Category Archives: Weeklies

AWS vs. AWS

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Or AWS vs. AWS vs. AWS? As matters have unfolded, this seemingly innocuous acronym now perfectly captures the pitched battle raging between the new and old economies, and (if you will) the new and old markets.

Now, if you’re like me (i.e. the romantic type) what first comes to mind with respect to the acronym AWS is the American Welding Society, the organization that carries the proud banner for those merger agents of metallic units, those soldiers of the solder, those forgers of the functional fires — the welders of this great nation. I suggest, at this questionable pass, we take this opportunity to offer an energetic tip of the hat — to both the Society and its constituents. I mean, after all, if welders bugger things up, it can cause the rest of us untold aggravation or — worse. But they don’t bugger things up. Or at least they do so only on rare occasion. So I’ll say this: to those about to weld, I salute you.

That welders built our fair landscape – from the Empire State Building to the Golden Gate Bridge, is a matter almost beyond dispute. But, as time passed, and until recently, the most visible use of the AWS acronym might very well have been “Attention Walmart Shoppers” – that cry from the loudspeaker of the world’s largest retail outfit, alerting patrons that something special is happening in Aisle 5.

However, by all accounts, this acronym application, too, has been superseded by its progeny. Under current paradigms, the initials AWS almost unilaterally refer to Amazon Web Services – the cloud computing division of the conglomerate most likely to devour the world.

But the Wally Pipped retailers from down south are not, shall we say, taking this lying down. It now appears that the 2 latter day forms of AWS are pitted in a death match against one another; it’s Walmart vs. Amazon – corpo a’ corpo, and may the best capitalistic colossus win. While we all have borne witness to the latter eating the formers’ figurative lunch in recent years, in 2017, Walmart started pushing back. It bought itself an on-line retailer or two: most notably Jet.com (for a paltry $3.3B) and set its wonder boy/founder to the formidable task of storming the e-commerce fortress, and establishing an electronic beach-head on Amazon’s dangerous shores. As part of this effort, the much-feared clan from Arkansas issued the following warning to its legion of vendors: we’re all for your moving your data to the cloud, but in doing so, you might wish to consider using a solution not tied to any company named after a river in South America.

The message was no more nuanced than it needed to be. What Walmart wants, Walmart gets (at least until recently), and one can certainly empathize with their desire to protect proprietary data, upon which Bezos and his crew might, albeit accidentally, otherwise stumble. It was as if the Corporate Gods had convened on Mount Olympus and one was heard saying to aloud: “Attention Walmart Shoppers: nothing in your carts is manufactured or distributed by a company using Amazon Web Services”.

The whole on-line ploy worked for a while, and the ticker WMT responded accordingly, but recently, and as reported in last week’s quarterly earnings statement, the “House that Sam Built’s” fortunes in the ionosphere have flagged considerably.

As a result, while the seemingly unstoppable AMZN rocket continued its inexorable climb to the heavens, reaching by Friday’s close the lofty (and improbably round) threshold of 1500.00, the holders of WMT, as illustrated in the following graph, were not so fortunate:

Now, you should know that while Bezos continues to trounce his frenemies on the Forbes 400, and is now the world’s richest man (at least this side of Putin) by a wide margin, the Walton family (presumably including both Deadhead Bill and John-Boy himself), as holders of >1.5B shares, yielded, in excess of $2 Billion of collective net worth in the debacle. Here’s hoping (and expecting) that they will survive the blow.

But there are other, perhaps more relevant issues for us to consider. To the best of my ability to determine these matters, this may be largest earnings-related price drop of a Top 10 (until last week, when it suffered an ignominious fall to #14) market cap firm, since at least the big crash of a decade ago.

And here’s the thing: WMT earnings weren’t even that bad. In fact, they beat on most of the metrics upon which we are trained to focus, including profits, revenues, same store sales, margins, etc.

So what in the Sam Hill is going on here? Well, I’ll quickly dispatch with a couple of what I believe to be relevant, but secondary root causes. WMT soared through the stratosphere on this whole e-commerce play, but what the Web Gods giveth, the Web Gods can surely take away. If one can debate whether 92 is (forgive me here) an “Attention Walmart Shoppers” bargain, the 110 peak, manifested in those giddy days of late January, might’ve been, by the same argument, more of a Tiffany pricing metric for the name than a company that sells more Swiffer Wet Jets than diamond pendants, than it might’ve earned. I’ll also make short work of the premise that just as in the heady days of the dot.com bubble, all that should matter about a name is the strength of its web presence.

Instead, I will make the aggressive leap of logic that for the first time in several quarters at any rate, large, arguably over-owned securities have found themselves subject to the formidable forces of gravity. This does not preclude them from rising, but now, if the WMT episode can be extrapolated, they are subject to potential merciless punishment for any disappointments issuing forth from their C-Suites. There are of course exceptions, most notably the now indisputably AMZN-led tech cabal, but one wonders if even these widely adored capitalist juggernauts might not one day face a reckoning of their own.

At present, however, it appears that market participants view these enterprises as being infallible. In fact, I’d go so far as to opine that investors somehow view buying FAAAAANG shares as being their best option for risk reduction, and I hardly need to convey – to this audience in particular – how deeply this offends my sensibilities.

But that’s where our affairs stand for the moment, and I reckon we’ll have to live with the consequences. We’re now entering the quiet period of the quarter. Earnings are nearly all posted, and, as we’ve been tracking, they were highly gratifying to observe in their unfolding. Last week’s galactically gargantuan and potentially petrifying Treasury auction came and went without doing gratuitous violence to the yield curve. Yes, we’ve got Feb macro numbers to crunch, and Fed Chair Powell makes his maiden address to both houses of Congress next week. In addition, at some unspecified point in March we will have to endure yet another of those wearying debt ceiling dramas. Shortly after St. Paddy’s Day, Chair Pow will take to the FOMC podium for the first time – in all probability to announce another hike in overnight rates. But aside from that, and after a rollicking first seven weeks to the year, we may perhaps have cause to give thanks to the dearth of data set to assault our senses – at least till early April, when the information flow will again be fast and furious.

In the meantime, perhaps as a harbinger of our immediate fortunes, the technicals associated with the Gallant 500 are behaving in such a way as to bring a smile to the faces of the Tom DeMarks and Louise Yamatas in our midst. The selloff earlier in the month (remember that?) unfolded in such a way that not only did the Citadel of the 200-day Moving Average hold strong, but the index bounced jauntily as it touched this threshold:

Friday’s rally took the SPX above its more forgiving 50-day Moving Average, and perhaps this indicates that equities can do some open field running here. But I doubt it.

I am more inclined to think that we may trade between the yellow and the purple lines displayed on the left. But I’d be remiss if I failed to mention that Spoo has now slipped back into that dangerous 27 Club: the one which claimed the lives of Jimi, Jim and Janis. This time round, the climb to 28 may be less of a cake walk.

From a broader, longer-term perspective, 2018 is shaping up to be pretty interesting. As indicated above, investors are starting to punish even former favorites who fail to meet their hopes.

Further, and as also discussed in last week’s installment, the ingredients for the Inflation Pie, and for higher rates across the curve, are all on the table, and how they bubble in the oven will go a long way towards determining our near-term fortunes.

I also believe, though I won’t hit this one too hard for now, that the next 3-5 months are enormously important from a political perspective. With: a) the average mid-term House gain by the minority party clocking in at about 30 seats: b) the Republicans now holding only a 24 seat edge; c) the near-certainty that if the lower chamber flips, they will bring articles of impeachment against Trump; and d) the empirically demonstrated high correlation between mid-year performance and mid-term elections firmly in view, a lot is riding on both economic and market fortunes between now and, say, Labor Day. Both sides know this, and what I see is a pitched battle between parties, with one of them seeking to gun the economy, while the other seeks to stifle it. One thing is certain: the markets will react to these skirmishes.

But pitched battles, as indicated above, are part of the human condition, as is our propensity to endure. In the end, history shows that the honors devolve to the most stalwart among us. If the pattern holds, then the American Welding Society may well outlast either Walmart or Amazon, and if so, we might do well to take some joy in this outcome. Next year marks their 100th of glorious operation, and I’ve been looking around for details about their Centennial Jubilee. Their headquarters, somewhat improbably, are in Miami, FL, and come what may, I’m going to try to attend the festivities.

For reasons that should be all too clear, I hope to see you there.

TIMSHEL

It’s a Wonderful Life

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So here it is: as I get older, I feel a growing conviction that Potter got a bad rap. Yes, I’m referring to one Henry F. Potter of Bedford Falls, PA, played to cinematic perfection by the Lionel Barrymore. Since time immemorial, we’ve been pre-conditioned to be hating on Potter: the aged, wheel-chaired, bloodless capitalist who would have, save for Jimmy Stewart’s/George Bailey’s Bailey Building and Loan (BBL), run his quaint little town as tyrannically as anyone this side of Manuel Noriega. Please understand, I don’t much like Potter; doubt I’d want to hang out with him. In addition, I must admit that his theft of that $8 Large from the whiskey-drenched, imbecilic Uncle Billy was not exactly a Major League move.

But let’s face it: when he scoffed at the Baileys, suggesting that shooting pool with a BBL loan officer was, absent other risk assessment methods, an inadequate underwriting policy, he was right. When the ‘29 crash transpired (which, in a touch of Frank Capra-esque flair, emerged on George’s wedding night) and Bailey Building and Loan – inevitably – faced de facto insolvency, Potter made his move. He offered buy up all of the town’s dubious-but-collateralized paper — at pennies on dollar.

