About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Thursday, April 23, 2020

Sotto Voce -- "Acceptable Deaths"

Pressures to re-open the US economy continue to grow. Thanks largely to the many Covid policy
failings of Team Trump, the quantum leap in various testing procedures needed to minimize flare
ups in the virus as the economy moves to open gradually and selectively are still absent. A range
of low population density states that are anxious to re-open will, if they proceed, have to do the
random testing as well as the business unit testing 'on the fly'. There will likely be flare-ups in
areas of these states, and deaths will occur.  This development will put governors in a very tight
spot as folks come back to work amid fresh outbreaks that may tax smaller regional health care
systems and require heavy remedial action. If the setbacks are not large, selected states may
move ahead with opening plans, and returning workers may be forced to gamble their lives upon
return so as not to lose their livelihoods. These local scenarios will play to a national audience
and increase the tensions and fears of the workforce. Local level safeguards galore will be needed
to mitigate the rising caseload if pressures to return to reinstating 'stay at home' policies rises

On a national level, it would appear to be prudent to attempt to re-open the economy only
gradually and in a very coordinated manner to contain the virus damage as best as possible.
I do not know if cautious, slow programs to return to normal will undermine investor confidence
or whether markets players will 'keep the faith' through a long ordeal. I would not be shocked
to find continuing market volatility that flows from advances and setbacks along the road to

Tuesday, April 14, 2020

Deflation Pressure

I have used an inflation directional pressure gauge for nearly 50 years with good results. It
became a deflation pressure gauge over 2008 - 10 and that is what it has turned into again
recently. Basically, I watch the longer term momentum of commodity price composites along
with measures of economic slack focused on capacity utilization rates. The deflation pressure
gauge is signalling the rapid development of downward price pressure currently. So far, the
readings have not been as serious as in 2008 - 09, but we could still be early in the game. Back
in 2008, the vulnerable credits were short term, such as asset backed commercial paper. Over
$2 trillion in short term credits were wiped off the books back then with large bailouts needed for
finance companies and insurers. This time the weakness is in longer term credits ranked  BBB
and lower.

Here in the US, the Fed has jumped in and is providing massive amounts of liquidity to the
money and credit markets. Companies across a wide range of industries are also drawing down
their lines of credit at the banks. Fortunately for now, banks have maintained ample liquidity, so
there is private sector credit still available to worthy borrowers. On top of that, fiscal policy is
providing credit to smaller borrowers.

So, as I read through my e-inbox, I see a decent level of investor confidence that the Fed and
fiscal policies will provide sufficient back-stopping to ward off a spiral of deflation induced
debt liquidation .

This situation still demands close monitoring as programs to open economies may prove far
more complex and time consuming than we can readily foresee, with the consequence that
default risk may increase more rapidly than we now envision.

My 12 yr. long pressure gauge is also evidencing deflation pressure as few economies  have
been able to run flat out for long, with this coupled with the fact that the CRB Commodities
Index is now trading nearly 70% below its 2008 peak. I hope not, but there could be some
debt chickens from way back when that may come home to roost.

Monday, April 06, 2020

SPX -- Scaling Out Of This Rally

Even in a fully traumatic longer term crash, The initial rally can cut the first leg of the
decline by half. That would be around 2800 on the SPX . The 2800 level also would equate
wth fair value under fully normal conditions. We are far from normal times, so it is time for
me to exit and concentrate on what's next at my leisure.

In Wiley Coyote fashion, stocks recently went off the cliff, and shorter term, forward looking
economic indicators have done so as well. With 'stay at home' orders in effect across most of
the US and a number of foreign countries as well, all in the context of a debt laden global
economy with plenty of economic slack, it does not tax the imagination to foresee the start
of a deflationary depression replete with widespread and enabling defaults.

Central banks have their windows wide open and fiscal policies are turning very liberal, all to
limit the damage while nations struggle to contain and eventually bring the covid-19 to heel.
As we all know well, this is a tall order for a variety of reasons tied to the ugly nature of the
virus itself.

Like most everyone, I am hoping for succes over the next three to four months so the 'stay at
home' orders can be lifted and governments can begin the work of re-opening economies in
a way that can minimize future substantial flare-ups.

As time goes by, popular sentiment to re-open economies will strengthen and leaders will have
to be firm against this blowback lest economies hit the throttles prematurely and crash health-
care systems.

SPX Daily