This dude is Churchillian. Prolific and strike right at the heart of the issue. Must view.
I sense big regulatory reforms coming for Wall Street when the next Administration comes to power. It will probably begin with capital gains tax moving back to marginal income tax rates.
Kakistocracy is a system of government that is run by the worst, least qualified, and/or most unscrupulous citizens. The word was coined as early as the seventeenth century, but gained significant use in the first decades of the 20th century to criticize populist governments emerging in different democracies around the world. – Wiki
Jaw dropping, but my jaw has been hanging low for years.
https://twitter.com/carol_kohlberg/status/1253096835813605380?s=21
None, nada, just more Potemkin noise, the hallmark of this administration, coupled with massive gaslighting. It’s up to the Governors now to get it right and land the plane.
The Trump campaign strategy now seems to be keep whiping up the base and try to even…wait for it…. gaslight death. Don’t think it is gonna work on both counts.
Policy By Impulse
Do you think last night’s impulse tweet on the immigration ban was well thought out?
Not likely, and this one could be especially disastrous and untimely but, we suspect, will probably change and be denied before the rooster crows.
https://twitter.com/tomfolanmd/status/1252711870907035649?s=20
Is GMM Too Partisan?
No. Absolutely not.
We are not Trump fanboys because we don’t think he or his administration has the right stuff and is doing significant long-term damage to the country.
We admit we are hard on Trump and we were tough on Obama. It’s not about politics, it is about competence.
Is David Tepper a racist for not resigning Cam Newton? Are the Knicks Sinophobic for letting Jeremy Lin move to Houston?
Was Walter Alston anti-Semitic when he hooked Sandy Koufax after giving up 5 runs in the first inning? See below for a great side story on Koufax.
No. Those dudes just were not getting the job done.
We call a shitshow a shitshow when we see one, especially if its doing long-term damage to the country. Come on, I have three young daughters.
Can We Make It?
I hope and pray we can get through this mess or at least limp into the next election. It feels so 2008 now.
Can’t imagine, given the country’s current leadership and the divided body politic as is, that this America could have gotten through the Great Depression and World War II.
Nevertheless, we are so thankful for those stepping up on the frontlines, from the doctors and nurses to the grocery clerks. Bravo!
New Political Divide
Recall last October, we redefined the new political spectrum,
So apropos for today.
Jesus is my vaccine? Are you freaking kidding me?
That is the furthest thing from real Christianity as you can get. Ignore the doctors and put your grandparents at risk? That is the epitome of selfishness and not loving your neighbor, even if done out of total ignorance.
By the way, the author of the Gospel of Luke and Book of Acts was a doctor. Why were the ancients in need of a doctor if you had Jesus in your presence? Just askin’.
Come on brethren, let’s work together to defeat this thing, rebuild and get back to a strong economy.
A house divided against itself cannot stand.” I believe this country cannot endure, permanently half science, one-quarter superstition and one-quater anti-expert.
Reopening The Economy
Yes, we get it, the country has to get back to work.
Not so simple, however. We are faced with a false choice.
Imagine the disaster when the COVID cases begin to spike in Georgia? That, among many worse things, would clip 20 percent off the S&P in one day.
Will the barbershops and massage parlors on Peachtree Street in Atlanta still have customers when the new cases begin to tick up even though their open signs are out?
We have to get this right, folks. Listen to the scientists and F the politics.
Another False Choice
In my senior year of high school, I broke my hand, which had to be put in a cast. It sidelined me for the first part of the baseball season.
I wanted to play so bad, I soaked the cast in water and cut it off without my parents’ knowledge nor my doctor’s permission and went back to baseball practice. Hit the ball pretty darn good in batting practice that day but felt a slight tear in the left thumb. Painful but bearable.
My coach had his suspicions of how I made such a miraculous and fast recovery and approached me after practice demanding to see a doctor’s release. He unloaded and told me not to come back without documents.
My perceived false choice, to sit with a cast for four weeks or get back on the field the next day was a false one.
In fact, that tear was an avulsion fracture and put me back into the cast for an extra three weeks, almost double the original time of my bench sitting.
Yes, I took dumb-dumb pills in high school. Still do on occasion.
Appendix
Sandy Koufax was the greatest left-handed pitcher of all-time and Jewish. During the 1965 World Series, Sandy refused to pitch on Yom Kippur.
