Talk to me, So you can see, Oh, what’s going on
– Marvin Gaye (via BB)

I don’t remember if I came up with this week’s theme on my own or lifted it from somewhere else. Probably it’s the latter. And, to boot, our musical quote is a complete non-sequitur.

But let us proceed, shall we? There are two types of people in this world: folks who divide humanity into two categories, and those that do not.

Were it not oxymoronic to our motif, I’d cast my lot with the latter group, with whom, at any rate, I claim full solidarity.

In the meanwhile, let’s just say that the world can be spilt into two camps, but even so, there are any number of choices available as to what form this division assumes. Men and women/boys and girls? Maybe once, but not anymore. Black/white? Please. Rich/poor? Well, perhaps.

Liberal/conservative? Woke/reactionary? Selfish/selfless? Fat/skinny? Cool/square? Hot/not? So many bifurcations — all with some measure of validity, but all containing such massive grey areas as to obscure the spilt from our field of vision.

Does one, for instance, view the US as a miraculous 24-decade experiment in self-governance, demonstrating that consensus law-making — featuring individual choice, initiative encouragement, and the celebration of (often-disproportionate) rewards, would improve the lots of all its citizens and show a better way for the rest of the world? Or is it a four-century criminal enterprise, designed to perpetuate the outrageous advantage of a gender and race-based elite?

Well, yes.

Thus, when we define the two types of people in this world, I state once again that the clearest lines of separation are between those that believe that there are two types of people in this world, and those that don’t.

And again, I cast my lot, in divine, oxymoronic flourish, with the latter group.

But across human affairs, it’s complicated. By contrast, the concept applies more fluidly in the markets, so let’s see how it plays out there.

If you’re paying attention here (and even if you’re not), you’d be compelled to notice that we’ve fired off some new rocket boosters into the capital markets, catapulting valuations into new, previously un-breached levels of the pricing euphoria.

And one can view these tidings in a couple of different ways. It’s possible, for instance, to adopt the mindset that all is as it should be. We’ve got a recovering economy, covid is on the lamb, Washington (Fed, White House and Congress) has our backs, and interest rates remain at improbably low thresholds. Powell tapered, but purred like a kitten in his remarks.

Under this rosy interpretation, average citizens and the creators of such miracles as ETFs, NFTs and crypto are all wizard-level investors and financial engineers.

The other outlook is cloudier. It worries that the capital markets are disproportionately fueled by nearly a decade and a half of central bank created liquidity. That all this manufactured cash has produced a global debt/inflation crisis that will resolve itself – sooner or later — in sorrow. That the plague rising prices will not only not dissipate organically but will increase with broadening and deepening force. That the combination of all that borrowed money and higher cost bases will ultimately be crippling to economic agents of every stripe.

Because we are all rational decision-makers, our worldview informs our investment choices. If you’re in the former group, you load the boat. Those in the latter, by contrast, are sitting on their hands.

Truly, I am conflicted here. I tend to agree with the Debbie Downers — that there are too many economic problems out there which money printing won’t solve (and may make worse). And about the only way I can lift myself out of this depressive, lethargic outlook is to spin up the hypothesis that the world has been operating with an insufficient money supply for eons – a problem which we are only now eradicating.

Well, maybe, but even if this is true, what’s to save us from over-shooting the mark? And, who’s to say that we haven’t already done so?

Two-pronged contradictions of this nature abound. Our betters just landed their private jets – after a Glasgow conference where everyone agreed to – at some point – euthanize the fossil fuel business, only to find, paradoxically, carbon-based fuel prices at seven-year highs, and tidings of record levels of energy exports:

At any rate, for now, all is well in investor-land. Except it’s not. Because there are two types of risktakers in this world: those that rode the > 20% ytd gains in broad-based indices into performance heaven, and those that have taken a more discerning approach to security selection.

The returns of large portions of the latter group are suffering mightily, and I cast my lot with them – in part, but not exclusively, because this is how my client base rolls.

The key question, as ever, is what to do now? And here, there are two paths you can go by.

If you’re so inclined, you can continue to ride the wave – at least while there’s still time to change the road you’re on. You have my blessing to remain sure, all that’ glitters is gold. For now.

