Things you need to know.
- The Suez Canal opens up!
- Archegos begged the big banks to keep a secret
- Joey readies to announce his 3rd infrastructure program and much higher tax rates
- Is China getting ready to invade Taiwan?
- Oil retreats a bit but remains above $60/barrel
- The 10 yr ticking at 1.765% and likely moving higher
- Try the Garganelli
The Ever Given has been freed and traffic will once again begin moving through the Suez Canal – that is good. And global banks fighting over the latest Wall St drama created by Bill Hwang and Archegos Capital – a family office that duped all of the big banks into lending it money (think margin) to finance his trading which has now gone bad – Billy apparently built large concentrated positions in a handful of companies – US and Chinese – via both stocks and swaps – positions that they kept confidential from the big banks….…..when the Chinese stocks began to fall in value and the big banks called for him to put up more money vs. the margin call – he failed to meet margin calls the alarm bells started to ring…..causing panic among some of the biggest global banks – …..We saw the beginning of this drama on Friday with Goldman and Morgan Stanley began liquidating positions and then yesterday we heard that Credit Suisse and Nomura got caught up in the mess…..Both of these firms falling significantly as they warned of losses tied to a ‘significant US based hedge fund’ that failed to meet a margin call……and here we go again with the whole margin issue….and what appears to be an ‘are you f’ing kidding me – response. Once again, a complete lack of risk management plans and a complete lack of understanding on behalf of the banks that lent the money…. …. the damage from this latest hedge fund drama only beginning to be told…but will this drama have broader implications for the broader stock market – No, most likely not…but it will provide plenty of opportunity for analysis and case studies at a range of universities.
The news caused anything financial to take it in the gut…. the XLF (S&P financial ETF) falling 0.87%, the KBW banking ETF falling 2.3% and the IYF (Ishares Financial ETF) losing 0.73%….and the list goes on….
Yet the Dow and S&P did little in terms of react…. the Dow ended the day at another closing high up by 98 pts or 0.3% and the S&P lost 3 pts or 0.09% (hardly anything to worry about) all this as the Archegos Capital blowup proves that investors remain unfazed in this FED fueled low-rate environment……
Look – when the FED keeps rates at zero and promises to keep greasing the system – we see some people go way out on the risk scale assuming that the Fed will come to the rescue if they get themselves into trouble…in what is another episode of history repeating itself – what we see in this latest hedge fund blowup is that the FED’s largesse enables and actually emboldens more speculative risk taking…..and so it goes…….Until it doesn’t…..and then watch out…..
Next up on the calendar is all the new talk about the latest Biden infrastructure proposal…. the $3 trillion one and now the newest $2 trillion one…. the one defined as ‘social infrastructure’ and what that means for US taxpayers……and then we found out that even more positive news of the Pfizer and Moderna vaccines suggest that their doses ‘effectively prevent any corona virus infections’.
As of next Tuesday many states are now lowering the age limits for vaccinations and re-openings of cities and states causing excitement about the speed of the recovery trade again…and this sent the 10 yr. yield surging to a new recent closing high of 1.765% and the 30 yr. bond to 2.443% – in a move that basically said – we don’t care about the Archegos implosion or the implications for a handful of banks that got caught up in it….What we care about is the inflation implications that all of this good news is going to ignite…..….and the coming Biden speech tomorrow may in fact be the catalyst for a deeper selloff in bonds which would send yields even higher….potentially putting more pressure on stocks….Investors understand that faster growth, rising earnings expectations, historically low borrowing costs and massive pent up demand is about to fuel the next move for the markets, for the economy, for rates and for inflation.
Look – he is expected to give a speech that will detail the mass expansion of gov’t spending…. spending that will rebuild roads and bridges as well as reduce economic inequality……. which will include a massive overhaul of the tax code – something that is sure to prove divisive – among economists, strategists, politicians, lawyers, businesses both large and small and the everyday Americans.
And this caused further selling pressure on the Nasdaq which lost 79 pts or 0.60% leaving it at 13,059 and the Russell – which lost 62 pts or 2.83%.
This morning….there is the celebration of the Ever Given container ship – but lots of conversations around bottlenecks in global trade that no one was having….Archegos will get some air time as analysts and lawmakers go back and forth about who is responsible, who fell asleep at the wheel…What role margin played in it, what that allowed Billy Hwang to do and who bears the risk of all of this sophisticated trading…because in the end – investors that had no connection to Archegos but were invested in names like Viacom & Discovery (which got caught up in the mess) have seen those stocks lose more than 50% of their value in 3 days….….for what? What fundamental part of the story changed? Or was it his moves that caused the upward spike in those names over the last 3 months and now it is coming back to where they should have been all along…? Oh – so many questions….
