“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where—” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“—so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”
— Lewis Caroll

Oh Lord we pay the price,
With the spin of a wheel – with the roll of the dice,
Ah yeah you pay your fare,
And if you don’t know where you’re going,
Any road will take you there
— George Harrison

Hard to believe that George has been gone nearly for 20 years. On the other hand, we’ve managed to scrape by without the living presence of Charles Luftwidge Dodgson (aka Lewis Caroll) since early 1898.

Harrison’s final album: the magnificent, posthumously released “Brainwashed”, opens with “Any Road”, in bouncing, joyful tribute, to the above-mentioned writer/inventor/mathematician, and his most famous work.

I got to thinking about all of this – not gonna lie – because I’ve been feeling lost lately, more lost than even usual. I’m on a road, but I don’t know which one. And I don’t know where I’m going. So, I reckon them dead Brits are right – under the circumstances, any road will do.

At least I’m not alone. In fact, I observe this condition pretty much everywhere I turn my attention. Take the Economy, for instance. And the markets.

First, the Economy, which looks like a combined on-ramp/off-ramp, attached to a roundabout, in the middle of a cul-de-sac. The most vivid image that comes to mind is that of the Chicago’s Circle Interchange, often referred to by local traffic reporters as the Spaghetti Bowl:

The Nexus of this madness is the intersection between the Eisenhower, (successor) Kennedy and Dan Ryan Expressways. I’m not sure how Ryan (who rose no higher than Cook County Chair) made the list. But then again, Chicago, like a lot of cities, has a rather idiosyncratic manner of deciding such matters. The entire matrix is named after a whirling dervish of a former mayor (Jane Byrne). The City Council just passed an ordinance rebranding the functionally but elegantly named Lake Shore Drive to honor its first “non indigenous” settler: Jean Baptiste Point Du Sable – who was indisputably one hella guy. But I thought, these days, we were all about indigenousness. Did I miss a memo?

Anyway, you gotta admit, it’s a hot mess of an automotive puzzle. Especially (trust me here) at Rush Hour. You merging out? Merging in? Veering off course? Going in a circle?

Well, Yes (and Yes and Yes and Yes). And so, for that matter, is the Economy.

By way of elaboration, the BLS recently served up an exceedingly tepid April jobs report, featuring a disappointing number of new gigs created, along with an increasing Base Unemployment Rate. Then, this past Tuesday, this same group of tax-payer-funded statisticians improbably informed us that there are now 8.1 million career openings – the highest number in at least ten years, and, maybe, ever.

Retail Sales clocked in at a big fat goose egg (0.0%).

It was also Pi Week (the Greek symbol that us dilatant economists use for inflation; not the truncated appellation of that dude who survived nearly a year in the lifeboat that also carried a zebra, an orangutang, a hyena and a Bengal Tiger), with a great deal riding on its outcome. And, sure as sh!t, on Tuesday, the Consumer Price Index dropped in at a somewhat-alarming 4.2%. But that was just prelude. Wednesday, the Producer Price Index landed like a Bunker Buster at 6.2%.

Now, in a normal economic paradigm, CPI and PPI usually come in pretty close to one another, and are often, as economic indicators, indistinguishable. However, now, it seems to me that Producers are, indeed, in receipt of an important memo — not yet distributed to us put-upon Consumers. Supply chains are tighter than Penn and Teller (or you and me).

I heard from a friend about a friend in the meat distribution business who says that the wholesale cost of skirt steak has more than doubled over the past few months. Now, I like skirt steak, provided it is not prepared by my late Grandma Sylvia, who (god rest her soul) could turn the finest slice of Kobe Beef into shoe leather in a heartbeat. But it is widely considered to be at the bottom rung of the cow meat ladder.

One doesn’t envy the plight of Ponderosa patrons this summer, as (in addition to missing the salad bar) they may experience an extreme form of sticker shock. And if they want to order a Filet? Fugeddaboudit.

Oh yeah, and then there’s that whole pipeline hack, which idled most of the filling stations in towns like Washington and Atlanta — and caused long lines across nearly every spot on the road in between. For those patient petrol purchasers, which road thus doesn’t matter; they can’t traverse it anyway. Word is that the owners, in what is the first such episode, in, like, ever, actually paid ransom to the hackers.

None of this, of course does anything to stem the rising scourge of inflation, which, as discussed last week, has achieved sufficient critical mass to silence any residual debate as to the signage of real interest rates. They are unambiguously negative.

So, they should rise, in a pseudo-Newtonian sense, must rise. But they don’t; arguably can’t. Too much cash floating around. Early in the week, the Treasury Department staged another one in its never-ending stream of auctions, this time of short-term T-Bills. It was over-subscribed and priced at 100.00 – the statutory cap on bids in this market. Why were buyers rushing in to purchase government obligations that yield 0.00%? Well, a) because they need them; and b) they are priced at negative yields — in the nonauction markets. The Fed is printing $120B of new money and using it to elbow aside other buyers (banks), who are burdened with tragically excessive supplies of reserves and demand deposits. These institutions are required to hold government paper and prefer not to pay (accept negative returns) for this privilege. Therefore, they buy what they can at auction and push rates down.

So, whatever economic road we is on, it is one that features troubling crosswinds such as surging inflation trends combined with miniscule or negative interest rates and disappointing growth, along with both an excess (unemployment rate) and deficiency (job openings) of warm bodies in the labor force.

Thus, if investors are confused as to where the market is headed, and by what route, they come by this condition honestly. And the nonfunctional state of their economic compasses and sextons is only part of the problem. The murky world of factor rotation has added to the quagmire, creating portfolio allocation dilemmas reminiscent of those faced by Pi – after the tiger had consumed the zebra, orangutang and hyena, and turned his hangry eyes towards human flesh. Due to the V-like action from last spring, the constituents of benchmarks in such chic factors as Momentum and Growth have shifted from recently infatuating names like Tesla and Twitter, to long-time lumbering lingerers – including Caterpillar and Bank of America.

In part for these reasons, the tape began the week in an extremely menacing mood, reacting to all the potholes in the road described above, with an arguably justifiable selloff. But then it reversed course, recapturing much of its lost ground by Friday’s close, and sending us into the weekend unaware of its destination, or the slightest hint of the path it will take to get there. But, like the Cat told Alice, if we keep walking, we will eventually arrive.

All of which has catalyzed the most gruesome assault on alpha that I can recall across my ancient days. Many, if not most, of the investment pools that I track continue to get pounded. Have gotten pounded all year. And not in the good way. They got gashed by GameStop (January), accosted by Archegos (April) and felled by factor rotations (May). And now, they have little recourse in discovering the way forward other than to inquire of the Cheshire Cat and accept his inscrutable answers.

So, what to do here? From a risk management perspective? Well, if you don’t know where you’re going, or which road is taking you there, my advice is to lighten the road and slow down. Under the circumstances, I don’t see why there is any rush to reach a destination, which, at the present moment (I hasten to remind you), is unknown to you.

My best guess is that my whiny description of our current quagmire notwithstanding, there’s simply too much excess cash out there for it not to continue to find its way into risk assets. I do think that the easy Beta trade is probably over, I anticipate heightened two-way volatility, economic ambiguity, and many other roadblocks, on our journey towards outperformance. The (easier to traverse) rivers of liquidity, however, slant upward, and should lead us towards higher ground. But the climb will be a difficult one, and, without great care, our rafts could get upended or lodged on the rocks. Be forewarned.

Meanwhile, the sun is shining, and the birds are singing. The ducks are just waking after an extended slumber. Last time I saw Alice, she was still in dainty, serene repose, surrounded by her friends, on the northern bank of the Central Park Lagoon.

Why don’t you meet me there? We don’t have anywhere else to go for the moment, and if we take proper time, we can figure out together where we want to go, and which routes will best suit our purposes.

If it rains, we can go window shopping, or, if all else fails, hop a train and head West (again).

TIMSHEL

More Great News! I survived the week! And I’m not just speaking about our most recent topic – my rendezvous with vaccination destiny (wink wink).

We lost David Swenson, which is a helluva shame (and under-reported). But as for me, I have emerged from April 30th closure of my home turf’s largest nuclear power plant, not (visibly) worse for the wear.

The joint operated for nearly two generations, under the handle of The Indian Point Energy Center, having lifted its nomenclature from an amusement park which had operated, in presumed serenity, on the same banks of the Hudson, for many decades prior. Then, in 1954, Consolidated Edison acquired the land and started cranking out the nukes.

It took about a decade to rev them up, but from that point until a week ago Friday, the facility provided >10% of the power consumed across a 50-mile radius that extended, southward, into Mid-Town Manhattan. However, like George said: “all things must pass”, so, I say, so long, ya crazy nuke factory.

But as survivors of the closing, a couple of clean up matters devolve to us. The first of which is, obviously, to posthumously rebrand the facility – in a manner more consistent with current socio-political mores. The compound was certainly named after the designation that geographically confused war criminal Christopher Columbus assigned to the indigenous population in the late 15th Century. These appellations are, of course, no longer acceptable, so, even in its present, zombified state, it falls to our lot to refer, henceforth, to the facility as Native American Point.

Secondly, please, Cuomo, dismantle this eyesore (if you do, you’ll score some points with me, nursing home incidents, wandering hands, and most recently, tax hikes, notwithstanding):

This photo unquestionably rates poorly on the Ansel Adams scale, but it actually fails to capture the visual violence suffered when, as passing by, one observes (in the midst of perhaps the loveliest river setting this side of the Danube) this big honking cement plant degrading the forest-lined setting on the banks of the magnificent estuary.

