And the 4th Qtr Begins....Earnings, Election and Future FED Policy Dominate

In quick follow up to Friday's note about Deutsche Bank - Today they announced that they are moving forward with the first of a series of planned job cuts that will eventually eliminate 3k jobs.....another step in the process of trying to reassure investors that CEO Cryan is able to boost profitability and address mounting legal expenses ($14 bil fine by the US for mortgage related activities tied to the Great Financial Crisis) as he begins the process of changing his business model - which in the end will improve profitability........ if he survives......Now the temperature got turned up last week and the stock hit new LOWS as investors/traders questioned whether or not we were on the verge of another 'Lehman moment'.....Will DB need to raise fresh capital?  Will they go with hat in hand to the German gov't asking for a bailout?  What about the customers that were 'pulling money out of DB'  - What did that say about perception? 

On Friday - DB seemed to get some relief from all the negative press and rallied 6.5%.....CEO Cryan wrote a letter assuring his employees that all was good in the land of make believe and rumors that the US was willing to negotiate the fine down to about $5 bil - essentially gave them a perceived $9 bil relief package....

Now in the end - I do not believe that we are on the verge of another 'Lehman Moment' - because I do not believe that the Europeans (or the Americans) will allow DB to fail....they just won't...not after the devastation we witnessed due to the Lehman failure....Just not happening...in fact word has it that the US is willing to reach a broad agreement with the other European banks 'who have yet to resolve similar investigations' and then make one broad 'closing argument' to put this whole thing to bed and take some of the pressure off of the European banks...which in the end would be a good thing.    While the ending to this story has not been written yet - it does appear that we have reached the climax of the story.......stay tuned....  (DB is not trading today - because the German mkt is closed due to a holiday.....)

Stocks ended the qtr on a high note......The Dow was up 165 pts or 3.3 % for the qtr, the S&P +17 pts - or 4.5% for the qtr, Nasdaq +42 pts or 10% for the qtr and the Russell +14 pts or 10.3% for the qtr ...  The DB news helped send the whole financial/banking sector higher ...and the realization that the economy appears to be stabilizing gave investors a reason to go bargain hunting. 

Today starts the 4th qtr of 2016 and 3rd qtr earnings begin next week - and yes - expectations are for another down qtr (6th in a row) but better than the 2nd qtr.....for the mkt to make any new real advances - we have to see better earnings and we have to see expectations for forward looking earnings estimates go up...never mind overall guidance and expectations of better days ahead...without that - then my fear is that we are locked into this purgatory with the only option being a mkt sell off as investors/traders remain exhausted by the lack of real improvement coupled with the December expectation of a rate rise.....

Impact of the election on FED policy? 

Now if Hillary wins then look for nothing to change at the FED - the guidance Yellen gave two weeks ago will be the guidebook for 2017/2018 - slow and steady - no drastic moves......

If Trump wins (unlikely) then we can expect that Yellen will either retire or get thrown out and that will NOT be good for mkt psyche.....(it's about being in bed with the devil you know vs. the devil the don't).  Remember -the mkt does NOT like uncertainty....and Trump represents HUGE uncertainty at the moment.....in fact expect the chatter today and for the next 32 days to be about yesterday's NY Times article suggesting that Trump has not paid one penny in FEDERAL taxes for 19 yrs.... Now while the article does say (buried deep within) that he didn't do anything wrong - he just took advantage of a TAX CODE that we as a nation designed - a tax code that anyone of us can use - the media will still make him out to be a thief (unfairly) as they turn up the pressure on him......

But could this actually be the turning point that we need?  Could this be our 'BREXIT VOTE' moment?  He has volunteered that he is willing to fix the broken code by re-writing and eliminating many of the perks that allowed him to take advantage (advantages that so many businesses and business men/women take advantage of) .... advantages that our elected officials designed over years of misguidance.....

Hillary on the other hand wants to fix the broken code by RAISING TAXES even more and making the code more complex as she grows the gov't... So as this conversation continues - will the electorate realize that Washington has created this complex, unmanageable tax code - a code that is ripe for revision?   Will the electorate stand up and vote the bastards out?  Unlike the DB story - we are just getting to the climax of this story....so sit back and keep reading....

This week brings us the Vice Presidential debate - not really a mkt mover, but interesting none the less.....A slew of macro data reports will hit the tape...today includes:  US Manf PMI - survey says 51.4......Construction spending of +0.3%, ISM Manf of 50.3, and Total Vehicle sales of 17.4 mil..... Later in the week we will get ADP employment of +163k, Factory orders, Durable Good and Initial Jobless Claims...but Friday holds the key to mkt psyche with the release of the month Non Farm Payroll report...exp of +170k....Now look job growth is down 20% yoy....2015 we created an avg of 229k jobs per month, 2016 we are creating on avg 180k jobs per month....but Janet tells us that that is enough to keep us from going down the drain......What will the mkt think? 

Oil prices! Brent Crude pierces $50/barrel on the back of the supposed OPEC agreement of understanding to cut production in November - which really isn't a cut...because they always pull back in the winter....but whatever....Remember at $50/barrel - the US will jump back in and increase rig count and that will surely fill any void created by this understanding....Now look - OPEC has set themselves up for failure IF they do not now carry thru with the threat of cutting production - oil prices will collapse , so that means that everyone in the 'tent' has to play nice in the sandbox...otherwise they risk credibility.....

We have the usual parade of FED speakers this week - so expect the message to be mixed - some arguing for an increase while others continue to believe that we are not ready...either way - odds are now favoring a 25 bps increase in the week before Christmas.....(In a repeat performance of last year). 

US futures are flat.... German and Chinese mkts were closed and today and tomorrow is Rosh Hashanah so expect volumes to be lower than usual as so many participants are out.  European mkts are essentially flat - as investors digest the British PM commentary about starting the divorce proceedings from the EU before March of 2017.  This is not new news - but it is the conversation today....
Look for the mkt to sit tight today - no real move in either direction -  we remain trapped in the 2130/2180 range.....
 

Take Good Care
KP

Beef Tenderloins in Tomato and Wine

 So simple to make....should take no longer than 35 - 40 mins max
 
For this you need:  Olive oil, 6 beef tenderloin pieces - cut in 1/2 the usual thickness. garlic, dry white wine, 1 can plum tomatoes, (you will hand crush) s&p to taste. 
 
Season the beef with s&p - set  aside.
 
Add some oil to the sauté pan - and then heat it up.  When it is just about sizzling - add the seasoned tenderloins and sauté for about 2 mins per side - remove and set aside.  Now add the sliced garlic, sauté for couple of mins, next deglaze the pan with about 3/4 cup of dry white wine.  Next add the tomatoes - hand crush as you add them and then finish by adding the juice.  Season with s&p. Simmer for about 15 mins - stir frequently. 
 
Now - put the tenderloins back into the pan and arrange nicely.  Sauté for about 10 more min.  When finished - place the tenderloin on the plate and spoon some of the sauce over the beef.  Enjoy this with some roasted butternut squash and a mixed salad. 


 
Buon Appetito.