Sometimes, you just gotta tip your cap – even to the philosophically misguided.

Like now, for instance. In this episode, I doff my fedora to Former Wisconsin Superintendent of Public Education/Current Governor Tony Evers, for pulling off what, to my knowledge, is one of the slickest moves in the uber-trickster history of government funding ploys.

Not sure if you saw this, but it’s one for the ages. To understand the brilliance here, one must be aware that not only does the Wiscy Gov have a line-item veto, but has the ability to eradicate individual words, and even single characters, from budgetary proposals that reach his desk. This makes him something of a God in the realms that stretch from Kenosha to Superior, from Platteville to Gills Rock.

This bit of legislative sleight of hand has been deployed many times, to be fair, by Chieftains on both ends of the political spectrum. But never with the audacious aplomb evidenced by Gov Tony this past week.

Specifically, and after an acrimonious budget battle, an appropriations bill reached his desk allotting an additional $325 per student through “2024-2025”.

Now, I’m not sure what can be done with an extra 3 Benjis plus change per pupil, and the Gov wasn’t satisfied. So, what does he do? He removes both 20s and the hyphen from the quotation sequence above, whereupon the $325 bump per year is extended to the year 2425.

And then signs the bill into law.

That’s right. Each year for the next 16+ generations, the school system will receive an additional $325 for every backpack carrying/PBJ eating little darling in the whole damned state.

I did some quick math here. America’s Dairyland (which a few years ago was passed in dairy product output by – you guessed it – California) has about 900,000 scholars in its K-12 programs. Next year, and as explicitly agreed, there’ll be another ~$300M devoted to their erudition.

OK, fair enough. But I doubt that even those slippery progs in the Madison Statehouse extrapolated out four centuries. So, let’s wind the clock forward to 2425 – a full hundred years before the apocalyptic period musically immortalized by one-hit wonders Zagar and Evans. The per-student tally rises from its current level of ~$13K/year — by ten-fold. Taking the total new outlays to ~$120B/year.

Now, to put this figure in perspective, in 2023, my Badger bureaucrats are expected to collect and spend approximately $20B. So, by MMCDXXV, they’ll be spending six times that amount on education alone.

And that’s just if the population stays stable. At current growth rates, it could easily double or more, taking the aggregates to a cool $300 Bil.

Per year.

It is, as with so many other things, exemplary of our times. I alternate between being singularly amused and livid. I think what gets to me most is the absolute infantile nature of it all. No doubt, the Wiscy wokesters are high fiving each other to death, but everyone knows it’s bullshit. It is a cynical political ploy, and one that will backfire, perhaps sooner rather than later, but the longer it goes on, I suspect, the bigger will be the backlash.

It also, of course, is a song in the same key as that of the recent SCOTUS debt cancellation decision. Both are tied to education funding, but what really ties the room together for me is the obfuscation of the identity of the true beneficiaries. These will goose tuition, fatten endowments, increase salaries and other perks. Few outside this matrix will benefit. In Wisconsin, teachers will get raises; maybe Evers gets re-elected, but will the educational experience improve up there?

I have my doubts.

But I will offer this opinion: if a single government official can successfully transform an expanding obligation – crafted for 1 year — into one that persists for four centuries, then we’s all in trouble.

Meantime, the markets remain a confusing mess. The ADP jobs number was a blowout, while the official government tallies came in light. Risk Asset valuations trimmed themselves a bit – all in advance of the crescendo information cycle, which, next week alone features bank reporting AND the two most prominent inflation metrics. These may provide some clarity. Or not.

Meantime, if one is looking for trouble (and of whom, can it be said, is not?), the Fixed Income markets are a good place to start. Madame X (10 Year Yield) has pitched a very womanly hissy fit, and now, at slightly above 4%, resides at her highest threshold since those days of relative innocence in 2006:

This chart may not look that menacing, but a close review reveals it to be more than a double in two years. High yield and Investment Grade Debt are dropping in sympathy.

Mortgage rates, as could only be expected, have followed suit:

15 and 30 Year Mortgage Rates:

I won’t get into the details of the vexing corner into which the Housing Market has painted itself. Bravo to anyone who had the good sense to re-fi (or, for that matter, fi) in the interval leading up to last summer, but they do face the problem that if they wish to swap their pieces of the residential rock, they must do so at approximately double the mortgage rates available a short five quarters ago.

So, no one is selling, and, hence, no one is buying.

Hope, perhaps springs eternal that an entity such as the Fed may provide some relief. But the betting markets are laying >90% odds that those curmudgeons are gonna raise rather than cut rates in a couple of weeks.

A good deal can happen in the interim. As mentioned above, there’s earnings, inflation, GDP and other statistics to contemplate. And nobody seems to have any informed opinion as to what will, or even ought to, happen next. I don’t see much cause for a collapse as the summer unfolds, but neither, on the other hand, can I gin up a framework for a giddy rally. I reckon us mere mortals will simply have to grind it out.

About the only bit of alchemy that I can conjure up would be a mass migration to Wisconsin, where one year becomes 400, where a $300M appropriation magically transforms into one that exceeds $100B – all not even at the stroke of a pen, but rather, the smudge of an eraser.

I’ve lived there. It’s cold in the winter, buggy in the summer. But the people are nice, and, of course, the beer, none of it sponsored by woke activists, moves from hops to kegs to bellies in a highly fluid fashion.

And your children’s children’s children’s children – times 4 — will have oodles of cash allotted to their erudition. And, to boot, if they get to the State’s flagship university – my alma mater – they should be in a position to utter the trademark phrase – fuck ‘em Bucky – like never before.

TIMSHEL

Alas, I recently jumped the gun on my mid-year analysis,

But as Frank Zappa, in his elegant, ethereal, eternal elegy “Stinkfoot” once warbled, a week’s gone by, and now it’s July.

We’ve thus traversed >180 spins in the ethereal cake mixer otherwise known as 2023.

But I’ve no intention of spitting out a recap of what has transpired these last six months. Rather, I will focus on where I believe we are – at this midpoint in our ritualized trip around the sun.

First, though, today is my mother’s birthday, or, rather, the anniversary of her birth. Were she around, she’d be blowing out 88 candles – one for each key on a piano. But she’s not, having breathed her last on New Year’s Eve, 2016 – the date on which fabulous Replacements founder Paul Westerberg turned 57.

Brian Jones died on her 34th birthday; Jim Morrison on her 36th. The latter was born 37 years to the day before the murder of John Lennon, who, in turn, was born four years to the day before John Entwistle.

I myself share a birthday with Walter Cronkite, Art Carney and Puff (yes, Puff), who was born on the day I turned 10. My brother and Barack Obama were born on the exact same date – the 60th birthday of the magnificent Louis (Pops) Armstrong. 54 years later – August 4, 2015, my eldest grandson James was born. His brother William came nearly two years later, on June 1, 2017 – the 50th Anniversary of the release of “Sgt Pepper’s Lonely Hearts Club Band”. Two more followed, the first, my namesake of sorts, on Cinco di Mayo in the year of the covid, and the last on his paternal grandfather’s birthday in terrible ’22.

Now that we got all the important stuff out of the way, let’s take a glimpse at where the rest of the world stands at Halftime ’23.

The French, as usual, are on strike. At issue is something to do with attempts to raise the retirement age. And wherever else we may differ upon this we can agree:

The French are criminally over-worked.

The United Kingdom has been busy cancelling Roger Waters gigs and denying Nigel Farage a bank account.

Putin is fending off military coups by latter day Lenin/Trotsky types, and then giving them uncharacteristically generous and thus highly dubious do-overs.

In Zurich, the sole surviving bulge bracket bank – UBS — is preparing a pant load of layoffs – some 35,000 in all. Most of the cuts will of course be on the Credit Suisse (an asset they picked up out of sheer patriotism, at approximately no cost) side.

To the victor goes the spoils; to the vanquished, the scraps.

There’s a new sheriff at the Bank of Japan. While the rest of the world is tightening, he is continuing to let them yens flow, the result being a weakening of the currency to levels that some view as problematic. It don’t seem to be much impacting Rising Sun risk asset valuations, though, as the NK225 continues it serge towards all-time highs, last breached more than thirty years ago:

Meantime, back in the States, well, there’s quite a lotta doings. The Supreme Court is en fuego – issuing a flurry of rulings – on affirmative action, freedom of expression and issues of debt cancellation funding. All of which resulted in half the country stewing while the other half rejoices. And all I can state is this: had each of these rulings gone the other way, we’d be facing an identical, if oppositely oriented, distribution.

