Before y’all get up in my grill, this note is not, per se, a political treatise. Some reference to the current, most prominent pig circus may be unavoidable, but we will seek (like the visit to the proverbial dentist) to render it as brief and painless as possible.

First, though, I want to give a shout out to biological lefties, whose number includes my own departed mama and her brother/my uncle. However, I’d be remiss if I didn’t also use the opportunity to pay similar tribute to Jimi Hendrix (a poor lad of authentic African and Native American decent, who was forced to restring right-handed guitars and play them upside down), Paul McCartney (who did not suffer this indignity), Sandy Koufax, Albert Einstein, Barack Obama, Bill Gates, Neil Armstrong, Beethoven/Mozart, Leonardo Da Vinci, Oprah Winfrey and Larry Bird just to name a few.

To these and other left-handed geniuses: I salute you.

Because we live in a decidedly right-handed world. Everyone knows this, but it came to life for me again this past week when I was attempting to zip up a hoodie of particular personal sentimental value (a hoodie, if you will, for the ages), and realized it had a left handed zipper, with the fat part (called the slider/pull tab) on the left side, as illustrated in the following diagram:

And I’m not gonna lie: as a righty, I have a helluva time connecting it to the bottom stop.

Though I’m not proud of this, I felt outraged at the inconvenience imposed upon me by the hoodie manufacturer. But then I thought again, and I realized that lefties go through this sort of hassle every minute of every day. And not just with zippers. Doors, electronic key boards, standard cutlery, automotive transmission devices, vacuum cleaners, and virtually every product used in daily activity is designed under the assumption that the operator favors his or her right hand. Heck this even applies to combs (which I never use).

OK: maybe not combs. My better half convinced me that combs are dexterity neutral. But hopefully, the point is taken nonetheless.

Expanding upon this particular theme, it occurred to me that pretty much every lefty under the sun has to train themselves to be somewhat ambidextrous, less unspeakable calamities such as getting stuck in elevators, being unable to effectively manipulate the heating coils on their showers, etc., befall them.

It thus becomes axiomatic: if you’re left-handed, the world is out to get you; it hates you. Try not to take this personally. True, you get a head start to first base when seeking to beat out a grounder, and your curve ball tails way from righty batters, but my gosh, the discrimination you face even pervades our lexicon. Have you ever, for instance, been on the receiving end of a left-handed compliment? If not – trust me – it’s not the most pleasant of experiences. Ostentatiously fancy-pants types are referred to by the legit playas as being gauche (the French word for left). Incompetent dancers (among whose numbers, despite the thousands of dollars my late mama spent to eradicate the problem, I count myself), are said to have two left feet.

All of which brings rise to wonderment (cue transition to political treatise) as to the dramatic and unmistakable leftward turn of certain elements of our domestic electorate. No, I didn’t watch The Debate, but I did read about it, and it is clear that the least rive gauche of the presenters is still in favor of huge tax increases, nationalization of key industries, massive entitlement expansion (free education and child care, etc.) and enfranchisement of undocumented immigrants and convicted felons.

And all of the presenters are highly successful Caucasians: disproportionate beneficiaries of a socioeconomic model they now seek to dismantle. They include a Trillionaire (but not his wife), some McKinsey dude, a Harvard Professor and a couple of career pols. Each would re-engineer our whole system, with highly uncertain results, and each is so passionate about this that the contest devolved to determining which among them could outflank the others in terms of left-leaning hysteria.

We can probably now spit, rinse and move out of this political dentist chair, leaving off with one final observation: the assembled debate crew looked more like the 1962/hundred-game-losing New York Mets than their Mickey Mantle/Roger Maris cross-town rivals.

I must disclose for anyone otherwise unaware that I by and large play for the other team. And it is only in the spirit of peace, love and understanding that I urge these lefties, for their own benefit, to induce an element of ambidexterity into the proceedings. Before they lose and lose big.

Certainly, the markets appear to be ignoring the political lurch into the oncoming lanes (which I hardly need to remind you are situated to the left of the right-handed favoring vehicles in which we travel in these realms). It was indeed a down week for the global equity markets, but one that looks to me like nothing so much as a buying opportunity.

And here, I cannot resist the temptation of taking a victory lap around the proverbial prognostication race track (a facility which features a series of perpetual left turns), because, as predicted for many moons in this space, even a modest amount of market/economic carnage has pushed buckets full of liquidity into government debt. As has been widely reported (but bears mention nonetheless), the U.S. Thirty Year Bond closed on Friday at record-low yields:

And again, this against the backdrop of a stable economy, with risk assets hovering at near-record valuations.

My main point here is that if anything really serious happens – in the markets or the broader economy – the pathetic double top at the right side of this graph will extend out to a full collapse. So whichever biological or political side you favor, I’m begging you, yet again, to consider my advice – that a long price/short yield position in Treasuries offers a delectable hedge against the “risk-based” assets you otherwise hold.

Unfortunately, here, we’ve got to get out the salt and lime and crack open yet another Corona (presumably using a Church Key that I will argue to the death discriminates against lefties). I don’t have a great deal of wisdom to lay you respecting this terrifying but increasingly wearying topic. Suffice to say that it looks to me like it is simultaneously the biggest viral threat since the Black Plague and the most over-reported story of at least this young century.

I’ll lean towards optimism here, though. I am happy for the enterprises that are making billions off of updating them masses on this — every microsecond, because I’m a righty and view it as capitalism and free enterprise at its finest. I’ll also go out on a limb and suggest that if, somehow, the monster is contained and dissipates, all other things being equal, were probably looking at a moonshot of >3500 on the Gallant 500 (each constituent of which, I’m happy to report, is, at the point of publication, virus-free).

But I wouldn’t be loading the boat just yet. Because. We. Just. Don’t. Know. I read this morning that they cancelled Carnival in Venice over this, and if so, sh!t may just have gotten serious.

You wouldn’t know it unless you were paying particular attention, but it was actually a quiet week otherwise around these parts. Probably the biggest headline grabber was Morgan Stanley’s bid for e-Trade, and I offer a note of appreciation to the Mother Morgan crew for what I think is a pretty sharp trade on their part. For eons, their Wealth Management Division was an overly exclusive club. In fact, when I sold my last company, I received a call from one of their reps, a very professional sounding lady, who I had to tell that (though it pained me more to inform her than it presumably did for her to receive the information), the proceeds from the transaction failed to place me at their minimum threshold for client acceptance. At which point the conversation ended abruptly. Politely, diplomatically, but abruptly.

And now, with the e-Trade, I think I qualify at long last. Now they want everyone’s money. I’m not gonna rush out to open an account, but it is comforting to know that if I want to, I now can.

And at least they want my cash to invest on my behalf, which is not what the lefties on the Debate Stage have in mind. Those southpaws want to control it for their own agendas, as they always have. If you doubt this, just ask the (albeit) late Chuck Berry – a right handed guitarist who invented rock and roll, but was hounded by the IRS for decades nonetheless. In fact, hounding Chuck Berry may be the government’s strongest suit. They excel at it, and it is my worry that under certain political outcomes, we all may become Chuck Berrys – minus those world changing riffs and signature duck walk.

I am aware, as indicated throughout, that it ain’t easy being a lefty. When you turn on the road in that direction, you must do so against traffic. Maybe you’d be better off with other modes of transportation, say, flying. Though I don’t have first-hand data on this, I’ve no doubt that cockpits also discriminate against this minority group. But that’s their problem; not ours.

If I’m right, though, then even left-handed pilots have to be a bit ambidextrous. And so should we all. It may be that the most urgent need in this regard applies to lefty politicians, but I can find no arguments against the holy notion that everybody should go both ways. At least a little bit.

Just don’t overdo it, OK? I think that each of us should follow the orientation that is dearest to our hearts. On the other hand, a slight move towards the middle, is, I think, the Lord’s Work. But that’s what it is: work. And we need to pace ourselves, because as the great left-handed poet Robert Frost famously reminded us: “we have promises to keep and miles to go before we sleep”.

OK; I’ll admit it: I don’t know that Frost was a righty or a lefty, but it hardly matters, right? But either way, we need to pace ourselves, use all of our extremities, and thus work as effectively as we can to reach those dreams that never leave our consciousness, come what may.

TIMSHEL

So where to now St. Peter? If it’s true I’m in your hands,

I may not be a Christian, but I’ve done all one man can,

I understand I’m on the road, where all that was has gone,

So where to now, St. Peter? Show me, which road, I’m on

— Elton John and Bernie Taupin

ST. PETERSBURG. Somehow, some way, I find myself at this particular dateline, and no, I don’t know which road I’m on. So how I got here, I can’t rightly say. Last thing I remember, I knew that I had to get away. Ideally to a remote location (at least from a provincial perspective). I’ve been bombing on Zero Hedge lately, and what, with all of this Putin intrigue, I may have thought that the ancient metropolis, founded in the early 18th Century by Peter the Great and nestled on the banks of the historic Neva River at the eastern shore of the Gulf of Finland, might have been the ideal destination. I also have a vague recollection, on Valentines’ Day, of looking the town up on the map, and finding that the city’s boundaries and immediate points of watery ingress form the image of an amorous fish:

Which is pretty cool, because I love fish – particularly amorous ones. So why not St. Pete, the northern capital of Russia, and a town that sports nearly 6 million inhabitants.

