Confession Time! Warsh Sneaks Up on Yellen

Stocks edged a bit higher, investors/traders appearing unfazed by the latest FED mins – where we heard exactly what we expected to hear…..concern about inflation (now low on the Richter scale), impact of hurricanes, Harvey and Irma – (Maria hadn’t happened at this point),  country being at full employment, and concern about the next move – but not enough to warrant a change in policy initiatives….Now the mins tell us how they debated 'furiously' about the future course of interest rates, policy and subdued inflation...........so as expected – rates will move higher in the coming months. 

Other than that - it was a very quiet day – dotted mostly by micro data points (individual company news vs. the broader macro data points which are monthly economic reports)  - the broader mkt churned all day in a very tight 6 pt range until the final half hour where they pushed it up 4 pts into the closing bell.  The Dow, S&P and Nasdaq all closing at record high as we officially begin the ‘confessional period’ – otherwise known as earnings season.

A confession typically is the admission of some wrong doing, a crime or an act that causes shame or embarrassment.....(Think Harvey and not the hurricane....)  So earnings season - is also referred to a the confessional period...not because companies have done anything wrong, but because now they have to confess what the speculation has been...did they miss earnings?  Did they beat earnings?  What were the issues that affected those results and what does it mean going forward and how did they correct or address those issues.... Why should investors buy our stock?  What's our story?  And so it begins.....

The Dow added 42 pts, the S&P closed up 4.6 pts and the Nasdaq surged by 16 pts…..the Russell  - while up did not create a new high - almost but no cigar.  Consumer staple stocks continue to trade higher on the back of the surge in WMT (+$1.60 at $85.73)  - which has been on a tear since Monday when they announced a series of guidance….layoffs (as they improve efficiency), slower brick and mortar growth and a bigger commitment to their online presence – the stock is up 10% this week and is now up 26% ytd.  

Airlines were also in  the news as Delta (DAL $53.07)  rallied  on a 'beat' of their earnings....$1.57/sh vs. $1.54 sh -  they were very excited about the future…. Remember during earnings season – the earnings are what they are – it is a measure of past efforts and while you want to see strength in those numbers – you want to see real top line growth, a real increase in revenues  that tell the story going forward.....and much of what investors will focus on is what are you saying about the next 6 months to a year…

Financials will be the highlight today as the big banks 'hit the tape'.....JPM is out this morning….and as  usual – expectations run high for Jamie Dimon.......Can he pull a fast one and beat the official estimate of $1.65?  We are about to find out.....3 mins and counting....

Now the financials all came under a bit of pressure yesterday as the mkt awaits.....and on the rotational graph - they appear to turning lower moving from Underperforming and Improving to Underperforming and Weakening.....Let's see what the C-suite has to say this morning....

And they're out...JPM posts earnings of $1.74/sh - handily beating both the official estimate  and the Whisper estimate!!!  Jamie does it again.........the stock traded DOWN 30 cts and is quoted a bit lower  in the pre-mkt - but NOT a disaster at all..........As I discussed in the past couple of days and on CNBC yesterday afternoon - trading revenues across the board MISSED all of the estimates - blame it on low volatility!!!  FICC Sales and Trading (Fixed Income, Currencies and Commodities) were $3.16 bil vs. est of $3.18 bil, Equity Sales and Trading revenues $1.36 bil vs. the est of $1.41 bil, Investment banking revenues were the shining star coming in at $1.71 bil vs. est of $1.65 bil.....3rd qtr ROI  11%...and so it goes....

Citibank is up next and is expected to report $1.32/sh.  Will the report mimic JPM’s?  Will we see weakness in trading revenues again?  Will that be the common theme this qtr?   Either way – the banks stand to benefit as the FED stays the path of raising rates in December and then 3 more times in 2018.

Onto to Washington.....

Who will be at the helm of the FED in January 2018?  The rumors keep building as the Vegas bookies try to handicap the race...it now appears that there are 3 real contenders....Janet Yellen, Kevin Warsh and Jerome (Jay) Powell......and overnight it appears that Warsh has moved to the front of the pack.....according to a recent Bloomberg survey....and this is really quite curious.....
 
