From what I read, it’s been a tough month for the Bernie Bros. Our favorite scraggly socialist seems increasingly to be yesterday’s news. He seemed so fresh and sparkly in ’16. But time and tide appear to have taken their toll. His message remains constant: tag every economic enterprise that possesses the means to be tagged, and give the bounty to the more deserving. But it’s sort of assumed by everyone now that this is the proper thing to do, and if so, why not allow someone else, say, the entirely more fetching Kamala Harris to lead the effort?

But Les Brers Bernie were offered a lifeline of sorts this past week, from the most unlikely of sources, and one who shares the same first name as our lovable curmudgeon. Presumably, many of you read with the same level of interest as did I the news that earlier this past week, lawyers for the infamous Wall Street Legend/former NASDAQ Chairman Bernard L. Madoff applied to the Justice Department for the commutation of his sentence.

Now, one can accuse the latter Bernie of many things, but lack of cheek is clearly not one of them. He probably figures that 45 is something of a rogue himself, and what’s the point of being a lifelong scamster if you can’t call upon a fellow scamster to do you a solid now and then?

Moreover, published reports indicate that the man who was able to pass off fictitious investment returns for the better part of three decades stands a sportsman’s chance of obtaining said commutation.

And if so, he’d be a perfect partner for the Gentleman from Vermont on the 2020 ticket. Sanders (Bernie 1) could promise to give away the entire private economy, and Madoff (Bernie 2) would (trust me on this) find a way to pay for it. Further, I am indifferent as to who heads the ticket and who holds the coat-tails, as, if one reverses the polarity of responsibility, Bernie 2 could lead by just creating an ocean full of new money to spend, and you can certainly count on Bernie 1 to spend it like a sailor.

Now, before you dismiss this notion out of hand, might wish to consider the reality that this would simply manifest – perhaps in more honest fashion – the current economic policy trends transpiring on a global basis. In advance of an FOMC meeting where the Committee is expected to cut rates (reasonably robust growth, record employment and hyper-charged investment valuations notwithstanding), we now encounter a situation where for the first time in 15 years, not a single Central Bank is hiking rates, and the percentage that are actually cutting is the highest since the early days of the recovery:

What could go wrong? I’m not sure if the grey/neutral contingent includes the ECB, which did not move at its midweek presser, but which promised a multitude of goodies (including a new €QE) come September, but the consensus among empowered monetary economists is nonetheless compelling.

And, though thinly reported, we Americans have now also been treated to what amounts to a fiscal stimulus. embodied in a gargantuan, two-year budget deal.

Among other matters, the deal expands those annoying spending caps to the tune of $320B, and this must have Congressional agents in both parties positively drooling in anticipation. But there are other reasons for rejoicing. Most notably, (at least from my perspective), it ushers in the coming Bernie-squared era in grand style. After all, what says Double Bernie more forcefully than a bi-partisan budget blowout?

I will cop to be somewhat surprised by these tidings. But clearly, the political winds are shifting, and politicians must pay obeisance to these changes. Most of you caught, at minimum, a glimpse of the Mueller testimony on Capitol Hill. I won’t opine much here, but in addition to the blindingly obvious reality that it put a toe tag on current impeachment efforts, I’d note, more in sorrow than in anger, the humanity of the sad spectacle of his testimony. It was not by any stretch a good look for him. The blogosphere has been active in ginning up analogues, but I have my own. Scowling Bob reminded me of no one so much as Captain Queeg under cross-examination in the film version of “The Caine Mutiny”. All that was missing was the steel balls. In fact, if (when) Hollywood decides to produce a movie of the Mueller saga, they may be left with no alternative other than to dig up Bogart for the title role.

Meanwhile, the market rally soldiers on, without crossing its own tow line or dropping a yellow die marker as it races out of danger. Stocks, bonds, the USD all benefitted in particular by a surge in the waning hours of the week. Commodities were a different story, but then again they always are.

The dead horse I choose to beat in this edition is the pressure on Crude Oil. Certain data flows suggest that it’s levitation act risks facing a final curtain. I draw your attention, for example, to the short interest build in WTI, which has emerged, seemingly out of nowhere, in the past few sessions:

Now, as a risk manager who cannot drift far from his basic training and reinforced lessons, I would normally look at a chart like this and prepare myself to go long. Everything about the short build cries out for a cycle of nuts squeezing emerging on the horizon.

But need I remind you that the economy, due to credit reasons, cannot abide a selloff in Crude Oil? I have no way of knowing for sure, but I suspect that all of those fiscal and monetary angels spreading their fairy dust on us till we are ready to choke on the stuff are focused on the potential plagues that await us if the energy credit market collapses.

But it seems as though the market is laying aside these and other potential points of worry. We’re nearly half way through Q2 earnings, and it looks like they’re coming in right within middle ranges of expectations. The count now projects out -2.6%, another down cycle in Q3, and then perhaps a reversal.

But investors seem to be in a forgiving mood. With the odd exception of names like Boeing (which maybe deserves their wrath) and Netflix (whose run, to the extent that it isn’t over, is likely, best case, to experience a competitive chop in the coming months and years), there has been little in the way of retributive judgment in the form of pricing pressure.

The reality that investors are overly rewarding expectations beaters while giving a hall pass to disappointers further reinforces the embedded bullish stance I have taken since earlier this year, when I got it into my thick head that the Fed Fix was in:

My gut is that this sort of thing: more aggressively buying up the achievers and only ditching the laggards in tepid fashion, is likely to continue. After all, it’s been, and I think will remain, A Summer of Love.

Of course, the ride to even more unfathomable elevations will be anything but a milk run. This week could itself be a test, with important earnings releases, as well as the Lighthizer/Mnuchin jaunt to Beijing, not to mention a high-drama FOMC disclosure saga, all geared towards the prospect of heightened two- way volatility.

But were I you (and I wish I was), I’d hang in there. The market, after all, will (hang in there that is). And if by some chance it drops, I am likely to recommend to my constituents that they do some shopping.

And if Trump were to just play along and commute Bernie’s sentence, the possibilities for us are endless. And the only question which would linger under these circumstances is whether we’re looking at a Bernie 1/Bernie 2 ticket or Bernie 2/Bernie 1. Either way, we can’t lose. We’ll have free health care, free education, reparations, subsidized living for those who are philosophically opposed to working for a living, etc. We will have clean oceans, skies and all of the kale we can choke down our gullets.

And better yet: from his desktop in Federal Prison, Bernie 2 has assured me that we can achieve all of the above while also eliminating our National Debt. In fact, there will be a surplus, which Bernie 1 wants to pass around to all of his peeps. Including you and me.

Maybe it’s all just a dream I dreamed one afternoon long ago. And before I close, I would be remiss in any failure to point out that we need more than commutation from the Trumpster: maybe even a full pardon for Bernie 2. He might even need to pass an Executive Order allowing Bernie to run for office.

But together, we can make it a reality.

And we will need everyone’s full support. Because even if we’re successful, it will take all of our focus and energy to ensure that when in office, Bernie 2 does not steal it all.

TIMSHEL

Did you really think I would ignore this? If so I’m disappointed in you, and a little bit in myself.

Because as your risk shepherd, I am duty bound to protect my flock, and anything that threatens my lambs is a matter of solemn priority for me. If I have failed to make this clear, well, that one’s on me.

So when the ionosphere exploded with news that aliens were arriving – not the kind that have turned into the biggest political football this side of the Dirty Dossier, but actual space creatures – and the call came forward to meet them head on in the famous (infamous) Air Force testing sight known as Area 51, I was certainly compelled to fully investigate the threat.

For those of you not in the know, the entire episode was socialized on a global basis through that infallible information forum known as Facebook. Late last month, an invitation was posted there to meet these extraterrestrial creatures in desperate engagement, and over 1.5 million patriotic souls answered it. The number is growing, and even now, perhaps hundreds of thousands of our fellows are making arrangements to either countermand the threat, or at least observe the spectacle.

Published reports have subsequently revealed that the whole thing was a hoax, perpetrated, with no malice aforethought, by a clever California resident named Matty Roberts (Matty R to his friends). The United States Air Force has not offered much in the way of comment, other than to: a) assure the public that it has matters under control; and b) warn everyone to just stay away.

But are you really gonna rely on the USAF’s word alone? I mean, didn’t they leave all those planes as sitting ducks in Pearl Harbor in ’41 (strike that; it was the Navy that done that)? True, all of this is transpiring on the Golden Anniversary (plus one day) of our spectacular conquest of the moon, as led by a group of trained Air Force fighter pilots/engineers the likes of which grace us maybe once in a century. But Armstrong is dead and pilot Mike Collins is living out his last years on an island off the Carolina Coast. Buzz Aldrin is making the rounds, milking his moon walk for all it’s worth, and god bless him for that. He’s still a feisty sumb!tch, who evokes images of an older version of George C. Scott’s portrayal of General Buck Turgidson in the Stanley Kubrick’s remarkable film: “Dr. Strangelove”. But his wits are wandering, and I just don’t feel comfortable trusting his judgment on this here alien invasion thing.

So, consistent with my mandate, I checked out Area 51 myself, located as it is in Lincoln County in the Southernmost portion of the Nevada desert. Didn’t see much, and nobody would speak to me. But remember, I’ve been doing this risk management thing for a long time, and my professional judgment is that there’s little to worry about. Earthling technology at its best can only reach Mars in the space of seven months, we have very advanced satellite surveillance, and I can assure you nothing is emanating from that quarter of the solar system. So, worst case, the hundred-eyed devils won’t be here for quite a while, and if they can indeed menace us with a speed-of-light invasion, well, then, I don’t think there’s much that even the marshalling of all of Facebook’s 1.2 Billion users (including several million cats) can do about it.

But I was never one to rest on the comforts of a clean, visible horizon. So I decided I’d better check out Area 52. Now, in mathematical (if not geographic) elegance, the Air Force does indeed have such a designation: for an even-more secretive aeronautical testing ground. It also is in Lincoln County, but (like house numbers on the streets of Tokyo) it is not explicitly adjacent to 51. It resides, in fact, to the North and the West, in what is known as the Cactus Flat Valley.

