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Monday – August 12, 2019

Things you need to know

  • Mkts under pressure this     morning
  • Unrest in HK
  • GS sours on growth
  • Gold continues to surge     on all this angst.

  So – what a week it was and for many – they are glad that it is behind us…from Monday’s plunge to Tuesday’s surge , Wednesday’s plunge to Thursday and Friday’s attempt at stability – it was a week for the books – yet, What I will say is that there was never a sense of real panic at all….it  almost feels like investors (as a group) appear to be taking it all in stride.  And taking it all in stride includes the recognition that the US bond mkt appears to be in a race to zero – zero yields that is –  as the idea of this global recession takes on new meaning….Central banks around the world moved to cut rates last week –  essentially screaming ‘Lower for Longer” as these countries deal with the reality of this slowdown. 

 The move lower began with the US Federal Reserve rate cut two weeks ago – a cut that while expected was not appreciated by the President – as he wanted a bigger cut than what the FED delivered… in a move to create chaos and push the FED to move again – Trump announces new tariffs on Chinese imports effective September 1st.  These imports include cell phones, computers, apparel, toys, dishwashers, ovens, stoves, washing machines,  dryers, golf clubs, golf shoes and the list goes on… notice that these new tariffs will hit the consumer right between the eyeballs…..and while some think that the odds of these tariffs actually being implemented is low – the fact is that the threat of such tariffs is creating a new narrative – a narrative that screams of a global slowdown and this caused Thailand, New Zealand, and India to cut rates (Wednesday) while Australia, the ECB (European Central Bank) and the BoJ (Bank of Japan) are all expected to follow within the month with Mexico ready to cut rates this coming Thursday. .  Recall that Europe and Japan (and other nations) already have NEGATIVE interest rates which means that the investor PAYS those banks to keep their money on deposit!   

 And while these cuts in rates is meant to stimulate those economies the ongoing negotiations between the US and China is making the global slowdown more pronounced and of course – the new normal in global economies is not helping…..Broad macro forces, low inflation, caused by globalization and automation is changing the landscape and forcing global rates lower.   Now the US is one of just a handful of countries that is still offering positive rates for investors and that is causing a massive shift in global asset allocation… evidenced by the performance of the US bond mkts this year….But remember – as the  Fed cuts rates it just means that they have less room to keep cutting – as a recession fighting tool – before we have zero rates ourselves.  And then we have to start asking how low can rates go before we start a deflationary spiral if a recession becomes a reality.  (Remember that deflation caused by lower demand was the curse of the great depression.)

 So by the end of the week – after all the drama – the Dow was lower by 0.3% the S&P fell by 0.7%, the Nasdaq was off by 1% and the Russell fell by 1.3%.   Comments about trade late Friday by the President forced the mkt lower – as he threatened the upcoming September meetings saying that “We’re not ready to make a deal, but we’ll see what happens”.    So the idea that we were getting a trade deal anytime soon is NOT happening. 

 So over the weekend – there wasn’t much drama between the two nations – but our friends at GS are now cutting 4th qtr growth forecasts…. – as the ‘trade war trigger recession fears’ – Financial conditions, policy uncertainty, business sentiment and supply chain distribution all contributing to the cut in forecasts saying that “Fears that the trade war will trigger a recession are growing”  ……Wow….can you believe it?  GS is telling us that the trade war is going to have a larger than expected impact on the US.  (Didn’t they also tell us that oil was going to $90/barrel earlier in the year?).   In addition they confirm that the new tariffs WILL go into effect on September 1st and that we should not expect a trade deal BEFORE November 2020…….(US elections). 

 Overnight more protests in Hong Kong – resulted in the closure of the airport – disrupting travel across that continent and around the world.  Chinese officials now saying that the city was at a ‘critical juncture’  – meaning what exactly?  This has caused European mkts to do an about face and go from positive to negative as concerns over the future of Hong Kong and the Chinese reaction is front and center.   China has set the Yuan at 7.0211/dollar – once again exceeding the psychological 7 level – a level that caused last Monday’s meltdown.   In addition the Europeans are watching the unfolding drama in Italy as Deputy Prime Minister Matteo Salvini’s – League Party filed a No-confidence motion that is now set to take down the gov’t.  (Remember that Italy has had more than 62 gov’t in the 74 yrs since the end of WWII)  FTSE – 0.41%, CAC 40 – 0.41%, DAX – 0.39%, EUROSTOXX – 0.22%, SPAIN – 0.68% and ITALY -0.01%.

 US futs are all down…..Dow lower by 200 pts, the S&P down more than 15 pts, the Nasdaq off by 38 pots and the Russell giving up another 6 pts.  Unrest in Hong Kong, continued trade tensions, warnings from our friends at GS,  the race to zero by global central banks not helping the tone.  Not to mention the internal damage done to the mkts last week….Recall that the Dow industrials,  the Dow Transports and the Russell  broke all 3 trendlines of support while the S&P and Nasdaq came very close to testing. That being said – the mkt has some work to do before we can sound the all clear signal…..and while the indexes all bounced off the lows – my sense is that this is temporary….and that any push higher will be used as an opportunity to sell and take some money off the table and set aside for lower prices in the coming weeks.  Remember – August/September and October are very volatile months of the mkts….and with all of the angst – expect this year to be the same.  But remember – with rates this low and going lower – stocks do have support built in…… I suspect that we will see more thrashing around as the mkt looks for a bottom – but remember – volatility in and of itself is no reason to abandon the ship – in this environment – volatility will create opportunity for the long term investor as well as the short term trader….Stay focused.

 Gold as discussed is once again a port of safety (along with the US treasury mkt)  – we have seen gold surge up and thru $1500 – a 16% move off of the $1300 level that was the base for 2 or 3 months…..and this morning gold is up another $10 at $1517/oz and as long as the unrest continues in the global economy we can expect to see money keep moving into this asset class.  Trendlines suggest that any retreat will be met with support at the $1490/oz level.  Any strengthening of the economy or movement in trade will force money out of gold and back into equities. 

 There are no eco reports today and no FED speakers to muck it all up – but news out of Asia will move the mkts.

 Take good care


 Baby Back Ribs –

 1 c of soy sauce, 1 c of sugar, pepper, 5 cloves of crushed garlic, rough chopped scallions, 2 tbls of toasted sesame oil, sesame seeds, and – 2 lbs of baby back ribs.

 Bring a large pot of slightly salted water to a rolling boil – drop the ribs in and par boil just until the water begins to re-boil.  Remove and set aside in a large roasting pan.

 Heat the oven to roasting temp – 475 degrees.

 Mix the soy sauce and sugar in bowl – making sure that the sugar dissolves…then add in the rest of the ingredients.

 Pour the marinade over the ribs and coat well.  Let marinate for 15 mins or so.   Cover tightly with foil and put in the oven and roast for 20 mins or so – turning after 10- mins.

 Preheat the grill – med high – remove the ribs from the over and place the ribs on the grill and grill for about 5 mins per side.  Set the picnic table out on the deck and serve family style with a large potato  salad and fresh corn on the cob.


Buon Appetito.