“Laugh at the world’s foolishness, you will regret it; weep over it, you will regret that too; laugh at the world’s foolishness or weep over it, you will regret both. Believe a woman, you will regret it; believe her not, you will also regret it… Hang yourself, you will regret it; do not hang yourself, and you will regret that too; hang yourself or don’t hang yourself, you’ll regret it either way; whether you hang yourself or do not hang yourself, you will regret both. This, gentlemen, is the essence of all philosophy.”

— Soren Kierkegaard

Today, we draw from yet another ubiquitous source – Danish philosopher Soren Kierkegaard, widely acknowledged to be the father of Existentialism.

While there may be some debate about this, I consider the matter to be settled, because any Danish philosopher, is, by definition, a walking oxymoron, and, therefore, Existentialist to the bone.

You may choose to call BS on this generalization, but on my immortal soul, I have a friend from Denmark. And he tells me that the big joke — out Copenhagen-way — is that summer lasts one day there.

Like I mentioned, if you’re gonna be a Danish philosopher, Existentialism as about your only option.

Kierkegaard’s point in the above-purloined passage should be self-evident. Our options are ever sub-optimal, and this is true no matter what path you take.

But he deliciously begs the question as to whether making any choice is worth the effort. I believe that he’s telling us it is. Just decide already, fer Chrissakes; you’re gonna be sorry anyway, so you may as well choose your own mournful poison.

And of course, so much of this applies to modern times that I just couldn’t help myself from adding to the deafening Kierkegaard chorus.

Let’s begin with politics (I know, I know). It seems to me that our passage was a direct message from SK to Biden. One gets to feeling sorry for him — because whatever he does: a) he’s gonna piss a bunch of people off, to such a degree that; b) he’s bound to regret whatever action he takes.

General consensus informs us that last week was pretty rough for him, and – not gonna lie — I could’ve lived without his hyperbolic claims about Democracy hanging by a thread, followed as it was by a tantrum suggesting that a refusal to support changing Senate rules for the purpose of nationalizing elections was tantamount to high treason. He got hisself all worked up, and it wasn’t a good look. On the other hand, when he goes all beta, staring out with those twinkly, doughy eyes and bleating about his hopes and dreams for us peons, it may be worse. For him and for us.

No matter what he does, he can’t win. For those who propped him up in 2020, he already served his purpose – ridding the premises of the scourge of Trump. And, having done so, no one’s got his back. His supporters have no need or desire to do his bidding; don’t, by all appearance, care, at this point, whether he lives or dies. All that remains is their lists of (incongruent) demands for him, backed by vague threats disappear him altogether if he doesn’t come through.

One wonders if he’s glad or sorry that he went down this cockamamie presidential path in the first place.

My guess is the answer is yes, and that Kierkegaard would understand.

Then there’s these confounded Kierkegaardian markets, within which, it truly seems, it doesn’t matter what you do (or don’t) do, you’re bound to regret it.

At least we come by this condition honestly — because this is one hot mess of an investment backdrop. This week brought confirmation (as if we didn’t know already) that Inflation is running rampant and is presenting itself in realms where everyone has a stake.

Crude Oil prices, for instance, are higher than they’ve been since 2014:

But that Retail Sales, Industrial Production, Business Confidence, Consumer Confidence, etc. are all on the wane.

Most of the banks reported this past week and that, too, was ugly. (However, we’ve yet to hear from Goldman, who probably did OK). The rest of the earnings cycle now follows, holding prospects that few this side of Kierkegaard himself are likely to relish.

Yet, in spite of it all, risk assets hold at near-record valuations, as supported by more liquidity than anyone has experienced in their lifetimes. The Fed is gonna taper, and Jamie says they gonna raise short-term rates, like, six times this year. But they’s still printing > $100B a month, their Balance Sheet remains at a bloated $9T, and the Fed Funds rate continues to rest at a microscopic 0.25%.

Real rates are deeply negative – more so, in fact, than they’ve been in seventy-five years:

Now, in case anyone is confused here, the red line is Inflation. The irrelevant black line is the nominal rate, and the blue line, being the difference between the two, is the real rate.

I know it’s a little hard to read, but Big Blue is clocking in at -6.5%. Meaning that borrowers pay, and clueless lenders receive, 93.5 cents for every dollar put out on the street.

No wonder, in consequence, that corporations are falling all over themselves to borrow all they can.

I reckon there’s some folks (aside from the obvious clique of well-heeled debt issuers) out there who benefit from all of this, maybe even some investors. But they are not among the circle of my acquaintance.

All of which leads us back to our theme: oh intrepid market participant? Watcha gonna do?

A strong argument can be put forward that it don’t much matter because you’ll regret whatever it is.

Load the boat and play for another leg up in the rally? Jamie seems to endorse this, and they didn’t pay him $100 large last year for spit-balling. But I am unable to support the underlying hypothesis.

Limit your action to the high-flying tech names? Ask Cathy Wood how that’s working out.

Play fundamental, long-oriented valuation mismatches? My inbox is chock full of horror stories and morality tales respecting this strategy.

Beef up your shorts and seek to monetize a crash? I’m gonna slap you. No one has EVER made a nickel attempting this; trust me: the stories you hear about short-selling riches are nothing more than urban myths. Besides, there’s too much cash floating around for this approach to play to your advantage.

How about crypto, NTFs and all that jazz? Yes, I know of several young persons who converted their bar mitzvah money into enough jack to purchase private jets and Italian seaside villas. But what’s your edge?

*******

All of which leads to the extreme option of liquidating everything and bagging your investment activities – full stop. But I don’t expect you to do this. Because you are made of sterner stuff.

And I think you’ll regret it if you do. Yes, you’re likely to also regret it if you don’t, but that, my friends, is beside the point.

And if you don’t understand this, well, then, you probably just don’t get Kierkegaard. If so, that’s a shame, because, I think, Kierkegaard gets you.

But don’t, no matter what Kierkegaard says, hang yourself. I promise that you’ll have reason to be glad for rejecting that.

If you feel you must check out, at least consider the path taken by one Jeffery Parker: former Director of the Metropolitan Atlanta Rapid Transit Authority (MARTA). Not sure what was bugging him, but he decided to off himself, in a manner that can only be described as going out in a blaze of panache.

On Friday, he threw himself in front of one of his own MARTA trains.

I can’t say whether he regrets his self-antihalation or not. But one certainly must award him his style points for his methods.

Somewhere in the cosmos, Kierkegaard must be smiling on him.

And that, my friends, is the essence of MY philosophy.

TIMSHEL

Juliet, when we made love, you used to cry,
Said “I love you like the stars above; I love you till I die”,
There’s a place for us, you know the movie song,
When you gonna realize, it’s just that the time was wrong? Juliet…

— Mark Knopfler

I know it’s a little early to be focus on this – particularly as we just went through a similar round for the not-so-dearly departed ’21.

But jeez, they’s dropping like flies.

Our early frontrunners emanate from the motion picture business: the matchless actor Sidney Portier and the uber-accomplished director Peter Bogdanovich. The former gave us timeless performances in “To Sir, With Love”, “Lilies of the Field”, and (my personal fave) “In the Heat of the Night”. The latter crafted “What’s Up, Doc” (and a bunch of other cool films) that features a San Francisco car chase scene which blows away anything in the “Fast and Furious” series (which I haven’t seen). He also crushed it with a cameo in “The Sopranos” as Tony’s shrink’s shrink.

They don’t make movies like they used to, but as they say, they never did. And when they do, we don’t attend. Spielberg, for instance, recently dropped (though God knows why) an updated version of “West Side Story”, which the critics loved, but which bombed at the box office.

It doesn’t take an MFA to know that “WSS” is a takeoff on “Romeo and Juliet”, but maybe fewer of my readers are aware that the Dire Straits song of the same name is a takeoff on WSS. As we are informed by both Sondheim (who died this past Thanksgiving and is therefore 22-ineligible) and Knopfler, there’s a place for us.

But it took the latter to suggest that maybe the time was wrong.

So it goes with the ’22 markets, thus far at any rate. After a couple of sessions of admirably seeking to extend the year-end rally, investors turned ignominious tail, and ended the week by selling off pretty much everything – stocks, bonds, commodities (OK; not ALL commodities), heck, even crypto (BTC down ~10% ytd and ~37% over a rolling two months).

We’re where we belong location-wise

But our timing sure seems off.

So, what gives? Well, for one thing, there’s a passel of risks out there – ones that I weary to yet again inventory. But more than anything else, it appears that the markets swooned – and not in a good way – at the release of Fed Minutes — which had a decided “Jets vs. Sharks” feel to it.

