Are we really happy here, with this lonely game we play?

Looking for words to say

Searching but not finding, understanding anywhere

We’re lost in a masquerade

— Leon Russell (This Masquerade)

Can y’all give it up with me one time for Leon? Thought so.

I don’t have a great deal to say here. Saw him a live a couple of times – back when such things were possible. And I’m glad I did because given that: 1) he died in 2016; and 2) even if he were still around, there’s that whole lockdown thing and all, I’m not likely to catch his act again.

His hair was long, and ghost white. The word authentic comes to mind. I reckon that’s about it.

Along with perhaps “Superstar” and “Delta Lady”, “This Masquerade” is arguably his most timeless composition. And I’ve been thinking a lot about masquerades, and their most essential component – masks – a great deal lately. For obvious reasons.

And I don’t know, and frankly don’t care, if someone else has pointed out the following ironies. Because I will share them with you one way or another: 1) masks are all the rage these days; and 2) this rage is bidirectional in nature. More specifically, just at a point when the entire population (whether voluntarily or otherwise) is masking up, in some ways, un-masking is equally ascendant. I won’t go much further into political realms than this. But anyone not outraged by the manner in which Flynn was set up, in full obliteration of due process, subject to an astonishing FBI perjury trap takedown, instigated, as it was, against a Director of National Freaking Security whose desk chair was barely warm, is missing the memo. Those not further recognizing that the judge’s to unwillingness accept an agreement between Prosecution and Defense to drop the matter is an outrageous reach across separated constitutional powers, is adopting a mindset that will come back to haunt them. And the rest of us.

I’ve been pissed off about this Flynn thing since it first went down. And it has nothing to do with whether or not he’s a bad guy. Less than a week into Trump’s term, the FBI sent agents into his office — under the pretext of coordinating intelligence training. Specifically told him he didn’t need a lawyer. Asked him questions about a conversation they’d recorded and committed to memory. Then, when his statements didn’t precisely match the tape, they dropped a perjury charge on his ass. Even a murderer or armed robber subject to this treatment would get the case thrown out on procedural grounds. But not Flynn. Recently, when the setup came to light, the prosecutors dropped the charges. But the judge wouldn’t accept that. So, the case lives on, presumably, with intent to extend it into next year, and (it is hoped) the ushering in of a new president that won’t pardon him. This, at any rate, appears to be the play.

Heaven help anyone on the wrong side of this crew when they take over. Because if you dare to cross them — in real or even perceived fashion, they will roll you.

Meanwhile, This (Masked) Market Masquerade Ball continues, largely unimpeded and untroubled by the goings on outside the dance hall. The Gallant 500 did close down a couple of percent this week – perhaps because those lovely masks that the gowned ladies hold so fetchingly to their eyes have been replaced by grotesque mouth covers. But from its lows — registered about an hour after Thursday’s Weekly Jobless Claims freport brought tidings of another 3M souls entering the ranks of the newly unemployed — the G500 has rallied about 100 handles. Like the saying goes: buyers gonna buy.

But in doing so, they shrugged off such economic tape bombs (released Friday) as a plunge in both Retail Sales (16.8%) and Manufacturing (11.2%).

They further scoffed at the Fed’s bi-annual Financial Stability Report (also dropped on Friday) which warned of dire market outcomes if we don’t straighten ourselves out and tame this here Covid Tiger. And with the news that Big Buffett sold down >90% of his deftly won holdings in Goldman Sachs, Inc. GS is down about 1/3rd since the crisis hit, and I reckon it could fall further. At which point Warren (who is known to do such things) might buy it again.

I reached out to GS Chairman DJ D-Sol about all of this, and, like Leon once told us:

“We tried to talk it over, but the words got in the way”.

I should also emphasize that the masquerade market ball is re-provisioning itself with yummy supplies even now. Secondary issuance of equities is surging, and these goodies are being hoovered – en masse — up by the hungry and thirsty market dancers. Our own Treasury has only begun to lay historically historic amounts of paper on us, and that, too, will likely disappear like cheese puffs into the bellies of the hoofers and tappers. And if it doesn’t, then the Fed will need to belly up to the platter. Because this here economy cannot possibly sustain higher yields. Indeed, they must go in the opposite direction.

Have I mentioned this need for lower rates before? I believe I have, but don’t remember the precise details of having done so. Perhaps I’ve taken too many trips to the punchbowl myself.

However, I don’t mean to suggest that everyone at the ball is wearing masks and shuffling their feet. To the contrary, some of the biggest market ballers of them all: the afore-mentioned Buffet, David Tepper, and my own personal fave – Stanley Druckenmiller – have all weighed in on their astonishment at the intensity with which this equity rager is sustaining itself, and how badly its wind-down might be.

In past editions, I’ve paid due homage to Druck, but let me say again, if there is one single market professional I would wish to emulate, it would be him. Three decades of sustained >30% performance. But that’s just the start. I’ve barely ever spoken to him, but know him to sober, humble, and, like Leon, entirely authentic. He doesn’t often issue public proclamations, and when he does, unlike some of his higher profile peers, it’s not to talk his book. He is known to only opine when he believes he has something of value to convey to his audience.

In keeping with our weekly theme, suffice to say that Druck does not wear rhetorical masks. So, when he took to the (virtual, natch) podium on Tuesday to announce his belief that the risk/reward conditions of the global equity complex are the worst he’s seen in his storied career, we should take him at his word.

And act accordingly.

Admittedly, though, the fact that I’ve issued many written sentiments in the same key over the past several weeks does little to dilute my admiration for him.

Yes, my friends, my fellow dancers, these here are unprecedented risk conditions. I’m not forcing you to change into your more comfortable shoes and head for the exits.

But it wouldn’t be the worst idea to at least consider the option.

********

“There are concrete mountains in the city, and pretty city women live inside them”.

That’s Leon again, and maybe it’s still true. Perhaps, on the other hand, some of these lovely creatures have decamped to more remote realms of late, but I hope and expect that they will return. And soon. If so, I’ve got a few songs of my own to play for them.

And every time I think about these things, I remember “This Masquerade”. And, wouldn’t you know it?

“Thoughts of leaving disappear,

Every time I see your eyes,

No matter how hard I try,

To understand the reasons that we carry on this way,

We’re lost in a masquerade”

Yes indeed, we’re lost in a masquerade, a masked masquerade, a masked market masquerade.

And all I am asking here is that as we breathe through our hideous surgical face masks, which cover our unspeakably beautiful noses and mouths, we take a look around us with a clear head and clear eyes. Eyes that no face mask would ever dare to hide from the light.

Doing so will give us, I think, our best chance to recapture our dreams. It could take a while to get there, but embracing a pretense that the orchestra is playing, the champagne is flowing, and that we’ve nothing to worry about save whirling ourselves as gracefully as possible across the floor is not what I, or, for that matter, Druck, would recommend at the moment.

