I wonder where you are, I wonder if you think about me
Once upon a time in your wildest dreams

Justin Hayward

Well, friends, matters have devolved to the point where for the second time in a finite span of weeks, I’m resorting to the Moody Blues. Who I don’t even like very much. And the quote I selected is from a song that does not even appear on the album from which I purloined our title (and which may be identical to that of my last Moody-go-round).

I turn to this, though, because of something I read (where else?) on the Journal Editorial page. A warning to be careful of your present, because someday it becomes your past.

It was presented as advice issued by the author’s mum. And I think she has a point.

Because one thing we ALL have is a past. Even me. I have a past. And, while, if you look carefully, you might encounter a few checkers, I at least can’t think of a single in-the-moment action I have taken that would stand me into disgrace for all time.

The column in question took the form of a guidance to that goofball/knucklehead George Santos – whose recent Congressional victory catalyzed some tragically-after-the-fact diligence on his ass, the latter of which revealed that he is a pathologically pathological liar. The article went on to inform (I did not know this) that he stands accused of having committed forgery in Brazil 15 years ago.

At the time, there was no official action taken by their Federales. But now, the Brazilian government is re-opening the investigation. How timely. One wonders, though, what favors their newly elected, quadruple-named President Luiz Inacio Lula da Silva extracted, and from whom, in consideration of his renewed interest in the case. One way or another, though, they’s hoppin’ mad about something down there in Brasilia, storming the palace that da Silva has barely had time to move into, and demanding the re-installation of his predecessor – that rascally Bolsonaro — in his stead.

Under other circumstances, I presume the media would be running an endless Santos loop and collecting mad advertising Benjaminz for doing so. But there are bigger Congressional fish to fry. Most notably the gleeful, overwrought saga of the Republicans electing a Speaker. For my part, I am less troubled by the spectacle than I am about the concessions made in the associated negotiations. Which will be difficult to reverse. Most prominent of these, as I understand it, is a new clause under which any single coalition member can call for newly crowned McCarthy to (ominously) “vacate the seat”. Best case, it will render presiding over the GOP Caucus a decidedly Quixotic task and bring great comfort to/convey significant benefit upon, their political opposite numbers.

One does expect a few oddballs in any Congressional Coalition, but gosh oh mighty, they gotta be managed. Say what you will about Pelosi, who had The Squad with which to contend. But she kept them (insert female anthropomorphic word that I am to chicken-shit to type) in line.

We are living in an expanding cycle where small numbers of members are able to disrupt legislative consensus. This can be good and bad. I personally believe that the less they do on Capitol Hill the better off we are. But it ain’t a good look. Two Senators: Manchin and Simena, provided instructive example, and in doing so, saved the country from a suicidal spending binge, but it came at the cost of deeply diluting the power of the Senatorial majority.

All of this stands out to me because I am about to publish a book that I wrote with former House Majority Leader Richard Gephardt. Which I shall want you all to buy. And, as this momentous event approaches, I will expand the amplitude of my shilling. It is part memoir/part object lesson in the importance of preserving the protocols of Majority Rule – a concept under serious attack of late.

It’s coming out in a few weeks. Trust me – I’ll let you know. Meantime, this here is the cover:

Before you ask – yes, I was a bit disappointed at the relative by-line font sizes. But how you gonna argue with a former House Majority Leader?

I’m not sure why, but the cover art also somehow reminds me of that of Jefferson Airplane’s “After Bathing at Baxter’s”, which, for reasons I cannot explain, was the first true rock album I ever owned.

Leader Gephardt and I disagree on certain matters of polity, but we both are passionately enamored of the protocols that drive the legislative process, which we both believe have been rudely and increasingly abused of late.

The Majority Party ought, under any circumstances, to be able to elect a Speaker in < 15 rounds. Lying liars like Santos should be, I don’t know – adjudicated?

But it seems like nothing works the way it once did, and, while this is an eternal geezer lament, the pace of change seems to be accelerating.

Many justifiably blame the virus for the acceleration. And it’s certainly a contributing factor. Our response was both heroic and shameful. On the plus side, we – individuals and institutions – gathered ourselves to attack it, and, by doing so, almost certainly saved untold blood and treasure. New technologies (most notably biotech and telecommunications-related), which we have barely begun to harvest, have transformed the future landscape.

But it seems as though we cannot take any form of hardship anymore – without, that is, falling apart. With no offense intended, we received a prime example of this with that heart attack during the Bengals/Bills game. Upon recognizing the seriousness of the medical emergency, officials suspended the action, later deciding to nullify the game entirely. As if it never was played. And anyone who, for a moment, questioned this was rudely castigated.

Heart patient Hamlin is thankfully on the mend. But back in ’71, and by contrast, a dude suffered a fatal cardiac arrest during Bears/Lions, they carted him off the field, and the action resumed.

Most of us would call this progress, and I won’t argue the point. But – not gonna lie — the withering outrage that anyone would even dare to discuss the (significant) playoff implications of failing to finish the contest is, in my judgment, de trop.

In general, and in addition to the externally catalyzed madness imposed upon us, it seems as though our emotional stability, flexibility, adaptability, is on the wane.

And I can’t help but feeling that this is coming a critical pass, that not only will our present rapidly become our past, but that the current conversion process will have larger than normal implications.

’23 thus unfolds as a year where I believe our actions set up so as to be more deeply embedded in the future than is routinely the case.

The markets will communicate a great deal. By the time it all winds down, whither Inflation, Interest Rates, Equity Prices, Commodity Prices; heck, even Crypto Prices dwell will be deeply telling. Regaining vigor implies one set of outcomes; a continued wallowing in nervous exhaustion another.

And, right now, we just don’t know. There are reasons to suspect that risk assets are poised for, if not a recovery, then, at least a “low-bar” improvement over ’22. Nobody can quibble (much) with the Jobs Report. Energy prices are miraculously subdued. Inflation metrics are projected to decline to a 6 handle – down from the 9’s (CPI) and 10’s (PPI) registered this past Summer. Q4 GDP estimates are in the high 3’s.

If Inflation continues to slide, if Crude Oil does not resurge, if Employment remains robustly controlled. If the GOP-led House does not implode.

Then, I say, there might be some pretty good bargains out there in risk asset-land. But that’s a lot of ifs. A great deal could go wrong between here and there. And probably will.

But I don’t need to tell portfolio managers that the present quickly transforms into the past, the irrevocable past. Because today’s returns are transformed into tomorrow’s track record – its irrevocable track record.

And, addressing a broader audience, if we can drop our paranoia, our self-victimization, our focus on the wrongs committed by others, and replace it with thoughts and efforts as to how we can do better, then, maybe, we can unleash all that fallow new technology, re-invigorate our present into a past of which we can be proud.

It just seems to me that there’s more riding on these outcomes this year than even normal.

Ideally, the best thing you could do in the present would be to buy our new book. But you can’t. Because it isn’t out yet. It will be, soon, and eventually, perhaps with your help, it will share a prominent place in the political commentary of the (by then long passed) present day.

It will be a day in future. And it too will pass. Again. Once upon a time. In your wildest dreams.

TIMSHEL

“HERBIE (to WAITER): Go ahead. Give me a number. Give me a number. A random number.

WAITER: Twenty-three.

HERBIE: Beethoven was 23 when he composed his first piano sonata. In 1923 Jack Bentley set the record for average by a pitcher, batting .427. There are 23 chromosomes in the human egg. Also the human sperm. 23rd President? Benjamin Harrison. Asian countries along the 23rd parallel of Southern latitude—”

Quiz Show

Welcome aboard, ’23! I won’t say the weather is fine, but it has improved. Your predecessor, true to form, went out with a nasty storm, which, among other niceties, killed over three dozen good folks in Buffalo, not to mention placing one of our better airline enterprises into existential jeopardy.

