That's Where the Happy People Go!

Ok - who remembers  The Trammps?  They were an American disco and soul band - circa 1972....They sang a number of memorable songs (at the time)....one of the ones that works for today is 'That's Where the Happy People Go.....'....The song starts out as the guy defines his life - spending his time being alone and one day he decided that the time was up and it time to 'live a little..'  And so he went to "the Disco - Where All the Happy People Go"....
 
And yesterday was that 'disco'......everyone was happy!  US futs pointed to a higher open, global mkts were enjoying a rally and boom - it was off to the races.....Better earnings from NTAP, CSCO and WMT accelerating the move higher.....the WSJ says it all....
 
'Wal-Mart Posts Strongest US Sales in Years, Powered by Groceries, E-Commerce - Results buck string of mostly downbeat retail reports this week'.
 
Years being defined as 'a decade'......WMT surged 11% adding 67 pts to the Dow.....CSCO up 5% added 12 pts while DWDP, CAT, HD, IBM, GS, AAPL & MMM all contributed another  80+ pts to this major index.....as global mkts were set on 'fire'......
 
Then the House vote on tax reform passes (no surprise there) and the algo’s can’t get enough of stocks.  The Dow surged by 187 pts while the S&P rallied 21 pts and the Nasdaq gained 87 pts on all the ‘good news’.  The small cap/mid cap Russell exploded to the upside adding on 1.6%. - by far the biggest winner of the day and that is because any tax reform is expected to benefit smaller domestic companies….but you say - what’s the big deal?  We knew this - and I would agree with you, but this is what we get when the mkts are controlled by artificial intelligence (AI) and automated trading. 
 
Look - nothing has changed at all…..the House was ALWAYS expected to pass their version of tax reform - so I wish we would get off that band wagon…..last week - when the mkts stalled a bit - it was all about how the Senate’s version of the bill was ‘so much different’ than the House version and that getting any kind of consensus would be very difficult, and the downbeat forecast on future oil demand -  (negative headlines) caused the algo’s to go into SELL mode...- testing support and retesting support - so I ask - What changed? Nothing!  That reality is still THE reality -  The Senate version will be tested and yes oil demand outlook remains challenged and yes - short term rates ARE going up causing the yield curve to flatten out - but yesterday was all about going where the HAPPY people go.........
 
Recognize that the mkts are controlled by ‘smart algo’s’… and so you  the ask:  What is a smart algo?
 
You see ‘smart algo’s’ are algo’s that scan, scrape and read the headlines…..looking for positive (or negative) words - the headlines drive the computer action - because as they scan and find positive words - then buy orders are created (by HFT and proprietary trading firms) and sprayed into the mktplace  -  sending stocks higher…which then causes the real buyers - asset managers (think mutual funds, pension plans, Hedge funds, Foundations or any asset manager that manages ‘real money’ ) to get pulled along - unless of course they are limit buyers - then the mkt runs away from then forcing them to either do nothing or come off their limits to stay involved - sending stocks higher still……..Conversely when negative words are found the opposite happens - the action from minute to minute being driven by 'noise' and a computers interpretation of that 'noise' in a headline. 
 
Let me relay this story....to make this clear - Recall back in 2010 - in the middle of the crisis - trading was frenetic… Global mkts were psychotic.........the ECB and the EU were having weekly ‘crisis style’ meetings in Brussels to deal with the collapsing banking system…..Angela (pronounced : Ain - GA - la - but we’ll call her Angie) Merkel - PM of Germany was always at the head of the table…...On this one particular day - the mkts were already under pressure - down by say 100 pts…..and someone TWEETS that  '#Angi  left the room’ - (now that is neither a positive nor negative headline) BUT the smart algo’s interpreted it as a negative - why?  Because there was Angela - the leader of the EU’s largest economy leaving the room - surely there MUST be something wrong -and so within seconds the mkt fell over 300 pts as the algo’s thought they were smarter than the average bear…….mins later - Merkel re-enters the room and takes her seat - and the TWITTER SCREAMS - ‘#Merkel comes back into the room ‘-  and the mkt does a complete 180 taking back the 300 pts it lost only mins ago  - and the end result - the mkt swung 600 pts (300 down and 300 back) in all of 5 mins because Angi had to ‘Pee’…..I mean - you CAN’T make this stuff up - who would believe you??? 
 