Everyone expected them to talk tough about tapering. And they did. But it also appears that investors were taken by surprise at indications of an intention to divest of at least a portion of their $9,000,000,000,000 Balance Sheet. Shudder the thought!

Rates, in result and perhaps justifiably, rose along the entire yield curve. Moreover, a big hike in wage inflation — enmeshed in an otherwise tepid December Jobs report – all in advance of next week’s CPI/PPI drop (the latter of which could easily clock in at > 10%) and the won’t-that-be-fun Congressional testimony from Chair Pow and his Trusty Tonto Brainard didn’t do much to becalm anyone’s mood.

Even the credit markets are feeling the heat:

Bond Rumbles: Investment Grade and Junk

The downward pressure in non-government debt instruments was almost certainly abetted by a pant load of new supply, as, just on the sober (left graph) Investment Grade side, issuers ushered in the new year by dropping $60B of new paper on the markets in its first week.

This week’s projected tally? A more modest $30B. But – trust me here – it could go higher.

Not to harsh your collective mellows, but if these markets collapse, we’s all in serious trouble; the 22 Corpse of the Year could be all of us.

But for now, the real pain has devolved to the Equity Complex, with all the indices down, and that most stalwart soldier – Captain Naz – particularly on its heels. Nominally, the Ol’ Cap is tethered, in star-crossed lover mode, to the fate of his Juliet – Madame X (U.S. 10 Year Note). As the latter falters in price and rises in yield, so the argument goes, the discount rate applied to cash flows expected to emanate from those Naz names increases — weakening/diminishing them accordingly.

OK; fair enough. But am I ready to declare the death of either the Captain or the Madame, in inadvertent suicide? I am not.

For one thing, I don’t believe the bid on longer term Treasuries has made its permanent exit; there’s just too much cash out there to place anywhere else. For another, I’m not convinced that the love match is permanent. At some point, the Naz can rally while Treasuries sell off, and vice versa.

It’s happened before, you know.

And FWIW, I think all that cash continues to boost credit markets, or, at minimum, keep them from collapsing, so, I’m not ready to toe tag them yet either.

Thus, one week into ’22, while there are certainly blood clots and stains anywhere one care to cast one’s eye, I’m not prepared to advance the candidacy of risk assets of any kind for ’22 Corpse of the Year honors.

But they may remain impaired here for a spell, or, taken to the extreme, sent to the Critical Care unit.

And this we’ll have to live with.

However, it’s just too early in the year to hand out honoraria, or even to write much of a narrative.

I reckon, in sum, it’s time to hunker down. I don’t see much in the way of easy pickings out there, but the play has just begun. Subsequent acts are bound to bring surprises aplenty.

And at some point, this here tape is bound to normalize itself. Consider, if you will, the case of the beleaguered Biotech Sector, the source of mournful and unmixed heartbreak for many months:

Now, you might think that this one area of the market, comprised of the companies we need to beat back this pandemic, whose products will remain in demand for as long as we humanoids are prowling about, would receive some kind of investor love. But one would be wrong. Its index is down >40% since before they locked all our asses down – nearly two years ago. Over the same period, the Gallant 500 is up around 35% and the lovesick Captain Naz has rallied a cool 60%.

It all seems to me to be so distressing, so avoidable. The Fed wreaks havoc by diluting the money supply. Investors, in result, misallocate capital. Virtually all assets are mispriced. Vital, well-run companies see their valuations crushed, while investment dollars flow endlessly into an oligarchy of equity names, as well as towards dreamy securities collateralized by images of rhinoceros tusks.

It’s not a good look for us and it can’t possibly continue into perpetuity.

But bear in mind, if you will, that “Romeo and Juliet” is a tragedy, which ends in the creation of not one, but two, beautiful corpses.

I prefer to take a more optimistic view of the proceedings.

Yes, there’s a place for us, even if the time is wrong.

However, with some intestinal fortitude and solid, self-generated karma, our time will come, thereby removing us from the nomination list for 2022 Corpse of the Year, and, hopefully, for any such award during subsequent cycles around the sun.

TIMSHEL

Well, my loves, we survived – even if 2021 didn’t. The latter departed, on schedule, in rolling hourly units across the globe this past weekend. Few in my field of vision are terribly busted up about this, and, FWIW, neither am I.

With seasonal consistency, we’ve just completed the annual “______ of the Year” cycle, and a  couple of days ago, I came across an authentic looking Time Magazine mockup, which named Charlie Watts as its Person of the Year. Charlie, of course, died this past summer, after having begged out of his band’s bajillionth Geritol tour, Moreover, he hadn’t recorded a particularly memorable percussion lick in several decades (maybe since that Honkey Tonk Women cowbell). But I’m thinking to myself: does this even matter? His biggest feat in ‘’21 was managing to die. Which was something; bought him a lot of press. More so, than, for instance, Keith Moon. Who bounced in 1978.

But one way or another, Charlie is now indisputably a corpse, begging the question as to whether he  would even cop “corpse of the year” honors. He’d certainly be in the running but would have had to fend off late surges by the recently departed John Madden and Betty White, as well as challenges by such notables as Mike Nesmith, Colin Powell and (a personal favorite of mine) the late, great New York Dolls’ guitarist Sylvain Sylvain.

More than this though, it would seem appropriate from some perspectives if Time had chosen to honor a corpse rather than a living being, because it was that kind of year. It would have been outside of its publishing comfort zone to do so, and their its would probably have objected. But anyway, as has been widely reported, they gave their annual award (with no complaints from me) to Elon Musk.

But that’s all so last year. It’s on to the new one, where, presumably, we can rely upon one near certainty:

Deuces are wild.

My (then-future) wife told me this on her 22nd birthday. And she was right. It was a crazy year. So, too, does this new one portend to be.

2022 certainly sets up in “deuces wild” configuration, ending, as it does, with two of them (which is to say nothing of the identical numeric marking the millennium). And, since we can put it off no longer (even if we would), it behooves us to review the singular set of conditions that await us as we commence annual proceedings.

There is an abundance of visible risks, almost an embarrassment of them. They include, in no particular order, inflation, public health disruptions, the gearing down of the Fed’s money printing machine (at least on a temporary basis; my guess is that they’ll keep it on idle – just, you know, in case), and great, associated uncertainty about interest rates and credit spreads.

Government, that heretofore omnipotent market Sugar Daddy, finds itself in a somewhat neutered position. The ruling elites, with their widely divergent interests and lack of requisite Sugar Daddy discipline, cannot seem to agree on anything. Their titular head is (predictably) showing himself to be increasingly a straw figure; whatever he’s doing, it bears no resemblance to leadership.

As such, among other issues, one can forgive our transcontinental, foreign frenemies (who have problems of their own), for thinking that they can do pretty much anything they choose without evoking a potent response from us, thereby enabling us to add Foreign Policy to our list of matters upon which to fret.

This isn’t exactly the best environment to look the the guy in the hat across the table and tell him that you’ll see him and raise him a buck.

And I think it would be wise for the investor class to give the gov its props, as it has had the market’s back for well-nigh a generation. Early last decade, it goosed the mortgage market, and everyone had a good time/made oodles of bank — until the consequences of that policy became apparent.

In the aftermath of the subsequent financial collapse, what did Washington do? Printed trillions of dollars of electronically rendered cash and used it to by its own securities. These are the preferred form of investor collateral, and, in result, for virtually the entire decade of the teens, it was game on.

The back half of the decade also brought tax cuts and deregulation – particularly in the Energy Patch, which, of course the market loved.

Then came ’20, with its wretched quarantines, which (and this I missed) were offset (at least from an investor sentiment perspective) by a huge doubling down on Fed money printing/securities buying. But what followed was (as was, in retrospect, inevitable) a nasty dose of inflation – one that if not checked at this pass, could cause all sorts of unpleasantness in the capital economy.

But tapering has barely begun. Real rates are still negative. The re-regulation — Committee for Public Safety Rendition, has not emerged in full force. For these reasons and others, the markets closed out ’21 just a titch below all-time highs. Fed funds are still barely above zero. Madame X/10- year yields are at a docile 1.5% — smack dab in the middle of the 1.2% — 1.7% range registered all year.