Your numerology offers a wealth of fodder for glib analogizing, an embarrassment of accessible riches from which, as indicated in the title, I have already selected. Perhaps the lowest hanging of this fruit is Michael Jordan’s jersey number (and, for the early part of his career, LeBron’s).

Perhaps appropriately, when I think of sports figures donning the number 22, all roads point to Bill Buckner, the misanthropic first baseman who let that slow roller slip between his legs in the 1986 World Series, thereby ending the Mets’ curse but extending that of the Red Sox. Billy Buck logged – yes – 22 seasons in the Bigs, with the Dodgers, Cubs and Sox, donning No. 22 for the first two of these gigs, but switching to No. 6 in Boston.

Perhaps he should’ve stuck with 22. Because, for me, he will always wear the double deuce. He was a pretty tough out for more than two decades but will always be remembered – perhaps exclusively — for his unfortunate ’86 error. There is a morbid joke about this — that so distraught was he about his fielding transgression he threw himself under a city bus – only to have it roll between his legs.

’22 was that kind of year.

21 evokes images of Roberto Clemete, who died in a plane crash – almost 40 years ago to the day — on a charity mission — from his native Puerto Rico to Nicaragua. He bounced with exactly 3,000 hits, and his is one of two number (along with that of Jackie Robinson’s 42) retired across all MLB.

Fast forwarding to 24 makes me think of either Willie Mays — or the Neil Young song “Old Man” (“24 and there’s so much more”). Which I am. Indisputably.

Almost as inarguably, though, the most pertinent application of 23 is that it is the number of chromosome pairs in a human DNA module (also, as Quiz Show Herbie points out, within a human sperm). Much information is contained in these globules – offering opportunities for erudition, and, for the truly enterprising, commercial benefit.

In terms of the latter, an outfit called 23 and Me has made a mint by crunching the DNA of millions of willing consumers – all for little more than a Benjamin (Franklin, not Harrison: 23rd President of the United States). I have little interest in this, but if you wish to check it out, as your risk manager, you’ll get no objection from me. I’ll only offer the holiday wish to the fellas out there that if your kids participate in the project, their chromosomes resemble your own.

But my interest is in 23 and You. Specifically, what you will do in this randy, dubiously-chromosomed investment environment. Much will depend upon your Portfolio Management DNA (and from this perspective, picking up a 23/Me kit probably wouldn’t hurt), but it will also do you well to attend to the external environment.

To me, it looks like a Double Helix of DNA-like complexity:

I’ll leave it to the legion of trained microbiologists who comprise the lion’s share of my readership to unpack this fruit salad. All those A-T’s, T-A’s, C-G’s and G-C’s verily make my head spin.

And so does this here market. We ended ’22 with the Gallant 500 down > 19%; Captain Naz falling a tidy 33% — the latter, due to the unforgiving caprices of non-linear math, thus wanting a full 50% rally to recapture historic high ground. The wearying yield curve remains in a configuration which renders the above-supplied DNA image as simple as a trace of the shortest distance between two points.

Whither the economy is headed is, of course, anyone’s guess, but the subject of considerably vigorous debate. Some of the smartest folks with whom I reason are convinced that it’s about to collapse, but if so, the number crunchers at the Atlanta Fed (who just increased their Q4 GDP estimate to a gaudy 3.7%) failed to get the memo, and the better-compensated (if professionally precarious) economists at Goldman Sachs just reversed their call. No Recession, they now say.

And here’s hoping they’re right.

I enter the new season, however, focused on three imponderables:

1. (Natch) What will the Fed do?

It looks as though they’s planning on a few more hikes. And probably they are. But if they are motivated to do so by a desire to increase the attractiveness of their Special Repo Facility, it would appear that such incentivization is ill-foundedP

Probably, this doesn’t mean too much, but to pointy-headed watchers of the Repo markets, it is astonishing, nonetheless. Usage has verily quadrupled and this at an odd time on the calendar. Normally, at year end, banks, short of cash, are taking the opposite side of this trade – selling excess securities to the Fed and banking the proceeds.

I find this an enigmatic symptom of a monetary system gone off the rails and will say no more.

2. Commodity/Energy Prices?

Perhaps nothing more meaningful transpired in the second half of December than China’s surprise 180 on lockdowns. It seems, now, that the People’s Republic is open for business. If so, it should put significant upward pressure on Commodity Prices – because the Chinese – all 1.4 Billion of them – use a lot of commodities.

And if you’re looking for a touch of the weird, a survey of ’22 commodity prices indicates that the best performer is nothing other than Orange Juice. Which – be it fresh squeezed or concentrate — no one even drinks anymore. The worst? Lumber. Which we still use in abundance. For example, even with the Buckner/Clemente/Mays era long passed, baseball bats are made from tree trunks and branches – mostly good ‘ole Maplewood.

I’m not guessing these trends are sustainable.

NatGas prices – in the US and Europe — have fallen dramatically, but I continue to focus my concern on a resurgence of Crude Oil prices, which, I believe would goose Inflationary Expectations considerably and break the hearts of all those hoping for a kinder, gentler, Fed policy sometime later in ’23.

3. Do We Have a Credit Crisis?

NGL – I think we will. Eventually. Global debt has exploded and is now approximately 3x what it was in 2007.

But this ain’t 2007. The Capital Markets Banking System is surely healthier, better capitalized, than it was 15 years ago. Underwriting standards, loose back then as a factory district street walker, are now gnat’s ass tight.

But the astonishing debt levels are at thresholds where, in my judgment, they simply cannot be repaid, and must instead be monetized (funded, that is, with newly minted fiat currency). This is likely to be passing unpleasant.

I don’t believe the reckoning is on the immediate horizon; probably won’t transpire in ’23 at all.

But there are some ominous signs to the contrary, including the following, which caught my eye:

Notably, this surge derives not from new issuance of junk, but rather from the deterioration of the credit quality of existing paper. I the continuation of trajectories in the coming months.

Eventually, we gonna have to pay The Man. And I don’t believe it will be an easy or gratifying task.

*****

So, my main worries for ’23 are a surge in Energy Prices, a capricious Fed, and some sort of unexpected, chain-reacting credit event.

And I certainly would be fading any early rallies.

However, come what may, ’23 is upon us, and will be over before we know it.

Because nothing lasts forever. 22 didn’t (thank God). Not on the calendar and not even for Buckner. Who wore Number 6 in Boston and booted that grounder into Baseball infamy. Michael Jordan ended his career wearing 45. LeBron, talents now residing with the underachieving Lakers, sports a 6 – perhaps, but not probably, in homage to Billy Buck.

Neil Young is no longer 24, but 77. How much more there is for him is in the hands of God.

So, let’s do our best to nail this newly begun year, shall we? Even if times are tough, it’s in our DNA to prosper. And, come what may, here’s hoping that 23 and You is an uplifting tale.

TIMSHEL

“A Horse is a horse, of course, of course”

— Theme Song from Mr. Ed

“I’m going to catch that horse if I can”

— Chestnut Mare: Roger McGuinn and Jacques Levy

“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 are 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 shit as a sign of Shetland ponies just around the corner.”

― Ken Kesey, Sometimes a Great Notion

Good Christmas, y’all. Even though it’s over. Like John Lennon once crooned, I hope you had fun. I hope, also, that you didn’t have to travel far, for it weren’t no weather to be travelling.

I tried, this year, to arrange a Secret Santa sequence with my partners, but there weren’t no takers. I reckon pro forma escapades like Secret Santa have moved beyond passe’ into the realm of the mortifyingly futile. I lament this as being another sacrificed superficial blessing.

Yup, I always had a soft spot for Secret Santa. Perhaps this is because once, an anonymous version of the game conferred upon me the bounty of a single long-necked bottle of Budweiser. Like the one Jim Morrison is holding in the inside cover of the Doors’ pseudo-eponymous “Morrison Hotel” — to me the SS equivalent of a winning Powerball ticket. I think I drank it, warm, in a single gulp.

