Things you need to know.
– Traders do an about face on the FED.
– Debt ceiling drama remains center stage.
– Dems urged Jo Jo to invoke the 14th Amendment.
– Oil backs off while Gold holds steady.
– 1-month Treasuries now yielding 5.74% annualized
– Turkey in turmoil
– Try the Lollipop Lambchops (think Turkey)
Stocks struggled but ended the day lower on Friday as traders are apparently reconsidering the FED’s next move after the latest U of Michigan sentiment and inflation expectations hit the tape…Sentiment fell to 57.7 down from 63.5 – suggesting that Americans are not feeling good about the path forward…and then we got 1 yr. and 5 yr. inflation expectations….and both of those reading were higher than expected at 4.5% and 3.2% respectively…….and that also didn’t help the tone….
At the end of the day, we saw – the Dow give up 9 pts, the S&P lost 6, the Nasdaq gave back 45 pts, while the Russell lost 4 and the Dow Transports gave up 52 pts.
Recall, that after the latest CPI & PPI reports left many trader types to assume that the FED will now pause at the June meeting – it appears they are changing their minds…..Swaps traders are now pricing in another possible hike….something you and I have discussed all along….Large asset managers/hedge funds/pension funds etc.…have always been pricing in at least one more hike and then a pause….all while the trader types – were pricing in a pause and then a PIVOT in July….another idea that seems completely out of line….but – that is what makes a market – both buyers and sellers.
Additionally, markets remain concerned about the debt ceiling discussions….and while they continue to try and create anxiety about a ‘coming default’ -you and I both know that isn’t happening. Notice that Treasury Secretary Yellen is now ‘redefining’ the word default – she told Bloomberg TV – that.
“We have to default ON SOME OBLIGATIONS, whether it’s Treasuries or payments to social security recipients”. (As if those are the only options….). I’m surprised she didn’t threaten pay for the military – something she is holding onto as a last-minute threat….
See how she did that? It’s either/or one of those payment obligations…. Let’s be clear – a default on SS payments (which is also unlikely to happen – because there are so many other places to pull money from – think furloughing gov’t workers, closing state/national parks etc.) is not the same as defaulting on US gov’t treasuries….and all that does is create anxiety among our seniors….many who depend on those payments….and she is hoping that seniors call their congressman/woman and put pressure on them to make that deal. She makes it sound like there are no other possibilities – which is BS……. But that’s another story…
Two weeks ago – a default was defined as the US missing payments on its treasury obligations and how the US credit rating was at risk all around the world, she used inflammatory language to accentuate the point…. just to heat it up. She then went to NYC on Friday to try and convince the heads of the families to put pressure on congress to just ‘give him what he wants’ and then negotiate on the spending AFTER we raise the ceiling with no strings attached…. Yeah, that ain’t happening…. the raise needs to be accompanied by a commitment to stop the stupidity…. much like we did the last time it reached ‘crisis levels’ – and that was when Barack occupied the WH – Do you see a pattern here?
Over the weekend – Democrats urged Jo Jo to use the 14th amendment to raise the debt ceiling….the 14th amendment would allow the President (by constitutional authority) to raise the debt ceiling to prevent a default (on gov’t securities) ….telling Jo Jo that he does NOT have to agree to any GOP demands on spending cuts or concessions to extend the nations borrowing authority…..a step that NO previous President has ever taken…..something that anyone with a brain in their head would recognize as dangerous. Dick Durbin (D-IL) telling us that the language is very explicit while Lizzy Warren (D-MA) told us that it is the Presidents responsibility to find an ‘alternative path’ should Kevin McCarthy push the country over the edge…. Notice the language….
And in the end – it is not necessary because the gov’t isn’t going to default (under the OLD definition) on its obligations…. Come on, get serious.
June 1st is not a hard date, it is not set in stone at all…..don’t be surprised to see us blow right thru that date as they define a new date….which could be sometime in August…..so no need to get nervous…there is plenty of time for these clowns to come to an agreement……but that doesn’t mean they won’t try to continue to create hysteria…..and just to be clear…..furloughed gov’t workers get all their back pay when the debt deal gets done…..My suggestion is that you send them (congress) all home and cut their pay until they strike a deal – and do NOT ‘retro-pay’ them when a deal gets done… Watch how fast we come to an agreement….
In any event – the headlines this morning is NOW suggesting that they are getting closer to an understanding…. and US futures are surging…. At 6 am – US futures are up nicely…Dow futures + 104 pts, the S&P’s up 14 pts, the Nasdaq is ahead by 35 pts and the Russell is adding 10 pts….
