Did we really make it through that mess of a third quarter? In fact, through three messy quarters of a hyper-messy year?

Apparently so. Because all my trusty Apple devices have rolled their calendars to October. And they are never wrong. About anything.

We thus, somehow, managed to survive the rising tides of Delta, our having turned ignominious tail in Kabul, a menacing (er, transitory) inflation surge, the official announcement of a looming Fed taper, the uneven, still-uncertain ushering in of massive potential spending and tax increases, and various other plagues — too numerous and gruesome to inventory in this family publication.

As one example of the last of these, tickets for Tom Brady’s prodigal return to Foxboro topped $5,000. To put this in perspective, the amount is equivalent to over one month of the median salary of the schlubs that toil for pay in this great nation. Here’s hoping that those who forked out $5K will get the full 4Qs of their money’s worth at Foxboro.

And, in terms of the markets, equity indices are about flat, falling for September, which, Ironically, was the best month for the portfolios I track since spring – the reality that almost all of them were leaning long notwithstanding.

Nat Gas prices are up a tidy 50%. Unless you are in, say, the UK, where costs have almost tripled:

Shipping rates are also richer by about half, wherein, those who pay the freight buy the privilege of watching their cargo sit — unmoored and unloaded — adjacent to docks in ports such as Anchorage (where the anchors are nothing if not hard pressed) and Los Angeles. Yields on the U.S. 10-Year Note have risen from 1.17% to 1.53% — a tidy 30% increase.

All eyes, as has been the case for longer than I care to contemplate, are currently on Washington, where the powers that be are stiving heroically to spend an additional > $5T and raise taxes by > $3T. The leader of the regime went on record, though, this past week, to literally state that the new spending “would cost zero dollars and not increase the deficit”. Sure.

Most loyal readers understand where my political sentiments lie, but as dissembling as I think Biden has been throughout, he arguably just completed his worst “pant-on-fire week”, as, in addition to the abovementioned whopper, he failed to recall receiving guidance from the Joint Chiefs of Staff that we maybe should leave a few troops around the Kabul airport to ensure our exit didn’t turn into a bloody mess.

On the whole, it was a period to forget, and I myself have certainly had less frustrating summers. But here we are, still able to fog mirrors, and facing what should be an interesting and challenging 4th Quarter. And, in honor of the occasion, I present the following 4 Qs as our theme for the remainder of the year.

The first is my favorite: Quincy. Because it makes me all nostalgic about my boyhood days observing presidential election of 1824, when John Quincy Adams won the prize, beating out rivals such as (his successor) Andy Jackson, Henry Clay and the eventual Vice President: John Caldwell Calhoun. It was an interesting contest. Adams became the first president elected with a majority of neither the popular nor the electoral vote. Calhoun holds the distinction of being the only VP to serve in the role for two successive presidents from opposing parties.

Still and all, I don’t think Adams would’ve won the election if not for the following campaign slogan: “With John Quincy Adams, you get everything you got with John Adams, plus a little more in the way of Quincy”.

Our second Q is Quantitative. It’s an important, relevant modifier, particularly these days. The Fed is threatening to cut Quantitative Easing later this quarter, and I reckon we’ll see about all that. Meantime, the quantitative models have been running in troublesome amok all year, and I don’t see this ending soon. Because you can’t trust quant models. And they don’t care that you don’t trust them. Or that you blame them for bitching up your returns.

Number three is Quagmire. Which is what we face: a global capital economy that can only be described as sluggish, but which is throwing off inflation signals that must catch the concern of even the most apologetic, trans(itory) economists out there. My view is that the economic issues are much larger, and entirely misaligned, with the risk signals emanating from the capital markets. The world of commerce and the body of consumers it serves, has not come close to recovering from the acute case of covid it suffered, and we can’t yet say that the infection has run its course. The plague opened a window for incremental government control of our affairs, through which bureaucrats are striving, mightily, and with some success, to squeeze their fat asses. They are not overly fond of Private Enterprise – if they were why would they be so intent on their re-regulate and replace strategy? And they may be able to show their disdain in material ways.

But, as their bean counters have informed us, expectations for continued economic renaissance are on the wane, while, contemporaneously, the masses have spent down the windfall 2020 savings rise gifted to us:

Meanwhile, Inflation, particularly in the energy complex, continues to rage. And, when you put it all together, it adds up to a risky economic mix for the rest of the year and beyond.

Yet the markets don’t reflect these hazards. Yes, they’ve felt a little weighty of late, but with all that liquidity still sloshing around, there still is not a sufficient inventory of securities for the world’s investment pools to absorb them at rational prices. Case and point, the usage of the obtuse special Fed Repo facility broke all records on Thursday, with a > $1.6T subscription level:

I simply don’t see a path to harmonize economic and market risks, and this, my friends, is a quagmire.

So, if all of this is leaving you a bit Queasy (Q #4), you’re not alone. But I won’t say that you’re in good company, if for no other reason that you can count me among your numbers.

It all calls for extreme caution in terms of your investment activities. They’re on the rampage in Washington, and, while we don’t know how that will play out, we can be reasonably confident that it won’t be to our unmixed delight. We’ve got earnings season coming up, which used to be important, and only still is insofar as it will be woe betide to any CEO who steps up to the podium with disappointing news.

In result, I wouldn’t be holding on too tight to any specific investment hypotheses here because conditions are fluid and can change very rapidly.

Time, perhaps, to channel our inner John Quincy Adams, who, never allowed adversarial grass to grow under his feet. After the defeat of his father for a second term, and prior to his presidency, he served as Ambassador to Russia and then Secretary of State (helping to create the Monroe Doctrine). When his fouryear term in the White House ended, he returned to Washington as a member of the House of Representatives, and actually died on the floor during a Congressional Session. He gave one helluva speech, railing against the Mexican American War, then collapsed and turned tits up for all eternity.

History treats his VP – Mr. Calhoun – less kindly. A few years back, his alma mater (Yale University) founded by and named after a slave trader, cancelled him – due to his stance on slavery.

It’s all kind of Quazy, now, isn’t it? But it’s what we’re stuck with, so let’s do the best we can, shall we?

It should, at any rate, be an interesting Fourth Quarter, but rather than closing where I began, with an assertive “Four Q!”, I will take my leave with my time honored, entirely more hopeful salutation.

So, y’all:

TIMSHEL (and Four Q!)

Holy Moses, I have been removed,
I have seen the specter, he has been here too,
Distant cousins from down the line, brand of people who ain’t my kind,
Holy Moses, I have been removed

— “The Border Song” by Elton John and Bernie Taupin.

Ooooh, I’m stuck on the border, all I wanted was some piece of mind,
Don’t tell me ‘bout your law and order, I’m trying to change this water to wine

— “On the Border” by Don Henley, Bernie Leadon and Glenn Fry

The first of week’s theme songs is from one of my guilty, lifelong delights. I wish I didn’t like early Elton as much as I do. — but bow to the cold reality of his brief interval of unmixed genius. For three or four albums (including the unspeakably brilliant “Tumbleweed Connection”), he absolutely crushed it. All that, though, came to a whimpering halt in the mid-seventies, and, as a songwriter at any rate, he’s been mailing it in, albeit to his enormous enrichment, ever since.

I also find it passing strange that there’s almost no composer whose songs I prefer to play on guitar (I mean, he’s a piano player, right?). I nonetheless have about ten of his tunes at the top of my permanent shred rotation, as led by the magnificent “Amoreena” (maybe my favorite song), which I’ve been strumming for about forty years.

I came to “Border”, the first of his tunes to hit the Billboard Top 100, much later. And I can’t stop playing it.

Then there’s the Eagles’ contribution to our limited, boundary-based musical canon. It’s the title track to their widely (and I believe unfairly) panned third album. It, too, is a delight to pick on a decent sounding axe. All four founding members cover the vocals, but none of them, to the best of my awareness, have achieved the thematic objective of changing water to wine. Here, of course, they’re in good company, because the transformation they seek is highly elusive to us all.

