Markets in overdrive again, Tax reform closer than ever - It's Christmas

What a week I picked to be away!……The mkts soared - adding nearly 3% in 4 days as the month came to an end – better than expected ‘black Friday’ and Cyber Monday sales and real progress on tax reform kept ‘hope alive’….. Each day the mkt surged on hopes that there will be a bill for the president to sign before Christmas…..completely ignoring the fact that the gov’t is about to ‘shut down’ this week as it runs out of money…..(more to follow). 

The really big news though came on Thursday when it became clear that the GOP holdouts – Flake (TN), Lanford (OK), Johnson (WI), Daines (MT), McCain (AZ) and Collins (ME) who were holding the process hostage all of a sudden joined the crowd – as Trump took to the capitol hill apparently promising all kinds of ‘back room deals’ to get them over the finish line…big donors also demanding that the GOP come to the table and act like adults…..and get something done before the Santa comes down the chimney. 

By the time the bell rang on Thursday evening – the Dow, S&P, Nasdaq and Russell were all marking new highs –  the Dow surged up and thru 24k, the S&P tore thru 2600,  the Russell teased and kissed 1500 while the Nasdaq came under pressure - as investors moved from high flying growth names into the 'value plays' that have gone underappreciated during this most recent leg of the rally that just won't quit.......

Adding to all the excitement is Bitcoin - which in 4 days soared by 43%!  Exploding thru 3 century marks (9k, 10k & 11k) in as many days ending the week at $10,899............the media was in a frenzy, retail investors losing their minds as Bitcoin enthusiasts were all screaming that ‘a new day had dawned’  (this morning - Bitcoin is up another 4% or $461trading at $11,360) …..Now for those of us - who were alive and well in 1999 - who remember the media frenzy around anything DOT COM and who remember  how big investment banks tried to explain it away as 'the new world' and who remember how retail investors got sucked into the mania and  who remember the ultimate implosion – we can say that  it is beginning to feel as if history is about to repeat itself…..and history DOES repeat itself…..but that is another story…..

Then on Friday morning the mkts get hit with news that former National Security Advisor Michael Flynn was ready to plead guilty about lying to the FBI over contact with Russia during the election – supposedly on Trumps behalf.  This news has the potential to change the direction and scope of the investigation being led by special counsel Robert Mueller over whether Trump the candidate or anyone in his team violated any sense of order during the elections…..Son in Law Jared Kushner now in the hot seat as the cast of characters begins to fall……. First Paul Manafort and Richard Gates and now it appears as if they have Michael Flynn by the shorthairs as well. 

So - the mkts took a nose dive early Friday morning as the news and the videos of Flynn turning himself in hit TV, the internet, the radio, and every social media site out there…..Mkts went into a free fall – as algorithms kicked in  - sending all the indexes substantially lower in minutes…the Dow plunging 400 pts, the S&P losing 39 pts….as ‘buyers went on strike’……Recall this phenomenon – for the past couple of weeks it was a ‘sellers strike’ then on Friday morning it became a buyers strike.   And all this reveals is the complete skittishness in the mkts as algo's push and pull…. taking complete control of the process (or what is left of the process).  Tax reform suddenly ‘not important’ as the algo's tried to figure out what the Flynn news really meant…..Again -  it is the smart logic alga's that scrape the headlines, scrape the social media sites looking for words that could signal the next big move……without being able to properly assess the impact....it's all about micro arbitrage opportunities across 60+ venues where algo's can buy and sell stocks and create havoc and chaos.....but that too is another story.....(happy to discuss...)

Trump then took to twitter assuring the masses that Flynn’s situation only proves that he acted alone and that there was nothing to worry about – “No collusion here!” and slowly the mkts settled in, the instantaneous and indiscriminate selling abated and algorithms turned from 'desperate sellers' to 'opportunistic buyers' taking advantage of what appeared to be an ‘overreaction’.   (No kidding...)

