Category Archives: Weeklies

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

Crazy 8s

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Got me a new phone. 

Specifically, an I-Phone 8. 

It has a lot of nice features, like stuff to do with the camera. And the apps. And other sh*t as well that they told me about at the store, but I forgot most of it. 

I just thought you might like to know. And case you can’t tell by now, I am immensely proud of my new I-Phone. 

So much so that I flew Joe Montana in from the West Coast to stand next to me, in a picture of my recently acquired prized possession. 

That’s Joe on the right. I, on the other hand, am on the left. Sharp-eyed observers will notice a portable device in my hand. 

And you are correct. It is my brand spanking new I-Phone 8. Of which I am immensely proud. I would go so far as to characterize this pixel-captured moment as one of the finest I’ve ever experienced, falling short of divine ecstasy only insofar as it was not captured for posterity on my brand new I-Phone 8. 

But if I did that, took the picture on the 8, then, by definition, it would’ve been nigh impossible to include the device in the visual frame, and as such, would’ve rendered Joe’s 3,000-mile journey somewhat quixotic. So I think I made the right decision here. Because (or so it is said) if you’ve got it, you may as well flaunt it, and whoever said this must’ve been referring to the 8. 

But in reality, the time had come to make the move. I’d been rocking a 6 for the last couple of years, and, other than the irritations associated with its inability to hold a charge, its faulty speaker, and the various cracks across its façade, I had no particular complaint. It had a good run, but it’s time had come and gone. And, as Apple has discontinued the production of the 6 Series (including the 6-S and 6-Plus) swapping out for the same model wasn’t an option. For any of readers worried on my behalf that I may have moved too precipitously, I present the following photo (take, of course, with my brand new I-Phone 8) as Exhibit A:

Exhibit A: My Wounded Warrior I-Phone 6 

Yup, that’s my poor, abused 6. So long, amiga. You won’t be forgotten. 

In the modern era, a man’s relationship with his phone is a rather intimate affair, and when he ditches his stalwart but aging electronic companion for the sleek, newer model, there is always some mixed regret. But even here, I didn’t assume what they call in the investment world a “full position”, as doing so would have compelled me to go the whole route and grab myself an X. But what the hell is an X anyway? For Greek Mathematician Pythagoras it is the square root of the length of a non-hypotenuse side of a triangle (as in X2 + Y2=Z2 – aka the Pythagorean Theorem). 

Separately It has served for many generations as the default signature of the illiterate. 

Beyond this, and in general, it is the vexing, mysterious, eternal variable for which humanity must solve. And at the Verizon Store (and I won’t lie: this was a major driver of my decision), it fits into the following equation: 

X = Cost of I-Phone 8 + ~$250 = Cost of I-Phone 

8 on the other hand, is easier to understand. It is 2-cubed. It is the answer, in fact the only one that exists in the mathematical universe (using its Cubed Root: 2 as a substitute for that infernal X), to the following equation: 

(X*X)*X = (X+X)*X. 

It also serves as a cheery homonym for consumed solid sustenance (i.e. “ate”), whereas in homonym-land X can only matches, winsomely, a former love interest. 

It’s linkage to Joe should be relatively easy to identify for the intersection of the sports-aware and the mathematically mature. During his glory years with the Niners, Joe wore the number 16, or twice 8. So for those keeping score, in one sense, two of my new devices equals one Joe Montana. Of course, you don’t get the 4 Super Bowl rings or the 7 Pro-Bowl appearances with the 8, but on the other hand, and to the best of my knowledge, you cannot, with your fingertips alone, direct Joe to find you the shortest route to Hackensack, NJ. 

********* 

At the point of this correspondence, there are 8 full trading sessions left to this year (plus a couple of holiday halves). And what a year it’s been! Financial Assets have been rallying to beat the band, and if you weren’t long (and I wasn’t) well then all I can say is too bad for you (us). Of course, the news isn’t all good (is it ever?). Holders of agricultural commodities, for instance, have experienced the indignity of witnessing a benchmark basket of their inventories breach an all-time low, having shed fully half their value over the last 5 or so years, and enduring a downdraft of more than 5% this month alone – all as captured in the following chart of the Energy-deemphasized Continuous Commodity Index:

Continuous Calamity (er, Commodity) Index 

Now, I admit this ain’t so good for some of my “earthier” constituents, but let me ask you: how bad are things if, in a raging bull market, the raw materials that we put into our tummies or wear on our backs are now cheaper than they’ve ever been? 

