Is Janet In or Out? Are Puerto Rican Bonds a Steal?

And in case you were asleep during the day yesterday - let me tell you this - The mkt was UP again - small, but UP....the Dow added 20 pts, the S&P & Nasdaq tacked on 3 pts, only the Russell Small Cap/Mid Cap index went negative....and only by 4 pts....Not a big deal at all.....
 
Now as expected Puerto Rican bonds collapsed under the weight of the Trump comments about 'wiping out the bondholders'  - and everyone had something to say about it.....when it appears that he just 'set up the conversation' for bondholders to come to the table - it's time to settle this and move on......Puerto Rico's Governor - Ricardo Rossello appealing to bondholders and investors saying:
 
"We're all one now, and what we need to do is go to Congress, and ask for a real aid package for Puerto Rico and make sure that we can have the initial conditions so that we can get out of the emergency phase and start rebuilding....and that is better for all of the bondholders, the stakeholders and all of the people of Puerto Rico"
 
Now - those are MUNICIPALS - Muni's are considered one of the most attractive and stable investments on the planet........For clarity - a municipal bond is a debt security that is issued by a state, municipality or county to finance capital expenditures - think infrastructure construction - highways, bridges, schools etc....they are exempt from almost all taxes - FED, STATE and LOCAL - and this makes them especially attractive to investors in high income brackets..... Now you can argue all you want about what Puerto Rico did with all that money......some will say that they didn't use it on infrastructure spending or improvements - (and they will have to 'pay' for that -  but that is not the issue at hand....Trump's comments were regarded by some as irresponsible or even short-sighted - others think it was a brilliant move.....as he 'set up the conversation' to come to table and negotiate out of this mess........so are they going to zero - Not likely at all..........Will investors lose some money?   Most likely yes...but will they destroy the principal - most likely not and the action yesterday may in fact prove to be a turning point not only in the value of these bonds but in the negotiations to resolve this issue....Distressed buyers are having a field day as the sense is that the selling is overdone and the bonds will rally back a bit - enough to give the distressed buyers a kiss.....
 
Next up - speculation running high over who the next FED chair will be....Will Janet (dove - 35%) get re-appointed or is Trump about to 'shake things up' a bit and replace her with Gary Cohn (dove -0% Goldman Sachs is NOT happy about that),  Jerome Powell  (dove- 20%) or Kevin Warsh (hawk - 25%), or John Taylor ( hawk -20%) and the tension builds.....he promises to make the announcement before month end.......and yesterday (current)  FED Chair Yellen spoke at a St. Louis Banking Conference and while she didn't say anything about interest rate policy  she did make a point of  voicing support for 'making sure bank rules are NOT too burdensome'....something that is near and dear to Trump's heart......saying that
 
"The FED has been working hared to ensure that its regulation and supervision of banks are tailored appropriately to the size, complexity and role different institutions play in the financial system....we have been focused on making sure that much needed improvements to regulation and supervision since the crisis are appropriate and not unduly burdensome"  
 
Hmmmmm.....thoughts here? 
 
Toss in a couple of other speeches by members of the FED and you had a day of mostly noise......speaking of noise....we got to have Equifax's former CEO Ricky Smith - make a encore appearance before Congress as he tried once again to explain how he got his pants pulled down by Russian and Ukrainian hackers after a host of 'sirens' were blaring in the headquarters of Equifax......Dude - give up......you are now in the company of another buffoon - WFC's former CEO Johnny Stumpf  - both of you will go down in history as the men who made millions but didn't have a clue about what was going on at their firms....(so I guess YOU get the last laugh....)
 
Stocks traded slightly higher to mixed in extremely overbought and extended conditions, on what some called 'mixed economic news' - I would disagree.....It was all good.... the ISM Services report surged in September - climbing to 59 from the expected 55.5 and 4 pts higher than the 55 reported in August.....and this makes sense - as it mirrors the ISM Manufacturing report that showed a surge earlier in the week.  Both of these indices are now well above the '50 yard line' and as such suggest strong expansion in both the manufacturing and services sectors of the economy.  (Remember - the US economy is about 80% service related - meaning that 80% of all US jobs are service related).
 
[ISM Services Survey  - also called the ISM Non-Manufacturing Survey - is an index created by the Institute for Supply Management using information collected from surveys from over 400 non-manufacturing companies. An index with a score over 50 indicates that the industry is expanding, and a score below 50 shows a contraction.  Non-manufacturing companies are SERVICE companies, companies that do not manufacture a product but rather provide a service.
 
The ISM Manufacturing survey on the other hand is based on surveys of more than 300 manufacturing firms.  The Manufacturing Index monitors employment, production, inventories, new orders and supplier deliveries. Again a reading above 50 suggests expansion, while a reading below 50 suggest contraction - Investopedia]

Now you can argue that we have seen a jump in both of these surveys because of Harvey and Irma - but no matter - the surveys are what the surveys are.....and readings well above 50 are BULLISH. 
 