In addition (and though, for years I’ve ignored the short end of the curve), rising near-term rates may pose a problem for the markets – particularly for levered pools of investment capital that rely upon broker financing to build their portfolios. Heck, I am acquainted with several such platforms that utilize > 10x leverage in their books. A 1% increase in overnight rates implies a double-digit performance haircut for these cats. Some of them have crafty ways to evade this problem – most of which I can’t or won’t divulge — due to that endless inventory of Non-Disclosure Agreements I’ve been compelled to sign. But others, lacking these tools, will suffer, and won’t have the opportunity to cast their eyes towards Washington for any succor or assistance.

Are there any tricks left in the collective sombreros of the federales? It doesn’t seem to me to be so.

Crazy, no? Crazy deuces abound in every hand. Except the ones that we hold.

Thus, when the markets open today, it will be at peak valuations, against a hardscrabble backdrop where the myriad, government-sponsored bounties that have enriched us all these years appear, to be, at best, in short supply.

If I had even a basic understanding of the present-day capital economy, I’d say that risk assets are ripe to get slammed. But I don’t think this will happen, principally because (as has been the case for several years, and is even more evident as we begin our latest trip around the sun) there’s simply too much cash, chasing too few securities, to create the framework for a god-fearing selloff:

If I’m reading this chart correctly, the global inventory of fiat currency is now fixed at a tidy $100,000,000,000,000 – up from a more modest $65,000,000,000,000 just a few years ago. That’s a ~50% increase – over which period the global equity market capitalization is up by a similar amount (meantime, the Gallant 500 is nearly a double and Captain Naz is > a three bagger).

Could be just coincidence, but I’d not rush to that particular conclusion. Logic would dictate that a cessation of money printing projects out to a headwind for stocks, bonds and even commodities. But even if they don’t print another penny of newly minted cash, there’s still that $100T of currency and demand deposits sloshing around the globe, and therefore in my judgment, plenty of juice to absorb wayward risk assets that take a notion on themselves to go underground.

Of course, that’s not the whole story. Because plenty of solid equity names took the worst pasting in more than a decade last year – one where the equity road forked into two distinct paths. One was a gilded stairway to heaven, but only a small handful of names that retain investor favor were able to access this track. These are the stock group once called FANG, then unwieldy re-christened FAAMG. But now, by virtue of a recent name change by Facebook (now Meta), they at least sport a legit acronym: GAMMA (Google, Apple, Microsoft, Meta and Amazon).

But that’s about all we have to thank those fortunate few for. And it ain’t much. My hunch is that they will continue to draw investor inflows, while the valuation of other quality equity names languish with vexing persistency.

So, there you have it – a huge macro quagmire offset by an impossibly large liquidity base. Strong index performance disguising a great deal of carnage beneath its glossy surface.

However, that was the story of ’21, now toe tagged and preferably forgotten as soon as is possible. It is now nothing but a corpse, and, for my money, is its own Corpse of the Year. Not Betty. Not Madden.

The Corpse of the Year is the year itself: 2021.

But now it’s on to ’22, where deuces are bound to be wild.

Guard them, if you will, with care.

TIMSHEL

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: somewhere in sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,

And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

— William Butler Yeats

This here note is a rerun. I wrote something nearly identical, in this very space, a couple of years ago. But hey, it’s the holidays, right? News anchors have abandoned their posts. Nobody’s answering their work phones. Everyone, in short, has bounced.

So, I’m busting out an old one – this time to honor the demise of the fabulous Joan Didion, whose first published book carries the same name as this week’s offering. I’ve read this (and two or three of her other books) and am able to enthusiastically recommend her to you. But more than that, “Bethlehem” is one of two titles, which, as a writer, make me truly jealous, wishing beyond hope that I’d come up with it myself. The other, on the odd chance you wish to know, is Ayn Rand’s “Atlas Shrugged”.

Didion’s passing is truly lamentable, God bless her for plucking out the best phrase from my fave poem – “The Second Coming” by William Butler Yeats, to grace her maiden publication. It can’t be held as her greatest literary achievement, but God oh mighty, it’s up there.

Meantime, Yeats’ poem runs less than twenty lines, rendering it ~129,980 rows shorter than John Fitchett’s “King Alfred” but (with all due respect to that eponymous 9th Century Saxon monarch) packing a much more substantial wallop. Offering as it does, a terrifying, alternative vision of, well, a second coming, it (among other things) has hauntingly fluid parallels to the present day.

Perhaps this is no accident. The poem was formally published exactly a century ago and is widely believed to be informed by the plague of the Spanish Influenza, a disease to which Yeats’ wife nearly succumbed, and one which, at the point of its publication, was entering its third year.

Yeats suggests that we are, each of us, falconer-controlled falcons, feeling ourselves to be strong, independent and (above all) free, but really under the opaque control of falconry forces. We fly about – in ever-expanding spirals, unaware that our hooded movements are guided by those who have trained us to do their bidding.

Things eventually fall apart, descend into anarchy. The center cannot hold. The best among us indeed lack all conviction, while the worst are surely full of a passionate intensity.

Nothing for nothing, but this sure sounds like the world we currently inhabit – perhaps nowhere more so than in the widening gyre of markets. Valuations continue to rise, as driven by a frenzied focus on a half-dozen names, while the rest languish or are pulled to terra firma by inexorable gravity.

It appears to me, more than anything else, that the falconers are letting the loops historically loose, as fueled by the well-documented, alarming expansion of every form of debt. So, in case you were wondering what a widening financial gyre looks like, I can offer the following images for your guide:

Two Beasts Slouching Towards Bethlehem: Aggregate Debt and the Gallant 500:

Dare we make the connection? Dare we not? Yes, our McMansions bring us great joy, but what about those floating rate mortgage payments in a rising rate economy? However, perhaps the more important question is whether the cycle continue into ’22. Gun to my head, I believe that it will. The over-valuation spirals may indeed widen as the new year unfolds. On the other hand, they may not. But either way, I see two continued indications of the drowning of the ceremony of innocence:

1. Any upward movement in indices will be dominated by a handful of names, purchased by (the worst?) investors with a passionate intensity, while the core of the equity complex will continue to suffer from a lack of all conviction by (the best?) highly trained stock pickers.

2. The risks of a major, unanticipated, and nasty correction are at the upper end of their ranges.

Let’s focus on Number 2, shall we? Lay aside the myriad anarchies loosed upon the capital markets world, including such plagues as runaway inflation, rising interest rates, virus-driven economic disruptions, the widening gyre of an historic credit bubble, and whatever evils are being cooked up by policymakers that may come to pass. The fact is, we’re due.

Because this sort of thing tends to happen every year or so, and it’s been more than that long since the last episode. On a cold, February morning in ’18, the VIX exploded unexpectedly, and created carnage nearly everywhere. Christmas that year brought about the China trade war selloff, which shaved 15% off the Gallant 500’s hide in the month of December.

2019 was, for the most part, a joyful ride on the up escalator, but we all know what happened when the calendar turned. Those Washingtonian falconers, spooked by the covid buggers, locked our asses down, sending stock prices careening into nether regions, and even, for a brief moment, submerging Crude Oil costs into deep negative territory.

’21 featured a series of mini-episodes, including those driven by Meme stock folderol, the collapse of

Archegos, the rejiggering of factors such as Momentum, an enigmatic crackdown in China, and, just in the last month or so, some fitful action tied to the combination of Omicron worries and the dreadful prospect that real interest rates might revert into positive territory.

Yet none of the above have manifested a demonic correction rising even to the dignity of 5%.

Yup, I’m thinking – particularly if the indexes come in hot early on, that it’ll be high time for the falconers to conduct themselves in such a way as to remind us of who’s really running this here show.

And I’m feeling good about this here prediction, because sooner or later it’s bound to come true.

Plus, think of how smart I’ll look if it happens this winter.

Please don’t mistake me; I’ve no reason to suspect that the Yeats’ rough beast’s hour has come round. It might have, but then again, we’ve been issuing worrying prophesies of this nature for at least one hundred years.

Only that we should keep a watchful eye for him, even as we obsess about smaller matters, such as microbes multiplying like hobgoblins and clogging up airports.

But far be it from me to harsh your mellow this holiday season. With markets resting at all-time highs. With investors striving heroically to cap of ’21 with as much vapor in their valuations as they are able to muster.

Not much should matter in the five trading sessions that remain, ere the ball drops, in Times Square, as witnessed by a falconer-diminished roster of watchful falcons. I expect, in the interim, not much more than modest widenings and narrowings of the gyre.

Then, Monday week, we begin it all again.

But this note is about the fabulous Joan Didion. Who left us this holiday weekend. Whose books are worth a gander.