A judge in St. Louis threw out a defamation lawsuit filed by a guy that won a global chess championship, by (allegedly) receiving electronic signals from a device planted up his ass.

Closer to our home narrative, and no sooner had the Debt Ceiling Crisis been settled, than the Treasury Department did what the Good Lord always intended. Issued a galaxy of new debt. Estimated to aggregate to ~$500B in June alone. By all accounts, they’re just getting started.

And who can blame them? When, after all, in the history of mankind, did any individual or organization receive an expanded credit line and simply save it for a rainy day? I remember, for instance, when my grad school student loans came through. I was encouraged to borrow as much as possible at the then-bargain rate of 9% (this may seem nonsensical to the uninitiated, but at the time, the Prime Rate stood at 18%). And when the checks came in, man, it was beautiful. My most difficult challenge was determining what I wanted to buy first.

Paying it back, of course, was a different matter. Took me more than a decade. But I did it. It was the Reagan/Bush I era, and nobody was offering to simply journal the obligation into oblivion for me. Now, please do not misapprehend me – had the cancellation option been dangled in front of me, I would’ve been delighted. Might’ve lined up the previous night, like I did for Zep ’75, to partake. And I wouldn’t have given a care that only Congress is legally authorized to appropriate funds to this, or any other, formal purpose.

But that’s how the Supreme Court read it, and, for what it’s worth, now, as a guy who only pays out, and never receives, from the government, I’m with them.

Investors must be fairly confident that the issue of stroke-of-pen debt forgiveness will never even arise with respect to the General Obligations of the United States, because the above-mentioned mega auctions were met with enthusiastic success.

Treasury, of course, will keep issuing, and will almost certainly pass the $1T threshold – an amount exceeding the entire National Debt at the point when I began borrowing to finance my fancy Master’s Degrees – by some time this autumn. Investors appear to have the means and willingness to absorb these offerings.

And, in result of these and other tidings, the markets ended the first half of the year on a decidedly upbeat note. Our equity indices are surging, Vixen Vix is pleasantly accommodating. Apple, as widely reported, surpassed the $3T threshold last week. Funny, it seems like only yesterday that they were flirting, amid much skepticism, with a quaint $1T. But one of the first things one learns in Finance – both in academia and in the field – is that the first tril is always the most difficult to achieve.

After that, it’s pretty much a milk run.

And if so, perhaps NVDA (just surpassing the $1T mark) is a singular bargain. A good deal rides on this whole AI obsession, and on this topic, I have only one observation.

Over the past week or so, I have noticed that the associated nomenclature has added the modifier generative. As in, we are no longer discussing AI, but rather generative AI. I’m not sure whether this is good or bad, accretive or dilutive, constructive or destructive.

But it does sound sorta menacing to me.

And that’s about all I got for now. We’ll all need to step aside a bit for the 4th, but in its immediate aftermath, it will be game on. Earnings, Jobs Reports. Inflation Reports. GDP estimates.

It will be complicated but oh so edifying. Or maybe not. We’ve come halfway around the sun, yet again this year, and appear to be not much wiser for our journey.

I often wonder what my moms would think about it all. But there’s not much mystery in that, as she was never one to withhold her opinions out of either deference or delicacy.

She survived 163 half trips around the sun. And then was no more. And, as I approach the 130 mark, I wonder if I’ve learned anything at all.

I think at one point I did, but then I forgot.

Maybe, I can learn again, and it is in this hope that I bid y’all a Happy 4th, and, as always….

TIMSHEL

Ah, get born, keep warm, short pants, romance, learn to dance
Get dressed, get blessed, try to be a success
Please her, please him, buy gifts, don’t steal, don’t lift
Twenty years of schoolin’ and they put you on the day shift

Look out kid, they keep it all hid
Better jump down a manhole, light yourself a candle
Don’t wear sandals, try to avoid the scandals
Don’t wanna be a bum you better chew gum
The pump don’t work ’cause the vandals took the handles

Bob

Risk Management Rule #1: when all else fails, turn to Bob.

I got to thinking about Subterranean Homesick Blues when monitoring this whole Titan Submersible fiasco. It’s arguably the first modern rap tune, and, perhaps when taking the Alan Ginsburg abbreviated lyric cardboard sign dropping film into consideration, also the first ever video.

But about this submersible mess, what a wretched parable for modern America. A few jabronis with inarguably too much discretionary wealth pay a quarter of a mil to dive ~500 meters to the ocean floor — to have a gander at the wreckage of the Titanic, itself sunk more than 110 years ago. Something goes dreadfully wrong, and, mercifully we learn, the vessel explodes. Which is a helluva lot better fate than zooming around the bottom of the drink looking for an escape as the sub’s 96 hours of oxygen dwindles away.

Unlike its tragic, legendary target, no band was there to play “Nearer My God to Thee”. There were no Astors, Guggenheims or Strausses aboard. And, from what we now know, no Unsinkable Molly Browns.

Somewhere, somehow, somebody is likely to find leitmotifs of racism, sexism, homophobia, transphobia, etc., here. But I will leave that to the better informed.

Meantime, the rest of us are, to varying degrees, Subterranean, Homesick, and with the Blues. I know I am, at any rate.

This past week’s action reflects same. Equities were under pressure throughout – ostensibly due to the Blue Meanie rhetoric and actions of the world’s Central Banks — and attendant fears of Recession. Treasuries rallied in sympathy. Speculations about declining front end rates, as reflected in long SOFR futures, are at record levels.

But what really caught my eye was the wholesale puke of commodities – particularly inside the Energy Complex. On Friday, WTI Crude dropped to an improbable 67 handle – and this despite what seemed to me to be unilaterally bullish data flows, throughout. The International Energy Association is projecting supply shortages across the entire second half of the year. After the recently announced production cutback, House of Saud flows into Western World receptacles are at multi-quarter low thresholds.

A little nutty, right? Maybe it’s just me, but if the pump don’t work ‘cause the vandals took the handle, I say the price of what issues from said pump should rise, not fall.

But it doesn’t end there. Grains, Metals, Meats, Softs, all sold off hard during the Thursday/Friday session. Maybe it’s the weather? I don’t know, but I do know this: you can’t write a note about Subterranean Homesick Blues without referencing the famous line: You don’t need a weatherman to know which way the wind blows.

And often you don’t. Including in the markets. Because, to me, the retrograde commodity move suggests some serious capital rotation, which bears watching. Recession? Well, maybe. But does this justify an approximate 10% selloff in the Bubbling Crude over the last couple of sessions? Color me a bit skeptical.

Another submerged asset is that fallen siren – Vixen Vix. Which has breached into a salacious 12 handle this past week. Nothing for nothing, but it wouldn’t be the worst idea to give her a tumble – either directly or by virtue of a rendezvous with her skanky sisters – the out of the money Gallant 500 puts.

Normally, I hate this trade, which hedges almost nothing and enriches few but the pimps on the sell side who offer, and collect a fee for, these tempting wares.

But if there’s ever a time to buy, it’s when it’s cheap. And it is. Thus, in a world where the frenzy to buy protection tends to peak after a major dislocation, when the cost of such protection approaches or reaches thresholds of the prohibitive, there’s now an opportunity to grab some portfolio insurance at bargain rates.

However, I think the likelihood of cashing in on this trade is low. We’re looking at a quiet week, and then (cue the trumpets) the 4th of Joooo-lie. It is only in the aftermath of this interval that anything of import is likely to transpire. And, as was ever the case, the purchase of portfolio protection at more remote expirations becomes incrementally expensive.

And I don’t have much else to relate.

I could warn you to look out kid, they keep it all hid. And I’d be right. The DOJ, as was inevitable, went completely into the tank on Joe’s Family shenanigans – perhaps the most astonishing “nothing to see here folks” moment in recent memory.

But what else could we expect? Was Garland and Company ever gonna extrapolate the tens of millions of dollars of payments and associated quid quo pros into plausible theories of what is plainly influence peddling on the part of his boss and crew? Hardly. Instead, they jumped into a manhole and lit themselves a candle.