Borders are, of course, much in the news these days, particularly in certain parts of the realm, where our geographic barriers have functionally disappeared. Not terribly sure that this is good policy – particularly with infectious diseases, violent crime (don’t tell me ‘bout law and order) and other plagues multiplying like hobgoblins before our very eyes, but I’m gonna do everyone a favor and keep my further opinions on this topic to myself.

Besides, the markets have border issues of their own, so let’s focus on those, shall we? Our equity indices are showing their own price frontiers mad respect, bouncing around in +/- 5% ranges for most of the quarter. The preceding week ended in tears for most of them, and the carnage spilled over into Monday and Tuesday, after which they gathered themselves to generate a pretty solid weekly return. Most of the action centered around two catalysts: the slow-motion, technical default of a bloated Chinese Real Estate developer, and, of course, the Fed.

Did I mention the Fed? I hope so because they are (for a change) at the center of the latest action. What, with Chair Pow, while offering himself an escape hatch the size of the border crossing in Del Rio, TX, coming out with plans to begin his official taper trot in November and all. Or maybe December. Because, you know, it depends. On a lotta sh!t, as it happens. But anyway, it’s too complicated to explain to us, so we’ll just have to wait and see. And even if they do taper, what’s to stop them from un-tapering shortly thereafter?

Anyway, that’s how the markets took it. They rocketed on Wednesday and again on Thursday. On Friday, they even beat back some rather ominous news that China was criminalizing all crypto usage, to close out the week with a touching rally.

We also, or so it appears, seem to have survived that dreadful, cross-border rager known as U.N. week.

But back to China. Because, in addition to sporting a border wall that is visible from outer space, all roads seem to lead there. This week, they were vexing us with the potential uber-default of Evergrande — their biggest property developer – a potential cross-border event itself — insofar as its top debt holders hail from countries other than the People’s Republic:

I know this is a little hard to read, but I can’t find a single Chinese name on this lender-about-to-be-stiffed list. Americans? check. Swiss, French, Canadians, Japanese, Germans? Quintuple check.

But no major Chinese bond holder exposure doesn’t mean that a lot of those folks over there won’t be left holding the bag. Millions of homes and buildings under the EG umbrella will be left unfinished, and therefore useless, to those who laid down good renminbi for them.

Investors shrugged this of as well, feeling perhaps justifiably, that they have other, more pertinent matters with which to attend than the plight of sovereign wealth funds, trillion-dollar investment platforms, and domestic Chinese property purchasers.

All the above, though, left most of our markets border bound. Equity indices, as mentioned above, remain well within recently occupied jurisdictions. Domestic credit benchmarks, Evergrande notwithstanding, are positively motionless.

There are, however, some risk factors adopting a more migratory mindset. Yields on sovereign benchmarks are up particularly in Europe, with the soon-to-be-Merkel-less Germany now only collecting a skinny twenty odd basis points for its ten-year borrowings, and a hard-pressed-Macron-led France now actually paying a nominal amount on its debt it issues. The yield associated with our own Madame X are also on the rise:

A Tale of Rising Rates: Germany, France and the United States:

If this displeases any of you, and you’re looking to ascribe blame, the most accessible culprit is inflation, as catalyzed by such factors as over-easy money, supply chain cock ups and labor shortages. Our own policy makers continue to describe the phenomenon as “transitory”, implying multi-directional, price-based border crossings in the days ahead. I personally have my doubts about this and am instead inclined to believe that we must view forward-looking macro data with something of a jaundiced eye. Because those offering these prognostications may have agendas not entirely in line with what will, or ought to, transpire. All of which brings about images of EJ’s haunting second border verse:

Holy Moses, I have been deceived,
Now the wind has changed direction, and I have to leave,
Won’t you please excuse my frankness, but it’s not my cup of tea,
Holy Moses, I have been deceived

Yes, my friends, it’s about time I did that. Take my leave, that is. I believe the risks to this improbable rally still tilt to the upside, but there’s something unholy, in my judgment, about the whole proceeding.

Yes, this whole rally is unholy, and if we’re not careful here, we are likely, at minimum, to be deceived. Eons ago, Moses led my people across the Egyptian border, and into twenty-five hundred years of the hardships of freedom. Along the way, he delivered us The Law. Which has remained constant. Adaptable, yet Stationary. It is us that wander from it. And we pay the price. Even in the Promised Land, whose borders have changed a half-dozen times since it was last formed into the State of Israel – just after WWII.

But that is a lesson for another day. Moses is long gone; Passover is months away. As is Easter, which celebrates an individual, who not only tried, but succeeded, in changing water to wine.

The rest of us are stuck inside the borders of human caprice. For investors, this means operating within the constraints of divinely rendered prudence. Because if we don’t, Holy Moses, we will be removed.

TIMSHEL

It’s the same story the crow told me, it’s the only one he knows,
Like the morning sun you come, and like the wind you go,
Ain’t no time to hate, barely time to wait,
Woah-ho what I want to know, where does the time go?
— Jerry Garcia and Robert Hunter

Where, indeed, does the time go? In this week’s episode, we traverse quite a-ways backward, to the days leading up to the Revolutionary War – and the provisioning of the original Continental Navy. We was, at the time, fixin’ to do battle with the Brits, and needed some seafaring vessels to supply our troops. In karmic preparation for same, one of our founding sailors, a chap named Christopher Gadsden, contributed a (now eponymous) standard to the flagship.

It looked something like this:

Simple, elegant, but unambiguously menacing is Gadsden’s Flag, which still rises in the breeze in certain vicinities of the realm. It upsets some folks, perhaps appropriately so. The color scheme is anything but inviting, and the image of a cobra — coiled and ready to strike, is, shall we say, a tad unsettling.

To some, the missing apostrophe is also problematic, but I make allowances for such things, because, though widely unacknowledged now, English language spellings and usages have evolved over the ages. Bigger issues revolve around its association with conservatism in the Deep South, which some view as a microaggression in and of itself.

At any rate, and under the magnificent leadership of General Washington, we did win the fight to separate ourselves from the yoke of British colonialism and have been getting by on our own for well-nigh ten generations. No more tea levies; no more taxation without representation. A new nation, conceived in liberty and dedicated to the proposition that all men are created equal, endowed by their creator with certain inalienable (God I love that word) rights – to life, liberty and the pursuit of happiness.

You know the thing, right? But does any of it still apply? We are taxed – more so every day, but are we represented? Are all men created equal (and what about women)? Were they ever?

Depends, I reckon, on who you ask.

But all the above is arguably irrelevant to our purpose. Because I’ve re-lyriced Gadsden’s Flag phrase – first by adding the missing apostrophe (which Frank Zappa deemed the crux of the biscuit), and, perhaps more importantly, by substituting the word tread with trend.

Don’t trend on me. I mean it.

And my mascot is not a coiled snake, but rather a sloth in repose.

The markets appear to be heeding my warning. Our equity index forces, including, most notably General Dow, Captain Naz, Ensign Russ (who, to the best of my knowledge, was not present when they first unfurled Gadsden’s Flag), and, of course, the Gallant 500, have all been lumbering, endlessly trendless, since we were all dreaming those nocturnal dreams, mid-summer. The Dollar Index has spent over 90% of its time at a sleepy 92 handle, throughout.

There’s been some volatility at the long end of the Treasury Curve (who among you think you can manage the capricious movements of Madam X?), but short-term borrowing rates have not moved more than a few basis points – all around the polar vortex of 0.000%, for years.

If one wishes to seek out trends (perhaps to find the exception to the rule) one need look no further than shipping costs, container rates, and (for the truly intrepid) energy prices. Or prices for just about everything in the real world. But I’m gonna channel my inner, reposing sloth in this respect and ignore this logistics complex. And everything else.

In my business, there is an oft-quoted phrase: “the trend is your friend” and sometimes it is true. But some of the best investors I know believe that the big paydays almost always transpire on the countertrend side of the ledger. Like getting long a year ago April, when covid started raging, but before the Fed started blasting out Benjaminz to beat the band.

