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“I can see clearly now the rain is gone. I can see all obstacles in my way. Gone are the dark clouds that had me blind. It’s gonna be a bright (bright) Bright (bright) sunshiny day. I think I can make it now the pain is gone, all of the bad feelings have disappeared. Here is that rainbow I’ve been praying for It’s gonna be a bright (bright) bright (bright) sunshiny day.”

“I Can See Clearly Now” – originally recorded by Johnny Nash and released in 1972, is not a song about suicide, as some may have you believe. It’s rather a song about hope and courage in the face of adversity and difficult times.

Hope and courage is what the markets and investors around the globe are celebrating. Stocks continued their advance on Thursday as US/Iranian tensions continue to subside. Threats of war, nuclear disaster, dead American bodies “littered throughout the Middle-East” are no longer part of the conversation (for now). The Chinese are due to come to America to sign the Phase One trade deal, earnings are about to hit and expectations are high. Today’s NFP report is expected to show another month of strong growth, low inflation, and rising wages. So Yes, I can see clearly now and everyone is celebrating. Stocks are the clear winners while oil, gold, silver, palladium, and treasuries fall victim to the “blue skies” and “sunshiny days.”

The Dow gained 211 points or 0.74%, the S&P’s rose 21 points or 0.65%, the Nasdaq, the clear winner, surged ahead by 75 points or 0.8%, while the Russell tacked on 1.5 points or 0.08%.

Thursday morning, we woke up to surging global markets and surging US futures. Geo-political discussions, which have dominated the conversations since January 1st, creating all kinds of angst and nervousness, were replaced by discussions of the coming earnings season, and improving macro data, technical breakouts and news that Apple IPhone sales rose 18% in China! Upgrades to the chip sector, led by AMD, also suggest a strong server market in the months ahead and that helped to send the tech sector higher – XLK +1.13%. Bank America upgrades GS, citing “attractive valuation” in what they see as a “possible global economic rebound” and that helped to send the Financials (XLF) up by 0.62%.

But I must ask: Dude? Have I been living under a rock? A “possible global economic rebound?” The global economy is fine, and while there is always room for improvement, it is difficult to say that the global economy is suffering. All that talk of how the ongoing “trade war” was supposed to bring the global economy to a standstill last year DID NOT HAPPEN. 2019 saw outstanding results from the developed world, with most markets returning high double digits as multiples expanded. Consumers continued to spend, spend, spend and airlines discussed how their “load factors” were breaking records. Unemployment is down and wages are up. GDP is strong. Lonnie Musk introduces an electric “truck” and suddenly had 200k “reservations” at $100/head giving him an interest free $20 million loan. The UK is about to divorce itself from the European Union and those economies have not come apart at the seams. Trump did not impose auto tariffs on the Europeans, the US/Mexico & Canada reached a new trade agreement and interest rates around the world remain at historically low levels. The Democrats are trying desperately to throw the Trumps out of the WH, while they campaign to grow government and impose higher taxes so they can give everything away for “free.” Still the sun rises over the Atlantic and sets over the Pacific, hardly a scenario of difficulty.

But let’s not forget the role of global central banks as they continued to “feed the beast” with monetary stimulus and historically low interest rates.

Fundamentals vs. Geo-politics

It’s nice to be back to discussing what really prices and moves markets rather than dealing with all of the geo-political nonsense that has engulfed the markets over the past week. And as discussed, geo-political events do create noise and volatility but do not create long term pricing. That couldn’t be more obvious than looking back at the action since the Iranians attacked the US embassy in Iraq on January 1st. The volatility that followed over the past week raised the temperature in the room, giving everyone an excuse to take money off the table. Some did while others did not, and the ones that stayed the course are being rewarded for not selling into the “panic.”

But let’s be honest now, valuations are even higher than they were at year-end. we are trading at 21.6 times current earnings and 18.78 times forward earnings. Some will say that that suggests “fair valuation” (with rates this low), while others might say it’s a bit on the high side and the reason why you should expect some kind of a pullback. With earnings season about to kick off, the market is in an interesting place and investors need to be aware of that. Again, what will we see this time around? Now that Phase One of a trade deal is done, what will CEOs and CFOs say about the future and their plans to spend money on their businesses? Will we see continued caution or will the gloves come off?  

Yesterday I said that the “pendulum usually swings too far to the left and then too far to the right” when it tries to rebalance. That is now what it feels like to me. I get it, the fear of confrontation has subsided, but stocks can’t keep going up ad Infinitum. Sstocks are up 15% since the October rumble, in what is essentially a straight line. If nothing else, the odds tell you that it has to slow down and revert back to the trend line, which is 3150-ish. Even if that happens, what are we talking about, a 3.4% move lower?  Hardly a reason to panic.