From there, all one has to do is hail a properly provisioned seafaring vessel, and boom, in a few hours, one is in Helsinki, which is also pretty cool. All of which begs the question: why go to St. Petersburg at all?

Well, among other reasons, the town has an interesting nomenclatural history, having, during World War 1, been renamed Petrograd, and in the wake of the ensuing Russian Revolution, adopting the murky, menacing handle of Leningrad, only to be renamed St. Petersburg when the Soviet Union collapsed.

But we live in an era where nomenclature is definitely a cause of vexing concern among the masses. Consider, if you will, the case of gender-based pronouns. On second thought, don’t consider the case of gender-based pronouns. Or if you do, please don’t tell me about it. In addition, beyond the recent shade thrown at me from the readers of Zero Hedge, the publication is actually chockful of references to hedges of every stripe.

Elsewhere in the nomenclature game, it’s NBA All-Star Weekend (transpiring on my home turf of Chicago), and if you went, I hope you enjoyed this horrifying spectacle, or at minimum endured it. But please bear in mind that from a nomenclature perspective, there are few Pelicans in New Orleans, certainly no Jazz in Utah (or less than any of the other 49 states), and no Lakes in LA. There is Heat in Miami (most of the time) Phoenix is full of Sun(s), but nobody has worn Knickerbockers in New York since the Wilson Administration. Depending upon how you define the term, there are Wizards in Washington, but ones that I do my best to avoid.

Grizzlies in Memphis? Please.

And the truth is I’m not in frigid St. Petersburg, Russia, but rather am warming my jets in its identically named municipality on Florida’s sunny Gulf Coast. And I must say, it bears scant resemblance to its Russian counterpart. No sweeping cathedrals. Not a river in sight. Finland is a galaxy away. And the weather, especially in February, is a whole lot better than that presumably being experienced by the denizens of the Northwest Province of the realms of Putin and Peter the Great.

I’m guessing most of y’all are on to me by now. I don’t really have much fodder for market commentary this week. Maybe that’s for the best; maybe you need a rest as much as I do.

So let’s revert briefly to the NBA theme, shall we? There are indeed Bulls in Chicago (including my home squad), but they are not, per se, exclusive to that jurisdiction. Fact is, bovine sentiments prevail everywhere across this fair land. Our equity indices, Corona notwithstanding, spent the last four days hovering in < 1% ranges at record valuation levels. The USD is rocking like it’s 2019:

So violent is this move that the 1/100th Benjamin unit rose even against the Swiss Franc, issued by a jurisdiction where no St. Pete exists. Also against the Russian Ruble – currency of the home country of the original St. Pete.

I’m not entirely sure why the greenie is as white hot as it is, but then again these FX markets have always puzzled me. I can only tell you that it makes me wish I had travelled abroad, which, as indicated above, was my original intent. I did read, over the last couple of days, that our trade deficit against the economically depleted Eurozone reached a recent all-time high, and if so, maybe we can blame the chart on the left.

Back stateside, we bore witness to yet another oversubscribed set of bids on bonds made available for repurchase by the highly accommodative United States Federal Reserve. Now, whether this is mere preventative medicine to stave off a liquidity crisis, or simply a gift of free funding to our much-maligned, malingered and generally put upon bulge bracket banks is a matter of debate above my pay grade. What is indisputable, though, is that the Fed Balance Sheet is ballooning. Again:

And this with market conditions being about as good as they get: equities at record levels, the USD on a rocket ride, and raising the question as to how big it would be on a weaker tape. But in the meantime, markets are certainly in fine form. Take Sugar, which at least until this past week, is exploding:

Sharp-eyed observers will indeed notice the recent sell-off, but no one above the age of nine should shrug off the moonshot from < twelve cents a pound before Halloween to nearly sixteen cents in the lead up to Valentines’ Day.

They say the stuff isn’t good for you, and of course they’re never wrong. But by my own estimate, I myself am more than 60% sweet stuff, and was happy that the market was starting to recognize my true value.

Until, that is, this past week. Because what Sugar giveth, Sugar taketh away.

Feel free to short me, if that’s what’s in your heart. But the part of me that is not sugar is mostly gas which has been a baller short since the first indications of a mild winter began to blow our way.

A big part of me weeps for NG investors these days. They just can’t seem to catch a break.

But on the other hand, this was, in my experience, the best market in which to specialize for a very long time. I had a very successful former PM/friend who played this game like a boss. When I departed my oversight role at his firm, I’d occasionally get an email from him with nothing but a chart of a big move in the commodity, and the picture told everything I needed to know.

God blast him. He’d nailed another big move. But those days are over, and I think he’s retired. Young. And rich. But out of the Natural Gas Market.

All of which leads to our quote and the question embedded therein: where to now, St. Peter? I don’t think the First Pope/Keeper of Heaven’s Gate can tell us much. I’ve asked him recently, and, instead of Northwest Russia, he directed me to the Southeastern Portion of the United States.

So we’ll have to figure this out for ourselves. But Uptown, Downtown, it really doesn’t matter what road we’re on. It may be helpful, at times, to remain aware of whether we are on the East Side or West side, if for no other reason so we can feed ourselves. But even if we get this wrong, I will love you no less. In fact, I will love you more. Particularly during Valentines week. Please know this. No matter what.

I do think that the markets will continue to rise, but if I knew for sure, I’d be St. Peter myself. And I’m not. I’m not even a Christian, but I am doing all one man can.

I hope and expect you are doing the same, because if so, whatever road you’re on, it stands every chance of rising to meet you.

TIMSHEL

And not in a particularly good way. Those among my readership with groupie-like traits (and/or in groupie-like states) are aware that I am something of a shredder myself. Well, at least I try. Which is more than can be said for most of y’all. And, given my efforts, I grant myself license: a) to know shredding when I see (hear) it; and b) to opine upon its quality/authenticity.

From my remote perch in the Greater NYC area, I’m here to tell you that this past week, there was a whole lot of shedding (or efforts at same) going on.

Let’s begin with the Ag markets, from which issues, across those windy fields, my tortured titular mash up theme. It hasn’t been a great year for Wheat investors, but I will allow my readers to make their own determination as to whether the price action rises to the dignity of the Shredded Wheat allegory which, in a state approaching desperation, I have tried to gin up:

Shredded Wheat? You Decide

I have very little to say about this chart, and really don’t care if you look at it or not. Let’s just say that this commodity has gone through periods of greater hardship without disrupting the business flows of those evil food conglomerates (Nabisco, Kellogg’s, and its current corporate paymaster: Kraft) that grind out those fibrous square nuggets and ship them to our groceries and shelves. This tells us something, I think, because Shredded Wheat is exactly as advertised: Wheat that is Shredded. It contains no other ingredients or byproducts. So I reckon the Corona-induced ~$0.40 price drop, is, on balance, an entirely survivable event.

So let’s move on, shall we? Last week, there were a couple of deals that were torn to shreds, in ways that (I’m not gonna lie) broke my heart. First, I regret to inform you that just as the rest of the squad is joining the Pitchers and Catchers at the Mets’ Spring Training HQ in Port St. Lucie, FL, my plans for playing 2nd base, have been, well, shredded. My old chieftain, Steve Cohen, apparently will not be acquiring the team after all. Published reports indicate that his purchase plans went awry when he realized that the terms of the arrangement did not contemplate him actually running the club’s operation; instead, he was called upon to allow the misanthropic Jeff Wilpon to continue calling the shots for the next five years. Had they asked me, I could’ve saved everybody a great deal of time and aggravation, because letting someone else call the shots is just not how Stevie rolls.

But it’s a helluva shame. Because I’d been practicing my double play pivot, and it was reaching levels of fluidity and grace not seen in those realms since Rogers Hornsby hung up his cleats.

I was also disappointed to learn of the torn-to-shreds breakdown in negotiations between the Intercontinental Exchange (ICE) and on-line auction platform eBay. Though I have a multi-decade affiliation with the (ICE nemesis) Chicago Mercantile Exchange, I really liked this trade. ICE is a gargantuan derivatives marketplace; eBay deals in actual physical products. I felt, perhaps, that it was time for the twain to meet. The general rap out there is that eBay mostly exists for Beanie Baby enthusiasts to swap inventories, but the record shows otherwise. Most of its top selling items have a technology motif: the transacting of used (and presumably wax bereft) ear buds, lithium batteries and such. And why not trade these on a proper exchange, maybe even in derivative form, for future delivery?

