Let’ s begin with a favorite old joke of mine. It tells of a man who sits down on a plane next to an elegant woman wearing an enormous diamond ring. He asks her about it, and she tells him that it’s the Klopman Diamond: beautiful, one-of-a-kind, but that like the Hope Diamond (so she tells him), it comes with a curse. “What’s the curse?” he asks. 

“Klopman” was her reply. And that was all. 

In the early parts of my life (and for the record, I’m typing these words on my 58th birthday), I heard variations of this bon mot — mostly from my maternal grandmother – Sylvia Goldstein Manaster. She contributed 25% of my DNA, but its own chromosomal origins remain a partial mystery to me. I don’t even know for certain the name of her mother. Her father Louis, on the other hand, looms large in family legend. Through my middle and Hebrew names, I actually carry his moniker, and I can only thank my late mother for showing nomenclature restraint here. She could have gone the whole route and named me Louis, but then I’d have been forced to endure life with the handle of Lou Grant, and that, my friends, is a prospect too horrible to contemplate. 

Louie was, as a matter of heredity, 100% Litvak; all his ancestors can be traced that earthly Eastern European paradise of Lithuania, nestled as it is between the Edens of Latvia, Belarus and Poland, and featuring a modest but important coastline on the Baltic Sea. From there, it’s a short, if treacherous boat-ride to Sweden and Denmark. I’m not sure why the Goldsteins ever considered departing the land of their forebears, but somehow, they set their sights on Chicago. Due, however, to the idiosyncrasies of late 19th Century European migratory fate, Louie was actually born in London. The family was detained there over a multi-year period, so he was born and spent his first 3 or so years in England’s glittering capital. The Goldsteins did eventually make their way to the Windy City, and at some point during his adult years, Louie made some modest but rather savvy real estate investments on the city’s South Side. This set him up for life, leaving, alas, little of the spoils to pass along to his progeny. I, for instance, got nothing. 

But Louie Goldstein spent the better part of the late 19th and early 20th Century leading a comfortable existence, with even (if family history can be believed) a touch of elegance. It is said, for instance, that he never left the house without his top hat, spats, cane and other accoutrements befitting an English dandy such as himself. 

He died before I was born (how else could I have been named after him?), and even my grandmother resides only in the vague contours of my long-term memory. I do recall that she was a killer behind-the-ear scrubber, and that she still holds the record for cooking the driest briskets ever choked down by humanity. I also know that she loved me. I reckon that’s about it. 

But perhaps her greatest legacy to me was the whole Klopman thing, with which, having been raised by a Klopman of sorts, she had first-hand experience. As a Wall Street guy in general, and a hedge funder in particular, I’ve have also known many Klopmans, and, knowing them, have had innumerable occasions to recall the wisdom of our title theme. Yes, my loves, Klopman comes with the Klopman Diamond, and we can either acclimate ourselves to this reality, or find something else to do with our time. I, of course, have chosen the former path, and have few regrets. In any event, this late in the game, it would be difficult to change course. 

It doesn’t take much of a strain of the imagination to notice that the world in which we live appears to becoming increasingly Klopman-like. Impossibly wealthy but eternally irritating Klopmans are everywhere in our midst, and we are forced to accept both the gifts and annoyances they bestow upon us. However, for the most part, we appear no worse for the wear. 

If the equity tape can be read with any faith in the numbers, new Klopmans are being minted on an hourly basis. About 80% of the indices I track remain at all-time record highs. Rates are low and stable, and the good old greenback, after a difficult summer, is recovering some of its mojo. Commodities are all over the map – except the energy complex, which features many more Texan, North Dakotan and Arabian Klopmans than one would’ve otherwise imagined. With WTI and Brent Crude on a wicked rally, I expect more of these oily K’s will appear on the scene anon. 

There is a great deal of information flow coming at us this seasonally content rich time of the year. The big dogs of tech continue to bark, and let me give you fair warning: they’re gonna eat. On Friday, Apple, in the wake of its own blowout results, breached the $900B market capitalization threshold on an intra-day basis, before settling in at a rather tepid $891B. Does anyone doubt that they will power past the once-thought-unreachable “T” threshold, and soon? On balance, I think I’ll take the other side of that trade. 

The action was also fast and furious in what I’ll broadly refer to as macro-land. On Wednesday, the soon-to-be-lame-duck Yellen Fed, as expected, literally mailed in its stand-pat policy decision, along with written warnings that a December rate hike is a matter of near-certainty. The laming of Janet became official on Thursday, with the naming of Jerome “Jay” (never one to set Louie Goldstein’s Thames on fire) Powell as her successor. On Friday, the October Employment Report dropped, to the mixed delight of labor market observers. Jobs growth was strong, but not so much as had been hoped for. Hourly earnings were stagnant, and while the base rate declined, the decrease derived almost exclusively from a somewhat alarming reduction in the Labor Force Participation Rate. 

All of the above was arguably, er, “trumped” by Thursday’s Godot-like arrival of the House’s tax plan. Reading even the most general summaries of this gave me a raging headache, and after having done so, I had to lie down. Upon first glance (and I know it’ll break your hearts to read this), it doesn’t look like it’s going to save me any money. In general, the document looks exactly like the muddled mess that is probably about the best we can hope for in these truculent times. I won’t add much to the ocean full of erudition on the topic that has overwhelmed the blogoverse, but will point out that: a) after anticipated Senate handiwork and what is sure to be an energetic reconciliation cycle, what’s on the table now is likely to bear little resemblance to the final product; and b) I wouldn’t bet the ranch on passage of any tax bill of any kind. 

I should also add that I feel disenfranchised by the entire episode. On the one hand, the bill looks pretty sucky to me; on the other, even though it probably costs me money, I feel compelled to root for its passage, because a failure here creates potential political outcomes that I believe would be suckier still. 