Or, you can adopt a more cautious approach. There’s troubles aplenty out there, and let’s just say that if they never manifest themselves, if the stores are all closed, but in a word we can get what we came for, then it will be for the first time in more than three thousand years of market history.

Thus, to the cautious and skeptical among you, I say: keep heart and stay the course. Yes, We’re winding down this road, and shadows may indeed be taller than souls right now. But this cannot last forever. So hang tight.

There’s a third way, but I absolutely forbid it. You can look around you, ask “what’s going on?”, conclude we have all descended into madness, and proceed to short everything out there you can borrow.

I absolutely forbid this.

Because I’m looking out for you and see no way you can benefit. The market may not climb higher, but it ain’t gonna sell off. At least right now.

And they just may continue their heavenward ascent. In which case you will be crushed like a grape.

As a last resort, you can talk to me, so you can see, what’s going on.

Only I might not be able to tell you. Because I don’t know myself.

Because, in my little blogo-verse, there are two types of notes I write – ones that have coherent thoughts to offer about current market conditions, and those that don’t.

Unfortunately, I fear this piece falls into the latter category.

And how you receive it depends upon which of the two types of people you are.

And therein, my friends, lies the heart of the problem.

TIMSHEL

Happy All Saints Day, y’all.

Picking up where matters left off, last week, I had declared a (perhaps permanent) moratorium on risk management.

And, seeing as how today’s a holiday, I’m extending the ban. At least through our annual ritual of honoring all them marching saints.

However, the ban applies exclusively to what I like to refer to as the actual world, and specifically not, to the metaverse.

The latter comes to urgent prominence, of course, with an announcement out of Cupertino, CA that the local corporate colossus is changing its name. Yes, as everyone is now aware, what was once Facebook is now Meta. In one short month, it will also be swapping out its current ticker: from the handy FB (which, at last count, had been fluidly typed a bajillion times into Bloomberg terminals) to the decidedly clunkier MRVS.

The company had been teasing a modification of its handle for several weeks, and I’m thinking: a) it’s a deflection from the political pounding they’ve been taking on all sides; and b) that they’d make a more obtuse move with their modified branding. Maybe something like “VisageManuscript” or swapping in a symbol and calling themselves “The Company Formally Known as Facebook”.

But I was wrong. Facebook is out; Meta is in. Sorta like Google becoming Alphabet. Only different. As the name suggests, Facebook, er, I mean, Meta, is pushing its big, fat, chin and proboscis into the metaverse – an on-line only alternative domain in which the real-world heels of All God’s Children are anticipated to cool.

‘Round those meta-parts, one can buy houses, build schools, malls, playgrounds and other trappings/accoutrements of fine living, and adopt physical appearance based upon avatars of our own creation (on balance, a big upgrade). There, you can bring up your kids, attend ballet recitals and run for local offices. Bands are gonna blow the joints apart with, er, live shows. I’m not sure if they’ve figured out how they’ll work in the whole youth soccer thing, but I promise you this: Zuck and his crew are on the case.

It’s also presently unclear whether real dollars, crypto or meta-bucks will be the ‘verse’s legal tender, or, in the case of the first two of these options, how the whole taxation thing is gonna work. Presumably, though, public revenuers at every level will take a focused interest as all this unfolds.

No one in my field of awareness would accuse Zuck of having fallen off the turnip truck, so, I’m thinking, maybe there’s more to this whole meta deal than I first imagined. Zuck is making a pretty big bet here, after all, and has won more of these than he’s lost.

So maybe it’s time to hop on the meta train — and disembark to that shining City on the (virtual) Cloud.

But doubts, linger, particularly that inconvenient reality that it may take some time for the meta to entirely obliterate the physical, and, in the meantime, challenges associated with the latter, will, unfortunately for most of us, abide.

Take, for example, the recent performance of the stock that, for the next month at any rate, will still trade under the ticker FB. It rallied a bit – presumably owing to its metamorphosis — on Friday, but on the whole, Zucky’s balances have seen better months:

If I’m reading this chart correctly, MZ is > 20% poorer today than he was around Labor Day. And that’s to say nothing about all the hurt feelings he’s had to endure. It seems, lately, that everyone hates him, with half of the country upset that he funneled nearly a half bil into the 2020 election, and the other half absolutely incensed that he’s not doing more to suppress content supplied by those that disagree with elements of the current orthodoxy.