However, as you do, as your risk manager I cannot help but advise you to keep a continued, watchful eye towards the desert sands of Bethlehem, for signs of the emergence of one whose hour may soon be upon us. No sign of him thus far, and (God willing) he may never emerge. But remembering that he might show up without notice will do none of us any harm.

TIMSHEL

“And so this is Christmas, and what have you done”
Another year over, a new one just begun”

— John Winston Ono Lennon

I know the timing isn’t ideal (given performance conditions at all), but with only a handful of shopping days left before Christmas, and, presumably, a passel of Secret Santa cycles still on the docket, I thought I’d seek to offer some suggestions to the SS laggards among you.

So, let’s say, for instance, you picked your boss (who owns five luxury residences, and is about to board his smoke to his crib in St. Barts) out of the hat. What do you get for the underperforming hedge fund manager, fit to be tied about ’21 returns, but otherwise possessing everything?

My advice is to go big. They won’t be impressed with a bottle of wine (of whatever vintage). A tie or a scarf? Please.

It so happens, I may have the perfect answer. How about a big ‘ole statue of one of the most iconic figures of the early twentieth century?

Of course, I’m referring to the bronze image of Theodore Roosevelt – 26th President of the United States. Standing a full ten feet in height, and spanning seven feet and two inches, he is bound to impress even the most discerning of potential potentate/recipients.

Best of all? He’s already giftwrapped. Just pop a red bow up there and you’re good to go:

Yup, there he is. At the post on Central Park West, which he has occupied for eighty years – twenty years longer than his actual life span. But you can’t see him because he’s inside that container. I feel that in his boxed-up condition, he’s an eyesore, but like I mentioned above, he is conveniently packaged for anyone wishing to gift him to someone with the juice to appreciate a truly majestic present. It might (or might not) impact your bonus, but it will show your boss (and the world) that you aspire to the sublime.

The official word is that Teddy’s on his way to Medora, North Dakota (North %$#@ Dakota, FFS!), as a loan from the City of New York. But my guess is that any number of you ingenious buggers who comprise my readership could still cut a slick deal with city officials to secure him and gift him out.

Not sure when he’s set to make the trip west, but with the latest round of vexing virus outbreaks — descending upon NYC and other locales, maybe it’s just as well that they’ve got him sealed up. We wouldn’t want him catching – or, worse still, spreading – the disease, now, would we?

I will state that a new covid outbreak is a fitting, if depressing, way to usher out the difficult year of 2021 – one which we entered with such great hope that we’d turned the page from this festering bat circus, that we’d lanced a boil that had been plaguing us the preceding year.

But (nod to John Belushi) noooooo. The virus refuses to take the hint and bounce – even with the advent of a new administration that assured us its superior morals and competence alone would correct the problem. It didn’t. The virus mutated. First to Delta and now to Omicron – the latter of which I warned y’all about many weeks ago.

And much to my incremental frustration, we can’t even pronounce the latter correctly. Read me people, because Omicron is my fave letter in the Greek alphabet. It is pronounced, phonetically OMMI- cron. Not OM-NI-cron – the latter of which isn’t a Greek letter at all. I feel that if we stand any prospect of beating back this scourge, proper elocution will be an important element of the strategy.

But any way we enunciate it, I reckon we’re gonna have to carry the Big O into ’22. My anecdotal observation is that few are getting very sick from it, but it will cause incremental disruptions – to the capital and physical economies. Heck, it already has. Football teams, as measured by number of eligible participants, are being reduced to the size of basketball squads. The Radio City Rockettes have been forced to shelve their fetching little costumes for a second consecutive season.

And a resurgent covid is, in my judgment, only one of the problems that confront investors in the New Year. Next on the list – natch – is Inflation, which hit us with a variant of its own this past week. On the heels of a 6-8 Consumer Price Index print, Producer Prices – estimated to have increased by an astonishing 9-2, actually clocked in at a gut-punching 9-6. And this wasn’t the only disappointing drop of an economic statistic. November Retail Sales, estimated to have risen by a respectable 0.9%, came in at a limp 0.3%.

Back in my school days, they assigned a tidy mash-up term to the combination of weak economic growth and rapidly rising prices – stagflation. But then again, I did my economics grad work at Columbia University, which is now, for the most part, closed – not due to covid, but rather owing to a strike by underpaid untenured instructors. I wish them to know that I sympathize with their plight, because I myself was once among their number — an underpaid untenured instructor at Columbia University. On the other hand, the fair wage for slogging through the grading of > 100 handwritten final exam essays during Christmas Week, is, in my judgment, incalculable.

Here’s hoping that the Lion Lecturers and support staff win themselves a fairer shake. And I’m somewhat optimistic on that score. Because as I read in the WSJ with much astonishment, the group is now represented by – get this — the United Auto Workers of America.

The article went on to inform us that the UAW counts, as 25% of its 400 membership – 100,000 nerdy, untenured academics. Last time I checked, there are no auto plants on the Columbia campus. And, to the best of my knowledge, the assemblers of cars do not routinely hold office hours. It’s therefore a rather perverse alliance, and one that I think that this tells us a great deal – not only about conditions in this fair land, but about where we’re headed.

Yup, to me, it looks like a tough slog – for the General Populus, and, in particular, for the investor class. Viruses, runaway inflation, higher interest rates, an historic credit bubble, the prospect of incremental fiscal redistribution through higher taxes and increased entitlements – our risk cups are certainly full and may very well runneth over.

As such, I’m urging my clients to enter gingerly into the New Year. ‘22 will be different than ’21, and for all I know, it may be better.

But it may be just as bad. Or worse.

Above all, I think ‘22 will take its sweet time in its unfolding, that what transpires in the winter may not resemble what unfolds in the spring, and in the seasons that follow.

My read of the consensus entering the new sun circling cycle is that the above-named risks are under-accounted for in the prognostication calculus. All them analysts are too sanguine for my blood, and this, perhaps, worries me most of all.

I believe they’s all just spitballing.

We could begin with a big rally. Or a big selloff. Either trajectory is likely to be a fade.

Investors are likely to render their judgments on the outcomes of a handful of high-drama issues, including, but not limited to:

• Public Health Conditions
• Inflation
• Fed and Fiscal Policy
• Credit Market Health and Sustainability
• Interest Rates
• Political Developments and Prospects in an Important Election Year
• Energy Prices

All these matters are deeply in play, and all are cause for concern. The path that each takes, is, at present, unknowable. Meantime, a wide range of asset classes feature, on a relative basis at any rate, counterintuitive pricing patterns, emblematic of the vexing confusion out there.

Consider, for instance, the last on the list. As illustrated in the following chart, cross-geographic price dynamics for Natural Gas are, to me, bordering on nonsensical:

A Tale of Two Continents — U.S. vs. European Natural Gas:

So, investors (who ought to know) are suggesting that we (blue line) Americans will face a cozy winter, while some of our friends on the (white line) Continent are likely to freeze to death.

In a world as fungible as that in which we dwell, it strikes me that both can’t be true.

And then there’s all those yield shenanigans. I was surprised as anyone that the investing masses reacted to Powell’s ambiguously rendered taper talk by buying up both stocks and bonds. The rally in the former asset class faded quickly, while the latter continued to surge. Bond yields in the face of a superficially hawkish policy statement remained submerged, but the high-flying tech names that are supposed to benefit from these low yields staged an ignominious and counterintuitive retreat.

It doesn’t make much sense to me, and I really don’t know what to tell you other than to proceed with caution. But this much is certain. It will all play out as the Good Lord intends in the coming months: a reality we should bear in mind during this holiday season.

And so this is Christmas. Maybe your Secret Santa is already in the books, and if so, I hope you had fun. If not, my suggestion still stands.

We won’t be reasoning together again until the holiday is over, so here’s wishing you a blessed one. If you don’t wish to give Teddy-in-a-Box as a gift, perhaps we can, at any rate, draw some benefit from his experience.

One day, you’re a weak and sickly kid. Next, you’re charging victoriously up San Juan Hill. Before you know it, you’re President of the United States, and, a few years later, turn tits up, prematurely, at the age of sixty.

Twenty years later they bronze you and mount you in front of a museum on the Upper West Side, a place you occupy, with your foot-bound companions of color, for more than three generations. This outrages the easily offended masses, so they decide to remove your friends, as a prelude to boxing you up and shipping you to the North Dakota Badlands.

It just doesn’t pay to get too comfortable. Anywhere under heaven. And, during this holiday season, it will do you no harm, as you make your plots and plans, to take this into consideration.

