Welcome to the rest of the year, y’all. I hope you’re ready. Because it promises to be a wild ride.
Or not.
Certainly, it’s been a paradoxic, oxymoronic journey thus far, and, in keeping with the inexorable principals of Newton’s Second Law of Motion, I feel this trajectory is likely to continue.
Except, of course, that even Newton’s rules have their limits; the whole system breaks down — within the sub-atomic universe, in black holes, and in other realms beyond rational comprehension.
I nonetheless expect the oxymorons to ensue unabated (in deference to the Newtonian nature of most whats in our field of vision, so I extend thematics from last week’s note, which, as at least some of you may recall, was the oxymoronic notion of pre-virginal acquaintance.
What, after all, is more oxymoronic than that? You can’t know someone – even Doris Day – before she was a virgin — because it violates the relationship between time and space that is the basis of everything Newton taught us. Even if dudes like Einstein proved to us that he was less than universally correct.
I got to thinking about oxymorons which, along with palindromes, hold a sacred place in my psyche (Side question – shouldn’t the folks that created the English language have used a palindrome to describe a verbal sequence that is spelled the same forward as backwards – maybe something like wordrow? This itself is an oxymoron.), when reviewing the earnings report of the last remaining Swiss Banking titan – The Union Bank of Switzerland.
UBS reported the largest earnings – some $29B (Î26.6b) – banking history. It’s stock – un-oxymoronically, rallied to all-time highs.
According to published analysis, the lion’s share of this profit bonanza derives from a concept called Negative Goodwill – an oxymoronic notion if ever there was one. Moreover, it brings, at least to my perverse mind, the alternative paradigm of Positive Badwill, a stunt which, if no one has pulled it yet, someone should, and soon.
Meantime, why the recording of Negative Goodwill is worth tens of billions in profits remains a mystery, and one that I will leave to the accountants to unpack.
I am, however, given to understand that the opportunity presented itself by virtue of its sacrificial, patriotic, heroic takeover of its last remaining substantial domestic competitor – Credit Suisse, which it subsumed at zero cost, and, in fact, with considerable government subsidy.
We have had similar episodes Stateside, most notably JP Morgan’s hoovering of First Republic. JPM has a history of such ravenous consumption, having, over its history, having taken over such depository institutions as Chase, Chemical Bank, BankOne, First Chicago, National Bank of Detroit, and, in oxymoronic verisimilitude (Bear not being a bank), Bear Stearns. But at the point of this correspondence, it is trading below its late ’21 highs. Maybe the public is simply tired of Jamie pulling such maneuvers.
But the oxymorons don’t end there.
For example, by way of late breaking pre-holiday news comes word that Stanford University and the University of California Berkeley – highly proximate, world-class universities nestled at the base of the Pacific Ocean – have joined the Atlantic Coast Conference. One can hardly blame them. Given the recent “last-one-out-of-the-Pac-10-turn-out-the-lights” vibe, they had to do something. But let’s not mistake this as anything other than an oxymoronic cash grab by highly lucrative college athletic programs. Also joining the ACC is Southern Methodist University, which is not on an ocean of any kind, but is an easy 40 kilometers from Lake Ray Hubbard, named after a former Dallas Director of Parks and Recreation (1943 – 1972).
We lost Jimmy Buffet over the weekend and were it not for its relation to our theme, I’d have little to say about this. But Jimmy became a billionaire by espousing the virtues of slacking and loafing, less through his music than by the creation of an endless string of restaurants, resorts, and (for all I know) munitions factories, rendering his entire existence a tribute to the awesome powers of the oxymoron.
In the markets, it was an oxymoronic end to an oxymoronic August. There was a bid all week, and then, on 9/1, what appeared to be a relatively copasetic jobs report dropped. Deeper analysis suggests that it was a bit weaker than expected, with reasonably robust job creation, which was highly tilted toward part-time employment:
On balance, though, you gotta tip an oxymoronic cap to the jobs market, which remains unbowed against a passel of headwinds. Of course, the base rate ticked up a goodly amount, due in part to an increase in the Labor Force, and to the oxymoronic construct under which one government department computes job creation, while another is responsible for calculating the Unemployment Rate itself.
We are staring in the face of a Crude Oil market on the threshold of oxymoronic two-year highs, the end of the driving season notwithstanding. I am also keeping an eye on surging Sugar and Cotton prices and would say something about the impact on Cotton Candy consumption. But. Just. Can’t.
The Yield Curve remains grotesquely inverted, which is an oxymoron in and of itself. But I am past weary of this topic.
All of which leads back to the Equity Complex, which enter the last trimester in (all things considered) fine fettle. No one can justifiably complain much about profit margins, and if one is looking for oxymorons here, it may be just as well to look at declining Net Interest Costs in a rising Interest Rate environment:
Nominally, this can be explained by the perverse combination of corporations having locked in lowvig/ longer term debt in advance of rate hikes, while now enjoying fatter returns on their cash balances.
But I prefer to ascribe it to the Mighty Gods of the Oxymoron.
Again, I expect more oxies to come our way in the coming months, which, by their very definition, are impossible to anticipate. My best risk management advice is to embrace a reactive mindset. The last oxymoronic trimester will unfold in its own good time, and I suspect that matters will assume a different vibe by, say, Halloween, than is observable now.
But hey, it’s Labor Day, when us management types pay for those on our staff to celebrate the toil and tribulation they endure on our behalf the rest of the year. In their honor, I will try to relax. I’m off to Central Texas, to celebrate the festivities on the lake named after a State Bureaucrat who retired 50 years ago. I’ve got “Cheeseburger in Paradise” on the box and not a care in the world.
Care to join me? If not, this is a condition which those who know me will deem oxymoronic enough to conclude on that note.
TIMSHEL