Even his employees are mad at him. What’s a poor Harvard Drop Out/centi-billionaire to do?

Answer: create a metaverse.

And do so quickly — because the non-meta realities that we confront are clearly less pleasant. Q3 GDP just dropped, at a disappointing 2.0%, with it’s inflation gauge clocking in at the highest in more than three decades. On a happier note, a huge blowout in wages was a major contributing factor:

This here graph should be considered glad tidings, and I am not here to kill the buzz. But as everyone knows, the hiring situation in this country is at near-desperation levels. Sooo many job openings, more than ten million of them at last count.

There are those among us (for instance, Janet Yellen) who would characterize this as a high-class problem. But with Frisco gas at $4.75, empty shelves, ship-clogged ports of entry and other shortages, I’m not entirely convinced.

These problems, presumably, don’t exist in Zuck’s metaverse, where ports can be emptied, stores stocked, and petrol aplenty created – all with a click of a mouse.

The metaverse also seems to have solved the problem of rising crime rates. There is no crime in the metaverse. But there is crime here on terra firma, in towns like Minneapolis, which, improbable it would seem, is actually gonna hold a vote on Tuesday to determine whether or not it will eliminate its police force in its entirety. Please join me in hoping for the best – in the town that gave us .

I won’t prognosticate, though, because I must also acknowledge, here in the land where falling trees actually demolish cars, that last week’s prediction of blowout earnings for the big tech high rollers was less than a perfect strike. These reports came to us as a mixed bag, and, overall, as a disappointment.

Investors didn’t seem to give much care, though, pushing our equity indices to yet another series of dubious highs.

Aside from hiring out fabulous architects and interior designers to build new virtual domains, all human focus will presumably turn to this week’s FOMC meeting, where the powers that be are expected to formally announce the dreaded taper. They are doing so at an interesting pass, with an economy losing steam, but with upward price pressure at generational highs. With a wonky, undefined, and morphing reconciliation bill looming. With global bureaucrats agreeing to minimum taxation levels and seeking victory laps on fossil fuel obliteration — amid what may materialize as crisis-level heating fuel shortages across the globe.

Meanwhile, the bubbling crude and its by-products are not the only greasy commodity in short supply. This morning, I had a glance at the latest from the Palm Oil market:

It’s just possible that some of my readers are unaware that Palm Oil is the most consumed edible oil in this real world of ours. The Asians cook with it more than we do, but you’ll be happy to know that we find it in domestic products including lipstick, detergent, and ice cream.

It’s a three-bagger since the lockdown.

It faces a real-world supply/demand imbalance at the moment, but no such issues exist in the metaverse, where Palm Oil emerges on the third drop down menu from the home page.

Considering all of this, while I’ve switched off risk in the legacy markets, I’ll not be idle. I am focusing on my meta risk algos and am pleased to report that there and thus far, all factor models and scenario analyses yield unilaterally positive outcomes.

The details, of course, remain a personal trade secret, and won’t be revealed until a point of my own choosing. I’m in no hurry, though, because even the latter-day Moses of Cupertino is gonna need some time (and a pant load of Benjaminz) to deliver us from our present bondage and into the promised meta land.

In the meanwhile, the rest of us should probably do what has always best suited us: keep out eyes wide open and our feet a’moving.

And, in closing, while I’m not certain if there are saints in the metaverse, I certainly hope there are. And, today at any rate, I’ll include them in my celebrations, as I await their marching in.

TIMSHEL

It’s over. I release you. For all time.

Just kidding. But I am here to declare a robust, global hiatus from the dreary doldrums of risk management.

I’m late, of course, to the party. But then again, isn’t the risk manager always the last to know?

I’m not sure what pushed me over the edge, but let’s just call this past week’s energetic rally, which took all our gallant indices to new zeniths — before pausing (though not retreating) on Friday, a contributing factor.

Yup, they bought ‘em all week. Against a backdrop of misses on Industrial Production, Capacity Utilization, Housing Starts, Building Permits, Philly Fed, and Manufacturing PMI. Bought ‘em as 10-year yields touched the previously unthinkable level of 170 basis points — up 44% from where they were as July gave birth to August.