At any rate, investors, for the most part, yawned. So there’s that. Meanwhile, as if a new Fed Chair, an FOMC decision, a big Jobs Number, etc. wasn’t enough Washingtonian cud for us to chew, we have other issues to contemplate. These include the prospect of our big best bros Google and Facebook being grilled by various committees for allowing, across trillions of information units and hundreds of billions in revenues, about $150K of Russian sponsored political advertising (out of an estimated $1.8B of aggregate political expenditures) to slip past the goalie. I consider this more in sadness than in anger. With each passing day, the afore-named companies are tracking, and to an increasing extent, influencing our every move — all with frightening accuracy. I expect that at some point, we’ll begin to notice t that – probably after it’s too late to do anything about it. 

Beyond this, and though it will be unpleasant, I’d suggest keeping one eye on the Trumpster as he boldly strides across East Asia. There’s a good deal riding on this trip, including the likelihood that it probably help advance the plotline of the current North Korean morality play. On a related and perhaps more important note, it will be the first meeting between the gentlemen who now are indisputably the world’s two most powerful. In a matter that drew little attention in these distracted realms, a couple of weeks ago, the once-in-a-generation Chinese Party Congress convened to bestow absolute, life-long powers upon General Secretary Xi Jinping, rendering him the most stone-cold baller dictator since, well, since Mao. How Comrade Xi plays his new hand is maybe about as important an issue for the global political and capital economy as any that comes to mind. 

But one way or another, I think we’ve now reached the point in the calendar when the solemn process of locking down prices and performance for year-end purposes is upon us. I don’t see any asset classes selling off much between now and 12/31, and some, including equities, may rise. 

All of which leaves just one question. Like I said, there’s a lot of Klopmans out there and more being created with every tick of the tape, but perhaps only on KLOPMAN. So who is he (or she)? Trump? Too much all over the map. Jay Powell? Please. Cook/Bezos/Serge/Larry/Zuck? Perhaps, but it may be too early to tell. Xi? Now that’s a good one, but in xenophobic America, this is likely for the moment an ethnic differential bridge too far. 

I have my own thoughts on the matter and they are as follows: We’ve met KLOPMAN and KLOPMAN is us. If we’re going to enjoy our diamond, we must be willing to live under our own curse. 

On a happier note, it is my hope; nay my belief, that we are up to the challenge. 

TIMSHEL 

You’re killing me. Again. You birds are killing me. In fact, you’re killing me so badly, I have a new name for you. You are killingbirds. Maybe not all of you, but definitely the tree-hugging, wing-nutting contingent out there, are, every last one of you, killingbirds. My protests notwithstanding, you keep flapping your flightless wings, and warbling out your one or two-note melodies. And I’m not sure I can take it anymore.

To the rest of you, I offer my heartfelt apology, but the killingbirds out there have left me with no alternative: before I go, I must mock you. In fact, I must mock you in wicked, Monty Python fashion:

Killingbirds: your father was a hamster and your mother smelled of elderberry.

So there.

I’m sorry to be so harsh, but this time you deserved it. Your coupe de grace took the form of an editorial published on the NBC website, which advocated for the removal of Harper Lee’s “To Kill a Mockingbird” from school reading lists – ostensibly because it provides validation for the questioning of a woman’s rape claims.

Now, I’m going to assume y’all are at least nominally familiar with Mockingbird’s plotline, which tells of a widowed father, the leading lawyer in the forlorn, depression-ridden nowhere of 1936 Monroeville, AL (current population: 6,519). It unfolds through the eyes of his then-six-year-old tomboy daughter: Jean Louise “Scout” Finch. The dual narrative describes her father Atticus’s loving attempts to raise his two motherless children, while courageously defending a crippled black man on a bogus rape charge. While it does not, to my thinking, rise to the dignity of a bona fide literary masterpiece, TKaM is a pleasing, satisfying read, capturing a moment in time, a place in history, and released at a point (1960), when America was most ready to receive its embracing vibe. It is also one of the few works where the film can truly be said to be better than the novel upon which it is based.

Until nearly the end of her long life, it was the only work the reclusive Miss Lee ever published (urban legend has it that the adorable, lisping Capote, who, somewhat improbably appears in the text as a neighbor/bestie, actually may have ghost-written the piece). However, shortly before her death last year at age 90, she uncovered among her personal papers a manuscript for another book “Go Set a Watchman”, which describes the lives of the Mockingbird characters 20 years hence. In it, Jean Louise is a grown sophisticate living in New York, who returns to the environs of her childhood to confront a number of demons, including the passive racism of her father.

There was considerable hype in the release lead-up for Watchman, and I dutifully bought it on the day it dropped. I thought it was a very good book, but the critics were disappointed. It sold a lot of copies, but beyond that, it is likely to be largely forgotten. Perhaps this is because the uncovering of Atticus as a bigot was too disturbing a development for Mock fans to process.

One ironic element of the backstory is the recently-revealed nugget that while Watchmen, in terms of the chronology of the storyline, is a sequel, with respect to the order in which the books were written, it is actually a prequel. Miss Lee wrote Watchman first, and publishers rejected it. They were, however, enamored of the flashback scenes from Scout’s childhood, and suggested she rewrite the book to focus on these.

Well, she went them one better and wrote an entire book about those earlier times. The suits greenlighted “To Kill a Mockingbird”, and it went on to sell 40 million copies. The film won 3 Academy Awards, including the Best Actor Prize for Gregory Peck, who forever will be emblazoned into our brains as the sober, steady, enlightened (and decidedly non-racist) Atticus Finch.

All of this should’ve been well and good, and in fact it was. Until our moral betters at NBC decided that one of the all-time most iconic works of racial tolerance is in fact a sexist screed that serves to delegitimize the claims of rape victims.

Who knew? And now we stand corrected. If we’re wise, we will learn for the experience and impute our original sin on the entire American experience – all ~240 years of it. Here, we will be guided by our morally infallible killing birds, and I’m sure we’ll all be the better for it.

