Unlock, Unload & Unleash

Oh - boy....the mkt did WHAT?    S&P's closed DOWN 11 pts at 2201 while the Dow lost 54 pts and the Nasdaq gave back 30 pts.  What happened?
So this morning the headlines would have you believe that the 'Trump Effect' is waning...as the mkts came under pressure yesterday -  Stop! 
 
Then other headlines suggest it was disappointing Black Friday Sales - unlikely - in fact while Black Friday sales were down 18% at 'brick and mortar' stores - online sales on Black Friday were up 14% yoy, so that is non starter, then they suggest that it was cyber Monday sales - again - unlikely - at last count Cyber Monday sales were expected to hit a RECORD $3.3 BIL.......so let's just make it easy - it is NOT about shopping and Black Friday or Cyber Monday at all....As my kids tell me (every once in a while) "It's not about YOU....and it is NOT about holiday shopping - Come on!  And not to worry - the sales are only gonna get better as we move thru the next couple of weeks - as retailers will want to unload their inventory and don't discount the commitment of Amazon to completely disrupt and destroy the status quo.......
 
Now in fact - we did see weakness across many of the sectors that have been the biggest beneficiaries since the election and why is that?  Because these groups have surged double digits in 3 weeks.....so when the reality of broader macro 'global issues' hit the tape - it becomes prudent for traders and some asset managers to ring the cash register and take some money off the table in anticipation of what could see mkts come under a bit of pressure - that's what these guys get paid for - anticipating mkt action to grow and preserve the capital.....It's called 'active management' vs. 'passive management' - but that's a conversation for another day.....
 
Yes - the S&P did back off 1/2 of 1% - nothing really in the bigger scheme of things considering that it is up 6% since November 8th.  The Russell was the biggest loser yesterday - falling 1% - but remember - this index is up 16% in 3 weeks......so is there really any story here?  Hardly...........But that could change in the days ahead because of the KEY global issues that are hovering just overhead.....
 
The first is the OPEC meeting - we have discussed ad naseum - will they come to an agreement or not?  Yesterday morning - oil was trading lower but then turned higher when the Saudi's raised the stakes....and turned up the heat on the negotiations for that production cut deal that they so desperately want...saying that IF - no deal is reached - then essentially - they (Saudi's) are prepared to unlock, unleash and unload and wash the planet in oil...sending oil prices plunging - and in the process causing undue stress and pain on the other OPEC and Non OPEC producing nations.........so what happened - Iran and Iraq and Russia all fell in line - suggesting that a deal could be reached and BOOM!  Oil prices suddenly found a bottom and the buyers ran in to scoop up 'cheap stock'...sending oil higher by more than 2% for the day.....(This is called JAWBONING) - and this morning what is happening?

Oil is falling again as they have again FAILED to reach an agreement and the world hangs in balance.........now the funny thing is what are we talking about?  10 mil barrels a day between all of them?  They want to go from 33.82 mil barrels a day to 32.58 mil barrels a day...thus forcing the price of oil to go from $45/barrel to $50/barrel - I mean do the math - it's a neutral move for them....( For illustration purposes only:  if you produce 10 mil barrels/day at $45/barrel = $450,0000,000/day - now if you produce 9 mil barrels/day at $50/barrel = $450,0000,000/day)  What am I missing? 

But if these clowns do not agree on cuts - then the Saudi's will clobber them and overproduce and flood the mkt forcing the price lower - potentially testing the 2016 lows of $28/barrel....what will those clowns do then?  Asian customers - who are the biggest importers of oil have already expressed concern over 'artificially forcing prices higher' and have put OPEC on notice that they would turn to the Non OPEC producing nations to buy oil IF OPEC forces cuts to raise prices....oh boy - I love when it gets really complicated - How will the algo's react?  Can they 'feel' the mkt?  Can they look in the whites of their eyes to see how people react under pressure?

Next we have the Italians -  and the global mkt action  IS about the Italian Referendum vote on Sunday.....this will be a key turning point for the Italians and potentially for the EU (European Union). (See yesterday's note)  A NO vote will cause Prime Minister Matty (Renzi) to quit - almost immediately (his words) as he stamps his feet in a temper tantrum for not getting his way....
 