In a slightly early nod to auld lang syne, I offer the last of our titular quotes as a unilateral, anonymous Secret Santa gift to my readership. Thanks for putting up with me all the way through this tedious, troubling, fast expiring year.

It comes from what is certainly at least a co-favorite novel of mine – Ken Kesey’s “Sometimes a Great Notion”. It is an enormous, sprawling book, weaving threads of man versus nature, wildcat capitalists versus institutionalized unions, brother versus brother and even father versus son, in a narrative reminiscent of Steinbeck and a cadence worthy of Faulkner. The subject of our quote is a prominent, but non-central character. A simple, optimistic, authentic soul, known more routinely across the pages as Joe-Ben.

I got to thinking about Joe-Ben as l contemplated conditions this Christmas, perhaps not the merriest in anyone’s recent memory – particularly for those that toil in the financial markets. Investible assets of every stripe are down, some dramatically. Even my mother-in-law lost money this year. Fund performance is putrid, deal flow is non-existent, Wall Street bonuses are unthinkably light. SBF’s erstwhile side piece has rolled on him.

Metaphorically, the stockings of many of us are stuffed with horse sh!t, which begs the following question:

Is this a harbinger of scatological scenes yet to come, or of glittering equine ecstasy awaiting us just up the road?

I reckon we’ll find out, but as we shake the dust off from this holiday, my fear is that it may be a while before we rope that pony, and, meantime, we might be impelled to satisfy ourselves with the content of the stocking as we have found it.

Our once thoroughbred economy is showing signs of having been ridden hard and put away wet. It could gather itself, and who’s to say it won’t?

But I wouldn’t be playing the Exacta on that outcome.

A guy I once worked with recently summed up our current economic condition in the following four charts:

I won’t venture so far as to call these trends unsustainable, but I sure don’t like the way them arrows are pointing.

In a fit of frenzied pre-holiday largesse, the folks in Washington delivered up a ~$1.7T Omnibus Spending Bill, with a Secret Santa flair – insofar as its page count clocks in at more than ten times that of the (seasonally appropriate) New Testament. There’s something for everybody contained therein – including the obligors of this unintended bounty – the American Taxpayer – who was last seen running down the road with a stocking full of sh!t, with aspirations that (s)he will soon be mounted on a Chestnut Mare.

There is a bid on longer-term Treasuries, but it comes at the expense of a Tim Burton/Nightmare Before Christmas Yield Curve Inversion that will almost certainly sustain the globulins currently plaguing the Equity Complex and its technology leadership.

The Housing Market is collapsing:

Retain Sales, Industrial Production, Durable Goods Orders, PMIs all are cracking like walnuts. We have yet to complete our mission-critical busting of the Inflation Bronco.

FactSet projects a > 2% decline in Q4 earnings. But we won’t know for sure for more than a month. Meantime, the Gallant 500 (’22 Vintage) has declined more than 19%; Captain Naz to the tune of a third.

And thus we enter ’23.

Perhaps the time has come, though, to channel our inner Joe-Ben, who (Spoiler Alert) laughed his way to a tragic demise.

We might nonetheless do well to benefit by his example. Horse sh!t, after all, is a by-product of horses, which we may catch if we can. And if we do, perhaps we may find that, like Mr. Ed, they speak our language.

Perhaps, then, we can ride him through the desert, but if we do, we will be compelled to either name him, or acknowledge our inability to do so.

But during this holiday season at any rate, I find that three steed analogies is quite enough, so….

Happy Holidays, and, as always….

TIMSHEL

SOFR away, doesn’t anybody stay in one place anymore?
It would be so fine to see your face at my door,
Doesn’t help to know, that you’re SOFR away

With apologies to Carol King

Not much love for Stanley last week, but that’s OK. He’s long gone. As we all must go. Perhaps it is well that this is so. You don’t need me to tell y’all that nothing lasts forever, but I will anyway.

Nothing lasts forever.

Case and point, this month, in addition to the other opportunities and challenges we have encountered, marked the passing of an era. The once-mighty Eurodollar futures complex, long-time alpha dog of not only the short-term interest rate markets, but indeed, of the entire futures universe, has been eclipsed in both Volume and Open Interest by a lesser-known aspirant: Secured Overnight Funding Rate (SOFR) futures.

SOFR, so good, as the man says. The Eurodollar had an extended star turn, but over its history, the fates gave many signals that its reign would be finite. It began with what appears, in retrospect, to be an unfortunate nomenclature choice. Eurodollar is kind of a cool name, but the actual underlier was the London Inter-Bank Offered Rate (LIBOR). So why not just call it that (I’ve often wondered)?

Then, in 1999, came European Monetary Union. As a matter of necessity, this created a new currency pair, called, well, called Euro/Dollar. Which led to immediate confusion, as there were thus, and ever since, two critical market benchmarks of nearly identical appellation.

The second, much larger problem began to unfold about a decade ago, when some slick bank guys manipulated the auctions upon which LIBOR is based. Not by much, only teeny, tiny amounts, fractions of percents.

But that sh!t added up. Because LIBOR was the biggest market in the world. Like, to the tune of $300 Trillion. Thrice Global GDP. And, while nobody except wonky interest rate traders pays much attention to LIBOR, it impacts just about everything with an interest rate attached to it. So, we all got ripped off. Bigly.

I’ll spare you a review of the dirty details (it’s Christmas Week, FFS!), but around 2013, the scheme unraveled, got blown wide open. A couple of cats went to jail; some banks paid fines.

And then the whole thing blew over.

Except for this. The British Bankers Association, stuffy, stolid but routinely shady sponsors of LIBOR, decided that the juice was not worth the squeeze. Started backing away from the project, albeit in a protracted fashion.

Enter SOFR – calculated by the impeccable, unassailable (at least by comparison) NY Federal Reserve. And now, after many years of doing direct battle, SOFR rules pre-eminent.

Again, SOFR, so good. Especially if you were long these puppies, which have trounced their opposite numbers in the Eurodollar pit in unceremonious fashion:

SOFR vs. ED: The Market Has Pronounced its Verdict:

OK; so this is little more than an obtuse joke. SOFR is quoted in yield, which has gone up dramatically, while ED is price based, and thus migrates in opposite direction. As such, these graphs describe an identical trend.

Which is that interest rates are rising. We kind of knew that already, and, in case we were in any\ confusion, Chair Pow reminded us, during last week’s FOMC Presser, that not only is this so, but that he ain’t done yet. Across our little global financial village, the same message was conveyed by the likes of the ECB’s Madame LaGarde and the fine folks on His Majesty’s Monetary Policy Committee.

The risk markets didn’t like what they heard. Not. One. Bit. And perhaps it’s no wonder. Our miracle of a capital economy has weathered much higher interest rate regimes than the one that currently prevails, but this does look like a major buzzkill hiking cycle. Coming, as it does, not to cool a whitehot economic surge, but against the backdrop of an unambiguously slowing one, with Inflation still hovering at > 3x the Fed’s stated target. With all kinds of pressures on margins and earnings, and various other dainties not overly pleasant to contemplate, much less ingest.

Thus, not only is the market selling off, but its longstanding leadership is being annihilated.

Goldman is sh!tcanning a few thousand bankers. SBF lingers in a rudely appointed Caribbean prison, awaiting a likely to be unpleasant extradition to the States. Frenemy Binance’s auditors suspended their review. The world’s largest cylindrical fish tank exploded in Berlin.

In all, I think it is well that we’re finally putting 2022 to bed. Not many in my professional acquaintance will much miss it. And as for ’23, well I don’t have a great deal of visibility as yet.

About all I can state with any confidence is that the first market move of ’23 is probably a big head fake fade. I’m not suggesting that the right trade is to get short an early January rally or to buy into an associated selloff, but there are worse trades I can contemplate.

