Things you need to know ~

• Algos’ go into ‘buy mode’ ahead of today’s CPI
• What will the CPI say?  Buy? Hold? Sell?
• Tomorrow is FED Day and then Thursday it is the ECB and The BoE
• Oil – pops by 5% – suddenly the supply/demand story makes a sense
• #6 – Bay Scallops in a black truffle cream sauce

**SBF – the American entrepreneur and investor (a Wikipedia description that defies logic)  has finally been arrested – and he is expected to be sent to the US to face the music**- Ok time to move on….the fact that it took this long is more than a disgrace….He and his ‘team’ are nothing but thieves. All of them are guilty of being idiots…but that’s another story.  This will surely become an Ivy league (MIT) study of epic proportions…..since it was MIT that graduated him.

Well, well, well….what a day it was……stocks notching (ridiculous) gains – The Dow added 530 pts or 1.6%, the S&P up 57 pts or 1.4%, the Nasdaq gained 140 pts or 1.3%, the Russell added 22 pts or 1.2% while the Transports added a whopping 417 pts or 3%!

Two journalists from the WSJ suggest that stocks rallied because ‘investors are anticipating softer inflation and a smaller interest rate increase…’.  Is the kidding?  That is laughable…..Have these guys been asleep?  Do they think this is new news?  We have been anticipating this for a while now…..The FED and JJ (Powell) have been telling us for months that the December rate increase was going to be (smaller) 50 bps – they have told us that they expected to see the pace of inflation begin to soften, and we have seen it in some macro data points….(think the latest PPI and PCE).  They have also told us that we can expect the same 50 bps hike in January along with a 25 bps hike in March…..a plan that I believe they will keep and NEED to keep as long as the inflation story remains the same.  

And right now – it remains the same….While inflation may not be coming down as fast as some of us want- the broader trend appears to be lower- the real question though is – Is  the trend lower in the places that really affect you and me?  And that answer I would venture to guess is NO. Healthcare costs up 20%, Airline prices up 42%, housing costs up 40%, utility costs up 20%, coffee up 15%, milk +15%, Butter up 33%, chicken up 15%, hotel costs +42% and what’s coming down?  Used car prices are coming down, home prices are coming down 3% (b/c mortgage rates are up 133% (so home prices have more adjusting to do), TV’s are apparently off 16% and gasoline at the pump is coming down (at least for now)….I mean when you just look at the hard number ‘the trend’ is lower, but when you look at what the ‘cost of living is’ the trend is still up……And we are about to get another data point today so let’s see what that says.

That data point is the latest CPI (Consumer Price Index) and the ‘show’ today will be all about what it tells us…Now the expectation if for topline m/m CPI to be +0.3% while CPI ex food and energy is also supposed to be +0.3%.   CPI y/y is expected to be +7.3% while CPI ex food and energy y/y is expected to be +6.1% – all of those numbers are lower than last month – so the trend is moving in the right direction but again is it for the stuff we need or is it for stuff you don’t need?

The REAL reason for the move yesterday is that there is a ‘rumor’ that the top line number will have a 6 handle (vs. the expected 7 handle) and the y/y Ex food and energy number is going to have a 5 handle on it (vs. the expected 6 handle)….the issue today will be – Is that a rumor or is it true?  Will we get the expected number?  Will we get even better numbers? Or will we get slightly stronger numbers that are still below last month, but higher than the expectation?  Because that is what happened last week when we got the latest PPI report….and that’s when we saw the indexes lose more than 1%.  The other things to consider are – Exactly what parts of the CPI chain are lower vs. not….because the last time I checked – you can’t eat a TV.

And today – is the start of the December FOMC (Fed Open Market Committee) meeting – with the ‘results’ due out tomorrow at 2 pm…..and there is NOTHING new here….if anyone expects anything different than a 50 bps hike – you haven’t been going to class….But as always, it will be about the press conference….It’s like earning season….ok – you get the report (which is backward looking) but you pay attention to the conference call and listen to what the C-suite says….because it’s about the forward guidance.  And that is what investors/algo’s and traders want to hear and you know what I think….

JJ needs to stick to the narrative….. He needs to remain very clear – leaving nothing to the imagination or open to interpretation – he should leave that conference telling everyone that while the trend appears to be moving lower, the job is NOT done yet and we can expect a 50 bps hike in January and a 25 bps hike in March – PERIOD.  At least until we get to the end of the 1st quarter 2023 – where it is widely expected that the FED is going to pause  – meaning stop raising rates – just to see what the 11 rate hikes have accomplished.  In my opinion – there should be nothing else….No waffling, no suggesting a pivot, no suggesting anything OTHER than what he has prepared the markets for.

