On November 27, 1942 – 75 years ago this past Monday — Johnny Allen Hendrix was born in the town of Seattle. Sometime during his 4th year, his parents changed his name to James, and, as everyone knows, during his brief but remarkable adult life, he used the handle of Jimi. For those who cared to notice, he changed the world.

Five days after his birth – 75 years ago yesterday by my count– a group of scientists working under the bleachers at the University of Chicago’s Amos Alonzo Stagg Field, initiated the humanity’s first ever successful nuclear chain reaction. The results were de minimus; the blast barely able to knock down a precariously positioned series of dominoes, but the concept had been proved. Pretty much no one able to fog a mirror could fail to notice that this milestone, too, changed the world.

The bigger part of me would like to believe that these events are related, because such a connection would imply that our affairs are governed by more than our finite, fallible responses to pseudo-random natural stimulus, and as such, bring us closer to God.

But I just don’t know.

However, as I ponder this series of Diamond Jubilees, it strikes me that chain reactions abound. Investors entered the week somewhat obsessed with two concepts. In no particular order, these were: pending tax legislation, and Bitcoin. The latter is based upon a chain reaction-like technology called Blockchain, which, whatever happens in the realms of digital currency, is likely to dominate our telecommunications affairs — until something better comes along. As for Bitcoin, though it hardly needed it, the virtual currency received an enormous boost this week, when the Commodity Futures Trading Commission (CFTC) approved its listing on derivatives exchanges, and both the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) responded by immediately announcing the launch of Bitcoin futures and options later this month. The Merc is my professional home, it’s where I grew up, and I owe it a debt of gratitude that I cannot reasonably expect to repay – at least in this world. So I wish them all the fortune that Heaven allows with their new product line.

And that – at least for now – is about all I have to convey about Bitcoin.

Those such as myself, with ids more firmly rooted in the past, focused their attention on the tax bill, and the ebbs and flows of valuations across asset classes appeared, most of the week, to be tied to the real-time prospects for its passage. By Friday morning, the majority announced that it had the votes –sufficient “ayes” to move it through the Senate, and thus to pass it back into Committee, where Obamacare-like, it will likely be altered beyond recognition: through a dainty little do-si-do with the lower chamber. This is a process called a Reconciliation, and more than that you don’t want to know. Thus, as the noon-hour approached, everyone’s eyes were giddily affixed on yet another stroll to all-time valuation records. But then…

…Sometime just after 11 a.m. EDT word came down that drive-by National Security Advisor Michael Flynn had pled out to the Mueller investigative team, and that, as part of the deal, he was prepared to give up some big names with respect to this whole Russia thing – including, perhaps (or so it was speculated) even the Trumpster itself. The ladies on “The View” broke into spontaneous on-air celebration, but the equity market sold off. Hard. Or at least what passes for Hard in these low volatility times. A little over an hour later, it stabilized, and then gathered itself sufficiently to close near flat for the session.

Touchingly, my phone sort of blew up Friday afternoon, as risk takers from every corner of the universe sought my wisdom on the episode. I’m not sure I had much to offer, but to those not looking for regime change, I could at least furnish the comfort associated with the unfolding reality that Flynn’s plea involved Perjury (as opposed to something more nefarious like Conspiracy with a Foreign Adversary), that the active sequence appears to derive from a point after the election (when, presumably, the act of an incoming National Security Advisor discussing matters with a Russian Ambassador cannot be viewed as a fatal breach of diplomatic protocols), and that if a real smoking gun had been revealed through the Flynn plea, the markets would be likely be crashing harder. This was about all I knew. And all I know.

On the other hand, the whole matter is beginning to eerily resemble the manner in which Watergate took down Nixon. Special Prosecutors start at the outer layers, and seek to create a chain reaction, which pushes their initiative closer and closer to their Ground Zero target. Yes, from my perspective, this here affair is assuming a similar trajectory, but I have little insight as to whether it limits itself to impacts that can be contained inside the walls of a small laboratory underneath a bad football team’s home bleachers, or expands, in Nagasaki-eqsue fashion, to threaten the destruction of whole civilization. As a risk manager, my sense is that the story will continue to ebb and flow, and that until the end game is revealed with greater clarity, most of the associated market action is not much more than unhelpful noise.

