Kenny Polcari’s Morning Thoughts for 9/27/2019

What You Need to Know Today

Things you need to know

- Mkts attempting to ignore the drama

- Global mkts rally on a possible trade deal (again)

- Who wants Joe Biden out?

So on Wednesday, Trump comes out defiant (as expected) - he releases the transcript and the first blush was negative...the mkt – which had opened slightly higher quickly turned down.....it didn’t fall out of bed, but you could see how the algo’s were going to react.....as the headlines suggested that Trump did do exactly what he said he didn’t do......and the algo’s began to have a field day.....but then Donny hits the tape – he convenes a press conference to tell us that a limited deal between the US and Japan had been signed which should lead to a broader agreement between the two nations.......and then he slips in news about China!  Saying that a deal is ‘just around the corner’ and that it ‘could happen faster than you think’ and that China ‘wants to make a deal’...etc.....and guess what?

He changed the whole direction of the conversation – just like that!  Because in the end – the mkt WANTS a deal with Japan, Europe,  China - whoever – vs. the ongoing impeachment proceedings.   - that is something that is fundamental to valuations....and that is something that WILL give real value to stocks now and in the future.....

As noted – the impeachment inquiry is really an exercise in futility-  It will give them plenty of airtime, it will give them time to try and change the election narrative and it will give them time to create suspicion.....and then IF it moves onto a full impeachment, it  will never end in removal......Why?  Because the House, controlled by the Dems, would vote to impeach, while the Senate – controlled by the GOP would have to hold court and allow it to play over a period of months and then never vote to impeach (or convict and remove) the president.  Period.  The end.  Now that doesn’t mean that it won’t go forward, that just means it is NOISE.  And as I said in my note yesterday the noise does not price stocks – it creates noise – that's all.  What prices stocks are the macro data points and the individual company earnings. Guidance, global economic performance etc..... NOT this noise.

Then yesterday, they released the WhistleBlower complaint that created all of this drama and alleged that the President used the power of the office to push Ukraine to investigate Democratic Presidential candidate – Joey Biden.  The whistleblower (yet to be identified) wrote this:

“In the course of my official duties, I have received information from multiple US government officials that the President of the US is using the power of his office to solicit interference from a foreign country in the 2020 US election.”

It goes onto to explain how this person perceived what was happening.....how the president was ‘cajoling’ the Ukranian President into working with Rudy (Guiliani) to gather the information while also suggesting that ‘several WH official were ‘racked with concern’ about this call.  It’s all very dramatic – and we can’t wait to see who this whistleblower is.....

And then congress held a hearing featuring the acting director of National Intelligence – Joey Maguire as they sought to understand why Joey didn’t come forward with this ‘explosive information’.

So as the day wore on - the analysis got more pointed and direct....As you would expect - no one on the GOP side saw anything wrong with the transcript at all, while everyone on the Democratic side found ‘lots of smoking guns’ - they found something in nearly every sentence that was uttered which only gives them more energy to impeach - so let the games begin.........

So here is the new implication to this story.....What happens to Joe (Biden)?  Not because he did or did not do anything wrong - but because someone in the Democratic Party wants to see him drop out of the race...(Do I need to remind you of the 2016 race  and the antics that took place in the Democratic Party that eliminated Bernie so that Hillary could advance?). Hmmmmmm, so WHO could want that?  Well it would appear to be a ‘list of people’ that would like to see him go.... but while I said that the political noise does not price stocks in the long run, the noise does create opportunity in the short term.

