These are variants to the words written on Luigi’s shell casings, but I’m not here to write about Luigi. He is, like the assassins of Archduke Franz Ferdinand (an event which launched the First World War), simply a manifestation of a larger problem, which, if left unchecked, could turn into a catastrophe.
Meantime, approaching holiday notwithstanding, I’ve got some beefs with y’all that may require a sit down to settle. However, in deference to the season, and seeing as how it’s one of those rare instances where Christmas and Chanukah (the latter beginning at sundown on Wednesday) coincide (approximately once every 20 years), I figure I might as not begin with something more uplifting.
110 years ago, across the WW1 Battle Fields of Flanders, the minor miracle of a spontaneous Christmas Truce broke out. The “war to end all wars” was entering its 6th month. All combatant nations (save the United States) were engaged, and a multi-year interval of trench warfare – under which the opposing armies were dug in at close range, lobbing missiles and mustard gas at one another, but with little or new ground ever gained or yielded, had begun.
But it was Christmas, and, seemingly without any premeditation, on those soon-to-be-blood-soaked fields, caroling broke out on both sides. Men on both sides converged to harmonize, share holiday provisions, and celebrate, together, the yuletide. Including, notably, in Ypres, which featured in subsequent years a total 5 battles, and several hundred thousand war-related casualties.
The bloody action was thus delayed. For 24 hours. By Boxing Day 1914, it was on again. Tens of millions would die in The Great War. Russia would quit, mid-game, to overthrow the tsar, which should’ve sealed the win for Germany, but that the was precise juncture when the Yanks entered the fray, with a seemingly unending supply of troops, weapons and munitions. This forced Germany into the singular position of suing for peace with the bulk of its armies still holding enemy territory. Very little having been settled. Twenty odd years later, the world felt compelled to do it all again. On a bigger scale. But at least that contest resolved matters – for a time.
Meantime, Christmas 1914 was, to the best of my knowledge, the only time in modern military history that enemy armies paused in their hostilities in homage to something larger, and this is worth remembering.
And there’s something about the current global vibe that is naggingly reminiscent of the unfolding of WW1. Everyone’s edgy. Random assassins and other menaces crop up without notice. The geopolitical construct is one under which an endlessly complicated set of alliances renders it difficult to determine which nations are allied and which are in opposition. A false step, I fear, could set the world ablaze. Just like it did in 1914.
But that’s not my beef; here’s my beef. What on earth was all this recent selling about? Our equity indices have been sucking ass for the last fortnight, only recovering modestly on Friday – ostensibly because an Inflation measure favored by the pointy-headed came in 0.1% below expectations of 2.4% (does anyone really care?). Prior to that, we had a very visible but not particularly pleasant correction under way.
The raw numbers fail to reflect either my disappointment or the performance carnage. Col. Naz (now in danger of being busted back down into the ranks) dropped 5%, but the Gallant 500 only yielded an amount about half of this previously captured ground.
But I have a problem here. First, because I told everyone that I didn’t see any signs of a year-end selloff and I don’t like being made a monkey of. But perhaps even more importantly, because y’all were supposed to be buying, locking in a year of > 25% gains and ensuring a fat payday for one and all.
And what more did you want to do what was asked of you? Inflation is parameterized. Q4 growth is projected at > 3%. There’s a new regime coming to town, bearing with them the promise of all sorts of bennies. Tax cuts. Liberation of the Energy Sector. A non-hostile SEC. A veritable orgy of deregulation. A Federal Trade Commission with an agenda other than killing every deal contemplated. Musk and that hedge fund dude riding into town to remove the snouts of the pigs from the fiscal trough.
OK, so there’s some UFOs flying over New Jersey, but if we’re gonna turn tail at every sketchy, shady development over ‘cross the river, we’re never gonna get anywhere.
The Headline news/designated catalyst for the puke was Wednesday’s FOMC meeting, wherein they followed through on their promise to cut 25, but also revealed a dot plot which foretold of (gasp) only two rate reductions next year:
I have a little difficulty reading this and therefore must rely upon the more erudite to translate it into a 2-cut prognostication.
But I reckon dots are gonna dot. And plot. What I can’t figure out is why this was considered sufficiently morose to catalyze a huge rout on Wednesday afternoon.
Yes, they tried to rally ‘em back on Thursday, but to little avail; the benchmarks closed flat that day. So, it took that whopper 0.1% Inflation beat to put sugar into investor tanks.
I will strive not to take this personally, but perhaps in vain. Because, I have this conceit that the Fed should avoid cutting rates unless conditions compel it to do so, as it dilutes the juice that the Central Bank can apply when such actions are truly warranted. I am thus wondering why even 2 more reductions are considered not only necessary, but insufficient.
And, as illustrated in the following chart of Fed rates, it is not as though, by historical standards in any event, monetary conditions are particularly tight:
It appears, from my vantage point, like we’re in a highly appropriate rate range here. The economy looks at worst stable and arguably strong. As indicated above, the promises made by the new President and Congress should create something of a tailwind heading into 2025.
And, throwing up my hands, I believe that if this economy cannot abide the current overnight rate of ~4.6%, and investors are baring their teeth at a move into the high 3s, then we have all misread the signals and must prepare for some economic hardships which I, quite frankly, do not see on the horizon.
The government avoided shutdown with another one of its infinite sequences of Continuing Resolutions, and the cynic inside me is tempted to proclaim the sustained funding of Washingtonian escapades to be a dilutive development. But admittedly, that would be mere bluster on my part. In particular, we should keep underwriting the Army, because we may need it sooner than we think.
For reasons that should thus be apparent, I have suggested to my clients that current valuation thresholds may very well be productive entry points. I’m not predicting a year-end recapture of all lost ground (we’ve only about 5 productive trading sessions remaining to us in this year), and we may even enter ‘25 proceedings a bit wobbly. But I’m fairly convinced that by Valentine’s Day at the latest, the markets will have ginned up a rally that it will have been a shame to have missed.
After that, who knows? I think the Capital Economy, as enabled and abetted by favorable Tax and Regulatory policies, a robust deal calendar, lower energy prices, etc. should be poised for incremental growth. And, for the bajillionth time, I remind my readers that the supply/demand conditions for investible assets point to a shortage that should further goose valuations.
Investors appear to be in denial about this, and it would be unwise to underestimate the ability of the knuckleheads in Washington, including those from the new (old) regime to bitch things up. Those machines hovering over Monmouth County, moreover, may be hostile operators, and wreak absolute havoc on us.
These risks, however, are no different from those we have faced since the first bi-peds began swapping rocks for women, land and other commodities.
And besides, it’s Christmas. And Chanukah. And I wish Peace and Prosperity to one and all. And, in closing, while undertaking whatever version of the seasonal rituals that best apply, I urge everyone to give one remembrance to those poor, brave souls in Western Belgium, circa 1914, who, first offering praise and thanks to their Creator and breaking bread with their enemies, gave up life, limb and treasure to establish a world order suitable to us all.
They failed, of course. And we will fail again. We always do. But then we get up.
And give it another shot.
Merry Christmas, Happy Chanukah, and, as always….
TIMSHEL