What’s it all about? Alpha?
When you sort it out? Alpha?
Are you meant to take more than you give?
Do you really think that funds we run, are just a sieve?

— With apologies to Burt Bacharach and Hal David

This week’s hook is so deliciously obvious, that, as I feared when I dreamed it up, I find that it has been used before. The distinguished market economist Jason DeSena Trennert published a widely read essay under substantially the same title in 2016. Prior to this, the fabulously successful Chairman of Oak Tree Investments(Howard Marks) used the phrase as the subject line in a 2011 memo to his investors.

But I’m gonna give myself a pass here, on the (dubious) grounds of modified punctuation. Both pieces apply a comma in their use of the expression (i.e. “what’s it all about, alpha) and fail to add a question mark at the end. By contrast, I offer it up in two sentences, with the second being in the form of a query.

I also admit to having further demeaned myself by engaging in a partial re-lyric of the 1966 smash hit(“What’s It All About, Alfie”) – written by Bacharach/David, and recorded, as only she could — by Dione Warwick – fifty-five long years ago.

Probably, very few of you even know what I’m writing about, and those to whom this applies are certainly unaware that the tune is the theme song of a rather mediocre movie of the same name – a film that failed to merit consideration on the AFI 100. It tells the story of a London Louse/Lothario, swinging his way through Carnaby Street during the days when swinging your way through Carnaby Street was just the thing to do.

Alfie (played by a young Michael Caine) is a chauffeur who wreaks a lot of damage as he navigates the left side of the streets of that singular British Metropolis. And doesn’t care.

The same perhaps, can be said about Alpha – that elusive object of investor desire, for which we sacrifice so much of our Blood and Treasure — often, and at times like these, with such tragic futility.

And never more so, in my experience, than over the last few months. As is consistent with the slippery vibe that characterizes this note, there are many definitions of Alpha. However, for our purposes, we will define it as it is widely applied to portfolio management. Specifically, it is the extent to which a portfolio achieves (or fails) to outperform the market. Me and my guys have simplified it even further: market outperformance (or lack thereof) is measured by the difference between actual portfolio returns, versus those implied by the amount of market exposure embedded in the investment book itself. If we assign (as we often do) the role of “the market” to the Gallant 500, a fully invested portfolio would, at present have needed a 17.5% ytd return to have recorded a positive Alpha result; anything less devolves to the negative a showing.

Well, as of now, we have more Alpha painted in red, deep red, than I have experienced in my career. The Benchmarks continue to soar to the heavens. Portfolio performance, across the board, lags, in woeful fashion.

I ascribe a good portion of this debacle to the divine, Newtonian laws of investment – the part that instructs us that “what goes up must come down” (the first line from a 1968 song that wasn’t written by Bacharach/David, but should have been). In 2020, the Gallant 500 put up 15.76%, but any investors with numbers as tepid as that would either have kept it to themselves or hung their heads in shame for such a poor performance. 2021 has been exactly the opposite kind of investment experience. Many of the portfolios I track are down for the year, and anyone who is up anything close to double digits is justifiably puffing out their chest.

If it is any consolation to any of you caught in this Alpha Hell, I believe that you have come by the condition honestly. By virtually any measure, the Big Equity Market Dogs (you know who they are) have contributed over half, and perhaps up to 75% of year-to-date SPX return. But the crew with which I roll is not paid to own large chunks of Apple. Or Google. Or Microsoft. Their investors expect more nuance, more (Alfie-like) panache. They can pay Cathie Wood (a helluva lot less) to trade the $1T companies if that’s what they want. Or do it themselves. For free.

Meanwhile, the current earnings season has matched or exceeded blowout expectations, and, for those companies that have told of glad tidings, all is well. But God help those who miss:

Of course, the small handful of earnings reports that matter are those on the docket over the next few trading sessions, with each of the ONLY IMPORTANT COMPANIES IN THE WORLD stepping up to the podium over the next week. Much as is the case with our Alpha conundrum, if they bring happy news, it is likely to further propel them – and, in, result, our benchmarks – to higher elevations. But not necessarily the rest of the market. By contrast, if they disappoint, everything is likely to sell off.

If one chooses to find a convenient source to blame, the poor retail schlump (along with the algos) is, as ever, a handy target:

And what are these market deplorables going to buy? A biotech company with a clean balance sheet and lifealtering medications in its pipeline? Nope and Nope. They gonna lap up The Big Dogs, and hope, that in this reverse Newtonian market mess, that The Big Dogs throw them a bone.

But here we are most of the way through our self-allotted space and we haven’t even addressed The Biggest Dog of Them All – our fair (well, I won’t use the vernacular term) curvaceous female dog — Madame X. It seems that no transgression on her part dampens our desire. No matter what she throws at us, at no matter at what cost, we must have more of her.

Last week, in the wake of horrifying inflation numbers, tepid auctions, dreaded Taper Talk and other unladylike actions in and around her person, we actually bid her up to a yield threshold below 1.2%, before deciding enough, at least for now, was enough, and putting her back on a pedestal that rises to a more dignified 1.28%. My guess, though, is that we’ll be lusting for more of her charms very soon.

Either way, she’ll be testing our intestinal fortitude all week. Her chaperone – Fed Chair Powell – will offer his latest FOMC wisdom on Wednesday. And, while there’s no chance on earth that he will back off on his own showering of gifts to curry her favor, he may be (politically) obliged to threaten to cut the crippling allowance he has for so long granted, at some specified date in the future.

Once we have slept on these mysteries, we can awaken to an introductory look at Commerce Department Q2 GDP estimate. Going into this interlude, the folks from Atlanta are showing some estimate fatigue:

One way or another, the lower the actual number, the more we will seek the warm embrace of Madam X.

And the Big Alpha Dogs.

So, what’s it all about?

I’m glad you asked. The capital economy is awash in a liquidity bubble the likes of which has not been witnessed since those swinging days of the Weimar Republic (which didn’t end well). Where there is not paralysis among policy makers in Washington, the only moves they can make are the wrong ones (tax increases, huge stimulus). But nothing, at this point, is gonna happen till Fall – if then.

So, my investment peeps wanna take this cash hoard and invest it, but are so timid, so bereft of imagination, that the only place they will do so is in The Big Dogs or in Madame X.

Unless, of course, you wanna add Big (Junkyard) Debt Dogs, because, apparently, the obligations of potentially insolvent companies are also highly appealing:

This, my friends, is what an impossible market looks like. I believe it continues, that indices continue to rally, while Alpha, oh that elusive excess over Expected Return, extends its descent into the Underworld.

I wish there was more I could do to help you. But I’m so lost without you for the moment, so heartbroken about what I’ve put you through this year, that I’m having trouble looking in the mirror and carrying through.

However, I can do this much. I can advise you to keep risks tight till further notice.

Yes, Alpha giveth and Alpha taketh away. In our titular film, Alfie got his comeuppance – both from the people he abused and at the box office. He figures out who he really loves but finds that she has moved passed him. Meanwhile, and in addition, WIAAA was a stone-cold flop.

The tune, however, abides. It’s part of The American Songbook. It alone, gives new life to the Alfies of the world, every time it plays on an Oldies Radio Station.

Alfie always comes back. And so, too, will Alpha.

And so will I. Soon.

In the meanwhile, we just gotta hold on and stay alive. Please anyway try for me, because this, more than anything else is what I think it’s all about.

TIMSHEL

Two bulls – a father and a son, are up on a ridge, where they observe a herd of cows below. “Hey dad, let’s
run down and f@ck a couple of those cows” suggests the son.
“I’ve got a better idea, son. Let’s WALK down. And f@ck ‘em all”. He responded.
— Paraphrased from an episode of “The Sopranos” I once saw

Whilst we’re on this whole movie thing, I might as well tell you that I recently re-watched Marty’s “Raging Bull”. Most everyone agrees on one thing: it’s one helluva a picture. The American Film Institute (AFI) places it at Number 24 of all time, 17 slots below “The Graduate”. AFI has “Citizen Kane” at #1.

I want you to know that I’m OK with this. “Kane”, though entertaining, is a bit too clinical for my tastes. However, I respectfully defer to The Experts here.

“Raging Bull”, for the uninitiated, is based on the life story of Middleweight Champion Jake LaMotta. Insofar as: a) LaMotta himself consulted on the film; and b) much of it is, shall we say, less than flattering, we can presume the portrayal bears a measure of authenticity.

LaMotta’s persona is not overly nuanced; none of Marty’s best characters are. He’s a bonehead from The Bronx, who (for whatever other flaws he possessed) was a Raging Bull in the ring. He both dished out and took his lumps — in galactic proportions, as though they were his due.

He drew no grand lessons from any of it.

I wish there were more guys like him hanging around today; guys who go out, do what they do, and live with the consequences. More Raging Bulls are needed. Especially now.

So, where are they? You certainly don’t see them in the ring, and if you doubt this, I defy anybody – even myself – to name more than three currently active professional fighters in the world.

I can’t. Can you?

In other arenas, whatever bulls remain appear to be rather tame. It doesn’t matter if they walk or run; they ain’t f@cking all the cows. Or even one of them. Maybe that’s by design, particularly given the purported contribution of the species to carbon emissions. Because if bulls ain’t f@cking cows, there soon won’t be any cows left to f@ck.

Or bulls to f@ck them.

There are certainly all forms of raging going on, but from my perspective, they manifest in light, one might say, effete, motifs. We rage against ourselves. We apologize — in advance – often for transgressions of which we were either previously unaware, or never had committed in the first place. We recast our founding and all ensuing events in terms of crimes against history. We invent new genders for ourselves, and filter virtually all our enterprises through the prism of racism.

To wit: just this past week, our Secretary of State invited the United Nations – that noble body of statesmen and women from more “enlightened” countries such as Iran, Russia, China, Venezuela, Cuba and Haiti, who, when not lecturing their Half Moon Bay Hosts on morality, spend most of their time clogging up traffic by double parking in front of Manhattan Strip Clubs – to evaluate Human Rights in the United States. They will then energetically give us notes. And we will apologize, promise to do better. Again.

If I didn’t know better (and I don’t), I’d wonder if we – all of us – haven’t fallen victim to the same anatomical procedure that converts bulls into steers.

