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It’s all about politics this week – Period. Try the Pot Roast

Good morning and happy new year – Welcome to 2021! And it appears that the drama continues… Other than Bitcoin which pierced $30,000 over the weekend, the headlines run the gamut. Pelosi gets re-elected (by a slim margin- but she did it) to serve as Speaker of the House Donny makes a phone call to Georgia’s Secretary of State Brad Raffensperger (who taped the call for all to hear) on Saturday – to ‘find the votes to overturn the election’ (curiously – we haven’t heard a word from the WH Chief of Staff, Mark Meadows, or Rudy ‘G’, or Jared & Ivanka, or Donny Jr & Kimberly) and covid 19 continues to surge causing even more angst across the country and the world. Los Angeles now rationing care ‘picking and choosing’ who wins and who loses… while Israel reports to have inoculated more than 10% of its population (~900,000) – taking the lead in vaccinations… Here at home – we have inoculated about 4.5 million people which represents about 1.2% of our population. And finally, Carl Icahn announces that he has sold more than ½ his stake in Herbalife (ringing the cash register for a cool $600,000,000) while also giving up his 5 board seats in a move that suggests he just might be ‘planning for the future’. Welcome to 2021!

…In a flash back to a couple of January’s past- I looked up my posts for the first trading day of the new year in 2015, 2016 and 2017 just to refresh my memory about how the years started…

January concerns in 2015 were whether or not the Germans would support a “US Style’ QE program for the Eurozone economy… and what if anything would the ECB (European Central Bank) stimulus program do to help stabilize the EZ economy. The second int’l issue was the ongoing Greek Tragedy (remember that?) and the political upheaval that was created during the final week of December 2014 – in the lost elections… That caused a new snap election to take place on January 25th, 2015. Word that Greece was preparing to EXIT the EU in a vote of ‘anti-austerity’ was the battle cry of defiance for structural reforms that needed to happen across the whole zone. Recall the talk of the ‘European Winter’ that was supposed to happen as these protests had the ability to infect the weakened gov’ts of France, Italy, Portugal, and Spain. Incredibly there were no ‘major’ US headlines. The Dow began the year at 17,823, the S&P at 2058, the Nasdaq at 4674 and the Russell began the year at 1198.

January 2016, Stocks dropped like a lead balloon… the headlines were all about ‘renewed worries over Chinese economic conditions’ and what that meant for the global economy – Chinese stocks collapsed and with it went Europe, the US and a host of emerging market countries. Toss in the brewing crisis in the mid-east between the Saudi’s and the Iranian’s and we had the perfect storm. In addition – Secretary of State John Kerry and the Obama administration had negotiated a nuclear arms deal with Iran which the Ayatollah promptly violated – in essence thumbing his nose at the US leaving Kerry to cry out for calm. Weakening US macro data was also a sub-plot while the market was warning us for months of a topping pattern. The Dow stood at 17,425, the S&P at 2,043, the Nasdaq at 5,040 and the Russell began the year at 1,148.

January 2017 – Stocks zoomed higher, the dollar index was at 103.39 (today we are trading at 89.43), gold was trading at $1,149 ( this morning it’s at $1936) global eco data was strong, Chinese output at a 6 yr high- investors were expecting a lot and had priced the market for perfection. The US was preparing for a Trump Presidency (to the dismay of so many) as no one on the left thought the election was legitimate. Calls for impeachment began before Inauguration day. Investors though welcomed the news and had sent stocks zooming since the day after the election in November.  The Dow stood at 19,945, the S&P was at 2,251, the Nasdaq stood at 5,487 and the Russell began the year at 1,363.