If we’re to be truly honest with ourselves, we should admit that many of us would try to do the same.

But Baily stopped him – mostly by begging his depositors to leave their hard earned cash in a failing Savings and Loan – in the process forcing these good folks into incremental hardships at the precise point when the Great Depression was beginning to unfold. And Potter, recognizing the talent of one who had bested him, then very generously offered Bailey a big fat job, a proposal to which, as is well known, the latter responded by telling the former to pound sand.

And isn’t it just possible that the unconditioned love we throw George’s way is less than fully earned? I know: he pulled his brother out of that pond, saved the druggist from poisoning a customer, and shelved his big plans – first to see the world and then put his mark on it — all to take care of business at home. But he employed an African American mammy/maid right out of Central Casting, and treated her like the Uncle Tom character she was. And while we’re at it, 4F in WWII because of a bad ear? C’mon. History shows that hundreds of visibly crippled teens begged and lied their way into active duty. And, when the war ended (by which time the economy had recovered dramatically, and a well-managed BBL should have been on sounder financial footing) 8 skinny thousand dollars of misplaced cash nearly brought his whole business crashing down on its ears, to say nothing of potentially landing Georgie in the Pennsylvania State Penitentiary.

But here George lost his trademark cool. It was Christmas Eve, and, after telling Uncle Billy he wasn’t about to take the rap for him, he went home and actually yelled at Zuzu! He then pondered suicide, but an extended hallucination caused him to rethink his plans. He gathered himself and went back to face the music. When he returned, the whole town has pooled its money together to bail him out, as topped off by that Wainwright dude (from whom he stole his future wife) extending him an unlimited line of credit.

I’ve often wondered how much of that yuletide bounty Georgie boy shoved into his own pocket. Maybe just a little bit off the top for that blondie side piece to whom he gave cash right in front of the bank examiner?

But back to Potter. On the whole, perhaps Bedford Falls should’ve given him more props. Exhibit A: the charming downtown of this quaint little village:

I’ve seen worse town centers. But I doubt that BBL financed all of the construction. In all probability, Potter himself provided most of the funding, and the results speak for themselves. While the Baileys were lighting up their friends with home loans, Potter was busy building up as quaint a little slice of Americana as one could wish free enterprise to underwrite.

Had the Baileys held the paper on this turf, it is likely that they would’ve had to call it in. Who knows if the borrowers could’ve paid? I envision a fire sale and all of High Street falling into rot.

*********************************************

It seems like eons ago, but in fact it is less than 10 trading sessions since the markets manifested the same look and feel as they must’ve back in ’29, when Potter was ready to make his play. No particular need to regurgitate that unappetizing sequence; suffice to say that investors have since regained a large measure of their equanimity. In fact, the > 4% gains mustered up by our favorite equity indices represents the best weekly showing since (depending upon the index you cite) late 2016 (Trump Bump) early 2013 (Bernanke/QE3 Bump), or late 2011 (the “I don’t remember why” Bump). For a blessed handful of pre-holiday sessions (and bearing in mind that this is President’s Day), it appears that our valuation heartburn has indeed subsided. I’ve read some published reports that attributed the upswing to an enthusiastic round of nut-squeezing, and there is some plausibility to this hypothesis. But my response is: who cares?

Besides, I think there was more at play here than a good old fashion short squeeze. Specifically, with the benefit of contemplation over the intervening couple of weeks, a couple of dynamics emerge with greater clarity. First, after setting multiple records as to the number of trading sessions between 3%, 5% and 10% drops, equities were by some measures overbought. OK; fair enough. But I also believe that – particularly in light of the subsequent recovery, a large measure of the carnage was either catalyzed, or, at minimum, exacerbated, by the unwind of those diabolical short-volatility instruments that were all the rage as recently as Martin Luther King, Jr. Day.

But investors who for some time previous had been breaking the bank by riding a vol train that was a one-way journey to the underworld don’t simply jump out of their sleeper cars, en masse, for no reason at all. So we’d be remiss if our post-mortem didn’t include an examination of the fundamental catalysts that set the whole episode in motion in the first instance.

My main recollection (though 2 weeks ago is a long time for me to visualize) is that the confluence of some inflation appearing on the horizon, and its potential impacts on borrowing costs were the factor(s) that set this train wreck in motion in the first place. Well, a portion of this hypothesis achieved corroboration when, earlier in the week, the CPI/PPI numbers were released. Both clocked in higher than expected, in the process providing incremental evidence that maybe, just maybe, some upward pricing pressure has presented itself in sustainable fashion. But, reviewing these metrics, did investors resume their fear-induced fire sale of stock holdings? They did not. Instead, they bought, and managed to bring flagging indices back into solid positive territory for what thus far has been an interesting start to 2018.

Thus, if we accept our stated hypothesis that the recent blow-off, while much-needed, was not necessarily an indication of aggravation to come, then we are left to contemplate what’s really going on here, which, in my judgment, comes down to a handful of related issues:

1) Are recent trends sufficient to embed higher inflationary expectations into the investment ethos?

2) Whatever the ultimate answer may be to 1), is the longer end of the yield curve truly headed for higher elevations?

3) If the answer to 2) is yes, can equity valuations survive and/or thrive at higher yields?

For better or worse, I have no useful opinions to convey with respect to 1). Inflation is a tricky thing, rendered all the more confusing because (as those who suffered through the indignities of economics training are painfully aware) it is inflationary expectations, not inflation itself, that drives economic outcomes. I won’t lie, this distinction has always confused me – often to the point of distraction. Moreover, in eerie parallel to the current unhinged national political debate, I can find any number of intelligent, well-trained and otherwise reasonable fellows and gals that will passionately argue that we are headed towards a Weimar-like cycle of intensifying price increases, while other such worthies are convinced that we are still in the early innings of a deflationary death spiral. So I don’t know, and for what it’s worth, I give up on 1).

In terms of 2), I do see signs that the rates will indeed rise to higher levels than many of you have experienced in your lifetimes. Just to put matters in perspective, when I applied for student loans to finance that graduate education referenced above – the one which left me so confused about this whole inflation/expectations thing, the rate was 9%. I was encouraged at the time borrow as much as I could, because, let’s face it, rates would never be that low again.

It hardly bears mention that I enthusiastically embraced this advice.

But in terms of the near-term glide-path of yields, my views are as much influenced by supply trends as they are for demand for debt instruments. Every time I check, our Treasury is upping the size of its auctions, and I don’t see that particular pattern changing. As mentioned last week, their friends at the Fed are selling their paper just as the Treasury G-men are issuing more of it. Next week, for instance, >$250B of new bills, bonds and notes hit the market – all in the space of 3 days. If that long-since repaid, debt-financed grad school extravaganza was worth anything, it means that in a market where demand may be decreasing, and supply is flooding the markets, prices should go down. Further, in the perverse world of Fixed Income, this means yields rise.

So count me as a “yes” on 2).

What remains, therefore, is an examination of 3): whether or not our capital markets can operate effectively at higher yield thresholds. While this remains to be seen, I’m patriotic enough to believe that a nation that endured, just in the last 100 years, two World Wars, a Great Depression, a Great Recession, not one, but two, Justin Timberlake Super Bowl appearances, and Fergie’s dubious NBA All-Star Game Anthem rendition, can weather the hardship of elevated rates on debt instruments. Heck, like many of my advanced age, I might even welcome such a change. I’ve no mortgage debt and don’t own a credit card. I do, however, have some money in the bank that is thirsting for the blessings of a return above microscopic levels.

Thus, I’m inclined to believe that within reasonable ranges, equity market participants should not be overly fearful of higher rates in the debt complex. And thus far, recent selloff notwithstanding, Corporate America appears to be on something of a roll. Q4 earnings, now 4/5ths complete, are projecting out at a 15% increase – highest in nearly 7 years. Guidance for the remainder of ’18 looks to be the strongest in more than 2 decades. Small Business Optimism, after flagging for a few months, is again on the rise:

I do remain flummoxed by the flagging fortunes of the United States dollar, which continue to wither – irrespective of what happens with either equity or interest rate markets:

Now, I don’t want to alarm anyone, but I am wondering if there might not just be a titch of politics embedded in this chart. While a lower value on the Dead Prez might increase the bite out of your wallet taken in association with your purchase of Lederhosen, Saki or Cornish Hens, it will undoubtedly offer an export boost to our heroic but often oppressed corporations.

And after all, what are we here for if not to support the intrepid efforts of the guys in the suits that occupy the C-Suites?

In general, I expect that risks, if not returning to their unobservable levels that characterized most of the last 18 months, are unlikely at any rate to rise again to the levels experienced in early February. As such, I sanction any incremental exposure you may wish to assume, provided that you have done your homework, thought carefully, and execute with due attention allotted to the details.

And as for Potter, I suspect he might be a buyer here. But I doubt he would “go whole hog” as he attempted to do on George’s wedding night. Instead, he’d be keeping his eye out for some bargains, and, finding them, would be quietly adding to his asset inventories. But here I’m just speculating, because the clear inference to be drawn at the end of our feature film is that he was run out of town.

George Bailey and his heirs are now the presumptive big dogs in Bedford Falls, PA. Lending standards at BBL have also presumably tightened up, and none of that would’ve happened had not Potter been there to bring some rationality to the otherwise goofy proceedings. In the future, if we are indeed to have wonderful lives, we may not wish to precisely emulate his methods, but we may do well to that the maxim of by low/sell high remains a virtue, and that flawed men like George Bailey don’t rise to the level of heroism without the elevating presence of those of Potter’s ilk.