(Side Note: Comey must be feeling pretty smug right now. After bumbling his way through the 2016 election cycle – screwing up everything within his reach and p*ssing off everyone involved, he knew he wasn’t going to hack it in the Trump Administration. So he gets himself fired, and testifies before Congress in such a way as to, by his own admission, invoke the Special Counsel clause. He then dances off to Howard University (?) in an endowed chair, cops a 7 figure book deal, and sits back and enjoys the action. Nice work, Big Jim.)

Meanwhile, as all of the above was transpiring, other chain reactions were assaulting our senses. Take the sex harass pushback paradigm for example, a chain reaction that, depending on your point of view, originated with Weinstein. Or further back, to Cosby. Or even further back, to Clinton. Or even earlier, to Kennedy. Or, if as is probably the case, extending into the past all the way to the point when we first emerged from the primordial ooze. One way or another, it rolled on in an arguably accelerated fashion. This past week alone, it claimed a ubiquitous master of network news and a nice old fellow who takes to the radio to read stories he’s written about life in the heartland. It now is poised to devour the previously esteemed Music Director of the New York Metropolitan Opera and even perhaps that slick dude from “Entourage”. Where it ends, no one can say, but I suspect it will keep tongues wagging amongst the chattering class for many months to come.

Perhaps more importantly, and lest we forget him, L’il Kim emerged, after a 3-month hiatus – to lob a missile based upon the same chain reaction technology developed under that Chicago football field, into the Sea of Japan. Experts were quick to point out that his claims to be able to send WMDs pretty much anywhere within the civilized world had some merit. Trump said he’d take care of it, and here’s hoping he does. But one could, er, pardon him if he’s a little distracted these days, and as for me, I don’t see many alternatives that don’t involve us turning his palaces and military installations into non-functional parking lots. Not a pleasant prospect to ponder.

Yes, it’s all just a tad depressing – particularly as these freak show/peep shows are serving to distract us from what appears to be an accelerating global growth dynamic. With our biological bandwidth completely consumed by the machinations of Mueller, Flynn, Flake, Lauer, Kim and whoever it was that gave us Bitcoin, we missed a pretty fly string of economic releases. Home Sales/Valuations, Consumer Confidence, Business Confidence, Manufacturing Flows, and (last but not least) GDP all came in at the upper end of consensus or beyond. A close reading of the tape suggests that a successful round of tax legislation has not been fully priced into the market, and as such, if the Ruling Party can just get this one thing done, we’re probably looking at significant incremental upside between now and year end.

We do need to remain leery of these bloody chain reactions, though, but even here the news is not all bad. Last week’s note featured a diatribe about the outgoing Director of the dubious Consumer Finance Protection Bureau’s effort, as he exited, stage left, to name his own successor. The President justifiably countered this stunt, putting his own man into the job, and then, sure as the moon turns the tides, the outgoing Consumer Tsar’s heir apparent went to the courts to block the presidential appointment. However, for perhaps the first time in this administration’s tenure, the courts actually sided with the Executive Branch – under the obtuse notion that the nation’s Chief Executive is within his rights in naming his own staff. This drama may not be over, but let’s hope it is. Some of you will disagree with this notion, but the idea of a federal agency being able to set its policy into perpetuity – by simply having the current office holder name his or her own successor (and so on) is not the type of chain reaction that I believe the framers had in mind for us – all those years ago.

Other chain reactions will, presumably, endure, some visible to the eye; others not so much. 75 years ago, a poor black boy was born in Seattle, and grew up to set the music world permanently aflame. A week later, a bunch of scientists finished their efforts to create a process for setting the hottest physical fires known under the sun. The former, though dead for more than a generation, continues to delight and amaze; the latter, at least in its early days, was applied to end the most terrible war that mankind has ever known. Perhaps these things are connected through some cosmic chain reaction. Perhaps not. And all I can add, in conclusion, is a heartfelt…

…TIMSHEL

Let’ s begin with a favorite old joke of mine. It tells of a man who sits down on a plane next to an elegant woman wearing an enormous diamond ring. He asks her about it, and she tells him that it’s the Klopman Diamond: beautiful, one-of-a-kind, but that like the Hope Diamond (so she tells him), it comes with a curse. “What’s the curse?” he asks. 

