Beware Complacency After The Ides Of March

We all know the saying, “History doesn’t repeat, but it often rhymes.” Yet, there’s that other, which is a bit older and bit less remembered, “Beware the Ides of March.” For those not familiar, it is the day Julius Caesar was assassinated. (e.g., March 15, 44BC)

The “Ides” basically refers to the mid-point of what were deemed “the long months” via the Roman Calendar, hence the 15th for March. But it’s in a play by Shakespeare where one sees the real cautionary tale that is applicable today, just as it has been for over two millennia. Here’s a brief description, for those not familiar:

Caesar is warned one day by a soothsayer to, “Beware the Ides of March.” When the day arrives Caesar happens upon this person again and mocks, “Well, the Ides of March have come and nothing’s happened.” (Implying that her call for caution was now throughly debunked.)  And it’s here, in her reply, which clarifies the salient point, “Yes, the day has arrived, but is not over.”

The rest, they say, is history. For we all now know how that day ended for Caesar.

So here we are some two thousand years later and what can we deem from the above? In my assessment: Plenty.

We are now barreling through a month of March like no other in recent memory. The “markets” are (once again) within spitting-distance of their never-before-seen-in-human-history highs. The February scare that pummeled many a volatility trader into near extinction has since been jettisoned from all memory, along with all the profits they acquired.

If you watch. read, or listen to most mainstream business/financial pundits (which I can no longer do) last February appears to not just be fading in-the-rearview-mirror, but, now viewed as ancient history, never to repeat, never to again see the light of day, a one-off. i.e., Volatility? Smuckatility! Just: Buy The F’n dip! (BTFD) Don’t over think it, you’ll just miss out. Rinse, repeat.

Works like a charm every-time, all-the-time. Sure does, that is – until it doesn’t. Just ask all those prior “genius” short volatility traders what a difference a day makes like that back in February to all those years of “Winning!” Hint: Rhymes with insolvency.

So what is so different about this March as opposed to others, one may be asking? Fair question, so let’s look at a few, shall we?

This current March is now following a month that also saw history made: The largest ever point decline, in a single day, in the history of the markets.

This day just so happened to align in near lockstep with two things: 1) The Fed’s balance sheet actually began to decline in earnest. 2) Right as the door swung after Janet Yellen left the Eccles Building. Coincidence? That’s up for you to decide. But ponder the causation vs correlation implications thoroughly and carefully would be my recommendation.

What followed that historic event? Why what else than what history has shown us year, after year, after year: BTFD! And if it’s a historic one? Back up the truck, semi-trailer, coal-cars, containership, earth-movers, and any other vessel that will hold an equity and hit the “Buy, Buy, Buy” button till your fingers bleed.

And yet, if one looks at the underlying buying, one sees the only ones that seem to be doing all that “buying” are corporations buying back their own shares. The public? They bolted, as in, S-O-L-D all those falling ( previously “winning!”) shares. As I iterated above, all this BTFD fury this time, has a much darker undertone. i.e., Whose buying this dip and why? Which brings us back to “The March” tale.

We are now in what’s known as an OPEX week. For those not familiar, what it denotes is that this is a week when options expire. (i.e., Think where bets were made and payouts, or pay-ups are due depending on what print the day ends at.)

These weeks are notorious for wild price swings that can, or will use any event (even if it’s meaningless) to move markets in one way or another as to close positions in their favor. The most common is probably the “short squeeze.” And this recent “bounce” has all the tell-tale signs of being just that, exacerbated via corporate repurchase incentives. Yet, that’s not the only possible driver.

At the end of the month we also have another impending reason to be watchful of these “markets.” March is the Quarter end for option expiry. Think of taking the above and turning it up to “11.” The movements sometimes are far more pronounced, as well as coming from out-of-the-blue. However, just like a late-night TV infomercial, “But wait…there’s more!”

Smack dab in the middle of these two is the Federal Reserve’s March FOMC (3/20-3/21) meeting with its new Chair, Jerome Powell.

To say this new Chair is going to be under a microscope is truly an understatement. Try more like an electron-microscope. And that’s just for his pre-written remarks. For his presser I would tend to think Wall Street has purchased something from DARPA on the grey (maybe black) market and will slice, dice, and extrapolate every possible twitch, syllable, or passing glance that suggests something (anything!) which can be fed into the algo’s HFT severs and front-run.

Yes, dear reader, the back half of this March is indeed – like no other in recent memory. For as treacherous as the above sounds, it pales in comparison to what maybe coming along with it.

The Fed. is supposedly not only going to continue its tightening process, but is also about to accelerate it as the year goes forth. And, the Fed. is not only expected to raise rates at this meeting, but has been sending out signals that maybe more hikes, and at a faster pace may be forthcoming.

Wall Street expects a hike of 1/4% or 25 basis points. It’s quite possible that Mr. Powell could set the tone for a-new-sherriff-in-town and convince the others that staying on the path of three is more appropriate, but let’s make the first one 1/2% (e.g., 50 basis points) and see how the “markets” handle the shock, using the balance of the year to asses and evaluate. For they can always pause after a surprise 1/2%, right?

I’m not saying it’s going to happen. But what I am saying is this: If you aren’t weighing the chances of, and have a plan on how you might react in the wake of it? You aren’t thinking. Period.

Remember, just because one doesn’t “trade stocks” doesn’t mean you can disregard the “markets” if you’re in business. For you can’t – what happens there can impact you or your business far greater (think credit freeze) and quickly (think banking freeze) than any time prior. And that’s just two of a myriad of possible disruptions.

No matter what rosy-picture the so-called “smart set” wants to try to paint about this up and coming meeting, one thing needs to be remembered. An unknown quantity (yes, unknown as in, they’re now the Chair or Boss) has been elevated into the most important position in regards to the “markets.” (I’ll content, the entire economy) And this hopefully “ready for prime-time moment” is happening directly before a Quarter end, and directly after a historic downdraft that happened to coincide with the prior Chair exiting.

Here’s, what I feel, one should takeaway from the above…

Let’s just say, rather than remembering all the, “Buy, Buy, Buy!” recommendations you’ve heard shouted incessantly since February – the remainder of the month might leave you reflecting on all that wisdom by the next-in-rotation fund manager cabal with the words that were last said by Caesar that fateful day.

For if there is any fall-out this cabal will appear across the financial/business media landscape (as sure as day will follow night) and one-by-one change their tune using contortions that would make a chiropractor wince, to show how they always said “this would end badly.” Hence, should hold no blame for making any prior recommendations.

Those words?

“Et tu, Brutus?”

© 2018 Mark St.Cyr