Time to Breath

“Alibaba Debut Makes A Splash” – splash?

Is that what we called it? How about ‘Explosion’?

In its debut the stock surged by 38%- giving this 15 yr old E-Commerce company a mkt value of some $231 bil which is more than Amazon and eBay combined. The size of this deal is what makes that point even more significant- although one could argue that the IPO price was too cheap based on the demand but at the end of the day this deal just reminds us of how hungry asset managers are for new product. Now with Alibaba 'out of the way' will the road ahead for the IPO calendar continue be paved in gold too?

This IPO now gives BABA a huge war chest to make acquisitions, or launch new products and carry out their expansion plans across the globe. It is capitalism at work - and the fact that a 15 yr old Chinese E-Commerce company came to the US to list its shares and create capital and opportunity for global investors speaks volumes about how the world has changed.

Ok – next up – Scotland voted NO to independence by a decisive margin 55% to 45% with some 87% of the voting public casting a ballot. The pound rallied – no surprise there – and the FTSE surged to near record highs – no surprise there either.

This morning though it is a different story- global mkts are all lower on some negative China news and in London - David Cameron is coming under pressure as he backs increased powers for Scotland as the discussion continues on English devolution. (Devolution is the granting of powers from a central gov't of a sovereign state to the gov't of a sub-national or regional level) #10 Downing Street was forced to admit talks of further compromises on new powers on tax and welfare for the Scottish parliament while attempts to appease members of his own party are showing signs of stress. None of this is helping that 'feel good' tone of last week.

For the UK – the no vote from Scotland will surely help the economic recovery but comments from Alex Salmond - Leader of the Scottish National Party - are creating renewed angst in the region. Essentially he is not buying the NO vote and suggests that Scotland could become independent without another referendum - accusing the UK gov't of reneging on the timetable of powers promised during the campaign. And the plot thickens as the story unfolds.

Onto the broader mkt – a quick look at volume figures and you would think that something has changed – well it was quadruple witching on Friday – so we had the quarterly expirations of 4 sets of options – causing a huge spike in opening and closing volumes. Take that away and stocks showed a real lack of any direction as blue chips held tight while small caps took it on the chin showing serious weakness as the Russell 2000 closed below both its 50 and 200 dma….as we prepare for the ‘death cross’.

Though not yet in negative decline, the leading U.S. economic indicators are flattening out, typical of a change in the trend. The Conference Board reported on Friday that its index of leading U.S. economic indicators rose by less than expected in the month of August. Ken Goldstein – an economist at the Conference Board had this to say –

“The leading indicators point to an economy that is continuing to gain traction, but most likely won’t repeat its stellar second quarter performance in the second half”

The dollar is continuing to strengthen – more of a safe haven vs. the other major currencies. Precious metals and commodities are getting hammered – is that a result of the stronger dollar or a weakening broader global mkt? Gold closed at $1216/oz and is now down some 12% from the March high of $1387.

Over the weekend – we heard from the G20 – who met in Cairns. The G20 are the 20 leading economies in the world and include 19 countries and the EU. (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russian Federation, Saudi Arabia, South Africa, Turkey, United Kingdom, United States). This is important because these 20 economies account for 85% of global GWP (Gross World Product) and 67% of the world's population. They confirmed that they are getting close to adding about $2 tril into the global economy – creating millions of jobs, while raising concern that Europe is still the wild card as the Eurozone is still struggling to come out of recession.

Jack Lew – US treasury Secretary – pointed out the philosophical differences between the US and Europe on the need for enough stimulus saying that

“ the concern that I have is that if the efforts to boost demand are deferred for too long, there's a risk that the headwinds get stronger and what Europe needs is some more tailwinds in the economy,"

German finance Minister – Wolfgang Schauble – was not happy with this commentary and suggested that Europe needed “structural reforms and strict budget controls”

And the show goes on….

This morning US futures are down 6 pts at 1997.....almost as if they are catching their breath after all of the excitement last week. Today we get Existing Home Sales of 5.2 mil or a 1% m/m increase. Look for a retest of the 50 DMA at 1977 this week as we prepare for the coming earnings season. Trading range remains 1977/2010.... but with little eco data today - do not expect a lot of volatility.

This week is full of FED speeches – Today we get William Dudley and Narayana Kocherlakota, Ester George on Tuesday, Loretta Mester and Charles Evans on Wednesday and Dennis Lockhart on Thursday – Will they further cloud the message or will they offer clarity to the mkts? Stay tuned –Yellen made it very clear that rates are staying low for the ‘foreseeable future’ so do we expect that any one of these speeches will challenge that? Not so much but each one of them has their own style so traders will be listening for the intonation in their voices and the differences in their presentations as they make their bets this week.

Asian mkts led the week coming under heavy pressure after the G20 commentary and amid fears that tomorrow's release of Chinese manufacturing data will show more weakness. A reading below 50 indicates contraction - expectations call for exactly 50 which is down from 52 in August - clearly the trend is not UP....In addition comments from the Chinese finance minister indicate that his gov't may not increase stimulus again.....thus giving investors a reason to hit the sell button.

Early Fall Minestrone

a lighter version of the traditional soup.
For this you need:

Zucchini, carrots, onion, celery, potatoes, green beans, plum tomatoes, baby spinach leaves, olive oil, s&p, broth – (Chicken, beef or vegetable – whichever you prefer), Arborio rice – (or ditalini pasta) , fresh basil and fresh grated parmegiana cheese.

So this is a great dish – easy to make, not heavy, gluten free, always helpful when you are trying to diet. – Fills you up without feeling stuffed.

Begin by heating up some olive oil in a large pot – add the sliced carrots, celery, onion – sauté for 5 mins or so. Now add the beans – cut into bite size pieces, and potatoes –also diced into bite size pieces. Allow to cook for another 3 mins or so.
Now take the plum tomatoes – cut in half and take the core (seeds) out. Dice into bite size pieces also – add to the pot. Now add the broth – add enough that you have covered everything in the pot by about an inch or so. Season with s&p – cover and reduce heat to simmer. Allow to cook for a couple of hours. Keep your eyes on it. Add more broth if needed.

Now – make a decision – are you using rice or pasta? If you want rice – do not use more than 1 cup – otherwise it grows and sucks up all the soup, if you are using pasta – only use about ½ box of ditalini – same reason – it sucks up the soup. (You can always add more broth or even water if it sucks it up.)

Add the spinach now and the rice or pasta. If using rice – it will need to cook for another 20 mins or so….if using pasta – it will be done in 8 mins or so.
Remove from heat – add the chopped basil, taste for seasoning and let it cool a bit.
Serve in bowls with a drizzle of olive oil and fresh grated cheese.

Buon Appetito.