What is there to give thanks for at Thanksgiving?
Come lunchtime today, tens of thousands of operatives on the trading floors of Wall Street will be packing up and heading for the airport. Not that millions of other Americans won’t be doing the same but there was always something special about the way in which the floors depopulated until everybody was gone. Some will be back on Friday for the dog watch, but it will be pitifully few, most of them foreign colleagues who have no family living locally or for whom Thanksgiving doesn’t mean the same. Amongst many of the traditions surrounding this auspicious all-American festival is the one which determines that markets are supposed to close on a positive note. Today that might not be too easy.
In a further tradition, President Biden yesterday pardoned two turkeys. Chocolate and Chip will now be carted off to North Carolina State University where they will, so we are told, “join the science programme”. I wonder what that means when it’s at home? And tomorrow millions of families will sit down together for their turkey dinner. Many might then find themselves wondering for what it is this year that they are to giving thanks? 2022 has so far been a miserable one and the chances of it being rescued in the remaining five weeks are slim. It had started out so well with stock indices seemingly taking the tightening monetary policy environment in their stride. And then on February 24th, Vlad Putin launches the Russian army into Ukraine. Few of us thought the sabre rattling around Ukraine’s Eastern borders would result in full scale war. Then we, just as the Russian high command will have done, thought Ukraine would crumble within weeks. For reasons known only to themselves the Ukrainians had failed to read the script and as at today, November 23rd, there is no end to the fighting in sight. The disruption which the conflict has caused is immense although to those sitting around a table in Wichita, Kansas or Des Moines, Iowa or Texarkana, Texas and Arkansas, respectively, the Ukraine conflict has in fact had only a modest impact. By and large Americans can both feed and fuel itself and for that they could all be giving thanks. But few will see that. What they will see is rising prices all around and gas at just under US$ 4.00/gallon.
They could also be giving thanks for the rebound in stock markets. Not that the year-to-date hit hasn’t been painful although the sentiment is strong that the lows have been plumbed and that the time has come to be getting long again. That, I don’t think, is such an easy call. Sure, the Dow has had a remarkable recovery. Having marked a high on January 3rd of 36,952 pts, it steadily went hell and by September 30th had fallen as low as 28,660 pts. Then, as if by magic, a silver lining appeared in the Federal Reserve’s tightening cycle and as at the close of business last night the index had regained more than half of the losses to close at 34,098.10 for what is a rather modest 12 month decline of 4.27%. Let’s raise a glass to the resilience of American markets.
Maybe not so fast. The posterchild of American inventiveness and innovation, the Nasdaq index, is down 28.58%, year to date and even the good ole’ S&P500 which cognoscenti apparently take far more seriously than the arcane Dow Jones, has shed 16%, year to date. That is not pretty in anybody’s book and unless one happened from early January to have been sitting on a pile of cash and had conveniently fully deployed it on September 30th there is little to celebrate. Bond investors have not had much fun either as yields have continued to rise in line with the Fed’s monetary policy tightening and again, unless one had cashed out in good time things have been torrid. Credit spreads have continued to widen although so far defaults in any other than the high-risk junk bond space have so far remained constrained.
Investors are strange animals, and few are stranger than the private variety who have the tendency to regard the highest price which an asset has ever marked to be the one to remember and against which all future prices are to be compared. Seasoned wealth managers keep on repeating that it is time in the market and not market timing which their clients should focus on and that they should take both sharp rises and sharp corrections in their stride. The clients sit in their broker’s office, nod knowingly but then forget everything they have been told as soon as they leave the building. They had been warned again and again that the high-flying FAANGs (or MAMAA as Jim Cramer has renamed them) were floating on a sea of cheap money but too many of them could not resist the call of the seemingly endless rally. I can excuse them. I cannot excuse, however, the army of CFAs, MBAs and PhD’s who persisted in writing research papers which justified the ridiculous valuations. It is not all that long ago that Tesla was trading at a four-digit P/E ratio.
How many thousands will have lost their life savings – or at least a goodly portion thereof – in the FTX fiasco can only be guessed at but let’s face it, comparing Sam Bankman-Fried to Bill Gates or Steve Jobs as many had done already looked crazy before the fall and now with hindsight even more so. I was tickled by the words of my dear old friend Alex Moffatt of J Palmer & Sons in Melbourne who wrote in his own daily piece “One last thought, I see around 40,000 crypto “investors” are contacting the administrators of the failed FTX exchange wanting their money back. Clearly those involved had little to no understanding of the risk versus reward equation when it comes to investing. If one seeks very high rewards which most crypto investors do, then they assume a very high level of risk. It brings to mind the words of the Marquess of Montrose just before his execution “He either fears his fate too much, Or his deserts are small,. That puts it not unto the touch. To win or lose it all.”
Meanwhile, both Republicans and Democrats will be wondering what it is that they have to giving thanks for. If ever there been a case of both sides losing an election, then this month’s mid-terms were a prize example. The thought of a rerun of a Trump vs Biden presidential race in 2024 is scary beyond belief. The thought of Trump vs Harris even more so. This is not the time to speculate on the chances of Ron DeSantis displacing the Donald although it might be worth remembering that Trump floated to the top in 2016 by splitting the opposition within the GOP and be being the last man standing. He doesn’t need the backing of more than half of the party to again win the candidacy. He just needs to persistently have more backing than anybody else. As far as the Dems are concerned, they truly need to start again and to bury the vocal, woke and divisive left of the ilk of AOC. At the same time, they would be advised to stop seeking their next FDR. There is no New Deal waiting around the corner. At 128% debt/GDP it isn’t going to happen. When FDR did it, the figure was just 40% and by the time the States entered the war in 1941 it had in fact not risen but fallen to 38%. Jack Kennedy was not wrong when in his inauguration speech he famously coined the phrase “Ask not what your country can do for you. Ask what you can do for your country”.
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