Fast forward to 2020-

January 2020 –   US launches airstrike on Iran- killing a key commander after they had incited an attack on the US embassy in Baghdad on January 1st. Iran vowed revenge – markets were in ‘risk off’ mode. Talk of this ‘unknown virus’ was being occasionally discussed even as China and other parts of Asia had ‘locked down’ parts of their countries in what many (at the time) saw as extreme. (Little did we know what was to come). The WHO (World Health Org) was asleep at the wheel, not very concerned about what would turn into a global pandemic that spun out of control. Talk of where this virus came from – pointed to Wuhan, China – yet Xi Xi Jinping was ‘mum’ on the subject. What would happen weeks later would become incomprehensible for so many. Italy was the first European country to get annihilated as the virus spread around the world followed by every other European country and then it showed up on the shores of both the east and west coasts of the US… And the world changed in 2020… Global markets collapsed in mid – February and never found support for some 6 weeks – leaving the S&P off by 35%, the Nasdaq lost 32%, the Dow gave back 39% and the Russell lost 41%… Talk of a 1918 style Spanish Flu – began to permeate the conversation. And the rest you all know… no need to rehash it here, now… The Dow began the year at 28,634, the S&P started at 3,244, the Nasdaq at 9,039 and the Russell at 1,675.

January 2021 – The Dow begins the year at 30,606, the S&P at 3,765, the Nasdaq at 12,888 and the Russell at 1,974. Covid 19 continues to slam the globe.  Second and third waves of the virus are now producing new strains, whole countries and major cities under new lockdown orders….2 vaccines are now available with 3 or 4 more only weeks away.  In November -the country elected Joey Biden and Kamala Harris as President and Vice-Presidents elect.  Now the other half of the country is crying ‘foul ball’ – with current President Trump causing chaos everyday- today he will host a GOP rally in Georgia ahead of the Georgia runoff elections which happen tomorrow and then on Wednesday January 6th, congress certifies the electoral college votes…Biden is the winner -there is no going back on that – but expect some on the far right to be dissatisfied.  And a group of 11 GOP legislators now objecting to the election process – further damaging any GOP credibility in the eyes of the country – especially after the Trump antics this weekend.   This week is going to be all about politics- Period, the end.

Now, remember, with both senate seats up for a vote – the pressure is on for the GOP to retain those seats to help create a ‘divided’ gov’t – that is the best outcome for the country (something that I now think is much more of a longshot considering what went on over the weekend)  – it will force compromise between the two parties and bring policy and regulation to the center – where it should be – because that is where the majority of the country lives… A Democratic win -will tip the balance of power to the Dems across the whole executive branch for the next two years….and that is sure to create chaos in the Energy, Financials, Technology and Health care sectors, never mind what Biden has promised to do to taxes. And this is what I think the market or investors are NOT pricing in – or maybe they are, maybe they are not worried about a Democratic win – Predictive polls now have Reverend Rafaelle Warnock (Dem) ahead of Kelly Loeffler – current GOP Senator, what does that say about the Purdue/Osnoff race?  OK -sports fans -this is where the rubber meets the road.  Wednesday January 6th will prove to be pivotal day in political history and maybe in financial history as well.

In addition – 2021 will most likely prove to be another year of monetary policy concerns… the FED as we know has promised to keep rates at zero thru December 2022… but my sense is that by the summer of 2021 – the FED’s promise will come under fire… why? Because, as I have been saying all along- Inflation is ready to rear its ugly head….and if that happens, the FED will be forced to do something.  Majority consensus now has many analysts/strategists projecting a pickup in inflation- to where – is anyone’s guess.  Many suggest that a rate approaching the 2% level would be a positive – and the FED is prepared to live with that… as it would reflect a healing economy while creating incentives for investment and spending by big corporations.   It will so keep the other ‘D’ word at bay – Deflation.  And while this all sounds good – there is always the possibility that we could see an even faster pace of inflation -and that my friends is what the market is NOT pricing in – as a surprise rise in inflation – above 2% – would be a major shock to the system… and then the FED will be forced to do something. At first it will be innuendo, they will float balloons, they will have one of the lesser-known FED Presidents (think Khashkari) blurt it out in an interview to see how the markets and investors respond and that will be how we know it’s all about to change. Welcome to 2021…

Sunday saw the new congress (house of representatives) come together to elect a new speaker (or an old one if that’s the case). All eyes on whether or not Nancy Pelosi is able to maintain control and remain Speaker of the House or not? Both the moderate and progressive wings of the party are not happy with Pelosi- so many were expecting a challenger to come forth.  In fact-no challenger came forth and Pelosi won another term… apparently able to keep the ‘foxes out of the hen house’.