Interest rates are on the rise across the globe, with perhaps the most alarming jurisdiction being the Netherlands, where benchmark yields crossed into positive territory this past week, and now reside at a usurious 0.028%:

And that’s not the only problem emanating from the land of wooden shoes and dirty canals. Mid-week, Bloomberg reported that the country’s iconic paint maker – Akzo Nobel — is running out of blue, FFS! One wonders if this will impact their ability to produce color wheel-adjacent hues like purple and green.

But more pressing matters come to mind when one considers the impact on the national psyche, as embodied in the (somewhat plagiaristic) Dutch Flag:

The Standard of Holland: Before and After Version:

I don’t know about you, but the flag on the right brings me down. On the other hand, the original is an exact replica of France’s banner – rotated 90 degrees counterclockwise. So maybe they get what they pay for.

Stateside, we have similar issues with which to contend. Chicago-based confectionary manufacturer Ferrara Candy just disclosed that it was on the receiving end of a ransomware attack, which may (or may not) impact operation. Boring, right? Except for the small detail that: a) the enterprise is responsible for 85% of the nation’s candy corn production; and b) Halloween is less than a week away. And, as a public service, I will inform y’all that Lewis Black’s famous claim – that all the candy corn in the world was manufactured in the year 1911 — is a four Pinocchio fib. Nay, they pump it out like madmen on the banks of the Chicago River. Day and night – except, perhaps, when somebody ransoms their wares.

And while I am loathe to mention it, how bout that Trump SPAC? Issued under the rather menacing handle of Digital World Acquisition Corp, it is a ten-bagger over the two days of its trading history. The objective of the enterprise is to provide free form, uncensored social media content. My own view is that particularly given Trump’s online frustrations: a) they better do some heavy acquiring, and b) should consider accumulating some combination of Apple, Amazon, Microsoft and Google, so as to ensure that they can actually gain entry into the cloud-based oligarchy that controls the architecture for these forums. If DWAC continues its current trajectory, they should have the jack to buy them all be for the month ends.

Considering all the above, I Out. At least for now.

But I’d encourage the rest of you to mind your P’s and Q’s. We’re entering the tall grass of the earnings season, with all the behemoths – the very entities which DWAC must access to achieve success — reporting this very week. My casual dialogues suggest a socialized consensus that they’re gonna blow the doors of the joint, and, certainly, market flows reflect such confidence. Let’s hope they’re right.

I’d also be keeping my eye on non-renewable commodities; not only Crude Oil, but also metals such as Copper, Zinc, Aluminum and Lead – all of which have been rocking raging rallies of late. Back in my risk management days, these price trends were viewed to be ominous signs of non-transitory inflation. But those times, apparently, are gone.

However, I still got my eye on some of this sh!t. In renewable commodity realms, it may be useful to remain aware that Milk is now selling at a 5-year high.

Want Milk? It’ll Cost You:

Now, I don’t drink milk – mostly because it only makes me thirstier. But somebody must be choking it down, or it wouldn’t be up 50% over the past year.

I don’t think that huge price increases in stuff that people actually use is likely to be a temporary phenomenon. Supply shortages exist – across such realms as microchips, industrial metals, and other essential inputs. Food prices are going up, as is the cost of labor, which remains scarce. Energy expenses are soaring. Basic economic theory suggests that these trends will feed on one another and will not simply reverse themselves.

Housing costs, which involve and/or are impacted by all the above, are up nearly 20% year-over-year. But don’t worry; as pointed out by others, these trends are no longer included in our inflation metrics. Be glad they’re not, though, because if they were, inflation would be running at > 10%.

As all of this unfolds, estimates of economic growth are decidedly on the wane:

The official Atlanta Fed Q3 GDP estimate is now 0.5%, a noticeable downturn from the 6% which the outfit was joyfully prognosticating in early August — before that above-mentioned 44% climb in ten-year note yields.

But I grant all of you permission to buy whatever you want here. The capital, commercial and consumer economy face enormous headwinds, as measured in terms of rising costs, supply shortages, logistics logjams, and (if the boys and girls in Georgia are correct) waning overall output. Interest rates are rising, and risk asset valuations are at all-time highs.

There’s a word that describes all of this, a mashup between one that applies to an event where no females are present, and the standard term for rising prices. It is on the lips and keyboard fingertips of many economically sensitive souls out there. But it is too vulgar to include in this family publication.

