What? We Worry?

What? We Worry?

 

July 7, 2019

 

And so the Madness has ended. And I can’t help but think we’re all the worse for it.

 

For those wondering what I’m talking about, while everyone was working their grills and debating whether America is great or just OK, one of our unambiguously great institutions: Mad Magazine, announced that after 67 years, it will be shutting down its vaunted printing presses for good.

 

It’s a crushing blow, but we have no alternative other than to endure. After all, we survived, after a fashion, the much-lamented demise of the Village Voice last year. Other print icons have and will crumble. Being (albeit somewhat perversely) an optimist, I’m confident that new ones will emerge.

 

But I’m gonna lie. This one stings pretty bad. For my peer group, Mad Magazine was a bible of sorts. Multiple issues lay at our bed stands every night for years. They were next to the flashlight, and we all passed many nights taking in its particular brand of zaniness.

 

It started, of course, at the top, with founders Harvey Kurtzman and Al Feldstein. They had a single subscriber in Haiti, and when they received his cancellation notice, Feldstein flew his entire management team down to Port-au-Prince to talk him out of cancelling. I don’t know if they were successful.

 

One way or another, the magazine shouldered on, from the antiseptic 50s, through the Summer of Love and beyond. It endured the Disco Generation, the Big Hair ‘80s, the dot.com frenzy, the 2001 attacks, and everything that came after. But it became an increasingly hard slog, and a foreshadowing blow came just a year ago, when the Mad Men (and Women) moved their headquarters from gritty Madison Avenue in New York to sterile Burbank, CA. Something died right then and there, and, in retrospect, we all should have known it was the beginning of the end. And now, barely one year later, it’s all over.

 

But in its heyday, Mad was pure satirical magic. No subject was sacred or off limits. When I heard about the shut-down, all I could think about was those great Don Martin “Scenes We’d Like to See” cartoons, where everyone had protruding ears and a cucumber nose. One in particular sticks out in my mind. A knight approaches a castle, and calls, as in days of old: “Rapunzel, Rapunzel, let down your hair, so that I may climb your golden stair. Down comes these love blond tresses, and up goes the knight. When he reaches the top, he encounters a bald man with blond armpit hair that reached to the ground.

 

Not even Shakespeare reached such heights of tragi-comedic pathos:

And of course, the Magazine’s perpetual protagonist: the cat-ate-the-canary-grinning, gap-toothed Alfred E. Neuman, was a transgenerational superstar. He was a dead ringer for George W. Bush, and more recently was compared to current presidential candidate Pete Buttigieg.

 

His signature phrase “What? Me worry?” became the touchstone for three generations. And even today, in the wake of the tragic tidings of printing presses going silent, the rhetorical question is resonant.

 

So I ask my readers “What? We worry?” Is this golden rally that has traversed the entire first half of 2019 sustainable? Or is it nothing more than the overgrown underarm hair of a captive geriatric?

 

I think these are fair questions, and the hard truth is that we don’t really know the answers.

 

The Gallant 500 and the divisional forces of Captain Naz and General Dow gathered themselves, in patriotic frenzy, to surge to records during the holiday-shortened July 3rd session. And bonds. Oh. My. God. The U.S 10 Year Note, the one with the big fat coupon of 2 3/8th, surged to 103 ¼ on the same Wednesday, throwing off an unthinkably Shylockian yield of 1.95%. In perhaps a show of gratitude to those dead presidents that grace our units of account, the USD also staged a heartwarming rally.

 

And I’m pleased to report that all of these droplets of love managed to work their way beyond our shores and across the Atlantic Ocean. Also on the 3rd, a fortnight before the big national celebration of the Grand Republic, published reports confirmed that IMF Chair Christine Lagarde would indeed succeed (Super) Mario Draghi as ECB Chair. And, in celebration, I ask each of you to join me in a robust “viva la France”. Madame Lagarde will be only the 4th holder of this vital seat, and of course the first woman.