Stone-cold risk-taker that he was, I don’t even think Leon – if he was still with us – would be advising anyone to let it rip right now. And, since we’re on the subject, let’s close by busting out another one of his best:

“I’m up on the tightrope, one sides hate and one is hope

It’s a circus game with you and me.

I’m up on the tightwire, linked by life and the funeral pyre

But the tophat on my head is all you see.”

Coming from a guy four years dead and gone, it all seems rather clairvoyant.

So please take care, and, as ever…

TIMSHEL

Now if I think, I might break even,

I might go home and quietly,

I’ll marry a rich girl, but otherwise

I’m going to raise hell and rightly

— Graham Parker

A decent bit of ground to cover here, but first an update from last week’s installment. On Wednesday, the U.S. Supremes issued a reversal that now allows states to tax on-line sales for transactions outside their borders. However, the good news is that the internet has not yet began to recover from the crippling blow of the repeal of Net Neutrality, so it shouldn’t matter much.

With that out of the way, I’m able to inform you that our title is identical of that of a seminal 1979 album by the deeply under-appreciated Graham Parker and the Rumor. This record has a special place in my memory, because it shook me and my crew from the lethargy that had set in from too much focus on psychedelia. It was aggressive, punchy and not overly cerebral. Most importantly, you could dance to it. So my friends and I got off the couch, put aside whatever materials were sitting on the coffee table, and set forth to shake things up with the ladies (albeit with mixed results).

But in the interest of full disclosure (and its attendant easy discoverability), I must inform you that “Back to School Days” – the actual song from which our lyrics are purloined — was not on “Sparks”; in fact, it predated “Sparks” by a couple of years. Chalk it up, yet again, to poetic license.

One way or another, my observation is that over the past several sessions, and in the equity markets at any rate, there has indeed been a whole of squeezing going on, and that if one looked closely, there were some sparks flying as a result.

Of the former assertion, there is little to debate:

But while the accompanying chart, coming courtesy of ZeroHedge, shows an unmistakable melt-up, a couple of caveats in order. First, I’m not sure how the “Most Shorted” Stocks index is compiled, what names it contains and at what weights. Here, I’m willing to take ZH’s word for it. In addition, however, what is labeled as a “Record Squeeze” derives from the Relative Strength Index (RSI) measure, which I’ve never understood, can’t define, and tend to ignore.

But why quibble with technicalities? Those looking for corroboration in less obtuse metrics may wish to consider the recent relative performance of the SPX and the Russell 2000 benchmark index of small cap stocks:

SPX vs. RTY: A Reversal of Relative Fortune

Now, one can clearly observe that, with few exceptions, over the past rolling year, the Gallant 500 has routinely outperformed its lower paygrade comrade, Ensign Russell. But something changed dramatically in the first half of Q2. The good Ensign started to leave the better fortified 500 in the dust. And, as matters now stand, while the latter has turned out a rather pedestrian year-to-date performance of ~3.07%, the former is knocking on the door of a double-digit return.

Please understand: it’s not my view that Russell stocks are more apt to accumulate short interest than those listed in in the S&P 500, but that squeezes hit small caps harder than large caps.

Mostly this is due to liquidity considerations. For small caps, the volume is lower, the borrow more difficult to source, and, in general, the covering of a short more problematic. So when small caps shoot the lights out against the big dogs – particularly on what can otherwise be described as a flattish tape, one can be pretty certain that the squeeze is ascendant, and one should arrange one’s investment affairs accordingly.

Of course, a short squeeze, as is the case with any other technical (and for that matter, most fundamental) conditions, is a phenomenon that must run its course. But herein lies a further problem: I’m not sure that this here squeeze is over.

Because, you see, my strong hunch is that the overall market is poised to rally over the next several weeks. I hinted at this conviction last week, and so hinting did me no favors in terms of street-cred, but now, as is my prerogative, I’m doubling down. Everywhere I look, I see indications of a vigorous set of economic conditions, and this evidence notwithstanding, longer term global rates are either frozen or trending downward. Earnings look to be pretty solid, and I suspect that on balance they should surprise to the upside. In the meantime, with only 5 trading days left in this crazy quarter, I suspect – on a tape that is likely to feature diminished liquidity — that investors will do what they can to defend their positions.

In addition to the forgoing, and at the risk of laying some overly heavy philosophy on y’all, I believe that a trading year sets up as a series of hypothesis-testing cycles. Investors typically emerge from their New Year’s stupor with some sort of a consensus as to what kind of year they are about to face, and, for the first several weeks, stay true to this trend. Contrarians inevitably step in at some point, and then the battle is joined, with either the naysayers prevailing or the consensus being reaffirmed. There are typically between 3 and 5 such sequences across a given year.

Entering 2018, the consensus was evident. It was game on, and January was nothing short of a giddy market month. Then the cold winds of February began to blow, we experienced that VIX debacle, and everyone felt the chill. By the end of that month, the markets had regained a measure of equanimity, and since that time, the SPX has traded in an historically narrow, single digit range. With Q2 coming to a close, it bears mention that the index is up all of 14 handles, or one half of one percent, from where it began.

My sense is that it’s time for risk takers to test a new hypothesis, and the one that seems most likely is a rally in stocks and a selloff in government bonds. Of course, the opposite paradigm may emerge, with hypothesis-testing assuming much darker hues, but I feel that if the market takes a visible fall here, it will socialize bargains that are likely to be too tempting for many capital pools to pass upon.

There are a couple of wild cards here, the most prominent one being the trade war psychodrama unfolding before our very eyes — at social media warp speed. I take these matters very seriously, and, for what it’s worth, believe that the rhetorical brinksmanship emanating from Washington is, at best, counterproductive. It may prove to be the winning strategy, but any number of events beyond direct human control could cause it to derail, with consequences I care not to contemplate. But a few other points are in order.

First, because we’re referencing politicians here, the overwhelming incentive on all sides is to seek a solution that will allow both (all?) parties to declare rhetorical victory, and I think that’s what’s going on behind the scenes. In the mean-time the tweets and statements of the principals here strike me as being nothing but gamesmanship: government power players spooning out messages for public consumption alone: ones that have little to do with the true state of play. This thing may be going well; it may be going poorly, but I don’t think anyone outside of the circle of trust has the first clue either way.

Meanwhile, the markets are reacting, unwisely in my judgment, to every single tweet.

So, if Trump holds to pattern, and after tiring of sending genius or mindless streams of vitriolic rhetoric towards Chair Xi, he enters Kumbaya mode (and even more so if, as I believe is likely, an accord is actually reached), the markets are likely to melt up, and those who have been squeezed recently may feel the squeeze yet again. Moreover, said squeeze may very well expand to hit the credit markets, where short sellers have won recent innings by widening out spreads a pretty good amount in recent weeks.

In case you had any doubts, this chart does not paint a particularly encouraging picture, particularly given that it fails to take into account the interest rate component of credit costs. If rates, at long last, rise, and spreads continue to widen, then we’re looking at a less rosy financial funding picture for everyone from Olympia to Key West.