Or the biggest countertrend trade in history (or at least this century): “buying”, during this period, Crude Oil at negative forty dollars a barrel. If you made this purchase, and held on to them greasy buckets, they now fetch $72 apiece, producing a return for you of beyond infinity.

But how do you make money – trend or countertrend – when there are no trends to be found?

Good question but unfortunately, I don’t have a great answer. The best I can come up with is patience. You hold onto your best rendered themes, in smaller sizes if necessary, and wait for some coherent market pattern to identify itself.

We may have a good spell to wait.

On the other hand, we may not. There is, after all, a (yawn) FOMC meeting next week, and they could surprise us. I seriously doubt they will, though, as: a) its hard to envision any surprise that the market would take constructively; and b) they seem to be going especially out of their way not to upset us.

Down the road in D.C. is another story. Around the White House and the Capitol, they like upsetting us, want nothing more than to make us cry. Well, some of them, anyway. They go to our most fancified events wearing dry goods that tell of their intentions to tax us (as if we weren’t taxed already). Then they take their tchotchke bags, hop in their SUVs and go home.

But, on the other hand, they lack the element of surprise. Their every utterance is captured, for time immemorial, on the interwebs. They are doing everything they can to pound on us, and, rather than disguising this, they’re frigging broadcasting it.

But surprising or not, they’re having a difficult time bringing down the hammer to their satisfaction. Perhaps this is owing to the reality that fiscal policy is a blunt instrument (think sledgehammer) and they’re trying to aim their blows at those they don’t like, while sparing the folks that they view with favor. Thus, they tell us that higher taxes are needed, that the better off must pay their “fair share”, while seeking to carve out the decidedly un-woke concept of Carried Interest (don’t ask), and to eliminate the cap on State and Local Taxes that hit disproportionally upon their well-endowed philosophical chums on either coast.

We begin, so I’m told, with infrastructure, but the bill does not include walls — built with cannon balls or any other materials. It does feature effete-by-comparison mottos: not “dont trend on me” but rather “build back better” or some such drivel. The cannon balls come immediately after – launched as part of the $3.5T spending/$3T tax reconciliation blowout which could smash everything into smithereens.

Because all this has been a heavier lift than anticipated (which is good), I kind of expected a rally this past week, but the tape had some pronounced weight to it. In result, the Gallant 500 bounced for the weekend at its lowest levels in a month. Fancy that.

Perish the thought that a couple of down weeks turns into a trend. Nay, my friends, trends are made of sterner stuff than this. But they must start somewhere, and I’d hate to see equities suffer the fate of Silver, which puked hard on Friday and is down > 6 bucks (> 20%) over the rolling quarter. Among other matters, if you are the guy singing our theme song, and live in a silver mine that you own rather than rent, you now have even more reason to call your residence “The Beggars Tomb”.

But as far as the broader market goes, it’s a buck dancer’s choice. There’s nary a trend to be found, so investors remain friendless. And confused. So, take my advice and stay nimble here, OK?

*****

Our flagman, Christopher Gadsden, rendered myriad significant services to the cause of the Revolution. He served in the Continental Congress, funded nearly all of South Carolina’s contribution to the war effort, and rose to the rank of Brigadier General. In 1780, before the outcome was secured, he refused to cut a surrender deal with the Brits and instead spent nearly a year in solitary confinement. He also served as S. Car’s Lieutenant Governor and would have certainly grabbed the top spot if not for the ill health he suffered during his prison stretch.

His legacy, though, is most prominently reflected in his flag. And it’s motto: “Dont Tread on Me”. It’s a phrase that remains appropriately in vogue, in certain quarters, to the present day.

But in my opinion, our modification of same is also presently applicable, leaving us market types to improvise as best we can, and still making the following query, which won’t be answered before the lord’s good time.

“Woah-ho what I want to know, how does the song go?”.

TIMSHEL

While this may come as a surprise to some, my resume includes a period in the realms of Law Enforcement. Specifically, in the year 1985, I found myself in the rather odd position of working for an outfit known as the Illinois Criminal Justice Information Authority (ICJIA).

I was, at the time, between master’s degree stints, having completed the first of these sequences under the mentorship of one of the leading socialist economists of the period, but having yet to embark on my MBA adventure. At the University of Chicago. Where they take a dim view of Marxist economics.

Thus, in addition to having worked closely with the IL-5-0, I am the holder of two graduate degrees – one sprinkled with the fairy dust of socialism; the other grounded in the academic philosophy of the Mecca of free market economics.

Arguably, though, it was my experience at ICJIA, and not the U of C, that set me on the dark path to unapologetic capitalism, and a dour skepticism of government run enterprise. ICJIA is a state agency, funded by taxpayers, ostensibly for the purpose of studying crime patterns and sh!t. I feel this was and is worth doing (maybe even more so than reviewing SPX candle charts), but the whole setup bothered me in a niggling fashion.

Because more than half of the payroll and associated expense budget was allocated to lobbyists, who, ensconced in a glittering office tower on the banks of the Chicago River (on a clear day and with proper bodily contortions, it offered a view of Lake Michigan), would ply legislators in Springfield and Washington to fund the rest of the operation. So, I was working for a taxpayer-funded organization which devoted more than half of its resources to the objective of securing incremental taxpayer funds, for more of the same.

Though elegant in its circumlocution, the whole ecosystem left, for me, something wanting.

But I did enjoy my stay at ICJIA – made some friends, routinely availed myself of the in-house masseuse (just kidding) and got paid for doing almost nothing useful. And there was one additional benefit, which has lasted me a lifetime. Because it was at the “Authority” that I met Roger.

I’ll protect his full identity by omitting his sir-name. He was a rather ordinary fellow, nice enough, but not like a best bro type, you know? I haven’t encountered him since I left ICJIA that snowy day in December ’85 and set my course towards the leafy environs of Hyde Park. On that journey, Roger and I had an indirect connection – he was at the time dating the daughter of one of my heroes – future Nobel Laureate/U of C Professor Merton Miller, whose class I took shortly before Roger dumped Miller’s snippy female offspring.

But what elevated Roger to the pinnacle of my life’s experience was this. He had a bulletin board in his (windowless) office that he transformed into a condiment museum. Its contents were individual packages of, well, condiments: salt, sugar, pepper, mayonnaise, Sweet N Low, ketchup, mustard, tabasco sauce, Worcestershire sauce, relish, jelly, jam; even wasabi – before wasabi was a thing.

People would travel great distance to view this wonder. One couple hitchhiked from Salem, Oregon to have a look. The exhibit received a favorable writeup in the uber-hip (at the time) Chicago Reader.

It was, to summarize, a shrine. A condiment museum for the ages. And, every time I’m feeling a bit blue, I think of it. And I feel better.

Because – let’s face it – any schmuck can create a second-rate condiment museum. All that is required is a cork bulletin board and some push pins. The condiments themselves you can pick up just about anywhere. For free. But to really throw yourself into such a project, to develop a multi-generational monument to culinary accessories, requires artistic commitment that one cannot but admire.

We need more of this sort of individual initiative, particularly at the moment.

I got to thinking about all of this after a disappointing week for the Gallant 500 and its fellows. Indices sold off every day – not in dramatic frenzy but rather in minute dribs and drabs. Twenty basis points here; thirty basis points there. They tried to rally ‘em each afternoon and failed every time.

As a correction, it didn’t amount to much, totaling a meager 1.7%. It was the type of bear market that would have fit tidily into Roger’s condiment display.

But one wonders why. We had embarked upon our Labor Day weekend revelries with benchmarks resting at new, unbreeched, dazzling thresholds. I ascribe some of the selloff to the post-summer blues, but apart from this, the capital economy appears to be in roughly the same state as it was when we bailed a week ago Friday, at an all-time pricing high.

I reckon there were bite sized pockets of news – most of it bad. Apple got gored by the federal courts, which removed the paywall it had put in place for the sale of phone Apps. And what is a phone App other than a modern day, digital version of a singly packaged condiment?