While I copped my original paperback copy of Mockingbird at Barbara’s Bookstore on Clark Street, and paid cash, my purchase of Watchman was undertaken in an entirely digital fashion. Here, I availed myself of Amazon’s Kindle service, with amounts deducted from my Amazon Prime account. Based upon this past week’s news flow, there’s a lot of this latter-day form of commerce taking place. The eponymous, sponsoring company took to the podium this past Thursday to announce a quarterly earnings performance 7.5 times the Street’s consensus (53 cents actual vs. 7 cents expected). The company also reported blowout revenue increases from its core shopping business, which shipped, or zapped, $26.4B of product this summer. But get this: Amazon Retail actually lost money in the quarter. The entire profit margin (and more) was made up by the performance of Amazon Web Services, a charter member of the oligopoly that is set on a technological takeover of the world.

And AMZN was hardly alone. On that same fateful Thursday afternoon, The-Alphabet-Formerly-Know-As-Google clocked in with shockingly strong numbers, as did Microsoft and Intel. The nexus of these tidings, as perhaps was to be expected, catapulted the U.S. equity complex from what was shaping up to be an “off” week, to yet another jolly romp to all-time records. And I doubt that the romp/ramp up is over – yet. Apple and Facebook report next week, and the former, having finally busted out the exorbitantly expensive X phone, enters the sequence with the tailwind of having sold out the product in a matter of minutes. With respect to the latter, while no particular previewing nuggets have come my way, I… kinda… suspect …they’ll have a happy story to tell.

Last week, in fact, featured happy talk – not just in equities, but virtually everywhere one cared to listen. Hurricanes notwithstanding, the first glimpse of Q3 GDP reached into a heavenly 3 handle. Other macro statistics also brought tidings of growth, with Durable Goods Orders and New Home Sales both coming in at the upper range of estimates or beyond. Draghi addressed his minions mid-week, to announce modifications to QE, with lower monthly purchases being offset by an extension of the period over which said purchases would take place. The market took this, on balance, as being dovish.

Brent Crude rallied to close above $60/barrel for the first time in 2 years, and carried the GSCI to similar valuation milestones along with it:

In Washington, the precision execution of our governing processes continued apace, with a budget now almost prepared for the President’s signature, a milestone thought to be an essential pre-requisite to the Holy Grail of Tax Reform.

In reviewing the confluence of these events, I find some common threads. Global economic growth does indeed appear to be accelerating, and if something useful can actually be accomplished in the realm of Tax Reform, well, let’s just say that the infallible, oxymoronic “smart money” believes that the benefits have yet to be priced into current valuations.

But let’s revert to the land of Amazon, Alphabet and the rest of the chosen few. I believe that the unifying theme of the giddy goodies they are sending our way is an acceleration in the demand for disrupting technologies. Cloud services, Edge Services (apparently the cloud of clouds), Big Data Applications, Electronic Commerce, Digital Payment Services – all are achieving escape velocity. And, while no one should doubt that our Silicon Valley Chieftains will be the most visible beneficiaries of these trends, it strikes me that they are deeply reflective of a gathering round of capital investment away from the FAAMANAG complex. But thus far, the Market Gods are bestowing their blessings almost exclusively on the Big Dogs of tech:

The chart shows that the equal-weighted RSP actually lost value this past week, even as the glittering stars of TMT shined to super-nova proportions, in the process launching the capital-weighted SPX into the stratosphere.

I think, over a finite interval, the other constituents in the indices may be where the action lies. They’re spending like never before on new technologies, and I wouldn’t necessarily bet against their successes.

In the meantime, I might keep my eye on broad-based index divergences, which have been becoming more noticeable in recent sessions. To wit, on Friday, the spread between the return on the NDX (+2.2%) and the Dow (+0.14%) was the widest recorded in 15 years.

Bond yields, at least in these realms, are also on rise, and, if I’m correct about the looming technology boom, and, if the kids in Washington actually pass rational tax reform, the 30-year Fixed Income bubble could face a mortal threat (I can’t believe I’m actually writing that).

In any event, capital, stationary to the point of oblivion over the past few months, appears to be on the move, and, though I’m reticent to lean this way, I see this as a constructive development. Certainly, the fix is in for the rest of 2017 – it’s inconceivable – particularly now that October tax selling is nearly over – that anything other than a catastrophe can knock this rally off its kilter. But if I’m reading tech trends correctly, the good times could roll well into 2018 and beyond.

Much as I hate to sound optimistic in a world which is now characterized by an unmixed assault on the sensibilities of snowflakes, I must yet call ‘em as I see ‘em. I also will step out on a limb and predict that Miss Lee’s Magnum Opus will grace the curricula of educational institutions as long as the band plays. In one of its key passages, Atticus instructs his children that “it’s a sin to kill a mockingbird”, and he was probably right.

I’m here to declare the mocking of a killingbird, on the other hand, to be fair game, as long as one doesn’t abuse the practice. So I take my leave with the following Pythonesque admonition:

Away, progressive killingbird types, or I’ll mock you a second time.

Remember, you were warned.

TIMSHEL

All that is gold does not glitter, 

Not all those who wander are lost; 

The old that is strong does not wither, 

Deep roots are not reached by the frost. 

— J.R.R. Tolkien 

I lifted this poem from Tolkien’s “Fellowship of the Ring” – the first volume of voluminous and the now-ubiquitous “Lord of the Rings” Trilogy. But as has been consistent with the protocols of this forum, I have this rather startling and embarrassing confession to make. I’ve never read Tolkien, not even the Trilogy’s widely-considered-more-accessible prequel: “The Hobbit”. And no, I’ve never seen any portion of the film sequence. Not one minute of it.

