(To AMG on his 26th birthday. I love you — from the first time I held you in my arms — until Eternity, where, if heaven allows, we shall meet again.) 

I hope everyone had a nice Thanksgiving, and yes, mine, for what it’s worth, was pleasant enough. Like everyone else, I used the opportunity to go through an inventory of items for which I am particularly thankful, and a few for which I’m not. I’ll spare you some of the highly personal stuff, but thought I might share a few matters of mutual interest.

First, I’m thankful for the Macy’s Thanksgiving Day Parade, to the best of my knowledge the only such affair, broadcast, beginning to end, on national television (I think that one of the networks shows the Tournament of Roses on New Year’s Day, but please, is that affair even watchable?). Those who know me best are aware that not only am I a parade guy, but tend to divide the world’s population between those who appreciate parades, and those who do not. I, of course, am in the former group, and pity those who are not.

However, I’m not pleased that the good folks at Macy’s retired the Underdog balloon. They probably did this many years ago, but somehow it escaped my notice. This year, I purposefully looked for it, came up empty, and found myself in a state of blind rage over its absence.

I enjoyed the three NFL games, and am thankful that they were there to serve as a televised aid to my digestion. But I’m not pleased with the fumble into the end zone rule, which cost my 3-7 Bears a win against the hated Packers. The loss was beside the point, which more precisely is as follows. On 99.9999% of the gridiron, the concept of a fumble that results in a turnover is predicated on the team that does not possess the ball recovering it in the field of play. There is elegance, simplicity and divine consistency embedded in this premise. But somehow, the overlords of the NFL have seen fit to upset this universal order. By order of the League’s Rules Committee, a fumble into the end zone — 0.00001% of the game-space — evokes a change of possession. No need for the recipients of this improbable largesse to actually have even touched the ball; it is simply awarded to them – entirely unearned. My only explanation for such idiocy is that we have indeed descended into a state of pure madness (Spoiler Alert: I’ll have a little more for y’all on turnover and the turnover rule a little farther down the way).

But thankfully, I don’t really hate the Packers. My son-in-law grew up 10 miles from Lambeau and he is rearing my grandsons up as Packer fans. It is said that blood is thicker than water, and indeed it is. But two Sundays a year…

It would seem, as well, as a shout out is due and owing to the film “Casablanca”, which premiered at an unspecified New York theater 75 Thanksgivings ago (or, as Arlo Guthrie might put it, 75 years ago on Thanksgiving). No one can rationally dispute that this movie is pure celluloid perfection. And about all I can add is the remarkable reality that its late 1942 release means it dropped at a time when the outcome of the war it chronicled was very much in doubt.

I am also thankful for the migration of the rules of engagement regarding sexual harassment. This was too long in coming, and I’m glad that we’re working it out at long last. Moreover, as an added bonus, focus on this topic has blissfully placed the endless discussions we’re having about racism as a secondary subject for debate. I’m sure the race talk will return, and in force, but let’s all take a moment to enjoy its temporarily reduced volume. Shall we?

I am, however, incensed by the outrageous stunt pulled by the outgoing chief of the dubiously formed, perpetually over-reaching Consumer Finance Protection Bureau (CFPB). The Bureau was created as a sop to the shrill, sanctimonious Senator Elizabeth Warren (D. Mass), and is unaccountable to any elected branch of government. It self-funds – mostly through the fines it issues at its own whim – and, for the six years of its existence, it has done the questionable bidding of progressive redistributionists and their trial lawyer paymasters. When it was determined that Ms. Warren could not be placed at its head, the previous administration appointed what it believed was a suitable alternative tsar – one Richard Cordray – who has gleefully and grimly (yes, both are possible) done what the creators of the CFPB set out to do – politically weaponized yet another an unaccountable government organization. As expected, Corbray stepped down recently. But he had one last gift on the way out: he ignored the President’s directive to replace him with someone of his own choosing, and sought instead to elevate his deputy. As a result, yet another political/legal battle will now ensue, and one that proves the folly of the agency’s charter. According to Cordray and his ilk, elected officials have no business interfering with the workings of the bureaucracy over which he lorded, and should simply butt out while their betters do their bidding. He will now run for Governor of Ohio, and will probably win, so look for the Buckeye State to join the ranks of Illinois, New Jersey and Connecticut as economically failing jurisdictions whose leaders will blame us filthy capitalists as businesses and families flee the jurisdiction. Nice work, Rich. But perhaps you should return that U. of C. law diploma, as, somehow, you must’ve missed the lectures on constitutional separation of powers.