But all is not lost on that score. The episode – at least nominally implicating a current president and declared candidate for reelection – traverses from the judicial into the political world. If we’re ever to learn the truth, it must be through Congressional hearings, reinforced by compelling evidence that causes the public at large to, well, you know, care.

This narrative, if it is to unfold, will do so unhurriedly. The Republicans who control the House – nothing if not political animals themselves – are likely to slow walk this for a few months, stoking the fire sufficiently to keep it alive, while holding most of their flames until late ‘23/early ’24, when the election blots out the sun and the impact can thus be maximized.

I intend to ignore this flotsam and jetsam and suggest you do the same. Instead, let’s concentrate on your book(s). It is unlikely that the 2nd half of the year will feature as pleasing an investment environment as the first half, and we are best positioned if we focus on navigating the associated risks.

Here’s hoping that we do a better job than Edward John Smith – Captain of the RMS Titanic. We’re a little bit early to judge the performance of Captain Jamie Frederick, who did not steer his submersible into a sub-oceanic iceberg and may have been doomed from the start.

One thing is certain – it will be up to the lawyers to sort out. And to make a fortune in the process. It was ever thus.

For the rest of us there’s nothing to do but mind our own ships. So, in trying to avoid scandals, I recommend that you shed your sandals, learn to dance, get dressed, get blessed, and try to be a success.

And you don’t want to be a bum, so grab yourself a piece of gum and start chewing.

And that, my friends, is all I have to say about that.

TIMSHEL

First off, Happy Juneteenth, y’all, which for the last three years, has been a National Holiday. Schools are closed, as are the markets. So, there’s no legitimate excuse for not taking it in in its full measure.

Time was, I didn’t know what it was all about. But I have since taken the trouble to educate myself. Like the also recently emerged Cinco di Mayo, its historical premise is somewhat contrived. First principles, it commemorates the day in 1865 where an obscure Union General freed all the slaves in Galveston, TX (a Gulf Coast Island which had changed hands between Civil War combatants a half a dozen times) and, while he was at it, those of the whole damned State of Texas.

It was little more than a technicality — preceded by the Emancipation Proclamation itself, enacted some 2.5 years earlier, which freed all the slaves in states “the people whereof shall be in rebellion against the United States”. Texas was one such jurisdiction, so those folks was already, by law, free.

But on June 19, 1865 – some ten weeks after Lee’s surrender at Appomattox, the occupying General of the region in question doubled down. And freed ‘em again.

And thus, we rejoice over this second deliverance. I have no quarrel here; very little strikes me as being worthier of celebration than the liberation of oppressed, impressed persons, and I certainly dig the mash up calendar nomenclature from which the holiday derives its name.

However, I have often wondered what the f_ck them dudes were thinking on June 20th – the first day of their homeless, jobless, friendless, disenfranchised freedom.

I can’t help it; it’s just the way my mind works. The Buzz-killing All Saints Day follows All Hallows Eve. And we’re supposed, I guess, to pray. For the saints. I have often wondered about the content and physical manifestations of Preparations A through G. I don’t think I’m alone here, but I have also pondered what Ben and Elaine did in the immediate aftermath of the closing scene of The Graduate. Riding on a city bus. With no money. And an angry mob of wedding attendees – presumably led by the jilted groom, the equally jilted Mother of the Bride and her cuckolded husband – in hot pursuit.

And as for this year’s Junetieth, we are arguably facing a similar “what now?” moment.

For all intents and purposes, the first half of ’23 is in the books. With the trading floors dark on Juneteenth, we’ve about nine sessions that remain to it. And almost no data. Presumably, a portion of this week will be devoted to recovering from a massive Juneteenth hangover. By the time next week rolls around, we’ll be staring straight in the preparations for that more widely known but less dramatic liberation holiday: our nationwide celebration of independence on the 4th of July.

So, I reckon that now is as good a time as any to take stock of what has transpired these past six months — specifically from a Junetieth/what do we do now? perspective.

To begin with, I find that the economic and financial flows have been, with near unilaterality, surprisingly encouraging.

Humor me for a minute and wind the clock back to New Year’s. As the closing ball dropped on a dismal ’22, who among you would have projected the following – a scant six months hence?

Colonel Naz annualizing at >100%, Gallant 500 up by mid-teens. AAPL a couple of upticks away from a $3T Valuation; NVDA storming the $1T club and holding its ground.

Vixen VIX at lows not seen since we had to quarantine her for that nasty infection she caught and passed around in the Spring of 2020.

(Side Note. A few days ago, Paul announced the pending release of at least one, and perhaps an entire album’s worth, of new, AI-enabled Beatles tracks. If they capture the magic of 67-70, then I surrender. AI wins and we should all just go home).

Crude Oil is down ~15%, Nat Gas > 50%. Inflation has dropped by more than half, with this week’s PPI clocking in at an astonishingly benign 1.1% year-over-year — and negative for the month of May.

The Fed, as expected, paused its rate-hiking ways — after 10 consecutive raises that have taken the Fed Effective Rate to just over 5% — creating the following elegantly rendered time path chart (left) and sustaining a grotesquely inverted yield curve construct (right):

The Developed World banking system experienced – and survived – the largest aggregate set of failures since at least the Great Financial Crisis.

And all the above notwithstanding, we have full employment and no sign of GDP contraction anywhere on the horizon. Heck, even the second tier Retail Sales and entirely back benching Empire Manufacturing Survey – both projected as negative – blew out to the upside.

Again, reverting to what I would have anticipated six months ago, and in terms of “risk on” vibe, I would’ve taken The Under with respect to nearly every one of these data points.

The capital pools I track, for the most part, have failed to fully capture the breadth of these financial and economic blessings. Still and all, most are certainly better off than they would have been had the horrors of Terrible ‘22 extended themselves.

The question remains: does it make sense to load the boat and launch into these calm seas and gentle trade breezes?

Logic would suggest that the back half of the year will be a tougher slog. The Naz is not likely to have put up a double by year end. Energy prices must find a floor somewhere in here and under many contingencies could put in a nasty V. Inflation is unlikely to continue its current pace of evaporation — unless the economy itself takes a nosedive.

Fed rhetoric suggests that last week’s “hold” was simply a pause, and that hikes will resume as soon as the next cycle. I reckon we’ll see. Some of y’all is expecting a reversal to the time-honored practice of cutting. I myself can’t get there — without building in assumptions that are entirely speculative in their rendering.

But we do know this: after the recently resolved debt ceiling crisis, the Treasury has some catching up to do in terms of issuance. To the tune of several hundreds of billions of dollars, and at a point where its friends at the Fed are divesting. Somebody else must purchase these securities, and it may crowd out flows into other investment themes. Plus, there’s a whole passel of dubious paper (including ~$1.5T of Commercial Real Estate debt) to roll — in a higher interest rate regime, with tightening underwriting standards, and angry, annoyed regulators nosing around every corner.

An inverted yield curve mathematically suggests the expectation of future rate reductions — as the longer-dated paper moves closer to maturity. And it says here that the only way rates drop is under conditions if incremental economic pressure.

It strikes me in general that even if we buy into the good-time narrative reflected in price action and economic data – best case, we seem to have shoved the fruits of what would otherwise amount to one helluva year into our gullets in under half that time span.

Still and all, I don’t see much of a framework for a dire reversal into gloom. My main thought here is simply that the back half will be a bumpier ride.

This is no cause for despair, however. The newly liberated souls in Galveston began to build themselves new lives on Junetieth, 1865. And, while their struggle continues, by all accounts they have made enormous progress in this regard. And they now got themselves a National Holiday.

Further research indicates that Charles (The Spider) Webb, author of The Graduate, wrote a sequel which sent Ben and Elaine to Westchester County, NY, where they homeschooled their two sons. As was inevitable, they enlisted Mrs. Robinson’s help, who, in trademark fashion, proceeded to seduce the local principal of an educational institution whose roster of enrollees did not include her grandsons.

All of which winds up our business for the day. Except for this. Rumor on the Street has it that Pfizer Pharmaceuticals – manufacturers not only of those fabulous covid vaccines but also of Preparation H, is gearing up for the release of a new hemorrhoid treatment product.

Make your own judgment here, but Preparation I is a hard no for me.

TIMSHEL

Shall we go? You and I while we can?

Garcia/Hunter

I expected a quiet week, but, on balance, it wasn’t.

