A Funny Thing Happened On The Way To The Forum
Tragedy tomorrow
Comedy tonight
The Italian elections are looming. They will rise over the Coliseum on Sunday. Many have ignored them. I have not. I hope you are prepared for the outcome. I do not believe that most people, and institutions, are correctly set-up for what may be forthcoming. Unlike the United States, the focus is not on the parties, but on the coalitions. I expect trouble in this chariot race and I have done what I can to warn you. The Romans may be in Revolt!
Every new beginning comes from some other beginning's end.
- Seneca the Elder
Elections, you know, can be tumultuous occasions. The chirping of the Elite gives way to the desires of the common man when an election takes place. Those in power, without doubt, want to remain in power, but when the outcome of the election is announced it is found, quite often, that the reins have been turned over to others and that the direction of the new leaders is not the direction of those who ruled previously.
What we have here, you see, is not the Italian elections standing alone, but their influence on the construct to which they belong. The people in Rome and Tuscany do not seem to be overly pleased with the bureaucrat's orders emanating from Brussels, but being written in Berlin. The European Union could face considerable strain from Europe's third-largest economy, if the Berlusconi crowd rises to the top of the heap. The Five Star Movement also poses significant issues.
Beware the Ides of March. The forthcoming question may be "Et tu Silvio?"
There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat;
And we must take the current when it serves,
Or lose our ventures.
-William Shakespeare, Julius Caesar
Speaking of "ventures," the American markets have been having a few of their own recently. Higher yields and lower equity prices and now President Trump's call for tariffs on steel and aluminum. The later, a "shot heard around the world," as everyone from Canada to the EU joins the chorus of rejection and retribution. I expect there will be carve-outs to come but we shall all have to wait and see. I do NOT expect some sort of trade war to ensue. Cooler heads will prevail.
In any event, gone are the days of wine and roses for the equity markets, in my opinion. In their place are shots of Tequila and crab grass, as investors feel the pinch of the nine-year equity rally fading. The Fed has been cutting their balance sheet and raising rates and the stock markets are careening as yields head higher, as a result.
The implosion of volatility-related products and the danger of a trade war, only add to the rancor caused by the Fed's actions. Recent manufacturing data from Europe to China to Japan are not helping either. The S&P 500 has changed 0.9 percent a day since January, triple the average of last year. Should the market volatility stay elevated, the spike in daily variations would be the biggest on record, according to Bloomberg data. This is not something you should ignore.
Fasten your seatbelts, it's going to be a bumpy night.
- Bette Davis
I believe it is going to be all about the cash for 2018. If you have it then you can not only ride out the bumps, but take advantage of them. In the case of the closed-end funds, most of which pay monthly, unless the sponsor changes the dividend, lower prices generally equate to higher yields which provides for a greater cash flow than the month before. "Cash Flow Investing" is one strategy, there are others, but whichever one you choose it is going to be the availability of cash, in my view, and the prudent use of it, which will provide the winners at the "Great Game."
It is easy enough to see the past and hard enough to see the future. The playbook has changed. I invite you to now embrace the future because the past is no longer a reliable guide. I do not see volatility ending any time soon, given the current Administration and the make-up of the Fed. These two make strange bedfellows, indeed. Toss in the European banking mess and the politics in the European Union and an old Missouri saying, the place where I grew up, comes to mind.
"Ride 'em Cowboy."
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