Plainly, though, we no longer stomp around, stampede, seek alpha status in the herd. Instead, we meekly follow where we are led. Of course, we derive some comforts from this. No reason in the world to lock horns/risk injury or humiliation from others in the corral. Plenty of grass to munch – all day long if we wish it. When it rains, they shuffle us indoors. It’s a pretty easy ride – so long as we don’t kick up a fuss.

And, for the moment, there’s plenty of cud to chew – with more promised a little further down the road. It’s coming, so long as we don’t recover our god given anatomy and charge towards the China Shop.

Our schoolmarm/paymasters at the Fed are falling all over themselves to reward us for our docility. On that side of town, they’re printing $4B/day of new, leafy-green currency, and using it to buy the creamy paper — issuing from the lactating udders of their neighbors down the block — in volumes sufficient to place our entire bovine economy into a milk coma. The action, for the geographically impaired, all transpires in the following narrow segment of the Lower 48:

The whole area in question is < 10 square miles, and, if one wants to start at Capitol Hill, take a minor detour to the White House and end up at the Fed, it only requires about 7,000 steps, or less than 3/4ths of the average daily walking distance recommended by, well, whoever it is that recommends these things.

And it is within this slim corridor that the capital economy of the entire world is herded, gelded, housed, fed, watered, and made to do the bidding of its betters, who are calling all the shots for the rest of us.

This past week was an important one from a steerage perspective. On the one hand, inflation statistics, at both the Consumer and Producer level, popped up to levels which are problematic to the narrative. On the other Federal Reserve Chairsteer Powell reassured all of us rolling (Rawhide) little doggies that, nonetheless, he has no intention of reducing the $4B daily udder flow.

And down in the Southeast Corner of our map, the cattle ranchers that control fiscal appropriations settled on a new, new stimulus package to the tune of $3.5T – a bill so rich with cream that it will tax the capacity of our best-in-the-world skimmers, to separate. It contains what one would expect: massive expansion of entitlements (written into permanency so as to preclude future potential-pain-in-the-ass-with-their-own-ideas legislatures from messing with them), the creation of millions of public sector/unionized jobs, and of course, queenly amounts of creamery for climate preservation. The plan is to work it all out among the three ladies that run the joint: Pelosi, Harris and (yes) Schumer, and then shove a pen in Biden’s hand for signage.

We can’t say that we weren’t warned. That the scheme doesn’t roll out precisely as advertised. We pump money into the ecosystem, distribute it according to political prerogatives, acquire control of the voting processes across the country, enfranchise and redistribute to a new segment of the populace that will forever be beholden, and then, in result, lock up the corral and throw away the key.

Will it work? I don’t know. But it is a ballsy strategy — emanating from a crew with a thin majority, which has little in common beyond their absence of testicular matter, and their demonstrated disdain of same.

If it does come to pass, though, we can look forward to one last Rocky Mountain Oyster BBQ, and then revert to our vegan diets. Because there won’t be any more material left to produce Rocky Mountain Oysters.

But if any of you steers out there believe that the sponsors of this feast are not preparing an epic bill of fare for the rest of us to cover, think again. They ain’t handing out sh!t without taking back something they value out of our hides (i.e. our agency), in return.

Meantime, this Raging Steer of a market took a brief pause this past week – perhaps worried that, someday, investeers might have to fight for their own food, shelter and companionship. I will cop to feeling a bit uneasy myself – too many moving parts to fully embrace the continued swishy stampede in its entirety.

Among the concerns is the possibility that central banks may decide to park their ice cream trucks for a welldeserved rest. But I’m here to tell you that this won’t happen. Our bovine bankers will continue to print and buy, because, as illustrated in the following graphs, it is in the unambiguous interest of the political class to which they belong that they do so. Ergo, they will extend (and maybe even expand) this exercise:

Governments, in other words, are issuing debt at the cheapest rates in six generations (and maybe ever), so they’re borrowing at record levels, and using the proceeds to fulfill the agendas they have mapped out.

So, why on earth would these trendlines do anything but extend themselves? Are we about to grow back our gonads and impose some discipline on the proceedings?

Not in this world. Not in this time. So, as a bit of market commentary in this financial publication, I can fairly assure my readers that anything which passes for Taper Talk is little more than Table Talk. Which, according to the chivalric codes of the lordly game of bridge (at which I am aware you excel), is simply not allowed.

In my view, the market needs continued succor from the matriarchy, and will crumble into little pieces if it’s withdrawn. The matriarchy knows what it must do and will fulfill its motherly obligations.

Thus, while, on balance, I believe valuations will continue to rise, it probably will be more of a mincing amble than anything resembling a commanding charge down the ravine, where the untold delights of a passel of panting, virginal cows await. It’s anything but the latter. The Market Cap of the Gallant 500 is up about $10T since the lockdowns. The Fed has printed $4T, Congress is about to hand out an amount (including already approved payments) that totals to $6T. You can do the math yourself.

What it is not, is the fertile issuance from the loins of those Raging Bulls of yore. Like Jake LaMotta,

Thus, in summary, at least for the moment, you must consider me not bullish, but rather, steerish. Know, at any rate, that I’m not proud of this. But with you so far away, me missing you so, and my own flow of juices reduced to such a trickle, it’s about the best I can muster.

TIMSHEL

For reasons I cannot entirely explain, I’ve been thinking a lot about Berkeley lately. Berkeley California. The East Bay. Location of the flagship campus of the University of California System.

I came to this fixation early on, long before I’d ever even visited the place. More likely than not, it draws from my youthful obsession with the 1967 film “The Graduate” and the specifically with the passing lovely (like you) Katherine Ross. Particularly the scene where Dustin Hoffman surreptitiously stalks her around campus, with the sorrowful strains of Simon and Garfunkel’s “Scarborough Fair” playing in the background.

Beyond that, I have some connections to the town, and it has been my experience that if you “have some friends, know some people” in Berkeley, you are impelled to bring up the subject as often as you can.

Well, I have some friends, know some people, in Berkeley.

I thought you ought to know this.

My sister Tiff is a graduate of UCB. She put herself through the joint working as an accountant at a Men’s Clothing Shop that sold anachronistic crew neck sweaters and other stuff that came straight out of the Fifties. Her boss was a fall-down drunk. Tiff did the books, and, presumably for a time, kept him from going broke.

So, I hung out around town quite a bit in the late seventies/early eighties. Loved the vibe at Rasputin Records, which, this very year of Graduate ’21, is celebrating its 50th year of continuous operation. Jerry is gone. Janis is gone. Skip M@^%ther F$%&king Spence is gone. Rasputin Records abides.

I remember hanging out in the vicinity of Telegraph Avenue around 1978 — a point when (as with so many other sacred cultural cows) the local coffee bars were way ahead of their time. I recall entering one of these, scanning the menu (etched, of course, in colorful calligraphy on a chalkboard) and recognizing not a single item (note this was long before Starbucks had rendered such terms as Latte’, Mocha and Frap ubiquitous). As an ignorant, L7 visitor might, I boldly ordered a black coffee, and they looked at me like I had three heads.

Wander Northbound to the end of Telegraph, and you soon run into the threshold of the UCB campus, then the Sather Gate, and, just beyond, the Magnificent Sather Tower, which looks something like this:

Nice tower, no? Well, it may please you to be made aware that it is the third largest bell tower in the world, surpassed only by some structure In Italy, and another in Birmingham, U.K.

For better or worse, though, Sather Tower is a notorious suicide spot, its observation deck deemed by the self-annihilation crowd to be a perfect point to make that final jump. Perhaps this is owing to the long-standing legend that the ghosts of the leapers haunt the place for eternity.

All of which caused some clever individual(s) to paint two circumscribed circles at its base, with the outer one labeled “Undergrad” and the inner form designated “Grad”

I figure it must’ve come from the Engineering School.

I searched for online evidence of this glib, grim prank and came up empty. But I swear it is (was?) there. I saw it myself. On the other hand, I may not, at the time, have been in a state where my observational skills were at their most acute. So maybe I’m misremembering?

All of this came into focus for me when I read a widely distributed WSJ expose’ about student loan debt, which pointed out that, for the first time since they began tracking these figures, aggregate borrowings of graduate students now exceed those of their (by contrast) degree-deficient brothers and sisters. So, as was perhaps inevitable, The Graduates win again (just as Mike Nichols won Best Director back in ’67).

But not by all measures. The thrust of the article was that most master’s degree borrowers – particularly at Ivy League schools, depart with, in addition to their sheepskins, considerably more debt than can be offset by their subsequent earnings power. The medians indicate that the former exceeds the latter by a factor of 5.

The Journal singled out one institution, and, without naming names, it is an establishment: a) of which I am quite fond; b) where I have both received a master’s and have taught in a master’s degree program; and c) that is located in New York City. For the idiosyncratically obtuse, I will add that between 1941 and the time of his Death (1968), Dwight David Eisenhower held only three jobs: Supreme Commander of WWII Allied Expeditionary Forces, President of the United States, and President of the above-referenced university.

For what it’s worth, though, I paid off my loans, and I think the record shows that I amortized my borrowings, if not magnificently, then at least at a better clip than those poor schlubs who went into six figure hock to earn an MFA or a similar credential from the Film School. Many of the latter are scrambling to feed themselves, so current lenders are having a difficult time collecting.

The universities which are recipients of the funds, however, have broken the bank with these initiatives.

The newly credentialed obligees can perhaps take comfort in the knowledge that they are not alone on this journey. In addition to outstanding debt of our newly minted (or aspiring to be so) scholars, which exceeds $1.5 Trillion, State and Local governments owe another $4T. The Federales are in for $30T (not including their trivial and therefore uncounted future Social Security and Medicare obligations)

And as for corporations? Well, let’s see what FRED has to say about them:

Thanks as always, FRED. You never let us down.

The visible totals to which the country is thus into The Man approach $50T and the true number is probably 3x that amount. Our entire GDP clocks in, no matter how one measures it, at about $20T.

Thus, one way or another, and just as is the case with our financially burdened Ivy League MFAs, the entire country has borrowed what amounts to several years of its revenue producing capacity — some of which, presumably, must also be allotted to our care, shelter and feeding.