I do suspect, however, that the rising tide of rate increases will ebb and ultimately reverse itself ere long. The delightfully diluted CPI print is one sign, and last week’s additional data releases corroborate the trend. Retail Sales, Industrial Production, PMIs of every stripe, confirm an unmistakable slowdown in economic activity. Which, presumably, is what the Fed intends.

The contorted yield curve remains in a gruesome state of inversion, and, just because I can, I’ll include an illustration of investors views on breakeven Inflation, as measured in 10-year equivalents:

This suggests that investors are putting their capital behind the concept that Inflation will come careening down, placing the Fed in a position to shift from “taketh away” to “giveth” mode.

To which I offer a few caveats. Yes, I expect Inflation to cool considerably next year. However, I can’t get there without factoring a Recession into the calculus. I am also, as I’ve repeatedly stated, concerned that renewed upward pricing pressure in the Energy Complex, while doing nothing to stave off the latter (Recession, that is) could upset this trajectory. Finally, to borrow a thought from a credentialed former Fed guy I just met, I believe that while the Inflation ride down to, say, 5% might easily be accomplished — still > 2x the Fed’s target– any move below this – particularly in this gnat’s ass tight Labor market — will be difficult to manifest and painful in its unfolding.

But hey, why even think about that no? There’s still two weeks that remain to our current solar circumnavigation, during which time our attentions will be diluted so as to pay proper homage to Hannukah, Christmas and New Year’s.

I wish I had something smart to offer about this final chapter. But in abstaining, please bear in mind that recently I suggested that risks tilted to the upside and gave my blessing to would be buyers.

I might recommend a combination of short SOFR/long Eurodollar, but that, my friends, is a trade, which back in the glory days of Open Outcry, known as a Texas spread.

The pits are shuttered now. SOFR has supplanted Eurodollars. It’s the holiday season, and All God’s Children are on the move. Perhaps it is well that it should be so. That no one stays in one place anymore.

And yes, it would be sooo fine to see your face at my door.

Trouble is, I won’t be home.

TIMSHEL

“The growing good of the world is partly dependent on unhistoric acts; and that things are not so ill with you and me as they might have been, is half owing to the number who lived faithfully a hidden life, and rest in unvisited tombs.”

George Eliot

Allow me, while the world still reels from the aftershocks of C. McVie’s death (and my stirring tribute to same), with time-honored self-indulgence, to take this moment to celebrate the 100th anniversary of the birth of my stepfather: Stanley Maurice Warsaw.

He shed his mortal coil late in 2006, and little has been heard of him since. Still and all, I think of him often, and always with fond remembrance.

Whatever else may be said of him (and of this there is a great deal), perhaps on this we can all agree:

He takes a nice snapshot.

But I can hardly rest my keyboard there. This cat was born in ’22, right in the heart of the Greatest Generation. Played Centerfield for the Chi-U Maroons, a project rudely interrupted by Pearl Harbor. He enlisted that day, and spent the next 4+ years fighting, as a Non-Commissioned Officer, through North Africa and Italy – under the generalship of Mark Clark.

To be sure, there were worse WWII theaters of engagement to be dispatched (Stalingrad comes to mind), but Stan came back to the States covered in shrapnel, and with a deep aversion to speaking of his war experience. Nay, he’d rather discuss his exploits on the Hyde Park diamonds, and who could blame him for this preference?

He went on to live the prototype existence of a successful urban Jewish man of his time. Had a great run as a stockbroker. Married and divorced two wives, giving off progeny in each. His third spouse – my mother, however, got her hooks into him pretty good, and they remained together for the last 30+ years of his life.

He had a big, bellowing voice, sang in the shower, drank, smoked, played tennis, attended ballet recitals and sporting events. Laughed a good deal, cried only in private, dutifully called his mother (who lived to be 100 but shaved 5 years off her age to the very end) every day. And came home every night. Which my bio dad never did.

He had his faults, but gosh oh mighty, he was good to me. Took a great interest in me – at a time when I had almost none in myself.

When he bounced and the battles for his assets commenced, I only asked for one thing – his first print copy of Winston Churchill’s WWII Memoirs and two-volume treatise “The History of the English- Speaking Peoples”.

I carried those off these books and still have them. They give the room an unmistakable Stan-vibe.

But I digress. Going back to our titular theme, the following image struck me:

Someone help me out here. I mean, why cage a tree? I don’t think it was transported illegally across the southern border by mules.

And, come what may, it’s not likely to be going – very far, or anywhere, anytime, soon.

Mostly, of course, I wonder what Stanley would’ve thought of it all.

I have indicated above that Stanley was a broker, and it is easy to slip into the temptation of marveling at how quaint the markets were during his innings at the bourse. 50s/60s – buy IBM; 70s/80s – buy Cisco and Microsoft. But he did endure a couple of nasty recessions, and through 20% interest rates in the early ‘80s.

In fact, across my undergrad years (an enterprise he, at minimum, subsidized) Inflation rose to beyond 13%, and, during my Freshman, Sophomore and Senior years, the U.S. economy was actually in Recession.

The specter of our ignominious defeat in Vietnam and of the Watergate debacle were omnipresent. Geopolitical tensions wreaked havoc on the Energy Complex, and, for the first time in anyone’s existence, Americans became vulnerable to Fundamentalist terrorism.

Just as we were emerging from all these niceties, a heretofore non-existent virus began killing off people by the thousands.

My memories of Stan’s professional experience through these times, for a variety of reasons, are both incomplete and clouded. But it couldn’t have been terribly easy to provide financial advice to his well-heeled tennis buddies, nor to articulate bad tidings to them as they unfolded. Mostly what I remember is that Sgt. Warsaw soldiered on.

Perhaps more pertinently, it strikes me that many of the challenges he faced stand in eerie verisimilitude to our current situation. There was no internet, no FTX, no Bitcoin. Derivatives were but a blot on the financial horizon.

Other than that, though, the financial challenges we confronted were about the same 40 years ago as they are today. Most prominently in my mind, there is a diminished faith in the future that is reminiscent of that time, long past.

It feels, walking around some of these days, like we’re all a caged tree.

But like Stanley, we will soldier on as best we can, and perhaps it’s a perverse pity that we do so without the benefit of the training and intestinal fortitude that developed during the Greatest Generation, and was essential to the survival of a society that was forced to endure the hardships of two world wars, with the Great Depression daintily sandwiched in between.

But that all began more than a century ago. As of now, there’s three weeks remaining to Terrible (on a relative basis) ’22, with the one immediately upon us being perhaps the most interesting. After last week’s equity drubbing, capped off so appropriately by a disappointing PPI print, we’re staring down the face of CPI on Tuesday and the FOMC on Wednesday.

I’d suggest close adherence to both. A bad CPI result will certainly inform the Fed’s behavior, and – not gonna lie – the upside PPI surprise was particularly noteworthy to me, considering that Crude Oil hit its lowest level all year on Friday.

One can certainly take this as good news, but if last week be any indication, investors did not – perhaps in particular because they didn’t appear to kill the PPI pop. My concern is that if Oil Vs (as it very well could), Inflation could, er, re-energize, in a land of higher interest rates, slower growth (pointing towards Recession).

In an environment of geopolitical discord, menacing viruses, and, perhaps most importantly, one where confidence, determination, vigor, and clear-sightedness seem to be in short supply.

Returns, as such, may be hard to come by, and explanations to becalm investors perhaps even more so.

We could certainly use a Man like Stan again. But Stan’s gone. And mostly forgotten. Certainly, though, things are not so ill with me as they might have been without his faithfully lived, partially hidden life.

Maybe it’s time for me to visit his unvisited tomb. If only, that is, I can liberate myself from this godforsaken caged tree.

