JJ makes it clear, Algo's go into panic mode

• JJ finally strapped ‘em on and told us what we all knew.

• The Algo’s go into panic mode – buyers retreat, and stocks plunged.

• It is the final week of summer – expect more exaggerated moves.

• Oil up, Treasury yields up, gold down.

• Try the Penne with fresh garden Summer Vegetables.

Stocks plunged in a RISK OFF trade after JJ vowed to kill inflation by raising rates – paying no attention to the coming economic pain that is sure to result while Joey told us that he is ‘pleased’ with the latest inflation statistic……once again suggesting how out of touch the WH is to what is really going on.

At 4 pm – as the bell finished ringing and everyone put their computers into sleep mode – the ticker tape kept streaming – catching up on all of the trades that had taken place -  by the time it was over  - the Dow lost 1010 pts or 3%, the S&P gave up 140 pts or 3.4%, the Nasdaq got crushed – losing 500 pts or 4%, the Russell choked – losing 65 pts or 3.3% and the Transports gave back 560 pts or 3.9%....

In the final analysis – it was just as I had laid it out - I said that he needed to put the chatter to bed…. He needed to be aggressive (but not too much); he needed to make it clear that his focus is INFLATION not RECESSION.  (Knowing that a recession would be the end result).  That if you were expecting him to ‘pivot’ or go soft – you will be disappointed……if you expected him to tell you whether it’s 50 or 75 bps – you too will be disappointed……What we should expect him to do – is strap ‘em on and take control and that is what he did….He finally strapped them on. – Now, we could argue that he waited too long (which I do not think is in dispute at all), that his lack of foresight or his refusal to recognize what ‘we’ all saw has now brought us to where we are…. but what good would that do? 

This is all you need to know -

“While higher rates, slower growth and an economic slowdown will bring down inflation they will also bring some pain to households and businesses.  These are the unfortunate costs of reducing inflation.  Failure to restore price stability would mean far greater pain…….”  Do you think?

We could also argue – and I will -  that the additional trillions of dollars of spending by the Biden’s and the Democratic party only added fuel to the fire at the same time that the FED was faced with rising prices….which is exactly why he should have been more aggressive months ago – If the Dems wanted to spend that much money then he should have taken rates up sooner and if he had started back in the spring of 2021 – we most likely would not be where we are today.  But again, he did not– he chose to go slowly when the narrative demanded more decisive action, when the macro data was screaming ‘It’s about to get hot in here’ …. but that is water under the bridge now…. Like they say there is NO crying in baseball….

Now what I found funny about this whole thing was that JJ knew this all along…You could see it in his expressions and you heard it in his words…...there is no way he believed what he had been saying for the past 10 months at all…I mean he is THE central banker to the world – did he really believe that it was transitory?  Does he really believe that inflation has peaked?  Does he really think ‘we’ do not get it?  And when I say ‘‘her’’ I mean all of them…. every one of the FED members…. they are all guilty of ‘turning a blind eye’ to the building price pressures.  And that is clear because they have all jumped the fence…. every single one of them…. Remember – I told you to listen to what Neely Kashkari says – he is the ‘new’ deep throat’ and he started warning us weeks ago…and to those that heeded his call – you did ok and or those who chose to ignore it – you want to kick yourself in the backside….

Remember what else I said – they stimulated for more than a decade….it has actually been 13 years – think of zero interest rates, think of all the bond buying, think of all the money printing – so now it has come home to roost and it is going to be uncomfortable.  If anyone thinks this is going to be over by year end – think again…. Not happening.  In fact, I would argue that it is not happening in 2023 either…. because according to the talking heads – we have not even started the recession yet – many of them do not think it ‘happens’ until this time next year…which only means brace yourself – because it’s gonna get even uglier if that is true.

Now to be fair – it was the end of August – people are away on vacation, moves tend to be exaggerated – we discussed this too….and we have one more week of people on vacation….so we could potentially have more chaos ahead….

The S&P closed at 4057….breaching it’s 100 dma trendline at 4,073…..and headed towards the 50 dma trendline at 3996….a level I expect we will test this morning…..(Futures all pointing lower)…..we need to see it hold that level if we want to see the tension cool….if it fails to hold then we should expect to see us test the June lows of 3625 ish….

I guess much of that will depend upon how this narrative gets digested…..what investors really think about how the FED and btw how the other central banks around the world are handling the situation…..Rumors are already out there that the ECB (which has also been dragging its feet) are now talking about a 75 bps rate hike at their next meeting (she has been moving in 25 bps increments)….and that would be a real wake up call…..as Chrissy Legarde has been slow to move…..rates in Europe remain at zero – which is better than being negative – which is where they were only 2 months ago…She is way behind the 8 ball and will be forced to hike higher and faster than she had let on….and that will surely unsettle European markets as well. Expect to hear Chrissy singing ‘More, More More’ at her next meeting….

On Friday we also got the Fed’s preferred economic inflation gauge – the PCE deflator and what did that show…. a one-month decline – mimicking what we saw from the CPI last month…. the PCE deflator came in at -0.1% m/m vs. the expected 0% and 6.3% y/y vs the 6.4% expectation.  ...but this did not make any difference to the message JJ delivered…. nor did it make any difference to how the Algo’s reacted. 

