So be careful when they’re kind to you
Don’t you end up in the dirt
Just remember what I’m saying to you
And you like-el-ly won’t get hurt
And when it rains the rain falls down, wash away the cattle town,
And she’s far away somewhere, in her eider down,
And she dreams of crystal streams, of days gone by when we would be,
Laughing, fit to burst, on each other
Bernie Taupin
I’m always kinda blue this time of year. And not in the Miles Davis sense. Labor Day is here (and gone). And, for several reasons, I hate Labor Day. Labor Day sucks. First, it marks the end of summer, meaning now we all must knuckle down and try to get some things done. The Little Fellers are back in school, and that makes me sad as well.
Also, however else one cares to describe me, I am not Labor but rather Management. I wouldn’t go so far as to state that these two economic classes are natural enemies, but they do differ in terms of style, objectives and modes of operation. This here holiday, for instance, is cast as a celebration of the former (there is, to the best of my knowledge, no Management Day) and here’s hoping all those strivers and toilers enjoy their government-sanctioned day off. But for Wicked Management, there is no rest, as evidenced in part by my slaving away at the keyboard while the rest of y’all are busting out the ‘Cue Sauce and Kingsford.
In my idyllic former haunt of the Hamptons – a Management Mecca that I now seldom visit, they call the day after Labor Day Tumbleweed Tuesday. All the renters have packed their bags, returned their keys, and bounced back to Manhattan (or Brooklyn). Business for the local shop keepers dwindles down to imperceptible levels. I don’t think there are actual tumbleweeds on the streets, but one can forgive the retailers on the streets for swearing they’re seeing them.
And I’m all about Tumbleweeds, particularly Elton John’s magnificent Tumbleweed Connection. My having placed it on my audio Mount Rushmore (along with, in no particular order, L.A. Woman, Blonde on Blonde and London Calling) has singled me out for criticism in certain quarters. To which I always reply that these things, to the best of my understanding, are matters of taste. I suggest, as such, that you give it a listen and decide for yourself.
Meantime, we celebrate Labor at an interesting pass. In a quirk of the calendar, the August Jobs Report dropped on the Friday before the three-day weekend. It came largely in line with expectations: ~300K new non-farm gigs, a modest uptick in the base rate. Not much else.
It’s a good labor market, save for the vexing and stubborn amount of unfilled Job Openings. But I will stop short of flat out scolding those who sit on their thumbs when > 11M legit gigs go begging:
And whether you are Labor, Management, or ignominiously out of the matrix, the next several weeks offer in interesting sequence. It’s one for which I strive – unsuccessfully – to equate to any previous paradigm through which I have traversed.
On the 83rd Anniversary of the onset of WWII, the Poles demanded 6.3 Trillion Zlotys (~ $1.3T but falling, as is virtually every other currency against the newly-almighty USD) in reparations from the Germans. Germany is Poland’s largest trading partner, and that by a wide margin. Both countries border/are threatened by Russia, from which they each import >50% of their Natural Gas. As such, both are subject to the POSSIBILITY of a devastating economic collapse this winter. Both are on the brink of (or perhaps in) Recession.
Let’s in any event wish the Poles God Speed in collecting their invoice. Maybe the Germans will fork over the 6 large Zlotys without complaint, and lord knows that the bill of attainder is probably legit. But I certainly would not be holding my breath.
On a related note, G7 ministers are pushing through a price cap on Russian Oil, to which the Russians responded by shutting down – full smash – the Nord Stream pipeline. Someone’s gotta help me with the math here. Russia is in a nasty war. The G7 has lined up against it. Yet the allied powers seem to somehow imagine that Putin will go along with this. Which brings to mind (albeit in extreme form) the following question: did Hitler import/impose an oil price cap on Stalin in 1944?
Didn’t think so.
And here on these shores, we enter the final third of the year with the markets way down, but no clear signal as to what happens next. I don’t see many upside catalysts, but, on the other hand, I doubt we’re looking at a full stop crash. The Gallant 500 closed Friday below its 50,100 and 200-day Moving Averages, as did Captain Naz. And all this in the first two trading days of September – historically and by a wide margin, the worst month for risk asset performance on the Julian Calendar.
Normally, this would be a dire configuration.
But Ima gonna hold onto my call that there’s a bid out there in these ranges. Not much of one, but a bid, nonetheless.
Why? Because it’s the pain trade. We’d all probably be better off with a market clearing crash. Which is why it almost certainly won’t happen.
The post-Labor Day sequence should unfold in slow, deliberate fashion. There’s almost no data this coming week. But after that, we’ll be confronted with yet another round of Inflation statistics, with the next FOMC meeting following quickly on the heels of this.
Though it wearies me to reiterate, much of what happens next depends upon Fed action and the market’s reaction to same. It’s currently a dice flip between 50 and 75 bp hike at the September meeting, and as for me I’ll take the over. After Powell’s J-Hole’s words of anger and admonition, I think he’s gotta back the rhetoric up with some fire and brimstone on the Fed Funds rate.
However, this is not the whole of the story. Accelerated Fed Balance Sheet reduction is also on the docket, and not, per se, arriving at an ideal time.
All of which should put upward pressure on rates of all types, which, irrespective of its impact on the actual economy, is not exactly constructive for the markets.
Overall, the Macro meter points to the negative, but not dramatically so. If one envisions it as the upper half of a clock, with the extremes being at 9 and 3, respectively, I’d place it at about 10:30.
Yes, the technicals and fundamentals are both flashing warnings, but in this muddle, I would caution against getting to jiggy on the short side. Stocks were squeezed hard earlier this summer, and, while that ran its course and ushered in double digit selloff in our favorite indices, these things, too, can reverse course. The tumbleweeds could roll up the street and it might be nut squeezing time again.
Mostly, I think we stay in ranges with the top marked by those giddy days after we absorbed the Ukie, and the bottom represented by the puke that ensued immediately thereafter. This is a pretty wide range of > 20% (+/-), so not much of a call there.
But I’d ease into the “business end” of September, allowing your portfolio risks to evolve with market conditions. If we make it through that month of aspirational memory (which, to the obtuse, I’m trying to remember), it’s on to October, which will usher in a new set of earnings and quarterly macro data – much of which will be overwrought and, yes, overthought.
Then there’s them midterms. Whatever your political persuasion, I can assure you that if the Progressives manage to run the table, it won’t be pleasant for investors. By contrast, if as expected, their ruling coalition weakens and they lose at least one chamber of Congress, it would preclude a lot of bad sh!t for the markets, but won’t, in and of itself, catalyze more accretive governmental policies. Because they will only have the juice to block stupid government initiatives, not to pass smarter ones/ Their success thus takes more the form of a risk mitigation dynamic than an investment opportunity.
I am anticipating some wicked bumps (and a few tumbles) ere we put a capper on ’22, and the action starts right now. Again, I feel the best approach will be reactive rather than proactive.
Meantime, Tumbleweed Tuesday is hard upon us, whether we like it or not. But, as for me, I’ll hold on tight to my dreams of the crystal streams, of days gone by, of private, fit-to-burst laughter.
However, these things, as indicated above, are matters of taste. Do what you will. But be careful when they’re kind to you; don’t you end up in the dirt.
Just remember what I’m saying to you, and you like-e-ly won’t get hurt.
TIMSHEL