There is No Alternative

Stocks keep ripping higher and higher with apparently no end in sight as the algos go haywire… stuck in a buy mode as if nothing has happened over the past 6 months… No virus, no soaring rates of infection, no deaths, no vaccine, no global shutdown, no collapse of major industries, nothing… nothing… it’s as if – it was all a nightmare… is it me? Did I miss something? By the end of the day – US indexes moved into new territory… the S&P is now POSITIVE on the year, with the Dow less than 3% away from unchanged… as the closing bell rang – we saw the Dow add 461 pts or 1.47%, the S&P added 38 pts or 1.2%, the Nasdaq rallied by 110 pts or 1.13% and the Russell surge by 29 pts or 2%.

When I woke up from this nightmare – I learned that a virus that began in China back in December (or even earlier as some suspect) became a global pandemic shutting the world down. Asian countries the first to get hit – and then it was off to Europe where Italy became the hot bed of disease – bringing that country to the brink of collapse before it spread across that continent. It then migrated across the Atlantic and found a home in NYC sending the whole east coast into a coma before moving across the country – county by county, state by state causing Trump to hit the pause button and demand that citizens “shelter in place” – Leaving the whole country in darkness… as people disappeared off the streets.

The Eco data is ugly – yet the market soars… TINA (there is no alternative)…

Today there are 40 million Americans out of work, unemployment which was at 50-year lows is now near 15%, interest rates which were 1.75% are now 0%.  The FED’s balance sheet has now ballooned to more than $5.7 trillion dollars, because of stimulus programs that even the paparazzi don’t understand. The CBO (Congressional Budget Office) announces that we are ‘officially’ in a recession (good thing we have them to tell us that). GDP is expected to plunge into high negative double digits, and analysts are already discounting all of 2020 earnings and focusing on 2021 instead as nearly every company refused to give any guidance at all during earnings season. We learned that Warren Buffett sold all of his airline holdings and that a handful of other ‘big money’ guys told us two weeks ago how overvalued the market was – 447 pts ago or 16% lower from where we closed last night. I woke up and watched how Mohammed El-Erian – was justifying the move up when he was one of the guys at the top of the list calling for the ‘end of the world’… I see the cruise line stocks soaring and they are not even sailing yet, but they are burning plenty of cash… RCL up 126%, CCL + 124%, and NCHL +161%… as money is searching for anything beaten up…

Which brings us to a couple of age-old arguments – 1. Don’t fight the FED and 2. Is it a value play or is a growth play?  I mean, does it really matter?  It’s a MONEY play!  And we can thank the FED… And as usual – we have both ‘tactical’ investors and ‘strategic’ investors playing in the sand box… the Tactical ones are the trader types – looking to sneak in, buy something and then flip it out as it rises, (or sell it and then buy it back as it falls) only to jump in again and again… trading the stock vs. investing in the stock. Then there is the ‘strategic’ investor who is just that – strategic – looking for high quality names that have gotten beaten up, dragged lower as the market collapsed creating real long-term value for long term investors. So, as the news settled, and as the world recovered from this nightmare – stocks looked ridiculously cheap – (and apparently still do) leaving one to ask – should we back up the truck?  And back up the truck they did… loading up on everything that had a heartbeat… as money searched for a home.

Last week – different states began to wake up and yesterday NYC woke up – joining the other cities & states in a ‘phase 1’ experiment allowing parts of the economy to get back to work – albeit with new social distancing rules. Office towers will all now be equipped with thermal imaging as you walk into the lobby – anyone with a temp more than 100.3 will be turned away and told to go home. Elevators will not have buttons any longer – but rather smart technology that will listen to your command.

Concerns about a resurgence remain top of mind – and what we have seen is a slight uptick in some parts of the country while other parts remain under control. And yet – markets around the world are surging. The slight uptick in cases is doing nothing to control the hunger for stocks because there is no alternative (TINA)– and so the rally continues… moving up with such force that even the ‘pros’ are confused… the algo’s and the technology that control the markets today seemingly have a mind of their own – and as usual end up swinging the pendulum too far to the right – after having swung it too far to the left – and so the moves we have seen in the past 3 months remain exaggerated – but in that exaggeration – we find opportunity. Stocks that were down 50%, 60%, even as much as 80% suddenly are all the rage – well of course they are… it’s called a ‘sale’.

This morning – while nothing has really changed at all – we see European markets taking a breather. US futures taking their lead from the action in Europe are also a bit lower – suggesting that the algo’s are exhausted as valuations are stretched and investors need to re-evaluate the broader picture. Advisors talking to clients to tweak their portfolios to take advantage of the dislocations created by the disaster – dislocations in both directions… as some stocks now appear to have overshot the current state of affairs.

This morning European markets are trading off by 1.5% or more as the World Bank said that it expects the global economy to shrink by 5.2% – a level not seen since WWII.

