So, I’ve been rocking Citi Bikes lately, and overall have no regrets. It’s a quirky experience, particularly given how little I’ve engaged, over four decades of adult living, in bike riding. Navigating the streets of Manhattan in this way — helmetless (I know) is about as close as I get to thrill seeking these days. But it is enough. Moreover, I’m happy to report that for risk management purposes, I traverse the Island, to the greatest extent possible, via Central and Riverside Parks, where cabs don’t threaten to send you careening unceremoniously to the pavement.
Significantly, over the approximate six weeks that span this experience, I have been passed by other two wheelers no fewer than a thousand times. And have passed — no one.
I have shared this anecdote with several of those close to me – informing them about the number of times I’ve been whizzed by — and asked them to guess the amount of my own offsetting whizzes. They all correctly conjectured zero. Except Joe. Who, perhaps owing to his organic diplomacy (and the fact that I’m his boss) threw out an estimate of one.
God bless Joe, who threw me an additional bone of reminding me that at least I haven’t fallen yet, much less while in a resting position. Which is more than can be said for President Biden.
But I still don’t understand. How can this be? Though unmistakably old, I’m in the best shape of my life. I work out approximately 15 hours a week, including innumerable stretches on my Peloton, upon which, in a good week, I churn through somewhere around 200 miles to nowhere.
However, as I have recently learned (and somewhat to my surprise), peddling the Pel taxes different muscles than those required for best use of a two-wheeled, non-motorized vehicle that doesn’t remain in the same precise geographic location across all eternity. I’m improving my standard cycling muscle memory, but (obviously) still have a way to go.
Meantime, even the flattest part of the Central Park biking trails have an Alpine look and feel for me. Every meter before me seems to slope uphill – even those where the opposite is true, and l am really heading in a direction where gravity works to my advantage.
And so it goes with the markets, which seem (at least to me) to be slipping and sliding even when they’re soaring.
This past week was exemplary of same. Cutting the tape at Thursday’s close (and thus conveniently ignoring Friday’s ignominious index retreat), it felt like the band was back together and rocking in a manner more reminiscent of magnificent stadium tours of yore – as opposed to those boat cruise gigs that are all our manager can secure for us lately.
But was anyone in the investment universe coasting (to say nothing of rocking)? Or, as I suspect, did market participants need to grind away for every inch of performance they were able to capture across this dubious rally?
Well, as the saying goes, your mileage may vary. But I saw what I saw, which was an uphill climb amid sweltering heat, even as the adjacent screens flashed unilaterally green.
Weather maps suggest that at least in the Northeast, we’ll get some relief from the boiling temps this coming week, and perhaps this will help me as I traverse that accursed Jaqueline (nee’ Bouvier) Kennedy Onassis Reservoir, but in the markets, the mercury should be rising throughout.
This past week was, by and large, prelude. Earnings reports accelerated and were mixed. Netflix produced what now passes for a blockbuster, losing only a million subscribers versus a projected drop of 2 million, and, in consequence, its stock rallied >25%. But then there was SNAP, slowing from a crisp click of the fingers to a droning dirge. Its price declined by nearly 50% after its earnings release and is down from ~80 to <10 in nine short months.
For what it’s worth, of the eleven companies with stones enough to issue forward guidance, ten have guided down.
The ECB weighed in with its first interest rate increase in, like, forever. I think the last time this occurred, outgoing Italian Prime Minister Mario Draghi was ECB Chair. He is now working with the local U-Haul contingent to remove his personal items from Chigi Palace to his own private dwellings.
Somehow, the European markets took it all in stride. Kuroda-san of the BOJ also spoke. But did nothing. Perhaps he’s still in mourning for his fallen friend Abe. Investors in Japanese securities, apparently quicker to regain their equanimity, ginned up a sustained rally.
But again, all this is likely prologue to what awaits us in the days to come. The real action will take two forms – earnings results from the Titans of Commerce, and pronouncements from Washington as to the cost of money and the pace of economic growth.
Of the former, I have little to say. I will be attending closely to what issues from the golden tongues of speakers ranging from Zuck to Cook. But your guess is as good as mind as to: a) the tidings they will bring; and b) how the markets will react to a).
Perhaps even more important than this will be the one-two punch of Wednesday’s FOMC announcement and Thursday’s first glimpse at Q2 GDP. Investors remain locked in on the likelihood of at least a 75 bp rate increase, and I doubt they will be disappointed in either direction.
GDP, on the other hand, is a perplexing mystery. The wizards on the payroll of the Atlanta Fed are prognosticating a decline of 1.6%. The organization’s survey of Wall Street analysts clocks in at +2%. The Bloomberg canvas splits the difference, at +0.5%.
All involved are trained and paid economists, but as I pointed out last week: God oh mighty, that’s a wide divergence of opinions, and I suspect that where the number actually lands may be the most important data point in an exceptionally data-rich week.
Thus, by Friday’s close, by when we bid farewell to a fleeting, forlorn, bittersweet July, we should have more information, but not necessarily more clarity, as to the overall state of the capital and commercial economy.
Whether we use this acquired knowledge for support or illumination remains in our own hands.
Meantime, what we can gather from current market pricing offers some hints. Witness the current trajectory of the domestic yield curve:
This dizzying path shows a deep upward slope out to six months, then inversion to ten years, a pleasant climb from ten to twenty, whereupon it re-inverts from twenty to thirty. Standard economic interpretation would suggest that the recession warning lights are flashing red. But I’m just not so sure.
I’m. Just. Not. So. Sure.
I rather believe that this tortured yield curve trajectory reflects a belief that inflation is fixin’ to come careening down over the next few months, after which the risk of recession rises, but not alarmingly so. There is support for this argument – particularly in collapsing commodity prices. But predicting the end of a cycle of rising prices is a bit like riding a Citi Bike, blindfolded and helmetless, on the BQE at Rush Hour.
As such (and considering the above-supplied narrative) I wouldn’t blame you if you thought it best to ignore this conjecture. This much is certain, though: if this was the bike path you chose, you’d be in for an interesting ride.
But for me, the road I’m on feels like the treadmill represented in the first six months of the above supplied graph.
Nonetheless, I still hold out hope that some of these days, I’ll find myself peddling along and encounter a bike in front of me looming ever larger on the horizon. Whereupon I will cheerfully and diplomatically veer left and leave it in my wake.
Meantime, though, I reckon I’ll keep grinding away, offering what greetings I am able to those who swiftly pass me by. And here, I’ll take some inspiration from Biking Biden, who continues to use his two-wheeler, his recent inglorious fall notwithstanding. Until, that is, he got covid, a happenstance which I believe has sidelined him. Given recent developments, one wonders if he was dosed, but we’ll leave that aside for the time being, wish him both a speedy recovery, and an expedited return to his righteous cycling ways.
My best advice is that you do the same. Keep peddling along, kids, bearing in mind, all the while, that it is the destination, not the pace, which should be our primary focus.
TIMSHEL