Action began Sunday night with those pesky Saudis making the first of two high profile announcements. First, they went rogue and cut production by 1M bbl/day, causing Crude Oil futures to rally significantly — before finishing the week at levels lower than those observed before this shocking lapse in decorum. Within 36 hours, the House of Saud’s finance guys had pulled off what looks like a wholesale acquisition by its newfangled golf league of the venerable PGA.

I really could not give a care about the latter. Golf bores me to tears. I don’t play. And, among the dwindling set of blessings for which I am most grateful is that there does not exist a picture of me anywhere as part of a semi-circle of guys wearing baseball caps and holding a downward pointing metallic shaft. I may not (I tell myself) have a short or long game but I still have my dignity.

Midweek witnessed the thuggish Gensler taking dead aim at Binance and Coinbase. The crypto market is feeling the pinch but has arguable weathered worse storms than this.

Wednesday brought on a literal smoke show (rumored to have originated by a pig roast in Sheboygan, WI), which, combined with a threatening storm that never materialized, brought an endof- days aura – to Manhattan and other locales –which was truly frightening to observe.

Did a dark star crash? There’s no evidence that one did.

Hump Day, also improbably, manifested the migration of the Gallant 500 host into Bull Market territory (trough to peak gain of > 20%). Against considerable odds, it holds this lofty status.

Also on Wednesday, my market hero Druck graciously submitted to a full-length Bloomberg interview and made everyone who was paying attention (including yours truly) feel smart — by outlining market conditions and implications in a manner an entirely rational manner that was also consistent with the prevailing data. Least visibility/fewest actionable trends in his career. America careening into irrevocable insolvency, but not likely to feel the associated pain. Yet. AI probably a secular trend – perhaps as important and potentially causing as long-lasting a rally as the late ‘90s Internet Boom. Political situation a hot mess, with anything that removes both Biden and Trump from the ’24 equation an unmixed blessing.

Druck is currently sitting on his hands for the most part, but looking, over the next several weeks and months, for high probability dislocations. Wherein, upon identification, he is prepared to pounce. I concur with all his judgments and actions, under the gratuitous platitude that great minds think alike.

Speaking of Trump, on Thursday night, the Justice Department dropped a multiple-count indictment on his ass – the second in what threatens to be a string of several — of a former president, for his handling of classified docs. In keeping with the times, Trump himself announced this development to the world.

I’ve long since soured on the guy and would like nothing better than to see his dark political star crash and burn. But c’mon people. There’s a dangerous element of politicization at work here, which only the willfully obtuse would fail to acknowledge. The Fed Fuzz are using their powers in a demonstrably unobjective manner. Moreover, not only is it likely to fail over the short term but is destined to haunt us when the political winds shift.

The Uni-bomber offed himself a couple of days ago, but, perhaps, the less said about that the better.

Topping matters off was a personal experience on Thursday, when, while walking down Broadway, a young (high school-aged) African American woman approached me. She had corn-row braids and, to my shock, was wearing a Grateful Dead tee-shirt. She was raising money for the Brandies High School basketball squad – informing me that she was the only female starting point guard in The City.

I asked her a couple of questions and then emptied my pockets for her. I told her that while she may or may not be the only girl starting point guard in the world of New York high school hoops, she was certainly the only black one who was also a Grateful Dead fan.

She told me her fave Dead tune is Dark Star. Which (along with Uncle John’s Band and China Cat Sunflower) happens to be mine as well.

And it had me wondering – shall we go? You and I while we can?

I will ram this into a market analogue – mostly because I, we, can. Should we dive in here? Valuations are undoubtedly rich, and there are certainly myriad material risks to consider.

But investors don’t seem to care. Case and point, Vixen VIX has gone down to her lowest depth since the immediate prelude to the lockdowns:

All the above comes in advance of what, on paper, should be an interesting week of data flows. The Tues through Thur sequence features CPI, FOMC and PPI. I don’t believe that, within the bounds of Rational Expectations, anyone cares what the Fed does. Hit or stick – the market will probably shrug and move on. CME futures are pricing in a 75% probability of the latter (stick). They’re usually right.

I am a little surprised how little adherence there is to Inflation tidings. May CPI, year-over-year, is prognosticated at just over 4%, or considerably less than half its prevailing levels from just over a year ago. PPI even more so. The Survey says 1.5%, which, if I’m not mistaken is actually below the 2% target — so widely fixated upon by the Fed and its watchers. Overall, investors are pricing in a rate gratifyingly close to this formally articulated objective:

If these numbers are accurate, it’s a helluva a lot of Pi progress in a single year. If they’re off in either direction, markets will react. I don’t believe they care about anything else, but particularly if Inflation is higher than expected, they should move considerably.

But it’s hard to fade the short-term base case. Full Employment, transitorily waning Inflation. No Recession in sight. Crude Oil dropping as the driving season begins and despite production cuts.

So, on balance, I’d say the answer, from an investor perspective, is yes. We shall go. You and I. While we can.

I don’t say we should go terribly far, certainly not out of the galaxy. For, somewhere out there, in a googolplex universe of celestial bodies, a dark star is indeed crashing. From a probabilistic perspective, this is a certainty. Similarly, this here market may feel the pull of dark gravity at any moment.

And we should keep our eyes open. Because things are not always as they seem. When I got home Thursday night, I tried to find my little deadhead hoopster online. And came up empty. Perhaps she was on the level; perhaps she was scamming me.

If the latter, I have no regrets. She earned that cash — through energy, initiative, and ingenuity. I hope she makes wise use of it.

And, in this black hole, dark star, nebula parallel investment universe, my fondest expectation is that you will do the same.

TIMSHEL

And they knew that it was much more than a hunch…

Sherwood Schwartz (Creator, The Brady Bunch)

I thought I might take the opportunity to offer some bona fide investment advice, apologizing for some tardiness here, as the catalyst is more than a week old. With the passing of Turner, Brown and the two Chi-U Bobs, I got a bit distracted.

At any rate, the opportunity is still fully ripe, so, all good.

Here’s the story. The iconic Brady House is for sale. The property – 11222 Dilling Street in Studio City, CA — is listed by Compass Realty, at the sacrificial price of $5.5M. It is not known why its current owner – HGTV — has decided to part with it. They bought it 5 years ago for $3.5 Mil, and sunk some significant cash into it — in joint venture with those fabulous Property Bros. The all-in cost to HG is thus approximately equivalent to the current offer price, but – trust me here – they made a killing – if nothing else by what they netted when they, along with the above-mentioned Bros, AND all 6 Brady Kids (both parents and the fetching Alice are dead, Tiger disappeared after Season 1, and, apparently, the misbegotten Cousin Oliver failed to make the cut) created a 4-part series called (what else?) A Very Brady Renovation.

As a public service, I am supplying the listing link below:

Oh wait, that’s the link to my new book, co-authored with former Majority Leader Richard Gephardt. It’s officially available now, and you should certainly buy it. You will no doubt earn a creditable return on your time for doing so, taking the form of a material broadening of your intellectual horizons. But it is NOT, I fear, an Investment Full House. But this is:

https://www.compass.com/listing/11222-dilling-street-studio-city-ca-91602/1318113637205466977/

Thus, for a mere five and a half sticks, it can be yours. Formica tabletops, single bathroom for nine humans, stockade fenced backyard, Johnny Bravo’s groovy attic, the never-seen-on-TV Mike Brady BSDM dungeon, the miniskirt peekaboo slat staircase, and so much more.

By hitting the bid, you will not only have sealed your place in history but will have locked in an IRR not available this side of NVDA.

You will also have earned my undying admiration, because, you see, I am all about the Brady Bunch — always have been, since its premier nearly 55 years ago. Like all young males of my generation, I had a thing for both Marcia and Jan (and, of course, the luscious Mrs. B.). But for me it went further. About a decade ago, I took a Buzzfeed quiz to see which one of the older sisters I was, and I came out Jan. I wasn’t sure about this, so I published the results widely on social media. Most everyone agreed. I am, indeed, Jan.

In case you’ve spent the last two plus generations in some non-terrestrial portion of the solar system, The Brady Bunch was the campy saga of two single-gendered families merging into a combined domestic unit, as catalyzed by the nuptials of the unattached mom and dad. It is the creation of TV genius Sherwood Schwartz, fresh off his amazing success with another improbably stupid but somehow compelling hit: Gilligan’s Island. He not only created that series but wrote the theme song – AND ruined the lives of the entire cast. He then went on to conceive The Bunch, also here writing its annoyingly unforgettable theme song. Zany Hijinx and Hilarity (inevitably) ensued. Cindy lost her doll. Jan got a wig. Peter channeled Bogie. Mom may (or may not) have tapped Joe Namath. Greg may (or may not) have tapped mom.