“Klopman” was her reply. And that was all. 

In the early parts of my life (and for the record, I’m typing these words on my 58th birthday), I heard variations of this bon mot — mostly from my maternal grandmother – Sylvia Goldstein Manaster. She contributed 25% of my DNA, but its own chromosomal origins remain a partial mystery to me. I don’t even know for certain the name of her mother. Her father Louis, on the other hand, looms large in family legend. Through my middle and Hebrew names, I actually carry his moniker, and I can only thank my late mother for showing nomenclature restraint here. She could have gone the whole route and named me Louis, but then I’d have been forced to endure life with the handle of Lou Grant, and that, my friends, is a prospect too horrible to contemplate. 

Louie was, as a matter of heredity, 100% Litvak; all his ancestors can be traced that earthly Eastern European paradise of Lithuania, nestled as it is between the Edens of Latvia, Belarus and Poland, and featuring a modest but important coastline on the Baltic Sea. From there, it’s a short, if treacherous boat-ride to Sweden and Denmark. I’m not sure why the Goldsteins ever considered departing the land of their forebears, but somehow, they set their sights on Chicago. Due, however, to the idiosyncrasies of late 19th Century European migratory fate, Louie was actually born in London. The family was detained there over a multi-year period, so he was born and spent his first 3 or so years in England’s glittering capital. The Goldsteins did eventually make their way to the Windy City, and at some point during his adult years, Louie made some modest but rather savvy real estate investments on the city’s South Side. This set him up for life, leaving, alas, little of the spoils to pass along to his progeny. I, for instance, got nothing. 

But Louie Goldstein spent the better part of the late 19th and early 20th Century leading a comfortable existence, with even (if family history can be believed) a touch of elegance. It is said, for instance, that he never left the house without his top hat, spats, cane and other accoutrements befitting an English dandy such as himself. 

He died before I was born (how else could I have been named after him?), and even my grandmother resides only in the vague contours of my long-term memory. I do recall that she was a killer behind-the-ear scrubber, and that she still holds the record for cooking the driest briskets ever choked down by humanity. I also know that she loved me. I reckon that’s about it. 

But perhaps her greatest legacy to me was the whole Klopman thing, with which, having been raised by a Klopman of sorts, she had first-hand experience. As a Wall Street guy in general, and a hedge funder in particular, I’ve have also known many Klopmans, and, knowing them, have had innumerable occasions to recall the wisdom of our title theme. Yes, my loves, Klopman comes with the Klopman Diamond, and we can either acclimate ourselves to this reality, or find something else to do with our time. I, of course, have chosen the former path, and have few regrets. In any event, this late in the game, it would be difficult to change course. 

It doesn’t take much of a strain of the imagination to notice that the world in which we live appears to becoming increasingly Klopman-like. Impossibly wealthy but eternally irritating Klopmans are everywhere in our midst, and we are forced to accept both the gifts and annoyances they bestow upon us. However, for the most part, we appear no worse for the wear. 

If the equity tape can be read with any faith in the numbers, new Klopmans are being minted on an hourly basis. About 80% of the indices I track remain at all-time record highs. Rates are low and stable, and the good old greenback, after a difficult summer, is recovering some of its mojo. Commodities are all over the map – except the energy complex, which features many more Texan, North Dakotan and Arabian Klopmans than one would’ve otherwise imagined. With WTI and Brent Crude on a wicked rally, I expect more of these oily K’s will appear on the scene anon. 

There is a great deal of information flow coming at us this seasonally content rich time of the year. The big dogs of tech continue to bark, and let me give you fair warning: they’re gonna eat. On Friday, Apple, in the wake of its own blowout results, breached the $900B market capitalization threshold on an intra-day basis, before settling in at a rather tepid $891B. Does anyone doubt that they will power past the once-thought-unreachable “T” threshold, and soon? On balance, I think I’ll take the other side of that trade. 