TIMSHEL

I’m In

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I know it’s been a long week for everyone, but did you ever stop to consider, in light of the professional path I have chosen, the toll it’s taken on me?

Didn’t think so.

So, with a frazzled hope that you will temper justice with mercy, I need to inform you that I’m in. I actually bought some stock. I have long resisted the temptation to do so, chiefly due to my lack of confidence in my ability to make anything other than a mess of it. In addition, however, please feel free to consider my deference a nod to what I believe to be the preference of the clients who have given me the honor of sharing their proprietary information with me: that I eschew any direct participation in the markets in which they traffic.

Now before you get all in my grill about this breach of long-standing protocol, know that the particulars of this ad-lib are such that I gave my mother-in-law, one Elizabeth J. (Beppie) Oechsle full power of attorney on my account. Those of you who know Beppie may be aware that in addition to dishing up a mean pot roast, she is one of the savviest, and more importantly, most successful, portfolio managers in my wide acquaintance. She’s been trading actively for more than 3 decades, and has never had a down year. In fact, she has the most pristine track record of any I have encountered – setting aside, of course, the golden era of Bernard L. Madoff. Ironically, Bernie was born one month to the day after Beppie, and both will be celebrating their 80th birthdays over the next few weeks, but the similarities end there. Until I begged her to do so, Beppie had never even thought of managing anyone else’s money, so, unless she is somehow in the business of defrauding herself, we can take it as a given that her returns are legit. Let’s just hope her 30+ year hot streak continues.

But more importantly for our purposes, you need to know that this is Beppie’s show. I have no control over this account, and will use neither my experience nor my knowledge of existing market positions and flows to influence her in any way.

On a related note, it may interest you to know why I believe that now is a good time to make my move. By way of context, I had been planning on taking this step for quite some time. But I had been hesitating on pulling the trigger, and was a bit annoyed with myself, because, it seemed that the more I delayed, the higher the prices I’d be forced to pay. But I was planning on taking the plunge nonetheless.

I thought I’d caught a considerable break a week ago Friday, when – horror of horrors – the January Jobs Report showed some signs of life in terms of upward wage pressure, and investors turned tail at the first whiff of this inflationary grapeshot. Then came Monday, and oh what a ride that was. By mid-afternoon, the Gallant 500 had yielded some 140 hard-won index points before regaining some equanimity and closing down a more gentlemanly 113. Still and all, it was the biggest single day point drop in Mr. Spoo’s storied existence. While the key drivers of the plunge remain a mystery – even to Beppie – it was clear that Monday’s panic session set the tone for the rest of the week. Wild rallies and equally unhinged selloffs ensued and lasted throughout the week – all the way through the late Friday upward reversal, which added an impressive 85 handles (~3%) from the mid-afternoon lows – all in the space of a couple of getaway hours.

And that, my friends, is where we left off.

So what gives? Well, first, as has long been apparent, the suppressed volatility that has partially paralyzed (at least below the waist) equities since the 2016 election: a) could not last; and b) was likely when it ended to evince a major Newtonian reaction. Most of the market rabbis with whom I have reasoned this week are relieved that volatility has returned, and here’s hoping that they are correct – albeit in tones more subdued than last week’s. However, I’m not sure. I think there’s a fair chance that within a reasonable time frame, the equity markets simply recover lost ground and find themselves back inside the volatility vortex.

In the meantime, while I didn’t see last week’s train wreck coming, in retrospect, when it did arrive, it came as no surprise. But there were some technical factors that contributed to the mess – most notably the unwind of those beastly, levered short volatility products that never should have been sold to the public in the first place. Here, the head of the dragon was an odd little fellow called the XIV – a ticker that cleverly reverses that of the VIX index that it its mission against which to facilitate speculation. As part of its overly crafty design, the XIV combines a short position in the VIX with a long one in the SPX. Thus, when the volatility powder keg (inevitably) exploded, and XIV sell orders flooded in, the custodians of this instrument were forced, as part of liquidation, to contemporaneously buy the VIX and sell the SPX Index. This was a double whammy to the markets, that quite naturally manifested itself at the worst possible point from an investment perspective. By early evening, XIV lost > 95% of its peak market capitalization (~$6B), and had blown a hole through the equity index and volatility markets deep enough to sink a battleship. And XIV was not alone; there are dozens of these formerly high-flying products –each, best case, now flat-lining in the critical care unit.

Confused yet? You ought to be. But I think the main takeaway is that the heretofore somnolent markets were not prepared for these liquidation flows. While the unwind was taking place, it was all a big ball of confusion, and it looked for a time like all of the big dogs across the forlorn planet were getting out while the getting was good. The levered short vol liquidations, and the attendant confusion, lasted all week, and this, in my humble opinion, deeply exacerbated the carnage.

But matters would’ve been much worse had not the two houses of Congress gotten together in the wee hours of Friday morning to pass a budget resolution. It was nip and tuck there for a while, and it bears mention that an equity tape that by mid-day the following day had yielded an incremental >3% before its aggressive upward reversal, was well-poised to experience the bottom falling out. To those that may argue against this assertion, I ask what Friday’s close might’ve looked like if investors were facing the prospect of heading into the weekend with a full-fledged market meltdown/government shutdown staring them in the face.

But a budget resolution did pass, and, at least for now, the markets have recovered a bit. The Debbie Downers on both sides of the aisle are currently lamenting the all-out spending binge embedded in the bill, projected, as it is, to add hundreds of billions to our burgeoning deficit, and one can hardly blame them. There is already, as mentioned above, enough pressure on government paper to cause anyone paying attention to take notice. And, in the midst of all of these shenanigans, the Treasury held an auction of 10-year notes and 30-year bonds that went about as badly enough to gladden the hearts of the many bond bears of my acquaintance:

I reckon that the main inference we can draw from all of this is that on paper, a perfect storm of upward yield pressure appears to be forming on the horizon. There are as yet unclear but growing signs of inflation everywhere one cares to look. In addition, just as the Treasury is planning to issue paper to beat the band (as it must to fund the ever-widening deficit), its pals at the Fed are raising rates and selling down their balance sheet – to the tune of between $300B and $400B per year. It now resides at a beggarly $4.42T. This trend is expected to continue, as well, perhaps, it should. Us old geezers remember when the Fed holdings barely rose to the dignity of One Trillion, and of course, what comes up must come down:

Fed Balance Sheet: Look Out Below!

There’s also the odd chance that we annoy the Chinese and even the Japanese sufficiently to cause them to sell down the 20% of our debt obligations that they own. And, of course, it is at least theoretically possible that someday – maybe even soon – the ECB and BOJ will discontinue their QE programs, at which point it may well behoove them to start thinking about some balance sheet reduction of their own.

The confluence of these factors means that there should be galaxies of govies available for purchase over the coming months and quarters, and it might be reasonable to assume that this flood of paper will only move at lower prices and higher yields.

So, at magnitudes not witnessed for eons, the probability of a bursting of the bond bubble of thirty years running looks to be rising towards materiality. No doubt that this prospect is part of what’s all of a sudden scaring all those snowflakes out of the equity markets.

So why did I choose this moment to take the plunge? Well, for a number of reasons. As I’ve pounded into these pages for many months, I don’t think there is enough equity supply to meet demand, and I am fairly convinced that the imbalance will continue to grow. In addition, there’s earnings, now, with 2/3rds of the precincts in the books are projecting out at +14%. Sales extrapolate to a handy +8%. Also, guidance is sufficiently optimistic that CEO prognostications, combined with the (widely reported) selloff in equities, have brought forward looking EPS (16.3) down to just about the long-term average (16.0). Visually, the convergence looks like this:

Now, let’s understand that a significant portion of the happy 2018 income sooth-sayings are due and owing to the impact of tax reform. Some in my circle view these kind of adjustments as a form of cheating. Well, maybe so at 2875 on the SPX, but at 2620? Perhaps not so much.

I further believe that the political winds are blowing in such a way as to strongly incentivize a “kitchen sink” policy of economic expansion. Wherever else our honorable legislators disagree, they almost certainly share a dread of returning to their districts this summer with the economy on the down.

Bear in mind, they’ll be asking you for your money – to be invested in the worthy effort to ensure their return to office, and with this return, a continuation of the good works they undertake on our behalf. If the economy turns sour, ALL of them (well, almost all) are vulnerable, and this, among other factors, is the reason why what I truly believe was a budgetary cycle setting up as a nasty game of chicken turned into a combined love fest/spending spree.

But the big question remains: can this here 9-year rally, unquestionably fueled by cheap and sometimes free financing, survive/thrive in a normalized interest rate environment? Loyal readers of this publication are aware that while I believe the answer is yes, I have been much more concerned about the process of rising interest rates than I am about higher interest rates themselves. Pattern recognition suggests that while we probably can survive elevated yields and diminished bond prices, the Fixed Income selloff that is needed could be unpleasant or worse.

I retain this fear, but have forged ahead nonetheless. For what it’s worth, I kind of doubt that the hyper volatility period is over just yet. Investors entered the weekend in an advanced state of confusion, and, while a couple of days off should’ve done a world of good for them, I expect them to enter Monday’s proceedings as befuddled as they were when we left off on Friday.

But the lower the market goes, the more Beppie is ready to step in and do some buying. The SPX closed this week down 2% for the year, and I’m willing to put some money behind the proposition that a level such as this is a constructive one.

But again, it’s not up to me. Beppie is calling the shots, and my final bit of risk management advice is to avoid overtly pushing her buttons. To the outside world, she’s as well-bred and dignified a woman as you’re every likely to meet, but cross her one time and…

…forget it; you don’t want to know.