What could possibly go wrong?

I’d ask those smart guys on Wall Street, but they’re too busy buying up everything in sight. Our indices closed out the week at another set of yawning all-time records. They’re buying stocks, bonds, houses, cars, etc. (They’re a little less enthusiastic, as are their bankers, about the purchase of gold. Which I reckon to be a shame if for no other reason than the eponymous donor of our feature structure – Peder Sather – made his fortune lending to miners in the region during the 19th Century Gold Rush).

But the current buying focus is clearly on equities, and even heightened Taper Talk revealed in the Fed Minutes only caused a pause for a brief selloff on Thursday. By week’s end our indices had recaptured lost ground and then some.

The renewed stock market vigor miraculously focuses on our old friends from the Berkeley region, from jurisdictions such as Cupertino, Mountain View and Menlo Park. In other words, Apple, Google and Facebook, all settled at all-time highs. The good vibes are so strong that they carried Northward, bringing the same tidings to Seattle-based behemoths Microsoft and Amazon.

I don’t see any of it ending soon. It cannot, however, possibly, end well. From this perspective, the upcoming week promises to be interesting. Inflation figures drop. And, beyond that, banks report. Their numbers are projected to be boffo – student loan write offs and tepid gold financing action notwithstanding.

But all of this is an old story – one that I’m getting tired of telling.

I’d rather go back to Berkeley. With you. Where the Sather Gate still greets us. Where the ghosts of leapers long gone offer us there spectral their hospitality. Where they’re still spinning “Cheap Thrills” (Vinyl version, natch) on the turntables at Rasputin Records.

The town has no doubt changed since I last visited. The Sather Tower just last year celebrated its Centennial, but is now no longer referred to as such, but rather, by the rather obtuse handle of The Campanile. Sather Gate, however, remains Sather Gate, and I reckon we can take some comfort in that.

The students are currently spending much more time cramming in libraries than they are at the time-honored ritual of occupying administration buildings. A degree (Undergrad or Grad) from the University of California Berkeley is now harder to obtain, but more valuable than ever, once having done so. Particularly from the School of Engineering, under which circumstance you have my assurance that that a job (with a salary that will not only enable you to quickly retire your student loans, but to retain sufficient funds to afford the exorbitant rents that the region commands) awaits you.

A word to the wise, though. Don’t try to paint targets on the grounds adjacent to The Campanile; the Berkeley 5-0 are hip to this lick and are likely to straight up bust your @ss.

Leaving you nowhere to hide. Katherine Ross and Dustin Hoffman, of course, escaped on a Berkeley City Bus in the final scene of “The Graduate”. Where they ended up, no one can say. I’d like to think that they ultimately booked passage on The Dog. To Paris, TX. Taking with them a cooler full of Deviled Eggs.

But all of that is ancient history. It is current destinations that interest me, so, if you are going to Scarborough Fair, please do remember me to my once and always true love.

On second thought, don’t bother. I’ll do it myself.

TIMSHEL

“C’mon people don’t you look so down, you know the Rain Man’s comin’ to town,
Change the weather, change your luck,
And then he’ll teach you how to… …find yourself”
— “L’America” by James Douglas Morrison (December 8, 1943 – July 3, 1971)

I’ve been thinking about this here note for several months – my tribute to Jim Morrison. Marking the 50thanniversary of his passing.

This holiday weekend, I think it best to honor him as a quintessential American – with all the pathos and bathos embedded therein. Though his vision was always dark and often twisted, he, in any event, called things as he saw them. There will never be another one like you, he once sang. Well, Jim. Back at ya.

A songwriter from an even earlier era (George M. Cohan) once wrote about a real live nephew of Uncle Sam, born on the 4th of July. Jim died on the 3rd (my mother’s 36th birthday), admonishing us that no eternal reward will forgive us now for wasting the dawn.

Lately, I have wondered what he would think of the America as he would find it today – two full generations after he shed his mortal coil. And can only come up with the following:

The country’s mojo, I believe he would tell us, in biting, stinging rhetoric, is in free fall.

But let’s back up for a bit. The history of Jim and The Doors fits with precision to the time and place it in which it unfolded – Los Angeles of the 1960s. In 1967, through a series of improbable events, Morrison, then a middling student at the vaunted UCLA Film School, found himself transformed into the front man of what arguably was the greatest band that America (and maybe the world) had ever produced.

The Doors were an odd, mismatched lot. Doomed from the start and knowing it all the time. But determined to kick up an absolute sh!tstorm before while the ride lasted They didn’t even have a bass player (Ray Manzarek’s magnificent keyboard did double duty on those essential, percussive bottom notes). Jim wasn’t a musician, or, before the Doors, even a singer. He just kind of fell into the role.

The band came together on the shores of Venice Beach, and started pumping out records, angry Rock and Roll, that could match, in sonic force, anything issuing from Zeppelin or the Stones. Jim was a raging alcoholic, who couldn’t be relied upon to show up to gigs, or, if he did turn up, to adhere to any agreed upon musical sequence. He stumbled about, stirring up crowds to such a passionate, violent frenzy that by 1969, it became difficult for them to even book any shows, or, having booked them, to complete a coherent set.

The beginning of the end came in Miami, more precisely, in Coconut Grove. At the Dinner Key Theater, on March 1, 1969. Accounts vary, but it appears, to delicately summarize, that while on stage, (and indisputably inebriated) Morrison performed some benign forms of mock masturbation and fellatio on tragically under-rated guitarist/songwriter Robbie Krieger.

It was the type of thing that, these days, not even the censors at the Disney Channel would think of cutting. But those were different times. Miami was not the sex/party capital it is today. It was a conservative city with pseudo-medieval values, run by middle-aged men with thick glasses and pocket protectors.

The cops arrested Morrison, and he was looking down the barrel at 10 years in Raiford State Prison. So, he bounced. To Paris (Our Paris). And never came back (And we haven’t gotten there. Yet. We will).

But not before recording one last album of absolute perfection – L.A. Woman (which along with London Calling, Blonde on Blonde and Tumbleweed Connection forms my Mount Rushmore of Records). Across countless listenings, I can’t find a single note that I can bear part with.

The title track is so jarring that words fail me. A ride along the freeway, a roam across midnight alleys, through your suburbs, and into your blues. A pulsing but heartbreaking trip to nowhere.

But God oh Mighty! What a ride!

And then, somewhere in the middle (introduced by Jim as a “change of mood from glad to sadness”), the song shifts keys from A Major to A Minor, and into the haunting, clairvoyant chant – “Mr. Mojo Risin” – which, as any true Doors fan will tell you, is an approximate anagram for Jim Morrison.

Just as L.A. Woman was being unleashed onto the masses, the news broke that Jim had died. How or why? No one knows. He had been buried in Pere Lachaise Cemetery – near Chopin, Wilde and Bernhardt, for a week before anyone over here knew he was dead. Speculation as to what happened that day has ensued ever since.

In result, and for at least a decade after, the Faithful held out hope that he hadn’t died, that Mr. Mojo Risin would re-appear. Somehow. Somewhere. Just as the song itself reverts to A Major in thrilling crescendo.

But 50 years on, there’s still no sign Mr. MJR, and, by now, we can be fairly certain he ain’t coming back.

And in the meanwhile, from my vantage point, the country can more accurately be described as Mr. Mojo Falling. We take for granted our good works (and the good things our good works have produced). We stand limply, languidly, greedily washing ourselves in our flaws, weaknesses and shame. We are quick to castigate our forebears for sins they had no idea they committed, and, against which, being dead, they cannot defend themselves.

The unpardonable transgressions of antiquity are, quite handily, the flavors of the month. The orthodoxy now proclaims that our society was established to eternally exploit certain subsets of its citizenry. The argument extends to virtually every aspect of our existences. Words, for obtuse, Orwellian reasons, are being banned in real-time. Arithmetic? Samesies. The rewards of merit are now recast as sins, to be replaced by a squishy construct (administered by an all-knowing, anonymous cast of our betters), referred to as equity.

For some, it’s working out just fine. Corporations slam themselves for conjured up moral failings, in the process buying them leeway to ignore their true failings. It may be their most profitable enterprise.

Our adversaries, of course are even more pleased with us as we scold ourselves and beg our own forgiveness — in the most effete manner that can possibly be imagined. As we exhaust ourselves in efforts to reduce our naughtiness, countries with which we compete commercially eat our economic lunch. Those that seek our outright destruction operate with a free hand, knowing, that while at one time we might come back at them in our full wrath, we now much prefer to wag our fingers at each other in acute, but tepid, disapproval.

So (Jim might ask and did):

“What have they done to the earth? What have they done to our fair sister?
Ravaged and plundered and ripped her and bit her.
Stuck her with knives in the side of the dawn. And tied her with fences and dragged her down”

But don’t listen to Jim: a white male whose father was an admiral in our murderous Navy. The Doors’ records were produced by a subsidiary of Warner Brothers, home of the nefarious and arguably racist Bugs Bunny – a conglomerate that Wall Street has bought, sold, reorganized and financially re-engineered too many times to inventory – all to the significant profit of its prevailing overseers.

But what in heavens name are we wasting our time around here for not to point our unilateral efforts to the benefit of the Ruling Class of Wall Street? And recently, we’ve taken matters to the extreme – flooding the markets with liquidity and negative borrowing rates. Pumping cash not only to private enterprise, but also to consumers – to either spend down on products delivered by our coddled public companies, or to unwittingly invest it into a stock market that confuses many professionals, except to the extent that they are able to manipulate the uniformed behavior of retail investors.

The capital of Investment Nanny State is the United States Federal Reserve, the Balance Sheet of which, already bloated beyond recognition, has doubled to >$8T in less than five quarters. They have so much paper on hand that they’re lending it out to banks in the overnight markets, with the latter snapping it up to the tune of $1T – for a return of 0.02%. They’re still printing money and buying securities at a rate of $120B/month. The mere hint at them doing anything less sends investors into a panic. Which the Fed cannot abide.

So, investors continue to suck of the teat of our Central Bank, levering up at negative rates, gorging on the cream of this largesse, and, of course, issuing debt of every stripe – in record amounts – to keep the juices flowing. And the markets are rewarding this behavior like never before. Our indices are all at record levels. And going higher.

