So - What is the Risk?

This is getting a bit boring now, no? No matter what they say – the mkt goes higher and higher….and again yesterday the mkt responded positively to the release of the FED mins…..now to be fair – the mkt appeared to be bit confused early on…..It did show some weakness – (and by that I mean only about 20 pts lower for the Dow) – but then it found it sea legs….and off we went.

Then at 2 pm – when the FED released their mins from the July meeting –the mkt once again surged higher. In it – they essentially said that if A,B & C happen and the economy moves closer toward their objectives sooner than anticipated THEN they’ll raise rates sooner than expected…..HELLO????? Knock, Knock……. This was NOT new news at all – Of course that is true – but WE KNEW THAT! It’s like saying that “the market could go up or it could go down”……

What the mkt and traders liked about that is that it still leaves it open to interpretation, it still leaves considerable room over the timing of a rate hike BECAUSE if A, B & C don’t happen then guess what???? Rates won’t go higher sooner – they will get pushed back further……and the idea of pushing any hike further out is what gets the mkt excited…...

From the minutes-

' the majority of the voting members still think that with a continued weak labor market the Fed should take a wait and see attitude before hiking rates too soon.'

There was nothing in the minutes that said rates would go up on X date – but if you read between the lines the they did remind us – once again - that they could go up ahead of current expectations and at a faster rate than many think…..which means they didn’t really say anything new.

You see the part that confuses investors/traders is the volley…..the back and forth in the conversation……We are well aware that rates WILL rise at some point – it’s just a matter of when and if you believe that the economy is really getting better – (at a pace to support the rise). My sense is that we can be relatively sure that rates are not going anywhere before the 2Q of 2015 at the earliest and I still think it is somewhere in the 3Q of 2015 before anything really happens. So as long as the money remains easy and we employ a zero interest rate policy then the ‘risk trade’ is alive and well providing further support for mergers & acquisitions, real estate, credit and stocks etc.

The minutes did show that the Fed is coming closer to agreement on an exit strategy on QE….this is key – they are closer to an agreement over HOW to exit – not WHEN to exit…..and so the ‘band plays on’…..

Remember – the FED is also committed to monetary policy to strengthen labor markets - which they measure with an array of indicators, and since there is still some question as to the strength of the labor mkt– then it is hard to see rates going anyway at the moment......and in the end - all of this monetary stimulus will prove to be a problem.....Why? Because - Congress should have taken the ball and led...they should have used fiscal policy (tax reform, business incentives, recovery zones) to help drive this recovery - but instead - have used fiscal policy to raise taxes and create more regulation - which in the end - only serves to CHOKE the economy and working Americans.... But that is another story.

And this is what the Jackson Hole conference is all about -

"Re-evaluating Labor Market Dynamics"

So where is the risk? The risk is that in her keynote address tomorrow - Janet gives us a new way to assess the health of the labor mkt that no one expects. A way that might potentially change the landscape – a way for her to justify raising rates sooner than expected...... but that is not likely.

Why you ask? Because the minutes also revealed that the board still believes there is a “larger gap between current labor market conditions and those consistent with their assessments of normal levels of labor utilization”, which essentially means that interest rates will remain lower until the economy is stronger. Don’t fight the Fed!!! And so the path of least resistance is up as cash sitting in the bank fails to deliver any return at all.

US futures are +4 this morning now teasing 1986 - which means that if nothing changes in the next 3 hrs - then the S&P cash index will pierce 1990 on the opening and be within striking distance of piercing 2000....a level that it has been aching to pierce....so as long as there are no surprises this morning and global tensions remain at ease then there is a real shot that traders will push the envelope.... For now - it appears that the S&P range is 1975/2000 - with the emphasis on 2000.

Eco data this morning include some of the usual suspects - Init Jobless claims exp of 303k, Cont Claims of 2.52 mil, Markit US PMI - exp of 55.7, Philly Fed - exp of 19.7, Existing Home Sales - exp of 5.02 mil and Leading Economic Indicators Index of 0.6%.

In addition - Fed President Williams - (San Francisico) will be live and in color on CNBC this morning at 11:30 am.....traders will be listening to what he says - he is considered a 'centrist' and his views more than likely represent consensus....

Now that being said - as long as none of this surprises anyone - then expect the algorithms to hit the BUY button.....as the mkt makes a historic new high just prior to this year's Jackson Hole Conf.

Overnight in Asia - stocks put in a mixed performance - Disappointing Chinese manf data at 50.3 - lower than the expected 51.5 - but still above the all important 50 level. In addition - trading remains quiet ahead of the speeches coming out of Wyoming. Japan + 0.85%, Hong Kong -0.66%, China -0.44% and ASX +0.08%.

In Europe this morning all mkts are in the green - ....Euro zone PMI on the whole came in at 52.8 - below exp of 53.4. As we know - the recent overall weak data out of the continent has led to speculation that Uncle Mario (Draghi) will announce (possibly at Jackson Hole) new stimulus measure to goose the faltering recovery. Hello??? FTSE +0.25%, CAC 40 + 0.62%, DAX +0.42%, EUROSTOXX +0.73%, SPAIN +0.89% and Italy +1.33%.

Baby Back Ribs 

1 c of soy sauce, 1 c of sugar, pepper, 5 cloves of crushed garlic, rough chopped scallions, 2 tbls of toasted sesame oil, sesame seeds, and - 2 lbs of baby back ribs.

Bring a large pot of slightly salted water to a rolling boil - drop the ribs in and par boil just until the water begins to re-boil. Remove and set aside in a large roasting pan.

Heat the oven to roasting temp - 475 degrees.

Mix the soy sauce and sugar in bowl - making sure that the sugar dissolves...then add in the rest of the ingredients.

Pour the marinade over the ribs and coat well. Let marinate for 15 mins or so. Cover tightly with foil and put in the oven and roast for 20 mins or so - turning after 10- mins.

Preheat the grill - med high - remove the ribs from the over and place the ribs on the grill and grill for about 5 mins per side. Set the picnic table out on the deck and serve family style with a large potato salad and fresh corn on the cob.


Buon Appetito.