TIMSHEL

The Revenge of Snoopy

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Snoopy he lives in a doghouse outside of town,

And Metropolitan Life took his picture down,

Investors didn’t care – at least for a while,

But now the stock has tanked, you can see Snoopy smile

— with apologies to Rick Derringer and the McCoy’s

As foretold in these pages (and elsewhere), it was indeed a big week for investment data and flows. We’ve a lot of ground to cover, so we might as well get to it.

Let’s start with the big news, which I am perhaps the only prognosticator to identify: Snoopy’s back, and showing his ire. As reported in these pages a full 5 quarters ago, Metropolitan Life Insurance Company of New York (MetLife), made the retrospectively tragic decision to dump its iconic Snoopy logo – in favor of some sort of new age graphic/emoji thing. I warned the world it was a bad idea at the time, and for any doubters, I offer the following illustration, which should tell you all you need to know about this questionable stunt:

Metropolitan Life Insurance Company Logo: Before and After Version:

I mean, c’mon? Do I need to say anymore? Well, maybe I do. In terms of market valuation, the Company fortunes’ while not rising to the dignity of that of, say, Amazon, continued to rise in acceptable fashion:

But then came the Q4 earnings report, and whammo! It was good night nurse. The headline catalysts involved something about them taking a charge due to having under-allocated reserves associated with (among others) annuity obligations. But I have a difficult time understanding how a company, whose main job is to get these metrics right, and who, oh by the way, will be celebrating 150 years of continuous operation at the end of March, could’ve screwed the pooch so thoroughly this past 3 months.

My best guess, as indicated above, is that Snoopy finally decided to make his displeasure known. And felt. After all, he better than anyone, knows the ancient proverb (typically attributable to the sponsors of the French Revolution) that revenge is a dish best served cold. Sleeping on top of his doghouse as he does, Ol’ Snoop has probably felt the bitter, chilly winds of early 2018 as much as anyone, and may have figured that the time had come to make his move.

Moreover, if I’m correct on that score, then Charlie Brown’s BFF must’ve decided to throw some shade on the entire global capital market, which (in case you missed it) suffered its worst week in several years, with our major equity indices dropping, in round numbers, 4%. Most of the carnage, of course, transpired during Friday’s ghastly session, and after a jobs report that not only showed impressive gig creation, but also evidenced, for the first time in several years, some bona fide upward pressure on wages. The confluence of these factors catalyzed another pattern absent from the proceedings in more than a decade: a contemporaneous selloff of both stocks and bonds:

So perhaps investors can be forgiven for being a little bit spooked here – particularly with the infantile behavior of our betters in Washington appearing to be reaching new, heretofore un-breached crescendos. I’ll spare you any (or much) commentary on this memo psychodrama. But let’s just agree for now that the sequence: a) is at best an unhelpful distraction to our return generation efforts; and b) is not likely to have run its course just yet.

Moreover, I do have some concern that with everything else we see transpiring, investors may be ignoring the looming (this coming Thursday) next round of government shut-down pantomime. In fact, I myself am a little bit worried here.

If I read the fallout from last week’s nose to nose budgetary battle, Team Schumer emerged with some egg on its collective faces, and have vowed to stand firmer this time ‘round. I don’t see a framework for the two sides coming together a second time in little more than two weeks. Best case, they may push through another temporary resolution, but this whole thing is getting beyond distressing. Both sides are dug in on this Immigration throw down, and you can be sure that this demagogue dance won’t end this week. Plus, the memo thing has done nothing to lower blood pressures on both sides of the aisles. Finally, if, as is likely, there’s another very short-term extension, all it does is set up for a more serious round of Thunder Dome next month, when our Treasury projects that it will actually run out of money.

In light of the foregoing, it’s perhaps small wonder that, higher interest rates notwithstanding, the USD cannot catch a bid for love nor money, and that even our much-beloved High Yielders are taking in water:

USD Dollar Index and High Yield Bond ETF: America to the World: Don’t Touch our Junk!

But I’m here to tell you that all is not lost. In fact, I rather believe that the big Groundhog Day stock puke is on balance a positive development. If nothing else it shows that such a thing (>2% selloff in the SPX) is, at any rate, possible. Moreover, while all of this hand-wringing was transpiring, the Q4 earnings juggernaut continued apace. There are a lot of ways to illustrate this. For instance, as of now (about half way through the sequence) the SPX is projecting out an impressive >13% year-over-year gain. In addition, and with respect to the critical metric of forward guidance (for Q1 2018 and beyond) we are in the midst of the largest intra-quarter upward revisions to bottoms up earnings in more than 15 years:

So it strikes me as funny, in a perverse, 2018 sense of the term, that those who have been whining about a lack of downside volatility are now complaining when a little bit of it manifests itself. I’d be happy to blame Facebook, Twitter, CNN, MSNBC, CNBC, NBC, CBS and ABC for this inconsistency of logic. In fact, I’d be happy to blame just about anyone other than myself.

We are facing some rocky conditions, though, and if I was going to worry about anything, it’s the afore-mentioned unresolved budget dynamic – transpiring, as it is, against the backdrop of a political dynamic characterized by an anger that is augmented by nothing except perhaps more anger.

For these reasons, next week may continue to be a rocky one, but from where I sit, and though there may be more downside pressure in the coming days, I believe that incremental buyers of stocks at these levels or lower will soon have cause to believe they made a wise choice to dive in at these valuation thresholds.

Yes, Snoopy is still out there and may not be done demonstrating his wrath, but I suspect that even this hot flash will run its course. I believe our favorite beagle will indeed regain his equanimity and, when the weather warms up, will take his place at shortstop, extending his stature as the only competent player on a Peanuts squad that features only 16 opposable thumbs (not one of them belonging to him). If you doubt this, just ask him. But don’t expect an answer, because he probably won’t even speak to you.

Then again, he never does.

TIMSHEL

Alpha-Beta City

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Yes, Alpha-Beta City; not Alphabet City, but perhaps we’ll begin with a word about the latter. For the under-initiated, it is a term generally associated with an area on the Lower East Side (bounded on the North by 14th Street and on the South by Houston) of Manhattan, where the Avenues are bestowed alpha, as opposed to (as is the case with most of the rest of the borough) numeric, monikers. The marvelous conveyance of Google Maps offers the following illustration:

Sorry; Couldn’t Resist Throwing in The Satellite Image Next to the Regular Map:

For eons, the neighborhood has had the rep of being one of NYC’s grittiest (and thus the hippest), and knowledge of the area (to say nothing of actual residency) has always been a goal to which locals seeking Street Cred have aspired.

It is comprised of 4 (more or less) North/South thoroughfares, named in ascending order – from West to East — as Avenues A through D. I was discussing this hood with a very close friend (with whom I was having lunch at a quaint restaurant in the anti-Street Cred locus of Fairfield County, CT), and he informed (or perhaps reminded) me that, back in the douce, hipsters hung the pseudonyms Aware, Beware, Caution and Death on these roads.

Perhaps those handles remain in place to the present day. I don’t know, because, on the Street Cred scale, I cannot at present rate myself anything higher than a Gentlemen’s 5.

As I never lived in Alphabet City, I might not even place myself at that lofty threshold if it were not that for a few months in 82/83, I dated a girl: Laura, who was actually a resident. She was a cute, lively little thing, and one of the main points of mutual attraction was the fact that we shared identical dates of birth (11/04/59). She also graduated from the University of Wisconsin at the same time I did, but I didn’t know her there. We were introduced by mutual post-graduation eastbound Badger acquaintances. At the time, she was pursuing a dream of being a punk photo journalist, and her career had progressed to the state that she worked the counter at Grand Central Camera – adjacent to the eponymous train station. I, of course, was cooling my heels Uptown, and slogging forlornly through the first semester of the Graduate School of Economics at Columbia University.

Still and all, there was something about her. She never came to me, but a couple of times a week, I’d take the Lexington Avenue Line down to St. Marks, and trudge up the six flights of stairs to the cold water, two-bedroom flat that she happily shared with about a half a dozen strangers who had become her roommates.

The entire setting was not, shall we say, conducive to the bloom of romance, and I’m not gonna lie: the street in front of her building was an open shooting gallery that frightened the living daylights out of me. But there she was, all 95 pounds of her, entering and exiting at a whim all hours of the day and night.

In the end, if memory serves, she dumped me. And who could blame her? What was a could, a big, goofy L7 grad student offer to a hip downtown chick such as herself?

But I didn’t come here to write about Alphabet City. I’m much more interested in the topic of Alpha-Beta City, that psychic purgatory where most of my clients spend nearly all of their waking moments.

As this remarkable January comes to a close, I hear a crescendoing chorus of self-flagulation from a number of investment quarters that, year-to-date, their portfolios are generating negative Alpha. Again for the under-initiated, this refers to a condition when performance falls short of the returns of the market, as adjusted by the net Beta configuration of a basket of securities. To further illustrate, with the SPX having thus far generating a gain of ~7.5%, a portfolio with a Beta of, say, 50% would’ve had to have produced year-to-date performance of >3.75% to be on the sunny side of the Alpha Street (not, for what it’s worth, located in Alphabet City). If your year-to-date gains only rise to the dignity of, say, 3.0%, it implies a cumulative 2018 Alpha of – 0.75%.

Kind of a kick in the head, no?

