T- 24 hours Until we get the December CPI – Try the Rigatoni with the Gorgonzola Dolce Cream Sauce

Kenny PolcariUncategorized

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Things you need to know-

  • –        They resurrected the ‘FED Cave story’ stocks end the day higher
  • –        And it’s Jeffrey vs. Jamie – Oh boy….This is gonna be fun
  • –        Jamie says rates are going up and Jeffrey says ‘not happening’…
  • –        Oil up, Gold up, and European markets are also up
  • –        Treasury yields fall
  • –        Try the Rigatoni in a Gorgonzola Dolce Cream Sauce

 

Stocks rallied – kind of hard, but not really hard…the Dow added 189 pts or 0.6%, the S&P gained 28 or 0.7%, the Nasdaq advanced by 106 pts or 1%, the Russell added 27 pts or 1.5% while the Transports tacked on 37 pts or 0.3%.

And it’s that ‘FED will cave story’ all over again….Bloomberg said it best –

“Stocks Bounce Back with Brewing Optimism Over CPI..”

(Brewing Optimism is all the smart logic algos needed!)

So, the traders and the algos raised the temperature in the room – betting that the CPI report will not only weaken, but weaken beyond even what the very optimistic estimates already are…thus ‘building a case’ for the FED to stop the madness and pause further rate hikes beyond March.

And what made it more curious – according to the report was that JJ was speaking at a conference in Stockholm, Sweden yesterday and stayed silent on anything to do with US interest rates, – leaving some to suggest that he is ‘changing his mind’….But, he did say that ‘stabilizing prices requires making tough decisions that can be politically unpopular’.  So, the early morning choppiness gave way to a steady march higher by days’ end.  To be clear – it is all speculation – the FED did not change the narrative (yet)….

And then, Doubleline’s CEO – Jeffrey Gundlach stood up and said – ‘Don’t be ridiculous, the FED?  ……Investors need to pay 100% attention to what the bond market is saying rather than what the FED is telling you they are saying’ …In fact he said it this way

“My 40 plus years of experience in finance strongly recommends that investors should look at what the market says over what the FED says”    this echo’s the comments he made on Twitter last week when he said –  

“There is no way the FED is going to 5%.  The FED is not in control, the bond market is in control”

And that’s all the opposition had to hear….it was music to their ears….You see – the FED heads have all told us that they expect to take rates beyond the current target range of 4.25% – 4.5%, in fact – they plan on taking it to >5% – maybe 5.5%, but swaps are pricing in less than 5% – he then went onto say that JJ will cut rates before the ball drops on 2024 as the coming recession takes a bite out of us…..

You see – when the NFP report revealed declining wage gains and the PMI revealed a contraction in the services sector  – treasury yields tumbled across the curve –  the 2 yr. which was yielding 4.45% on Monday ended yesterday yielding 4.25% and this morning the yield has dropped to 4.21% – so Jeffrey says forget what  FED heads – JJ, Neely, Mary, Raffi, Tommy, Jimmy, Suzy, Lael, Loretta, Ester, Charlie and Lorie tell you….they don’t know what they are talking about….He then went onto say that an inverted yield curve has ALWAYS predicted recessions (or economic slumps as he called it) and it happened in ‘short order’….

OK – ready?  The yield curve has now been inverted for 10 months – 10 months…and we still don’t have an official recession as defined by the NBER  – so I would say – ‘Jeff, slow down big boy….how are you defining short order?  12 – 15 months?  Because that is about what it’s gonna be by the time, they ‘call it’.  And 12 – 15 months is not ‘short order’ in my book….but maybe in the big scheme of time – 12 – 15 months is nothing – almost like a pimple on your arse…(using the British version so to avoid being offensive!)  LOL….

On the other side of the wall is none other than JPM CEO Jamie Dimon…remember he was the one that warned of the coming hurricane back in June of 2022 – when the CPI was on its way up to 9.1% – well yesterday he came out and said that the FED might have to raise rates to 6% to fight inflation – now he is a bit outside the bell curve on this, but qualified it by saying this –

“first they need to take it to 5%, pause and then reassess – which might mean they need to go to 6%”  by next fall…. because in his view – inflation is not going to react the way many people expect….and pivot?  That word doesn’t exist in Jamie’s mind…….so now we have 2 of the biggest names on the street in direct contradiction to each other – trying to prove who has the ‘biggest set’ of (Well……you fill in the blank)….and THAT IS WHAT MAKES A MARKET (buyers and sellers)….This is gonna get good now…..because neither of these guys likes to lose, but one of them has to, so, I ask who will it be?  Bets anyone?

OK – now that we got that out of the way….

On top of this drama, the World Bank slashed the global growth rate in 2023 – from 3% to 1.7% – making it the 3rd weakest growth rate in as many decades saying that

“global growth has slowed to the extent that the global economy is perilously close to falling into a recession…”

World Bank President – Davey Malpass said he is ‘deeply concerned that the slowdown may persist, but that China might just be a bright spot…’ – well that’s a positive!