Every sector got slammed…. Tech down 4.3%, Consumer Discretionary down 3.8%, Industrials – 3.5%, Communications -3.2%, Basic Materials – 3%, Financials – 3%, Healthcare – 2.7%, Staples down 2.5%, Real Estate – 2.5%, Energy – 1.2%, Utilities – 1.5%.  The value trade down 2.8% while the growth trade lost 4%, Semiconductors down 5%, while coal and Nat gas rose 1%.  The contra trades benefitted from the chaos (as you would expect) – the PSQ, DOG and SH all rose by 3%, the VIXY (fear index) soared by 10% while the SPXS (triple levered short) rose 10% as well.  Metals and miners lost 2.6%, Cybersecurity lost 3% and the AI sector gave back 4%.

There is NO eco data today to speak of….but there is plenty to digest as the week moves on – but remember – it is also the final week of the year, labor day weekend lies just ahead….so again – any moves in the market will most likely be exaggerated (in the direction they are going)…..Capisce? 

Wednesday brings up the ADP employment report – and the expectation is for us to have created 300k new jobs….and Friday brings us the NFP report and that too is expected to show that we created 300k new jobs….Manufacturing payrolls are expected to decrease by 10k jobs, unemployment to remain at 3.5%, Avg hourly earnings up 0.4% m/m and 5.2% y/y.   We will also get Factory Orders and Durable goods at +0.2% and 0% respectively.  Remember - it is the start of a long weekend…. much of the trading will be on autopilot…controlled by algo’s as the humans make their way to the beach or the mountains.
Treasury yields rose again but do not worry, it is still inverted –

Oil is trading at $94/barrel…. up 90 cts…. kissing the trendline…. Potential OPEC+ supply cuts along with the ongoing conflict in Libya being cited as the reason for the recent strength.  In any event – winter is coming to the northern hemisphere and Europe is staring down the barrel of an energy crisis.  Anyone who thinks we will see $60 barrel before $120 barrel might want to rethink that. 

Gold took JJ’s comments in stride…. falling 16 pts to $1,733…. suggesting that the idea of a FED pivot is very premature…If rates keep rising and then remain elevated for an extended period (as JJ told us) then gold should remain under a bit of pressure – but I still think $1700 is the floor.  But once the markets digest the fact that rising rates will cause a marked slowdown – gold will start to shine again….

US futures at 6:30 am are down…. – Dow futures -275 pts, S&P’s -40, the Nasdaq - 145 and the Russell is down by 20.  It is the continued fallout over JJ’s comments from Jackson Hole…. rising rates and tighter monetary policy will continue to cause a rout in stocks – at least until after the long weekend.

Asian stocks ended the day lower and European stocks are all lower too down about 1.5% across the board as investors there digest the latest comments out of the FED and what that means for the ECB and the BoE.  German inflation figures due out later today – and they are expected to show continued rising price pressures.

We are now in a new trading range….3996 / 4200……As noted – we are about to test 3996 (this morning) and this is important…. a failure here will send the algo’ berserk again…...And then we hit the September/October time frame – which is usually a seasonally difficult time for the markets.  Remember – September has the reputation of being the worst month for stocks…. we usually see a decline of about 2% in the averages….and this year – it will be even more of a challenge. 

We have a market under pressure, we have a FED that is becoming more hawkish, we have a divisive tone across the country ahead of what is proving to be a contentious mid-term election that is both a referendum on the current administration and also a referendum on the prior administration.  We have gov’t spending completely out of control, taxes rising across the board all while the economy is beginning to roll over.  So, brace yourself and strap in – there is more chop ahead and while I do think that the lows of the year are in (3625 ish), I expect it to be volatile - but in that volatility is opportunity….

Penne rigate w/summer garden vegetables

This is a simple dish to make –I made it last night - takes all of about 30 mins. 

For this you need: 1 lb of Penne Rigate, green & yellow zucchini, head of broccoli, sliced garlic, Vidalia onion, s&p, olive oil, ½ cup of chicken stock, Fresh shredded Parmegiana cheese, and a bit of butter.

Bring a pot of salted water to a rolling boil.

Heat up a large sauté pan – add some oil and 3 cloves of chopped garlic. Allow to cook for a couple of mins.  Next add the diced onion. Stir to coat – turn heat to medium. 

Next trim the broccoli using the heads and part of the stem (discard the larger tough end) – chop and add to the pan.  Sauté for 10 mins. 

Next trim the zucchini on both ends.  Cut in half and then dice.  Use equal amounts of green and yellow zucchini add to the pan.   Season with s&p, stir to coat – reduce heat to med. Sauté for about 15 mins…add the chicken stock – simmer.

Now add the Penne to the pot of boiling water.  - Cook for 8 mins or so…you want it to be aldente.  When ready – strain – reserving a mugful of the water – and add directly to the sauté pan with the vegetables.  Mix well – add in two handfuls of the shredded parmegiana and mix so that the cheese melts. If it appears to dry – add back a bit of the pasta water – stir to coat.

Serve immediately with your favorite white wine. Always have extra cheese and some garlic bread on the table for your guests.