I am going to try to wean myself off an obsessive focus music – particularly the toppling of the sonic monuments I have worshipped all these years. It won’t be easy; particularly given that my heroes are yielding to the inexorable cruelties of the calendar and gravity at an alarmingly accelerating rate.
But I’m sick of writing about this sh!t, and, no doubt, you’re sick of reading it. In fact, my thematic shift is catalyzed, at least in part, by a request I received from a (presumed) longtime reader, that his name be removed from the exalted roster of those who receive these notes in advance of my posting them on ZeroHedge and LinkedIn.
This has not happened in more than five years, and, to add to my humiliation, the individual in question is not even on my direct distribution list. Rather, he receives these notes as a subscriber to an internal, er, research listserv sponsored by my client of longest standing. I therefore (as others on this portion of the distribution have NOT made this request) am unable to even accommodate him.
I don’t know his reasoning but suspect that he is overwhelmed by the digressions that often comprise the lion’s share of this column. And if so, he is right to be so overwhelmed.
I’d like, without sacrificing my trademark pithiness, to focus more directly on the doings in the markets. But, in my defense, this is a hard slog. Has been for quite some time. Markets, at least for now, fail to respond rationally to what I believe to be the most salient of available stimuli. Oh sure, they obsess about Fed Policy and the like (and appropriately so), but tend to ignore such matters as Earnings trends, Commodity Prices, critical economic releases, and other such stuff which historically form the building blocks of my withering economic analysis.
Still and all, I must try. But not, so to speak, in Cold Turkey fashion. This week’s title comes from the last, most widely panned albums of one of the greatest bands ever to grace studio or stage, self-described (again, appropriately so) as “the only band that matters: The Clash.
They cut this crap record having fired the irreplaceable Mick Jones, the less-irreplaceable drummer Topper Headon, and, ultimately, even bassist Paul Simonon (forever immortalized on the cover of the group’s magnum opus: London Calling). This left only the singularly great Joe Strummer from their original lineup. The results were as expected. It’s not as if CtC is a terrible album; it is simply not worthy of the impossibly high standard the band had set for itself.
After disappointing critical and commercial results, Strummer himself called it quits. And maybe I should follow his singular example. But quite yet. Because, as a follow-on to my above-stated complaints about market response to stimulus, successful investment in the prevailing environment, is, I believe, less an exercise in determining fair market value and more one of figuring out what the other trading jabronis will do. They will not cut the crap, so neither, entirely, can we.
It was something of a humdrum week for the markets, which continue to react in counterintuitive ways to prevailing information flows. It took disappointing Inflation statistics entirely in stride. It absorbed an upside Retail Sales blowout (modelled out to be bearish due to its potential impact on Interest Rates) within a couple of hours – perhaps because Industrial Production, expected to surge 0.5%, clocked in as a Goose Egg (purportedly good news in an environment of obsessive rate fears).
In result, investors limped along limply all week. Our equity indices failed to sell off – much – but neither did they rally.
There are a couple of factors at play here which have caught my eye. First, 6-month Treasury Bills have rendered themselves so unlovable that they are now, and for the first time in nearly two decades, priced to yield > 5%:
Meantime, a bid persists at the long end of the Treasury Curve, leading to a condition of inversion so gruesome that it cannot be displayed in this family publication.
First principals, this suggests that: a) investors take the Fed at their word that they ain’t done raising rates; but b) their hawkish ways are much more likely than not to push us into Recession.
Well, maybe, but my own take is that while I buy into a), I believe the bid at the longer end of the curve is more indicative of excess investment liquidity, which must, after all, find a home somewhere, than a harbinger of multiple consecutive quarters of negative GDP.
Another indication of said liquidity overabundance is the remarkable bid manifested in BTC. Crypto is going through its worst news cycle since the Moses-like proclamations of Satoshi, and, only this week, was forced to absorb a string of blows – in particular, tighter custody regulation and a wholesale bail on the part of the handful of banks still willing to traffic in the stuff.
Why the bid on Crypto? Well, as stated above, all that fiat cash must go somewhere. Thus far this year, it has modestly embraced stocks, long-term Treasuries, Corporates. And Crypto. It loves Crypto, which is up nearly 50% in the six short weeks that have passed us by in ’23.
Commodities? Not so much. Crude Oil is down ~5%; Nat Gas nearly 50%. So, the market vastly prefers wonky, digitally engineered “stores of value” to useful energy products. It’s no wonder that I give up on fundamental analysis.
Meantime, the other item of personal interest is the gaggle of legit economists who are advising the Fed to lift its 2% Inflation target. To something more civilized. Say, 3%.
I think they’re on to something. I am quite willing to accede to the notion that all that Fed rate raising jazz has taken the bleeding edge off Inflation. But moving from > 9% to a 6 handle is one thing, migrating from a 6 to a 2 quite another. This will require the climbing of the rate tree to dangerously uncomfortable levels, almost guarantee a Recession, and, end of day, I don’t think the Federales have the will to do this.
Contemporaneously, the Earnings Season is whimpering to a close, with aggregate negative results to the tune of ~5%, a deep skew towards negative forward guidance, and upside surprises nowhere to be found. All this has the feel of listless gravity to it, perhaps akin to Joe Strummer’s Clash touring with what amounted to a backup band.
What lifts us out of these doldrums? Beats the hell out of me.
Still and all, just as the intrepid consumer continues to, well, consume, so do investors appear to be willing to buy stocks, bonds, and crypto, tepid conditions for doing so notwithstanding.
Cutting the crap, I see it this way. Investors are pre-disposed to bid up securities and will continue do so unless or until a compelling (though not necessarily rational) case is made for them to suspend this operation. The near certainty of a string of rate increases will probably not change their tune. They’ve got the cash, are (perhaps justifiably for now but not forever) willing to set aside such tail risks as geopolitical turmoil, unanticipated solvency issues, and others. They appear hell-bent on at least partially eradicating the nightmare otherwise known as 2022.
If, however, as prophesied, we do devolve into a nasty Recession, all such bets are off.
It will at any rate, be interesting to bear witness to these manifestations in their unfolding.
I’m not terribly concerned about downside here. I rather believe that barring any nasty surprises, one can at least consider buying the dips. And why not? Everyone else will be.
In closing, I hope I have accomplished something in taking steps to cut the crap – an album of the same name which killed The Clash. Jones and Strummer went on to put out respectable music – that is, at least until the latter’s untimely death in 2002.
Topper’s still bouncing around but plagued by health problems caused by his excesses during his glory days. Simonon has been similarly quiet, apparently devoting what remaining juice he has to supporting Greenpeace.
Oh well, there I go again. Boring y’all with musician anecdotes. I cannot promise this won’t continue; only that I will try to stop it.
But if any of the remaining icons of my existence, turn tits up, I reserve the right to pay whatever I feel is fitting tribute.
After all, much as we’d all like to cut the crap, crap abides, and is likely to outlast us all.
There’s a risk management lesson in there somewhere, but perhaps it will keep for another day.
TIMSHEL