The Lesser of Two Upheavals — The Fate of the U.S. Stock Market

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This week, I welcome back George Goncalves who many of you have come to appreciate as @bondstrategist on Twitter. In this Quill, George is donning an equities hat to help illustrate how inextricably the rates and credit that define his acumen are linked with the stocks we track so closely.

We’ve all got our outlets. Just ask Sting who managed to weave Greek mythology and Faustian demonology into a tale of escaping the vise grip of a vicious vixen. Expunging the memories of a bad relationship via the catharsis of songwriting gifted his adoring fans with “Wrapped Around Your Finger,” in Sting’s words, “a spiteful song about turning the tables on someone who had been in charge.”

If you’re unfamiliar with the lyrics, the first line of historic note is, Caught between the Scylla and Charybdis; Hypnotized by you if I should linger.” Odysseus, you may recall, faced a dilemma en route to his home from the Trojan War. Securing safe passage for himself and his seafaring men required threading the Strait of Messina which separates Italy from Sicily. On one side Scylla awaited sailors. The nymph cum giant with six heads, each with three rows of shark-like teeth, devoured whomever dared cross her path. Charybdis was on the opposite side, a whirlpool that sucked ships down whole. Sacrificing the few to Scylla for the whole was the only choice to be made — a lesser of two evils.

A few stanzas down, Sting has gained some confidence, chiding his tormenter with, Mephistopheles is not your name; But I know what you’re up to just the same.” In J.W. von Goethe’s Faust, the devil’s Mephistopheles character is debonair, detached and detracting, a lobbyist of materialism and repudiator of morals. But it is his relentless campaign to corrupt and contaminate the protagonist (insert Sting) that is his undoing. The darkness led to light. As irresistible as the temptation was, salvation was ultimately achieved by resisting and conquering first the inner and ergo, the outer demon. In the end the tables lyrically and literally turn as servant becomes master and the tune segues from “I’ll be wrapped around your finger,” to “You’ll be wrapped around my finger.

Perhaps the moral is that triumph can emerge by embracing the devil you know. In the case of U.S. investors, they think they’re doing just that, leaning on the same fawning Federal Reserve that, against all odds, bailed out investors in the Great Financial Crisis (GFC). Surely that beats allowing markets to clear of their own volition. In this case, indulged investors had better hope they are right. The only reason they can’t identify the other devil is because they weren’t alive during the Great Depression. When placed in that context, the GFC is a devil you’d invite in for dinner and a drink.

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Danielle DiMartino Booth is founder and Chief Strategist at Quill Intelligence

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