wikipedia awards him two, while much of the mainstream press sticks to one. My crack research team informs me that there are as many as a half-dozen spellings available – including those that add an “i” in the middle of the last syllable, and various apostrophe-laden configurations.
The pedestrian reason for this is the less-than-fluid translation function between Cyrillic and English spelling protocols. But, in trademark fashion, I prefer my own narrative: he was born Zelensky and was awarded (by whoever is responsible for such matters) an extra “y” in result of his recent, undeniably heroic, leadership.
At the risk of stating the incrementally obvious, the “yy” tail might also be a nod to the masculinity (in a quaint, colloquial sense) of a leader who chose to stay home and fight rather than bounce — when a big ole army from the north and east rolled in — with a stated objective to annihilate him.
(If I’m right on this score, perhaps this is why (y?) his first name, a variant of Putin’s, also contains 2 y’s, while Putin’s doesn’t even have a single one).
And, in my judgement, no one should underestimate the degrees of difficulty associated with the attainment of the second “y” – to achieve “2Ys” configuration. Because wisdom, to say nothing of excessive wisdom, (not to mention the chromosomal benefits of the YY which I believe, on balance, to be beneficial to society — except in the NCAA Women’s Swimming Championship – and don’t get me started there), appears, at the moment, to be in particularly short supply.
All of which provides the jumping off point for the probing market analysis for which this publication is famous. “YY” investors judged last week a good time to muster sufficient intestinal fortitude to gin up the best Mon-Fri equities sequence in about 16 months. One which catapulting key indices to elevations last encountered when: a) the Russian Army was merely menacingly massing on the Ukrainian border and not blowing up maternity hospitals; b) the name of Zelensky(y) was only known in these parts as the recipient of a call for which Trump was impeached; and c) no one particularly cared about the spelling of b).
Was this wise? Was it too wise? I reckon we’ll see. We should, perhaps, remain mindful, though, that the rally comes against the backdrop of a shooting war that may represent the biggest threat to date of an always-unstable, post-WWII geopolitical equilibrium, a double-digit PPI print, the beginning of a likely extended era of higher interest rates, lingering and perhaps re-emerging pandemic threats, and sundry other annoyances.
Credit markets also rebounded a titch, and for that I judge we should be grateful. Because if they continue to wilt, we’ve got a big mess on our hands. Investors in these realms are, at best, a 1.5Y, and, over the last several weeks, have bailed out of the strategy class at a pace that might give Lia a 500-meter run for her money:
Nothing for nothing, but these funds are the cozy lair of innumerable pension programs, 401Ks, IRAs, annuities, insurance pools and even non-tax-sheltered retirement accounts (if there is such a thing).
When custodians of these capital pools hit the redemption button, fund managers themselves must sell their holdings, placing additional pressure on the entire asset class. Bankers begin to get happy feet. Paper is called in.
These trends feed on themselves, and what happens when they reach escape velocity is too gruesome to describe in this family publication (hint: 2008 redux).
Commodity markets were a bag of mixed nuts. Yes, the energy and metals sectors calmed down a bit, and Wheat is no longer a luxury only available to billionaires (centimillionaires can now plausibly afford a few bushels). But we’re far from out of the woods here.
To wit: Cotton is now priced at a multi-generational high:
The Land of Cotton: Look Away, Look Away, Look Away:
Not much cause for concern here, though. Because who, this side of a few Santa Monica hipsters, uses Cotton?
On the other hand, one could argue that the Fed is paying attention to these tidings.
Interest rates, as foretold in this space, rose acutely across the Treasury Curve last week, but rather than measuring the wisdom of this move, I will deem it a Pavlovian reaction to the FOMC Policy Statement, the attendant 25 bp hike in the Fed Funds rate, a d warnings of its resolve to jack up yields at every meeting until at least some time in 2024.
Near as I am able to determine, they also announced the immediate discontinuation of asset purchases (QE) and offered vague prognostications about reducing their ~$9 Trillion Balance Sheet. All of which should serve to maintain interest rates at still suppressed but elevated (by recent standard) levels, for the foreseeable future.
I cannot nominate, much less award, the Fed a YY for its policy judgments, as I adhere to a consensus that they should’ve taken these steps more than a year ago. Had they possessed the Ys to do so, markets might’ve absorbed the current traumas with more clarity and less uncertainty. The Housing Complex might’ve been more rationally valued. Stocks and bonds might’ve been trading at lower thresholds but would also have been less susceptible an all-out rout.
But as it stands, the Fed is raising interest rates into a deeply disrupted capital economy, which portends slower growth, and, perhaps, recession. Moreover, the new policy offers, at best, dubious prospects for effectively counteracting the increasing menace of runaway inflation. Its economists (the best, by credential, in the land) are maddeningly sanguine about it all. Their models show a downward trend to price increases, beginning in the back half of the year, with headline inflation numbers dropping daintily to a 2-handle in ’23 through ’26.
Not gonna lie: this gets my blood up. The inflation trends themselves hardly suggest organic correction, which, in any event, almost never happens. And this is to say nothing of the looming risks that prices will, in fact, spiral out of control.
These, in no particular order, include, but are not limited to, the following:
- Continued supply disruptions emanating from covid-land.
- An escalation of the current Eastern European hostilities, featuring additional sanctions, tariffs, etc.
- The prospects of renewed, redistributive fiscal stimulus, which may simultaneously hamper supply and boost demand.
- The possibility that hostile (Iran) or increasingly indifferent (Saudi Arabia) energy producing countries will fail to support our strategy of tapping their inventories while we continue – for political reason — to hamper our own production capabilities.
- Incremental strategic alliance between Russia and China (to say nothing of the disasters that await us if China takes this as an opportune time to expand its own control over Asia-Pacific economic affairs).
- Droughts, floods, continued worker shortages/wage pressures…
And so on and so on and shoobie doobie doo.
In result, on this Vernal Equinox, we are perhaps impelled to train our objectives somewhere short of the 2Ys threshold. It would, after all, behoove us to be wise rather than too wise.
I can state, in support of these more modest efforts, that I lack trust in virtually every price print I C. I certainly wouldn’t jump on the back of last week’s equity rally but playing for a pullback might just be 2Ys.
Interest rates are likely to continue to trend upward, but the timing, in my judgment, is highly uncertain.
Commodities are either wildly over-valued, criminally under-valued, or both.
The tactical answer is to operate nimbly, while, from a strategic perspective, preservation of your most beloved assets is essential.
It strikes me that our boy Zelensky(y) is doing precisely that. And he, after all, is rapidly working his way into history(y).
But neither you, nor I, am Zelensky(y). Nor should we wish to be. Because the migration from Zelensky to Zelenskyy must be driven as much by fate as anything else. If we seek to unilaterally grab that second Y, we stand a disproportionate chance of failing, and losing not only our first one, but all the other letters we possess.
But IC I may be overstaying my welcome, and ICUC it too.
And, if all of this is YY4U, I promise you I will understand.
TIMSHEL