I’d like to take this opportunity to implore those in this position to temper their self imposed-negative judgment with the higher quality of mercy. Because, you see, this is NOT an Alpha-generating tape. By my reasoning, it would have taken a combination of nearly unachievable clairvoyance and imprudent position concentration to have gotten north of the Alpha Mendoza Line thus far in 2018. I have a few clients who have reached this Nirvana, but even they are skeptical as to how it happened. To the rest I say, cheer up. By way of perspective, you might’ve traded at a -50% Beta this month and produced a loss of 2.0%, and, under the perverse protocols that govern Alpha-Beta City, you’d have generated a positive Alpha of -1.75%.

Would you have been happier under these circumstances?

My point here is that when the broader market is turbo-charged to the upside, it’s wise to dial down your Alpha expectations; capturing a meaningful portion of the Beta ride should be sufficient for your purposes. As mentioned last week, with the Gallant 500 annualizing thus far in ’18 at well over 100%, one needs to make some allowances, as further described below.

First, let’s all agree, once again, that Mr. Spoo is highly unlikely to do a double or better this year, and if we’re correct on that score, then we’re in for, best case, some leveling of valuations in the coming months. The good news here is that while a flatter or (heaven help us) more two-way tape will likely to be dilutive to benchmark returns, all other factors being equal, it should give some lift to that infernal Alpha metric. So cheer up.

Perhaps more importantly, and as has been the case for quite some time now, the extraordinary upside skew of the markets carries the unfortunate but undeniable consequence of causing nearly all standard risk models to to understate forward looking investment loss ranges. As a long-tenured risk manager, allow me to be the first to state that our (on balance) poorly calibrated exposure estimates are littered with extrapolations that the near future will resemble the immediate/recent past. We apologize for this, but for now, I fear, it’s the best we can do. As a case and point, somehow, some way, the year-to-date Downside Deviation of the S&P 500 has managed to undercut last year’s microscopic thresholds, and now clocks in at a barely pulse-registering ~4.0%. This lack of negative price action works its way into our analytics in both direct and stealth fashion. And as long as this suppression continues, well, again, your Vols, Implied Vols, VaRs, Betas, Gammas, Deltas and such, are all distorted to the downside.

On the other hand, and as I’ve conveyed to many of you personally, I don’t necessarily see any signs on the imminent horizon of risk normalization. True, some of the macro numbers (GDP, New Home Sales) are coming in a little squishy, but earnings have been nothing short of a blowout. With 24% of SPX Companies reporting Factset is showing record Upside Revenue surprises:

Earnings are on a similar trajectory. A quarter of the way in, we’re looking at +12%. All 11 Industry Sectors are participating, and even those few laggards that are missing estiments are showing on average no worse than flat prices over the next couple of trading sessions.

This is not a tape, lofty valuations notwithstanding, that I’d wish to be short.

Yes, there’s other weird doings about which to concern ourselves, none perhaps so perplexing as the apparent gravitational pull of the earth on the USD. We all bore witness to our Treasury Secretary’s perhaps ill-advised (though unambiguously misinterpreted) comments about the relationship between FX levels and trade, and let’s just agree they weren’t helpful. But I don’t worry too much on that score. Nobody wins if the dollar collapses, and my guess is that it not only stabilizes, but perhaps regains some of its vigor in the coming months.

The big action this coming week will divide itself between earnings and a good deal of information to process in domestic Fixed Income markets. With respect to the latter, there’s the odd chance that bonds may move on whatever the Trumpster has to say at his (prematurely vilified) State of the Union Address. The following morning, our Treasury will announce its near-term funding plans, with the expectation of plans to dump an unusually large supply of new paper on the markets. That afternoon’s (Wednesday’s) FOMC meeting does not portend (at least according to the consensus) another rate hike, but it will mark the passing of the gavel from Chair Yell to Chair Pow, and will bear watching on that score alone. By Friday morning (Groundhog Day) we’ll not only learn how much winter we have left, but will also get our first look at the January Jobs picture.

That’s an awful lot of bond news to digest in a single week.

And on the whole, there’s no denying that here in Alpha-Beta City, strange days have found us. My best advice is to filter out the noise, make your trades based on your best, if necessarily fallible, judgment, and let the Alpha chips fall where they may. I would perhaps size things a little bit smaller – if nothing else as a nod to the above-mentioned current tendency of risk models to understate potential loss. But please don’t try to predict a turn (I promise you that you have no edge there), and while we’re at it, it would also be wise to dampen expectations with respect to the efficacy of hedges.

I mean, from what I understand at any rate, even Alphabet City has fallen victim to inexorable gentrification. The shooting galleries are gone. Entrepreneurs have renovated the walk ups (and jacked up the rents), and on the whole, the neighborhood now looks indistinguishable from virtually every other posh and largely unaffordable section of Manhattan.

And as for Laura, I never caught up with her again. About a year after the above-mentioned dumpage, I do recall walking in to Grand Central Camera and asking for her. She was nowhere to be found. Perhaps she realized her dreams, and I certainly hope she did), but probably not.

Maybe, on November 4, 2019, we’ll rendezvous one last time to celebrate our 60th.

After all, stranger things – inside and outside of Alpha-Beta City — have happened.

TIMSHEL

The 27 Club

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“Long ago, and oh so far away, I fell in love with you, before the second show”

— from “Superstar” (by Leon Russell and Bonnie Bramlett)

Don’tcha remember you told me you loved me, baby? ‘Course you do. How could you forget?

It was after the first, but before the second, show.

And as for me, your words are burned into my brain. In fact, as I also distinctly recall, you said you’d be coming back this way again, baby.

And you never did.

Well, at least I still have the song, but at this point, the singer could’ve been anybody. Perhaps it was Delores O’Riordan, the fabulous, fetching lead singer of the Cranberries, who left us so tragically and unexpectedly last week.

Or maybe, reaching back further, it was the even more fabulous and (to me) more fetching Janis Joplin. I mean, after all, Friday marked the 75th anniversary of her birth. Yes, on the whole, I think we’ll go with Janis, because, after all, there was only one Janis.

As part of her vast legacy, Janis, along with Brian Jones, Jim Morrison, Jimi Hendrix, Robert Johnson, Amy Winehouse and so many others, is a charter member of the 27 Club – Superstars that shed their mortal coils during their 27th year. On the brighter side of the ledger, we still can hear her voice.

Or maybe it’s just the radio.

In any event, we can also take comfort, this winter weekend, that one of our most stalwart companions managed to escape the fate of the other 27ers listed above. And here, of course, I am referring to our old buddy, Mr. Spoo, who not only survived 27, but in fact breezed through it, unphased, in little more than two weeks. To wit: he blasted for the first time into the XXVII handle on the first trading day of the New Year, and never looked back. Instead, like the precocious elementary school student who finds his grade’s current class load to be somewhat redundant to his erudition, he skipped right into the 28th parallel — without breaking a sweat.

Visually, this sort of thing looks like this:

SPX 27: We hardly knew ye!!!

But Mr. S is not alone in terms of his precocity. Yes, he’s up an impressive 511 basis points in a 2018 that is still in its infancy, but he’s actually trailing his main frenemies General Dow (+547) and Captain Naz (+627) in terms of his scores.

Perhaps all of this is getting a little bit silly. The recently reconstituted propeller heads at General Risk Advisors Jet Propulsion Laboratory (located in the shopping mall next to the train station in Wilton, CT) have calculated that year-to-date, the annualized return for the Gallant 500 exceeds 136%. We tried to do the same calcs for the Dow and the Naz, but the propellers on our hats flew right through the ceiling and are now following the Jetstream over Greenland.

Now, my loves, there are very few specific prognostications that I am willing to make in these troubled times, but one of them is as follows: across the fullness of 2018, the SPX will have difficulty generating a return of 136%, or even 130%. In fact, my own models indicate that it will do well to hit 120%. As such, I am recommending against the purchase of 2018 SPX calls with a strike price above 6,000 (unless, of course, you can buy them at a cheap vol).

And after all, it’s not like there aren’t a few things that could go wrong in the ~11.5 months left to this year. If you’re like me, you awoke this morning to the tragic, unthinkable news that the big D.C. dogs were still unable to come to a budget deal, and that as such, the custodians of that galactic, precision engine known as the United States Federal Government will begin, like Dave did to HAL in the movie “2001: A Space Odyssey”, the solemn process of shutting it down. For most of us, this pantomime has long since passed its “sell-by” date. And yes, for what it’s worth, I do believe that Chuck and Nancy have overplayed their hands (and probably know it) by shoe horning a resolution of this DACA drama into what should be an entirely mechanical proceeding. You can’t really blame them much, though. We do have an important election looming, and, dating back to the Paleoanthropic Era of the Clinton White House/Gingrich Congress, these shutdown affairs have redounded to the political detriment of the Republican Party, and to the benefit of their opposite numbers.

My guess is that we’ll quickly get past this crisis, only to relive it again in a matter of weeks. And even if the debate lingers unresolved, about the only inconvenience this is likely to evoke is a possible delay in the release of economic data – particularly the first look at Q4 GDP, currently scheduled to be announced on Thursday. A postponement of the distribution of this report would be, however, somewhat disappointing, because: a) the models are perking up; and b) the markets should sure use a shot in the arm (couldn’t they?).

But even so, we’ll still have earnings reports upon which to obsess, and, with 10% of the precincts having reported, the numbers are thus far encouraging. True, the banks had to do a one-time set-aside, but virtually everywhere else, the bells be a-poppin’. It starts to get interesting over the next couple of weeks, and, as always, I’d pay as close attention to guidance as I would to profits and sales.

In particular, I’m looking for signs of what I believe to be shaping up as the biggest capex spend since before the crash.

Briefly, elsewhere, there appears to be welcome pressure on government bonds, commodities are showing signs of life, but that poor old dollar appears to lack the ability to source a bid for love or money.

