Longtime followers of this space are aware that are few actions that draw my ire as fully as when somebody harshes my mellow.
My sentiments here are strong enough for me to have taken the extreme step of researching the origin of the phrase. But I came up empty. About as close as I can come is an exchange between Stoney and Dave in a film called “Encino Man”, which I’ve never seen.
But, just as Bogie never uttered the phrase “play it again Sam” to Dooley Wilson in Casablanca, I can find no evidence that Sean Astin, Brendan Fraser or the immortal Paulie Shore ever muttered our modified, titular command as part of the forgettable 1992 film in which they starred.
But I reckon all this is beside the point, because it’s not the harshing of my mellow that is currently at issue, but rather the mellowing of my harsh.
Because I’ve been in something of a harsh mood lately, and, when one is in a harsh mood, the last thing for which one bargains is somebody or something coming around to spoil one’s (presumably) well- earned snit, by mellowing it.
So, what caused my harsh? Glad you asked.
We can begin with the global/political/capital/commercial/socio economy, and, within this catch all category, what had risen to the top of a large inventory of indignities was the recent announcement that prosecutors at whatever passes for a military court in Gitmo had accepted a guilty plea from KSM and those other tower demolishing cockroaches, which spared their lives — 23 years after the largest and most astonishing criminal act since at least when he Nazis were goose-stepping about.
Apparently, Defense Secretary Lloyd Austin cancelled the deal, presumably, at least in part on political grounds (i.e. not wanting his team to lose any anti-9/11 votes). Good on him. But he did mellow my harsh.
What else? Well, we’re now 2.5 years into a war in Eastern Europe and have a major throwdown brewing in the Middle East, where the baller Israelis went into Iran itself to take out a major target.
The domestic political winds may be shifting towards the Left the last couple of weeks, and it is uncertain whither they will they migrate from here. Should they continue their current trajectory, though, into the cold months, they bode ill, in my judgment, for both the cessation of hostilities in and around the Holy Land/Fertile Crescent, and for the affordability of goods issuing from the domestic energy sector.
All of which is harshing me. But not the associated markets, which are beyond mellow about all the above. Crude is on the down, and Nat Gas, as we anticipate the inexorable winter winds, is at a generational low:
Also mellowing my harsh are tidings that the CrowdStrike problems experienced at The Sphere have been eradicated, enabling Dead and Company to proceed with its never-ending residency – during the interval comically designated as holy by Deadhead leaders as the “Days Between” – a period that runs from Jerry’s Birthday (8/1) to his yahrzeit (8/9).
On the monetary front, we encountered a latter-day, Central Bank version of the 1837 English fable “Goldilocks and the 3 Bears”, with the BOJ raising rates, the Fed standing pat and the BOE cutting. The markets reacted in nightmarish fashion across all three (hot, cold, and just right) paradigms, with USDJPY plunging in especially alarming fashion, taking nearly all the NK225 ytd gains with it:
Our Baby Bear/just right Fed held rates constant and murmured its time-honored platitudes about being alert and on its watch to step in at any signs of trouble. And, mid-week, investors were lapping it up like pleasingly warmed porridge. Ironically and contemporaneously, the National Debt passed the quaint $35T threshold. All of which was mere prelude to the wicked hissy fit they threw not long after the markets opened on Thursday, which extended all the way through Friday’s close. I didn’t do the math, but published reports suggests that our equity complex shed ~$3T in valuation over this sequence. Which is a pretty drastic diet. Even for a bear.
Root explanations feature a tepid July Jobs report, along with a Mag 7 (less the always tardy NVDA, which doesn’t weigh in until Wednesday, August 28th – two days before the start of a Labor Day weekend celebrating the careers that the company’s products seek to destroy) cycle that is best described as “mixed”.
Mixed it may have been, but investors undeniably turned tail. And, in support, that fickle strumpet Vixen VIX, who has lain supine for longer than memory allows, has risen to her dainty legs and doubled in approximately one month:
Thus, in the equity complex at any rate, rather than having my harsh mellowed, the markets seem intent on harshing it. And it is not pleasant to experience the harshing of one’s harsh.
In fact, the episode is so annoying to me that I find myself with no alternative other than to mellow my own harsh. And perhaps yours as well.
So, I’m gonna step out here and suggest that all this agita is overblown, that I think risk assets are a buy here. I will try to be brief in my justifications, but headline inputs include the following.
The global capital economy is awash in cash. The Fed is now gonna probably cut aggressively. Not only energy prices, but the entire commodity complex is on the down, with grains bearing the brunt of the carnage. Even high-flying Copper is down > 20% this summer. While everyone has chosen this moment to yet again fret themselves about a recession, Q3 GDP estimates are >2%. For all the hand wringing about earnings, with 75% of precincts reporting, were looking at +11.5%.
We thus are staring at a capital economy that is remarkably, impossibly strong, mellowing out against many harsh headwinds. Valuations are now more rational, and I think the real market ballers will be doing some shopping ere long. It might be wise to follow their lead. But I’d wait till they get going to tag along, because if there’s truly a rally out there, it’s likely to ensue for a spell.
To close, while trying to mellow our harshes, I wonder if I’m getting too old for all this, and I dream of the day when I can spend my time mellowing my mellows. Even that thought though, does little but mellow my harsh. Which I reckon is my very point, throughout.
TIMSHEL