Marley was dead: to begin with. There is no doubt whatever about that. The register of his burial was signed by the clergyman, the clerk, the undertaker, and the chief mourner. Scrooge signed it: and Scrooge’s name was good upon ’Change, for anything he chose to put his hand to. Old Marley was as dead as a door-nail.

******

It was the Best of times, it was the Worst of times. It was the age of Wisdom. It was the age of Foolishness. It was the epoch of Belief. It was the epoch of Incredulity. It was the season of Light. It was the season of Darkness. It was the Spring of Hope. It was the Winter of Despair. We had everything before us. We had nothing before us. We were all going direct to Heaven. We were all going direct the other way. In short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

— Charles Dickens

So, first off, London is still calling. This time as channeled through Dickens. As we move inexorably towards the culmination of this holiday season, I take the unilateral accommodation of using a Dickensian mash-up, because: a) it is, after all, Christmas; and b) I just finished rereading “A Tale of Two Cities”, and would go so far as to suggest doing the same will do you no harm.

And yes, Marley is still dead. There is no doubt whatever about that. On the other hand, being nothing more than a creation of the wonderful mind of the most famous British writer this side of William Shakespeare, one could argue that he was never truly alive in the first instance.

And, of course, his namesake, the deified musical genius that brought reggae to the uninformed masses, is dead as well. Been dead for nearly four decades. Got a tumor on his foot that was treatable, but being a Rasta Man and all, forsook medical care, and instead went on an 18-month world tour, By the end of which he weighed about 65 pounds and had nothing left to him other than to meet his maker. We miss this Marley more than it is in our power to express. But other guy did teach us (and Scrooge) a thing or two about the spirit of the Season, and for that we most certainly owe him a debt of gratitude.

Fortunately, and to my great advantage, though, the two above-referenced works of fiction converge to offer what I hope and expect is a tasty little hook for this week’s episode.

Because this, indeed, is a Tale of Two Christmases: the one most recently celebrated, and the other, which is rapidly approaching. For those open to them, they offer important object lessons in terms of what we, who toil for investment returns, should consider, as we point our vision towards the future.

Let’s take them in chronological order, shall we? Last year (call it Christmas Past), as the bells were ringing and the chestnuts were roasting, I was about as nervous about the markets as I can ever recall feeling. Q4 of 2018 was maybe the worst alpha interval I believe I ever experienced. And, considering that the Gallant 500 and other benchmark darlings had corrected to the tune of 20% by Christmas Eve (implying that even modest negative performance was still conducive to positive alpha), this was no mean feat. The Fed, who spent much of the quarter testing the hypothesis that the time had come to end the financing party, was showing no signs of backing off this stance. The trade-based table tennis tournament between the U.S. and China was throwing off of the good vibe of that historic bit of diplomacy arranged by Mao and Tricky Dick – other than the reality that, as they did in ’72, the Chinese might win (Risk Management Tip of the Day: You don’t want mess with the Chinese at the ping pong table).

And the market looked like it was headed to full-on crash. In perhaps the unkindest cut of all, the SPX hit its dead low of 2351 and change at the close of the half-day session on Christmas Eve. I feared the worst for the following day, just as the little darlings in their matching jammies were barreling towards the tree, but then I remembered the wisdom of the custodians of market protocols, and the reality that given there would be no trading on 12/25/18, further price erosion was only a remote possibility.

But proceedings did, as a matter of necessity, resume on Boxing Day, and, in the final sessions of last year, markets, miraculously, register a pulse. Still and all I was worried sick. My thoughts, as committed to writing at the time, were that there was nothing on the visible horizon likely to impede, much less terminate, the downward drift. And this was a great cause for concern for my business, which: 1) (contrary to urban myth) has a positive beta to the performance of my clients, who: 2) almost unilaterally carry a positive beta to equity pricings.

But the holiday passed, and then, somehow, in January, the Fed pulled an unthinkable 180. And other Central Banks followed suit. Rate normalization? C’mon, we’re not even thinking about it! In fact, we’re going to lower rates. And we’re gonna keep them low – maybe forever. And they did. Lower rates, that is. Three separate times. And the markets showed their gratitude in the sublimest way they possibly could, by buying up stocks (and for that matter, government and corporate bonds) to beat the band. Bought all year. Still buying them, even now. And as a result, as we bask in the feel-good awareness of a 2019 SPX year-to-date return of 28.5%, the totality of this move is actually understated – insofar as the accretion from last Christmas Eve (almost precisely a one-year rolling figure) is actually >37%.

I am already on record as stating my belief that the lion’s share, the plurality, maybe even the full-on majority of this heavenward ascent is owing to the largesse of the United States Federal Reserve and its peers in other major jurisdictions. Had they not stepped in, with a resounding thud of their belated Santa boots, well, I don’t know where we would be.

We can now migrate to this Christmas (call it Christmas Present), which arrives with about as much of the financial equivalent of Peace on Earth/Goodwill Towards Men as any I can ever recall. Our equity indices continue to be dissatisfied with the record valuations they repeatedly establish and remain on their quest for higher ground. Interest rates persist, in fact are stuck, at what might be call criminally benign levels, with many jurisdictions still priced to a negative yield (though Denmark and France have careened into positivity, and Japanese Government Bonds rest at a usurious -0.01%) The decade long recovery is showing no signs of meeting either Marley on the other side, any time soon. Inflation estimates, overstated in any event, are tepid and below policy targets. The optics of those menacing trade wars have improved dramatically, and, given the incentives tied to our political calendar, are likely to look even better as 2020 unfolds. The quixotic Impeachment quest has devolved into such a farce that its custodians are delaying it, under the impossibly obtuse argument that it cannot proceed unless the Senate agrees to allow for the calling of witnesses that Congress had the opportunity, but decided against, questioning.

Christmas Past bestowed upon us the further gift of catalyzing such a dreadful earnings season that the comps, heading into 2020, are also impossibly benign. It is perhaps for this reason that the Street consensus is for an approximate double-digit income growth sequence, and this in the wake of an earnings recession that is now three years running.

Ah, what a difference a single yuletide makes! Am I right? So, just as we entered 2019 full of fear, trepidation and loathing, we usher in 2020 in what, on paper, looks like one of the most constructive market backdrops in a generation. If I were writing either a Victorian novel or a Roots, Rock, Reggae anthem, the next chapter/verse, would be slathered in agita and adversity (if for no other reason than to keep the plot going). And I won’t lie, this might ultimately be the best way to look back on what happens next. But we won’t know until it’s over. And it hasn’t even happened yet.

Again, if we’re looking for signs of trouble, they aren’t hard to find. There is a significant problem in the Repo markets, and it’s only getting worse. Overnight funding, at several points over the last few months, has all-but dried up, and might have done so if not for – you guessed it – Fed intervention. By the time ABC busts out that Dick Clark hologram in anticipation of the Big Ball Drop, our CBers are expected to be in — to the tune of $500B (that’s B with a B). And, as a result, the domestic Central Bank balance sheet, nominally reduced to great, self-congratulatory fanfare, is now projected to instead achieve new frontiers of bloatedness – sometime next month:

Now, I can already hear the peanut gallery chorus: “c’mon, KG, must we really interrupt our holiday cheer to put a microscope to the Fed Balance Sheet? I mean, it’s not just Christmas, it’s also Hanukkah FFS!”.

No you do not. Please feel free to ignore the graph on the left. I will be doing so myself – for a number of reasons, including the fact that my eyeballs are already bleeding and I’d just as soon do what I can to avoid a full-on, seasonal, cerebral hemorrhage.

Perhaps more importantly, I don’t think even a further extrapolation of these trends is likely to do much damage over the foreseeable future. As I mission out various scenarios, I believe that we could indeed experience a teapot/tempest funding crisis over the next few months. But then I remind myself that the only (hair of the dog) remedy available will be for Central Banks to further flood the funding markets with liquidity, which, in turn, will set things a-right and keep us on the march to further unthinkable valuation thresholds.

I do expect some pockets of unpleasant volatility in the coming weeks and months, and my hunch is that they come earlier rather than later. But unless something changes, dramatically and for the worse, my guess is that these will be substantial buying opportunities. Support for my DNA-based bovine sensibilities of course features the certainty of further monetary love, combined with my belief (articulated in greater detail last week) that the merger and acquisition calendar will be hot, heavy, and bordering on desperation.

But with that, I must begin to take my leave, my darlings. Unlike Dickens, I am not paid by the word. In fact, I’m not paid at all for this column; it is nothing other than a labor of love. I could be jealous of CD, but on the other hand, I am alive, while he is dead. There is no doubt whatever about that. He’s buried in the most prominent spot in the Poets Corner of Westminster Abbey, and slumbers in close proximity to peers such as Geoffrey Chaucer, Robert Browning and (improbably) Charles Darwin.

Bob Marley reposes in a widely visited crypt in Nine Mile, Saint Ann, Jamaica. His fictional forbear: Jacob lies nowhere, because he never was in the first place. It is indeed the Best and Worst of times for all of us, full of Hope and Despair, Light and Darkness, Belief and Incredulity. And in closing, I want to wish you the happiest of holidays. Please know that the reality we are not spending it together is damned nigh killing me. And also know that I will be thinking of you, every minute, each day.

TIMSHEL

London Calling, and I was there too,

You know what they said, well some of it was true,

London Calling at the top of the dial,

And after all this, won’t you give me a smile?

— Joe Strummer

Can y’all give it up with me one time for the Clash? Perhaps the most underappreciated band of all time? You could at least try. And, for the under-initiated, I urgently encourage you to give them a careful listen.

Start with their Magnum Opus: a double album entitled (you guessed it) “London Calling”, which dropped on December 14, 1979, precisely four decades prior to my writing this tribute. It opens with the apocalyptic title track whose last verse I have purloined above. Fun fact: this Armageddon-themed masterpiece opens with a Mick Jones guitar riff that actually is the Morse Code sequence for S-O-S.

But I have a few thoughts to share about the LP itself. It was sufficiently off-the-hook to cause (its 1979 release notwithstanding) Rolling Stone Magazine to name it the best album of the Eighties. On a more personal note, it has a permanent spot on my Mount Rushmore of records. Because: a) I’m your friend; and b) you’re dying to know, I’ll share the other three. In no particular, order they are: The Doors’ LA Woman (I can’t bear to part with a single note on that Jim Morrison swansong), Bob Dylan’s Blonde on Blonde (I could write a tome about this one but let’s just say that: 1) released in 1966, it set the standard for albums that others – including the Beatles – couldn’t reach until 1969/70; and 2) it is the greatest album title of all time); and Elton John’s Tumbleweed Connection (trust me on this one).

