Does the Tulip Bulb Craze Ring a Bell?

It’s noise….Do not get dragged in by the weakness in Apple – Apple is not the US economy – yes it’s a big name and yes it plays a starring role in the economy (but is not the economy), yes, it is one of the main attractions in the indexes, and yes there is this a mania about it, and yes – its recent move off the highs makes for a great headline – but let’s not get all ‘Chinese’ about it….. The recent sell off in Apple is the recent sell off in Apple – no matter how many analysts try to tie it into every tick in the mkt. Recall that during the Oct 2012/April 2013– the mkt rallied 11% yet while Apple dropped 45%...Where was the ‘hysteria’ then? How come these same analysts weren’t jumping up and down about the damage a selloff in Apple would create? In fact – for the savvy investor – a buyer of Apple then would have yielded a 120% return as of last night……Not so shabby….

FLASHBACK – recall the Dutch Tulip Bulb Craze in 1593 – Tulips from Turkey were introduced to the Dutch – The novelty of this new flower created demand among the people, a virus known as ‘Mosaic’ caused a change in the color patterns and the petals appeared to be on fire – demand grew and prices started to rise…Everyone became a speculator in Tulip bulbs – people were giving up their land and putting their life savings into tulip bulbs – thinking the party would never end, that only the sky was the limit…..they created a bit of a ‘bubble’……While some of the ‘smart money’ took profits and money off the table it caused prices to begin to fall buyers backed away, sellers got nervous – selling beget more selling which put more pressure on prices, buyers stepped back, sellers panicked and then you had the ‘capitulation’ – panic and pandemonium ensued, the gov’t attempted to stop the bleed – unsuccessfully – and no one emerged from this mania unscathed…..

Ok– work with me here…....Ipods first introduced by Apple to the world created demand, then newer products that changed the look and feel of the Apple products creating new and more demand – much like the ‘Mosaic virus’ changed the appearance of the Tulip – mania sets in – investors margin ‘the house’ – everyone is telling you a story about how they bought Apple (thus how smart they were) they can’t get enough – the stock had an amazing run – there are parties in the street……how could this party ever end? There will never be another down day on Wall St! I mean it’s APPLE! Are you following me here? Does the ‘housing crisis’ ring a bell with anyone? All I am saying is – don’t get dragged down the road about Armageddon just because investors are re-pricing the risk in Apple as they wonder what the next ‘new product’ will be….what’s happening in Apple is reflective of a mkt at work – Remember – there are always two sides to a trade – both a buyer and seller and it appears that the buyers are in control at the moment as the sellers become ‘anxious’. Econ 101 – Supply and Demand.

So back to the present – the mkt ended the day just a bit lower – commodity prices did manage to stabilize, giving some early support to the mkt – and then we got Dennis Lockhart – Atlanta Fed President – to take to the podium and said that

“The economy is in a state of readiness for beginning normalization” and that a rate rise was “imminent” and that there “was a high bar right now for not acting”

– Yields spike, the dollar surges and stocks took it on the chin…..Can I ask – when will this stop? The Fed should just stop teasing the mkts and just strap in and make ‘the move’ – a 25 bps move in rates will do nothing to the economy as rates will still be artificially low – bond investors will adjust and the sense that the first move will presage further moves in rates is ACTUALLY correct – does anyone think that rates will never move again? I mean HELLO? The Fed has to start somewhere, rates need to normalize, global investors need to wake up and smell the coffee. Does anyone think that this ‘party’ will never end? (Think housing crisis, tulip bulbs, China and Apple…..) As the Nike says– “Just Do It”!

Overnight in Asia stocks continue to be mixed….Positive macro data out of China failed to help lift that boat – The Caixin/Markit PMI rose to 53.8 – the highest level in a year and the 12th straight month of expansion…. That is in contrast to Monday’s disasterous PMI reading so it only adds to investor confusion. Most mkts just treading water as they await more US macro eco data today and Friday. Japan +0.46%, Hong Kong +0.44%, China -1.65% and ASX -0.42%.

European mkts are all higher in early morning trading – investors there seemingly unfazed by the Dennis Lockhart comments and now expect that the US will be the first major economy to raise rates. Fear over continued Greek economic crisis seemingly subsided – though Greece and their banks continue to suffer. Eurozone composite PMI beat expectations at 53.9 indicating that the ‘recovery’ is alive and well. FTSE + 0.18%, CAC 40 + 0.76%, DAX + 0.96% EUROSTOXX +0.75%, SPAIN 0.53%, ITALY +0.69% and GREECE -3.76%.

US futures are +6.5 pts in early trade suggesting that investors/traders are expecting today’s macro data to offer up NO surprises. ADP employment data is due out at 8:30 - 215k jobs is expected and as usual this report is just the warm up act for Friday’s NFP report –the street expects +225k jobs to be created.

Today will also bring us Non Manf ISM – exp of 57. Earnings include TWX, PCLN, RL, WEN, Kate Spade and the HFT Firm (disguised as a mkt maker/liquidity provider) – Virtu Financial.

On a side note did you see the story yesterday about AQR’s head of trading on paid leave amid a probe? Here is the link -

http://www.bloomberg.com/news/articles/2015-07-31/aqr-s-head-of-trading-is-said-to-be-focus-of-sec-s-itg-probe

and just to make the point – these are some of the guys that are leading the discussion about what the future of the US capital mkts should be – no wonder real asset managers continue to look for ways to eliminate the noise and trade amongst themselves in an attempt to shield themselves from the potential abuse in the ‘dark pools’. Anyone listening?

Fusilli w/Vidalia Onions & Mushrooms

For this you need: Vidalia Onions, sliced Portobello, Chanterelles, Button and Oyster mushrooms, Olive oil, garlic, shallot, fresh shredded Pecorino Romano Cheese and s&p. You can whip this up in about 45 mins or so….and it is better the next day – so make extra!

Bring a pot of salted water to a rolling boil.
Combine 2 diced shallots, and 3 chopped Vidalia onions 3 sliced garlic cloves with some olive oil in a large sauté pan. (One that will be able to hold the pasta when ready.)

Stir to coat well - season with s&p and turn heat to simmer – cover and cook for about 35 mins…stirring occasionally. You want the onions to be that nutty brown color – almost caramelized.
About 20 mins into it - add the mushrooms and another shot of olive oil - raise the heat and cook - do not burn. Taste and adjust the seasoning. Return to simmer.

10 mins later add the pasta to the water and cook for about 8 mins or until aldente….

When the pasta is done – strain – always reserving a mugful of the pasta water to use. Add the pasta to the sauté pan with the onions and mushrooms – stir to coat well. Add back some of the pasta water to moisten. Add a handful of shredded Pecorino Romano – and toss.
Serve immediately in warmed bowls and have extra cheese on the table for your guests.

Buon Appetito.