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Stocks Soar! The Bulls come back after being driven out of the heartland – the algos go wild on the UPSIDE… The Dow rallies by 5.1% or 1293 pts, the S&P surges by 4.9% or 136 pts, The Nasdaq adds 4.6% or 384 pts and the Russell tacked on 2.8% or 42 pts. What a day it was – BUT was it really a surprise at all? (A: It shouldn’t be). Yes, the action was exciting, and it was amazing how the tone was suddenly one of joy versus despair and concern. Everyone now believes that global central banks are coming to the rescue (again). Our friends at Goldman – all but suggesting that the FED has no other choice. In fact, they want the FED to hold an emergency meeting to cut rates by 50 bps. While acknowledging that they will cut by another 50 bps over the balance of the year…
The OECD (Org of Economic Development) admitting that they see global growth slowing sharply as a result the virus. They are now putting global growth at 2.4% vs. the expected 2.9%, but added that the slowdown could be more severe than that…
Australia’s RBA (Reserve Bank of Australia) was the first to move, cutting rates by 25 bps to a new record low of +0.5%. Saying:
“The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors.” (And that was all that Donny needed… as he took to twitter slamming the Fed and Jay Powell over US monetary policy)
The Bank of Japan, The Peoples Bank of China, Europe’s – European Central Bank, UK’s Bank of England and the US’s FED, all coming together making individual calls that suggest any one of them stands ready to do what it takes (jawboning) while not actually doing anything more than they are already doing. Today, there is supposed to be a “conference call” among the G7 bankers to discuss “the crisis” and how coordinated rate cuts around the world will (or will not) slow or stop the spread of the coronavirus. No, that’s wrong, a rate cut won’t stop the coronavirus from spreading. It will supposedly blunt any negative effects that the virus will take on the global economy. (Effects that will be temporary – by all accounts)
Now – let’s just think about this for one minute – the action yesterday – shouldn’t really be a surprise. I mean – we lost 4500 Dow points, 534 S&P points, we lost 1574 Nasdaq points and we lost 250 Russell points… in one week. at points it felt as if the world was ending, as the computers pummeled the markets with waves and waves of sell orders, unable to assess the real damage that they were doing to the internals of the markets. As we broke through support levels, the selling intensified and then we broke thru more support levels causing the algos to force even more selling, all while they created a void in prices by cancelling inline buyer interest. As the market broke down, there were margin calls, forcing selling, there was rising angst forcing more selling. There were highly complex, derivative ETFs and other strategies that blew up, forcing more selling and then there was more selling driven by breaks in technical “trend lines” that force the “trend line algos” to kick in as well. I mean it was a mess, and the damage done to the markets will take time to repair. So the snapback like yesterday is just par for the course because we were WAY oversold. Yesterday’s 5% surge essentially says to the FED and every other central bank: “You better cut rates now or we’re gonna slam them again.” Just think what would happen NOW if Jay Powell comes out and says that the FED is holding pat – and watching and stands ready to cut IF NEED BE not because the markets are screaming for someone to come in and “save them.” Those same algos that took the market down 14% over the last week and then up 5% yesterday will go into reverse and pummel the markets again in a show of force that they think will force central bank action (Sadly they are correct. If they scream and scream long and loud enough they will get what they want.) We are sure to hear that at some point today.
And one thing that was amazing yesterday as well – was all the hype around Apple! Oh my, look at that! Apple rallied 9%! (Shocker!) Did you forget that it fell by 21% last week? So when the tone changed to RISK ON – what did you think was going to happen? Did you expect sellers?
And then as the market was surging, word was that Democratic candidate Amy Klobuchar was joining Mayor Pete and suspending their campaigns to join forces with Joey as the center moderate Democrats stand together attempting to defeat the far left candidate Bernie. So this leaves Joey, Bernie, Mikey and Lizzy still in the race. And today is Super Tuesday! 14 US states and “outposts” will cast their ballots today in favor of someone. Petey and Amy bowed out (with some gentle nudging from the leadership) and threw their support behind the candidate that the DNC clearly wants on the top of the ticket. (Lizzy having no interest in joining the center). And Bernie will have none of it, as he vows to fight on, attempting to turn the country into Venezuela or maybe Cuba as he promises to give away everything for free and provide literacy programs that rival some of the greatest nations in the world.
