Final 1stQ GDP - Will we be Surprised?

Risk On/Risk Off - dictates that price action/ investors risk tolerance is driven by changes in global economic patterns/geo-political risk. During periods of 'perceived low risk' - the theory goes that investors will engage in 'riskier' investments (Risk On) - conversely when risk is 'perceived' as high then the tendency is to move out of those same investments and into 'lower risk' stocks (Risk Off) - So was yesterday truly a 'risk off' day?

Not so much....yes - the DOW came under pressure and suffered a triple digit loss but this it was not accompanied with any sense panic - and that is really the key...panic - defines a true 'Risk Off' day.

Yesterday - well - that was traders using the Syrian airstrikes as an excuse to take some money off the table...and I say traders because again - the move was NOT accompanied by a substantial increase in volumes that would indicate more institutional (long term) selling. My sense is that this is not going to turn into a 'sell off' or turn into that 10-15% correction that so many are calling for. In fact I would argue that longer term investors filled in on the buyside as the mkt sold off.

Stocks actually rallied in the morning - as traders/investors continued to study the data to try and discern the next move....enjoying the better than expected US macro data points released pre-opening. New home sales jumped to a 6 yr high in May - soaring some 18% - reaching their highest level since May 2008. The commerce dept goes onto to tell us that the median sales price of a new house is $282k up from $263k in May 2013. (Could someone just tell me where these new houses are located as you can't buy a parking space in the NY metro region for that money).

In addition the conference board also told us that the consumer confidence index jumped to 85.2 in June from a revised 82.2 in May, reaching its highest level since January of 2008 and higher than most economists had been “expecting” – Don't you just feel better? Who exactly are the people they are polling? Economist Amna Asaf of Capital Economics had this to say:

"The jump by the index suggests that the positive effects from an improving labor market and record high equity prices trumped the negative effect from rising gasoline prices."

Really? Record high equity prices are trumping the negative effects of rising gas prices? (never mind rising food prices). The average 'Joe Q Public' does not base his outlook on rising equity prices when it comes to putting food on his table or gas in his car - does he? I mean when you go to the store and pay $6/lb for a steak - do you say to yourself -

"oh - the mkt went up today - let me buy my neighbor a steak too......" I'm just sayin.....

Ok...then at about 2 pm...the news wires report of a Syrian strike in Western Iraq - now drawing that 'mad man' into the fray.....The attack part of a new effort to slowdown the advances of the 'insurgents' - Insurgents? That sounds so proper - no? Makes them sound like they could be your neighbor....."Hi - have you met the insurgents? They just moved in..."

In fact - I think the mkts are just beginning to comprehend the severity of this crisis and the wider implications for the Mid East. Remember - the Arab Spring? Remember how it ushered in a whole new sense of freedom, democracy and change? Feels like a train wreck now - with Egypt in turmoil, Syria in crisis, Iraq circling the drain - is it only a matter of time before Lebanon and Jordan get drawn into the fight? What will happen to Iraq? The political ramifications and resulting fall out of an imploding Iraq will forever change the landscape in the region - George Bush's dream of creating a Democratic Iraq has not only proven to be naïve (hindsight is 20/20), but it has created a dangerous vacuum in world order.

[Reuters reported that Secretary of State Kerry is “urging leaders of Iraq's autonomous Kurdish region on Tuesday to stand with Baghdad in the face of a Sunni insurgent onslaught that threatens to dismember the country...... if they decide to withdraw from the Baghdad political process it will accelerate a lot of the negative trend". And the fact remains that the situation has deteriorated to the point where Kurdish leaders are making it known that the settlement keeping Iraq together as a state is now in jeopardy.]

Kurdish President Massoud Barzani said

"we are facing a new reality and a new Iraq."

Any questions so far? Either way - yes - the geo-political situation continues to get worse - but in the end - I do not believe that investors will bail out on a recovering US economy.

US futures are +1 right now - pointing to a slightly higher open - as the mkt awaits more US macro data....There has been a lot of noise lately over the mixed macro data - yet the mkt is challenging the highs - suggesting that investors think it is just noise.....and remain confident that the economy is on the road to recovery.

This morning we get final revision for 1Q GDP - expected to show a negative 1.8% - but this is WELL TELEGRAPHED - this is not a surprise at all.....a surprise would be a print with a 2 in front of it...(unlikely). In addition we will get Durable Goods - exp of 0%, Ex transports of 0.3%, Cap goods shipped non defense Ex air of 1%, Cap Good ordered non defense Ex air of 0.5% - those would be huge turnarounds from last month's negative reports. Finally Markit services PMI of 58.

Overnight in Asia - Caution was the word after US stocks fell and as investors awaited key Japanese data due later in the week. Analysts blamed the selling on escalating violence in Iraq, causing profit-taking following the moves higher in that region. Japan -0.71%, Hong Kong - 0.61%, China -0.41% and ASX -0.57%.

In Europe - those mkts are also under a bit of pressure - as the tension mounts....This is a bit of a follow thru reaction - as European mkts were closed by the time the news came out. There were no eco reports today. FTSE -0.54%, CAC 40 -0.67%, DAX -0.37%, EUROSTOXX -0.4%, SPAIN -0.22% and ITALY - 0.21%

Russia on the other hand is set to notch the best performance among the world’s major equity markets for a 2nd straight month as Vlad pulls back from the confrontation in neighboring Ukraine - allowing Iraq and the insurgents to take the focus off of him.

Pan Seared Scallops w/Wine and Mushrooms

This is also an easy dish to prepare and serve - you will need, 1 lb of mushrooms, olive oil, shallots, chopped garlic, s&p, white wine, fresh bay scallops (like 1 lb) and chopped Italian parsley.

Rinse, strain and slice the mushrooms - set aside. Rinse, strain the scallops - set aside.

In a sauté pan - add olive oil and chopped shallots - about 3 tblspns - and turn the heat to high...cook (stir) the shallots until they are a golden brown...now add chopped garlic - 2 cloves. As the garlic browns (not burns) add the sliced mushrooms - turn heat to med and season with s&p - cover the pan so that the mushrooms make their own juice. After about 15 mins or so - uncover and let the mushroom water evaporate.....at this point - add the wine - maybe like 1/2 to 3/4 cup...again reduce until the wine has evaporated.

In a separate pan - heat up a bit of butter and oil - Add the scallops to the pan and sear on both sides. - season again with s&p and the chopped parsley.

When presenting - place the scallops on the plate and spoon the mushroom/wine sauce over them. You can complement this dish with a wild grain rice and steamed spinach seasoned with s&p and a touch of butter. Enjoy a light dry white wine - a Riesling, Sauvignon Blanc or Chablis would work nicely.


Buon Appetito.