Not so bad, right? And let’s face it: who invests in ags anymore? I mean Soy Beans and Wheat and Cotton are certainly quaint little markets, but us men and women of the world, it is hardly consummate with our grace and dignity to allocate risk to these realms. 

Nay, my friends, the locus of action has been in more contemporary markets, such as Crypto. But I don’t really have anything useful to say about Crypto, and am thus compelled to revert to my fallback asset class: Equities. Fortunately, they have not disappointed, and my read on them is as follows. 

I consider 2013, call it the last hurrah of US QE, to have been the real outlier year. The Gallant 500 returned ~30% to investors, in the process ginning up a modest volatility of ~10%. As these were the heady days of Zero Interest Rate Policy (ZIRP), I set a risk free rate at zero, and derive a Sharpe Ratio of approximately 3.0. Its 2013 Downside Deviation (defined as the standard deviation of negative observations) clocked in at a logic-defying, 7.31%, which translates into a Sortino Ratio ((Return – Risk Free Rate)/Downside Deviation) of ~4.1. Now, in my experience, any SPX Sharpe above 0.5 is a pretty strong showing, as is a Sortino above, say, 0.7. As such, I was loud at the time in my proclamations that we would never again in our lifetimes (or, remembering my codger-like status, in my lifetime) see such a Joe-to-Dwight Clark sort of performance out of the Index. 

But I was wrong. Thus far in 2017, the S&P 500 is on pace to deliver 20.4% returns on a volatility of 6.7%. As we no longer are in ZIRP-land, I subtract 1% risk free rate, and derive a Sharpe of 2.9. But the analysis doesn’t end there; the 2017 SPX Downside Deviation currently resides at a sub-atomic 4.3%, implying a Sortino of 4.5. 

Lightening has indeed stuck twice in the same place. 

And who’s to say we can’t gather ourselves in the last two weeks and eclipse even the ’13 Sharpe threshold? At the point of this correspondence, Tax Reform appears to be on its way to passage, and whether this helps the capital economy or not (and it should, at least some), recent pricing action suggests that if Trump actually signs a bill, it may be good for a couple of hundred basis points to the upside on the benchmarks. If so, we may well breach into a 3 handle on the Sharpe, yet again. 

This past week, we also killed off the cynical government power grab known as Net Neutrality. And Twitter/Facebook absorbed the blow. The tree huggers, when not screaming bloody murder, are weeping crocodile tears on this one. But they are being misled. The big dogs, whatever they state publicly, loved the barriers to entry/innovation and other bennies that devolved to them from deeming the frigging Internet a public utility that needed the same regulatory regime first put in place for telephones in the ‘30s, when AT&T had a monopoly. Expect, now, more capital investment and much better ranges of services and value propositions for consumers. In fact, I challenge any of my prog friends to come back to me within a year with any evidence that the repeal has harmed anyone. To balance matters, I will be glad to identify ways in which the new freedoms have been accretive to consumers. 

Finally, and in keeping with the spirit of our weekly theme, I will take the opportunity of devoting the last section to a glimpse into my vision for next year: the 8th of this improbable decade. 

I tend to view the early days of any given year as jump ball territory. The solemn, time-honored ritual of tape painting has run its course, , and beyond this, I view each marker year as its own novella, with the story unfolding at its own pace over a period of months. Part of me adheres to this paradigm, but then I remind myself about the glaring supply/demand imbalance which continues to socialize a bid on high quality assets. If you’re looking for more evidence of this, consider the M&A action over the past several weeks. Let’s say you like to Invest in Insurance Companies. Post the merger of CVS and Aetna, there’s one less of them to trade – unless, of course you wanted to own a pant load of drug stores as part of the package. Similarly, those predisposed to speculate on media content will soon no longer have the opportunity to take a piece of 21st Century Fox without also purchasing a healthier dose of Mickey, Donald (Duck not Trump), “Dancing With the Stars” and Monday Night Football. 