Didn’t see nothing of interest there either.

But as long as I was in the hood, I thought I’d investigate Area 50, and it turns out that the Air Force doesn’t even control such a region. Instead, it falls not even within the jurisdiction of the Department of Defense, but is jointly overseen by the Treasury and the Federal Reserve Bank of the United States.

This, I find, is where the secret market experiments take place, and, try though I did, I was unable to even determine its precise location. Further, I’ll save you the time and effort that I myself wasted, and inform you that a Facebook search of Area 50 will bear little fruit.

As a matter of divine coincidence, Facebook actually discloses its earnings this coming week, in a critical reporting season now 20% of its way to completion. Thus far, it’s no worse than what modest fears suggested, and maybe even arguably a little bit better. The banks were hardly gangbuster, but they didn’t ruin the party per se. Microsoft also clocked in with numbers which, if they failed to delight, at least did not over-much disappoint. There were some bad misses: NFLX told a story of pathos that broke as many hearts as did the ending of that (recently cleared) Kevin Spacey show, the name of which I forget. Boeing pre-announced a $4.6B write-off (they don’t report until Wednesday and it will be anticlimactic), and investors took their actions constructively.

But as the big dog risk manager I offer the following admonition: Boeing better get those 737s back in the air soon, not only for the health of their valuation, but also because if we’re wrong about this alien invasion thing, we’re going to need it to be “wheels up” for every tin can we can mobilize.

The real drama of the earnings cycle begins this week, as, in addition to Facebook, we face the prospect of the leaders of Amazon, Google and even such critical backbenchers (oxymoron alert) as Nvidia taking their turns in the white lights. As mentioned in prior installments, I think that investor infrared missiles and projectiles will be trained much more directly upon back half guidance than they will on the actual results themselves.

If we get through these spectacles no (or not much) worse for the wear, they maybe we’ll be OK for a spell.

But all of this brings to mind concerns about what else they may be cooking up in Area 50. And I wish I had better answers for you. Plainly, interest rates remain under pressure, with non-US government debt hitting new lows (the hangover from Bastille Day, for instance, took the French 10-year back to new lows of approximately -0.07%).

The FOMC doesn’t even meet until Wednesday week, but has already pretty much telegraphed a 25 bp cut. If they stand pat (which I think they should but won’t), it could be a scenario of look out below.

And yes, everyone is nervous. Perhaps more than they should be. After all, we live in a world where a farcical Facebook post about a space invasion can mobilize over a million of our numbers.

Other signs of stress emanate from the FX markets, with the prime example coming from the EURJPY cross rate (which for reasons that I have never fully understood, has served as a long-time barometer of the level of concern among smart investors as to the risk inherent in the capital markets):

Sharp-eyed observers will notice that this pair is testing rolling one-year lows, in realms last visited in the aftermath of Trump’s China tweet.

OK; I get it. I myself am expecting 45 to turn the heat up at any time on Chairman Xi and his crew, if, for no other reason than he can. As I’ve stated previously, the most maddening thing about this very maddening guy is his inability to avoid sh!t stirring for as much as an entire day. I think that if he hasn’t tweaked somebody’s (anybody’s) nose within the space of a few hours, he starts to break out into a rash. Now, during the dog days of summer, I have a hunch that the Chinese might be an irresistible target for the big guy.

The markets won’t like it if this happens. But I have another theory that increases the likelihood that such a stunt may be in the offing. Specifically, my guess is that Trump and Xi already have a deal arranged, but are slow-walking the timing. As noted in prior installments, any paper they sign will be worth neither ink nor electronic pixels. But it will remove the risk of an escalating global trade war, which they can’t afford and neither can their, er, constituents.

But I feel that Trump will want to time this announcement for political purposes, and that means maybe next Spring. He may, in other words, be saving it for a rainy day. As he observes the circular firing squad in which his electoral opposite numbers are engaged, he might just be smart enough to have figured out that only one person can stop his re-election, and that is the Trumpster himself. If nothing untoward transpires in the economy, if no big wars, natural disasters or space invaders arrive on the scene, it ought to be a milk run. Certainly the market is telling him so; would the prospects of a Bernie or Liz presidency be otherwise consistent with current assaults on all-time highs?

But this economic recovery is nothing if not long in the tooth, and, on the odd chance that it starts to go tits up, say, in Q1, then a Chinese deal would be one heck of a remedy. In the meanwhile, why not stir some sh!t?

It is also for these reasons that I believe the Area 50 guys and gals will up their game in terms of suppressing the specter of corporate defaults. Corporate America owes historic amounts to the banks, and some of them are in a weak position to honor these markers. But I think that any bank holding this wiggly paper would be ill-advised to do anything but engage in a Trump Casino-type renegotiation/refinance. This is particularly true for any indenture whose declaration of failure would catalyze a loss of jobs across the great expanse of this nation. So my advice to the banks is as follows: ignore bad financials to indebted employers in the United States. Otherwise, you may have some permanent company: in the persons of examiners from the SEC, FTC, IRS, NRLB, NSA, and on and on.

And my bankers, know this: God help you if the Area 50 crew shows up in the reception area. I know enough about them to offer assurances suggest that it won’t be a pleasant interlude for you. You already know this, and I’ve no doubt you’ll do as asked, so I think the credit bubble and the interest rate vaporization will continue on for, say, a few more quarters.

So, as for the rest of us, I think it’s time to relax a bit. I can reiterate that 51 and 52 are all clear. And as for 50, my strong conviction is that it’s denizens are looking out for our interests. At least for now.

TIMSHEL

I don’t want y’all to get the wrong idea. This here article ain’t about race relations. It’s too touchy of a subject, even coming from the most woke un-woke guy you know.

The fact is, I have a confession to make. A big one. For most of the last 3.5 decades, I’ve been on the payroll of James Joseph (Whitey) Bulger, the notorious Boston mob boss/informer/fugitive, who died in a federal prison the day before last Halloween.

I can already hear the chorus of “so whats?”. Lots of guys worked for Whitey over the years, thousands of them, tens of thousands of them.

Ah, but my case is different, because, you see, I am among a very small member of his crew that worked for him on both the wise guy and rat side of his business.

I made some dough, yeah, but I earned it. The hard way. Made my bones when I was twelve. I’d share more details about this, but my government plea deal precludes me from doing so.

And I hardly need to tell you that it was a difficult ride. Whitey was a tough boss. A stone cold killer who could give you the Michael/Freddie Corleone GFII kiss for just looking at him funny.

But I don’t think I need to elaborate much here, because, as is well known, we all work for Whitey, every last one of us. Always have; always will.

And we’ve worked for him, like, forever. Consider, if you will, the reality that today marks the 230th Anniversary of the storming of the Parisian Bastille, which (like the signing of the American Declaration of Independence some thirteen year’s prior) is recognized as the beginning of a Revolution. The French Revolution. The Bastille itself was at the time crumbling and largely unoccupied, but the event resonates through the ages nonetheless. And to this day, it’s a national holiday in the Grand Republic.

It came about because a bunch of guys got sick of working for Whitey – in this case, King Louis (Whitey, or if you will, Blancy) XVI. That they had a legitimate beef there was little doubt, because Louis was doing an indisputably poor job of spreading the vig around beyond him, his luscious wife and his immediate crew. So, just like Gotti did Big Paulie for similar reasons nearly 200 years later, Louis Blanc had to go. Didn’t get whacked by some guys in Russian hats in front of Sparks Steakhouse, instead got his head chopped off.

He was replaced by something called the Committee for Public Safety, which created an even nastier set of Whiteys itself, as led my main man Robespierre. Not only did they whack anyone who crossed them, but in the space of less than five years, they actually whacked themselves. All of them.

And so it goes throughout history. One Whitey replaces another, sometimes violently, sometimes not.

And sometimes we don’t even know who Whitey is. But we all work for him. Or her. Or them. Because as illustrated above, there can often be more than one Whitey, and when this happens, all mayhem can break loose.

But if you toil for your wages in the investment racket, at the moment you probably don’t need to know. Whoever Whitey may be, his/her/their reign has been nothing but benevolent thus far into 2019. Our glorious equity indices, as everyone is aware, have surged to new all-time highs, and are showing no particular signs of stopping for a rest. To be fair and balanced, bonds have backed off a bit, as (perhaps to honor today’s Bastille Day Celebration) French yields actually slipped back into positive territory. The USD was also a bit on the schneid. But on the whole, Capital Markets Whitey has been treating us pretty well lately.

Among the many recipients of Whitey Largesse, of particular note are the holders of Investment Grade Corporate Debt. The full on, year-to-date return on the Lehman-cum-Barclays-cum-Bloomberg index tracking this paper is an astonishing 10.34% so far this year, which, even in mid-July, represents the strongest full year gain since those whacky days of 1938 (the first year somebody decided to track this here stuff):

Sometimes, that Whitey can be a really swell guy, ya know? Particularly so when you do what’s asked of you: 1) be a good earner; 2) never rat out your friends; and 3) always keep your mouth shut.

Oh, and there’s one other thing you can do that pleases Whitey to no end: go out and buy up every financial security you can lay your hands on. Because Whitey wants you to hoover them all up. And when he does, you will not need to guess at his next marching orders: you will be instructed to turn said securities over into his own keeping. Because Whitey wants them all for himself.

Whitey of course has many fine qualities, but subtlety is not among them. And just in case you failed to get the message, this weekend, he reached out to some WSJ guys he has on the payroll and had them write an article about European Junk debt trading at negative yields. He even went so far as to force me to put up the following charts in this week’s note:

Let’s keep this on the DL, OK, but sometimes I think Whitey pushes things too far. I mean, c’mon! The average aggregate vig on European slacker junk paper is less than that of the frigging U.S. 10 year note! Whitey: didn’t we just have to fly over there and go the old school route collection on a few of them dudes?

Plus, according to that same planted WSJ article, there’s like 3 Billion of junk paper actually trading at negative yields. Who’d you get to buy that crap? What did you do to make ‘em buy it?

On second thought, don’t tell me, because I don’t even wanna know.

