Those familiar with this publication and its author are aware that a defining imprimatur is embodied in an epistle otherwise known as the 10 Commandments of Risk Management (TCoRM). The uninitiated, and those in need of a refresher, can, for their own erudition, click on the following link:

Risk Philosophy

I (with acknowledged hubris) believe that this document aspires to biblical proportions. Case and point: my favorite: Commandment 10 – Obey the 10 Commandments. You know, the ones in the bible? Which Moses delivered, destroyed, and re-delivered to the fallible, as-sinning-as-sinnedagainst Chosen People, in the Desert, some 35 odd centuries ago?

Don’t lie. Don’t steal. Don’t kill. Honor thy father and mother. Please believe that adhering to these and the other six will do no harm, and may materially benefit, your investment returns.

Whereas the content sourced from “Exodus” has, by any standard, held up well across the ages, we face a deficiency of time passage to evaluate the staying power of the rules I have established. Perhaps we’ll know more in 3,500 years — at or around the year 5623.

So, I (with irony, as us of the Chosen are instructed to always cover our heads) take my hat off to the biblical tablets. Ten instructions, embodied in a mere 313 words. Encompassing, nonetheless, most, if not all, of the essential rules for righteous living.

Our risk management task is more complicated, requiring not only more verbiage, but also significant annotation. I will spare you the full set of notes that accompany the TCoRM but have taken to mind that a sampling of these is in order. Such as one that occurred to me over the last several days:

Footnote 12: No matter how bad things are, they can always get worse.

How bad things are now, however, is a bit of a sticky wicket. It was a horrible week, for instance, for Geritol rockers, or, like me, passionate admirers of same. Over the past few days, Three of the big Dogs passed into Night. First David LaFlamme – founder, singer, songwriter, and violinist for the briefly magnificent, eternally underappreciated San Francisco ensemble It’s a Beautiful Day.

Bookending on the other side is Rodriguez, a fabulous Detroit songsmith, laboring, in anonymity until about 15 years ago, and then immortalized as Sugarman. Trust me folks: he’s worth checking out.

However, the meat of this dirt nap sandwich is demise of Robbie Robertson, who we’ll just call The Leader of The Band. Solemn duty impels me to offer some expanded thoughts here.

I will cop to some ambivalence about Robbie and The Band. At their best, they absolutely earned their place in the pantheon. 4 Canadian guys and a drummer/singer/mandolin player from Arkansas (and what can be more American than that?). Backing ensemble for Bob Dylan’s at-the-time traitorous conversion to electric music. The quintessence of what the righteous side of rock and roll should be. Musicians working together, playing together, living together – all in the idyllic setting of Woodstock, New York.

The vibe, for a while at any rate, was divine. Dylan hung out with them there, and, together, they recorded some of his greatest output. His pal George Harrison was so inspired by their comradery, particularly as juxtaposed against the John/Paul psychodrama that prevailed at the time, that he quit the Beatles in the immediate aftermath of hanging out with them at their Upstate New York digs — a small house now immortalized in the Rock Cannon under the name of Big Pink.

But like everything else under heaven, it was finite. Robbie decided to break up the group in the mid- 70s, among other reasons because 3 of his 4 bandmates had morphed into stone cold junkies.

OK; fair enough. Unless you’re the Rolling Stones, your band is eventually gonna break up. But then the universally lauded fellowship devolved into abject hatred. Why? Money, of course. Robbie, who had he not been a musician, would’ve made a fine CFO, hoovered it all up. Economically, he was entitled to do so. Their income derived largely from the stratospheric success of three or four songs that he composed. And, as the 10 Commandments of Rock and Roll (TCoRR) advises us — to the composer goes the spoils. But the other guys, particularly Levon, believing they had contributed, felt they got stiffed.

Tough shit, says Robbie, who minted it for several decades while the other guys floundered. And then died.

The enigmatic but unambiguously brilliant Richard Manuel offed himself in ’94. Rick Danko died of cancer in ’99. Levon kept the vibe going in Woodstock, with a lotta help from his friends, until he gathered to the dust of his forebears, about ten years ago.