In advance of the holiday, everybody was getting tired of hanging around (with their ear down to the ground), but many managed to stick it out in order to evaluate and react to the June Employment Report. The Commerce Department rewarded them with about as tidy a package as could realistically be hoped for. 850,000 new gigs! This indicates that America might just be getting back to work. To trading its hours for a handful of dimes. But there are still 10 million unemployed across the Lower 48 (+2), and, by estimate, 10 million job opportunities left open. Perhaps these numbers will shrink contemporaneously, as a Federal Government — carrying $30T in debt — stops sending its citizens money to stay at home.

But I’m not counting on it, because mojo, once fallen, is not easily resurrected. I expect bureaucrats to continue to coddle corporations, investors and the masses – until some external force blows the whole gig up. Maybe it will be the Miami Police – in better use of their resources than those associated with their unfortunate actions on March 1, 1969. But I doubt it. Right now, they’ve got their hands full.

When this happens (just like Miami/1969), the music’s over. And the time comes to turn out the lights. I don’t think we’re there yet. The band’s still playing – in joyful, energetic beat that serves as the soundtrack for what has begun thus far, from an investment perspective at any rate, as a Summer of Love.

It won’t last forever; never does. And (paraphrasing the Liner Notes from a long-forgotten Doors album) I can still hear those first sorrowful strains of “The End” drifting in, from another room, to find us.

I can only hope that it finds us together. You and me.

But remember this: the butterfly still screams, the killer is still on the road, and the cold grinding grizzly bear draws hotter on our heels every hour.

So keep your eyes on the road.

TIMSHEL

“Going where the wind don’t blow so strange,
Maybe off on some high cool mountain chain,
Lost one round but the price wasn’t anything,
A knife in the back and more of the same….”
— “He’s Gone” by Garcia/Hunter

I can confirm the above. He is indeed gone. In a fact all them guys are gone. I watched them leave. I can’t say nothing’s gonna bring them back, but that, my friends, is beside the point.

I won’t be naming names on this board. Some of them I’d rather keep to myself. But the public domain is littered of late with purportedly permanent departures, which, by contrast, merit discussion in this publication.

I reckon we can begin with Teddy, who, along with his faithful (and ethnically diverse) companions, is gone – or as good as so – from his post on Central Park West. Some official sounding committee voted formally to bounce him on Monday.

Where’s he going? To the final home of all Metallicized Rough Riders: (Undisclosed Location). Maybe they’ll bring him back some day, but I ain’t holding my breath.

For reasons illustrated in the following chart, I’m hoping that they aren’t taking him too far:

To wit: the cost of containers has gone through the roof. Perhaps this is transitory, but it is worrisome, nonetheless. And before you score me on the topic, I AM aware that the graph describes the price path of shipping a large box from Shanghai to Rotterdam. Moreover, I’m quite clear that T.R. is neither in the former megalopolis of the Far East, nor, presumably, bound for the latter/second largest city in the Netherlands.

But from what I hear tell, beyond rising shipping costs, it’s the scarcity of boxes themselves that is sending these prices heavenward, and, if so, it’s likely a worldwide problem. They could always put wheels on Teddy’s horse and tow him to (Undisclosed Location), but doesn’t he deserve at least the dignity of a container? Which we afford even Skid Row corpses (to say nothing of owners of Mt. Rushmore visages)? Forgive me for hoping so.

More gone than Teddy is John McAfee. Who ran for President. Twice. And lost. Twice. Unlike Teddy. Who also ran. Twice. And won. Once. On the other hand, Teddy never invented a paradigm-shifting software security program. So, there’s that.

Both were crazy mofos, and, for my money, their existences net out on the plus side, having periodically enjoyed themselves, and adding, if nothing else, some much-needed color to the landscapes of our daily lives, which can often only be described as drab.

Gone, also, but perhaps not forever, is that cockroach Chauvin, who got a pissant 22.5. However, the less said about that the better.

Lee is also out of here – faded quietly away on Friday, but nonetheless drawing the attentive condolences of the fabulous Phil Lesh – bass player for our theme song. I never met him but will miss him anyway.

Meanwhile, this past week, the markets managed to resume their “nine-mile-skid-on-a-ten-mile-ride” rally, with the Gallant 500 closing out at its all-time high, and Captain Naz, General Dow and Ensign Russ all perched at proximate thresholds.

And why not? If nothing else, I am grateful to these financial armies for bailing me out on my stubborn, bullmoose, bullish attitude. And I’m not gonna stop here.

Because this hot-as-a-pistol market still feels cool inside. Bids abound everywhere one casts one’s eye. Last week, in auction land, the Treasury hit a rough patch on the two and three-year maturities but was able to magnificently scratch its issuance itch on the seven-year note. Some of this, apparently is owing to an improbable slowing in the supply of newly minted Treasury securities, which, as illustrated below, has devolved to such paltry sums as are matched by the Fed’s monthly purchases of this paper:

I believe this is a temporary phenomenon, as: a) I have a sneaking suspicion that the Treasury Department is gathering itself for some renewed, heavy auction action; and b) a handful of Fed Branch Presidents are going decidedly off script and suggesting that maybe the dreaded taper could materialize sooner than what was officially proclaimed at last week’s FOMC presser.

A pox on these turncoats! What are they trying to do? Kill the party just when it’s starting to shake and sizzle? If they’re not careful, they themselves might end up, like Teddy and McAfee: on our list of the newly/dearly departed.

One way or another, their shenanigans caused some minor liquidations of the favors of Madame X, whose rates rose to a positively usurious 1.524% by Friday’s close. Not time to worry. Yet. But if her real rates (nominal yield less inflation) rise much above their current levels of negative > 2.5%, we might actually need to pay attention, or, worse yet, devote more care, to our capital allocation operations.

But let’s not panic for the moment. Better news takes the form of some Health Care company issuing junk bonds, of seven-year duration, at a record low yield of 2.45% this past week. The issue, of course, was oversubscribed, proving that now is as good a time as any to create and sell new securities, and, for that matter, to buy them. I expect that this process will continue – unabated and successfully – until it doesn’t.

And, in terms of risks, it is my sad duty to report that no, they haven’t managed an exit, stage left. The big news out of Washington this past week was the announcement of an, er, bi-partisan infrastructure bill, and its accompanying Biden Victory Lap. However, it took no less than three hours for Little Joe to let us in on a little secret: the real play is to entice this ~$1T into passage, claim bi-partisanship, and then dump several trillion more into the budget (along with whopping tax increases) through reconciliation.

“Rat in a drain ditch, caught on a limb. You know better but I know him”. If the Republicans fall for this one, then they certainly deserve the fait that awaits them.

But the real losers will be the rest of us, who I don’t think deserve to have our faces stolen right off our heads.

I’m relatively optimistic that it won’t go down this way. It was a dubious strategy to begin with, and it’s off to a flawed beginning. If you want to catch a rat in a drain ditch, you’re probably well-advised against pointing out the drain ditch to the rat just as your plans are being hatched.

The whole saga was so absurd that by Saturday, Biden was in full back-pedal. Said he would never even consider going back on his promise to play it straight with the budget. Of course he’s gonna sign the bill he claims to have crafted! No strings attached!

I hate to press the point, but it appears to me that Little Joe is both shrinking and disappearing in real time. If I’m correct, and current trends continue, there won’t be much left of him by Christmas. He will, for all intents and purposes, be gone. Perhaps, then, we can ship him to (Undisclosed Location), and may not even need a container to do so, because there will be so little of him left to transport.

Meantime, we’ll see if the nine-mile-skid rally has another mile to go over the next few weeks. Next Friday’s Jobs Report, after two disappointments in a row, will be instructive. Then there’s the holiday. And then, in July, we see where we truly stand.

Meantime, we’re still here. A place we’ve never been before, and where we’re not going to stay for long. Wherever we’re headed, it’s somewhere else. Call it (Undisclosed Location).

It’s to a spot, together, where maybe what’s good gets a little bit better, and maybe what’s bad gets gone.

Where (maybe) the wind don’t blow so strange.

There’s a high cold mountain chain not far north of here, where land is cheap and where we might find those who are gone may have went.

Who knows? We may find T.R. up there.

I feel I’m rambling, though. Worse, I’m mixing musical metaphors.

Which means it’s time to take my leave. Yes, he’s gone, and I’ll miss him more than I can say. I want to take a moment to acknowledge and honor those feelings.

And after that?

Well, nothing left to do but smile, smile smile.

TIMSHEL

“Goo goo ga joob”
— The Egg Man (Walrus)

To the best of my recollection, we left off last week determined to hatch plans for that epic Dog Ride, and God bless you for agreeing to grace me with your company — on what promises to be magnificent journey.

In contemplating the myriad delights that await us, it occurred to me that we should bring some provisions. So, what would do you think we should pack? Yes, we want to travel light, but I don’t believe including a (moderately sized) cooler would be inappropriate. Kindly tell me what would please you to submit into this vessel, because, as you know, your wish is my command.

As for me, I ask, humbly, if we might not choose, even feature, eggs as part of the culinary entourage?

Like everything else these days, eggs are more expensive than they used to be, but prices, appear, at any rate, to have stabilized – at least in China:

Egg Prices on Some Rando Chinese Futures Exchange:

I will cop to being a little bit distraught that I had to go all the way to the land of Genghis Khan (and his brother Don) – home of those infamous wet markets — to obtain a proper futures market quote. Especially seeing as how it was eggs that launched operations for my old employer – the world’s largest futures exchange. It is now known as the CME Group, but its original handle was the Chicago Butter and Egg Exchange (Trip Note: let’s pack us some butter too).

I had great uncles or some sh!t that used to stand, freezing their asses off trading Egg Futures in the outdoor markets on the corner of Wacker and Van Buren. But that was a long time ago. Them uncles is all dead. And, in one of the more dubious acts of an organization that makes few mistakes, the CME delisted the egg contract in, like, 2010, leaving us to fend for ourselves.

So off we go to China, but not literally (and certainly not riding the dog). Only to get a sense of what that divine element of our mobile larder will set us back.