The action was also fast and furious in what I’ll broadly refer to as macro-land. On Wednesday, the soon-to-be-lame-duck Yellen Fed, as expected, literally mailed in its stand-pat policy decision, along with written warnings that a December rate hike is a matter of near-certainty. The laming of Janet became official on Thursday, with the naming of Jerome “Jay” (never one to set Louie Goldstein’s Thames on fire) Powell as her successor. On Friday, the October Employment Report dropped, to the mixed delight of labor market observers. Jobs growth was strong, but not so much as had been hoped for. Hourly earnings were stagnant, and while the base rate declined, the decrease derived almost exclusively from a somewhat alarming reduction in the Labor Force Participation Rate. 

All of the above was arguably, er, “trumped” by Thursday’s Godot-like arrival of the House’s tax plan. Reading even the most general summaries of this gave me a raging headache, and after having done so, I had to lie down. Upon first glance (and I know it’ll break your hearts to read this), it doesn’t look like it’s going to save me any money. In general, the document looks exactly like the muddled mess that is probably about the best we can hope for in these truculent times. I won’t add much to the ocean full of erudition on the topic that has overwhelmed the blogoverse, but will point out that: a) after anticipated Senate handiwork and what is sure to be an energetic reconciliation cycle, what’s on the table now is likely to bear little resemblance to the final product; and b) I wouldn’t bet the ranch on passage of any tax bill of any kind. 

I should also add that I feel disenfranchised by the entire episode. On the one hand, the bill looks pretty sucky to me; on the other, even though it probably costs me money, I feel compelled to root for its passage, because a failure here creates potential political outcomes that I believe would be suckier still. 

At any rate, investors, for the most part, yawned. So there’s that. Meanwhile, as if a new Fed Chair, an FOMC decision, a big Jobs Number, etc. wasn’t enough Washingtonian cud for us to chew, we have other issues to contemplate. These include the prospect of our big best bros Google and Facebook being grilled by various committees for allowing, across trillions of information units and hundreds of billions in revenues, about $150K of Russian sponsored political advertising (out of an estimated $1.8B of aggregate political expenditures) to slip past the goalie. I consider this more in sadness than in anger. With each passing day, the afore-named companies are tracking, and to an increasing extent, influencing our every move — all with frightening accuracy. I expect that at some point, we’ll begin to notice t that – probably after it’s too late to do anything about it. 

Beyond this, and though it will be unpleasant, I’d suggest keeping one eye on the Trumpster as he boldly strides across East Asia. There’s a good deal riding on this trip, including the likelihood that it probably help advance the plotline of the current North Korean morality play. On a related and perhaps more important note, it will be the first meeting between the gentlemen who now are indisputably the world’s two most powerful. In a matter that drew little attention in these distracted realms, a couple of weeks ago, the once-in-a-generation Chinese Party Congress convened to bestow absolute, life-long powers upon General Secretary Xi Jinping, rendering him the most stone-cold baller dictator since, well, since Mao. How Comrade Xi plays his new hand is maybe about as important an issue for the global political and capital economy as any that comes to mind. 

But one way or another, I think we’ve now reached the point in the calendar when the solemn process of locking down prices and performance for year-end purposes is upon us. I don’t see any asset classes selling off much between now and 12/31, and some, including equities, may rise. 

All of which leaves just one question. Like I said, there’s a lot of Klopmans out there and more being created with every tick of the tape, but perhaps only on KLOPMAN. So who is he (or she)? Trump? Too much all over the map. Jay Powell? Please. Cook/Bezos/Serge/Larry/Zuck? Perhaps, but it may be too early to tell. Xi? Now that’s a good one, but in xenophobic America, this is likely for the moment an ethnic differential bridge too far. 

I have my own thoughts on the matter and they are as follows: We’ve met KLOPMAN and KLOPMAN is us. If we’re going to enjoy our diamond, we must be willing to live under our own curse. 