The supply chain remains disrupted, as illustrated by the following Port of Los Angeles logjam chart:

Now, there are worse places for a seafaring vessel to be moored than on our Pacific Coast, presumably with a view of Catalina Island looming enticingly on the stern. But It’s certainly possible that the cargo, waiting days and weeks to be unloaded, is needed by someone. However, there is an elegant solution available, one of which I know Roger would approve. Why not simply turn the content into condiments? Tiny, individual packets of steel. We could then employ thousands of new federal workers to put on wet suits to fetch them.

It was also a tough week for the issuers of government paper, on a global basis, and I truly hope that the buzz kill doesn’t impede the folks at ICJIA, as they lobby away, and when not doing so, pump out crime statistics to beat the band. Because, if I’m taking an accurate read of what’s going on in their home city and state, they’re gonna need more number crunchers and bigger computers to achieve an accurate tally.

I also reckon everyone’s waiting for the next piece of footwear to fall in Washington, where the locals are in a frenzied race to add to the entitlement state and expand both tax levies and the national debt. Published reports suggest that the associated bills, running more than ten thousand pages, are being rushed into a September passage deadline. I would pity those who must tramp through these texts and render an informed vote, but fact is, no one is going to read this drivel. Because: a) legislators don’t tend to read bills before they vote; and b) no one could coherently consume that volume of text within the specified time frames.

To put this in perspective, the entire Encyclopedia Britannica clocks in at under 15,000 pages. The King James Bible (Old and New Testaments) cover just over 8,000 sheets. Throw in the Quran and you’re still under 10K. If you’ll pardon me for so stating, it may very well be that Congressional time would be more profitably spent perusing any of these than slogging through the text of the pending budget monstrosity.

I also hear that there are some throw downs associated with the particulars, but that these battles are over a trifling $1,000,000,000,0000 to $2,000,000,000,000. My guess is that they settle somewhere in the middle.

There’s also this whole vaccine/virus unpleasantness, about which I have to say the following. __________.

In general, though, there are risks aplenty with which to contend. And valuations, last week’s selloff notwithstanding, remain rich by virtually any coherent measure. I don’t feel, in result, that it’s a particularly constructive environment for investing under any known methodology.

But I don’t believe that the selloff will extend itself. Much. Because that would be too rational. Too appropriate. The Master Puppeteers: the big investment ballers, our elected officials and (perhaps most importantly) the Fed, have too much vested in astronomical valuations to allow such a thing to happen.

To me, all roads continue to lead to the Fed. Which has threatened to slow the money printing machine this fall. Really? With the covid conundrum continuing and in crescendo? With higher taxes and massive new entitlements being cooked up as I type these words? With their paymasters down the street needing their cover to mask all the other nonsense that’s going on?

At most, we can expect a taper of condiment dimensions, and, if (when) matters take a turn for the worse, a supersized reversal of this.

All of which will require enormous focus and commitment from investors if they wish to thrive or even survive. This includes a Roger-like commitment to tight risk management. I’d stick to my strategies but be quick to take profits on individual speculations, as these may be few, far between and elusive. I encourage you, in other words, to take your profits in individually sized, condiment-like proportions.

As mentioned above, I haven’t encountered Roger in more than thirty-five years, but think of him often. Wherever he is, whatever he is doing, I hope he has preserved and maybe expanded his condiment museum. My guess is that he has and is. Through times of feast and famine. A commitment to condiment ethos is a difficult thing to sustain, but if anyone could do it, Roger’s the man.

The same, of course, can be said of portfolio management, where we could do much worse than following the example he has set.

TIMSHEL

Final (fantastic) update: I’m double dosed.

To state anything else would be a lie. So, if you ever finding me proclaiming that I’m not in full compliance with CDC guidelines, you will know that I have dissembled.

Until, of course, Dose 3 is, er, assertively encouraged by The Man.

At which point, I may feel compelled to begin lying. Again.

Which I would not do. To you especially. Because I promised not to.

As I type out this here note, on a Labor Day weekend that turned from doggy to soggy, the folks in these parts is still trying to towel off from Hurricane Ida, which first walloped the Gulf Coast, and then provided a mid-week gut punch to the Northeast — reminiscent (to me) of choking down a huge hunk of my eponymous grandmother’s dried out brisket.

That storm came packing, also, plenty of truths, perhaps, for our purposes, the most prominent of which is its having sent Natural Gas prices into the further uncharted stratosphere:

And in terms of veracity, as winter approaches, this here graph is a bit disconcerting to contemplate. It is not, as it well might have been, a reflection of sentiment as to the brutality of the weather conditions that await us, but rather one of concern as to potential supply disruptions, which could drag on for months. Because not only do they produce a good deal of those warming vapors down near the Gulf, but they distribute even more.

Thus, if those covid buggers force us inside later in the year (and even if they don’t), we can expect some sticker shock with respect to our wintry heating bills.

(On a happier note, while a new covid variant has emerged into our awareness, those big-brained scientists heeded my requests and assigned it the Greek letter Mu, thereby preserving a shed of dignity for my beloved Omicron).

But I’m not gonna lie (at least not to you): none of this is particularly encouraging from an inflation perspective.

And, truth be told, when one reviews non-price economic data, all signs point to a potentially nasty bout of stag-flation. We got a big reality dose of the stag portion on Friday, when the August Jobs Report came in exceedingly light.

And that wasn’t the only contributor to the simmering stag party. GDP projections are falling like last Wednesday’s Central Park rain – so much so, that the New York Fed – that Alpha Dog of central bank branches, announced abruptly on Friday the indefinite suspension of its GDP forecast tracker. But not before laying the following bit of tough love on us:

I will cop to being puzzled and disconcerted by the N.Y. Fed’s Roberto Duran “no mas” moment. Is it their policy to only report upticks? If so, it’s not hard to guess who is giving them these marching orders.

One way or another, the BACB (Big Apple Central Bank) yielded the forecast field entirely to the sleepier Atlanta Fed, whose projected metrics are reminiscent of what it must have looked like at Afghan Military Headquarters – after our Air Force did their midnight bail:

But, seeing as how it’s Labor Day and all, let’s revert to the Jobs Report. The numbers weren’t great but they’s plenty of openings — > 10M as of last count, and we’ll get another update on Wednesday. By then, the holiday, and with it, the summer, will be over. However, meanwhile, maybe we could turn the tables a bit?

Labor Day, of course, was dreamed up in the late 19th Century by a couple of union types, to honor the nation’s workforce, and, to provide a nice three-day weekend at the end of the summer.

But I’m not gonna lie. Part of me has always hated Labor Day, and not just because I’m a management type that must fork over a day’s wages to a staff that ain’t workin’ for it. It always feels like a sad, sucky ending – a dose of reality that playtime is over. I am ever wistful seeing the little fellers waiting at the bus stop and contemplating the back-to-school trudge. And, as for myself, I know that whatever hassles I have put off in favor of beach time will come careening back to bite me when the sun rises on Tumble Weed Tuesday.

Maybe, though, this year, we could mix things up and celebrate the working man by having the jobless put in a good day’s toil? It’s too late this year, but maybe next? It would improve my mood, and, maybe, yours.

Meantime, us hard-pressed investment types are confronting a scenario where there’s a great deal of wood to chop to ply some performance heat into this return-chilled year. And, truth is, the markets themselves aren’t helping. Because the refuse to go down. Like, ever. In the final week before summer’s end, our indices lurched to yet another set of all-time highs.

Perhaps it’s nothing more than an effort to extend the fantasies carried on by those warm summer breezes, but however one wishes to view these trends, they willfully ignore a passel of potential troubles that await us. Will Congress really blow through another $3.5 Tril? To spend on tasty but economically un-fortifying morsels such as free day care, tuition-bereft community college, student loan forgiveness, rent moratoriums and the continued knee-capping of a thorny energy patch? All financed by higher taxes?