But in some ways, I hate to see the IPEC (strike that NAPEC) go. We is in the midst of an all-out assault on fossil fuels, and nuclear energy is indeed the latter, but not the former. It burns clean. It lights up over a quarter of the entire European Continent, including 100% of our city, the city of light. Which tells you something. And, if we’re going to shut down all exploration, drilling and refinery, kill all our cows, and retrofit all our consumer and commercial dwellings, without nukes, we must try to keep the lights on with solar, wind and water power, alone. I’m not sure we’re up to the task.

But nukes don’t fit the current narrative, which, as we have discussed privately, most people will go to great lengths to preserve. Narrative preservation abides everywhere, and, in this case, it renders us willing to endure the darkness of night, to forsake power entirely. And connectivity. And (therefore) ways to convey to the world our ethically impeccable critiques of own attitudes and actions.

Beyond this, published reports project that the closure will cost the town of Buchanan, NY, more than a thousand jobs, which is a pretty big hit, for a jurisdiction that is the home to a mere 2,300 souls, to take. Many of them folks is said to be none to pleased with these developments. Nor should they be.

And, neither, for that matter, should we. Particularly after the heartbreak of an April Jobs report that drizzled out only 266K new gigs during that famously showery month. And this against a big, fat, round gully wash of an estimate of 1M.

Any way you shake it, the number was a disappointment, as were, perhaps, both the >100K downward revisions to the February/March tallies and the jump in the Base Unemployment Rate to 6.1%.

All of which seems like kind of a shame, particularly insofar as our friends at the Bureau of Labor Statistics (run, as indicated below, by our old friend FRED) report surging growth in job availability.

I know the chart is small, but there’s only so much space that a boring guy like FRED commands. Right now, there are 7.4 Million open gigs, and trending higher. Moreover, the redoubtable National Federation of Independent Businesses recently announced that fully 42% of the companies in its survey are attempting – unsuccessfully—to hire new employees. A connection of the dots suggests that many out there prefer to remain on the government dole, and, given what the government is offering, why not?

What all of this means is of course, dependent upon the narrative onto which one holds on for dear life (we all do this, you know). The cats in Washington are divided between those who believe the numbers urgently reinforce the urgent need to provide incremental aid and comfort to the masses, and those who, with equal urgency, suggest that the sluggishness offers further proof of the inefficacy of redistributed government largesse. Both can’t be right, any more so than nuclear power is both clean, efficient and environmentally sound, as well as an evil menacing threat to our very existence.

However, irrespective of what position one chooses to take on these issues, the data trend in such a way as to be pleasing to Madam X, who rewarded us by dropping her yields to a positively fetching 1.577%. This is notable, because various winds that should be blowing up her rate skirt are approaching gale-like velocity. Wheat, Corn, Copper, Iron Ore – all at or near all-time historical highs and still climbing. Lumber prices (much discussed of late) are more than 4 times the highest point at which they have traded over the last 25 years. Shipping? Don’t ask.

But somehow, our Lady at the Longer End of the Treasury Curve holds her ground or climbs higher. Even as one of her most stalwart admirers, I wonder how long she can hold out. If we revert to previously referenced inflation data (as measured by the wonky but elegant GDP Deflator), we were already, at the end of Q1, above 4%, and price rises seem to have accelerated since then.

A bit of pointy headed economics, though, suggests with inflation conservatively struck at 4%, and our 10-Year Note yielding, say, 1.6%, real interest rates (essentially the difference between the two) approach negative 2.5%. Which means that every dollar one holds is deteriorating in value by that amount. Every year. Which means that you gotta swap out them dollars. For anything you can get in return. Which means that prices are bound to continue to rise.

It also suggests that anyone not going on a borrowing binge is acting irrationally, at a point when global and domestic debt levels are approaching double what they were in 2007.

Quite a conundrum, no? It’s no wonder that risk assets continue to soar. But what, again, about Madame X? The above-supplied Econ 101 example suggests that outside of our fantasies, and in the real world, she’s taking 2.5% of our blood and treasure every year we continue to cling to her.

But continue to cling to her we (nonetheless) do. Sorta like I do to you.

For how long, though? Who can say? I do worry that as the days fly past, we will lose our grasp. And if we lose hold of Madame X, she will show her menacing wrath across our portfolios. It won’t be pretty.

So, here’s where the market’s atom smashing/particle colliding rubber hits the road. Prices are soaring, and, again, odds are it’s just the beginning of this cycle. Meanwhile, real interest rates are at unambiguously negative levels. Rationally, economic agents should be buying anything and everything they can, and borrowing as much as they are able, to do so. Negative real rates simply don’t jibe with the other components of the scenario. They gotta rise. But (for many reasons) cannot.

I thus can’t imagine a situation, at least somewhere down the road, where the atoms don’t split and their nuclei don’t fuse, setting off the kind of market-based chain reaction first encountered in the world of subatomic particles, underneath Amos Alonzo Stagg Field at the University of Chicago, all those years ago.

But maybe, baby, that’s a discussion for another time.

In the meanwhile, so long as the lights remain on and rates remain low, our path is clear. Buy ‘em once, and then have a go at Sloppy Seconds.

It’s all so surreal to me, though. Particularly living, as we do, in a country whose birth rates (a favorite leading indicator among us pointy-headed economists) have hit an all-time low. Where our leaders are unilaterally giving away our Intellectual Property – perhaps our greatest economic treasure – to other nations that either won’t benefit from it — or will achieve a windfall – to our everlasting disadvantage.

Meantime, I’m not sure what they’re going to do with that beautiful, radioactive stretch of land on the banks of the Hudson. Restoring the amusement park that once stood there isn’t the worst idea – provided, of course, that it is named in such a way as to avoid offense to our sensitive ears.

And, on balance, I wouldn’t lose much time missing the nuclear energy which, till so recently, issued forth, in such abundance, from that heavenly spot. More likely than not, we’ll get all the nuclear action in the markets that we could possibly wish for, and thensome, before much more time passes.

So, keep those lamps trimmed and burning.

TIMSHEL

Great News! I got the vaccine!

Which one, you ask? Well, I don’t exactly remember. I think it was the one where they jab a needle in your arm and inject some sort of fluid into it. Then they put a gauzy patch on the jab spot. Kind of like the bandage they affixed to that Natural History Museum whale (only smaller).

Oh yes, now I remember. It was the potion created by famous blues guitarist Astro Johnson. And the ministering nurse was a lovely creature, of mixed European heritage, named Moderna Pfizer.

OK; so, I made it all up. I haven’t been vaxxed. Yet. I’m not proud of this. I realize it’s the right thing to do, maybe even an obligation. Truth is, I’m lazy. And needle-avoidant. But peer pressure is building, I am running out of excuses, and don’t think I can hold out much longer. Maybe I’ll schedule that appointment for next week. Or the week after.

In the meanwhile, I’ve thought it best to lie about it. And I hope you won’t rat me out.

Early days in my excuse sequence, Biden bailed me out. Claimed that when he got to the White House, there weren’t any doses around. Anywhere. But that ship sailed, as, lately (fickle bastard that he is) he can’t shut up about their availability. “Come on down and get dosed” he says now. “Plenty to go around for everybody”.

Thanks a lot, buddy. For nothing.

I have never considered Joe to be the most reliable character, so I shouldn’t have been surprised when he stabbed (jabbed?) me in the back. He’s been blowing with the wind his entire career, and now, as matters stand, the breezes are blasting him into big spender oblivion.

It was touching to observe him on Wednesday night, puffing out his pitch for sending another $2 Tril of our Benjaminz (which, by the way, we don’t have) into the ionosphere, and taking his 100-day total proposed binge to $6,000,000,000,000 – all in addition to our regular, $4T budget. If one cares to extrapolate forward, in his first year in office alone, he will have served up a fiscal fiesta to an amount greater than our entire GDP ($20T — and that doesn’t even factor in compounding). Moreover, if he stays on this pace, by the end of his (first) term, he will have engineered an amount of incremental government spending approximately equivalent to the annualized economic output of the entire planet.

And of course, if he pulls that off, odds tilt in his favor to be re-elected, at which point he takes on the entire solar system. And then the galaxy.

If I had a word to say about any of this (which of course I do not), I might use it to question whether we want to put that much jack in Joe’s jeans. But again, nobody asked me. However, I’m fairly confident that I’ll be given the honor of contributing to the funding pool, as will most of the rest of you (as well as your progeny). But here, the sequencing is essential, as, first the government giveth; then it taketh away.

All of which is nonetheless (presumably) cause for busting out the conga line, and it ain’t even Cinco di Mayo yet. Certainly, the markets are celebrating. And why not? Earnings are blowing out beyond all proportion. GDP rocked the House. Personal Income/Spending. Pending Home Sales. All expanding at levels that are bound to put a smile on the faces of even the dourest of us Dismal Scientists.

Moreover, as the data revelry unfolded, the Fed dutifully kicked in chips, guacamole and a bottle of wormy mezcal, by way of expressing undying infatuation (kind of like mine for you) for current economic prospects, while contemporaneously (and counterintuitively) pledging to keep the money presses humming at full tilt, for as long as the salsa band can keep playing.