TIMSHEL

He marched in the animals, two by two, and called them as they went through,
Hey lord, you got your green alligators and long-necked geese,
Some humpty-backed camels and some chimpanzees,
Some cats and rats and elephants, but sure as you’re born,
You’re never gonna see no unicorn

— The Irish Rovers

This note is not about The Elephants, at least not in any direct sense. But FWIW, I LOVE The Elephants, and, if called upon, for legitimate reasons, to do so, would cheerfully sink with them.

Another topic which I’d prefer to ignore is the whole gender definition debate, which I find counterproductive to the extreme. However, at a recent family gathering, when the topic of the swimmer at Penn (formerly competing as a male, but now boiling the Ivy League waters in women’s swim meets, and shattering one record after the next) arose, my blood pressure began to rise.

I couldn’t help thinking about all those young biological females, living, as the do, in a society that remains stacked against them. Many who have found divine refuge in athletics are now being displaced by those born with bigger, more powerful musculoskeletal configurations. And my heart breaks for them. My general thoughts are as follows: “be what you want, but stay out of the ladies’ racing pool, and off of their running tracks and basketball courts (and locker rooms). K?”

I held my tongue, but eventually was called to weigh in about the expanding number of genders.

Whereupon I (the least religious of the group) said: “It’s in the bible (Genesis: 6-9)! Noah’s Ark! If we followed the current rules, The Elephants alone would sink the boat!”.

And, before y’all call me out, there’s this. While Noah would face a similar challenge with monkeys as he did with The Elephants (albeit at smaller unit size), he would’ve found relief in one section of the vessel. As of Friday, he would have been compelled, via the passing of Michael Nesmith, to ride with only a single Monkee. Davy, Peter (who was way cooler than you might imagine), and now, Mike, have gathered to the dust of their forbears, leaving only the goofy Mickey to carry on.

I won’t add much here. But there was more to the Monkees than Don Kirschner’s crude attempt to capitalize on the film success of The Beatles’ “Help”, with a kitschy, poorly scripted television series. The Monkees could play. If you doubt this, give “Head” (which they wrote, produced, and actually performed) a listen.

And there was a lot to Mike. Who created (for better or worse) MTV. Whose mother invented Liquid Paper. The got dude around, kicked up some dust, and, at the point of his passing, is owed our respect.

But even with only one Monkee aboard, had he set sail in these waning days of 2021, Noah would face a multitude of challenges. If embarking, from, say, Long Beach, he might have difficulty finding passage through all those cargo ships moored at points adjacent to that port — that is — if he could even obtain approval from the dock inspectors, with a load that featured 47 elephants, and an equal number of representatives of every species under heaven (except Monkees).

(Yes, The Elephants loom large in this equation (they always do), but this note is not about The Elephants. And, as such, I’m gonna largely resist the temptation of drawing parallels to the boatsinking efforts of the party that does not feature the pachyderms as its mascot. However, you may feel free to do so on your own).

Moreover, in 2021, History’s best-known Arc builder would have certainly needed mad additional shekels to take the voyage at all.

For instance, ordering the gopher (now cyprus) wood a few months ago would’ve been a disaster:

There was indeed a window, running into last month, when he could’ve picked up 110,000 board feet for about 1,900 shekels (~$633). Not anymore. It’s now trading up in the 2,400-shekel range (>$1,000). And probably going higher.

In addition, Noah would have been compelled to feed his guests (clothing optional), — a prospect that would set him back an additional 6.8% this year.

On a happier note, at least his transportation expense was fixed, because if, instead of an ark, he chose to carry his precious cargo in, say, a caravan of used cars, it would’ve cost him an extra 30% for the trip — relative to last year.

But in 2020, we were mostly in lockdown, rendering the building, populating, and launching of an ark, at best, a dubious enterprise.

And, throughout, Noah would’ve had to pay up for his construction crew, many of whom, presumably, would’ve preferred to sit in their caves and collect their government checks – to the less-pleasant enterprise of sawing and hammering away at that famous boat.

At any rate, the markets dismissed the 6-8 CPI print, boosting the Gallant 500 to new, all-time highs. Gone, perhaps for good (perhaps not) is the post-Thanksgiving omicron agita, as well as contemporaneous concern about rising yields.

Maybe this is owing to the prospect of murky, pending changes to the calculation methodologies for the CPI – no doubt, in an important election year, engineered to becalm us, even if they do little to ease our personal expense burden(s).

And the equity index bounce back was itself becalming. In result, with only a handful of productive days remaining to 2021, the market may just skate by without any disasters of, biblical, 40-day flood proportions.

But I continue to urge my clients to operate with extreme caution, and perhaps, where possible, to lighten their loads.

They might, for instance, wish to follow the wise example of Corporate Insiders, who, as widely reported, are dumping their accumulated stakes in the enterprises for which they toll, like never before:

Nothing for nothing, but it occurs to me that perhaps these inside folks know things that the rest of us don’t. At any rate, it’s worth watching.

Meantime, the tactical objective is to ride out ‘21 without further damage to our hull, stern or balustrades. I’m optimistic. We must, of course, first survive the FOMC’s final meeting of the year, scheduled for Wednesday. Nothing substantive is likely to emerge, but skittish investors cannot be blamed if they over-parse every utterance issuing from the oft-perfidious lips of Chair Pow.

If nothing untoward emanates from this sequence, we’re probably in the clear. At least for the remainder of ’21. No, the economic skies have not cleared, and our point of disembark – Mount Ararat – is not yet visible on the horizon.

But we should also bear in mind that Ararat is in Turkey. Which is in a full-blown economic crisis. The country has devalued its currency to all-time lows (I’d include the graph, but, quite frankly, it’s just too gruesome). Currency-adjusted equity valuations on the Istanbul Exchange are barely a third of what they were in 2018. Its government lurches from one crisis to another.

It was ever thus for Turkey. Throughout history. But it doesn’t ever pay to write off that country, not only home to Noah’s landing spot but locus of the second capital of the Holy Roman Empire. In addition (and I did not know this until the holiday just passed), we derive the name for the birds on which we feast in late November, from that ancient nation, nestled, as it is, between the Mediterranean and Black Seas. It thrashes about, often destructively. But it survives.

Some similar path may await us in the coming months, and I am advising my clients to ride on the light side going into the New Year. There may be opportunities aplenty. We may even encounter a unicorn. Or (better for Noah’s purposes) two.

But risk will also be present – likely in biblical proportions.

Let’s just march along – two by two, like I believe God and nature intended us to – and take it from there.

We will most certainly encounter The Elephants. As well as monkeys, Monkee(s), turkeys and the like. Our ark will roll and pitch with the tides. However, with an appropriately appointed cargo inventory, not only won’t we sink, but stand every chance of reaching dry land, and beginning fresh, anew, in the emerging sunlight, with our one and only partner by our side.

TIMSHEL

“Ce n’est pas le moment de se faire de nouveaux ennemis”

— Voltaire (our title rendered in what I presume to be the language in which it was spoken)”

Can y’all stand any more chatter about Voltaire? Believe me — I know – he’s sucking all the oxygen out of the room, blotting out the suns of our awareness of other matters. He’s the top trender on Twitter. The Infinite Instagram Influencer. His presence is ubiquitous, inescapable – not only on social media – but on cable news outlets of every political denomination.

And, yet, here I am, yammering on my keyboard, and adding perhaps but a drop to the oceans of digital wisdom issuing forth about the omnipresent 18th Century French philosopher.

But attend to my purpose my loves. I write, principally, not about his life and published works, but rather about his demise. Voltaire kicked up such a fuss during his lifetime — in virtually every realm of human endeavor – religion, politics, human rights, etc. upended so many constituencies, that even his friends didn’t know how he’d check out. But in the end, he accepted Christ and received his final sacraments. Having done so, though, when the attending priest asked him to renounce Satan, he gasped out, with his final breaths, our titular phrase.

“This is no time to make new enemies” he said. And then he died.

Nothing for nothing, but I think the man had a point — one that extends forward to the present day. It doesn’t strike me, as 2021 winds down, that adversaries are in particularly short supply.

Voltaire is often looked upon as the philosophical father of the French Revolution. Which he didn’t live to see, having died eleven years before the storming of the Bastille. What followed was rivers of blood, and a multitude of object lessons for modern society.