A great deal has been written and said about The Band, particularly over the last several days. I will keep my editorial contributions brief. Unfortunately, what sticks out to me is the human comedy aspect, under which the most tightly knitted musical band of brothers ever to grace a stage or studio ended up hating so deeply on each other. If Robbie wasn’t entirely to blame here, if the hurt that Levon felt was perhaps more acute than otherwise justified, well, anyway, it seems like Robbie could’ve been a little more generous over the years.

All of which recalls another footnote to the TCoRM/TCoRR, a lesson I have learned, the hard way, more times than I care to count.

Footnote 76: Most affiliations are transactional. If you cling too tightly to the notion that they are build upon relationships, you are setting yourself up for bitter disappointment.

But reverting to Footnote 12, it is important to bear in mind that the possibility of deteriorating conditions does not abide merely under times of duress. It is equally true that during happy intervals, matters can always get worse.

Market conditions, for example, recently strong, have deteriorated over the last few sessions. There is a weight to the tape that wasn’t felt during the heady month of July. There are reasons for this, of course, but none that rise to the dignity of catalyzing an all-out rout.

There’s that whole Fitch downgrade thing, which merits some minor elaboration. Last week, I opined that Fitch may have been motivated to tag U.S. Treasuries as a proxy for playing a whack-a-mole with the whole credit complex, comprised, as it is, of their paying customers.

Well, in support of this hypothesis, the more deliberate Moody’s downgraded ten banks, and put a bunch of others, including the staid, conservative, old school custody outfits BONY and Northern Trust, on ominous review.

Bleakly, there may be more of this sort of thing on the horizon, but a downgrade crescendo appears far from imminent.

Inflation came in a titch higher than had been expected, or, at any rate, hoped for. But not by much.

The justifiably feared $100B Treasury Auction was a bit soft, but far from catastrophic.

Key Risk Factors, including Crude Oil and USDJPY, are at warning level threshold highs, but have not, yet, broken through.

In general, investment conditions have indeed worsened, but: a) from a rather lofty perch; and b) by manageable amounts. All of which has nonetheless darkened the mood of the investment community, as exemplified by their rather ungracious response to upside surprises emanating from the earnings podium:

It would appear, from the above presentation, that the markets are adhering to Footnote 12, recognizing that even when things are, on balance, pretty solid, they can indeed get worse.

We’re in the Dog Days of Summer. Other than the NVDA earnings release, a fortnight hence, which, somehow, has become as important a barometer as there is of market conditions, the news cycle slows dramatically – from here until after Labor Day, whereafter, I promise, the action will be heavy.

Could things get worse? Of course, they could. George rejoined the Beatles, but the group disbanded shortly thereafter. And he’s now gone. As is Rodriguez. As is LaFlamme. As is Robbie. Whose progeny can console themselves with the ~$50 Large he leaves behind. Levon, at the time of his death, was said to be worth ~$12M, causing us to wonder what he was whining about.

Things could have been worse for him and may very well be worse for us in the days to come. So it says in the footnotes of the TCoRM. Be forewarned.

TIMSHEL

Pleasingly, recent events offer us the opportunity to pay tribute to Donavan Leitch, Sr. (aka Donavan) – a Scottish folksinger, who, in the mid-60’s, was widely (if implausibly) hailed as the British Bob Dylan. No, he never remotely approached those heights, but he did have a couple of moments. As in Mellow Yellow. Or Sunshine Superman.

Or Season of the Witch – one of several compositions better presented by cover versions. In this case, Super Sessions, an ensemble that included Al Kooper, Mike Bloomfield, and Stephen Stills.

That version of our title song rocked. But what really put it on the map for me was Bowie’s variation on the titular theme, in perhaps his finest (if lesser known) composition — Diamond Dogs. Check it out. And pay particular close attention when he belts out the line about “the year of the scavenger, season of the bitch”.

But right now, as is evident, it is neither the season of the witch, nor that of the bitch.

It is, rather, the season of the Fitch. As in the Fitch Ratings Agency, which, as everyone knows, rather unceremoniously this past week, and without warning of any kind, downgraded the debt obligations of the United States of America.

Weren’t these guys supposed to put us on watch or something first?

