It’s all Calming Down as it Should – Try the Potato Leek Soup

Kenny Polcari Uncategorized Leave a Comment

Things you need to know.

  • Things are calming down – as expected.
  • Teachable moment – What the reddit rebellion means for long term investors (A: Nothing)
  • Lots of questions will be asked and will be answered – stick to the plan.
  • Oil surges up and thru $56!  OPEC re-it is their commitment to force prices higher.
  • Try the Potato Leek Soup

*** Here is the link to my interview yesterday with Liz Ann Sonders – CIO at Charles Schwab & Co.  Slatestone Wealth’s 1st Quarter Live Event – Navigating the Path Forward.   If you missed the event – you can watch it here.  Great Conversation with an industry titan.  I hope you enjoy.

https://www.slatestone.com/2021/02/first-quarter-2021-navigating-a-path-forward-live-event/

OK – it’s all starting to calm down a bit (as expected)…..stocks meandered their way higher, including even those reddit names that have been all the rage lately…..as investors shake off all of the concerns around mkt instability, shorts, longs, regs, the little guy, the bit guy – whatever….what the mkt is doing is what it is supposed to be doing…..paying attn to the improving economic outlook, improving earnings, relief packages, stimulus packages, monetary policy and individual company news that drives investments.  Period. By the end of the day – the Dow added 36 pts, the S&P’s up 4 pts, the Nasdaq off 2 pts and the Russell up 8 pts.

All the talk yesterday, was about how both GOOG and AMZN rocked the house and how Jeffrey Bezo’s is stepping aside and now we need to throw our support behind a guy named ‘Jazzy’….  On the other side – we still do have the drama over the reddit trade and interestingly enough – those stocks did not continue to slide……and maybe that is because of the dramatic moves lower on Tuesday or maybe because the investment case for GME (at least) is starting to permeate the psyche.

As my friend Mark Cuban told me yesterday (via twitter) – about what he would say to someone that came on Shark Tank to present this investment case:

“I would say that the future of their biz is Ecommerce. They did $1.15 B online, grew at 309%.  I would ask if they should write off the brick and mortar?  Is a $1 b Ecommerce business growing at 309% worth 8x sales?  How can they sustain their high growth”?

And that I responded:  That is great. Investors should do their homework.   To be clear – I never said do not buy the stock, all I said is don’t be stupid in what you are willing to pay to own it”.

What investors are supposed to do is exactly that – Do the homework and if your analysis suggests that the story is misunderstood (which some analysts/traders recognized) then go for it, paying $30 sh for it and ‘investing’ in the company is one thing, but getting caught up in the drama of the day, and making it into a ‘revolt’ as if you want to ‘bring down the establishment’ – getting dragged along and paying prices (north of $100, $200, $300 & $400)  that were completely divorced from reality makes NO SENSE.  And then telling everyone on Twitter that ‘you don’t care if it makes sense, and you don’t care if you lose your money, this is a revolt’ is NOT an investment or even a trading strategy.   That was my point and continues to be my point….

What is also getting lost on this conversation is the fact that the action forced the institutions to pay those prices – exacerbating the moves only added to the hysteria. (which is a risk)   And look – there is risk in investing and there is more risk in gambling…which is what many of those retail trader were doing…some won and some lost and guess what in the institutional community – some won and some lost – look at the WSJ article today….Senvest – a Hedge Fund that did it’s homework, found the story last summer and began slowing investing in GME at the sub $10 level for what they expected to be a reasonable investment turned into a MASSIVE WIN for them when the hysteria took hold.  As the story points out – they made $700 million on that trade…. because they were selling it into the ‘hysteria’ at prices north of $300 and $400 share…to people who were ‘revolting’ against the establishment.  It is nuts…. but it is a ‘teachable moment’…

Now – as the mkt churned and did not collapse, it begins to give investors renewed optimism as the economic data, vaccinations, policy ideas, interest rates etc.…once again take center stage…. Eco data yesterday confirming the good news…. both Services PMI’s – Markit and ISM showing nice improvement….beating the estimates – coming in at 58.7 and 58.7!  Mortgage apps also reversing rising by 8% vs. last weeks -4%.    The 10 yr. treasury yield rising to 1.12% up from 1.105% from Tuesday…. suggesting that investors are selling treasuries and moving money somewhere else and that appears to in the markets….  (inverse relationship – when treasury price goes down/Yields go up!) And that is just the way it works….so again you must ask – at what point will rising 10 yrs. cause equity investors to slow down?  We do not know, we can speculate, or we can build a portfolio that will defend against it…. or at least put up a good fight…. because as the stock mkt re-assesses (read corrects) then opportunities present themselves…And that is not the time to panic….

