IBM Disappoints - Futures Turn Lower

Stocks made a nice comeback on Friday – capping off one of the most tumultuous weeks in a long time……In fact –after posting the worst drop of 2014 on Monday and then Tuesday – stocks rallied hard on Friday – posting the 2nd biggest gain of 2014….European mkts taking the bulk of the blame for last week's action as Germany continued to weaken causing a re-evaluation of global health.....but do not discount the power (or pain) of leverage that only exacerbates the moves especially when investors/traders become nervous in a "Sell what you can" trading environment. The inability to sell the illiquid investments - the ones that are potentially more of a problem - cause some investors/traders to hit the sell button on global stocks.

Whether it was Ebola, or slowing global economic growth, worries over 3rd Qtr earnings, continued unrest in the Mid-East - whatever the reason - some investors/traders will turn to the most liquid mkts to raise cash vs. trying to raise cash in the less liquid alternatives when the anxiety level heats up.

Once the negatives take center stage - investors become concerned about 'risk contagion' and once that happens then 'BOOM' - the selloff picks up speed and buyers move lower, sellers get nervous and get more aggressive and buyers move lower again. Last week saw something like $680 bil worth of global stock mkt value wiped out - 'POOF' - as the VIX surged by some 35% reaching a 1 yr high after hitting its all time low just 3 months ago....

Margin trading and ETF products that use leverage to amplify returns - contributing to the angst.... Investors/traders that use these products came to understand the danger that exists as the leverage can cut both ways...and when it works against you - the pain is doubly amplified. It is the speed at which the mkts trade and the speed at which these products turn that creates more volatility and more pain - leaving the average investor to wonder - "What really happened on the way to the Forum?"

Friday saw a complete global reversal as central bankers around the world tried to make soothing comments - In Europe and the UK – The ECB and the BoE (Bank of England) made some dovish comments – helping those mkts rebound nicely. That was followed up here at home by James Bullard (although disputed by Rosengren over the weekend) - either way - it was enough to stop the bleed and give the bargain hunters reason to be a bit more aggressive as sellers backed off causing the buyers to become more aggressive. But the jury is still out – in order for the European rally to continue – we will need to see the ECB make some real moves in terms of intervention.

We have been discussing the fact that Germany will need to relent and allow the ECB to begin ‘printing money’ to monetize debt. It appears that we are seeing this begin to play out. If it does – then this will easily put a floor under the European mkts and help bring the current correction to a halt. If it does not – then expect the volatility to pick up again as the pressure is applied. October is a notorious month for volatility and mkt bottoms - will this year prove any different?

Do not let your guard down – just yet - we will need to see more follow through before we can be more sure that the current ‘correction’ we experienced last week is over. There has been a lot of technical damage to all of the indexes and the mkt will have to work hard to re-group.

Yes there was some clear bargain hunting, positive momentum in Europe, some positive macro data out on the economy - Consumer sentiment – represented by Thomas Reuters/Univ of Mich Survey reached a 7 yr high, and housing starts surprised to the upside – supposedly pointing to underlying strength in the US economy. Despite market fears around the Ebola outbreak, the sentiment index defied economist expectations and rose to 86.4 with consumers upbeat about their personal finances and the national economy. I am not a huge fan of this index - as it seems to be out of sync with mkt action and the 'man on the street mentality' - Just like the official US unemployment rate that fell to 5.9% last month, registering a 6 year low - supposedly signaling a robust economic recovery - really? I just don't see it - do you?

Monetary policy has only made the rich richer while doing nothing for the middle class - the FED cannot create jobs or turn the economy around by handing out free money - When will Washington recognize this?

This morning - US futures WERE down -2 pts - makes perfect sense after Friday's rally...

BUT - IBM just reported earnings of -$3.68/sh vs. expectations of $4.31 share....The stocks plunges 15 pts or 8.5% in the seconds following the announcement - causing futures to fall to -6 as the day gets started.

We are now in the middle of earnings season - this week and next will see the bulk of the S&P 500 reporting - today in addition to IBM, look for AAPL, HAL and TXN to name just a few. There are not eco data reports today - but we will hear from 2 members of the Fed - Jerome Powell at 10 and Daniel Tarullo at 12.

While the mkts did end last week on a more positive note - it is still too early to sound the all clear bell - especially as we continue to get mixed commentary on global monetary policy and uncertainty over earnings.

Remain dynamic and cautious - expect big swings as the mkt tries to rebalance - earnings and monetary policy will be the drivers this week.

Eco data this week includes: CPI exp of 0%, ex food and energy +0.2%, Housing Price Index, Kansas City Fed report on Manufacturing and New home sales at the end of the week.

Look for the mkts to remain in the 1850/1900 trading range as it digests the slew of earnings - a re-test lower (1820) would not be out of the question if earnings really start to disappoint at all and in fact should happen either way.

Acquacotta

- Literally means “cooked water”, and is one of the classic soups of the Tuscan Maremma. ….. The dish is generally referred to as “peasant food” and was served as a one course meal, and was eaten in the field by shepherds and stockmen -- peasant food, really. As is the case with any regional dish, there are as many versions as there are cooks - Understand that you can add as many and as varied a list of vegetables and beans as you like….but in this case – it was once again about simplicity.

The Tuscan Maremma is the area in Italy bordering the Tyrrhenian Sea – (southwestern parts of Tuscany and the Northern Part of Lazio). This area was traditionally inhabited by cattle breeders and was an area of Italy known for the many marshes……during the Facist regime (1922 – 1943) this area was drained of the water and re-populated by Italians from other regions – It is today one of the best tourist destinations in Italy…..

For this you will need: Olive oil, carrots, celery, onions, ripe tomatoes, water, s&p, some sage, eggs , fresh grated Parmegiana Cheese or Pecorino Toscano (not pecorino Romano – as it is sharper more pungent), ceci beans and toasted Italian bread.

Start by heating up some olive oil in a heavy bottom pan – add in the diced onion and sauté… When the onions have turned translucent, add the diced carrots and celery. Cover and cook over low heat till the carrots and celery soften…. then add the tomatoes and ceci beans.

Simmer for about twenty minutes, then add water to cover the mix and then some….. Season with s&p and some sage and allow to simmer for another twenty minutes. 10 mins before you are serving – crack as many eggs (leaving whole) as there are guests into the soup and allow to become hard boiled.

Place a toasted piece of bread on the bottom of the bowl and sprinkle with the cheese…… Bring the soup to the table, with a slotted spoon – place one of the hard boiled eggs into each bowl – now stir the soup and ladle it into the bowls. Have extra cheese available for your guests.

A wine? Try a light red from the Maremma region to complement this meal…..Morellino di Scansano is a good one. It is the local name of the Sangiovese grape and because it can be on the table within 8 months of life – it is a crisp, fresh wine.


Buon Appetito.