Things you need to know
- Rally turned into a dead cat bounce – yesterday….
- This morning Vlad teases those diplomatic efforts may be working – European markets higher and US futures shoots higher
- CPI is hot and expected to get hotter in the months ahead
- Joey and Janet blame Vlad…… (it’s comical…)
- Try the Filet of Sole
My appearance yesterday with Charles Payne on Making Money on Fox Business.
https://video.foxbusiness.com/v/6300260822001#sp=show-clips
So, the ‘rip your face off rally on Wednesday turned into a dead cat bounce……at 8:30 we got the monthly CPI (consumer price index) report, and it wasn’t pretty…. Inflation is now officially at a 40 yr. high (and going higher) …. reaching 7.9% y/y (just wait until next month) …. …a level last seen in January 1982 when we were in a recession and the FED (led by Paul Volker) was trying to tame inflation which had run up to 13.9% at the end of the Carter administration – in January 1980……One year later inflation was running at 11.8% and then in January 1982 inflation was reported at 8.4%…….
Now just so you understand…..Volker had no choice but to raise rates aggressively then to fight inflation……he pushed the Fed Funds rate to 20% in 1980, and 21% in 1981 and as inflation broke he let rates fall and by October of 1982 – Fed Funds were at 9%…….30 yr. mortgage rates in 1981? 18.5%…..killing the housing market as financing became unaffordable…..so for all of you out there that think ‘this time it’s different’ – ‘that history doesn’t repeat itself’ think again…because we are seeing that in the financial markets and in the geo-political arena….I mean this is 2022 and we have a lunatic on the other of the world that thinks it ok to march into a peaceful democratic country and take it as his own….Does this remind anyone of anything?
But I digress…. stocks continue to thrash around…. the Dow ending the day down 112 pts, the S&P down 20 pts, the Nasdaq down 126 pts, the Russell down 5 pts while the Transports gained 180 pts.
Investors, traders and algo’s attempting to reconcile the war in eastern Europe, the increasingly difficult financial conditions that must be navigated by global central banks and the monetary policy that is coming……Remember – it is these very institutions that put us in this position by being ‘reactive vs. proactive’ when the data clearly pointed to brewing price pressure at least 8 MONTHS’ ago…. I mean how long have we all been talking about this? How long did Jay and the other central bankers tell us ‘Not to worry’, that ‘they had this one’ and that while the pressure might be brewing, it would only be temporary, and that current policy would address it prior to it becoming an issue.
At the time Russia/Ukraine wasn’t on the radar screen, the conversation revolved around Covid and all of the derivatives, lockdowns and more and more support to get us through the pandemic……and that while they expected price pressure to be moderate, it was nothing to worry about…..but that proved to be false – as the price pressures continued to advance into the end of 2021 and early 2022……words like temporary and transitory were eliminated from the record and the idea that inflation would hang around a bit longer became the narrative…..then talk of a more aggressive FED – revealed that even members of the FOMC (Federal Open Mkt Committee) didn’t believe their own arguments….stocks began the year in a downtrend as analysts had to re-analyze the data and price in bigger and more aggressive hikes….stocks went lower…..the administration telling us that the inflation we were seeing was the direct result of the damage inflicted on us by covid…..And then Vlad takes center stage and starts to cause a rumble – lining up tanks and his military along the border of a peaceful nation.
Oil – which was already up significantly since Joey took office started to rise again….on the prospect of a war and another supply disruption to the marketplace…..only helping to fuel inflation….but let’s be honest….yesterday’s CPI report does NOT even include the events of late February when he invaded Ukraine on the 24th……..Our inflation numbers were already predicted to go higher without Vlad’s BS……and they did…… and then Joey came out too tell us this:
“Today’s inflation report is a reminder that Americans budgets are being stretched by price increases and families are starting to feel the impacts of Putin’s price hike”
Does he think we are all that naïve? Do he and his advisors really think that they can push that narrative? I mean what economist would allow him to blame Putin for yesterday’s report. Wait until next month – THEN you can put some of the blame on Putin, but yesterday – don’t go there….it has nothing to do with Putin and everything to do with FED and administration policy. Period….
And then last night – he had Janet (Yellen) parade around the news sites – telling us that ‘Americans will likely see another year of uncomfortably high inflation as Russia’s invasion of Ukraine muddles her prior forecast…. (And that was that inflation would ebb as we moved into the summer – and that is NOT happening). And while that is true NOW – the fact is that the inflation monster was already alive and well, there was no chance that it would ebb by the summer, so Putin now becomes a convenient scape goat…. Notice – we haven’t even mentioned the word covid in weeks now…and that is because Vlad has redirected the conversation….
By the end of the day yesterday – the 10 yr. treasury was yielding 1.98%, oil was trading at $106/barrel, Gold was kissing $2000/oz, the Bloomberg commodity index ended the day at 125.12 – up 12% since the 24th, the VIX – the fear index ended the day a bit lower at 30.25 and crypto’s continued to get beaten up…. Bitcoin ending the day at $39k and Ethereum at $2600.
