In June 1950, Walter Bahr, a 23-year-old junior high school physical education teacher from Philadelphia, led the United States soccer team to a 1-0 victory over powerhouse England in the World Cup. Walter was team captain and player-coach. England was widely acknowledged as the best team in the world.
At dinner together the night before the game, England roasted the U.S. team. Raising their glasses they confidently toasted to what they said would be a crushing 8-0 victory. But with some luck and a U.S. goal just before halftime, Bahr launched a 25-yard shot that grazed the head of a diving teammate. The win is still considered the greatest upset in World Cup history.
As a kid, all I wanted to do was to play soccer for Penn State. I’d go to every game, including the one in the photo where Coach Bahr handed the game ball to PSU goalkeeper, Dan Gallagher in the late 1970s. Coach had little interest in a local kid but my big break came in a state cup match at the old Veterans Stadium in Philadelphia. Walter attended the game. I was named MVP. I later learned he made the selection. The following Monday I got a call to come to his office. That was a good day.
I was young, self-absorbed, hitting the books, thinking about girls and competing on field. Coach would pace the sidelines wearing that Italian cap. I knew nothing of his background then. Embarrassingly, I remember a teammate telling me about the England win and I was floored – how could I not have known. I’m up to speed now.
Coach made sure we focused on doing the little things right… consistently. You can imagine the farthest thing from my mind in 1981, at age 20, was what was going on in the bond market. Yet that year marked an important peak in yields. Interest rates spiked higher and the 30-year Treasury bond yield peaked that year at just over 15%.
That was opportunity. Today we are at the polar opposite side of the secular cycle. Few were seizing that 1981 opportunity. Why? Because inflation was out of control and the thinking was rates would move even higher. Do you remember Volker’s “WIN” — whip inflation now buttons? Right.
Then, everyone was selling and should have been buying. Today, everyone is buying and should be selling. Crazy how that works. I’m pretty sure you’re fighting some of this headwind with your clients. One look at the year-to-date money flows and the winner? Bond funds and ETFs. Backwards thinking! Investment madness!
Why is this on my mind? I found myself in a soccer dream last night with Coach Bahr, wearing that odd Italian cap, pacing the sidelines. If the cap stayed on you did well, if he yanked that cap off, you soon found your rear end planted firmly on the bench. In my dream, the hat was coming off and he was rubbing his head… frustration on his face.
I’m not sure if it was my fear of being benched (maybe, as that happened more than I’d like to admit) or was it interest rates and that recent Italian Referendum “No” vote that’s been on my mind. I can see it in my mind now: Coach Bahr yanking that Italian cap off his head telling me not to miss the interest rates move and don’t be fooled by the Italian Bank head fake. Or else… bench. Something that holds true in real life. Game over…“Finito?”
OK, Coach. On it.
Several years from now, I believe we’ll look back and see that the secular low in yields was made in July 2016. As for the Italian Banks, and the global banking system for that matter, “whatever it takes” is shifted front and center once again. Keep a close eye on the days ahead.
One last point on the recent global macro event. It’s not just the Italian banks. With $2.5 trillion in total sovereign debt outstanding, Italy is the world’s third largest sovereign debt market.
Unlike Greece, Italy matters! The Italian economy is simply too big to be saved with repeated ECB and IMF bailout packages.
Courtesy of “The Daily Shot”
The Italians don’t seem like they’re in the mood for change. Not sure they are focused on getting better. It will likely be forced upon them. It will get worse. An Italian credit event will domino through Europe and on to the rest of the global economy. What the ECB does in the short term might help but it won’t in the long term. I’m not biting on the head fake.
Below you’ll find highlights from Bill Gross’s latest letter, a few cool charts including one on inflation and some concluding commentary. Grab a coffee… I hope you find the information helpful.
? If you are not signed up to receive my weekly On My Radar e-newsletter, you can subscribe here. ?
Included in this week’s On My Radar:
- Global Debt Crisis – “Red is the New Green” by Bill Gross
- A Few Fun Charts – Well, If You Can Call Inflation Fun
- Concluding Thoughts and a Personal Note
- Trade Signals – Investor Sentiment Too Many Bulls; Zweig Bond Model Sell; HY Buy; Equity Trend Evidence Bullish (posted 12-7-2016)
Global Debt Crisis — “Red is the New Green” by Bill Gross
Bill Gross’ Monthly Investment Outlook (December 6, 2016). Here it is… fun and worth the read:
I’ve got nothing against national anthems, and I wouldn’t kneel even if I was Colin Kaepernick. I just think as a country, “America the Beautiful” might have been a better choice for ours and that in some cases, some words of “The Star Spangled Banner” don’t ring true. A few countries’ anthems are, in fact, quite pleasing to my ear. “O Canada” has a beautiful melody and words to match, although you’d probably have to be watching hockey to hear it. Our “Star Spangled Banner”? For me – not so much. I can sort of see the “rockets’ red glare”, but it’s hard to sing and quite long – especially if you’re waiting for the kickoff. But like I said, I have nothing against it, except maybe the last stanza. Not the “Home of the Brave” part. Having spent two years in Vietnam, ferrying Navy SEALs up the Mekong Delta, I witnessed a lot of bravery. Not me. I was duckin’ quicker than Bill Murray’s gopher in Caddyshack. The SEALs though. Yeah – tough guys – very brave.
I quarrel however, with the part about “Land of the Free”. Free? For almost all of us – “yes” – but for 3+ million of us? Not really. Take a look at Chart I, and be honest if your eyes don’t bug out. More than any country on Earth – in total numbers, or as a percentage of the population, Americans are incarcerated, imprisoned – freedomless. Of course there’s a legitimate explanation for many of them,