Besides, what under heaven is wrong with the concept of Beanie Baby futures? Or, for that matter, options (as long as they are not purchased in their last week and held all the way till expiration)? Well, we may never know, because the folks at eBay gave a one-finger salute to the ICE overtures.

And now we must turn, wearily and regrettably, to the topic of politics, where the shredding action was fast and furious. I’ll try to be brief and gentle here. That the Iowa Caucuses were an exercise in the ghastliest political shredding spectacle since the Federales sent the army into three southern states to reverse their electoral college results, and steal the 1876 election from Samuel Tilden in favor of the glitzy Rutherford B. Hayes. Everyone is blaming the app. Yup, it was the app’s fault. That’s what they are saying, and how could it possibly be anything other than the full truth? The Iowa Dems are said to be considering going back to (shreddable) paper, and it’s hard to fault them for these musings.

But depending upon how the next few weeks play out, under certain scenarios, the Bernie Bros may be compelled, for the second time in a quadrennial, to take out their long knives and shredding a few party regulars. I wouldn’t, and won’t, be surprised if this happens. Because if there was purposeful shredding in the Hawk-cauc, Bernie was most certainly the target. Extrapolating out, if Bloomy (or a proxy thereof) manages to pull a fast one here and buy his way in, the fur is really gonna fly. And he’s a tricky son of a gun. He’s already hoovered up a galactic proportion of the available media time, goosing the costs of advertising for his competitors (who are running out of money no matter how much they raise) to the tune of >100%. If this string plays out, and he cuts a deal with the party elders to lead the ticket, well, what then? The Bernie Bros are gonna go ape sh!t is what. They will ram the red agenda down his throat. And (this notwithstanding) they will stay at home in November. Hell will freeze over before they move their skinny asses to pull the lever for a septuagenarian white billionaire that thieved the prize from their boy.

It’s all a Gordian Knot through which the sharpest knife (Excalibur?) cannot cut. What is needed is a baller shedder of the proportions not witnessed since the days of the (British) Camelot.

All of which brings us to The Big Shred. You know the one I’m talking about. Nancy ostentatiously ripping up not one, but four separate copies of the State of the Union Address, in front of a worldwide audience, and while the Big Guy was still laying his magic verbiage on the masses. I have very little to say about this, but I did like the part where they caught her on camera making dainty little prelude rips into each of these documents, to ensure the fluidity of her shred. I reckon how anyone felt about this is tied to their predisposition concerning the current political calculus, and will leave off from there.

So what under heaven does any of this have to do with market risk conditions? Wish I knew. Nominally, investors have shrugged off the various above-mentioned shredding episodes – across the Kansas Wheat Fields, in the Manhattan Offices of MLB Central, in the back rooms of ICE and eBay, over the vast expanse of the Iowa Corn Fields, and on Capitol Hill – all with great equanimity. About the only thing that put a speed bump into the equity juggernaut was a blowout Jobs Report, featuring a gratifying number of new gigs, relatively robust wage gains and a significant uptick in the Labor Participation Rate.

Go Figure.

But it’s hard to quibble with the overall consensus. While the rest of us were busy observing the b!tching up of caucus reporting apps, not removing the President from office, nervously monitoring the Corona, or walking away from deals for which I personally was rooting, the rapidly-lurching-to-wind-down earnings season manifested a reversal of fortunes that was Lazarus-like in its unfolding:

Yes, my friends, I suggest you look at this one. In two short weeks, the trends are such that instead of yet another quarter of income contraction, we are, 2/3rd of the way through, actually looking at a positive interval of earnings growth.

It’s only one reporting cycle, it’s not in the bag yet, and the pundits inform us that it was, if not empowered, then at least enabled, but an unseasonably warm winter which had folks out shopping, dining and even building, sewing and hoeing. You are of course free to form your own judgments, but as for me, I’ll grant myself liberty to feel encouraged by these tidings.

And, in general, I think that this here market probably has some additional shredding to lay on us, of the Hendrix/Page vintage, ere it lays down its axe for the last time. No, it won’t last forever, and I don’t know how much higher our indices will climb, but my advice remains what it has been: a) don’t get too cute on the short side; and b) you have my permission to buy any dips that may ensue, in drive-by fashion, over the near term. But if you’re going to consider b) you must be prepared to act fast.

As a case and point, in late January, and as the Corona was germinating, one had the opportunity to purchase such fabulous names as Amazon, Apple and Microsoft at an approximate 10% discount to prevailing valuations. Next time such a prospect presents itself, you have my permission to lay in.

These trades will not be riskless, but if they were, where on earth would I be? There are tradeoffs involved, and at times, we must be prepared to be wrong. Even about something important. We’ve got to think a little longer term here if we are to realize our dreams. But God willing, we’ll get there. The Dem nomination is still anyone’s game. Though their saying otherwise, Stevie may yet cop the Wilponless Mets. There’s another State of the Union Address scheduled to take place in ~360 days, and the possibility exists that all official copies of this speech may remain intact and preserved for posterity.

So let’s keep at it, shall we? It may very well be the little things that matter here. If your furnace needs inspecting or refilling, don’t put this off, because: a) it’s still winter; and b) I don’t want you or your loved ones to freeze.

And I reckon that’s about it. For now. It was a tough week. A shredded week. I’m pretty worn down by all the action, and not entirely convicted about my mash up theme for this here note. What would probably be best for me is a bowl of Shredded Wheat, but with respect to that product, the cupboard is unfortunately bare. However, I do have a half-full (and thus optimistic) box of Wheaties staring at me, and a paper shredder stationed immediately to my left.

I will, therefore and as always, improvise with the materials at my disposal, and hope for the best. But here’s the thing: I don’t even like cereal. Of any kind. I won’t eat it except under the direst of circumstances. So please understand that my closing comments are entirely allegorical.

And if all of this is beyond your scope of understanding, well, then, my best advice is that you just forget the whole thing.

TIMSHEL

Happy Ground Hog Day, y’all. I reckon we can call this a special one (02/02/2020), with deuces wild and the Super Bowl set to commence. And, in the spirit of the iconic 1993 Bill Murray feature film of the same name, I find myself in what amounts to my own infinite, repetitive behavioral loop.

Specifically, and as happens nearly every time the sun rises, I found myself with a near-perfect angle for this piece, only to have its flaws pointed out to me, in ignominious fashion, by my allies. Apart from the reality that Pux Phil is fated to be upstaged by Mahomes and Jimmy G, I was thinking that today’s festivities: a) would mark Super Bowl XIV; and b) the game was transpiring on almost precisely the two-year anniversary of the brutal, fraudulent crash of the ETF of the same name. So fired up was I as to the rhetorical prospects involved that I gave a sneak peek to one of my clients, who diplomatically pointed out to me that according to Roman Numerology of about 25 centuries standing (and therefore a difficult protocol to violate), today’s game is actually Super Bowl LIV.

I thus have no alternative other than to render to Caesar the things that are Caesar’s (and – of course — unto God the things that are God’s). By all accounts when Jesus spoke of the former, he was referring to taxes, and, under certain potential electoral outcomes, we all may be rendering to Caesar like never before. But we won’t dwell on that – at least not right now.

In the meantime, my dilemma was to figure out how to fit what was still a pretty good, if logically inaccurate, hook into this here note. Having diligenced the matter, I find, much to my surprise, that the ticker symbol LIV remains unspoken for. So my first piece of risk management advice is that somebody should snap it up. Because it’s a pretty good ticker symbol to have, is it not?

And, in light of the discrepancy, I am giving myself a free pass to dive into a recounting of the whole XIV debacle, which transpired on February 5, 2018. A bit of schooling is in order at the outset. For the blissfully uninitiated, the XIV is (or was), as the letter sequence hints, a security, which, on a levered basis, tracks the inverse of the VIX volatility index. Those invested in it were therefore: speculating (not gambling) on a sustained decline in options volatility, while using substantially borrowed funds to do so.

On Super Bowl Sunday, think of it as laying 4 dimes on The Under, as financed by the Gambino Family.

It was all going fine for a while, in a volatility-suppressed tape, with everyone just minding their business, when, on afternoon in early February ’18, the VIX started to surge like an Aaron Rodgers bomb after he cleverly snapped the ball with 12 defenders (and yellow laundry) on the field. In the space of about two hours, it teleported itself from a 14 handle up to its previously unthinkable close of 37.83.

And as for those poor 4-dime owing XIV holders? Well, they were wiped out. And then-some.

For a variety of reasons, my phone was blowing up on that afternoon. Among those reaching out were stranger-XIV investors who didn’t understand how their trusty ETF had withered to nothing in the space of less than two hours. But that’s the way the levered inversion game works, in case you were interested.