Overnight Asian markets got slammed…. Chinese tech names leading the way lower…. after they heard Janet’s comments……with Japan and Hong Kong suffering the worst – falling 2% and 1.6% respectively.
European markets though are bucking the trend this morning even as the Russian army continues to pound cities in Western Ukraine as he prepares a renewed push into Kvyv…in fact the news reports that Vlad is importing mercenary fighters from the middle east to ‘shore up his efforts’ to take over Ukraine. Diplomatic talks are continuing even as talks earlier in the week failed…. The ECB yesterday announced that it will END its bond buying stimulus program in the fall – IF the economic data agrees……. did you see Christine Lagarde’s presser yesterday???? She looked like a deer in the headlights…. At 6:30 am – European markets across the board are up between 0.5% – 1%.
US Futures which were trading around the flat line have turned decisively higher on the back of the latest diplomatic efforts and news that Vlad said there are some positive developments happening (yeah…the Oligarchs are fed up with him as Europe and the US claim their assets and their bank accounts……) and this only confirms how anxious investors are… ….at 6:30 Dow futures are up 375 pts, S&P’s up 55, Nasdaq up 200 and the Russell up 31.
There is not real eco data today to consider – so once again it is about the war in Eastern Europe and how the world responds…. It is the war between Russia and Ukraine that is fueling the chaos in stocks, commodities, currencies, bonds and crypto’s and as headlines continue to hit the tape the moves become exaggerated and challenging. The economic impacts only beginning to be felt will also continue to cause analysts and strategists to have to redefine valuations.
Next weeks bring us the FED and while Jay said they were going to raise 25 bps….is there the possibility that they suddenly go 50 bps…based on yesterday’s CPI report and the expected surge higher next month due to pressures caused by Vlad? I was and remain in the camp that we need 50 bps….to shock the system…. but will we get it next week? Probably not, now…but it remains fluid and so much can happen between now and then. If there is any diplomatic movement this weekend that changes the narrative – so much can change….but if talks fail and he pushes deeper and deeper then expect it to get uglier and uglier on both fronts….the war and the global financial conditions…
Look – the world has imposed all kinds of sanctions on him……if he continues to fight, then he continues to disrupt the financial markets and that is a way for him to fight back on the economic front…even if it’s only temporary…. Remember in the long run – geo-political events do not price stocks……they do though create chaos in the short run…. The next 4 or 5 months will remain skittish and volatile and if this war drags on for much longer then the markets will remain skittish for longer.
The S&P ended the day at 4259. We remain in the 4114/4460 trading range. I continue to believe that any advance will most likely be met with significant resistance unless of course there is a change in the narrative. Put new money in your account but leave it in cash, – ready to jump when the tone changes. Feel free to tweak any of your other holdings, but if they are core holdings and the story is the story then sit tight. If you’re concerned – buy some hedges to soften any blow lower. Continue to make your shopping list and take advantage of the obvious dislocations that are created.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Filet of Sole
This is simple to make and is a personal favorite…. For this you need: Filet of Sole, Eggs, Italian Style Breadcrumbs * (recipe below), flour, Olive Oil, and tartar sauce.
Beat 6 eggs in a large bowl to make an egg wash.
Place Flour on a separate plate, place Italian breadcrumbs on a separate plate. – Now make a production line. Flour – eggs – breadcrumbs.
Next – dredge in flour – shake off excess then introduce into the egg wash – remove from the egg wash and place on the plate with the breadcrumbs. Using a fork make sure that you cover the filet in breadcrumbs. Place on a clean plate. Repeat until you have breaded all of the fish.
Next turn the oven to broil and pour olive oil in a pan – maybe like 1/8 inch in pan. Heat the oil under the broiler…. now be careful and watch – as the oil gets hot you need to make sure that you are ready to broil the filet. Take a pinch of breadcrumbs and toss in the pan…do they sizzle right away? If so – then you are ready. Now place the filets in the hot oil and flip to the other side…now let them broil to a nice golden brown…. Open oven door and with a spatula – carefully flip the filets over to brown the other side…. Once browned – remove and place in a serving platter. Serve this with tartar sauce and any leftovers make great “fish filet sandwiches the next day!” (Make sure you use toasted Italian bread, melt some provolone cheese – add a bit of tartar sauce).
**Homemade Italian style breadcrumbs –
In a food processor – blend a bag of hamburger rolls (or hot dog rolls) and transfer to a bowl. Add pepper, onion powder, garlic powder and some parsley for color. The key ingredient is 3 or 4 handfuls of grated pecorino Romano and Parmegiana cheese. Do not add salt…the cheese will make up for any salt you think you need. Mix well and set aside.
Buon Appetito.