But even here, I’d encourage my minions to take heart. There’s always Switzerland (still negative) and Germany to look to for funding sources. And, of course (sorry, I can’t resist), we’ll always have Paris.

One last thing, my loves: if I’m right about the next material move in the equity markets being to the upside, I don’t know how long it lasts.

However, I know that the answer is not “forever”, because that option does not devolve to humanity. Back in the day, we were able, for a few months, to bang our heads a bit by “Squeezing Out Sparks”, and for a while, the girls even paid attention. I did raise a bit of hell, but never married a rich girl; only a lovely one from a good family. As most of you know, I’ve not had a minute’s cause to regret this.

But that was later. Once the sparks were all squeezed out, for me and my buds, it was back to the couch, the 4-footer, and yet another spin of “Electric Ladyland” on the turntable.

TIMSHEL

Forgive the indiscretion of the calendar here, but even over this holiday weekend, I’m worried about turkeys. All of them. In every form. All over the world.

What’s that you say? Turkeys are out of season? Precisely my point. We’re a full six months away from their interval of maximum exposure, as, each November, according to the United States Department of Agriculture, 5.32 Million of them are sacrificed to this nation’s quirky autumnal rituals.

So it becomes all the more alarming that at a time when the planet is almost precisely 180 degrees away from its typical turkey martyrdom position, the noble birds and their namesakes are unquestionably having a rough go of it.

So much so, that I am forced to create a new exposure metric: Turkey(s) at Risk (TaR). The guys in the propeller hats in the General Risk Advisors Jet Propulsion Laboratory – adjacent to the Strip Mall in Wilton, CT are testing these routines out now. And when their models are fully done and dusted, you’ll be the first to know.

We are compelled, in the meanwhile, to rely exclusively upon qualitative measures, so let’s start with the personal, and move out, concentrically, from there. I myself am contributing to species-wide discomfort, by going Cold Turkey on one of my least appealing habits. I won’t go into great detail here, though it might surprise you to learn that the behavioral cycle I’m trying to break is entirely legal. But it is one I’m finding difficult to discontinue in one full stop. I’ve already relapsed once, earlier this month, but think I now have a better handle on this sucker. And one way or another, if I’m to succeed, I can’t allow myself to worry much about the sufferings of our above-referenced flightless fowls.

More broadly, it could be that our gobblers are in for a shelterless summer and chilly winter, as New York City is poised to join a list of jurisdictions that already includes both Malibu and San Luis Obispo, CA, Seattle, WA and Fort Meyers, FL, in banning the materials that comprise the Thanksgiving Bird’s favorite habitat: straws. This may be a simplistic argument, but it strikes me that the following relationship is likely to hold: NO STRAWS -> NO TURKEYS IN THE STRAW

But moving on to global affairs, the nation that bears the name of our zaftig orinth is experiencing a downward economic spiral that is worth monitoring, and perhaps filing under the heading of “there but for the grace of god go I”. The Turkish Lira is in free fall, the fact that its central bank raised overnight rates from 13% to 16% this past week notwithstanding:

Now, there’s a bunch going on in this ancient locale –which once housed the capitals of both the Byzantine and Holy Roman Empires.

However, as the Emperor Constantine once ruled over these realms, bordering, as they do, on both the Mediterranean and Black Seas, with God as his guide, the guys that are currently in charge appear to be taking less divine counsels. They’ve got a strongman there with an unpronounceable name, who is clamping down on his peeps in a manner more reminiscent of Caligula.

After demonizing the mere concept of high interest rates, he went and jacked them up midweek anyway, and the flight out of Turkish Lira only accelerated. They’ve got parliamentary elections coming up in about four weeks, but I kind of expect that the fix is in on that one.

Perhaps some of the problem is a contagion from events in Italy, just a short boat ride (or a desperate battle with Athenians and Spartans) away, and the country that sported the other, eponymous capital of the Holy Roman Empire. Over in Italia, a couple of unhinged political parties, ominously named The League and The Five Star Movement, have been unable to form a coalition sufficiently unhinged to satisfy their increasingly unhinged constituents, and the country may be headed for a snap election over the next few weeks. If the Italian Lira was still around, it would no doubt, like its Turkish counterpart, be selling off hard, but the Italian Lira does NOT any longer exist, so investors are forced to take their ire out in credit markets. Witness, for instance, the anger manifested in the spread between Italian debt and that issued by its former Axis pal Germany:

In raw terms, the still-to-be-formed Italian Government must now borrow out 10 years at the usurious rate of 2.20%, which may sound like a lot of vig, unless, of course you reside in the United States, where the same borrowing terms cost our government 73 additional basis points (2.93%). But even the Shylockian American rate is 20 bp cheaper than our boys could borrow at just a couple of weeks ago.

Perhaps we should all just move to Switzerland, whose 10 year government yields quietly slipped (yet again) into negative territory last week.

As these matters go, a lot of folks bailing out of, say, Italian Bonds are transferring the proceeds to their American equivalents, leaving local Bond Bears disappointed for yet another day. Their time may come, but perhaps not until a lot more turkeys are forced to bite the dust.

The Southern European Political Shenanigans also took the wind out of the sails of what had been a pretty fly rally in the Continental Equity Complex of late:

But the attendant love did not transfer to the Gallant 500. On the other hand, after several quarters of comatose behavior, it appears that the Russell 2000 has awoken from its slumbers:

It’s up an energetic 5.95% this year, and why not? Weren’t the small cap companies supposed to be the disproportionate beneficiaries of the tax cut? If so, you wouldn’t know it, that is, until recently.

But as for the 500, a disturbing trend has emerged. With 97% of earnings precincts having reported, the subsequent price action for those companies exceeding expectations has been, well, below expectations:

By my count, Q1 was the 5th straight such cycle of disappointment, and Q1 was a heck of a quarter. And I wonder if it might be necessary for Mr. Spoo to find another rabbit to pull out of his hat to move his troops out of the narrow channel in which he has wedged them.

But I just don’t see it happening until at least July, because why should it? The upcoming week features only four trading days, and about all I can see of import scheduled for release is next Friday’s Jobs Report.

And June itself, for what it’s worth may, not hold much drama either. Feel free, if you will to wring your hands about the on-again/off-again Singapore Summit, the latest polls for the Mid-Term Elections and the confusing psychodrama of our trade negotiations with China.

Just don’t expect any of these matters to provide much edge.

It might be the case that the volatility gods will join me in an extended cycle of Cold Turkey, with no straw in which to repose. This won’t be pleasant, and, truth be told, I’m starting to get the shakes. I’m told that the GRA TaR models won’t be available for at least another couple of weeks, and the wait is likely to tell upon me.

Perhaps I should go take a Turkish Bath, of which there are several in my area. Fortunately, they all accept local currency, because I just swapped out an entire safe full of Turkish Lira for one of those small cigars they make in Istanbul – one that I’m committed to never smoke. So, on this extended holiday weekend, I can only take my leave and offer you a sincere but non-seasonal gobble gobble.