DXY: Whistling Dixie

So maybe it’s our Dead Prez singing that line: “don’tcha remember you told me you loved me baby?”. Well, it says here that somewhere, some way, a bid on the greenback will materialize. And, while we’re on the subject, it is at least theoretically possible that Mr. Spoo will someday find himself “on offer”. At prevailing levels of 2810, this means if it happens soon, he could find himself back in the 27s.

And, in conclusion, if history has taught us anything, the 27 Club is not for the faint of heart, so take care, be forewarned, and, as always…

TIMSHEL

The Tip of the Spear

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Loyal readers of this column are well-aware that its author is obsessively fixated upon anniversaries. We’ve celebrated a goodly number of these over the years, and this river is likely to continue to flow. As ’18 unfolds, we will mark a number of events 50 years in the past, because, well, because 50 years ago it was 1968, and let’s face it, 1968 was a big year.

This week, in slight misdirection, I’d like to begin by drawing reader attention to the 50th anniversary of Johnny Cash’s historic concerts at Folsom Prison: a cozy little enclave for convicted felons located just northeast of Sacramento, CA. In a gesture that I reckon could only be conceived by timeless cultural geniuses, on January 13, 1968, JCash performed two concerts at the notorious facility, and converted the recordings into a magnificent album. It was, to the best of my knowledge, the first time a bona fide superstar performer chose a venue of that kind to practice his craft. It’s important to understand here that while Johnny was a hard livin’ man, he was no jailbird. His history included many arrests, but no extended incarcerations. The record shows that over his decidedly rocky journey through adulthood, he spent, in aggregate, about one week in the stir; none of it in a maximum security state penitentiary. Still and all, one can safely assume that The Man in Black knew his audience that day. And that they knew him.

If you listen to the record (and here, if you wanna go full legit, vinyl is the only way to roll), you can feel the energy popping out of the grooves.

In an elegant little twist, Johnny was made aware that one of the prisoners, the otherwise forgettable Glen Sherley, had written a pretty catchy song called “Greystone Chapel”: an ode to the religious sanctuary situated inside the walls of the jail. Cash heard the tune, rehearsed it, and played it during the show – all as a surprise to its composer.

To my way of thinking, it was a classy gesture. It’s in moments like these, rare though they may be, that the invisible threads across our existence come together to form a magnificent tapestry. But more than this (and forgive the clucky transition here), it might very well have marked the tip of the 1968 spear: the point of the projectile pierces that the intended target, and brings about whatever outcomes the Good Lord intended. As mentioned above, 1968 was an eventful year, as 2018 also shows promise to be. But bear in mind that the show took place in the first half of January: the spot on the calendar where we currently reside. A great deal transpired over the remaining months of 1968, and, when it both mercifully and wistfully melted into 1969, one could not help but note with wonder all that had transpired over the preceding 366 days (’68, was, after all, a Leap Year).

The current news flow features nothing so sublime as the Cash Folsom Prison concerts, but perhaps I’m just searching in the wrong places. Moreover, as this publication exclusively concerns itself with investment matters and nothing else, the time has come to leave JCash to his curtain calls — in front of some of the baddest hombres ever rounded up by law enforcement in the Golden State.

So, then, where might we find the tip of the market spear, these 5 decades hence? Well, as for me, I’m watching the long end of the U.S. Treasury Curve, as I believe that, come what may, it is the behavior of this instrument class that are most likely to pierce the current cross-asset class pricing paradigm.

Nine trading sessions into the new year, we have a very interesting/arguably bizarre, set of market patterns emerging. Equities, as everyone knows, are a one-way ticket to the penthouse, with the first two weeks throwing off seasonal gains not seen over similar intervals for 30 years. We’re up ~4% in this jurisdiction, but the same story can be told pretty much everywhere around the globe. Commodities, too, are ripping, with the GSCI eclipsing its 2015 high and even the disdained and energy deficient Continuous Commodity Index recovering substantially from a horrific December:

GSCI Commodity Index:

Commodity Continuous Index:

All of this Commodity Love, combined with some encouraging early returns on Tax Reform, have, indeed, caused a noticeable lift to U.S 10-Year yields. Indeed, rates for the on-the-run 2-year and 10-year notes have hit gone up in a straight line for several sessions:

Bonds on the Run: U.S. 2-Year and 10-Year Yields:

Now, with equities and commodities capturing a gratifying bid, and bonds selling off pretty broadly, one might expect the USD to be the recipient of some inflows, somewhere. But as I like to write, one wound be wrong on that score:

USDX:

As It happens, the U.S. Dollar Index closed on Friday at its stone cold dead 3-year lows. And one wonders why. Shouldn’t capital be flowing into the Dead Prez – to capitalize on those high-flying equities and to take advantage of the upward trajectory of rates?

I would’ve thought so too, particularly as rates in Europe and Japan are stuck at “play handball against the curb” levels.

I think that the lack of confidence in our unit of account is a tacit message to the custodians of our monetary policy: one of doubt in the latter’s ability to lift the back end of the Treasury Curve. And who can blame them? Their forbears have tried, and failed, to normalize rates for quite a while. Why should they view this here yield bump, or so the thinking goes, as being extendable or even sustainable?

They may have a point or they may not; only time and tide will tell. But I do think that the battle of longer term yields is where the pivotal action will take place in the coming months. Is the deflationary impact of technological innovation, truly, as some would have us believe, an inexorable and overwhelming force? Do the increasing signals of tightness in the Labor Market portend wage inflation, which may be the holy grail of the bond bears? While I don’t have answers to these imponderables, I will opine that if the combination of reduced Global QE, Fed Balance Sheet shrinkage, the inflationary outgrowths of lower taxes and growing profits and revenues don’t cause the long-awaited Pavlovian selloff of long-term government securities, well, then, I don’t know what.

However, if this geriatric bond bubble does finally burst, it should unleash long somnolent concepts, once experienced but long forgotten in this long-term memory impaired era.

This could take a number of forms, including asset allocation away from stocks and into bonds, increased savings rates, the re-emergence of two-way volatility, and (most blessedly) higher borrowing costs catalyzing a capital economy where there are material, identifiable consequences to enhanced risk taking. As such, it would stand in strong contrast to the current, anesthetized paradigm, under which a combination of historically easy finance and a one-way stock market covers for a multitude of sins. On balance, I think we’d all be much better off if those trends petered out.

But I must move towards conclusion on a note of caution. The beginning of the Fed balance sheet un-wind, combined with the surprise Chinese freeze on the purchase of our paper did indeed appear to put some downward pressure on bond prices/upward pressure on yields. But this past Wednesday, our Treasury Department undertook an historically successful 30-year bond auction, in which investors around the globe hoovered up $12B of our paper at astonishing premiums to the already elevated prices they were asking. Our G-Men are expected to accelerate their bond issuance over the next several quarters, and if this most recent experience is any indication, the possibility exists that curve may remain flatter than a pancake for an indeterminate period into the future.

In summary, while there are modest, encouraging signs that we have a spear tip with a point slick enough to pierce one of history’s longest running financial bubbles, the actual proof will be in the piercing, which, by all accounts, has yet to manifest.

On the other hand, JCash didn’t know what he unleashed in Jan of ’68. By early April, King Junior (whose life and deeds we celebrate tomorrow) was murdered. By early June, somebody did RFK in the kitchen of LA’s Ambassador Hotel. There were riots all summer, LBJ (whose words and actions make Donald J. Trump look like a Trappist Monk) decided not to run for re-election. Later that fall, we put Tricky Dick in the White House. As such, it pays, on this crazy planet, to keep your eyes wide open and to pay particular attention to flying projectiles which may, or may not, feature tips that pierce to the core of the object at which we are aiming.

TIMSHEL

Transanimation

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Welcome to 2018, everyone. I hope you enjoy your extended, but necessarily finite visit. I suggest you take this opportunity to look around and absorb your surroundings. You’re gonna be here – for a while, anyway – so it wouldn’t be the worst idea to spend some time getting a general feel for the place. It may look familiar, but trust me: there are unknown portals, nooks and crannies, mazes that lead to nowhere, and the potential for surprise around every corner. As your self-appointed host, I’d like to be in a position to provide you with a detailed and comprehensive topographical map, but the plain truth is that I’ve just arrived myself, and am myself still surveying the totality of the premises.

I am well-aware that the current physical comfort index leaves something to be desired, what, with record cold descending upon much of the landscape. But this much I can promise you: it won’t last for the duration of your stay. The weather will indeed improve, and though I don’t like to promise, I’m pretty certain that some of you may even get some beach time in before you take your leave.

Your initial impressions may reveal little change — relative to your recently departed realm of 17. And you’d be wise to note not only the similarities, but also their implied continuity. For example, human behavior continues to trend towards the unfettered and unhinged. They’re still yelling at one another in Washington. Back-benching strongmen rants ensue apace. And our overfed, over-indulged psyches continue to run wild. For example, pursuant to today’s theme, I note the ever-expanding tendency for members of our species to redefine themselves to match the troubled inner workings of their brains. Over the last couple of years, the tsunami of focus on gender redefinition has catalyzed such trends as proclamations by certain individuals that, DNA notwithstanding, they have chosen to identify, racially and ethnically, with groups other than those genetically bestowed upon them by their forebears.

OK, where do we go from there? Well, in the fall of 2017, there was an explosion in a concept called Otherkin, under which homo sapiens have determined that in their heart of hearts, they are not homo sapiens at all: rather, they are lions, tigers, bears, and yes, even manatees.