Accordingly, and despite niggling increases prices (GDP Price Deflator up > 4%), Madame X reposes demurely at 1.62%. I hear tell she’s been vaxxed (or at least claims to be), so there’s no need for investors to maintain social or economic distance from her. Sure, there was some selling action on Friday, but I wouldn’t fret me none to much about that, my love.

Probably just a modest weeding out of the anti-vaxxers is all (I reckon).

Meantime, the price of Corn has nearly doubled over the last year and my Shipping Index has registered an astonishing three-bagger in the first trimester of 2021. But I ain’t gonna worry too much about that either, honey. I got nothing I wanna transport by boat across the mighty oceans anyway.

Oh yes, we’re going to traverse the ocean. To Gay Paree and points beyond. But we will do so the civilized way. On the private jet I’m fixing to buy you. Just as soon as they open the joint for international travel. And I can get my hands on one of those fake vax passports they were hawking in the Cell Phone Lot at Kennedy Airport as I was waiting to pick you up.

Fake Covid Vax Passport (See Upper Right-Hand Corner) – Israeli Style

It will be important, then as now, for me to manifest my best authenticity to sell my dissembling narrative, but in these times, I’m not terribly concerned about that either. Because the way I’m reading things, everyone is lying their ass off anyway, and nowhere more so than in Washington.

I do think that Biden’s performance art speech on Wednesday night, was something of a milestone moment in this regard. He now owns, for all time, the most confiscatory, redistributionist elements of the entire confiscatory, redistributive menu that his backers have shoved down our throats. Does he believe in any of it? I doubt it. He’s simply following the directives of his betters. And I think he is enjoying it. Has managed to convince himself that he can be some sort of latter-day/depression era/pre-WWII FDR (as opposed to the actual function he serves – a handy instrument for a handful of political players that now wish to make their move to take over the joint).

But it all strikes me as residing in that uber-human area between comedy and tragedy, and this for a number of reasons. First, FDR’s recovery programs ultimately failed. After a finite boost of fiscal sugar over the first few years of his tenure, the economy faltered. Badly. And, by 1937, we were back at unemployment rates of nearly 20%. It took WWII to bail us out, where, of course, FDR was magnificent.

Anybody out there feeling confident about Joe Bag of Doughnuts in the role of Commander in Chief during a major military conflict? Didn’t think so.

Beyond this, what Joe was laying down on Wednesday night, the country is not, will not be, picking up. His stimulus and tax plans appear to be, by all accounts, DOA. They poll very badly. A Congressional coalition that could pass them simply does not exist and cannot be cobbled together.

Most everything that he glibly proposed will be subject to McConnell’s Steel Curtain, and then, if necessary, challenged in the courts. Each of the critical measures designed to move the goalposts (a necessary component of the power grab which will otherwise do nothing but create a pathway to political Armageddon for its sponsors in 2022), including HR1, the DC Statehood riff, packing the Supreme Court (a stunt that failed for even the fabulous FDR) are constitutionally questionable and will be gummed up in the courts well beyond the point when the electorate can render its displeasure at the ballot box.

Yes, they will get portions of their insulting, destructive agenda passed, mostly through political device. But it will create neither the short-term damage nor the political goodwill that its designers envisioned.

One way or another, Biden now owns the whole strategy, cannot, as a matter of practical political reality, afford to back off. Any more than (G.I.) Joe Manchin can step away from his heroic pledges to protect the filibuster and the fifty stars on the flag. If either one tries to wobble, the political bug they will catch will make them wish they had the covid instead.

So, in the Nation’s Capital, I predict a lot of chicanery on the fringes, which will be annoying but not fatal, most of which investors will manage to block out or ignore entirely

Meanwhile, the Fed will print away. Which investors will notice. Will, in fact, demand.

Thus, I’m feeling pretty perky at the moment. Both physically and in terms of market trajectories. But I’m not gonna lie, there are risks out there aplenty. Madam X could yield to the weakness of her nature and smother us with higher rates. Price trends in the real economy could continue to rise in a manner that demands market attention. Maybe, even, the Dem power players can take several more trillion of cash that we (and our children) will need earn and apply it according to their interests and whims. They’ll certainly try. They hate us anyway, so why not simply take what they can out of our pockets and award it to those that buy into their narratives and are willing to do their bidding?

It will take some world class re-engineering of realities to pull this off, but who am I to call them out? On balance, I’m one of them: double masked, socially distanced, and having no one other than you to whom I can spin my fabulous fables that all will be well.

So, for the record, and if anyone asks, let’s just agree to say that I’m all dosed up with no place to go.

TIMSHEL

“And I only am escaped alone to tell thee.” – (Book of Job 1:15)

Yes, this is a biblical quote, but I lifted it from Melville. Who stole it from the Old Testament and used it to open the final chapter of (you guessed it) “Moby Dick”. Which is a book about whales. Which are the subjects of this week’s essay.

I chose them for my theme after hearing rumors that the famous Blue Whale in the basement of New York’s Museum of Natural History (as of this week a vaccination center) is now sporting an enormous band aid on its dorsal fin:

The implication is clear: the whale has been vaccinated (and so, too, should you be). The museum confirmed as much in an April 20th tweet that reads:

Please join me (if you wish) in taking comfort at the iconic leviathan’s upgraded immunology status. I hadn’t been overly worried about her, but now I know she’s safe. Unfortunately, the same cannot be said for the nameless Native and African American figures who, in days gone by, were at Teddy Roosevelt’s side, as he sits on his horse, gazing out from in front of The Museum, onto Central Park West. They gone. And nobody knows (or, at minimum, is saying) where they disappeared to.

On the other hand, no one would ever mistake them guys for whales, and, as such, their salvation is arguably none of our concern.

It’s the whales we’re worried about. Including market whales, for whom, if one cares to fret over their future prospects, one does so honestly. This past week they had to dodge some Ahab-like harpoons, most prominently some chatter out of Washington that the government is fixing to tax capital gains up to, like, infinity percent. It turns out that this was a warmed-over sound bite from the election. Moreover, it is likely to be either hosed down or fail entirely in Congress, but it caused sufficient agita to catalyze – get this – an actual selloff of equities on Thursday.

By the week’s end, the equity complex, including the (mostly) landlubbing Galant 500, had regained its footing; but still, the cycle ended, somehow, at levels below where it began on Monday morning.

But then again, it’s been tough all year for market whales, what, with all of that GameStop blubber, followed by the blow out of tiger-shark Archegos. The year-to-date performance results are hardly a bloodbath, but as of Friday’s close, while most of our indices are up double digits, the medians for the funds I track are pretty much flattish.

Perhaps this is all prelude, because next week promises to be a whale watchers delight. In addition to the highly anticipated NFL Draft, all five of the big corporate fish (MS, AAPL, GOOG, AMZN, FB) are set to step their fins up to the earnings podium. And if that weren’t enough for the binoculars-peering set, Thursday morning, we get our first glimpse at Q1 GDP. For those keeping score in the mocks, Trevor Lawrence is a virtual lock to go Number 1, and as for those Atlanta (who picks 4th and may take a quarterback, a tight end, or trade down) Fed GDP estimates?

It does look like the heat’s rising – on both the oceans and on terra firma. All of which begs the question as to the health and safety of that loveliest market whale of all – Madam X, the United States Ten Year Note. She survived a dreaded auction of her manifold wares early in the week, and then rose with a gusher issuing from her spout in the wake of the above-mentioned prattle on tax hikes. By Friday’s close, she could be found at the shallow yield depth of 1.56%.

As I’ve prognosticated before, if she stays in this range, risk assets should continue their assault on the heavens. Perhaps this is what the Good Lord intended.

But one way or another, if we’re looking at any market whale to save, Madame X is where we should concentrate our assistance. And, if we assume her “Ahab” is inflation, we must remain on the alert. The price of pretty much everything — in the markets and beyond — is on the rise. As a point of reference, the Bloomberg Basket of Commodity Products (BCOM), and the cost of shipping its content across the mighty oceans (BDIY), are at or approaching a five-year highs:

Madame X has heroically staved off these assaults and may continue to do so, but if she is harpooned to or beached upon higher yield elevations, investors won’t like what happens next.

“And I only escaped alone to tell thee”. But this isn’t strictly true. In addition to Ishmael, the fish himself survives. And so did we. Because you were with me. And I thank the Good Lord for that. But the waters out there are choppy – for amphibious mammals and us earthbound humans — and we need each other if we are to make it to safe ground.

“The drama’s (not) done. Why then here does any one step forth? Because one did survive the wreck… … On the second day, a sail drew near, nearer, and picked me up at last. It was the devious-cruising Rachel, that in her retracing search after her missing children, only found another orphan”.

And thus ends “Moby Dick”. The Book of Job concludes on a more hopeful note. Prosperous, healthy and God-fearing, the Lord tests the last of these by taking away J-man’s blessings, causing the latter to question the man upstairs. But in the end, he casts his own doubts aside, saying, in the King James Version: “Wherefore I abhor myself, and repent in dust and ashes”.

Whereupon God restores all of Job’s sh!t back to him. And he lives to be 140.

From all of which we can conclude that both whales and righteous folks stand a chance of survival in these mad psychodramas. Most of us aren’t in the former group but can at least strive to be a part of the latter. I gotta believe that this is our best hope.

TIMSHEL

So, we lost Bernie – an octogenarian/co-religionist of mine, famous moving other people’s money around (mostly funds residing only in his imagination) — and pissing a lot of people off.