But the story devolved from there. The XIV was somehow trading at about 99 (max value of 100) up to that ill-fated close. However, given the structure of the security, it had an economic value of 0.00000. This nonetheless failed to stop brokers (who knew the real value) from filling orders at prices like 80, 60, 35 and 20. I talked to one poor sum-b!tch who bought at all of these levels (we won’t shed many tears for him though; he had recently cashed out to the tune of fat nine figures on a family auto parts biz, and was spending his days spit-balling in the markets), and who wanted me to help him sue the XIV issuer and executing brokers. And I would like to have obliged him. Because that there stunt was Bullsh!t. But I never heard from him again. And he didn’t pay me; they never do.

It is at that point that the XIV gathered to the dust of its forebears. And it’s probably a good thing – particularly given the recent action in the underlying VIX index:

Sharp-eyed observers will notice the surge in VIX valuation over the last week, causing further consternation to the levered short-sellers, wherever they may be and however they may roll. We’re only up to approximately half of the thresholds breached during the XIV circus, but the spike is notable nonetheless. And we can all probably trace the root causes back to pesky matters like Corona, etc.

But other risk factors are on the move as well, and it is my obligation to point out that as foretold, ad nauseum, in these pages, the ill winds have blown a tidal wave of yield-reducing flows into the 10-year:

It seems like only a few weeks ago that these benchmark rates were rising, and on the verge of crossing 2% — maybe because that’s where we were a few weeks ago. And all it took was a Chinese virus – which may or may explode into a pandemic – to shave 40 basis points off of the tally.

I could, but won’t, claim vindication/victory here. My more important point is that — given the overall strength of the capital economy, the prospects of using long bonds as a hedge against equities remain solid. If incremental trouble ensues from here, well guess what kids? Yields will continue to come careening down.

But for the record, I am not over-much troubled at the moment by what I read into the equity tea leaves. We’re nearly half-time for Q4 earnings announcements, and (before I take my leave to avoid the stylings of J-Lo and Shakira) let’s just agree that while there were some misses (FB, CAT), the numbers issuing out of fat cat outfits like Amazon, Apple and Microsoft were nothing short of sensational. The first of these joined the $1 Trillion valuation club this week, and (as I told my client who pointed out my Roman Numeral error) it may still be a bargain here. Because if the Corona case becomes a full-on keg, we’re gonna need those drones more than ever before.

But if you think equities are rich here, I’m not in much of a position to quibble. Even with Friday’s selloff, forward-looking P/E ratios are at an 18-year high:

Does this look a little toppy to you? Well, OK; I see your point. But I’d like to use this opportunity to point out a couple of counterarguments to you. First, I just read that at the top of the dot.com bubble, the divergence of the equal weight versus capital weighted SPX was ~23%. Right now, we’re at ~6%. So on that basis alone we may have miles to go.

Perhaps more importantly, when we last visited the ~19 P/E realms, the 10-Year sported a spiffy yield of ~5.5%, as compared to 1.5% today. So the Fixed Income comps suggest that at least in comparison to, say, that previous deuces-wild moment of 02/02/2002, equities remain a relative bargain.

And therein lies my sustained message to you, my friends. For the time being at any rate, any hardships or even inconveniences we face will be met by Central-Bank-enabled flow floods into Fixed Income – in the process further reducing borrowing costs, and rendering the already putrid alternatives to equity market investments even more dismal than they are today. Either way, the equity bid, like The Dude, abides.

So I encourage everyone to keep on smiling. It is, after all, Super Bowl Sunday. Here’s hoping that Pux Phil fails to see his shadow, and that an early spring is indeed in store for us. One way or another, the sun will soon beat down the Hudson River, and explode into a splash of paint. All we’ve got to do is slog through, and wait for that divine moment.

For what it’s worth, my four dimes are on KC in Super Bowl LIV, but a couple of qualifications are in order. First, I didn’t borrow the dimes from the Gambinos; it’s my own to lose. Beyond this, I always root for the team that dwells in the less arrogant city, so the choice here is an easy one. At least for me.

A quick check of the history reveals that in Super Bowl XIV, the heavily favored, Bradshaw-led Steelers dismantled the rag-tag Rams. But there is more to the losing side of that story, as that Rams team became the first nine-win squad to make it to the Big Game. And they were playing in front of a home crowd in nearby Pasadena. 15 years later, they moved to St. Louis. And 20 years after that, they returned to Tinsel Town. But it would be inaccurate to call L.A. their original home. They started, in fact, in Cleveland, and actually first moved to La La Land about 30 days after winning the 1946 NFL Championship.

It’s all a maddening saga, and it will certainly continue. For those whose attitude on The Big Game matches mine for the Halftime Show, and will instead be focused on the markets, my advice is as follows. At present, I’d avoid levered, inverse ETFs, continue to tilt towards equities, and, if looking for a hedge, I would still recommend the 10-Year Note. More generally, let’s keep minding our business, attending to matters at hand, and finding a way to get to the places we really want to end up.

In closing, I have 4 more dimes on The Over, because, well, hope springs eternal.

TIMSHEL

What went down is this:16 years into running the show; 3 in its current commercial configuration, this past Thursday, and met without me. I might also add that the sit-down transpired in our sparkling new corporate offices that I, at their request, shelled out for. Yes, they were kind enough to inform me, but only after the fact.

I’m trying to place the most positive framing I can on the episode, but of course there are red flags everywhere. The misanthropic New York Knicks, for example, hold several of these a year, as they burn, season after season, through coaching changes and into lottery eligibility. And they’re not alone. These sorts of things happen all the time, in every sport. And usually they don’t bode well for those in management that are explicitly uninvited to the proceedings. True, they fall short of the dreaded “vote of confidence” issuing down from the fat cat owner, but more often than not, within a short time after, it becomes apparent that it’s time for the old coach to get ready to pack his bags.

But from everything I can determine, my company is not a cellar dweller. Business (touch wood) has actually been pretty good lately (I won’t say more). As the leader of the enterprise, I am unaware of any internal communications issues. But maybe that’s just because nobody bothered to tell me they existed.

I am happy to report that the meeting was said to be a productive one (aren’t they all described as such?), covering the full range of challenges and opportunities that we, as a commercial concern, are confronting. But I can only take the word of my staff on this. Because I was not present for the session.

Don’t get me wrong; I’m glad that they took the initiative. But I’m sort of supposed to say that. Aren’t I?

And while we’re on the subject of Playas Only Meetings, the big one in Davos just wound up, and (though we won’t know for sure for a few weeks) we seemed to have survived that one. Everyone knows, meanwhile, that only stone cold playas make it to the Davos roster, and one of them, whose playa credentials cannot for a microsecond be questioned, was my old boss Paul Tudor Jones. The only matter of surprise is that he actually allotted any of his precious bandwidth to the festivities. Because let me assure you that if he spends even 15 minutes talking to you, you must be pretty fabulous. And you are.

When I worked for him, we had many meetings without him (mostly because he never had those precious 15 to spare), but none are ones I would describe as a Players Only Meeting. About all I paid attention to from Davos was a written summary of an interview he granted, in which he suggested that this here rally (as driven in large part by monetary policy), and improbable though it may be, has yet to run its course.

I am on record as agreeing with him.

So maybe this whole Players Only Meeting concept is a good thing after all.

I’d even go so far as to suggest that the team in Washington get one of these together. They sure look like they could use one – without the President, Speaker of the House, Senate Majority Leader, and for that matter, every member of both Houses of Congress, the Cabinet, the Supreme Court and even new Washington Redskins coach Ron (Chico) Rivera.

Of course, such a concept begs the following question: who in the entire District would be left to attend? The lobbyists? Please. Perhaps the Jesuits Priests that run Georgetown University? Well, maybe.

Meantime, the market juggernaut took a pause from its heavenward ascent as the week wore down, and everyone knows the reason why. At the point of this correspondence, the dreaded Coronavirus appears to be gathering steam, and whether it becomes a pandemic or not remains to be seen.

I have no informed opinion about this, so I won’t share one.

However, as our business here pertains exclusively to market commentary, I will say that the germ’s path is a risk worth monitoring. Unless this thing is contained, it could wreak enormous damage on the capital markets. We. Just. Don’t. Know. Yet. Here’s hoping it is the bio equivalent of what I like to describe as Storm Porn. You know, when a Nor’easter of any material force causes cable channels to send some poor schlub to the Carolina Outer Banks, crank up the wind machines, and film him clinging for dear life to a strategically placed telephone pole, while reporting breathlessly about mass evacuations.

We usually survive these episodes, and here’s hoping that the same is true for the salty but lime-less Corona menace. But in the meantime, the markets reacted in Pavlovian fashion. As mentioned above, the Equity Complex sold off. In addition, the USD rallied, and the long forsaken VIX perked up to the tune of >20%.