Will the Fed abet these questionable tactics with unlimited, inflationary money printing? Will we be in lockdown? Will trends such as the > 10x cost of shipping a container from Shanghai to New York (presumably carrying the vital antibiotics — the manufacture of which we continue to outsource, full stop, to China) have any economic impact on us?

The truth is a definite maybe, with a tilt towards yes.

Because, in all honesty, there’s just too much liquidity out there, and too few options to warehouse it other than in the markets.

Know this, though, my loves: our condition is not unprecedented and won’t last forever. There are myriad devils out there to drag this market into the ovens of Hades; they may grab us, or we may elude their grasp.

But make no mistake: they’re out there.

And now, there’s nothing left to do but strap on our flame-retardant equipment and brave the blazes. And that’s what Ima gonna do.

I’m double dosed, ready for action, and hoping to avert disaster.

Separately, I’m available to speak to any of the 14 million currently unemployed, who, gosh darn it, can’t seem to find a single one of the > 10 million job openings to suit them.

You know where to find me.

And that’s the whole truth.

TIMSHEL

“I watched with glee while your kings and queens,
Fought for ten decades, for the gods they made,
I shouted out “who killed the Kennedys?” when after all it was you and me”.
— Charlie’s Singer

I know our title is trite, but I am sorry about Charlie. Really sorry.

I’m also, however, surprised and gratified by the reaction to his death, which was deep, broad and heartfelt.

His passing took me by by surprise, as it did everyone. He’d been around so long, was such a rock, that even more than Keith, he seemed like a guy that would live forever. However, as is now evident, he was merely mortal.

Now that he’s gone, having undertaken the responsibility to provide probing rock and roll commentary in this financial publication, I want to offer some thoughts about his place in history.

He was most certainly the perfect drummer for the Stones – both musically and (from what I gather) personality-wise. A dignified, centering force against Mick and Keith’s wildly divergent excesses. As a drummer, he knew exactly how to anchor those songs; he provided the beat that was needed, and nothing else. From this perspective, he is to be honored, maybe even sanctified.

But a galactic, creative musical force he was not.

Sorry, Charlie.

Because the Stones were always about the songs they wrote. They were never a jam band. No extended guitar riffs, and no drum solos.

Sorry (again) Charlie. I would’ve liked them to allot you five or six minutes during, say, “Gimme Shelter” or “Sympathy for the Devil”, but that wasn’t how the Stones rolled.

This latter masterpiece, perhaps Charlies’ finest work on the skins (though he did get a righteous assist from a Ghana-based conga player named Rocky Dzidzornu), was recorded in the first half of June 1968. On the night of the 5th, some dude did RFK — forcing Mick to rewrite some of the lyrics. Well, on Friday, the California Parole Board approved the dude’s 16th liberation application – apparently with the blessings of the Kennedy family.

Did Sirhan say he was sorry? Probably.

But this note is about Charlie, and the main question remains: can the Stones carry on without him? I say yes. And, here I present, by way of contrast, the earlier trajectory of Zep, who, while they had some fantastic songs, offered their greatest contribution in the form of overall sound. How four guys – one of them a noninstrumentalist – could create the sonic blast that they did remains, for me, one of life’s sweet mysteries.

And Bonzo was essential to that. So, when he died, though I thought that they could have forged on, I understood why they bagged it. But to replace Charlie? Pick any of the countless drummers who could ape his every strike on the high hat and not miss a beat? Piece of cake.

My guess is that Mick and Keith continue without him – unapologetically. And I hope they do.

Sorry (again), Charlie. But published reports suggest that he gave them his blessing to do so, and one way or another, at this point, the entire band is little more than a caricature of its former greatness.

******

Whether by way of tribute or indifference to Charlie, it was quite a week for risk assets (well, some of them anyway). Our equity indices soared to yet another series of previously un-breached heights, and, in doing so, they unremorsefully ignored a passel of risks and potential problems. I’ll lay aside the ignominious turning of the American Military Tail in Kabul, which drew sufficient attention from investors as to cause benchmark valuations to drop about a half a percent for about half a day – all recovered, and then some, by week’s end.

Yes, investors moved on, shamelessly bid ‘em up in the wake of substantial progress in the passing of the atrocious ~$5T budget add-on (and attendant tax increases, etc.), the highest recorded inflation figures (according to the Fed’s favorite measure) in three decades, the continued, confounding covid conundrum, and, just for good measure, a gathering storm (named after my daddy’s mama, who lived, or at any rate, died, in the threatened region) that pushed Nat Gas prices to their highest summer levels in a generation:

Jumpin’ Jack Flash It’s a Nat Gas Gas:

Most of the unrepentant revelry was catalyzed by Chair Pow’s unabashed, remotely-rendered remarks to an absent audience at Jackson Hole, conveying that: a) tapering might begin this year; but b) there’s no timetable for raising rates at the short end of the curve – which his crew at the Fed explicitly control.

I rate this about a 9.5 on the Bailout Scale, falling plainly short of our wholesale abandonment of Afghanistan, embellished, as it was, by our contribution of billions of dollars of weaponry, cash, other treasures and (of course) blood, to our victorious enemies. Powell might taper before Christmas; on the other hand, he might not. It would take him about 30 seconds to back off, and to do so with impunity.

We’re now in the doggiest end of a very doggy summer. When it concludes, we face the likelihood of myriad virus shutdown showdowns, the pantomime of Congress stuffing the equivalent of nearly two years of incremental obligations onto our already crippling debt load (based exclusively on the signatures of a President and Vice President who have, to put it generously, failed thus far to establish their leadership and judgment credentials). In addition, there will be labor shortages, supply chain disruptions, and myriad other problems too numerous and indecorous to inventory in this family/financial publication.

And while all of this is transpiring, the Stones, what’s left of them anyway, will embark on a tour without their founding lead guitarist, bassist, and keeper of the beat.

But away from the stage, all economic matters will filter inexorably through the flimsy film of politics.

So, I ask you, if we emerge around, say, Halloween with a significant portion of the economy in viral disruption, with higher taxes, with a galactic set of new entitlements passed into law, with manifold immigration, public safety and foreign policy problems worthy of an extension of the Michael Myers film sequence, will the Fed deem it the appropriate time to withdraw support?

I highly doubt it. Because the markets won’t like it. And neither will the electorate. And nobody in Washington will care about anything except creating economic optics that fit their political narrative.

So, I’m expecting the same market conditions to ensue this fall that we’ve suffered since spring. With valuations all dressed up but leaving investors no place to go.

I wish I had better news to report, but unless you want to enrich a select, elite corporate class that is fully in cahoots with the Washington cabal, opportunities are slim. Big Money is calling the shots here. This was always the case, but the dynamic has intensified. It controls the politicians, including Biden and Yellen. In turn, Biden and Yellen control the Fed. And for quite some time, the Fed has controlled the markets.

The rest of us are simply extras in this show – un-miced backup singers holding, if we’re lucky, a tambourine for a prop.

But this note is about Charlie, who left us, this past week, to the world’s sorrow and myriad testaments of gratitude and appreciation. Prominent among the fond remembrances is the time when Mick introduced Charlie as his drummer, whereupon Charlie grabbed him by the collar and said “Don’t ever say that again. I’m not your drummer. You’re my singer”.

Well, sorry, Charlie, but you were wrong. You were Mick’s drummer, and you filled that role with grace, dignity and excellence. I hope it was enough for you.

I suspect it was.

But as for the rest of us, the part we are asked to play is less exciting, glamorous or lucrative than sitting on a riser, sticks in hand, and overlooking teeming masses of admirers. We’re stuck with it, so let’s suck it up and do the best we can.

Meantime, Goodbye Charlie. I won’t forget to put roses on your grave.

TIMSHEL

First there was Delta; then came Lambda. Next… …Omicron.

Well, not really. I have no knowledge that anything of the kind is in the offing.

If there is another variant on its way, I can only hope that they do the right thing and name it after the 15th letter of the Greek Alphabet.