Now for background it is important to understand how the current Italian constitution (Costituzione della Repubblica Italiana)  came to be:  Encyclopedia Britannica sums it up nicely
 
[" The Italian state grew out of the kingdom of Sardinia-Piedmont, where in 1848 King Charles Albert introduced a constitution that remained the basic law, of his kingdom and later of Italy, for nearly 100 years. It provided for a bicameral parliament with a cabinet appointed by the king. With time, the power of the crown diminished, and ministers became responsible to parliament rather than to the king. Although the constitution remained formally in force after the fascists seized power in 1922, it was devoid of substantial value. After World War II, on June 2, 1946, the Italians voted in a referendum to replace the monarchy with a republic. A Constituent Assembly worked out a new constitution, which came into force on January 1, 1948.
 
The constitution of Italy has built-in guarantees against easy amendment, in order to make it virtually impossible to replace it with a dictatorial regime. It is upheld and watched over by the Constitutional Court, and the republican form of government cannot be changed. The constitution contains some preceptive principles, applicable from the moment it came into force, and some programmatic principles, which can be realized only by further enabling legislation"]
 
 
Now the highlighted sentence says it all...... The constitution of Italy has built-in guarantees against easy amendment, in order to make it virtually impossible to replace it with a dictatorial regime.  Now Matty Renzi  wants to change the constitution to take power away from the people and put more power in his hands....exactly what the constitution prohibits.....and so the fight begins.....The concern is not so much about the voters approving this change - (the NO vote appears to be priced in - BUT we have seen that story BEFORE!)   it is more about the days immediately following a no vote.....

If Matty resigns what happens to the gov't and what happens to the financial mkts?  We have already seen the Italian banks get slaughtered as the rhetoric heats up - but listen - the Italians are not a stupid bunch - the banks will not implode.....It's not like this vote is coming out of left field at all.....this process has been going on for a while so you have to believe that there is a contingency plan in place......Like Don Corleone said -"I'm gonna make you an offer you can't refuse!"
 
And finally - we have the FED - on December 14th - the world will learn what we already know..... we all expect a 25 bps increase in rates so there should be no surprise at all - the only hiccup may be commentary about the future pace of increases and the increment of increases - will she jump to 50 bps increases in 2017 or will she continue this slow steady pace of 25 bps increases each time?  What will the Dot Plot Graph say?  And while everyone seems to be comfortable with the coming increase - the devil is in the details....
 
 And so there you have it - all summed up in a short story.....Now this morning we find that the Asian mkts ended mixed - nothing dramatic at all...and now the European mkts are mixed as the world awaits news out of Vienna (think OPEC)....Oil is down $1 at $46.11. 
 
US futures are currently up 3pts in early trading....as the headlines remind us that yesterday was the 'worst performance' for the mkt in a month......down 1/2 %?  Really? 

Eco data includes the 1st revision to 3Q GDP and expectations call for 3% growth.....(think gov't spending and higher health insurance rates),  If this revision comes in better than 3% then look for the talking heads to start talking about the need for rates to rise a quicker pace - blah, blah, blah.....

Watch the S&P...it needs to hold 2195 ish...that is prior all time intraday high that was tested a number of times before we broke up and thru....so on any pullback - you would want to see if the buyers are willing to defend this position - if NOT - then look for a move to the 2170/2175 range.  On the upside - look for the 2213 high to offer some resistance in light of the broader global issues taking place this week.... 
 

Take Good Care
KP

Ropa Vieja

Now yesterday - I failed to mention the death of Cuban Dictator Fidel Castro - and that was by design - because I do not believe that his death warrants this much coverage....he was a dictator that destroyed the lives of so many...but you don't need me to tell you that....
 
Today's dish though is a salute to the Cuban people and the Cuban Americans that left their homeland to fight for a better life.

Ropa Vieja - literally means "old clothes".....it describes the shreds of beef, peppers, onions, carrots that reminded someone at some point long ago of shredded clothing.....this is a staple in the Island Nation of Cuba...and although my wife is Puerto Rican - she makes an incredible Ropa Vieja -  
 
You start with Flank Steak - that you braise in a pot for about 1 - 1 1/2 hrs  with water, carrots, onions, celery, s&p.  Remove and let cool - strain the liquid - making sure to press on the veggies to release the last bits of flavor....return to pot and reduce to about 4 cups of liquid.  With 2 forks - shred the flank steak - pulling it apart and leaving it stringy. 
 
In a heavy skillet - sauté julienned red & yellow peppers, onions,  & garlic, until soft - add the shredded beef, a can of tomato sauce (not paste) and one cup of the braising liquid.  Add frozen peas and pimento stuffed Spanish olives (cut in half).    Season with s&p, and a bit of oregano.  Cover and let simmer..... This dish should be served over rice - either plain white rice or yellow rice....
  
Buen Provecho!  Which literally means that "you deserve to eat well" -