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Debris, Shine, Earth, World

Things you need to know.

  • And the FED take to the stage and hints at a possible change.
  • Markets closed higher yesterday, but today are rethinking the narrative.
  • Global markets are under pressure…. European markets all down > 2%
  • US futures pointing to a ‘struggle’ today….
  • Try the Salmon in a Lemon Dill Sauce for Sunday Brunch

Good morning……and what a day it is shaping up to be (global markets getting slammed and US futures are under ‘pressure’) ……now let us just go back and revisit what happened yesterday when the FED revealed the minutes of the June meeting, shall we?

While there was no official change to the plan – the tone has clearly changed…..You see – there are some officials (as I have been saying all along) that want to see an end to the bond buying program while others continue to emphasize patience……and yesterday’s big reveal suggested that they “might need to pull back their support for the economy sooner than they anticipated because of stronger than expected growth…”

And while they are not ready to stop serving the Kool Aid there are a bunch of them that think the time is approaching – read between the lines here – stick with me……

Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of the incoming data….”

Do you see where this is going…and while Jay attempted to make it clear that there is no change – the sense is that the pressure on Jay is building…and while the group may appear to support the status quo – there are cracks in the foundation….

After the report came out yesterday – there was not much of a reaction in either direction…stocks were up (small) but there was not any visceral reaction. In fact – bond yields continue to tumble, and stocks continued to rise…and by the end of the day the Dow added 104 pts, the S&Ps were up 15 pts, the Nasdaq managed to eke out a 2-pt. gain, the transports rose 80 pts while the Russell lost 21 pts…. It was more of the same…. the algo’s pushing hard causing the indexes to notch new highs (again.).

But then something happened overnight….US markets closed – the sun set on the Pacific coast and rose on the eastern coast of Asia….and suddenly markets were met with sell orders…. surely there must be a mistake…. SELL orders?  Well, it began in Hong Kong as investors there are now worried about new Chinese regulatory efforts targeting big tech and US IPO listings (think DIDI as the latest victim in China’s efforts to control the data…) Tencent (TCEHY) fell 3.7% on top of the 2.4% it lost on Wednesday and is now down 28% from the February highs….….Alibaba lost 4.7% on top of the 1.7% it lost on Wednesday taking it down more than 34% since the October highs,  DIDI gave up another 4.5% leaving this stock now 13% below its IPO price last Thursday…. And the list goes on…. Hong Kong markets fell by 2.9%, Japan down 0.8%, China down 1% while Australia gained 0.2%.

Stocks in Europe are no better… there under pressure across the board – with average losses of ~ 1.7%….Talk of the latest variant of the covid virus is supposedly behind the move – to which I say – Baloney…..the negative tone out of Asia causing angst in Europe….and the idea that the FED may have misjudged the extent of the robustness of the recovery is fueling this move lower…..How long have we been talking about how the markets just keep going higher and higher without any correction or pullback?  So today we are getting what may be the beginning of a proper pullback and everyone is trying to make it something it is not….as if the bottom will fall out and as if the FED and every other central bank is suddenly changing policy – they are NOT…. they have been hinting about this for weeks now…. Wake up…

US futures are DOWN and down big….US treasury yields are also down big (currently yielding 1.27%) as prices rise…and the move into the ‘safety trade’ gains momentum…. this has absolutely nothing to do with the latest covid variant…it is a convenient headline but let us be serious….

The move is a realization that the hints that the FED has been floating (sooner taper and higher rates)– a la Bullard, Bostic, and others, is much more of a reality…. the minutes all but reveal this – read them, listen to them, listen to your own gut…. what is it telling you?
Mortgage-Backed Securities (MBS’s) under fire…why are we still supporting an overheated housing market?  Why is the FED still buying $40 billion of MBS’s?  Is the housing market faltering?  What am I missing?  Maybe if we stop the buying MBS’s we would see the mania slow….which doesn’t mean we will stop building houses, it just means that the hysterical 30% increases every 6 months should slow…and rightly so, because the very people who need to buy a house are getting priced out….when a starter home is $1 mil (in South Florida) or a starter condo in NYC is $1 mil – it seems to me that something is out of whack – no?

