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Things you need to know

  • It’s all about trade

 US stocks followed the pattern that had been seen round the world yesterday…..with the exception of China which lost nearly 6% on Monday – the rest of the developed mkts around the world were off just around 2% – plus or minus a bit as investors tried to digest and understand the latest move by Donny…..with US futures showing losses of 1.7% – 2.11% early Monday –   you could feel the anxiousness in the mktplace……and as we braced for the opening bell – talk of a circuit breaker levels once again permeated the conversation…..How much damage could be done before the mkt would be halted?  (The answer is 7% before the first halt would happen) but we were not to worry –  the disaster that some had predicted did not happen (yet) – yes the mkts opened lower – the S&P opened down 37 pts at 2908– and tested a bit lower (2898)  from there, only to find its footing before starting a slow climb back, cutting losses significantly as we learned that Vice Premier Liu He was in fact still planning on coming to DC on Wednesday to continue trade talks……recall that part of the selloff was fueled by the rumor that the Chinese weren’t going to come back after the tariff announcement, that they were going to let Donny stew, and part of the selloff was the fact that continued trade tensions would ultimately take its toll on the economy…..….so the mkt waited for confirmation one way or the other….Were the Chinese going to come back or not?  As the morning turned to afternoon word had it that China Airlines Flight 004 would arrive in Dulles as expected so that trade talks could continue as planned – and the mkt ‘roared’ back – ending the day lower but well off their lows…the Dow lost 67 pts or 0.25%, the S&P gave up 13 pts or 0.45%, the Nasdaq (the biggest loser) lost 40 pts or 0.50% while the Russell 2000 actually managed to end the day in POSITIVE territory adding 1 pt or +0.06%. 

 Look, the mkts do not want to continue down this path – but at some point you have to hold their feet to the fire – you can’t threaten and then back down – it’s like when the child tests the limits of the parent – if you threaten and don’t follow thru then they got you……– you have to bring it to a head and move on…which is what Donny was trying to do – now you may not like that tactic but what’s the alternative?  Just letting it continue?  Isn’t that exactly what we are trying to fix?

 Maybe the Chinese realize the reality is setting in….they can’t do an about face on FTT (Forced Technology Transfer), Intellectual Property Rights (IPR) and Cybersecurity concerns…..the deal that they want is not going to happen and the deal that we want most likely will not happen – so the answer lies somewhere in the middle – which means apparently that there is still a fair amount of work to be done – and if Liu He doesn’t get back to the table quick – then the fire only gets a bit hotter.  And even last night  – Trade Representative Bobby (Lighthizer) confirmed that tariffs are going to 25% on Friday one way or the other and if no further progress is made then the add’l tariffs on $325 bil worth of products would hit the tape as well…..and so it was written…..

 I have to say – I was a bit surprised by the resilience in the mkt yesterday – Trumps Tweet on Sunday was the perfect excuse for a pullback –  a pullback that could take us to the 50 DMA at 2854 or down about 3%  – which would not have been out of the question (and still might happen) but don’t forget – we still have a Dovish FED that has our backs as well and investors/traders knows this.  Remember – mkts do not like surprises – they can deal with negatives, but they do not like to be surprised and while this latest paragraph has created some volatility – maybe it means that the tone had become too complacent – and while we may ultimately get the deal, the road ahead can remain rocky.    

 And while the tone changed a bit overnight it is still unclear what the outcome will be…..China added 36 pts or 0.98% on Tuesday , but recall they lost over 200 pts or 5.71% on Monday….  Hong Kong added 153 pts or 0.52%, ASX rebounded by 12 pts or 0.19%, the only loser was Japan (closed on Monday) so they  gave up some 335 pts or 1.50%… they were just playing catch up.   

 In Europe – mkts there are mostly lower again – while there is some corp earnings news and some German macro data – none of it is really the driving force for the broader mkts…..the tone and the action is being driven by the next headline concerning trade. The assumption now being bandied about is that this is just Trump being Trump, and nothing more.  Yes, will he drive tariffs up on Friday – well he better now since he has threatened- otherwise he’ll look impotent – and impotence is apparently not something he wants to be known for.  But could there be a way out so that neither side appears to have lost?  Of course – but that means that there has to be some real movement in the next couple of days.  FTSE -0.90%, CAC 40 – 0.56%, DAX – 0.45%, EUROSTOXX -0.55%, SPAIN +0.05% and ITALY +0.54%.

 US futures are once again lower this morning as trade tensions remain elevated……yesterday’s action broke the near term trend so the mkts will whip around a bit to see if the lows from yesterday are going to hold.  Dow Futs are down by 130 pts, S&P futs down 14 pts, Nasdaq down 47 pts and The Russell off by 8 pts. A break of Monday’s lows will set up to test the more formal moving avg trendlines….and those levels will the ones to watch over the next couple of days as we muddle thru this latest mess.  A breach of the trendline will cause the ‘smart logic’ algo’s to raise cash and all that means is that the ‘passive’ investor will become a seller creating opportunity for the nimble active portfolio manager/investor.  There is nothing on the data front that is going to change the tone of the conversation today – so it will be all about the next move on trade. 

 Key trendline levels to watch on the indexes: Dow 26,086, S&P 2,854, Nasdaq 7,813 and the Russell 1,564. 

 Take good care –


Linguine Arrabiata

 And how appropriate for today……- this sauce is simple to make and gets it anger from the red chili pepper…..You can serve this with any type of pasta you want – but spaghetti or linguine is best.  

 You will need:  olive oil, onion, garlic, red wine, sugar, crushed red pepper (or chili peppers if you want hot, hot, hot), lemon juice, oregano, s&p, crushed tomatoes, tomato paste and chopped parsley…..

 Bring a pot of salted water to a rolling boil –

 In a large pot (or deep sauté pan) on med-hi –  heat up olive oil and garlic…. sauté a bit – but do not burn – 3 mins or so….now add sliced onion and sauté until soft – like 5 mins more.  Next – add ½ cup of red wine, ½ tblspn of sugar, fresh squeezed lemon juice (about 1 tblspn) , oregano, bit of tomato paste and a 28 oz can of kitchen ready crushed tomatoes (not in puree – just crushed tomatoes), crushed red pepper (or crushed chili pepper if you prefer) – bring to a boil and then reduce to simmer and cook for 15/20 mins….

 Add the spaghetti to the boiling water and cook for 8 mins or until aldente – strain – reserving a mugful of the pasta water.  Return pasta to pot and add back about ¼ cup of the pasta water to re-moisten.  Stir…..Now add pasta directly into the sauté pan with the sauce – toss well – add a handful or two of grated parmegiana cheese and serve immediately in warmed bowls.  Enjoy with a nice bottle of Brunello di Montalcino.  Always have extra cheese on the table for your guests.