And like the energizer bunny that won’t stop –US futures are rising… investors apparently not reacting to the latest Trump move…bin what feels like a complete dismissal of his Presidency.  At 5:30 – Dow futures are up 185 pts, S&P’s are up 23 pts, Nasdaq up 68 pts and the Russell is ahead by 28 pts! The feel-good mood continues as everyone expects even more unprecedented fiscal support for the country (in a Biden/Democratic executive branch).  Toss in the successful rollout of the two vaccines (PFE & Moderna) with a possible introduction of 2 more within weeks and you have a recipe for stocks to advance even as ‘supply constraints’ are causing chaos.  Moncef Slaoui (head of operation Warp Speed) now suggesting that giving ½ the dose of the Moderna vaccine to people between 18 – 35 yrs old will help to vaccinate double that demographic. Oh boy…

European markets are soaring… As of 5:45 am – the FTSE +2.67%, CAC 40 +1.75%, DAX +1.28%, EUROSTOXX +1.47%, SPAIN +1.50% and ITALY +1%. Over the weekend – the UK approves the AstraZeneca vaccine – creating even more excitement over the battle against the pandemic. And with the UK now officially divorced from the EU – many investors are watching to see if there are any disruptions to the trade flow post the BREXIT trade agreement.  This will take some time to develop if there is, but rest assured that all sides are incentivized to make this a success.

The S&P closed at 3756 on December 31st… to end the year up 16.3% (the Dow was up 7.3%, the Nasdaq up a stunning 44% and the Russell up 20%.)  Today feels a bit celebratory – clearly not affected by the surge in infections and the virus at all… or the lockdowns around the country.  And yes, we all know about the political landscape, so that is not new news… what will be new news is how it all turns out tomorrow, while the speculation runs both ways, the answer will be evident on Wednesday morning January 6th and that could be the day the investors suffer from the hangover…

In any event – stocks are pricey and priced for perfection… so any sense that that ‘perfection’ disappoints at all, will cause a swift reaction….and if that ‘perfection’ does not disappoint then look for investors to keep going… and while I do not suggest you chase the markets, I do suggest that you continue the plan, re-balance as appropriate and focus on the long term. Find the value plays as the growth names will get clocked on the first negative headline.  Remember – stocks remain vulnerable to any headline that suggests uncertainty ahead… the market can function on bad news – and will reprice accordingly, just as it does on good news… it’s the uncertain news that causes the angst…

Take good care – Happy New Year

Kp

Simple Pot Roast

This is one of those simple ‘one pan’ meals that takes little time to prepare and cooks beautifully in the oven.

For this you need: 1 -31/2 lb boneless chuck-eye roast, vegetable oil, 1 large white onion- chopped, 2 large carrots chopped, 2 celery ribs chopped, 3 lg cloves of garlic- put thru the garlic press, sugar, chicken and beef broth, fresh thyme, water and ¼ c of red wine.  You also need a pot that can go from the stove into the oven with a lid.

Begin by turning your oven on to 300 degrees.  Make room in the center rack.

Pat the roast dry with paper towels and season generously with s&p.

Heat the pot with the oil until it shimmers.  Brown the roast on all sides.  – 10 mins. Now transfer to a plate and set aside.

Reduce the heat to medium – add the chopped onion, celery and carrots.  Saute for about 10 mins.  Now add the garlic and 2 tsp of sugar- stir to mix….  Now add in 1 c each of the chicken broth and the beef broth and the twig of thyme.  Return the roast to the pot and any of the juice it produced.  Now add enough water to come halfway up the sides of the roast.

Cover the pot with tin foil and then put the lid on top to secure it.  When the liquid begins to simmer – transfer to the oven. Turn the roast every 30 mins until fork tender – maybe 3 ½ – 4 hrs.

Now remove the roast and put on a plate and cover with tin foil.  Let the liquid in the pot cool for 5mins.  Now skim the fat off the top and toss away the sprig of thyme.   Bring to a boil to reduce by half. – Now add in ¼ c of red wine – boil again for about 2 mins to allow the alcohol to burn off. Season with s&p to taste.

Pull the meat apart with two forks – transfer to a warm serving platter and pour ½ c of juice over it. Serve immediately.

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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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