Among Whitey’s top lieutenants, none are rising in his favor more gratifyingly than Fed Chair Jerome Powell. Like the good soldier he is, he dutifully faced down the Whitey wannabes in both chambers of Congress this past week and told them yes, of course he plans on lowering the vig. In fact, he plans to do so before the month is out. Good capo, that Powell, and we should thank our lucky stars that he’s doing Whitey’s bidding.

Because there are potential trouble spots ahead, taking the form of the earnings sit downs that begin in earnest this coming week. CEOs (the made guys) and their CFOs (the connected guys) have all been briefed on what needs to go down. They also know that they better deliver, because if they don’t, Whitey has them on notice that he’s gonna be mighty p!ssed.

And just to be clear, it’s not so much about what the Q2 take was, because Whitey already knows it was tough out there this spring. But you better have pretty good news about what the rest of the year looks like, because if not, then Whitey’s boys will be paying a visitation to your valuation, and, if you really b!tch things up, you may find yourselves next to Luca Brasi: sleeping with the fishes.

The estimates foretell of a down quarter, and they keep getting worse. Right now, the consensus calls for an approximate 3% downward boot. On the other hand, when one factors in the average aggregate beat when the numbers actually come in (4.8%), we might avoid bringing the bad news to the bosses after all.

However, in terms of the immediate trajectory for the Gallant 500 and its peers, none of this may matter much. I think most of the risk going into the earnings cycle is idiosyncratic in nature. For any individual company, disappointment is indeed likely to bring about wrath (and I’d advise getting this over with, because, like Don Corleone, Whitey doesn’t like to be kept waiting to receive bad news). But I’m not sure that at the index level, investors will be over-much annoyed. There is a bid everywhere across the financial instrument landscape. Whitey wants it that way. And what Whitey wants, Whitey gets.

I reckon as always we’ll just have to wait and see. I can envision a dip here – in stocks, corporates, govies, but based upon what I’m seeing from my remote, undisclosed outpost in the Witness Protection Program, I’d have to designate any downward action as a buying opportunity.

God I’m jonesing for more action that I’m getting. But that’s what happens when you’re a wise guy turned rat. No sooner do you roll than they put you in a spot where macaroni noodles covered in ketchup is what passes for pasta fazool..

And now, for once, I’m gonna cut it short. I just got a message from Whitey, my Whitey, so I gotta scoot. Yeah, I know that the old man was supposed to have died last October, but I ain’t never saw no proof of that. And even if he is dead, there’s always another Whitey to take his place.

And we all work for Whitey.

And on this here Bastille Day, I offer the following final message.

If you remember that always, from a risk management perspective, you ought to do just fine.

TIMSHEL

And so the Madness has ended. And I can’t help but think we’re all the worse for it.

For those wondering what I’m talking about, while everyone was working their grills and debating whether America is great or just OK, one of our unambiguously great institutions: Mad Magazine, announced that after 67 years, it will be shutting down its vaunted printing presses for good.

It’s a crushing blow, but we have no alternative other than to endure. After all, we survived, after a fashion, the much-lamented demise of the Village Voice last year. Other print icons have and will crumble. Being (albeit somewhat perversely) an optimist, I’m confident that new ones will emerge.

But I’m gonna lie. This one stings pretty bad. For my peer group, Mad Magazine was a bible of sorts. Multiple issues lay at our bed stands every night for years. They were next to the flashlight, and we all passed many nights taking in its particular brand of zaniness.

It started, of course, at the top, with founders Harvey Kurtzman and Al Feldstein. They had a single subscriber in Haiti, and when they received his cancellation notice, Feldstein flew his entire management team down to Port-au-Prince to talk him out of cancelling. I don’t know if they were successful.

One way or another, the magazine shouldered on, from the antiseptic 50s, through the Summer of Love and beyond. It endured the Disco Generation, the Big Hair ‘80s, the dot.com frenzy, the 2001 attacks, and everything that came after. But it became an increasingly hard slog, and a foreshadowing blow came just a year ago, when the Mad Men (and Women) moved their headquarters from gritty Madison Avenue in New York to sterile Burbank, CA. Something died right then and there, and, in retrospect, we all should have known it was the beginning of the end. And now, barely one year later, it’s all over.

But in its heyday, Mad was pure satirical magic. No subject was sacred or off limits. When I heard about the shut-down, all I could think about was those great Don Martin “Scenes We’d Like to See” cartoons, where everyone had protruding ears and a cucumber nose. One in particular sticks out in my mind. A knight approaches a castle, and calls, as in days of old: “Rapunzel, Rapunzel, let down your hair, so that I may climb your golden stair. Down comes these love blond tresses, and up goes the knight. When he reaches the top, he encounters a bald man with blond armpit hair that reached to the ground.

Not even Shakespeare reached such heights of tragi-comedic pathos:

And of course, the Magazine’s perpetual protagonist: the cat-ate-the-canary-grinning, gap-toothed Alfred E. Neuman, was a transgenerational superstar. He was a dead ringer for George W. Bush, and more recently was compared to current presidential candidate Pete Buttigieg.

His signature phrase “What? Me worry?” became the touchstone for three generations. And even today, in the wake of the tragic tidings of printing presses going silent, the rhetorical question is resonant.

So I ask my readers “What? We worry?” Is this golden rally that has traversed the entire first half of 2019 sustainable? Or is it nothing more than the overgrown underarm hair of a captive geriatric?

I think these are fair questions, and the hard truth is that we don’t really know the answers.

The Gallant 500 and the divisional forces of Captain Naz and General Dow gathered themselves, in patriotic frenzy, to surge to records during the holiday-shortened July 3rd session. And bonds. Oh. My. God. The U.S 10 Year Note, the one with the big fat coupon of 2 3/8th, surged to 103 ¼ on the same Wednesday, throwing off an unthinkably Shylockian yield of 1.95%. In perhaps a show of gratitude to those dead presidents that grace our units of account, the USD also staged a heartwarming rally.

And I’m pleased to report that all of these droplets of love managed to work their way beyond our shores and across the Atlantic Ocean. Also on the 3rd, a fortnight before the big national celebration of the Grand Republic, published reports confirmed that IMF Chair Christine Lagarde would indeed succeed (Super) Mario Draghi as ECB Chair. And, in celebration, I ask each of you to join me in a robust “viva la France”. Madame Lagarde will be only the 4th holder of this vital seat, and of course the first woman. However, she will be the second person of French nationality to occupy the post. My math indicates that 50% of the ECB chairs are now French.

Madame Lagarde has a very colorful history, and just a couple of years ago she was found civilly liable for a criminal 403M IMF payment to a shady businessman. No matter, she is, by all estimation, a monetary dove, and perhaps on this basis alone, global investors decided to bust out some joie de vivre.

It all came crashing down, albeit modestly, on Friday, when investors turned a menacing eye to a boffo June Jobs Report. And you know you’re in a pretty strong rally when investors interpret good news as being bad news. So the ~225K Non-Farm Payrolls number did indeed socialize some selling, but nobody’s hearts were in it. Bonds backed off to a positively usurious 2.05%, and the Gallant 500 yielded 20 basis points from its pre-holiday all-time-highs.

A review of the punditry suggests that the big jobs gains take the option of a 50 basis point cut by the Fed off the table for the July meeting. 50 basis point cut? You must be joking me. What in God’s name do those in the half-percent camp hope to accomplish? For me this is, was always, a Hard No. But what do I know anyway?

So, with all of this in mind, should we channel our inner A.E. Neuman, or should we be worried?

I reckon we’ll find out soon enough. My current hunch is that July will be a barn-burner with plenty of two-sided volatility with which to contend. And it should all start this coming week.

At the top of the list of concerns that run contrary to the Neuman Principal will be Q2 earnings, and even more importantly, back-half-of-the-year guidance. Even before the proceedings begin, analysts are projecting a drop of 2.6% on a year-over-year basis. If this calamity does indeed come to pass, it will mark the first time in three years that the American Corporate Juggernaut has experienced back to back quarters of negative earnings growth.

And all of this with stock prices climbing to the heavens. For the visually inclined, the situation can be summed up as follows:

Not necessarily the best look for those among us with bovine dispositions, now is it?

But not, on the other hand, necessarily a cause to answer the eternal Neuman question in the affirmative – yet. Because as I have argued repeatedly, the scarcity of investible securities is acute and growing. I’ve said this before, but just look at the bid on bonds. Then watch the parade of merger, acquisitions and buybacks.

All suggest to me that at least for the time being, higher multiples can be justified. This can only continue for so long of course, and when it ends, well, I don’t want to think about it. But I don’t see it ending anytime in the foreseeable future.

I am worried, however, about the dreaded guidance factor, and I can promise you this: any CEO stepping to the podium foretelling of bleaker prospects for the back half of the year than are currently expected must gird their loins. They are likely to bear witness to their stock valuation being gutted like a fish.

And then, of course, there is no greater clarity on the International Trade front than there was before G20. We did postpone some nasty tariff increases; otherwise we would not be looking at record highs. But I ask anyone with any clairvoyant insight into what happens next to please share it with me. On second thought, don’t bother. Because none of us knows sh!t about what happens next.

One way or another, though, the Central Banks are almost certain to react to any downturn with aggressive stimulus, and my guess is that Madame Lagarde is sitting with itchy trigger finger to do something of this nature. But she’ll have to wait. Draghi won’t be packing his bags till October.

Thus, while stocks and bonds could back up, if they do, I’ll be recommending a shopping spree.

In general, I’m not gonna worry about much for the moment, and instead focus on mourning Neuman and Company’s heartbreaking departure from the journalistic landscape. However, while I grieve the end of his run, I will try to remember that I myself evolved at some point beyond my Mad obsession. At approximately age 14, I replaced my night-time reading materials with other periodicals. They still contained fair damsels, but their hair did not emanate from their underarms, and their noses did not look like pre-vinegar pickles. I moved on, and so must we all. So my final answer to the “What? Me Worry?” question is as follows:

Exactly.

TIMSHEL

Something is happening, but you don’t know what it is, do you, Mr. Jones?