In the days of my youth, Rings was all the rage. I even knew a couple of particularly erudite brothers who were part of a Tolkien Club, which analyzed and re-enacted scenes, etc. In solidarity with my betters, I bought these books, but could not get through them. Then Tolkien disappeared from the scene for about a generation, but was resurrected, around the turn of the Millennium, in (it must be said) glittering, fashion by those crazy kids in Hollywood. JRRT had been dead for about a generation by then, but boy oh boy, had he lived, would he have been happy. And rich. The Rings Trilogy not only copped an astonishing 17 out of the 31 Oscars for which it was nominated, but generated a box office gross that places all 3 in the top 50 takes of all time.

So clearly there must be something there, and our little poem, which appears twice in the text of “Fellowship”, reinforces this notion. But the glitter/gold thing does not originate with Tolkien. Indeed, it had been used, in various forms, by stone cold ballers ranging from Chaucer to Shakespeare. And even them guys took poetic liberties. Some references in literary history trace the glittering gold reference all the way back to Aesop, who did most of his writing about 600 years before the birth of Jesus.

So, while that more famous line does not strictly belong to Tolkien, it should be noted to his credit that he cleverly inverted it, advising his readers that all that is gold does not glitter. Moreover, the next phrase in the sequence, the elegant, thought-provoking observation that not all who wander are lost, appears to belong entirely to him. However, it strikes me that this phrase also lends itself to inversion, as it may very well be the case that all who are lost do not wander. 

I can cite my own experience in support of the foregoing. Though I have often felt lost, perhaps out of laziness, I seldom wander. 

And I’m not alone in this practice. To wit, it can be argued that the inverted version of the phrase applies to current market conditions. Consider, for instance, our equity indices, which we observe as being in single-direction motion, namely upward. Their refusal to diverge from their set course takes various forms, but let’s consider a just this one. As of Friday’s close, the SPX achieved a record set of consecutive sessions (241) during which the index has failed to yield as much as 3% of valuation ground.

A determined march in an identifiable direction is arguably the antithesis of wandering. If my theme has merit, though, this doesn’t mean they aren’t lost. So are they?

A lot of smart folks with whom I deal would answer in the affirmative. They observe in frustrated awe the unfolding rocket ride of our equity complex, click their collective tongues, and darkly suggest that wherever Mr. Spoo and General Dow, Captain Naz and Admiral Russ are headed: a) they will be unaware of their precise coordinates; and b) they may be impelled to reverse course when the reality of a) hits them.

Unfortunately, I’m not in a strong position to predict with certainty whether or when these darker hewn prognostications will come to pass. However, I can state with some confidence that if they do, then the equity complex, though not wandering, would fairly be described as being lost. 

Further, if said complex is in fact missing, it might be due to a trend illustrated in this handy little graph making its way across my Linkedin feed over the last few days:

Now, I’m not sure the source of these time series, but the numbers appear to be approximately correct. And if so, the solution to our problems is obvious: the markets need more hedge funds! Maybe lots more! I mean, if there are only now two fund platforms available to hunt down each listed equity security, then how are we supposed to find the little buggers? Perhaps, if the ratio increased to, say 3:1 or even 4:1, we’d stand a better chance.

But setting aside the troubling flatness of the hedge fund growth curve over much of this decade, one might do well to train one’s eye on the disturbingly diminished number of listed equities available to buy and sell – a figure that has dropped by nearly half over the last couple of decades. This trend reinforces one of the main themes of my most recent written rants: an increasingly alarming imbalance between the supply of, and demand for, marketable securities.

For me, the problem begins in the bond markets, with the persistence of global QE serving to catalyze the hoovering up of all govies – immediately upon issue (if not beforehand). As such, if you wanna trade something, it’s almost gotta be equities. But with low borrowing costs and miniscule yields that have characterized the debt markets for several years, the appropriate response – particularly for large conglomerates has been to borrow, acquire and bury incremental available float inside corporate treasuries.

I will stake some proprietary claim on this hypothesis, and, if pushed, can back it up with evidence, but the idea is catching on. Over the weekend, I read something pithy by some hedge fund dude which points out that stock buybacks account for 40% of post-crash earnings growth, and that in 2015 and 2016, public corporations spent more than their entire aggregate operating income buying their own stock and issuing dividends.

If I’m making myself less than clear, perhaps the following chart will reinforce the point:

There’s some other stuff in this note that I found less than compelling, but I don’t think one can misinterpret the implications of reduced of supply on equity prices.

I foresee no imminent end to this technical imbalance, but clearly, it cannot go on forever. On the other hand, it could continue for quite a spell, and, as long as it persists, I believe that so too will the rather perverse immunization of equity securities (and, for that matter, bonds of all forms) from price effects created by risk-enhancing or downright negative news flow.

This past week’s annoyingly predictable climb to yet again another set of all-time record valuation levels was catalyzed in part by the custodians of our government policy. Surprisingly, and again against the consensus smart thinking, the members of the World’s Greatest Deliberative Bodies managed to actually come close to passing a budget framework. In turn, or (so the thinking goes) this sets the table for that swell tax cut we’ve been promised by the ruling party.

The mere hint of these tidings caused equity investors to swoon with delight, and then buy up every available share of every stock in sight on Friday. Consider, for example, the case of General Electric Corporation, the stock of which has been perhaps the hottest dumpster fire of this improbable year (it’s underperforming the SPX by nearly 40% this year: down 25% vs. up 13% for the index). On Friday morning, newly anointed CEO John Flannery strode grimly to the podium to announce the Company-that-Never-Misses’s first earnings disappointment in 10 quarters, along with plans to divest of some $20B in business lines. For a brief moment, investors showed their ire, actually selling of the stock down by a little more than 1%. By mid-morning, however, they had returned to their senses, and GE actually closed up by an equivalent amount.

And as for those tax cuts, well, I reckon we’ll see. I suspect that the Pachyderms will indeed push something through, especially with their increasingly alarming election prospects now looming just one short year on the horizon. But we’ve seen these guys soil themselves before, and come what may, I expect the final product – if we ever get there – to look much different than and diluted from what is being described to us. Good luck with that removal of mortgage interest deduction kids, and (while we’re at it) with the elimination of the state and local income tax offsets.