This much is certain, though: Greg def tapped Marcia. Peter did Jan. This bit of small-screen incest should probably be forgiven, though, as hormones, at the time, were raging everywhere.

The main challenge, however, was successfully met. The disparate group somehow formed a family. And, nearly 50 years after the last episode aired (something about Greg’s hair turning orange – a plot so absurd that dad Robert Reed refused to participate and was written out of the script) we have a highly heterogeneous group converging towards domestic bliss.

Here, of course, I’m referring to the lightening quick passing of a debt ceiling expansion — a bill which, in a turn of linguistics few this side of the demented genius of Sherwood Schwartz could appreciate, was dubbed the Fiscal Responsibility Act. There had of course been much hand wringing in the leadup to this officious journey into further fiscal insanity. The parties involved are currently so hostile to one another that the thought of them coming together to even share a bathroom – let alone authorize a cool (groovy?) additional ~$4 Tril in borrowing capacity, was, heretofore, unthinkable.

I was on record as being more or less certain that they’d overcome these differences — in the righteous cause of expanded insolvency. And it turned out I was right. But I will cop to being surprised at the celerity with which this all came together.

The markets were positively giddy at these tidings, but had, arguably, other causes for celebration. Consider, for instance, the extended afterglow from NVDA’s earnings blowout. Perhaps more pertinently, the May Jobs Report was superficially a blockbuster but, upon closer inspection, contained some underlying ambiguities:

The Payroll and Household Surveys diverged like the Brady House of Cards War over trading stamps. And even in the former, wage gains eased back while employers cut back hours.

Perhaps this is why the market reacted with such glee at the outcomes. The Jobs economy is solid, but maybe not overheating. In somewhat Pavlovian fashion, equity investors swooned with delight, while bond traders held the line at ~3.7%. Vixen VIX – too R-Rated to every guest on TBB — collapsed to her most supine position in 18 months.

No, it’s not all “poak cchsops and apple schass” out there, but for an economy expected at every turn to plunge headlong into stagflation, conditions, for the moment, are eerily tidy. Inflation trends, if stubborn, are at least directionally encouraging. The widely prophesied recession does not appear to be imminent. The most visible part of the earnings matrix is flashing green.

In result, those who bailed into stocks will escape my immediate wrath. And, as for incremental investment opportunities, while I do prefer the Dilling Street real estate play, I suspect that others will continue to seek their fortunes through more liquid, entirely financial investments.

It all has the rather unsettling feel of an early ‘70s sitcom, though. Plot, subplot, and happy resolution (combined with the obligatory moral lesson) all jammed into a compact 22 minutes, with toothpaste commercials inserted at strategic intervals throughout.

In other words, it’s kind of like The Bunch, which could neither be filmed nor put into production today, among other reasons because Hollywood writers are on strike, and – horror of horrors – may soon be joined on the picket line by the actors and directors. Though I digress – the Haymarket Riots this ain’t. Mother Jones is dead nearly a century. The opposition, far from assuming the demeanor of blood thirsty, child abusing industrialists, is comprised of movie producers, most of whom share the same political sensibilities as the strikers. And, in addition to the moral ambiguities associated with these most pampered of professionals seeking redress for the abuse purportedly reaped on them by filthy capitalists, there’s the small problem that they can probably hold this job action for at least a decade before anyone notices (I, for one, will happily substitute Brady Bunch reruns).

It certainly won’t impact the broader markets, but I’m not sure what will. On paper, the next focus of obsession should be the June FOMC meeting, still more than a week away. There’s talk out there of a pause in the recent string of rate hikes, and were I a betting man, I’d say that’s the way I’d play it. But I don’t think investors care. Raise or stick, it just doesn’t mean what it used to. Or ought.

In any event, I remain a bit skeptical about the sustainability of this here rally. I don’t feel it’s all a mirage, but neither do I believe it can much extend itself.

So, load in if you will; stay in if you must. You’ll get no complaint from this quarter. Or, alternatively, you can buy the Bunch house. Under whose porchlight Sam the Butcher wooed the lovely Alice. Within which Greg and Marcia prepared their opposing campaigns for Student Body President. Where dunk tanks and potato sack relay races dominated the lawn.

Just remember of that if you hit this bid, you are acquiring not just a house, but a shrine.

We all had a gas there, even if, as was the case with Gilligan’s Island a few years earlier, the place ruined if not the lives, then the subsequent careers of the entire cast. But that’s show biz. And as a last bit of risk management advice, I’d say it’s better to acquire 11222 Dill as an investment property than as a primary residence.

It is, after all, a full house: Deuces over Aces. If you happen to be playing Acey Deucey versions of poker, this is as good as it gets. But, with a single bathroom, there are perhaps better places to rest your weary heads.

TIMSHEL

God Oh Mighty; they’s droppin’ like flies.

Adhering to the reality that my essays are often little more than a running obituary, this one goes out to four of the recently and dearly departed. Two from entertainment and culture; two from academia.

Let’s begin with the diverting stuff first – saying goodbye to Jim Brown and Tina Turner. Brown was arguably the most dominant player in NFL History, establishing himself as the league’s all-time leader in rushing, TDs, and all-purpose yards – all in a scant 9 seasons. These records were meant to be broken. And were. Mostly by Emmitt Smith, who played about twice as long.

Brown retired at the top of his game, ostensibly for a career in the movies. His one significant contribution in these realms – his role as Private Robert T. Johnson in the fabulous 1967 film “The Dirty Dozen” is particularly noteworthy insofar as it proves the exception to the rule which stipulates that in action films, the black dude always dies first. (SPOILER ALERT: Brownie indeed gets it, but is the last, rather than the first, to go).

After that, and for fifty years till his death, not much.

Then there’s Tina. Irreplaceable. Kind of like the female soul singer version of Led Zeppelin – scores of imitators and no one came close.

Think of it: does anyone even enter her galaxy? No. There. Is. No. Alternative.

Brown died in L.A.; Tina in Zurich. Neither metropolis had as bad a week as did Chicago and its eponymous University, which lost two giants– Nobel Laureate Robert Lucas and President Emeritus Robert Zimmer (the latter not to be confused with similarly named Robert Zimmerman — aka Bob Dylan — who is not only still kicking, but who celebrated his 83rd birthday last week and who is about to launch the ’23 version of his never-ending tour in Lisbon, Portugal).

Lucas is most widely known for the somewhat oxymoronic concept of Rational Economic Expectations, hypothesizing that economic agents will make rational (i.e. self-interested) choices based upon available information. Commercial enterprises will, for instance, produce up until the point where marginal revenue drops to the level of marginal cost; consumers will, well, consume — to the point where marginal cost meets marginal utility. One always hoped that this would be the case, and often it is. But it took a Lucas to codify it into a useful economic model.

It also fostered a corollary called the Efficient Market Hypothesis – suggesting that the price of financial instruments at all points converges to appropriateness – again based upon available information. One can argue that economic expectations often diverge from the rational, and that markets are anything but efficient – particularly nowadays. I studied this sh!t across my two tours of duty in Grad School (one at the U of C), and this journey may have ruined for me what might otherwise have been a fabulously lucrative career in Money Management. Because, you see, I bought into the whole Efficient Markets thing with fulsome abandon. I figured that neither I nor anybody else could spot market mis-pricings on a consistent basis, so, what would be the point of trying to make a living attempting to do so?

Now I know better. The market is full of inefficiencies, often manifesting for rational reasons. To cite one example, when investors seek to buy or sell outsize quantities of a security that features finite liquidity or other constraints, it can often cause valuation shifts that are not in the moment reflective of all pertinent inputs. Consider, for instance, the intraday interval in the Spring of 2020 – in the early days of the lockdowns, when Crude Oil traded at negative prices. That’s right; rather than paying for the stuff that powers the world, sellers were willing, for a few hours at any rate, to compensate for taking it off their hands. This was an exclusively technical problem. There was no room at the inn of approved storage facilities, including, most notably, the official warehouses in Cushing, OK. The Cush Okies were unable to accept any more of the black, sticky stuff, and, as a result, unless one had a fleet of tankers at the ready, one had to ditch crude under whatever terms were available.