But there are a couple of other market moves upon which I believe it is important to fix our eyes. Let’s first take a gander at Crude Oil:

I’m gonna break protocol here and actually encourage readers to look at this chart, a careful inspection of which reveals a market under pressure even before there was a run on face masks in the Far East. It is now testing lows that run in high correlation with escalations of the Trade War. Almost indisputably, the acceleration of the selloff was catalyzed by Corona, and if we can somehow contain the virus, the bubbling crude will in all likelihood bounce back.

But as I’ve stated many times before, the purveyors of this still-vital commodity are deep in hock, will need to refinance, and may have trouble doing so if a pandemic shuts down the ports of tankard ingress across the planet.

More significant, at least with respect to my (agenda-driven) agenda, was the reaction of the bond markets to the latest dire bio-tidings. Witness, most importantly, the yield-crushing bid on the 10-year note:

Note, also, that the most recent drop in rates transpired in contemporaneous time with an actual (albeit modest) decrease in the Fed Balance Sheet:

So investors were buying bonds (and not just in the U.S.) in droves at the first signs of turmoil, in sufficient quantity to offset downward price pressure that one might otherwise expect from Fed selling. This, my friends, increases my confidence that any headwinds in the global capital economy will be met with waves of fixed income buying, in the process reducing interest rates to increasingly microscopic (if not negative) levels, and, ultimately, catalyzing the further concentration of investment flows into equity markets. If, for instance, the Corona takes a dire turn, it wouldn’t surprise me if the U.S. 10 year goes negative. At that point, unless we are all quarantined, there’ll be nothing to do but buy stocks.

Similarly, if the Dems somehow rally around Bernie, as they currently appear to be doing, and he (unthinkably) convinces a plurality of the electorate to support his tearing down of the mechanisms and institutions that have provided everyone with the time and luxury to get their b!tch on about how evil we are and how radical the changes must be, well, I see a similar dynamic emerging.

It’s clear, by all indication, that the party with which he caucuses (he is actually an Independent) is holding round the clock Playas Only Meetings to try to stem this tide. We don’t know how this will play out, but there’s a couple of points to consider as I wind towards my circular close.

First, with respect to our thematic thrust, there’s a big distinction between Players Only Meetings and Playas Only Meetings, and, to borrow from an old poker adage, if you’re sitting around a conference table and don’t know which type applies, well, you can draw your conclusions from that.

More importantly, whatever happens with this current Corona episode, and come what may, we can expect some trying times in the coming months. I will need you to be at your best. So please take care of yourself. If you’re sick, get some rest. If that doesn’t work, try some Theraflu. Or go see the doctor. Because the truth is I can’t do this without you. We will be tested, perhaps acutely, and can only power through together. So do it for me.

And as for my krew. Good on you for your proactivity. I mean that. Sincerely. Only good things can come from this.

And I’m not gonna fret too much about that ownership “vote of confidence” thing either, because, after all, I’m the principal owner.

However, if, in this space, you see me offering a vote of confidence to my own contributions to my Company’s success, well, then, it may indeed be time for all of us to really worry.

TIMSHEL

He did NOT want to return to Memphis. On this the record is pretty clear. The City was a powder keg, and it wasn’t clear whether his re-emergence would be a calming or disturbing force. In addition, he was, at the time, pursuing a bigger dream: a massive poverty march on Washington, organized through the Southern Christian Leadership Council. But he knew he had to defer this, and head back to Elvis-land.

The backdrop was as follows. In February 1968, the City’s sanitation workers, in the wake of years of racial discrimination and after the trash compactor-crushing of two of their own, called a general strike. Cretin Mayor Henry Loeb declared the action illegal, refused to meet with the labor representatives, and called in the National Guard. The image of hundreds of a forlorn but determined and almost entirely black work force — carrying signs that said nothing more than “I AM A MAN”, while the US Military was drawing beads on them, is so powerful that I feel compelled to share it with you.

Mayor Loeb’s approach didn’t work out so well for anyone; tensions did nothing but escalate. In late March, Dr. King paid a visit to the Mississippi River town, doing his level best to bring the mantra of non-violent protest into the proceedings. But the situation only worsened.

There were riots and lootings. Most of you are too young to remember this, but King, at the time, was more reviled than loved (the same can be said about Lincoln, who I didn’t know, but still love and weep for). The Johnson Administration, The Press and Hoover’s rogue FBI all used the episode reinforce their narrative that King was nothing but a dangerous agitator.

So, against his better judgment, he went back, intending to show a better way. On April 3rd, at the Mason Temple, he delivered his “I’ve been to the mountaintop” speech. By the next twilight, he was gone.

And he thus passed into history as perhaps one of the nation’s five greatest heroes, and perhaps the finest of the Twentieth Century. And tomorrow, we celebrate his life and works with a National Holiday. I will cop to some ambivalence about the whole “day off” thing. I count myself among King’s greatest admirers, but I think there are better ways to honor him than the sop of a 3-day weekend. Yes, Jesus gets a National Holiday, but Washington and Lincoln split one. I have a few of further points to make in this regard. First, it seems like the kind of dry bone we always throw to ameliorate our collective guilt about matters such as racism, which, if you listen to the press, only rises with the passage of time. But old gangsters such as myself, if we’re honest, must admit that race relations, in terms of anything but rhetorical flourish, are actually much better than they were in 1968. So, to honor King, wouldn’t it be better to do something productive, like authentically contribute, say, the entire day’s national value-add, to the causes for which he lived and died? By my math, that would amount to >$50B. Every year. Think (absent those pesky middlemen) what good that would do. I’d sign up. Right away.

Plus, if we really wanted to honor the Good Doctor, we’d be celebrating on his actual birthday. Which is January 15th. I don’t know about you, but that’s my day – to live up to every aspiration I have, and every expectation that is placed upon me. I’ll leave the rest in the hands of the Good Lord.

But after 4/4/68, the world kept spinning and turning, and, now, more than 91 years after MLK began his brief but magnificent walk on this earth, we find ourselves at an interesting pass. The rhetoric around racial issues is as heated as it’s been since that horrible Spring, 52 years ago. Matters that are clearly troubling (wage/opportunity/housing disparity, gang violence, the shocking proliferation of unwed mothers, the opioid crisis, etc.) are given short shrift, while virtue signaling becomes a weak sister proxy for problem resolution. At this point, the only possible occupants of the Oval Office in 2021 are all white, mostly male, (except for Mayor Pete) mostly straight and (except for Mayor Pete) unilaterally old.

The markets, however, chug along in untroubled unawareness, or, at any rate, indifference. More than that, they are in full bovine crescendo. Last week, our gallant indices lurched to record levels pretty much every day. All of them are (as was the case last year at this time) annualizing at near 100% or greater.

Alphabet has crossed into the $1T valuation club. JP Morgan recorded an astounding, record-setting >$30B Q4 revenue number. My friends on the Street inform me that last week also manifested an unprecedented level of call options buying – particularly for tech names and broad-based indices.

32 members of Congress – all from the left side of the aisle – received brand new souvenir pens, and then let the selfies fly, putting an acute exclamation point on the solemnity of the exercise they were enacting.

What could possibly go wrong at this juncture?

I’m not gonna lie; I struggle to find an answer. I do think that the construct falls short in terms of holiness of, say, MLK’s “I have a dream” speech, but rising to those heights routinely is not something to which it is in our particular interest to aspire. Because that would be too much for us all. By any historical measure, global stock valuations are frothy, but, as I’m advising my clients, I think we must throw out the history books, or at minimum, put them in long-term storage facilities. There may be a time when it will make sense to bust them out, dust them off, and see what they have to say. But that time isn’t now. Because our equity complex is entirely indifferent to such quaint metrics as P/E ratios:

Please, I’m begging you, don’t look at this chart. I know I certainly won’t. It tells a tale of 10-year highs in the cost of buying a dollar of earnings in the form of stock investment.

I don’t however, see any reason that the squiggly line (I knew you’d look) cannot continue its heavenward ascent. We’re still looking at a 4th consecutive quarter of negative earnings growth. But the buyers keep buying them – with the top six dogs on the roster now boasting a greater market cap than the entire German equity complex.

To hell with Germany, though, I say. Didn’t we show them who was boss 75 years ago?

To reiterate my broken record message, the Fed is still printing money and using it to buy IOUs from its besties in the Treasury Department. Most of these are at the short maturity end of the curve, but there’s good news also for those who focus upon longer dated instruments of debenture. With barely concealed glee, Treasury just announced that by the second half of this year, it will begin issuing 20-year notes, bringing a much needed symmetry to the on-the-run government yield curve. We’ve got overnights, monthlies, quarterlies, one-year, two-year, five-year, ten-year and thirty-year bonds by the bushel basket, but I’ve often looked wistfully at that gap between Uncle Sam’s IOUs that now mature between 2030 and 2050. And, when the new 20s arrive, I expect to feel better.