— Bob Dylan

This one goes out to Brian. Lewis Brian Hopkin Jones, now, as of this coming Wednesday, gone 50 years.

His is perhaps the original Rock and Roll tragedy. An impossibly handsome man who happened to be a multi-instrumental musical prodigy, he was the vision behind the Rolling Stones. He catapulted them to stardom, but then the band (mostly Mick and Keith) passed him by. On balance it was his own fault; he descended into a spiral of drug abuse that was noteworthy even at a time when such abuse was the norm rather than the exception.

The last couple of years of his life, he could barely even play. And, due to a confluence of health issues and myriad outstanding global warrants for his arrest, he certainly couldn’t tour. Saddest of all, the band, his band, simply didn’t need him anymore. And in early June of 1969, they gave him his walking papers.

Less than a month later, he was found floating, face down, in his own swimming pool. This was July 3rd: my mama’s 34th birthday. Two years later to the day (though no one can say for sure), Jim Morrison checked out. Both were 27 at the time of their demise, and both deaths remain shrouded in mystery.

A couple of years’ prior, Bob Dylan, on his Magnum Opus: “Blonde on Blonde” put out the song that we have purloined for our title, with the hook-line co-opted for our introductory quote. Though the debate rages, to me it unambiguously tells the tale of a man unwittingly walking into a gay party. Others have disagreed about this, but a check of the lyrics leaves little room for doubt. One way or another, pretty much everyone agrees that the Thin Man title character was none other than Brian Jones.

We’ve got a treasure trove of golden anniversaries this summer, and be forewarned that I intend to milk the important ones for all they are worth. July ‘69 was particularly eventful. 50 years ago tomorrow, on 7/1, Prince Charles officially became the Prince of Wales. 5 decades later, he holds the world record for time spent waiting for a promotion promised to him. Jones died on the 3rd. On the 5th, the Stones played a Hyde Park gig to about 1.5 million people, going through the motions of honoring their founder. On the 18th, MA Senator Ted Kennedy drove his side piece off a narrow bridge on Cape Cod, buggered off as fast as his feet allowed, and left her trapped in his car her to drown.

He went on, of course, to become the Lion of the Senate, and chose the “dream” of single-payer health care as the hill upon which to die. We’re not there yet, but the issue looms large. We will discuss it a little bit further along the way.

Teddy got bailed out of “media hell” by the reality that 3 days later, Apollo 11 astronaut Neil Armstrong became the first man to set foot on the moon. There’s a CNN (I know, yuck) documentary currently airing on this remarkable achievement. It’s mesmerizing, and if it doesn’t make (widespread progressive rhetoric notwithstanding) a person proud to be an American, well, then, I just don’t know what.

And that’s just July. A great deal happened in August as well, most notably for your scribe, the Woodstock Music and Arts Festival, held at Max Yasgur’s farm in Bethel, NY. Loyal readers should prepare themselves to be assaulted in this space with nostalgia about Woodstock.

And, as I bang this thing out, I note a palpable (if perverse) Woodstock vibe in the air.

We begin with Trump and Xi, who walked out of the Tokyo G20 summit like the two lovebirds on the cover of the Woodstock album:

Trump/Xi Bid G20 Farewell:

Market participants can and should be delighted with the short-term implications of the outcome. Hauwei is off the hook – for now. The PRC is fixin’ to buy (not die) American farm equipment. We don’t got a deal yet; perhaps we never will, but at least we’re not pointing ICBMs at one another. Then Trump met with L’il Kim in the DMZ. We’ll call that Woodstock II.

The teeming millions that comprise my readership should also take a warm fuzzy in the knowledge that the two kids to my left are still together, married, retired and living in Pine Bush, NY, not far from where the original love fest went down.

However, other currently observable Woodstockian motifs are perhaps less uplifting. But that’s OK; there was a passel of troubles back in ’69 as well. Here, most notably, I refer to the Dem Double Header Debate, which, due to the overwhelming quantity of eligible participants, unfolded over two separate nights in the week just ended. As was foretold by the Gods, the entire sequence devolved into a “stick it to the man” orgy of what, in more recent times, passes for Peace, Love and Understanding.

Over the course of the exercise, and according to widespread consensus, two women stood out among the crowd: Kamala Harris and Elizabeth Warren.

Ms. Warren is a Massachusetts Senator, as was the above-mentioned Ted Kennedy. If you’ve ever seen her, on television or something, you will note that she is remarkably thin. Thus, for the purposes of this note, I will choose to designate her The Thin Woman (or Thin Lizzie). This written ballad is for you, Liz.

Something is happening and you don’t know what it is, do you, Senator Warren? Well, allow me to clue you in. The global capital economy is resting on a razor’s edge, with only psychedelically cheap money (and its catalyzing drive to create scarcity of investible financial instruments) providing any sort of ballast. Global indebtedness is approximately 150% of its pre-crash levels. Economies are slowing. The Eurozone in particular is a hot mess, as is (as always) the Middle East. As was shown in stark nature just last Christmas, it wouldn’t take much to send even the American Economic Juggernaut into a tailspin.

At that time, I was convinced that our prospects would continue to worsen, and I’ve seldom been more wrong. But somehow, in January, the Central Banks stepped in and saved the day. The outcomes include an extension of economic expansion and a stock market that just completed its best first half of the year in several decades. There is about $15 Trillion of negative yielding government paper out there. France is again among its issuers. The Eurozone is now issuing 100 year bonds – at a rate of 1.17% — approximately half of the U.S. Fed Funds rate.

I could go on, but hopefully you feel me already. In the meantime, Senator Warren is channeling the Kennedy/Proxmire/McCarthy vibe of the 91st Congress, which, along with Richard Nixon, was sworn in in January of 1969. Arguably, this crew did all they could to ruin the entire decade of the ‘70s.

But Thin Lizzie, as she is fond of stating, persists. Single payer. Reparations. Wealth Tax. Green New Deal. Student Loan Debt Forgiveness. Free College Tuition. In addition to all of the mind-blowing righteousness of it all, we will enjoy the benefit of teaching those filthy capitalists the lessons they so richly deserve. You know to whom I’m referring. Those criminal enterprises that brought us heathen tools such as Air Conditioning, the Internal Combustion Engine, Spam, Viagra, the World Wide Web.

She has acknowledged that it will be expensive; perhaps, at the low end, a couple of hundred trillion, but what’s a couple of hundred tril when you are remaking the world for the better?

I will admit that I didn’t listen to much of this, or for that matter, what anyone else standing at those innumerable midweek podiums had to say. But I felt it. And it felt a little like 1969.

But some stark contrasts stand out. For one thing, 50 years ago at the point of this correspondence, the Fed Funds Rate stood at 9.25%. At present, one could search far and wide – all over the globe, all over the galaxy, and fail to identify a single debt instrument that pays the rate that America’s leading financial institutions were laying down for overnight borrowing from the Federal Reserve in ‘69.

And it was no great shakes in the stock market either:

It doesn’t look to me like there was a single uptick for the Gallant 500 — all winter or all spring in — ’69. But then again we did have Woodstock. And the Moon Landing. And Vietnam. And Chappaquiddick.

Plainly, the fires of disputing political points of view are burning hot in the wake of the maiden Dem debates. And can only rage with more intensity. All year. And most of next. It doesn’t exactly feel like a love fest, and it is likely to feel less so as the months melt away.

And I’ll close with a couple of thoughts. If anyone on the Left, including our Thin Woman, takes the prize next November, and enacts even 20% of the likely policy agenda we’re not looking at a ’69 redux; it will look and feel much more like 1933. Which no one alive remembers. Not even me.

But here’s the thing. One cannot look at the current equity tape and draw any conclusion other than that investors are placing Trump’s re-election chances at about 100%. I agree with this in terms of direction, but not magnitude. I think, troubled soul though 45 is, his opponents are currently handing him another four years on a silver platter. But he could easily blow it, and he’s got 18 months to do so.

Something is happening out there, and we don’t know what it is, do we? I guess this is true, always. For each and every one of us. Because the whole damned lot of us are a bunch of Mr. and Ms. Jones.

And with that, I wish you all a joyful and pleasant holiday. If you’re looking for inspiration or boredom relief, you could do worse than hoisting one this Wed/Thur to the original Thin Man: Brian Jones. He flew too high, too fast. It all came crashing down too quickly. But oh, within a couple of years there, with his floppy blond hair, iconic teardrop guitar and magnificent multi-instrument riffs, he changed the world. I hope you’re having a good rest, Thin Man.

We’ll carry on as best we can without you, because we cannot do otherwise.

TIMSHEL

A whole lot of squeezing going on. That’s for sure. But we’ll get to that in a minute.

First, a word about Juice. As anyone not living under a rock is aware, The Juice is back. On Twitter, which, for celebrities is the functional equivalent of the mirror under the nose test.

In his maiden tweet, and with trademark class, he suggested he’s got some getting even to do.

The mind races.

Now, at this point, I doubt there’s anyone on the planet who doesn’t know with certainty that he did Brown. And Goldman. And got away with it. Sort of.

But a few years later, he himself got squeezed, and squeezed good. He did 10 years for armed robbery in what, by all appearances, was an epic set up. If you’ll recall, some inside guys moved a bunch of his memorabilia from one Vegas hotel room to another, got him drunk, told him his sh!t had been stolen, stuck a gun in his hand and virtually pushed him into the offender’s chamber. Conveniently, the cops were right there, and busted him on the spot.

Not that he didn’t deserve it. Everyone was happy to see him do his stretch. But a review of the timeline confirms, with scant room for doubt, that he was squeezed, squozen, squozed.

And lately, there’s been a plethora of squeeze activity transpiring, well, everywhere one cares to look.

But let’s focus on the markets, shall we? The Gallant 500 squeezed its way to a new all-time high close on Thursday, before yielding a modest amount of ground to close out the week to close below this milestone. It has now fully recovered the 200 handles it had relinquished in the wake of the May 3 Trump tweet (foretelling of a big ol’ hairy squeeze that 45 was ready to lay on the Chinese). Many in my acquaintance figured that the selloff had legs, that the ten-plus-year rally had finally run its course.