And, as long as we are on the topic, it strikes me that if we’re gonna lug eggs around, particularly given the vibe of our mode of conveyance (The Dog) we might do worse than selecting them in their demonic rendering.

I don’t insist. As we discussed the other night, Deviled Eggs struggle to find their place in my Edible Ova Top 10, falling, as they do, below Hard Boiled, Soft Boiled, Poached, Scrambled, Fried, Over-Easy, Raw (yes, Raw) and a couple of other concoctions that have little in common other than their primary ingredient.

However, as Dog Riders are aware, you need more than just eggs to make a Deviled Egg. Also essential, if an unhatched baby chick hopes to rise to the dignity of the latter, are mayonnaise, mustard, vinegar, pickle relish, salt and (of course) and paprika. From there, the sky’s the limit. One can, for instance, also include such dainties as bacon bits, cheese (preferably gouda), and, for the truly Continental, Worcestershire Sauce.

At any rate, whatever recipe is involved, it is beyond dispute that from an edibility perspective, Deviled Egg output has exceedingly wide error bars. Moreover, the Deviled Egg Edibility Quotient (DEEQ) nearly always exhibits perfect correlation to the character, reliability and skill of the culinary artiste that prepares them.

One might, for instance, confidently consume any Deviled Egg that Martha Stewart or Master Chef Charlie Trotter put in front of them. Emeril Lagasse? Hit or miss. But would any rational human ever consider choking down one of those bad boys offered up by a Street Meat vendor in Midtown? Didn’t think so.

However, given that this is a market commentary publication, I’ll let you in on a couple of little secrets: 1) Deviled Eggs are an essential at any meeting of the Federal Open Market Committee (FOMC), and 2) the preparation of same falls exclusively into the portfolio of the Fed Chair. This tradition goes back all the way to the 1791 founding of the First Bank of the United States, by Alexander Hamilton, who certainly did credit to himself at the refreshment table – particularly considering that he was born in the British West Indies.

Clearly, he set the bar high for his successors, with mixed results. Some dude named Lennox did such a bad job, disgusted then-President Andrew Jackson so thoroughly, that he went and revoked the organization’s charter (Jackson was notoriously fastidious about the preparation of his Deviled Eggs). The whole concept of a U.S. Central Bank was thus rendered unstable for the subsequent five generations, and was only resurrected permanently, in 1913, right before the War to End All Wars. When we really needed the money. Among the subsequent Baller Fed Chairs/Deviled Egg Preparation Overseers were Marriner S. Eccles (who financed WWII and generated such a fabulous DEQQ that, inside the Fed, he was referred to as Chairman Eggles), William McChesney Martin (who a really cool name and is the consensus GOAT), G. William Miller (who also served as Treasury Secretary) and (tall) Paul Volcker (who specialized in the critical element of DE presentation, and who also rescued us from that nasty bout of early-80s hyper-inflation).

Since then, it’s been a mixed bag. Greenspan had his triumphs, but also his tragedies. Then came Bernanke, The Innovative One, most famous for inventing Quantitative Easing (QE) – a device that enables the Fed to print new money out of thin air and use it to buy marketable securities.

What is less widely known, however, is the other form of QE he conjured up – Quantitative Egging, under which the main ingredient in our side table concoction is not the issuance of hens impregnated by roosters, but rather, facsimiles thereof — mass produced by the same computer algorithms that spin up the new money.

These went down pretty easy across Big Ben’s tenure, and the process was successfully continued, with feminine flourish, by the fetching Janet Yellen. Who recently (following daintily in the footsteps of G. William Miller) has now bounced across town to head up the Treasury Department.

Her successor – current Fed Chai Jerome Powell is now The Egg Man. The Algo is running hot, perhaps too hot (especially if inflation trends sustain themselves), and investors are currently suspended in breathless wonder as to how long, and at what amplitude, the Machine will be allowed to sputter on.

We got a hint of an answer at last Wednesday’s FOMC Presser, during which Chair Pow suggested that for now, he has no plans to power down the device. However, in a nod to investor worry warts, still ravenous to consume those restuffed paprika-sprinkled yokes (but somehow retaining a concern as to the longer-term impacts of excessive monetary/egg output), he literally said that the time has come to “talk about talking about tapering” the whole operation.

The risk markets did not like this, and the Gallant 500 and other indices clocking in with their worst weekly performance since October. When we all was locked down. When that Big Orange Guy was running the show at the White House and still stood a sportsman’s chance of being re-elected.

And as The Fates ordained, just as Powell stepped up to the podium on Wed, the Fed Balance Sheet crossed the significant threshold of $8,000,000,000,000.00. Which (any way you prepare them) is a lot of eggs.

My own take on the sequence is as follows. I can’t imagine a more dovish statement issuing forth, at the moment, from the Fed. Outside of Egg World, inflation is starting to run rampant (May PPI dropped on Tuesday at an astonishing, above expectation 6.6%), and the citizenry (i.e. the electorate) is feeling the pinch. Prices at the pump, for instance, hit a 13-year high this week. Powell was unable to ignore this, particularly with his former boss (still presumably barking orders at him) working the monetary side of the ledger for the current administration, and not wishing to be blamed, politically, for runaway price increases.

So, what does he do? He keeps the machine running full tilt, maintains current short-term rates at the functional equivalent of zero, but sternly warns us that they may begin to discuss turning down the dials of the former at some point, and that the latter may inch up in 2.5 years. If this is what passes for hawkish monetary rhetoric, it is the limpest such expression that I, personally, can envision him making.

We will get our next indication of his thinking at that horrid annual wingding known as the Jackson Hole Economic Symposium. The good news is that should we wish to attend, The Dog can take us there. There’s Greyhound Bus Terminal is at 105 Buffalo Way, in Jackson, WY, and from there, we can probably hitch a ride to the highbrow conference center where the big action will be going down. Don’t worry, though, even if our supply of Deviled Eggs has dwindled by then, there’s sure to be plenty on hand at the event itself.

Because the Fed will not, cannot raise rates here. There’s too much debt out there, held by too many important institutions (enterprises like insurance companies – who – trust me, we do not want to see bleeding P/L). He can smack talk all he wants, but at the end of the day, the money/eggs, will keep coming down the shoot.

The markets seem to understand this, maintaining Chinese Egg Price Stability (see above), and, perhaps more importantly, buying up Treasury Paper in sufficient quantities to beat the band. In consequence, Madame X and her Aging Aunt: The Flirty Thirty (30-year Bond) are at their lowest yields in months.

Thus, over the last week, we saw a rather bizarre coupling of Treasury Yields and equity valuations. I don’t believe that this love match will sustain itself; the Gallant 500 and Madame X simply have more that divides them than that which brings them together for them to canoodle into eternity.

As such, I gotta think that last week’s equity selloff offers nothing more than a compelling entry point for my crew of intrepid risk takers. There’s no rush here. Valuations could drift down a titch more, and if (when) they rise, it is likely to take us for a long, superficially pleasant, ride. We alight, if we wish, later on.

Kind of like what I anticipate when you and me hop on The Dog, with our cooler full of Deviled Eggs at our immediate disposal. We don’t need to start at the Port Authority; the station in the Delaware Gap will do.

Please clear your mind, mi amiga. And think about our upcoming trip. We should have a lovely time of it, and, as for rising gas prices, well, that’s The Dog’s problem; not ours.

Before we go, I can let you in one other secret, which should put your soul further at ease: Chairman Powell, indisputably the Egg Man, is also the Walrus.

And, therefore, in closing, I can only take my leave where I began — with an enthusiastic “goo goo ga joob”.

TIMSHEL

Ride, I’d like to ride again someday, I think I still know how to play,
I play games now, but it’s not fun, a cowboy’s work is never done
— Sonny Bono

Permit me, if you will, to present a modest proposal. Let’s ride the dog (again).

Among teaming hoards that follow this publication, many probably don’t have any clue as to what I refer. If you count yourself among these numbers, please know that I won’t hold this against you. However, I salute the rest – those who comprehend what riding the dog is, and more so, those who have actually ridden the dog, because (as I hardly need to inform you) riding the dog is more than an action, more than a transitory choice. It is, in fact, an Ethos. The Ethos of The Dog – aka – The Greyhound Bus Line.

I’d call it an alternative lifestyle, but I don’t want to insult anyone.

I myself have ridden the dog — to the tune of several thousand miles. From San Bernardino to San Diego. From Madison to Chicago. And back. So often, in fact, that I consider myself fully credentialed to write about it – from both a practical and aesthetic perspective.

Know also that those of you that believe this mode of transportation to be beneath your dignity are objects — more of our pity than of our derision. That we wear our dog riding chops as badges of honor. As we roll down the Interstate in our air-conditioned custom seats, we are almost giddy in the knowledge that if nature calls, relief is right down the aisle (we will allow, however, that you’re on your own in terms of what you encounter when you enter that private inner sanctum). And we can’t help but scoffing at you down there in your Benz, hauling ass to get to the nearest roadside consumer center and its adjacent rest rooms.

Truth, though, is that our dogs have seen better days. Oh, you can still cop a ride on them — from the Port Authority Bus Terminal on 8th Avenue, for instance — to pretty much anywhere in the Lower 48. But the busses themselves could use some polish, the number of routes is diminishing, and yes, even the built-in privy facilities are becoming, quite literally, more of a “hit or miss” affair with each passing day.

Them big dogs gotta eat, though, and the economics around this challenge are, by appearance, quite vexing. This young century alone, Greyhound ownership has changed hands numerous times. A Canadian private equity firm paid, like, $4B for it a few years back, and has been trying to dump it ever since. During the pandemic, they suspended service across their native Canada, and then (in an act I consider to be high treason) abandoned their home country altogether.

I’m pretty sure they unloaded their U.S. unit – busses, routes and bathrooms, for, like 100M quid (~$140M), and, if so, it implies that those latter-day rovers took a Lhasa Apso clipping on their investment.

But all is not lost. Could there possibly be a better time to reinvigorate this divine corner of private, mobile enterprise? The country is reopening, the planet is on the verge of boiling over (or so I’m told), the price of petrol is through the roof (and going higher), and the highways are jammed up. If we all just committed to riding the dog, we’d be saving money, energy, the environment, and, perhaps most importantly, our precious time. It’s all so 2021. So, if you will, woke.