The administration downplaying that noise while they encouraged investors to focus on what was happening on Capitol Hill……the Tax reform package that we all have been waiting for – appearing to be closer to getting signed than not…..the Senate Majority Whip  - John Cornyn (TX) working the room hard, as the clock ticked, word that they had the votes helped to send the mkt higher from the early morning lows.  As the day turned to night – GOP Senators continued to fight on behalf of Americans everywhere and sometime during the wee hours of Saturday morning 51 GOP US Senators voted Yay, (not one Democrat voted for this bill) now allowing this process to go to conference – meaning that the House and Senate will try to create one bill out of the two that now exist – the House version and the Senate version – which by the way remain quite divided.  But it is progress…..Analysts, strategists, lawyers, lobbyists and the Sunday morning talk shows dissecting every aspect of the Senate bill over the weekend as they all try to make sense of it…..and the debate rages on….

Senate Majority leader Mitchy McConnel declaring that ‘This is a great day for the country.  We have an opportunity to make America more competitive and provide relief to the middle class.” – Yeah…. well not so fast there mister……a quick analysis for taxpayers in high tax Democratic states -  NY, NJ, CT, MA, CA etc – reveals that their bills are about to go UP with this plan.  But hey – someone always has to win, and someone always has to lose…that’s just the way it is…..
Steve Goldman - Portfolio Manager at Kapstream Capital with $12 bil of AUM - could not be more critical of the plan....saying that

"The Republican tax bill is fiscally irresponsible and based on delusional assumptions.."

Expect to hear more of this as both sides scream to be heard....
Looming gov't shutdown????? 

Q:   Will the Gov’t Shutdown on Friday December 8th?  Well the mkts are clearly ignoring this issue…even as Trump tweeted that the government ‘will likely suffer a shutdown’ because the Democrats and Republicans will not work together to reach an agreement to fund the government operations'.  Mitchy McConnel taking the contra side of that tweet saying that ‘there’s not going to be a gov’t shutdown.  It’s just not going to happen.’

(Of course not, because they will hold out all week, threaten to shut it down and then in the 11th hour they will miraculously come to an agreement)

Remember – September 2017 - Trump negotiated a back room short-term extension with Chucky Schumer and Nance Pelosi to keep the government operating. That extension included a promise to address a resolution for DACA (Deferred Action for Childhood Arrivals) - a program for children brought in via illegal immigration – which Trump ended in September.  The promise made to the Democrats was that he (Donny) would help to negotiate a legislative fix for this issue...... But alas,  nothing legislatively has been done in the halls of congress to fix this problem. . and as promised -  the Democrats threatened a government shutdown if DACA wasn’t resolved legislatively – and so – guess what?  It’s time to see what the Democrats will do now…..and while a gov’t shutdown will not in the long-term drive stock prices – the possibility of more unrest in DC will cause short term angst and volatility with a mkt that is a bit ‘overdone’ on the upside – any vacuum created by a gov’t shutdown could cause the mkts to react swiftly. 

But that is not happening today at least...S&P futures are SPIKING HIGHER in overnight trading…..Currently up 15 pts and about to bust up and thru last week's highs at 2657.... Dow futures are up triple digits (+200) as investors celebrate the latest move on taxes while deleting any negativity associated with the Flynn revelation.    And while the GOP still has to work on a joint bill – the sense is that we are closer than we have ever been to tax reform and the mkts appear to like it. 
European mkts are all 1+%  higher on the back of the Senate action as even the Europeans can’t believe that those clowns actually got something done – whether or not it is a good plan or a bad plan.  Toss in the BREXIT negotiations this week that are expected to break the deadlock and you have the perfect mix for a yr end rally that will be blow the roof off the house....

We are going to get some eco data this week - but honestly - does any of it make a difference right now....?  Today  - Factory orders today are expected to be down by 0.4% while Durable Goods are also expected to be lower by 1% - both of which would signal some caution in 'more normal times' yet this isn't normal......Wednesday brings us ADP employment - exp of +190k jobs while Friday brings us the more official NFP (Non Farm Payroll) report - exp of +200k.....I suspect that both of those numbers will be low as 'part time employment' for the holidays will surge..... Next week brings us the FED December meeting and the next 25 bps increase in FED Funds..... 