Remember – none of this drama will price stocks in the long term, the threatening language does create angst in the short term and that angst helped push stocks lower last week – …..causing some investors to abandon stocks while others remain steadfast……And this morning’s positive headline – will reverse that action…..causing investors to feel ‘better’ about the road ahead…and expect to see the best names that got arbitrarily dislocated over the past couple of weeks to outperform on the way up….which is why I keep telling you to stick to your plan, do not make emotional decisions….because you are usually wrong.
Eco data today the Empire Manufacturing Survey – exp of minus 4…tomorrow will bring us Retail sales m/m, Retail Sales m/m Ex autos and gas, Industrial Production, Capacity Utilization….and Business Inventories…. Later in the week
Oil got slammed again last week over concerns of a US default and recession…. oh, and also an ‘uneven reopening of China’ (which I think is BS) …. Oil ended the week $70.04/barrel…. down from $72.80 earlier in the week. This morning – oil is up 23 cts at $70.27 /barrel – tighter supplies and the idea that Jo Jo could initiate buying oil to replace the oil he gave away from the SPR (Strategic Petroleum Reserve) earlier this year. In addition – OPEC+ is set to meet on June 4th and it is expected that they will discuss the idea of MORE production cuts at this meeting…. they may not do anything, but it will certainly be on the table -especially if oil remains sub $75 barrel. Right now, we appear to be in the $70/$80 range…. with $80 being the sweet spot for the Saudi’s.
Gold rallied on Friday – as the debt issues caused many to seek the safety trade….Gold ended the week at $2020/oz…this morning gold is trading right there….if we see a resolution to the debt trade – then I would expect Gold to back off….and if we see interest rates continue to go up, I would also expect to see more pressure on gold…as higher rates will strengthen the dollar and that will cause commodity prices to retreat….Higher dollar = lower commodity prices and vice versa….and while that is also true of oil, oil is much more sensitive to what the Saudi’s do….even with a stronger dollar – if they cut production – it will tighten supplies and that will force the price of oil higher…In either case – I expect both assets to increase in price over the balance of the year.
Treasury yields remain tight…the 2 yr. yielding 3.99%, the 10 yr. yielding 3.47% while the 3 & 6-month bills are yielding 5.2% and 5.12% (annualized) respectively. The 1 month now yielding 5.74% (annualized). So just to be clear – if you put $100k into a 1-month treasury – you will receive $478 in interest…. ($100k * 0.0574)/12)
You can do the same math on the 3 month and 6-month bills as well – just divide the answer by 4 or 2 vs 12.
European markets are higher…. There is Turmoil in Turkey……Turkey had their election on Sunday and Erdogan got 49.5% of the vote while his challenger (Kemal Kilicdaroglu) got 45% of the vote…so there will be a runoff election in 2 weeks…. In the end – does anyone really expect Erdogan to lose? He’s been their leader for 20 yrs….. Think about what happened with China and Xi Xi…was he ever really challenged? Come on…….
The S&P closed at 4124 down 7 pts…. This morning – with futures higher and the media now all talking about an ‘imminent’ deal – expect us to churn (if not pop) higher….Remember – both sides NEED to win….Jo Jo needs to look as if he did not back down and cave while Kevin has to make it appear that that is exactly what Jo Jo did in order to get his caucus to fully support him. In any event – the only thing you need to realize is that while the debt discussions create angst, they do not price stocks in the long term, but the angst does create opportunities in the short term.
You know the deal – As a long-term investor – stick to the plan, build a more defensive portfolio to help weather the storm…. Use short duration treasuries as a holding place for cash – until you get ready to deploy it while using the contra trades (SH, PSQ, DOG, VIXY) to help protect you in a downdraft….…. In the end – it’s the emotional decisions brought on by those creating the hysterics that presents an opportunity in big mega cap names across the sectors for the long-term investor.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors.”
Broiled Lollipop Lambchops…
Simple to make and so good. All you need is an arugula salad mixed with cherry tomatoes, red onion, cucumber, and feta cheese. It is a 20 min meal.
For this you need a doz lollipop lambchops, Adobo seasoning (you can buy in the spice section at your grocer).
Turn the oven to broil.
Place the lamb chops on a baking sheet and season with adobo on both sides. Let them rest for 10 mins – and make your salad.
Now place the chops in the oven and broil – maybe 8 mins/side…. You want them to be crispy….so good.
Serve them casually on a platter with the salad on the side. Have a glass of wine, soft music, and boom…it has done.
Buon Appetito
