Things you need to know.
– Yellen Cuddles with the Glitterati
– More FED speak – Speaks to more Hawkishness.
– PACW comes under renewed pressure – causing angst across the sector.
– Oil and Gold are both lower – one of them is wrong.
– Try the Linguine Puttanesca
It’s a panoply of things….an ongoing wreck in the regional banking space, a chorus of FED officials warning investors not to become ‘dovish’ (yet) and a Treasury Secretary who is on her way to NY to appeal to the heads of the 5 families (glitterati) – GS, C, JPM, MS, & BAC at the Bank Policy Institute – (a lobbying group) to discuss ‘the impasse over raising the gov’t’s borrowing limit’ as she looks for ways to put pressure on congress to come to terms and avoid a debt default…..the headline says it all
“Yellen Plans to Cuddle with Wall Street Bankers as Default Looms”
It was really Huddle – but I think Cuddle is so much better!
At the end of the day – the Dow lost 225 pts, the S&P lost 8, the Nasdaq (was the winner) gained 22 pts, (this continues to say that traders are betting the hike cycle is over) while the Russell lost 14 and the Dow Transports gave up 82 pts.
In any event – it is what it is….Yesterday morning started with PacWest (PACW) telling us that their deposits dropped by 9.5% LAST WEEK – after telling us that withdrawals had stabilized after the May 4th and 5th storm….the storm surrounding the collapse of First Republic… Algo’s, traders and some investors were taken by surprise with the news and they took 23% out of the stock….leaving it to close at $4.70 – a stunning 80% decline from the March implosion that began with the hysteria around Silicon Valley Bank. And all this does is keep the nervousness alive….about what’s going on in the regional bank sectors….the KRE – The S&P Regional Bank ETF losing another 2.4% leaving this baby down 41% since that fateful day in banking history…..But remember – emotional histrionics cause angst where maybe there isn’t any – and that creates opportunities for the savvy investor….
And then we heard from Fed Governor Mishy Bowman – who was speaking at the ECB in Frankfurt, Germany ….and what did she have to say….well, let’s just say she’s not a dove…..in here comments – she reminded us all that if inflation remains high (which it is at 5.5%) and the labor market remains tight (which it is – unemployment at 3.4%) then additional policy tightening will ‘likely be appropriate to attain a sufficiently restrictive stance of monetary policy’. Mishy joins her colleagues NY’s Johnny Williams, St Louis’s Jimmy Bullard, Cleveland’s Loretta Mester and Minneapolis’s Neely Kashkari in calling for a more aggressive stance…Kashkari saying specifically that inflation is still too high and tight monetary policy will be needed for some time……
All this as the PPI (like the CPI) came in inline maybe slightly weaker (depending on which datapoint you choose) but still well above the target rates – suggesting that inflation remains sticky. So, to that I would say that all of you guys that are calling for not 1, not 2 but 3 rate CUTS this year – maybe you need your head examined…. make an appointment to see your therapist and ‘talk it out.’ The FED is NOT cutting rates this year….and I would also say that unless we get hit with some unknown Black Swan event that strikes from nowhere, an event that catches us completely off guard, that causes the economy or the financial system to be on the verge of a collapse – we are not getting a rate cut consideration until mid-2024….(12 month out). And consideration is just that consideration….it is not definitive…. Capisce? I mean it could be quick – consider and done or it could be slower – consider and then reconsider and then float the idea to see what the market thinks….
To be fair – Could we get caught completely off guard? Apparently, we could – especially when the regulators FAIL to do their jobs…. think San Fran FED’s Mary Daly – who failed spectacularly in overseeing banks in her district…. SVB, FRC and now PACW – just a note – we haven’t heard a peep from her since SVB went down in flames…. Just sayin’
And then to wrap it up – we keep hearing from Janet who warns us daily of the end of the world as we know it, if Kevin McCarthy and the GOP doesn’t just suck it up and let Jo Jo and the administration spend money like drunken sailors… She uses inflammatory words with every speech – Catastrophe, Tragedy, Meltdown, Debacle, Disaster, Fiasco the only one she hasn’t used is Apocalyptic (but I’m sure that’s next) – do I need to go on….And today – she is going to lunch with the families to drive that point home once again…..and here is the issue….this is a bi-partisan issue….we all know the ceiling will be raised – come on stop the hysteria, we also know that we need to reign in the stupidity – what would be easier for everyone is for all of them to grow up….I mean enough is enough….the June 1st deadline is NOT a hard date, June 15th is NOT a hard date….(As they get another inflow of tax receipts) so we could really see them push that date out to sometime in July….and remember – a gov’t shutdown is not a default.