TIMSHEL

“I was alone in the cold of a winter’s day, you were alone so snug in your bed”

Yeah, I know my obligations, so let me begin by joining in the chorus of lamentation over the final flight of “Songbird” C. McVie, for whom I have long carried a respectful torch. Much credit is due to her — for her pioneering work both behind the Fleetwood Mac microphone and on the FM keyboard bench. While Rock and Roll features many great ladies, she was certainly the first, arguably the best (and maybe the only) female band member to drive an entire ensemble. Much more than psychedelic eye/ear candy (though this, undoubtedly, she was), she also served as both a principal instrumentalist and songwriter.

Of what other sixties sirens can this be said?

But with this out of the way, I must now strongly state what is obvious – at least to all of us aging, crusty, curmudgeonly rockers: Fleetwood Mac was a much better band before the arrival of those impossibly fetching California kids – Lindsay Buckingham and Stevie Nicks, than it has been across their five decades of smarmy pop sensuality.

Of course, I’m supposed to think this, but nonetheless I do.

FM was conceived out of that prolific womb of Brit Blues Rock: John Mayall & the Bluesbreakers. They went through many lineup changes but hit on their peak combination with the insertion of Christine on the piano. The albums this quintet released – “Mystery to Me”, “Heroes are Hard to Find” and their masterwork: “Bare Trees”, stand up to the best works of that sublime era. After which, by all appearance, the band appeared to be headed into oblivion.

Then, almost if by chance, the crew met Lindsay Buckingham – in L.A. – natch. Asked him to join, but he insisted on bringing the delicious Stevie along with him. They assented, and it was the ruination of two bands. Because Buckingham/Nicks was a fine duo. As fates would have it, they kludged it all together, and released two of the most over-rated records in modern music history. The songs demanded nothing of the listener, and the salacious, incestuous bed hopping between band mates became the stuff of trite, weary legend. The songs themselves refuse to die.

One could argue (as I myself might) that the monster success of “Fleetwood Mac” and “Rumors” brought about the end of the golden age of Rock and Roll. Everybody copied their vibe. Exit the unkempt one-finger salute to the man; enter an over-produced idiom where optics and branding became, at minimum, co-equal to the Almighty Riff. Even the Grateful Dead (FFS) hired their producer, who engaged a stylist to coif up Jerry’s hair. They did about as well (badly) as one would expect with this, and we had to console ourselves with the marvelous tresses of our two golden haired Mac ladies, as well as that of Peter Frampton.

But the music devolved, and, except in rare snippets, has never re-ascended.

All of which bring us to the markets. Which hardly peaked in the mid-70’s but, like our fave bands from the Golden era, have seen better days.

However, like the ears of my peers two generations ago, we hoover up what we can get. Thus far in Q4, risk assets of every stripe are up considerably, some, improbably like the Gallant 500 and Investment Grade Corporate Credit, double digits.

And why not? Economic activity appears to be robust, as witnessed most recently by the boffo November Jobs Report, released this past Friday morning. Wages are up; gasoline prices are down.

And Madame X has dropped her yield skirts an astonishing >20% over this same interval:

As December unfolds, bells are ringing, pipers are piping, shoppers are shopping. There’s still a war in Eastern Europe, but we seem to have lost interest in it. We enter ’23 in blissful anticipation of a neutered 118th Congress. There are some vague issues in jurisdictions such as China, Iran and North Korea, but what of that?

Thus far, and with due respect to the victims, the FTX saga unfolds more like a perfect Netflix docudrama than an earth-shattering bloodbath. There are those that believe the episode marks a death knell for crypto in general. But the numbers give the lie to said assertion. The key liquid coins are down a bit since the story broke but are flat to up over the ensuing three weeks.

Thus, crypto abides. At least for now.

So, too, and this eternally, does risk. Yes, there are some worrying signs on the horizon. Lots of\ spit-balling about troubles in the land markets, and massive, elegantly named Real-Estate Investment Trust run by Blackstone (ticker symbol: BREIT) announced that it is restricting withdrawals.

This, my friends, is indeed unsettling, and, combined with the FTX drama, foretells of a rash of markdowns-to-reality of a wide variety of illiquid assets.

This, indeed, will be an unpleasant, if cosmically welcoming, development.

But I reckon for now we can live, nay, even benefit, from a downward adjustment to housing/real estate prices, which were too danged expensive, and this by a significant amount, for anyone’s liking anyway.

We’ve now only the 12/14 FOMC meeting to endure, and it’s bound to be a dreary affair. But the outcome is perhaps already foretold. They’ll go 50, and push Fed-Effective above 4%.

On the whole, though, I don’t see much downside risk for the remainder of Terrible ’22. I’m not sure I’d be doing any frenzied shopping up here, and I wouldn’t be inclined for much rejoicing over what you own.

But given where we are now, you’re probably OK buying what you will.

I myself would recommend “Bare Trees”. By Fleetwood Mac. The old (though not original) Fleetwood Mac.

They don’t make records like that anymore; maybe they never did. For decades, sometimes generations, we buy and listen to what our fashionable betters instruct us we ought. I reckon this is true in both the markets and the music.

Likely, some of these days, the skies will brighten, and the trees will shed their bareness. Even now, it’s not so dark as we rightly perceive it to be.

But let’s not, for all that, mistake ourselves by embracing the misapprehension that the inauthentic is anything but that. We can consume what is in front of us, gratefully, but with remembrance of the good things now gone that passed our way.

And yes, I am alone in the cold of a winter’s day. Not sure about you, but it would please me to think that you are snug in your bed – preferably (it must be allowed) alone.

And with that, I bit Christine a gentle good night, with thanks for sparing us a little of her love.

TIMSHEL

I don’t want to write an encyclopedia here, though Lord knows I could. But we’ve just completed a long holiday weekend, during which the news cycle has, inevitably, slowed to a crawl. We’ve still 5.5 trading weeks yet to go in this godforsaken year, and not much visibility as to what may transpire.

If my nerves are shot, I feel I have come by this condition honestly. And it may just well be that a little bit of enthusiastic shade throwing could restore my flagging energy.

At any rate, it’s worth a try.

So, what am I sick of? I’m glad you asked.

Let’s begin with the Titanic – which to this day retains the status as the world’s most deadly passenger ship disaster, claiming more lives than the Lusitania and Empress of Ireland (the next two on the list) wrecks combined.

But it hit that iceberg more than 110 years ago FFS, and I think it’s high time we just shut up about it.

I’m also already sick of the 2022 World Cup, which is only now in the midst of its qualifying rounds. It’s scheduled to go on for another month or so, and all I can say is God help us. The tourney is in Qatar, which nobody even knows how to properly pronounce. There’s a great deal of whining about the tragic lack of provisioning for malted hops.

Next.

Next? How about China? Lots of yackety yack about China. What with that big army of theirs. And the reality that their efforts to douse the population with poison gas notwithstanding, they’re back contending with a record number of them covid buggers.

This is buzz kill from too many perspectives to enumerate.

But China was around long before we arrived on the scene and it’s a fair bet that they will be so — well after we’ve peaced. So, let’s get over it, shall we?

Kinda sick of SBF/FTX as well. No doubt it’s good copy, and I’ll probably be among the first to purchase the definitive written account, which, presumably, any number of aspiring authors are already outflanking one another in hysteria to produce.

The most interesting thing about FTX is the warp speed at which it collapsed. The Theranos, Enron, Lehman and other similar sagas unfolded over months, and, in some cases years. In almost every case, some dogged reporter called BS while everyone else was singing praises. But ultimately, the story broke wide open and the reporter was vindicated. Not so with FTX. It didn’t want the vigilance of investigative journalism to bring it down, but rather collapsed of its own ossified greed and incompetence. And this in a matter of hours.

Also not surprisingly on the list is pickleball. Which I’ve never played and don’t intend to. But lots of folks is all wound up about it, and I am rapidly wearying of the topic.

