Why should I care?
Pete Townsend – “515”/Quadrophenia
Happy “why should I care” day.
Though less widely celebrated than, say, Pi Day (3/14), May 15th offers up another Julian Calendar opportunity to reflect upon the nuanced intersections between our accounting of the passage of time, and our everyday experience.
In this case, it confers homage upon the existential struggles of Jimmy – a young, working-class fourway personality split Mod — the unlikely protagonist of Pete Townsend’s musically magnificent (if narratively-challenged) “Quadrophenia”. Our title song tells of his wandering musings, as he travels on a train carrying so many souls from the void of work to the oblivion of home.
It begins with the above-supplied, rhetorical question – “why should I care?”.
It’s highly possible that you shouldn’t. In fact, I’m not sure that anyone does. Other, that is, than me and my cousin Ben Finkelstein (whose image I won’t reveal again, but which I used about a year ago as a copywrite-consideration surrogate for that of writer/TV personality Ben Stein). Every year on this date, Cousin Ben and I ask, and try to answer, the eternal query that is the subject of this note.
We’ve yet to resolve this. Which is probably a good thing. Because the issue keeps cropping up.
The question itself is perhaps too broadly rendered, because, as you probably would agree, some things are worth caring about; some are not. And I’d like to take this opportunity to delve deeper into the question, with respect to several pertinent issues of the day.
But first, I’ve changed my mind. I figure I need to share a picture of Ben with y’all. Not sure if he cares, but I don’t send this note to him, so perhaps he’ll never know.
He takes a nice snapshot, doesn’t he? I’d say he even gives an identically named hockey player, last seen playing defense for the Iowa Wild – minor league affiliate of the NHL’s Minnesota Wild, a run for his money.
Ben is the Booking Agent for the fabulous Birchmere Club in Alexandria, VA. I’d like to tell you that he’ll hook you up with tickets to sold out events, or even get you a gig. But the truth is, my experience is mixed in this regard, so, as they say, your mileage may vary.
But let’s move on. While not prominently featured in the Quadrophenia lyrics, Jimmy is a highly credentialed economist. I caught up with “Dr. Jimmy” to run a few inquiries by him, and obtain his take from a “why should I care” perspective:
GRA: The Federal Government will, according to the latest projection, reach its statutory debt limit within the next few weeks, and, absent Congressional action, could default.
Dr. Jimmy: Heaven prevent the folks in Washington from hitting any kind of limit on their ability to issue increasingly dubious paper to pay for the bloated bureaucracy and flavor-of-the-month helpings of political pork. If statutorily blocked from doing so, all hell would indeed break loose. We would go bankrupt in a manner similar to Hemmingway’s Mike Campbell (The Sun Also Rises) – gradually, then suddenly. First, we’d be treated to Obama-like stunts including the closing of National Parks on July 4th weekend. The Feds might defer paying some contractors. Many of the uniformed, believing, erroneously, that most of our debt is held by China (>75% is owned by domestic institutions) will suggest that we simply welch. We can’t. Then panic would set in. The U.S. Treasury Complex, the largest financial market in the world, would collapse, taking down every asset class in its wake. Cue up breadlines, etc.
But here’s the thing. Precisely because it is unthinkable, it practically CANNOT happen. There will be an excess of brinksmanship and then the warring factions will cut a deal to render us further in hock.
GRA: Most economists believe we’re headed into a Recession.
Dr. Jimmy: I defer to the experts here. Some, including guys like Druk (who is my all-time money management idol) see the economy falling off a cliff. And Consumers seem to be latching on to the bad vibe:
I draw your attention to the yawning gap between the survey projection (60.80) and the final number (53.40). Which is an epic miss. Investors don’t seem to mind, though. Particularly the divisions assigned to Colonel Naz – up a gaudy 18% year-to-date.
With the reporting cycle winding down, Q1 Earnings ended on a high note, with y-o-y blended losses of 2.5% — a far cry better than the -6% anticipated at the start of the sequence. Inflation, while still stubbornly high, is at least headed in the right direction. The Jobs Market is en fuego. GDP came in a bit tepid, but you can’t have everything.