So, waddya say? Should we book reservations on the dog? Just you and me?

What’s that you ask? No, we can’t get directly to Paris that way — unless you’d settle for Paris, TX, with its glorious bus terminal that puts Versailles (and The Port Authority Building) to shame, an image of which I present (along with that of the town’s principal visual attraction), for your particular enticement, below:

Fear not. I promise to take you to the City of Light — home of Baudelaire. Final resting place of Chopin, Wilde, Bernhardt and (of course) Morrison. Stomping grounds of Hemingway, Miller and Parker — and soon.

Meantime, if you accept my interim suggestion, we can meet at the Port Authority, book our tickets, and arrive at our Lone Star destination in little more than 36 hours. It is the Seat of Lamar County, after all, and, once having registered with the local authorities there, we can check out that tower with the derby on top. Yes, we will ride again, someday, baby, to see that Frenchified cowboy, whose work is never done.

And nothing for nothing, but what currently passes for trading and investment strikes me as being the capital markets equivalent of riding the dog anyway. Illustrations and empirical support for this statement abound in abundance, and I’ll start (naturally) with the Treasury Market, which, tepid yields and inflation threats notwithstanding, is en fuego. Madam X sold off $38B of her favors at auction on Wednesday, and her admirers couldn’t get enough of them. So frenzied was the bidding that it took her yields to < 1.5%. Her younger sisters (2, 3 and 5-Year Notes) were objects of similar rapture during their own auctions, and even our past-her-prime 30-Year Bond drew excessive, passionate attention from her suitors (as of now, anyway, the old gal has still got it).

Then, on Thursday, the big Consumer Price Index figures dropped, at a terrifying 5.0%. The Treasury Market’s response? Bid ‘em up!

As such, and by all appearance, investors appear eager to ride these flea-ridden mutts, greedily gobbling up any tidbits they are inclined to yield. Readers who have sufficient devotion to recall my crudely formed real interest rate calculation should be aware, though, that according to the formula, real rates are now at -3.5% (10-year rate of 1.5% less 5% inflation). To me, this doesn’t even rise to the dignity of giving a dog a bone.

But investment dog-riding is not limited to the Treasury Complex; plenty of this sort of thing going on in other asset classes as well. To wit, over the past month, the best performing instruments in equity-land are those short interest indices and baskets. And nothing says “downward dog market” more than generating your alpha by owning bundles of securities that everyone else is short.

One can, of course, eliminate the middleman and invest directly in these names on one’s own. Kennels full of Redditors, as is well known, are doing this very thing. While still not done with their Affaires du Coeur with sellers of obsolete gaming cartridges (GME), they’ve nonetheless expanded their infatuation to include the owners of movie theater complexes (AMC), along with a company that provides – get this – a novel concept called e-commerce services (WISH).

No judgment here, and I’m not saying that any of these companies – per se — are dogs. But whatever species to which they belong, we are unquestionably riding them.

I don’t have much to add to the socialized wisdom on these topics, and, meanwhile, me and my buddies find it more compelling to try to figure out which name is next. Best suggestion I’ve heard thus far is Tootsie Roll Industries (TR), a company whose exclusive mission is the production of, well, Tootsie Rolls.

Toot Toot Tootsie – Hello!!

I really like Tootsie Rolls – who doesn’t? Plus, they have the added appeal for me of being manufactured on the banks of the Chicago River. And, in consequence, for the six warm months of the year, the late afternoon West Loop is filled with the delicious aroma of chocolate.

But more importantly, the stock looks ripe for meme-ing. Tootsie features a healthy 20% short interest, a spiffy  P.E. of > 40, declining cash flows, etc. All the trimmings necessary for a canine joy ride. But these things take on a life, vibe of their own. I don’t know what drives the selection process, and, for the most part, I don’t care.

Meantime, for actual and aspiring market dog riders, I think it’s a fine time to either climb or stay on board. The Washingtonian cupboards are full of kibbles and their custodians will dole them out without expecting us to either beg or roll over. Prices in the real economy are rising, and neither policy makers nor investors are showing particular concern. We’ll get a measure of corroboration of this dynamic next week, with Tuesday’s Producer Price Index Report (projected at a petrifying 6.2%), and Wednesday’s FOMC meeting, where (shock) the Committee is expected to let the Inflation Dogs ride. So much so, in fact, that its latest Dot Plot looks like nothing so much as the trail left behind a pooch that has been ridden too hard, for too long, and is destined to be put away wet.

Not much, therefore, is being asked of the investor class; only that they keep quiet and enjoy the ride. We are likely to hit additional potholes on this stretch of road, which (not gonna lie) has offered anything a smooth sojourn lately. But I believe we’re certain, ultimately, to reach our intended destination of higher valuations.

And as for the physical ritual of boarding and occupying a Greyhound Bus, I’m ready if you are. And I don’t particularly care about the destination. The Westminster Dog Show started this weekend, but they’re holding it in Tarrytown, NY rather than at the Garden. So what better time to hop on our silver, motorized canine and speed away.

So yeah, let’s do it. The Tootsie Rolls are on me.

TIMSHEL

I see you got your list out, say your peace and get out
Yes, I get the gist of it, But it’s alright
Sorry that you feel that way, the only thing there is to say
Every silver lining’s got a Touch of grey
— Jerry Garcia and Robert Hunter

For once in the storied history of this publication, I’m gonna get straight to the point:

Let’s go big.

Let’s cut taxes.

Across the board.

Slash the personal rate in every bracket. Take capital gains taxes to zero. Eliminate the death tax.

Obliterate that gruesome FICA withholding. Or at least that horrifying employer match part.

Discontinue the income tax for New York City residents. Cut state taxes – in New York, Illinois and New Jersey (yes, Jersey).

Do not cut taxes in California (or Oregon or Washington State); in fact, it wouldn’t bother me if you raised them. Even if it is the state of my birth. Despite my having tons of friends, family and even clients out there. Because I don’t like the way they roll in Sacramento (or Salem – where my sister lives, or Olympia) and don’t believe we should encourage such behavior — any more than is necessary in the interest of decorum.

C’mon, Biden, you said that you wanted to go big. And this is the way to do it. I know, you might get some whines from Warren, sobs from Sanders and squawks from The Squad. But let me ask you – who’s running this here show? A soon-to-be-octogenarian curmudgeon from Vermont? A 90-pound female former Harvard Professor? Four Windy Wendy Whiners in the House? Or the guy who once confidently proclaimed he’d like nothing better than to take his predecessor (who outweighs him by at least 5 stone) out back and beat the sh!t out of him?

I’m here to inform you that you’d be delighted with the result. The economy would explode. Innovation, the scope and breadth of which we could only, heretofore, have dreamed, of would materialize. Professor Laffer would (yet again) be proved correct – the government would actually end up collecting more revenues than even the huge pile it is extracting at the moment.

And, whatever fiscal hole was left in the aftermath, the Fed could just print away. After all, it’s what they’re doing now, and how’s that working out?

Yup, great. Especially for the capital economy. After lurching about for 3-4 weeks, the Gallant 500 and its brothers/sisters in arms gathered themselves rather gallantly this week, with the G5 settling just 3 skinny points (0.071%) below its all-time highs. In addition, our Fair Ladies of Adjacent Asset Classes are bestowing their favors in dainty, divine portion, with Madame X yields submerged to 1.55% and Vixen VIX in sweet repose at nearly pre-virus lows: 16.42.

Much of the love came gloriously at the end of the week, in the wake of a May Jobs Report, which, if problematic from certain perspectives, was a received with unmixed delight by market participants.

And all of this before we put into action our jointly devised (yes, I’m willing to even share authorship credits with you) go big/tax cut plan.

Two forming cumulus clouds (a touch of grey), however, loom menacingly on the horizon.

The first is embedded in the above-mentioned Jobs Report, which unfolded in such a way as to corroborate the emerging hypothesis that the United States is, improbably, suffering from a Labor shortage. Just as we are getting the “all clear” to actually leave our houses, the Labor Force Participation Rate is shrinking. Small businesses are nearly uniform in their complaints about their inability to fill open positions. This problem is particularly acute in the leisure and hospitality industries, the annualized 25% increase in median wages for those sectors notwithstanding.

So, the restaurants are full, but the prices are high, and the service is less than lightening quick. That’s OK, honey, because you know what we’re gonna do? We’re gonna take our time, eat slow, and then order a couple of hot fudge sundaes for dessert.

Which brings us to the other pending problem (the silver lining with a touch of grey): Inflation. While there have been, as previously reported, some ebbs and flows in these realms, the directionality of essential commodity prices is unmistakably towards the heavens. West Texas Intermediate Crude Oil closed Friday at five year highs — ~$70/barrel – in striking contrast to that surreal interval last spring, when, for a brief instant, sellers were actually forced to pay up to $40/unit to rid themselves any crude they had hanging around.

Published reports indicate that California (which should not be encouraged) residents could be paying $7/gallon at the pump this weekend. And the driving season has only just begun.

Thus, for typical the wallet-stretched, SUV-driving, non-kosher-keeping, restaurant-preferring Californian (who should not be encouraged), the pressure is illustrated in the following images:

I reckon my CA friends will suck it up, though, because many of them are flush with the incremental cash to assume the extra cost burden.

And the cash keeps coming – from the Fed and from Capitol Hill. The dynamic has reached the point where it is beyond dispute that a) financial institutions will buy unlimited amounts of Treasury paper at a zero percent yield; and b) millions of able-bodied citizens are, on balance, better off spending their days waiting for government checks, and then Driving to Carl’s Jr. (where I hear the service is slow, but we got nowhere we got to get to in a hurry anyway) than they are, tramping off to the job site or office.

The answer? Cut taxes. Big. Across the Board. Maybe even in California.

A theory has emerged in forums not yet banned by Big Tech Overlords that the direct payments to the jobless from the government are a back-door form of raising the minimum wage. Having failed, thus far, in passing a floor of $15/hr. (so the theory goes), the links between subsidized unemployment and labor shortages are a suitable substitute: forcing business managers to pay an equivalent amount (or more) for able-bodied workers.

