First off, Happy Juneteenth, y’all, which for the last three years, has been a National Holiday. Schools are closed, as are the markets. So, there’s no legitimate excuse for not taking it in in its full measure.
Time was, I didn’t know what it was all about. But I have since taken the trouble to educate myself. Like the also recently emerged Cinco di Mayo, its historical premise is somewhat contrived. First principles, it commemorates the day in 1865 where an obscure Union General freed all the slaves in Galveston, TX (a Gulf Coast Island which had changed hands between Civil War combatants a half a dozen times) and, while he was at it, those of the whole damned State of Texas.
It was little more than a technicality — preceded by the Emancipation Proclamation itself, enacted some 2.5 years earlier, which freed all the slaves in states “the people whereof shall be in rebellion against the United States”. Texas was one such jurisdiction, so those folks was already, by law, free.
But on June 19, 1865 – some ten weeks after Lee’s surrender at Appomattox, the occupying General of the region in question doubled down. And freed ‘em again.
And thus, we rejoice over this second deliverance. I have no quarrel here; very little strikes me as being worthier of celebration than the liberation of oppressed, impressed persons, and I certainly dig the mash up calendar nomenclature from which the holiday derives its name.
However, I have often wondered what the f_ck them dudes were thinking on June 20th – the first day of their homeless, jobless, friendless, disenfranchised freedom.
I can’t help it; it’s just the way my mind works. The Buzz-killing All Saints Day follows All Hallows Eve. And we’re supposed, I guess, to pray. For the saints. I have often wondered about the content and physical manifestations of Preparations A through G. I don’t think I’m alone here, but I have also pondered what Ben and Elaine did in the immediate aftermath of the closing scene of The Graduate. Riding on a city bus. With no money. And an angry mob of wedding attendees – presumably led by the jilted groom, the equally jilted Mother of the Bride and her cuckolded husband – in hot pursuit.
And as for this year’s Junetieth, we are arguably facing a similar “what now?” moment.
For all intents and purposes, the first half of ’23 is in the books. With the trading floors dark on Juneteenth, we’ve about nine sessions that remain to it. And almost no data. Presumably, a portion of this week will be devoted to recovering from a massive Juneteenth hangover. By the time next week rolls around, we’ll be staring straight in the preparations for that more widely known but less dramatic liberation holiday: our nationwide celebration of independence on the 4th of July.
So, I reckon that now is as good a time as any to take stock of what has transpired these past six months — specifically from a Junetieth/what do we do now? perspective.
To begin with, I find that the economic and financial flows have been, with near unilaterality, surprisingly encouraging.
Humor me for a minute and wind the clock back to New Year’s. As the closing ball dropped on a dismal ’22, who among you would have projected the following – a scant six months hence?
Colonel Naz annualizing at >100%, Gallant 500 up by mid-teens. AAPL a couple of upticks away from a $3T Valuation; NVDA storming the $1T club and holding its ground.
Vixen VIX at lows not seen since we had to quarantine her for that nasty infection she caught and passed around in the Spring of 2020.
(Side Note. A few days ago, Paul announced the pending release of at least one, and perhaps an entire album’s worth, of new, AI-enabled Beatles tracks. If they capture the magic of 67-70, then I surrender. AI wins and we should all just go home).
Crude Oil is down ~15%, Nat Gas > 50%. Inflation has dropped by more than half, with this week’s PPI clocking in at an astonishingly benign 1.1% year-over-year — and negative for the month of May.
The Fed, as expected, paused its rate-hiking ways — after 10 consecutive raises that have taken the Fed Effective Rate to just over 5% — creating the following elegantly rendered time path chart (left) and sustaining a grotesquely inverted yield curve construct (right):
The Developed World banking system experienced – and survived – the largest aggregate set of failures since at least the Great Financial Crisis.
And all the above notwithstanding, we have full employment and no sign of GDP contraction anywhere on the horizon. Heck, even the second tier Retail Sales and entirely back benching Empire Manufacturing Survey – both projected as negative – blew out to the upside.
Again, reverting to what I would have anticipated six months ago, and in terms of “risk on” vibe, I would’ve taken The Under with respect to nearly every one of these data points.
The capital pools I track, for the most part, have failed to fully capture the breadth of these financial and economic blessings. Still and all, most are certainly better off than they would have been had the horrors of Terrible ‘22 extended themselves.
The question remains: does it make sense to load the boat and launch into these calm seas and gentle trade breezes?
Logic would suggest that the back half of the year will be a tougher slog. The Naz is not likely to have put up a double by year end. Energy prices must find a floor somewhere in here and under many contingencies could put in a nasty V. Inflation is unlikely to continue its current pace of evaporation — unless the economy itself takes a nosedive.
Fed rhetoric suggests that last week’s “hold” was simply a pause, and that hikes will resume as soon as the next cycle. I reckon we’ll see. Some of y’all is expecting a reversal to the time-honored practice of cutting. I myself can’t get there — without building in assumptions that are entirely speculative in their rendering.
But we do know this: after the recently resolved debt ceiling crisis, the Treasury has some catching up to do in terms of issuance. To the tune of several hundreds of billions of dollars, and at a point where its friends at the Fed are divesting. Somebody else must purchase these securities, and it may crowd out flows into other investment themes. Plus, there’s a whole passel of dubious paper (including ~$1.5T of Commercial Real Estate debt) to roll — in a higher interest rate regime, with tightening underwriting standards, and angry, annoyed regulators nosing around every corner.
An inverted yield curve mathematically suggests the expectation of future rate reductions — as the longer-dated paper moves closer to maturity. And it says here that the only way rates drop is under conditions if incremental economic pressure.
It strikes me in general that even if we buy into the good-time narrative reflected in price action and economic data – best case, we seem to have shoved the fruits of what would otherwise amount to one helluva year into our gullets in under half that time span.
Still and all, I don’t see much of a framework for a dire reversal into gloom. My main thought here is simply that the back half will be a bumpier ride.
This is no cause for despair, however. The newly liberated souls in Galveston began to build themselves new lives on Junetieth, 1865. And, while their struggle continues, by all accounts they have made enormous progress in this regard. And they now got themselves a National Holiday.
Further research indicates that Charles (The Spider) Webb, author of The Graduate, wrote a sequel which sent Ben and Elaine to Westchester County, NY, where they homeschooled their two sons. As was inevitable, they enlisted Mrs. Robinson’s help, who, in trademark fashion, proceeded to seduce the local principal of an educational institution whose roster of enrollees did not include her grandsons.
All of which winds up our business for the day. Except for this. Rumor on the Street has it that Pfizer Pharmaceuticals – manufacturers not only of those fabulous covid vaccines but also of Preparation H, is gearing up for the release of a new hemorrhoid treatment product.
Make your own judgment here, but Preparation I is a hard no for me.
TIMSHEL