In the meantime, next week marks the busiest section of the Q3 earnings sequence, with nearly 200 companies reporting. On Friday, we’ll also get our first glimpse at that mulligan inducing GDP print. I don’t see any of this knocking the indices off of their determined path.

But I will admit to remaining a bit lost. This is nothing new to me, but it is getting increasingly bothersome. Perhaps I should knuckle down and read some Tolkien. Or at least dial up the movies. But given the length of these writings and film Hollywood Blockbusters, this could keep me distracted for months, if not years.

Let me know how you make out.

TIMSHEL

Financial Types, Risk Takers, Classic Rockers, lend me your eyes. I come to bury Petty, not to praise him. For the good in men’s catalogues bombards our playlists, while their drek is oft interred with their bones. So let it be with Petty….

And that’s about as far as I can go to mash up Willy Shake and TP.

I noted Petty’s passing with mixed emotions. Of course, it was sad that he died – for the heartbroken Heartbreakers, his family and his fans. I will also give him his props for his visceral understanding of the difficult-to-define-but-unmistakable-when-you-encounter-it rock idiom, and for doing his best to pay it forward.

But, perhaps (nay, almost certainly) unfairly, I hold him accountable for rising higher in the rock pantheon than I believe he earned. Some of this is quite personal, so bear with me if you can. For me, the allure of music of all types (and perhaps rock and roll as much as any other genre) begins and ends in the composition phase. I fell into a lifelong state of obsession because of the songs. And, having written a few myself, I have recognized the supreme challenge of achieving success in this regard. To write something original, astonishing, and yet pleasing to the finite vocabulary of the human ear, is akin to being a consistently successful NFL QB. From this perspective, rock exploded to divine altitudes over a brief period between, say the mid-60s and the early 70s. As long as our aural cavities remain useful receptacles, we’ll be rocking to the sublime output of the period, as produced by (yeah, you guessed it) the Beatles, Dylan, the Stones, Hendrix, Janis, the Doors, Zep, Pink Floyd, the Who, the Dead, the Kinks, etc. But that once in many centuries era of discovery ended as quickly as it began. The Beatles broke up in a hissy fit. Jimi, Jim and Janis all inevitably perished. Zep and Floyd had topped out by the mid-70s, and they and the rest of them geniuses (here, of course, I’ll carve out Dylan, but I AM talking to you, MICK) have spent the subsequent decades mailing it in.

Not to worry, proclaimed the musical press. The torch has been passed to a new generation, and they will carry on like never before. The group designated to lead the charge included Springsteen, U2, Bowie, Queen. And Petty. Of these, I believe that only Bowie (and perhaps Queen) lived up to this promise. But Petty, as much as any other performer, grabbed the spotlight. And though it would have been, particularly in retrospect, a ridiculous demand that he or his peers create sonic pleasures on the order of, say, “Blonde on Blonde”, “Abbey Road” or Neil Young’s “After the Goldrush”, they clearly fell short of this standard. After Petty died, I conducted a little mental experiment and came to the conclusion that there aren’t more than one or two songs in his catalogue (“Refugee” comes to mind) he ever recorded that would’ve been good enough to be included in, say, Goldrush alone. I took this personally, because these failures denied me the delights afforded to our older brothers and sisters, whom I envied for the unexcelled pleasure they must’ve experienced when they purchased “Sticky Fingers” on the day of its release, and placed it, for the first time, on the turntable. By the time I got hip to any of this (and I was an undisputed early adopter), all I got was the accessible but deteriorating stylings of “Goats Head Soup”. And it was all downhill from there. We carried on as best we could, but guys like Petty let us down. I’m not done yet. Petty also kind of irritated me because of his elevation to the status of peerage by his
betters, most notably Dylan, Jerry Garcia and especially George Harrison. Oh George, you know in your heavenly heart of hearts that he wasn’t your equal, but you treated him as one. And while he not only benefitted but did the best he could with this gift, he (and by implication, you) he never merited this status.

And now he’s gone, and the world cries its crocodile tears (meanwhile, the death of a better songwriter/guitar player: Steely Dan’s Walter Becker, passed largely unremarked by the world at large). Something tells me we’ll survive the blow. This is the worst I have to say about Mr. Petty, and I beg your forgiveness for having said it. I do wish him a sweet and blissful rest, and will do my penance by using his lyrics (which rarely demanded much thought on the part of his listeners) to set our theme for this week.

We can begin, as Petty might’ve wished, by offering the observation that whatever else can be said about Mr. Market, for the time being at least, it won’t back down. Nay, it continued its heavenward climb, with each of our favorite indices setting four consecutive all-time highs last week. Year-to-date, domestic and indeed global equity benchmarks, while reaching never-before-manifested elevations, are doing so at improbably high Sharpe Ratios of >2.0 and gravity defying Sortinos of ~5.0. At the moment, you can stand them up at the gates of Hell, and they’ll stand their ground; won’t be turned around. Then came Friday morning, and the mixed tidings of the September Jobs Report. Investors had dampened expectations due to the storm drenching experienced in our southern realms, but the number came in below the bottom end of the range: Private Payrolls actually declined by around 40,000 gigs, the first drop in this metric in 7 years. U.S. equity investors did indeed take notice of this, and actually ginned up a decline in the index – to the tune of 0.01% — 1 basis point – on the Dow Jones Industrial Index (the Naz, true to its name, actually closed up). It might be fair to state that thus far the selloff fails to rise to the dignity of either the ’29 or ’87 crashes.

Now, one might surmise that a weaker than weak jobs report might catalyze a bid in the interest rate complex – which, unlike equities – has been under what passes for some pressure of late. But one would be wrong on that score. Govies sold off modestly, adding nearly a big fat basis point to yields on the 10- year note.