Well, anyway, they didn’t. Went right ahead and rudely downgraded our asses. From AAA to AA+.

It was a somewhat mind-blowing gesture, and yes it took everyone by surprise. Investors, though they responded with dignity, were far from amused. But more about that later, as a couple of thoughts supersede here.

The first is the wearying but inevitable parallels to similar episodes, most notably the identical stunt being pulled by larger rival Moody’s in 2011. That move, was highly telegraphed – albeit to a select audience – leading to one of the most astonishing insider trades in market history.

Specifically, then-CEO Vincent Forlenza, evidently unclear on certain key concepts, called the CEOs of several Bulge Bracket firms to ask them, you know, hypothetically, the following question. If the ratings agency was going to downgrade U.S. debt (at the time an unprecedented action), when do they think would be the best day/time to do so?

It was all, as said, hypothetical, but each Wall Street Chieftain suggested after the close of business the following day (August 4th), which, being a Friday, would give investors all weekend to ponder the implications, without the distraction of being able to adjust their portfolios to the new reality. They then immediately instructed their trading desks to sell short everything in sight.

Well, wouldn’t you know it? The hypothetical then became the actual.

I kind of smelled a rat at the time, because the equity markets were in free fall all that session (which, ironically, was also President Obama’s 50th birthday), without an apparent catalyst. I knew that the big trading desks were sellers all day long, and the pressure unrelenting, tripping circuit breakers and other niceties. But I didn’t know why they were selling.

Then, the announcement came, and it all began to make sense. It was a helluva day – one for the ages — on the Goldman, Morgan(s), and Citi trading desks, and, when the dust settled, the Gallant 500 had yielded > 7% of hard-retaken ground in the wake of the 2008 Crash; Colonel Naz almost 20%.

The Bond Complex on the other hand, took the announcements in stride, sustaining a bid across that entire summer. Of course, that market was in what turned out to be the early stages of that historic money printing/bond-buying spree otherwise known as Quantitative Easing. Though at the time, the Fed Balance sheet stood at a quaint $2.5T, this figure was in fact 150% more than the central bank had held for eons prior to the crash:

Fed’s Witchin’, Bitchin’, Fitchin Balance Sheet

Of course, said asset values held by the Fed tripled and then-some in the intervening years, as aided, in part, by the November ’11 QE2 launch, which committed Big Ben and his crew to the monthy purchase of $75B of Treasury Securities.

Risk assets soon blessedly recovered, retaking lost ground within 2 short months, and, in the time since, the Gallant 500 is about 4.5x the Moody lows; Col. Naz is more than a 7 bagger.

At the time of the ’11 downgrade, Unemployment stood at 9% vs. ~3.5% today. CPIs were where they are at present, at just over 3%. Then, as now, the country was forced to endure a high-drama but ultimately pro-forma Debt Ceiling showdown. Twelve years ago, the Fed was accumulating assets and printing money, a practice they would accelerate over the ensuing decade. Now, of course, the reverse policy applies.

In 2011, the Washingtonian defecit was ~$15T and has more than doubled since. Annual interest payments were then just over $400B, and are now about to surpass $1T:

Oh yeah, and the Treasury just announced a quarterly refunding cycle, which, for the first time in history, will exceed $1T. It kicks off this week, with the sale of> $100B across the Curve.

So, the $33T Questions (named in honor of the value of our current obligations) are: a) was Fitch more justified last week than Moodys was in ’11; b) why did they pull this stunt; and c) why now?

Let’s first offer the caveat that that at all this is nonsense. U.S. paper is no more of a default risk than it has been since aftermath of the Revolutionary War. Two abiding wild cards ensure this – the monetary printing press and the American Military. And, as to any comparison of the timing of these two assaults on our financial sensibilities, I think the argument could go either way. Undoubtedly, our fiscal position has weakened, rendering debt service more problematic than in ’11. On the other hand, in ’23, Debt Ceiling showdowns and 13 figure revenue shortfalls are matters of the routine.

So, why now? This, in my judgment, is the most interesting and elusive of the issues. Some of this is plainly political, but unpacking that aspect of the puzzle is a task above my paygrade.