Probably, a recession of some sort is on the cards, but for now, it all reminds me about the longpredicted collapse of the Housing Market — in the 1st decade of the 3rd Millennium in the Year of our Lord. Yes, perhaps it is inevitable. The questions are when and how deep. From my vantage-point, it looks like any recession in the immediate offing, if it comes at all, would be a mild one – perhaps emerging gradually. Then suddenly.
GRA: What will the Fed do?
Dr. Jimmy: With all this talk of recession, a lot of folks is betting that not only will our Central Bank pause its rate-raising ways. but will reverse itself and start cutting again. I have my doubts about this. Particularly because, as political animals first and last, I believe that they are much more afeared of turning dovish too soon than the other way around.
More than this, I’m not sure how much it matters. The Fed only directly controls the Overnight Rate, while the Treasury issues paper out thirty years and more. As of now, the Yield Curve, while improving a bit, remains perversely inverted:
If anyone has any clue what the impact of Fed Policy at the longer end of the curve (i.e., at durations where economic agents actually borrow and lend money) would be, I wish they’d share.
There’s every possibility that Fed Funds reductions could cause, say, 10-year yields to rise. Or fall. Or stay where they are.
About all I can state for certain is that this here curve is a hot, unsustainable mess.
GRA: Though early, the 2024 Presidential Election looks like it could be a rematch of the 2020 combatants.
Dr. Jimmy: Wherever else it may differ, the American electorate is united in its desire to politically disappear Biden and Trump. And a general election battle between the two of them would involve perhaps the least appetizing choice since, well, since 2020.
But looking more deeply into the past, I cannot come up with a single pairing as dismal as this one. Herbert Hoover versus Alfred E. Smith (1928) was perhaps runner up in wretchedness, but this one blows it away.
I’m not sure, though, it pays to care. Just yet. Not sure if Biden makes it that far. He’s literally and figuratively dissolving before our eyes. But with respect to Trump, if he’s still lapping the field towards year end, you have my full permission to care.
GRA: 2023 Bank failures are, in inflation-adjusted terms, of a greater magnitude than those manifested during the Great Financial Crisis.
Dr. Jimmy: Worth considering, certainly. Particularly when we shove in the likes of the once-mighty Credit Suisse. I don’t however, for the foreseeable future, envision the kind of carnage we experienced 15 years ago. Banks are better capitalized and comprehensively protected by the political class. And even in ’08, not a single depositor lost a farthing. The banks that went down (unlike, for instance, Washington Mutual, Lehman Brothers and AIG in ‘08/’09) could easily have been saved.
As I have stated previously, the Credit Suisse and First Republic trades look to me like wholesale, forced asset transfers to more powerful players on the field. Some few, privileged few, entities, made a fortune on these trades, and are most certainly seeking out their next victims. This will extend the agita, and is a dangerous game, but will result only in the further empowering of the powerful, who, from New York to Washington to San Francisco, will consolidate their control of our resources, while telling us of their intention to do precisely the opposite.
I would, however, keep my eyes on the debt associated with the Commercial Real Estate Market. I’ve seen estimates that up to $1.5T must roll in the next 18 months. And this with office vacancy rates at alarming levels. Some borrowers could default and if there’s a real problem in the Banking Sector, this will be the source.
GRA: America is obsessed with gender identity.
Dr. Jimmy: Which is a helluva shame, considering all the other, arguably more pressing problems we face. I reckon this will run its course, but it is bone-wearying in the meanwhile. Here, I can only defer to Pete and our title song:
He man drag, In the glittering ballroom
Gravely outrageous, In my high heel shoes
Tightly undone, They know what they’re showing
Sadly ecstatic, That their heroes are news
I don’t even know what he’s talking about, and, sadly, I suspect, neither does Pete. Who was certainly out of his brain when he wrote this song.
There’s a lot more stuff about which we can choose to care. Or not. But right now, I’ve a train to catch.
If you don’t know which one, you haven’t been paying attention, but then, on this ritualistic day, I can only ask you why I should care.
****
Thanks as always, Dr. Jimmy. And Happy Mother’s Day.
TIMSHEL