So today it feels like another consolidation day… giving investors and markets a chance to breathe and evaluate exactly where we are. Is the market ahead of itself – I would say yes – and so it needs to regroup – but that does not mean this move is for naught… not at all – it just means that we need to re-group. Now if we don’t get a significant resurgence in infections – then expect the markets to continue the advance as they attempt to correct themselves and if we do get that resurgence in infections then expect this move to be wiped away as the hysteria starts to build again.  I’m in the first camp – I do not believe that we will see a significant rise, but what I do see is a longer grind back to ‘normal’.  As of 6 am – the FTSE -1.4%, CAC 40 -1.53%, DAX -1.62%, EUROSTOXX -1.36%, SPAIN -1.94% and ITALY -1.82%.

US futures are lower! Dow futures down 286 pts, S&P’s are down 28 pts, the Nasdaq is off by 49 pts and the Russell is down by 29 pts. Many of the recent data points that all suggest a swift recovery remain intact – the ‘not as bad as we thought’ mentality remains the battle cry and while the risk on trade is alive and well – it has pushed valuations to near historical highs – so one of two things has to happen next.  Either the market is right and the economy will catch up fairly quickly, or the algos are wrong and the market will re-adjust (fall) to bring valuations back into line. Either way – it is no reason to abandon the plan. Talk to your advisor, build a strong portfolio and stay the course. I mean think of all those people who jumped ship in March, when it looked like the world was ending…

Oil is also taking a breather…WTI falling 90 cents to $37.24/barrel after ending Monday at $38.14 after the Saudis, UAE, and Kuwaitis revealed that they would not continue with the cuts after June 30th. This was a bit of a surprise to the rest of the cartel (OPEC+) and leaves open the possibility that maybe the cuts that were agreed to on Saturday will not hold and that suggests that supply will increase – putting pressure on oil… and keeping the US shale producers out of the game. API (American Petroleum Institute) inventory figures are due out later today and the estimate is for a decline of 1.5 mil barrels of US crude, while distillate inventories are seen rising by 2.9 mil barrels. And while demand is expected to increase – there is still too much supply – but this is a short-term issue – Once the world completely wakes up – demand will surge. We are now solidly in between the trendlines… with the trading range now $37/$46.

S&P closed at 3232 – a level that appeared to be unreachable only 2 months ago… Yesterday, I said that  “it feels like the market wants to erase the losses suffered since the crisis began”  and as of yesterday evening the S&P is now up on the year… Yes, still a bit below the 2020 highs of 3386, but it is positive right now. A far cry from where it was on March 23rd. A retreat over the next couple of day could see the market fill the gap created on Friday morning, which means we could see the S&P trade to 3110-ish.

Take good care,

Kp


Veal Cacciatore

Veal Cacciatore

Literally means Veal prepared hunter style (cacciatore). In Italian – the cacciatore is the hunter and the hunter prepared his meals with braised chicken or rabbit, garlic, tomatoes, onions, bell peppers, mushrooms, peas seasoned with oregano, basil, wine and S&P.  In today’s recipe I have substituted the chicken with veal.

You brown the veal and then cook it in the sauce and serve it over a long pasta – Spaghetti, Linguine, Bucatelli, Perciatelli, etc… (your call) .  If you make it on a Sunday and let it sit overnight – it is always better the next day… *** you want veal top round cut into 1-inch cubes…

Start by sautéing crushed garlic in olive oil…add the seasoned veal pieces (s&p) – Just brown the veal – no need to cook all the way through as it will cook in the sauce.

Once you have browned the meat – remove and place on a platter.  Next add sliced onions, and bell peppers – use 2 lg onions and 1 green and 1 red bell pepper – if you like the orange/yellow ones then feel free to use that also. Sauté the onion and peppers and until soft – about 10 mins… season with s&p.   Remove from the pot – now add two cans of kitchen ready crushed tomatoes – not puree – just crushed tomatoes.  Then add one can of water (and 1 cup of red wine – optional).

Season with s&p, oregano, and fresh basil…bring to a boil and then turn heat down to simmer.  Add back the veal, onions & peppers. Now (optional) add one can of sliced mushrooms (draining the water first) and one bag of frozen peas.  Let simmer for 45 mins – stirring occasionally.  At this point it is done – but like I said – the longer it simmers the better it is and if you let it cool and refrigerate until the next day – it is like you died and went to heaven.

When ready – bring a pot of salted water to a rolling boil and add the pasta… cook for 8 – 10 mins or until aldente.  Drain – reserving a mugful of pasta water – and return to pot adding back about 1/4 of a cup of the pasta water to moisten… let it sit for a min and absorb the water…now add 3 or 4 ladles of sauce and toss.  Add two handfuls of grated cheese – Locatelli Romano works great – toss again and serve.  You can serve with the veal or you can serve the veal on a separate platter in the center of the table.

This meal works well with a nice Chianti – remember this is a meal prepared by the hunter – he is a simple man so the wine should reflect his simplicity.  Does it get any better?

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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