But among other matters, The Clash’s Call from London sounded a menacing alarm to my generation: the latter day Baby Boomers, born after, say, 1955, who hadn’t at that point accomplished much. Not like their decade-older brother and sisters (who gave us Rock and Roll), and certainly less that our parents and grandparents – The Greatest Generation, who shepherded us through the Depression and WWII.

London Calling was in other words a scream at us to get our heads out of our collective @sses. And I think, writ small, we accomplished this. But our track record is mixed. Our music, by and large and by comparison, sucked. We fought no great wars. We did an unimpressive job of improving the world’s ethos. But we did deliver the Internet, so there’s that. And whatever else on might think of Michael Jackson, he was a stone cold musical genius.

But we are probably the most well-born generation since the Roman Empire. We have enjoyed, for our entire lives, an unprecedented interlude of relative peace and prosperity. One could state fairly that measured against this benign backdrop, we kind of squandered our associated opportunities. Maybe, though, that’s not fair, because, maybe, a generation needs more hardships to really squeeze out the juice of transgenerational greatness. Our parents and grandparents did what they did because they had to. Their worlds were imploding. Our older brothers and sisters at minimum faced the real threat of being shipped over to Saigon (now Ho Chi Minh City), and, more vaguely, of their entire universe being blown to bits by the Soviets or the Chinese.

One of my greatest fears is that the good times will not, cannot last. Check all of recorded history and let me know if you can find a similar era of 70 years without plague, famine or militarized global strife. Didn’t think so. Part of me thinks that it’s only a matter of time until the sushi hits the proverbial fan.

But from my vantage-point, the party does not appear to my winding down anytime soon. And, as has been pointed out elsewhere, this past week was a particularly encouraging one from an investor-oriented perspective.

Yes, London was calling. With some accretive news. Breathless (non-exit) polls to the contrary notwithstanding, Capitalist/Tory/Trump Clone Boris Johnson scored a whuppin’ on his Labor Party opposite numbers, and this has several implications for us, my loves. First off, it assures some clarity on Brexit. The Limeys are indeed taking their clotted cream, warm bitters, and splitting the scene. How that works out for them remains to be seen, but at least now we know. Perhaps more pertinently, the result offers an eerie verisimilitude to the electoral tidings of 2016. Recall, if you can, that the first indication that the unwashed populous was mad as hell and weren’t going to take it anymore arrived with the Brexit referendum that June. All of the elites, all of the pundits, all of me, were sure that the Brits would vote to remain in the EU. And we were all wrong.

In retrospect, this surprise outcome was a clear foreshadowing of November 8th, when, even after all three networks had projected a Trump victory, I thought Madame Clinton would have the opportunity to install those Oval Office drapes that she had (prematurely) selected after all. And we were wrong. Again. And I don’t think it’s too much of a stretch to suggest that a similar sequence might be in play, as we are impelled to consider the possible outcomes for the next presidential election cycle. If so, it will certainly redound to the benefit of security valuations.

Certainly markets have embraced this mindset, because, as valuations stretch from one zenith to the next, one has to assume that the heavenward ascent is, at minimum, abetted by the winds of certainty that good Ole 45 is likely to win again. Because, as I’ve pointed out before, any other outcome would rationally induce a wave of selling rather than buying. And one cannot blame investors (much) for so believing. Because here, I must (reluctantly) mention something about this whole Impeachment escapade.

It’s not going well for its sponsors. I won’t delve too deeply, so relax. Just a couple of observations is all. First, after perpetual, wild-eyed determination to deliver two to the head to Big Orange, the vague charges of Abuse of Power and Obstruction of Justice (the latter being the last refuge of (prosecutorial) scoundrels) are laughably thin gruel. And they won’t stick. And one day of official House testimony, mostly delivered by agenda-slathered law professors, wasn’t a very good setup. It will be interesting to see, next week, when the pre-holiday, fix-is-in vote takes place, how the numbers stack up. I truly feel sorry for Pelosi and those Congress members in Trump districts. I don’t think they want this, but are being forced to play along. And this will cost them seats come November. Lastly, and as perhaps the clearest indication that this here project is bombing like that unfortunate post-Mick Jones Clash album, is the reality that the Squad is laying back. Were this not a complete sh!t show, them ladies would be clawing each other to grab the spotlight. But smart women that they are, they know it’s a loser.

As mentioned during last week’s baseball note, Trump also looks like at least a political genius by timing an introductory deal with China contemporaneous to these futile attempts to remove him from office. If, as I suspect will be the case, he papers something that looks bigger this Spring, well, as a political operative, I yet again tip my (Met) cap to him. As a further show of the leverage he is accumulating, he also came to terms with his would-be electoral assassins on that NAFTA replacement deal. A review of the charts suggests that at least the Mexicans and (to a lesser extent) the Canadians loved it.

The major occidental CBs also weighed in this past week, with both Powell and LaGarde (the latter in her ECB Chair debut) laying down a vibe that can only be described as way chill. None of these tidings, it is true, catapulted the Gallant 500 and its domestic peers to material new heights, but hey, we’re already up 30% this year, and, with only 10 legit trading days left, I seriously doubt we’re gonna blow 2019.

Looking past the holidays, I’m nominally optimistic. First, a >20% gain in a given year is almost always followed by a double digit redux.

Mostly though, I think that with laughably cheap financing almost certain to prevail, it may very well be capital markets activity that fires the 2020 engines. It will be a very good time for corporations to acquire market share. The currency of their equity valuations has never been worth more. They can borrow for a song. And even if the acquisition-based objects of their desire are signally overvalued, well, what’s the point of being rich if you can’t buy nice stuff at ridiculous prices? This is true even for us proles. In fact, I’ll meet you at the Apple store. And when you walk out with not only a new Mac Book but also an 11+, I’ll give you a joyful hug. Somewhere down the road, I may have to reign you in, but not during this holiday season, after such a year of magical adventure between us.

Yes, someday this party will end, and if we’re looking for warning signs, they’re not hard to find. The world, as I and others continue to point out, is on an irrational borrowing binge. And it’s lasted 10 years. Since the sheriff last removed the padlocks from the houses we couldn’t afford but bought anyway.

Please bear in mind that in an unprecedented move on my part, I’ve reused a graph from an earlier episode of this series. But I think the content, being unprecedented itself, merits the repeat.

More importantly, I am convinced that there’s no way that this money can ever be paid back – other than through the shameful process of monetization. Ultimately, these trends scream of whirring monetary printing presses, full on government bail outs, and other stunts about which we used to laugh at Banana Republics for even considering.

But that’s a problem for another day; for now, the binge continues. And I think it implies higher valuations, more wealth concentration, and a greater scarcity of investible securities, ere we come pleading to the custodians of taxpayer dollars for forgiveness, and, more importantly, release of obligations we can’t hope to honor.

In closing, I encourage you to celebrate what has been, by most measures, a magical year. Yes, I’ll be writing next week, but you won’t be reading, because it’ll be Christmas Eve Eve Eve. As a twist of the calendar, the date will mark the 17th anniversary of the death of the one and only Joe Strummer, who keeled over at age 50 from a congenital heart condition that he didn’t even know he had. I’m using the occasion to write a song – not dedicated to him, but channeling his genius as inspiration. I may also buy a few books, and pull a couple of other surprises as well.

It crushed me when he died, and I still miss him. We all should. But let’s face it, there’s innumerable spirit destroying realities we dwell on if we so choose. I won’t go into them. Instead, I’ll ask you for one small, pre-holiday accommodation:

After all this, won’t you give me a smile?

Thanks; I needed it more than you know.

TIMSHEL

Greetings from Met-land. It may be a little bit premature, but I’m confident enough in the outcome to get ahead of myself, disclosure-wise. It may be days, or even a handful of weeks, but soon enough, the already overheated press wires should be humming with the announcement of my joining the team.

Now, I must offer a few qualifiers here. First, I actually don’t even like baseball. Finding it unwatchable, I haven’t attended a game in nearly 20 years. On the field, I never put much fear into the opposition when I stepped up to the plate, and as for my curve ball? Don’t ask (I don’t have one).

And even my feeble interest in our (misnomer) National Pass time, places my allegiances elsewhere, much to the west of Citi Field. I still hold something of a grudge against that ’69 squad for that stretch of the August, coinciding with Woodstock, when the Mets humiliated the Cubs out of what looked like an insurmountable 8 game lead, and went on to take home the Big Prize.

The Mets last trip to the Ring Measurer transpired in 1986, largely owing to the sadly capricious glove of Red Sox First Baseman Bill Bucker. And I’ve always had a soft spot for Billy Buck, who died about a year ago, having received only tepid, Bostonian redemption for his error on that Mookie Wilson grounder in the late innings of Game 6. The ball took a funny hop, and the reality that he alligator-armed it is beyond dispute. But Billy was a pretty tough out for 22 seasons. How many of us can say the same?

So, trust me on this, I find myself as astonished as most of you that this coming season, I’ll be suiting up for the New York National League team. Plus, in addition to all of the above-mentioned factors, I managed to strain my calf on Friday, and, with Pitchers and Catchers reporting in nine short weeks, I’ve got some serious rehabbing in front of me.

But duty calls, and I intend to be ready. As many of you may already be aware, Hedge Fund Titan Steve Cohen recently came to terms with the clueless and misanthropic Wilpon family, to acquire a controlling interest in the team. It would have been hard to have missed the viral reporting on this, but what at least some of you may not know is that I worked for Steve for several years. Over two tours of duty. And right now, his newly acquired asset is such a hot mess that though he has yet to reach out to me, I’m pretty certain it’s only a matter of time. Because he’s gonna need my help. I owe him a great deal — for the faith he placed in in me (twice), and its attendant impact on my career, so I can’t let him down now, when he (arguably) needs me the most.

So Steve, in case you’re reading this, I’m pleased to offer you, free of charge, the following bit of introductory advice, upon which I implore you to act immediately.

Lose the theme song. Right now. Because it’s by far the worst anthem in the sporting universe. A respectable hook is nowhere to be found, and the lyrics are so cringe-worthy that my fingers almost refuse to type them (but again duty calls). “Meet the Mets, meet the Mets, Step right up and greet the Mets, Bring your kiddies, Bring your wife, Guaranteed to have the time of your life…”.

It actually, and against all odds, gets worse from there.

No wonder the team hasn’t won anything in more than three decades. Because not only is that the worst sports anthem ever written, it may just be the worst song of all time.

I’ve been working on its replacement: an aggressive riff with less effete lyrics, and strains of Mendelson and Godsmack. But if he wants it, he’s going to have to pay me. After all, we’re capitalists, right?

I also think that the organization could benefit from a healthy dose of risk management. But I was more fired up about this until I discussed it with the wisest person I know. Who is not even a sports fan, but who but managed to point out the whole Money Ball/been there/done that element of this concept.