Warsh is a HAWK.....and has been a vocal critic of the FED for years now.....frustrated at how the FED carries out monetary policy and how the FED communicates with the public....He is concerned that the FED is too complacent about what he views as the daily mounting risks in the mkts......So you'd think that wall street would 'poo poo' this idea - I mean who wants an aggressive FED just as we are climbing out the depths of the GFC (Great Financial Crisis)?  Remember it took us a decade to get to this point - a point that NO ONE has any experience with - so should the message be "Approach with Caution" or should it be "Strap in and Get Ready"?    I mean - is an aggressive FED going to create an atmosphere of stability at this moment?  Is this all about 'reverse psychology'? 
 
Yellen and Powell appear to be neck and neck in this race and are more aligned with current policy objectives.....so Wall St would naturally be more amenable to either one of these candidates....because you can rest assured that their objective is to go slow.....but Trump being Trump may try to shake things up - for the sake of shaking things up......
 
 
US futures traded in an 8 pt range overnight...and are now down 3 pts as the sun rises over NYC.....Trump is making noise about signing an executive order  that will start to unwind Obamacare....this is supposed to pave the way for 'sweeping changes to insurance regulations' while giving insurance companies the ability to offer less comprehensive plans....that would be less expensive for some.....while most likely causing rates to rise for the older, sicker Americans... and this will surely get the lawyers all fired up......Expect Democrats and some Republicans to call 'FOUL BALL' ........

We will get 3 FED speakers today both Lael Brainard and Jay Powell at 10:30 at two different events  and Atlanta's Raffy Bostic is in Hong Kong speaking about balance sheet normalization....Now that sounds like a real barn burner....can you imagine what that audience looks like???  .
 
European mkts are mixed.......In addition to the Spanish issue.... The Brits are have hit an impasse with the Eurozone about BREXIT......Negotiations have stalled.... and this only raises the temperature around what a mess it could be....The ball is in PM Theresa May's court.....The Euro zone members are not going to compromise...so let's go......... FTSE +0.35%, CAC 40 -0.32%, DAX -0.10%, EUROSTOXX -0.25%, SPAIN -0.14% and ITALY  -0.57%.
 
Oil is trading down 0.77 cts this morning at $50.34......news that US inventories increased is causing traders to take some profits after the recent 4% move higher.....The energy ETF (XLE) is struggling with long term resistance right here at $68.32....if it pierces it - then look for a swift move to $71 ish....and if it fails - do not expect it to do much until we start to hear from the group about earnings..... 

Gold is once again UP $9 testing resistance at $1,299....right now there appears to be plenty of supply at this level....so I think we stay in the $1280/$1299 range......
 

Braised Beef Tenderloins 

This is a great dish….easy to make and so good.
You will need:  crushed shallots, olive oil, butter, the beef tenderloin cut into 1 1/2 inch thick pieces, flour, s&p,  and a nice full bodied red wine and beef broth…

 Ok – begin by selecting a sauté pan that will accommodate the tenderloins without crowding…..Now – heat the pan on med hi….add in a bit of olive oil and about 3 tblspns of butter…..(the oil prevents the butter from burning).  Drop in the crushed garlic and sauté.

While the butter is warming up – dredge the filets in flour and when the butter is all melted – add the filets  and brown the meat nicely on both sides.   Once you are satisfied – remove the meat and place on a platter – season with s&p.

Next add the crushed shallots and the sliced mushrooms to the pan and sauté for 5 mins or so.  Now add in about  ¾ cup of red wine to the pan….let the alcohol burn off – always using a wooden spoon to scrape the bottom of the pan….when the wine is almost boiled off – add in about 1 cup of the beef broth – let it come to a boil.  Now turn down the heat to simmer and add back the filets and cook for about 1 or 2 mins per side….

Placed the tenderloins on the plate and pour the sauce over.  You can serve this with a large mixed green salad dressed in a red wine vinaigrette.  
 

  
Buon Appetito.