Things you need to know
- Stocks stage a reversal of fortune – more of a boomerang reaction
- Lonnie takes Twitter for $54.20/share
- FED in ‘quiet mode’ until next Wednesday – speculation running wild
- Big Tech earnings are on the way…. Hold on…
- Pan Roasted/Oven Baked Chicken w/Dijon Wine Sauce
I will be in NYC from today through Friday on business – You can find me on Fox Business with Maria Bartiromo on Wednesday at 7 am, Charles Payne on Thursday at 2 pm and Stuart Varney on Friday at 9 am. You can also see me on the TDAmeritrade Network with Nicole Petallides on Thursday at 11 am live from the NYSE.
Twitter Falls to Lonnie Musk for $54.20 share…. deal to close sometime later 2022 – Republicans and Democrats have two very different reactions – Surprise!
Fidelity to allow Retirement Savers to hold Bitcoin in their 401(k) Accounts by late 2022
And Stocks RALLY…….
So while the nervousness continued a bit on Monday morning, it faded as morning turned to afternoon…..…..Recall that Asian markets got slammed on Monday, and European markets ended the day off their lows but still lower on the day….and US stocks opened deeper in the red – the Dow falling 480 pts and the S&P breaching the January 24th low of 4220 to test the century mark at 4200 only to rally back to end the day in positive territory. By the time the closing bell rang – stocks had gone from negative to positive with the Dow adding 240 pts or 0.7%, the S&P’s up 25 pts or 0.6%, the Nasdaq added 165 pts or 1.3%, the Russell up 14 pts or 0.7% and the Transports up 165 pts or 1.1%.
Gov’t bond yields fell, meaning prices rose in a classic ‘safety trade’ – Money flows into bonds when investors get nervous about what stocks might do – and as prices rise, yields fall. The 10 yr. ended the day yielding 2.82% – down from 2.93% on Friday – when stocks took a beating. Some people would have you believe that this decline in bond yields suggests that just maybe the FED will not move on interest rates as aggressively as expected – an argument I think is BS…..and by the way – One day does NOT make a trend at all (think dead cat bounce)…the trend in bond yields is UP and continues to be up which means bond prices will decline and stocks will continue to adjust to that new metric – but after Friday’s ‘panic’ move – they have to say something to calm the markets….….
Look – the fact is that nothing on the macro data front has eased – in fact you can say it has only gotten worse and buried in the latest earnings reports are signs of weakness in forward guidance (think retailers and healthcare – just two of the latest) due to inflationary pressures – which is what helped to send stocks into a tailspin on Friday – (did that not happen??) The Nasdaq is down 17% ytd and is in BEAR market territory if you count the decline from November 2021 to now – (it is 21.5% as of last night) all because of the realization that rates MUST rise – the FREE money thing is over and stocks with no earnings (think of the disruptors – mostly Nasdaq listed companies) can’t compete in a rising rate environment – I mean that is what every analyst has been telling us for months now…and suddenly – that is not the story? So, how can anyone suggest that the FED may not act as aggressively?
We have had EVERY Fed member jump the fence and tell us all that inflation is out of control and that the FED has to do something drastic – I mean Lael Brainard!!! Even she changed her feathers…. going from dove to hawk…. Did we forget that? Talk of end of year rates being 2.5% have now been replaced with 3.5% and monthly moves are no longer 25 bps but now 75 bps…. Rates around the world are moving up in unison – so NO, I am not buying the – ‘Fed may not move aggressively’ argument at all.
It sounds foolish to me and many others. I mean think about it for one minute – can he FED or the administration for that matter – continue to allow inflation to surge without taking real action? They say history does repeat itself – so could we be in for a 1970’s/80’s style stagflation environment that wreaked havoc on the nation and the economy… Could we see inflation surge to 13.9% (as it did in 1981) before the FED does what Paul Volker had to do – Jam rates to 21% to stop the bleed? I mean – that is an option……but what do I know?
You would think that we learned something from that event? Jay Powell was 30 yrs. old in 1981 and Janet Yellen was 36 yrs. old, and Joey was 40 yrs. old – so I would guess that they DO remember…. I was 21 yrs. old, and I remember and just to be clear – It was not pretty…. So I am still in the camp that says – rates are going up and stocks will continue to reprice as a result – and by the way – repricing does not necessarily mean that they all go down – quite the contrary…but they will reprice. Energy is up 35% ytd, Metals and Mining up 30% ytd, Utilities up 3% ytd, Fertilizer names up 50+% ytd, Gold up 6% ytd, Consumer Staples up 3.5% ytd – do you see the picture – in the storm there are places to hide….
And then –
News that something was up with Twitter caused that stock to be halted at about 2:41 pm – rumors of a deal were flying all over the place all day long – and then BAM – at 2:55 pm – it was official – Lonnie is now the new owner of Twitter – by agreement – not yet legally, but all indications are that he will be at some point in early fall. The date to be announced – seemed to coincide with the feel better mood…….
The stock closed at $51.70/share – not the $54.20/share that it sold for – and why is that? Because of the time value of money…..while the deal is ‘done’ it isn’t really done until it the ‘fat lady sings’ (like in the opera) so the price will remain below the deal price and edge a bit higher everyday until the deal is done – and that reflects the risk that maybe it doesn’t get done – it’s econ 101….So, to answer a question that I was asked on Twitter yesterday-
“If I buy twitter at $51.70 – am I guaranteed to sell it at $54.20 when the deal is done?” And the answer to that is a resounding YES – as long as the deal gets done – it called ‘risk arbitrage’ – you buy it today and expect to sell in at the deal price and earn 4.8% between now and then.