And such is life - we have allowed the proliferation of technology to control the mkts that we must now live and die by the sword we created.  While tech is good, creates efficiencies, allows for better audit and regulation of the mkts - it has also created a mktplace whose action at times is impossible to explain and that is my fear….the US capital mkts should not be a place that feels like a casino - if you want a casino - go to Vegas….the US capital mkts should be seen as a place to invest, create, build and generate wealth for a lifetime and for generations to come….the daily stupidity of algo trading is exactly that…..but I digress.....it is the bed we made so now we must ALL sleep in it......
 
This morning - global mkts are all celebrating into the weekend.....Asian mkts end the day higher  - Japan + 0.20%, Hong Kong + 0.62%, China + 0.40% and ASX +0.23%.  There was no news so - it is more about the buoyant mood...
 
In Europe - Uncle Mario (Draghi) ECB President making comments about the strength of the economy and that the bank needs to be patient as it continues to support the EU as it normalized monetary policy...because like here at home.....economic growth is good, but inflation remains subdued. - Essentially he didn't say anything new at all..........FTSE +0.10%, CAC 40 + .17%, DAX + 0.25%, EUROSTOXX + 0.12%, SPAIN -0.28% and ITALY - 0.27%. 
 
US Futures are off 1 pt  - Treasury Secretary Stevie Mnuchin is projecting that a GOP tax cut bill WILL be sent to the WH for Donny's signature by Christmas!  I think that is comical really.....BB runs with a story this morning that says - 'Senate Panel Approves Tax Plan as GOP Leaders Gird for a Fight' - saying that while the House passed their version - the Senate's version is a 'far different version' (but we knew this)......Among the many disputes - delaying corp tax cuts, create new limits on carried interest tax breaks for investment managers, tax treatment of partnerships and other pass throughs, the repeal of Obamacare individual mandate and the deficit implications of the overall plan.....all these being described as a loose thread.....
 
'Each such dispute represents a loose thread - if any one is pulled too hard, the entire tax package could unravel...'  
 
So maybe Stevie shouldn't count the chickens until they have hatched.....I still say ain't happening.....
 
But what is happening is the fact that Norway's  $1 Tril sovereign wealth fund is considering an exit of positions in 'fossil fuels' - think oil companies.....
 
"Norway's  Idea to Exit Oil Stocks is Shot Heard Around the World"
 
They own about $35 bil of oil and gas stocks - names like XOM, RDS, CVX etc....and while they are not the first ones to say it, they are the biggest ones to jump on that band wagon....
 
This morning oil is trading up 0.86 cts at $56......The XLE $67.10 -  has been under pressure of late.....(think rumors of such an announcement along with the IEA guidance) - down 5% in 5 days......breaking support at $67.82, $67.49 and about to test support at $66.15....a break here will send this stock to $61.90/$62.....
 
Gold is up $3.50 at $1,281 - continuing to be held hostage between support at $1271 and resistance at $1282.....
 
Eco data today includes Housing Starts - exp of 1.19 Mil, Building permits of 1.25 mil, Mortgage foreclosures and the Kansas City Fed Survey - exp of 21.
 
There are Fed speakers.  So, focus should remain on DC. 
 

Take Good Care

KP

Pan Seared Salmon w/Red Potatoes and Olives 

You will need:  Small red potatoes sliced into 1/4 slices, s&p, Salmon (skin on), olive oil,  fresh rosemary,  kalamata olives,  chopped Italian parsley, balsamic vinegar and lemon.
 
Boil the sliced potatoes for 5 mins. then drain and set aside - let cool.
 
Season the Salmon with s&p.  Set aside.
 
In a sauté pan - heat some olive oil  - place the salmon skin side down in the pan - careful not to crowd.  Cook to your liking - maybe for 3 or 4 mins....Flip and cook for 4 more mins......remove and place on plate. 
 
Add a touch more oil and heat....add the potatoes and rosemary...cook for about 4 or 5 mins...turning occasionally.  Add the olives, parsley and balsamic (about 1 tblsp), and s&p - heat gently.  Place the potatoes and olive mix on the plate with the salmon.  Serve immediately with lemon wedges.....Remember - it's all in the presentation.....
  
Buon Appetito.