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Things you need to know 

  • There is an ELEPHANT in the room and his name is Dumbo….
  • Market weakness is not about Omi, Delta or even Covid 19
  • PPI report expected to be even HOTTER than the already HOT estimate
  • FED announcement tomorrow – The Q is about rates not taper.
  • Try the Linguine Puttanesca-

You see the main st media (msm) is trying to convince us that the markets weakness yesterday is because of the Omicron variant that has now spread across the world, is more transmissible (BUT is NOT more deadly).  News that UK PM Boris Johnson announcing that 1 person has died of the variant since it was introduced to the world 3 weeks ago seemed to take over the headlines as if that was the beginning of death and destruction….…and then they run with a variety of headlines that all detail the same thing – China has found the variant on the mainland (well considering it originated there, why is that a news story?  Of course, it’s there) and that is posing a challenge for their zero-tolerance strategy……Then add in the latest indoor mask mandates in both NY and CA regardless of your ‘status’ and that only adds to the angst.

PFE comes and says that maybe two doses are enough and maybe not…as they push for the additional 3rd shot (booster).  Moderna says that ‘oh no, we need to tweak the current vaccine to address this issue so – line up, everyone needs another shot…’. (again you can hear the cash register ring).   Ok – we get it…but that is not the reason that stocks sold off yesterday at all…. It has nothing to do with the virus or any variant of it or any variant that is yet to come…. So, from a market’s perspective – forget Covid, Delta, Omicron and any other variant that is sure to hit the world.  In the end – it is becoming clearer that this is not going away anytime soon and that we will need to learn to live with it without getting hysterical with every headline.

Stocks around the world sold off on Monday because so many analysts and strategists got a chance to digest the HOT CPI data from Friday and what that will now mean for the FED heads as they begin their two-day meeting today.   Eco data today is all about the PPI (Producer Price Index) and what that will say about the cost of inputs at the manufacturing / producer level….and then what that means for future CPI readings……  Toss in the upcoming wave of global central bank policy decisions due out this week from the BoJ, the BoE and the ECB and we have enough monetary data to keep the pot boiling….

Look – so many of us have been telling this story for months now – the inflation, rates, bond yields and FED policy story…. …. all while others have been trying to ignore the data – saying that it is not the issue that it appears to be….…. Well, guess what?  It is the issue that it appears to be – there is no debating that…. Inflation is hot and is running out of control, the FED has all but admitted that and appears to be ‘behind the 8 ball’ – a place they told us they wouldn’t be.  Rate hikes are going to move faster than what the market expects, and that will cause valuations to come down (it’s just a math problem, not an investment problem)

It’s not difficult, it is what it is.  It was the talk of rate hikes coming as soon as next month – January 2022 that gave investors something to think about. It was the talk of an even swifter taper that gave investors something to think about.  It was the talk FED credibility that gave investors something to think about…and it was all these issues that gave investors a reason to pause and stocks to back off.

European stocks which were up nicely in the early morning ended the day in negative territory.  US stocks which tried to rally yesterday morning failed miserably as the day wore on – getting weaker and weaker as the clock ticked.  By the end of the day the Dow gave back 320 pts or 0.9%, the S&Ps lost 44 pts or 0.9%, the Nasdaq choked – falling 218 pts or 1.4%, the Russell lost 32 pts or 1.4% while the Transports gave back 194 pts or 1.2%. 

The weakness that we saw and are seeing is the realization that everything we have been told over the past 10 months anyway – is not true.  Inflation is not transitory, in fact it is HOTTER than what we have been hearing, Rates are going up much sooner than originally expected and will most likely go hand in hand with the tapering which is something else that Jay told us would not happen….so in fact, that statement is not true either.   And we haven’t even gotten todays’ PPI report which is also expected to ‘blow the roof off the house’….and in this case – that is not good.
The PPI report is expected to come in at 9.2% but the whisper number has a 10 handle on it…..And if that is the case – get ready for another move lower….and THAT is what the issue is…..Forget Covid, forget Delta, forget Omicron – none of that is driving the action – unless they use it to create even more hysteria in a down market…then it will be just one more negative headline to accompany the negative FED headline and then that will only add angst on top of angst.

As you might expect – the ‘sexy’ high growth names came under pressure, small and midcap names followed suit.  The Tech XLK etf – down 1.5%, The Russell down 1.4%.
The XRT (Retail ETF) which was up 65% thru November 16th on a strong consumer and an ‘explosive holiday shopping season’ – which began in August and has now run its course – is off 14% in 3 weeks – as talk of inflation and swifter taper and rising rates takes its toll.    But before you light your hair on fire – this stock is still up 39% on the year. (a 15% outperformance vs. the broader market). Utilities outperformed yesterday – rising 1.2% as investors view them as a safety trade, they are utilities, they are boring, but they are divvy payers and so that is good.  Consumer Staples – XLP  – things like toothpaste, soap, detergents, deodorant, underwear, socks, etc…also finding a bid as well rising 1.3% in a DOWN mkt – they too are typically divvy payers…….Consumer Discretionary – XLY though got whacked falling 2.6% as higher rates and swifter taper could mean the end of this strong economy and ‘discretionary spending dollars’…..because you see – for the FED to really slow this down, they have to create a ‘RECESSION’….. Tech – XLK lost 1.5%, Energy – XLE lost 2.7%, and home builders – XHB gave up 1.9%.  The Growth trade – SPYG falling 1.15% while the Value trade – SPYV fell by 0.5%.

