Things you need to know
- It is a big week – CPI, PPI & Earnings
- Watch what the FED Heads say on Wednesday afternoon as CPI is expected to jump by 1.1% m/m
- What will the big banks say on Thursday and Friday – are Loan Loss reserves going up?
- Auto repossessions on the rise – is that a canary in the coal mine?
- Try the Porcini Rub….
*Here are my appearances on Maria Bartiromo’s Wall Street this weekend joined by Joanie Bily along with my appearance on the Larry Kudlow Show on WABC Radio with Stephanie Link on Saturday afternoon.
https://video.foxbusiness.com/v/6309306318112
Employers continue to hire – NFP report shows that we added 372k jobs to the lineup – leaving us at still down 11% from the pre-pandemic levels….and at the current rate of job restoration we should realize a complete recovery of the losses sometime in the 3rd qtr. of 2022……The average recovery rate right now is 89% per state – that is the average, but there are 13 states that have fully recovered……while only 2 that remain well below the average – they would be Hawaii and Louisiana
Unemployment remained at 3.6% equaling the February 2020 rate pre the pandemic. Labor market shortages ratio across the states equals 1.9 – meaning that there are nearly 2 job openings for every unemployed person – however it is glaringly acute across the West and Midwest. And these shortages are the reason that wage growth continues to be elevated – leaving the states with the higher ratio of openings seeing the highest level of wage growth.
The labor participation rate fell to 62.2% suggesting that people are dropping out of the workforce. Avg hourly earnings m/m was +0.3% while y/y earning grew by 5.1% – Great – but inflation is running is 8.6% and is expected to go higher this week….so workers are still behind the 8 ball…. More on that in one minute.
Lonnie Musk stuns Twitter (and all the arb traders that jumped on board) by dropping his $54.20 bid to take the company – all because Twitter refuses to produce the accurate user information that he has requested – now to be fair – Lonnie – with his ‘bull in a china shop’ personality – supposedly signed those rights away when he made the bid – most likely against guidance – and now that is at the core of what’s next…..
And what is next is that Twitter is down 9% in the pre-market – which means it is trading around $34.50/sh down $3.30 – which is expected to erase $2.2 billion worth of market value. It is now $20 below his bid and $10 above what it is most likely worth…. As you can imagine – the Twitter board is committed to ‘closing the deal’ on its original terms – the street speculating that this legal maneuver will take months if not years to resolve….and the lawyers are lining up – because this is going to be ‘rich’ trade for them – Musk and Twitter expected to see scores of lawsuits….Legal rates – especially in this case will make new highs….So I guess you could say – Lonnie is now at the root of wage inflation in the legal industry……
Ok – now this week – we have a lot going on…..and it all happens on Wednesday and Thursday – The CPI (consumer price index) and the PPI (producer price index)…..you can feel the tension in the air…..Now the estimates for the CPI suggest that we should see it rise of 1.1% m/m – which equates to a 13.2% annual rate…..(do the math – 1.1 x 12)…..all while they tell us that CPI y/y is only expected to be +8.8%… so, someone missed 4th grade math class – just not sure who that was….
And the PPI (producer price index) is supposed to show a monthly increase of 0.8% and a y/y increase of 10.7% – so anyone who thinks inflation has peaked and is slowing – put your glasses on and do the calculation over again. It is not slowing, nor has it peaked….
The other event happening on Thursday is the start of earnings season….and the moment of truth is only hours away…. So, let us see who is right…. it is hard to find many analysts that do not agree that earnings are still too high…consensus appears to be just that given the tough macro environment. – slowing economic growth and rising inflation will surely hit the bottom lines this quarter – the kick in the pants is if the guidance suggests that we will see that same pressure in the 3rd and 4th quarters as well.
It is the Big Banks that kick it of….and while earnings here are expected to be ‘ok’ – watch what they say about loan loss reserves…. are the allocations rising as they prepare for tougher times ahead? Rising rates are adding to the bottom line, but will those same rates push us into a tough recession? JPM, BAC, C, WFC, GS, BLK all on the docket this week.
Look – analysts are always trying to play nice in the sandbox with companies that they cover – they are slow to CUT estimates (as that sends a negative message and the company CFO won’t answer the phone when it rings) but if these companies report weaker results and offer weaker guidance – then these analysts will have NO choice but to cut forward estimates – so, sit tight….and strap in. Earnings were expected to grow by 11% this year (January estimate) …. but estimates are coming down and range anywhere between 0% – 6%. And this decline in estimates has caused stocks to tumble taking the multiple on the S&P to 16.4 x’s down from 21.5 x’s earnings and if the forward guidance is even weaker than the expectation – the watch as the current multiple comes under even more pressure (think weaker prices ahead).