Because, for a couple of reasons, Omicron is my favorite note in Great Hellenic Symphony of Symbols. For one thing, it sounds cool — Aristotelian cool — and if you doubt this, just say it a few times: O-mi-cron, O-micron.

Feel me yet? I thought so.

In addition, I carry considerable empathy for the benign neglect which the symbol, for eons, has endured. Nobody talks about Omicron. It brings about images of… …nothing. It doesn’t even have a fancy formation. It’s just the same, boring O that exists in all Romantic and Germanic languages.

And nowhere is Omicron so rudely ignored as in the field of risk management, otherwise a veritable orgy of Greek symbology. There’s Alpha. And Beta. And Gamma. And Delta. And Theta. And Sigma. And, of course, Vega. Which isn’t even a Greek letter.

But no Omicron. Actually, strike that. Some financial journals designate the credit spread sensitivity of outof- the-money convertible bonds as Omicron Risk.

In other words, Omicron is relegated the risk backwater – asignifying a metric that applies, and only partially, to a complex derivative security that almost no one ever trades, and even then, only when these instruments are out of the money and thus at the low ebb of their value ranges.

This, in my judgment, is insufficient, failing, as it does, to rise to the majestic dignity of the coolest letter in the Greek Alphabet.

So, before we even cover the topic of the Omicron Variant, I’m gonna take the summer dog-day opportunity to throw off the yoke of this insult, and to elevate Omicron Risk to its appropriate level of risk prominence.

I thus now define Omicron Risk as a condition under which an excess of funding liquidity, as conjured up in response to a global health crisis, causes inflation, widespread economic disruption, and a complete breakdown in time-honored protocols for the relative valuation of financial assets.

At the moment, the Omicron Risk meters are flashing red.

But then again, the portfolios I track have been bleeding great globules of Omicron since an unspecified point this past Spring. And here’s the thing: you cannot hedge Omicron Risk; there is no factor that tracks it, and, arguably, when it raises its wrath, you can’t trade or invest in any constructive fashion.

The tip of the Omicron spear is sharp and painful, but it spreads out from its point, and creates carnage across the entire investor nervous system. We tend, naturally, to focus on the Equity Complex, but consider, if you will, its impact on other asset classes.

For example, in what was a difficult week for the equity markets (which somehow ended on a more optimistic note), everyone was in a tizzy about a Fed minutes report which (unsurprisingly) suggested that the taper could come in this calendar year. Almost contemporaneously, though, the size of the Central Bank’s Overnight Repo Liquidity Facility surged to $1.2T, with projections out to over double this amount.

Meanwhile, what did Madame X do? She rallied – dropping her yield skirts a couple of basis points – no doubt to distract us from a focused reading of those pesky Fed minutes.

So, all eyes turn to a possible taper announcement this week at Jackson Hole (now designated as the wealthiest jurisdiction in the country). Only, now, the event won’t even take place at its historic venue. On Friday, the sponsoring KC Fed announced that the event will be, you know, virtual.

In result, perhaps 2021’s most anticipated Fed speech – in a year where not much has mattered other than Fed babble – will now have no live attendees.

Mean bitch, that Omicron. Or sumbitch? In the present ambiguously gendered social paradigm, who’s to say?

And as I survey the thin gruel served up as sustenance by the capital economy, all I can observe is a Mulligan Stew – featuring such dubious ingredients as a Fed taper, a renewed set of lockdowns, pressing inflation, and a policy portfolio hell bent on raising taxes and imposing new regulations and other bureaucratic dainties. If it passes, it will be on the whim of a hard-pressed VP and signed by a Chief Executive with sufficient cognitive ability to do what his paymasters ask of him – and little else.

Or not. We just don’t know.

All of which has caused the Omicron Risk Variant to expand beyond its natural host: portfolio managers, and begin to infect the historically antibody-rich community of sell-side analysts:

Nothing for nothing, but don’t the funneled projection bands seem awfully wide to you? According to Morgan Stanley, the Gallant 500 could decamp by year end at a 37 handle, a 48 handle, or somewhere in between.

On the other hand, they could very well be right.

But in the meanwhile, there ain’t much to do but wait it out. J-Hole-Virtual goes down in the back half of the coming week. It may be a game changer. But it may not. After that, it’s a couple of long weeks until Labor Day. Not much to do if the Fed weasels out. Which I expect them to do. If, on the other hand, they shock (my) world and make specific statements about their shopaholic ways, take explicit actions to cut up their credit cards, matters could become very interesting.

And though it breaks my heart to state this, it might very well be the case that the worse the trajectory of a possibly resurgent virus, the higher risk assets may climb. In early 2020, covid knocked the markets to the floor. Then, the government filled our jeans with jack, which we enthusiastically invested. If they send us all to our rooms again, what alternative do we have but to repeat the cycle (including an untapering of the taper)?

It’s all a little bit like this whole Delta Variant, now, isn’t it? Unpleasant, unproductive and (above all) unpredictable. Just like the last round. Only different. Now, in addition, we can anticipate the delights of the Lambda.

After that, who knows?

Probably more mutations. I started this here note pining for the next variant to be named after the big O. The 15th letter of the Greek alphabet.

But in its conclusion, I am thinking better of it.

Particularly as redefined by this note, we’ve got enough Omicron out there to last a lifetime.

TIMSHEL

Great news! I’m vaccinated! Upon my immortal soul, this time it’s true.

Well, OK. So, I’ve only had one of the two requisite doses; the other one is set for the end of the month.

Does this count?

At the moment, I’m halfway home, so we can call it a half-truth.

Only now I hear tell that a third jab may be necessary. In which case I ask: does my opening amount to a third truth?

I’m gonna give myself a break and mark it at 50%. A half-truth.

Was it painful? Well, yes and no. Couldn’t even feel the shot. No soreness in my victimized arm. I did, however, feel unpleasantly, nauseously high, for about thirty hours after the procedure.

I know I should have taken care of this earlier, instead of lying about it like I did to y’all last spring. The (full) truth is I really don’t understand any of this, not the virus, not the variant, not the vaccine, none of it.

But doesn’t appear that them little covid buggers are preparing to beg off anytime soon. Winter’s coming, and, with it, virus season. I belong to a susceptible (if obnoxiously privileged) demographic. In my unending interactions with the masses, I certainly could catch, or (worse) spread, the germ. And, when wise men like De Blasio and Garcetti start shutting down my access to all my bi-coastal bling, there’s only one thing to do – go out and get dosed.

Which is what I did. But to say I’m vaccinated is a half-truth, nonetheless.

On this much we can perhaps agree: half-truths are dangerous. And painful.

In fact, I’d venture that anything short of 100% truths are probably worse than 0% truths. But they are pervasive. At least in some elements of our existence. Like the economy and the markets. Which, as you know, are the exclusive focus of this publication.

So, let’s talk about financial half-truths. I’ll start with a narrow example and perhaps expand out from there.

By all accounts, we are either face – or don’t face – an existential climate crisis. It is either (as recently reported by the never-perfidious United Nations) entirely caused by human activities/carbon emissions. Or it isn’t. The prescribed remedy, though, is clear. Eliminate fossil fuels. Comprehensively and quickly.

And we’re making, er, progress here. We’ve shut down pipelines. Cancelled drilling licenses. Imposed new regulations. Spun up wind farms and solar panels.

And we’ve paid a price for all of this, as perhaps most clearly evidenced by the soaring cost of Natural Gas we’ve experienced over the last few months:

OK, so Nat Gas backed off a bit this week.

But it’s still at the highest summertime level in a generation.

We can only close our eyes and try to block out images of the potential trajectory of this graph in the winter. Particularly if there is any form of lockdown, and folks is forced to spend nearly all they time indoors.

But why on earth, under the circumstances, is the Department of Defense publicly calling for OPEC to increase production? In half-truth space, the answer takes the following form: politicians wishing to show that they are bringing the hammer down on the domestic fossil fuel production, while avoiding the political fallout of unaffordable energy prices when the weather turns cold (news flash: it still does and probably always will get a bit nippy from time to time).

