September 5, 2019
Things you should know
- Trade talks on – Mkts Surge
- UK under pressure as the Johnson family enters public feud
- US Macro data better than expected – What recession?
Stocks close higher on Wednesday, taking back all of the losses that it suffered on Tuesday……Suddenly – it appears – that all of the concerns over the coming global recession, along with the story that the bond mkt is telling us – is no longer an issue……don’t worry – it’s all good. The rally began in Asia – as Hong Kong’s CEO Carey Lamb – gave up the fight over the extradition bill that was proposed to establish a process for transfers of fugitives between Taiwan, Mainland China & Macau that was intended to prevent HK from becoming a shelter for criminals….This was a big bill that caused months of protests as many feared the erosion of HK’s legal system – with all its safeguards – had come under attack. And while there is so much more to this story – suffice it to say that this chapter appears to be finished for now. What happens to Carey Lamb is yet to be seen……
And then we got ‘better than expected’ macro data out of China and that continued to fuel the flames of this latest rally. As the sun set on Asia – it rose in Europe and the feel good mood continued….yes, the UK came under a bit of political pressure over BREXIT – which is far from over – but that did little to stop the excitement in the other mkts…..better than expected macro EU data only added to the Risk On mood….Mkts across Europe ended the day higher and then the US algo’s took it from there…..
So much of what happened yesterday was built on easing political pressures – more so than on anything really fundamental….I mean look – the US macro data is of some concern…….US Manufacturing data is the latest data point to suggest caution……it slipped below the magic 50 line on Tuesday – setting off a new round of angst (think global and US slowdown) that caused the algo’s to blow a gasket – as analysts and strategists kept hammering on the ‘coming recession’ due to the lack of movement over US/China trade and the effects it was beginning to really show in the US economy….….blah, blah, blah….so on Tuesday – the indexes got hammered – and on Wednesday they took it all back and then some…..by the end of the day yesterday, the sun was shining brightly and the birds were singing…the Dow added 238 pts or 0.9%, the S&P surged by 31 pts or 1.08%, the Nasdaq rallied by 102 pts or 1.3% and the Russell rose by 12 pts or 0.85%.
And this morning – global mkts are all surging……US futures are SCREAMING HIGHER….why? One guess…….Yup – apparently both the WH and the SZ (South Zhongnanhai – the Chinese equivalent of our WH) – announced that US/Sino trade talks are back on! Wow! Look at that…Can you believe it? OMG – that must mean that a deal is at our doorstep – BUY EVERYTHING!!! …..…..The official headlines all telling the same story….and the smart logic algo’s – that can’t really interpret the spoken word – react only to the written word and that written word’s most likely meaning……. Meaning that the idea of resumed trade talks is a good thing, but the reality of those same trade talks actually producing an acceptable agreement is still not clear (and that is what the algo’s do not understand) ….but all the algo’s know is that TRADE TALKS ARE SET FOR OCTOBER AND DEPUTY LEVEL PRE-TALKS ARE SET FOR SEPTEMBER. So – BOOM……and here we go again……
CNBC runs with: “China and US agree to meet in October for trade negotiations: Chinese Ministry of Commerce”
CNN runs with: “The US and China agree to meet in Washington as trade war rages on”
NYT runs with “ US-China Trade Talks to Resume, but New Tariffs Could Complicate Them”
Now don’t get me wrong…clarity on trade would be a good thing, it clears up that issue, it then sets us and the global economy on a path of improvement (or at least that is the assumption), which will be good for both top and bottom line revenues and ultimately reported earnings and that is good for the mkts, for investors and for all 401K and IRA investment accounts……..OK – so then you have to ask – What about all the chatter of late that not only is the recession coming – it is well on its way! What about the concern over negative interest rates and the talk that the US was going negative as well? What about the weakening macro data that is pointing to a slow down – a slow down that everyone expects and a slowdown that is most likely to arrive no matter what the FED does…because look – if the FED should become more dovish and slash rates – what does that REALLY say? (Hmmmmm – in my opinion – that would not send a very bullish message at all) And if a trade deal is in fact just around the corner – then that takes the pressure OFF the FED and suggests that maybe they won’t cut rates at all…….and do I have to remind you how the algo’s and the new generation of spoiled traders will react? The same way they are reacting today….with reckless abandon…..the message today is buy everything that is risk and sell everything that is safety…. So stocks are UP while Gold, Treasuries and Utility stocks are DOWN in the pre-mkt. I mean it is classic – right…..The bottom line is that the computers and algo’s are in control resulting in the increased volatility and mindless back and forth of stock prices…… and this only confirms that fact that you – as a long term investors cannot be drawn into the fight!
Stick to the plan…..Capisce? Use the mkt and all of it’s reactions to build that portfolio…..stay the course, remain focused. Period.