But no, I’m not speaking of Bernie Sanders, who, to the best of my knowledge, is still with us. Rather, this week’s Bernie is Bernard L. Madoff, who departed to the hereafter on Wednesday, from his most recent living quarters in the Butner, NC Federal Prison.

Readers can hardly expect me to allow his final egress to pass, unremarked.

But I was thinking along the lines of our titular themes even before Bernie bounced. It’s a variant of a universal phrase, which reminds us that if certain of our antecedents had been born with a different anatomy, those predecessors’ positioning in our lineage would assume an altered form. The point being that retrospective, hypotheticals (“ifs”) notwithstanding, reality is what it is.

“If your grandma had balls, she’d be your grandpa”. This is the saying’s straight up vernacular. The way an Irishman, for instance, might say it. It’s elegant in its simplicity, no?

But to my ears, it falls, in terms of panache, well short of the modified Yiddish version: “”If your bubbe had beytsim, she’d be your zaidah.”

Which is positively Shakespearean.

It’s not clear to me that in our current, modified social configuration, the phrase even still applies, as the presence (or absence) of beytsim is no longer, it seems, a relevant consideration for our conditional hypothesis. Nowadays, whether one has beytsim or not, it is one’s prerogative to declare themselves a Bubbe, a Zaidah, something in between, or (if one dares to dream) a category beyond this spectrum.

But for all of that, Bernie still died, and it thus devolved to me to shift the phraseology to acknowledge his passing. Let’s start with this. Bernie was not a bubbe, but rather a zaidah. Twice over (had two biological grandchildren). Self-identified as such. He therefore presumably had beytsim, both biologically and certainly in his business dealings.

In any event, he’s gone, and not terribly much lamented. And we won’t bother much more about him.

Forever and ever, though, the “ifs” that plague our retrospective hypotheticals will avail us of very little.

I’d like to be able to conjecture that Bernie (yes, we’re back to Bernie for a minute, but – I promise – not for long) would’ve appreciated the current trajectory of the tape, which, for days and days, has registered nary a downtick. But as we all know, he never really traded in the first place.

Neither did I. Which sucks for me. If only I would’ve bought ‘em a year ago. Or five, ten, twenty, fifty years ago.

But then again, if my bubbe had beytsim….

Anyway, the markets don’t need me to buy ‘em. There are, by all accounts, buyers aplenty out there. They appear, in fact, to be multiplying like hobgoblins.

And why not? It’s like June is busting out all over – only a couple of months ahead of schedule. And I, for one, am happy to forgive it for its excess of punctuality.

Earnings season began last week with banks and other financial institutions putting up blowout numbers, but here I will cop to feeling a little nervous. These institutions are notorious for journaling their books around to achieve various reporting objectives. And I feel if there was ever a time for Jamie, James, DJ DSol and the rest of the crew to hold back a little (maybe goose some loss reserve charges or something) Q1 21 might have been a tempting moment. What with all of this glorious virtue signaling and whatnot, from a PR perspective at any rate, the broadcasting of record, financially driven profits (Goldman’s yearover- year 5-bagger, for instance), might at minimum, be deemed to be poor taste.

None of them guys will ever be considered turnip truck casualties (they’re really smart) and are thus presumably well aware of this dilemma. Which makes me think that even the numbers they did clock reflected something of an understating on their part.

If so, that GOAT of return-journaling: Bernie (there he is again; sorry) would be proud.

But it’s not just Wall Street riding the cha-ching train. Blowouts are transpiring everywhere one cares to cast one’s glance. Retail Sales? A boffo 9.8% in March – driven, gloriously if you ask me, by an unambiguous explosion in consumer spending. One of such great force that Ima gonna share the following chart with y’all, the reality that it graced the top headings of the WSJ Economics Section notwithstanding:

Just a glance at this graph is making me hungry; I’m dying to visit the Colonel. And then visit him again.

And all of the good news just keeps exploding from every quarter. There’s a housing shortage estimated to the tune of 4 million units, which can only boost home values. Crain’s New York recently reported that home sales in Greenwich, CT, that Everytown, USA, which has endured nuclear real estate winter since the 2008 crash, have nearly doubled this year, with median prices up 31% — albeit to a still (for most of us) affordable $2.25M.

It also looks like folks is also getting back to work, as, on Thursday, Weekly Jobless Claims plunged.

The price of a bushel of corn, now nearing six big ones, is the highest in eight years.

If all of this sounds a bit inflationary to you, well, you’re not alone. And the statistics bear this out. Prices for just about everything are on the rise.

If this was a normal market environment, the organic economic response would be a rise in interest rates. But that ain’t happening – at least for the moment. Madame X, who began the month at an (approaching) saucy yield of 1.75% (and expected to go higher), has backed off, rather demurely in my judgment, to a much more docile 1.58%.

I feel certain that our above-mentioned, beytsim-bereft 10 Year Note, remains the belle of this here cow ball. If she stays where she is, very little on the visible horizon is likely to stem the tide of rising valuations for risk assets.

But if that bubbe grows beytsim and becomes a zaidah, it could signal the beginning of the end of the party.

So, I’m watching Madame X, to the point where some might call it stalking. I suggest you do the same. If she behaves herself, we’re headed to much higher elevations than even those breathtaking thresholds that have manifested in recent days.

But even if, on the other hand, we observe her dropping her price panties and lifting her yield skirt, I’m pretty sure that the capital markets overseers will make the appropriate policy adjustments to keep the romance of this rally alive. Powell and Yellen (both of whom may reside somewhere in the middle of the beytsim-possessing spectrum) will not be in a position to allow rates to sustain at elevated levels.

Because both are accountable to the uber-beytsim powers that are pulling the strings. I’ll save my diatribe about who they are, what they want and how I think they’re setting about to get it, for another time. For now, I simply encourage you to connect the following dots.

Capitalism, Corporatism and Private Enterprise are under perhaps the biggest form of rhetorical assault since the Great Depression. Political forces are driving energetically to either destroy, or, at minimum, socialize key sectors of the economy. The swells of a great wave of punitive taxation, regulation and redistribution are forming before our eyes. Corporate leaders, even as they post record profits, are paying obeisance to these tides, in a manner reminiscent of 18th Century French Nobility sidling up to those young bloods who captured the Bastille and removed the head of Louis XVI.

The economy is awash in debt.

Yet the markets keep rising, to the disproportionate benefit of the few. Does this indicate anything to you about who’s calling the shots and the nature of the ultimate outcomes they seek to engineer?

It will take Bernie-like beytsim to pull it off, and I don’t think that, in the end, they can be successful. Any more than Bernie was. Any more than those French Counts were — back in my childhood days of 1789. That episode ended with them all sending each other to the guillotine.

They got their heads chopped off but retained their beytsim. However, without the former, the latter were likely to be of little use to them. From this perspective, it may be fair to state that beytsim are not unilaterally essential. For example, I am delighted that you do not have them. Because I wouldn’t change anything about you. Not. One. Thing.

But while not always indispensable, beytsim do have their utility. I’d like to grow some more for myself, but the good lord only blessed me with what I got.

I will strive to move forward accordingly, and suggest, as your risk manager, that you do the same.

TIMSHEL

Dedicated to Charlie

Does this count?

Before you decide, a little context is in order, and, for your guide, I will recount these rendezvous in chronological order.

First, there was 45-Trump (natch), who I originally encountered in the mid-90s, as he was seeking to rebuild what I believe was then a somewhat diminished real estate empire. He’d just purchased property that was to become Trump National, but at the time was the crumbling remains of a bankrupt golf course/country club facility adjacent to my digs in Northern Westchester County. I met with him and his crew — to express some concerns about the impact of his designs on my property. He, on the other hand, was shilling out discount memberships for a club dedicated to a sport I somewhat disdain.

I didn’t bite and was very afraid of his plans. But in the end, he did us right. Created a sweeping shrine of a golf course, which preserved taxable open space for the community. Put up like 90 rad cluster homes in the middle that sold out at nearly $1M per. Thus, for an all-in investment of less $20M, I figure he banked about $100 large in loose change — and built another track he can play for free anytime he wants.

Then, 45-Trump again (for a time, seemed to keep turning up in my field of awareness like a bad penny). As it happens, I was indirectly involved in sponsoring the post-9/11 Concert for New York. My former boss’s charitable outfit – the fabulous Robin Hood Foundation (who’s management were well acquainted with my rock and roll sensibilities) — showed their appreciation by allotting me the best seat in the house (yes, I made the full donation). I was front row of the Garden (the floor was appropriately reserved for first responders), parallel to the free throw line nearest to the stage. The security guards, understandably skeptical and expecting someone of higher visible status than yours truly to turn up, checked my ticket about 8 times before allowing me to plant my hindquarters in that hallowed seat.

And a few minutes later, who ambles up and plops down behind me? Yup. DJT, accompanied by Future First Lady Melania Knauss. Gave me a big ole double fisted handshake like I was some kind of big shot (because, after all, anybody who scored those seats must have some legit juice, right?). He even bought me a beer, which I drank while I watched the show. Then I went home.

I reckon that’s about it for Trump. Haven’t seen him since; hope he’s OK.

Last, 44-Obama. I had the honor of being the only jabroni from the above-mentioned town to be invited to a 2008/Park Avenue fundraiser for him, shortly after he won the Iowa Caucus. I laid in the full $5.6K allowed by law and headed down. I wasn’t entirely sold on him, but I figured I’d support anybody who stood the least chance of keeping Hillary out of the White House.