The logical inference is that the “risk on” regime continues to dominate the proceedings. And there is some justification for this. While investment markets are nothing if not frothy, this here geriatric economic recovery appears be gathering steam. Other elements of the Jobs Report (Base Unemployment Rate, Average Hourly Earnings) brought tidings of labor market tightness. The Q3 Earnings Reporting cycle begins next week, and in addition to an encouraging sequence of positive pre-announcements, the likelihood is that investors will be in a hurricane-induced forgiving mood in terms of both results and forward guidance.

Here, I hasten to mention that the upcoming CEO recital series is what us ballers like to describe as the Kitchen Sink Quarter. Big shot Biz Executives often use the Third Quarter to throw the wettest blanket they can find on their proclamations, so as to look extra-good in Q4, when their compensation is set. Similarly, with just over 10 weeks left in this improbable year, professional investors are not likely to hazard the negative performance implications of divestiture of key holdings. The confluence of these dynamics leads me to believe that investors will be in a generous mood when they evaluate the words of wisdom issuing forth from corporate podiums across this great nation.

So what will make this market generate the Breakdown that Mr. Petty so plaintively requested? Well, my answer for the moment is: nothing on the visible horizon. If one can turn one’s eyes away from the horrors of Vegas or the hypocritical chicanery of one Mr. Weinstein, there are some fairly menacing but obtuse comments issuing forth from the White House lately. While short on details, they imply assertive action in some remote quarter of the globe – perhaps Iran or North Korea for instance. If so, perhaps investors won’t like what they hear, but I wouldn’t bet the ranch on it.

What I do think may be on the horizon is a more politically sensitized tone to the markets. After having whiffed entirely on Health Care, the Republican Caucus is turning its attention towards the Big Enchilada: Tax Reform. The early returns here look anything but promising. And though this is only my opinion, it appears to me that the chances for passing anything meaningful and/or accretive in this realm are about the equivalent of those tied to Health Care a few months ago.

Further, I feel that Wall Street is the main culprit here. Having for many months ignored or put an unjustifiably positive spin on all data flows, investors are incentivizing political actors to do — exactly nothing. If the current paradigm remains in place, come the holiday season, members of the 114th Congress will return to the welcoming arms of their constituents bearing the gifts of full employment, absence of inflation, and yes, record asset valuations. If anyone thinks that under these circumstances, our timid legislators will come together for any action bearing even a modicum of risk, they should think again.

Conversely, if investors were to band together and actually sell a few stocks, it is my belief that those lovable guys and gals in the Senate and the House would gather themselves in a manner reminiscent of the 73rd Congress, ushered in with the first inauguration of Franklin Delano Roosevelt. Within 100 days of convening, they had set the framework for the New Deal, created the Securities Act of 1933 (which still governs investment to this day), established the Federal Deposit Insurance Corporation and implemented Glass Steagall – a separation of banking from securities business that lasted until the ‘90s, when Sandy Weill found the law inconvenient to his plans to merge Citibank and Salomon Brothers, and convinced his pal Bill Clinton to strike it down.

That kind of presidential loving is hard to find – at least this side of Monica Lewinsky. So whatever else might be said of Sandy, perhaps we can all agree that he got lucky, babe.

But absent any kind of breakdown emanating from Tehran, Pyongyang or (scariest of all) Washington, I expect that the markets will remain in “buy” configuration, and encourage you to act accordingly. Investors aren’t likely to screw up the rest of the year, and it’s anyone’s guess when they belatedly wake up and send appropriate signals to Washington. At that point: a) it may be too late to salvage the market-friendly opportunities afforded by the results of the 2016 election; and b) investors are likely to overreact to the downside when, at long last, this reality hits them.

So, for those looking to capitalize upon such a downward reset, it is my duty to remind you of Mr. Petty’s glib admonition. The current free rising market paradigm cannot last forever, but the waiting is indeed the hardest part. For Tom, the waiting is over, but it did indeed last quite a while. The last time he recorded anything to which anyone paid any attention was 25 years ago. For the rest of us, the waiting continues. Markets continue to defy gravity, and every day we draw one more card.

Let’s play them wisely, shall we?

TIMSHEL

Yup, that’s my advice – at least for the time being. If you got ‘em, the time may have come for you to smoke ‘em. I’ll elaborate shortly, but first, a little historical context in order. The origins of the phrase reach back to WWII, as a middle 20th century variation on the command: “At Ease”. During those infrequent intervals when our boys were not forced to contend with the likes of the German, Japanese (and once in a blue moon) Italian armies, their field commanders would suggest that they kick back by issuing the following order:

“Smoke ‘em if you got ‘em”.

Approximately a generation later, the progeny of the Greatest Generation inverted the phrase into the form I have selected for our title, and it took on an entirely different meaning. Suffice to say it was embraced enthusiastically by Baby Boomers as an anthem of sorts. For a time at any rate, they always had them, and, having, they smoked them.

Fast forward to more recent times. In the high flying world where I roll, a Smoke is now vernacular for a Private Jet – perhaps the most unambiguous symbol of elevated status that exists today. If you’ve really hit the big time, you fly your Smoke to places like Davos to discuss global warming. But even one level down, where you mostly use your Smoke to fly you between your bi-coastal residences, and (if the spirit moves) to the Super Bowl, you have scant cause for complaint.

But I do. Have cause for complaint, that is. Because though it pains me to admit it, I do not, at the present time, nor have I ever, owned my own Smoke. And given that the season of atonement is upon us, I may as well disclose that while I’ve ridden on a few Smokes, I’ve never even had routine access to one.

Neither, apparently, had (now former) Health and Human Services Secretary Tom Price. Until recently, that is. As a stone cold member of the Trump Cabinet, he managed to rack up about a million bucks of travel charges – in less than six months – using transports known among us players as Government Smokes: Smokes that are owned by taxpayers and funded by their dollars. Thus, whatever else one wishes to say about Flying Tom, one cannot accuse him of having ‘em but not smoking ‘em.