As I type these words, I can envision many a Gulfstream Jet going wheels up for some gasbagging and shushing at the World Economic Forum in Davos. Long-time (and careful short-time) readers are aware that I will avoid paying much attention to these proceedings. If something interesting happens, perhaps one or more of you can inform me of the details. But, like Archie Bunker told Edith when she felt compelled to let him in on Mike and Gloria’s Dead Bedroom problem, I ask you to: “Go slow. Don’t put in nothing extra. And stop when I tell ya”.

Those eyes that are not on the Swiss fabulousness may be affixed to earnings, which should be interesting, but which may not move the needle much. Early returns suggest that there is indeed some price sensitivity in reporting land:

However, on balance, I think we’re still in Beta configuration, with the whole complex going either up or down based upon the whims of the algos and the sheep that follow them.

More specifically, I am convinced that credit for this impossibly extended rally belongs entirely to the Fed. And if I’m right on that score, then there’s no reason to think it is going to abate, much less reverse itself, any time within the foreseeable future.

It’s just human nature, kids. Approximately 11 years ago, everyone (including me) believed we were witnessing Armageddon emerging before our eyes. But the Fed printed money and bought bonds. Since that time, stocks are a five bagger. We have full employment, sustained GDP growth and no material inflation. Moreover, late 2019, when Chair Pow and his minions thought that the time might be right for some tough love, the results were little better than achieved by Mayor Loeb when he called in the National Guard. So they reversed course. Hard. And as of now, it’s working like a charm. Who on earth possesses the foresight and discipline to introduce a measure of maturity/prudence into the mix?

Perhaps Dr. King might have. But he was done in on a Memphis hotel balcony, some 52 years ago. Recently, his rep faced some tarnishing, based upon widely published reports of serial womanizing. But by and large, we have chosen to overlook these failings, and concentrate instead on his miraculous good works. And I am delighted we have done so. And I wish we would show more of this type of forbearance – for All God’s Children.

It’s just not that hard, whatever your failings, to make someone smile, even if just a little bit. Maybe they’re having a bad morning. On their special day. Show them some love, and it will come back to you a hundred fold. It may just be a moment that you will never forget. And it may help secure what is now a highly uncertain future — for you, and for all of us, come what may.

This is how I chose and choose to celebrate Dr. King’s birthday. I’d go so far as to encourage you to do the same. But, as the saying goes: your mileage may vary.

TIMSHEL

Fly by night, away from here, Change my life again Fly by night, goodbye my dear, My ship isn’t coming and I just can’t pretend

— Neil Peart

Yes, my friends, we must, albeit with a titch of ambivalence, pay tribute to Peart, who left us, not unexpectedly, this past week.

The mixed nature of our (or at least my) lamentations derives from our (or at least my) inability to wrap our (or at least my) heads around the outfit that made him world-famous: Canadian Rockers Rush. Part of me has always wanted to love them; the other part knows I am obliged to view them with some derision. So, like the economist with one foot in the oven and the other in the freezer, who conveniently concludes that on average, things are OK, I can only conclude that Rush was just that. OK.

To me, they fall into a specific set of ensembles where the musicianship is unquestionably sublime, but their catalogues just fail to measure up. Van Halen is also on this list. Upon this we can all (perhaps) agree: few can touch Eddie (who, according to published reports, is also on the down) as a guitarist, but the list of truly memorable VH songs devolves to somewhere around zero.

The same can be said about Rush. But boy oh boy can they shred. While Geddy’s high alto can certainly grate on the nerves, it is pitch perfect, and his bass licks are unmatched this side of Jaco Pastorius, Jack Casady, and (yes) Paul McCartney.

Lifeson may be the most under-rated guitarist in the galaxy.

And then there was Peart. Who flew away (by night?) a couple of days ago. Ask any drummer. Nobody could play like him. His kit contained about 50 pieces, which is pretty cool in and of itself, but even more so is the fact that he used them all. From what I know, some of Rush’s music was so complicated (if inaccessible to the rational ear) that even they couldn’t play it. I’ve seen interviews where they admitted as much. Songs like “La Villa Strangiatio” were so difficult to capture outside of the studio that they just gave up. Never played them live. A great deal of the pressure in this regard fell on Peart, who held up his end magnificently – until he just couldn’t do it anymore.

And now he’s gone.

As Rush-Heads know, Peart was also the band’s lyricist, owing in part to his status as the nerdiest of member of the nerdiest bands in the rock pantheon. When, in the early days, they were supporting groups like Kiss, but skipping the post-show, groupie-slathered ragers, to retire to their rooms and read books, Peart was clearly the most erudite of the bunch. So he wrote the words.

And I give him a gentlemen’s B on that score. He had his moments, but a lot of his verses seem forced and overthought. “Fly by Night” was his first-ever recorded composition, and (to my thinking) one of his best.

And that ain’t saying much, now, is it?

But I have a column to put out, and I don’t think I’m out of line for leaning on this theme, at the time of the passing of one of the greatest drummers that ever struck a stick, mallet or boot to a trap, bass, snare or high hat.

And y’all can probably see where I’m planning to take this. Lots of flying by night going on out there, kids. At the risk of using Peart-like verbal device, I’m pretty sure our unmanned drone that took out that Soleimani character was airborne during the hours of darkness in Baghdad. Less than a week later, and also under the cover of darkness, his Persian avengers took down a commercial jet over the skies near their home turf airport in Tehran, in the process sending 176 souls to their better rewards. The much-maligned, Horatio Alger-like Duchess of Sussex actually flew commercial to seek her fortune among her colonial subjects in Rush’s home turf of Canada. Night Flight? Wait… …I. Just. Can’t.

Better news derives from these fly-by-night markets. The Gallant 500 and its comrades managed to regather themselves and stage a modest rally last week, but one that nonetheless projects out, in these early days of ‘20, to an annualized return of ~50%. Once could describe the buying cycle as being airborne, but (it must be allowed) most of the action is transpiring under the visibility of the sun’s rays.

And soon now, disinfecting sunlight will reveal where the capital economy stands as the new year starts to unfold. Friday’s Jobs Report was disappointing to some, but on the whole, I believe an acceptable outcome. Next week, of course, the earnings season launches into the nocturnal ionosphere, and whether it soars like an eagle, or swoops down like a vulture, remains to be seen. Somewhat ominously, we are bearing witness to yet another potentially problematic decoupling of valuations and consensus estimates:

One could be forgiven for suggesting that it takes a busload of faith to be buying against this backdrop. But what, my dears, do we really have other than the clothes on our backs and busload of faith? A Dior bag and some of the world’s greatest records on vinyl? Well yes, but they too are rendered by nothing but faithful love. And, even with these treasures, the future is, at best, uncertain.

In newly time-honored fashion, the announcement season commences with the banks (time was, they let Alcoa go first, and maybe they still do, but if so, nobody is noticing). I kinda worry for Jamie, James, Brian and DJ-Sol, because an awful lot of good vibrations are already priced into their recent trading activity:

Now, I feel compelled to remind everyone that I’m not much of a trader or investor, but here’s the thing about the Banks: I don’t want to own them. Not here and not even, really, at their recent late summer lows.

Because, fact is, they just give me the creeps. And increasingly, it strikes me that their whole business is nothing but a short gamma play – clipping coupons in untroubled fashion – but taking the full hit when external forces take nefarious turns. And that’s before their intermediation game get disintermediated by blockchain: a technology upon which I refuse to give up. Blockchain will be back. I think.

Other matters nominally drawing our attention also from my perspective have a “winging it under darkness” feel to them. Trade wars? You tell me. Impeachment? It looks to me like this is the most troubling aerial operation, undertaken in latter-PM, hours and managed by non-instrument trained pilots, since Kennedy Junior went wheels up in his Cessna on a foggy night over the Long Island Sound (sorry, that was rude).

In a little over a week, we can anticipate the World Economic Forum ritual, held, in longstanding tradition, at a ski resort in Davos Switzerland. It features the planet’s most self-regarding fat cats, swooping in on Private Jet Red-Eyes, to utter platitudinous soundbites on topics such as how (everyone except them) should reduce their carbon footprints, and the best means of redistributing wealth (other than their own). I could go on, but, quite frankly, the whole thing depresses me enough as it is.

Politics also rev up somewhere in here. Impeachment papers are likely to be delivered – at long last – to the Senate, this coming week, if for no other reason than there’s not much else that its sponsors can do at this point. About the best that can be said about this spectacle is that it is likely to soon be over. Until, that is, it re-emerges, Phoenix-like and in the darkness, to soar again, say, sometime this Spring. The primaries are now just a couple of short weeks away, and won’t that be uplifting to observe?