Then there’s Twitter. Ah, Twitter. I don’t tweet; never have. I don’t care who owns it, who is trending or who is banned. Twitter – stop squawking!

I’m sick of all public servants. Elected and appointed. But that’s nothing new. And though I’m not proud of this, I’m already sick of Christmas songs, and November ain’t even over yet.

Finally, at least with respect to this note, I’m sick of this market. And all its drivers. Some of which I intend to use this opportunity to call out.

At the top of the list is the Fed. All of it. I’m sick of their Forward Guidance. Of their Dot Plots. Of FOMC Pressers and the parsing of every associated spoken and written word. I reckon we’re stuck with it, though, and, in this demented, unhinged market environment, what’s worse is that what it says is all we’re supposed to care about. Case and point: the Gall 5 and Cap’n Naz have both risen to the tune of 10% in a little over a month – with the main catalyst being a potential pause in the aggressive Fed’s rate raising ways.

Their main task is to manage interest rates at various maturities – in other words the Yield Curve. Here’s what the textbooks tell us it’s supposed to look like:

When we is goin’ great guns, the green line prevails. When we’re stymied and frustrated, Big Red takes over.

But look what they’ve ginned up now…

I don’t even know what to call this. It’s all twisty and turny, and mostly inverted, This indicates recession. But if that’s what they think, somebody forgot to send the memo to the Atlanta Branch, which is predicting blowout growth in Q4:

But I’m sick of all the Fed Banks (not just Atlanta). And of the ECB, and the BOJ, and the PBOC. And so on and so on and scoobie doobie do.

And I’m sick of Risk Factors, Quantitative Algorithms, Actively Managed ETFs, Passively Managed ETFs. Of Drawdowns, Correlations, the Volatility Skew, the Bid/Offer Spread. Fundamental Investors, Quantamental Investors, Short Squeezes, Triple Witches, Quadruple Witches, Yields to Maturity, Fair Value, Intrinsic Value, Extrinsic Value, Value Investors, Value Gaps, Surplus Value…

OK; strike the last one, which is a Marxist construct and therefore clearly outside the market matrix.

But I’m not sick of you. Far from it. I can use all of you I can get.

And you’ll have to carry me through this malaise. Until I gather myself.

Because right now, all I can think of is tweeting about pickleball tournaments held on the Titanic as it makes its way towards China, with winners paid out in FTX stable coins.

I’m sure I will get over this, but in the meantime, it’s all on you.

TIMSHEL

“Well, it’s sugar for sugar and it’s salt for salt, If you go down in the flood, it’s gonna be your fault,
But, Oh, Mama, ain’t you gonna miss your best friend now?
You’re gonna have to find yourself another best friend somehow”

Bob

I ain’t sayin’ you ARE going down in the flood, or that if you do, it will necessarily be your fault.

But oh, mama, ain’t you gonna miss your best friend now?

It’s a valid question, but I nonetheless adopted a more hopeful title. There has been a flood, a flood of data, and now, at least temporarily, it has subsided. We’re still here, so “After” seemed like a more appropriate modifier of the recent deluge than “Down in”.

There are a couple of songs that share this week’s header – one of them by a once-promising but now largely forgotten outfit called Lone Justice, who I had the pleasure of seeing at Farm Aid 1.

All of which is, of course, beside the point. More pertinently, we entered October with a gully-wash of pending information, and in this pre-holiday interval, I thought it might be worth reviewing: a) what tidings the tide delivered, and b) where it leaves us as we dry off the drench.

Let’s start with the macro data, shall we?

The first half of Q4 featured two strong jobs reports, a recovering GDP, and, more recently, a dip in Inflation and a surge in Retail Sales.

On virtually every level, it coulda been waaay worse.

The Fed, nonetheless, increased rates to the upper end of the consensus, which now, after resting for most of Q1 at 0.0%, be knocking on the door of 4%. The curmudgeonly President of the St. Louis Branch, James Bullard, is calling for a continuation of this rising rate tide – all the way up to, or above, 5% (the crusty old dog even threatened an eventual 7 handle, FFS!).

Moving along, Q3 earnings appear to net out at < 2%, which ain’t good. And most of my krew believes that the true profits plunge will transpire in the first half of ’23.

We also endured a soggy election cycle, the outcome of which, while surprising some and disappointing others, probably reflected the will of the electorate. We now have a divided government and can rejoice in this optically minor but (I believe) substantively significant blessing.

Then, seeming outta nowhere, came the sinking of that Titanic Crypto Ship – FTX. To suggest, metaphorically, that it hit an iceberg would be to understate the case. By all appearance, the vessel was built of duct tape and balsa wood, cannot be salvaged, and lacks sufficient lifeboats to rescue the millions of its passengers stranded on its deck.

All of which brings us to our present state — wondering what on earth to make of it all. With five trading weeks remaining to this frustrating year, the Gallant 500 has retreated by magnitudes in the high teens. Captain Naz – stalwart that he is, is going down with his ship at a nearly 30% loss. Madame X (U.S. 10-Year) has dropped an un-demure 10%, which doesn’t sound like much but is an historic retreat for this dainty, delicate debt doyenne.

On a more positive note, alternative dating site Grindr (ticker symbol: GRND) launched an IPO on Friday – inevitably, as a SPAC — and shot out a 4 bagger on its first day of trading.

But perhaps, my friends, my best friends, the less said about this the better.

Whither does all this lead? Not gonna lie; for me it’s a head scratcher. It does indeed appear to me that for now at any rate, we’ve managed to dunk the Inflation Monster under the drink, and here, I look no further than the Energy Complex, which features a Crude Oil and Nat Gas market trading below all important Moving Averages:

But prognosticating whether it pops back up in the next few months is above my paygrade.

There’s a good deal riding on whether the P wave waxes or crests, because, among other matters, it will inform the future trajectory of the public vig. The Fed is on record as reiterating its 2% target, and it’s hard to imagine success without even higher rates an accompanying recession.

Lower energy prices for longer would cure a multitude of ills, so let’s keep our eyes peeled there.

There’s probably some yet-to-be revealed, incremental fallout from the capsizing of FTX, but that debacle will most probably run its course rather benignly. Unless, of course, if you’re one of the > 1 million poor schlubs trying to recover a portion of your capital from the shipwreck. I wish you the best of fortune in these efforts. Meantime, we know two things: 1) the lawyers are poised for a massive payday; and 2) as mentioned in this space last week, Wall Street carnivores are already bidding between 5 and 8 cents on the dollar for your claims. If the script holds, significant amounts of heretofore untraceable collateral will materialize immediately after you take your nickels and dimes.

Meantime, I’m also a bit worried about what the lame duck 117th Congress will do in the six weeks that remain to their term. And this on both sides of the aisle. Expect some brinksmanship on debt ceilings and some weird legislation to be ascendant — none of which will be uplifting, or, for that matter, accretive to investment returns.

’23 is, improbably, just around the corner, and it does not from this vista appear to portend much positivity. But hey, you never know, and, as attributed to legendary but controversial Kentucky basketball coach Adolph Rupp: “that’s why they play the game”.

I hope you do indeed suit up in ’23, but that’s still a few weeks away.

Meantime, whatcha gonna do?

Well, unfortunately, you cannot train on down, to Williams Point, because the only such-named location of which I am aware is on the northern tip of Livingston Island, just northwest of fabulous (frozen) Antarctica.

And there ain’t no train from here to there.

Apparently, though, you can drive there. Or at least drive once you have disembarked. More than this, personalized license plates are seemingly available:

And, once there, you certainly can bust your feet/rock this joint, and if you do, you will not be alone.

Because your best friend will be there with you, all bundled up and sporting a life vest — in anticipation of the floods that, our best precautions notwithstanding, are sure to come our way.