It should be noted, however, that Flying Tom was not the first government official to roll like this. Among those that blazed the aeronautical trail before him, at least according to published reports, are Former Attorney General Eric Holder, and current Special Counsel Robert Mueller. Presumably, though, even they weren’t the first to smoke on the pubic pipe. Here, I’m thinking Smoking Joe Biden (who never seems to have two nickels to rub together) and maybe even former Chairman of the Federal Reserve Board William McChesney Martin. Moreover, though they didn’t have Smokes back in his time, one can envision that if they did, T.R.’s Secretary of State Elihu Root might’ve been a likely candidate for this type of flying, five-finger discount.

As for Secretary Price, though, once caught with his fingers in the gravity defying cookie jar, he not only quickly owned up to his sins, but has tried to make amends – by reimbursing the government an amount equivalent to the cost of a single seat on a commercial. But it wasn’t enough. Trump bailed on him in lightening quick fashion, and, by Friday, he was gonzo. The post of HHS Secretary remains open at the point of publication of this column.

I tend to agree with the pundits who have suggested that the President might’ve done more to stand by his man across this episode, but I do find some irony in Mr. Price’s having flown too far on the public dime, using the world’s most elite form of transportation, and then being thrown by the President under the most proletarian of travel modes – the proverbial bus.

But I’m not sure anyone should be laughing here – particularly the members of, and those sympathetic to, the current administration, which just experienced one of the worst weeks in its short history. Big Don backed the wrong horse in the Alabama Republican Senatorial Primary, who may have been better off had the big fella not thrown support his way. In annoyingly trademark fashion, he has waged an unwinnable battle with the players in the NFL, in the process distracting from the entertainment value of what I believe to be the world’s leading form of commercial amusement, and confusing everyone about: a) what the issues are; and b) who’s on which side of the argument. Not content with this, he entered into an even more futile cat fight with the Mayor of storm-savaged San Juan.

He released details of a tax reform plan that must travelled a tortured path indeed if it ever is to be enacted, and, at best, is likely to look entirely different when (if) it comes to his desk for signature. And if it fails, it may seal the status of 115th Congressional session over which he presides (and in which his party holds majorities) as one of the ineptest in history. The 116th may look bear very little resemblance to its predecessor.

The week also brought the latest breakdown in what the mainstream press repeatedly calls the “last gasp” of ObamaCare repeal efforts. And just as this defeat became manifest, he forced out of office the Secretary of the Department that is tasked with the execution of the laws that oversee the concept.

But not much if any of this, appeared to trouble the investor class, which managed to bid up domestic and global stocks to yet another record, in the process closing them at their dead highs – all at the end of the 8,637th consecutive quarter of gains. Meanwhile, the VIX closed at a record low of 9.59, but that hasn’t stopped investors from piling in on the short side of this trade, as short interest for VIX futures continues to set daily records. It perhaps bears further mention that this incremental crushing of index volatility is transpiring at a point in the calendar that typically generates the greatest amount of price dispersion.

Like I say, if you got ‘em, smoke ‘em.

Most other asset classes are showing more bi-directional volatility. The USD has gotten off the schneid a bit, and bonds are selling off across the globe. The bubbling crude had a big week, and the confluence of activity across rates, FX and commodities suggests that somebody out there is expecting some sort of action.

With respect to these and other imponderables, I hasten to remind you that the fascinating year of 2017 is now 3/4ths over (a pessimist might describe it as 1/4th incomplete), but that what type of year it actually turns out to be may well be determined over the next month and a half. Next week is data-light until Friday, when the September Jobs report drops. By all indication, the BLS will be given a statistical mulligan, as last month’s unfortunate storm sequence is expected to dilute the outcome. Shortly thereafter, the earnings reporting cycle begins, and for the first time in a dog’s age, the bar is actually pretty high.

On balance, I continue to like ‘em here. Equities, that is. Maybe Bonds too. I simply believe that the current upward trend will continue until it is impelled by outside forces to reverse course, and I don’t see these forces gathering anywhere – at least for now. Yes, they’re out there, but until we can see the whites of their eyes, well, you know.

In addition to the foregoing, as Q4 unfolds, we’ll bear witness to incremental Washingtonian statesmanship, further developments in the Mueller investigation, perhaps some shenanigans from Pyongyang, and, if we’re lucky, maybe an extension of the fabulous Hillary Clinton “I take full responsibility but everyone else is to blame” Book Tour.

All of this (particularly the last item) indeed makes me want to smoke one, but the plain truth is that I haven’t got one to smoke. Hopefully you do, and if so, I reiterate my belief that now’s the time. If the spirit moves and you get in touch, perhaps I’ll join you. But one way or another, I encourage you NOT to let the opportunity pass you by. It could be quite a spell before another one comes your way.

TIMSHEL

Amid the crescendo of athletes and entertainers heroically using their highly paid platforms to lecture the less informed among us on topics of morality, the time has come for me to join the chorus. As everyone presumably is aware, I’m known throughout the world – primarily for my singularly tasty guitar chops, but the truth is that I occasionally sit down at the keyboard bench, and hope for the best. Here, I face the following problem: I can only play songs in the Key of C. The main reason for this is that on a piano, the C Major scale features all white, and no black key notes. And though I’m not proud of this, I am forced to admit that those pesky black keys throw me off. So when banging away at the 88 finger machine, I tend to stay at home. In the Key of C.

All of this got me to thinking: is the Key of C racist? 

I sure hope not, because (trust me on this) C is an important key – particularly for Rock and Roll. Without it, some really good songs either disappear entirely, or need modification away from their current state of perfection. A small sample of the types of compositions impacted (and likely not for the better) would include (in my judgement) C King Bob Dylan, whose Hard Rain”, “Like a Rolling Stone”, “Just Line a Woman” and “Blowing in the Wind” reside in C-space. In addition, there’s the Stones’ “You Can’t Always Get What You Want”, “Let it Bleed”, “Brown Sugar” and “Can You Hear Me Knockin”. The Beatles use C for (among others) “Across the Universe”, “Let it Be” and “The Continuing Story of Bungalow Bill”. And the list goes on and on. There’s the Allman Brothers’ “Whippin’ Post”, Jerry Jeff Walker’s “Mr. Bojangles”, The Eagles’ “Take it to the Limit”, Bowie’s “Space Oddity”, Blue Suede’s “Hooked on a Feeling”, and of course, Brewer and Shipley’s “One Toke Over the Line”.