It is my sad duty to report that anyone who acted on this instinct, and adhered to the hypothesis, got their nuts squeezed, and squeezed off.

A similar pattern emerges from other asset classes, and here we begin with bonds. A number of my clients have been short the long end of the Treasury curve (in the United States and elsewhere) for a seemingly endless amount of time, under the conviction that rates would not, could not remain at prevailing depressed levels for much longer. Well, what happened? They got squeezed, of course. Our 10 Year Notes actually pierced the Shylockian level of 2.00% on Thursday, before retreating to an even-more usurious 2.06% by week’s end.

Much of the squeezing may be the result of the continued love hugs of Central Bankers, as led most prominently by Chair Pow, most recently at his Wednesday FOMC presser. No, he didn’t cut rates this time round, but from a Fed-speak perspective, he all but guaranteed that he was fixing to do so, most likely at next month’s policy meeting. Market chatter was rife with speculation that this strategy was at least in part catalyzed by some rather unproductive prodding by the President, who, just the preceding day, had been making unfavorable comparison between our own Fed Chieftain and his more accommodating ECB opposite number, one Mario Draghi.

So the question emerges: did Trump squeeze Powell? I’d like to think not, but based upon how juiced up the markets were in the wake of this sequence, one cannot rule out the possibility.

And the Fixed Income juice was flowing – in abundance – across the globe. France’s 10-Year yields went negative (France? Who in their right minds would lend those lazy, petulant shifters money at negative rates?) Germany, Japan and Switzerland rates hit new, sub-zero lows. I pity anyone who was short these instruments, because the squeezing was a sorrowful sight to behold.

Part of the above-described narrative features an accusation by Mr. T that the Europeans were squeezing down their currency, in an effort to provide incremental advantage vs. the US in our always-entertaining global trade wars. Now, I don’t know if this episode of monetary j’accuse was warranted, but it did yield the desired nectar of a pretty steep drop in the USD over the last couple of sessions:

On balance, I’m not sure how effective these currency wars are in terms of solving whatever economic woes that are keeping investors and policy-makers awake at night.

But I do know this: currency deflation, with respect to any given currency pair, is a game that both sides can play. And, if this goes on much longer, both sides will; in fact, all sides will: us, the Europeans, the Chinese, the Japanese; heck, even the Australians, Canadians and Mexicans may wish to get in on the action. And all I can say is that I hope everyone enjoys the sugar rush while it lasts. Because it will end. And then what?

But in this desperate race to queer up the world’s major units of account, there are some winners, of course. Mostly, these fall within the realms of the long abused Commodity Complex. Oh what a week it was in that forlorn corner of the capital markets! Gold rocketed to a seven-year high. The Grain markets are surging in a manner that brings a joyful tear this old farmer’s rapidly aging eyes. Crude Oil, just when it’s rally had also been left for dead, surged 10% over the back half of the week just concluded.

Anyone entering the week short these quaint but necessary items got the full Juice-Vegas treatment.

But here we must pause awhile and focus more intently on Energy. The smartest energy guys I know are very bearish the bubbling crude, and these guys track inventories like my dear old grandmother would’ve monitored her preserve jars. That is, if she ever contemplated putting up preserves of her own. But she wasn’t that type of grandmother. She liked jams and jellies, and used to make my brother and me choke down more of these pasty foodstuffs than I care to remember. But trust me on this one: all of her preserves were store-bought. Anyway, if my energy guys say that there’s excess supply of Black Gold/Texas Tea, then I’m going to assume that such excess is indeed a reality.

More to the point, I am on repeated record as stating my belief that the catalyst for all of this ’19 Fed love is a fear of a corporate credit bubble, and that if I’m correct on that score, the massive short-term debt outstanding in the Energy Sector is most certainly at the core of the concern. If these borrowers can’t refinance, many will go tits up, and the consequences (as described further below) may be fairly gruesome.

But if you check around, you find that banks are pretty much squeezing the energy boys and girls out of the credit markets:

This graph comes from CNN’s website, and they helpfully provided a numerical legend above the right-most, newest (Q1/19) data point. For purposes of clarity, that number is $0.00. And it bears noting that all of this non-lending was (not) taking place during a very vigorous rally for the underlying commodity:

One can only imagine the passel of non-lending that didn’t transpire as the May trade wars squeezed >10% off of peak, year-to-date valuations. Here, though, we will be compelled to rely exclusively on our imaginations, because, unlike global Treasury debt, energy sector lending volumes cannot reach a lower threshold than zero. Which is where they are.

And if the number fails to rise above this goose egg threshold, then how are energy concerns to refinance their massive short-term debt? And if they fail to refinance, then what might this do in terms of piercing the credit bubble? I don’t want to think about it.

But duty calls. If energy loans don’t roll, the default implications are dire for the entire lending market. Underwriting departments of banks, prompted, presumably, by regulators, will bust out their big red “Rejected” stamps in drumbeat crescendo. It won’t be particularly uplifting to watch.

But as is unfortunately too often the case, and as everyone is aware, the faint drums of war bailed us out in the short term. The Ayatollahs took out one of our drones over international waters in the Strait of Hormuz. Our boys were geared up on the Launchpad to retaliate. At the 11th hour, Trump scrapped the mission. For sure, there was some squeezing going on, but who squeezed whom is anyone’s guess.

But for our purposes, the important point is that a) Crude Oil reversed is slide and rallied; and b) anyone short going into this episode got squeezed. Yet again. What juices will flow from all of this remains to be seen. Probably, we’re going to learn something on this score based upon the outcomes of the Trump/Xi G20 summit this week. That both sides will be in full squeeze mode is a matter of certainty.

Here as elsewhere, though, we must bear in mind our titular theme, and ask ourselves, yet again (though certainly not for the last time) whether the juice is worth the squeeze. I reckon we’ll find out.

TIMSHEL

As far as I’m concerned, you can take your pick. After all, it is Fathers’ Day.

There’s a lot of both going around these days, and why not? It’s that kind of world. There are many people, places and things around today for which it can be said that their subtraction from the landscape would be an addition to us all. But, of course (other than a bit of gratuitous name-dropping), I’ve never been one to name names.

So let’s move on to more pertinent matters.

The FOMC meets this week, and there’s significant speculation that the Fed could cut overnight rates during this sequence. The money line on this places it at about a 25% probability. I’ll stick with the odds on this one, and suggest that they’ll instead stand pat. Even so, though, even if we’re right, Vegas is projecting three such reductions this year, which translates into about one every two months. I suppose it could happen, but questions remain.

For instance, can these rate cuts actually cure what ails us? And for that matter, what indeed does ail us?

But if we subtract, say, 75 basis points from the current Fed Effective Rate of 2.37%, a quick check of the math takes the overnight yield down to 1.62%. This, of course would nominally solve the problem of yield curve inversion, as our 10-year notes currently fetch a positively usurious vig of 2.08%.

But what if the rates at the long end of the curve drop in sympathy to its more rapidly expiring brethren? Just saying, we might be looking at some unintended consequences.

After all, rates around the globe continue to plunge to new lows. Our Treasury Department must, at present, pay nearly 50% more than their opposite numbers in Canada for 10-year maturities (1.43%), and over 23x what those fabulous French shell out for the same transactions (0.09%). And the list of countries for which the ratio is incalculable (due to negative yields that render the denominator unusable) include Switzerland, Germany, Japan, The Netherlands, and (perhaps soon) those magnificent Swedes, whose sociological practices so many among us seek to emulate.

So it’s not clear to me that applying any subtraction to Fed Funds will lead to an addition in the spreads levels that one would calculate between, say, domestic overnight rates and those achievable out 10 years in Treasury-land.

But none of this seems to have troubled the equity portion of the capital markets, which, across the globe, sustained the substantial mojo which, after a dismal May, first rematerialized last week. A small portion of this can perhaps be attributed to the secular, merger-drive addition-by-subtraction about which I’ve been bleating for many months. Shortly after last week’s edition went to press, charter Gallant 500 Raytheon (Market Cap $50B) and United Technologies (Market Cap $125B) announced that the two would become one. So we can subtract yet another name from the menu of liquid, large cap marketable securities upon which portfolio managers are able to feast, and add to the scarcity based valuation of the rest. I do fear that we are headed towards a construct where, if one wishes to own Big Tech, the only choice will be GoogleAppleMicrosoftAdvancedMicroFacebookAmazon, discerning financial sector buyers will have a binary choice of long or short JPMorganMorganStanleyGoldmanSachsBankofAmericaWellsFargo (OK; maybe not Wells Fargo), pharmaceutical investors will find their only holdings choice to be PfizerNovartisHoffmanRocheMerckJohnsonandJohnson, and so on. It will be a glorious spectacle to witness — addition by subtraction at its finest. But will we really be better off? The market, the economy or the average folk on the street? You can decide for yourself.

Equity markets also received a shot in the arm from the withdrawal of our threat to slap tariffs on the Mexicans. This particular addition-by-subtraction was good for about 4% on domestic equity valuations.

But now we must turn to the other half of our theme: multiplication by division. Notably, as our equity indices are surging back towards recent records (ones that might have already been obliterated had we not chosen this point in history to turn up the heat on our China trade war), full-year SPX earnings estimates have been a one-way ticket down. All year:

At the point of this correspondence, the 500 is projecting out $168/unit for all of 2019, and technical analysis suggests that the number could go lower.

I hate to do this to you, but if we’re going to move to multiplication by division, we must extrapolate a current estimated P/E of ~17.2 – pretty elevated by historical standards. But if we flip the numerator and denominator (we do this sometimes), we derive an Earnings Yield in excess of 5.8%, implying that a unit of SPX currently buys 5.8% of earnings.

Now we’ve been higher, MUCH higher. Back in around 1918 (ah, the days of my youth), the Earnings Yield hit nearly 20%. It climbed back to about 16% in 1950 (ah, the days of my middle age). So the number itself is not particularly alarming.

But interest rates were higher during those historical intervals. Much higher. So the question becomes: in a market where Fed Funds yields 2.37%, where 10-year Treasuries throw off a paltry 2.08%, doesn’t the prospect of securing nearly six cents of earnings per dollar of investment in good old American stocks look rather appealing relative to holding Grandma’s Savings Bonds? And couldn’t the appeal spread widen, particularly if rates continue to plunge? As well they might?