But as long as we’re in “thank you” mode, let’s offer a final salute to lame duck Chair Yell, who offered as a helpful parting gift, some very dovish minutes and subsequent commentary, respecting forward looking monetary policy. She can take comfort, as she departs, in the global embracing of the cheap money paradigm that she helped create. Consider, for instance, the following handy little chart:

 

Now to me, that’s a pant load of bonds out there for which lenders actually pay interest to borrowers. Here in the States, the tradition of the latter having to pay for funds, provided in fixed duration, from others, remains intact, but only at the most modest levels.

Still and all, most of these bonds get hoovered up the moment they are made available for sale – again at low or even negative expected return.

But the news isn’t all bad – consider, for instance, the bounty of the equity complex, which is tilted in an upward direction from two perspectives. First, creating and managing a portfolio of Fixed Income securities – except for the truly talented and/or exceptionally lucky — has been for a dog’s age an exercise in futility. And borrowing costs remain ridiculously low. Almost indisputably, both available cash and financed funding have migrated to the equity complex, where positive returns are not only theoretically feasible, but, in recent days, easily achievable.

As a result, I offer a final note of thanks– though mostly for my minions – that our fabulously fly equity indices are currently perched at yet another in an astonishing string of all-time records. I’d like to be happy about this on my own behalf, but due and owing to solemn, longstanding protocol that preclude me from market participation, I can only enjoy this blessing vicariously.

As I’ve mentioned before, I believe these happy trends are catalyzed in large part by a scarcity of private securities that sharp-eyed observers can hardly fail to notice. For example, once upon a time, the broadest of the broad-based indices: the Wilshire 5000, actually contained 5,000 stocks. However, perhaps out of sheer humiliation, the Index has been renamed the Wilshire 4500. But even still, the good folks that bring us this index have failed to fully eradicate their exaggeration: the product, comprised of every tradable stock in this fair land, actually only contains about 3,600 securities.

Under such a paradigm, it has simply become unsafe to sell down any equity holdings. Though this wasn’t always the case (consider the Mesozoic period of Jan-Feb, 2016), position reduction has become riskier than holding fast or even topping off one’s stock stash. It’s almost as if selling a long is tantamount to being short.

But this also is nothing new: in the benchmarked world of mutual funds, lack of full investment in a given security contained in the benchmark is the financial equivalent of holding a short position in the name. And that’s how the market trades these days – like one big fat hairy mutual fund.

If you doubt this, consider the recent behavior on my home turf of the hedge fund industry. Time was, hedgies used to buy and sell stocks at the first hint of a change in the prospects of the companies that issue them. No more, however. As indicated in the following chart, turnover – here a measure of changing portfolio composition – has reached an all-time low:

It may be that the condition described above is temporary, but I feel confident in the assertion that it will continue while it lasts. And I don’t see much chance of the trend dissipating in the two dozen odd days that remain in the improbable year of 2017. Meanwhile, my best advice is to enjoy it while you can.

But there are a number of signs that there are indeed storms a’brewing beneath the tranquil-at-the-surface investment seas. Friday’s early close brought some fishy action in realms such as the VIX, which experienced a transient ~20% drop before regaining its equanimity at the close:

 

I won’t lie: this kind of action disturbs me greatly. Somebody made some nice quick cash here, but somebody also lost a good bit. Nobody was much around to notice any of it, but it might be worth a few tax dollars for some regulatory body (please not the CFPB, though) to take a look at the buy/sell orders here. Something transpired that does not appear to be entirely kosher.

Beyond this, it was a tough week for China and, on balance, a strong one for the Continent of Europe.

And as for the USD, well, perhaps it’s better not to ask:

 

I do expect the next two weeks to offer some fast and furious cross-asset class action. In addition to what the period may reveal about the prospects for tax reform legislation, we are also staring down the nose of yet another potential government shutdown, and will be forced to endure another high drama lead-in to the inevitable continuing budget resolution: with the latest drop dead date fixed for December 8th

So it may be wise to strap on in, but whatever else you do, don’t sell any stocks. In the first place, it’s un-American. But beyond this, if you channel your inner mutual fund, it will become clear that by not owning your favorite names at fully invested levels, you are actually short.

One way or another, it appears that for the moment, owe have established a newfound mutual fund admiration society. And all I can say is that this development didn’t come a minute too soon for that beleaguered corner of the investment universe. What with ETFs, Unit Trusts, SPACs, MLPs, UCITs products and even (almost as beleaguered) hedge funds stealing their thunder, the guys and gals in mutual fund land certainly deserve the love.

Thus, in closing, I raise my glass in salute of the long-only guys and gals, who trade capital pools idiosyncratically, under the watchful eye of the overlords of the Securities Exchange act of 1933. They have been sucking hind t*t long enough, and their fleeting time in the spotlight is well-earned.

Historically, their turnover rates are significantly lower than that of hedge funds, and, because they rarely, if ever, reach the end zone, even under NFL rules, they get to keep the ball.

Perhaps, across the long weekend, this alone is enough reason to give thanks.

TIMSHEL