Will JJ’s inflation orchestra hits a sour note while the market plays musical chairs?

• It’s HERE…CPI due out at 8:30.

• Gold is up, Dollar is up (someone’s confused).

• Oil is up on China demand story and UBS call.

• JJ - the Money Maestro & his Inflation Orchestra are locked down.

• Try the Linguine & Lobster Sauce #6.

Put ‘KP’ in the message box and I will be happy to reach out to discuss creating a long-term wealth-building portfolio that will serve you and your family well in the years ahead.

So, maybe my dreams will come true…. Stocks fell yesterday – can you believe it? The Dow lost 154 pts or 0.4% - taking it down 1.7% in 2 weeks, the S&P gave up 18 pts or 0.3% - leaving it only down 0.6% in 2 weeks, the Nasdaq lost 49 pts or 0.25% - leaving it up 5.2% in 2 weeks, the Russell down 10 pts or 0.4% - leaving it down 3.4% since November 25th, the Transports – have been losing ground since November 25th – giving up 6.2% - they gained yesterday…rising 123 pts or 0.7% while the Equal Weight S&P (which also has been whispering weakness) once again gave up 45 pts or 0.6% taking it down just about 3% in the past week. Note the conflicting read – between the S&P and the Equal Weighted S&P – When we equal weight every stock in the index – what we see is some broader weakness – not a disaster by any stretch, but more just weakness as investors don’t appear to be chasing 493 stocks! (Think the Mag 7!) 493+7 = 500! Capisce?

All of this confusion a direct result of investors, traders and algo’s place their ‘bets’ on what ‘JJ- The Money Maestro and his Inflation Orchestra’ say to us next week. Just in case you missed the memo – the question is Will they hold or cut rates?

Well that answer might just become a bit clearer after today and tomorrow when we get the latest (November) CPI and PPI reports – the MAIN EVENT - which are expected to show a trend reversal….inflation appears to be lifting its ugly head (again) and that will be key to what JJ tells us. But remember – people hear what ‘they want to hear’ vs. what is being said…Recall last week JJ told us he was in no rush,(he has already cut rates by 75 bps) because the labor market remains ‘robust’ and inflation wasn’t’ ‘playing nice’ yet the market heard – A RATE CUT is all but done. Fed Futures went from a 70% chance to a 90% chance today….so while the Nasdaq continues to advance on the idea of a rate cut, the broader market is not so sure…

We’ll get the first clue at 8:30 am when the CPI report hits the tape….expect all kinds of analysis – everyone arguing both for and against – I am (as you know) against a rate cut – because the data does not support further cuts at this time….….but it appears that I am in the minority – which is not a bad place to be in….Being in the minority can actually be a great place in several situations, but here we are talking about investing…so being a contrarian investor—going against the crowd—often leads to spotting undervalued opportunities before the majority catches on. (Bingo!). Sometimes, being in the minority just means you're ahead of the curve!

And all that means for me, is sit still…You are invested, so you are participating – if the market goes up, GREAT! And if the market goes down, that’s great too because you have your new money sitting in the gov’t mm fund earning you 4.25% while you wait for lower prices…(and you know they are coming)…..do not make major changes in your portfolio at year end….Moves in the market can happen for a range of reasons for different investors so you do you.

Recall when Uncle Warren (Buffet) made headlines when he sold a big piece of his position in BAC (that he BOUGHT it at $5) causing so many retail investors to say, “What does he know?”. On July 19th we learned that he sold 33.9 million shares raising $1.48 billion (~$43.60/sh), then in August he sold 21.1 million shares raising $845 million (~$40/sh), then again in September he sold 5.8 million shares, raising $228.7 million (~$39.43/sh) etc.…Well on November 29th – BAC ticked at a new high of $48.08/sh…So, what exactly did Uncle Warren know? Why would he have sold it at those prices when he could have sold it at $48? The fact is – BAC hit his price target, (~$40 a 700% return) so he sold a portion of his holdings – he still owns 766.3 million shares, it’s not like he was unhappy, quite the contrary, he RANG the cash register – exactly what he (and you) are supposed to do. It doesn’t get more complicated than that. I own it for $22, I am not selling it (but to be fair, I own 0.0000000000000001% of what he owned! LOL! 