I’m more thinking that Fitch, being aware that any bona fide (as opposed to technical) failure of the U.S. Treasury Complex is lights out for the entire global capital economy, is putting the world on notice that ALL forms of debt are subject to a heightened default exposure. Rather than downgrading all credit instruments, they issued this message by whacking at our Bills, Notes and Bonds.

If I’m right, I say good on them. Global credit debt are teetering from any longterm viewpoint. The reckoning will come, even if the timing is uncertain, and, in all likelihood, deferred.

But unlike 2011, investors have absorbed the Fitch Bomb with remarkable equanimity. Yes, stocks and bonds sold off, but both were, by the end of the week, offering indications of recovery.

Only time will tell if Fitch’s forboding action will prove to have been prescient, and whether its bigger rivals – not only Moodys, but S&P, will follow suit. All acted in sequence back in the day, but later, with timing I am unable to pinpoint, Moodys quielty restored the Aaa rating on our paper.

For now, the smallest of the 3 firms who dominate the evaluation of credit worthiness stands alone.

Must be the Season of the Fitch.

TIMSHEL

It was the best of times, it was the worst of times…

Charles Dickens

And you’re a Prima Ballerina on a Spring Afternoon,
Change on into the Wolfman, howling at the moon

David Johansen and Johnny Thunders

This one goes out to The New York Dolls, in honor of the 50th anniversary of the release of their self-titled debut album. I seek no converts here – either you’ve heard about The Dolls or you ain’t. Either you get The Dolls, or you don’t.

I was exposed, and hooked, early. So early, in fact, that I remember when their feature record dropped, with perhaps the perfect cover art to capture the moment:

While this image is pedestrian by modern standards, it was positively outrageous in 1973.

As was their sound. They were, in some measure, artistic successors to another great New York ensemble – The Velvet Underground. But rawer, more visibly outrageous.

They paved the way for, among others, The Pistols, The Ramones, even The Clash. Probably, these bands would’ve done what they did anyway, but The Dolls came first, and no one since has ever matched their sound.

I have met DavidJo on two occasions (he was rude the first time, gracious the next) and Sylvain Sylvain — that magnificent Egyptian Jew Rhythm Guitarist, once. Syl’s dead now (having somewhat improbably made it to almost 70), as are all but DJ. Their founding drummer, Billy Murcia, died of alcohol and drug poisoning in ’72 – before our feature album was even recorded. He was, however, immortalized in the Bowie classic “Time” (“Time, in quaaludes and red win, demanding Billy Dolls, and other friends of mine”). Jerry Nolan and Johnny Thunders OD’d. Bassist Arthur (Killer) Kane went bat shit, was rescued by a Mormon Missionaries in L.A.’s Skid Row and was living as church librarian-in-residence when the band located him and patched him together sufficiently to include him in a 2004 reunion show in London. I don’t think he played a note, but was there, looking fabulous.

He returned to L.A., checked into a hospital, and died three weeks later.

The initial enterprise lasted less than two years, and now, as indicated above, all but Johanse are dead. But God Oh Mighty, did they kick up a fuss during that initial surge.

So much so that the then-iconic Creem Magazine’s 1973 listeners poll voted their debut album as both the best and worst record of the year.

Which, if you ask me (and plainly you didn’t) is kind of Dickensian. Ala “A Tale of Two Cities”.

Something akin to this best of times/worst of times vibe also appears to be transpiring in the markets.

I survey standard economic indicators with what I can only describe as wonder and astonishment.

The Earnings season, now at its precise mid-point, if not a blowout, has at minimum produced several amazing beats – particularly at the top of the valuation food chain. One can fairly conclude, worst case, that nothing in these realms is likely to detonate the burgeoning rally.

Macro data had been nothing short of sublime. Q2 GDP materially surpassed expectations, and every single one of 900 different inflation metrics is showing an easing of pricing pressure.

The three major Central Banks weighed in this past week, and each, in its own way, re-affirmed the fight against the dreaded Õ. The Fed’s action was the most straightforward – a simple, widely anticipated 25 bp hike, combined with admonishments that they might not be done. Madame LaGarde, never one to be upstaged, called this bet, and raised – accessorizing an equal magnitude ECB rate hike with the announcement of the discontinuance of interest payments on member bank Reserve balances. The eternally inscrutable BOJ stood pat but succumbed to pressure to expand the bands associated with its controversial Yield Curve Control policy.