Eco data today is about Mortgage Apps – last week they declined by 10.3%, what happens today? Recall, February starts the ‘Spring Market’ for housing….as mortgage rates hover around 7%.   And did you see what the  #1 player in the business –  Wells Fargo did?  They are getting out of the mortgage business.  They no longer want to be the bank that everyone goes to….and they are also shutting down the correspondent business – that bought loans from 3rd party lenders as they ‘shrink the mortgage servicing portfolio through asset sales’.

And what happens next – Yes sir….another fresh round of layoffs- but they have not disclosed how many people are getting thrown out…..So, what does this mean?  Is WFC sounding the housing alarm?  Did they decide they wanted out of the business because the coming slowdown (recession) might prove to much?  Unemployment will rise, the economy will stall, and mortgage defaults will rise and they don’t want to be caught holding the bag?   

Which btw brings up another point this week…listen very closely to what all of the banks are saying about ‘loan loss reserves’……last quarter – they revealed that they are building a war chest to protect the banks from projected rising defaults – what will they say this quarter?  Are they allocating even more funds to the war chest? Because if so, that is a tell-tale sign about what they really think is about to happen….

Now oil ended the day at $74.70….after trading in a tight range of $74.40/$74.78…and this morning oil is trading at $75.40. Yesterday the API (American Petroleum Institute) told us that crude stockpiles grew by 14.9 mil barrels week over week, which isn’t necessarily a positive, but it was offset by the expectation that a China re-opening will propel demand higher….and if the FED eases back because inflation weakens, expect the dollar to weaken and that’s good for the commodity complex.  We remain in the $70/$80 range.

Gold ended the day at $1877 after trading in the $1876/$1882 range…. this morning gold is kissing $1890/oz – up $13 as we inch ever closer to $1900….as physical demand, momentum and the weaker dollar help send the precious metal higher as analysts expect gold to perform well this year.

This morning at 5 am – US futures are UP …. Dow futures +60, the S&P’s up 7, the Nasdaq is ahead by 18 and the Russell is gaining 4 pts.  Other than the mortgage data – there are no other macro data points to drive the action – so investors, traders and algos will position themselves for what they all think will happen tomorrow.

European markets are also up across the board – with the Eurostoxx index leading the pack at +0.85% and Spain lagging a bit only up 0.2%.  Investors there, like here, are biding their time, waiting for the next big data point…. Now, Bobby Holzman – ECB policy maker told the Euromoney Conference that ECB rates will ‘have to rise significantly further to levels that are sufficiently restrictive’ in order to bring inflation back to the 2% target…. hmmm  Now, look at all the chaos that could bring…. ‘Significantly further and sufficiently restrictive….’ – talk about leaving the door wide open to any interpretation!

The S&P closed the day at 3919 up 28 pts – once again piercing the up trending 50 dma at 3907… We are only 24 hours away from the December CPI report – I would expect more chatter today…. with the media focusing on Jeffy and Jamie’s analysis ahead of the actual report along with the latest World Bank commentary.

Let’s see who else comes out of the woodwork to take sides…. It will be very interesting to see how investors interpret the expected weaker data in light of all the recent commentary.  Remember, the tone can change on a dime (and usually does) and if there is any indication that the current FED narrative is about to change – then watch out….the algo’s will go hyperbolic….and a 3% or 5% move up would not surprise me at all.  Which makes me ask that question once again…..Is the tone so negative that its positive?

T minus 24 hrs….so sit tight, once the booster rockets fire, there’s no turning back…

Take good care.

 

 

 

Chief Market Strategist
kpolcari@slatestone.com

 

Rigatoni in a Gorgonzola Dolce Cream

For this you need:  1 lb. of rigatoni, olive oil, 3 medium shallots chopped, frozen peas, 1 pound of sweet Italian sausage – out of the casing, 6 ounces gorgonzola dolce, 1 cup heavy cream, flat leaf parsley minced, s&p and of course fresh grated Parmegiana or if you’d rather – fresh grated Pecorino Romano – but not both. 

Bring a large pot of salted water to boil.

In a large sauté pan – big enough to accommodate the pasta, heat up a splash of oil and brown the sausage…when browned, remove and set aside in a bowl.

Add another splash of olive oil to the sauté pan and add the shallots…. Sauté until soft (about 4-5 minutes) then add in the peas, cream, and gorgonzola cheese.  Heat the sauce on med high, then reduce to simmer.  Now – add back the sausage and blend.

While you are doing this – put the pasta in the water and cook for 8 mins – You don’t want it to be completely done…. Using a slotted spoon – remove the pasta from the water and add to the sauté pan. Do NOT throw the pasta water out!  Then add in about ½ c of the pasta water…keeping the heat on simmer – let the pasta finish cooking in the sauté pan…adding a bit more water if it appears to be drying out…This should only take another 2 mins or so….

Remove the pan from the heat and mix in the parsley. Taste tests the sauce and add s&p to taste.

If the pasta sucks up the sauce – just add more of the reserved pasta water, a bit at a time, to bring the consistency back to perfect. Serve with the grated cheese of your choice.  Parmegiana or Pecorino Romano.

Enjoy!