I’ve no empirical way of testing this hypothesis, but if it’s true, then what better way to energize the strategy than cutting taxes? Hiring managers, facing the high-class but mounting challenge of processing new business flows, would be incentivized to offer deals that might impel even our most dyed in the wool slackers off the couch. Plus, with FICA gone, owners and workers might actually save money – particularly if the former pay their staff in the form of stock options, which, under my plan, would be taxed at zero.

And before you call me out for not attending to it, let’s address the following question. Does the strategy place our two cumulus clouds on a thundering collision course? Or, in other words, would a tax cut be inflationary?

Probably. But I think, on balance, we’d be better off, unleashing the divine benefits of productivity gains and excess demand in a surging economy. There are worse challenges than this to confront in this world, you know.

In addition, a tax cut would show our global trading partners – including China – that we mean business. We might even steal some commerce back from economic juggernauts such as the Ireland or the (soon to be reestablished) Republic of Texas.

It would also be, presumably, accretive to the hard-pressed investment class, but far be it for me to feature this argument. I continue to believe that with gushers of liquidity floating around — of sufficient size to rival the untapped Saudi Oil Fields, opportunities for upside capture exist in growing abundance – with or without a tax cut. It’ll be a little tricky here, but, at the moment, I don’t think markets can’t sell off much, and are more likely to climb to materially higher elevations. Throw in those tax cuts, and, well, one can always dream.

But this proposal is not for professional investors; rather it’s for the masses, those holy recipients of crocodile tears and little else. Cut taxes and they be rockin’.

As for us, well, like I was singing to you just the other night: We. Will. Survive. Which will take some work, but I think we’re equal to the challenge. We’ll start with a trip to Carl’s Jr. But not in (not to be encouraged) California, because the company long ago bounced to the (soon-to-be-reestablished). Republic of Texas.

And so…

The shoe is on the hand that fits, There’s really nothing much to it,
Whistle through your teeth and spit, cause it’s alright,
Oh well a touch of grey, Kind of suits you anyway, That is all I have to say…

Actually, not quite. All I have to say, that is. But the rest of the message I’d like to deliver in person.

Meanwhile, I’m off to do some old-fashioned Washingtonian lobbying, It must (indeed) be getting early and (yes) the clocks are running late. The time has come, in other words, to make my move. I’ll take the Acela bullet train. D.C. is a buttoned up town, so I’m wearing a silver tie with (an obligatory) touch of grey. And, in a final turning of the tables respecting my efforts, and for the benefit of all, I ask you to wish me a sincere…

TIMSHEL

Well we all need, someone, we can feed on,
And if you want it babe, you can feed on me,
Yeah we all need, someone, we can bleed on,
And if you want it babe, you can bleed on me
— The Glimmer Twins

Nope, this note ain’t about Bob, nor pertainin’ to his 80th Birthday. So, yeah, shame on me.

Let’s us instead take a moment – this moment — to celebrate what I believe to be the Stones’ finest record. If you replace the “Country Honk” with “Honky Tonk Women” (they’re basically the same song, with the latter given the sublime rock and roll treatment that it so richly deserves), it wouldn’t even be close. Mostly, those of us (pretty much everyone on the planet) who ruminate over these matters are fixated on the debate as to whether “Sticky Fingers” or “Exile on Mainstreet” legitimately owns the top spot. And I will allow that the band probably reached its musical apex on those albums. But they also contain some clunkers (I mean, I know it’s blasphemy to say so, but is, for instance, “Moonlight Mile” even listenable?). Meanwhile, from Song 1/Side A (“Gimme Shelter”) to the last number on Side B (“You Can’t Always Get What You Want”), (again swapping in “Honky Tonk Women”) I’ll take LIB every time.

For what it’s worth, a similar calculus applies to my evaluation of the Beatles’ Catalogue. I think it’s pretty much agreed that they peaked at the end of their run, but among those who obsessively follow the Fab Four fan pages (pretty much everyone on the planet), best album designation reflects a split decision between “Sgt. Pepper”, “Abbey Road” and (unjustifiably in my judgment) “Rubber Soul”. But if you add two of their masterpieces – recorded during the same sessions but released as singles and never included on the album (“Strawberry Fields and “Penny Lane”) – it’s no contest. Pepper by a landslide.

I personally have a deep soft spot for their penultimately recorded/last released album – “Let It Be”, with its under-appreciated gems such as “The Two of Us”, “Dig a Pony”, etc., (to say nothing of the masterpiece title track or the magnificent “Long and Winding Road” and “Across the Universe”), but nobody gives it consideration.

I thus find “Let It Be” and “Let It Bleed” to be two of the most underappreciated records of that era – bittersweet messages of farewell to the decade of the sixties, which also give warning of a more problematic, less idealized vibe waiting around the bend. They were recorded contemporaneously, and illustrate almost to the point of perfection, the whole Beatles/Stones dichotomy.

On the one hand, we have the lovable (if disintegrating) Fab Four, warbling divinely about visits from Mother Mary, waking up to the sound of music, and winding roads always leading to your door. On the other, there are the scruffy Stones — in the midst of sacking the lead guitarist that formed the band (who died a month later, mysteriously, in his own swimming pool), riffing on about junkie friends, shoot ‘em dead, brain bell janglers, and, of course, enticing us as follows:

We all need someone, we can dream on, and if you want it babe, you can dream on me, Yeah, we all need someone, we can cream on, and if you want it babe, you can cream on me

Yes, upon further consideration I insist. Please do. Cream on me, that is. The way only you can.

And gun to my head, I’ll have to pick Let It Bleed as the superior, more relevant musical statement.

“Bleed’s” messaging may, in fact, be perfectly timed for many of the custodians of the portfolios I track, which ended the forgettable month of May, ’21 with an even more forgettable year-to-date performance profile, leaving their overseers burning like a red coal carpet, mad bulls that’s lost their way.

And I’m here to tell you that the way it’s all gone down is one that is particularly painful to your scribbling risk manager. Because it’s not like these books are getting blown apart; rather, they are simply suffering a sustained interval of losing more than they’re making.

In the trade, we call this the “slow bleed”, and, for a number of reasons, there’s nothing more agonizing for a risk manager than the “slow bleed”. First, we always get blamed for this sh!t. But hey, that’s OK, because what on earth is anyone paying us for other than the ability to blame us when things go wrong?

More problematic is that there’s not much in the field of risk management to be done to address the “slow bleed”. Often, and as is the case at present, there’s nothing wrong with underlying portfolio construction, which, in fact may hold more promise than it has held in many a month. Moreover, the losses in these cases often have little to do with sub-optimal risk management. But when you’re in a cycle where you make 25 basis points on Monday, lose 60 on Tuesday, gain more than a percent on Wednesday, are flat on Thursday and drop 1.5% on Friday – ending the week (if my math is correct) down nearly a percent, and then it’s lather, rinse, repeat, for several weeks, whatcha gonna do?

Do you, for instance, let it bleed? I’ll give my opinion at the conclusion of this address.

First, let’s look at the market conditions that are, in my judgment, at the root of all this monkey (man) shine. Though you wouldn’t know it from the chatter in my circles, our equity indices are a) hovering around all-time highs; b) (mostly) up double digits for the year; but c) trading in very narrow ranges for Q2 — now 2/3rds in the books. The Gallant 500, for instance, has been sleepwalking between a 41 and (modest) 42-handle throughout. Most of the data we care about (or should) is already in the books as well. And, between earnings/economic data, and the madness of the current policy debates, it’s all confusing as hell.

Preceding installments have warned, Casandra-like, of astonishing acceleration in pricing patterns of stuff we actually use, like Wheat, Corn, Iron Ore, Led, Tin, Aluminum – even Baltic Shipping — and of the vexing, intractable problems that the economy would face if these trends were to continue. But then, as if on cue, each and every one of these markets put in a V-top. Even Baltic Dry (let’s have a look, shall we?):

Baltic Shipping – Not for Landlubbers:

I still got nothing I need to send by boat across the oceans, but reckon I can take comfort, nonetheless, in the reality that those who do are not witnessing their increasingly pricey cargo being pitched on endless, cresting waves of rising logistics expense.

But I’m still troubled. Why did the price increases reverse themselves, all at once, in the beginning half of May? Is it a temporary anchor drop? A respite from an inexorable journey, that so many out there portend, to rising oceanic levels? Or, conversely, a reversion towards more rational price conditions?

I reckon we’ll find out. But in the meanwhile, were I you (and I am), I’d be keeping a close eye on these here tidings. Because if the surge to higher elevations resumes, then we’ve got a genuine problem with inflation on our hands. If, conversely, physical commodity prices stabilize, then we’re looking at a capital economy that can continue to manufacture excess liquidity – already at historic levels – to its heart’s content.

And lord knows there’s plenty of that out there. Excess liquidity, that is. As was prophesied by the Monetary. Gods, the Fed’s overnight auctions of Treasury Paper hit record levels this week – at a cool ~$500B. The bids at these affairs tend to become most frenzied at the end of each quarter, so the likelihood is that last week’s records won’t stand for very long. Somehow, improbably, there’s just too much cash chasing too little paper, so institutions are wild-eyed to get into this complicated game, the fact that it produces zero return notwithstanding.

Again, I cannot imagine why the Central Banks would discontinue this action if there’s no true inflation blowback with which to contend. I mean, after all, on the other side of the District of Columbia, is there any inclination to stop spending and redistributing until there are true consequences for the sponsors of this largesse? One wouldn’t think so.

And, turning to that subject, in classic pre-holiday “Clinton Tax Return drop” form, Biden released his $6T budget plans on Friday afternoon. I know it’s blasphemy to suggest that he reverted to this old trick, but why, otherwise, would he publish such a monstrosity just as everyone was bouncing for a holiday weekend that may be as sorely needed by the masses as any in recent memory?

It features millions of new unionized federal jobs, created, to take care of the sick, administer to the elderly, watch junior while mummy and/or daddy tramp off to their jobs at the solar and wind farms, and audit our tax returns – all in the name of, er, infrastructure. In addition, of course, it jacks up capital gains taxes, retroactive to last month, to an astonishing 43.4% — and that’s just at the federal level. When you add on state and local levies, and then throw in the proposed dismantling of the Intellectual Property rights of American innovators, you could wonder if the package might not dampen the enthusiasms of latter-day Edisons and such. Which would certainly be a shame in my book, because, to my way of thinking, we need nothing so much as latter day Edisons. As many of them as we can spin up.