Mostly, though, in terms of the markets, I think we remain at elevated valuation levels, largely due to those massive, dusky, helium injections that the Fed keeps serving up, and we keep inhaling. I won’t get into the whole Repo thing again, other than to remind everyone that our CB is still in – to the tune of hundreds of billions, and will likely linger there, perhaps in larger magnitudes, for the foreseeable future. In my darker, more acrophobic moments, I wonder where equity valuations would be without this assistance. My guess is a lot lower. And again, this tells me that: a) we need Team Powell; and b) they know this, and will be there for us, because the alternative is simply too ghastly to contemplate.

So, in closing, I’m not too terribly worried about anything for the moment. And, I’d even go so far as to offer my sanction for you to do some flying by night – that is, if you take a notion to do so. Just a couple of words to the wise, though. First, I hope you select a destination of your dreams, and the best company you can find, because you deserve both. But if you’re going anywhere outside the Lower 48 (along with Alaska and Hawaii), please remember to bring your passport, because, to do so, is, after all, a First Principal.

If you go, I’ll miss you, but will joyfully anticipate your return, and what’s in store for us at that happy moment. Neil has flown, but unfortunately, I can’t offer much hope that he’ll ever be back. But while he was here, he did the best he could, and a lot of it was magnificent.

So please join me in bidding him a tearful farewell, and in trying to emulate his example. His ship did in fact come, but his time for pretension has passed. And please also bear this in mind:

Philosopher and Ploughman,

Each must know his part,

To sew a new mentality,

Closer to the heart

Yes, closer to the heart. If we remember these things and act upon them accordingly, perhaps our night flights will evoke happier landings than might otherwise have been possible.

TIMSHEL

Well, that went fast. Faster than even time can imagine. 2020 came and went, and it all seemed to unfold in less than a fortnight. In fact, less than a week. Risk warning for the young bloods out there: the older you are, the more the clock accelerates.

It all seems like little more than a dream, and maybe it was. A dream that is. But it is our obligation to review its highs and lows so let’s get to it, shall we?

*******

Of course, the most important news came in the waning days of February, in the wake of all that Middle East psychodrama that left the world pretty much where it was before it all began, anew, in early January. The region is no more (and no less) settled or peaceful than it has been over the last thirty centuries. Wake me in early 2121, and I suspect I’ll tell you the same thing.

The Big Event transpired after Iowa, after New Hampshire, after South Carolina, but before Super Tuesday. It was, in its way, pre-ordained. The money people in the Democratic Party, foreseeing the train wreck that awaited them in November, managed to impel, cajole and extort the only person who possibly could enable them to retake the White House, into running. We should have known that Michelle Obama was waiting in the wings, and it should surprise no one that she managed to take out the Orange Man. The only real shocks were: a) that she didn’t win by a wider margin; and b) that her coat-tails were not longer. As everyone knows, the House is now, for all intents and purposes, in jump ball configuration, while the Senate tilts slightly further to the Right than it did just a year ago.

Of course, the markets, which had been bouncing around with high vol and little direction as the inevitable outcome began to sink in, got scared and turned tail. The Gallant 500 has retreated, ignominiously, 10% from the high ground it captured in the first days of 2020. But bonds have rallied, and we’re again testing new all-time lows on the 10-year. I’m not too terribly worried at this point: a couple of short weeks before M.O. puts her hand on the bible. She seems smart and reasonable. Yes, she sports a degree from Harvard Law School, but in this era of increasing woke-ness, it is not our way to hold this against her. Plus, she doesn’t have much juice in Congress to do the bidding of her progressive paymasters, the increasing status/intrusion of The Squad notwithstanding. The global economy continues to slow, rates are yet again in sustained plunge configuration, and, after a frantic flurry of capital markets activity in the lead up to the election, investible securities are in scarcer supply than even a year ago.

So, if you’re so inclined, you have my permission to do some buying here.

*******

Wait, that must’ve been some sort of psychedelic flashback I had. Of course, what really happened was that Biden bumbled through a contested convention, but was forced to take Big Bucks Bernie, and (more importantly) his platform, on as his running mate. With all of 45’s unforced errors across the year (and, indeed, across his entire first term), the electorate found itself so horrified at the prospects of government controlled health care, nebula-like increases in government spending, higher taxes and intrusive regulation, that it unthinkably reinstated the current White House occupant. Looking back on this crazy year, one can only wonder at the Big Guy’s resilience, managing, as he did, to shut down not one, but two rounds of impeachment, and winning re-election to boot.

A couple of other factors helped Trump’s cause, including the reality that the Dem base simply couldn’t work itself up to turn out in force for two septuagenarian white boys. In addition, we can only applaud his shrewd move to ditch Pence from the bottom half of the ticket, in favor of the entirely more suitable Nikki Hayley.

The race, of course, was closer than many of the prognosticators had prognosticated, and, other than comforting presence of the fetching former Governor of South Carolina, little has changed. The Dems retain the House, the Republicans the Senate.

And now, with Blackjack ‘21 unfolding upon us, we’re on that boundary where whether to hit or stick becomes a true conundrum. Equities are up 6% from where they were a year ago, and the 10-year remains in Horse Latitude configuration: between 1.7% and 1.9%. The global economy is still winded and in need of a respite, and I will retain my stubborn call that rates will be going lower. I do expect Pelosi to finagle her way into another two years holding the gavel (almost certainly her last), and the soon-to-be-reappointed Schiff is likely to yet again crank up his impeachment engine. If (when) this fails, he will begin Round 4. At this point I feel pretty sorry for him. He never was carrying a full six-pack in his fridge to begin with, and now I fear he’s on the verge of a full-on nervous breakdown. I won’t lie: this worries me, as does the burgeoning rage of progressives, which, just when you thought they could not further outflank themselves in terms of hysteria, seems to be climbing to new heights of derangement.

Don’t get me wrong: I marginally prefer a second Trump term to the economically crippling prospects of the far left’s policy agenda. But I do worry that we’re going to carry this thing to far.

I’m OK with you buying and holding onto financial securities at this point though. It looks to me like QE5 is on tap, and, again, I remind you that inventories of stocks and bonds are dwindling by the day.

*******

I reckon, though, I should get offa my cloud and (reluctantly) re-enter the realities of terra firma. I am aware that it is in fact the dawn not of 2021, but rather of 2020, and that the latter story has only barely begun to unfold. I do think that the markets will be sucked into an inescapable political vortex, and believe that the scenarios I tripped up in the preceding paragraphs are worth pondering.

In the meantime, we picked up Thursday (1/2/20) where we’d left off on New Year’s Eve: with an unfettered bid on equities. But of course the big news of the week hit that night, with the announcement of the capping of this Soleimani character. Of course, it was viewed entirely through a political lens, with supporters of the current Administration weeping with joy, while their opposite numbers, with measured recognition that the dude was a bad actor, were nonetheless shaking their fingers at the horrific prospects of his delivery into the Land of 72 Virgins.

But while the politicians/pundits spun their webs, the markets reacted negatively, shedding almost all of Thursday’s gains, and leaving the SPX, unthinkably, at a year-to-date return of a meager 0.13%. I encourage my public to take heart, though: even after Friday’s give-back, the figures project an annualized return in the high teens. Which I reckon we’d take under any scenario.

There are a couple of other factors that render my mood about valuations somewhat sanguine. First, and as I suspected, bond yields backed off like a b!tch at the first sign of trouble. Expect more of this as the year unfolds, with every threat, every selloff, every economic stumble,causing galactic flows into Treasuries. Those who have been voting with their Prime Brokerage accounts on a steepening of the yield curve had a particularly difficult week:

So yes, I am stubbornly sticking to my long call on Treasuries. And even more so on my belief that they offer a unicorn-like hedge against headwinds in the equity markets. Nothing is so clear to me as the reality that the capital markets need the warm embrace of the Central Banks to avoid a form of collapse. Except maybe my certainty that the CBs know what they must do to accommodate this financial penury, and will act accordingly.

And, if I’m right, then interest rates will trend lower, creating a paradigm where market participants are for all intents and purposes baited into both borrowing and investing. The world, already facing record level indebtedness, will as a result experience a further bloating of the right side of their balance sheets.

In turn, and according to the rigid protocols of double-sided accounting, this will catalyze an expansion of the happier side of the financial statement, the one that records asset holdings. And, my friends, this will imply higher valuations.

I’m also, from a markets perspective, pleased at the bid that the recent military action catalyzed for on the Energy Complex. Ground Zero of the Credit Bubble is on their turf, and we need oil prices to remain elevated in order to avoid a crippling cascade of defaults. Which, speaking for myself, I’d rather avoid at present. Trust me here: it’s worth paying a little extra at the pump as a form of insurance against a domino-like explosion of insolvencies and bankruptcies that are certain to transpire if (when) the cracks in the bloated credit universe begin to widen.

