Churn Continues/GS predicts 2% sooner – Try the Pork Loin w/Peach Honey Glaze

Kenny Polcari Uncategorized

Things you need to know.

  • The churn continues – and Goldy say’s ‘not to worry about 2% rates’
  • Macro data is mixed and that is sending mixed signals to investors
  • European Mkts are higher while Germany warns of a 3rd wave
  • Yellen tells us again  – there is no inflation – Period
  • Bitcoin pierces $61k and then falls 8%
  • Try the Pork Loin with Peach/Honey Glaze.

So, the rotation continues…. Dow and Russell names move higher- up 293 pts or 0.9% and 14 pts or +0.6% respectively…while the broader S&P struggled all day to go positive – in the end rising 4 pts or 0.1% while the Nasdaq once again fell losing 78 pts or 0.6% all as 10 yr. yields rose – closing solidly above 1.6% at 1.634%.   On the week – value names continued to outperform the growth names with the Dow and Russell rising 5 straight days adding 1300 pts or 4.1% and 160 pts or 7% respectively, the S&P rose 4 out of 5 days and added 2.6%, The Nasdaq was all over the place – but rose Wednesday’s 3.7% gain to finish the week up 3%.

It is the same story……the US economy is readying to burst, pent up demand is tearing at the seams, vaccinations allowing Americans to feel more confident, and the re-opening of states is setting the tone for better days ahead all while rising interest rates and rising inflation continue to simmer on the side burner. – Clearly though, higher rates are not affecting the broader market as much as they are affecting the tech sector.  Look – here is at least one of the issues:

Higher rates make it harder/more expensive to finance businesses and higher interest rates mean that the bondholders will get more of the company’s cash and could reduce the value of future cash flows and dividends – and this will hit – as we have seen – the tech sector right between the eyeballs and it could cause some of the big divvy payers to reconsider dividend increases in the coming year.    And while I agree – rates at 1.6% are not the death knell for stocks – considering that they were higher pre-pandemic – it is once again the pace of the increases that is concerning to investors and that is what will continue to concern investors.  Look – everyone is expecting a 2 handle on the 10 year – but they are expecting it by late fall….and that would be 8 months away and that would allow for investors and markets to adjust.  If we get a 2 handle on the 10 yr. in the next month or so – my sense is that the markets will continue thrash around….

And the volatility in the tech sector?  Think an overcrowded trade.  This as analysts are raising earnings estimates faster for the value sector vs., the growth sector and this is causing some to re-think their overweight exposure causing tech to take it on the chin.

Eco data on Friday showed that the PPI – Producer Price index came in exactly as expected….at +0.5% on the top line and +0.2% when you take out the volatile food and energy prices – a FAR cry from last month that showed prices at the producer level were busting out….so I ask – how does that happen?  How can prices 4 weeks ago suggest that pressure is building at the producer level – much more than expected, but then revert to more benign levels this month?  Something does not add up….at all.  It stinks like 3-day old fish…. that is all I am saying – because I have pointed out the rising prices everywhere you look, yet the gov’t tells us – its’ all a charade?  Ok…. So, the 50% increase in 6 weeks for gas at the pump is fake news? And the spring and summer driving season has not even begun…. but no worries…. I must be mistaken…just wait until FedEx, UPS, Amazon, DHL, Uber, Lyft, and all the airlines change their meters to reflect those rising costs….do you think they are going to eat it?  Think again…. And that’s just energy….

Separately – consumer sentiment shot higher (and that is bullish) …coming in at 91.5 up from 88.3, U of Mich 1 yr. inflation expectations remain at 3.1% while the 5 yr. rate continues to remain below 3% at 2.7% – which I once again ask – why is that even an estimate?  Who can really predict what inflation rates will be 2 or even 3 yrs. out, never mind 5 years out – especially considering what has and is going on…? I just think it is a useless data point – but analysts and strategists appear to be all giddy about it.

In any event – asset managers appear to be pushing back on bonds – sending yields higher and we expect that to continue as the talking heads are trying very hard to get comfortable with 2% rates….and they are trying very hard to get investors comfortable with 2% rates….and with that –   Here it is – straight from the horse’s mouth (or A..) – depends on which end you are looking at…..– Our friends at Goldman (Davey Kostin to be exact) come out on Sunday and set the tone for overnight trading into Monday morning saying

“Based on our client conversations, many believe that the equity market rotations that have recently accompanied rising rates have gone too far…. We believe that equity valuations should be able to digest 10 yr. yields of roughly 2% without much difficulty” – adding that “investors will have to continually grapple with the anxiety about economic overheating and FED tightening”.

So essentially – they are saying that the recent weakness in growth (tech) is overdone – so everyone piles back in…. now- I must ask, what is Goldman’s position?  Did they back up the truck on Friday (when prices were weak and investors were concerned about 10 yr. yields piercing 1.6%) only to publish a report on Sunday and send it out to their best clients first telling them not to worry…..causing a rally in tech names that would provide for a convenient exit by the Goldman trading desk…..I mean – I’m just sayin….It isn’t out of the range of possibilities is it?  Recall what Billy Ackman did on March 25th – he got on TV (CNBC actually) cried on camera saying that ‘Hell is Coming’ all while quietly buying into the panic he created…. I think the profit was about $2 billion…. you can google it.  So – buyer beware….

So now it is written and now it is done…. (does that sound biblical?) – Goldman assures us all now that there is nothing to worry about – we could see a 2% (ish) 10 yr. and it will not be an issue – the implication is also that we will see it much sooner rather than the current late fall expectation…. So, Why the angst?  Start buying – right up until we hit ‘roughly 2%’ and then we will have to take another look….