I later found out that I had only been invited because, four years earlier, for being the only jabroni from the above-mentioned town to have been coerced into forking out the full freight in support of the candidacy of Christopher Dodd (D, CT), who a different former boss had acquired as a political toy. Owing in part to my max contribution, Dodd managed to cop one vote in that year’s contest in Iowa.

44-Obama, of course, converted my donation into more self-gratifying outcomes. I have since wondered whether I got my money’s worth, but, hey, that ship has long ago sailed. In the meantime, what strikes me about that fundraising event was how chill it was. Walked right into the building, told the man I was there for the Obama fundraiser and he sent me right on up. Listened to his speech; shook his hand. Then, I went home. A few months later, it would’ve been impossible to get within 50 meters of him.

So, it’s been 13 long years since I’ve vibed with any Prez’s. And the Prez’s I did vibe with weren’t even Prez’s at the time – only future Prez’s.

With this in mind, I ask again: does it count?

And, while I am pondering such matters, I was also wondering about something else. I read today that McDonalds and WalMart have ended a thirty-year arrangement under which the former (heretofore) operated restaurants within the confines of the latter’s superstores.

This got me speculating: what about the Walmarts inside McDonalds? Are they on their way out, too?

And (taking this question to the extreme), I also ask: what about that McDonalds (somewhere, I think in Minnesota) that is inside a Walmart, which itself is inside a McDonalds?

Do they all have to go?

You don’t have to answer. Some quagmires are not within human capacity to unpack. However, if anyone has any insights or information, please do share, because I’m sure we’d all like to know.

OK; I admit it. My mind, never prone to stay in one place for very long, is currently manifesting mad wanderlust (mostly, I’m thinking about you, but I guess you know that). I should attend to more somber matters, and lord knows there’s a current treasure trove of material of this nature from which I am able, without, much strain on my senses, to draw.

I would, for example, be remiss if I failed to note the demise of that randy old hound dog: Prince Phillip/Duke of Edinburgh, who, just this past week, finally gathered to the dust of his forebears. Of his passing, I have little incremental to offer. There is much to admire about him – at least from some perspectives. Served, for instance, with combat distinction in WWII. But on balance, I don’t envy him his 99 years. All those hours standing in uniformed agony in the hot mid-day sun, reviewing troops and sh!t. Plagued with high-profile problems with his children and then (very recently and very publicly) his grandchildren. Lived with a woman who happened to be his Sovereign.

And, finally, I will cop to having a thing for his missus – Her Majesty, Queen Elizabeth, II, who has been putting lead in this boy’s pencil since he popped of the shoot.

Also, for her mother, the Ravishing Queen Bess.

Meanwhile, Her Majesty, like The Dude, abides, but one wonders for how long. My theory is that she is determined to outlive her eldest son: Charles, Prince of Wales, so as to deny him for all time that coveted spot — on the throne that rules the Empire upon Which the Sun Never Sets.

So, yes, the mind wanders. However, as another great Brit (J.R. Tolkien) reminds us, all who wander are not lost.

But as for the markets, far from being lost, they are marching with purposeful determination in a single direction – higher ground. Rallied all week – so much so that the Gallant 500 and its Comrades closed at their all-time tippy toes on Friday, thanks in part to a contemporaneous afternoon swoon by Vixen Vix — now at her most supine position in over a year.

Her sister in arms – Madam X (U.S. 10-Near Note), if not dropping her yield skirts entirely, continues to show enough leg to keep our equity and credit boys fighting to higher elevations:

Vixen VIX and Madam X: Is there a lovelier pair this side of Buck Palace?

The latter-mentioned lady received a strong assist last week – not only from Chair Pow, but also from his opposite number across the Atlantic: Madame LaGarde (Queen of the European Central Bank) — both of whom – surprise — hinted at incremental money printing coming to us, anon. We thus find ourselves, somehow, with an economy about to boil over, unmistakable signs of inflation, and a passel of fiscal stimulus pending. Q1 Earnings, which begin to drop next week, are projected to surge by an astonishing 25%. Yet bond yields, improbably, are holding in at historically suppressed levels, nonetheless.

I am on record in stating my belief that nothing much matters in the markets other than what is happening in Washington, and none of it do I believe is accretive, over the long haul, for the capital markets. The Energy, Health Care, Insurance and Banking sectors are in their crosshairs. They’re going to ram through new spending bills, chockful of political payola, the impact of which will dissipate like a sugar high. They’re ginning up tax increases and strongarming other countries into doing the same. They are giving the rock to public sector unions, and what could possibly go wrong there? They’re rigging the voting laws in their favor to cop a permanent majority, and now, as was inevitable, they are making their move to add new seats to both the Senate and the Supreme Court. Those of you that are hoovering up stocks and bonds like they are TP rolls in April 2020 should be advised that these stunts will come back to haunt us.

I have never met 46-Biden but have no regrets on that score. The fairest of the fair ladies I know ran into him more than once, and I don’t think the experience was, on balance, a pleasant one. I wish him the best but fear the worst; he strikes me as being like his 45-predecessor: a weak man seeking to show strength. And these types, my friends, are the most dangerous of them all.

I once had a conversation with 13-Millard Fillmore, but it was long after he was dead (and therefore not president). That story, though, is probably not fit material for this publication. I may have met other future occupants of the White House, but that is in the hands of God. Let’s fix on what we can control, so as investors, I close by reminding you it requires the purchase of a ticket to win at Powerball.

In today’s market, this may be all the risk management advice you’re gonna need.

TIMSHEL

Ain’t but one way out, babe, Lord I just can’t go out the door,
Ain’t but one way out babe, Lord I just can’t go out the door,
Cause there’s a man down there, might be your man, I don’t know

— Sonny Boy Williams and Elmore James

Ah yes, Egress. Mode of exit. So essential but so often, so tragically, overlooked. Restated: resourceful human beings occasionally find their way into (temporary) Paradise, but can they remove themselves? When, for instance, a serpent with ill designs is found to lurk within Eden itself? Not only is the answer typically “no”, but (even worse) we rarely give the matter anything but scant consideration.

So, frequently, we are cast out against our will. Just like Adam and Eve. Or tumble down. Just like Jack and Jill. Or get stuck where we don’t belong. Like that Suez Canal ship. In each case, there was only one way out.

I am reminded of the story of Triboulet: 17th Century Court Jester to French King Francis I. Always an envelope pusher, he once made the regrettable error of slapping the Royal Hindquarters. French Frank the First did not take kindly to this, and sentenced him to death, offering him, yes, one way out: an opportunity to immediately apologize — in a manner that was even more insulting than his original transgression. Mr. T’s reply? “Forgive me, Majesty, I mistook you for the Queen”.

I am unconvinced, in our current cultural paradigm, that the response would even give offence; it might in fact be taken for a compliment. In any event, King Frankie was either insufficiently insulted or inadequately amused, so the death sentence stood.

He did, though, allow Triboulet to choose his form of eternal egress. The latter’s response? “I wish to die of old age”. His request was granted. And, though banished from the court, he escaped the noose.

So, in that instance, Triboulet found not one, but two ways out, and, as it happens, he needed both.

And I can’t help thinking that we are, all of us, latter-day Triboulets – in need of an exit strategy for two scrapes – more or less of our own making — but lacking in the two-step Houdini game that is sorely needed if we are to rid ourselves of these nuisances. More specifically, my fear is that the fancy footwork that is leading us to salvation from one of these trouble-traps is entirely out of step with the moves we apparently intend to bust to eliminate the other.

Allow me to elaborate.

The first mess, quite obviously, is the pandemic. It is not known whether this a dilemma entirely of our own making, and I suspect that the associated debate will rage for decades, centuries to come.

We have applied a wide range of mitigants to shed those pesky covid buggers, some more effective than others, but the one that seems to have created an actual, comprehensive form of egress is the development, in minute time frames, of a vaccination framework. It is a miracle of human innovation, initiative and execution – all fueled by the increasingly demonized fires of free enterprise.

Yes, there were profit motives and government subsidies. Yes, the Pharma execs sniffed big paydays and went for them. But tens, hundreds of thousands of professionals worked day and night on this project; companies that were sworn enemies of one another collaborated to find a solution. As a result, not only did multiple vaccines materialize within about 1/10th the normal development time window, but: a) they appear to be working, with b) minimal side effects, and are set c) to be delivered to the entire population within the first half of the year.

And I ask: where would we be now without the vaccines? And where would the vaccines be if not for the astonishing efforts of private enterprise?

Which brings us to our second scrape: the absolute mess we’ve made of the capital, commercial and consumer economy along the way. When the pandemic first hit, I estimated that it would require approximately $10 Trillion to plug the economic hole. But then the capital economy began to recover; the market soared like (Jim?) eagle. And I thought, well, maybe I’d overstated the case.

But at present, we’re already in for nearly the entire $10T, and we’re not likely to stop there. The Fed has printed nearly $4T. Fiscal stimulus, already at an equivalent number, is now proposed to be topped off with another $2T, which represents only the first half of the next proposal. And it appears that even this is only a way station on the road to – well, I don’t really want to say.

