Eliminate the noise, listen to the music

• Risk Off and then it is Risk On!

• Delta Variant – not so fast – there are so many other issues affecting investor psyche.

• Earnings begin next Wednesday…expectations are running high.

• Try the Soft-Shell Crabs.

Good morning …..let’s be clear…..stocks did not drop on Thursday because of the Delta Covid variant, stop the hysteria….stocks dropped for a range of reasons….First and foremost think stretched valuations, think China (tech grab AND a threat to take Taiwan), think Russia (cyberattacks), think OPEC (oil supply), think DC (infrastructure, taxes, free healthcare, free college), think FED (inflation, interest rates, messaging and the dot plot), think sinking treasury yields (suggesting weakening economics) and then think US Justice department (formally charged Google with antitrust violations suggesting more to come?) and now the Biden administration launches an all-out war on big tech (which I might argue is bullish….) – doesn’t all that make much more sense rather than saying that a new variant caused trillions of dollars to come out of global markets yesterday? I mean – it is very convenient to use the variant as the scapegoat – but let us be serious…. there are so many other reasons for investors to be cautious….

So stocks took it hard yesterday morning – an overnight analysis of the FOMC minutes causing the algo’s to go in reverse….….European markets were down ~2% or so, US futures were lower by ~1.5% going into the opening bell…..you could feel the angst in some and you could sense the excitement in others……Now I say that, because there are many who are quietly (or not) hoping for the all elusive pullback (dare I say correction)….and I am at the top of that list….

Let us be clear – I am not calling for a meltdown, I am just calling for sanity and for me – sanity would be a nice 7% – 9% pullback…. just sayin’.

Here is my appearance on Fox Business yesterday with Charles Payne and Jim Paulsen of the Leuthold Group – where I talk about ‘backing up the truck!’

In any event – The 10 yr. treasury yield sank and was hovering around 1.27% pre-open, the VIX surged higher by 20%, then the bell rang, stocks plunged and then they found support at about 10:30 am……churned for a bit and then managed to take much of it back…there was no panic, there was no sense of doom at all, in fact it was all very orderly….and those of us that hoped for more of a push lower, we were once again forced to ask – Is this it? Is this what I was waiting for? By the end of the day stocks had recouped about half of the losses suffered in the morning to end just a bit lower…the Dow giving up 260 pts or 0.75%, the S&Ps lost 37 pts or 0.8%, the Nasdaq lost 105 pts or 0.7%, the Russell lost 21 pts or 0.9%.

Now is a show of real weakness – the Transports got slammed and lost 490 pts or 3.28%...and that also makes some sense. First if you are worried about an economic slowdown, then you would naturally worry about how the transports will do – think train, rails, air, and shipping and secondly – if you were looking to raise some cash wouldn’t you go to where you have made the most especially if you think that very sector will come under pressure? Going into yesterday morning – the transports were up 19% ytd…. while the Dow, S&P & Nasdaq were up ~ 13% and the Russell up 14%... Capisce?

And then yesterday morning – we had a rumor out there that there was some ‘big’ asset manager that made a ‘big’ negative bet on the market – taking some huge short position suggesting (if you look at it in a vacuum) that they think the market is going lower and this caused all kinds of analysis and speculation about who it was and why would they take such a position – giving the sense that they knew something the rest of us didn’t ….and that is baloney….. Look, that asset manager – if they are as ‘big’ as they inferred have a responsibility to their clients and their client’s assets, so taking that ‘big’ short position would reflect nothing more than proper and effective risk management. You see that asset manager is long the market in clients accounts, so if their analysis suggests weakness ahead, why wouldn’t they ‘hedge’ that position? Exactly. And to hedge it – they must take on the opposite position to what they already have – because as the market weakens, the longs will lose value, but as the short will gain in value – one offsets the other…. protecting client assets…So, again – stop the hysteria.

Now the mood is quite different this morning…we have gone from Risk Off to Risk Back On…..LOL…..European markets are taking it much of yesterday’s losses back with all markets higher by ~1% or so….US futures for the Dow, S&P and Russell are solidly in the green….and appear to also want to take much of it back…Dow futures up 150 pts, the S&P’s up 11, and the Russell up 22 pts. The Nasdaq on the other hand continues to struggle and is lower by 15 pts, but you can credit the latest headline out of the WH for the weakness in tech and the op ed in today’s WSJ from the former President of the US (Donny Trump) about why he is suing big tech – saying that.

“If Facebook, Twitter, and YouTube can censor me, they can censor you – and believe me they are…”

There is not economic data today to drive the markets, so the action will center around repairing some of the damage from yesterday as well as focusing on next week…when the quarterly beauty pageant begins…..(think earnings)…and yes, they are expected to ‘blow the roof the house’ with estimates ranging from +40% to +60% growth y/y…and that also makes sense…do you remember where we were at this time last year? Does shutdown mean anything to you? So, the y/ty comparisons will be dramatic for sure…. but the market already knows this…. estimates are not a secret, so investors, traders and algo’s have had a chance to incorporate them into their analysis so I am not expecting any significant surge higher on just this news, in fact – do not be surprised to see a bit of pressure on stocks as we move thru the month…. (Just like we saw in April…).

Look, I continue to think that the month will be a bit volatile and that you will get the chance to buy stocks at lower prices, but investing is dynamic, so if you are actively managing your portfolio then you need to be on your game, but if you are a long term investor with a broad plan and you are well diversified and you continue to invest money on a regular basis – then sit back, you’re good. Eliminate the noise and listen to the music….

Remember, when you change the inputs of the equation, then you change the results…valuations will have to change, risk parameters will have to change, estimates will have to change but they change over time and not from day to day…so talk to your advisor, that is why he/she is there for you.

This morning the 10 yr. is hovering at 1.33%, the VIX is down 5%, gold is up. $3.80/oz, the Dollar index is down 10 cts and oil is up 1% trading at $73.70/barrel.

Bitcoin is flat at $33,000, Ethereum is trading at $2,100 and doggey coin is up 4% at 0.22 cts.

The S&P closed at 4,320 – after testing as low as 4289 – still well above trendline support at 4217…. I suspect that today we will see some digestion in the markets as asset managers and investors prepare for next week. JPM, MS and Blackrock are out there banging the drum, saying that global growth is still on track and earnings over the next 4 weeks will support their thesis while the FED and the ECB are implying that looser for longer is alive and well. The outlook is positive, and governments remain overly supportive and central banks remain very dovish – and that also implies that the ‘but the dip mentality’ is alive and well….and yesterday’s turn around speaks to that point directly. The current S&P channel remains 4226/4406….

Soft shell crabs

The adage says that you eat soft shell crabs during any month that does not have an "R" in it...Thus - May - August is always a good guide. There are many ways to prepare them and many different sauces to serve them with. Today's recipe is simple and always a winner.

You need: The crabs (have the fish guy clean and trim for you), whole milk, flour, s&p, butter, garlic, white wine. (You can add some heat by adding in cayenne or hot pepper flakes).

Start by rinsing and soaking he crabs in whole milk for about 30 mins. Then remove and let drain. Next - season with s&p and then dredge in flour - shake off any excess and set aside.

In a large nonstick pan - heat up the butter and a splash of olive oil so that the butter does not burn. When hot - add the crabs and brown on both sides until you form a nice goldeny crust. Remove and set on individual plates on a bed of fresh spinach or arugula.

Next - add the sliced garlic - and let it brown nicely...do not burn.... now add in about 3/4 cup of dry white wine - deglaze the pan and allow the wine to reduce by about 1/2. Add a bit more butter and allow it to blend nicely. Spoon the sauce over the crabs and serve immediately.