Next up - we heard from ADP yesterday as well about the state of job growth....here is where some are saying it was disappointing.......but look - we were only expecting 135k new jobs and that is what we got...YES it was down from last month's 228k jobs - but that doesn't matter.....the estimate was for +135k, the mkt expected +135k and that is what we got.....so NO - it was not a disappointment at all.....it was just as EXPECTED so no drama please.   Look - Friday's NFP report  (Non Farm Payroll) is only estimated to show an increase of 80k jobs so as long as we meet the estimate the mkt should not react.....Now if the report shows a zero increase or worse yet a decrease in job creation then THAT would be a surprise and the mkt would react.....and if the report shows much stronger growth - then that would also be a surprise...but if we get 80k jobs then it's a wash and while it may be lower than last month - the analysts have prepped us for +80k....Period the end......You can say all you want that the estimate is 50% of last month's report - but it is what it is......investors and the mkts are prepared for 80K.  Capisce? 
 
Earnings up......We are about to discover if the month of October can also buck the strong seasonal tendencies like September did, especially now that the Fed has disclosed it is shifting its monetary policy from stimulating to tightening while also staying on track to raise rates again in December....Fed fund futures are still placing a 69% chance of a hike for December..... Now we can argue about why the seasonal patterns in September did not materialize...was it because of the 3 massive hurricanes required equally massive liquidity injections needed by the government to cope with these natural disasters?  Well we are about to find as investors get to react to coming earnings.....and while they are expected to grow at 11% - they will more likely grow at between 8 - 9% - which is good.......as usual we must listen to the story....must listen to the guidance and we must see if the growth is coming from organic increase in revenues or because they are still throwing guys out and managing from the expense side of the blotter......and remember - the 4th qtr has been the best performing qtr for the indices  - usually seeing a 2 - 3% increase...but since September was strong  the sense is that the 4th qtr could see a move of 4+%. by year end.....
 
European mkts are mixed......investors swooping in and buying up punished Spanish bonds as the country's economy minister "poured cold water on Catalonia's bid for independence".  Bank stocks under a bit of pressure still as this situation plays out.   In addition Europe awaits the minutes from the latest ECB (European Central Bank) meeting.  Will they reveal anything new?  (Most likely not.....) If they sound more “hawkish” than expected with regards to potential tapering plans, that could be a headwind on stocks.  But, to be clear, that’s unlikely as the ECB will keep tapering plans close to the vest until the official announcement in October. 
FTSE +0.21%, CAC 40 -0.04%, DAX -0.22%, Eurostoxx +0.02%, Spain  +1.16% (Rebound) and Italy - 0.20%.
 
US futures are flat as investors/traders await the slew of eco data today....Challenger job cuts, Initial Jobless Claims of 265k, Cont Claims of 1.95 mil, Factory Orders of +1%, Durable Goods Orders of +1.7%......We will hear from Fed Governor Jerome Powell, San Fran's Johnny Williams, Philly's Patty Harker and Kansas City's Ester George......with the exception of Jerome - I suspect the others will not be mkt moving.......Investors will pay more attn to Jerome just because he is a 'contender' ....
 
Yesterday I said that it feels like the mkt wants to finally take a breath...but a breath only means a pause - not a mkt under pressure at all......and that is what we got....expect more of the same today.....
 
And for those of you looking to help make a difference - I will be the live auctioneer at the  Headstrong Project's 5th annual gala event in NY's Chelsea Pier 60 on October 16th.  Attendance this year is already topping 600 people and we have so far broken the $1 mil mark in support for this year's event.....I am hoping to take that number to $2 mil......Would you consider helping me?
  
It is an incredible event and the monies raised go toward helping our Veterans who suffer from the 'hidden wounds of war' - PTSD.  Please follow the link to learn more and support our efforts......
 
Please click on the link below for all tickets and sponsorships. 
http://NYC2017.gesture.com
 

Take Good Care

KP

Froga tat-Tarja - A Maltese Favorite

Now I have a very loyal follower and friend from the island nation of Malta - and he visited NY over the summer and joined me on the NYSE with his family for a tour of the birthplace of American Capitalism.  Today I offer up a traditional Maltese favorite - 
 
Froga tat-Tarja - It is the Maltese version of a Vermicelli Omelet.  The next time you are serving brunch - consider this dish.  Easy to make and easy to eat.....
 
For this you need:  1/2 lb of vermicelli (or angel hair) pasta,  3 eggs, fresh grated Parmesan cheese, handful of fresh chopped  spinach, chopped fresh parsley, s&p, olive oil 
 
Bring a pot of salted water to a rolling boil. Cook pasta until al dente, about 6 mins. Drain and rinse under cold water. 
 
In a large bowl, beat together eggs, Parmesan, spinach, and parsley. Add cold pasta, tossing to coat. Season with s&p.
 
Drizzle olive oil in an omelet pan over medium heat. Add enough of the pasta and egg mixture to cover the bottom of the pan. Cook until set and golden on the bottom, flip, and cook other side until golden. Repeat with remaining mixture. Fold the omelet's in half and garnish with parsley and Parmesan. Serve immediately. 
 

Buon Appetito.