But perhaps, for now, we can leave that all aside. And it wasn’t all buzzkill with Monsieur V; he is perhaps best known for his novella: “Candide”, which contains his most-remembered phrase: “all is for the best in this best of all possible worlds”. The quote is assigned to a professorial character named Pangloss, a believer in utopias — the existence of which it becomes the book’s primary business to attack. On balance, it succeeds in doing so, but Pangloss himself has achieved Panglossian immortality in our lexicon — as a descriptor of Edens manufactured by the human mind.

But it falls to our lot — hip denizens of Century 21 – to resolve the legacy gifted to us by these partially incongruent phrases. My own view is as follows. The making of new enemies is as untimely as ever. Upon this we can perhaps all agree. But is it truly “the best of all possible worlds”?

With respect to the latter, each of us must judge for ourselves, but the first principal evidence is hardly encouraging.

There’s that pesky pandemic, for one thing. It simply won’t take the hint and bounce. Beyond this, we have inflation problems, supply chain problems, labor problems, problematic race relations, immigration issues, and an atmosphere which is either heating up like a furnace, or it isn’t.

The capital markets, fattened and sloppy drunk from years of over-indulgence at the federal buffet bar, are beginning to experience “morning-after” effects”, which, if we dare to extrapolate from recent experience, are less than pleasant.

It is indeed a bad time to make new enemies, in a world that certainly could be improved.

This is certainly a mixed resolution to our Voltairean Paradox. But the messages, medium and metaphysics are messing with the markets, which, in consequence, are all over the map.

The past week’s action is beyond illustrative of the above. After investors attempted, on Monday, to gather themselves after the post-Turkey (half) Day pounding, darker forces again took hold. Chair Pow chose Tuesday, as the world managed to conjure up images of Omicron lockdown, to inform us that, a) transitory is an imperfect modifier for current inflation conditions; and b) in consideration of a), he might just accelerate the taper.

And how did investors react to the double whammy news — that the Fed believes inflation might be hanging around with covid-like peskiness, and (in result) they may quit buying Treasuries sooner than previously expected? They bought bonds. Like banshees. So much so that Grandma XXX (United States Thirty Year Bond and Madame X’s mother’s mother) dropped her yield shawl to an astounding 1.67%. To put matters in perspective, other than the lockdown blip, these are the lowest level witnessed since the Treasury began issuing this long-duration paper — in 1977:

Our equity indices are being battered about, slapped back down every time they try to rally themselves. And index performance hardly tells the story, which is one of a few haves vs. a pant load of have-nots. There are a handful of darlings and then there’s everything else. In eerie reminiscence to pre (and, for that matter, post) Revolutionary France, the former are living large while the latter subsist on baguettes and bad wine. And the gap is widening at an alarming pace:

Furthermore, woe betide the objects of our earlier infatuation – tech companies who have failed thus far to produce revenues that exceed expenses:

Further evidence of our inability to resolve Voltaire’s refusal to renounce Satan with the Panglossian sensibilities he laid on us in “Candide” derives from the November Jobs Report. It featured tepid news from the business survey combined with bofffo results from the household report. What’s an investor to do? Well, after the Friday morning release, the bought ‘em, then sold ‘em off hard, and then ginned up a partial recoup into the close.

Seems about right to me. A mixed bag, leaving much to be desired, but insufficiently wretched to justify the manufacture of new targets for our animosity.

And just when we thought we had the weekend to relax/recoup came the news of a 20% drop in BTC. And on Shabbos, FFS! Arguably, it all would be enough to bring tears to the Voltairean eye. But on the other hand, Voltaire was a notorious anti-Semite, so perhaps he wouldn’t have cared.

In sum, we’re in the midst of a risk-off sequence, the dynamics of which iare wormwood to the crew with which I roll. To our further dismay, these cycles don’t typically end in an orderly fashion, nor do they telegraph their impending departure. Nay, with deep, anti-Voltairean provocation, they add incremental imperfections to our sub-optimal world, and are keen to make as many enemies as they are able on their way out.

However, it’s always a bad time to make enemies, and no, it’s not the best of all possible worlds. If you doubt the former, consider the reality that tomorrow marks the 80th anniversary of Pearl Harbor, an enemy-making cycle that caused a great deal of subsequent trouble to all concerned.

But take heart, my fellow Voltaireans, because we can still look to our obsessively followed idol for a way forward.

At the end of “Candide”, the title character, after rejecting much of his Panglossian sensibilities, arrives at the the following conclusion.

“We must cultivate our own garden. When man was put in the garden of Eden, he was put there so that he should work, which proves that man was not born to rest.”

And so it goes, not only in life, but in portfolio management. We must cultivate our gardens, which are quite weedy at present. And there’s not much we can do — other than pull the parasitic plants, till the divine soil from which we draw our essence and place the rest in the hands of God. Who Voltaire embraced at the end, albeit in qualified fashion.

My guess is that the current difficulties will remain with us – through year end and perhaps in the immediate months that follow. But with diligence and perseverance, we stand every chance of not only enduring an arduous winter, but of enjoying the fruits of a bountiful printemps.

TIMSHEL

I had not wished to be forced into this but given a) there’s a new viral menace hanging out ‘round, which b) has been given a name (B.1.1529) so obtuse, that: c) despite my pressing insistence to the contrary notwithstanding, it is being redesignated as my beloved Omicron, I feel compelled to bust out the heaviest weapon in my mathematical arsenal.

Yup, gotta lay some e on you.

I don’t take this step lightly because e is not a plaything. For the mathematically immature (my math professors were always harping on about mathematical maturity, but never defining it a to the point where I could discern where I stood on the spectrum), e, π, is one of those mathematical constants that have properties which defy human understanding — and can only be rendered by God himself.

A slight confession is in order here (I told you I lacked full mathematical maturity): π — the universal scale-up from a line to a circle, is the only other magic number in my field of awareness. And even to the mathematically immature π is pretty cool.

But not as cool as e. Because you need a certain level of mathematical maturity to even understand why e matters at all. Having come this far, though, there’s no turning back, so… e, an irrational number that rounds to 2.71828, is the singular answer to the following ethereal equation:

Given that the sequence extends into infinity, I would’ve expected an entirely more impressive figure.

But it only adds up to 2.7 and change. But before you yawn and blow me off, consider the following:e (to whatever power it is raised) is its own derivative. That’s right y’all:

If you don’t believe me, there are any number of mathematical publications that will back me up.

And, having just concluded our annual Feast of the Flightless Bird, it seems to me that we have fully entered the e parallel universe.

Nothing perhaps captures this as clearly as the emergence of B.1.1529, the numerical implications of which, with its two decimals and all, is mathematically nonsensical. And even if you remove the second decimal point, the number is still less than half of our >2.7 target.

B.1.1529 is said to feature as many as fifty variants, but this still doesn’t get us in material proximity to e.

Maybe next time; next variant.

But B.1.1529 was still threatening enough to catalyze the worst day for equities this year, and this in a holiday-truncated half-session. It also collapsed the crude oil markets and sent Madame X into such a frightened tizzy that she dropped her yield skirts to 1.4731%. Her sassy (younger) sister, though, Vixen VIX, when the opposite path – hiking her frock up by > 50%, to 28.62.

In all, made for a must-watch Friday morning. My personal theory is that investors, always seeking to remain ahead of actual events, have made the leap from B.1.1529… to e.

If so, they come to this honestly. Because the current market is nothing if not a derivative of itself. It is driven instantaneously created money, backed by nothing but government promises, and used by governments to purchase dubious debt – including their own sovereign obligations. New forms of digital assets emerge at a rate impossible to track, collateralized by such hard assets as restrictedin- number-Rembrandt reproductions, Rhino Horns, and God knows what else.

If one wishes to better understand the implications of this, head out to Los Angeles (if you’re not already there) and check out a Laker’s game. The naming rights for their home arena, which had long been held by Staples – purveyor of such real-world products as desk chairs, vacuum cleaners, and (yes) staples, have now been usurped by an outfit called crypto.com – purveyors of nothing but derivatives on derivatives.

Crypto.com, however, is repped by our betters, including Matt Damon and (the frustratingly magnificent) Tom Brady. So, there’s that.

Meanwhile, companies borrow stock, issue stock, buy back stock, offer stock awards, grant stock options, engineer stock splits…

And so on and so on and shoobie doobie doo.

For those who had barely digested their turkey and awoke Friday morning to an all-out rout, know that I feel for you. For reasons I don’t choose to redocument, Friday was a difficult day for me as well.

But if you buy into my whole e hypothesis and recognize that the capital markets are nothing more than derivatives of themselves, there’s cause for hope. My guess is that investors will gather themselves this week, shrug off Friday’s carnage, and drag valuations up to their previous, rightful (if improbable) levels. And if they don’t, well, then, there’s new room to roam for traders and investors of every stripe. At prevailing thresholds, one might even do some rational securities shopping.