And, anyway, we’re on an indefinitely extended risk management holiday right now, so don’t you fret.

But don’t get too comfortable either, because I am inclined to declare an end to the end of risk management at any time of my own choosing. And (as Dr. John reminds us): “if I don’t do it, somebody else will”.

Probably, it will be your investors/capital providers. So, be forewarned.

TIMSHEL

Wasted and wounded, it ain’t what the moon did, I got what I paid for now,
See ya tomorrow, hey Frank can I borrow,
A couple of bucks from you?
To go waltzing Mathilda, waltzing Mathilda, you’ll go waltzing, Mathilda with me

— Tom Traubert’s Blues

Hi y’all. It’s been a minute, right?

FWIW, I hate that phrase, which (or so I’m given to understand) was brought forward into the modern lexicon by my co-religionist, Drake. And, on a related note, I just found out (by picking up his just-dropped memoir) that criminally underrated Doors guitarist Robbie Krieger is also a tribesman.

Not gonna lie: across the singularly impressive span of Sabbatarian musicians, I prefer Krieger to Drake. But this, as with so much else we encounter, is a matter of taste.

Besides, it’s been more like a week, or just over ten thousand minutes. To put this in financial terms, one minute is the equivalent of 0.01%, or 1 basis point, of a seven-day span.

It doesn’t sound like a lot, does it? But sometimes, a minute is, as Rudyard Kipling famously wrote, everlasting. For example (and here my curiosity leads me to ask for reader input), when staring, at a phone that reads 10:59, and waiting to sign into one of those soul-sapping Zoom meetings, several lifetimes seem to pass ere the clock rolls. Right?

By contrast, for those using the free version of this wretched app, Minute 40 flies by. And then the screen goes dark.

There’s a lot that can be accomplished in a single sixty second sequence – if one adopts the proper mindset. For instance, Frederick Chopin (who lies in eternal repose at Pere Lachaise — just under a rise where one will find Krieger’s slumbering bandmate: Jim Morrison) wrote perhaps the best known waltz in music history, which, if the title can be trusted, begins, and ends, within a single rotation of a second hand.

For the truly obtuse among you, I am referring to the “Minute Waltz”, the title of which, in addition to its temporal description, indicates that it unfolds in 3/4 time (one-two-three, one-two-three, one-two-three). Some of my best-loved tunes adopt this beat: “My Favorite Things” for example. Or “Manic Depression” by Hendrix.

Also “Tom Traubert’s Blues”, by Tom Waits, which is this week’s theme song.

3/4 is the time signature of waltzes, like the ones played by Victorian orchestras in 19th century rave ups, with fiddling fiddlers fiddling and twirling ladies twirling. But lots of stuff in our world pulses forward in waltz cadence, offering up, as it does, a more circular trajectory than, say, the hard-driving, unidirectional 4/4 beat that is nearly ubiquitous to rock and roll.

And yes, we can extrapolate this to the markets.

For instance, if one is looking to binge on straight up, 4/4 rock and roll, one might very well consider taking a spin with Crude Oil:

Just one look at this chart brings the guitar riff of “Radar Love” to the ears inside my mind.

If, by contrast, one is thinking more of a minuet vibe, perhaps a little VIX is in order:

However, whatever the time signature, the markets ended Friday’s session in full crescendo. It was a welcome jolt from the repetitive pirouettes of the last several weeks. The question is: why?

Well, the bank earnings, or, say, 3/4ths of them at any rate (Wells continues to screw the pooch) were OK. Retail Sales blew out.

Inflation of both genres soared like Baryshnikov, while measures of confidence (consumer and business) took menacing, banana peel knee bends.

The Fed, however, unleashed nearly $1T of reserves it had hanging around into the dance hall, and, while I won’t pretend to possess the chops to track the precise journey of these boppin’ Benjaminz, I suspect that many of them found their way into the capital markets:

See Ya Tomorrow, Hey FED Can I Borrow, A Couple of Bucks from You?

Clearly, there’s a lot of wallflower cash out there – arguably too much – to swap it, with cost and time efficiency — for various units of value — ranging from semiconductors, copper, petrol, efficient restaurant service, or – investible securities.