Koufax was a secular Jew, but he had been raised in the Jewish neighborhood of Bensonhurst, in Brooklyn. He no doubt understood that for him as the marquee star to pitch the first game of the World Series on Yom Kippur would be a blow to his people, a very public repudiation of their traditions. More would be lost—even if he won the game—than gained.
It helped, of course, that he had a very competent replacement in future Hall of Famer Don Drysdale, who had won 23 games that season and two previous World Series starts.
His Dodgers teammates had not pressured Koufax either way, and one told SI recently that they had not considered it a big deal even after Drysdale lost Game 1.
When manager Walt Alston came out to remove Drysdale in the third inning with the Dodgers trailing 7–1, the pitcher is said to have quipped, “I bet you wish I were Jewish, too.” – Sports Illustrated
Hilarious.
Caveat freaking emptor.
After the Fed effectively fully nationalized the financial markets by bailing out junk bonds on April 9th, turning Wall Street into a Soviet Sausage Factory, almost any type of analysis, which was on its way out anyway, was rendered completely meaningless.
The new rocket scientists on Wall Street are the market Kremlinologists, who try to guess the new ranges where the Politburo will set yields and how many notes and bonds the Kommissar of Free Money is going to buy in order to monetize a $4 trillion-plus deficit and help rollover existing maturities. All good until it isn’t
The monetary authorities had little choice but to try and keep the ship afloat to fight another day, but junk bonds? With the funky action going on in crude, the markets could use a few less drillers, ergo less supply, but that is less likely as their junk debt is now backstopped. Here’s to hoping there is an adjustment to policy after the panic subsides.
Stock Picking
That doesn’t mean you can’t make money picking and being in the right stocks. We crossed swords this weekend with a very savvy ex-Morgan Stanley stock picker (she knows exactly who she is) and we had to concede she has been right on many companies.
The market does appear to be looking forward to the other side. The new world looks like one with a few high tech giants in a less mobile (physical), work from home world. Maybe.
Not sure if that is good, sustainable or the body politic will stand for it.
Nevertheless, that micro stock picking world is foreign to us as our background is top-down global macro but it’s good to have someone with her caliber on the team.
Global Macro
What we are seeing scares the bejeezus out of us, however.
Our favorite (and Warren Buffet’s) valuation metric, is, unbelievably, and would be even without a COVID crisis, trading at its 94th valuation percentile while unemployment heads to the worst levels of the Great Depression, more than half of the Los Angeles workforce is unemployed, and uncertainty still reigns. Even more unbelievable the valuation metric sits just 5 points below its dot.com high in Q1 2000.
Of course, there will be some snapback when the economy reopens but there are 2nd, 3rd,……………….nth order effects markets will still have to deal with.
Warren Buffet is apparently having nothing to do with this market,
“I would say basically we’re like the captain of a ship when the worst typhoon that’s ever happened comes. We just want to get through the typhoon, and we’d rather come out of it with a whole lot of liquidity. We’re not playing ‘oh goody, goody, everything’s going to hell, let’s plunge 100% of the reserves [into buying businesses]” — Charlie Munger
This also assumes the markets and economy were structurally sound pre-COVID, which, they were not, in our opinion, and we’re in multiple asset bubbles and weakened from the trade wars.
Top Heavy Market
This BofA chart comes to us via the great Kiwi analyst, Callum Thomas @Callum_Thomas. Sure wish the U.S. had his Prime Minister, a strong, decisive leader with brass balls. Have you seen New Zealand’s COVID Curve?
How about a trade, Callum? Four Generals: 2 Four-Stars, General Electric, and General Dynamics for Jacinda? Deal?
The chart is stunning enough but check out the data table.
As of the Friday close, the big five alone make up 17.97% of the value of almost all publicly traded stocks in the United States as measured by the Wilshire 5000. Stunning.
There are an estimated 3500 publicly companies traded and on U.S. exchanges and the pool of public companies is getting smaller even while the population and economy have expanded.
This makes our stock market cap-to-GDP chart above a bit distorted and at current levels even more relatively overvalued than past levels. The following WSJ tidbit is a bit dated but still rings true,
In 1996 there were 7,322 domestic companies listed on U.S. stock exchanges. Today there are only 3,671 – WSJ, Nov’17
The Second Great Gift Of The Magi
Unless we are on the road to runaway inflation, not a zero probability with all the monetization that is coming, this bounce is an incredible gift to rebalance, take some risk off, go to the virtual beach and wait this thing out.