This morning we learn that the WH has postponed today’s second debt ceiling meeting between Jo Jo and Kevin……Joey clearly trying to put more pressure on Kevin to cave…..and while the negotiations have just begun – we can all expect more antagonism from both of them…..as the clock ticks…Remember – both sides need to create the illusion of a ‘win’.
This morning we see US futures are up! At 6:30 we see Dow futures up 130 pts, S&P’s up 15, the Nasdaq ahead by 26 and the Russell is adding 8 pts to the mix.
And remember that Regional Bank ETF? That’s up too (KRE +1%)….other names in the group carrying the load – one of my favorites – WAL is up 2.2% in the pre-mkt – (but to be fair that name is down 66% since the sell off began) but like I said – emotional histrionics do create opportunities in displaced names…as long as you think the fundamentals are solid….But remember – the internet creates havoc, the news can cause algo’s to react in pico seconds (in either direction), so you need a strong stomach to play in this space right now….Take a look at NYCB – it got slammed in March falling 42%, (In the wake of the hysteria) but has since taken it all back and is up 69% from the low of March 13th…. So, if you had the (fill in the blank) to be a buyer in the middle of that storm – you are patting yourself on the back now.
Eco data today includes the U of Mich survey stuff…Sentiment expected to be 63 – down slightly over the last read, 1 yr. inflation expectations – 4.4% (still high vs. the target).
Oil got slammed yesterday as they reignited the global economic fear story….demand destruction in the US and China (of all places) – an argument you know I don’t buy….they are now suggesting that the debt ceiling impasse and renewed banking crisis as the reasons for the drop in oil…..and while that sounds like it makes zero sense when we talk about oil – the way they make it work is that those two events will send the US and global economy into a deep recession and it is that recession that will destroy demand – thus the drop in oil…..OK – but now with oil teasing $70 (again) expect the Saudi’s to raise the prospect of cutting production to ‘manage supplies’…..and then it’s off to the races (again). Remember – $80 is the sweet spot…. that’s all you need to know.
Gold is down $10 – trading at $2000 – higher treasury yields, and a firmer dollar being cited as the reason for the weakness…. which flies in the face of the oil story above – why? Because those kinds of concerns – banking and debt impasse – would be a reason to OWN gold not sell gold…so the gold market is telling you that the oil market is wrong…..Weaker gold would suggest no banking or debt concerns…so let ‘s just see how this plays out….someone is on the wrong side of this argument…and I think it’s oil. Because I don’t believe the debt ceiling issue will be an issue and nor do I think the regional banking issue will spin out of control – but that’s me…you do you.
Treasury yields remain tight…the 2 yr. yielding 3.89%, the 10 yr. yielding 3.41% while the 3 & 6-month bills are yielding 5.2% and 5.12% respectively. The 1 month now yielding 5.6% (annualized).
European markets are higher…. Italy in the lead – up 1.1%, followed by Spain +0.9%, France +0.8%, Eurostoxx and Germany +0.5% with the UK in last place up 0.3%. Better earnings from Cartier maker Richemont +7.8% is helping the luxury sector along with investors getting more comfortable with ECB/BoE monetary policy.
The S&P closed at 4130 down 7 pts…. PPI did not surprise anyone in either direction, so the action is all about the debt ceiling, the banking issues, FED speak, rate hikes vs. cuts, and the general sense of when (not if) we officially enter that elusive recession….
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 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.”
Linguine Puttanesca
This dish is a classic….and originated in Naples and is today a staple of the Neapolitan household. It is made from tomatoes, black olives (or Kalamata Olives), capers, anchovies, onions, garlic, oregano, and parsley. It is easy to make and has an interesting history. It is spicy, tangy, and vibrant – an appropriate description of the mkt today…
Bring a pot of salted water to a rolling boil – then turn to simmer until you need it.
Start with 3 crushed garlic cloves sautéed in olive oil about 3 / 4 mins…do not let it burn… next add a diced white onion and sauté for 5 mins or so….
Now add in the chopped anchovy filets and sauté – as they cook, they melt away. Add one can – 28 oz – of kitchen ready crushed tomatoes… not puree – Crushed.
Add about 1/4 of a can of water – Let simmer for 10 mins or so. Next add capers, oregano, pepper, chopped Italian parsley, and rough chopped pitted Kalamata olives or pitted black olives – whichever you prefer – but do not mix… It is one or the other. No need to add salt as the anchovies are salty enough. If you like more bite, you can add red pepper flakes at this point… cover and let simmer.
Add the Linguine. Let boil for 8 mins or until aldente.
Remove and drain – keeping a mugful of the pasta water. Add the pasta to the sauté pan with the Puttanesca sauce and heat and stir until well coated and fragrant. Serve immediately onto warmed plates offering up grated Parmegiana cheese on the side.
Buon Appetito