And that’s just in the United States, where, astonishingly, government yields are astronomic on a relative basis. And it doesn’t even contemplate the after-tax comparison picture. The average investor in U.S. Treasuries will be required to pay an additional, say, 30% every year, for the privilege of clipping those patriotic coupons, whereas the holders of equities, even at these lofty valuations, will pay only 21%, and need not pay at all for these returns until they decide to sell.

The contrast is even starker in other jurisdictions. Consider Germany for instance. Their Benchmark equity index (which I will heretofore refer to as Herr DAX) currently sports a 15.96 P/E, and thus an Earnings Yield of 6.27%. If one compares this to the prospect of paying 0.25% to Madam Merkel and her crew for allowing them to use your capital until 2029, the selection should be obvious. So I say load the boat Deutschland, On Daimler, Siemens and even the recently-much-maligned Bayer. In Japan, the same story holds (P/E 15.72; Earnings Yield 6.36%).

As such, I have a great deal of sympathy for those, who would actually prefer to generate a positive return on their investment portfolios, if they select Equities over Treasuries. Kon’nichiwa Sony Nintendo and Softbank; Sayōnara JGBs.

And those looking elsewhere, say, the debt of corporations, should be made aware that, alas, they are just a tad late to the party:

Investment Grade Bond Rates                                           High Yield Bond Rates:

Yup, both are approaching five-year lows. And if the Fed follows the smart money and cuts three times in six months, it’s not difficult to extrapolate the forward glide path of these instruments.

So, as a matter of both addition-by-subtraction and multiplication-by-division, all roads appear to point to equities being a pretty good bet.

But it’s not going to be a milk run. However, in the short-term, we have some hopeful catalysts. The decision (announced Saturday) by Chair Xi and his acolytes to back off on their threat to impose unilateral extradition authority on Hong Kong may be a bigger event than some realize. With the Sino economy in the dumpster, and most of the real money in Hong Kong anyway, it’s a bad time for the Party to bring down the hammer on their subjects across the channel. The protests in that jurisdiction have indeed been compelling to observe, but I have a hunch that what really backed the Chinese off was some closed door meetings between the Party and the innumerable corporate enterprises that currently do business in HK, but might not in the future if the entire Island must operate under the threat of extradition to the Mainland. In addition, I suspect that the surprise move tees up a warm, friendly beginning to the pending G20 summit, during which the next episode of the Trump-Xi Game of Thrones should be available for download.

I will admit to being kind of sad that Sarah (Sister Wife) Sanders is exiting, Stage Right. Lots of speculation on this one, but of course, I have my theories. I think that 45 asked her to leave as part of an amping up for the 2020 campaign, the formal announcement of which is scheduled to take place on Tuesday. I’m thinking he figures that all of us Sarah worshipers are already in his camp, and that maybe a new face, perhaps one with more pizzazz, will add an increment of energy. If so, it will offer a clinically perfect environment to test the political aspects of addition-by-subtraction.

And as for multiplication-by-division, well, all I can say is it is Father’s Day. And where would all of us fathers be if our cells didn’t, at one point, divide, in order to subsequently multiply? It’s our day to enjoy the fruits of these blessings, and so I take my leave.

So Happy Father’s Day, y’all. And here’s wishing you many joyous additions and multiplications in the days ahead – whatever route by which they may come your way.

TIMSHEL

Can we give it up, one last time, for Malcolm John Rebennack, aka Dr. John the Night Tripper, who took his show to the sky on Thursday?

He’s gone, but nobody can say he didn’t leave his mark. Particularly in his home city of New Orleans. He’s best known for a couple of FM Radio hits in the ‘70s — most notably the edgy but arguably overplayed “Right Place, Wrong Time”, but there was more to him that that. Alone perhaps apart from the long-since-departed Professor Longhair, Dr. John’s was the musical voice of the Crescent City. And we owe him, at minimum, for that.

But I’m going to focus this week’s tribute upon one of his (Oxymoron Alert): lesser-known hits: “Such a Night”. It’s a rolling, rambling honkey tonk/boogie woogie kind of thing, that tells the story of his leaving a joint with his “best friend Jim’s” date. I think this was kind of a questionable move on his part, as he admits himself in the verse. But in the memorable chorus, he offers the following justification:

“If I don’t do it, somebody else will, if I don’t do it, somebody else will”

And so on.

And now, with the good doctor closing up shop for keeps, somebody else indeed will have to. “Do it” that is. And almost assuredly, somebody else will.

Because it’s that kind of world we live in. Particularly these days. You may hear different from other quarters, but as your risk manager, I caution you not to believe that tripe. Instead, my advice is to take what’s out there for the grabbing, because (everybody say it with me) if you don’t do it, somebody else will.

And last week, in the markets, somebody indeed was doing it, or, to be more specific, buying it, at levels sufficient to beat the band. Across a wide range of instruments and asset classes. All over the world. U.S. equities, as has been widely reported, enjoyed their best Monday through Friday session of this remarkable year. In result, the Gallant 500, which little more than a week ago resided 200 index points below its pre-Cinco-de-Mayo-Trump-China-Tweet highs, has now recovered well more than half of its lost ground.

And that was before Friday night’s “forget the whole thing” announcement on Mexican tariffs. Now, I’m not in a position to quantify just how damaging those south of the border levies, had they been enacted, might have been, but I can confidently state that the threatened action did indeed contribute to some of the hardships that many of you experienced in May.

But now the plan has been scrapped, and in all likelihood, the markets will continue to register their satisfaction with this act of discretion – by extending the rally into at least early next week.

However, threatening to overwhelm the focus on all of this is the continued, astonishing bid for global treasury debt. I will spare you an inventory of the current, microscopic yield conditions, but if you care to look for yourself, I won’t stop you. Presumably, you’ll see for yourself what I’m writing about.

Even my home dog Grains are continuing to show some mojo, but that’s probably as much due to growth condition deterioration as anything else. Further, I’d caution you against piling in, as it were, whole hog, into these realms. As a near-five-decade observer of Corn, Wheat and Soy Beans, I’ve too often witnessed the construct of weather-related summer rallies that fatten the wallets of the insiders, only to subsequently observe, come harvest time, another set of record yields and collapsing prices.

Likely the main catalyst for all of the stolen love inventoried thus far into our essay is the compound impacts of central bank wooing and an unambiguously tepid Jobs picture. We woke up Wednesday morning to the news that according to the near-infallible Advanced Data Processing folks, this here giant economy managed to gin up only a pathetic 25K of new gigs in May. We’d barely digested this intelligence when Chair Pow took to a Chicago podium, to offer, yet again, his formidable, protective arm to the domestic capital economy. On Thursday, his opposite number in Europe, the outgoing ECB Chair (Super) Mario Draghi, riffed off in the same key and core theme. Then came Friday’s official BLS Jobs Report, which while not as dire, told of only 75K new employment positions emerging last month.

I’d like to combine the BLS and ADP numbers and call it an even hundred thou, but the math just doesn’t seem to work in that manner.

In any event, the markets, as described above, swooned with delight. And one can certainly extrapolate that investors considered bad news to be good news, at least in this instance (they do this sometimes, you know). So smitten were investment analysts that short-term interest rate futures have now priced in as many as four fed cuts in the remaining six plus months of 2019.

I’m a little skeptical here I must say. First, I don’t think a rate cut, to say nothing of four such reductions, is particularly warranted. My biggest fear (which also happens to be my second point of incredulity) is that I don’t think that reducing short-term rates (which is what we’re talking about here), will generate the desired outcome. Presumably, everyone, including the Fed, would like to lance the boil of a pretty severely inverted yield curve. But, gun to my head, I believe that it won’t work. I think that if the Fed cuts on the point where it can, it will drag longer-term rates right down for the ride. The curve, under my scenario, would remain inverted, just at lower magnitudes at every point of maturity.

Haven’t we had enough of this medicine already? Are we not sufficiently anesthetized to all of this? It’s certainly a fair question to ask.

But if they don’t do it, maybe somebody else will. However, not everyone is buying into the buying frenzy. In a widely publicized interview, money management titan Stan Druckenmiller, citing a litany of issues (tariffs, the possibility of a progressive taking the White House in 2020, valuations), proclaimed that he had taken his equity portfolio to neutral. Now I don’t know Druck personally (have said hello once or twice), but as a money manager (with due respect to my former bosses and current clients), he’s my absolute idol. He’s everything that I would wish to be if: a) I was foolish enough to enter that arena; and b) if some group of investors was imprudent enough to back me in such a venture. To begin with, he has not had a down year in nearly four decades of investing. Think about that. But more importantly, in addition to being transcendently brilliant, he shows enormous self-awareness, and an equal measure of humility. He does not seek the spotlight, and doesn’t offer his opinions until they are fully vetted through his fabulous brain.

In contrast this to many of his higher profile peers, he does not offer opinions in advance of taking actions. He doesn’t “talk his book”: making his statements and diving in afterword – in the hopes of moving markets his way. He sold out and then spoke.

And when Druck speaks, we should all listen. Again, he pretty much keeps to himself unless he’s got something important to convey. So he must be pretty nervous about the markets, and if he is, so, too, should be the rest of us.

Not being Druck, my sense is that he’s right about the troubles that plague us. It’s just a matter of when they manifest. For him, as he articulately pointed out, it’s about what he thinks is best for his private wealth. He’s no longer managing other peoples’ money (in itself a red flag), and thus feels no acute performance pressure. As such, he can afford to be early.

Most of the rest of us lack this luxury. And for those who must eat (or buy a summer home) from what they kill, I think that the short-term risks tilt to the upside. Valuations, yes, are stretched, and we’re looking at a slowdown in everything from global growth to earnings outlooks.

But the Central Banks seem hell-bent on keeping the band playing. And I think I see they’re point. At the risk of been a repetitive bore, I think that they are absolutely terrified of a credit collapse, and feel that they must do all in their considerable powers to insure against this sort of calamity. And that means: a) keeping financing conditions at ridiculously unsustainable accommodation levels; and b) priming the pump even further if what they’re already doing proves to be insufficient.

