Just as May must follow April in her prime,
June will always find me, counting out time,
They buried Miss July, put her face down in the earth,
She called her baby “August” and died while giving birth
— Dave Rotheray
Well, my darlings, it is indeed June, but one hardly sees it busting all over. For one thing, the weather –at least in the Northeast, has pretty much sucked. This here is shaping up to be a pretty nice weekend, and all I can say is it’s about time.
We just concluded the 6th month’s first full week, and for all of the dramatic promise it portended for those in the investment game, on the whole it was a yawner.
In fact, to date, I’d go so far as to state that from a trading perspective, June, thus far, is indeed busting out all under.
We can take last week’s big events in chronological order, beginning as late as Thursday with the widely anticipated, over-hyped Comey testimony. With those on both sides of the political spectrum in pitched battle to outflank one another in hysteria, the end result was something of a disappointment. To paraphrase Forest Gump’s mother, Comey is as Comey does, and Thursday’s turn at the microphone, in front of a group of glowering Senators, served to reinforce the point. I found all of his responses to be lawyerly and self-serving. When it suited his defensive interests to describe himself as a weak sister, he freely did so. When, on the other hand, it behooved him to articulate his heroic support of his country, the government agency he recently ran, and his standing as a patriot, he did just that.
I do think there’s one under-analyzed thread in that whole sequence, deriving from his justification for contemporaneous note-taking as being driven by his agenda to see that a Special Counsel was named – to investigate the purportedly nefarious but as yet undefined Russian interference in the 2016 elections. I suspect that this was indeed his game all along, and gosh all fishhooks if it didn’t work. We’ve got us a Special Counsel, one Robert Mueller, former occupant of the seat from which Comey was so rudely dispatched, and longtime bestie of Comey himself (side note; Mueller was named FBI Director on September 4, 2001, so he must’ve had an interesting first few weeks in office).
Given that Comey was unwilling to answer any specific questions about the investigation, I suspect that there’s a long game afoot here, and one that continues to threaten the current administration. Comey’s job was to get through the ordeal with as little mud splashed upon him as possible, and to punt any substantive queries to the SC. My guess is that this means, though we may not have to endure the redux for several months, that this thing ain’t over.
Investors: be forewarned.
As fates would have it, the Comey testimony came on the same day that the good citizens of the United Kingdom took to the polls, this time to deliver a rather unambiguous one finger salute to recently elected Prime Minister Theresa May. The Brits stopped short of giving her the gate altogether, but the outcomes are such that she will have to struggle to retain her residence at 10 Downing Street, Westminster, London, SW1. Perhaps as bad (or worse), the self-imposed ordeal (it was May herself that called for the elections) served to resurrect the political career of Labor Leader Jeremy Corbyn, a chap whose politics are often described as being to the left of Bernie’s, and who was, prior to Thursday, expected to fade into oblivion. None of this of course, is an encouraging lead-in to the pending Brexit negotiations, which were going to be tricky under any circumstance, and may now devolve into a circus.
Some markets reacted to these tidings. That the British Pound took an, er, pounding was perhaps to be expected, and, for what it’s worth, I can also see the framework for the rocky EUR ride:
Investors also served themselves up a hearty helping of government bonds, with most of the action, somewhat improbably, centered around the oft-beleaguered debentures of Southern Europe:
Spanish Yields: 
Italian Yields: 
If one is looking for root causes here, the glibbest and most accessible justification is that the Continental unrest is likely to keep the ECB Ï printing machine running on all cylinders, and why not? Euro QE is humming along at about Ï90B/month, implying that Team Draghi has printed about $500B in 2017 alone, all directed to the purchase of member nation bonds. With less transparency on Brexit, is a downshift likely? I think not.
I should also mention that my grain complex had quite a week, with the bulge bracket of Wheat, Corn and Soy Beans all enjoying bids across the cycle.
But as for the equity markets, they seemed to shrug off all external news flow. In fact, most of Europe, including the U.K. gathered itself admirably by Friday. Stateside, the SPX dropped 8 skinny handles for the week (> 0.25%), while the Dow actually closed at record highs.
Now, I know a lot has been written about Friday’s big puke of the power part of the U.S. equity lineup, with names such as Apple, Amazon, Alphabet, Microsoft and Facebook (which together, account for nearly half of the 2017 valuation gains in the S&P 500) all dropping 2% or more by the close. This does indeed bear watching, but here, I can only go with my gut, which tells me that extrapolating out from this action is a dangerous construct. There’s certainly a meaningful probability that investors view this selloff as a buying opportunity, and, gun to my head, if they don’t adopt this mindset now, they most certainly will at levels not much lower than Friday’s undignified close.
But what strikes me more directly is that there was a significant rebalancing of equity holdings across large capital pools late in the week, that it may not as yet be over, and that there may be more to this than the big whales being tired of making all of that FANG (or, if you will, FAAMG) money and deciding to ease back on that score alone. I do expect other equities to be in play, and I don’t know how this will evolve, but the individual stock action early next week should be watched with careful eye.
Apart from that, we have a very low-drama FOMC announcement on Wednesday, where another quarter-point raise is a foregone conclusion. However, by Thursday, we will have reached the midway point of June, and as mentioned in previous installments, I think that pricing action quiets down to almost inaudible levels from then till after the 4th of July holiday.
If I’m right about all of this, then, when all is said and done, June will indeed have spent its short life span busting all under, and then we’ll be on to July/August, during which time the action promises to pick up visibly. In the meanwhile, perhaps we can take our cues from the song quote purloined above, and spend the last two weeks of the current month counting out the time.
I reckon there are worse fates than this.
TIMSHEL