So I rather think, albeit prematurely, that stocks and bonds will remain in short supply next year, and that their valuation paths will reflect this scarcity. Of course, a lot could go wrong across a 12-month interval which has yet to begin, but all other factors being equal, I don’t believe that high-grade securities “on offer” will remain so, at an point in the sequence, for extended periods of time. 

No, this won’t last forever. Nothing ever does. So it may be worth considering getting some while you can, because when it’s over, it will indeed, as Yogi instructs us, be over. Consider, if you will, that the case of the fabulous I-Phone 8. It was released on September 22nd, and managed to remain at the top of the Apple product tree for approximately 6 weeks, whereupon it was displaced (November 3rd) by the X. 

Or just ask my friend Joe. After winning 4 Super Bowls with the 49ers, injuries forced him to the sidelines. As fates would have it, he was replaced by a direct descendant of Church of the Latter Day Saints Founder Brigham Young: a chap who never looked back, and won himself 3 more Super Bowls on his own. 

And for the record, Joe’s replacement Steve Young’s jersey number was 8. 

Crazy, no? 

TIMSHEL 

Taking One for the Team

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“Politics ain’t beanbag” 

— Finley Peter Dunne (1867 – 1936)

I don’t like writing about politics, particularly in these days of unhinged, two-sided advocacy, and I’m not particularly enamored of Senator Al Franken (D, Minn). But duty calls. I found Franken to be a mildly amusing (if secondary) character in the early days of SNL, and would’ve preferred he left it at that. He could’ve carried on as a latter day Joe Piscopo, appearing in a handful of bad films and then taking his place among the back benchers in Branson, MO and Atlantic City, NJ. But Al had other plans. In 2008, he ran for Senator of his adopted home state: The Land of 10,000 Lakes – which once handed the governor chair over to Jessie (the Body) Ventura. He won by 300 votes over Incumbent Norm Coleman (a nice enough fellow, it would seem), but only after a recount and some controversy respecting hundreds of ballots discovered after the fact by a Democratic election official in the trunk of her car. He was re-elected with relative ease in 2014, so, for the better part of a decade, we’ve been forced to endure him as a member in full standing of the World’s Greatest Deliberative Body.

So be it.

That is, until this past week. Finding himself in the midst of a veritable tsunami of pushback against men who may or may not have been over-enthusiastic in their love overtures, he was forced to announce his resignation. While it was an accident of which I’m not proud, I must admit to having actually witnessed his departure speech on live TV, and let me tell you: he was none too happy about the turn of events. And I don’t blame him. But his, er, address was very odd. No mention of either his Party or his Nation, but a hard slap at the Republicans and a great deal of slavish praise for the State of Minnesota. Let’s be generous and give him a pass for that one.

Be that as it may, what has been reported may be just the cold tip of the nose of Frankie’s horn-dog activities, but his verifiable actions do not, I feel, justify his forced removal from high office. And this whole thing is getting frightening. What happens, for instance, when those seeking retroactive l’affaires de couer redress point their arrows not at Congress, but rather at an important institution such as the NFL? Or the NBA? Based upon the Franken Standard, these thug-ridden leagues, whose players’ favorite wooing tactics often involve nothing more than grabbing the objects of their desire and doing what they will to them, would not have enough players left on their rosters to last out the week. Heck, I’m not even sure that the SPCA could survive this type of anal probe into the macking histories of its principals.

King David, were today’s newfound protocols to be enforced upon him, would be strung from the highest cell-phone tower. As would Henry VIII. And as for Genghis Kahn, well, I don’t even want to think about what they’d do to him.

But I will offer a hearty tip of the hat to the Democratic Party for its thus far near-flawless execution of what I must acknowledge to be a clever political stratagem. It may work; it may not, but I really can’t blame them for trying. Franken is expendable because Minnesota is pretty Blue, and happens to have a Democratic Governor (do you think this would’ve happened if a Republican ran the State House in St. Paul and thus could name Al’s successor?), and his forced departure allows the party to own the zero tolerance standard with respect to overenthusiastic interactions between (or, for that matter, within) the genders. It costs them almost nothing to do so, and the positioning may (or may not) have legs. This coming Tuesday marks the special election in Alabama to fill out the term of misanthropic Attorney General Jeff Sessions. The accused child molester is almost certain to win, which is the whole point. I won’t plague you with a reiterated inventory of the problems that this evokes for the Republican Caucus, but they are considerable.