Today is a big earnings day….BDX, BLL, APD, CI, CLX, VAST, YUM, TPR, BTU, CMI, PH, NYT DGX, BAX, BMY, IP, ICE, MRK, RCL – all due before the mkt….and so far the ones that have reported have been mixed….50% of the numbers so far this morning are missing the estimates….which means that 50% are beating and that is a bit below what we have been seeing, but the morning is young and I expect that when it’s all over that about 75% of reports will have beaten so, it will have been a good quarter.   After the bell look for PRU, PTON, WYNN, TWST, PINS, GILD, BILL, SNAP, U, ZIN, FTNT, MCHP, GPRO, TDC, NLOK, WWE, NOV, F, TMUS…

Eco data includes Challenger Job cuts, Initial Jobless Claims of 830k (trending lower), Continuing Claims of 4,7 million (trending lower), Factory orders +0.7%, Durable Goods, +0.2%, Ex transports of +0.7% – all reports that IF they come in as expected will continue to tell that story.

US futures are up again…. Dow futures are up 11, S&P’s up 3, Nasdaq up 38 pts and Russell is down 3 pts.  After the bell last night, we heard from PYPL, EBAY and QCOM – PYPL and EBAY easily beat and rose in after hours while QCOM missed consensus estimates and fell after hours.  (that is what should happen).  On the other hand, AAPL surprised everyone again and announced that they are ‘close to finalizing’ a deal with Kia/Hyundai to produce a ‘driverless’ car……a car that will be manufactured in Georgia!  (the state not the country!)

And in another show of how social media and the power of the ‘influencers’ continues to amaze us….  Lonnie (@Elonmusk) who announced that he was going ‘dark’ and getting off twitter for a while, changed his mind and tweeted out “I am become meme, Destroyer of Shorts” – causing the reddit trades to find a bit of a bid…. And in another tweet, he opined on the crypto joke coin ‘DOGE” causing that ‘currency’ to surge 67%…. which does not say much because it only trades a 3cts, but when it rises by 2 cts it is up 67%!  It is non-sense really – but it is the state of play amongst a small group of revolters!   The point is how the system reacts to tweets from people considered ‘untouchable’…. it is amazing really, a fascinating study on human behavior.

European markets are up small……’eking out gains’ as the focus is squarely on earnings and continued lockdowns across parts of Europe…. Deutsche Bank reports better earnings while Royal Dutch reported a sharp drop……The BoE (Bank of England) is due to release their latest move on monetary policy – no change expected.  Away from that there is no other significant eco data.  At 7:15 the FTSE -0.14%, CAC 40 + 0.16%, DAX + 0.17%, EUROSTOXX + 0.05%, SPAIN -0.05% and ITALY +0.12%.

OIL does it again and continues to move higher……piercing $56/barrel…. OPEC stuck to their production cuts and re-iterated that……as stockpiles in the US are now at their lowest levels seen since last March – falling by 1 mil barrels last week…to 475.7 million barrels. ……In the end – what OPEC has done is convinced the energy mkt that they are not kidding and that they will withhold production to force prices higher!  A challenge of the January 2020 highs of $57.4 is now in order….

Gold sold off yesterday ending the day at $1833….in sympathy with the selling in silver….it has broken all trendline supports but seems to be finding support right here at $1830……. Any further weakness could see it test the December lows of $1795 ish…

Bitcoin adding $2118 – now trading at $37,500……

The S&P closed at 3830 – tested a high of 3847 and a low of 3816……. Today it feels like more churn….and while it feels like it wants to test the all-time high of 3870, today does not feel like the day….and nor does it feel like it is going to back off.  Remember what I have been saying…. The reddit sideshow is just that -a sideshow….it should not deter you from investing at all…if your investment themes are focused on the long game and not the hysteria that we have witnessed.

We are in an upward channel bound by 3715 and 3900 – anywhere within that range would be considered normal….so do not stress……My sense is that a breakout above is not in the cards right now…. I still believe that we will see more backing and filling and that is ok…in fact, that would be welcomed.

Call me to discuss your portfolio.

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss what Slatestone can do for you.

Take good care.

Consultant, Market Strategist
kpolcari@slatestone.com

 

Potato Leek Soup

Leeks are a great vegetable to cook with and add a new dimension of taste to many dishes – so today – try the soup – easy to make and good for the soul……..and on this bitter cold, snowy day here in the northeast – it makes perfect sense.

For this you will need: 1/2 stick of butter, garlic clove, 1 stalk of celery diced, 6 leeks, white parts only, cleaned and sliced crosswise, 4 lg potatoes, peeled and diced, s&p (white pepper is preferable) ,  chicken broth (you can use veggie broth),   2 cups half-and-half,  1 cup heavy cream,  chopped fresh chives to garnish when serving.

To start – Melt butter in a large saucepan over medium heat. Add leeks and cook until soft about 10 minutes.  Now add potatoes, s&p, and the broth.  Turn heat to simmer and cook until potatoes are tender, about 30 minutes.

Next pour into the food processor and blend until smooth. Do not leave chunky.  Add half-and-half, heavy cream, season with pepper.

Return to stove and gently heat over medium heat until warmed through.  Serve immediately in warmed bowls – making sure to garnish with the chopped chives.