So, no, and though this is Chi-U blasphemy, I can confidently assert that markets are quite often inefficient. Still and all, I think both theories are useful as benchmark assumptions. It pays, I find, to begin with both above-described hypotheses. Then seek to figure out where this is not the case – thereby creating an actionable as an investment hypothesis. You could do a lot worse.

Zimmer was a mathematician and a gifted one at that. He chaired the Maroon Math Department as well as such legit institutes as Argonne National Laboratories and the Fermi-Lab. But for my money, his signal contribution was as the former’s Chancellor – particularly his 2014 publication of what is known as The Chicago Statement – a document solidifying the University’s commitment to Freedom of Expression — and going so far as to admonish any souls too sensitive to embrace diverse thought to park their snowflake asses at some other academic institution.

Rational Expectations and Efficient Markets. In an ideal world, There Is No Alternative. But then there’s the one which we inhabit, where these tenets manifest in quantities short of the optimal.

Two topics dominate market proceedings at present. First, there’s the never-ending debt ceiling drama, which appears to be migrating towards resolution. Some of this is consistent with Rational Expectations; some not so much. It certainly would be irrational to upend the entire political and capital economy by failing to expand an entirely arbitrary borrowing limit. However, the current political climate suggests that the two sides which must agree — in order to avoid this outcome — are aligned in such a manner as to disincentivize them from any form of compromise.

I reckon what wins in the end is the Rational Political Expectation that if policy makers manage to bitch this up, there will be hell to pay. For all of them. The deal’s not done yet, and the blood-thirsty backbenchers must be satisfied to complete the process. There may be more pearl clutching moments here — ere the ability to add incrementally to our gargantuan indebtedness becomes the law of the land. But I haven’t been too worried about this and am less worried now. Nobody wants to own a Treasury default, and ALL will share in the shame and disgrace if it goes down. So, sooner or later, they’ll save themselves.

There. Is. No. Alternative.

Investors have been passing pleased with the latest developments in these realms, and even more so at the veritable explosion driven by the emergence of Blockchain Artificial Intelligence onto the telecommunications horizon. AI has been discussed – ad nauseum – since before I entered grad school at University of Chicago. Back in 1985. Under the administration of the fabulous Hanna Holborn Gray. But for the ensuing 40 years, it was just that – nothing but talk. Then, of a sudden, in 2023, it’s everywhere. In practical use. It’s writing poems. Love letters. Term papers. Sales pitches. It will accurately prognosticate the exacta at Pimlico. I’d go so far as to suggest that if the folks in Washington do indeed resolve the debt ceiling stalemate, it may be owing to both sides having agreed to simply submit the problem for arbitration to the auspices of ChatGTP.

I don’t want to devote too much real estate to the subject – the focus of so much recent yakety yak – some of it, I suspect, AI-generated. But after NVDA’s historical, blowout quarter, duty compels me to mention it. It is knocking on the door of the vaunted, 5-member, Trillion Dollar Club. It sports an astonishing P/E of 189 (4 of the other 5 top out in the 30s). It is worth more than JP Morgan, Bank of America, Goldman Sachs, Morgan Stanley, and Citigroup combined. Its post-earnings rise on Thursday, which added $186B to its valuation – third largest single day gain in market history – is greater than the value of all but ~50 names in the global market matrix.

Its Jordan-like/Brady-like performance had investors positively swooning, catapulting Colonel Naz to its highest thresholds in nearly two years and projecting an annualized ’23 gain – even as of this Memorial Day Weekend — of nearly 100%.

Nice Job, NVDA; good work, Colonel, but I’d take this opportunity to warn that the scope of the market rally is at historic lows, with spiffy index gains driven by a handful of favored names. One way of measuring this is in the spread between the Capital-Weighted and Equal-Weighted Naz:

Thus, for investors, it’s AAPL, MSFT, NVDA and few others.

There. Is. No. Alternative.

It all rather strikes me as thin gruel, and I’d urge caution up here.

It’s a long race, and a good start doesn’t ensure a successful finish. Among the images burned into my brain is Jim Brown’s final desperate sprint to the escaping jeep containing Lee Marvin and Charles Bronson. Every time I see it, I’m praying for him to make it. And he never does. Perhaps you’ll do better. Just keep running, OK?

Once again, and for the last time: There. Is. No. Alternative.

TIMSHEL

I warned y’all this was coming.

The time has arrived to move the merch.

I’ve done my part; now it’s up to you.

Of course, I’m referring to the much-anticipated, pending release of “535 Not 1” – the hottest geezer memoir going, and, if I may say so, the first and last word on best governance practices in a Democratic Republic. It is co-authored by former House Majority Leader Richard Gephardt, and, well, yours truly. Its formal release date is June 3rd, but the enterprising among you can certainly pre-order it now.

I’m not asking a great deal here; only that you buy it and review it favorably on Amazon. I’ll make this even easier for you and direct you to the following link:

https://www.amazon.com/535-Not-1-Richard- Gephardt/dp/1667849654/ref=sr_1_1 crid=WR998BNHPVLP&keywords=535+not+1+gephardt&qid= 1684440652&s=books&sprefix=535+not%2Cstripbooks%2C85&sr=1-1

I co-wrote it — in the sense that I took Congressman Gephardt’s story – as conveyed to me in audio files — and converted it into a more readable format. The process unfolded over > 4 years, with a pandemic-driven break in the middle. I enjoyed the work. I didn’t design the cover (had I done so, I probably would’ve awarded myself a slightly larger font size), but think it’s pretty cool too:

Yes, it’s a memoir – the story of a man of humble origins’ rise to the highest echelons of public power — and his of experiences on this pantheon. I like these kinds of tales, of wistfully short supply these days — in a political landscape dominated by trustafarians like that fat ass Pritzker, real estate moguls-turned television personalities-turned leaders of the free world, and other shady, sketchy characters.

But the story also unfolds in such a way as to offer a ringside seat to legislative battles of the day, ranging from Public Health to Crime to International Terrorism to Inflation to chronic Budget Deficits to Impeachment.

As I laid all of this out, I was nigh astonished at the similarity of the challenges faced across the 12 Gephardt Congressional Terms – spanning the last generation of the 20th Century – and those which dominate our agita today.

Congressman Gephardt is a Democrat exemplary of that age. Son of a union man, risen through a St. Louis political environment dominated by that party. Political scion of such Congressional Lions as Tip O’Neill.

I, by contrast, am not. A Democrat, that is. And, while I can’t quite bear to self-designate as a Republican, an honest accounting would confirm that this is where I am philosophically positioned, where my sympathies lie. Congressman Gephardt passionately believes in the ability of government to devise and implement solutions to problems. I am passionately convinced that governments, though necessary, very rarely optimize outcomes, and, often as not, bitch things up entirely.

But we found an enormous track of common ground in our unwavering belief in the magnificent processes gifted to us by our Founders, and as embodied in the holy United States Constitution. Three branches of government – one to pass laws, another to execute them, and a third to interpret them. Each providing ballast against the other two. Ideas only become law if legislative representatives can agree on their content AND the President signs off. They only remain law if they are consistent with the overall constitutional framework. It’s messy as hell. It is perpetually threatened by the seekers of power and special interest. But it leads to the best available outcomes.

And it must be defended at all costs.

The co-authors both believe this with a deep conviction, and both are beyond concerned at the current threats to its viability. It was ever so threatened, and it is difficult to definitively determine if the hazards it currently faces are as great or greater than those manifested in, say, 1968 – when America was coming apart at the seams, torn by a senseless war, racial and social tensions, etc.

Yes, the jury’s still out on that one, but this much is certain: 55 years ago, the music was better.

While it is plainly the case that the political parties are at a multi-generational low ebb in terms of collegiality or even decorum, we saw a glimmer of hope in the past week — insofar as the big warring chieftains have made at least a show of sitting down to hammer out a debt ceiling deal. Jacobins on both sides of the spectrum (but particularly on the left) are up in arms about this, believing, as is their wont, that any demonstration of commonality with their political opposite numbers is tantamount to treason (consequences of remaining at odds on all points notwithstanding). But the two sides are talking constructively, and I believe there is merit in that.