What may be even more pertinent in my judgment is that the monetary chieftains are acting in what must be pretty full-knowledge that investors have them backed into a corner. A selloff of any kind ensures more monetary stimulus, and, beyond this, their fat finger on the valuation scale (most specifically its attendant suppression of yields) virtually guarantees that if there is indeed a credit bubble out there (and indeed there is), their actions will only serve to expand it, through the catalyzing of even more borrowing. The CBers are not stupid; they know all of this. And yet they persist and double down. They must be really scared, and probably we should be too.

As I’ve mentioned before, I believe a lot of the short-term risk centers in the Energy complex, which is over-levered by any standards. Lots of energy paper needs to roll over the next few quarters for the drillers, refiners and explorers, and at levels much below current prints on the underlying commodity they utilize, the odds on likelihood is that it won’t roll. This means defaults. Which might very well cascade. Well beyond the Energy Sector. And then we’re in real trouble.

So I advise everyone, to keep their eyes fixed upon energy prices. Crude has experienced a recent ~20% correction. And as for Nat Gas, well, it’s best not to ask.

So I get it. I mean, I get it all. Why the CBs are bending over, why Druck doesn’t want to be long here. But if you want to make some money here for your investors, my strong recommendation is that you not pile in on the short side. I will not quarrel with you if you wish to ride light, but anyone playing for a short-term collapse is, in my judgment, playing with fire. The Fed won’t help you, and neither will I. Instead, you will be on your own.

What, of course, you want to avoid is being in the right place at the wrong time. Dr. John rode this mismatch to several decades of fame, and, on Friday, the City of New Orleans were filled with music for his Second Line Funeral Parade. They don’t do this for just anyone, you know.

As for Druck, well, come what may, time is on his side. On the whole it’s tricky out there, and I’m here to tell you to that I’d proceed with caution were I in your shoes. After all, if I don’t do it, NOBODY else will.

TIMSHEL

Bear with me while I use this week’s note to directly address the Leader of the Free World (except trade).

Donald, DONALD! What the F are you doing? Why are you making all of this so hard? On us and on yourself. You and I have met. Twice. First when you were pitching your ultimately successful purchase and wholesale restoration of what is now Trump National Golf Course in Briarcliff Manor, NY (we were neighbors of sorts at that time; my house overlooked the 5th green). The second time was at the Concert for New York after 9/11. I pulled some of my world renown strings and had front row seats. You and your previous side piece sat right behind me. You bought my wife a drink and you double-fisted my handshake. Like I was some sort of big shot who you wished to know. You were wrong about that, and, probably, you don’t even remember either encounter.

Or maybe you do. And maybe you’re still mad at me for not voting for you. Sorry, But. I. Just. Couldn’t. Instead, I sat ‘16 out. I liked you better than your opponent, though, and I was glad you won. I want you to know that I’m still rooting for you (sort of). Mostly because if you exit, Stage Right, what emerges from the other wing frightens me to no end. When you pulled off your stunning upset, the ideological core of your opposition was embodied in one Bernie Sanders. I have recently commented that in order to take the honor of running against you in ’20, competitors in the field would have to out-Bernie Bernie. And, 17 months out from the big show, they’ve already, improbably, accomplished this feat. Bernie’s policies are now by and large in the Center, relative to those of his competitors, in his (adopted) party. Most would turn this country into a redistributive mass of sludge; a land of bureaucratic circumlocution, where virtually nobody but The Chosen could thrive on the basis of merit and accomplishment. It’s a place where I won’t wish to reside. And I will have nowhere else to go.

The left turn of the Dems has heretofore pleased me, because I believed that it would ensure the defeat of its architects. They’ve been handing you another term. On a silver platter. And now, you’re doing a great deal to blow it. You’re making it increasingly difficult for those who wish you well to support you. And if you continue down this path, you might bitch it up, Hillary-style. Think about that for a moment.

I’m not gonna lie: your latest stunt has me truly hacked off. A tariff? On Mexico? Out of the blue? On immigration? When we’ve so many battles to fight – some too vexing to even contemplate?

I’m guessing that you’re still fuming about this whole Mueller thing: his 9-minute elegy to the dying embers of his credibility. Maybe this is why you’re acting out. But Big Guy, you won. Mueller lost. The Dems lost. Scowling Bobby took to the podium on Wednesday and punted the ball to the House, which, best case, can only call a fair catch. They’ve got nothing on you that would hold up in court. If they did go forward with impeachment you’d also be able to present a compelling case of their malfeasance. They know this, and don’t want to tangle with you. And Mueller made it harder for them to stand down. It’s time for you to take last week’s advice from this column and stop Pitching Past the W.

But instead you’re lashing out. And in the wrong directions. If I had one shred of wisdom to offer you, it’s this: the domestic and global economy is hanging by a thread. It risks collapse, and now, if it does implode, it’s on you. Wind the clock, if you will, back a month. Before you made your move against China. Had you held your fire then, had you not imposed those big tariffs, had you chosen a gentler course with Huawei, had you not decided to push your presidential powers in questionable manner against Mexico, oh what a strong position would you and the rest of us hold. The markets, I’m convinced, would be at all-time highs. The economy would be surging. Your political enemies would be painting themselves into an even tighter corner.

But instead, you’re out there tilting at windmills. And yes, you are our Donald Quixote, our Man of La Mancha or in your case, Mar a Lago), dreaming impossible dreams, fighting unbeatable foes, and running where the brave (as well as the wise) dare not to go. You claim the Mexico thing is a necessary response to a life-or-death border crisis. I disagree. The whole immigration saga looks increasingly like political sleight of hand to me, and, at any rate, responding by slapping duties on the source country because Congress won’t support you is hardly a constructive way to address the problem.

Because tariffs are just bad policy. Period. At times, they may be necessary, but this ain’t one of them. If you care to check their impact, maybe you could just dig up the carcass of Herbert Hoover, who signed the Smoot-Hawley Tariff Act into law on March 13, 1930, just six short months after the stock market crash. At the time, unemployment was at 8%. Within two years, it rose to 25%. It wasn’t, of course, all about the tariffs, but suffice to say they didn’t help matters. It took Franklin D. Roosevelt — that great apostle of free enterprise, to bring a measure of rationality back into the realms of international trade. It was a step in the right direction, but arguably came too late. The global economy gasped and groaned its way through the remainder of the ‘30s, and we all know what happened after that.

But perhaps this is all merely a component of a broader strategy to accomplish a more central part of your agenda: the suppression of interest rates. After all, you’ve spent your whole life borrowing money (not always, if my information is correct, bothering to pay it back) and, as such, any interest rate above the bare minimum is gall and wormwood to you. You’re already on the public record, on multiple occasions, as complaining loudly that rates are too high. You have, in questionable judgment, actually called out the presumed-independent Chairman of the Federal Reserve Bank of the United States on this. Multiple times. This has troubled many (including me), and, on balance, I think Chair Pow (whatever other sins he may have committed) has handled your rhetoric with a laudable degree of professionalism.

So maybe you’re thinking: if I can’t get this Powell guy to do my bidding, I’ll find a different way to lower the vig. So, now, tariffs on China and Mexico, with a promise of more to come. Let’s, while we’re at it, also drop an antitrust investigation on the laps of Serge and Larry. Nobody will mind; they’re arrogant little drips that nobody likes. And the strategy appears to be working. In case you were too busy in the Oval Office to read my last note, I will favor you with an updated look at the Treasury Yield Curve:

Investors must now accept maturities out to around the year 2038 to achieve the same annualized yield available to them at the 3-month point on the curve. And yet they are still buying – mostly because they see no other rational alternative. The Gallant 500 is now 200 handles below its pre-tariff-circus peak. Somehow, and improbably, it has pierced from above its 200, 100 and 50-day Moving Averages, and this after spending months well above these thresholds.

Anyone wishing to dive into the equity complex is presumably aware that they’re going to need to strap on in. I think Equities may be cheap here, but with those tariff tweet missiles, poised on their Launch pads who knows?

But in Fixed Income, the opposite construct presents itself. The bond bid, if anything, has accelerated, and this on a global basis. Our 10-year yields (2.13%) are at 24-month lows. Germany’s are at -0.2%, Japan’s -0.1%, Switzerland? Negative 0.51%. Heck, as prophesied in these pages, even the otherwise dull as dishwater but generally clear thinking Dutch are now imposing about a 2 bp/year cost on their obligors.

So maybe this is what you’re all about, Trump. If so, I congratulate you on your short-term success. Perhaps you can even continue to draw from this well, as you have in the past, until it runs dry (and it will). Nothing of this sort would surprise me now.

Though I hesitate to even put the thought into your head, if you really want to nail the concept of receiving (rather than paying) interest on borrowed money (which first appears in the history of our species about 2,000 years Before Christ), you might consider a policy under which the United States imposes tariffs upon itself. This would truly be the coup de grace, particularly in light of the reality that 70% of our GDP is generated within our own borders. The duties would be enormous, and we all win. If we set these at appropriate levels, we might even be able to beat the Swiss at their own game.

But of course all of this is dangerous to an extreme. That the tariffs will suppress global economic activity is a matter of near-certainty. Frenzied buying of debt instruments, will increasingly, and as addressed last week, catalyze the misallocation of capital, crush savers, and exacerbate what many already consider an historic debt bubble. In light of current rate paradigms, rational borrowers should be spending the weekend in conference with their bankers, and, if the trend continues, should stalk them not only at their places of business, but also at their residences.

Again, I don’t necessarily see an economic reckoning fixed on the calendar just yet. But it’s coming. Meanwhile the political reckoning may be closer in the offing. And forgive me, if all of this serves us up a big dish of Liz Warren in 2021, I’m not showing appropriate gratitude. Fact is, I won’t be feeling much.