 

However, she will be the second person of French nationality to occupy the post. My math indicates that 50% of the ECB chairs are now French.

 

Madame Lagarde has a very colorful history, and just a couple of years ago she was found civilly liable for a criminal Ï403M IMF payment to a shady businessman. No matter, she is, by all estimation, a monetary dove, and perhaps on this basis alone, global investors decided to bust out some joie de vivre.

 

It all came crashing down, albeit modestly, on Friday, when investors turned a menacing eye to a boffo June Jobs Report. And you know you’re in a pretty strong rally when investors interpret good news as being bad news. So the ~225K Non-Farm Payrolls number did indeed socialize some selling, but nobody’s hearts were in it. Bonds backed off to a positively usurious 2.05%, and the Gallant 500 yielded 20 basis points from its pre-holiday all-time-highs.

 

A review of the punditry suggests that the big jobs gains take the option of a 50 basis point cut by the Fed off the table for the July meeting. 50 basis point cut? You must be joking me. What in God’s name do those in the half-percent camp hope to accomplish? For me this is, was always, a Hard No. But what do I know anyway?

 

So, with all of this in mind, should we channel our inner A.E. Neuman, or should we be worried?

 

I reckon we’ll find out soon enough. My current hunch is that July will be a barn-burner with plenty of two-sided volatility with which to contend. And it should all start this coming week.

 

At the top of the list of concerns that run contrary to the Neuman Principal will be Q2 earnings, and even more importantly, back-half-of-the-year guidance. Even before the proceedings begin, analysts are projecting a drop of 2.6% on a year-over-year basis. If this calamity does indeed come to pass, it will mark the first time in three years that the American Corporate Juggernaut has experienced back to back quarters of negative earnings growth.

And all of this with stock prices climbing to the heavens. For the visually inclined, the situation can be summed up as follows:

Not necessarily the best look for those among us with bovine dispositions, now is it?

 

But not, on the other hand, necessarily a cause to answer the eternal Neuman question in the affirmative – yet. Because as I have argued repeatedly, the scarcity of investible securities is acute and growing. I’ve said this before, but just look at the bid on bonds. Then watch the parade of merger, acquisitions and buybacks.

 

All suggest to me that at least for the time being, higher multiples can be justified. This can only continue for so long of course, and when it ends, well, I don’t want to think about it. But I don’t see it ending anytime in the foreseeable future.

 

I am worried, however, about the dreaded guidance factor, and I can promise you this: any CEO stepping to the podium foretelling of bleaker prospects for the back half of the year than are currently expected must gird their loins. They are likely to bear witness to their stock valuation being gutted like a fish.

 

And then, of course, there is no greater clarity on the International Trade front than there was before G20. We did postpone some nasty tariff increases; otherwise we would not be looking at record highs. But I ask anyone with any clairvoyant insight into what happens next to please share it with me. On second thought, don’t bother. Because none of us knows sh!t about what happens next.

 

One way or another, though, the Central Banks are almost certain to react to any downturn with aggressive stimulus, and my guess is that Madame Lagarde is sitting with itchy trigger finger to do something of this nature. But she’ll have to wait. Draghi won’t be packing his bags till October.

 

Thus, while stocks and bonds could back up, if they do, I’ll be recommending a shopping spree.

 

In general, I’m not gonna worry about much for the moment, and instead focus on mourning Neuman and Company’s heartbreaking departure from the journalistic landscape. However, while I grieve the end of his run, I will try to remember that I myself evolved at some point beyond my Mad obsession. At approximately age 14, I replaced my night-time reading materials with other periodicals. They still contained fair damsels, but their hair did not emanate from their underarms, and their noses did not look like pre-vinegar pickles. I moved on, and so must we all. So my final answer to the “What? Me Worry?” question is as follows:

 

Exactly.

 

TIMSHEL

 

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