On a happier note, it is my hope; nay my belief, that we are up to the challenge. 

TIMSHEL 

You’re killing me. Again. You birds are killing me. In fact, you’re killing me so badly, I have a new name for you. You are killingbirds. Maybe not all of you, but definitely the tree-hugging, wing-nutting contingent out there, are, every last one of you, killingbirds. My protests notwithstanding, you keep flapping your flightless wings, and warbling out your one or two-note melodies. And I’m not sure I can take it anymore.

To the rest of you, I offer my heartfelt apology, but the killingbirds out there have left me with no alternative: before I go, I must mock you. In fact, I must mock you in wicked, Monty Python fashion:

Killingbirds: your father was a hamster and your mother smelled of elderberry.

So there.

I’m sorry to be so harsh, but this time you deserved it. Your coupe de grace took the form of an editorial published on the NBC website, which advocated for the removal of Harper Lee’s “To Kill a Mockingbird” from school reading lists – ostensibly because it provides validation for the questioning of a woman’s rape claims.

Now, I’m going to assume y’all are at least nominally familiar with Mockingbird’s plotline, which tells of a widowed father, the leading lawyer in the forlorn, depression-ridden nowhere of 1936 Monroeville, AL (current population: 6,519). It unfolds through the eyes of his then-six-year-old tomboy daughter: Jean Louise “Scout” Finch. The dual narrative describes her father Atticus’s loving attempts to raise his two motherless children, while courageously defending a crippled black man on a bogus rape charge. While it does not, to my thinking, rise to the dignity of a bona fide literary masterpiece, TKaM is a pleasing, satisfying read, capturing a moment in time, a place in history, and released at a point (1960), when America was most ready to receive its embracing vibe. It is also one of the few works where the film can truly be said to be better than the novel upon which it is based.

Until nearly the end of her long life, it was the only work the reclusive Miss Lee ever published (urban legend has it that the adorable, lisping Capote, who, somewhat improbably appears in the text as a neighbor/bestie, actually may have ghost-written the piece). However, shortly before her death last year at age 90, she uncovered among her personal papers a manuscript for another book “Go Set a Watchman”, which describes the lives of the Mockingbird characters 20 years hence. In it, Jean Louise is a grown sophisticate living in New York, who returns to the environs of her childhood to confront a number of demons, including the passive racism of her father.

There was considerable hype in the release lead-up for Watchman, and I dutifully bought it on the day it dropped. I thought it was a very good book, but the critics were disappointed. It sold a lot of copies, but beyond that, it is likely to be largely forgotten. Perhaps this is because the uncovering of Atticus as a bigot was too disturbing a development for Mock fans to process.

One ironic element of the backstory is the recently-revealed nugget that while Watchmen, in terms of the chronology of the storyline, is a sequel, with respect to the order in which the books were written, it is actually a prequel. Miss Lee wrote Watchman first, and publishers rejected it. They were, however, enamored of the flashback scenes from Scout’s childhood, and suggested she rewrite the book to focus on these.

Well, she went them one better and wrote an entire book about those earlier times. The suits greenlighted “To Kill a Mockingbird”, and it went on to sell 40 million copies. The film won 3 Academy Awards, including the Best Actor Prize for Gregory Peck, who forever will be emblazoned into our brains as the sober, steady, enlightened (and decidedly non-racist) Atticus Finch.

All of this should’ve been well and good, and in fact it was. Until our moral betters at NBC decided that one of the all-time most iconic works of racial tolerance is in fact a sexist screed that serves to delegitimize the claims of rape victims.

Who knew? And now we stand corrected. If we’re wise, we will learn for the experience and impute our original sin on the entire American experience – all ~240 years of it. Here, we will be guided by our morally infallible killing birds, and I’m sure we’ll all be the better for it.

