Investors Re-think the Move Lower

Ok...everybody take a deep breath......yes the last couple of weeks have been interesting - Oil, junk bonds and the Mid-East mkts have gotten trashed....Margin calls adding to the pressure for some investors to raise cash while others are just choosing to exit the sector.

Oil now down some 47% off the summer highs, Junk bonds as an asset class are down some 8%, ( while energy related junk bonds funds are down 25% - 35%) as concern in the oil patch now spreads across the entire industry..... Moves are exaggerated as many buyers smell blood in the water, causing sellers to become panicky......the issue in a mkt like this is liquidity.....and the lack of liquidity in some sectors causes investors to sell 'what they can vs. what they want to' to raise cash........it is a recurring theme across all asset classes when the temperature goes up....(and thus some of the pressure on stocks)

Remember - the broader US mkt is off by 3.2% from the most recent highs - hardly a reason to hit the panic button.....and the weekend gave many time to re-group - and re-think the broader issues. In early pre-mkt trading - S&P futures are surging by 14 pts, Nasdaq futures are up by 30 pts and Dow futures are rising by 97 pts....as investors separate the oil conversation from the broader mkt conversation.

This week - investors will have to grapple with the Fed policy meeting on Tues/Wed - wondering what will it reveal? Investors now want to know - What Will Janet Do? Investors are now expecting to hear a change in the language - as the Fed needs to get out of the corner that it has painted itself into.....and though the language may change - that does not mean that rates are going anywhere anytime soon.

The change in language just puts the mkt on notice that the Fed is making it easier to react to changing mkt conditions....It is NOT a guarantee that anything has really changed at all - (it is well understood that rates are going up) - it is just the first step in that future move, most likely in the summer of 2015 - a move that has been well publicized and while some Fed speakers choose to try and push the date forward - the mkt is not buying it. Anyone who lives in the world is well aware that there is still turbulence ahead.

This is the last full trading week of 2014 - investors/traders will have some eco data to digest - including today's Empire State Manf - exp of 12, Industrial Production of +0.7%, Cap Utilization of 79.4%. Later in the week we get Housing starts of 1.04 mil or a 3.1% increase, while building permits are expected to show a decline of 2.5%, US Manufacturing PMI of 55.5, CPI exp of -0.1% , ex food and energy of +0.1% , US Services PMI of 56.3, Kansas City Fed Survey of 8, Existing home sales of +0.8%.

No matter what these reports say - unless they surprise to the downside - I fully expect the mkts to focus on Oil, the FED and the ECB. In fact the ECB should not be discounted at all......it is time for Mario Draghi to set the record straight. Investors will need to see him come to the table and launch...any sense that the ECB is unable to pull the trigger will cause early 2015 disruption to the mkts as investors will now re-price Europe's new reality.

Overnight in Asia - mkts opened under duress - showing early steep declines only to rally back a bit as investors started to go bargain hunting. Oil, weak manufacturing in Japan, pressure on resource commodity stocks and a dramatic hostage situation in Australia dominating the news overnight. In Japan - Abe won re-election in Sunday's election - and while this is great news for more stimulus - investors chose to hit the SELL button taking that mkt down 1.5%. Hong Kong -0.95%, China +0.52% and ASX -0.64%.

In Europe - mkts are all solidly in the green as we are seeing a bit of a rebound in the price of oil......and as investors re-think the beating that those mkts also sustained last week. Considering that the ECB is set to announce new policy initiatives in early January - are some investors bargain hunting? FTSE +0.34%, CAC 40 +0.47%, DAX +0.23%, EUROSTOXX +0.43%, SPAIN +0.75% and ITALY +0.5%.

As noted - US futures are surging by 14 pts now....as they seemed to have found some support here at the 50 DMA at Friday's close. I expect the mkt to trade in the 2000/2025 range - no real reason to move lower (unless they just crush oil) but no real reason yet to move much higher until FED policy statement becomes clear. Remember - lower volumes will exacerbate the moves either way - but in the end - many will see that this move as an early Christmas present.

Pureed Escarole & Bean Soup w/Chunks of Fresh Mozzarella

For this you need: fresh mozzarella cut into chunks, pine nuts, olive oil, chopped onion, Yukon gold potatoes, peeled and coarsely grated, Chicken stock (or veggie stock), fresh escarole roughly chopped, s&p, golden raisins, soaked in hot water for 5 minutes then drained.

In a large pot - heat oil over medium-high heat. Add onion, reduce heat to med and cook, uncovered, stirring occasionally for about 10 mins…. Next add potatoes and cook, stirring occasionally, about 5 minutes more. Now add in the escarole and season with s&p.

Continue cooking, covered, stirring occasionally, until leaves are wilted and tender, about 10 minutes more; add 1 ½ cups of the chicken stock (or veggie stock) and bring to a simmer. Transfer contents of pan to a blender or food processor and purée until smooth; taste and season with salt if you need to...remember - the chicken stock will have plenty of salt - so don't just add before you taste.

When serving – add chunks of the fresh mozzarella, some toasted pine nuts and sweet raisins…..you can drizzle a bit more of the olive oil if you prefer…..


Buon Appetito.