Then there’s the Trumpster, who, in trademark fashion has chosen to aggressively join a battle he could’ve avoided and is unlikely to win. After some initial hemming and hawing, he’s launched a full-throated support of his party’s tainted candidate. I reckon he has his reasons for doing so, and under the circumstances, he may not have had any choice. His only other alternative: a ship that sailed long ago, would’ve been to use his influence to remove Moore shortly after the primary. But now, one way or the other, he’s gonna own the Moore Senate run.

And, of course, they’re coming after him. It does not require an elaborate leap of conceptual analysis to suspect that his enemies are out in force looking for further examples of the type of rhetoric and actions captured in the (Billy) Bush tape. And the play, of course, will be to hold him to the Franken Standard. I’m not sure it’s gonna work, but already new claims of Trumpian sexual abuse are emerging, and there is a growing chorus of progressives who are calling on him to follow Franken’s gallant (though indisputably involuntary) example. Again, I’m skeptical as to the prospects for the success here; indeed, insofar as it may harden his base, it could actually backfire. But it is not helpful to the conservative policy agenda. And who’s to say that the progs won’t take this thing to the house: demonizing every single man, who, over the last couple of generations and in a moment of sub-optimal judgment, has placed his hands or his mouth in intimate proximity to someone who had not granted explicit, premeditated permission for him to do so? If so, Trump (and so many others) is a goner.

But what really hacks me off is that all of this nonsense may be acting as an obstacle to the otherwise serene path investors had blazed for themselves to tape-paint their way to maximum year-end returns. I can’t blame Franken and his handlers entirely for this disruption, but the episode carries the same motifs as other efforts bearing similar objectives. Last week’s misreporting of the Flynn plea cost some investors serious shekels, and some of these unfortunates are my friends and clients. More stories of this nature will be floated out there, like King Farouk wading into the Dead Sea, and the market will react.

I know that I am committing the unpardonable sin of striking a tone of sympathy here for the President and his allies, but c’mon people, can anyone assert with a straight face that sometime more than a year back, Trump actually explicitly enlisted Putin’s help in the Presidential campaign? To me, the idea becomes more absurd with each passing day. Consider, for instance, that even by the time the polls closed on the East Coast, the odds of Trump actually winning were about 20:1 against. His victory was something of a fluke, and, had he failed, does anyone think that the Clinton Administration would’ve let him off the hook for election tampering? Or that any of his high-powered buddies, all of whom stood to take a hit if he lost, would have had his back? Is he thus really stupid enough to have taken the risk of utter ruination, by using Putin to help him win an election he was almost certain to lose? And if he is that stupid, what does it say about the rest of us?

OK; never mind that last question.

But setting aside the gropers, grabbers, gabbers and gasbags for a moment, the main action on the power corridor between Washington and Wall Street is the tax bill. I am on record as warning my minions not to allocate risk based upon their views as to the final outcome, but most of these admonishments appear to have fallen on deaf ears. The sell side is giddily hawking “tax reform baskets” and a large number of similarly oriented ETFs have emerged. I see some of these creeping into client portfolios, and I am thus wishing for the best of fortune for my crew. But I don’t think there’s much edge to be had with these trades. The bill’s final details are being negotiated inside a magnetic field of lobbyists and special interest groups the likes of which the world has seldom seen. Whatever comes out is likely to be dramatically altered from that which has currently been proposed, and may not make its way through both houses of Congress in any event. Like I said, no edge to this trade.

Equity indices modestly broke new highs again this week, and the NDX did manage to briefly breach into the dainty and romantic handle of 69, but one feels the resistance here. By contrast, the global bond market remains en fuego, and nowhere more so than on the Continent. Swiss, German, Italian, French and even Dutch 10-year debt yields are plummeting to year-to-date lows, and one wonders who’s doing all of the bidding. Some of the professionals with whom I roll say it’s the ECB, but they’re buying the same amount they were a few weeks ago, when Bund yields reached a usurious 0.41%, in contrast to now, when these rates have dropped to a more reasonable 31 basis points. So there is incremental demand outside the environs of Brussels, but who is responsible for it and what do they want to accomplish?