($54.20 – $51.70)/$51.70 = 4.8% over a period of time – in this case 5 or 6 months….
Now back to Twitter for one minute…as you can expect – the news was received on both sides of the aisle quite differently…..On the Republican side – it was a vote of confidence for the return of uncensored free speech while the Democrats are screaming that because he can afford to buy Twitter outright that MUST mean he hasn’t paid nearly enough in taxes and so it goes back to #taxtherich! And in an almost absurd comment – Rep Pramalia Jayapal – Democrat from Washington said that
“It is absurd that one person can afford to buy Twitter for more than $40 billion while working families across this country have to choose everyday between buying groceries or prescription drugs.”
What makes no sense about that comment are a couple of things – He did not buy twitter himself – he has help from the likes of the big banks – think Morgan Stanley, Goldman, BNP, Mizuho, etc….so that is a mistake in understanding and two – whether or not Lonnie bought Twitter – working families still have to make a choice (because of raging inflation caused by both Democratic tax and spend policies along with a very accommodative FED that waited way too long to act) about whether they should buy food or prescription drugs. What does the purchase of Twitter have to do with that argument?
It would seem to me that we would welcome Lonnie Musk and support him – as a massively successful entrepreneur – helping to bring real change to the world – Tesla, The Boring Company, Space X, Neuralink etc. are just some of the examples…. And your argument is that he has not paid enough taxes? He has changed the world, employed thousands of people (all who pay taxes), changed communities and given more money away to charities than you can even wrap your head around – And, in case you forgot – he paid $11 billion in taxes in 2021 – more than any one individual ever has – or did you forget that? So please – Stop with the histrionics.
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As discussed in yesterday’s note – we are at a crossroads…. it is a big week for earnings that span the sectors, and it is also a big week for some more macro data ahead of next week’s all important FOMC (Federal Open Market Committee) meeting.
Today we are going to get Durable Goods Orders – exp of +1%, Ex transports of +0.6%. Cap Good Ordered of +0.5% and Cap Goods Shipped of +0.5% as well. New Home Sales are also due out today and the street is calling for a decline of 0.6% m/m…and as noted, with mortgage rates now better than 5% and likely going higher – I expect that we will see housing start to stall –Now if they proceed as expected and push fed fund rates higher than 10 yr. bond yields will push higher AND mortgage rates will trend higher as well (I think we will see 7% – 30 yr. rates by year end) and THAT will absolutely slow the housing market – the same way that ‘talk’ of higher rates have ‘slowed’ the Nasdaq market….see how that works.?
Ok – so what about today…European markets are all green…. up about 1% across the board….in what feels like a bit of a reversal after the drubbing they took on Monday – Kind of what happened here yesterday afternoon…. It is more of a bounce off an oversold position vs. a change in tone. Now to be fair – China did come out and say that they would boost monetary policy support for their economy – which is getting hit again by a resurging covid virus….and that is helping the tone a bit….the idea being that the ECB (European Central Bank) might pullback plans to become a bit more restrictive if covid returns….It’s the same argument as the FED – maybe they won’t be as aggressive – an argument I am not buying….inflation across Europe is also running at 30 yr. highs and only going higher….Just sayin’
US futures are down this morning as markets brace for the macro data points due out and continued earnings…Dow futures down 90, S&P’s down 10, the Nasdaq down 22 and the Russell down 5. We are bracing ourselves for earnings from big tech – Apple, Amazon, Facebook (Meta), and Google….
Oil is also rebounding a bit after the beating it took yesterday on the back of the China news…. (Locking down Beijing) We are still below support at $99.20 but are attempting to take it back…. Energy and the oil stocks took it on the chin yesterday…. but remember- its only temporary…. demand is strong….
The S&P closed the day at 4296 after testing 4200 earlier in the day…. The February low of 4130 is still in the line of sight and depending on what the FED says next week – will determine the next move. Recall that the FED is in a quiet period now, so do not expect to hear anything from the FOMC members until after next Wednesday. Earnings will continue to steal the show…. so, get ready.
Bitcoin is trading at $40,300 while Ethereum is trading at $3k.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Pan Roasted Chicken Parts in a Dijon Wine Sauce
For this you need:
1 2 ½ lb. chicken, washed, cleaned, dried, cut into parts, Olive oil, Salt & pepper, White wine, Shallots, minced, Fresh rosemary, chopped, 1 tbsp Dijon mustard
You need: I use thighs, but you can use breasts as well – on the bone. Wash and pat until dry, sprinkle with salt and pepper and rub with fresh rosemary.
Preheat oven to 450 degrees.
In a heavy-bottomed skillet heat olive oil on high heat until it shimmers, right around when it starts to smoke. Turn burner down to medium-high and cook chicken in batches, being careful not to overcrowd the pan, six minutes on each side until chicken is browned all over. Once every piece has been cooked, put it all back in the pan and put in the hot oven for 12-14 minutes.
Remove and reserve chicken. Put skillet back on stove on medium heat. Add shallots, additional rosemary and white wine for a sauce. Let mixture come to a boil and whisk in Dijon mustard and let cook for 5-7 minutes. Add chicken back to pan and let it heat through with the sauce on it. Once heated, serve with sautéed spinach or broccoli.
Buon Appetito.