But the market, by its actions, seems untroubled by it all, in my judgment primarily owing to that enormous and growing gift of excess liquidity. We are figuratively drowning in cash with no place to put it.

Other than the markets.

None of this puts me into a “there will be an answer, let it be” mood. If investors are a bit troubled by all that is going down, they (as I like to say) come to this condition honestly. But I think that on balance, we gotta stick to our guns here, cover up, and withstand the bloody little flesh wounds that continue to come our way.

So, I’ve been advising my clients to hold on to core positions, and, if necessary, trim or shed everything else. Does this rise to the dignity of “let it bleed”?

Perhaps. But I’ve just got a feeling (a feeling deep inside) that there’s a next big leg up in this rally, which may not transpire immediately, but which is coming, nonetheless to a (recently reopened) theater near you.

“Yeah, we all need, someone we can lean on, and if you want it babe, you can lean on me”. So opens the title track to this week’s feature album, and it’s a sentiment I echo. But only to you.

To the rest, while I won’t advise them, unilaterally, to let it bleed, I do think that a few more drops of that internal crimson fluid emanating out of our portfolio veins may indeed stanch the flow, leading to better fortunes, a little further down the road.

I’m not Mother Mary, lord knows, but these are what pass for my words of wisdom for the moment, my friends. Now it’s time to let it be.

TIMSHEL

To Bob and his Back Pages (so much older then, younger than that now). On the occasion of his 80th Birthday.

Let me state flat out that Bob’s 80th merits an entire column, maybe more than one. But somehow, this week, I didn’t have it in me. Maybe I’ll get to it in the next edition; if not, shame on me.

Meanwhile, several years back – more than I care to admit – I published a piece called “The Ten Commandments of Risk Management”. You can (if you care to review it) find it at the link provided below. For what it’s worth, I would probably now tweak it a little; not much but a bit.

Some such wisdom should be (but often isn’t) etched in stone. Anyway, here it is:

https://genriskadvisors.com/risk-philosophy/

I got to thinking about my risk tablets lately — in light of the current state of madness in risk-taking land. Some of its edicts are indeed universal – particularly my Commandment X (Ten): Obey the Actual Ten Commandments. Here, I refer to the ones in the bible. Like, don’t lie, don’t steal, don’t kill. Honor thy father and mother. And all the rest. In my many decades in the field, I have found that adherence to these gifts from above — as delivered by Moses himself – will do you no harm in your investment travels. And will do those with whom you interact a great deal of good.

But then my thoughts turned to what may be a more pressing (albeit earthbound) need: the development, if you will, of a Bill of Risks — a set of essential modifications to a yet to-be-written Risk Constitution. Just like our Founding Fathers saw fit to amend their divine original document, all those years ago.

But first, in terms of the above-mentioned Constitutional Bill of Rights, I have long held a particular partiality to the Third Amendment, which holds: “No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner; nor in time of war, but in a manner to be prescribed by law”.

Pretty important, right? Because I can assure those of you who have never suffered this indignity that encountering a bunch of soldiers quartered in one’s residence during times of peace (or, unlawfully, during times of war) without one’s consent is buzzkill of epic proportions.

But given what I’m currently witnessing, my attention focuses more acutely on the bottom of the list. I’ve always had a difficult time discerning between The Constitution’s #9 and #10, which essentially, and (perhaps) redundantly, advise us: “Hey you putzes, you are allowed to do anything you want to do that we (or the States) have not otherwise outlawed”.

In a better world, we wouldn’t need such guidance, but the Framers, in their infinite wisdom, knew us to be obtuse, so they chose to remind us that freedom means freedom. Does this still hold? Lately, and witnessing the relinquishment of certain liberties being conflated with virtue, I’ve had my doubts.

I have had neither the time nor the energy to put together a comprehensive Bill of Risks, but if I was to jump ahead to the penultimate one (#9), it would mirror its Constitutional Opposite Number, stating that portfolio managers can pretty much do anything you want with their books, provided that: a) it is consistent with their Offering Memoranda and Marketing Materials; and b) is not otherwise prohibited by Securities Law.

Oh yeah, and they probably should also clear any sketchy trades with your Risk Manager (if they have one).

Other than that, you PMs are pretty much at liberty to act as you see fit. Bail out of Bitcoin? Check. Fiddle around with factor models? If you wish. By some SPACs and then package them into a SPAC of your own? If you must (just leave me out of this last one, OK?).

And now to Number Ten: you and your investors/capital allocators must be willing to live with the results.

I’m not sure if the latest market doings rise to the dignity of a Constitutional Crisis (Risk Management Vintage), but we may, in fact be getting close. Returns in my universe have been nothing short of putrid. And are getting worse. And alpha, oh sweet angel alpha, is painted in redder hues with each passing day.

Our equity indices have more or less flatlined for several weeks. The Commodity Complex, somehow, and improbably in my judgment, has backed off from its rageful advances, Madam X remained at a sated and seductive ~1.6% yield. Vixen VIX, all the overwrought action around her notwithstanding, has stayed obedient like a genie in her bottle – around 20. Meanwhile, rolling monthly returns are plunging.

We can always (conveniently) blame the crypto market, which, in case you hadn’t noticed, is getting crushed. And I’m here to tell you that it’s about time. Not that I have anything against crypto – long may it reign. But it has been, is, and will be on a collision course with the current vibe of our political economy, which seeks to impose itself as rudely as it can into all our private affairs. In an environment where our Treasury Secretary is flying around the world in an attempt to set minimum global tax rates – so as to enable our government to jack up levies on these here shores with competitive impunity, where our central banks are whizzing out new cash that is dribbling into oceans of excess liquidity – do you really think that our paymasters are going to roll over and allow a parallel economy to shove them aside and dilute their money grubbing powers?

Consider the recent BTC selloff, therefore, to be a small taste of what’s to come. Which is not to say that Big Bitty couldn’t gather itself and climb to previously unbeached thresholds. The way things are going, it very well might. But when the Internal Revenue Service and even the Chinese are checking in to contain the crypto fires, well, let’s just state that I think governments have the juice to dampen or douse the crypto flames. It’s hard for me to believe that they won’t continue to do some hosing, digital currency style.

Much of the above-mentioned juice takes the form of excess fiat currency liquidity, which is reaching such frightening proportions that it defies verbal description in this family publication. So, let’s use a visual:

Now, unless you’re FRED (or a guy like me), these pictures may be confusing. But they do tell a story – one of: a) the printing new cash; which (surprise); b) is flooding its way into the money stock; but c) not circulating particularly well through the economy.

It’s enough to make a latter-day Moses (risk rabbi) smash down those Charlton Heston slabs, and consign his minions to forty more years in the desert.

And it’s also enough to bring about a couple of other outcomes. First, if I’m in control of this here show, the very last thing I want to see is a bunch of crypto mooks upstaging my narrative.

Perhaps more importantly, though, it socializes a critical message to those wandering tribes of investors: go forth and buy risk assets.

A look at the recent action in the Fed’s Overnight Repurchase Facilities illustrates the point. As mentioned last week, our Central Bank doesn’t just print money and let it sit; rather, it uses these proceeds to purchase securities issued by its besties over at the Treasury Department. The latter, now run by the former Fed Boss, is issuing a great deal of late, more than, like, even usual, and selling these creations – to insiders – at auction. Sometimes the buyers only want to hold this paper overnight (so as to obtain the microscopic level of interest income that cash balances fail to offer) and then want to return it to its natural receptacle – the Fed. So, the Treasury issues, the Fed prints, buys, and sells its holdings, overnight, to the banks, who are accumulating more cash deposits than they can handle. So, they buy more. From the Fed. And then return it. The next day. To the Fed. Then it’s lather, rinse, repeat. One has to admire the futile elegance of this circle jerk.

Because lately, the banks have been buying more of this overnight paper than ever before, and at higher prices/lower yields. As such, untold numbers of bank clerks are employed at the task of bidding for govies — issued by the Treasury, purchased by the Fed with newly minted currency — and then sending them back to the Fed in the morning, copping fractions of basis points for their efforts.

One would think there’s a better way, but I won’t get into that as of now.

I will state, however, that the charts rendered above (along with their explanatory notes) offer a vision of excess cash that almost certainly will eventually find comfort in the warm, if capricious, embraces of risk assets. There’s virtually nowhere else for it to go.

I know it’s tough out there, my loves, but here I refer you to the magnificent pre-amble of the yet-to-be-written Risk Management Constitution. “We the people of the coddled investor class, in order to form a more perfect self-image, secure returns for our allocators, and (more importantly) fees for ourselves, do hereby ordain and promise to someday establish this Constitution for the Risk Management of our Portfolios”.

Well, it’s a start anyway. In the meantime, before I get around to writing the document itself (along with the first eight of its sacred amendments), my best advice is to chill awhile. Maybe cut back on your books.

And look for buying opportunities, which will come like manna from heaven, and perhaps lead us into the Promised Land of the Next Big Rally. Like Moses, I can see it, but may not get there with you. It may fall to my (lovely) assistant to lead you out of the desert and inside the Walls of Jericho. If history is any guide, you’ll have to fight to penetrate this fortress. But with patience and intestinal fortitude, you’ll get there.

But, like Dylan said (or should have) “you don’t need a risk man(ager) to tell you to when to cut expose(ures). He turns 80 on Monday, and may God keep him. Moses is said to have lived to 120, so maybe Bob is only 2/3rds home. I certainly hope so, because he’s my Moses – the giver of my law. In one of my favorite biblical passages (Deuteronomy 34:6), it is stated that at the time of his death, Moses’ water had not left him.

And so it is with me, baby. Got plenty of juice, enough to lead us to the Promised Land. As for the rest of you, I suggest you adhere to the Commandments and the Constitution, which, absent other signposts, and the yet-to-be-written status of the latter notwithstanding, is about the best chance, you, I or any of us got.

TIMSHEL