But politicians are born and bred to speak out of both sides of their mouths; otherwise, they wouldn’t be politicians. As a case and point, I recently read that the Washington Post identified >30,000 Trump lies during his storied tenure. If we assume that there is a mix of full-on whoppers and half-truths in this tally, we can round up the number of fibs up to a tidy 50,000. Which breaks down to about 34 lies a day, or three an hour, every day, for a 12-hour shift, across his entire four years at the helm.

That’s a lot of tall tales. Even for the Trumpster, no slouch in the “pants on fire” department. But are we wrong to wonder if the fact checkers themselves might not be engaging is some of their own half truthing?

Economic statistics also tend to reside in those murky realms between truth and engineered fiction. We just completed Pi (Inflation) Week, and the numbers were pretty alarming. July CPI annualized at 5.4%, and PPI at 7.8%. These figures either underestimate, or overestimate, price changes. Or both. The sponsors of our fiscal and monetary policy assure us that the trends, while discouraging, are transient. And that even if they aren’t, the folks at the Fed and Treasury say they are on the case/have the appropriate tools to fix everything.

I find these assertions partially dubious, particularly given the unprecedented trillions in new money created, and an incremental government expenditure roadmap that may exceed $10,000,000,000,000.00 by this fall. Yeah, maybe they got this, but do they even themselves know? If so, how?

All of which leads us to the big focus of a confused investment community (with little else at present to draw their attention): the Jerome Powell “will he or won’t he taper” star turn at Jackson Hole later this month. He is currently on record as identifying two consecutive months of >800K job growth as his marker. Well, he’s got them – even if the jobs numbers emanating out of the BLS are probably half-truths in and of themselves.

The half-accurate Job Openings and Labor Turnover (JOLTS) Survey informs us that: a) unfilled gigs passed the 10 million threshold last month; meaning that: b) there are now more “Help Wanted” signs across the Lower 48 than there are citizens on the unemployment rolls.

Is that an environment where Powell wants to take the training wheels off the Treasury Funding/Fed Money Printing/Fed Security Purchase tricycle?

My guess is that he will talk tough and do nothing. Particularly if, as is certainly possible, we face a post- Labor Day environment of a virally impaired economy, tax increases, aggressive regulation, and continued flow of funds to both the unemployed and those who will form a marvelous new army of Federal workers. All paid for by borrowings and tax dollars, mostly to ensure that the masses remain in straight and narrow adherence to the current Gospel of Moral Imperative in our newly woken society.

If my conjecture is accurate, Powell will have certainly engaged in yet another half-truth. He’ll tell us that the taper scissors are there at the ready, but, given all the hardship and injustice in our midst that just won’t banish itself, he’s gonna wait a spell before he applies the sheers to his hairy, money-printing beast.

However, if I’m wrong about this, and he starts clipping away, the markets will respond as though he’s cutting into flesh as opposed to fleecy follicles. And, boy, won’t that be interesting, evoking a plausible scenario under which investors and other economic agents emerge from this long, hot summer, to face the challenges of inflation, higher taxes, delta variant lockdowns, labor shortages, supply chain and logistics frustrations, and higher interest rates.

Investors don’t seem to be picking up what he’s laying down, though, at least not entirely (maybe they buy into half). Our equity indices rallied all week, to another sequence of all-time highs. But the market strength, given that virtually all the valuation gains are concentrated in a handful of names, while the rest of the complex either languishes or ossifies, is arguably yet another fact that falls short of full veracity.

Finally, I read that Wall Street has embraced its bovine vibe at levels not seen for nearly twenty years:

Yup, those privileged but woke prognosticators of valuation, if I read this chart correctly, are calling for the Gallant 500 to approach the exalted threshold of 5,000 – which of course is ten times the number of soldiers in its host. They could be right. But do I believe them? Do they believe this themselves?

It may very well be another example of half truthing. If so, it is the worst form of this counterproductive behavior: the half-truths we tell ourselves.

We’ve got to stop this sh!t while we still can. Before it’s too late. I hope I’ve set an example by owning my own statements of partial veracity. A half dose is just that: a half dose. It is not, by any stretch, a full vax.

And that’s the full truth. In so disclosing my status, I feel liberated and unburdened.

It’ll do you no harm to follow my lead in this respect. But meantime, I’d remain cautious in taking actions or decisions based upon information you receive, which, while perhaps bearing elements of accuracy, are also sprinkled with the unavoidable folly of human fancy.

TIMSHEL

“Pinch yourself”
– Bob Dylan to a fellow bi-coastal traveller

If, as I posited in my last instalment, the preceding week might never have happened, the one just concluded looks a bit iffy as well. I’m pretty sure it did, though, that it wasn’t just a dream.

Even still, I am fighting off a recurring urge to pinch myself.

On a related note, I ask y’all the following. Will I lose my last shred of credibility if I revert to Bob Dylan theme – for about the bajillionth time?

I guess I’ll just have to risk it.

But I’ll be brief. I heard this story during one of those interminable PBS fundraising breaks in one of the endless series of Dylan tributes that Public Television – God Bless them for that anyway – routinely offers up.

Apparently, Bob once had to endure an entire 6-hour flight from JFK to LAX (or LAX to JFK) with a woman in the seat next to him (yes, it seems, he flies commercial) repeatedly stating aloud “I can’t believe I’m sitting next to Bob Dylan”.

The mantra continued all the way to baggage claim, but he retained his trademark silence. Until he collected his luggage. Then, at the last utterance (or, perhaps, to end the chorus), he turned to her and said:

“Pinch yourself”. And walked away.

Yup, that seems to be about right to me.

Particularly now.

Because I’m having multiple “pinch yourself” episodes a day. And I didn’t even sit next to Bob.

Thus, and for instance, did the Gallant 500 really close at all-time highs on Friday? This, you can check for yourself.

Are retail investors somehow all in? Apparently, the answer is yes:

Have they depleted the windfall of the savings they miraculously built up – for the first time in a generation during the lockdown – to do so? Read em and weep:

Are they compounding this sin by loading up on credit? I fear so:

Is the populace thus depleting its hard-won next egg, and, worse, piling up on debt (including credit cards), to load into what just may be an overvalued equity complex? I hope not – particularly with using latter source of funds (depicted in the graph on the right), which, trust me, is a very bad idea under any circumstances, and a particularly hideous one at present.

Non-financial types often ask me for investment advice, how to play the market, and my introductory answer is always as follows:

Before you do anything else, pay off your credit cards.

With current Visa/MC APRs running a cool 23.7% (a rate against which there are no tax deduction offsets), one would need to generate a before-tax, annualized market return of more than 40% just to break even on these outlays. Which is a pretty high bogie. For everyone except my mother-in-law (for real).

So, to my risk-managed way of thinking, there are few trades that generate a better return than taking those plastic card balances down to zero.

But if this other sh!t is truly going down, if the masses are really borrowing to lay into Meme stocks in their HOOD accounts, are they not merely following the wise example of their leaders in the federal government?

Can any of this last? Perhaps not forever, but maybe for a while longer.

Because the government has a few arrows which are absent from the quivers that the rest of us must tote around. Its own printing press, for instance. Wouldn’t that be nice? But they aren’t in stock. At WalMart, Target, Amazon Prime or any of the other enterprises that will happily run your plastic through their cha-ching machines.

And one suspects that even the big money-spitting box in Washington faces some output constraints. We may, in fact, obtain some idea of the forms that they assume later this month, when central bank officials and other ballers convene for their annual conference in Jackson Hole, WY. First item on the agenda is a motion to rename the joint: Benjamin Hole (reflecting a much larger money supply that is arguably better depicted in $100 bills than $20s).

Once this issue is resolved, all ears will be on Chair Pow, and any hint he might give as to slowing down his hoovering of financial assets with newly minted money. My advice is to attend his words carefully, because the J-Hole Conference has often been the venue for big announcements of this sort. Like, for instance, the 2012 Symposium, when, right before a Presidential Election, he announced QE3 – a truly impressive QE, insofar as it lacked specified limits in terms of size or temporal duration.