OK, fair enough. But while Billy Beane did a nice job of stealing some of my analytics and applying them to the return on monetary investment, as measured by on-base percentage, etc., he left out some critical elements. For instance, how are Innings Pitched and Slugging Percentage impacted by changing Foreign Exchange Rates, a discrete rise in Implied Volatilities, or, say, a Factor Shift — from Growth to Value? Well, Steve, I’m here to assist you in unpacking these mysteries.

And undertaking such a project is fortuitous for me from a timing perspective, because, if investor activity and market data are to be believed, right now there is virtually no risk worth measuring in the financial markets. Equity indices move from one high to the next. Friday’s jobs report was an unambiguous blowout. The FOMC meets this week, but can’t possibly pull a fast one at this late date in the year. There’s a baker’s dozen worth of trading days left in the 2019 (including, I must point out, one on a looming Friday the 13th), and by all accounts, there appears to be little on the horizon that is likely to impede the safe and docile migration of the Good Ship 2019 into Dry Dock.

Maybe the best news I unearthed all week was the following chart I heroically sourced from the Bloomberg home page:

Now, I only have a couple of comments on this graph. First, please ignore the encircled arrow at the Northeast corner. I could’ve eliminated it, but I’m feeling kind of lazy this morning.

More importantly, one of the most unshakeable rules in the investment game (kind of like sending the runners when there are two outs, the count is 3-2, and the bases are juiced) is that when the strategists are all negged out, it’s time to do some buying.

But we’re not here to cover any of that, now, are we? Let’s keep talking baseball. According to that holy virtual shrine: MLB.com Mets Pitchers and Catchers report to their Spring Training HQ in Port St. Lucie, FL on Valentine’s Day. And though it will break her heart, I plan to be there to greet them when they arrive. In fact, I’m in Florida right now (at the Big Art Throw Down and no, I haven’t seen Stevie yet), checking things out. I took an Uber ride with a driver who also played some minor league ball in the early 70s for the Tidewater Tides: former Triple A affiliate of, you guessed it, the New York Mets.

Really nice guy. New Yorker and retired lawyer, but we will hold neither of these against him. And what it got me to thinking was that it’s time for us to ease back on all of that shade we are throwing at companies like Uber: enormous disruptors that are hated on by factions such as Wall Street and Progressives. Yes, Uber loses money, and no their drivers are not employees, but, of their own free will, independent contractors. But are there aren’t many informed users of the service who don’t swear by it. For reasons of my own, I am under a partially self-imposed ban from driving around Mid-Town, and cannot be other than highly thankful that with a couple of clicks on my smart phone, a driver will cheerfully take me to where I need to go.

I’ve been feeling a similar form of wistfulness about We Work. Really stupid business model. Unfathomable that purportedly smart investors took the bait. We can all take some perverse gratification in the financial comeuppance currently being dished out to Company Founder Adam Neumann and Softbank Papa-san Masayoshi Son, for their undeniable greed and hubris.

We Work may or may not survive its well-deserved financial reckoning, but God bless them for disrupting the long-rigged commercial rental market. Before they emerged, one of the most difficult challenges for small and start up enterprises, especially in cities like New York, was that of securing office space. Unless your organization had a large, pristine balance sheet, renters would not accept it as a lessee. Instead, individual owners had to sign, lock in for several years, and hope for the best.

Even then: a) you’d be lucky to find anything suitable; and b) you were almost guaranteed to have paid an egregious premium for the privilege.

Enter We Work, and now they’re giving away office rental space all over town. My guys are pressing me to finally take down a spot, and I find that I can go month to month, on virtually any square block in Manhattan, at a small fraction of the cost that would have applied a few short years ago.

So I’m gonna tip my orange and blue cap to Neumann and Son-san, and hope they find a way.

I’d throw Tesla onto the list of hated on companies that maybe deserve some kinder consideration, but the truth is that I’m not there yet. I will state this, however. Some of these days, an enterprise is going to crack the whole electronic car and lithium battery code, and if it’s not Musk and his team, it will at any rate be an organization that owes a significant debt of gratitude to them for their innovation, insight and daring.

But I reckon that’s nearly all I’ve got to say about baseball for the moment. Mookie was very gracious to Billy Buck for the balance of the latter’s life. We probably will secure some Manhattan office space, and though my preference is towards Regus over We Work, I am clear on the economic advantage conveyed on entities like mine by the arrival of WW on the scene.

So don’t let anybody throw cold water on your dreams is my best advice. If you can’t sing, you can still play guitar. If you can’t draw, don’t let them tell you that you can’t paint.

And even though I can neither deliver, nor make contact with, anything that resembles a curve ball, I still plan on being in uniform when the Mets open their season, against the Defending World Series Champion Washington Nationals, at Citi Field, on March 26, 2020. In fact, I intend to be in the lineup. I just haven’t decided yet which position I intend to play. But one way or another on 3/26/20 I’ll be good to go. And I’ve been working hard on my swing, in what is likely an irrational expectation that sometime in late February, I’ll take both deGrom and Syndergaard downtown.

It is, I believe you’ll agree, the least I can do for my former and future chieftain.

TIMSHEL

Your dancing child with a Chinese suit, He spoke to me I took his flute,

You know I wasn’t that cute to him, Was I?

But I did it because you lied, because he took you for a ride, because time was on his side,

And because I… …I Want You

— Bob Dylan

I begin by thanking the teeming millions for their touching outpouring of support on last week’s note about my parade fixation — particularly the Macy’s Thanksgiving Day Parade. I received one note that was particularly special to me, but we won’t get into that, now, will we?

It is my sad duty to report that from a personal Thanksgiving Day bucket list perspective, the holiday was something of a bust. I was up in the mountains, without access to a television, and must shamefully report that perhaps for the first time in my six decades roaming this here planet, the parade spectacle ensued without the benefit of my observation. Maybe this is just as well given that the Ronald McDonald, Snoopy and a few other backbencher balloons suffered injuries had them limping their way to the 34th Street finish. Alex, wherever you are, I am yet again sorry misunderstanding your transitional wisdom.

I also failed to watch a minute of football. But I reckon I’ll live to survive that particular tragedy.

But here’s where the glitches turned into outright fiasco. No. Turkey. Or stuffing. Or sweet potato pie (I love sweet potato pie). Had reservations at a restaurant. Confirmed them. Twice. Then we all got dressed and headed over to the joint for the roasted bird they promised. The lights were on, but (as is often the case), there was nobody home. We were in fact very fortunate that a food mart/gas station was open, and that we managed to score some Potato Buds, a couple of packets of bacon and some frozen fries. And we made do. I think that on the whole, the experience was one that is reminiscent of that overused line by German philosopher Friedrich Nietzsche: “that which does not kill you makes you stronger”.

It was certainly a holiday to remember, but now it’s over and we must move on. The caprices of the calendar are such that Black Friday – that day of frantic shopping that has often devolved into violence, comes immediately on the heels of Thanksgiving. Not this year. Published reports suggest that the malls were full of more crickets than humans. But there is hope, as indications suggest everyone has finally given up the physical shopping ghost, and has fully embraced the on-line mode of personal consumer enterprise. I reckon we’ll find out soon. Because tomorrow is cyber-Monday, the electronic analogue to the before-midnight lines of the lines that used to form in front of Walmart. Here’s hoping that the pundits are correct, that the on-line point and click action will be hot and heavy.

As a further bit of hopeful news on that score, I am pleased to report that I find myself in a bit of a consumption frenzy, or, to be more accurate, an almost unchecked desire to purchase everything and anything that is brought to my attention and available for purchase. Most of my wish list comes from watching advertisements on television, but one way or another, lately, I can hardly witness a product offering without feeling an overwhelming desire to acquire what is being described. In summary, when I see something all I can say is “I want that”.

And it doesn’t matter what it is. I am, for instance, currently feeling extremely acquisitive about such goods and services as pillows made by a Minnesota guy in a blue shirt, insurance products of every kind, cars from all leading auto manufacturers, chicken wings, and of course, adult undergarments for both genders designed to battle the tragic problems of incontinence. I am especially enamored of pharmaceutical products: the ones where the ads show the happy Grandma twirling her little darling in the daisies, or the old guy blowing jazz to beat the band. When they get to the list of side effects (diarrhea, nausea, shortness of breath, muscle spasms and even death), it’s all I can do to stop myself from calling my doctor and begging for a script.

I’m hoping and guessing that virtually everyone feels the same way as I do, because if so, it will indeed be a Happy Christmas, economically speaking.

Investors, of course, remain in acquisition mode, as all of our martial indices – including that laggard Ensign Russ, continued to seize new ground — at least until Friday, when (perhaps in response to a turkey coma that I did not have the privilege of experiencing this year) they retreated modestly.

And now it’s December. How, possibly, can it be December? It’s probably a glitch in the I-Phone 11s that I just purchased for myself and my entire staff. But maybe they did it on purpose, and if the crew in Cupertino indeed arranged this winding the calendar forward to goose holiday sales, they pulled off perhaps the greatest marketing stunt of this young century, because, among other matters, the dates line up with my scant inventory of non-Apple devices that I have used for purposes of corroboration.

So the year’s almost over, and I don’t mind telling you that when the ball drops at the end of this month, I’m will be more wistful than usual. Because I’m gonna miss 2019. A lot. Some bad sh!t happened, to be sure (for example, I lost my daddy and we all lost Ginger Baker), but so it goes. On the other hand, I had some of the times of my life. I think we all did. Well, most of us anyway.

I think, for all of this, we all owe a debt of gratitude to Jerome Powell, Mario Draghi Hideki Kuroda, and whoever sets monetary policy in China, because without their divine largesse, we might be singing a different tune this holiday season. They’re still giving money away, with no signs that (to mix a metaphor) the gravy train is likely to end any time soon. The global economy, against all odds, seems to be showing signs of a modest (to mix yet another metaphor) second wind. And even the bi-polar folks at the Atlanta Fed have perked up (further mixed metaphor alert) and are whistling a happier tune:

I won’t lie, though. I do worry about the folks in Atlanta, who don’t seem to have the ability to make up their minds. Beyond this, there’s really almost nothing of substance upon which to report. Which is good, unless risk management is your game. Because the sad truth is that us risk managers need some fire and brimstone injected into the proceedings from time to time, just to remind everyone of how vital we are to their existence.

I attribute the glad tidings to a combination of suppositions that pass for such — mostly because they aren’t sad tidings. The Impeachment saga, at present, appears to whimpering. With the 2020 election season now hard upon us, the Progressive platform has taken such outlandish contours that it becomes almost unthinkable that it can prevail from a political perspective. I don’t wish to put too fine a point on this, but market participants have clearly, at least for the moment, discounted the probability of a Liz/Bernie outcome to the statistical equivalent of zero. Whatever one’s personal viewpoints, that much is true, because if the tides turn, and the full-on takeover by Washingtonian bureaucrats of all private affairs gathers steam, then investors, who have real money at stake (even if it most of it belongs to someone else) can only take one rational step. Sell EVERYTHING. And they’re not. They’re buying.

