What did Jimmy say? Rates to rise in 2022?

• Jimmy, Jimmy, Jimmy….

• VIX up, Yields Down, Dollar Up, Commodities Down.

• More FED speak today….will that cause markets to fall again?

• China cracks down on Bitcoin and it is now down 9% - Key level is once again $30,000.

• Try the Pan Seared Scallops.

Stocks took it on the chin on Friday….with the Dow falling 533 pts or 1.6%, the S&P’s down 55 pts or 1.3%, the Nasdaq off 130 pts or 0.9%, and the Russell down 50 pts or 2.1%....the VIX (fear index) were up 16%, Treasury yields fell to 1.42%, (on the idea of a slowing economy), the Dollar Index surged up and thru all resistance levels (on the idea of higher rates sooner than expected) and commodities fell.  (Gold, oil, lumber, hogs, soybeans, corn etc.).

You can blame this on two things….1. Investors and markets have been looking for a reason to back off as it becomes clear that the landscape is changing.  The FED made that clear on Wednesday post their FOMC meeting when Jay Powell told us they are talking about tapering and that the dot plots have signaled that the interest rates will begin to move higher in mid-2023 vs. the beginning of 2024…and that was not so bad…the markets and investors took that in stride because that message had been delivered loudly during the past month, as different FED Presidents began having the conversation in the public square – floating the balloons, taking the temperature, trying to prepare investors and markets that while the economy was booming, inflation was heating up faster than expected – so it was time to face the music….We had Rosengren, Harkins, and Kaplan on one side, while Brainard, Bostic, and Clarida were on the other side…..so it provided for a robust conversation and an opportunity for investors and markets to begin to reassess risk.

And then on Friday morning – the second thing happened….’Jimmy B’ – St Louis’s Fed President who is not a voting member of the FOMC committee was feeling a bit left out and so, in his usual fashion, he takes to the airwaves and completely contradicts the FED’s message from Wednesday – when he announces that HE expects the first-rate increase to happen in late 2022! Saying that he expected ‘the fed to be nimble, that they have faced more inflation than expected’ He then went on to say that 7 of the 19 Fed officials expect one OR MORE rate increases next year…. (To be clear that is 2022…. not even 2023).  Now there is a distinction - There are a total of 19 Fed officials – 7 members of the board of governors, and the 12 regional presidents…- the FOMC – a subcommittee of the FED has 12 members….so there are 7 members that are not represented and have their own opinions which some freely express – and that is what Jimmy B did on Friday.  So, let us just all take a breath…because as they float this balloon, Jay can say, ‘Hey look, I never said that – that is the opinion of 1 non-voting member, so don’t overreact…’

So, in the last week – we have gone from 2024 – to 2022! Which should surprise NO ONE.  IF you’ve been paying attention to what has been happening…so now that conversation is in the public square as well and it changes the tone and outlook for stocks……Now you can say what you want, but my interpretation is that this was a deliberate attempt by the FED to float another balloon….teasing the markets with the idea that rates may rise even sooner than Jay suggested…so that they can take the temperature, they can see what the reaction is, whether or not there will be a temper tantrum…..and there was a bit of whining…as stocks sold off…….but it was not a disaster at all on the day or the week….…by the end of the week – the Dow gave back 3.5%, the S&P’s down 1.9%, the Nasdaq down 0.2% and the Russell down 4% all of this as the indexes are near their all-time highs. So, in fact – we could see even more pressure to the downside before this is over…. Unless of course – they get the opposing team to come out and argue the contra-side of Jimmy B’s argument.  It is all very orchestrated.

There was no place to hide….we saw everything come under pressure – every sector lower….Energy (XLE) down 3%, Utilities (XLU) lost 2.6%, Financials (XLF) down 2.4%, Consumer Staples (XLP) down 1.7%, Basic Materials (XLB) – 1.6%, Real Estate (XLRE) down 1.6%, and the list goes on….the value trade getting slammed (SPYV) down 1.8% while the growth trade (SPYG) was down 0.8% - leaving value still up 12% on the year while growth is up 10%....do you see how that trade is working out? 

In the end – talk of rising rates sooner than expected will cause analysts to change the inputs into their models – and that will change the output of the equation….and the answer now is that earlier rising rates may slam the brakes on this robust recovery, so all those expectations must be changed as well. Do you see how this works?
Today we will hear from more FED members…. Jimmy B and Dallas’s Bobby Kaplan will speak on a panel hosted by the Official Monetary and Financial Institutions Forum at 9 am est….and NY’s Johnny Williams is speaking at noon at the ‘Midsize Bank Coalition of America’ event.  Now while neither of these institutions will cause a ruckus – it is the commentary that these men make that investors and markets will be listening to.  Will they mimic Jay Powell, or will they side with Jimmy B?

