Things you need to know 

• After the long weekend – markets are lower again
• Treasury rates continue to move higher
• It is a big earnings week – many of the big, multinational, mega cap names this week
• Oil – back at $107/barrel and going up as we enter the spring/summer season
• Twitter still in play – enjoy the show
• Try the Veal Cutlets Caprese

Good morning…. It is Easter Monday and European markets are closed.  Stocks finished lower on Thursday – the Dow down 114 pts, the S&P off 55 pts the Nasdaq down 300 pts, the Russell off by 20 pts and the Transports gave back 2 pts.  – Recall that markets were closed on Friday – but we did get some economic data – that investor may or may not react to today.  Empire Manufacturing – which details the state of manufacturing in the NY/Northeast region came in at 24.6 – which blew the estimate of 1 out of the water!  In addition, we got Industrial Production of +0.9% – again better than the estimate and Capacity Utilization of 78.3% up from 77.7%.

Now what is interesting here is the Capacity Utilization number….as that number approaches 80% or higher – it suggests building inflationary pressures – Now – Capacity Utilization has tested the 80 level twice since 2015…..January 2015 – when inflation was running at 0.1% and then again in August of 2018 when inflation was running at 2.44%..….both times it backed off and did not push higher, inflation was not really an issue….….but this time IS different….there are signs of inflationary pressures all over the place – the latest CPI read came in at 8.4% while the latest PPI report came in at 11.2% – and that report suggests that next month’s CPI will be even higher…..  Food, energy, housing all surging to levels that are challenging the public psyche.

10 yr. yields were 1.68% in January 2015, but they were about 3% in December 2018…. this morning the 10 yr. treasury is yielding 2.86% and going higher. Mortgage rates were 3.85% in 2015 and averaged 4.5% in 2018 – but housing prices were much lower than they are today…so as mortgage rates once again hit 5% + buyers are being stunned when they realize what the payment is…and that is starting to cause housing prices to stall…. not collapse (yet) but stall.

Oil – this morning is once again trading at $107/barrel – exactly where it was BEFORE Joey announced his historic decision to release 1 million barrels of oil a day from the SPR (Strategic Petroleum Reserves) for 6 months.  At the time – the administration was blowing their own horn about how this move was going bring prices down as more supply came online….and at the time, I like many strategists and analysts questioned the validity of the move…. Was it really going to solve the problem?  The answer was and is NO, it will not and that is now obvious as demand remains strong and oil prices continue to go up…. even as they release the oil.  Even the IEA nations jumped in – offering to release a bit more – hoping that that would help…. How is that working for you?  We are now above all 3 trendlines and will most likely not find any resistance until we hit about $115/barrel.

We are now entrenched in earnings, and it is a big week – we will hear from 60 + S&P companies this week and expect to hear more of the same – concern over supply chains, concerns over the geo-political crisis, concern over FED policy, and concerns over how all of this will affect the consumer.

Over the weekend – China reports that economic growth was faster than expected – despite the dystopian lockdowns taking place across the country.  Shanghai, Guangzhou and others.  That is – if you believe anything that comes out of China.  A report over the weekend on Zero Hedge highlights that something stinks in China, that the lockdowns are not about Covid at all, but rather about global supply chain control – (something I have also been asking for weeks).  In his article he poses this question:

“What if China is purposely shutting down its country to wreak havoc on the global supply chain even further to exert its power over the quality of lives of the western world?”

You can find the article here:  https://www.zerohedge.com/markets/something-rotten-state-shanghais-latest-covid-lockdowns

It is not out of the realm of possibilities at all….and what I have been saying to this point is – shame on us for even allowing China to have that much control over the global supply chain….Now think about what happens when Xi Xi goes for Taiwan….the tech, semiconductor capital of the world….You think we’ve got problems now?  Think again…. but do not worry, Intel is building a semiconductor plant in the middle of Ohio – that will be ready in 2025….!

US futures are lower this morning – Dow futures – 90 pts, the S&P down 22 pts, the Nasdaq off by 100 pts while the Russell is lower by 10.  The headlines reveal that investors are ‘bracing for a week of major reports ahead’…..Look for results from BAC, IBM, PG, IBM, DOW, JNJ, AXP, and VZ – note that those are all mega cap names…they are big, multinational blue chip core holdings, divvy payers and not the high growth sexy tech names…those will come next week and the week after.

There are no economic reports today to consider, but it is a full week starting tomorrow.  Building permits, housing starts, Existing home sales, Fed’s Beige Book, Philly, Chicago and Dallas Fed Surveys…. all due out and this on top of a barrel of earnings along with more Twitter drama.

Is Lonnie in or out? Will the company enact the poison pill or not?  What does this say about the state of free speech in this country?  Lonnie taunting the Twitter board all weekend…. but in the end – none of this Twitter drama will drive investor sentiment, it will though provide for all kinds of conversations about free speech.  Over the weekend – I saw an article that suggests its ok for Mikey Bloomberg and Jeffrey Bezos’s to own huge media outlets – Yet it is not ok for Lonnie to own one…. suggesting that his desire for support of free speech would be an assault on democracy.  It is ridiculous…

The war in Ukraine continues to steal the int’l spotlight….Vlad – not backing down at all, and in fact feels more empowered after the sinking of one of his battleships in the Black Sea…the chaos there simmering on the back burner is causing some of the overall investor angst, but not 100% of it….Most of the angst is being driven by US economic policy, FED moves, interest rates, inflation and the cost of living…..

Stocks continue to trade lower as reality sets in…. the idea that inflation is peaking is laughable….and pre-mature…. The S&P closed at 4392 – below the trendline at 4418 and this morning, the weakness is suggesting that the market wants to test a bit lower to shake the branches a bit.  Now while I thought we were going to test the February lows – 4131 – I am no longer in that camp per se…but I am in the camp that believes the path of least resistance is lower right now and a test of 4300 is not out of the question. 

Bitcoin is also under pressure – trading at $39k this morning while Ethereum is trading at $2,900.

Take Good Care

Chief Market Strategist
kpolcari@slatestone.com

Veal Cutlets Caprese

You serve this Milanese style dressed in Tomato, Arugula and Red Onion Salad This is a great dish – colorful, hearty, and easy to make.

For this you need – Veal cutlets (pounded thin), flour, eggs, seasoned breadcrumbs, olive oil, butter, fresh arugula, Ripe Cherry Tomatoes, sliced red onion, lemon juice, and shaved parmegiana cheese.

In a bowl – beat 3 eggs (add a splash of milk), on a separate plate put some flour and on a third plate – place the seasoned breadcrumbs.  (It is like an assembly line – capisce?)

Begin by pounding the cutlets to thin them out.  Now – in this order – dredge the cutlet in the flour – dip in the egg wash and then cover in breadcrumbs – pressing gently so that the breadcrumbs adhere to the cutlet.  Place on a plate.

Preheat the oven to broil

Place a Pyrex dish in the oven with enough olive oil to cover the bottom of the dish.  Allow it to heat up……placing the dish under the broiler on the second level. You can add a dollop of butter (never a problem) – when the oil is hot – place the cutlets in the dish on one side then immediately flip them and allow to broil.

Cook the cutlets until they are crispy golden brown then flip and repeat.  Remove and place on a warmed plate.   Top the cutlet with some arugula, then the cherry tomatoes (cut in half), and the red onion.  Squeeze fresh lemon juice sparingly – drizzle some olive oil – season with s&p and top with shavings of Parmegiana cheese.   Simple yet outstanding.  Enjoy your favorite wine – and now that spring is in the air – you can choose a red or even a nice Rose.

Buon Appetito.