While I copped my original paperback copy of Mockingbird at Barbara’s Bookstore on Clark Street, and paid cash, my purchase of Watchman was undertaken in an entirely digital fashion. Here, I availed myself of Amazon’s Kindle service, with amounts deducted from my Amazon Prime account. Based upon this past week’s news flow, there’s a lot of this latter-day form of commerce taking place. The eponymous, sponsoring company took to the podium this past Thursday to announce a quarterly earnings performance 7.5 times the Street’s consensus (53 cents actual vs. 7 cents expected). The company also reported blowout revenue increases from its core shopping business, which shipped, or zapped, $26.4B of product this summer. But get this: Amazon Retail actually lost money in the quarter. The entire profit margin (and more) was made up by the performance of Amazon Web Services, a charter member of the oligopoly that is set on a technological takeover of the world.

And AMZN was hardly alone. On that same fateful Thursday afternoon, The-Alphabet-Formerly-Know-As-Google clocked in with shockingly strong numbers, as did Microsoft and Intel. The nexus of these tidings, as perhaps was to be expected, catapulted the U.S. equity complex from what was shaping up to be an “off” week, to yet another jolly romp to all-time records. And I doubt that the romp/ramp up is over – yet. Apple and Facebook report next week, and the former, having finally busted out the exorbitantly expensive X phone, enters the sequence with the tailwind of having sold out the product in a matter of minutes. With respect to the latter, while no particular previewing nuggets have come my way, I… kinda… suspect …they’ll have a happy story to tell.

Last week, in fact, featured happy talk – not just in equities, but virtually everywhere one cared to listen. Hurricanes notwithstanding, the first glimpse of Q3 GDP reached into a heavenly 3 handle. Other macro statistics also brought tidings of growth, with Durable Goods Orders and New Home Sales both coming in at the upper range of estimates or beyond. Draghi addressed his minions mid-week, to announce modifications to QE, with lower monthly purchases being offset by an extension of the period over which said purchases would take place. The market took this, on balance, as being dovish.

Brent Crude rallied to close above $60/barrel for the first time in 2 years, and carried the GSCI to similar valuation milestones along with it:

In Washington, the precision execution of our governing processes continued apace, with a budget now almost prepared for the President’s signature, a milestone thought to be an essential pre-requisite to the Holy Grail of Tax Reform.

In reviewing the confluence of these events, I find some common threads. Global economic growth does indeed appear to be accelerating, and if something useful can actually be accomplished in the realm of Tax Reform, well, let’s just say that the infallible, oxymoronic “smart money” believes that the benefits have yet to be priced into current valuations.

But let’s revert to the land of Amazon, Alphabet and the rest of the chosen few. I believe that the unifying theme of the giddy goodies they are sending our way is an acceleration in the demand for disrupting technologies. Cloud services, Edge Services (apparently the cloud of clouds), Big Data Applications, Electronic Commerce, Digital Payment Services – all are achieving escape velocity. And, while no one should doubt that our Silicon Valley Chieftains will be the most visible beneficiaries of these trends, it strikes me that they are deeply reflective of a gathering round of capital investment away from the FAAMANAG complex. But thus far, the Market Gods are bestowing their blessings almost exclusively on the Big Dogs of tech:

The chart shows that the equal-weighted RSP actually lost value this past week, even as the glittering stars of TMT shined to super-nova proportions, in the process launching the capital-weighted SPX into the stratosphere.

I think, over a finite interval, the other constituents in the indices may be where the action lies. They’re spending like never before on new technologies, and I wouldn’t necessarily bet against their successes.

In the meantime, I might keep my eye on broad-based index divergences, which have been becoming more noticeable in recent sessions. To wit, on Friday, the spread between the return on the NDX (+2.2%) and the Dow (+0.14%) was the widest recorded in 15 years.

Bond yields, at least in these realms, are also on rise, and, if I’m correct about the looming technology boom, and, if the kids in Washington actually pass rational tax reform, the 30-year Fixed Income bubble could face a mortal threat (I can’t believe I’m actually writing that).

In any event, capital, stationary to the point of oblivion over the past few months, appears to be on the move, and, though I’m reticent to lean this way, I see this as a constructive development. Certainly, the fix is in for the rest of 2017 – it’s inconceivable – particularly now that October tax selling is nearly over – that anything other than a catastrophe can knock this rally off its kilter. But if I’m reading tech trends correctly, the good times could roll well into 2018 and beyond.