And then there is the China story, the Russia story, the OPEC story, the Afghanistan story, the DC story, the coming earnings story, and the debt limit showdown that is due to come to a head on July 31st….  And this is an issue that the market is not paying attention to…. As of July 31st, the gov’t cannot sell anymore bills, bonds, or notes unless of course someone starts to pay attention and raise the ceiling…which of course will happen but at what expense?  What will the negotiations look like?  Whose feet will be held to the fire.


In any event – expect to see a down day today…at 6:15 – Dow futures down 500 pts, S&P’s down 60 pts, Nasdaq down 200 and the Russell is off by 40 pts. – European markets have now fallen further and are all off more than 2% across the board… do not make emotional decisions….do not panic – as this is well within ‘normal’… fact – we could see the markets fall 9% and that would still be considered within the normal trading bands…..

Sit back, we discussed this…I have been saying it for a while and now it is happening…hold off on new purchases or at least bid lower….the Algo’s are anxious….they are unpredictable, they don’t talk, they don’t understand the tone, all they do is operate on mathematics with zero emotion….and when they are in sell mode, stocks weaken, buyers retreat which causes the sell algo’s to get more aggressive as they target to raise a certain percentage of cash….and as prices go lower, they have to sell more stock to raise that same amount of cash…capisce?

At some point the buy algo’s take over and recognize the mispricing…. again – the pendulum always swings too far left and then too far right when markets are anxious…. the win is for the long-term investor not to panic and recognize those mispricing’s when stocks go on sale.

But beware – as I also said – when you change the inputs of the equation, then you change the results…if the FED is changing the inputs, then beware…. valuations will have to change, risk parameters will have to change, estimates will have to change.  Earnings season starts in one week and earnings are expected to grow better than 40% this quarter – that too is unsustainable…so do not rush…. we talked about this…

This morning the 10 yr. is hovering at 1.27%, the VIX is up 30% at 20.85,
remember that complacency argument I floated only days ago when the VIX.
closed at 15.07?  Gold is up $6 at $1,808/oz and oil is down 80 cts trading at
$71.43/barrel as the OPEC drama continues….and the broader tone remains
anxious…. but do not expect gasoline to crash anytime soon…not happening…

Eco data today also includes Initial Jobless Claims and Continuing Claims – both a non-event considering the tone….

Bitcoin is down 5.5% at $32,600, Ethereum is down 7.7% at $2,180 and doggey coin is down 7.7% at 0.21 cts.

The S&P closed at 4,358 – another closing high – go figure!  Now that the FOMC minutes are out, investors are re-pricing risk and preparing for the start of earnings season.  Expect some volatility – again we discussed this…. The talk of some big fund making a big negative bet on the markets is nothing to be alarmed about…. if that fund has billions of dollars in equities, then that big negative bet is just a risk management tool to help protect that very portfolio – do not get caught up in what some in the media are trying to define as anything but that….

Look at what you would like to buy if it went on sale and get ready to do just that…Tweak where you need to, talk to your advisor who is happy to help.

The current S&P channel remains 4226/4406….

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss the markets or a plan.  You can now get a video version of this note on my YouTube Channel.

You can follow me on Twitter – @kennypolcari
Take Good Care

Chief Market Strategist, Consultant

Salmon in a Lemon Dill Sauce

Here is a great Salmon Filet dish.  It is easy to make, and you can eat it either right out of the oven or serve it room temp at a Sunday brunch –

For this you need: 1 ½ cup of mayo, ½ c prepared mustard-not yellow preferably a brown mustard, I tsp lemon juice, 2 tsps prepared horseradish, 2 cloves garlic, ¼ cup Fresh dill—must be fresh, S&P to taste, 2-pound salmon fillet.

Start by seasoning the filet with s&p.  Set aside.

In a bowl combine the mayo, mustard, lemon, horseradish, garlic, salt, and pepper to taste and dill.  Spread the dill/mayo sauce on the flesh side of the fish.  Bake skin side down in a 350 oven for around 15 minutes or so – or until it reaches your desired wellness.

Buon Appetito.