July 21, 2019
Did you really think I would ignore this? If so I’m disappointed in you, and a little bit in myself.
Because as your risk shepherd, I am duty bound to protect my flock, and anything that threatens my lambs is a matter of solemn priority for me. If I have failed to make this clear, well, that one’s on me.
So when the ionosphere exploded with news that aliens were arriving – not the kind that have turned into the biggest political football this side of the Dirty Dossier, but actual space creatures – and the call came forward to meet them head on in the famous (infamous) Air Force testing sight known as Area 51, I was certainly compelled to fully investigate the threat.
For those of you not in the know, the entire episode was socialized on a global basis through that infallible information forum known as Facebook. Late last month, an invitation was posted there to meet these extraterrestrial creatures in desperate engagement, and over 1.5 million patriotic souls answered it. The number is growing, and even now, perhaps hundreds of thousands of our fellows are making arrangements to either countermand the threat, or at least observe the spectacle.
Published reports have subsequently revealed that the whole thing was a hoax, perpetrated, with no malice aforethought, by a clever California resident named Matty Roberts (Matty R to his friends). The United States Air Force has not offered much in the way of comment, other than to: a) assure the public that it has matters under control; and b) warn everyone to just stay away.
But are you really gonna rely on the USAF’s word alone? I mean, didn’t they leave all those planes as sitting ducks in Pearl Harbor in ’41 (strike that; it was the Navy that done that)? True, all of this is transpiring on the Golden Anniversary (plus one day) of our spectacular conquest of the moon, as led by a group of trained Air Force fighter pilots/engineers the likes of which grace us maybe once in a century.
But Armstrong is dead and pilot Mike Collins is living out his last years on an island off the Carolina Coast. Buzz Aldrin is making the rounds, milking his moon walk for all it’s worth, and god bless him for that. He’s still a feisty sumb!tch, who evokes images of an older version of George C. Scott’s portrayal of General Buck Turgidson in the Stanley Kubrick’s remarkable film: “Dr. Strangelove”. But his wits are wandering, and I just don’t feel comfortable trusting his judgment on this here alien invasion thing.
So, consistent with my mandate, I checked out Area 51 myself, located as it is in Lincoln County in the Southernmost portion of the Nevada desert. Didn’t see much, and nobody would speak to me. But remember, I’ve been doing this risk management thing for a long time, and my professional judgment is that there’s little to worry about. Earthling technology at its best can only reach Mars in the space of seven months, we have very advanced satellite surveillance, and I can assure you nothing is emanating from that quarter of the solar system. So, worst case, the hundred-eyed devils won’t be here for quite a while, and if they can indeed menace us with a speed-of-light invasion, well, then, I don’t think there’s much that even the marshalling of all of Facebook’s 1.2 Billion users (including several million cats) can do about it.
But I was never one to rest on the comforts of a clean, visible horizon. So I decided I’d better check out Area 52. Now, in mathematical (if not geographic) elegance, the Air Force does indeed have such a designation: for an even-more secretive aeronautical testing ground. It also is in Lincoln County, but (like house numbers on the streets of Tokyo) it is not explicitly adjacent to 51. It resides, in fact, to the North and the West, in what is known as the Cactus Flat Valley.
Didn’t see nothing of interest there either.
But as long as I was in the hood, I thought I’d investigate Area 50, and it turns out that the Air Force doesn’t even control such a region. Instead, it falls not even within the jurisdiction of the Department of Defense, but is jointly overseen by the Treasury and the Federal Reserve Bank of the United States.
This, I find, is where the secret market experiments take place, and, try though I did, I was unable to even determine its precise location. Further, I’ll save you the time and effort that I myself wasted, and inform you that a Facebook search of Area 50 will bear little fruit.
As a matter of divine coincidence, Facebook actually discloses its earnings this coming week, in a critical reporting season now 20% of its way to completion. Thus far, it’s no worse than what modest fears suggested, and maybe even arguably a little bit better. The banks were hardly gangbuster, but they didn’t ruin the party per se. Microsoft also clocked in with numbers which, if they failed to delight, at least did not over-much disappoint. There were some bad misses: NFLX told a story of pathos that broke as many hearts as did the ending of that (recently cleared) Kevin Spacey show, the name of which I forget. Boeing pre-announced a $4.6B write-off (they don’t report until Wednesday and it will be anticlimactic), and investors took their actions constructively.