This is why, in my judgment, no matter how bleak conditions appear in this wasteland of a capital economy, nothing remotely resembling a respectable correction can truly materialize. Investors were slogging their asses across the floor until Wednesday afternoon, but then, in a stroke of a clock, gathered themselves to gin up a high-stepping rally that places our equity indices proximate to all-time highs.

So, yes, a minute matters, and I implore you to use those allotted to you wisely. When Zooming, for instance, remain advised that this unicorn stock took a mad digger at the end of the last quarter, when a longanticipated acquisition of a cloud service provider fell apart.

Perhaps this is because its target was an outfit called Five9, and, though I’ve researched it, I cannot find a single musical piece that uses that time signature. So, presumably, the folks at Zoom decided it wasn’t worth the “Money”. As everyone knows, there’s a Pink Floyd song of the same name, which begins in 7/4, but then kicks into straight 4/4 for the Gilmour solo.

So, time signatures can change. And often do.

A minute thus lasts as long as one chooses to make it, and consider, as a closing example, that Chopin’s “Minute Waltz” is actually 140 measures, or two minutes, long. That’s OK, though; it’s worth the ride.

So please do waltz, Mathilda, with me, But know that particularly now, we will choose our steps with care.

TIMSHEL

Oleanders, growing outside your door, soon they’re going to be in bloom back in Annandale,
I can’t stand her, doing what she did before, Leaving like a Gypsy Queen in a fairytale,
Well, I heard the whistle, but I can’t go, I want to take her down to Mexico,
But she said “whoah no, Guadalajara won’t do”, Well, I did not think the girl could be so cruel,
And I’m never going back to my old school

— Donald Fagan and Walter Becker

So, there I was, driving up Madison Avenue and who do I run into? Donald M%&rf%&@king Fagan, half of the fabulous duo that drove Steely Dan.

His partner – Walter Becker – was, at the time, nowhere to be found.

Fagan’s presence, though, was unmistakable, so I shouted out “Donald… …I love you”. He smiled and gave me a thumbs up.

That was it. But I thought y’all ought to know.

I won’t call “My Old School” my favorite SD composition, but it’s waaaay up there. As I’m given to understand, it tells the tale of a 1969 drug bust on the campus of Bard College – Fagan and Becker’s alma mater. Apparently, 44 people were arrested (in a positively bizarre twist, by a local prosecutor named G. Gordon Liddy (Daddy G.) of subsequent Watergate fame), taken to a Poughkeepsie jail, where the local 5-0 took the outrageous step of shaving off Becker’s magnificent locks. Very L7 of Daddy G, no?

So, Fagan won’t be going back to his old school. And Becker, as indicated above, is unavailable.

But thankfully, as I write this, his imminent return is not an issue, because today and tomorrow are listed on the college’s schedule as comprising the “Fall Breakaway”. Whether purposefully or otherwise, it coincides to what is traditionally referred, to the never-ending shame of certain elements of our society, as Columbus Day. Presumably, the Bard crew are among the lot that disdains the memory of that misanthropic 15th Century explorer. Business Insider rates it as the 7th most “woke” college in America, itself an impressive feat, and one that is likely, in these times, to be more difficult to sustain than achieve.

But Columbus Day somehow, abides. Government offices are closed, as are schools. They’re even holding the parade again on 5th Avenue this year (a vast improvement over 2020’s pathetic virtual version), albeit to be certain, with many fingers wagging at the more than five centuries of sins that are often laid at the feet of its eponymous seafaring adventurer. But the pageant is going down, and for this, at any rate, I am grateful, as nothing I can recall brings more joy to than watching the 5th Long Island Dealership float with the owner singing, karaoke fashion, “That’s Amore” to the adoring throngs.

The Columbus Day markets schedule is mixed, with no trading in the bond complex, but, for better or worse, the stock (and, of course, crypto) market fully operational.

The former can probably use the break, because bonds have had better weeks than the last one, during which Madam X raised her yield skirts to their highest levels since May (1.61%), taking the entire Treasury

Curve along for the ride. Somewhat counterintuitively, the big surge came on the heels of a Non-Farm Payrolls number that clocked in at < 40% of analyst estimates. The data suggest that there is a Labor shortage; maybe because the lunch pail crew prefers even going back to their old school to working.