And maybe there would be a speedbump on those burning inflation locomotive rails.

But that would be too easy, to sensible. And, as such, I simply don’t expect it.

Because in e-land, circumlocution is the solemn protocol to which we all must adhere. I was trained to believe that the capital markets were, first and last, a mechanism for funding of the real economy. And, joyfully, there’s some evidence that this concept has not died out altogether. Last week, the Administration opened the spigot, ever so slightly, on the Strategic Petroleum Reserve (SPR), a move that only triggered further upward pricing pressure – until the dreaded 1,1529 popped into the scene, leaving one to wonder if they wouldn’t wish a do-over on the whole SPR thing.

However, the SPR move was only the beginning. In under-reported but nonetheless astonishing parallel, our Neighbors to the North — Canada, America’s Hat, took the extreme step of unleashing 50 million pounds of sweet, sticky stuff from their Strategic Maple Syrup Reserve (SMSR).

In case you were wondering, Canada produces > 70% of the world’s maple syrup supply, and their processes were stretched. I give them a shout out for bailing us out here. But, as depicted in the graph below, the economic results of the move will not be known for some time, because they only report figures monthly, and this on a lag:

And wherever else we may differ – philosophically, culturally and in matters off taste, whether you eat the stuff or not – perhaps we can all celebrate the divine blessings of Canadian Maple Syrup. And the Canadian custodianship of same. All of which reside outside the e-verse. You gotta grow them trees, care for them, water them, tap their sap, process the syrup, and ship it out.

This, my friends, is the antithesis of e; definitively NOT a derivative unto itself.

But the world doesn’t turn exclusively on syrup. Or staples.

So, now, with the holiday behind us, we’ve all got a month left of immersive, self-deriving, ere the calendar turns.

And we begin the process all over again. Unless I miss my guess, it will be e², e³, e⁴… … all leading back to e^x.

And so on and so on and shoobie doobie doo.

TIMSHEL

Well, your fingers weave quick minarets, speak in secret alphabets
I light another cigarette, Learn, to forget, learn to forget

— Soul Kitchen (The Doors)

Alright everyone, we’ve got a (hard-earned) short week in front of us, and not much fodder for the market insights upon which the teeming millions who read these columns rely. Presumably, though, they also enjoy my time-honored digressions (else, why would there be mile-long subscription waiting list?), so let’s get to them, shall we?

After an approximate two-year hiatus, I attended live performances of three Jurassic bands this week, and I thought I’d give y’all my review(s). The first two were a mash up of an iconic, sixties rock and roll show. I paid my ticket to see the criminally under-rated Doors guitarist Robbie Krieger, and was willing to accept, as part of the price of admission, a set performed by the Vanilla Fudge.

The show was a make-up gig for one that was postponed from that wretched lockdown era, with the fabulous Leslie West slated as the original opening act. But West (born Weinstein) met his maker just before last Christmas, and the Fudge stepped in.

They were never my particular jam – mostly because they were almost exclusively a cover band. But I’ll be switched if they didn’t blow the, er, doors off the joint.

Krieger followed, and didn’t disappoint. Of course, he looked like a centuries-old corpse, but that has been true for a couple of decades. His band featured his son on lead vocals, who tried, but failed miserably, to do his best fat Jim imitation, stumbling around, taunting the audience, missing notes in every song, and generally making an ass out of himself. Robbie isn’t what he once was. He loses the musical thread, at times looks bewildered, but overall, he continues to delight.

And something — unprecedented in my experience – transpired at the end of the show. After a rousing encore of perhaps my all-time fave song: “L.A. Woman” the House Lights came on, the band left the stage, and the crowd began to file out. Whereupon Robbie and Co. re-appeared and said: “Hey, where’s everybody going? We ain’t done”. So, about 40% of the patrons hung in there for a bittersweet, final version of “Soul Kitchen”.

I’ve been to many concerts where the audience, not accepting that the music’s over, pleaded for more. But I’ve never seen a band beg the crowd to hang around for more, and it almost made me cry. This was the last show of the Krieger tour, his first in about five years. There’s not much left of him physically. As such, it may very well have been his last ever performance. Seemingly knowing this, he didn’t want to conclude. If it was, indeed, “The End”, however, then, to me, it should’ve been cause for joy and gratitude. His was a 55-year sonic contribution that enriched us all (or, at minimum, those who cared to pay attention).

Riding the momentum of that show, I gathered my energy and saw Dylan at the Beacon on Friday, for about the 20th time. He don’t get around too good these days, but he was in finer voice than I can recall in decades. He mostly played songs from “Rough and Rowdy Ways”, which he released, without fanfare, or even advance warning, during the lockdown. I’m glad I went.

He didn’t do no encore. He took his bows and bounced. But then again, he didn’t have to, because, well, he’s Bob Dylan. Which means that he does what he wants, when he wants, and nothing else.

One song he didn’t play from the new record was “Murder Most Foul” an astonishing, 17-minute recounting of the Kennedy Assassination, and everything after. Pity, because, today, we mark the 59th anniversary of that wretched, world-altering event.

And this Friday would’ve been my son’s thirtieth birthday, a sad milestone that I cannot allow to pass unremarked. But on this subject, I will say no more.

A few weeks back, I cracked a ten-week-old I-Pad (probably my record for device longevity) but was determined to ride it out – for a while. However, when the Home Button crapped out, I had to act.My new device cannot suffer the same fate as the last; there is no Home Button. But the charger fitting is also different. You gotta use the one from your MacBook, begging the question as to who at Apple calculated the IRR on this little stunt, and the P/L figure at which they arrived.

They musta done alright, though, because, after a difficult early autumn, AAPL is back at new highs.

As is Captain Naz, the index over which it lords. In case you hadn’t noticed, the stock and the index are highly correlated.

But if you’re looking for an uncorrelated investment, you might consider picking up a share of Green Bay Packers stock, a new offering of which — the first in a decade – was announced a few days ago. It features a correlation of 0.00000% to the Gallant 500 and all other factors/benchmarks, because its post-purchase value migrates immediately to $0.00. Buyers obtain bragging rights, entrance into shareholders meetings and discounts on merch. But that’s about it. You can’t (legally) transfer your share, and, if the team ever sells (which it won’t), you will receive nothing for your investment.

Packshares are therefore the world’s least correlated security, as well as the worst hedging instrument, on the planet – the sports finance equivalent of a Vanilla Fudge original song. Ironically, fans that hate on Green Bay often refer to the squad in mashup between the second half of the band’s appellation, and the team’s name. However, the resulting combo is inappropriate for inclusion in this family publication.

But if the Pack are issuing shares of dubious return prospects to the investing public, they are, at minimum, in good company. As you can discover for yourself on Bloomberg, 2021 is: a) already a record year for IPO deals, which: b) are by and large underperforming the broader market:

At the risk of killing your pre-turkey buzz, a close look at the chart on the left informs us that the previous record year was ’07, which, as I recall, was the last trip around the sun of our pre-financial crisis innocence.

I’m not here to predict that ’22 will resemble ’08, especially seeing as how I scarcely can predict last year’s returns, much less those of next year. But you don’t need me to put you onto the notion that valuations are a bit frothy at the moment. And getting frothier.

And not to pile on or anything, but perhaps the most talked about name in the circles in which I roll – NVDIA – makers of life-essential video gaming chips — is up more than 150% this year, having added a cool $500 Bill to its valuation over the last two quarters – an amount that itself is more than the market cap of all but about ten U.S. corporations.

NVDA is now the 8th largest corporation in the world, worth more than, say, JP Morgan and Bank of America, combined.

Number 1? Apple, which now requires MacBook chargers to power its I-Pads.

NVDA stock a ytd 1.5 bagger; Pack stock stationary at zero. Indices ranging from one record to the next, The Market Fudge factor is thus ascendent. But risks hover. I’m keeping a particular eye on the decision – expected this week – as to whether to re-appoint Fed Chair Jerome Powell. The betting markets say yes but offer a persistent 1/3rd shot to Liz Warren bestie Lael Brainard. It may not matter much from a policy perspective – both are likely to do the exclusive bidding of their paymasters. But if one looks at the current nominee for the other key top financial regulator: boss the Office of the Comptroller of the Currency (OCC), a woman who has stopped just short of recommending the wholesale dismantling of the banking industry, a transition from Pow to Brains might not be met with unmixed delight by the throngs in the investment community.