TIMSHEL

“Evening, time to get away”

The Moody Blues: Days of Future Passed

File this week’s theme under the burgeoning, nigh-overflowing, low hanging fruit section. It is, of course, a titular inversion of the iconic 1985 film “Back to the Future”. The accompanying quote comes from a forgettable Moody Blues album (which nonetheless features the band’s two greatest hits) of a similar motif.

But there’s lots going on which I believe tethers what has already transpired to what has yet to come — a notion which occurred to me as I became aware of a couple of bittersweet but otherwise irrelevant developments that revealed themselves last week.

First, filmmakers from the History Channel apparently discovered a large portion of the fuselage of the ill-fated Space Shuttle Challenger – off the coast of Florida – where it blew to pieces minutes after liftoff, as well as approximately 6.5 months after the release of “Back to the Future”. Moreover, the ever-irrepressible Boulder, CO Police are re-opening the JonBenet case — the poor little seraphine, who, much to everyone’s horror, was found murdered in her basement on Boxing Day, 1996.

And I thought everyone had concluded that it was the brother that did her.

Meantime, the markets themselves served up some futuristic nostalgia for us this past week, with the lightening quick demise of crypto giant FTX, recalling such epic collapses as those of Enron, Lehman Brothers, Bear Stearns and MF Global.

The death throes of each of the above-mentioned financial ghosts could be heard for months, whereas FTX went from crypto colossus to computerized coinage corpse in just over ’72 short hours.

Isn’t technology development a wonder to contemplate?

Well, yes and no. Modern transaction processing and telecommunications protocols undoubtedly hastened the euthanizing of FTX, but the underlying story is as old as civilization itself. It is an Old School tale of excess leverage, hubris, mismanagement, and misappropriation of funds.

Specifically, FTX used the coins it sold to customers, which were believed by the latter to be held in sacred custody, to fund its own speculations. What could possibly go wrong there? Well, when the levered portfolios went sideways, the coins themselves became worthless, and with them, the value of the issuing enterprise.

Kinda like Enron, with the creepy, additional similarity that, shortly before they collapsed, each company bought the naming rights to high profile sport stadiums.

Enron imploded fifteen years ago – arguably a simpler time. But to me, the tightest parallel is to MF Global, the misanthropic derivatives trading firm that foundered in rapid fashion when levered speculations moved dramatically against its interests.

Like MF Global, FTX committed the additional unpardonable transgression of using client funds to collateralize its own risk-taking activities. In case you were unclear on the concept – this is a deadly sin. The derivatives markets rest on the principal of segregation of client funds – explicitly precluding their use for any commercial operation which would put them at speculative, proprietary risk.

But there is this difference. The fatal MF trades were generationally attractive investments. At the direction of their chieftain: former Goldman Sachs Chair/New Jersey Senator/New Jersey Governor Jon Corzine, the firm bet the ranch on the likelihood that sovereign debt rates in Southern Europe – which, at the time, approached and sometimes exceeded double digits, would come careening down.

Well, they did. All the way to near, or, in some cases, below zero. But not before Corzine’s former buddies at Goldman and elsewhere had squeezed the firm into oblivion. There were many object lessons in this, but the following is also clear. Had ‘Zine been able to hold onto them trades, he would’ve broke the bank. But what edge did FTX (or, more specifically, its sister company Alameda Research) have with respect to its levered crypto speculations? Beats the hell out of me.

The FTX death rattle and immediate aftermath also bring us forward to the past. Desperate, ultimately unsuccessful attempts to fall into the saving embrace of heretofore hated competitors. Postmortem fallout – yet to be fully revealed — featuring the crippling, if not all out demolition of proximate enterprises that had transacted with the recently departed organization. A legion of disenfranchised individual investors who can now only hope (and wait) for a return of a small portion of their capital. And, certainly on the horizon, some smart Wall Street guys who will swoop in, grab these claims at pennies on the dollar, and stand a fair chance of cashing in for years to come.

Certain markets wobbled on the demise of FTX, but others were untroubled. The Equity Complex experienced its best day in a couple of years on Thursday – ostensibly on a docile CPI report that told of a drop in the year-over-year rate to 7.7%. So, we’re ahead to the past Inflation-wise as well. Back to levels last seen this past January.

The late week, uber-aggressive rally has the look and feel of an old-school short squeeze.

But we must also remember this, my McFlys: short squeezes, like so many other elements of our existence, are only identifiable in the rear-view-mirror; we won’t know if this here rally is legit or fugazi unless (until?) the market sells off yet again.

Reticent though I am to bring up the subject, the recently (nearly) completed election cycle also brings us forward to days gone by. Whatever the final result, we’re looking at a government with elected officials and associated constituencies deeply at odds with one another. But here’s the good news: this configuration virtually ensures they won’t be able to do much incremental damage. And for this we can truly rejoice because Lord knows they’ve certainly done enough to vex us already.

I also must wearily join the chorus of complaint as to the inability of the system to deliver a vote count in a timely, accurate fashion. Which is particularly mortifying considering that backwater jurisdictions such as Brazil and Florida are able to complete the process in a matter of hours.

To my everlasting shame, I also find myself unable to resist the temptation to deliver my political synopsis of the (still-undetermined) outcome. First, I’m praying that the Republicans are able to recapture the House. Laying aside any party preferences, my hopes in this regard derive from my strong belief that the last thing we need during these troubled times is one party – either party – wielding explicit control over the action in Washington.

I also (here from a more partisan perspective) am pleased with the prospects for the next political cycle. It is now clear that Trump Derangement Syndrome has hit the Big Guy himself. He positioned himself to take credit for a GOP rout that he was sure would come to pass. But failed to fully consider the contingency that the rout would not be forthcoming. He’s absolving himself of all blame now, but not with any particular effectiveness. And his post-election rants against those who are supposed to be his political allies should have the whole country calling for the butterfly nets to be placed above his enormous neck.

With a little luck, we may be able to deem him gonzo. Meanwhile, on the other side of the ledger, the guy with the ‘70s style aviator glasses and leather jacket is strutting about like he owns the place. His bluish fellows clearly wish to banish him, but now will face some incremental difficulty in doing so.

None of them are particularly well-positioned. In the lead-up to the voting, they artificially suppressed energy prices and ginned up ~trillion-dollar giveaways to favored constituencies such as relatively affluent student loan obligors, microchip manufacturers, and Green Energy vendors. A judge just put the kibosh on the first of these. And if the GOP does indeed cop the ‘ouse, neither of the last two stand a snowball’s chance in Florida (or Rio) of obtaining funding.

And, as investors, we should be doing a rain dance for a GOP Congress. We need to control Ways and Means/Appropriations, or, I fear, all hell will break loose for risk assets. As I type this out, the Repubs need to win only 6 or 7 of the remaining 29 uncalled races to secure a majority. Should be doable, but with the Dems continuing to draw last minute inside straights, one has cause to wonder.

In any event, it looks like a hard slog for the capital markets. Inflation is still nearly 4x the Fed’s stated target. Our Central Bank remains on a warpath and seems intent upon ginning up a recession. They’re likely to succeed. Corporate earnings are on the down. The country and the world are awash in debt. War still rages in Eastern Europe. Our enemies in the Middle and Far East continue to menace.

But when was it ever easy? Never, is the answer. Except in the rear-view mirror. What lies ahead, from many perspectives, looks indeed like episodes from the recent and distant past.

But as I type this, it’s evening, and time to get away. I’m locked out of my FTX account, where I keep my vast fortune. I’ve got the Moody Blues on my re-modeled turntable, but “Days of Future Passed” is full of scratches (how did that happen?) – particularly on the smarmy “Knights in White Satin” track.

I think I’ll switch to a better Moody Blues record: “In Search of the Lost Chord”. And my fave Moody’s song: “Ride My See Saw”. Seems appropriate for these nostalgic, futuristic times.