TIMSHEL

I hope everyone is recovering satisfactorily from a raucous Saturday: one that featured not only the Kentucky Derby, and Cinco de Mayo, but also the annual Ridgefield (CT) Gone Country Festival (replete with its BBQed Rib Contest and the 70s rock stylings of the local high school band).

But as for me, I’m still trying to gather myself from the shock we all received earlier in the week.

Specifically, on Tuesday, and in violation of virtually everything I consider holy in this world, Nashville-based Gibson Guitar Corporation, which has been pumping out its one-of-a-kind axes for approximately 5 generations, filed for protection under Chapter 11 of the United States Bankruptcy Code.

Though the blow was staggering, I hasten to remind my minions that all hope is not lost. Gibson did NOT opt for the full-smash Chapter 7 shutdown; it instead chose the Chapter 11 reorganization alternative. Statements from the Company suggests it took this action in order to protect its signature guitar line, by raising some capital and scrapping a few offshoot businesses in which they never should have been involved in the first place.

I’m praying for the kids down in Nash Vegas, because life on the planet will be unilaterally diminished if that shred machine factory ever goes dark.

No one should be surprised that the guitar business ain’t what it once was. Anecdotal evidence suggests that each year, fewer hormonal, acne-battling teenage males squirrel their lawn mowing money away to plunk down on a 6-string razor and appropriately distorted amp. And who can blame them? It’s not like that sort of thing gets you laid like it did in the old days (on the other hand – and trust me here – it never did). And this is to say nothing of the blow the Company received when Pete Townsend discontinued the practice of ending each show by smashing his instrument (almost always a Gibson) into smithereens.

But the Company’s real troubles began in 2011, when gun-wielding thugs from the Environmental Protection Administration (EPA) rudely busted in on their production facilities – as part of an enforcement action – and you can’t make this up – against violations not of United States environmental laws, but of those of the great nation of Madagascar.

So the trend has hardly been Gibson’s friend these past few years, and though I haven’t done much to support the enterprise lately, you should be made aware that my first legit guitar purchase was a Gibson SG, acquired from my much more talented high school mate (one John Zucker) in 1976. In elegant, bookend fashion, my most recent such acquisition took place in 2008 – about a month before Lehman went down – when, at long last, I managed to get my hands on the Companies signature product: the Les Paul.

I must point out though that I bought both of these axes used, so it’s not like I’ve done all that much to support the company myself. I am, however, dedicating this weekly to them and that’s something, right? In addition, I actually tweeted my outrage on the same topic earlier this week, which brings us to another topic: would it kill you guys to follow me and maybe tweet back once in a while? Didn’t think so.

Perhaps the only Gibson item remaining on my musical bucket list is the Flying V, a model that derives its name from its shape, a sample of which I offer below. I have thus far resisted the temptation to pick one of these up, because – let’s face it – If you’re going to rock a V, you’d better be ready to bring it all with you, and even after 45 years, I’m not sure I have it all to bring.

Again, for now, the Company will continue to pump out these bad boys, but it may need some help – both from its creditors and perhaps even from other enlightened souls on Wall Street. And I certainly encourage all of the fat cats within my range of influence to take a look here.

Surely the money is there. I mean, take, for example, the recent Spotify IPO, in which musically inclined investors shelled out sufficiently to manifest a $26.5B market cap. Due in part to a disappointing earnings release, it had a bad week, but is still holding a valuation of $1B above its IPO price.

And I ask: what are the users of Spotify listening to? Well, a goodly number of them, including yours truly, are cranking out Zep, Cream and other similar recordings positively driven by Gibson products and the Gibson sound. It would therefore make logical sense for Spotify’s underwriters to protect their investments by ensuring that the musicians that produce the sounds that stream across the program are adequately supplied with appropriate instrumentation.

Fortunately, there are at least symbolic indications that investors may be inclined to come to the rescue of the beleaguered brand. Here, I refer to the impressive V bottom registered by the Gallant 500 over the last couple of trading days. After a pretty lousy Thursday session, and factoring in some time for the markets to digest what on the whole was an encouraging April Jobs Report, the SPX three-day chart looks something like this:

Sharp-eyed observes – particularly rockers – are likely to notice not one, but two Flying V formations, in the chart. And I ask you, what can this possibly be but a financial tip to the hat to the Gibson Guitar Corporation of Nashville, TN?

It perhaps also is important to bear in mind that Thursday’s lows and subsequent recovery represent, by my count, the 4th time in the rolling quarter that the SPX touched the depths of its 200 day Moving Average, only to bounce enthusiastically in the immediate aftermath. All of which reinforces the notion that stocks want to remain in a narrow range. Intraday volatility is on the high end of what we’re used to, but at the end of the day, we’re ending up pretty much where we started. It does strike me that this stasis is likely to continue for most of the rest of the quarter. Earnings continue to wind down, and the numbers keep getting better and better. Forward-looking P/E Ratios have drifted back to their five-year averages, and, while projections call for some deceleration across the rest of the year, the prognostications remain highly encouraging. But the best that the market appears to be able to muster is a bounce-back from a nasty puke.

In addition to a Jobs number that fits tightly with the narrative (stable but short of Bonzo job creation, coupled with a similar dynamic on Hourly Earnings – all supporting the notion that the economy is doing pretty well, but is in no particular need of rude rate increases to cool it down), investors swooned over a marginally strong earnings report from Apple. Presumably this is due in part due to the Company’s buyback announcements and even more so that the Omaha Buffet now features an even larger supply of the biblical orb on the tray tables.

Yet naysayers persist on the stock, and to them I pose the following question. Best estimates call for 5G telecommunications protocols to roll out, in round numbers, within about a year. If this new network configuration follows the trajectory of its predecessors, then everyone will want 5G, and this will compel everyone to buy a new smart phone to avail themselves of its wondrous benefits. Does this not portend marvelous things for the world’s leading smart phone provider?

But while Apple, as has been the case across its long history, is given the benefit of the doubt by the markets, the same cannot be said about the broader array of large cap companies. As a record earnings growth season winds to a close, investors are reacting with what can be described only through generous interpretation as a collective yawn:

This, my friends, looks to me to be the financial expression of tough love. There seems to be little appetite to push broad-based valuations higher, but at the same time, the picture is encouraging enough to suggest that selloffs are socializing some bargains.

So equities as a risk factor aren’t doing much, and probably won’t for the next few weeks. Why? Well, there’s some continued concern that higher rates will crowd out equity returns, but these higher rates are nowhere to be found – at least as expressed in longer dated government securities.

Pretty much all developed jurisdictions are enjoying bids on their paper, and, while the short bond crowd may ultimately win the war, it appears to me that it will only be by attrition. They have many bloody skirmishes ahead of them on their righteous road to rate normalization. What my eyes see is continued evidence of an improbable shortage of government debentures, but I’ll leave that often-covered topic aside for the present.