The subject matter, however, is infantile. If you read our book, you will stumble across something called the Gephardt Rule. Passed in 1979, it stipulated, with laudable Missouri common sense, that if Congress passed an appropriation in amounts more than those allowed by the prevailing debt ceiling, the latter would be increased unilaterally to reflect the discrepancy. One might view this as being almost too logical to be practicable, and, in a political sense, one would be right. The Republican controlled House repealed it in 1995.

So, now, we are compelled to endure a periodic psychodrama wherein we white knuckle our debt right up to the limit, risk a freeze on the borrowings that we somehow think can: a) rise to infinity; and b) turbo-charge us to incremental prosperity, and bring the global capital market to the brink of the world’s most historically reliable financial product entering into the condition of default.

The very notion of our doing so – simply because the aggregate level of borrowings reaches an arbitrarily rendered limit — is positively Felini-esque. For better or worse, our righteous political processes have guided us to a point where galactic financial obligations – now at levels that will plague many future generations – is the rule of law. To pause here because of debt ceiling constraints is absurd. It won’t happen. We will indeed increase our borrowing capacity. And pay the consequences at a later date.

The markets are, in the meanwhile, laser-focused on these tidings (and little else). They rallied all week on hopes emanating from the latter-day Yalta Conference between Biden and McCarthy, and sold off Friday when the two parties entered into a rather pissy pause.

I hear tell that they’re back talking again. Which is both fitting and proper. The system specifies that the debt ceiling cannot be modified absent Congressional approval and Presidential sign-off.

It these two branches try to pull a fast one, the courts are there to set things aright.

Just like the Founders laid it all out. Just like the Congressman and I describe in “535 Not 1”.

I ain’t got much more to lay on y’all this week. I read that Starbucks is changing its recipe for ice, and – not gonna lie – that makes me very nervous.

Other than that, not much to chew upon across the capital markets spectrum. Other than the abovementioned Washingtonian showdown, I anticipate incremental quiet as the week unfolds, and many of y’all bounce for Memorial Day festivities.

I take this as an additional blessing, because, when seeking to move the merch, the fewer distractions to contend with the better.

Hope to see you here:

https://www.amazon.com/535-Not-1-Richard- Gephardt/dp/1667849654/ref=sr_1_1?crid=WR998BNHPVLP&keywords=535+not+1+gephardt&qid= 1684440652&s=books&sprefix=535+not%2Cstripbooks%2C85&sr=1-1

And, in the meantime…

TIMSHEL

Why should I care?

Pete Townsend – “515”/Quadrophenia

Happy “why should I care” day.

Though less widely celebrated than, say, Pi Day (3/14), May 15th offers up another Julian Calendar opportunity to reflect upon the nuanced intersections between our accounting of the passage of time, and our everyday experience.

In this case, it confers homage upon the existential struggles of Jimmy – a young, working-class fourway personality split Mod — the unlikely protagonist of Pete Townsend’s musically magnificent (if narratively-challenged) “Quadrophenia”. Our title song tells of his wandering musings, as he travels on a train carrying so many souls from the void of work to the oblivion of home.

It begins with the above-supplied, rhetorical question – “why should I care?”.

It’s highly possible that you shouldn’t. In fact, I’m not sure that anyone does. Other, that is, than me and my cousin Ben Finkelstein (whose image I won’t reveal again, but which I used about a year ago as a copywrite-consideration surrogate for that of writer/TV personality Ben Stein). Every year on this date, Cousin Ben and I ask, and try to answer, the eternal query that is the subject of this note.

We’ve yet to resolve this. Which is probably a good thing. Because the issue keeps cropping up.

The question itself is perhaps too broadly rendered, because, as you probably would agree, some things are worth caring about; some are not. And I’d like to take this opportunity to delve deeper into the question, with respect to several pertinent issues of the day.

But first, I’ve changed my mind. I figure I need to share a picture of Ben with y’all. Not sure if he cares, but I don’t send this note to him, so perhaps he’ll never know.

He takes a nice snapshot, doesn’t he? I’d say he even gives an identically named hockey player, last seen playing defense for the Iowa Wild – minor league affiliate of the NHL’s Minnesota Wild, a run for his money.

Ben is the Booking Agent for the fabulous Birchmere Club in Alexandria, VA. I’d like to tell you that he’ll hook you up with tickets to sold out events, or even get you a gig. But the truth is, my experience is mixed in this regard, so, as they say, your mileage may vary.

But let’s move on. While not prominently featured in the Quadrophenia lyrics, Jimmy is a highly credentialed economist. I caught up with “Dr. Jimmy” to run a few inquiries by him, and obtain his take from a “why should I care” perspective:

GRA: The Federal Government will, according to the latest projection, reach its statutory debt limit within the next few weeks, and, absent Congressional action, could default.

Dr. Jimmy: Heaven prevent the folks in Washington from hitting any kind of limit on their ability to issue increasingly dubious paper to pay for the bloated bureaucracy and flavor-of-the-month helpings of political pork. If statutorily blocked from doing so, all hell would indeed break loose. We would go bankrupt in a manner similar to Hemmingway’s Mike Campbell (The Sun Also Rises) – gradually, then suddenly. First, we’d be treated to Obama-like stunts including the closing of National Parks on July 4th weekend. The Feds might defer paying some contractors. Many of the uniformed, believing, erroneously, that most of our debt is held by China (>75% is owned by domestic institutions) will suggest that we simply welch. We can’t. Then panic would set in. The U.S. Treasury Complex, the largest financial market in the world, would collapse, taking down every asset class in its wake. Cue up breadlines, etc.

But here’s the thing. Precisely because it is unthinkable, it practically CANNOT happen. There will be an excess of brinksmanship and then the warring factions will cut a deal to render us further in hock.

GRA: Most economists believe we’re headed into a Recession.

Dr. Jimmy: I defer to the experts here. Some, including guys like Druk (who is my all-time money management idol) see the economy falling off a cliff. And Consumers seem to be latching on to the bad vibe:

I draw your attention to the yawning gap between the survey projection (60.80) and the final number (53.40). Which is an epic miss. Investors don’t seem to mind, though. Particularly the divisions assigned to Colonel Naz – up a gaudy 18% year-to-date.

With the reporting cycle winding down, Q1 Earnings ended on a high note, with y-o-y blended losses of 2.5% — a far cry better than the -6% anticipated at the start of the sequence. Inflation, while still stubbornly high, is at least headed in the right direction. The Jobs Market is en fuego. GDP came in a bit tepid, but you can’t have everything.

Probably, a recession of some sort is on the cards, but for now, it all reminds me about the longpredicted collapse of the Housing Market — in the 1st decade of the 3rd Millennium in the Year of our Lord. Yes, perhaps it is inevitable. The questions are when and how deep. From my vantage-point, it looks like any recession in the immediate offing, if it comes at all, would be a mild one – perhaps emerging gradually. Then suddenly.

GRA: What will the Fed do?

Dr. Jimmy: With all this talk of recession, a lot of folks is betting that not only will our Central Bank pause its rate-raising ways. but will reverse itself and start cutting again. I have my doubts about this. Particularly because, as political animals first and last, I believe that they are much more afeared of turning dovish too soon than the other way around.

More than this, I’m not sure how much it matters. The Fed only directly controls the Overnight Rate, while the Treasury issues paper out thirty years and more. As of now, the Yield Curve, while improving a bit, remains perversely inverted:

If anyone has any clue what the impact of Fed Policy at the longer end of the curve (i.e., at durations where economic agents actually borrow and lend money) would be, I wish they’d share.

There’s every possibility that Fed Funds reductions could cause, say, 10-year yields to rise. Or fall. Or stay where they are.

About all I can state for certain is that this here curve is a hot, unsustainable mess.

GRA: Though early, the 2024 Presidential Election looks like it could be a rematch of the 2020 combatants.

Dr. Jimmy: Wherever else it may differ, the American electorate is united in its desire to politically disappear Biden and Trump. And a general election battle between the two of them would involve perhaps the least appetizing choice since, well, since 2020.

But looking more deeply into the past, I cannot come up with a single pairing as dismal as this one. Herbert Hoover versus Alfred E. Smith (1928) was perhaps runner up in wretchedness, but this one blows it away.

I’m not sure, though, it pays to care. Just yet. Not sure if Biden makes it that far. He’s literally and figuratively dissolving before our eyes. But with respect to Trump, if he’s still lapping the field towards year end, you have my full permission to care.

