July 14, 2019
I don’t want y’all to get the wrong idea. This here article ain’t about race relations. It’s too touchy of a subject, even coming from the most woke un-woke guy you know.
The fact is, I have a confession to make. A big one. For most of the last 3.5 decades, I’ve been on the payroll of James Joseph (Whitey) Bulger, the notorious Boston mob boss/informer/fugitive, who died in a federal prison the day before last Halloween.
I can already hear the chorus of “so whats?”. Lots of guys worked for Whitey over the years, thousands of them, tens of thousands of them.
Ah, but my case is different, because, you see, I am among a very small member of his crew that worked for him on both the wise guy and rat side of his business.
I made some dough, yeah, but I earned it. The hard way. Made my bones when I was twelve. I’d share more details about this, but my government plea deal precludes me from doing so.
And I hardly need to tell you that it was a difficult ride. Whitey was a tough boss. A stone cold killer who could give you the Michael/Freddie Corleone GFII kiss for just looking at him funny.
But I don’t think I need to elaborate much here, because, as is well known, we all work for Whitey, every last one of us. Always have; always will.
And we’ve worked for him, like, forever. Consider, if you will, the reality that today marks the 230th Anniversary of the storming of the Parisian Bastille, which (like the signing of the American Declaration of Independence some thirteen year’s prior) is recognized as the beginning of a Revolution. The French Revolution. The Bastille itself was at the time crumbling and largely unoccupied, but the event resonates through the ages nonetheless. And to this day, it’s a national holiday in the Grand Republic.
It came about because a bunch of guys got sick of working for Whitey – in this case, King Louis (Whitey, or if you will, Blancy) XVI. That they had a legitimate beef there was little doubt, because Louis was doing an indisputably poor job of spreading the vig around beyond him, his luscious wife and his immediate crew. So, just like Gotti did Big Paulie for similar reasons nearly 200 years later, Louis Blanc had to go. Didn’t get whacked by some guys in Russian hats in front of Sparks Steakhouse, instead got his head chopped off.
He was replaced by something called the Committee for Public Safety, which created an even nastier set of Whiteys itself, as led my main man Robespierre. Not only did they whack anyone who crossed them, but in the space of less than five years, they actually whacked themselves. All of them.
And so it goes throughout history. One Whitey replaces another, sometimes violently, sometimes not.
And sometimes we don’t even know who Whitey is. But we all work for him. Or her. Or them. Because as illustrated above, there can often be more than one Whitey, and when this happens, all mayhem can break loose.
But if you toil for your wages in the investment racket, at the moment you probably don’t need to know. Whoever Whitey may be, his/her/their reign has been nothing but benevolent thus far into 2019. Our glorious equity indices, as everyone is aware, have surged to new all-time highs, and are showing no particular signs of stopping for a rest. To be fair and balanced, bonds have backed off a bit, as (perhaps to honor today’s Bastille Day Celebration) French yields actually slipped back into positive territory. The USD was also a bit on the schneid. But on the whole, Capital Markets Whitey has been treating us pretty well lately.
Among the many recipients of Whitey Largesse, of particular note are the holders of Investment Grade Corporate Debt. The full on, year-to-date return on the Lehman-cum-Barclays-cum-Bloomberg index tracking this paper is an astonishing 10.34% so far this year, which, even in mid-July, represents the strongest full year gain since those whacky days of 1938 (the first year somebody decided to track this here stuff):
Sometimes, that Whitey can be a really swell guy, ya know? Particularly so when you do what’s asked of you: 1) be a good earner; 2) never rat out your friends (Unless you’re my Whitey, because he had a carve out from this rule); and 3) always keep your mouth shut.
Oh, and there’s one other thing you can do that pleases Whitey to no end: go out and buy up every financial security you can lay your hands on. Because Whitey wants you to hoover them all up. And when he does, you will not need to guess at his next marching orders: you will be instructed to turn said securities over into his own keeping. Because Whitey wants them all for himself.
Whitey of course has many fine qualities, but subtlety is not among them. And just in case you failed to get the message, this weekend, he reached out to some WSJ guys he has on the payroll and had them write an article about European Junk debt trading at negative yields. He even went so far as to force me to put up the following charts in this week’s note:
Let’s keep this on the DL, OK, but sometimes I think Whitey pushes things too far. I mean, c’mon! The average aggregate vig on European slacker junk paper is less than that of the frigging U.S. 10 year note! Whitey: didn’t we just have to fly over there and go the old school route collection on a few of them dudes?
Plus, according to that same planted WSJ article, there’s like Ï3 Billion of junk paper actually trading at negative yields. Who’d you get to buy that crap? What did you do to make ‘em buy it?
On second thought, don’t tell me, because I don’t even wanna know.
Among Whitey’s top lieutenants, none are rising in his favor more gratifyingly than Fed Chair Jerome Powell. Like the good soldier he is, he dutifully faced down the Whitey wannabes in both chambers of Congress this past week and told them yes, of course he plans on lowering the vig. In fact, he plans to do so before the month is out. Good capo, that Powell, and we should thank our lucky stars that he’s doing Whitey’s bidding.
Because there are potential trouble spots ahead, taking the form of the earnings sit downs that begin in earnest this coming week. CEOs (the made guys) and their CFOs (the connected guys) have all been briefed on what needs to go down. They also know that they better deliver, because if they don’t, Whitey has them on notice that he’s gonna be mighty p!ssed.
And just to be clear, it’s not so much about what the Q2 take was, because Whitey already knows it was tough out there this spring. But you better have pretty good news about what the rest of the year looks like, because if not, then Whitey’s boys will be paying a visitation to your valuation, and, if you really b!tch things up, you may find yourselves next to Luca Brasi: sleeping with the fishes.
The estimates foretell of a down quarter, and they keep getting worse. Right now, the consensus calls for an approximate 3% downward boot. On the other hand, when one factors in the average aggregate beat when the numbers actually come in (4.8%), we might avoid bringing the bad news to the bosses after all.
However, in terms of the immediate trajectory for the Gallant 500 and its peers, none of this may matter much. I think most of the risk going into the earnings cycle is idiosyncratic in nature. For any individual company, disappointment is indeed likely to bring about wrath (and I’d advise getting this over with, because, like Don Corleone, Whitey doesn’t like to be kept waiting to receive bad news). But I’m not sure that at the index level, investors will be over-much annoyed. There is a bid everywhere across the financial instrument landscape. Whitey wants it that way. And what Whitey wants, Whitey gets.
I reckon as always we’ll just have to wait and see. I can envision a dip here – in stocks, corporates, govies, but based upon what I’m seeing from my remote, undisclosed outpost in the Witness Protection Program, I’d have to designate any downward action as a buying opportunity.
God I’m jonesing for more action that I’m getting. But that’s what happens when you’re a wise guy turned rat. No sooner do you roll than they put you in a spot where macaroni noodles covered in ketchup is what passes for pasta fazool..
And now, for once, I’m gonna cut it short. I just got a message from Whitey, my Whitey, so I gotta scoot. Yeah, I know that the old man was supposed to have died last October, but I ain’t never saw no proof of that. And even if he is dead, there’s always another Whitey to take his place.
And we all work for Whitey.
And on this here Bastille Day, I offer the following final message.
If you remember that always, from a risk management perspective, you ought to do just fine.