Apple which was only cts away from becoming a $3 Trillion company also failed – falling 2% to end the day at $175.74.  Travel and leisure stocks sank. Crypto’s sank taking Bitcoin down 6% or $3000/coin to end the day at $46,886 – but there is more to the crypto story than it appears…. Think tax loss selling into yearend….

Look – here is the secret that they aren’t telling you about the recent weakness in cryptos…Bitcoin, Ethereum, and a host of others.  Investors can leverage losses in those assets differently than what is allowed for stocks or mutual funds.  Enter the Wash Rule exemption.  (The Wash Rule prevents you from selling a security at a loss and then buying it back within 30 days.)

So, investors in crypto’s can sell them for a loss, then use that loss to offset or eliminate capital gains on other winning investments and buy back the same crypto they just sold without penalty, so that they don’t miss the rebound that is sure to come in the new year. So, if they bought Bitcoin at $60k, then sold it at $45k – they could take a $15k loss against any gain and then turn around and buy back the crypto they just sold at $45k….so they take the loss and then establish a new average price for their crypto investment.  So, the yearend weakness makes perfect sense if you think of it as a tax strategy – which is exactly what it is – nothing more.  So again – stop the hysteria about the weakness in crypto….

Treasury prices climbed sending yields lower – this morning yielding 1.43%…. but remember – the FED is still buying treasuries…. you must wait until they really pull back and at the rate they are going that will become more obvious to the markets in late January early February vs. late April/Early May….

This morning US futures are a bit weaker…. Dow futures are -10 pts, S&P’s -10, the Nasdaq is -88 pts, while the Russell is ahead by 3 pts. But remember the Russell got hit harder yesterday than the broader mkt.  Everyone is waiting for 8:30 am…. when the gov’t releases the latest PPI report.  By now you know it is expected to be hot and the whisper number even hotter…. the surprise will be if it comes in weaker than the expectation…. Not sure how they will be able to explain that away…. but it will be interesting to watch.   Wednesday brings us the last FOMC announcement – about inflation, tapering and interest rates.  Later in the week we will hear from other global central banks – so expect this to be at the top of the agenda as the week progresses.

This morning European markets are just a bit higher…. As they digest all of this. Omicron not the focus at all……eco data and central bank policy is the focus. UK employment data is strong +257k new jobs….and that is making some wonder what the BoE will say about rates on Thursday.  Will they ignore the virus, or will they allow it to dictate policy?  We are about to find out across a range of countries in the next few days.  At 6:30 am – European markets are up about 0.25% – 0.5% across the board.

Oil is trading at $71.15/barrel as it tries to stabilize after yesterday’s beat down.   There is no specific oil data out, so I suspect it churns right in line…with an upward bias….

The S&P closed at 4668 yesterday and appears muted this morning as it awaits the PPI report.  Once that comes out – then expect all the talking heads to speculate on what the FED will say about it tomorrow.  If it is as strong as expected – the FED will have not choice but to push the rate hike narrative….and while I don’t think it happens in January, there is a very real possibility it does…and if so, expect stocks to fall.

Stay the course, build yourself in some downside protection to blunt the losses.  There is no reason to sell good stocks – Especially if the thesis for why you own them remains intact.

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Take Good Care

Chief Market Strategist, Consultant

Linguine Puttanesca

I am featuring this pasta dish – because I made it on Saturday night, posted a picture of it and then one of my twitter followers requested the recipe…so here you go….
Linguine Puttanesca

The word – Puttanesca literally translates into “in the style of the prostitute” (where the Italian word puttana means “lady of the evening”).

As many of you may know this dish originated in Naples and is today a staple of the Neapolitan household.  It is made from tomatoes, black olives (or Kalamata Olives), capers, anchovies, onions, garlic, oregano, and parsley.  It is easy to make and has an interesting history.
Whatever its origin – it is a great dish – that is easy to prepare – is spicy, tangy, and vibrant – an appropriate description of the mkt today….

Start with 3 crushed garlic cloves sautéed in olive oil about 3 / 4 mins…do not let it burn…. next add a diced white onion and diced/minced anchovy filets and sauté for another 5 / 8 mins.  – as they cook, they melt away.  Add one can – 28 oz – of kitchen ready crushed tomatoes…. not puree – Crushed.   Add about 1/4 of a can of water – Let simmer for 10 mins or so.  Next add capers, oregano, pepper, chopped Italian parsley, and rough chopped pitted Kalamata olives or pitted black olives – whichever you prefer – but do not mix…It is one or the other.    No need to add salt as the anchovies are salty enough.  If you like more bite – you can add red pepper flakes at this point…. cover and let simmer.

In the meantime – bring a pot of salted water to a rolling boil and add the Linguine or spaghetti. Let it boil for 8 mins or until aldente.  Remove and drain – keeping a mugful of the pasta water.  Add a bit of the pasta water to the sauce then add the pasta to the sauté pan with the Puttanesca sauce and heat and stir until well coated and fragrant.  Serve immediately onto warmed plates offering up grated Parmegiana cheese on the side.

Buon Appetito.