But apparently, the time has come, at least in some eyes, to shoot off the legs of the private economy. The pending bill’s proposed tax increases, thus far only partially disclosed, are breathtaking in scope/magnitude. Higher corporate levies. Elimination of global structural tax plays (here Biden went so far as to call on America to lead the world to end the madness of finite taxation. Just think about that for a moment). Penalties on states seeking, for competitive reasons, to offer new tax breaks. Jacking up duties on capital gains (realized or not). Removal of caps on Payroll Taxes. If all of that isn’t enough, maybe we’ll bust out a wealth tax as well. The grab aggregates, in round numbers, to $3T.

So, the government that did such a swell job of anticipating, messaging about and managing the pandemic want to shove its big fat nose as deep as it can into our affairs. They will control what is built, who builds it, at what cost, and to who’s benefit. The rest of us have a role to play – an important one. We’re supposed to shut up/work our asses off to pay for it all, and serenely receive lectures from our betters about ending our greedy ways. It’s not that we’ll get nothing; we’ll get what they give us. And like it.

The Congressional math suggests that they may be able to pull this off, but only by the thinnest of reeds floating on the legislative swamp. Just as was the case on the most recent $2T, they can use the device of reconciliation to pass the $4T spend/$3T tax swap.

To borrow, yet again, from the fabulous Everett McKinley Dirksen (R, IL): $4,000,000,000,000 here, $3,000,000,000,000 there; pretty soon you’re talking about real money. And we should heed Dirksen, who, after all, had a 15-cent stamp enshrined in his honor — a picture of which I’d love to share were it not for the ubiquitous copywrite police who continue to hunt me down.

Bold as brass, right? And none of this is, on balance, politically popular, as the sponsors of this brilliance are clearly aware. Not wanting to take any chances, they’re making a big push to rejigger the election process in their favor – in the form of a terrifying bill that carries the bland moniker of HR-1. Its backers claim that it’s all being done in the name of fairness, to correct those transgressions that have accumulated over nearly 250 years of representative democracy. I reckon we should trust them as to the details and motivations, but based upon recent track records, you’ll pardon me if I fear that the fix is in.

The creators of the shakedown (I call them the man in honor of our theme song) have a lot riding on this, because without a re-writing of the election rules, the 2022 electoral blowback should be pretty severe.

It’s the political equivalent of drawing an inside straight, which does happen from time to time. But if the man pulls it off, then the folks in Washington will have a great deal more say over what you get and what you do than at any point in our lifetimes. Favored constituencies will exert more control than we’ve heretofore experienced, and will use it aggressively, for their own perceived benefit.

But the man’s plan is path dependent, with a lot of interlocking parts that must coordinate if it is to take hold. All of which is depicted in the following flow chart, which I ginned up – in part because I needed a visual and couldn’t risk using that Dirksen 15-cent stamp image:

If one wants a preview of how this all goes down, a look at the primary education system’s pandemic response might be instructive. Private schools marshalled resources, opened as soon as they were able, and have functioned, if not perfectly, with laudable efficiency, ever since. By contrast, many public schools – particularly in urban areas, opened slowly, partially, or not at all. That the teachers’ unions have controlled the timetable, the calendar and the operating agenda is a matter almost beyond dispute.

So, the question before us is how we want to roll, and who do we want to roll with. In stark terms, the choice may be between the Pharma crew – with all their faults – or the teachers unions.

I personally believe that the best way out is with the Pharma bros. I reckon y’all can decide, for yourselves. But I suspect that if the other side wins, at minimum it will result in a society with less innovation, lower initiative, higher paranoia, increased victimization and less freedom. It’ll be like being back in grade school, a phase of my life that I, personally, couldn’t wait to exit.

And I don’t think that the man’s plan will do much to reduce poverty, improve race relations or correct the sins we’ve committed over the last few centuries. These matters will continue to plague us, and I suspect, when the outcomes fail to match the articulated vision, that the man will resort to his timehonored playbook: he will recommend, as a cure, more of the same.

*****

All of the above is nothing more than a recap of a rant that I made, recently, to someone I love — who was kind enough to listen. But I do not kid myself that it even remotely passes for market commentary. Time was, not too long ago, that I could write about more fascinating and relevant topics, such as semiconductor production in the Far East, or whether a dry spell in the Midwest was serious enough to sustain a recent Soybean price increase.

But none of that matters now. At the present time (and likely for a significant spell into the future) all that counts in the markets is what is going down in Washington. Which, were it not so terrifying, would actually bore the stuffing out of me.

As it stands, though, the market advice I can offer is simple. You should own assets and then own more of them. Until they take them away. It looks like a bumpy ride, but like I stated above, the fix is in. The man views asset inflation as a core element of his plan for taking over the joint, and, if he has anything to say about it (and he does) he isn’t going to b!tch that part of it up – at least over the near term.

Valuations continue to lurch to new all-time highs, with the Gallant 500 on Thursday breaching (and holding) the exalted, previously unreached threshold of four thousand. That markets keep soaring to the heavens against the backdrop of everything described above ought to tell you something. Specifically, that it’s all part of the plan; that the fix is in.

Meanwhile, everything — from the weather to the economy to our own blood, is inflating, heating up. My own passions are fully aflame. I know that it’s all real, and must manifest, but sometimes it feels like it’s just all part of the plan. Party now; pay later. There’s a man down there, might be your man, I don’t know. But meanwhile, allow me to gaze, yet again, into your lovely bedroom. Eyes.

Is there even one way out? Truly, I’m not sure. But I won’t lie; I’m sorely tempted to follow the wise example of Triboulet, to slap a few asses of those who would presume to tell me what to do, and then rely on combinations of my own wits and God’s will to determine the appropriate means of disposing of me.

Yes, I would like to take a whack at the man.

I know I keep him amused, but I feel I’m being used — and even Jesters such as me and Triboulet run out of patience eventually.

TIMSHEL

Watch out, you might get what you’re after
Cool babies, strange but not a stranger
I’m an ord-in-ary guy
Burning down the house

— The Talking Heads

Can I get some love for the Heads? For a brief but important time (my college years) they were the best damned band in America (albeit a distant second in the world to THE CLASH). And not only the best, but maybe the most popular – at least on those college campuses of yore. If, for example, you found yourself at a party in 1980 in Madison, WI (as I often did), odds were that either the Heads or Springsteen were on the turntable.

Well, we all know what happened to the latter after that. From a popularity perspective at any rate, he immortalized himself. And, though he’s not my particular jam, mad props are owing to him for that.

The Heads were on similar trajectory at the time, and I always thought that they were one stadium tour away from taking over the joint entirely. But then the immensely-talented-but-always-difficult-to-dealwith David Byrne bounced. Left the band. Without telling them. It was kind of a Syd Barrett (who, though having created Pink Floyd, was never told he was fired; they just stopped picking him up for rehearsals and gigs) situation in reverse. Helluva shame in both cases, if you ask me.

In the meanwhile, their catalogue, including our title piece, holds up remarkably well. More than this, any number of their songs (“Stop Making Sense”, “Life During Wartime”, “All Night Long” come to mind) are in the pantheon of meriting pieces in this space on their own. And maybe we’ll get to them.

But let’s start with what we got, shall we? Dance with who brung us? “Burning Down the House”. Man, oh man, there are a lot of directions in which we can travel on this Chateau Flambeau Road. And, since I’ve just begun to write this note, is likely we’ll to get to several of them.

The hook first came to my mind when thinking (with incremental frustration) about national economic policy. It reminded me of several intervals in my historic run as an entrepreneur. If you’ve travelled this road, you are aware that when times of stress (inevitably) emerge, it sometimes becomes necessary to resort to minor league measures (say, pre-billing receivables) — to boost spirits and improve company optics. Then comes the moment when Sweet Temptation sweeps in and seeks to seduce you into doing something really stupid. Like borrowing money. But I’d always stop short of this (well, except for maybe one time) by telling myself that, yes, I’d already burned up all the furniture to stay warm, but I’ll be dipped in sh!t, before, in the name of the same objective, I will burn down the house.

And I do think that some of the genius ideas in Washington are spun in the same motifs. That they will come back to haunt us, that they could leave our progeny bereft of walls to keep out the wind and roofs to protect them from the rain. And I think that these risks must manifest in the market; perhaps soon.

But we’ll get to that in a bit. I feel first obliged to offer a few other timely analogues to our theme.

That whole Jan 6th experience fits almost a T. I mean, after all, the protesters did breach the HOUSE of Representatives. But unlike, say, those demonstrators acting up last summer, someone forgot to bring a match.

And on the topic of dwellings that were (almost) reduced to ashy rubble, I think we can all give thanks that this past week, yesterday’s “It” company: WeWork — that nerf gun/bean bag chair re-packager of overpriced urban commercial space, avoided the burning ignominy of complete collapse, through a financial rescue package which valued the Company at $9B. Note, this pricing is thin gruel compared to its peak valuation of $47B, but I reckon its holders are pleased, nonetheless. As am I. As should we all. Say what you will about WeWork; it busted the oligopoly of office leasing, breathing life into small tenant/firms everywhere. The pandemic changed the calculus here; landlords are now begging renters to move in. But it says here that we no less owe a debt of gratitude to WeWork. Long may it prosper.

Fittingly, the deal came in the form of the current “It” mode of financial structuring: the ubiquitous SPAC. We’ve covered this before, but the SPACers make their bones by first raising money, and then deciding what to do with it, with the only constraint being their obligation to purchase majority interest in a company within a designated period. Doesn’t matter which company, and who really cares? Looking at this sequence in the rearview mirror, it seems that the heavens had always destined WeWork to be SPACicized (SPACified?), and now they are. And I, for one, will wish Godspeed to all involved parties.

