True, as we approach the mid-point of, ’22, I am combing through my back catalogue, but I have some justification for doing so. Or at least an excuse.
So, let’s return to a theme I last employed over 15 years ago, and celebrate the 40th Anniversary of the magnificent maiden (and also final) voyage of Lawn Chair Larry.
For the uninitiated, on July 2, 1982, San Pedro, CA’s Pride and Joy: Larry Walters, strapped himself into (yes) a Lawn Chair that was affixed to 45 helium-filled weather balloons, instructed his girlfriend to cut the cord that restrained the device, and ascended more than three miles into the heavens. He took with him, on his journey, some sandwiches, a CB radio, and (natch) a few beers.
Three quarters of an hour into his mission, he passed into a corridor directly under the jurisdiction of the Long Beach Airport, whose personnel were none-too-pleased to encounter him.
Presciently, he was also packing some heat – in the form of a pellet gun, and eventually the Long Beach tower guys convinced him to use it to shoot down a few of those orbs that were keeping him afloat. At some point he dropped the gun (presumably by accident). Gravity, inexorable but gentle, soon took hold, and Larry found himself floating towards terra firma.
The entire odyssey would have been an unmixed success, had not LL got himself entangled in some power lines, causing regional outages for well-nigh half an hour. He finished the triumphant trip a little frazzled, but physically intact, and was promptly arrested. One problem persisted – they didn’t know what crime to charge him with. Ultimately, he got off with a $1,500 fine, and was left to pursue his Andy Warhol 900 seconds.
And that was it. The world moved on. As the world will tend to do.
Now, four decades have passed, and it would appear that Lawn Chair Larry rides again – at least from a market perspective. But has anything changed? Have we learned anything from his wise example?
I suspect not. We took his righteous vibe and it them for quite a spell. At the point of Larry’s liftoff, the Gallant 500 was trading at under 100, and thus, at its recently registered highs, was an approximate 50 bagger. Madam X’s 10 Year Yield skirts were hiked all the way up past 12%, only to bottom out at around 0.5% in the Summer of Lockdown.
And of what stuff was the rise in equity prices, the drop in borrowing costs, etc., made? Well, particularly over the last 15 years, one could certainly argue that it was the financial equivalent of helium weather balloons – taking the specific form of galactic huffs of newly minted fiat currency.
Yes, we had a few laughs, consumed a vast quantity of beer, along the way.
But even the modest luxury of the latter is now much dearer than it was when Larry was wetting his whistle with Pabst Blue Ribbon, high over Orange County, CA.
Whether Larry would’ve fared better if he had left the suds back at home we can only speculate; perhaps he would’ve controlled his vessel in such a way as to escape notice by Long Beach Sonar and Radar. And, as this lesson partially applies to our current market mess, it can be argued that the asset valuations themselves flew too high/copped too big a buzz — in the process impairing judgment and drawing the unwanted attention of meddlesome bureaucrats.
If so, the tidings are measured by soaring inflation and the Fed’s attempts to attack same. Chair Pow and Company have indeed shot a few pellets at the visible monetary balloons, and, in result, one notices a downward trajectory of economic vigor. Separately, and taking the analogy to its extreme, our flying machine, even as it plunges earthward, is also caught in power lines, disrupting energy supplies of every sort, and (importantly) increasing their price.
And this includes helium itself, which is, by composition and usage, a natural gas. I can’t even source a price for the lighter than air element prior to 1997 – 1.5 decades after Larry’s moment in the sun. But over the ensuing generation, its value has risen from under $50 to over $300/million cubic feet.
However, in a blinding glimpse of the obvious, the capital economy is not Larry’s Lawn Chair, and as such, its path is much more difficult to ascertain, much less predict, than that of his makeshift chairway to heaven. This much was obvious over the last several trading sessions, during which investor focus was trained primarily on Powell’s Congressional testimony. It’s unclear to me the message he was trying to deliver, but let’s afford him some sympathy, shall we? He is obliged to call out inflation as his primary dragon to slay, but was impelled to temper his rhetoric — so as not to scare the sh!t out of an already skittish universe of risk taking capital allocators.
(And one may also wish to extend condolences to JPow — for presiding over an inventory of securities that lost > $500B in the last rolling quarter. A bigger reversal, over three months, than the entire market cap of any bank in the universe).
Investors, however, were less confused as to his intent. They seem to have taken a needlethreading interpretation that the Fed is going to do some wicked tightening, but perhaps over a shorter time and with less ominous rate implications, than was previously assumed.
We witnessed, in result, something of a frenzy of buying in the Treasury Market, as evidenced across the entire yield curve. In addition, the widely watched 5-year break-evens – risk factors that predict the path of inflation over the maturities in question, came careening down in a manner that evokes images of what might’ve happened to the Lawn Chair, occupant and accessories, had Larry not dropped that pellet gun and instead worked himself into a dubious frenzy of balloon blasting:
Commodities across most sectors (Grains, Metals, non-Helium Nat Gas), in unison and in sympathy, plunged dramatically as well. Crypto came roaring back.
And equities experienced a joyful, upward reversal. I’m not entirely sure what drove this, and there are several technical factors at play: short squeezes, the always iffy Russel Rebalance, the anticipation of tens of billions of dollars of Q3 pension fund inflows. In addition, and though I hate to mention it, there just may have been a little early tape painting in play, in advance of the conclusion of what, for most, was a very painful second quarter.
I reckon we’ll take what we can get. However, by doing so, we are impelled to embrace recession as a welcome antidote to inflation and higher interest rates. But that’s the way these things go. Larry, after all, must’ve been a bit freaked out about his ascent, but not particularly so in comparison to what his downward trip must’ve felt like.
And there is some justification for this abrupt reversal of our priorities. PMIs – in the United States and across the globe, came in wretchedly below expectations. Consumer Sentiment hit a new low – but not by much. So, there’s that.
I wish that I could see more clarity in market pricing flows than Larry presumably manifested in planning and executing on his journey. But I can’t. Stocks and bonds are rising in value, presumably because the economy is now more likely to stave off inflation (and attendant higher yields) by entering into a recession. This is all a form of logic that resides above my pay grade. But I suspect that investors will find occasion to re-think and re-think again before they begin to make sense of the current confounding configuration.
So, pack your Pabst and pellet guns. It looks like we’re in for a bumpy ride.
Just like Larry, who, during his brief period of existence, was certainly able to accomplish what the Good Lord had intended for him. Not much went right for him after that, though. People tired of hearing his story (or, at minimum, paying to do so). His girlfriend dumped him. And one sad day in October of ’93, he offed himself.
But oh, what a magnificent ride he had. And in addition to saluting him on the Ruby Anniversary of his voyage, I believe we have it in us to take appropriate instruction from him.
I’ll be delighted to share it with you – just as soon as I figure out what it is.
TIMSHEL