The China thing remains a risky mystery, but then again it always has. Back to before the Ming Dynasty, and kind of like Dylan’s flute. I will state this, though. If Trump indeed manages to assist in the maintenance of the economic balloons at higher elevations than Ronald and Snoopy on Thursday, and then cuts a deal with the Chinese, say, this spring, we are all going to have to give him his props for political strategy. Further, if market valuations and economic statistics are to be believed, so far so good.

Corporations, and All God’s Children, seem to have faith, because they are borrowing to beat the band:

I draw your attention to the footnote at the bottom of the right-hand graph. The ’19 figures do not reflect a full year’s action. They certainly don’t include November, and October and September might not even be in these tallies, because, you see, it takes a little while to compile these statistics.

Somewhere down the road, all of this money is presumably gonna have to be paid back. But as this holiday weekend winds down, why worry about that? To yet again do some thieving from the great Everett McKinley Dirksen (R, IL), $2.5T here; $2.5 T there, and it soon starts to look like a lot of money. And as for $250T? Well, even Dirksen detractors must admit we’re there.

But for borrowers, the price is right. Due to the complete absence of inflation, real interest rates are almost certainly negative. So why not grab with both hands? I doubt this would all be transpiring if the economic and political prognosticators that CEOs somehow manage to justify keeping on their payrolls felt we were staring in the face of an all-out trade war.

An early glimpse at 2020 suggests that it will have a tough act to follow. There were events this year, financial and otherwise, that were sufficiently remarkable to take one’s breath away. I suspect we will face greater headwinds next year, but then, again as a risk manager, I’m supposed to say that, right?

But I don’t see much on the horizon in Month 12 that is likely to end the 19 party. And, on this weekend of ritualistic gratitude, I ask you, yet again, to remember how last Christmas felt, and to take in one more dose of gratefulness, before we return to the somber slog of bringing this year to a productive close.

That’s all I got, though. For now. I think I’m gonna lie down and rest. I hope you never experience this, but a Potato Buds coma makes a turkey coma feel like a walk in the park. And then do some shopping

Maybe I’ll buy you something. And don’t worry, I still want you. But I also want that. Maybe I can have both, but some of it is out of my hands. And that, my friends, is what this great game is all about.

TIMSHEL

@ssholes give the order, @ssholes row the boat,

@ssholes get elected, cause @ssholes get to vote,

@ssholes in the morning, @ssholes every night,

@ssholes to the left of me, @ssholes to the right,

As twenty thousand @ssholes do the @sshole promenade,

Step aside good people, it’s the @ssholes on parade

– Pat MacDonald

Here’s a little riff brought to you, courtesy of Pat MacDonald, who hung around Madison during my years there, and then went on to modest fame on the grander stage of Austin, TX, with his fleetingly chart-registering band: Timbuk 3. I actually jammed with Pat a couple of times. At least I done that. Hendrix? No. Page? Please. Keith? I wish. But Pat MacDonald? Check.

At least I done that.

He wrote this particular tune in, er, celebration of the first Reagan Inaugural, and, one must admit, it’s a pretty good hook. Even if he was wrong about Reagan. Which, at the time, we all were. I can at least admit it; I doubt Pat has done the same.

But it’s not, per se, @ssholes on parade upon which I wish to focus this week’s attention, but rather parades in general. Because, you see, I love parades, any parades, all parades. So much so that I have been known to travel up to 1,000 kilometers to attend a processional that might not run more than a couple of blocks through a quaint small town.

And it should come as a surprise to no one when I reveal myself to be something of a parade snob.

A brief summary of my quality criteria follows. Bands are essential, particularly high school marching bands. As are floats. I am also quite partial to the baton twirlers, especially if their mothers are trailing after them carrying their coats. Balloons are pretty cool, but not essential (more about this below). And the Grand Marshall must completely own his or her role. I’m talking full conviction, full commitment, starched uniforms, and, of course, immaculately shined buttons.

In my vast but (alas) finite parade experience, I know of nothing that compares to the Mardi Gras cycle. Particularly the Rex Parade. I love the Rex Parade. But if you’re at any MG procession and don’t find your pulse a’racing and your blood a’flowing, well, maybe you actually died a few years ago, because there are no @ssholes on parade at Mardi Gras. They are not allowed. I am also quite partial to the Tournament of Roses, held each New Year’s Day in Pasadena, CA, and, each autum, there’s a Pumpkin March in Sycamore, IL that goes on for six hours, and which, to mine eyes, is a great delight.

As a long-time New York resident, I’d say my favorite local marching festival is the one celebrating that imperialistic, racist scoundrel: Christopher Columbus. I never miss that one, and wait in breathless anticipation for each of the many floats that feature a Long Island Car Dealership owner singing “That’s Amore”, in karaoke fashion, to the adoring 5th Avenue crowds. St. Patrick’s is pretty cool, but has one glaring flaw: no floats. You just gotta have floats. But in NY, all St. Paddy’s participants are on foot.

This leaves something to be desired, no? The Puerto Rican Day parade is wild, but entirely too crowded for my tastes. I could say the same thing about the Halloween affair in Greenwich Village.

All of which brings us to this coming week’s most ubiquitous attraction: that marching equivalent of the Granddaddy of ‘em All: the Macy’s Thanksgiving Day Parade. Never miss it. On television, that is. Went in person a couple of times, but it’s kind of a crush. The first time was around 1996, on a windy day, with my then-six-year-old son (he would’ve turned 28 this Tuesday) accompanying me — in abject terror of being crushed by one of the balloons. Heaven forgive me, but I teased him about this. And he got his karmic revenge, as, the very next year, a woman did indeed expire from injuries suffered at the hand of the inflated, aerial version of Sonic Hedge Hog. He never let me forget it. And I didn’t. Ever.

And all of this got me to wondering: what are the most menacing of those big, bobbly, capital markets balloons that are even now bounding their way down Central Park West and other thoroughfares? Elevated valuations, across virtually all asset classes (except, of course, commodities), are certainly on the list. The tragic and still-unfolding events in Hong Kong also come to mind. As does the windy bloviations of the domestic and global leaders of the free world. Bibi, that big Israeli (non-Led) zeppelin, got indicted this week. And nobody noticed. Our ubiquitous, orange, helium-filled chieftain faces a functionally similar fate. The markets, for the moment, if they pay attention at all, don’t seem to care.

I deem it worthy stating a word or two about what over the past few days has passed for breaking market news. It’s was a data-bereft week that marked the beginning of an inexorable grinding down of the action to a pre-holiday halt, but still the presses must roll. So here goes. Stone cold baller Louis Moore Bacon decided to return all outside capital from his once-high-flying, eponymous hedge fund, and I have a couple of thoughts here. Though he kept a somewhat low profile, for a generation, there was no one better than Louis. You just didn’t want to be on the other side of his trades. And he’s not going anywhere. I figure he’ll still have about $7B or $8B of spare change to play around with, and will be able to do so without having to deal with pain in the @sshole investors, and even greater pain in the @sshole regulators. And I reckon he’ll do just fine.

But about a decade ago, guys like him were eclipsed by the lofty elevations of Ray Dalio, who breathlessly made the headlines when his Bridge (over troubled) Water investment platform was reported to have established a $1.5B short position against the global equity complex. Shall we infer from this that the great, decade long, bovine promenade has run its course, finishing, as it must, in front of Macy’s flagship store on 34th Street, with those wretched dancers assaulting our sensibilities?

Well, I say no, not yet. And this for a number of reasons. First, and though I’m skeptical about the reported numbers, at last count, Big Ray had a cool $150B (that’s B with a B) under management, so the size of the position, even if correct, barely rises to the dignity of 1% of Bridgewater’s AUM. For OGs like me and Ray, this is a small change short. But I do have to acknowledge that: a) the rest of y’all don’t necessarily have a yard and a half (us playas have long referred to a billion dollars as a yard) to throw against the stock market juggernaut; and b) one way or another it’s a significant market position.

But I think this might be a case not so much of Ray being wrong, but rather that of him being early. Though the details of his nefarious speculation have not been disclosed, references to a time window that ends in March suggest that they take the form of derivatives; probably options.

So is the market gonna crack by March? I kind of doubt it. Mostly because the rationale he offers (accompanied by denials that he put the trade on in the first instance) include the perverse persistence of ridiculously cheap financing, the likelihood of expanded government deficits, and the runaway trends of asset inflation.

Except Commodities. Which continue to suck wind.

And just as we prepare to honor the original, if temporary, era of peace between European settlers of these shores and their Native American adversaries, it might be worth giving thanks that the maize (corn) that was (along with peace pipes) the ingestible centerpiece of the celebration, continues to be available at lower and lower prices.

Corn Being, Er, Corn-Holed:

I really don’t have that much to say about corn. After all, who does? I will admit that I enjoy it in virtually all of its derivative forms – even when it comes out of a can — in dubiously rendered liquids. I am hearing talk of supply disruptions from the heartland to the East Coast, due – get this – to international trade worries. But I won’t let this ruin my Thanksgiving and you shouldn’t either.

But back to Ray for a minute. Yes, there’s asset inflation, yes, financing is problematically cheap and yes, deficits are growing at an alarming rate. But RD: these things end in a bang not a whimper, right? Do you really expect the Big Bang to transpire in the next 4.5 months?

Well, maybe, but I probably take the other side of that trade (albeit, tragically, in smaller sizes). I think that absent some retrospectively unpredictable disasters, money remains cheap, deficits continue to grow, and assets continue to inflate and concentrate into the hands and pockets of fewer enterprises (including yours). I have also taken some renewed comfort in the re-emergence of the negative correlations between stocks and government bonds, and believe this trend will forcefully accelerate under any buzz-killing constructs that may materialize in the capital economy. The 2s/10s Treasury spread has already collapsed towards zero again, and is sure to migrate to material negative territory if the economy continues to slow and/or the equity markets feel the pull of acceleration due to gravity. All of this will be both enabled and empowered by political forces in a critical election year.

So money will be stay cheap, and those who are able to borrow will simply lever up further, with the intent of owning an even greater share of the world’s increasingly scarce pool of financial assets.

In short, at least for a spell longer, the bands will play, the baton twirlers will twirl, the coat-carrying mothers will trail behind, and the @ssholes on parade will continue to march, in trademark, preening fashion, until the music stops.

