Quatro de Mayo

I married Isis on the fifth day of May, But I could not hold on to her very long
So I cut off my hair and I rode straight away, For the wild unknown country where I could not go wrong

Bob

As we’ve nothing (in my awareness at any rate) more productive to do, let’s wind the clock back 164 years, and transport ourselves to the Puebla de los Angeles, located immediately northwest of Mexico City and some 4,000 kilometers southeast of our own City of Angels -- the town referenced in the Doors song about a lonely woman on the freeway.

The Second French Intervention into Mexico is under way – as driven by a desire on the part of Napoleon III to collect debts upon which the deadbeat Mexicans were said to be welching. On May 5^th, against superior numbers and vastly more modern weaponry, the Mexican army held a couple of forts and forced the French to retreat to the little-known spot of Orizaba in Vera Cruz. The French subsequently regrouped and took Puebla, Mexico City, and, ultimately, all of Mexico, but this action was rendered moot a few years later, when, after the Civil War, the former withdrew from the latter entirely.

And this is why Americans, on the 5^th day of May, get shitfaced on Corona, Mezcal and Jose Cuervo. Cinco de Mayo is, in fact, much more widely celebrated in the United States than in Mexico, and perhaps justifiably so, because no nation can transform events of marginal significance into a ritualized orgy of revenue for commercial retailers and of consumption for the unwashed masses, like the United States.

So be it. Because, in addition, and apart from being the anniversary of the hero in our theme song, the 5^th day of May is the 6^th birthday of my 3^rd grandson and namesake. And for this, may we be truly joyful.

But enough about all that. Let’s turn our attention to today – Quatro de Mayo, which, among other things is my half birthday (gifts optional).

Oh, and in terms of its lead in, what a strange interval it has been.

Over the past week, we can tell of several milestones. For instance, on Thursday, the Committee for Responsible Federal Budgets reported that as of March 31^st (Treinta y Uno de Marzo), and for the first time since the conclusion of WWII, our National Debt has exceeded 100% of GDP.

The news came on the heels of the Q1 GDP drop itself, which clocked in at a higher-than-expected-but-still-somewhat anemic 2.0%, and of accompanying Inflation measures remaining stubbornly high -- at 3.5%. Which, in addition to its energy component, derives also from elevated agricultural prices (in which we all presumably have a stake), and, as such, hits us right in breadbasket:

Also, that morning, the BLS’s reported tally of Initial Jobless Claims (189K) was the lowest since 1969.

The preceding day featured outgoing Chair Pow’s swansong turn with the FOMC gavel, which he’s yielding to the Presumptive Kevin Warsh. He used the opportunity to inform us that he’s sticking around – on the Board and the Committee – presumably in part to annoy his nemesis at 1.6K Penn Ave.

As expected, they held rates steady, but in verisimilitude, the vote was 8-4. However, for the first time in 35 years, the dissenters themselves were dissenting in a bi-directional manner.

Trump’s bagman Stephen Miran voted to cut (which he will continue to do until either he turns tits up or the Dems take over the White House and Congress), while three others checked the “raise” box on their ballots. As Chair War(sh) takes command, it ought to make for, if nothing else, interesting theater.

Investors, as everyone is aware, shrugged it all off -- to push indices not only into record territory, but also to generate the best monthly performance in years. Cornel Naz (currently bucking to trade his eagles for stars) dazzled in particular – producing the highest gains since 2002 – when the markets were putting in that historic V-bottom in the wake of the dot.com bubble crash.

Though no one can know for sure, boffo earnings are the likely key catalysts for the rally. With 3/4ths of the process in the books, we’re looking at the best quarter in several years. And even better for humanity, hedge funds went along for the ride. It’s fat times for the capitalists, which, in and of itself, offers another cause for rejoicing.

Because, to update a 1953 quote attributed to then-General Motors President Charles Wilson, what’s good for Citadel, Millennium, Bridgewater, Point 72, etc. is good for the nation.

Perversely, though, the now year-long rally has transpired contemporaneous to a dramatic decline in dividend yields, now at an all-time low of 1.1%

I reckon it’s another sign of the changing times, because the above-mentioned General Motors had a long history of putting forth generous dividends.

Which I like, as it is essentially a company paying you to own its stock. Time was, you could build a portfolio around dividends and do quite nicely.

But it’s all so blasé. isn’t it? There are better ways for corporate chieftains to deploy their cash nowadays. Such as buying back their stock, and, in doing so, joining forces with the massive but un-named ballers seeking to own the whole market.

All of which leads this newly minted 66.5-year-old spit-baller to suspect that there’s more upside on the horizon. Corporate America is tunning it and will do even better if we somehow manage to open the Strait of Hormuz. There is skepticism on the Street, however, as TACO (Trump Always Chickens Out) has been replaced by NACHO (Not a Chance Hormuz Opens) – all a propos of Cinco de Mayo.

But I disagree with this assessment. Hormuz will open, and Trump will claim it as the greatest victory since Appomattox, conveniently forgetting that: a) the channel was wide open before all this nonsense: and b) the residual geo-political problem will persist, if not expand.

But Crude will trade down to ~$70/bbl, and investors will gleefully continue to buy what they can.

It may all begin on Monday, Quatro de Mayo. And, if so, you all have my permission to get drunk on Tuesday. If you can and do, hoist one for my beautiful little Grant’s sixth.

Just remember, though, that by Wednesday, it will be Seis de Mayo, followed by Siete, Ocho...

…And so on, and so on, and shoobie doobie do.

At some foreseeable date, geopolitical concerns will wax abundant, our levered-to-the heavens economy will splutter. The burgeoning debt bubble might burst. Elections this November and (perhaps) two Novembers hence may usher in policies that many of us will find unpleasant.

And even now, there are dozens of political initiatives aiming to seize our wealth and place it in the hands of bureaucrats with an agenda. And of all the risks we face, this may be the most concerning.

But on this Quatro de Mayo, with market arrows pointing every direction as long as it’s upward, and the Dos Equis chilling in the walk-in refrigerator, a more uplifting vibe seems appropriate.

Be forewarned, though: I’ll be watching.

So, don’t overdo it.

TIMSHEL