Done and done? Uh, no. On January 1, 2018 – New Year’s Day no less – I uncovered a concept called transability, or, to apply the more generic medical terminology, Biology Identity Integrity Disorder (BIID): a phenomenon involving poor souls who, though being blessed with fully functioning bodies, nonetheless identify as being disabled. They feign paralysis and sit in wheelchairs. As Tommy once said, they “put in their earplugs, put on their eye shades and know where to put the cork”. Presto! They’re blind deaf and dumb. The real legit ballers in this crew actually go so far as to maim, themselves, and I read about one guy who even cut his arm off to prove the point.

So we enter 2018 with only one threshold left to cross: life itself. As such, I’ve created a concept called transanimation, under which certain living individuals identify themselves as dead. Presumably, this paradigm has been in place since time immemorial, but fair warning: don’t try to steal this idea from me because, well, I know where you live.

Thus, from a number of perspectives, 2018 might fairly be viewed as an extension of its predecessor – only more so. And this, at least in part, means that the verifiable realities we confront can simply be re-engineered according to our tastes, moods and predispositions. What, after all, is a cryptocurrency other than an effort by put-upon economic agents to redefine modes of exchange to better suit their agendas? But I have nothing constructive to convey about crypto, so I’ll leave it at that.

However, other, more old-school market mechanisms also reflect the current mindset. Consider, for instance, the Equity Complex, which, both domestically and globally, came barreling out of the gates in gale force fashion, and looking like anything other than a negatively transanimated creature. Perhaps, however, the opposite can be said of the VIX, which rolled over to its lowest close of all time on Wednesday:

VIX: Thinks It’s Alive But is Really Dead:

Yes, the good times keep rolling for options sellers, but like their antecedents, they face at least a nominal risk that what appears to be death is actually hibernation. Perhaps this lasts all winter, but on the other hand, and even so, the VIX Bear could wake up in the spring hungry and angry.

If so, and if history indeed is any guide, it will presumably know exactly where in the investment universe to attack to satisfy its urges.

Copper: Not Coming a Cropper

With all of that equity buying out there to distract our attentions, there wasn’t a great deal of side action with which to concern ourselves. Bonds were pretty flat. The USD remained moribund on the canvas. There was some discernable activity in the Commodity Complex, with even the long shunned grains managing to capture a late week bid.

But the big action was in Metals – particularly Copper – now comfortably trading at > 3-year highs.

And, while we’re on the subject of Commodities, can somebody please explain to me what in heaven’s name is going on in Natural Gas? I mean, please. Just when it looks like the inclement weather would offer some relief to this beleaguered instrument: a) first comes the snow; b) then come the frigid temperatures; and then, in a sign of the times, investors decide to stage a fire sale of their inventories, and short sellers jump on board for the ride.

Time was that Nat Gas was THE market to trade, but this era appears, at least for the present, to have been de-animated.

The Unnatural Behavior of Natural Gas: 

By this past Friday, we got our first glimpse of year-end macro picture. The December Jobs Report came in at solid, but uninspiring levels. Market participants checked the box and then resumed their buying frenzy. Now, presumably, ‘tis the season to turn our collective attentions to earnings, and the default expectation must shade towards the extension of the rolling good times of 2017. The process, in time-honored fashion, unfolds slowly, starting next week, and then accelerates to its crescendo around the end of January. Expectations are about as giddy as this old boy can ever recall them being, in part as evidenced from the following metric:

If I read this chart correctly, then the glide path of earnings estimates (which typically trend downward within a given quarterly cycle) across the quarter appears to be as favorable as they’ve been in about seven years. I’m not sure how much of this is a technical nod to the new tax regime, but it also appears to reflect a pretty encouraging trend line for business activity.

I reckon we’ll find out soon enough.

Four trading days into this annual cycle offer some time to get a feel for this 2018, but only a partial one at best. For what it’s worth, I read over the weekend that: a) the holiday-shortened start outperformed every full week in the fabulous, dearly-departed year of 2017; and that b) every year since 1950 which begins with 5 straight up sessions has ended with positive index returns, with the average gain clocking in at 18.6%.

So, from this perspective, and if one places faith in this sort of pattern recognition, tomorrow is a big day. But, on balance, I wouldn’t take any drastic steps to anticipate what comes next; let’s instead follow my original advice and take a look around a bit. However, if the market forecast calls, as it does, for warm and sunny conditions, you can’t help yourself by putting on your heavy weather gear. There may be an appropriate time to do so, but taking this step prematurely is likely to create only discomfort, aggravation and (worst of all) lost time.

I close by reminding you that in this new era of transanimation, the flows only go one way. Much as they might wish to do so, the dead cannot identify as the quick. And it strikes me that this is true not only in biology, but in finance and investment as well.

So look alive, be forewarned, and, as always…

TIMSHEL

Ice Bowl

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Well, first, of course, I want to wish everyone a Happy New Year. I do hope that 2017 was a good one, and you have my wishes (well, most of you do, anyway) that 2018 will be even better. But first we gotta get through this New Year’s Eve thing, right? And of course I’m spending it like I have every Sunday since time immemorial: sending out this silly note to a readership that has stuck with me through thick and thin (well, most of you anyway).

But (as sung by everyone from Ella Fitzgerald/Louis Jordan to Dinah Shore/Louis Jordan) Oh baby it’s cold outside. And getting colder. My research reveals that multiple parts of the country are already experiencing record low temperatures, and that a rapidly moving, incremental arctic blast that will hit contemporaneous to our seasonal rituals will render the Times Square Ball Drop the coldest one in history. I could go through an inventory of frigid temperatures expected across the fruited plain, but would rather lay the following picture on you of a Niagara Falls that is, for all intents and purposes, frozen:

So I reckon when I finish these infernal emails, I’ll just stay home. And watch me some football.

Touching on football, and with a dollop of irony, today marks the 50th anniversary of 1967 NFL Championship Game, a contest known to gridiron fanatics as the Ice Bowl. The game took place in Lambeau Field, Green Bay WI, with temperatures throughout hovering around negative 20, and wind chills doubling that carnage. In what would prove to be the final gasp of a magnificent dynasty, the Packer’s won: 21-17, on a last second touchdown by Bart Starr, who rolled into the end zone rather serenely after Guard Jerry Kramer managed to push Cowboys Defensive Tackle Jethro Pugh a couple of yards into the end zone.

It is the first football game I ever recall watching – at least with any awareness of the proceedings.

But here we are, 50 years later, freezing our asses off, and the NFL regular season just ending today. The Super Bowl is a month off, and though it will be played in Nordic climes of Minneapolis, participants will experience the relative comfort of practicing their craft in a new-age indoor area, the naming rights of which belong to regional banking behemoth U.S. Bank Corp. While the specific contestants have yet to be identified, we are able to state with certainty that neither the Green Bay Packers nor the Dallas Cowboys will have made the cut.

Yup, a lot has changed these two generations, and, to borrow from the magnificent Lewis Carrol, matters, from a certain perspective, keep getting curiouser and curiouser. No, unlike the lovely Alice, we do not observe our bodies elongating, like a telescope, to the point where our feet are no longer visible, but that don’t mean we aren’t lurching up the curiouser scale.

Case and point (and here I’m looking for a show of hands): who, going into the beginning of the year, had the SPX closing at 2673.61? Now, don’t be shy; faint hart, after all, never won fair lady. Howsabout the U.S. 10-Year at 2.41%? EURUSD at 120.00? The Dollar Index down from 103 and change to 92.30?

OK, here’s an easy one: who had Bitcoin at $12,314.70?

Who, for that matter, had the I-Phone replacement battery discounted to $29 – after the Company got caught red-handed having sabotaged the original power sources on older models? And, for what it’s worth, what did my buddy Joe know about this?

But hey, that’s the kind of year it’s been. The Gallant 500 fell about half-a-league short of everyone’s fondest hopes, but still managed to gin up a >19% gain for the year. Perhaps in a nod to those frozen football warriors of 50 years ago, it was outpaced by the quaint, anachronistic Dow, which not only rose 25%, but did so on Lilliputian volatility of 6.6%, and sub-atomic Downside Deviation of 4.0%. At no point during the year did the Dow, the SPX or the NDX print a single trade at a price below its closing 2016 threshold. Somebody check me here, but I don’t think that has ever happened in modern market history.

As mentioned in previous installments, this type of performance is decidedly not the norm. Most investment pools are fairly content with 10% annual benchmark returns, and expect to accumulate these in a volatility range, both upside and downside, in the mid-teens. So, for our favorite indices, we’ve managed to stroke double the performance bogie on about 1/3rd of the expected volatility. Extraordinary.

So what can we do for an encore?

In reasoning with my learned colleagues, I find that there is a consensus (to which many of said learned colleagues do not adhere) that we ain’t done yet. My thrice-mentioned learned colleagues are more wont to look down their collective noses at various valuation metrics, all of which seem to suggest that: a) a downfall is in the offing; and b) all that remains in doubt is its timing.

Well, on balance, I agree with them. The bible (specifically Proverbs 16:18) instructs us that pride goeth before the fall, and let me ask you: has there ever been a more prideful investment environment than the one we are now experiencing? Well, OK, I’ll spot you the late ‘90s, but that’s exactly my point. By my count, the late ‘90s ran all the way through December 1999, and even then the valuation boilers were running at full throttle. It wasn’t until mid-spring 2000 that they began to overheat and eventually cool considerably.

So yes, the market will need to cool its jets, but if you’re gonna ask me when this cooling takes place, my best answer is not yet. One can view this as a grubby “consensus” opinion, but to my way of thinking, sometimes going with the consensus, and, while doing so, thumbing one’s nose at the “anti-consensus”, is precisely the most anti-consensus step on can take.