It will, eventually. Just not yet. In the meantime, I’d encourage everyone to enjoy the spectacal (sorry for the spelling error, but spelling isn’t my strong suit). Twenty thousand @ssholes, to the left and to the right, are truly a sight to behold, and I think, as these days of goodwill and better eating approach, we should just learn to love them.

Step aside good people, and let them take their stroll. However, as we watch the procession, each of us will face temptation to join in on the march. Please don’t do it. 20,000 @ssholes marching down the avenue is quite sufficient I think.

If I see the number has expanded to 20,001, I will (fair warning) be coming to you looking for answers.

Happy Thanksgiving, y’all. And of course…

TIMSHEL

I offer this week’s note in tribute to my one-time professor: the late, great, Nobel Laureate George J. Stigler. To whom I owe multiple debts of gratitude, because in addition to reviewing and approving my (somewhat mediocre) Master’s Thesis, he was actually the speaker at my entirely anticlimactic MBA commencement ceremony. My parents didn’t come, and I myself almost didn’t attend, but I’m glad I showed up, mostly because of Stigler’s talk. Which was all about uncertainty: an unambiguously bittersweet topic, but one that, as the fates would have it, formed the basis of my entire career.

Stigler is best known (but inadequately appreciated) for something called The Economic Theory of Regulation, which holds that Regulatory Services are simply another sector of the economy, much like Health Care or Industrials. If one accepts this premise, it follows that the purveyors of this product sell their wares (as well as, it can be argued, themselves) to the highest bidder (don’t we all?). As a result, according to the theory, because the regulated are always more organized and incentivized, and therefore willing to pay a higher price for these services than are their customers, throughout history, it is in fact the enterprises subject to regulation that always call the net beneficiaries in the regulatory game.

Stigler backed up his theories with empirical data across a wide swath of regulated industries, including Air Travel, Logistics and Financial Services. In each case, he was able to demonstrate that regulatory schemes unilaterally worked to the benefit of those subject to the rule-making, invariably at the expense of the rest of us. Through such devices as creating impenetrable barriers to entry, establishing minimum pricing, etc., regulation arguably exists for little else but the purpose of aiding the great ships of industry to traverse their waters — unimpeded by stowaways and riff raff that might be dilutive to their agendas.

Stigler published his seminal work on this topic in the ‘60s and ‘70s, and, for the better part of the next generation, the world largely ignored it. But one person who was paying attention was Ronald Reagan, and, when he took over the helm at 1600 Penn Ave, he put this theory into practice, deregulating a large number of industries, including those named above. The corporate fats cat howled with outrage, but the result was four decades of largely unimpeded growth and prosperity. For example, when Reagan deregulated the formerly rigid, rigged and overpriced universe of stock market commissions, the chieftains of America’s brokerages descended, en masse upon Washington to issue dire warnings that the move would crush the equity market. It now trades at twenty times the levels that prevailed when they first laid out their big bitch. AT&T prognosticated frightful consequences if – god forbid – it lost its monopoly on long distance telephone calls. Anyone looking to travel round trip from JFK to LAX in 1975 would be hard pressed to do so for less than $1,500. Now? Smart shoppers can ride for about $200.

I’d encourage my readers to bear this in mind – in the modern world where in certain jurisdictions, due to the dynamics that Stigler identified, a woman wishing to become a manicurist must spend thousands of dollars and wait up to 18 months to gain certifications to engage in the potentially hazardous act of painting someone’s nails. Her would-be competitors unilaterally benefit. Her customers? Not so much.

But on that hot summer day of celebration in 1987, Stigler didn’t come to speak about regulation. Instead, he encouraged his robed audience and their well-wishers to understand, indeed to embrace, the ambiguities of the world in which we live. The one line that stuck with me from his speech didn’t even come from him; it actually is a phenomenon called Segal’s Law: “A man with one watch always knows what time it is. A man with two watches is never sure”. And boy oh boy is that ever true. Case and point: no one even knows who this Segal character is. Or was. Apparently, he was a jeweler of sorts, and the original quote was first published in 1930. In the “San Diego” Union of all forums.

But his point: that taking a double measure of anything pertaining to human affairs virtually ensures a diminished confidence in the associated accuracy, is resonant through the ages. And I’ve been feeling this in acute fashion my entire life. Take, for instance, metrics of options sensitivity, such as deltas. I have often been fond of telling the following joke: “Options deltas are like snowflakes – no two are exactly alike”. And, despite it’s being stone cold hilarious, almost no one ever gets it.

And right now, as I take stock of my professional world, it feels as though I have more than two watches. In fact, I have at least six; maybe as many as eight. So, as long as I’ve wasted this much of your time anyway, let’s review them, shall we?

I have, for instance, two political watches. One of them tells me that we’ve got a rogue, would-be dictator in the White House, who must be removed at all costs before he goes full Stalin on us. He’s shredded the Constitution; he’s put us on the brink of Armageddon, he cannot take a single breath without committing a heinous crime. If he does not belong in the slammer, it’s only because his appropriate destination is at the end of a rope. My other political watch sees a guy who has been attacked by a mob since he first descended that golden escalator in his own building to announce his run for president. He’s boorish beyond measure, and unambiguously narcissistic. But, despite an onslaught of assault (mostly ad-hominem, or, if you want to go the whole homonym route, ad-homonym) on his character, persona and policies, he has presided over an interlude of relative peace, prosperity and (under certain paths), visible hope for its continuation. As I type these words, he’s being impeached, and, while one of my watches says that this is necessary, the other tells me that the, er, high crimes and misdemeanors of which he is accused are nothing more than Standard White House Operating Procedure. Anyone who doesn’t think that presidents always muscle other foreign leaders in a manner consistent with their political agendas is just being naïve. Heck, I have it on good authority that even George Washington used to dial up guys like Louis XVI all the time, and he left office a century before the invention of the telephone.

I also have two economic watches. One shows a remarkably resilient environment, a recovery improbably humming along into its second decade. The country is at full employment. Inflation is nowhere to be found. Financing costs are at multi-millennial lows. Overwrought fears to the contrary notwithstanding, the threat of recession does not appear to be on the visible horizon. The other watch sees a world awash in record levels of debt, which is accelerating, and living on the sugar high of cheap financing. Both the military and the overall Federal budget are set to expire this week, but no one is talking about that. Above-mentioned political strife – on both a domestic and global basis – practically guarantees against any sound government action. Watch 1 sees a strong holiday season and the possibility of glad tidings in 2020. Timepiece 2 says that the entire planet will be smoldering cauldron in little more than a decade, and that even if we don’t manage burn the entire planet to the ground, all of its riches will be owned by about a half dozen nasty folks who must be garroted by pitchforks immediately.

And for what it’s worth, the now-casters at the Atlanta Fed appear, at the end of the week, to have lost Watch 1, and to be relying entirely on Watch 2.

I may need to take a trip down there soon to see time it is. I was only there once. Visiting Emery, where I was accepted. But they wait-listed both of my kids, and I’ve not since forgiven them for doing so.

But if they are right on GDP, Watch 2 will have us in a full-scale depression before the Snoopy float blows its way down Central Park West on Thanksgiving Day.

Lastly, and perhaps most importantly (after all, this is an investment blog), I have two market watches. On one wrist, I see our various indices registering one all-time high after another, and showing no signs of reversing course anytime soon. Further investigation of these dials indicates that we have endured, nay, prevailed, through most of the potential buzz-killing news for Q4, and that if the happy talk in the trade negotiations turns into happy action, we could be in for higher elevations. It also informs me that the years following >20% gains in the Gallant 500 (currently up, year-to-date, a spiffy 24.5%) are almost always “up” sequences; the last time we had a down year following such a cycle was 1937, you know, the year that FDR tried to pack the Supreme Court.

Market Watch 2 wonders what all of the buyers out there are smoking. I would’ve been down with a recovery to earlier year highs, at 3,000 and change on the SPX, but I stand in wondrous awe of the last 100 handles or so. Late Friday, Vixen VIX breached into the 11 handle from above, before some at-the-close weekend hedging pushed her up to a still-strumpet-like 12.05. Then there’s all of that debt, Impeachment, the largest political party in the free world espousing full-on redistributive socialism, and big, bad Myles Garret taking a swing at a diminutive-by-comparison Mason Rudolph, using the latter’s helmet as the bludgeon.

Market Watch 1, to summarize, says load the boat here; Market Watch 2 is completely bewildered by all the monetized optimism.

So, does anybody really know what time it is?

Does anybody care (Sorry. I couldn’t resist)?

I think, on balance, the answer is no. We don’t, none of us, know what time it is. Because the truth is that we are, all of us, just dealing with too many watches. As a result, what Jeweler Segal first observed, and what Professor Stigler described as useful perspective, has simply overwhelmed us.

So what do we do now? Well, for the moment, I’d say not much. We shouldn’t, for instance, Uber home alone after a major surgery. If the spirit moves us, we should absolutely order the best cookery we can afford for our new kitchen, but we should probably make sure we’ve contacted Con Edison and had the gas turned on so we can actually use these utensils.

And we should by all means wait and see what transpires in front of us before we make any sudden investment moves. Because things are changing too rapidly for much upfront planning. It certainly makes sense to synchronize our watches, but I should, before taking my leave, admit that I don’t even own such a device, to fit either pocket or wrist. Haven’t for years. And I really haven’t missed it much. Because everywhere I cast my eye, multiple GPS devices are in perfect accord in terms of what time it is.

So times have changed from Segal’s day, and even from that of Stigler. But the latter was still right about so many things. Regulation is still a game rigged to benefit the regulated. And as for my Master’s Thesis, while barely remember the subject matter, I do recall the Professor giving me a grade of B minus, minus on it, and calling it a superficial literature review. That was his only comment. But it was enough. Because I knew he was right.

Like so many others glorified in this space, he’s gone. And while it will be a long day before we witness his like again, his work lives on. At least we should all hope it does. His protests to the contrary notwithstanding, I think he had as clear a sense of what time it is as anyone I’ve ever encountered.

TIMSHEL

Another week; another confession. On Wednesday night, I succumbed to the illusive allure of my local Chinese Takeout joint. One of them, anyway. Fact is, as my apartment is located between Amsterdam and Indigenous Peoples’ (formerly Columbus) Avenues on the Upper West Side, I have an embarrassment of rich choices in this regard.

Usually, I resist this temptation, and even on Wednesday, my spirit had the will to win, but oh, the flesh was weak. So I rocked out on General Chao’s Chicken, some brown rice and (as is de rigueur on these occasions) an egg roll.

Looking back, it all seems like a daydream that I was already in, but, as is so often the case when spending a portion of one’s evening General Chao and his subordinate side orders and condiments (particularly the hot mustard), it didn’t take long for me to be overcome with shame. And heartburn.