Also got my VHS all teed up, and if you don’t know what I’m watching, you ain’t paying attention.

TIMSHEL

“Mr. Praline: Now that’s what I call a dead parrot.

Owner: No, no…..No, ‘e’s stunned!

Mr. Praline: STUNNED?!?

Owner: Yeah! You stunned him, just as he was wakin’ up! Norwegian Blues stun easily, major.

Mr. Praline: Um…now look…now look, mate, I’ve definitely ‘ad enough of this. That parrot is definitely
deceased, and when I purchased it not ‘alf an hour ago, you assured me that its total lack of
movement was due to it bein’ tired and shagged out following a prolonged squawk.

Owner: Well, he’s…he’s, ah…probably pining for the fjords.

Mr. Praline: PININ’ for the FJORDS?!?!?!? What kind of talk is that?, look, why did he fall flat on his
back the moment I got ‘im home?

Owner: The Norwegian Blue prefers keepin’ on it’s back! Remarkable bird, id’nit, squire? Lovely
plumage!

Mr. Praline: Look, I took the liberty of examining that parrot when I got it home, and I discovered the
only reason that it had been sitting on its perch in the first place was that it had been NAILED there.

(pause)

Owner: Well, o’course it was nailed there! If I hadn’t nailed that bird down, it would have nuzzled up
to those bars, bent ’em apart with its beak, and VOOM! Feeweeweewee!

Mr. Praline: “VOOM”?!? Mate, this bird wouldn’t “voom” if you put four million volts through it! ‘E’s
bleedin’ demised!

Owner: No no! ‘E’s pining!

Mr. Praline: ‘E’s not pinin’! ‘E’s passed on! This parrot is no more! He has ceased to be! ‘E’s expired
and gone to meet ‘is maker! ‘E’s a stiff! Bereft of life, ‘e rests in peace! If you hadn’t nailed ‘im to the
perch ‘e’d be pushing up the daisies! ‘Is metabolic processes are now ‘istory! ‘E’s off the twig! ‘E’s
kicked the bucket, ‘e’s shuffled off ‘is mortal coil, run down the curtain and joined the bleedin’ choir
invisible!! THIS IS AN EX-PARROT!”

Monty Python

I couldn’t resist the long opening quote here, and that’s not the totality of my transgressions. Because I lifted the reference to the iconic, Pythonic “Dead Parrot” sketch, I think, from a recent editorial in the WSJ.

It can be hoped, at any rate, that y’all get the gist of the interplay between the justifiably vexed Mr. Praline and the dissembling (unnamed) pet shop owner. The latter sells the former a dead parrot, and then, upon the former’s complaint, he heroically sticks to his story.

I admire him for this.

Among the alternative realities he lays before the misanthropic Mr. P is that the bird, exhausted after a prolonged squawk, is “pinin’ for the fjords”. But I think, with his rant at the end, Mr. P resolves the argument in his own favor.

The bird is dead. But it causes me to wonder whether, this reality firmly established, he could not also be both exhausted after a prolong squawk, and, in fact, engaged in some authentic fjord-pining.

Moreover, it seems to me to be a rather timely matter to consider, particularly as it pertains to this past week’s most salient event – the FOMC meeting/rate announcement, and Fed Chair Jay(bird) Powell’s comments during the presser that immediately ensued.

Our chief monetary policy orinth first disappointed his constituents by going the full smash 75, but then, in his written remarks, managed to bouy buoyancy-bereft spirits with the following statement: “As we come closer to that level and move further into restrictive territory, the question of speed becomes less important. … And that’s why I’ve said at the last two press conferences that at some point it will be important to slow the pace of increases. So that time is coming, and it may come as soon as the next meeting or the one after that. No decision has been made.”

This was the “tell” that investors were seeking. Equities and Treasuries rallied in Pavlovian fashion.

Then came the presser, a decidedly avian affair, during which, however, there were neither doves nor parrots to be found. Only hawks. And my extensive research corroborates that this lastmentioned predatory bird will indeed feast on the two more docile species mentioned just before. So it went with the presser, during which Jay-Hawk Powell somehow managed to be loud and clear – lovely plumage extending from his beak notwithstanding.

Investors, reacting to his prolonged, beak-stuffed squawking and knowing they’re next, responded in pain and fright. He made it clear that: a) what he fears most is pausing too early; b) his objective is the time-honored (but perhaps highly aspirational) 2% Inflation target; and c) that the rest of us better buckle in for some unpleasantness, because we are galaxies away from achieving b).

In short, he took the opposite tack of that scamp pet shop owner. Channeling instead Mr. P, he informed us that the pausing parrot has, for now, joined the bleedin’ choir invisible.

This certainly clipped the wings of the buying crowd, which was flat on its back for the remainder of Wednesday and all Thursday, before being hoisted up and nailed to its perch during Friday’s session.

I was surprised as anyone at Parrot Powell’s Presser 180, feeling certain that he directly intended, in his formal statement, to calm the mournful warblings of beleaguered investors, and, by so calming, bestow some illusory life upon comatose capital markets. I was wrong.

I wonder what his game is and can only conjecture that politics is deeply in play with respect to his pet shop owner policy plays.

Specifically, he has now raised rates from zero to ~4% in eight short months and has made clear he ain’t done yet. From a political perspective (his presumed political perspective; he is, after all a Yellen acolyte) the timing is passing unfortunate. He has swooped in to ground the economy right up to the point of an important election, with (if the perfidious polls can be believed) his side feeling wicked gravitational pull. His friend and mentors must be quite angry with him.

But what’s done is done and cannot be undone. The elevated rates are upon us, and the economy will feel their presence. Here’s hoping these moves will help tame Inflation, and for all I know they probably will (or should).

But history instructs us that these levels of Inflation almost never dissipate without an accompanying Recession, which I believe is part of the Fed’s calculus. Better, or so I assume they think, to bring it about, in, say, the early innings of ’23 than a year later, when it might cause even greater partisan damage.

That’s my hypothesis, at any rate. And if it so plays out, we’d best strap ourselves in for (oxymoron warning) an immediate accelerated economic slowdown.

All of which offers a bleak prognosis for risk assets. As perhaps the most overworn of market platitudes admonishes us: “don’t fight the Fed”. I made the mistake of operating against this wisdom in the wake of the lockdowns. Even at the Q2/20 lows, I figure we had much further to drop. But then the Fed came in with its $4.5 Tril, and y’all know what happened next.

Well, if you don’t want to fight the Fed as it giveth, it certainly does not pay to do so as it taketh away.

It presents quite a quandary, no? Because there’s other menacing stuff out there that has nothing to do with Fed policy. We can feel the rumblings of economic deceleration from several sources, and I’ll offer a few visuals in support of these fears.

Q4 projected Earnings Growth is not only careening to terra firma, but has actually crashed through the zero boundary:

As we wearily turn towards Q4 economic estimates, Wall Street economists (who are paid to shade to the chipper in their chirping) are prognosticating an approximate goose egg:

Inflation figures drop over the next several days, and, rather than approaching 2 handles, they’re looking more like 7s and 8s. And, ever so quietly, this is reflected in commodity prices. Brent Crude is creeping back near 100, and the broader basket of Oils, Grains, Metals, and the like, is flapping its wings towards liftoff velocity:

If it all makes you pine for the fjords, know that you’re in good company (myself included).

Yes, our parrot is dead, off its twig. And our pet shop owner is only too prone to sell us another of similar status.

But we ourselves remain among the quick, and, as I conclude this prolonged squawk, I can only advise you to keep your feet firmly nailed to whatever perch you presently occupy. If you cannot do this for yourself, perhaps there’s a perfidious pet shop owner available to assist you.

If we can keep ourselves upright, perhaps, defying laws of logic, biology, physics, and economics, we will emerge to a day when we can rise again.

TIMSHEL