Who is Zhang Wei?

This morning US futures are surging - currently up 11 pts in early trading as stocks used long term support as a springboard to move ahead.... ......This after a bit of downer yesterday...when talk of impending doom caused mkts to stumble......

Yesterday morning as the sun was rising over the Atlantic - European mkts were in decline reacting to the beating that Asian stocks took on Monday - all Asian mkts had been under assault...... Japan -1.2%, Hang Seng -3+% and according to every news source out there – China was in freefall – plunging by 8+% even the gov’t could not control their mkt – and we know how hard they are trying. I mean look – Monday night the gov’t announced that they (the gov't) would increase the purchases of stocks to try and keep the mkt ‘artificially elevated’ (my words not theirs!- but that is what they are trying to do.) This morning - Chinese authorities announced that they are investigating whether 'share dumping' was behind Monday's disaster - Oh boy.....you know what that means....

And so US stocks took it on the chin yesterday......The media was quick to blame the overnight action in China – I emphatically disagree. Most Americans are not affected by the plunge in the Chinese stock mkt – not at all - yet the negative tone did give traders a reason to take money off the table.....….American investors might be affected by a slowdown in the Chinese economy (temporary) – but those are two very different things…what is happening in their mkt is completely disconnected to what their economy may or may not be doing….. The mkt got way ahead of itself – thanks to central bank and regulatory policy.

In the last 12 months - The Shanghai Composite is up 140%...and since January 1st - that mkt is up 60% - all on what? Artificially created growth -all at a time when most analysts never believed the data coming out of China - yet bought the story......Asian investors flocked to China - Alibaba - the massive Chinese 'Amazon' that many viewed to be a proxy for investing in China- came listed to the NYSE - China was now 'on the board'........

They 'opened' their mkt to retail investors - sucking in the 'average Zhang Wei' (Chinese equivalent for the Average Joe) ..... seeing it as the next 'gold rush'.....and when the music stopped - everyone tried to run for the door causing the mkt to implode..........And then - The Chinese gov’t - in an attempt to stop the bleed - halts trading, imposes regulatory limits, threatens caning and beatings to anyone caught selling and you ask – “why is the Chinese stock mkt acting this way?” Listen to yourself? You know the answer.....Buyer beware .

And while all the 'he-man' talk from China about how they are prepared to buy stocks to stabilize their mkt many doubt whether any of this intervention can really stop the bleed.....the recent action in China has caused fear among some of the investing community about the broader health of the Chinese economy, and so we see commodities getting slammed as well......slammed so hard that you would think the end of the world was coming....that my friends is not the case...and as usual - the pendulum has probably begun to swing too far to the left........Capisce?

Ok...back home - US stocks have been a bit psychotic lately - reacting with a heavy heart as we moved through the Greek tragedy and now have to deal with the 'China Syndrome'...testing the will of investors as the mkt backed off to test long term support at the 200 dma. Last Friday the broader S&P gave back 1%... (and a total of 3% for the week) .......China, commodities, earnings and rate increases were all the rage…..valuations peaking out at near 18 X for 2015 – leaving the mkt nowhere to go but down – I mean how could we justify paying up for stocks in ‘this environment’? - Yet 2 weeks ago – investors and traders were climbing over each other to put money to work.

Last week - some of the biggest DOW names disappointed – CAT (all about China – or so they want us to believe that), IBM, MMM, causing broader concern for investors - and in the 'hot' biotech space (XBI +34% ytd) - Biogen – took it on the chin giving the bears something to scream about – (but look – Biogen does not represent the US economy – not by a long shot) so it is difficult to connect trader reaction to the broader US economy.....….Yet the negative tone did weigh on the mkts and all sectors appeared weak –with semi’s, basic materials, energy and industrials all showing the greatest signs of exhaustion. This is most evident in the Dow - which has now broken all support levels - now testing the lows of late Dec/early January - returning -2% ytd.

Earnings continue to be the focus as we have about 150 more names that will report this week - Key for today - F, UPS and TWTR. On the economic calendar we will get - a host of Case Shiller Home reports (yawn), Markit US Services PMI - exp of 55, consumer confidence of 100 and the Richmond Fed Survey of 7.

Tomorrow brings the FOMC rate decision....now hold onto your hats - rates are not going anywhere just yet......but any hawkish fed speak will raise the odds of a September move....(Now I still believe it will be later) Expect to hear Yellen express some concern about the Chinese 'situation' and how further instability in that mkt could cause an economic slowdown in the global economy. The ongoing rout in the commodity space will also cause the Fed to pause and take a breath before charging ahead.

Wednesday will bring us 2Q GDP - estimates call for a 2.5% annualized rate - a weaker report will be cause for caution - but I don't think that is what we will hear at all.
Like I said - US futures are up 11 pts - which will put the S&P right back in resistance range (2080/2085ish) as the mkt continues to toy with both support and resistance in the same day.....Watch for the tone of earnings today and the speculation about what the Fed will say. The mkt IS expecting rates to rise this year - so that is not the issue - the issue will be more about the tone of her remarks - what does it say about future rises and the pace of those rises.....that will be the catalyst for mkts.

In Europe - mkts are bucking the Asian trend and all moving higher. Yes - investors are watching the ongoing drama in China - but now seem to be putting all of that on the back burner - at least for today. The focus is on earnings and US fed policy..... UK GDP came in at +0.7% - meeting the expectation - so no surprise there. FTSE +0.8%, CAC 40 +1.21%, DAX +1.43%, EUROSTOXX +1.35%, SPAIN +1.06% AND ITALY +1.73%

Overnight in Asia - mkts there ended the day a bit lower...China did sell off 5% before rebounding to end the day -1.6%, Japan -0.10%, Hong Kong +0.62% and ASX -0.09%. Commodities continue to be the story there as any China slowdown will negatively impact commodities.....Don't know about you, but I think that has already happened right? The Thomson Commodity index is off 13% from the May highs (and is off 37% from the June 2014 highs) as investors fled that mkt.....We have now broken the lows of March in what feels like capitulation.....and capitulation creates opportunity - I'm just sayin.....

I am in Houston on Wed/Thurs so next note will be Friday.

Potatoes and Eggs

Time for a time honored favorite - real comfort food - You can never go wrong with Potatoes & Eggs.
This is one of those basic yet classic dishes that never goes out style...you can eat for breakfast, lunch or dinner - Enjoy.

For this you need: Eggs, potatoes, garlic, onion, s&p, butter, olive oil, fresh grated Parmegiana Cheese and if you prefer a pinch of Italian seasoning.

Preheat the broiler (oven) to high.

Peel a couple of russet potatoes and then slice - now toss into a pot of boiling water - bring the pot back to a boil and blanch for 3 - 5 mins....Remove - strain and set aside.

In a large bowl - crack 6 to 8 eggs - Beat well - add a splash of whole milk (or 1/2 & 1/2), season with s&p (and if you like a pinch of the Italian seasoning). Add a handful of grated cheese. Mix well - set aside.

In a large oven safe frying pan - melt a dab of butter, add a squirt of olive oil and heat. Now add in chopped garlic and sauté. Next add some sliced onions and sauté - until soft and golden.....add back the potatoes and brown on both sides.

Next - pour the egg mixture into the pan and allow to set. Twirl the pan to allow the egg to spread and cook. Once the edges begin to pull away - place the pan into the oven under the broiler.....Watch as it quickly cooks the top of the "frittata". Remove and slide onto a large serving platter - cut like a pizza.

Have toasted slices of Italian bread on the table for your guests to make a sandwich. Serve with Ice Cold whole milk.


Buon Appetito.