Somewhere somehow somebody somewhere must’ve kicked you around some
Tom Petty
I’m pleased, this week, to offer a musical theme, which, for once, is not tied to the demise of an artist. Yes, Petty is gone, having left us an unthinkable 5.5 years ago. But he was never one of my faves, and this here piece isn’t even about him.
Instead, this note goes out to Pras Michel – founding member, along with Wyclef Jean and Lauryn Hill, of the seminal hip hop band The Fugees. He’s probably the least famous of the trio – that is, until last week, when he was convicted on ten felony counts for having copped ~$100M for serving as the front man on the heinous 1MDB scam.
As often happens in these pages, I must offer a bit of context here. First, while I sort of dig the Fugs (who I am told derive their name from the term Refugee), I cannot claim them to be my particular jam. I did meet Clef once – at the home of an overpaid, perpetually over-medicated hedge fund manager/Fugee Fanatic, who hired the former to perform at his son’s Bar Mitzvah. I don’t remember much of that gig – other than my impression that WJ seemed absolutely bewildered to be there. I can’t imagine what he was paid for that performance, but presumably my trader friend made it more than worth his while.
Then there’s 1MDB, one of the most mindboggling financial scandals of a generation that has been littered with them. Here, a little, fat person of Asian ethnicity managed, with the help of his friends (including several compliant investment banks and the jurisdiction’s Prime Minister), looted the Malaysian Sovereign Wealth Fund of ~$5B, a portion of the proceeds, in a touch of sublime irony, used to finance the Martin Scorsese/Leo Di Caprio/Margo Robbie film “Wolf of Wall Street”.
As mentioned briefly in this space a couple of weeks ago, the mastermind of the caper, one Jho Lo, is still at large. A fabulously well-healed Refugee of some remote land. Not so Pras, who is looking down the barrel of a multi-decade prison stretch and is currently awaiting sentencing. He will no doubt appeal, but I think the Refugee option for him is a stretch at the moment.
Carlson and Lemon might qualify, but wherever they land we won’t go there.
And what about the rest of us? Particularly the investor inside All God’s Children?
Well, here, I gotta agree with Petty. Somewhere, somehow, somebody must’ve kicked us around some.
And, as he further speculates “who knows? Maybe we were tied up, taken away and held for ransom”.
If so, I’d begin with the banks, and one bank in particular (everyone say it with me): First Republic. After surviving last month’s near-fatal attack, a second wave has absolutely destroyed its sanctuary. It has, for several days, been on a lonely road, seeking succor somewhere, anywhere.
It has had some help. The Federal Deposit Insurance Corporation (FDIC), which, under most circumstances, would have simply padlocked the joint on Friday, is instead pushing it into the arms of one or more larger competitors. The lead here, is JP Morgan, in ironic redux of its distressed purchase – 15 years and six weeks ago – of Bear Stearns.
Like Bear, First Republic made its bones catering to wealthy individuals and institutions, who don’t do the Refugee thing. Instead, they call upon their buddies in Government and Big Biz to escort them into comfortable new realms, whereupon they claim and receive immediate, comprehensive agency. That is what is apparently happening here, and all I can say is it was ever thus.
It does, though, renew one’s worries about the banking system in general – a concern I rather cavalierly dismissed a couple of weeks ago. I may have been wrong, though. Because, as the folks in Laredo, TX will tell you, there’s never just one Refugee, but more typically more than you can count.
These and other factors – viral after-effects, Eastern European war, a Central Bank hemmed in by previous bad decisions, to name a few, have banished virtually every assert class into the wilderness – in forlorn search of a valuation home.
Let’s take a quick inventory here, shall we? We’re in the fat part of the Equity earnings season, which has thus far produced surprisingly gratifying results. But it is all skewed towards those companies sheltered high on the (oxymoronic) hills of Silicon Valley. And this has led to one of the most puzzling valuation conundrums I can ere recall.
Consider, if you will, the following Amazonian juxtaposition:
I know this is a bit contrived, but the graph on the left indicates that the overwhelming core of whatever passes for a positive Q1 earnings vibe derives disproportionately from AMZN. OK; fair enough. It’s less than ideal, though, because there are, after all, 499 other companies in the Gallant 500.
But here’s the thing. AMZN is flat over a rolling year and actually declined after the Bezos earnings drop!
If you can figure out a way to invest into this nonsense – be it buy, sell, or hold – please share it with the rest of us.
The Treasury Complex is uprooted by everything from a grotesquely inverted yield curve, a ginned-up debt ceiling brinksmanship debate, AND a pending FOMC rate decision (Wednesday) that is projected to take the Fed Effective Rate up to 5% for the first time since 2006:
And all of this as the world’s leading economists are united in their belief that we are headed into recession.
All of which, along with incidental matters such as geopolitical conflicts which follows the trade winds from the Crimea to China, puts Commodities into a wandering wasteland.
The Foreign Exchange Complex is also unmoored for a number of reasons. Are the USD’s days as the world’s Reserve Currency dwindling down? Perhaps. Also, while largely ignored on these shores, the newly crowned Chairman of the Bank of Japan, instead of following the lead of Powell, LaGarde and company and adopting an anticipated hawkish stance, has asked for 18 months to study the problem before he acts.
Y’all know how I feel about Credit. Too damned much of it to feel any stability there.
So, with all this wandering valuation worry, it’s nearly impossible to find a comfortable home for your investment dollars.
So, maybe we do have to live like Refugees. Petty’s dead. Jho Lo is in the run. Pras pulled off nine figures for a ten-figure caper but failed to make it stick. Lauren Hill is a twenty-year recluse. Last month, Clef checked himself into a hospital, assuring his fans that he’d be back soon. All of which obliterated the recently planned and highly anticipated Fugees reunion.
Upon his release, and seeing as how he’s available, I might ask him to play at my Bar Mitzvah. Which should’ve happened 50 years ago but didn’t (long story).
Truly, I see no other alternative, as I don’t think I can wait until Pras becomes available for this duty.
TIMSHEL