Overnight – Asian markets continued to move higher (for the most part) on hopes of more central bank action. And I say “hopes” because as the day begun – hopes began to fade. HSBC’s Chief Economist for Australia, New Zealand and global commodities had this to say to CNBC:
“I’m not sure the monetary policy response is going to do that much, but it’s obvious that the RBA sensed that they kinda had to do this. The key question is gonna be, looking globally, is this the lead off for a lot of other central banks to follow suit?”
In early trading in Europe – investors (algos) are taking those market centers up more than 2.5% as HOPE over a rate cut remains alive, while the virus continues to spin out of control across the continent. Now look – the call will happen today and the G-7 is expected to make a statement today or tomorrow. But insiders are suggesting that the draft statement (which has already been written) does NOT call for new government spending or coordinated rate cuts. Which could mean that it’s everyone for themselves. If they are not coordinating, then they will act individually or maybe not. Maybe they will only jawbone (jawboning is when leaders attempt to persuade by virtue of their position). It’s like the famous Mario Draghi line during the GFC: “the ECB will do WHATEVER it takes.” Recall that when he made that statement – the markets rallied and regrouped a bit – and all he did was say he stood ready – he didn’t actually do anything. But he assured the markets that he would if necessary, and that is what the markets needed at that moment. So is that enough for the markets today? I mean look, they have already said that. Which is why I say – unless they actually make a definitive announcement – the algos will throw a temper tantrum.
Right now the FTSE +1.96%, CAC 40 +1.93%, DAX +2.22%, EUROSTOXX +2.07%, SPAIN +2.4% and ITALY +1.85%
US Futures are UP. (Surprise!) Dow +185 pts, S&P + 18 pts, Nasdaq +75 pts and the Russell is ahead by 13 pts. All on the hope of a coordinated cut. Economic data today includes: Nothing. Tomorrow we will get ADP employment – exp +170k new jobs created (bullish), Markit US services PMI – exp of 49.4 – just below the magic 50 line while the ISM Services PMI report suggests 54.9 – well above the magic 50 line. We will also get the Fed’s beige book survey. What will we hear from them?
OIL – which had gotten slaughtered last week, falling nearly 18% as the markets fell apart, rallied nearly 5% yesterday and is up another 3% this morning as the RISK ON trade is back! Last week saw lows of $43.45 – and this morning it is trading back at $48.16, on its way back to $50/barrel. All this on the hope of a coordinated effort by the central banks. The XLE – Energy ETF was one of the better performers yesterday, rose by 4.1% as money plowed its way back into oil. And as long as this all settles down – I suspect that oil goes right back to the mid $50s.
I’ll say it again. I think an emergency rate cut (called for by Goldman) is a mistake (but who am I?). But if the G-7 call does not for an immediate cut now – after yesterday’s RISK ON rally – expect the tone to turn sour in a heartbeat. We could see yesterday’s rally fade today. Now if the tone of the statement is supportive but not definitive then maybe the sell off won’t be so bad. But either way, since so many are screaming for a cut, I think they are all boxed into a corner. Again, I ask: what is a rate cut really going to do? Think about it, other than maybe a temporary psychological boost. What is it really going to do? Nothing.
Stick to the plan. This too shall pass.
Take good care.
Rigatoni with a Mustard Cream Sauce
OK – so work with me here… I know what you are thinking… Mustard?
So here’s the deal, my older brother (also a semi good cook) found this recipe in one of his magazines – and so he decided to try it. I have to admit – didn’t really sound good, but when you make it – you’ll be pleasantly surprised.
For this you need – Hot sausage (out of the casing) I used both hot and sweet, heavy cream, chicken stock, leeks, Grainy mustard, s&p, fresh grated parmigiana cheese and a pound of Rigatoni.
Bring a pot of salted water to a rolling boil.
Begin by sautéing the sausage in a large skillet – (big enough to accommodate the pasta), once browned – add in the chopped leeks, and sauté some more. Season with s&p. Now add in a cup of chicken stock and bring to a boil. Turn to simmer.
Put the rigatoni in the water and boil for 8 mins or so… until aldente.
In a separate bowl add in 2 cups of heavy cream and 3 tbsps. of the mustard. (you can always add a bit more if need be).
Now add the cream and mustard to the pan and sauté. When the pasta is done – add directly into the pan with the sausage – always reserving a mugful of the pasta water. Mix well. Toss in 2 or 3 handfuls of the cheese – mix again. If it sucks everything up – add back some of the pasta water to keep moist. Serve immediately in warmed bowls.
Try it – you’ll be surprised.