I will continue to reiterate my belief that no much action is likely to transpire at the factor level – for the rest of the month – and perhaps bleeding into June. The Washingtonian Circus could change this with one snap of the high-wire, but otherwise, I’m kind of thinking we’re stuck in neutral.

All of this gives rise to the old adage “Sell in May and go away”. But I’m not sure that there’s much benefit to be had in doing this, or for that matter, in taking the opposite tack. I think instead I’ll stay right here, and maybe spark up that Gibson SG I’ve owned for more than 4 decades. It sounds sweeter than ever, perhaps because it’s just possible that my chops have improved; more likely because those Gibson guitars are just so well-made that once you own one, you can enjoy it for a lifetime.

I take my leave with the fondest wish that the Nashville Cats are successful in their reorganization efforts, and, to my minions: if you can’t float a few shekels in the form of capital, the least you could do is head down to your local guitar store and pick up a Flying V. Failing that, you can perhaps, at minimum, follow me, and therefore the saga @KenGrantGRA. Unless I’ve missed something, it’ll do you no harm.

TIMSHEL

Yes, my friends, the eternal debate (is it “Pathos” or is it “Bathos”?) rages on. Moreover, the question applies not only with respect to individual events, but to human existence writ large. In this installment, we will focus on the former, because, in terms of the latter, how can we possibly arrive at a conclusion other than through impact-weighted aggregation of individual experience?

Noah Webster’s Arc (OK; dictionary) defines Pathos as “an element in experience or in artistic representation evoking pity or compassion”. Its usage, however, dates back to Aristotle’s Rhetoric (soon to be made into a major motion picture), and rightly so, because those Ancient Greeks – what with their wars, sacrifices political intrigue and endless, droning debate, seem to have been bathed in the stuff.

Bathos, by contrast has more recent origins, and is perhaps as a result, more ubiquitous in our usages and in our imaginings. After all, are we not all intimately familiar with its original source, the 1727 Alexander Pope essay Peri Bathous, or The Art of Sinking Poetry, which many of my readers can recite, word for word, from memory? However, for the less erudite among us, let’s simply define it as a humorous shift in the contours of an enterprise – to the common/vulgar, from the sublime.

Both pathos and bathos are indelible components of the human equation, carried with us as we first crawled out of the primordial ooze, and are almost certain to be present when our species’ grand purpose has fully run its course, when, presumably, back into the ooze we will sink. Moreover, each concept bleeds into the other – in both visible and opaque fashion – often in the process obscuring the lines of demarcation between the two. This has always been the case, but at various points in our history, said lines become even more blurred.

It appears, my friends, that this is one of those times, and I’d like to take this opportunity to offer some opinions as to which side of the line certain pertinent events predominately fall.

I start on a personal note, wishing a heavenly rest for my friend Tony Glickman, who died suddenly this past Monday. I called Tony “Rabbi” because: a) everybody called him Rabbi; and b) that’s what he was: an ordained minister to the Children of Israel. He went on to attain the lofty position of Rosh Yeshiva (aka, the rabbinical equivalent of capi di tutti capo) at Yeshiva University. For my money, Rosh Yeshiva at Yeshiva is about high on the foothills of Mount Sinai as any mere mortal can hope to climb.

But for all of that, the Rabbi spent most of his career in Finance. Across his storied professional experience, he served as Treasurer of Canadian Imperial Bank for Commerce, Head of Risk Services at both Globe-Op and Northern Trust, and, most recently as a Senior Advisor to the global consulting firm Oliver Wyman. He was a prolific writer and thinker, and though I only jammed with him a couple of times, I can attest that he had some legit chops on the keyboard. He could sometimes overwhelm you with his presence, not everyone “got” him, and I don’t think he’d quibble with me for stating that if you wanted Rabbi Glickman, you got all of him; no partial or smaller serving of Glickman was available on the menu. He and I grew quite fond of one another, and I will miss him. But what saddens me most is that he wasn’t done. Not by a long shot. He remained fully engaged across his wide spectrum of interests and activities until the very minute that the Good Lord took him. So, to the Rabbi I offer a heartfelt “aleha ha-shalom” (may peace be upon you) and render, for the purposes of this installment, the following verdict: 100% Pathos. 

Moving on to (though not entirely) less personal (and entirely more uplifting) realms, I wish to share my satisfaction with U.S. News and World Report Magazine, which, for the first time since it got into the academic rankings game, has listed my alma mater: The Booth School of Finance at the University of Chicago, as the nation’s top MBA program. Yes, I’m pleased about this, but must offer a couple of caveats. First, the paleoanthropic era during which I studied at Chi-U began and ended many years before David Booth stroked in a maharajah’s ransom for naming rights to the program, so, technically, I attended not Booth, but U of C GSB. Second, us Maroon finance types had to swallow the indignities associated with the reality that listings actually showed a first-place tie with our intellectual enemies at Harvard. But I’m going to do my best to forget that part of the story, and offer the judgment that this development is bereft of both Pathos and Bathos.

In the wider world, I note that on Friday, the United States Congress passed its 2018 Budget Bill, and that the President (with a show of trademark bluster) promptly signed it into law. Its record $1.3T of projected outlays implies an incremental annual budget deficit contribution on the order of $300B to $400B, but hey, we’ve got children and (in my case) grandchildren to deal with that, right? The consensus among the talking heads is that the Democrats took their opposite numbers to the cleaners here, shoving in a cornucopia of discretionary bling in exchange for a much-needed increase in military spending. It seems, though, and as stated by others, that the outcome is a win for everybody – except of course American taxpayers. Still, I suppose we needed a budget, and, while I suspect that some of what has transpired will come back to haunt America and its well-wishers, I will shade this towards Bathos, while reserving the right to revisit the call at a later date.

Earlier in the week, and just for additional yucks, the Administration laid about $60B of tariffs on China and the latter has responded in kind. The markets didn’t particularly like this stunt, and for what it’s worth, neither did I. I have read widely the encouraging reassurances that this is all part of a grand negotiation strategy that will ultimately redound to our unilateral benefit. Well, maybe, but I say it’s a risky approach. This thing could spin out of control, in what I fear could be a financial redux of the events that started WWI. There, a rather obscure Archduke from a back-benching, dying empire gets assassinated in Sarajevo, treaties are triggered in domino-like fashion, and the next thing you know, the Western World’s military spends years blowing each other to bits in trenches dug not 100 meters away from each other. That conflict led to a stalemate; the Russians bolted and became the Soviet Union, the free world suffered a crippling depression, and the whole thing had to be settled yet again on the same battlefields, a generation later. I’m not saying that we’re in store for anything so dramatic with respect to this here episode, but then again I’m not saying we’re not, and I am in any event going to give the nod here to Pathos.

