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Here is my appearance on CNBC World Wide Exchange today:
Things you need to know
- Xi Xi -strikes back – hits farmers, Energy suppliers, Industrials and the Treasury
- Mkts buckle under the weight – The Dow pierces both its 100 and 200 dma but manages to hold on
- Nasdaq and Russell lose over 3%
- DT vows to fight on – refusing to bend
OK- so it was a tough day…..but you could feel it on Sunday evening – when futures started to trade – Dow, S&P, Nasdaq all lower at 8 pm EST – as the news started to take shape……and the selling overnight led to selling during the day…..stocks opened weaker and then got weaker from there……it was shaping up to be a disaster – and so it was written….by midday – indexes were lower by nearly 3% before finding some level of comfort only to rally and then get slammed again. By the end of the day -the Dow had pierced both its 100 and 200 dma’s (not bullish) – giving up 617 pts or 2.38%, S&P gave up 70 pts or 2.41%, the Nasdaq choked on 270 pts or 3.41% (and that makes a lot of sense) and the Russell 2000 fell by 50 pts or 3.18%.
By now I assume you heard the news – China is going to retaliate on the US…..remember that last week – Donny got a hair across his backside and announced (via twitter) that he is upping the ante on the Chinese and raising tariffs across the board with the potential to raise even more on $325 bill worth of other goods if they don’t come to the table and negotiate in good faith – recall that the mkts had a bad day last Monday and a bad week as well – as this news permeated global mkts….. .then it settled down – as everyone tried to play nice in the sandbox – the Chinese Vice Premier comes to DC – and makes nice…..and then they leave and on Friday – China announces that they are not happy and are considering ‘retaliatory tariffs’…..and while we talked about it all day on Friday – by the end of the day the mkts seemed to ignore all the negatives and we saw the indexes all go positive as the 4 pm bell rang – leaving many to wonder if the whole thing was just a show….
And then on Sunday (in a repeat weekend performance) Xi Xi takes to airwaves – (Xi Xi doesn’t do twitter – he breaks the news the old fashioned way – via the newswires and the newspapers) – in it he vows to take revenge against DT….as China strikes back – hitting US farmers (again), then energy, then hitting industrials – suggesting that they wouldn’t be buying any Boeing aircraft….. and then they launched ‘the nuclear option’ – threatening to stop buying and then liquidating their US treasury holdings in favor of German Bunds……Now think of this – China owns about $1.1 tril of Treasuries – or 5% of the $22 tril of outstanding US debt obligations….and the thought was that if they just start selling indiscriminately – the price of treasuries will fall (not good for the balance of the Chinese holdings – because you are not just gonna call up a banker and say – ‘Make me a bid on $1.1 tril of a treasury portfolio) – sending yields soaring – which maybe would disrupt the US economy but that would not be a smart move at all…. And while this news made headlines across the globe – the sense is that no one really thinks they will do it – it’s self-destructive.
So I ask –
Why is anyone surprised? The tone of the headlines drove the smart logic algos crazy….. China told us that they were going to retaliate – we knew what that could have included and then some – and in fact – they are throwing it all at the table – Farmers, energy, Industry and US Treasuries…..and the list goes on. Expect mkts to reprice the new risk – the new uncertainty that now exists…..
Look – the mkts had rallied back to the old highs and then made news ones in anticipation of ‘the deal’…..well that deal is now is real jeopardy, the idea that we are close to getting a deal is now over – the next potential meeting is at the G20 in June in Japan, which isn’t really a meeting at all – it’s a time to take photos and kiss babies – so investors around the world will now reprice risk based on the new outlook – With that being said – we can all expect that the algo’s will overdo it (as usual) – as the pendulum swings too far to the left….but until we get any clarity at all on the trade headlines – investors and algo’s will continue to respond to the headlines. So what is the right price for stocks now?
Stocks are trading at 18.4 X’s trailing 12 month earnings ($152.97) or 16.4 X’s 12 month Forward earnings ($171.57)…if the story line changes – then the inputs have to change as well – so will stocks trade at 16 X forward earnings? And if that is the case then the S&P 12 month target becomes 2,745 (16 X $171.57) and we closed at 2,811 – capisce? And if forward 12 month earnings estimates come down – then the story gets more dramatic……Oh, It is a tangled web we weave…… and you can see how ugly it gets if both those numbers keep getting revised downward because of a stalling economy blamed on a trade war…..
