Things you need to know.
– Consumer Confidence surges
– Banking Crisis? Don’t be ridiculous!
– Markets churn as we await more inflation data.
– Regulators defend themselves on Capitol Hill
– The IRS pays a home visit to journalist Matt Taibbi
– Try the Veal Rollatini
Consumers are confident! The Conference Board’s consumer confidence survey surges to 104.2 up from last month’s 102.9 and well above the expectation of 101. Investors/traders and algo’s appearing to shrug off all of the latest hysteria created by the VC’s out in California, you know…the ones that took down SVB, and tried to take down First Republic and a handful of other regional banks……..the ones that we should be holding responsible for chaos and subsequent bank failure that they created…You surely would have been entertained if you watched the grilling on Capitol Hill – as Senators from all walks of life took their turn questioning the roles that the FED, the San Francisco Fed and the Treasury played as this crisis was building over the past year when the bank didn’t have a Chief Risk Officer while the FED embarked on their campaign to raise rates… I mean – it was comical…as no one stood to take any responsibility at all for the FAILURE to regulate – now I want to see what the former C-suite at SVB has to say – talk about epic failures….
And while consumers are not worried about the banking crisis they are also NOT concerned about the FED’s next move….The futures market is now pricing a MORE than 50% probability of a 25 bp rate hike in early May (this has been expected but was questioned in the past 2 weeks as the issue of bank ‘viability’ soared)…Then after the next hike – the futures market is then pricing in a sharp reversal that is supposed to see the FED CUT rates by 100 bps before Santa comes to town…..(this is the ‘unexpected’ part and the part that makes ZERO sense,)
Now – to be sure – the idea that the FED will raise rates again in May and then do a complete 180 and then begin to sharply cut rates in late summer/early fall – is nothing short of RIDICULOUS. I mean do these people listen to themselves when they talk. Do they NOT see the complete insanity of the statement? Pausing maybe, but a pivot? Come on! Inflation is still running at 6% – a good 4% above the target…. The implication of their statement suggests that they expect inflation to plummet and the economy to go into a deep recession…..and while I do agree with the ‘hard landing, deep recession’ narrative- I do not see inflation plummeting…and by the way nor does the U of Mich 1 yr. inflation survey….they estimate that inflation 12 months out will be 3.8% – still 1.8% above target.
Look, The FED has remained hawkish, they have remained steadfast in not only their language but their commitment to ‘kill’ inflation (no matter the cost)….So for any of these bozo’s to suggest that the FED will raise in May, pause in June, cut in July, September, October and November – is nothing short of asinine…Clearly none of these talking heads were alive in the mid 70’s to early 80’s because IF they were – then they would understand how ridiculous that sounds….and tell me all you want that ‘this time it’s different’ – and you would be right, – we have a $9+ trillion balance sheet, we are spending dollars like they’re going out of style….Oh right, they are going out of style…have you seen the price of Bitcoin lately…..$28k/coin up 70% ytd….Why? Because people are tiring of the BS, the control, the antics……but that’s another story….
Tech continued to lead the way lower on Tuesday as bond yields rose – the Nasdaq losing 53 pts or 0.4% – dragged the others down just a bit lower….nothing dramatic and it even seems odd to suggest that it was anything because it was nothing really. The Dow fell 38 pts or 0.1%, the S&P fell 7 pts or 0.15%, the Russell lost 1 pt while the Transports gained 44 pts or 0.35%.
6 of the 11 broad sectors ended the day lower – and that makes sense (just look at the indexes) and 5 pushed ahead…. Notice those groups that pushed ahead– Industrials, Utilities, Consumer Staples, Energy and Basic Materials…much of it the ‘stuff that people need’. Other sectors showing some lives were Airlines, Retail, Metals and Miners, Aerospace and Defense, Homebuilders etc. But in the end – nothing moved dramatically in either direction.
Investors are treading water…just waiting for more data to determine the next move…..as they continue to amend their bets as they await Friday’s PCE data….the FED’s favored inflation gauge and it is expected to show m/m inflation at +0.3% and y/y at 5.1% and if you modify it and ‘take out’ the things that you don’t want in the report – then it shows m/m inflation running at +0.4% – which is worse, but y/y is only +4.7%…..which is what they hope you will focus on….the 4 handle….
Now today – the eco data is all about housing…Mortgage apps at 7 am and then Pending Home Sales at 10 am….Pending home sales are expected to be down 3% – the fun will be what the real number is….Remember – Pending home sales are contracts that have been signed but not closed yet…there is typically an 8 – 12 week lag…between signing and closing – just fyi…..what were rates 8 – 12 weeks ago? Were they higher than the current 30 yr. rate of 6.5% because that may offer a clue to what the number will be….