Last week’s other earth-shattering event involved the revelation that the Heavenly Walls of Almighty Facebook had been breached by nefarious forces, in the process violating the personal electronic space of 50 million users (including, presumably, yours truly). I was under the mistaken impression that everyone knew, or should’ve known, that this was coming. The core premise of Facebook is that it lets you communicate, creatively and effectively, at no charge, in exchange for allowing them to hoover up your private information and sell it to the highest bidder. This type of thing runs much deeper than what has been reported, and extends well beyond Facebook. I, for one, shudder to think of what type of data mining is taking place in the 3rd sub-basement of Google’s sprawling corporate campus in Mountain View, CA. To whom the content is being distributed, and for what purpose, is a matter I prefer not to contemplate at all. Further, I suspect that although the tying of this episode to the endless stream of nonsense about 2016 election interference was inevitable (not to mention ridiculous), it is instead best interpreted as the first salvo in an unfolding battle that will attack the galactic and accelerating power of a handful of U.S. Tech companies over virtually every aspect of our lives. I won’t elaborate here, but if I’m right, then the action will be both fascinating and terrifying to observe. For now, though, I think the FB thing a pig in a poke, and am going to place the sequence squarely in the camp of Bathos.

Investors, however, found little amusing in the episode, and were dumping FB shares – to the tune of about 15% loss – all the way up to Friday’s close. Between this and our burgeoning Trade War, it was a tough week for the Galant 500, which, largely through a sequence of angry closes, ended the week down a round 6%. The Facebook-heavy NAZ fared worse, down 7.3%. All broad-based indices are now in negative territory for the year.

Please know that I weep at anyone’s financial reverses, most notably those accruing to the holders of the common stock of this nation’s great corporate enterprises. That these losses are manifesting at a particularly inopportune moment – the quarter’s penultimate week (and therefore a matter of mere days before CEOs and fund manager must report results to what we can confidently expect to be a wavering group of investors) – only adds to the pathos I’m feeling. However, I’m not ready – just yet – to call the election and hand the victory to the P camp.

For one thing, I view the latest selloff as being driven more by risk reduction prerogatives than by an emerging consensus about valuation levels. Investors are nervous here, and one can hardly blame them. The non-stop assault on our sensibilities emanating from the shores of the Potomac are enough to un-nerve even the steadiest among us. Here, I blame Trump. He may not have started the infantile set of quarrels in which he is perpetually engaged, but it is he who sets the tone. And now, one never knows, from one minute to the next, whether the government is going to shut down, who is running what department, and whether we will go to war first with Russia, China, Iran or North Korea (just to name a few). The preceding administration was headed up by a guy they liked to call No Drama Obama, and I thought of this as an offensive misnomer. However, 14 months into the Trump Administration, #44 is starting to look like Tom Landry on the sidelines at Texas Stadium.

And if you’re an investor, it’s kind of tough to load the boat under these conditions. But I hasten to remind my minions that economic conditions have not changed dramatically from where they were in late January, when our friend Mr. Spoo was sitting some 285 handles and precisely 10% higher than the levels that prevail as this publication went to press. I see very few signs that the earnings harvest has been cancelled or even deferred. Borrowing costs remain stubbornly low, and we’re in the earliest of innings with respect to the widely hailed bennies from regulatory reform and tax cuts.

None of this is to say that the selloff was in any way irrational, or that it won’t continue. I just think that we’re basically looking at substantially the same world that we inhabited a couple of months ago, when it seemed like the “down” button on the equity elevator was damaged beyond repair. As such, somewhere in here, buyers should re-emerge, and I recommend that, at minimum, investors prepare for such an unthinkable contingency. As for now, I’ll deem the equity election too close to call.

However, there is one development which could decide the outcome at any minute. The SPX is now perched directly on its 200-day Moving Average, and I promised you that it would hold this threshold:

If it breaks through on the downside, from a technical perspective, it has some good ways more it can fall. But that’s not really what’s at issue; I’m much more concerned about this chart making a monkey out of me.

As you know, this is something I cannot abide, even during the wild and wooly days of March Madness. Right now, my bracket reads Pathos and Bathos tied at 2, one withdrawal and one contest undecided.

Given the way the NCAA Basketball Tournament has unfolded, I suspect I could have done a lot worse. Since Round 1, I’ve been warning anyone who would listen not to sleep on my Loyola Ramblers, but almost everyone did. And now they’re on their way to the Big Dance in San Antone. And now I’m advising this same crowd not to sleep on equities, at least not yet, but I fear many of you will. To ease my frustration, I keep telling myself, March ain’t over, and Madness is likely to outlast this and many subsequent turns of the calendar.

There’s both Pathos and Bathos in this, so stay on your toes.

TIMSHEL

“He’s a good man. And thorough”. That’s what Maude said. And she must have believed it because she said it twice.

But as is widely understood, she wasn’t talking about the Dude; in fact, she is speaking to the Dude. We’ll get to that later.

But first back to the Dude. Most of us agree he is indeed a good man, but is he thorough? The jury is out on that one. He tried – and failed — to stop Walter from flashing his piece on the lanes. He tossed the ringer in the wrong location and then lost the actual package. No, they never did “kill that poor woman”, but hey, she kidnapped herself, right? He has devoted his life to Thai Sticks and bowling, but while we bear witness to his consuming several Sticks, we never actually see him roll.

He went to see Marty’s dance cycle, but he left early, and was at least two weeks late with the rent, which, for all we know, he never bothered to pay it at all. And if he didn’t it’s now 20 years (240 months) overdue.

I mention all this because this past week marked the 20-year anniversary of the release of Coen Brother’s cult masterpiece “The Big Lebowski”. And all I can say is that if you’ve seen it, you no doubt get the references I’ve laid down, and if you haven’t, odds are you never will.

But we celebrated more than the TBL’s China (20th) Jubilee last week. Nine years ago this past Friday (March 9th), the Spoo (aka the SPX Index) closed at a crash-induced and previously unimaginable low of 676.53. Some 8 years and 10 ½ months later (January 26, 2018) it reached its most recent zenith of 2872.76 – an impressive gain of 337% and change over the period. We’ve given back a little bit since then, but not much. And now, since that dark day in 2009, the valuation recovery has survived 9 full trips around the sun. Tradition equates a 9th Anniversary with Copper in the U.S. and Pottery in the U.K. But the Chicago Public Library – which somehow has designated itself as a primary source for these protocols – has established that gifts for a 9th Anniversary should be Leather Goods.

Those Keepers of the Dewey Decimal Cards at the Harold Washington Library Center at 400 South State Street may be on to something here, so we’ll designate this date of celebration as The Rally’s Leather Goods Jubilee, because, among other reasons, it just feels right.

Yes, my loves, it’s been a good rally, but is it thorough?

Here, we should all bear in mind that thoroughness is an ideal, akin to, say, the Golden Rule: – something which we all should rightly aspire, but which mere mortals are less than likely to achieve in totality. Still and all, the closer we get to thoroughness (as is the case with treating others in a manner we would wish them to treat us ourselves) the better off we are. So I propose we settle for a standard of near-thoroughness and see where we stand.