Remember  – People hear what they WANT to hear…vs. what is being said….so sit tight.  Now to be sure – we have been talking about that year end Santa rally – so many expect it and I do as well…but I think it ends somewhere in the 4000/4100 range….and then the new year begins…..and yesterday we learned that Goldman is betting that stocks do nothing next year and actually end 2023 below where we are now….and the gang at Bank of America is telling you to ‘short tech’ next year….

Oh boy…now that’s not very bullish nor very helpful….what tech are they talking about?  They should have made that call  in December 2021 – as the Nasdaq (tech index) is down 29% in 2022!  But that is what makes a market – both buyers and sellers….I’m willing to be on the contra side of both arguments….but  you have to stay awake- No sleeping in 2023!

Treasuries remain inverted so nothing new to discuss….the curve between the 2 yr. at 4.36% and the 10 yr. at 3.59%  remains 77 bps wide…while the spread between the 3 month bill at 4.09% and the 10 yr. bond at 3.59% remains 50 bps wide…. Hello?  Not a bullish indicator….but it didn’t fit yesterday’s narrative….so they ignored it….you have to wait until we have a negative day and then they will all point to this stat and say – ‘Oh, the bond market is telling you to be careful…’

Oil?  Oh boy…it rallied and rallied hard…remember what I said yesterday when I asked – What is going on with oil?  Between the supply and demand concerns – (Russia, the Nord Stream pipeline, the Saudi’s, the price cap, European demands, Northern hemisphere demands and the re-opening of China etc.) there was no reason or oil to be trading at $70/barrel…and today it is not….It is trading at $74.25 barrel – up 5% from yesterday’s low –  after traders are now concerned about those same supply and demand concerns….it’s comical, but that is what creates the opportunity… So for now – it appears that $70 is a floor with $82 the first level of resistance.

This morning European markets are trading around the flat line….as they await today’s CPI, tomorrows FED announcement and Thursday’s ECB and BoE policy statements….

US futures are up small but if you want my opinion – I am not sure it holds…We had a nice rally yesterday – much of it in anticipation of today….so even if we get a better number – you have to ask – did we already account for that in the rally yesterday or will the algo’s just take it higher again?  At 4:30 am – Dow futures are up 40 pts, the S&P up 4, the Nasdaq is +10 and the Russell is up 1 pt.   In any event – it you’re a long term investor – you have nothing to worry about – and if you are a market timer – then you are realizing why that’s a losing argument….Stop timing and trying to pick tops and bottoms and stick to the plan….and if you are a day trader – then get ready to rumble!

The S&P closed the day at 3990 – after testing trendline support (3930) yet again.  Remember what I said yesterday……
“We are sitting right on trendline support- so this KEY…failure to hold here will see us test the long term trendline at 3840…. while a push up will see us test trendline resistance at 4040”

Well, we held and we shot higher…closing on the high of the day….S&P 4040 is only 50 pts away or 1.2% higher from here…a place we could easily go to – if the algo’s go into overdrive….(which is very possible – you know how ‘illogical’ the algo’s are). So, sit back and enjoy the ride.  
Take good care,

Chief Market Strategist
kpolcari@slatestone.com

#6 – Bay Scallops in a Black Truffle Cream Sauce

For this you need:  Bay scallops (the little ones), olive oil, butter, heavy cream, white wine, shallots, garlic, black truffle, white truffle oil, s&p, brussels sprout leaves, I lb. of medium pasta shells and fresh grated Parmegiana.

Ok – you can make this dish in 15 mins…. Put a pot of salted water to boil.

In a large sauté pan – begin with a ½ stick of butter and a splash of olive oil – turn up the heat to med.  Now add in the sliced shallots and chopped garlic…sauté in the pan for 5 – 8 mins…. now – turn up the heat and add in the rinsed bay scallops that you have towel dried…. You need them to be dry so that they sear quickly.

Add the pasta to the boiling water – stir.

Next – once the scallops are seared – turn the heat down to med and deglaze the pan with some white wine – allow it to steam off a bit – now add the heavy cream and shaved black truffle.  Stir well.  Now add in the white truffle oil – this is key – you DO NOT need much – it is very potent…add – mix, taste.  If you need a bit more than do so…but go easy – do not overpower.

Now take the leaves of the brussels sprouts (cut the bottom and the leaves fall off) and add to the pan – this will give a nice contrast in color.  Season with s&p.

Taste the pasta – should be almost aldente…. strain – reserving a mugful of the water.  Add the pasta shells directly to the sauté pan – pour about 1/4 c of the pasta water in the pan and mix well…. Taste and adjust if necessary.  Next add a handful of the cheese and mix. You will notice that the shells capture the scallop and some of the cream sauce…. perfect.

Serve immediately.

Buon Appetito