Much as I hate to sound optimistic in a world which is now characterized by an unmixed assault on the sensibilities of snowflakes, I must yet call ‘em as I see ‘em. I also will step out on a limb and predict that Miss Lee’s Magnum Opus will grace the curricula of educational institutions as long as the band plays. In one of its key passages, Atticus instructs his children that “it’s a sin to kill a mockingbird”, and he was probably right.

I’m here to declare the mocking of a killingbird, on the other hand, to be fair game, as long as one doesn’t abuse the practice. So I take my leave with the following Pythonesque admonition:

Away, progressive killingbird types, or I’ll mock you a second time.

Remember, you were warned.

TIMSHEL

All that is gold does not glitter, 

Not all those who wander are lost; 

The old that is strong does not wither, 

Deep roots are not reached by the frost. 

— J.R.R. Tolkien 

I lifted this poem from Tolkien’s “Fellowship of the Ring” – the first volume of voluminous and the now-ubiquitous “Lord of the Rings” Trilogy. But as has been consistent with the protocols of this forum, I have this rather startling and embarrassing confession to make. I’ve never read Tolkien, not even the Trilogy’s widely-considered-more-accessible prequel: “The Hobbit”. And no, I’ve never seen any portion of the film sequence. Not one minute of it.

In the days of my youth, Rings was all the rage. I even knew a couple of particularly erudite brothers who were part of a Tolkien Club, which analyzed and re-enacted scenes, etc. In solidarity with my betters, I bought these books, but could not get through them. Then Tolkien disappeared from the scene for about a generation, but was resurrected, around the turn of the Millennium, in (it must be said) glittering, fashion by those crazy kids in Hollywood. JRRT had been dead for about a generation by then, but boy oh boy, had he lived, would he have been happy. And rich. The Rings Trilogy not only copped an astonishing 17 out of the 31 Oscars for which it was nominated, but generated a box office gross that places all 3 in the top 50 takes of all time.

So clearly there must be something there, and our little poem, which appears twice in the text of “Fellowship”, reinforces this notion. But the glitter/gold thing does not originate with Tolkien. Indeed, it had been used, in various forms, by stone cold ballers ranging from Chaucer to Shakespeare. And even them guys took poetic liberties. Some references in literary history trace the glittering gold reference all the way back to Aesop, who did most of his writing about 600 years before the birth of Jesus.

So, while that more famous line does not strictly belong to Tolkien, it should be noted to his credit that he cleverly inverted it, advising his readers that all that is gold does not glitter. Moreover, the next phrase in the sequence, the elegant, thought-provoking observation that not all who wander are lost, appears to belong entirely to him. However, it strikes me that this phrase also lends itself to inversion, as it may very well be the case that all who are lost do not wander. 

I can cite my own experience in support of the foregoing. Though I have often felt lost, perhaps out of laziness, I seldom wander. 

And I’m not alone in this practice. To wit, it can be argued that the inverted version of the phrase applies to current market conditions. Consider, for instance, our equity indices, which we observe as being in single-direction motion, namely upward. Their refusal to diverge from their set course takes various forms, but let’s consider a just this one. As of Friday’s close, the SPX achieved a record set of consecutive sessions (241) during which the index has failed to yield as much as 3% of valuation ground.

A determined march in an identifiable direction is arguably the antithesis of wandering. If my theme has merit, though, this doesn’t mean they aren’t lost. So are they?

A lot of smart folks with whom I deal would answer in the affirmative. They observe in frustrated awe the unfolding rocket ride of our equity complex, click their collective tongues, and darkly suggest that wherever Mr. Spoo and General Dow, Captain Naz and Admiral Russ are headed: a) they will be unaware of their precise coordinates; and b) they may be impelled to reverse course when the reality of a) hits them.

Unfortunately, I’m not in a strong position to predict with certainty whether or when these darker hewn prognostications will come to pass. However, I can state with some confidence that if they do, then the equity complex, though not wandering, would fairly be described as being lost. 

