The weakness in US markets yesterday (we gave back all of Tuesday’s gains) is another wakeup call. The excuse yesterday? More concern that the Fed is readying to pull out. More speculation over the next move. Come on! Really?
Haven’t we talked about this ad nauseum? 2 or 3 “better than exp” macro reports will not cause the Fed to change course. It is still too early for a withdrawal and remember – Japan has only just begun. A June FED event is not happening, and my guess is that even an August event is unlikely – although August will give us 3 months of more macro data to help in the decision making process. We do know that at some point the insanity has to stop, but an early withdrawal after all of the time, money and discussion seems premature, no?
Listen, we have begun to see longer term investors shift out of the more defensive play. Money coming out of treasuries and defensive equity sectors, utilities, telecoms and consumers (high dividend paying stocks) and into cash and/or broader cyclical portfolios as they prepare for an eventual move by the Fed (always better to set your ducks up ahead of time), but nervousness is still very much a reality, and to support this claim look at what happened overnight – Japan gets CRUSHED (as concern mounts that Uncle Benny is readying to withdraw the Kool Aid)….down 5% in one session, taking it down now some 15% in 7 days (now in correction territory) but still leaving it +30% ytd…not so shabby and further downside pressure should not be a surprise as the markets re-price risk. In retrospect was the +45% ytd move in Japanese equities a bit “irrational?”
Market strategist Kelly Teoh of IG Markets describes the recent sell off in Japan as “bloodshed”…..again – Really? Bloodshed? Maybe – if you happened to jump in when the market was +45% and now you are looking at -15% return in 7 days, but if you are a long term investor it is hardly “bloodshed”…..The trader types that got sucked in with the hype and thought that it could only go higher are a bit disappointed for sure and are only adding to the swift ‘adjustment’ in prices as they bail out. Is this ‘adjustment’ just another opportunity for the savvy investor? Stay tuned…..
Global nervousness over Fed policy continues to drive short term market action…..and if you are keeping score then it is a draw, with Fed Presidents who insist that easy monetary policy is a given well into the future vs. Fed Presidents who argue that it makes sense to start reducing the pace of Fed asset purchases. Add in yesterday’s commentary by Boston Fed Pres Rosengren – who said NOTHING NEW other than re-iterate all possible choices – withdraw, increase, analyze, adjust, do nothing, do something, in short – create confusion….and traders remain confused..so what do they do? Take some money off the table…..until they get a better sense, but what does the long term investor do? Remain convicted…..tweak the portfolio to reflect any new information – but no need to run for the doors…..as I have said many times….try to ignore the noise created by current market structure and the resulting high freq trading….etc….stay the course. Recall first grade: The Tortoise and the Hare – Slow and steady wins the race.
Today we are going to get the 1st revision to 1st Q GDP. Most analysts expect little change from the first estimate of 2.5% and this has already be discounted in the market. In other words, unless it gets revised significantly it should not affect the markets in any significant degree. Beyond that, we get initial jobless claims of 340k and Cont claims of 2.99 mil. Throw in pending home sales to spice it up and with all of the good news on housing recently – expect more talk…..
I will be very curious to see if anyone discusses a WSJ headline article today….
” Mortgage Relief Plan is Extended”
….it seems that the ‘signature consumer mortgage modification initiative’ is far from dead…….Senior admin officials – without admitting or denying the reality – will NOT dismantle this Obama signature program – citing the housing busts lingering damage. 1.1 mil are in some stage of foreclosure proceedings – banks processing at the rate of 52k/month. Obama officials “re-tooling” the program to encourage banks to write down loan balances and relax requirements demanded of borrowers. And the world turns…..
US Futures were trading lower in early morning but are now a bit higher currently +3 pt s at 1650….as noted yesterday 1645 is the short term support level…..and trader types are watching to see if we violate the lows of last week – 1635 ish….which would then set us up for a test lower. We remain stuck in this 1635/1675 range. We have 2 days left in May so expect some window dressing to constrain any move.
Tomorrow afternoon we will see the broader MSCI portfolio rebalancing. MSCI is a leading provider of investment support tools to large global investment institutions for use in managing multi asset class portfolios, passive index portfolios and ETF portfolios. Tomorrow marks a change in asset allocation percentages in equities and as such many institutions will need to “rebalance” their portfolios to reflect this. Expect increased volumes/volatility today and tomorrow as PM’s around the world make these adjustments.
Overnight in Asia The Nikkei ends -5.5%, China -0.27%, ASX -0.89% and Hong Kong -0.3%.
In Europe markets are moving a bit higher after yesterday’s selloff. They did get some positive eco news out of the Eurozone this morning….sentiment rising by 0.8 to 89.0 – better than expected. Fed tapering fears – although still present – are not taking a huge toll as many investors realize that any imminent move is pre-mature. FTSE +0.14%, CAC 40 +0.80%, DAX +0.5%, EUROSTOXX +0.67%, SPAIN +0.40% and ITALY +0.97%
Take Good Care
KP
Garganelli with Sweet Sausage in a Tomato and Cream Sauce
This is such a great dish….easy to make and makes you feel like like you’re in Nonna’s house…..
Heat olive oil in a pot…add crushed garlic and one diced onion (Vidalia if you can get it). Sauté until soft and sweet, next add the sausage meat – which you have removed from the casing – until brown. Next add 2 cups of dry white wine and let the alcohol burn off….open 28 oz can of plum tomatoes and rough crush – so that it is a bit lumpy. Bring to a boil and then immediately turn to simmer. Stir and cover. Don’t go too far because you will need to stir again.
Now add 1 cup + a little more of heavy cream (you can use lite cream if you prefer – but heavy cream gives it a richer taste). Let simmer until thickens…only about 4 or 5 mins….
In a separate pot bring salted water to a boil and add pasta – You can use any type of pasta you like – typically a short pasta is better vs. a spaghetti or linguine for this dish.
Cook until aldente – 8 / 10 mins…strain – reserving a mugful of the pasta water….Add the pasta directly into the sauce and stir – making sure to coat well. Add a handful or two of parmegianna cheese and mix. If it looks like it needs some more liquid -add a bit of the pasta water to moisten. Serve immediately – offering more grated cheese to your guests. -
On a separate plate – make some garlic bread – using “Panne di Casa” sliced loaf. Melt butter/olive oil add crushed garlic and heat so that the garlic permeates the butter. Next using a pastry brush – brush the bread with the butter/garlic mixture and place under broiler until golden brown. Turn over and toast. When done — remove from oven – slice in half and serve alongside the pasta…..It doesn’t get any better than this…..
Buon Appetito.
The US dollar ended the week with gains as positive macroeconomic data supported expectations of an end to Federal Reserve’s quantitative easing. The gains were limited and the greenback fell versus the Japanese yen, though, as not all reports were good.
Australian dollar is heading lower today, dropping as commodities continue to struggle. With the Federal Reserve on the verge of pulling back its stimulus efforts, and concerns about global growth rising to the top, Aussie is having trouble today.
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The New Zealand dollar fell today after Reserve Bank of New Zealand Governor Graeme Wheeler said that the central bank is prepared to weaken the currency.
Euro is getting a bit of a boost today, thanks in part to the confidence report out of the eurozone. Economic confidence increased more than expected, and the euro is also seeing support as the United States sees disappointing economic data.
