Did We Get Hood Winked?

Stocks in the US fell yesterday – ending the winning streak that has been supported by the FED as we moved into a usually volatile September ahead of the FOMC decision in what appears to be a ‘buy the rumor/sell the facts’ reaction.    In a game of ‘hood wink’ the FED announced that they are prepared to taper the balance sheet by $10 bil each month -  beginning next month…….while they left their intention of raising rates alive and well.  So now it appears that investors may be  having second thoughts on that plan…..

[Understand something – the 'hood wink' is the fact that the FED has pumped about $20 bil of liquidity into the mkt during the past 3 weeks -  in a deliberate attempt to try and stabilize the mkts ahead of this historic turn in monetary policy.  This added liquidity has helped not only stabilize the mkts but in fact push them to new highs. - So on the one hand - they are telling us that they are readying to tighten - all while they continue to stimulate.....]

Look – it was inevitable really…I mean how much longer can investors just ignore what is happening and keep going higher?  How much longer can they just keep discounting mixed to weaker economic data, a significant change in monetary policy, rising rates and the rising geo-political tensions that are once again rearing their ugly head?  And while I understand that low rates demand that investors search for yield - risk assets will be re-priced based on the future path of interest rates...and if the FED tightens AND raises rates - in an economy that is far from overheating.....then risk management metrics will surely change. 

Technology stocks took it on the chin – led by apple – which btw is now down nearly 5% since their ‘big event’ last week…..partly due to some negative press over their Iwatch, and some negative press over their ability to meet demand…..as well as some trader types who are just taking $ off the table after Apple’s most recent surge….and ahead of what some think will be a pullback.  Eight sectors coming under pressure as investors are now re-thinking the plan to raise rates again in 3 months.  Recent mixed to weaker eco data caused so many to believe that the 3^rd rate hike had been pushed off the table – so the message that 11 FED governors support a 3^rd hike did catch some off-guard.
 
Mike Allison – PM at Eaton Vance had this to say:

“The mkt is sorting through to what extent it needs to incorporate future fed activity into its thinking. 
There’s some uncertainty as to the impact since interest rates have been so long low for so long.”  

Mike – with all due respect – the mkt does NEED to incorporate fed activity – because of the 10 yrs of near zero, unprecedented policy that the FED has supported.   There isn’t SOME uncertainty – it is FULL of uncertainty over the path that the FED takes….will they be more hawkish (which it appears they are being) or will they play it as neutral as possible?   See – neutral here would have been – start the taper and put off any further hikes until we see how the mkts respond….I mean it's not like we are in a rush…..it took 10 years or 120 months to get here…..do not expect the unwind to happen much faster.  So - asset managers will have to re-price risk and expectations based on what they expect future policy will be and that will surely impact pricing models.

“And I think it’s gonna be a long, long time……til touchdown brings me round again to find, I ‘m not the man they think I am at home…..Oh, no, no, no……I’m the rocket man….” – Elton John – Honky Chateau – 1972.  

‘Rocket man’ is now Donny’s pet name for Chubby – (Kim Jung On)….as the tensions once again heat up…..Trump at is first UN General Assembly speech – made it very clear that the US will not just stand around while this rogue leader threatens not only the US, but the rest of the world as well.  Tensions flare – as Trump threatens to ‘totally destroy’ North Korea while Chubby retaliates by threatening to test a hydrogen bomb in the Pacific Ocean as he vowed to make ‘this dotard’ pay dearly for threatening to destroy his country……..

 [Dotard is defined as an old person that has become weak and senile - just FYI].

Asian mkts all a bit lower after the rhetoric coming out of North Korea.....as Chubby threatened to detonate a hydrogen bomb over the Pacific, and while the mkts generally ignore this type of rhetoric, the threat is weighing on sentiment.  So while - many do not expect the total destruction of that country - it does make some sense to consider what sectors will react to the increase in chatter.  Think defense......ITA - is up 15% since July and up 27% since the first of the year. 

In Europe - mkts are all higher......European Union -  Sept. Flash Composite PMI was very strong at 56.7 vs. (E) 55.6  taking EU stocks higher.  PM Theresa May is due to give a speech at 8:15 am EST on the pace of BREXIT negotiations with the EU.  FTSE +0.13%, CAC 40 + 0.38%,  DAX + 0.24%, EUROSTOXX + 0.23%, SPAIN +0.44% and ITALY + 0.13%.

US futs are down 2 pts as the sun rises over the Atlantic.  Eco data today includes Markit US Manf PMI - exp of 53 and Markit US Services PMI of 55.7.  If these numbers are in line, but not too strong, it should help investor sentiment and provide support right here for market as it pushes the cyclicals higher. 

We will hear from two Fed Speakers today - Kansas City's Ester George  at9:30 a.m. ET and Dallas's  Bobby Kaplan at 1:30 p.m. ET, neither should say anything to move mkts at all.  
 

Shrimp Cardinale 

This is a simple dish to make and is so rich and delicious. 
For this you need:  2 lbs of large cleaned shrimp – (cut in half lengthwise), butter, 1 lb of linguine, ¼ c of Brandy, 1 c of heavy cream, marinara sauce and s&p t taste.
Turn on the oven – Bake 350 degrees.
Bring a pot of salted water to a rolling boil.
Melt a stick of butter in a large bowl – now toss the shrimp – season with s&p.  Lay the shrimps out on a baking dish and bake in the oven for 5 – 7 mins….remove and place in a large sauté pan.   Over med heat – add in the brandy and allow it to burn off a bit – next add the heavy cream and about 3 or 4 cups of the tomato sauce.  Reduce the heat to simmer and allow the sauce to thicken. 
Next – add the linguine to the boiling water and cook until al dente – 7 – 8 mins.  When the pasta is done – strain (always keeping a mugful of the water) and add directly to the sauté pan and mix well.  You can always add back some of the pasta water if it needs it.   Serve in warmed bowls.  

Buon Appetito.