The SPAC market has felt some heat from investors of late; median valuations are down 20% over the last few weeks. One can smell the mahogany dining tables smoldering. Will the entire House of SPAC come down in flames? I hope not, because if it does, it’s likely to be at a time when a lot of other abodes are burning, and first responders put upon in ways with which they have not the resources to contend.

I try to avoid thinking too much about these contingencies. After all, what do you and I need? Not a house; not really. A snug little apartment (or two) on the Upper East Side, where we can dream our dreams and plan our plans, will suffice.

In addition, and by way of further diversion from what ails us, the next verse of our theme song helps:

Hold tight, wait ’til the party’s over,
Hold tight, we’re in for nasty weather,
There. Has. Got. To. Be A. Way
Burning down the house

But back to the markets, the unpacking of which is the solemn mission of this publication. I’m already on record in stating my belief that the entire show is being fueled — not by innovation, initiative, and hardwon execution, but rather by tactical device, delivered by Washingtonian policy makers, who are burning the furniture to generate a little bit of transient heat.

Endless money printing. Redistribution. Elected officials determining who merits the fruits of the labors of whoever chooses to work, rather than stay at home and use social media to inventory the on-going flaws of the system and our history. Up in flames goes the bed, the sofa, grandma’s armoire. I gotta admit — for the moment, it all feels toasty warm.

But I do fear that the bearing walls and floors joists are the next items to enter the ovens. Most of us probably can endure this; after all, Spring is in the air. But where does this leave our little darlings — once we (inexorably) pass into our dotage, and (shortly thereafter) into the Great Beyond? It’s worth pondering, if nothing else.

Markets don’t seem to be showing much care. In fact, if anything, flammable materials everywhere notwithstanding, some of our equity indices and other risk assets lumbered to yet another set of all-time highs this past week. It was a tough slog, but by late Friday afternoon, investors gathered together for a harmonious chorus of “Be it ever so humble…”. The strains of these notes were heard most directly in the palatial headquarters of General Dow and the state-of-the-art barracks of the Gallant 500. The lesser quarters of the lower ranking Captain Naz and Ensign Russ? Not so much. But I’m pleased to report that Madame X (the 10 Year Note) showed some welcome nesting instincts, as accompanied by the USD, which has demonstrated more domestic spirit over the last month than at any time since last Summer.

Meanwhile, we’re on the verge of April, with its promise of windy winds and widely varying temperatures. In terms of the markets, it ought to be an interesting ride. A major earnings cycle awaits, along with a critical sequence of macro reports, the content of which appear to be very difficult for our paid soothsayers to prognosticate:

The Atlanta Fed is, as Dick Vitale in this March Madness season might say, like a Dow Jones player: it’s up, it’s down, it’s up, it’s down, while the Street is feeling a bit more sporty about the whole thing.

Capitol Hill is likely to be Ground Zero for the emerging storm, as the clock is certainly ticking on key elements of the new regime’s policy agenda, featuring, as it does, another huge stimulus package, higher taxes, the federalization of the election process and other such sacred cows. They’ve got to move quickly, because they (of course) wanna take the summer off, and by fall, they will need to take the next voting cycle into full consideration. There’s major opposition on the other side, and it could get pretty nasty. I don’t know how any of this plays out, but I can encourage all my readers to pay close attention.

It’s probably not the best time to call for major portfolio renovations, and I’m gonna stop short of suggesting you do so. But some energetic spring cleaning, the ditching of some of those baubles and nic nacs in your book that hold some sentimental, but no practical value, might do you no harm. And in closing, I revert to where I started. With the Heads:

Here’s your ticket pack your bags, Time for jumpin’ overboard, Transportation isn’t here
Close enough but not too far, maybe you know where you are, Fightin’ fire with fire

Yes, Byrne is right. And not long after singing these words, he did indeed jump overboard. Without a word. Fighting fire with fire is indeed a time-honored practice in these parts. But as your risk manager, I do want you to know that I’m keeping a hose at the ready.

Just in case.

TIMSHEL

Our titular theme is so intuitively delicious that it surprised when an internet search of the phrase came up pretty much empty. There is a band out there called the Ice Cream Socialists, but even they only have like 267 Facebook followers, dating back to 2017.

Back before one of our two warring governance factions, in Caesar-like fashion captured a 5- seat majority in the House, a (Vernal?) Equinox in the Senate, and of course, the Presidency. Whereupon, subsequently, and armed with this resounding mandate, they urgently determined to change this nation’s evil ways, to cure 4 centuries of geo-cultural evils, to save the smoldering planet from heatstroke, and, most importantly, to instruct us as to how best to think/comport ourselves.

Carpe (as Caesar might say and probably did) Diem!

It was also before the virus, before the lockdowns, before that cockroach pressed his knee on Floyd’s carotid artery. Before the cities burned. And the Capitol was stormed.

And before that magic moment last April, when, as the rest of the country was choking on covid cells, Speaker Pelosi — Commander of that Majestic House Majority, decided to cheer us up with a high production video of her designer ice cream stash, elegantly ensconced in her even-more-designer matrix of customized freezers.

Now, I like ice cream. As much as the next guy. But not as much as I like Big Bird.

It’s the socialism part that frustrates and annoys me.

However, even as custard and gelato remain in frosty repose in the Pelosian cold storage units, the road towards socialism rises up to meet our feet. I really hate writing this, because, quite frankly, the implied ad homonym name-calling bores me.

But sometimes a man is just called to state what it is that he sees.

Most of our citizenry declares itself against socialism. Our politicians are aware of this and know that they must mix this medicine with an appropriate dose of sweet delight — if they are to impel us to choke it down at all. It may now be in the hands of God to determine whether or not a spoonful of sherbet helps the socialism go down.

To be fair, our first delicious tastes of it all came, in gulping heaps, from the most unlikely corners of the Washingtonian ice box: The United States Federal Reserve – an outfit clearly branded as being aligned with Free Enterprise. More than a decade ago, they got the clever idea that rather than managing the money supply (as their charter instructs them to do), they should manufacture their own galactic stash of it, and dish it out to the boys and girls of the investor class. Maybe it was needed at the time, to stave off depression — in the wake of what was, after all, a pretty nasty collapse of the financial system.

But no one can accuse them of launching into this enterprise with anything other than unmixed enthusiasm, as their balance sheet grew from what entering 2008 was the mini-cup sampler size of $800B to a double serving/waffle cone magnitude of ~$4.5T by 2014.

All things considered it went down pretty well. During this period, the Gallant 500 emerged from the critical care unit, put up a contemporaneous three-bagger, and one could certainly argue that the key contributing factor was that magnificent experiment in Quantitative Easing.

Allow me, now, for the purposes of this report, to fast forward to the fateful month of March 2020, when everything came apart. The Fed revved up its Frosty Freeze machine again, this time to full throttle, and topped us off with another few tril – all in the space of a few short weeks last Spring. Thus, as I bang this out, its inventory of cash and marketable securities is approaching (and will quickly exceed) $8T. Meanwhile, the Gallant 500 has rather gallantly kept pace, having also nearly doubled in the last year. Still and all, across the entire QE sequence, while assets at the Fed are up more than eight-fold, the G5 put up only about 600%, but Captain Naz posted a full 10x.

It is thus difficult to objectively view their activity over past 13 years, and particularly the most recent 12 months, as anything other than a takeover of the equity markets by the United Socialist Federal Reserve. And if my razor-sharp rhetoric doesn’t convince you, perhaps a look at the associated time series will:

ENTIRE QE ERA:

OUR LOCKDOWN YEAR:

It certainly looks to me like our intrepid equity indices are marching in lock step with their leaders: The Peoples’ Monetary Army at the Fed. Oh sure, we had some productivity gains for all of the above, got hooked on Uber, that sort of thing. But I say none of it happens without the Big Ice Cream Money Manufacturer leading the charge.

And what does it amount to? A transfer of resources – from one group (say, savers who don’t earn squat on the money they stow away) to another (investors), courtesy of the Fed, and based upon little else other than governmental agendas.

But if you gonna do the whole socialism thing, to do it right, it’s best to spread the love around – particularly to the unwashed masses. Who might otherwise get cranky. Which we can’t have. So, we start with the fiscal giveaways. $1.9T being spun up on spoons as I type these words. Likely another $2T (er, Infrastructure) about to be taken out of the freezer and delivered on our plates. The mouth waters at the very contemplation of these dainties.

Oh, by the way, though, our hosts hate to mention it, but this sweet, cold stuff is expensive, and must, after all, be paid for. So, ever so gently, they suggest that it’s time to turn up the tax collection apparatus. Nothing dramatic; perhaps a little extra extracted from those fat cats making over $400K. Or let’s make it $200K. Just a trifle; you understand.

Any way you spin it, it’s another version of the same game. Elected/appointed officials taking from one group and handing out to another, based upon their rules, their agendas. Marx, wherever he is, must be smiling.

I reckon I could live with all of the above if the sponsors weren’t so sanctimoniously mean about the whole thing. I’m probably not gonna get a hand-out, and will almost certainly, one way or another, get handed in. But it’s all so humorless, so joyless.

On the other hand, I’m not terribly sure where humor intersects with the road to socialism. I do know that paths of capitalism are chockful of jocularity, as, along these thoroughfares, if one looks, it is not difficult to encounter the likes of, say, Jerry Lewis.