GRA: 2023 Bank failures are, in inflation-adjusted terms, of a greater magnitude than those manifested during the Great Financial Crisis.

Dr. Jimmy: Worth considering, certainly. Particularly when we shove in the likes of the once-mighty Credit Suisse. I don’t however, for the foreseeable future, envision the kind of carnage we experienced 15 years ago. Banks are better capitalized and comprehensively protected by the political class. And even in ’08, not a single depositor lost a farthing. The banks that went down (unlike, for instance, Washington Mutual, Lehman Brothers and AIG in ‘08/’09) could easily have been saved.

As I have stated previously, the Credit Suisse and First Republic trades look to me like wholesale, forced asset transfers to more powerful players on the field. Some few, privileged few, entities, made a fortune on these trades, and are most certainly seeking out their next victims. This will extend the agita, and is a dangerous game, but will result only in the further empowering of the powerful, who, from New York to Washington to San Francisco, will consolidate their control of our resources, while telling us of their intention to do precisely the opposite.

I would, however, keep my eyes on the debt associated with the Commercial Real Estate Market. I’ve seen estimates that up to $1.5T must roll in the next 18 months. And this with office vacancy rates at alarming levels. Some borrowers could default and if there’s a real problem in the Banking Sector, this will be the source.

GRA: America is obsessed with gender identity.

Dr. Jimmy: Which is a helluva shame, considering all the other, arguably more pressing problems we face. I reckon this will run its course, but it is bone-wearying in the meanwhile. Here, I can only defer to Pete and our title song:

He man drag, In the glittering ballroom
Gravely outrageous, In my high heel shoes
Tightly undone, They know what they’re showing
Sadly ecstatic, That their heroes are news

I don’t even know what he’s talking about, and, sadly, I suspect, neither does Pete. Who was certainly out of his brain when he wrote this song.

There’s a lot more stuff about which we can choose to care. Or not. But right now, I’ve a train to catch.

If you don’t know which one, you haven’t been paying attention, but then, on this ritualistic day, I can only ask you why I should care.

****

Thanks as always, Dr. Jimmy. And Happy Mother’s Day.

TIMSHEL

[MR. BANKS (MR. DAWES SR., spoken)]
Now, Michael, When you deposit tuppence in a bank account, Soon you’ll see
That it blooms into credit of a generous amount, Semiannually

[BANK DIRECTORS]
And you’ll achieve that sense of stature, As your influence expands
To the high financial strata, That established credit now commands

You can purchase first and second trust deeds
Think of the foreclosures!
Bonds! Chattels! Dividends! Shares!
Bankruptcies! Debtor sales! Opportunities!
All manner of private enterprise!
Shipyards! The mercantile! Collieries! Tanneries!
Incorporations! Amalgamations! Banks!

[MR. DAWES SR.]
While stand the banks of England, England stands…
When fall the banks of England, England falls!

[MR. BANKS]
You see, Michael, all for the lack of…
[BANK DIRECTORS]
Tuppence, Patiently, cautiously, trustingly invested in the…
To be specific:, In the Dawes, Tomes, Mousely, Grubbs Fidelity Fiduciary Bank!

From Mary Poppins

Will it utterly obliterate your good opinion of me if I disclose that I am a stone-cold Mary Poppins fan? So be it. I think it is one of the greatest cinematic works of all time. Yes, it’s a feel-good Disney romp, deemed, for 5 decades, suitable fare for the little darlings. But it was ahead of its time in terms of questioning authority/embracing and enshrining subversion. Released, as it was, a full three years before the Summer of Love, it pokes fun at staid institutions, placing them and their custodians on a lesser rung of power strata — visibly beneath the chimney sweeps and domestic servants who rule the roost in this re-imagined version of Early 20th Century Edwardian London.

It is also a work of pioneering psychodelia, full of laugh-propelled, levitating uncles, and evidenced most notably by the scene where Dick Van Dyke’s Bert the Chimney Sweep coaxes Julie Andrew’s Poppins to jump into a chalk drawing and enter an authentic acid trip — animated with men and horses, hoops and garters and (lastly) a hogshead of real fire.

To be fair, though, acid was legal in 1964; did not get outlawed until ’68.

I particularly call to your attention the climatic turn of the story — wherein the stuffy father of the feature family (named, appropriately, George Banks) takes his son Michael to deposit the tuppence he has squirrelled away into the above-named bank (where the former is a rising young executive). Michael has other ideas – a scheme, encouraged by a grimy bag lady, to use the funds to underwrite the feeding of the pigeons on the steps of St. Paul’s.

Notwithstanding the full force of logic and salesmanship brought to bear by the depository institution’s Board of Directors, Michael remains obdurate. He snatches his tuppence away and makes off with them, causing a full-scale run on the Dawes, Tomes, Mousely, Grubbs Fidelity Fiduciary Bank.

In accordance with Financial Conduct Authority and (presumably) Internal Bank Regulations, the episode impels the cashiering of Mr. Banks, Pere. Who responds in the only way possible – by uttering the signature phrase “Supercalifragilisticexpialodocious”, announcing, in doing so, his fullscale entrance into the counterculture.

And something like the above appears to be repeating itself – almost fully two generations after the release of this magnificent film.

Our present world is dominated by banks – Fidelity Banks, Fiduciary Banks. Think foreclosures! Bonds! Chattels! Dividends! Shares! Bankruptcies! Debtor sales!

And think of adorable little depositors causing collapses by withholding (or, alternatively, withdrawing) their tuppence from these mighty institutions.

The latest victim, of course, is First Republic, which, after putting up a gallant, weeks’ long fight, finally collapsed into the mighty, combined arms of the Federal Deposit Insurance Corporation and J.P. Morgan, Inc. The latter is acquiring the former – all ~$300B of assets, and ~$100B of deposits, for 35 cents/share (approximately 15 tuppence).

As recently as February, FRC was trading at $150/share, implying that Jamie and his crew are picking up this here piece of biz for 1/500th of its value a mere quarter ago.

Oh yeah, and taxpayers are underwriting a substantial portion of the associated default risk.

Nice trade, Jamie! You may have even outdone your yodeling UBS compadre Sergio Ermotti in his snagging of Credit Suisse.

Other banks are now, of course, in play, with the result being the further consolidation of an industry where, in rhetoric but not practice, regulators have fought against this tide for many years.

How beneficial this is for the banking industry, however, is a matter of some doubt. Certainly, depositors will benefit, though, as they invariably do when regulators and big institutions collaborate to rejigger the alignment of the sector.

There are some signals, nonetheless, that merit monitoring.

This past week, for instance, the Bank for International Settlements (BIS) released its 2022 year-end report, revealing, among other dainties, an alarming decline in cross-border lending:

And all this before the banking psychodrama of 2023. Of particular concern, in the present-day redux of the Michael Banks run, is the well-being of American subsidiaries of large, multinational institutions. If the raids continue, they will need all the dollars they can obtain. Yet they have no natural greenback depositor base, so stay tuned.

Meantime, the Fidelity Fiduciary Central Banks, not to be upstaged, are all quite active. In the past week alone, the Fed, ECB, and Bank of England (regal overseers of the Dawes, Tomes, Mousely, Grubbs Fidelity Fiduciary Bank) all raised their overnight rates by 25 basis points.

Away from all this, and in that narrow corner of the universe that does not involve banking, the heavy information sequence is winding down for the quarter. Earnings and guidance are better than expected. The Jobs Market is improbably strong. Buffet’s Berkshire is, in time-honored fashion, blowing the doors off the joint.

The choice that thus devolves to us is as follows. Do we trust the banks enough to deposit our tuppence in their coffers, or do we feed the birds?

There are risks under both options, and I hasten to mention that if we choose the latter course, our little winged friends might fly off, showing their appreciation by dropping parting projectiles on our shoulders.

There is, of course, a third option. We can invest our tuppence in paper and strings, and fly a kite.

It seems to me, on this windy mid-Spring day, there are worse alternatives. So, if anyone wants me, they should look in the sky and follow the string that I am holding in my fist. (Spoiler Alert): that’s where we find the Banks family at the end of the film, and what’s good enough for them is good enough for me.

I reckon, though, that we won’t be able to eschew the banking industry entirely, and I can only urge you to remember that it is Supercalifragilisticexpialodocious.

With an emphasis, at least for now, on Fragile.

TIMSHEL