At the moment, while, as indicated above, the Spoo has yielded a modest amount from high ground, its current valuation levels come at a point of negligible financing costs, (if the published statistics can be believed) begin inflation, and strong corporate performance.

But here is where The Dude and The Spoo part company, because, as also has been well established, the former has both a biological and behavioral disposition against employment. His longest recorded, compensated tenure with any organization appears to be his stint as a roadie for Metallica (buncha @ssholes). So I’m not sure that he is burning a Celebratory J in the wake of Friday’s surprisingly robust Jobs Report. Therein, our fabulous employment engine ginned up a gratifying >300K new February gigs, and the Report also featured a modest-but-sustained upward push in Hourly earnings, positive revisions for the two prior months, and (problematically for the Dude) an increase of >800,000 able bodied citizens to our Labor Participation Rolls. Perhaps the good news, here, is that of all the forces likely to impel the Duder to dust off the old resume, peer pressure may be bottom on the list.

As others have pointed out, and in perverse contrast to our experience a month ago, investors reacted positively to these tidings. As recently as Groundhog Day, a strong January Employment summary evolved into a catalyst for the first double digit Spoo retrenchment in a number of years. As such, I believe that anyone at their posts at 8:30 a.m. EST on Friday, who might’ve feared that a strong showing by the BLS would be met with an angry market response would’ve been justified in these fears.

But they would’ve been wrong. Investors swooned at the strong jobs showing, taking our titular index up nearly 50 points, and driving it to within striking distance out of that dangerous 27 handle. This topped off a giddy week that added ~3.6% to valuations. It perhaps also bears mention that these uplifting trends took place over a 5-day sequence where the markets were also compelled to absorb a number of theoretical threats, including this tariff nonsense, the contemporaneous resignation of Economic Advisor/Adult in the Room Gary Cohn, and ECB Chair Draghi’s (albeit ambiguously worded) announcement that European Quantitative Easing (EQE) is certain to end in this calendar year.

So why is all of this now good news, when a scant four weeks ago, the markets took such a dim view of similar tidings? Well, at the top of my list is that nothing under the sun seems to carry sufficient fortitude to actually lift yields on the Treasury Curve. A month ago, the strongest signs in many a month that the long-sought-after wage inflation might be emerging acted to move the interest rate (and, for that matter, equity) needle a titch. But 10-year yields have actually backed off since their end-of-January highs, and one now wonders if even merciful Allah himself can normalize the yield curve. It therefore stands to reason that whatever fear exhibited by the capital markets respecting higher inflation and more elevated rates has abated considerably.

But in the broader universe of Fixed Income, there are indeed some concerns that might serve to kill the collective buzz of anyone less chill than the Dude. Investment Grade bonds are feeling some gravitational pull (higher borrowing costs), as are, to a lesser extent, their poor relations in Junk-land:

Investment Grade and High Yield: Name Your Junk

In addition, when all was said and done, Q4 earnings failed to evoke the anticipated reaction of Pavlovian purchases. Earnings growth clocked in at an eye-opening 14.8%, and Revenues expanded by a respectable, arguably impressive 8.2%. Somehow, though, investors appear to have expected more – particularly on the Revenue side, as evidenced by the following metric – purloined from FactSet:

If this confuses you, suffice to say that Spoo companies that reported upside revenue surprises actually experienced counterintuitive price declines of 0.4%, as compared to an average historical gain of 1.3%.

Disappointers got hurt as well, but according to the metric by amounts roughly equal to the historical average recorded with respect to such transgressions.

But if I’m right, not much of this will matter across the three weeks left to the month of March. There are a few odd data streams to which we should adhere as the quarter winds down, including Inflation, Retail Sales, and Industrial Production – all set to drop next week. The following week features a modestly anticipated FOMC statement – where the Committee’s intention to raise rates another quarter point is all but a forgone conclusion.

However, all of this is fairly low drama – particularly in comparison to what begins to transpire once the calendar turns to April. I won’t reiterate what I believe is riding on the performance of the public and private economies with respect to these data streams; suffice to say it’s substantial.

One might even go so far as to suggest that by the end of April, we may know a great deal more about whether Spoo, good though he almost certainly is, can be appropriately characterized as thorough.

However, TBL fans will tell you that the “good and thorough” man to whom Maude alluding was in fact a doctor that Maude referred to the Dude — after her goons clumped him in the head. Though he had to be pushed, the Dude eventually went to see him, and this man of medicine, after checking out the dudely noggin, asked him to drop his pants.

Though it compels me to offer an un-dudely Spoiler Alert, Maude wanted to ensure that the Dude’s

reproductive parts were in sufficiently sound working order to enable him to assist her in her procreation objectives. History shows that everything checked out fine, and, presumably, their shared progeny (no doubt, if God’s Will were done, a masculine one) will be celebrating his 20th birthday later this year.

Here’s hoping a similar fate is in store for the Spoo. To be sure, he’s likely to throw both strikes and gutters as events unfold, but we can certainly wish him Godspeed. And so we will. Spoo: I like your style. May your rally abide for another decade or more, and may we all do the same, perhaps enduring long enough to tell the tale to the Dude’s grandson.

But between then and now there are a lotta ins, a lotta outs, a lotta what have yous… …lotta strands to keep in the old duder’s head. So I reckon we’ll just have to find out for ourselves.

TIMSHEL

Or AWS vs. AWS vs. AWS? As matters have unfolded, this seemingly innocuous acronym now perfectly captures the pitched battle raging between the new and old economies, and (if you will) the new and old markets.

Now, if you’re like me (i.e. the romantic type) what first comes to mind with respect to the acronym AWS is the American Welding Society, the organization that carries the proud banner for those merger agents of metallic units, those soldiers of the solder, those forgers of the functional fires — the welders of this great nation. I suggest, at this questionable pass, we take this opportunity to offer an energetic tip of the hat — to both the Society and its constituents. I mean, after all, if welders bugger things up, it can cause the rest of us untold aggravation or — worse. But they don’t bugger things up. Or at least they do so only on rare occasion. So I’ll say this: to those about to weld, I salute you.

That welders built our fair landscape – from the Empire State Building to the Golden Gate Bridge, is a matter almost beyond dispute. But, as time passed, and until recently, the most visible use of the AWS acronym might very well have been “Attention Walmart Shoppers” – that cry from the loudspeaker of the world’s largest retail outfit, alerting patrons that something special is happening in Aisle 5.

However, by all accounts, this acronym application, too, has been superseded by its progeny. Under current paradigms, the initials AWS almost unilaterally refer to Amazon Web Services – the cloud computing division of the conglomerate most likely to devour the world.