European stocks are surging…all ahead by nearly 1% (except the FTSE) – the UK is under pressure as a result of all the political drama taking place over BREXIT and the health of the Johnson Administration – which is still in its infancy – but which is under enormous pressure….Jo Johnson – (Boris’s younger brother – also a member of Parliament) announces his decision to quit his own brother’s cabinet – “and not stand as a Conservative member of Parliament “ is being described as a knife in the heart of the Prime Minister (Boris Johnson) from his own family! Here is where I can tell you to watch the HBO series – Succession – (We binged watched this past weekend as we waited for Hurricane Dorian) and the knives in this show never stop flying…..I’m currently on Season 2 Episode 2……All very dramatic…..art mimics life……
Jo Johnson has this to say via Twitter (@JoJohnsonUK) : “In recent weeks I’ve been torn between family loyalty and the national interest, it’s an unresolvable tension and time for others to take on my roles as MP & Minister”
And as a Bloomberg article (“Boris Johnson’s Brother Quits, Torn Between Family and Country”) this morning points out –
‘the fact that Boris’s own brother no longer trusts him to act in the national interest is a heavy blow to Johnson, especially as opposition parties have been using the question of the prime minister’s integrity as their justification for not agreeing to a general election. They fear that he could go back on his word and seek a no-deal BREXIT while Parliament is suspended for an election campaign’.
And this puts Boris right in the line of fire……with some questioning how long he will last as PM…..Overnight he failed in his efforts to call for a SNAP election on October 15th after the bill – introduced by the opposition party – was passed in the House of Commons (lower chamber) – and this prevents Johnson from taking the UK out of the EU without a deal by October 31st. The bill is expected to pass the House of Lords (upper chamber) by Friday…. In addition the political firestorm in Italy has been put out for now…as PM Giuseppe Conte announced his new cabinet – uniting the EU anti-establishment party (M5S) with the more moderate center left party (PD). FTSE – 0.65%, CAC 40 + 0.92%, DAX + 0.75%, EUROSTOXX + 0.77%, SPAIN + 1.23% and ITALY +0.57%.
US Futs are surging….Dow futs are up 236 pts, S&P ahead by another 25 pts, the Nasdaq is up 85 pts and the Russell is surging by 17 pts……this is all about the trade talks…..yesterday’s fed speeches did exactly as I outlined…the message was NOT unanimous at all…..some of the speakers spoke about why we need a cut while others are suggesting that we do not need a cut…..Eco data today includes ISM Non-Manufacturing (think Services) Survey – exp of 54 (that would be bullish and up from last month’s 50.9), ADP employment index – exp of +150k jobs created and Initial Jobless Claims of 215k .
There are no FED speakers today – wasn’t’ yesterday enough? We will get Jay Powell tomorrow though..so stay tuned. We will also get the August NFP (Non-Farm Payroll) report – which is expected to show +160k jobs created…Avg Hourly earnings of +0.3%, Unemployment to remain at 3.7%,
Oil continues to trade right in line as it kisses resistance at $56.33…..the API (American Petroleum Institute) reported that crude inventories rose by 400k barrels – while many expected a draw down – we will get the EIA report later today.. Oil remains rangebound and is waiting to see what happens per the trade talks…..(which is really garbage – because demand is demand – makes no difference on the state of trade talks – companies need oil to manufacture, transport goods around the world, run facilities etc….) the fact is that the world is awash in oil…..so the price will be more driven by how the supply is controlled, not by any lack of demand at all. Just my opinion….
Gold is off by $10 – as noted – because stocks are surging….so it’s’ Risk On for equities and Risk Off for the safety trade…..Now – oil has had a spectacular move over the summer any clarity on trade will cause traders to take profits in the move….so do not be surprised to see oil test lower – it should find support somewhere around $1525.
Take good care.
Spaghetti Fritti Con Aglio e Olio
This is simple, a bit spicy yet delicious…
Ingredients Fresh Grated Parmesan Cheese, 3 Cloves Garlic, red pepper, 1 Lb. Cooked cooled Pasta, Fresh Italian Parsley s&p to taste, Extra Virgin Olive Oil.
How to Prepare
Begin by slicing the garlic cloves into small pieces, Add about 1 cup of the olive oil, to a deep saucepan. Add garlic to pan while olive oil is still cool; cook until just about browned. Now add the red pepper flakes – your call on how much…depends on how spicy you want it…..continue cooking until fragrant….maybe 1 or 2 more mins…..
Now add the cooked pasta in the pan and toss around in the olive oil. Keep heat just under medium and continue cooking until pasta starts to brown up just slightly. Add s&p to taste as well as some chopped fresh Italian parsley; mix. Remove from heat – add a handful of cheese and mix well. Serve and top with more fresh grated parmigiana cheese. Enjoy with a chilled bottle of Pinot Grigio Santa Margherita.
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