It was, or so we thought at the time, a QE for the ages – a QE to end all QEs.

How wrong we were, how quaint it now seems, relative to the action that has transpired over the last five quarters.

It’d be a helluva tough time for him to end the party. What with them delta buggers kicking up such a fuss, with members of Congress outflanking one another in dreaming up ways to spend money that we don’t have, must borrow, and must rely on the Fed to create.

There’ll be pressure on him, but he won’t cave to the hawkish contingent. So, I say it don’t happen. No taper. Not now. Not at any point before the 2022 election.

Inflation be damned. The politicians and their paymasters will simply deem it a cost of doing business.

One way or another, it’s an impossible investment tape, and all I can counsel is to keep risks at the low end, and hold on to key positions, for a hoped-for time down the road when rationality re-enters the capital economy.

But, of course, I could be wrong. About all of this. It could all be a dream. I keep pinching myself but can’t feel a thing.

Which ought, in closing, to tell you something.

TIMSHEL

Did last week really happen?

If so, I missed it.

All sixteen of my linked Apple devices indicate that the calendar did roll forward, and that a troubling, surreal July has now melted into August. I am thus forced to assume that the lost time (in search of which Marcel Proust expended about 2,000 pages) has passed me by.

Among other corroborating events, my above-mentioned linked devices are full of images of Aaron M@&ther F@%cking Rogers taking snaps at the Packer’s training facility.

Aaron M@&ther F@%cking Rogers must have signed. That tells me I missed something. Maybe a lot.

As we left off matters, we were awaiting Big Tech earnings, the FOMC Policy Statement, the first estimate of Q2 GDP and sundry other data tidbits.

Aaron M@&ther F@%cking Rogers remained blissfully at war with the Green Bay Front Office.

But all that sh!t has changed, and I don’t find that we have gained much (other than still having to look at Aaron M@&ther F@%cking Rogers self-satisfied mug twice a year) by the way of clarity, for the trouble. The market took Tech earnings (which were nominally strong) to be a mixed blessing. The FOMC announced nothing, did nothing, and managed to confuse everyone (including, presumably, themselves) in the process.

GDP came in a little light. And investors did not appear to care.

Aaron M@&ther F@%cking Rogers convinced the Packers to re-acquire Randall (Bear Killer) Cobb.

The Fed’s Special Reverse Repo Facility reversed out an amount that surpassed the magic threshold of $1,000,000,000,000, and the tally probably rises from there.

Robbin Hood is now a publicly traded company – even if the investment community it serves was decidedly blasé about its debut.

Thursday marked the 100th anniversary of the date when the 3,600-member National Socialist German Workers Party named an obscure Austrian corporal as its Supreme Leader. Not sorry I missed that one.

And, on balance, I find us no better, and perhaps a little worse, off, for The Week That Wasn’t.

Not gonna lie – I’d really like to get that week back, because – let’s face it – none of us know how many of these cycles we have left to us. But I don’t reckon that’s the way it works, so we’ll just carry on from here.

However, I find the situation, from a market perspective, to be beyond confusing. On the one hand, lots of risks out there – inflation, them new country covid cousins, supply chain aggravations, political civil war, and the like. On the other, the gully wash of liquidity continues to flow. Yields are on the down – all over the world and particularly in Europe. Germany, for example (we won’t say in celebration of the above-mentioned Centennial) is knocking on the door of new Bund rate lows – mired as they have been in deep negative territory:

You Vill Lend to Deutschland. Und You Vill Pay for Doing So:

On a happier note, the NFL pre-season kicks of on Thursday, with a Hall of Fame game between the Cowboys and the Steelers, two teams that carry the divine virtue of having rosters that do not include….

Well, you know who.

And all I can add is my gratitude that, somewhere, they’ll be snapping the ball. Because it gives me something to watch that isn’t inane political commentary, contrived televised game show contests or reruns of Tom and Jerry. And before you call me out on this, the Olympics are simply not an option. They’re not watchable.

The NFL added an extra game to the season, and God bless them for that. Then there’s College, High School and (if deemed necessary as it may be) the CFL.

But I reckon that I’ll also be compelled to keep an obsessive eye on the markets, where I perceive an Irresistible Force of impossibly excessive liquidity careening towards the Immovable Object of an unhinged global capital economy, with no idea where it is, and (thus) no tools to determine wither it is headed.

On balance, I think the former wins the desperate contest, that valuations, for now, will hold, and, holding, are more likely than not to rise. But there won’t be much joy in the proceedings. All the flows are designated for a handful of privileged companies. In this respect, this market kind of reminds me of the NFL salary cap – the big money goes to a handful of roster participants (for example, Aaron M@&ther F@%cking Rogers) while everyone else breaks their @sses and hopes to suck hind tit.

The Week That Wasn’t sets an unappetizing table. Most of the interesting earnings are in the book, and, while, by standard measures, they were strong, they weren’t – in and of themselves — sufficient to supply a boost to the languishing cast of solid companies with outstanding prospects (and clean balance sheets) that are currently disdained by most investors.

This, as I mentioned last week, is what I believe constitutes a form of Alpha Hell for stalwart, diligent portfolio managers. Their names are just not working – long or short. They are stuck in the trenches, lobbing and taking shots like their forebears in WWI (including our above-referenced corporal), observing and experiencing the carnage they encounter in every direction, and no one gaining any meaningful ground for their effort.

It is indeed a war of attrition for the investor class, which hardly claim, much less receive, sympathy from the masses. They don’t have many alternatives but to hold the line as best they can. And need to do so with great care. To add to their travails, as illustrated in the following chart, the less experienced retail investing contingent takes an entirely different view of the proceedings:

I had to review this a couple of times to take in its significance. Non-Professional investor market sentiment has reached a three year high. What do these folks know that we don’t?

We’d better find out.

Normally this is deemed to be a sure indicator that the rally is winding down. Retail is always the last in (and the last out). And, under normal circumstances, I would agree with this hypothesis.

But these are anything other than normal circumstances. There’s just so much money floating around, and so much idle time (published reports are replete with stories of job openings that are going begging and the attendant desperation of business owners to fill key positions) with which to squander it – among other destinations, in the markets.

The Fed is printing more, and Congress is dying to hand it out. And as I’ve stated previously, while Chair Pow gathered himself sufficiently to reference tapering and other hawkish monetary measures, I’m just not picking up what he’s laying down. Especially with the visible headwinds in the economy, the enormous touching intended largesse of our elected federal officials, and a life and death Congressional election cycle creeping ever closer, turning the money spigot to the right is simply not a viable political option.

And, if Delta Dawn truly rages, forcing everyone back indoors, what are our intrepid leaders gonna do? Print even more money and hand it out to the masses, who won’t have anywhere to spend it. Except the markets, which may help Robin Hood, but the rest of us? Maybe not so much.

But even if it doesn’t go down that way, Congress is probably going to give away an extra few tril, which can only be paid for by higher taxes, running the magic money machine at full tilt, or some combination of the two.

The markets don’t want the stimulus, and certainly would take a dim view of higher taxes. If they come to pass, it will put enormous pressure on the capital economy, and will, in turn, take its toll on the real economy. Does anybody think that in this scenario, the increasingly politicized Fed is going to add to the dilemma of its political paymasters by reducing money flows and raising interest rates heading into an election year?

I’ll take the under.

So, I believe that at the index/factor level, valuations will hold the line and maybe climb. But it’s likely to be ugly beneath this shiny veneer.

To close on a more uplifting note, this here condition won’t last forever, and when it runs its course, there’ll be investment opportunities aplenty. Like many aspects of life, it’s a waiting game. I read, for instance, that Aaron M@&ther F@%cking Rogers’ deal is such that it buys him a ticket out of Title Town in 2022.

Maybe, just maybe, then, we can gut it out for a little while longer, and, in the meanwhile, this is about the most hopeful final message I can offer – in the wake of The Week That Wasn’t.

TIMSHEL