Evergrande on the Edge as we wait for the Fed

Stocks are now in a new phase – whether it’s short term or long term – it is a new phase….and markets around the world all lower….

On Friday -

The VIX soared 11%, Stocks in Europe dropped about 1%, US stocks followed suit falling between 0.5% 0 1.3%....the Dow fell 166 pts and has broken both it’s 50 and 100 dma trendlines…..the S&P failed to hold onto its 50 dma, - falling 41 pts,   The Nasdaq fell 137 pts and remains north of its 50 day trendline, the Russell added 4 pts and is at an interesting intersection.  All 3 trendlines are about to converge …. the 50 dma is trending down while the 200 dma is trending up – which means only one thing…. If it remains on this course – then in a couple of days, it will become a ‘death cross’ – suggesting further weakness ahead……. So, will buyers find the guts to defend it, or will they pull back sending the sellers into a tailspin which in turn will send that index plunging?  And the Transports lost 190 pts and are now testing their Long-term support trendline at 14,214 – closing Friday at 14,267…. If it fails here – then we could see a 4% move lower to 13,700 and if that doesn’t hold – then 13,200 would be next…. Just sayin’……

The 10 yr. treasury yield ended the day at 1.36%, Gold held steady at $1,754 and Oil lost 20 cts to end the week at $71.97.  Natural Gas – which has been a HOT topic lately ended the day down 5% at $5.05.  Just for context – Nat Gas was up 110% by mid-September as global demand surges and supply concerns remain top of mind….and its not even winter yet……Some analysts on the street say it’s possible to see another 100% increase in gas prices if we have a tough winter…But don’t worry, like inflation – its transitory. 

And if that is not enough -

We have the US gov’t that is about to go ‘belly up’ unless they raise the debt limit.  Yesterday, Treasury Secretary Janet Yellen renewed her call for congress to raise the debt limit to avoid a ‘CATASTROPHE’ (her words, not mine) saying:

“The overwhelming consensus among economists and treasury officials of both parties is that failing to raise the debt limit would produce a widespread economic catastrophe”.  (Not sure about you, but that sounds clear to me….).

and don’t forget the $3.5 trillion stimulus package that the Democrats are intent on passing straight down party lines…. if they can get all their members in both houses to line up….and that is presenting itself to be a bit of an issue…. but – let ‘s see how they massage it….

And if we look across the Pacific – what do we have there?  Oh, right the potential $300 billion ‘issue’ surrounding Evergrande – now for those of you that do not know what it is – it is a Chinese Investment Holding Group – that develops, invests in and manages real estate properties across the country in addition to some other business lines…but that is not important at the moment….what is, is that it is about to go into an UNCONTROLLED CRASH due to the fact that they are falling behind on bond payments, on construction of unfinished properties leaving 1 million+ Chinese buyers and investors in limbo and markets on edge….  Thursday is KEY…. they have an $87 million coupon payment due….and the smart money is betting that – that won’t happen – Leaving many to ask – What will Beijing do?  

Here is a great story about it on Bloomberg…

In this story –they point out that.

“As a systematically important developer, an Evergrande bankruptcy would cause problems for the entire property sector” in China……. leading to possible fire sales of assets, declining housing prices and possible panic selling in the capital markets….and it is that part that has global investors concerned…because panic selling in capital markets can easily spread like a contagion to global markets….

Now – over the weekend – some talking heads were trying to compare it to the Lehman brothers debacle that happened 13 years ago this week that sent markets around the world careening out of control.  Understand that there is a lot of global exposure to Evergrande....  Here at home, names like GS, JPM, C, MS are all being tossed around.  Now – I do not think that an Evergrande failure will produce a Lehman like reaction – but it is a concern and only time will tell….My sense is that the Chinese gov’t will not let it spin out of control, expect the management team to disappear.... 

As expected, - Markets around the globe are all weaker…as investors take this all in…...Markets in Japan, China and South Korea are closed for a holiday (convenient).   Hong Kong ended the day down 3.3% while Evergrande shares lost 10% and Australia lost 2.1%.

European markets are getting clocked as the Evergrande drama plays out and investors await the FED meeting.  The only eco data out today across Europe is UK housing prices and German producer prices.  At 4:30 am – European markets are all down better than 2% and US futures are pointing towards a tough start to the week.

Dow futures are down 508 pts, the S&P off by 56 pts, the Nasdaq is down 170 pts, and the Russell is giving back 40 pts. And while this may feel uncomfortable – the fact is, it is long overdue and should NOT be a surprise at all….in fact – a swift, sharp correction is healthy for the overall market…and this pullback is partly seasonal, partly FED related and now partly Evergrande related…. Notice – not once have we identified Covid 19 /Delta /MU as a reason for this weakness.

Eco data today includes nothing.  The focus this week will be on the China syndrome and Wednesday’s FOMC meeting……. lots of speculation today and tomorrow and then on Wednesday at 2 pm we will all get the news…. Does he or doesn’t he – ‘Only your hairdresser knows for sure’ (Anyone born after 1964 probably won’t get that…. Google it!).

Bitcoin and Ethereum are also under pressure this morning because of the global weakness.  No surprise there…. Bitcoin is trading down 5% at $45,000 and Ethereum is down 6% at $3,100.
The S&P ended the day at 4432 – just a hair below the trendline.  That test that I warned you about has now begun…. this morning’s weakness looks like we may test 4380 on the opening unless something dramatically changes over the next couple of hours.  If we really start to shake the branches – the intermediate term trendline is 4326…just fyi.

Linguine Puttanesca

This dish originated in Naples and is today a staple of the Neapolitan household.  It is made from tomatoes, black olives (or Kalamata Olives), capers, anchovies, onions, garlic, oregano, and parsley.  It is easy to make and has an interesting history. 

Whatever its origin, it is a great dish that is easy to prepare – is spicy, tangy, and vibrant – an appropriate description of the mkt today…

Bring a pot of salted water to a rolling boil – then turn to simmer until you need it.
Start with 3 crushed garlic cloves sautéed in olive oil about 3 / 4 mins...do not let it burn... next add a diced white onion and sauté for 5 mins or so….

Now add in the chopped anchovy filets and sauté - as they cook, they melt away.  Add one can - 28 oz - of kitchen ready crushed tomatoes... not puree – Crushed.

 Add about 1/4 of a can of water - Let simmer for 10 mins or so. Next add capers, oregano, pepper, chopped Italian parsley, and rough chopped pitted Kalamata olives or pitted black olives - whichever you prefer - but do not mix... It is one or the other. No need to add salt as the anchovies are salty enough. If you like more bite, you can add red pepper flakes at this point... cover and let simmer.

Add the Linguine.  Let boil for 8 mins or until aldente.

Remove and drain - keeping a mugful of the pasta water. Add the pasta to the sauté pan with the Puttanesca sauce and heat and stir until well coated and fragrant. Serve immediately onto warmed plates offering up grated Parmegiana cheese on the side.