But as the big dog risk manager I offer the following admonition: Boeing better get those 737s back in the air soon, not only for the health of their valuation, but also because if we’re wrong about this alien invasion thing, we’re going to need it to be “wheels up” for every tin can we can mobilize.
The real drama of the earnings cycle begins this week, as, in addition to Facebook, we face the prospect of the leaders of Amazon, Google and even such critical backbenchers (oxymoron alert) as Nvidia taking their turns in the white lights. As mentioned in prior installments, I think that investor infrared missiles and projectiles will be trained much more directly upon back half guidance than they will on the actual results themselves.
If we get through these spectacles no (or not much) worse for the wear, they maybe we’ll be OK for a spell.
But all of this brings to mind concerns about what else they may be cooking up in Area 50. And I wish I had better answers for you. Plainly, interest rates remain under pressure, with non-US government debt hitting new lows (the hangover from Bastille Day, for instance, took the French 10-year back to new lows of approximately -0.07%).
The FOMC doesn’t even meet until Wednesday week, but has already pretty much telegraphed a 25 bp cut. If they stand pat (which I think they should but won’t), it could be a scenario of look out below.
And yes, everyone is nervous. Perhaps more than they should be. After all, we live in a world where a farcical Facebook post about a space invasion can mobilize over a million of our numbers.
Other signs of stress emanate from the FX markets, with the prime example coming from the EURJPY cross rate (which for reasons that I have never fully understood, has served as a long-time barometer of the level of concern among smart investors as to the risk inherent in the capital markets):
OK; I get it. I myself am expecting 45 to turn the heat up at any time on Chairman Xi and his crew, if, for no other reason than he can. As I’ve stated previously, the most maddening thing about this very maddening guy is his inability to avoid sh!t stirring for as much as an entire day. I think that if he hasn’t tweaked somebody’s (anybody’s) nose within the space of a few hours, he starts to break out into a rash. Now, during the dog days of summer, I have a hunch that the Chinese might be an irresistible target for the big guy.
The markets won’t like it if this happens. But I have another theory that increases the likelihood that such a stunt may be in the offing. Specifically, my guess is that Trump and Xi already have a deal arranged, but are slow-walking the timing. As noted in prior installments, any paper they sign will be worth neither ink nor electronic pixels. But it will remove the risk of an escalating global trade war, which they can’t afford and neither can their, er, constituents.
But I feel that Trump will want to time this announcement for political purposes, and that means maybe next Spring. He may, in other words, be saving it for a rainy day. As he observes the circular firing squad in which his electoral opposite numbers are engaged, he might just be smart enough to have figured out that only one person can stop his re-election, and that is the Trumpster himself. If nothing untoward transpires in the economy, if no big wars, natural disasters or space invaders arrive on the scene, it ought to be a milk run. Certainly the market is telling him so; would the prospects of a Bernie or Liz presidency be otherwise consistent with current assaults on all-time highs?
But this economic recovery is nothing if not long in the tooth, and, on the odd chance that it starts to go tits up, say, in Q1, then a Chinese deal would be one heck of a remedy. In the meanwhile, why not stir some sh!t?
It is also for these reasons that I believe the Area 50 guys and gals will up their game in terms of suppressing the specter of corporate defaults. Corporate America owes historic amounts to the banks, and some of them are in a weak position to honor these markers. But I think that any bank holding this wiggly paper would be ill-advised to do anything but engage in a Trump Casino-type renegotiation/refinance. This is particularly true for any indenture whose declaration of failure would catalyze a loss of jobs across the great expanse of this nation. So my advice to the banks is as follows: ignore bad financials to indebted employers in the United States. Otherwise, you may have some permanent company: in the persons of examiners from the SEC, FTC, IRS, NRLB, NSA, and on and on.
And my bankers, know this: God help you if the Area 50 crew shows up in the reception area. I know enough about them to offer assurances suggest that it won’t be a pleasant interlude for you. You already know this, and I’ve no doubt you’ll do as asked, so I think the credit bubble and the interest rate vaporization will continue on for, say, a few more quarters.
So, as for the rest of us, I think it’s time to relax a bit. I can reiterate that 51 and 52 are all clear. And as for 50, my strong conviction is that it’s denizens are looking out for our interests. At least for now.