Equity Bubbles Hard To See? "Hello Dolly!"

Here we go again.....mkts surge higher.....yesterday morning we woke up to improving Eurozone (EZ) macro data - igniting a rally across Europe - while setting the state once again for investors to 'come and get 'em'......stocks opened strong out of the gate and then churned higher all day (more Trump policy talk)....NEVER looking back as the low volume advance into unchartered territory continues......as it appears investors are ignoring any signs at all of potential risk....
 
To add fuel to the fire was the newest (and youngest I believe) member of the FED - Does the name Neel Khashkari mean anything to anyone?   
 
Neel Tushar Khaskari (Born July 30, 1973) is an American Banker (GS Alum) and politician who is President of the Federal Reserve Bank of Minneapolis.  He was also Hank Paulson 'sidekick'  (another GS Alum) during the Bush Administration and was one of the officials at the Treasury during the GFC (Great Financial Crisis) who oversaw TARP (Troubled  Asset Relief Program) among other programs - then once out of a job when Obama was elected he ran for Governor of CA - and lost - and then was given the job of Minneapolis Fed President when Narayana Kohcherlakota retired in November of 2015 in appreciation for all of his hard work at the Treasury (and GS)  during those fateful years.... But that is not so important...what is important is that now HE has voting rights at the FOMC (he is more dovish - just fyi)  and yesterday while giving a speech at the Financial Planning Assoc of Minnesota he revealed himself........and told the world that the FED has 3 mandates:
 
1. Inflation
2. Employment and then BOOM he revealed the third mandate
 
3. FINANCIAL STABILITY
 
So I ask - was that really a surprise?  I mean of course the FED would be concerned about financial stability - Does he think we are all a bunch of clowns? 
 
But what was REALLY TELLING about his speech was the fact that the got up in front of this crowd - and said that
 
"We are keeping our eyes open for asset prices to try to look for signs of bubbles...."  but admitted that
 
"it is very hard to see asset bubbles in advance.."   REALLY???  Hard to see?  To that I say " Dude - OPEN YOUR EYES...!" 
Does the famous Louis Armstrong song "Hello Dolly"  resonate with you?  Investors apparently think the only way is UP...that 'she'll never ever go away again!
 
"Oh, hello Dolly, well, hello Dolly, It's so nice to have you back where you belong
You're lookin' swell, Dolly, I can tell, Dolly, You're still glowin', you're still crowin', you're still goin' strong,  (think all 4 indices......how good do they look right now?)
 
We feel the room swayin' (oh yes we do)  while the band's playin', (that's the FED) One of your old favorite songs from way back when, So, take her wrap fellas, find her an empty lap, fellas, Dolly won't never ever go away again......"
 
 
The S&P is now up 14% , Nasdaq up 17%, Dow 16% and the Russell up a whopping 22% since November.  (18 weeks).........as the US mkt spikes higher on HOPES of fiscal and economic reforms.....And while it's all good - the mkt is screaming for you to do something......to slow it down...because if the FED does nothing in March - there is nothing slowing this madness down.....and it is madness - because what has really changed other than the conversation?  And remember right now it is just a conversation....Congress will have a lot to say about future policy.....expect them to fight hard to prevent Trump from getting too much of what he wants.....
 
While I welcome all the excitement - it is hard to justify current mkt valuations in a RISING RATE environment that has yet to confirm real economic change.    I'm just sayin......the mkt has surged higher on low volumes......one negative headline, one negative macro data point or a change in the conversation will cause a 're-balance' of enthusiasm.....
 
Yesterday I wrote about the two kinds of risk indicators that are being ignored by traders and retail investors - (remember the retail investor always seems to be the last one to the party)......lower earnings vs prices and index prices that ignore the volatility index.

Again yesterday we saw stock indexes trade 'in sync' with the Volatility Index - S&P, Dow, Russell and Nasdaq all up while the VIX (fear index) was up as well.... The longer term VIX was up 2%  for most of the day, before falling to just under 1% late in the  day.  The short term VIX (VXX) was up as much as 20% in early trading before settling in at up 13%. Normally these indexes trade 'contra' to the broader indexes (when one is up the other is usually down)  but that has not been the case recently...This is now the 6th consecutive day that we have seen this unusual divergence - is this the new normal?  Do we throw out all of the old rules?  I say - Caveat Emptor.....(Latin for Buyer Beware).

The lower earnings story will play out in April when we get 1Q earnings that are expected to show double digit y/y growth....anything short of that will cause a revaluation......
 
Eco data will also play a role here....today we get Existing Home Sales and one FED speaker......before we get the FOMC mins at 2 pm.......What will we learn?  We are also starting to really see improvement in Europe..... last night more good news out of Europe - EZ HICP met estimates of 1.8% and in Germany all 3 major components of the IFO survey beat estimates....
 
US futures are down 4 pts in early trading....profit taking after the move higher.....and ahead of the FOMC mins...
 
European mkts are all trading a bit lower as they pause to take a breath also.   FTSE + 0.05%, CAC 40 -0.14%, DAX  -0.57%, EUROSTOXX -0.27%, SPAIN -0.90% and ITALY  -0.9%. 
 

Take Good Care
KP

Sweet Sausage Risotto 

This dish can be a first or main course depending on how hungry you are. 
 
You will need:  olive oil, butter, onions, sweet Italian sausage (removed from casing), minced garlic, thyme, Arborio Rice, white wine, chicken broth, frozen peas and Parmegiana Cheese. 
 
In a sauce pan - heat up about 6 cups of chicken broth. 
 
In a heavy pan - heat the oil and 1/4 stick of butter over med heat.  Add chopped onion and sauté until soft and translucent. Next add the sausage meat and brown.  When ready add minced garlic - no more than a tblspn, and some thyme....do not overdo....about 3/4 tspn.   You can always add less and then taste.  Sauté for another couple of mins to blend the flavors.  Now add 1 1/4 cup of Arborio Rice and about 1 cup of dry white wine...mix well and stir until the wine is absorbed.  Season with a bit of pepper.  NO SALT needed.
 
Now - one ladle at a time...add the hot stock to the rice and stir...you must stay at the stove - this is key.  You need to stir the rice and not allow it to stick.  As the stock is absorbed - add another cup and stir...continue this until the rice is tender and creamy....maybe like 20 mins....but taste as you go to determine. (You will not need all of the stock - but just in case you did it wrong you can always try to save by adding a bit more stock.)   Now add 1 cup + of frozen peas...you can always add more if you like peas.....and a handful of grated Parmegiana Cheese.   Stir well for about another 5 mins so that the peas have time to warm up......taste.  Taste good?  then you are ready to serve...If not - keep stirring.  Do not let the rice dry out...  This meal should take you about 30 mins - (40 max). 
 
Serve in warmed bowls and garnish with a bit of chopped Parsley...always have extra cheese on the table for your guests. 


 
Buon Appetito.