Yes, I see you got your brand-new leopard skin pillbox hat
You must tell me darling, how your head feels under something like that
You look so pretty in it, honey can I jump on it sometime?
I just wanna see, if it’s really the expensive kind,
It balances on your head like a mattress balances on a bottle of wine
Bob Dylan – Leopard Skin Pillbox Hat
Among the most iron-clad of risk management truisms that I have accumulated over the ages is this: when lacking anything else about which to write, it’s always best to revert to Dylan.
Along with a couple of corollaries: 1) one is best served, when reverting to Dylan, to plumb the depths of his finest album (Blonde on Blonde); and 2) when plumbing the depths of Blonde on Blonde, one can never go far wrong homing in on the song Leopard Skin Pillbox Hat. So, for once, I reckon, I’ll take my own advice.
LSPBH is a rich homage to days gone by. When women like Jackie Kennedy wore these tiny hats – affixed (no doubt with innumerable pins) on the top of their dainty noggins and looked fabulous in them. I don’t believe I’ve seen a pillbox hat, much less a leopard skin one, on any fair head in several decades, and my guess is that the leonine portion of my readership has never encountered one. I call this a pity; another dash of elegance consigned to history’s rabbit hole.
But I do think that our titular theme bears some relevance to current tidings. Because balancing like a mattress balancing on a bottle of wine seems an apt description of the state of the capital economy. The cushion is indeed perched above terra firma, but the stability is precarious, and by no means certain, or even likely, to survive a gale wind, a modest breeze, or, for that matter, two human bodies using the platform for its preferred non-sleep-related function.
We ended last week with much to please us and much to vex us. From a domestic macro perspective, Q4 GDP dropped into an ideal range. The Employment picture is robust almost to excess. And both the commercial and capital economies have absorbed an historically rapid/aggressive series of interest rate hikes without collapsing into utter, catatonic despair.
OK; maybe just a little bit of despair. This here graph above plots the course of an important economic indicator, the number of cars out there upon which the Repo Man has trained his sights.
I was forewarned of this a couple of months ago, and if I understood what was being conveyed, the trend is likely to continue.
All I can add is that I hope my ride ain’t on his list.
In eerie verisimilitude the Housing Market has also cooled considerably, but this was both inevitable, and, perhaps long-term constructive. And, to boot, Earnings, by all appearance, are on the down.
But by way of perspective, let’s wind back the clock back a few months if you will. Say, to mid-last year. When everyone still cared about the Russian/Ukrainian war, when WTI Crude was perched above $100/bbl, when Natural Gas was approaching double digits, and everyone up North was preparing for a winter freeze out. When our equity indices entered corrective territory. With 10-year yields having doubled over the previous year, with our beloved Bitcoin in free fall.
When we were closing out a second consecutive quarter of negative GDP Growth. With CPI sporting a 9 handle and PPI breaking into double digits.
It’s fair, I believe, to opine that the projection of improvement across these metrics to current, prevailing thresholds would have been dismissed as the ravings of a lunatic:
It also bears reiterating that the Fed was jacking up rates to beat the band last summer, with no particular end in sight, and now may be wearying of this operation.
Glancing at this change in our fortunes, should, I believe invoke some combination of wonder and delight.
So why are we (I) so depressed?
In my case, because it strikes me that the capital economy is balancing on the markets like a mattress balances on a bottle of wine.
Which, first principals, cannot be said to be terribly comfortable for the user of the fluffy platform. Unless it is very thick, it is bound to protrude on our horizontal corpuses in annoying and perhaps embarrassing ways. And if it is thick enough so as to render its presence undetectable, well, that can only diminish the stability of the construct.
Plus, one wonders whether the bottle is full or empty. If the former, it implies superior sobriety and spacial stability. If the latter construct prevails, however, it suggests that we’re sloshed and suspended on nothing but a slender perch of glass and vapor.
And, applying the metaphor to the markets, it’s exceedingly difficult to make the determination.
So much can go wrong here, so quickly, so unpredictably. Geopolitics, domestic politics, weather, supply chains, viral viruses, credit crises, so much more seemingly lurking in menacing and unseen ways within our vicinity.
What’s worse, from a vibing perspective, is that there is little or no visibility into what may come to clobber us, when it will arrive, and how badly we will be clobbered.
Heck, we might even avoid the clobbering entirely. The mattress may balance on the bottle of wine for all time, that fetching little feline hood may remain affixed atop her pretty little noggin for eternity. But it is not the most serene of conditions and will render the investment process even trickier.
The precarious perching of the pillowed platform atop the potable pouch may be put to a legit test this week, as the market’s largest capitalization companies report earnings, and, of course, the FOMC lays its next interest rate decision/attendant wisdom upon us. It probably pays to take in these data flows before deciding how to roll.
Most of my compadres have the scratch to do some shopping, should they be so inclined. And interestingly, for reasons that I do not entirely understand, there’s a great deal of deployable cash in corporate pension fund land (something about higher interest rates reducing their liabilities, but if so, the positive reversal of fortunes appears to be driven, not by improved economic fortunes, but rather by the caprices of accounting):
Hard to say whether and to what extent they will put this wood to work, but – not gonna lie – I like living in the elevated grey range more than the subterranean orange section occupied for so much of the last generation.
Groundhog Day is hard upon us, marking the countdown to the end of what seems to me to have been a rapidly paced, benign winter season. And, in general, I believe we can count ourselves fortunate to have come to this pass so fully intact, so little nicked up by myriad, intractable problems that have seemed to have multiplied like hobgoblins these last couple of years.
But something about it all just doesn’t feel right to me, and I suspect I’m not alone in this sentiment. So, I’d suggest proceeding with caution.
Because whatever is going on won’t last. Sentiments change, styles change. Pillbox hats are replaced by floppy ones, fedoras by stocking caps, and, eventually, by no hats at all.
Perhaps, someday, they will return, leopard skins and all. I may not be around to see it, and if I’m not, I hope whomever is takes the trouble to appreciate it, taking you, as promised, to see the sunrise, belt round his head, and you just sitting there.
In your BNLSPBH.
TIMSHEL