We talked to a lot of traders over the weekend still trying to time the market and trade the noise. Hard to get out even with your stops with 10 percent daily trapdoor moves, fellas (both feminine and masculine). I would rather surf elevator shafts.
The twenty- somethings in designer Nikes and physics degrees just haven’t learned or have enough context to understand monetary policy is now more placebo than economics or that there is a tipping point when the printing presses run too hot.
Moreover, the waters are too rough for us to fish, which we learned as an undergrad working on the swordfish boats out of Newport during the summers. Walking the plank with the harpoon, those were the daze! Unless, the waters in the Catalina channel was too choppy.
Waiting For The Shorts To Capitulate
The info we are conveying here is, no doubt, something you already know. It is the record short interest that is now driving and holding this market up here, in our opinion.
Short sellers have revived their wagers against the stock market in recent weeks, taking their most aggressive positions in years.
Bets against the SPDR S&P 500 Trust, the biggest exchange-traded fund tracking the broad index, rose to $68.1 billion last week, the highest level in data going back to January 2016, according to financial analytics company S3 Partners. That was up from $41.7 billion at the beginning of 2020 and $41.2 billion a year ago. – WSJ
If the central banks were all-powerful, by the way, the Nikkei stock index would be at 200,000 instead of around 50 percent below its Dec 1989 high of around 40,000. Over the past 20 years, the Bank of Japan has bought up just about everything and bailed out everyone, probably including all the country’s sperm banks, yet Japan still has a big demographic problem! Go figure.
When the placebo effect on stocks goes? Yikes!
Upshot
We like to buy low, sell high. Most prices are way too high. It is preservation of capital time until we get to the value zone, folks. Patience, young grasshopper.
Still sitting on the couch with cash and gold. We will let you trade the noise.
Wilshire 500 Fact Sheet
Wonder how all these guys are distorting the Bull bear ratio? Just askin’.
Here’s some homework and learning material for the weekend from the Centre for the Study of Financial Innovation. I haven’t watched the video in full but George Magnus, who I worked with at UBS, is always a must listen and read, folks.
Markets are having a very difficult time multi-tasking during this crisis.
Getting all lathered up about seeing through the first-order existential threat of survival and death — we are very grateful the curves are starting to turn — and not pricing the risks of the second, third, fourth….seventh-order effects is a dangerous proposition.
EU Existential Crisis – Fourth Order Effect
The EU has on the verge of entering another existential crisis, worse than 2011 in political terms, though they do have the ECB backing but with less firepower.
Remember that one? The Euro was almost finished and the financial instability unleashed could have been 100x Lehman.
Emmanuel Macron has warned of the collapse of the EU as a “political project” unless it supports stricken economies such as Italy and helps them recover from the coronavirus pandemic. – FT
EM Crisis – Fifth Order Effect
The emerging market (EM) crisis alone, probably about number five down the line, would have shaved 20-25 percent off the DM risk markets in a normal world.
Steven Mnuchin has defended the Trump administration’s opposition to a bid to provide IMF liquidity to emerging markets that are facing capital outflows, saying it would mostly benefit wealthier nations that do not need the support.
…But the White House is resisting a proposal to increase the allocation of a general “special drawing right” to countries, which has been backed by a number of EU and African leaders as key to the global pandemic economic response. – FT
All that matters is where the Fed’s bid an pass the reefer.
This bear market feels like it is going to play out like none other. We are very comfortable with cash and gold. That’s it. We sleep well.
This one is for CK, a moral trailblazer in her own right and knows how to play and has a great long-game.
We can’t emphasize enough what a Great American Jackie Robinson and moral trailblazer #42 was.
Did you know his older brother, Mack, won a silver medal at the 1936 Berlin Olympics in the 200 meters, finishing second to Jesse Owens?
It wasn’t until 1961 Charlie Sifford became the first African-American player to earn a PGA Tour card, only because,
…under a threat by Stanley Mosk, then California attorney general and later state Supreme Court justice, to bar the tour from the state, the PGA caved in all the way, removing the “Caucasians only” clause from membership requirement. – LA Times
That makes me be proud to be a native Californian but, as a golfer, ashamed of the sport I loved.
Jackie was also a huge fan of the young Sandy Koufax, by the way.
Jackie Robinson…clashed with Alston on many subjects including [how little the manager pitched] Koufax. – Jack Leavy, Sandy Koufax, 2002
Listen to this killer Natalie Cole rendition, Did You See Jackie Robinson Hit That Ball.
Global Macro Monitor 