Overnight – Asian markets were lower as they reacted to what Jimmy B had to say….… Japan falling 3.3%, Hong Kong down 1%, China down 0.25% and Australia losing 1.8%.  China left interest rates unchanged which were in line with expectations…. yet – the Chinese gov’t is putting more pressure on Bitcoin miners…sending Bitcoin into a free fall over the weekend…and this morning – it is down ~9% trading at $32,900…

US futures – which were decidedly lower overnight – falling triple digits have all rebounded…and are now up at 5:30 am…. Dow futures are +213 pts, S&P’s up 20, Nasdaq higher by 83 pts, and the Russell up 16 pts.  Last week – left the Dow down and thru its 50 dma almost kissing its intermediate DMA…. (Which it did overnight and held), the S&P pierced its 50 DMA but appears to be finding support his morning.  The Nasdaq remains well above trendline, and the Russell had breach both its 50 DMA and its 100 DMA ending the day below both trendlines. But appears to be looking to take them back today.

There is not eco data to speak of, so the discussion is going to be around dissecting what Jimmy said and what those FED members will say later today.  We are at an interesting place – as the monetary conversation heats up…. there is not July FED meeting, so we must wait until the August Jackson Hole boondoggle…. but expect to hear more speculation about what we will hear then.  And then it will be the 4th qtr. 2021 and before you know it – it will be about the holiday shopping season…. (It is exhausting….).

European markets are higher…. there is not eco data so markets will focus on global interest rate policy as well as US interest rate policy.  

Oil that sold off a bit from last week’s highs of $72.90 ish/barrel is now trading at $71.95…. We tested $70 last week and held and now it is bouncing higher again… Remember – the prospect of higher rates last week put some pressure on oil – which I said was very premature…. I still expect demand to continue to push prices higher as we enter mid-summer – so sit tight.   

Bitcoin is trading at $32,900, Ethereum is trading at $2,000 while Doggy Coin is at 0.25 cts.  Once again, the KEY level to watch is $30,000.  It is the neckline of the head and shoulders pattern that I have been discussing…. a failure there could see Bitcoin trade down to $20,000 quickly. 

The S&P closed at 4,166…. On its low for the day…. which usually means we will go lower.   Futures did test lower overnight but has since found some support…but let us see what the FED representatives have to say this morning…. right now – markets appear to be ok….as futures are higher, but we have seen how all that can change on a dime.  4200 is now a psychological level and may be tough to break now that we are talking about rising rates in 2022 vs. 2024…. but let us see how this goes…. because for now – rates remain at zero and there is nowhere else to go….

Trendline support which is now resistance is 4180, so I suspect that we will see investors test it today to see if the bears are just sitting there waiting... A failure to take it back could see us test the June lows of 4,050 and the intermediate trendline support at 4,4040...

..In the end, what is important for investors to understand is – it took 12 yrs. of massive global central bank support to get us here, so as the FED, the ECB, and the others consider the next steps, we can rest assured that it will be very calculated and methodical….Investors will have time to consider what’s next – unless of course we get hit by another ‘black swan’ event that sends markets careening….but that is where you advisor comes in with the assist and creates a well-balanced, dynamic portfolio for you.   

Pan-Seared Scallops w/Mushrooms and Wine 

This is also an easy dish to prepare and serve - you will need, 1 lb. of mushrooms, olive oil, shallots, chopped garlic, s&p, white wine, fresh bay scallops (like 1 lb.), and chopped Italian parsley. 

Rinse, strain the scallops - set aside.

In a sauté pan - add olive oil and chopped shallots - about 3 tblspns - and turn the heat to high...cook (stir) the shallots until they are golden brown...now add chopped garlic - 2 cloves.  As the garlic browns (not burns) add the sliced mushrooms - turn heat to med and season with s&p - cover the pan so that the mushrooms make their own juice.  After about 15 mins or so - uncover and let the mushroom water evaporate....at this point - add the wine - maybe like 1/2 to 3/4 cup...again reduce until the wine has evaporated. 

In a separate pan - heat up a bit of butter and oil - Add the scallops to the pan and sear on both sides.  - season again with s&p and the chopped parsley.

When presenting - place the scallops on the plate and spoon the mushroom/wine sauce over them.   You can complement this dish with wild grain rice and steamed spinach seasoned with s&p and a touch of butter. Enjoy a light dry white wine.