All of which caused a noticeable but dignified selloff in the Global Treasury Complex, as well as some wiggling and jiggling in Foreign Exchange markets. But other Risk Assets, as particularly exemplified by Equities, continued their inexorable ascent.

And why not? The economy ignores the lead flying about its ears and charges ahead – higher rates be damned. Companies are making money. Inflation, if not dead, is arguable comatose.

It is, by real-world standards, the best of times for investors. And not much on the horizon is visible to kill the magnificent buzz.

But Hell’s Bells, it’s hot out there – so hot for so long as to even bestow upon us climate skeptics some cause for doubt.

There is ample evidence to suggest that the leaders of both American political parties, each odds-on favorites to capture their nominations and thus subject us to the gruesome spectacle of a ’24 octogenarian match race, are both confirmed felons.

Undoubtedly, this has happened before (Nixon vs. the Kennedys in 1960 comes to mind), but in epochs where it was much easier for polite society to look the other way.

Commercial debt demand is plummeting:

It is not difficult to deconstruct this one. All rational players borrowed to the hilt at pittance level interest rates these past couple of years, and unless they blew that stack with too much celerity, are wise to hold off for now.

But this does raise a couple of challenges. For one, debt issuance is the main engine for monetary creation. Also, it’s a near certainty that as earlier, cheaper obligations mature, demand for credit will increase under much more problematic terms.

I reckon I could go on, but why bother? I simply find it beyond bizarre that the capital and commercial economy is demonstrating so much strength against a backdrop of so much melodrama and agita.

I could live with this era extending itself, but it probably won’t. Not even for much longer. Either the sushi will hit the fan, or we will all stop whining. Maybe both.

Because eras are meant to be finite. One bleeds into another. It was ever thus.

Case and point. On the weekend when our feature album was released, the peroid’s largest ever rock festival of was transpiring in a park outside Watkins Glen, NY. It featured a mere three bands (The Dead, The Band and The Allman Brothers). It lasted more than 12 hours, the last quarter of which featuring a combined jam session in which members of all three ensembles participated.

The audience numbered 600K; the musicians and the crowd were as different as night from day to our featured artists, who, somewhere down I87, were not only releasing a new album but ushering in a brand-new vibe. I don’t think The Dolls ever played before a crowd more than one thousand.

It too passed. Glam yielded to Punk, Disco, New Wave, etc. DavidJo ditched his eyeliner, grew a pompadour, and started recording Louie Prima covers, under the dubious moniker of Buster Poindexter. He’s David Johansen again, for which I at any rate thank the lord.

His high-profile years coincided with the ignominious end of the Vietnam War, Watergate, and the beginning of a decade-long, crippling surge in Inflation. It was a rough spell for the markets, but then the ‘80s unfolded and we barely looked back.

We can therefore anticipate more change – at an unknown pace. Which is twice piteous. First, because the good times never last, and second, because we never know when the party has ended.

Perhaps it’s already over. Perhaps it ended a while ago. Truth is, we just can’t be sure. Which is what makes this the great game it is. A Prima Ballerina on a Spring Afternoon can change into a Wolfman by nightfall.

It’s happened before, you know, so be forewarned.

TIMSHEL

I love those cowboys, I love their gold, Love my uncle, God rest his soul
Taught me good, Lord, taught me all I know, Taught me so well, that I grabbed that gold.
And I left his dead ass there by the side of the road.

Papa John Phillips

Several days after the event, we may now be able to authentically reflect on the end of the Dead and Company era – that latest attempt to cobble together the spare parts of what was once a magnificent band called the Grateful Dead.

I have never taken much interest in these affairs (here, I apply a simple rule – No Jerry, No Dead). But I once took my children – no lie – to an early such configuration, which required no fewer than a dozen musicians to hack up what was at one time so well done by a sublime quintet. I felt particularly sorry for the lead guitarist – a presumably nice fellow/competent musician who looked so bewildered that I think he shortly after sotted off to a desert island, never to be heard from again. The other memorable moments came by observing, standing behind the sound board partition space at the Garden, an entire row of quadriplegics double passing joints throughout the entire show.