I could go on, but presumably you get the idea.

I should also mention that one of my all-time heroes (and no, I don’t care what you think about this): Former Secretary of State Condoleezza Rice, a virtuoso pianist in her own right, once famously said that all music eventually converges back to the Key of C. As a sharecropper’s daughter who rose to great heights, one would have a difficult time accusing her of racism, so for the time being, I think it would be wise to get of the Key of C’s nut.

If we can do this, perhaps in these touchiest of times, we can cut each other some slack on a broader range of subjects. Maybe, for instance, we can stop calling each other nasty, hurt feeling names. But I don’t hold out much hope on that score. Especially with the news flow dominated by two military chieftains derisively calling one another Rocket Man (original song in the Key of G) and a Dotard, respectively. I could even live with this if there weren’t the small matter of nukes being involved. But they are. Involved, that is. Nukes, that is.

In fact, as the clock moves inexorably forward into Autumn, this Trans-Pacific lack of civility is perhaps the biggest risk factor that we as investors face. And it would not be wise to discount it, because, of course, this is serious business.

Deadly serious.

And I’m having a hard time envisioning how the world avoids an unpleasant showdown here. By all appearance, we’re a hair trigger away from a full blown military confrontation, and unless one side backs down (unlikely) that’s where we’re headed – perhaps sooner rather than later.

But presumably, you’d prefer to obtain geopolitical insight from other sources, so suffice to say that from a market perspective, other looming, vexing hazards appear to be on the wane. The government didn’t shut down – yet. The White House appears to be adopting at least a marginally more adult-like demeanor. Two horrible storms hit our southern shores in terrifying sequence, but both storm centers appear to be constructively starting the slow process of rebuilding and recovery. Political unrest appears to be at least marginally on the wane across the globe.

QIII/17 ends this Friday, and shortly thereafter, we’ll be looking at earnings, GDP and other metrics that present themselves at routine 3-month intervals. With respect to the former, it would appear that the perky trends of preceding quarters may continue. As of now, positive pre-announcements are coming in at the fastest pace in, well, in quite a spell.

In fact, they are clocking in at record levels:

In general, I think that the risk environment has improved materially as we enter the 4th Quarter, and I wouldn’t be surprised if some of our favorite markets start on a small tear. Of course, I make this proclamation after a flat week for the SPX, but this bothers me not at all. After spending four full months within the 24 handle, the Gallant 500 is likely to move somewhere, and I don’t think the direction is going to be down.

Some of my thinking derives from a strengthening belief that the global shortage of marketable securities is becoming more acute with each tick of the clock. There are simply too few stocks and bonds available to meet incremental investor demand. If you doubt this, consider the reality that on Wednesday, the FOMC did indeed announce the beginning of its long-anticipated divestiture process. Think of this as a reverse QE. To wit, just as the Quantitative Easing process involves creating new currency to purchase existing securities, so too does Balance Sheet Reduction destroy currency (in the form of Central Bank Reserve reduction) for the purpose of selling existing securities. QE drove rates down dramatically; the announcement of Balance Sheet Reduction drove them up – to the tune of 3 whole basis points!

But life is pretty sweet if you’re a Central Banker these days. You own assets and carry liabilities at rates of your own choosing, so you can do pretty much what you want with impunity. If the spirit moves, you can print new units of your own currency. Perhaps this is why there was such a wild bid on the stock of maybe the Central Bankiest of Central Banks: The Swiss National Bank. It is the only organization of its kind that trades on public markets, it borrows at negative rates, and its stock has doubled this year:

I’d say that even at ~CHF 4,000, the stock is still a buy, but good luck getting your hands on any. There are only 100,000 shares outstanding. Compare this to, say, Fifth Third Bank of Cincinnati, OH, the 15th largest bank holding company in America, which has 736 million shares on the open market.

But as to the broader market, again, all signs now point upward to me, and if it weren’t for the looming Rocket Man/Dotard throw down, I’d say that we might be poised to go on a major ripper.

Yes, stocks are overvalued by many metrics, but absent some paradigm shift (which will have to transpire eventually), they are likely to stay that way for the foreseeable future, and if I’m correct on that score, then there’s no reason they can’t climb considerably higher before the inexorable forces of gravity set in.

I’d also remind you that next week, holiday-impeded by Yom Kippur, may feature a tape painting cycle designed to squeeze out a few extra basis points of performance at the end of a deceptively difficult quarter.

It should be game on after that, and I see good opportunity to put a nice cherry on top of this Soggy Sundae of a year. But not on the short side.

So I’d ask everyone to keep their collective chins up, and if we can be a little nicer to one another, that would be a good thing as well. Let’s start by eradicating the claims of racism against the Key of C Major, which I do not believe discriminates against any racial, ethnic or social cohort. And just to show you how important C Major is, I’ve saved the best for last. The Abbey Road Medley – the last recording ever made by the Fab 4, while modulating here and there, makes its home in C. We’d do well to heed the final phrase the group ever sang: “In the end, the love you take, is equal to the love, you make”.

But even this doesn’t capture its essence as well as the following sublime chord sequence:

Amaj/Gmaj(add A)/Fmaj/Dmin7/Cmaj 

And then, in painfully poignant denouement: 

Cmaj/Cmaj(add 9)/Dmaj/Cmin7/Fmaj/Cmaj 

It’s true that to play this lick on piano, you’ll be forced to utilize a few black keys (particularly that tricky Cmin7). But trust me; it will be worth it, because it simply doesn’t get any better than that

TIMSHEL