Edgar Allan Poe was intimately familiar with our deepest, dreaded fears. In Poe’s characteristically dark The Cask of Amontillado, the murderous main character Montresor, lures the inaptly named Fortunato to his death. Montresor believes he is exacting revenge upon his noble peer for a grave insult and entices the drunken Fortunato with the promise of a select sampling of a rare vintage Amontillado.
At one portentous point in the stumbling journey to the cellars, Fortunato, dressed in a jester’s motley, makes a secret sign of the “speculative” Freemason brotherhood. Montresor does not recognize the gesture but refuses to deny that he too is a Mason. Proof is demanded prompting Montresor to produce a trowel from beneath his robes, evidence he belongs to the original Freemasons, one in the same with those who built the medieval cathedrals. Shaken, Fortunato exclaims, “You jest!” but pride blinds him to Poe’s brilliant foreshadowing. You see, that trowel would soon be used to entomb a living and breathing Fortunato making Montresor a Mason in fact.
Who knew that Poe, best known for anything but jesting, gave us “Surely you jest!” to use at times when we need to express ironic incredulity? And yet here we self-described and deeply derided nattering nabobs of naysaying sit, peering into yet another recessionary reprieve. Thanks to recent dollar weakness, U.S. manufacturers appear to have caught their breath. That same decline in the value of the greenback, which has fallen in five of the last seven weeks, has placed a floor under commodities, which have rebounded smartly. The recovery, especially in oil prices, has unleashed joyous jubilation in the junk bond and stock markets. Are we last-standing contrarians being sent to our curmudgeonous corners?
Before getting ahead of ourselves, let’s consider what triggered this relief rally in the first place. That is, dollar strength, rocket-fueled by the currency war raging among our developed country peers and turbo-boosted by the Federal Reserve’s December rate hike. The resulting growth recession in profits and pullback in manufacturing persisted for long enough to infect the U.S. services sector. That last straw, along with some depressing retail sales figures, was sufficient to scare the Fed to the sidelines, which was what the markets were jockeying for all along.
So has the world economy avoided the foolish jester Fortunato’s fate? Blackrock, which reigns supreme as the biggest money manager in the world, certainly seems to think so. Sell your Treasury holdings now, Richard Turnhill, the firm’s chief investment officer, has instructed the masses, before it’s too late. Of course, Treasuries are perceived as the ultimate safe haven asset class, after gold of course. It stands to reason that if we have no recession to fear, there’s little reason to settle for Treasuries’ paltry returns.