The latest ensemble was a tighter outfit, held together by what’s left of Bobby, the undeniably authentic shredding of the otherwise smarmy John Mayer, and the solid bottom provided by a former cover band bass player (Phil has long since begged off) named Oteil.

They never, to my knowledge, recorded any original music (why bother?), but they did go out in a blaze of glory, dusting off some old faves, while being upstaged by an astonishing drone display above San Francisco’s Oracle Park:

I am told that the final set list included “Me and My Uncle”. Which itself is a cover. It was written not by the band, but rather by Mamas and Papas founder John Phillips – who was one of the few mortals to rival Jerry in drug abuse.

The song itself, according to legend, was created in a stupor so intense that Phillips did not even remember writing it. The episode would’ve faded to oblivion had not Judy Collins had the foresight to have taped it, recorded her own forgettable version, it and passed it on, into perpetuity, to various incarnations of the Dead.

This topic came up in one of those pro forma, but touching text threads with some high school chums, designed more to cling to past glories than for information sharing. It quickly morphed into a debate about Uncle/Nephew relationships. I pressed my preference for the ties between Pliny the Elder and Pliny the Younger, and was met with crickets.

But the victor, beyond question is Old Man Pliny. Lawyer. Politician. Military Leader. Provincial Governor. Naturalist. Inventor of the 20-centuries-old template for the modern encyclopedia. His nephew (known locally as Pliny the Squirt) seems mostly to have been his nepotistic beneficiary.

Equally tiresome is where the thread thence migrated: the debate about JFK and one of his 600 nephews – one RFK Jr. – of recently announced hat-in-ring-tossing renown and kicking up more of a fuss than could have been expected. His uncle was a War Hero, Pulitzer Prize Winner, Congressman, Senator, President, and, of course, perhaps the biggest hound dog of the midtwentieth century (and, trust me here – there were a lot of great hound dogs in the mid-20th).

Nephew Bobby Jr. is an adjunct professor at Pace University, so there’s that.

It is thus not much of a contest, but perhaps a sign of the times that he can even draw notice is an upcoming presidential battle where his party leader is the incumbent. That what is shaping up to be a rather important election will likely dispatch several successful governors, senators, and other highly credentialed aspirants in favor of two narcissistic, petulant mediocrities who come up laughably short as horn dogs when compared to the above-mentioned JFK.

So it goes in the Uncle/Nephew game. As mentioned in earlier installments, I have an uncle who was long-time Director of the Metropolitan Transportation Authority in Washington, and thus literally responsible for the creation of the Beltway. He’s gone now, and presumably atoning for this sin. And just for the record, I never left his dead ass there by the side of that road.

Another became a film director, winning a share of the 1966 Cannes Film Festival, but doing nothing since – due, presumably, to his finite talents and eternally petulant arrogance. My uncle Irv (who preferred to be called Joe) was a mattress salesman and then ran a novelty shop in Sarasota, FL. He, too, presumably full of atonement, has long since departed.

But I got my start in the investment game by virtue of my relationship with my youngest and still surviving uncle. He was at one time the bow-tied king of the gone-but-lamented Soybean futures pit. I have arguably travelled more miles than him, but I’m pretty sure he’s richer than me.

Meantime, investors are shrugging it all off, taking the Dead and Company wind down in stride, entirely eschewing the raging Pliny debate, and, for the moment at any rate, blocking out the increasingly bleak prospects of the ’24 election.

Apparently, and perhaps appropriately, they have other Phish (the closest viable proximity to Deadhead bliss) to phry. It is, after all, a relatively big week of what passes for pertinent data. The folks in Washington will lay on us both what promises to be a better-than-deserved Q2 GDP report, and the next FOMC rate proclamation.

In terms of the latter, the markets project > 99% probability of yet another rate increase.

Yawn.

Passing above what is more appropriately each day referred to as fly-over country, the other action transpires in the Northwest, where Tech Titans Alphabet and Microsoft kick off the fat part of the earnings cycle.