But the Wally Pipped retailers from down south are not, shall we say, taking this lying down. It now appears that the 2 latter day forms of AWS are pitted in a death match against one another; it’s Walmart vs. Amazon – corpo a’ corpo, and may the best capitalistic colossus win. While we all have borne witness to the latter eating the formers’ figurative lunch in recent years, in 2017, Walmart started pushing back. It bought itself an on-line retailer or two: most notably Jet.com (for a paltry $3.3B) and set its wonder boy/founder to the formidable task of storming the e-commerce fortress, and establishing an electronic beach-head on Amazon’s dangerous shores. As part of this effort, the much-feared clan from Arkansas issued the following warning to its legion of vendors: we’re all for your moving your data to the cloud, but in doing so, you might wish to consider using a solution not tied to any company named after a river in South America.

The message was no more nuanced than it needed to be. What Walmart wants, Walmart gets (at least until recently), and one can certainly empathize with their desire to protect proprietary data, upon which Bezos and his crew might, albeit accidentally, otherwise stumble. It was as if the Corporate Gods had convened on Mount Olympus and one was heard saying to aloud: “Attention Walmart Shoppers: nothing in your carts is manufactured or distributed by a company using Amazon Web Services”.

The whole on-line ploy worked for a while, and the ticker WMT responded accordingly, but recently, and as reported in last week’s quarterly earnings statement, the “House that Sam Built’s” fortunes in the ionosphere have flagged considerably.

As a result, while the seemingly unstoppable AMZN rocket continued its inexorable climb to the heavens, reaching by Friday’s close the lofty (and improbably round) threshold of 1500.00, the holders of WMT, as illustrated in the following graph, were not so fortunate:

Now, you should know that while Bezos continues to trounce his frenemies on the Forbes 400, and is now the world’s richest man (at least this side of Putin) by a wide margin, the Walton family (presumably including both Deadhead Bill and John-Boy himself), as holders of >1.5B shares, yielded, in excess of $2 Billion of collective net worth in the debacle. Here’s hoping (and expecting) that they will survive the blow.

But there are other, perhaps more relevant issues for us to consider. To the best of my ability to determine these matters, this may be largest earnings-related price drop of a Top 10 (until last week, when it suffered an ignominious fall to #14) market cap firm, since at least the big crash of a decade ago.

And here’s the thing: WMT earnings weren’t even that bad. In fact, they beat on most of the metrics upon which we are trained to focus, including profits, revenues, same store sales, margins, etc.

So what in the Sam Hill is going on here? Well, I’ll quickly dispatch with a couple of what I believe to be relevant, but secondary root causes. WMT soared through the stratosphere on this whole e-commerce play, but what the Web Gods giveth, the Web Gods can surely take away. If one can debate whether 92 is (forgive me here) an “Attention Walmart Shoppers” bargain, the 110 peak, manifested in those giddy days of late January, might’ve been, by the same argument, more of a Tiffany pricing metric for the name than a company that sells more Swiffer Wet Jets than diamond pendants, than it might’ve earned. I’ll also make short work of the premise that just as in the heady days of the dot.com bubble, all that should matter about a name is the strength of its web presence.

Instead, I will make the aggressive leap of logic that for the first time in several quarters at any rate, large, arguably over-owned securities have found themselves subject to the formidable forces of gravity. This does not preclude them from rising, but now, if the WMT episode can be extrapolated, they are subject to potential merciless punishment for any disappointments issuing forth from their C-Suites. There are of course exceptions, most notably the now indisputably AMZN-led tech cabal, but one wonders if even these widely adored capitalist juggernauts might not one day face a reckoning of their own.

At present, however, it appears that market participants view these enterprises as being infallible. In fact, I’d go so far as to opine that investors somehow view buying FAAAAANG shares as being their best option for risk reduction, and I hardly need to convey – to this audience in particular – how deeply this offends my sensibilities.

But that’s where our affairs stand for the moment, and I reckon we’ll have to live with the consequences. We’re now entering the quiet period of the quarter. Earnings are nearly all posted, and, as we’ve been tracking, they were highly gratifying to observe in their unfolding. Last week’s galactically gargantuan and potentially petrifying Treasury auction came and went without doing gratuitous violence to the yield curve. Yes, we’ve got Feb macro numbers to crunch, and Fed Chair Powell makes his maiden address to both houses of Congress next week. In addition, at some unspecified point in March we will have to endure yet another of those wearying debt ceiling dramas. Shortly after St. Paddy’s Day, Chair Pow will take to the FOMC podium for the first time – in all probability to announce another hike in overnight rates. But aside from that, and after a rollicking first seven weeks to the year, we may perhaps have cause to give thanks to the dearth of data set to assault our senses – at least till early April, when the information flow will again be fast and furious.

In the meantime, perhaps as a harbinger of our immediate fortunes, the technicals associated with the Gallant 500 are behaving in such a way as to bring a smile to the faces of the Tom DeMarks and Louise Yamatas in our midst. The selloff earlier in the month (remember that?) unfolded in such a way that not only did the Citadel of the 200-day Moving Average hold strong, but the index bounced jauntily as it touched this threshold:

Friday’s rally took the SPX above its more forgiving 50-day Moving Average, and perhaps this indicates that equities can do some open field running here. But I doubt it.

I am more inclined to think that we may trade between the yellow and the purple lines displayed on the left. But I’d be remiss if I failed to mention that Spoo has now slipped back into that dangerous 27 Club: the one which claimed the lives of Jimi, Jim and Janis. This time round, the climb to 28 may be less of a cake walk.

From a broader, longer-term perspective, 2018 is shaping up to be pretty interesting. As indicated above, investors are starting to punish even former favorites who fail to meet their hopes.

Further, and as also discussed in last week’s installment, the ingredients for the Inflation Pie, and for higher rates across the curve, are all on the table, and how they bubble in the oven will go a long way towards determining our near-term fortunes.

I also believe, though I won’t hit this one too hard for now, that the next 3-5 months are enormously important from a political perspective. With: a) the average mid-term House gain by the minority party clocking in at about 30 seats: b) the Republicans now holding only a 24 seat edge; c) the near-certainty that if the lower chamber flips, they will bring articles of impeachment against Trump; and d) the empirically demonstrated high correlation between mid-year performance and mid-term elections firmly in view, a lot is riding on both economic and market fortunes between now and, say, Labor Day. Both sides know this, and what I see is a pitched battle between parties, with one of them seeking to gun the economy, while the other seeks to stifle it. One thing is certain: the markets will react to these skirmishes.

But pitched battles, as indicated above, are part of the human condition, as is our propensity to endure. In the end, history shows that the honors devolve to the most stalwart among us. If the pattern holds, then the American Welding Society may well outlast either Walmart or Amazon, and if so, we might do well to take some joy in this outcome. Next year marks their 100th of glorious operation, and I’ve been looking around for details about their Centennial Jubilee. Their headquarters, somewhat improbably, are in Miami, FL, and come what may, I’m going to try to attend the festivities.

For reasons that should be all too clear, I hope to see you there.

TIMSHEL