US futures are now quoted mixed…. Dow futures up 75 pts, S&Ps off 1 pts, the Nasdaq down 62 pts and the Russell up 16 pts – nothing dramatic, but the day is still young…. Remember this is a holiday shortened week – Friday – the markets are closed – and Wednesday represents the end of the 1st qtr. – so we can expect continued volatility as asset managers ‘dress up’ their portfolio’s.
Eco data today is all about housing prices…and consumer confidence…. neither of which will drive markets significantly. Tomorrow’s ADP report though, will be widely watched because investors will be able to react, Friday’s NFP report which is also expected to be strong will be released when US markets are closed for the Good Friday holiday….so in either case – investors here will not be able to really react until Monday.
This morning the 10 yr. yield is quoted at 1.765% (good for banks) and the markets are just a bit antsy…..notice the Nasdaq continues to come under pressure……remember what I said about 13,325 last week…..It was KEY and once it pierced it to the downside – it sent a signal of further weakness….It has broken thru the 50 dma at 13,425, it broke thru the trendline of 13,325 and is now trying to find support at the 100 dma at 12,906……this mornings weakness if it holds will see the Nasdaq index open below 13,000……
European markets are all trading up as the global recovery story is the story…. Vaccines, new info, improving economics and news that the WHO (World Health Org) cannot figure out where the virus came from…. saying that they are not getting enough cooperation from the Chinese…. but no fear…. PFE and MRNA tell us that their vaccines prevent infections in addition to protecting us. Eurozone economic sentiment survey jumps to 101 up from 93.4 in February. At 6 am the FTSE +0.39%, CAC 40 +0.65%, DAX +0.66%, EUROSTOXX +0.59%, SPAIN +0.77% and ITALY +0.46%.
Remember – the end of the quarter is coming….so we will get some volatility in the next 3 days as asset managers ‘window dress’ their portfolio’s…. launching some of the high growth names and scooping up some of the newest value names…. signs of a surging economy, rising interest rates and rising inflation have caused a massive shift into the value sector while taking money out of the growth sector.
Breaking news out of the gov’t is that China is ready to invade Taiwan…. this is a breaking story- so expect markets to be paying close attention. The Biden Administration has yet to say anything about this speculation even as it is all over the news.
Oil – which has rallied yesterday on the Suez Canal drama is off 50 cts this morning at $61.03…. Trendline support is at $59.25 with resistance at $65.50 for now….
Bitcoin – is trading at $58,800. Ethereum is trading at $1835.
The S&P closed at 3971 – after trading in a tight range of 3943/3981. Remember – the end of the quarter is coming….so we will get some volatility in the next 2 days as asset managers ‘window dress’ their portfolio’s…. launching some of the high growth names and scooping up some of the newest value names…. signs of a surging economy, rising interest rates and rising inflation have caused a massive shift into the value sector while taking money out of the growth sector.
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Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Garganelli w/Red, Green & Yellow Peppers (in a cream sauce)
This is a great dish – hails from Northern Italy – pleasing to the eye and tantalizing to the taste buds…the herbal green pepper complements the sweeter red and the mellow yellow…. Read on –
You will need: butter, olive oil, onion, red, green & yellow bell peppers, s&p, heavy cream, pasta shells, chopped Italian parsley and fresh grated Parmegiana-Reggiano cheese….
This is a simple dish that you will not easily forget –
In a large sauté pan on med heat – add 1/2 stick of butter a bit of olive oil (so butter does not burn) and chopped onion – cook until the onion becomes soft and translucent. Next add diced peppers – should be about 3 cups total (so figure it out….1 cup of each) – turn heat to med high and sauté these until tender – stirring occasionally. Season with s&p. Slowly add the cream…. should be about 3/4 cup/1 cup…. cook until you have reduced by half…. You need to stand there and stir it…do not leave it unattended. When done turn off.
In a separate pot of salted boiling water -add the Garganelli and cook for about 7 / 8 mins or until aldente. Reserve one mugful of pasta water then drain and return to pot…. add back enough pasta water to moisten only…. – do not soak. Toss the pasta (you will see the water gets absorbed). Now add the cream and pepper sauce, a bit of parsley for a rich green accent and fresh grated Parmigiana-Reggiano cheese. Toss and serve immediately in a warmed bowl. Always have extra cheese on the table for your guests. Choose your favorite white wine to complement.
**here is an added benefit…. if you make more sauce than you need – refrigerate and use the following day on chicken, veal or even pork cutlets. Season the cutlet with s&p – then sauté the meat in a pan with butter and olive oil – right before it is done – add back the cream & pepper sauce from the previous night and let cook for a couple more mins…. Serve with a large mixed green salad and dressing of your choice.
Buon Appetito.