And speaking of panic? The VIX (fear index), which tracks future expectations for stocks, fell again yesterday (makes sense as money flows into stocks) suggesting that investors are OK with the level of risk. At 12.48, the VIX would need to spike some 30-35% before it would suggest a change in tone. For now, that does not appear to be the case. But let’s watch as the earnings season begins next week. Let’s see what the conversation is. Expect, as usual, that about 78% of the reports will “beat the estimates” because it’s always easier for analysts to be too “conservative” and show how companies performed better. I mean, can you imagine what the tone would be if 78% of the reports “missed the estimates?”

Overnight, stocks around the world are on the move higher as the whole Apple conversation ignites a rally in all of the suppliers across Asia. Samsung, Sharp, Murata, LG, Hon Hai, Largan and Sunny Optical all rising better than 1%.

Trading in Europe is off to a strong start this morning with all of the majors in the green. They are still celebrating the “de-escalation of Middle-East tensions.” Lawmakers in the UK approved legislation that will take the UK out of the EU on the 31st. French President Macron is standing his ground on the proposed pension reforms despite the massive protests across the country. Manufacturing figures for November in France are due out any minute now. Word that some retailers are beginning to report slower fourth quarter sales is impacting the retailers. But look, those same names ran up ahead of the fourth quarter in anticipation of robust projections. The European Retail ETF rallied 18% in the last three months: 18%! So give it a break, maybe some of those projections were just a bit too robust? (The US retailing ETF – XRT has also rallied 16%).

Either way – FTSE is flat, CAC 40 + 0.08%, DAX +0.21%, EUROSTOXX +0.07%, SPAIN +0.17% AND ITALY +0.28%.

US futures are guess what? Yes sir – Up again, as we wait on today’s NFP (Non-Farm Payroll) report. Dow +58, S&Ps +7, Nasdaq + 32, and the Russell +2 as of 5:30 am.

Like I said yesterday, the estimate calls for 160k new jobs but the whisper number is higher than that, begins with a two, just like last month’s surprise. Anything at or better will be welcomed news, but will surely cause some analysts to become concerned that we are “overheating” and that means rising rates!  Anything below will be explained away by the strength of last month’s report which was 266k versus the expectation of 188k. That means we essentially have about 80k jobs to work with.

The S&P closed at 3274 and the momentum makes it feel like it wants to kiss 3300 before it stalls. We could clearly do that today, but I don’t think we will. Let’s listen to what the report has to say.

On a side note, Trump may be willing to wait until the election is over before negotiating Phase Two of a US/China trade deal. The whole world believes that the Iranians shot down the Ukrainian airliner. Period. Oh, and Boeing has a whole new set of e-mails to deal with. I want to know when NetFlix is making the movie…

Take good care – Have a great weekend.


Alaskan King Salmon

For this you need:

Reynolds wrap foil, honey, Dijon mustard, butter, Worcestershire sauce, cornstarch, s&p, asparagus spears, the King Salmon, lemon and crushed walnuts.

You can make this two ways…in the oven or on the grill – both ways use the foil to create a packet to cook this simple meal.

Begin by preheating the oven to 450 degrees or the grill to med high. In a bowl mix half a cup of honey, 3 tbsps. of the mustard, 3 tbsps. of butter, 2 tsp of Worcestershire sauce, 1 ½ tbsps. of cornstarch, s&p – taste and adjust then put aside.

Make individual foil packets for each person. You should have a sheet that is about 16 x 12 inches.

Place the sheet shiny side down. Place 4 or 5 raw asparagus spears on foil, next place a piece of the King Salmon on top, – squeeze a bit of lemon over the salmon then spoon the honey/Dijon mix over the fish and sprinkle some crushed walnuts.

Now – seal it nicely by bringing up the sides and folding over – you want to leave room inside so that the heat circulates. Place on a cookie sheet and bake in the oven for about 20 mins… (depending on thickness) or place the packets directly on the grill for 8 to 10 mins.

When ready – remove from the oven or grill – let set… Carefully open the packet and present nicely on a plate. Serve with a large mixed salad in a champagne vinaigrette dressing. Enjoy with your favorite chilled white wine – not a chardonnay – too fruity… you want something crisp and clean… my favorite – Hello??? Pinot Grigio – Santa Margherita. Simple, clean, crisp.

Buon Appetito