I have been encouraged by those who love me (after, of course, a well-deserved scolding), to embrace this transgression, and I know of no better way of doing so than baring my sins in this forum.

So let’s talk a little bit more about Chinese Take-Out, shall we? First, I’m happy to report that the whole saga set me back little more than $20 (including a generous tip), so I’m pretty sure that whatever tariffs that may have previously been levied on these sorts of transactions, they had been lifted in the intervening years between my preceding visit to the joint on Amsterdam, and the one that I am (with shame) describing in these pages. I checked the newswires just to make sure, and it appears that there is indeed progress on the U.S.-Sino trade front.

From that perspective, perhaps my timing was impeccable. And so, for that matter, might be Trump’s, but we’ll get to that below.

Certainly investors seem to be of that mindset, as they chose, all week long, to consume risky delectables, at levels sufficient to take our indices into record territory. All week. All over the world. Much to my chagrin, they appear to have financed much of this shopping spree through the sale of global bonds, which (my aggressive embracing of the latter notwithstanding) had about their worst week in quite a spell. The U.S. 10-Year Note is knocking on the door of 2%, and the poor Swiss are now forced into the indignity of accepting an annual rate of less that 50 bp for their borrowings. It could be worse, though. The Swiss could be the Germans (probably they ARE the Germans), who only collect a beggarly 26.5 bp/year from their borrowers. The USD shot up like a rocket. As did a number of commodities.

But that critical ingredient to the purveyors of my culinary odyssey: soy beans, did not participate:

Soy It Ain’t So: Beans Flat for November:

The good news here, I suppose, is that the soy sauce all up and down Amsterdam Avenue can still be had free of charges, and, therefore, of tariffs.

On the other hand, I don’t use soy sauce on my General Chao’s Chicken. Or my egg roll. And I hope that you don’t either. Because I feel that to do so in either case would be something of a crime against humanity. Hot Mustard? Yes. Soy sauce? A Hard No.

I spent the rest of Wednesday evening (as I had most of the week), trying to figure out what on earth has investors so gosh darn giddy — on a tape that looks to me to be somewhat toppy. It could be the case that Trump’s trade strategy is working like Elway against the Browns in the ’98 AFC Final. Interim deal during Impeachment; final one, say, right before Super Tuesday. I’m not saying that this is how it will play out, but if it does, you’d have to give the Big Guy mad props for political timing, right?

I do think that (yawn) presidential politics are driving some perverse valuation dynamics.. Perhaps the best news of the week, at least from an investor perspective, was the release of the financial details of Warren-Care. The plan cost $20T over the next decade (approximately one year’s GDP), but hey, that number is probably overstated, because Senator Warren, like all other politicians, always injects a dose of conservatism into these types of projections, just so she doesn’t give anyone sticker shock down the road. Private Insurance disappears. Doctors and hospitals are to be given fixed revenue rations, calculated at levels of precision that only Harvard-educated social engineers can muster. Corporations are to be taxed at higher levels. Wealth is to be taxed. Businesses are to be taxed. Best of all (if inevitable), Wall Street is to be taxed.

For everyone else? Free Fortune Cookies.

One cannot help but wonder, on balance, though, how well this will all work out in real life. Pondering these matters (as I always like to do while digesting the ornithological culinary delights of General Chao), it looks like the release of this plan could be the biggest political blunder of a generation. This, too, is no certainty, but it sure seems like a possibility. And, stone-cold feminist that I am, the timing seems like kind of a shame to me. The plan was announced on the proximate date of the 100-year anniversary of the passage of the 19th Amendment, which bestowed the suffrage on women that our Founding Fathers somehow, in their zeal to create a free and equal society, neglected, when forming the nation, to include.

But the program itself does not look politically appealing to me, and neither Senator Warren nor her party will be able to walk it back. About their only alternative is to go bigger and embrace Bernie’s plan, which will cost twice as much. And anyone who the Dems nominate will have to go out on the road next summer and sell this pile of bird feathers to an electorate that: a) is doing pretty well right now; b) worries about higher taxes; and c) probably has a tough time envisioning better health care outcomes when all associated decisions are made not by individuals, but rather by the government.

Of course, with Impeachment (which now makes better sense given the wretched policy/candidate choice offered up by the Dems in what should be for them the most winnable election since, well, since 2016), trade uncertainty, an upward trajectory for interest rates, and myriad other problems that plague us, pretty much anything could happen. But under certain scenarios, I see the whole Warren-care thing not only giftwrapping 2020 to Trump, but toe-tagging the Democrats for at least another couple of election cycles.

What is visible to me, in the meanwhile, is as follows. The Dems need some new blood, and, while I hate to do this sort of thing, I need to remind everyone that I’ve been writing about Mayor Mike laying in the weeds for several months. Welcome in MM; and know I’ll be rooting for you. At least in the Primary Election. I’ll happily accept your rather school-marmish attitudes about super-sized sodas and the like, if you’ll simply let me keep some of my hard earned pay, and allow me to manage my own health decisions – up to a point where my fast-approaching dotage renders me non-decisional.

The other trend that I believe I can observe is some glee among the investor class at how thoroughly the progressives are b!tching things up. I would go so far as to hypothesize that the Warren-care finance plan was sufficiently outlandish and nonsensical to gin up some buying just in its own right.

So here we are, less than seven improbable weeks before the conclusion of this most improbable year. Our equity markets are sitting at records, trade wars, tepid economic conditions and the like notwithstanding. Q3 Earnings are now in the bag, and, while (as was always likely) better than expected, they still aggregate to a third consecutive quarter of negative growth. At 12.07, the VIX is residing at about an 18-month low.

Given all of this, and in light of the saga described immediately above, I feel it entirely fitting and proper to issue an MSG warning. Now, here, I beg you to consider the source. Chinese food is slathered in Monosodium Glutamate, and no dish has a bigger dose of MSG than does General Chao Chicken. But there are other forms of MSG that worry me more — ones that apply to the financial markets. The more benign of these is something I call Mostly Speculative Guesses, which, when taken to the extreme, adopt their more wretched construct: Massively Stupid (Portfolio) Gyrations. Let’s avoid both forms, shall we?

Because, believe it or not, there are less than 35 trading days left in the year, and we can throw out about a quarter of them due to holiday distraction and associated lack of liquidity. Most every known bit of data is already in the books, and most of what’s unknown shades to the negative. It reminds me a little bit of what Woody Hayes used to say about passing the football: there are 3 outcomes, and 2 of them are bad.

A lot of good stuff, one would have to argue, is already priced into current valuations, and, on balance, I think that this looks like a Woody Hayes passing market. Could we continue our current improbable rocket ride? Of course we could. On the other hand, Trump and Xi could say mean things, hurtful things, to one another. The drip-drip-drip of impeachment could finally cause the ceiling of the political economy to cave in. Those crazy, nutty, zany Ayatollahs could decide to lob one over to Tel Aviv.

The world as you see it could turn out to be a very different place from the world as you find it.

And, particularly at these valuations, how much more good news can you, or for that matter, anyone around you, stand?

So, because I see very little edge out there for the remainder of the year. I’m inclined to suggest we all play a little D here, and this particularly applies to those who, thus far in 2019, have enjoyed a good run. Yes, you owe one to the Fed, but our gains are hard-won, nonetheless, my darlings, and I’d hate to see you blow them in the few short weeks left to us before the ball drops.

No, I’m not suggesting that you shut it down completely on this here Veterans Day; just that you, at least for the rest of the month and next, avoid Speculative Guesses, and even more so, Stupid Gyrations.

And remember, you are not alone. I am here in every way that I can be for you. And the more joy you can take out of each moment, the happier I myself will be.

But right now, I must take my leave. I hear the doorbell ringing, and most of you know who it is. Yes, I have fully succumbed to the force of will exerted on me by one General Chao. And if there’s any endeavor that puts one in greater MSG danger than Chinese Take Out, it’s Chinese Delivery.

But for me, the ship has sailed; the bell has rung. And all I can do is offer my full support to you in your efforts to avoid the kind of mistakes that have driven me to this humiliating pass.

What, they forgot the hot mustard? Must be a message from above. So I’ll just send the guy packing, fry me up some kale, and try, in the future, to set a better example for my minions.

TIMSHEL

It’s astounding, Time is fleeting, Madness takes its toll,

But listen closely… (Not for very much longer), I’ve got to keep control

I remember doing the Time Warp, Drinking those moments when

The blackness would hit me, And the void would be calling

Let’s do the Time Warp again, Let’s do the Time Warp again

— Riff Raff (Rocky Horror Picture Show)

I struggled mightily to identify this week’s motif. As hard as I have for many a spin around the sun. Maybe I’m just getting too old to spend every weekend spitting out this bit of glib excess that passes itself of as market commentary. But I knew I had to forge ahead. Because you’re counting on me.

Leitmotifs, on the other hand, presented themselves in embarrassing abundance. Careful readers and close associates recognize, for instance, that tomorrow marks a rather important personal milestone. But it’s one that has mixed implications, and, beyond this, I just can’t descend to the rhetorical depths of featuring it, for no other purpose than the launching my weekly musings.

Other potential themes presented themselves, for instance, the whole above-represented Time Warp riff from Rocky Horror. We did, after all, just celebrate Halloween, did we not? And Rocky Horror is one of my all-time faves. But it occurs to me that Halloween is perhaps the holiday that most abruptly ends when the calendar flips, when the clock strikes 12, and All Hallows Eve becomes All Saints Day. At that moment, we’re all sick of it. Sick of the candy. Sick of the costumes. Sick of the B-Movies that run 24/7 on TCM, all month long. We’re ready to move on. And we have. Moved on, that is.

I also noted (and considered featuring) the recently announced, final toe-tagging of iconic retailer Barney’s, and thought about calling this week’s piece Barney’s Rubble. But I passed, for a number of reasons. First, it seemed to be entirely too “New York Posty” of a title. There’s also the reality that I’ve never set foot inside any of their stores, and therefore can’t authentically lament Ol’ Barn gathering to the dust of his forebears. Finally, the whole Barney Rubble thing is somewhat triggering for me, as, about a generation ago, it hit me that I was older that Fred Flintstone and his lovable sidekick. I figure them each to be, now and forever, around 35. If you grew up watching them, they always seemed so aged. And by the mid-90s, it became undeniable that I myself was older than either of them. It was a kick in the head, and, a full generation later, as my 60th birthday beckons, my temples still ache at the thought of it.

Then, on Saturday morning, in time honored tradition, I flipped through Barron’s, and (though it shames me to have drawn my main theme from such a ubiquitous source) there I found my answer. In reviewing the astonishing rage of recently reinvigorated bovine market conditions, the publication pointed out how top heavy the rally is. In particular, it chronicled the amazing fact that four companies Microsoft, Apple, Google and Amazon: a) now sport an aggregate market capitalization in excess of $4 Trillion; which: b) exceeds the valuation of the entire Russell 2000 Index.