However, occasionally, my market sense rises above a simple determination as to which response to fashion-driven stimuli is most particularly suited to my dignity, and when I look at the key drivers, I see an investment environment under which, on balance, it will behoove participants to continue to accumulate assets:

  • They’re just aren’t enough of them out there. Lots of capital pools like their investment inventories, are hard-pressed to trim them, and more likely to add to their rolls at the slightest inducement to do so.
  • The economic recovery, now entering its 10th year, is by most measures either continuing apace or perhaps even accelerating; certainly the latter is true if one views matters on a global basis.
  • The following important inputs do not appear to be fully priced into valuations: o Q4 earnings, which everyone tells me are shaping up to be reaching blowout proportions.
    • Q1 earnings, which will start to reflect the corporate windfalls embedded in the new tax law.
    • The market benefits of the new tax law itself. Analysts estimates appear to be stubbornly unwilling to make the adjustments tied to the new rate, but they’ll have to.
    • Opportunities for a white hot capital markets cycle. Feel free to fry me in hog fat if corporations don’t use the tax windfall to: a) buy back more stock; b) go on an acquisition spree; c) increase dividends; or d) all of the above.
  • The sustained and likely sustaining impact of miniscule interest rates around the globe.

These, my loves, are all formidable tail winds for the markets, and, while something is sure to go wrong eventually, my experience suggests that it does not pay to predict the timing of these negative catalysts, no matter how inexorable they be.

So my word to the wise as we enter 2018 is to beware the compelling lure of the short side, and, for what it’s worth, this applies not only to stocks but also to bonds. We enter the new year with yields on 10-year notes about 1.3 basis points (0.013%) higher than they were precisely 12 months ago, and the same stasis applies to virtually every major bond-issuing jurisdiction on the planet. Meanwhile a titch of gravity has seeped its way into such macro metrics as Consumer Confidence, and our old forgotten friend, the Atlanta Fed’s GDPNow model.

It seems, based upon the foregoing, that it may take some sort of divine intervention to burst the government bond bubble, now entering its 4th decade, and when your investment strategy relies on help from above, it is as sure a sign as any that you’re in trouble.

We can do better, I think, by going with what we know. The 1967 Packers entered the frigid conditions of the Ice Bowl warmed by dwindling embers of a dying dynasty. They made one final push – against a team that would inherit their mantle of hegemony, and came out, improbably, on top. Lombardi soon departed the scene and died a couple of years later. The runs of Starr, Nitschke, Adderley and that great O-Line were at a close. They gathered themselves one last time, on their frozen home field, and completed their date with destiny.

And even then they weren’t quite done. Their 1967 Ice Bowl triumph bought them an invitation to a follow up game, at the time considered little more than an exhibition, against the Oakland Raiders, champions of the emerging but suspiciously regarded American Football League. The game, Super Bowl II, was played exactly 2 weeks later, in the sunny, inviting confines of the Orange Bowl in Miami, FL. Warm and confident, the Packers won that one too, by the comfortable score of 33-14.

There’s something perhaps we can take from this story, as we seek to warm ourselves on this chilly New Year’s Day. For the life of me, I can’t put my finger on it, but I can keep trying, and that, my loves, is sufficient cause for celebration in this veil of tears. So I take my leave for the last time in 2017, wishing you aHappy New Year, and, as always…

TIMSHEL

Sometimes a Great Notion

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“The story is told that when Joe was a child his cousins emptied his Christmas stocking and replaced the gifts with horse manure. Joe took one look and bolted for the door, eyes glittering with excitement. “Wait, Joe, where you going? What did ol’ Santa bring you?” According to the story Joe paused at the door for a piece of rope. “Brought me a bran’-new pony but he got away. I’ll catch ’em if I hurry.” And ever since then it seemed that Joe had been accepting more than his share of hardship as good fortune, and more than his share of sh*t as a sign of Shetland ponies just around the corner, Thoroughbred stallions just up the road. Were one to show him that the horses didn’t exist, never had existed, only the joke, only the sh*t, he would have thanked the giver for the fertilizer and started a vegetable garden”. 

— Ken Kesey –“Sometimes a Great Notion” 

Really sorry to do this to you, what, with it being Christmas Eve and all. But old habits die hard. I’ve seldom missed a week of sending out this Thoroughbred Stallion of a note, and, even though today’s offering may be nothing more than a Shetland Pony, I reckon this week is no exception.

I’ll dedicate it to old Joe: Joe Ben Stamper, one of the greatest characters in what may be my favorite book of all time: Ken Kesey’s “Sometimes a Great Notion”.

I highly recommend this novel to anyone who wants to place his her squarely on a piece of true terra firma. But you’ll have to be patient. Let the book come to you. It is written in a stream of conscious motif, with multiple characters, along with a narrator, telling the story from different points of view, at different times. Once you crack the code, if you’re like me, you won’t be able to put it down.

I read it first in college, and, while I have since consumed hundreds of works of literary fiction, this is the only one for which I can say, once I finished it, I went back to the beginning and began again.

One cannot help but admiring Joe Ben and his inexorable optimism, particularly given that the book’s title (and some of its content) assumes darker hues. The title itself is purloined from Hudie (Leadbelly) Ledbetter’s classic song “Goodnight Irene”, and more specifically from the verse:

“Sometimes I live in the country, sometimes I live in the town, 

Sometimes I take a great notion, 

To jump in the river and drown” 

Well (SPOILER ALERT), Joe Ben did end up drowning in the river, but it was no great notion of his; in fact, it was no notion at all. The very thought would’ve horrified him.

With ’17 winding down, I feel we could all use a little dash of Joe Ben’s eternal hopefulness, but this righteous quality appears to be in drastically short supply this holiday season. Everyone, instead, appears to be angry, and one wonders why.

Case and point: completing my cycle of obligatory holiday conspicuous consumption (as perhaps reaching its crescendo with last week’s viral news of my purchase of an I-Phone 8), on Friday, my wife and I copped a full drum kit, begging the question as to how we endured without one for so long.

The model I chose looks like this:

Pretty sweet set, no? But at the checkout line, I got into argument with the cashier when she positively insisted on trying to sell me one of those rip-off Extended Warranties.

An Extended Warranty? For a drum set? The sound that you hear is John (Bonzo) Bonham and Keith Moon executing a synchronized roll in their final resting places. I still plan on enjoying the purchase, and I don’t even play drums. But some of the seasonal tidings were lost in Warranty Episode, and I can’t help but feeling that this sort of buzz kill vibe is needlessly pervading our sensibilities, to no good purpose, in inappropriate forms, and certainly at an unfortunate point in the calendar.

Closer to our core interests, for instance, the Ruling Party managed, against considerable odds, to push through a pretty material piece of tax reform legislation this past week, and, in what can only be characterized as a double dip, even gathered itself to waive in a Continuing Budget Resolution which enabled the President to sign the Big Bill. But did the equity markets rally on this achievement? They did not. The Gallant 500 actually closed down a few basis points on the heels of the announcement.

Perhaps this is due to (presumably backed by the type of extensive voter analytics that catapulted Hillary Clinton to – well, back to Chappaqua) the Democratic Leadership’s desperate struggle to outflank one another in terms of hysteria-driven criticism of the initiative. Here, there was a clear winner, the Favorite: one Nancy Pelosi (D-Cali), who characterized the legislation as “the worst bill in the history of the United States Congress”.

Even Bernie couldn’t top that one.

But really Nancy? Worse than the Fugitive Slave Act of 1850, which forced indentured souls captured on free soil to be delivered back into servitude? Worse than the Alien and Sedition Act of 1798, that allowed for the wholesale imprisonment of non-naturalized immigrants, and made it a crime for anyone to speak out against the Adams Administration?

But apparently, for whatever we’ve lost during these troubled times, we have gained back in the form of unhinged political hyperbole.

Last week also featured a rude awakening for Bitcoin investors and other virtual currency enthusiasts. Everyone’s favorite (at least for now) non-asset asset dropped 25% on Friday, in part due to some mean things that former Hedge Fund Honcho/current crypto maven Mike Novogratz tweeted about the concept. Those that read the tweet all the way through (admittedly a challenge in the expanded 240-character Twitterverse) are aware that at the end of the “tome”, he characterized his selloff projection as “just pausing”. But no matter, the damage had been done.

Be that as it may, I have nothing useful to convey about Bitcoin, so I will leave it at that.

Soy Beans continued their rout, as did Natural Gas.

Soy Beans:

Natural Gas: 

Other markets were quiet, and presumably will remain so through the ball drop at midnight on 12/31.

So I think I’ll take my leave on a more Joe Ben-like note. I have a Great Notion that investors may be served up a pretty strong market in ’18. My repeated theory about the scarcity of quality investment securities is now so ubiquitous that I heard Cramer crowing about it on TV last week. All the macro figures are pointing upward, and not just in the United States. The good folks with whom I reason are telling me that Q4 earnings look like a blowout. And whatever else happens with this new tax regime, it is a windfall for most corporations, and Ms. Pelosi is right when she predicts that many will apply large portions of their newfound bounty to the continuance of their stock repurchase programs.

So the time may indeed be upon us to look past the sh*t served up in our stockings and towards the Shetland Ponies from which it issued forth. Joe Ben showed us how, keeping (SPOILER alert) his joyful spirit to the very end, when, though drowning, he actually died laughing. This holiday season, we could do worse than follow his example.

Happy Holidays to everyone, and of course, as always….

TIMSHEL