What You Need to Know Today

  • “Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened”  Period!

  • Do NOT fight the FED (or other central banks)

So In yesterday’s note I said that Jay Powell’s prepared statement – the one he was about to give to congress -  would be released to the ‘masses’ (media) at 8:30..so watch the futures and learn what he was about to say…..

And so – like clockwork – futures had been under pressure overnight  and into the morning hours – as the jury was still out – …..at 8:29 am – S&P futs were lower by 9 pts while the Dow was down nearly 66 pts…..and then at 8:30 am…not 10 seconds after the release of the statement – S&P, Dow, Nasdaq and Russell futs all spiked higher….The S&P went from  -9 to +18 and stayed there until the mkt opened….and then surged another 13 pts – piercing up and thru S&P 3000 -  in the moments leading up to the start of Powell’s speech….so by then you pretty much assumed what he was about to say……Rates are going down and they are going down in July….and so it is……then once the circus started it became even clearer…While the FED had opened the door to the possibility of a rate cut last month – he WALKED thru it yesterday….saying in no uncertain terms that

“plenty more data has arrived to back up the view that manufacturing, trade and investment are weak all around the world”

And while the June jobs report was “ great news – it is not enough to tilt the balance, because wages aren’t rising fast enough to trigger much inflation and in fact inflation is too low”  And on that news – the bets are now increasing once again that what he really meant is that rates will go down by 50 bps…..although that is a bit of an outlier – the broader consensus view is that we will get a 25 bps cut at month end.  Today he gets to do it all over again as he revisits Capitol Hill and sits in front of the Senate committee……

One of the other items of interest was this conversation about LIBRA – that new FB crypto-currency that was announced only weeks ago….When questioned – Powell made it clear that this digital currency has many risks – privacy,  money laundering, and consumer protections while also posing very serious risks to global financial stability.  That being said – the FED is working with other central banks and federal agencies as this conversation moves on.  Again the issue is FB…..and with their history of lack of protections on consumer privacy etc….and while they may be ‘trying to do the right thing’  - if history is any guide -  this conversation has a long way to go. 

By the end of the day yesterday – the indexes all closed higher – off their intraday highs but still higher.  The Dow added 76 pts or 0.29%, the S&P surged by 13 pts or 0.45%, the Nasdaq tacked on 60 pts or 0.75% and the Russell added 2 pts or 0.16%.  And like I said yesterday as well – Look for the S&P to challenge the next century mark (3000) and then back off…which is exactly what it did….as the euphoria settles down.  So what happens today?  Can he possibly say anything else that is different than what we now know?  And now the bets are building…..is 50 bps actually an option?  Well,  Fed Funds Futures are now pointing to a 25% chance of a 50 bps cut  – up from 4% yesterday while the consensus view remains in the 25 bps camp.  But the data suggests that there is no misunderstanding – traders are now pricing in a 100% probability of some kind of cut and that is what is causing the mkts to move up…..

So that being said – listen to the media – they have marched out everyone that supports a cut, they have marched out everyone that is now looking at the ‘second derivatives’  Second derivatives?  Really?  The second derivative is defined as the derivative of the derivative of a function….Did that clear it up?  Easier to understand?  Dude – speak English….No one is looking at second derivatives…they are looking at the macro data, they are looking at earnings, they are looking at global central bank policy and global interest rates, they are now pricing in the cost of money at 2.25% vs. the current 2.5%....something that appears a bit much….but either way – investors/traders/ and algo’s loved it and the mkts surged……

The FED now joins the ECB (European Central Bank) and the PBoC (People’s Bank of China) and other central banks that are considering more easing – think lower rates…..and mkts around the world – which had been under a bit of pressure due to uncertainty are now free…..Asian mkts closed a bit higher, nothing dramatic but they were up  – and European mkts are churning….they were up and now are down (not dramatically but they are churning) …..as investors there digest the idea that US rates are going lower.

Europeans are also digesting the latest BoE’s (Bank of England) financial stability report – which reported that British banks do in fact hold enough capital to deal with the broader geo-political risks…..think – a No-Deal BREXIT , an ongoing trade war between the US/China, The US/Europe, The US/Mexico blah, blah blah……and speaking of a trade war - News hits the tape this morning that France has approved a ‘digital tax’ on American Tech companies -thumbing their noses at the White House .  The French finance minister – Bruno Le Maire defending this 3% tax – which is expected to raise some 500 mil Euros ($560 mil).  The tax would apply to the French Revenues of some 30 major tech companies – (mostly US) – So – as you can imagine – Trade Rep Bobby Lighthizer will now investigate this tax to determine if it ‘unfairly targets, is discriminatory, unreasonable or restricts US commerce’.  And if it does – then expect that the US will retaliate by doing what??  BINGO!  Imposing new tariffs on French goods and services – taking the trade war to new heights…Oh boy….so that is a good thing.  FTSE -0.13%, CAC 40 + 0.01%, DAX - 0.27%, EUROSTOXX -0.04%, SPAIN -0.09% and ITALY +0.66%.