Then there’s that looming next round of bankrupting giveaways that they’re cooking up in Washington. They’ve a long way to go, but God bless ‘em; they’re giving it all they got.

I’m not sure if any of this stops a rally that looks like a locomotive going downhill. And, at the end of the Fudge set, they did a competent version of Curtis Mayfield’s “People Get Ready (There’s a Train a’Coming)”, so I can’t say that I wasn’t warned.

Still and all, I’m glad that The Fudge continues to bake — in far flung oven-like venues across the country – even if has been largely outside my direct field of awareness. They hit their peak, as they themselves describe, around ’68, when three of their records hit the Billboard 100. They toured that summer, with the opening act being Led Zeppelin, newly formed and on their first American tour. If that’s their main claim to fame, so be it. It’s a better gig than ever has come my way.

Now, though, they are the substitute opening act for Robbie Krieger, in an elegant but small Fairfield County, CT theater, the latter shredding admirably even as his physical presence fades away.

There’s a lesson in all of this, people, but it escapes me for the moment. To the best of my recollection, it was spoken to me in a secret alphabet, after you turned me out to wander, baby, stumbling in the neon groves.

But the clock says it’s time to close… …now. I really have to go… …now. And the best I can offer by way of advice is to light another cigarette and learn to forget.

TIMSHEL

Before you get the wrong idea about where my Civil War sympathies lie, and though he was a highly accomplished military officer, this column is not dedicated to Confederate Major General Edward Johnson. Bobby Lee thought enough of him to name him replacement to that pesky Stonewall Jackson, after the latter was dispatched, by friendly fire, to his eternal reward. He wisely avoided a Pickett-like charge up a Gettysburg hill. Got his-self captured in Spotsylvania. Was imprisoned, exchanged, and sent back to the front. The Yankees caught him again in Nashville. And locked him. Again.

Say what you will about him; he was one tough SOB.

But allow me to go on record as stating I have always stood with the Blues in that war, and not just because I share a last name (but alas no bloodlines) with the victorious Commander of the Union Armies. I do, however, carry our shared nomenclature as a badge of honor, so much so that at one stage of my career, the famous leader of an eponymous, high-profile hedge fund that had just hired me as CRO tagged me with the nickname of “General”.

I was at first flattered by this, but quickly decided that, given: a) this individual was a stone cold Tennessee stud; and b) his direct reports who were my bosses proud Virginians, the designation may not have been intended as an unmixed compliment.

But this week’s theme has nothing to do with any of the above. Instead, it derives from the rather surprising news that two of this country’s most ubiquitous multi-national corporations: General Electric and Johnson and Johnson, are voluntarily subdividing themselves.

The long-iconic but recently misanthropic G.E. will split into three parts: one focused on Energy, another on Health Care and a third on Aviation.

Light bulbs didn’t make the cut at all.

And, just as we were absorbing this shocking news came the announcement from Johnny John that it too is breaking itself up – in its case separating out its Consumer Products Division — purveyors of such staples as Band Aids, Baby Powder and Tylenol — from its higher-flying units that manufacture medical devices, difficult-to-find covid vaccines and other, related stuff.

To me, these trades cut against the grain, standing in stark rebuttal to a domestic capital market that goes gaga over mergers and acquisitions.

But who’s to say that that all this isn’t part of a larger strategy? Why not, in a second act, merge the medical device units of both companies, and call it General Johnson? I’ve no intelligence that such a deal is in the offing, but if it transpires, kindly remember where you heard of it first.

Of course, if does go down, it begs the question as to whether the remaining orphans: G.E Aviation G.E. Energy and J&J Consumer Products, couldn’t somehow be kludged together — to create a conglomerate known as Electric Johnson. But that, my friends, may be a bridge too far.

Still and all, on this tape, one never knows. The Equity Complex has recently pulled off wilder stunts than this and gotten away with them. Though there are deep gradients between the “haves” and the ‘have nots”, the former group, at any rate, can do whatever it wants, and take the Gallant 500 along for the ride.

One comparison between modern and ancient sentiment paradigms caught my eye recently. In two weeks, we will mark (celebrate?) the twenty-fifth anniversary of Fed Chairman Alan Greenspan warning of the potential consequences of what he coined as “irrational’ exuberance. Whereupon the markets, perhaps in respect/deference to Greenie (who was highly regarded at the time), promptly declined 5%. They recovered quickly and are more than a six-bagger over the ensuing generation. But at least they showed the decency to sell off.

A few days ago, Chair Pow uttered precisely the same sentiments, and the markets registered nary a downtick.

History has taken a dimmer view of Greenspan than the admiring headlines of ’96 prophesied. and history, certainly, will render its judgment on Powell. At the moment, though, I’ll give him some sympathy. The country are drowning in debt. He’s printed a cool $5T over the last eighteen months, with little to show for it other than rising wealth for fat cats and a corresponding increase in the National Debt. He sold some stock under rather fortuitous timing, was criticized for doing so, and, for this and other reasons, finds himself in the crosshairs of the dreaded Squad.

But these problems arguably pale in comparison to the news flow he must absorb from the Bureau of Labor Statistics – which showed him no mercy this past week. First came the inflation data – PPI 8.6%/CPI 6.2%, but even then, the BLS wasn’t done messing with him. Friday morning, they dropped a Job Openings and Labor Turnover Survey (JOLTs) report which, clocked in at 10.4 million unfilled gigs. To rub salt into the wound, the Survey also told of 4.4 million resignations in 2021 – high since they began tracking these metrics, the reality that he data only reflects what has happened through September notwithstanding.

Runaway indebtedness, accelerating inflation, labor shortages, supply shortages, a pink slip hanging over your own wizened head – what’s a Fed Chair to do?

Beats the hell out of me. All I can say is that he and his predecessors cooked this brew, and now have no choice other than to, somehow, choke it down. As do the rest of us.

But across investor-land, there are no f@cks given. Valuations are poised at or near new yawning records. What passes for a selloff doesn’t extend more than twelve hours.

And now we’re halfway through Q4, which means that as a matter of mathematical certainty, 2021 is 7/8ths complete. Anyone having fun yet? If so, please contact me, because I’d love to hear about it.

There’s thus only a skinny, stepped-on eight ball of a year now remaining to us, and one that will be disrupted by compulsory festivities such as Thanksgiving and Christmas. Somehow, this implies a mere twenty productive trading days that linger in this dwindling year, during which we must do what we are able to top off our widely anemic performance metrics.

Catalysts, unfortunately, will be in short supply. Q3 earnings are substantially in the books, as are most important economic data points. We’ll get the usual smattering of November macro metrics, a few revisions, some survey info; that’s about it.

We will, of course, be compelled to keep our fisheyes cast towards Washington, where they’re likely to ram through some form of additional annoyance, if for no other reason than to remind us that they are still around and ready to annoy us any way they can.

There may be a few surprise deals, ala Johnson Electric, that spring up, because, well ‘tis the season for surprise deals.

But if none of this puts much lead in your pencils, then I think you’re probably taking a rational view of the environment. As for me, my pencil can barely dot an “i”.

And consumers, God bless ‘em, seem, at last, to be cottoning on to it all. For one thing, they’re buying a good deal of cotton, the price of which has doubled since they sent us all home more than a year and a half ago:

I Wish I Was in the Land of Cotton:

General Johnson, while not commanding Confederate Armies, was a cotton farmer, and, when the war was over, it is to his cotton farm that he retired.

We can only infer that the caption above the graph on the left is the first line of one of his favorite tunes, being, as it was, the Confederate National Anthem. I personally prefer it to that Yankee dirge: “The Battle Hymn of the Republic”, which no one ever has tried to whistle. Plus, one must assume that General J would be pleased with his take if he loaded up his 2021 mules and headed to market.

But most of the rest of us are buyers, not sellers, of the fluffy commodity, and for us, the graph tells a darker tale. Perhaps this is part of the reason that Consumer Sentiment is so deeply on the down:

None of this calls for enthusiastic risk taking, and, again, I urge caution. But I also encourage everyone to take heart, to believe in America, the land of Band Aids, Baby Powder and incandescent light bulbs. Over the long haul, we nearly always come out ahead.

We even beat back General Johnson. And, from time to time, I was compelled to remind my former employers just who won that war. It became one of my more effective risk management tools.

Our current battles are less bloody but equally complex. Players often change sides. So, when they call for your indication of interest on that General Johnson IPO, my advice will be to load the boat.

TIMSHEL