This ought to be interesting. But another sign that all is not lost is a modest but noticeable widening of the breadth of this improbable rally.

Case and point: the equal weighted S&P 500 – a wonky variant on the Gallant 500, which doles out identical portions to each constituent company, and to which we will thence apply the appellation Egalitarian 500, after being flat-to-down most of the year, has surged to proximate all-time highs:

It thus perhaps makes sense to adhere a bit more closely than usual to a broader inventory of earnings reports than has been the prevailing protocol for eons hence.

On balance, however, I’m hard pressed to identify much in the near term to obliterate the good market vibes we’ve all enjoyed thus far this summer. It’s out there, but what it is and from where (and when) it will come is, for the moment, a challenge above my pay grade.

Maybe it would be a reformation of the Deadsters with Courtney Love on lead guitar. But I believe the recruitment of Derek Trucks – fabulous guitar player and nephew of original Alman Brothers drummer Butch Trucks is more likely.

Because, sometimes, nephews are worthy of their indirect antecedents. Caesar Augustus, successor to an incomparable but entirely batshit uncle, dispatched Marc Antony, obliterated the Triumvirate, consolidated his own power, dramatically expanded the Roman Empire, and, in general, ran a much tighter ship than his Uncle J.

In doing so, he did not leave Julius’s dead ass there by the side of the road. Somebody else did that. The Roman Empire endured but crumbled several centuries later.

There’s a risk management lesson in there somewhere, but I can’t quite put my finger on it. So, if it’s all the same to you, I’ll take my leave here and seek the guidance of one or both of my surviving uncles.

TIMSHEL

As if we didn’t have enough problems with which to contend.

I’d already worried myself into a frenzy about the Hollywood writers’ strike, and now, as consistent with my worst fears, the players on the stage have joined them on the picket line.

Not literally, of course, because how can our most fabulous, photogenic lovelies be expected to parade back and forth in front of Corporate HQs, carrying signs? Each of them, I think, has a guy for that, who will do just as well.

Leading them (and their proxies) in this righteous cause is that modern day Mother Jones – Fran Drescher. That she is perfectly credentialed for the duties of President of the Screen Actors Guild cannot be disputed. She, after all, managed to complete a partial semester at the City University of New York, but dropped out, according to Wiki, “because all the acting classes were filled”.

She then enrolled in cosmetology school.

Apparently, though, the outcomes of the latter did not manifest into a lifelong career. So, college classless, she nonetheless had a nice run as an actress (reaching her pinnacle, in my judgment, during a “Saturday Night Fever” cameo, wherein John Travolta very rudely denies her romantic overtures).

But the glory days of actors, and even more so actresses, are criminally short. So, like Cagney, Reagan, and Heston before her, she eventually took up the cudgel of representation of those marvelous grease-painted toilers on the large and small screen, as the head of the organization pledged to guard against their serial exploitation.

And this past week, she made her move to seize collective bargaining immortality. Her organization has now officially given notice of its intention to withhold services — until such time as improved working conditions can be secured.

At issue, at least according to published reports, are demands to protect the membership from the evolving caprices of Artificial Intelligence.

They have my full empathy. Lotsa folks is skeerd about this, and rightfully so. I’m not sure, though, what they expect Management – who themselves may soon be replaced by chatbots – to do about it.

And then there’s this. What on earth are the rest of us, mere mortals that we be, supposed to do?

Like, for instance, on Tuesday nights, heretofore devoted to The Bachelorette?

Watch reruns of Mr. Ed?

On further consideration, that doesn’t sound so bad.

So, I reckon the unwashed masses will survive. I have, however, less confidence in the outcomes for Guild members, who may be in for a rude schooling. Because, at the end of the day, while I am sure the stuffed studio shirts on the other side of this job action deserve the nastiest outcomes that The Fates can bestow upon them, they are not in fact the primary culprits in this SAG morality tale.

Rather, it is wretched, dismal economics itself that is most to blame. The current and latent supply of produced filmed content simply overwhelms associated demand. There are, for example, over a Billion YouTube videos out there, and, if most lack the narrative nuance and production values of, say, Real Housewives of Sheboygan, at least the price is right.