As the news continues to be dynamic…..the action will become as much technical now as headline driven….as we approach the 100 dma at 2775 – this will be KEY……if we test and fail – then expect the algo’s to light it up and pound the mkt with a new wave of sell orders…as we ‘break down technically’. And if the administration doesn’t move – then we could slice thru the 200 dma…..and go into a December like Free Fall…… I’m not sure anyone wants to see this, but remember – the FED has gone dovish on us – and that has also helped the mkts recover…but the FED can’t stop the insanity completely – you can ‘t expect the FED to design policy around the likes of Donny and Xi Xi – they have to remain focused on the economy – not on the personalities…..
My sense is that we could see anywhere from a 5% – 10% pullback on these headlines…..and we are already at a 5% move off the top so another 5% is not out of the question…and btw – is still considered within the range of ‘normal trading pattern.’ So while it feels uncomfortable – it is not the disaster that the headlines would have you believe right now. And look for the silver lining….there are some good names that have gotten or will get unnecessarily beaten up……and it is those names that provide the opportunity going forward. This is not the time to panic at all…..Stay the course….commit to your plan – hold down the fort.
Oil took a hit yesterday as well….falling over 1% as the China news hit the tape…..this after oil spiked higher by 1.6% on word that oil tankers were under attack off the coast of the UAE (United Arab Emirates) in the strait of Hormuz – a ‘vital oil export waterway’ – by the end of the day – the US Maritime Admin said that the attacks couldn’t be confirmed and ‘urged caution’ – oil immediately fell out of bed and ended the day down 1.3% at $60.84…..finding support at the trendline. Overnight – we have seen a slight rebound in oil – as cooler heads prevail but ongoing trade drama will be the driving force for oil and other commodities as it is for global stocks.
Overnight in Asia – stocks took it on the chin….following suit with the US. Xi Xi – did say that his target date is June 1st – leaving what some think is an exit for both leaders to come to the table, negotiate and save face in front of the world….both sides will need to look like they won – yet both sides will need to compromise a bit in order to win….Japan 0.59% , Hong Kong 1.54%, China 0.64% and ASX 0.92%.
In Europe – mkts there are all higher as the sun rises over the Caspian Sea, the Black Sea and the Mediterranean Sea… It appears as if the mkts in Europe are trying to stabilize in light of the pressure suffered in the US yesterday. Was the reaction overdone? Is there a way out? It appears that the mkts are reacting to the news that Donny continues to predict that trade talks with China will be very successful – as he tries to paint the latest moves as a positive. There is also plenty of individual company reports and news – but the overwhelming driver is all the talk over trade and what is next. FTSE +0.72%, CAC 40 + 0.91%, DAX + 0.61%, EUROSTOXX +0.75%, SPAIN +0.47% AND ITALY +0.46%
US futures are up – .S&P futs now reflect a rise of 15 pts in early trade while the Dow is up 100 pts, the Nasdaq is rebounding by 54 and the Russell 2000 is adding on 12 pts as the US mkts try to stabilize, Overnight – Treasury Secretary Stevey Mnuchin said that we are still negotiating with the Chinese (did anyone tell Xi Xi?) and Donny hit the Twittersphere saying that the US is in a great positon and expects to know something in 3 or 4 weeks………The administration has started the legal work to impose add’l tariffs on another $325 bil of Chinese goods – although Donny has not yet decided if he will impose them – (but the clear threat is there).
Look for the S&P to hold yesterday’s lows (2801) – that would be viewed as a positive…. if we fail and turn lower, a swift test of trendline support at 2775 is next….this will be KEY……a failure here will ignite the algo’s and a wave of fresh sell orders (driven by the passive investment style of ETF’s) will wash over the mktplace. The next trendline support is at 2752….and if the rhetoric heats up and gets nastier – we will slice right thru that like a ‘hot knife thru butta!’ Upside is limited to the trendline which was support but is now resistance at 2862.
Take good care.
Spicy Hunan Style Beef
Very appropriate for the mood – since this dish is HOT, HOT, HOT. ( I called up a Chinese friend of mine to get an authentic spicy beef recipe).
Now – I haven’t tried this as I am allergic to hot peppers – makes me sweat and that isn’t pretty at all…..
For this you need: Beef tenderloin cut into bit size strips, Hot Green and Red Chile Peppers, pickled yellow peppers, chopped celery, chopped garlic, ½ tsp ginger, salt, soy sauce, and peanut oil.
For the marinade you need: Rice wine, soy sauce, 1 tblsp flour, s&p, sesame oil
Cut the beef into thin slices – and place in a bowl with rice wine, soy sauce, flour, s&p and sesame oil. Mix well and allow to marinate for 20 mins.
In a wok – heat up some peanut oil until it gets really hot, now add in the beef and fry for about 1 min – remove and set aside.
Add more oil to wok – fry garlic, ginger, and peppers. Next add celery – season with s&p. Add back the beef and a dash of soy sauce and fry for 30 seconds. Serve with white rice.
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