So welcome to the MAGA market, brought to you by Bill Gates, Tim Cook, Serge/Larry and, of course, the biggest dog in the yard, former D.E. Shaw employee Jeff Bezos.

But you really didn’t think that you’d escape my double entendre obligation to endure my devolving into the murky realm of politics, now did you? You didn’t, because, from a certain perspective, this is also a “Make America Great Again” MAGA market.

Somewhat split personality macroeconomics bear this out. While everyone bitched a bit about the 1.9% first print on Q3 GDP, those bellyachers were completely silenced with the drop of Friday’s Jobs Report. Its contents had 45 crowing like a blackbird at dawn on an Iowa farm telephone line. It also zipped the lips of all of the windy Wendy Whiners out there in the punditry. This, of course, came on the heels of yet another Fed rate cut, and on an earnings tape that has, on balance, exceeded what were (it must be admitted) muted expectations.

So the Gallant 500, Captain Naz, (my fellow geriatric) General Dow, and even the above-maligned upstart Ensign Russ surged ahead into previously uncharted territory.

In doing so, this joint operation ignored many forces of nefarious risk, including the continued threat of trade wars, the Brexit Soap Opera, the California Infernos, and other sundry specters hovering out there to plague our peace of mind. And why the hell not? This here decade-plus recovery is chugging along better than anyone could’ve reasonably expected for such an old codger. We’ve got full employment, historically benign financing costs, no meaningful inflation, and, on balance, very little cause for economic complaint. In fairness, some form of MAGA prevails in the capital economy.

Indisputably, all of the above explains, at least in part, why investors also have turned away, with a derisive yawn, from the Impeachment Saga. Because, in case you missed it, over the next few days, the House of Representatives will approve Articles of Impeachment against the President of the United States. The latter will then of course be compelled to endure a trial of sorts. As will the rest of us.

Now, old-timer that I will formally be as of tomorrow, I must nonetheless inform you that I don’t recall much about similar proceedings against Andy Johnson. I was only a tyke back then, after all. I do remember my parents speaking about it, but I kind of shrugged my shoulders and then went out to fetch wood, as my daddy had instructed me to do. But I do have vivid recollections of both the Nixon removal and the Clinton psychodrama. And what comes to mind, by comparison, is as follows.

In both 1974 and 1998, these episodes virtually stopped time. With Nixon, the narrative unfolded over a couple of short months that summer. In Clinton’s case, the whole process – beginning to end – ensued over about three weeks. But in each of these cases, we were all fixated on every twist and turn. And even investors had sufficient respect for the dignity of the proceedings to make a show of selling down some of their holdings – albeit temporarily.

But in the present state of affairs, unless you are spending your time unwisely immersed in Cable News or the musings of the New York Times/Washington Post, you’d barely know that any of this is going on. And as for investors? A quick look at any index chart will tell you all you need to know about their level of concern in this regard. In a word, they just don’t give a sh!t.

MAGA market? Whether it’s MSFT/AAPL/GOOG/AMZN or Trump, I’d call it a Hard Yes.

Impeachment, therefore, looks like a losing political strategy to me, but please consider the source. I actually thought that Trump was gonna lose to Hillary back in ’16. Moreover, and to my way of thinking, the Dems are doubling, throupling down on all of this. And I don’t think it bodes well for their 2020 presidential prospects. The current field of potential nominees (now that my boy Beto has exited, Stage Left) is winnowed down to an aged, privileged, compromised white man who can barely string together a coherent sentence, a Che’ Guevara Millionaire Socialist, and a dour female professor who claims to be a capitalist, but wants government to take over at least two of the 13 economic sectors (Health Care and Energy), which compromise more than 25% of the country’s Gross Domestic Product.

And I’d be remiss if I didn’t give a shout out to my two highest profile former Chieftains: Paul Tudor Jones and Steve Cohen, who, at a Robin Hood Investor Conference this past week, both independently prognosticated that if either Bernie or Liz takes the prize, for equity investors (as Steve likes to say) it’s “Katie, bar the door”. Of course, as loyal readers are aware, I’ve been committing these same comments to writing for the better part of a year. Just saying….

So the Dems are going to spend the next few weeks impeaching the President, and are likely to fail in their objective of removing him from office. By the time they’re through, the Iowa Caucuses will be hard upon us, and their high-tax, high-regulation, full-on-redistribution platform will be etched in stone. I find all of the contestants to be signally unlikeable, and my gut tells me that a yet-to-be-identified horse will not only enter the race, but actually take the prize (the nomination that is; not the general election). We all are aware of the names being whispered about, but I don’t think it matters much. Because no one can win the nomination without carrying the yoke of a policy agenda that should land like a thud with the general populace, come next November.

It all looks like a Circular Firing Squad to me:

And if I’m right on that score, then the sponsors already are ahead of themselves, because we can spot them The Squad to lead the proceedings. All that is wanted is The Circular. And The Firing. And how hard should these be to source in this Information Age?

I reckon all of this could change in a heartbeat. For example, maybe Trump’s own son could find himself with a lucrative seat on the board of a shady Ukrainian Oil Company, his utter lack of credentials for the post notwithstanding. Maybe the Big Guy will be caught bragging on tape about reneging on the $1B he will bring along with him if the Ukes fail to do his personal bidding. If so, the game changes. Pretty quickly.

But in the meantime, gosh almighty, is it just me, or are the progs doing everything they can to gift another term to a man that they detest with every cell of their body?

And, for the record, the current office-holder gives me a raging headache. He’s a blowhard who strikes the fear of God into anyone who listens to him for five minutes. Count me among those that would really like to see just about anybody beat him. Except, that is, those that are actually running against him.

I reckon we should stop worrying, and embrace the MAGA market for what it is. Even at these lofty elevations, you have my blessing to by a few shares of MSFT, AMZN, etc. And if I see you in a red cap, I’ll not think the worse of you for wearing it. But as for me, I’m clearly in a Time Warp again: first a jump to the left, and then a step to the right. I stop there though; no pelvic thrusts possible at this age…

But I must take my leave now. Those that love me are ready to shower me with their singular affection, of which I am sorely in need at the present moment. I’m advised that there are even a few surprises in store. Some things I need (grooming products); some I don’t (a puppy). I thank them, one way or another, for not only putting up with me, but for, even at my advanced age, loving me as they do.

Truly, in this Time Warped, Barney Rubbled, MAGA world, I just can’t live without it.

TIMSHEL

I’m warning you. For the second to last time. It’s my pen-ultimatum.

So just don’t do it. Because this warning, is, by definition, a prelude to my final admonition, which will be my last one.

Or not.

I’m ambivalent as to what I’m warning you against, because (let’s face it), there’s an embarrassment of rich choices in this regard. But I’ll reckon we’ll get to all of that.

Mostly, I just like the way that the mashed-up term: pen-ultimatum, trips of my tongue. And keyboard. Also, I would be remiss in any failure to mention that this past week marked the penultimate 7-day cycle of by 5th decade of cooling my heels on this here planet. I really can’t express this in any other manner. It’s simply too depressing.

On the other hand, I figure that a pen-ultimatum, issued at the end of the penultimate week of my fifties, may actually lift my spirits a bit. So that’s what I’m gonna do. Issue a pen-ultimatum.

At least I’m going out with a bang (or not). Because it was quite a week. Global equity indices soared throughout, with the Gallant 500 actually (albeit temporarily) breaching new terrain mid-day Friday, before retrenching to encampments adjacent to these boundaries. The same was true in other jurisdictions. Heck, even the UK’s FTSE 100 surged by > 200 bp, and this in advance of important Brexit decisions about which even the experts have no idea as to the outcome.

Madam X (the U.S. 10-Year Note) retained her ambiguous, alluring indifference, but her strumpet-like protégé: Vixen VIX, demonstrated her oft-manifested easy virtue, yielding further ground across the cycle. At 12.65, she now resides in as supine of a position as hasn’t been witnessed since late April, when the partying start of 2019, was (unbeknownst to the rest of us) about to come to an abrupt halt.

About the only financial buzz kill I could identify all week was the following floater in the punchbowl. As illustrated in the following chart, the anti-oxymoronic upper end of the Hamptons Real Estate Market, is newly awash in inventory:

Read ‘Em and Weep: Hard Times for H Sellers

Now, what is bad news for the sellers is of course good news is of course good news of buyers. But let’s face it: we ain’t buyers in those hoods. And, on a more encouraging note, about three years ago, I did manage to liquidate a property — not in the range contemplated in this chart, but in a proximate zip code.

And I’m glad that I got out. And part of my pen-ultimatum is that you avoid the temptation to dive into these fabulous realms – at least at this pass.

But I reckon I should let go of my Alzheimer’s-enabled ramblings and revert to my main point: I’m convinced there’s more risk in this here market than the tape (or, for that matter, your latest suite of risk reports) are suggesting. In terms of the latter, us purveyors of risk analytics are steeped in the notion that the recent past is somehow a sound predictor of the future. Sometimes this is true; sometimes not. However, while there’s been a lot of idiosyncratic price action over the last few weeks, the factor dynamics that drive these metrics have been benign, and project out a more stable market configuration than I believe they can sustain as the year winds down.

To wit:

We’re nearly half-way through Q3 earnings, and though they be mixed at best, investors are at present untroubled by associated tidings. Probably, this pattern will ensue through the remainder of the cycle, including next week, when a whole passel of leaders (Apple, Alphabet, Facebook) and a greater number of laggards (Falling Stars Sears, General Electric; a boatload of others) report. Pen-ultimatum pricing patterns suggest that while, as always, it’s woe-betide to disappointers: 1) it may be best for CEOs not to overstuff their messaging with too much glee (left-hand chart); and 2) if they care about their current valuations, the more said CEOs have pleased 45 and kept their home fires burning (i.e. done most of their biz in the U S of A), the better off they are:

Forgive me for offering a blinding glimpse of the obvious, but the graph on the right sort of suggests that all of this trade agita just might be actually hitting the real capital economy. And near as I can tell: a) there’s no more clarity at this moment than there has been at any point in the saga in terms of any resolution with China; b) the Xi/Trump vibe could absolutely turn negative at any moment; and c) if b) happens, equities have a lot of room to fall.

The FOMC issues its next policy drop on Wednesday, and another short-term rate cut appears to be fully on the cards. Friday morning (when the All Saints’ Day Sun is high in the Eastern sky), we receive our first glimpse of Q3 GDP, and boy, ought that be interesting. The conflating of these events by the punditry suggests that: 1) the Fed may rest a spell at that point; and 2) the favors of Madam X, having been delivered at increasingly discounted yields since roughly the point when I turned the big 3-0, are about to become dearer.