On this we can all agree: we didn’t get too far into 2020 before the inevitable next soap opera scene of overwrought drama entered the proceedings. I have no informed opinion as to how this will shake out, and as such, won’t offer an opinion of any kind. I will state this, though: even if the current military condition fails to escalate, and the Middle East remains the dumpster fire it’s always been (minus one thug), we’re likely to hit some market headwinds soon. Under most circumstances, I will deem this a buying opportunity.

It all makes me deeply nostalgic for 2019, but we’ve covered that, ad-nauseum. My own personal struggles are not anything with which you can help me. I know this. I must deal with them on my own. And as the saying goes: Reality Bites. That was the name of a film released more than a generation ago. But it’s true even today. Maybe even more so.

I am thinking of going back into therapy. But not today. Instead, I think I’ll just fold into the concept of tucking under my weighted blanket and listening to my five favorite records on vinyl. That I am able to do so is a miracle I can barely describe, and it gives me hope in my ability to navigate what is sure to be a very complicated 2020. We will all face tradeoffs this year, but we always do. We know what we want, but the path to actualization is unlikely to be either linear or pain-free.

So please take care of yourselves, won’t you? Do it for me. I’ll be working on my own stuff, and upon further reflection, the quicker I can source a therapist the better off we’ll all be.

Here’s hoping she (yes it will be a woman) can help me resist the temptation to project out to 2021 until the appropriate time to do so arrives. Because the biting reality is that it will be here before we know it.

TIMSHEL

Alright kids, it’s over. Yes, we have tomorrow to deal with, as well as a stub session on Tuesday, but really: can anything remotely interesting or impactful happen during that slim time sliver? I doubt it.

And, in terms of content for this week’s epistle, it’s decidedly thin gruel. So I’m going to introduce a new feature into this forum, purloined from, of all places, Reddit. The concept is: Am I the @sshole? (AITA), a venue in which those so wondering can submit a narrative in which they have presumably taken some action or decision with which not everyone either impacted or observing is entirely pleased, and ask commenters for an AITA ruling. This, my friends, is what America at its finest, and I think the time has come to include it into our proceedings.

But first a word about Reddit, which bills itself as “The Front Page of the Internet”. Well, maybe, but that is not my experience with it. I find it to be more of the web’s Wild, Wild West. No topic is off limits, and none of any kind are forgotten or forsaken. For the uninitiated, I stop short of fully endorsing it, because some of the stuff inside there is just plain demented. The real meat on the Reddit bones consists of a virtually infinite set of subgroups (called sub-reddits), where topic enthusiasts of every of every stripe are allowed, nay, encouraged, to plumb the depths of their obsessions. There is, for instance, a very active sub dedicated to the Columbine shooters, and, from my brief sojourns there, it would appear that most of the contributors are Eric/Dylan fanboys and fangirls. But I don’t hang around r/Columbine. Much. Though I’m not proud of this, my favorite sub is one dedicated to those who undertake the dainty, delicate practice of exposing their extremities to various types of running lawn equipment, and proudly displaying and describing the outcomes of this exercise. Something inside me finds this touches my soul, stirs up all the romance which, at my advance age, I am able to muster. But then again, I’ve never, at least within these pages, described myself as being particularly immersed in rational thought.

r/AITA is among the most active of Reddit subs, featuring an astonishing 1.6 million members, and offering up hundreds of posts each day. I will defend the construct to the end of time, because I believe it democratizes life’s most difficult issues. AITA (one might, for instance, inquire) for keying my neighbor’s car after the fifth time he blocked my driveway (his ride is an old school, primer grey 1972 Buick Regal)? Well, let the masses decide. For my part, I voted NTA (Not the @sshole) with the caveat that it probably would be wise not to undertake such an action until said neighbor removed his vehicle as an obstacle to this vital point of ingress/egress.

Further, AITA reminds me a lot of the markets, particularly insofar as the outcomes are decided not by rhetorical flourishes of glibness, but rather by the sober judgment of the masses. True, and for the most part, no money is at stake, but unlike, say, political or legal proceedings, it is the forces of fact and choice that determine the outcome.

And for now, the market is rather silent as to what it believes may happen next. It by and large has no particular opinion as to its immediate future prospects. AITA for thinking that this represents sound thinking on the part of the investment universe? You decide.

As covered in last week’s note, the level of serenity experienced during the waning days of this December stands in mindboggling contrast to the pain and suffering we experienced just a year ago. Our equity indices do nothing but take baby steps to new highs. Nothing under the sun seems to disturb their equanimity. I had a holiday egg nog with Captain Naz, and he asked me: “AITA for crushing through the Nine Thousand mark without a second thought, taking associated P/Es to nearly 34?”

I didn’t have a good reply for him.

He left in somewhat of a deflated mood. Then Chairman Powell stopped by, dressed up, in disturbing fashion, like Janet Yellen, and planted himself for an extended period of time under the mistletoe (I didn’t take the bait). He asked me “AITA for goosing the Repo markets with artificially manufactured funds?”:

I wasn’t able to answer him in a satisfactory fashion either. All I could do was share this graph on the left, but we both experienced a DTA (Definitely the @sshole) moment when we couldn’t decipher it’s meaning.

In an element of additional DTA, I did suggest to him that I suspect he will be compelled to do more of this sort of thing in the coming months. AITA for suggesting that 2020 may be a year of Quantitative Easing re-emerging with renewed vigor? That long-term interest rates have: a) not seen their lows; and b) may go negative? If so, I don’t care; I’ll gladly take the hit.

Again, I believe, along with the @sshole consensus, that we’ll have more volatility next year than we have experienced in the improbably magical 2019. AITA for thinking at the beginning of last year, that ’19 was going to be a full on sh!t show? Probably, but who knew at the time that the CBs were going to turn from frosty witches into fully supine Love Goddesses? Answer: Not me. And I had no reason to suspect that there would be angel descending on my world (or anyone else’s, for that matter), prepared to fly me (and others) to realms I’d never dare hope to visit.

We enter a new decade in a couple of days. The 10s brought us an approximate tripling of equity valuations, a reduction in 10-year note rates by approximately half, and a 2/3rds decrease in the Unemployment Rate. Inflation is nowhere on the horizon. AITA for feeling unfulfilled by all of this divine largesse? For believing that it was, in many ways, the worst decade of my life? If so, those of you who know me understand that I come by these feelings honestly.

But I do wonder about the rest of you who are so angry, clinging to the notion that our collective affairs are: a) getting worse by the day; and b) leading us towards utter collapse of civilization. There’s a DTA vote out there for some of y’all.

And AITA for mentioning the biggest news obsession of moment? Impeachment? In one of the larger stories of this otherwise quiet week, Senator Lisa Murkowski (R, AK) became the first of her party to break ranks with the McConnell/Trump playbook. AITA for thinking she looks like Mick Jagger in drag?

AITA for thinking the dude  is the hotter of the two? Even at 75?

And AITA for not having much else to share with you this holiday weekend? I’m guessing the answer is no. We’re all tired, and if you are weary of my musings, I will, albeit with heavy heart, grant you an unambiguous NTA for so feeling.

I will, however, remind you that a new year, a new decade, begins on Wednesday, and that by Thursday, we’re going to have to deal with it in earnest. Fortunately, though, we may be able to ease into this. For some reason, the December Employment Report, which, in time-honored fashion, is typically released on the first Friday of the month, is somehow deferred for a full week. AITA for wondering why the Bureau of Labor Statistics can’t get its act together for the 4th and must instead wait until the 11th? AITA for being, on balance, glad for the delay?

With respect to the latter, I’m guessing the answer is no. We’ll all have plenty of time to process a pant load of data points, and soon. All month. All quarter. All year. By the time the jobs number drops, the Q4 earnings engine will be fully revved and ready to lay its tidings on us. Soon after, we’re looking at quaint concepts like quarterly GDP, the next chapter in the trade war cycle, shenanigans on Capitol Hill, and, of course the primary season.

AITA if all of this makes me tired just to contemplate? Didn’t think so.

And I will presume that I’ll get a resounding NTA for now taking an early exit, wishing everyone, of course, a joyous and prosperous New Year. I am on record as marking ’19 as a very special year for me, and I’ll stick by that, DTA or NTA notwithstanding. It put a sublime cap for what was otherwise a decidedly sucky decade the kid, and I love you for that much-needed blessing. And the truth is, at this point, I don’t know where I’d be without you. I am hoping for the best for us in the 20s, but we’ll take what we get, now, won’t we?

As a public service to my constituents, I will offer up this forum for AITA submissions, so if you have a question, ask me (I won’t say no, how could I)? You’ll certainly receive my honestly rendered DTA/NTA judgment, as well as, if you’d like, those of the teeming millions that comprise my readership.

Fair advance warning though:

It’s a tough crowd.

In in fact, in self-serving DTA reference to publication in this space a month ago, I can tell you that sometimes, it’s the @ssholes on parade. But I love you anyway, so Happy New Year, and of course…

TIMSHEL