The rate carnage also took a bite out of private bond valuations, whether they be Investment Grade or Junk:

Corporate Bonds – To Detention for You:

On the other side of the ledger, certain commodity markets win the “Teacher’s Pet” award:

Cotton and Crude: Go to the Head of the Class!

Joyfully, commodity futures markets are open today, so Cotton and Crude (CL and CT on your symbol guide), can, if they wish, continue their over-achieving ways, without bothering to pause in “parade” rest.

The official portions of Washington, where they do all the damage, will remain dark — in observance of the holiday, but I reckon we’ll have to watch these class clowns anyway – I suspect all day long. The big action of the week involved overwrought debates as to how much unfathomable cash their going to take and dish out, and how, in so doing, to avoid pro forma obstacles such as that annoying statutory limit on borrowings.

My phone has been ringing off the hook with socialized worries about a Treasury default, and the dire implications of same. I was actually talking with one of my clients about this topic when Fagan bounced by. I have done my best to calm these fears, which I believe are silly. All one needs to know is that: a) ALL politicians would pay what for them would be an unacceptable price for allowing this to happen; and b) they can eliminate this risk with a stroke of the pen.

In the end, they followed script and raised the ceiling by about a half tril – a mere trifle, representing barely $1,500 for every man, woman and child in the country, and an amount that will last us almost till Christmas.

I’m glad for this – from both a political and policy perspective. That ol’ Buzzard McConnell has taken some hits for his strategy, but I’m on other side of that argument. Wiley bastard that he is, this summer, he threw his weight behind the $1.2B Infrastructure package, knowing, I suspect, that it would split the coalition on the other side of the aisle. And it did. The Dems must now broker a deal between members who have probably already spent down their share of the pork, and those that wish to go for broke and bundle this with the full smash $3.5B extravaganza that is the real prize. The rift caused an embarrassing delay in the proceedings, but only for a few weeks, during which time the Dems will be required to settle this beef. The Debt Ceiling will surely go up, so why not give the Dems a little more rope with which to hang themselves?

I suspect this was McConnell’s play all along. Let Pelosi either send the Squad into a blinding rage that will positively cripple her coalition — or push all the moderates over the side of the mountain. Don’t allow them to suggest that all would be well if the stingy Republicans simply did the patriotic thing on the debt limit. If I’ve rightly described McConnell’s strategy, then the only role for him at his old school is one of Professor.

Elsewhere, our righteous leaders managed to carve out a comprehensive, minimum global tax deal that I believe is nothing more than optics. But we should pay close attention to the reality that about the only thing about which global politicians can agree is the establishment of minimum levels of our money that they feel compelled to remove from our control. God forbid any evil nation try to undercut this cartel.

And, whether we attend or not, the investment world’s academic calendar is chock full of important events. Earnings commence in earnest this week, with the banks, in time-honored fashion, being the first to the podium. Not gonna lie – the banks worry me. Not so much because they might’ve screwed the pooch in Q3 (though that is certainly plausible), but more so due to valuation. Our bulge bracket betters are about an 8 bagger since this whole QE nonsense began in ’09, and, if QE is indeed destined for wind down, then the rules first set forth by Cambridge Professor Isaac Newton, as they apply to capital markets, might, very well, set in.

Newton learned his lessons in the markets the hard way – schooled through that whole South Sea Bubble fiasco. But that happened so long ago, I barely remember it. He was Royal Master of the Mint at the time and probably should’ve known better.

Because conditions can change on a dime, as can our attitudes about everything under the sun. Newton died knowing this, but the lesson came at a great cost.

Maybe he should’ve gone back to his old school – Trinity College, Cambridge – for a refresher course. And, for the record, you should be made aware that my buddy Donald did just that. In 1985, he personally accepted an honorary doctorate from Bard College.

Daddy G, of course, eventually left the Prosecutors Office in Duchess County, NY, to become one of the central villains of Watergate. Like Becker before him, he went to jail, but then reinvented himself – as a radio host, author, actor and gadfly, all before dying, at 90, earlier this year.

And now, in offering you those 35 sweet goodbyes, I counsel flexibility – in an environment where you never know who you might run into, and which roads might lead you, willingly or not, back to your old school. I’ve actually done this myself, but won’t say more, because here, as everywhere else, your mileage may vary.

TIMSHEL

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