“Pinch yourself”
– Bob Dylan to a fellow bi-coastal traveller
If, as I posited in my last instalment, the preceding week might never have happened, the one just concluded looks a bit iffy as well. I’m pretty sure it did, though, that it wasn’t just a dream.
Even still, I am fighting off a recurring urge to pinch myself.
On a related note, I ask y’all the following. Will I lose my last shred of credibility if I revert to Bob Dylan theme – for about the bajillionth time?
I guess I’ll just have to risk it.
But I’ll be brief. I heard this story during one of those interminable PBS fundraising breaks in one of the endless series of Dylan tributes that Public Television – God Bless them for that anyway – routinely offers up.
Apparently, Bob once had to endure an entire 6-hour flight from JFK to LAX (or LAX to JFK) with a woman in the seat next to him (yes, it seems, he flies commercial) repeatedly stating aloud “I can’t believe I’m sitting next to Bob Dylan”.
The mantra continued all the way to baggage claim, but he retained his trademark silence. Until he collected his luggage. Then, at the last utterance (or, perhaps, to end the chorus), he turned to her and said:
“Pinch yourself”. And walked away.
Yup, that seems to be about right to me.
Particularly now.
Because I’m having multiple “pinch yourself” episodes a day. And I didn’t even sit next to Bob.
Thus, and for instance, did the Gallant 500 really close at all-time highs on Friday? This, you can check for yourself.
Are retail investors somehow all in? Apparently, the answer is yes:
Have they depleted the windfall of the savings they miraculously built up – for the first time in a generation during the lockdown – to do so? Read em and weep:
Are they compounding this sin by loading up on credit? I fear so:
Is the populace thus depleting its hard-won next egg, and, worse, piling up on debt (including credit cards), to load into what just may be an overvalued equity complex? I hope not – particularly with using latter source of funds (depicted in the graph on the right), which, trust me, is a very bad idea under any circumstances, and a particularly hideous one at present.
Non-financial types often ask me for investment advice, how to play the market, and my introductory answer is always as follows:
Before you do anything else, pay off your credit cards.
With current Visa/MC APRs running a cool 23.7% (a rate against which there are no tax deduction offsets), one would need to generate a before-tax, annualized market return of more than 40% just to break even on these outlays. Which is a pretty high bogie. For everyone except my mother-in-law (for real).
So, to my risk-managed way of thinking, there are few trades that generate a better return than taking those plastic card balances down to zero.
But if this other sh!t is truly going down, if the masses are really borrowing to lay into Meme stocks in their HOOD accounts, are they not merely following the wise example of their leaders in the federal government?
Can any of this last? Perhaps not forever, but maybe for a while longer.
Because the government has a few arrows which are absent from the quivers that the rest of us must tote around. Its own printing press, for instance. Wouldn’t that be nice? But they aren’t in stock. At WalMart, Target, Amazon Prime or any of the other enterprises that will happily run your plastic through their cha-ching machines.
And one suspects that even the big money-spitting box in Washington faces some output constraints. We may, in fact, obtain some idea of the forms that they assume later this month, when central bank officials and other ballers convene for their annual conference in Jackson Hole, WY. First item on the agenda is a motion to rename the joint: Benjamin Hole (reflecting a much larger money supply that is arguably better depicted in $100 bills than $20s).
Once this issue is resolved, all ears will be on Chair Pow, and any hint he might give as to slowing down his hoovering of financial assets with newly minted money. My advice is to attend his words carefully, because the J-Hole Conference has often been the venue for big announcements of this sort. Like, for instance, the 2012 Symposium, when, right before a Presidential Election, he announced QE3 – a truly impressive QE, insofar as it lacked specified limits in terms of size or temporal duration.
It was, or so we thought at the time, a QE for the ages – a QE to end all QEs.
How wrong we were, how quaint it now seems, relative to the action that has transpired over the last five quarters.
It’d be a helluva tough time for him to end the party. What with them delta buggers kicking up such a fuss, with members of Congress outflanking one another in dreaming up ways to spend money that we don’t have, must borrow, and must rely on the Fed to create.
There’ll be pressure on him, but he won’t cave to the hawkish contingent. So, I say it don’t happen. No taper. Not now. Not at any point before the 2022 election.
Inflation be damned. The politicians and their paymasters will simply deem it a cost of doing business.
One way or another, it’s an impossible investment tape, and all I can counsel is to keep risks at the low end, and hold on to key positions, for a hoped-for time down the road when rationality re-enters the capital economy.
But, of course, I could be wrong. About all of this. It could all be a dream. I keep pinching myself but can’t feel a thing.
Which ought, in closing, to tell you something.
TIMSHEL