In this case – roughly is defined as ‘lacking refinement and precision’ so is it 1.75% or 2.2%.  When will Goldy let us in on the secret – when they have gone from long to short?
And so, this morning – the markets are setting up for a Risk ON day – US futures are up!  (Go figure!).  Dow futures pointing higher by 125 pts, the S&Ps are up 11 pts, the Nasdaq is ahead by 33 pts and the Russell is adding 18 pts.   Americans are beginning to see those $1400 checks hit their checking accounts and state and local gov’ts are seeing $350 billion of relief in their checking accounts.

As discussed, – expect so many of the recipients to put that money to work in their Robin Hood accounts – which once again begs the question…. Why are we paying money to people that DON’T need it?  If you are putting it the stock market – that suggests that you do not need it to pay bills – which is what it was for…so what am I missing?

Eco data this week includes Advanced Retail Sales – which are expected to be -0.5%, which again makes no sense – considering the other data suggests strong consumer spending and pent-up demand.  Industrial Production, Capacity Utilization, Business Inventories, Building Permits – also expected to be -7.2% (makes not sense considering how ‘hot’ the housing market is) and Housing Starts of -1.6%.  But the biggie will be Wednesday’s FOMC (Federal Open Market Committee) meeting. What will Jay say?  How will he say it? Will he change the language etc.…?  The FED is expected to revise upwards our GDP forecast for 2021.   See my IG Saturday morning video

https://www.instagram.com/p/CMXuo2jAgOG/

Yesterday – Treasury Secretary Janet Yellen – reminded us that US inflation remains ‘subdued’ and that the expected strong economic recovery still will not force the FED to raise rates until 2023 but she did have other news….

Joey (Biden) is setting up to announce the first major tax hike since 1993 – that is needed to pay for the next part of his economic plan – saying that it is increasingly clear that tax hikes will be a component of his ongoing plan….and while this is not new news – he is wasting no time in putting it on the table – saying that the planned changes are an opportunity to fund infrastructure projects, climate change projects assist poorer Americans and to address the inequities that Democrats argue need to be fixed. This will be the biggest test of his presidency and will take plenty of time to nurture – so why not start early on…. because the mid-terms are only 20 months away….

European markets are all up across the board – although not substantially – currently up about a quarter of 1%…. Investor’s there focusing on Wednesday’s FED call. AstraZeneca under fire again as the Netherlands and Ireland suspend its use after some people are developing blood clots and that is not helping the mood.  On Friday – Germany warned of a coming 3rd wave and that is keeping markets on edge.  And over the weekend – Merkel’s CDC party lost big in regional elections – setting a tone for what the future holds.  At 6 am – the FTSE +0.36%, CAC 40 +0.24%, DAX +0.36%, EUROSTOXX +0.41%, SPAIN +0.56% and ITALY +1.07%.

Oil – is up 7 cts at $65.71 barrel……News that the Saudi’s have cut supply to 4 ‘north Asian countries’ by 15% is helping to support prices especially since China’s output growth beat expectations – with some saying that heavy industry growth rates are ‘insane’.

DXY tested lower support on Friday and this morning it is up small – trading at 91.78 remaining well within the 91.18/92.81 band.

Bitcoin – which traded up to $61,000 over the weekend is now down 8% at $56,100.  Ethereum is up $20 at $1776.

The S&P closed at 3943 and this morning with futures up small – I suspect it will hit resistance at the most recent highs of 3960 and fail.   We remain in the broader 3770/4040 channel – but will most likely remain in the 3900/3960 range until Wednesday’s Fed meeting.  Over the weekend – Dr. Fauci warned once again to stop the madness – keep the lockdowns in place – do not open the country just yet…. Yeah, how is that working?

Stick to the plan, do not chase, trim where necessary and put money to work when its right….and that may not be today……and that is ok.

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss what I can do for you.  You can now get a video version of this note on my IG (Instagram) feed – my handle is Kennyp1961 (https://www.instagram.com/kennyp1961/)

Take Good Care

Chief Market Strategist, Consultant
kpolcari@slatestone.com

Pork Loin w/Peach Honey Glaze

This is so simple to make and so good to eat.  Made it yesterday – served it with mashed potatoes and shredded brussels sprouts w/crisp bacon bits…. a glass of rose to finish it off.

For this you need 1 – 3 lb. boneless pork loin, 20 oz bottle of sliced cling peaches in light syrup (I used Del Monte Brand), 3 tbsp. Honey, 3 tbsp. light brown sugar, 3 tbsp. of fresh squeezed lemon juice, s&p, and olive oil….

Preheat the oven to 350 degrees.

Begin by seasoning the loin with s&p – making sure to massage the loin with a little olive oil until you think you rubbed it enough…Now place in the Pyrex baking dish and put it in the oven – uncovered for 50 mins.

In a med saucepan – remove the sliced peaches and rough chop them – add to saucepan with about ½ of the light syrup.  Continue with the honey, brown sugar, and lemon juice.  Bring to a boil and then reduce to simmer for 5 mins.  Remove from heat – and with the back of a slotted spoon – smash the peaches to create some pulp.  (now you can also run this through a food processor to puree it if you want.) I did not.  But maybe the next time I will try it that way.

After 50 mins – remove the loin from the oven and spoon some of the peach glaze over the loin – put back in the oven for 20 mins – then repeat with the balance of the glaze – after another 20 mins – remove and let rest for 10 mins.  Slice into nice pieces, not to thick and not to thin – just right.  Collect the glaze from the baking dish and spoon over your pork.  Serve with a veggie of your choice – I served it with the mashed potatoes and shredded brussels sprouts.

Buon Appetito.