10 yr. treasuries ended the day yielding 3.08% – this is up significantly from last weeks 2.79% and likely going higher after we get the CPI and PPI this week. As noted, – the FED is expected to raise rates by 75 bps – taking FED funds to 2.5% leaving September 20th and 21st as the next target date for a rate increase. Analysts and strategists suggest that we will see only a 50 bps move then – but it is way to early to make that call with any clarity…. we will have 2 more months of inflation data to contend with….
Oil ended the week at $104.70/barrel – and is trading down $2.50 this morning at $102.20…. someone is running with the demand destruction story again this morning….as they warn of the coming recession and global slowdown….
Over the weekend – there were all kinds of stories about the guys that repossess automobiles….in fact these guys are buying land to use as ‘parking lots’ since the rate of repossessions is expected to surge and they will need a place to put all of these cars – so I guess you can say that the price of used autos is about to plunge – because there will be plenty of supply…..
Here is one story from Barron’s
https://www.barrons.com/articles/recession-cars-bank-repos-51657316562?utm_content=214333272&utm_medium=social&utm_source=twitter&hss_channel=tw-3280573716
And by the way – also in Barron’s was an article about how Uncle Warren thinks Energy stocks are cheap too…. buying $40 billion worth of CVX – just wait until he realizes what COAL stocks have done and will do as winter approaches Europe….
This morning – US futures are down, the Dow down 165 pts, the S&P’s off by 25, the Nasdaq lower by 100 pts and the Russell off by 15 pts as we head into what will surely be an interesting week. There is no eco data today – but there is plenty by mid-week.
European stocks are also lower…. with all the major markets across the zone down about 0.75%. concern over the coming US inflation data along with the start of earnings season is weighing on stocks.
The S&P closed at 3899…. And with futures pointing to a lower open it is easy to see how we could be on our way of testing 3600 again over the next couple of days…Much of what happens will begin on Wednesday…..and when we get the CPI report – expect to hear more speculation on what the FED will do…remember – JJ did put a 100 bps rate hike on the table last month…. And if the CPI and PPI are stronger than the estimates – do not kid yourself…. we will see the conversation turn to a 100-bps rate hike almost immediately – because they* are ‘nervous’ now…. (*Fed members). They realize that they really missed the boat, they missed all the signs…. or they just chose to ignore them – hoping they would go away…. How is that workin’?
2% annual inflation rate? That’s not happening anytime soon….especially if the CPI m/m print comes in at +1.1%….But again – do not panic…much of the damage (in my opinion) has taken place….
S&P 3600 is in the line of sight, but I think it holds as long as we aren’t in the recession that they tell us we aren’t. If they finally concede and admit defeat, then S&P 3400 could be in the cards…. What I do not see is S&P 4800 by year end the way that JPM, Oppenheimer, RBC, UBS, BMO, and others do…. I am in the 4000/4200 camp right now.
Stay focused…. continue to put money away in tax advantaged accounts…. you can keep it in cash and be patient if that makes you comfortable or you can continue to put it to work…. but put it away.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Porcini Rub on Lollipop Lambchops or a Grilled Rib-Eye
Porcini Rub for Broiled Lollipop Lamb chops or Grilled Steak Tagliata
This is all about the rub – where you use it – is up to you….
For this you need: Dried porcini mushrooms, sugar, s&p, garlic, olive oil and balsamic vinegar. Grind 1 oz of dried mushrooms until fine…you can use a mortar and pestle or a food processor.
Next combine the mushroom powder with 2 tblspns of sugar, 1 tblspn of s&p, 4 garlic cloves and about 1/4 cup of olive oil. Set aside. You can make a container of this rub up to this point and store in the fridge in a sealed jar. When you get ready to use it – take it out of the fridge and let it come to room temperature. Mix and then massage it into your meat of choice. I would use this on a rib-eye or on lollipop lambchops….
For the Lollipop Lamb chops – massage the chops with the porcini rub – both sides – place on broiler pan and let rest for 20 mins or so.
Turn the broiler on high – and place the chops under the broiler. If you choose – you can also do these on the grill but beware – they will cook fast – so stay tuned.
You want them to be juicy yet a bit crusty……Once they are done – arrange on a bed of arugula salad – seasoned with s&p, fresh lemon juice, a splash of oil – drizzle some nice balsamic vinegar over the top and serve.
Now if you choose to use a rib-eye then serve it up ‘Tagliata Style’
Tagliata (tal-li-ata) is just the way you serve it. Sliced and fanned out on the plate topped with the arugula salad and shaved parmegiana cheese.
Simple, easy. Enjoy.
Buon Appetito.