Further, if said complex is in fact missing, it might be due to a trend illustrated in this handy little graph making its way across my Linkedin feed over the last few days:

Now, I’m not sure the source of these time series, but the numbers appear to be approximately correct. And if so, the solution to our problems is obvious: the markets need more hedge funds! Maybe lots more! I mean, if there are only now two fund platforms available to hunt down each listed equity security, then how are we supposed to find the little buggers? Perhaps, if the ratio increased to, say 3:1 or even 4:1, we’d stand a better chance.

But setting aside the troubling flatness of the hedge fund growth curve over much of this decade, one might do well to train one’s eye on the disturbingly diminished number of listed equities available to buy and sell – a figure that has dropped by nearly half over the last couple of decades. This trend reinforces one of the main themes of my most recent written rants: an increasingly alarming imbalance between the supply of, and demand for, marketable securities.

For me, the problem begins in the bond markets, with the persistence of global QE serving to catalyze the hoovering up of all govies – immediately upon issue (if not beforehand). As such, if you wanna trade something, it’s almost gotta be equities. But with low borrowing costs and miniscule yields that have characterized the debt markets for several years, the appropriate response – particularly for large conglomerates has been to borrow, acquire and bury incremental available float inside corporate treasuries.

I will stake some proprietary claim on this hypothesis, and, if pushed, can back it up with evidence, but the idea is catching on. Over the weekend, I read something pithy by some hedge fund dude which points out that stock buybacks account for 40% of post-crash earnings growth, and that in 2015 and 2016, public corporations spent more than their entire aggregate operating income buying their own stock and issuing dividends.

If I’m making myself less than clear, perhaps the following chart will reinforce the point:

There’s some other stuff in this note that I found less than compelling, but I don’t think one can misinterpret the implications of reduced of supply on equity prices.

I foresee no imminent end to this technical imbalance, but clearly, it cannot go on forever. On the other hand, it could continue for quite a spell, and, as long as it persists, I believe that so too will the rather perverse immunization of equity securities (and, for that matter, bonds of all forms) from price effects created by risk-enhancing or downright negative news flow.

This past week’s annoyingly predictable climb to yet again another set of all-time record valuation levels was catalyzed in part by the custodians of our government policy. Surprisingly, and again against the consensus smart thinking, the members of the World’s Greatest Deliberative Bodies managed to actually come close to passing a budget framework. In turn, or (so the thinking goes) this sets the table for that swell tax cut we’ve been promised by the ruling party.

The mere hint of these tidings caused equity investors to swoon with delight, and then buy up every available share of every stock in sight on Friday. Consider, for example, the case of General Electric Corporation, the stock of which has been perhaps the hottest dumpster fire of this improbable year (it’s underperforming the SPX by nearly 40% this year: down 25% vs. up 13% for the index). On Friday morning, newly anointed CEO John Flannery strode grimly to the podium to announce the Company-that-Never-Misses’s first earnings disappointment in 10 quarters, along with plans to divest of some $20B in business lines. For a brief moment, investors showed their ire, actually selling of the stock down by a little more than 1%. By mid-morning, however, they had returned to their senses, and GE actually closed up by an equivalent amount.

And as for those tax cuts, well, I reckon we’ll see. I suspect that the Pachyderms will indeed push something through, especially with their increasingly alarming election prospects now looming just one short year on the horizon. But we’ve seen these guys soil themselves before, and come what may, I expect the final product – if we ever get there – to look much different than and diluted from what is being described to us. Good luck with that removal of mortgage interest deduction kids, and (while we’re at it) with the elimination of the state and local income tax offsets.

In the meantime, next week marks the busiest section of the Q3 earnings sequence, with nearly 200 companies reporting. On Friday, we’ll also get our first glimpse at that mulligan inducing GDP print. I don’t see any of this knocking the indices off of their determined path.

But I will admit to remaining a bit lost. This is nothing new to me, but it is getting increasingly bothersome. Perhaps I should knuckle down and read some Tolkien. Or at least dial up the movies. But given the length of these writings and film Hollywood Blockbusters, this could keep me distracted for months, if not years.

Let me know how you make out.

TIMSHEL