So by now we all realize that that mkt will swing up and then down based on whatever the next headline is because the algo’s control the action.....are the headlines positive?  They initiate Buys, are the headlines negative?  They initiate Sells....and so it goes....By the end of the day, the algo’s forced  the mkt lower leaving the Dow off by 80 pts, the S&P lost 7 pts, the Nasdaq gave up 46 pts and the Russell got smashed giving up  17 pts or 1.1% - by far the biggest loser of the day –

Well not really - Peloton (PTON) - you know – the spin bike company that bills themselves as a ‘TECH’ company made its debut on Nasdaq – priced at $29/sh on Wednesday evening – the stock opened at $27 and ended the day at $25.76 for a loss of 11% - How’s that working for you?  And to think – the CEO thought they underpriced it – leaving room on the table for a nice ‘pop’ - hmmm I guess the investment banker misjudged real demand and you can be sure there are a lot of unhappy hedge funds out there.

That all being said – the mkts will try to eliminate this latest plot twist but that is only as long as new headlines don’t keep hitting the tape.....so Asian stocks  were mixed on Friday as investors there tried to focus on the broader fundamentals - the trade deal that Trump referenced and today we learned that the new talks are set to resume on October 10th.  By the end of the day Japan –0.77%, Hong Kong  -0.33%, China +0.3% and ASX +0.59%.

European mkts are also a bit higher as investors there try to focus on the trade deal while more political uncertainty remains.  In the UK – BREXIT continues to be on the front burner as BoJo sticks by his view that the UK Supreme Court was wrong to rule his suspension of Parliament unlawful. The European Commission President – Jean Clause Juncker - made it very clear that only Britain will be responsible if a BREXIT deal is not reached.  FTSE +1.06%,  CAC 40 +0.27%, DAX + 0.68%, EUROSTOXX + 0.37%, SPAIN +0.63% and ITALY +0.18%.

US futures are UP.....The Dow +74, The S&P +10, the Nasdaq +25 and the Russell is +5.   Mkts appearing to focus on the trade deal with China, but let’s not kid ourselves – the political headlines are still simmering on the burner.   Eco data today includes: Personal Income exp of +0.4%, Personal Spending of +0.3%, Durable Goods exp of –1.1%

As discussed – the mkt is still in the 2950/3025 range and is likely to remain there.  There is no reason to push up and thru right now.  But nor is there any reason for the mkts to fall out of bed right now.....with the expectation that the FED is going to give you more Kool Aid next month.

Oil – continues to come under pressure after that surge last week.....the Saudi’s clarify that they will be back online by month end so no real risk to global supply.  On top of that the weekly supply report – showed a 2.4 mil barrel increase in crude inventories.  US production rose to 12.5 mil/barrels per day last week.  this morning the IEA (Int’t Energy Admin) MIGHT CUT their demand estimates for 2019 and 2020  if the global economy continues to weaken- ok – so what does that really mean?  I guess they MIGHT RAISE their estimates as well, no?  I mean if the global economy turns around then demand will go up, no?   Oil has now breached all three supports levels and appears to be heading back into that $50/$55 range.

Take good care.

KP

Veal Scallopini w/Marsala Cream Sauce 

All this is  - is a creamy twist on the Italian favorite… add the cream to soften the flavor and create a luscious, delicious new classic….20 mins max….

For this you need:  olive oil, butter, veal cutlets (pounded thin), flour, s&p, Marsala wine and some room temp heavy cream (you can use light cream or even ½ & ½)

In a large sauté pan – heat up some butter and olive oil on med high – let the butter foam and when it subsides – dredge the veal in seasoned flour  (s&p) and brown quickly in the pan on both sides – maybe like 30 secs per side….remove and set aside.

Now turn the heat up to high and add some Marsala wine – like ½ - ¾ cup…. – bring to a boil and scrape the bottom of the pan….as the wine begins to boil away – add ½ cup of the cream – turn heat to med and stir until the cream is reduced and you have a semi thick sauce…..reduce heat once again to low (not simmer) and add back the scaloppini – turning them to coat well.

When ready – serve on a warmed platter in the center of your table.  Serve this with a green veggie – something like steamed French cut green beans or asparagus – something simple – not garlicky….steamed - then seasoned with a dab of butter and s&p.

Try a nice medium bodied red with this meal…..
Buon Appetito

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