Well, I have my theories, but you’ve heard them before. With all of that global cash sloshing around, there simply aren’t enough bonds to go around, so they get bid up. And, for what it’s worth, they’re taking equities along for the ride. None of this would likely be transpiring without the alchemy of QE, but there are other factors at play as well. Consider, if you will, the following tidbit. According to the unimpeachable models of the International Monetary Fund (IMF), 2017 global GDP growth is clocking in at a robust 3.6%. Virtually every country is participating:

Global GDP Growth – 2017 

Now, as men and women of the world, let’s acknowledge the reality that most of these bennies are flowing to Institutions, Corporations, High Net Worthers and other fat cats. And are they spending these gains on brand new, all-aluminum Ford F-150s (god I want one of those)?

They are not. Rather, they are investing in tangible financial assets, and in doing so are competing not only amongst themselves, but also with Central Banks, the entire country of China, some Russian oligarchs and a few Arabian Petro-barons (one of which spent half a yard this week on a Da Vinci. It’s a nice painting of Jesus, but $500 $^#$@# Million?)

The World Bank (of which the IMF is a wholly owned subsidiary) estimates Global 2016 GDP at $75.6 Trillion, so a 3.6% increase adds between $2.5T and $3T, an amount equal to over half of the size of the Fed’s Balance Sheet, to the disposable wealth of the global community. Indisputably, much of this bounty is finding its way into the capital markets, which arguably didn’t need the boost.

But with the world’s economies on a remarkable, synchronized rocket ride, with Central Banks still printing billions of new money each month (and those that are not printing going along for the ride), with no commodity inflation to speak of, is it any wonder that asset inflation has taken hold at an alarming threshold?

 

The Federal Reserve Bank of the United States, the first to print QE money, and the first to terminate the process, is doing its level best to lift short term rates, in the presumed hope that longer term yields will rise in sympathy. While not widely reported, it has actually made a pretty good start at reducing its Balance Sheet. But it seems for now, no matter what the FOMC announces, no matter how many longer dated bonds they try to sell, prices for these instruments drift upward, or, at minimum, remain stable:

Fed Sells Down to 2014 Holding Levels with Little or Negative Impact on Long Term Yields: 

So, again, I’m not convinced that this here rally, longstanding though it may be, is anywhere nearing its “sell-by” date. Of course, risk is not properly priced into valuations, and it will be eventually, but until it is, tangible assets will remain in short supply and are likely to continue to be bid to the heavens.

If that’s not good enough for you, you can always dive into (cue the obligatory reference to) Bitcoin. Tonight marks the historic opening of exchange traded futures on the virtual currency, an event, somewhat improbably, transpiring at the Chicago Board Options Exchange (CBOE). As mentioned in last week’s installment, the CBOE and the CME received contemporaneous approvals for Bitcoin listing, and the Merc’s contract is scheduled for unveiling on the 18th. CBOE, in its frenzy to be first, leapfrogged its cross-town rivals and is busting out its product tonight. Its product will settle to a Winklevoss Auction that currently sports average daily volumes of just over a million dollars, and if one was looking for yet another warning sign as to why this whole episode won’t end well – at least for some – that might be it.

And that, ladies and gentlemen, is all I have to convey about Bitcoin.

But for those with more traditional investment tastes (including yours truly), the valuation arrows appear to continue to be pointed heavenward. The signal to noise ratio has dropped some — in part to the political shenanigans described in great detail above. But the light appears to be flashing green.

As the great Finley Peter Dunne once pointed out “politics ain’t beanbag”. And he was right. Just ask Al Franken. And investment ain’t beanbag either. Just ask, well, just ask nearly anyone you known. Dunne’s son Phillip went on to a notable career as a Hollywood screenwriter, penning such enduring scripts as “The Agony and the Ecstasy” – a term that might apply to either discipline.

It would appear, for better or for worse, that we’re stuck with both.

TIMSHEL

Chain Reactions

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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