US futs are pointing higher –  in line with global mkts….the Dow +65 pts, the S&P is up 7 pts (which would kiss 3000 once again), the Nasdaq is up 26 pts and the Russell is up 2.  Now, while the news was well received – the fact is – the mkt is feeling a bit extended…..with the S&P up 19% ytd, the Nasdaq up 24% ytd, the Dow up 15% ytd and the Russell up 16% ytd.   The focus is now squarely on earnings….with the rate discussion now behind us  - expect the mkts to prepare for the onslaught of earnings….and while we are expecting a weaker season (consensus is for a 2.6% decline y/y) the tech sector is expected to be down by more than 9% y/y and while we are prepared for this (unless you’ve been living under a rock) the risk is if the estimates are much worse than the expectation. 

And while the Nasdaq and S&P are hitting new highs – the Dow and Dow Transports are not confirming a substantial move higher (just yet)….The trendlines (drawn on the S&P) do suggest that it is a bit toppy – and my gut tells me that the next move is a lower consolidation – leaving us in a 2925/3000 range.  And if earnings really start to disappoint then a test of the 50 dma at 2888 is in sight. 

DAL just reported and guess what?  They beat! $2.35/sh vs the expected $2.25/sh……And the guidance is bullish, revenues surging,  dividend increase of 5 cts/sh  - the stock is up 31% on the year and is up 15% this month alone…..and while the stock is quoted up $1 right now – do not be surprised if you see the stock under pressure as the trader types cash in on the move…
 

OIL – Now look at that! Oil which had pierced all 3 resistance trendlines last week – setting itself up for a surge higher – had backed off a bit causing what I called a ‘head fake’ last week – trying to rattle the branches to see who falls out….and again yesterday – after the rattle – buyers once again took it up and thru resistance setting it up for that move to $65 that I spoke about.  Geo-political issues between the UK and Iran now adding tension to the conversation as the Iranians tried to block a British tanker as it navigated the Straits of Hormuz.  A building storm in the Gulf of Mexico causing US producers to cut output ahead of the first major storm this hurricane season.  In addition – US crude inventories fell by 9.5 mil barrels as demand surged - HELLO????– (much higher than the 3 mil expected).

 

Grilled Pizza w/Arugula and Prosciutto

The weather is going to be great....put on your shorts, go to the beach, get in the ocean and work on that summer bronze.   Nothing like salt water to give you that summer glow.  

Grilled Pizza - It's fun, everyone can join in and create what you want.   Once you cook it up on the grill - you  will find that you get a completely different texture - it comes out lighter, crispier and crunchy....delish!

When  doing pizza on the grill - there are so many things you make it with....the only important key is - whatever you decide to use - make sure you have it ready to go...so set up an outdoor table with your ingredients and  get ready to rumble....You need a wooden pizza peel, the dough and toppings of your choice...

For this you need – Fresh Mozz, sliced cherry tomatoes,  basil, fresh arugula, shredded parmigiana cheese, prosciutto and olive oil.  

Allow the dough to come to room temperature before you even try to roll it out.  If you buy a store bought pizza dough -  remove it from the package - flour it up and let it sit out on a plate - covered in saran wrap until it expands and is ready to go.  Usually takes about 30 mins or so to come to room temp.

Light the grill - heat it up really hot - use your grill brush to clean it and then turn the heat to med.....If you have a brush - quickly oil the grate....(do not use a spray to oil the grill grates while the grill is on - Hello!)

Next - flour the counter and roll out the dough..... - flour the pizza board and place the dough on it.   Transfer to the grill - that's right - just the dough - we have not added any ingredients yet.  Once it is on the grill - Do not move it around. Using tongs - check it out once it start to bubble..(within 4 mins or so)  The bottom should be crispy with nice grill marks.

Now remove and place back on the pizza board - Cooked side up.    Now -  add the fresh mozz and the sliced cherry tomatoes.....return to the grill...once the cheese begins to melt - it should be done.  Check it out with the tongs and using the pizza board - remove from the grill.  - At this point add the fresh arugula, slices of prosciutto and a bit of olive oil.  Finally – put the shredded parmigiana on top.   Using a pizza knife - cut and serve.

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Information and commentary provided by ButcherJoseph Asset Management, LLC (“BJAM”), are opinions and should not be construed as facts. The market commentary is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in BJAM products or the products of BJAM affiliates. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. There can be no guarantee that any of the described objectives can be achieved. BJAM does not undertake to advise you of any change in its opinions or the information contained in this report. Past performance is not a guarantee of future results. Information provided from third parties was obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness.

Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. The price of any investment may rise or fall due to changes in the broad markets or changes in a company’s financial condition and may do so unpredictably. BJAM does not make any representation that any strategy will or is likely to achieve returns similar to those shown in any performance results that may be illustrated in this presentation. There is no assurance that a portfolio will achieve its investment objective.

Definitions and Indices

The S&P 500 Index is a stock market index based on the market capitalization of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor’s.

UNLESS OTHERWISE NOTED, INDEX RETURNS REFLECT THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS, IF ANY, BUT DO NOT REFLECT FEES, BROKERAGE COMMISSIONS OR OTHER EXPENSES OF INVESTING. INVESTORS CAN NOT MAKE DIRECT INVESTMENTS INTO ANY INDEX.

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