“If I am occasionally a little over-dressed, I make up for it by being always immensely over-educated.”
Oscar Wilde, “The Importance of Being Ernest”
In a flush of admitted (if partial) desperation, we turn to Oscar Wilde. But we will not dwell on his works and will entirely bypass any reference to his private life. Further, while I am unable to comment on his sartorial standing, in terms of his claims of overeducation, either its true or, having attended both Trinity College (Dublin) and Magdalen College (Oxford), it wasn’t for lack of trying.
“The Importance of Being Ernest” is a fun little romp, but Wilde is perhaps better known for his dark, disturbing novel “The Picture of Dorian Grey”, which tells of a handsome young man who makes a Faustian bargain to transfer the aging of his person to his exquisitely rendered portrait, while he himself remains unblemished by the marks of time, debauchery, and hard experience.
One wonders if many investors wouldn’t accept this trade with respect to their portfolio summaries.
Meantime, the eternal debate – whether it is better to be overdressed or underdressed – has never been firmly settled. Across my monitoring of the subject, the consensus has generally tilted towards the former: one might be embarrassed about wearing a tux or formal gown to an event where everyone else was rocking biz cas but would be less so than by showing up in flip flops to a cotilion.
However, that was then. Before lockdowns. Before the Jeffery Toobin episode. And, in the interim, I’m not entirely convinced that the tide hasn’t turned in favor of insufficiently formal attire as being the preferable transgression.
Naturally, one can apply the question to the state of the markets. Are they overdressed or underdressed, and, either way, which is the favored configuration? I’ve reflected on this and believe that the answer varies by market and jurisdiction. An inventory of the breakdown follows.
We begin, in time-honored fashion (dating back to last week), in the U.K. I’m not enough of a clothes horse to judge whether Madame Truss was over or underdressed, but I suspect the former. Because she was on the receiving end of a nasty dressing down, having been summarily defrocked, so to speak, of her Prime Ministership — her double fortnight reign standing as the shortest of any in the more than a ten-century history of British Parliamentary Government. What comes next no one knows. But her program has been certainly withdrawn in boddice ripping fashion. In result, English cross asset class finances have improved a titch. Whether they can sustain their recaptured vigor remains to be seen.
Our query also applies to the first world’s other most prominent island nation – Japan — and particularly to its benchmark currency pair: USDJPY, which breached the astonishing threshold of 150 earlier this past week – highest level since 1990.
In response, the normally ceremonial Bank of Japan decided to let its hair down a bit – intervening in such a way as to cause a neckline plunge to 146.
What is perhaps noteworthy about this is that it comes against backdrop of significant financial duress, which, time immemorial, tends redound to the benefit of the JPY. During the Big Crash, USDJPY fell to barely half of the elevated levels experienced last week. But this time ‘round, with global indebtedness more than double its pre-crash levels, with Inflation, rising interest rates, with economic pressure points too numerous to enumerate, nobody loves, nobody wants, the JPY.
Except for the BOJ, which was forced to throw a coverlet over its exposed loins at the end of last week.
Not to be forgotten in our tour of the fashion globe is China. Where, in an election the results of which nobody bothered to contest, Xi was anointed for another term. We’ll hope for the best here, but I will take some comfort in the stylish, western suit he rocked at his People’s Congress acceptance speech. Say what you will about Xi, but his accoutrements are most certainly an improvement over that drab, grey tunic that Mao used to wear.
Stateside, we revert to our own Fed. Is it over or under dressed? Well, across the summer and into the autumn, its appointments suggested that it was girding itself for a Napoleonic, winter battle for Moscow. It donned its heavy armor and its thermal underthings and advised its investing minions to do the same. All of which put a serious drag on risk assets.
Rumblings at the end of the week suggested that the Fed might be rethinking its wardrobe selections, that it might want to shed its heavy boots – rammed so recently, so repeatedly, so rudely, on the accelerator of monetary hawkishness. Our next glimpse at its prevailing fashion choices will arrive with November, when the suits at the FOMC stride down the Washingtonian runway. Meantime, investors, breathing heavy under the weight of its Fed-mandated vestements, reacted with delight at the mere rumor of such relief, ginning up the first weekly rally in, well, in quite a while.
But we anticipate ourselves.
Because, oxymoronically, Energy markets have taken the opposite tack, attiring themselves for an Endless Summer. Nat Gas in particular – both stateside and in Europe — continues to plunge:
Domestic and European Natural Gas: Perhaps Excessively Au Naturale?
I reckon somebody knows something here that I don’t. Because I believe these markets to be scandalously over-exposed. So much so, in fact, that I feel I must turn my virgin eyes away from these here charts.
Winter’s a-coming, and I fear without a few more layers of protection, this showing may transcend pure embarrassment and devolve to physical discomfort.
Maybe the folks in Wisconsin and Bavaria simply plan to turn down their thermostats and throw on extra sets of woolies this winter. But I suspect that if they don’t, buyers of these commodities will be the ones that end up dressed to the nines over the coming months.
Meanwhile, in the realms of Crude Oil, we’re emptying our strategic closets of late – in advance of an election where everyone wishes to look their best (what could go wrong there?). They are now at their lowest levels since the 1970s. Here’s hoping that we don’t soon find ourselves in a perverse construct where we’re all dressed up, with important destinations on our itinerary, but with no affordable means to transport ourselves from here to there.
All of which brings us to Equities. We are now entering the period where those most Imperial Emperors of our global corporations sashay forward to proclaim recent results and future tidings. We will thusly learn whether they channel the Hans Christian Anderson Fairy Tale – wallowing in their spiffed-up splendor until some poor innocent points out what no one else will say. Namely, that they are standing there naked.
In which case, upon this we will all agree – they will have been disastrously underdressed.
And investors, if early earnings returns can be fairly extrapolated, are not likely to be in a forgiving mood no matter what they say (or wear):
It all makes for a tricky wardrobe selection conundrum, but I recommend that, let others think what they might, you dress for comfort as events unfold. It would be foolish at this juncture to over accessorize your portfolios. Simplicity equates to elegance during these times, as it does – so the fashionistas inform me – across most of the interludes of our existence.
I have every hope and expectation that you’ll look fabulous in basic black (or blue).
But whether you can generate satisfactory returns is another matter, and one entirely above my pay grade.
TIMSHEL