Futs are now up 17 pts and if European mkts are any guide - we should expect US mkts to be up anywhere from 1% - 1.5% by the time they ring the closing bell......The reconciliation process will begin immediately - and the GOP promises to have the bigger and better tax bill passed before the mkts close for Christmas - so stay tuned.  
 
The broader US market remains in an Uptrend. Technology should consolidate before it moves higher and while the weakness in Technology lasted all week,  investors took the money raised from  tech sales and plowed it into Consumer Cyclicals, Energy,  Financials, Transportation, and Retail as the rotation into value names continues.
Yesterday we found out that the CVS/AET deal has been inked.....this morning CVS is trading off $1 while AET is up 6 pts in pre-mkt trading.....Expect this deal to change the landscape in the healthcare industry  - whose next? 

Take Good Care

KP

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So it is that time of year again – the holiday season is among us and for those of you who know me – an Italian Christmas eve is always a big thing – it is the Feast of the 7 Fishes – known as 'La Viglia'.

The tradition of eating seafood on Christmas Eve dates  way back.....and is built on the tradition of  abstinence - in this case, refraining from eating meat.  So you ask -   Why 7 fishes?  There are many thoughts on what the number "7" relates to – could it be the number of Sacraments in the RC Church or is it that seven is a number representing perfection....- the traditional Biblical number for divinity is three, and for Earth is four, and the combination of these numbers equals seven.  No matter why - it is a great tradition and one that I will share over the next 7 days.  I hope you enjoy. 

#1 - Linguine and Lobster Sauce 

Today's recipe represents the first dish:  You will need:  2 live lobsters, garlic, crushed tomatoes, onions, basil, s&p.  

Start with the basic marinara - Sauté crushed garlic in olive oil on med heat - do not burn the garlic....now add 2 large slice Spanish onions (or Vidalia if you can get them) and sauté until soft - about 10 mins or so....
 
At this point add 3 cans of kitchen ready crushed tomatoes - NOT PUREE - if you can't get kitchen ready crushed - then buy the plum tomatoes in juice and run them thru the blender or food processor - leaving a bit chunky....Bring to a boil - season with s&p, and fresh basil - stir.  Once it boils - turn heat down to med low and prepare to add the lobsters. 
First rule - Always use live lobsters.   (Should be like 1 1/2 pounders each).  Rinse under cold water - leaving the elastics on the claws so that you do not get clipped.  Once you rinse him/her....remove the rubber bands and put in sauce claws/face first...now he/she may flap its tail - but that is only for a second or two....Add second lobster.  Stir and make sure that the lobsters are submerged in the sauce and turn heat to simmer....allow to cook for about 30/45 mins.  Now if you are making this the day before - remove from heat, let cool and then refrigerate.  The next day - take out of fridge and let come up to room temp and then slowly re-heat on simmer....You can just smell the goodness and feel the ocean waves hitting you in the face.....

Bring a pot of salted water to a boil - add the linguine and cook for 8 / 10 mins or until aldente.  Strain - always saving a mugful of pasta water - and return to pot.  Add back about 1/4 of the water and stir to re-moisten...do not soak......capisce?  Now add 3 ladles of sauce and toss....Serve immediately - making sure that you have grated Pecorino Romano cheese on the table for your guests.  If you like - you can remove the tail/claw meat - shred and add to sauce or you can just present it on a plate for your guests to enjoy....

Going to the beach so it's time for lobster.....this one is the simplest of all lobster dishes....just steamed/boiled with drawn butter outside at the picnic table with the ocean just behind you.....

For you this you need a 1 1/2 lb lobster per person, plenty of butter and corn on the cob.

Choose a large pot that will not crowd the lobsters.....Bring the pot of salted water to a rolling boil - drop the lobsters in the water headfirst - once the water starts to boil again count 8 mins for the first pound and then about 2 mins for every pound after.....In the meantime - melt the butter and place in bowls to be shared.  Once the lobsters are done - remove and present on a large platter and allow your guests to help themselves. Have the nut crackers on the table to help crack open the claws to get the meat out.  Separate the tail from the body and remove the fins...using your thumb - push the tail meat out and enjoy.....

  
Buon Appetito.