However, to my way of thinking, all available roads — Avenue S and Avenue C, lead back to the Fed, which (as becomes clearer with each passing moment), no matter what else happens, will need to step up its paltry $120B-$150B money printing program. This is true if they don’t raise taxes and even more so if they do. The yield curve is steepening, and the riot squad of the investment community is restless. Every time that fickle Madam X (10 Year Note) lifts her yield skirt another notch, the market sells off.

This much is nearly certain: the pattern will continue.

It all, once again, brings to mind that unfortunate selloff at the end of ’18, driven (as it was) entirely by mere threats of higher rates. In that episode, the markets quickly brought the commissars at the Fed to heel and will do so again.

Meantime, the clearest call I can muster is that we’re entering an extremely volatile market interval. Particularly when March melts into April, everything will be in play: Earnings, Factor Rotations. Fiscal Policy. Monetary Policy. Macro Statistics. The emerging 17-year locust cycle. Not much visibility into any of the above.

I’d travel light here, folks. Because you never know what could get ya.

But I reckon it doesn’t matter what road you take, as long as you look fabulous along the way. And you do. Look fabulous, that is. I know this because I’ve seen the pictures.

We’re all headed somewhere these days, and it makes me hungry just thinking about it. Yes, I think I’ll have some ice cream. Maybe the kind with marshmallows and nuts buried in the chocolate.

But if it’s all the same to you, I’ll hold off on the socialism, which, in my view, destroys the vibe pretty much entirely.

So, in the unlikely event that Speaker Pelosi invites me over for some Rocky Road, I think I’ll pass and just head to the local Dairy Queen instead.

There’s a rumor going around that the Ice Cream Socialists are playing a gig there. But even if they don’t, I’ll take my chances.

Pelosi and her cronies are already dishing up enough Rocky Road to last a lifetime.

TIMSHEL

I mean, after all, Big Bird is a canary. Right?

As I migrate back from solemn tribute to the more routine madness of this forum, it is my honor, this week, to deliver to you, for your consideration, what I think is a juicy mash-up.

The first component (the “Mash”, if you will), and at the risk of stating the obvious, is the reality that entire market is now keying almost exclusively on the fortunes of the long end of the Treasury Curve. Its steepness and associated trajectory are, from a risk management perspective, of paramount, pertinent importance.

This dynamic has risen to the dignity of an obsession for me, so much so that I’ve found myself, in recent conversations, describing yields on the Ten-Year Note (Madam X) in particular as being the canaries in the proverbial market coalmine.

I think it works pretty well, save one minor detail. It’s not like Madam X is some little yellow bird in a cage, whom no one chooses to notice until she turns, tits up on her perch and flat out expired, from carbon monoxide poisoning. Nay, my friends, it’s the largest liquid market under heaven.

So, if it’s a canary, it is an enormous one.

Like Big Bird. The Biggest Canary of all. Or at any rate, the biggest canary in my field of awareness.

And who doesn’t love Big Bird? Not me, that’s for sure. I don’t not love Big Bird, and no one can accuse me otherwise. More than that, I need Big Bird and am deeply invested in his longevity.

Moving, now, from “Mash” to “Up”, I’m pleased to report that Big Bird – the artiste, received a major shot (covid dose?) in the arm last week, with the ramming through, along party lines (and featuring the now-holy ritual of reconciliation), that $1.9 Tril stimulus package — out of which the Corporation for Public Broadcasting (CPB which is still the major underwriter of Sesame Street production) is due to receive a juicy $175M.

Please know that I love the oxymoronic (is it a Corporation or is it Public?) CPB as much as the next guy; almost (but not quite) as much as I love Big Bird his-self. We should just remain aware that while $175 large will buy a great deal of bird seed, this and other elements of the package come at a significant cost – to the Big Bird in the Market Coalmine, and to other elements of the capital economy.

The latter is in unambiguous recovery mode, lockdowns are winding down, vaccines appear to be working, and, certainly, we can all be grateful for these manifold blessings. But there’s so much cash floating around – Fed Funny Money, CARES Act Stimulus that has yet to be allocated, CARES Act stimulus that has been allocated but not spent – that there’s every likelihood of economic explosion over the next few months. The economic kettle is simmering to a boil and the lid may very well blow off.

And that is before the $2T handout to state governments, public sector unions, individuals already incentivized to remain out of the work force (so long as they follow the voting instructions of their paymasters) and other favored constituencies – all of which projects out to a 2021 budget deficit of at least $4T – its highest level since just after WWII.

The Federales have not issued a major tax call – yet. So, the only way to finance all of this love is through the issuance of more debt. Which should lower its price and increase the vig that the country, as borrowers, will need to shell out for securing these funds.

We can call this a Washington problem, and maybe it is, especially when you consider (in contrast to its political leaders) that the American citizenry has saved more of its income in 2020 than at any point since they started tracking these statistics in 1960:

United States Savings Rates:

Nobody should take a victory lap on this. Savings are piling mostly due to the government handing out oodles of cash to individuals, who, because they have been locked down, have had nowhere (heretofore) to spend it.

But as I suggested a couple of weeks ago (Sloppy Seconds) it looks like there’s a major party about to commence, with festival favors taking such forms as renewed freedom of movement, historic liquidity, burgeoning savings, and fiscal policy that wishes to reward us for, well, just for being us (as well as for our assistance in dispatching Big Orange).

When you put it all together, you’re looking at an economy with enormous pent-up demand, wallowing un unspent Benjaminz, and looking to bust out of shackles it has been compelled to wear for a year. The ruling class, worried that this wasn’t enough, just topped us off to the tune of $2T.

But they gotta borrow the money to do so, and this means that the Treasury Market will be flooded with supply. And the $30T question is as follows: who will be the takers? If any shred of economic theory remains intact in this current monkey circus, the usual buyers would be there, albeit, presumably, at lower prices and higher yields.

And, if the monkey circus had not built permanent structures rather than pitching tents, this wouldn’t be such a problem. Interest rates (or so they taught me in Grad School) should drift upwards in an economic environment of accelerating growth.

However, here’s where it gets a little bit tricky around Sesame Street. Higher rates imply lower valuations for debt securities; really, they’re one and the same. But that means that anyone holding this paper as an asset will take a P/L haircut, and many cannot afford to do so. And the entities set to take the biggest bath are our people, folks, good old American institutions. China? A pitiful $1T of U.S. Treasuries in their vaults. Saudi Arabia? A microscopic $180B.

Nay, Secretary Yell and her cronies at Treasury are mostly in hock to U.S. Insurance Companies, (underfunded) Pension Plans and other domestic fiduciary pools of capital, which are not in a position to roll over and get stiffed when the value of their Bonds and Notes drop. And this is to say nothing of the pounding that is in line for the holders of Corporate/Municipal Debt and Structured Securities, which: a) are owned by the same types of investors, who b) might be less inclined to lend or purchase debt in the wake of these losses.

All of this comes at an inopportune time, what, with millions of businesses either zombified or toe-tagged entirely, and a massive effort needed to repair the carnage wrought by both the virus and its associated mitigants.

So, while Secretary Yell is serenely teeing up all of those new IOUs, her successor at the Fed – Chair Pow – has a real problem on his hands. All of his policy manuals tell him to allow interest rates to drift upwards in an environment like this, but then again, his policy manuals don’t have to deal with $30T in outstanding obligations, and a debt to GDP ratio that is certain to hit the historic and improbable level of 150% sometime this year.

No wonder he looks like he’s aged about a decade over the last few months. I’d give you the Before/After images to prove this, but I’m already in enough trouble with the Copyright Police as it is.

And nothing for nothing, but Powell has shown his sinister interest rate raising predispositions before, and when he did, the markets imposed swift justice on his perfidious ass. Most memorably, at the end of 2018, his bare hint at yield curve normalization catalyzed a > 20% drop in equity valuations in the weeks leading up to the Christmas Holiday. At which point, he backed off, begged our forgiveness, and the benevolent markets rewarded him with an approximate 70% Gallant 500 gain over the next two years.

He knows this much: if he pulls that sh!t again, the market will initiate another whuppin’.

Thus, even as all signs point to upward pressure on interest rates, it is my view that the capital economy can’t sustain them, and that investors won’t abide them. At the end of the day, if supply exceeds demand for our paper (as is highly likely), Powell will be forced to step in and buy out the whole inventory.

But meanwhile, the psychodrama of upward rate pressure, on an economy that is drunk and addicted to free financing, will be a wonder to observe in its unfolding. So, I’m asking you to keep your eye on the action at the long end of the Treasury Curve: the ginormous, anthropomorphic canary, singing in the coal mine.

It will be a white knuckler, but I encourage everyone to retain some equanimity here. Big Bird, like Keith Richards himself, is by and large indestructible.

He takes his lumps but keeps rolling. However, and this is my main point: when the Big Treasury Bird sneezes, we all catch a cold. So, if you see his eyes a’puffing and his beak a’twitching, you might be best served to impose an extra measure of social distance from him, and this means cutting your risk.

Not gonna lie: all of it wears me down. But some of these days, and soon, I’m gonna take you far away from all of these monkey muffins. We’ll go somewhere private, and just talk all night long. Where nobody can hear us, about subjects that are nobody’s business but our own.

In the meanwhile, let’s keep our eyes open, our feet moving, and say a prayer that our angular, feathered ornithologically anthropomorphic friend remains upright and in his locked position.

TIMSHEL