And now I have no choice but to warn my readers about possible regime shifts towards risk aversion in the month of June. May, lord knows, was bad enough for them. But now it’s possible that June will be even worse. It’s hard to put risk on the table when you’re going off half-cocked like this, and, on balance, I think the wiser course may be to reduce exposures On the other hand, maybe you’ll back off on your Mexican rhetoric (after all, nobody wants you to do this thing: not your advisors, not Congress, and not the public). Maybe it was all just rhetoric in the first place.

But it’s a hazardous game. For you and the rest of us. Your public persona suggests you like living on the edge, and all of the attendant attention this brings. But Donny-boy, you’re sucking all of the oxygen out of the room, out of the house, out of the planet, out of the friggin’ galaxy.

Give the rest of us some, won’t you? Your Sancho Panzas have been very loyal to you, and have taken more incoming heat for so being than you possibly can imagine. If you fail, it is we that will suffer the consequences. You’ll just head back to your La Mancha/Mar a Lago, while the rest of us take the blows sure to be issuing from a newly empowered progressive regime that will be out for our blood because we didn’t buy into their bourgeois at the point we were instructed to do so.

Maybe it’s an impossible dream on my part, but if you did back off just a bit, there’s just the chance for all of us to reach that unreachable star. If you need any further advice you know where to find me.

I’ll be at my post, dealing with all of the havoc you wreaked on my clients during the month of May.

TIMSHEL

OK so it’s the holiday and I hope you’re enjoying it. But as you (at long last) bust out your seasonal whites, allow me to offer one piece of advice: don’t do it. It’s a bad idea.

Pitching past the W that is.

But maybe I should clarify. The concept is as ancient as our days, taking the general form admonishing us to back off once we’ve accomplished our objective. It has many, perhaps the most ubiquitous of which is that once you’ve made a sale, it’s time to stop selling. In my own personal experience, I’ve lived through both positive and negative examples of this, and I think I’ve learned my lesson. For the most part, once I’ve cut the deal, I no longer expound upon its merits to my opposite number.

Another way of describing this, in baseball terms, is Pitching Past the W. If you’re a pitcher who has the game in hand, don’t try to mow down hitters with your dazzling fastball. Serve them up some junk. Throw some strikes, yes, but keep the ball low. Make ‘em hit it on the ground. Of course, it’s possible to still lose under these circumstances, but at least you’ve minimized the odds of doing so.

Of course, not only does the analogue apply to portfolio management, I’d go so far as to suggest that it is a basic tenet of risk management. Consider, if you will, the example of a PM group that bought a troubled stock near its lows, thinking it could maybe double. When the price hits, say, >90% of the specified target, it’s time for them to consider unloading some of it. They may still think it can go higher, but that’s not the point. If they wish to play for further upside, they should either liquidate and then re-establish the position, or at least go through the exercise of re-underwriting it, with new targets and downside exit points.

But many don’t adopt this strategy, and thus find themselves having pitched past the W. More often than I care to remember, they have squandered the fruits of what was, in its formation, a great trade. The stock drops and they defend it; maybe even double down. And when all is said and done, what was a magnificent two-bagger morphs into a gnarly loss.

And, beyond the grubby realms of seeking returns through active investment, it strikes me that Pitching Past the W is a problem for the entire global political/capital economy. It may even be that the whole world may have committed our titular sin. If so, I myself have a problem. Specifically, across all forms of global economic activity, I’m having a great deal of trouble determining just where the W is. And if I can’t find the W, then how am I to advise my minions as to what point they should not pitch past?

Because as this long-awaited, well-earned start to the Summer Season has arrived, I have very little clarity as to what may happen – particularly in the near term. The global markets open up today and the U.S. takes off tomorrow. I really don’t know where it’s going. The China thing is still humongous enough to blot out the sun, and I’m sure I’m not alone in finding these intermediate crosswind communication breadcrumbs beyond maddening. We’re making progress, we’re being deceived, something will get done, we’re prepared to gird our loins for a long battle. Just do us all a favor and shut up already!

And in terms of nearly everything else, there’s no W that we can easily identify. Lots of problems out there. Iran, of course. May’s departure, stage middle, from 10 Downing (and a palpable fear of who takes center stage after her). The Nationalists swept the EU elections. Macron got embarrassed by Le Pen.

There of course are also escalating tensions between the White House and Capitol Hill, with the promise of more of the same to come, and it does appear that both sides are trying to sneak a big fat slider past the dub. Trump walked away from any substantive negotiations with the Dems this past week, in ultimatum against their continued efforts to remove him. This was somewhat of a bold move on his part, and (while I thought it a silly stunt when it I first heard of it) I now think Pelosi is right. 45 is begging, or at least taunting, the Dems into impeaching his @$$. My guess he has more in mind than simply acting, in Clinton/’98, redux, in expectation that the electorate will punish the impeachers politically). Specifically, I suspect that he’s itching for a trial in which his lawyers can put a whole cadre of operatives: Comey, McCabe, Clapper, Brennan, Lynch, Rice, Powers, and maybe even Big Dog 44 on the stand, and let them state, under oath and cross, how a counterintelligence investigation landed in his HQ, without him being even given the courtesy of notification. If the saga plays out in this fashion, it will be quite a show.

But one side or the other will surely pitch past the W, and will live to suffer the consequences.

Maybe even both will. And in some ways, that’s not the worst outcome for the rest of us. The initiatives Trump says he’s forgoing are both pretty stupid ones, says I. We simply don’t have $2 Tril hanging around and waiting to be infra-structured away. Gotta be a better way to fix roads, bridges and grids. Plus, though not an opinion shared by everyone, as a free market economist, I am against government intervention into drug pricing. The costs are too high, and yes there are folks getting rich as maharajas gaming the system (Pharmacy Benefits Managers in particular), but c’mon, do you really think that we’ll get better outcomes, that there will be less chicanery, if the federales step in? Think again.

But there’s other potential past-W pitchers out there, and my next, perhaps my favorite candidate, is the global central banking complex and its now-decade-long strategy of giving away money. While it’s been a rocky outing for equity hurlers over the past month, the starters and relievers on the global bond squad have been shutting them down like Koufax or Ryan in their primes. As our favorite stock indices have been swinging, missing, or, at best, fouling off pitches, long end government bonds continue to crush it, as, with little fanfare, the US yield curve became, for the first time in years, unambiguously inverted:

Now, those who want to adopt a “pitcher half full” viewpoint on this will take comfort in the awareness that if one goes out to maturities in the year 2031 and beyond, it remains possible to secure a rate higher than that of 3-month T-bills. But this, at best, is thin gruel.

And the thing of it is that the United States Treasury Complex appears, by comparison, to have the healthiest and most rational yield configuration among all of the major economic powers of this forlorn world.

However, if we have indeed used QE to pitch past the W, we did so a long time ago. While tt will take many more decades to determine the full impacts (positive and negative), I’d say that up to this moment, the program has earned an addition to the left digit of its record. Whether you realize it or not, in 2008, we were hurtling towards a full-on Depression. The banks were on the verge of failure. The entire global credit system was verging towards collapse. There would’ve been massive unemployment, insolvency and myriad forms of human toll. It might’ve been as bad as the ‘30s. Or worse. And remember, it took the biggest war in history (the heroic efforts of those who forged victory are some of what celebrate today) to pull us out of that economic slump.

Let’s just agree that it was a show well worth our avoiding a second screening.

So the Central Banks, led by the Fed, sought to avoid disaster by flooding the system with liquidity, drowning it in the stuff. And for at least a decade, the results have been miraculous. You can quibble if you will, but the hard fact is that instead of depression, we’ve had more than ten solid years of a growing economy and all of its fruits: breathtaking technological innovation, abundance of employment, and, of course, the mammon that us filthy lucre seekers pursue most ardently: historic investment returns. While it hasn’t always seemed like a raging bull tape, the reality is that over the 10 years (and a partial quarter), the Gallant 500 has more than quadrupled, matching the performance from the waning period of the Carter years through Regan and Bush the First.

So yes it’s been a big fat W, but there was and remains every possibility that we would, at some point, have pitched past it. We may have done so already. It is beyond dispute that the suppression of core rates to zero or below has visited myriad plagues upon us. Companies that have no business surviving as going concerns are being unwisely sustained by easy financing. Capital is being misallocated. Savers are being gutted like fish. And once a country’s 10 year notes hit the inflection point of zero, they have a devil of a time getting out of this rabbit hole. If you doubt this, just check the prices on the paper issued by our former Axis enemies: Japan and Germany. Especially Japan.

Most troubling of all, the debt burden just keeps on expanding – to record levels. As my esteemed acquaintance Jim (no relation) Grant points out this week, the aggregate value of negatively yielding global debt is now in excess of $10 Trillion. Chew on that, if you will, for a moment.

And I feel it a near certainty that the global capital economy will eventually blow this W by pitching past it. But I don’t know if it has happened yet, and, gun to my head, I kind of doubt that it has.

I still feel that securities are in short, growing shorter, supply. Prices in the real economy are, if anything, falling. The government measures of inflation are said to overstate the metric, and, while trying to confirm that would be attempting to corroborate the unobservable, I believe that the assertion is probably correct. Much of this is due to the economic impacts of modern technology, which has taken both consumer and commercial price discovery to a point of near-perfection. My daughter will indeed get another crib for my darling grandchildren, but only after weighing 20 options that are at their fingertips. Companies may be hiring, but given the portability of labor, the competing dynamics of automation, and the ability to perform perfect wage cost due diligence, they ain’t paying a penny over what they have to in order to secure their work force. In my own business, with technology-enabled risk solutions multiplying like hobgoblins, I am unable to contemplated raising fees. Ever.

And on balance, with the free money still flowing, no inflation and basic economic stability, I feel we have not yet reached the point where we have pitched past the W.

But I’m going to keep watching — with a wary eye. Markets will probably be in high motion for the rest of the quarter and beyond, but in general I think the bid is still there. But I’d close where I began, by begging you to keep risks tight and avoid pitching past the W.

And, given that I’ve ground my baseball analogies into the dust) combined with the fact that the St. Louis Blues are currently facing the Boston Bruins in the Stanley Cup Finals) I will finish by stating that if you follow this advice, you may indeed be able to slip one past the goalie.

TIMSHEL