Well, OK; but I’m still taking the under on what is yielded by Madam X. Maybe we are at the pen-ultimatum moment on low rates, but I’ve heard that warning so many times that I am benumbed and incredulous on that particular issue.

The markets also seem to be entirely serene about domestic politics, which, to these aging eyes at any rate, appear to be devolving to a transgenerational lack of decorum. The President is certain to be impeached. That bell has rung. Extra-constitutional hearings that set this up are occurring on a round the clock basis. Lots of unknowns here, kids. The Iowa Caucuses are just over three months away, and as to the leading candidates that embody the only alternatives to a second term for the Big Guy? They feature a dude that actually committed the transgressions for which the Big Guy will be impeached, and a few who are outflanking one another in hysteria in terms of which of them can tax the most, regulate the most and redistribute the most of the hard earned funds of the productive class of the economy.

I would add a brief word about my home state of California. Where I was born. Six decades ago. A couple of years back, the State experienced historic flooding that could do nothing to eradicate a drought in its precious Central Valley farmlands. Now, it’s facing the prospect of a blackout for three million souls that is intended to prevent wildfires that are nonetheless raging as I type these words out. When you have droughts during flooding, and wildfires during blackouts, well, something ain’t right.

Is this an environment where it is wise to load the boat on risky securities issued by private enterprise? Investors seem to think the answer is yes. And they may be right. For a time. But I may have to warn them against this in the near future. And then warn them again. Somewhere down the road. So call this my pen-pen-ultimatum on stocks.

One way or another, I think there’s a volatility pressure cooker that cannot be kept in check across the nine short weeks that remain to this crazy year. There’s likely to be some pretty wild, two-way action coming our way during that interval. I just don’t know when the lid pops off, so this is likely not the last warning I’ll issue. In this respect, it, too, is a pen-ultimatum.

I’d urge extreme care as we navigate the final weeks of this rapidly expiring year. What doesn’t look too risky now could turn hazardous in the extreme – in the manner of a blink of an eye.

However, because this is a pen-ultimatum, I don’t want to go overboard in terms of issuing dire warnings. You can, indeed, relax in a certain manner. If you find that dream dwelling you’ve always wanted, as long as it’s not in the High End of the Hamptons, you have my blessing to secure it. Heck, I may even be willing to spot you the application fee, and maybe you’ll let me accompany you on your final walk-through. Fair warning, though. I intend to visit you there. Often.

Feeling, as I do, somewhat wistful as this mixed-blessing anniversary of my birth inexorably approaches, I feel an obligation to remind everyone that we signed up for a multitude of mixed blessings when we came down the shoot in the first instance. All of us will experience a combination of gratification and frustration. Of joys and sorrows. Of certainty and confusion. Our best hope lies in the path of treading carefully, and capturing what is there for us, without doing harm anyone else. Sometimes, what we reach for is within our grasp; sometimes not. Sometimes, we don’t know the answer, because it resides in the future, which is unknowable.

But I’m advising you to tread carefully across these seas of uncertainties. And to my friend Michael (who is wonderful) I’m here to tell you that it may require everything you’ve got inside you to row your boat ashore. Whatever that means.

These are my warnings to you, my loves. And the odds on likelihood is that I’ll have to issue at least one more warning of this nature before we’re through.

But given that this is a pen-ultimatum, it is entirely fitting and proper that I do so.

TIMSHEL

To hedge, or not to hedge, that is the question:

Whether ’tis nobler in the mind to suffer

The slings and arrows of outrageous drawdown,

Or to take arms against a sea of volatility

And by opposing end them, to hedge….

— With Apologies to William Shakespeare

I could have carried on with this re-lyric of one of the most famous passages in the history of the written word, but even I have trouble improving on Willie Shake. So I reckon I’ll leave it where it is.

Besides, I think we’ve hit the crux of the issue: “to hedge or not to hedge?”. That is indeed the question upon which I wish to focus this week’s visit. It has been an important one for about as long as I can remember, and the matter is particularly prominent at this current pass in our affairs.

I must admit that I’ve had an historic, philosophical bias against hedging, but then again, Shakespeare/Hamlet himself stated that “there are more things in heaven and earth, Horatio, than are dreamt of in your philosophy”. (Act 1, Scene 5 167-8). And though I never actually knew Horatio, I suppose that what applies to the H boys also applies to the rest of us.

Now, that the hedge has many alluring attributes (ones that we need not inventory in our limited little space), there is little doubt. But applying them to your net advantage is a tricky and nuanced exercise. When first considered (e.g. in times of market unrest), it has a siren-like appeal. But that, of course, is when the hedge is at its most expensive. Moreover, while putting hedges on is often an intuitive exercise, disposing of them is another matter entirely. They often suffer from benign neglect, and (especially when they take the form of limited life derivatives), they end up, on balance, costing us. In retrospect, we wonder why we bothered with them in the first instance. And we swear ourselves off of them, only to return to their warm embrace the next time our portfolios show any signs of the squick.

My main problem with them is two-fold. First, as one of my core tenets of risk management, I have always felt that if one wishes to undertake risk reduction, one is better off removing line items from one’s portfolio than adding to them. However, perhaps more germane to our current conundrum our tendency to fixate on the hedge at the wrong times. It is only when the market goes all wobbly, and hedging becomes our obsessive focus, that we tend to act. We pay up for doing so. And we pay the price.

Conversely, when the investment markets are calm, and the hedge can be had, on a relative basis, for a song, we are inclined to ignore it. More generally, my main frustration with hedging, as I’ve expressed many times before, is that when it comes to the hedge, everything our mamas and papas (who, don’t you know we’re driving insane?) taught us about buying low and selling high goes out the window. Instead, we tend to overpay for the hedge (whatever form it assumes), rid ourselves of it at bargain basement prices (if indeed we rid ourselves of it at all), and ignore it entirely when it is on sale.

And it may just now be the case that the hedge is indeed on sale, at least on a relative basis. Consider, if you will, the recent pricing activity of the VIX, that benchmark of options volatility that is the widely accepted proxy for how investors (through the options markets) are pricing in risk. With little notice, it went into free fall over the last few sessions:

Careful observers may wish to note that at 14 ¼, it resides within realms witnessed during surges to all-time highs on the Gallant 500, as well as that period of relative innocence we experienced in late April, before the Trump Tweet Trade War began to rage in earnest. It also down ~40% from its >24 peak in early August, when a bunch of other bad sh!t was going down.

Now, I ask you: is the world really 40% less risky than it was 8 weeks ago? Please, if so, explain to me how. The China trade psychodrama continues to play out in ambiguous fashion, and shows no signs that an end similar to the close of Hamlet, Act V is not a real possibility.

The Washingtonian escapades appear to be, if anything, escalating. And if, for the time being, investors are taking on a “not my monkeys; not my circus” vibe to this, it doesn’t mean they’re right to do so. Earnings are still looking pretty dismal (though we’ll be much better informed on that score a week hence, after such luminaries as Amazon and Microsoft report). China just printed its worst GDP quarter in a generation, and our own economy is hardly showing much chest-bumping mojo.

So anyone who might be worried enough about these goings on to pursue the hedge would arguably be justified in these latent thoughts – at a point when the price, at least in options space, of putting it on is actually on the decline. I doubt many of you will take this step, though, and this is the type of thing that drives me (along with your momma and papas) insane. Last Christmas, when the VIX, at >36, was more than 2.5 times as expensive as it is now, my yuletide phone was ringing off the hook with requests for my assistance how best to secure these here hedges. It was, by contrast, radio-silent during the subsequent, Fed-induced rally. Lots of calls in the horrific month of September ’19; almost none coming my way at the moment.

So I’m here to tell you that if the hedge is your jam, in options space, now might be a good time to take a little looksee at how to rock one. And all of this, of course, is to say nothing of my own current hedge obsession: the one involving the purchase of Madame X (US 10 year) to offset exposure to the equity markets. I haven’t looked like a hero with my call of a couple of weeks back that associated rates were going to zero. Quite to the contrary; I’ve looked like The Monkey in My Circus. At 1.75% and change, we’re looking at multi-week highs on yields/lows on price. And it’s not just longer-dated U.S. paper that has sold off/manifested higher yields. It’s my sad duty to report that it’s a global phenomenon. If you doubt this, just take a gander at the rate action in Denmark, which happens to be Hamlet’s home turf:

Something’s Rotten In the State of Denmark: Danish Rates Soar to -0.36%

Had everyone not died at the end, Hamlet would have been king, even some 400 years later, he might have been less of a Gloomy Gus knowing that he was able to 36 basis points to any of his good subjects for the honor of lending him money.

On the other hand, he might have eschewed debt altogether, especially if he followed the advice that one of his victims (Polonius) gave to another recipient of his capricious blade (son Laertes): “neither a borrower nor a lender be”.

But no one is listening to these dead guys now. Everyone is borrowing, and will continue to do so. But I don’t choose to view that as being in any way dilutive to my hypothesis that rates – particularly in the United States are — gonna sink like a stone some of these days. And whether by cause or effect, this will transpire contemporaneous to a decline in the U.S. equity markets.

And again if you think there’s any framework for embracing a hedge of this nature at all, now might be a good time to take the plunge. It’s priced attractively, the pending slew of data (earnings, GDP, Fed decision, etc.) all provide hopeful catalysts, and I just don’t see how you can do better, hedge-wise.

It may also be the case that the FX markets are telegraphing such an expectation. The USD had a largely unremarked but nonetheless noteworthy slide these past few days:

We should also bear in mind that the British Pound, Willie Shake’s home currency, is prominently featured in this basket. It shot up 7 rocket-like handles in the wake of an announced Brexit deal that may not happen and in fact probably won’t. More likely, old school financial economic assumptions suggest the FX market is anticipating lower equity prices/yields on these here shores. And I’m here to tell you that like the Chairman once sang about Love and Marriage: you can’t have one without the other.

So: to hedge or not to hedge? At the end of the day, I can’t make that call for you, but rather can only opine that there would be worse times to contemplate such a move than right at present. Further, I should remind you that no matter what you do, the hedge may not serve you. It won’t for instance, be of much use if you hit a pedestrian a rainy rush hour afternoon on 34th Street. It does nonetheless have some merit, and, in the final analysis, I’d rate current hedging conditions a solid 8 ½.

At the end of the day, you’re going to have to make your own judgments in this regard. I am happy to weigh in, but it’s your call, and it’s a matter of personal disposition as much as it is one of appropriate portfolio management. You could, however, do worse than adding that other bit of insight Polonius gave to his boy Laertes on the occasion of their final encounter. “To thine own self be true”.

Hedge or no hedge, this sure seems like good advice to me.

TIMSHEL