Tomorrow brings us the final revision to 4th qtr. GDP and that is expected to remain at the current +2.7% – so no surprise there….and then there is Friday…..Oh boy….can you feel the excitement?
Oil continues to rocket higher….ending the day at $73.25 up 1.1%….……Yesterday’s story…..the apparent supply disruption out of Iraq……after Iraq forced a halt of exports (some 450k bpd) from its northern Kurdistan region that goes through Turkey….after someone decided that they needed Baghdad’s consent before they could ship the oil. Barclays was quick to point out that any ‘protracted outage of Kurdish exports thru year end’ would imply a $3 dollar premium on top of their current estimate of $92 barrel for Brent crude. In addition, the dollar weakened and as you know that helps the commodity complex – think oil, gold and other precious metals. Oil is now up 14% since last week and needs to test and pierce trendline resistance at $76.30…..otherwise we could see it flounder between $65/$76….If the Saudi’s make noise next week about cutting production – then that move up and thru resistance will be like a hot knife thru butta!
And bonds – they continue to be confused…. 2 yr. yields ended higher at 4.07% up from 3.89%, the 10 yr. did nothing ending the day at 3.56%….while the shorter duration 3 month and 6 month bills are yielding an annualized 4.79% and 4.87% ….all offering shelter in the storm.
Gold pushed higher as well…. closing at $1992 up 1.1% on the back of a weaker dollar……Remember- a weaker dollar makes Gold less expensive for foreigners – since commodities are priced in dollars, they are keenly sensitive to moves in the dollar. The inverse relationship drives so much of the action and then FEAR (or not) plays a big role after that. We remain in the $1950/$2030 trading range – trendline support though is at $1915.
US futures are UP…. Dow futures + 225 pts, the S&P +35, the Nasdaq ahead by 115 and the Russell up 20. Remember – some investors are still trying to pinpoint if the recession is going to hit….others are preparing for the hit….while others are completely oblivious to a hit at all….Sit tight – this story is far from over…..
There will be more drama on Capitol Hill today….Mikey Barr – Vice Chair of Supervision (think regulation) for the FED will be in the hot seat again trying to explain away the most recent regulatory bank failures…. On the other side of Capitol Hill we will learn more about how the IRS came a knocking on famed journalist Matt Taibbi’s door on the exact same day he was testifying in front of congress about the role that Twitter played in the Democratic response to Covid 19 – as they tried desperately to censure/cancel anyone that didn’t buy into the ‘bat to human’ transmission story……while they shut down the whole country and any scientist/doctor or person that dared to challenge them. Gain of function research? Don’t even suggest it….US support – ridiculous. Chinese biotech warfare – nothing but hysteria… Now, none of this will price stocks – but it will provide plenty of entertainment and distraction in the months ahead.
European markets are all up – Spain the laggard, only +0.5% while France is in the lead up 1%. UBS announces the return of Sergio Ermotti in his role as CEO after the acquisition of Credit Suisse. Ermotti was a loved CEO at UBS between 2011-2020…and is the one to build and restore trust at the bank and in the European banking sector. Investors now returning to focus on the macro-economic picture as they discuss what some see as the coming ‘credit crunch’ both in Europe and the world.
Speakers today include: Boston’s Suzy Collins and Richmond’s Tommy Barkin and our famed Treasury Secretary – Janet Yellen. on Thursday. On Friday we will hear from NY’s Johnny Williams and ECB President Chrissy Lagarde.
The S&P closed at 3971 down 6 pts….holding its own vs. the trendline at 3960 ish. Resistance at 4015. Everyone waiting on Friday’s PCE report. Remember – remain focused – do not get drawn into the frenzy – take advantage of it….in Chaos is opportunity.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
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Veal Rollatini w/Prosciutto, Red Onion, Arugula and Fresh Mozzarella
For this you need: Veal cutlets, Prosciutto, sliced fresh mozzarella, arugula, red onion, butter, oil, s&p and some beef broth.
Preheat your oven to 350 degrees.
Begin by seasoning the cutlets… then take one – lay it flat on the cutting board, place a slice of prosciutto, a slice of the mozz, a slice of red onion and some arugula. Roll it and pin it with a toothpick – set aside and repeat.
Place a dollop of butter and a splash of olive oil in a frying pan and turn the heat to high… When it’s almost sizzling – add the rolled cutlets and brown on all sides… this might take all of 5 mins… Place in a baking dish – now add more butter to the pan along with a 1/2 cup of beef broth (you could use a dry white wine if you prefer) and let it come to a boil – deglaze the pan and then add to the baking dish so that the rollatini are just bathing… cover and place in the oven and cook for another 10 mins max.
Remove and place on a serving platter – serve with an herb seasoned rice pilaf and a mixed green salad dressed in oil and fresh lemon juice, s&p and dried oregano. Simple easy and it takes all of 30 mins start to finish.
Enjoy!
