They Used To Pull The Bull Out, And They Used To Eat It

I’ve said it before, and I’ll say it again: I love reading copy sometimes.

“Hitting a big level in markets used to mean something on Wall Street,” Bloomberg’s Sam Potter wrote, in the very first sentence of a piece published Friday afternoon.

I know quite a few people who write for mainstream financial media outlets, but I don’t know Sam. He does follow me on social media, though, and hopefully he’s got a sense of humor. Because as soon as I read the line quoted above, I couldn’t help but picture Bill Murray standing in front of the tree stump with a bemused Andie MacDowell looking on: “Groundhog Day used to mean something in this town, they used to pull the hog out, and they used to eat it.”

If you’re a market bear or a cynic or just someone who’s predisposed to sarcastic derision (to quote SocGen’s Albert Edwards), you’ve probably spent a good portion of the last eight months delivering rants in the fashion of Phil Connors, Murray’s character from Groundhog Day: “Global depressions used to mean something in this town, they used to pull the bull out and these used to eat it.”

While the longest bull market in history did, in fact, perish in March, the rebound in equities (and credit, for that matter) was so ferocious and so swift, that it barely made sense to talk of a “bear market.”

It’s true that the summer rally was a “haves” and “have nots” affair, but November’s pro-cyclical rotation helped rectify some of the inequities created by tech’s historic melt-up. For example, the Russell 2000 is on track for its best month in history, and the Dow hit 30,000, a milestone Donald Trump called “sacred” during a dejected-sounding press conference this week.

The overarching message from Bloomberg’s Potter is similar to something I’ve said repeatedly this month — namely that we may have hit the point of diminishing returns when it comes to good news about the future, even as the “here and now” reality (so to speak) remains somewhat depressing, with lockdowns, coronavirus infections, and, yes, actual deaths, likely to cast a pall over the holiday season.

Many say a post-Thanksgiving spike in COVID-19 caseloads is inevitable in the US. With cases already averaging nearly 175,000 per day, a worsening of the trend could conceivably see the country logging more than 200,000 new infections on a daily basis. Deaths — that most macabre of lagging indicators — are still generally rising, as are hospitalizations, which long ago passed records hit during the first two waves.

At the risk of sounding pessimistic, it’s hard to see how the vaccine news could get much “better” from here. Readouts from Pfizer and Moderna were as good as it gets, and there are lingering questions about AstraZeneca’s shot.

The supply-side logistical hurdles to mass vaccination are well-documented, as are the demand-side issues. And yet, consensus has now generally coalesced around the view that major developed economies will hit the 50% threshold for inoculation by May.

As a reminder, vaccination is a partisan issue in the US (figure below), a highly unfortunate state of affairs that speaks to a number of deleterious societal trends.

In his Friday piece, Bloomberg’s Potter went on to say that “these days, each bullish watershed makes an ever-smaller splash.” He was referring to the same “diminishing returns” dynamic visible in, for example, a weaker rotation “impulse” on successive vaccine headlines and the US yield curve’s inability to steepen materially, despite the normalization narrative becoming more plausible by the week.

My sense is that we’re now in deus ex machina territory when it comes to catalyzing additional euphoric moves. News that Janet Yellen will be Joe Biden’s Treasury Secretary was a good example. That prompted a readily ascertainable risk-on impulse, and while it wasn’t totally surprising, it did fit the dictionary definition outside of the “unexpected” part: “An unexpected power or event saving a seemingly hopeless situation, especially as a contrived plot device in a play or novel.”

In this case, the “hopeless” situation is a future state where D.C. gridlock increases the odds that the US repeats the post-financial crisis experience, wherein an insufficient fiscal impulse (and pretensions to outright austerity) left monetary policy to shoulder the burden of sustaining the recovery, with predictable results (e.g., widening inequality and financial asset bubbles).

Yellen is seen as a force that could prevent a repeat of those mistakes, especially given that she was, of course, directly involved in the situation.

Traveling back to Punxsutawney, Phil would ask: “Do you ever have déjà vu, Mrs. Lancaster?”

Hopefully, the answer is “no” vis-à-vis the policy conjuncture that prevailed for most of the post-GFC era. But “I could check with the kitchen.”