I therefore suspect that the Hollywood types will be impelled to learn the hard-won lessons of other industry proles, such as auto workers, and, by the way, musicians, and authors. Which goes like this: when a product – particularly as catalyzed by technological advancement — can be manufactured and distributed more efficiently by new entrants and methods, legacy industry participants lose virtually all economic leverage, and strikes become exercises in futility.

I’m not sure if they covered any of this in cosmetology class, but the quicker Frannie figures this out, the better off she and her constituents will be.

Somehow, some way, though, the markets survived these ominous developments.

But then again, it was a week of encouraging news everywhere outside of the scope of the bright lights.

Inflation reports were Boffo, out of this world:

And if anyone is short of shocked at these developments, well, they simply haven’t been paying enough attention.

Perhaps, even probably, Pi will return – maybe with a vengeance. But meantime, it bears pausing a moment to reflect on the singular blessings of an ~70% reduction in little more than a year.

If you anticipated this and didn’t monetize accordingly, I have little sympathy for you.

But I did not. Anticipate it, that is. And I’d be a bit less astonished if the associated pricing moderation were accompanied by a significant economic slowdown, which has only been the case in every single inflation battle in recorded history. But Q1 GDP projections, with the official results set to be revealed in a mere fortnight, are clocking in at ~2%, which they teach us in economics (though perhaps not cosmetology) school is well-nigh a perfect growth number.

All the University of Michigan surveys came in on Friday as smash hits as well, and about the only negative to any of this is that 10-year yields, which had risen rather alarmingly to > 4% but then backed off, are again on the rise. But as one of my fave econ profs used to like to state – interest rates will tend to fluctuate.

The overwhelming consensus among those who give a care is that the Fed, notwithstanding the stellar inflation news, is gonna kick rates up one more time this month. Amazingly, I’m not convinced anyone will notice. Unless and until Inflation re-ratchets up, they’re probably – no matter what anyone else is saying — done after this one — for a while.

Q2 earnings and guidance, by contrast, are evolving into, if not “Must See TV”, then at least worthier of notice than I had anticipated a few weeks ago. The banks lead off with something short of a Blockbuster, but JPM blew the doors off – perhaps as reward for their patriotic willingness to accept the First Republic franchise at essentially zero cost. Their main competitors fared worse, and, of course, fancy pants outfits such as Goldman Sachs, whose names grace so many marquises, don’t even report till this coming week.

Again, this will bear watching. But the real action sets up for the following Mon-Fri cycle, when the big tech dogs begin to bark out their fortunes and prospects, when GDP tallies drop, and when the FOMC lays its next round of righteous interest rate wisdom on our asses.

It all reminds me of those special, multi-part TV plots that unfold their tales across multiple episodes.

Like when somebody tapped J.R. Like the Bradys’ (whose house is somehow still on the market) trip to Hawaii.

Like when Frannie the Nanny dragged her boss to the altar.

I don’t think I ever watched any of these shows, and now, in solidarity with the Screen Actors Guild, I will keep my TV screen dark. I am pretty sure that there were marginally happy endings to all these sagas, and I anticipate, short term at any rate, similarly pleasing outcomes for the markets.

But I will offer the following disclaimer. If, somehow, Inflation remains submerged at or below target policy levels, and if this transpires without, at some point, an accompanying nasty economic pullback, then I will be entirely gob smacked. About the only explanation I could possible identify is that the global economy has operated with a deficient money supply since at least before the Big Crash (and particularly post lockdown), and is only now, > $40T of new fiat currency later, catching up with itself.

But somehow, this doesn’t ring true to my training. So, it may be time for me to burn my economic textbooks and seek out new professional horizons.

I am indeed considering enrolling in cosmetology school. It strikes me to be as good a way as any to make a buck, and, somewhere down the road, maybe to the leadership of a mighty labor organization.

Of course, by then, we’ll probably have chatbots, or even physical robots to do our picketing for us.

Meanwhile, I can lead the action from my couch, blessedly watching reruns of Mr. Ed on my phone.

TIMSHEL

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