Sometimes I live in the country, sometimes I live in the town,
Sometimes I get a great notion, to jump in the river and drown.
— “Goodnight Irene” by Huddie William (Lead Belly) Ledbetter
No, I’m not gonna lay a bunch of Lead Belly righteousness on y’all. Yes, he was The Man. But the work of even the maestros he influenced (Dylan, Zep, the Stones, etc.) is lost upon most of you, so why bother?
I will mention, though, the book that inspires our theme – Ken Kesey’s “Sometimes a Great Notion”. It’s an enormous, expansive, heart rendering saga of the demise of an Oregon logging family. Kesey, at the time, was not only stimulated by LSD and the Great American Songbook, but also by domestic literary giants such as Faulkner and Steinbeck. Slogging through it, like many masterpieces, requires some patience and discipline. To paraphrase a line in the book itself, you’ can’t force Kesey; you must let him force you. But the rewards are magnificent.
Few of you will even try, but that’s OK. The one I care about already has. And that is enough.
And, as for me, tempting as it sometimes is, I’m not thinking of jumping in the river. Nope, all I can offer is small notions. So, here goes.
My sightlines to market risk flows have been deeply blurred for many months now, but I will press ahead, nonetheless.
And what I predict, over the next several weeks, is a great deal of hand-wringing data flow, which leaves us pretty much where we are right now. With thoughts about tributary suicides, upon which we have no intention of acting.
And where are we now? Well, earnings have begun as a mixed bag. The banks are mostly in, and weren’t terrible, but were tagged by increased set-asides for anticipated loan losses. Which had been artificially suppressed by all that lockdown monetary stimulus but are now back at pre-viral levels. Let’s keep an eye on this, shall we?
Delta screwed the pooch, but can the difficulties in the airline sector come as a surprise to anyone?
Inflation figures came in hot. Way hot. Everyone knew they would. But as is widely speculated, I believe they will come down. Hard. It will be temporary. But it will descend visibly. Starting with the July statistics. Commodity prices have (I believe only briefly) plummeted. Everybody over-ordered everything. Inventories of products ranging from back-to-school clothes, microchips, personal computers and even used cars, are unacceptably high. All will be on fire sale by late Summer.
Six months ago, there was a chronic shortage of perhaps the world’s least needed commodity: (everyone say it with me) Investment Bankers. Deal flow has deeply diminished, is almost nonexistent. Demand for these services has followed suit, and one hopes that those impacted have not squandered the entirety of their beyond-generous 2021 bonuses.
But it is always unwise to underestimate the capacity of bankers to pay themselves. I just read a Bloomberg article about a new wave of banker-fee-rich single stock Exchange Traded Funds (ETFs) emerging on the horizon. What, in heaven’s name, is the point of this? They are billed to offer short exposure and leverage in a manner that is unavailable to investors through standard transactions – unless, of course, they choose to use these tools themselves. Which is not costless, but which will also be charged to the ETFs, with the only advantage I can identify being that said costs won’t appear as line items on brokerage statements.
All of which reminds me of an outdoor show I attended in Madison, billed as the world’s first-ever wind-powered concert (it was in the late ‘70s). OK; fair enough. But there wasn’t enough wind that day to power the Marshall amps. So? They plugged the windmills into diesel-fueled generators.
Meanwhile, next week should be dominated by the earnings reports of lesser god companies, with a few PMI releases to add some variety. The one that follows, though, should be a barnburner. On the Macro side, we obtain the windfall blessings of the next FOMC proclamation (July 27th), which precede by one day, and in divine, plot-thickening flourish, our first glimpse at Q2 GDP estimates.
One can either fear or hope that the members of the Federal Open Market Committee obtain a sneak peek preview of the latter and use it to inform their monetary policy choices. For what it’s worth, you can put me in the “hope” camp. Not that I place much faith in their present abilities to incorporate information flows into rational decision-making. But what the heck – I’d still prefer that they know – just in case there are any unpleasant surprises which have remedies so obvious that even they cannot fail to notice and act upon them.
I don’t expect any (surprises, that is) from either the Fed’s decision or the GDP release. As a point of reference, the current handicapping of these two important revelations is presented below:
The probability of a 75 bp rate increase thus predominates, while that of a full-smash 100 looms larger on the horizon than it did even a week ago. The Atlanta Fed is at -1.5% on GDP; the hopesprings- eternal Street estimates are a full 3% higher.
I figure the Fed takes ‘er right down Broadway, and, come what may, does 75. I further suspect that the Atlanta estimates are closer to reality than those emanating from New York, but please know that the spread in these estimates is menacingly wide, adding to the prospects of vexing volatility in its wake.
Whilst all of this is transpiring, the Big Tech Earnings Wizards will make their presence known. All of them. The whole GAMMA gamut (Google, Amazon, Microsoft, Meta and Apple) reports that week.
Now more than ever, forward guidance will be more important than the numbers themselves.
On a weary, wandering tape, all the above will be a great deal to process.
I suspect it will leave us in a big muddle. The Fed will obfuscate; the GDP numbers will contain ambiguous, sound-byte-inducing bits that render us unsure as to how bad the economy really is. Some of the tech earnings will contain a ring of hopefulness, while others will toll the bell ominously.
And it will be nigh-impossible to draw any definitive conclusions from any of it.
And that’s what I predict for the month of July. After which, if I’m not mistaken, comes August, during which time we can drown ourselves in cocoanut oil, ponder what comes from the end of earnings and monthly macro statistics, and seek to figure out how to make some post-Labor Day Chicken Salad out of this chicken droppings of a year.
It won’t be an inexpensive exercise, as, like everything else, a dollar don’t go as far in the chicken game as it has in years’ past:
Broiler Chicken Prices: Hot as a Poker
However, I personally will be looking for what clues I can derive — not so much from chicken coops as from the fortunes of the energy commodities market. Crude, Gasoline and Nat Gas are all down at least 25% since those hand-wringing days of Spring, and if they remain in those realms/migrate downward, it will be a great blessing for the Capital, Commercial and Consumer Economies.
If, on the other hand, these commodities, as I suspect they will, ascend towards recent highs, we’ll all be in something of a bind. The inflation respite will be over, and the prospects of investing into a rising price/higher interest rate/slowing economy will re-emerge in crescendo.
The hard slog thus continues. But I reckon we can leave off notions of jumpin’ in the river and drownin’ – for now.
Nope. Let’s stick to smaller notions instead. Like how we’re gonna muddle through this mess. I’ve some ideas and am fixin’ to acting upon them.
But that, my friends, is a story for another day.
TIMSHEL