Of the 11 S&P groups – Communications XLC gained 1.6% (+38% ytd), Consumer Staples XLP gained 0.5% (+ 14.7% ytd), Consumer Discretionary – XLY + 0.2% (+ 30% ytd) leaving all of the other sectors in the red. Real Estate – XLRE led the way lower -1.6% (+7% ytd), Tech XLK – 1.4% (+22.5% ytd), Utilities – XLU and Energy – XLE both down 0.7%, Healthcare XLV lost 0.4%, Industrials – XLI gave up 0.25% while Financials – XLF ended the day flat.

Further down the chain we saw weakness in the Home Builders – XHB – 2%, Metals & Miners XME – 1.4%, Semi’s – SOXX – 2.4% (thank the latest Chinese prob and a bit of a stretched valuation), Oil Exploration & Production XOP – 0.6%, Big Pharma – PPH lost 0.1%, the Value Trade – SPYV gave up 0.3% while the Growth Trade – SPYG – 0.25%.

We saw strength in the airlines – JETS + 1%, and the contra trades…the DOG + 0.4%, PSQ + 0.4% and the SH + 0.3%. The VIXY (another contra trade) though fell by 0.4% - why? Because the VIX (fear index) remains in a ‘no fear’ state of mind – closed at 14.20 – well below all 3 trendlines…but I say – watch what happens today – this morning it is up 1% at 14.33 – not an issue (yet), but wait until 8:30 – let’s see how it reacts after we see what prices are doing….a HOTTER CPI will see the VIX rise, while an inline or weaker CPI will see it fall – either way expect all kinds of commentary of ‘what it means’. I will say this, the Boomers (1946 – 1964) and the X’ers (1965 – 1980), are a bit more concerned than Gen Z (1997-2012) or the Alpha’s (2013 – 2025) while the Millennial’s (1981-1996) remain confused! I say that because we have ‘a couple’ of them on our investment committee!! LOL! Love these guys, but they are confused!

Bonds fell just a bit, and the left 2 yr yields at 4.14% with the 10 yr at 4.22% unchanged. This morning the 2 yr is up 2 bps at 4.16% with the 10 yr up 2 bps as well at 4.24%. While not a big jump – I think it is whispering higher prices.

Oil ended the day flattish at $68.47 or 0.1%. This morning it is up 64 cts or 1% at $69.23. The story that the market is focusing on today is the latest news that China is easing monetary policy which they think will fuel demand. In addition, yesterday, UBS put out a report that it expects Brent to trade in the $80 range next year (currently trading at $72.50) because they think the market will be ‘almost balanced’ – with a tiny surplus of 0.1 mill/b/d vs. the current 0.2 mill/b/d this year. If that is true, then WTI should be trading around $72-$75/barrel. Now don’t forget – the whole mid-east conflicts (plural) are still simmering…so the headline can change on dime.

Gold – ripped up and thru $2700 – rising $36 to end the day at $2721 and this morning it is up another $8 at $2725. This screams a rate cut is coming…. But don’t forget it is also a ‘safe haven’ trade (if you’re nervous). It has also enjoyed the company of a bunch of central bank buyers…sending this asset up more than 25% ytd. (it was higher +30%) but has backed off in recent weeks as the debate over ‘to cut or not to cut’ got louder. Yesterday I said - If gold pierces the trendline ($2701) – then we could see it trade up to $2750 in short order, if not – then a retest of trendline support at $2628 is the next move. Well sports fans we pierced it so get ready for it challenge $2750 and potentially the November high of $2826.

Now the dollar index – DXY is also pushing higher -which screams NO RATE CUT…. this morning it is up 0.25% at 106.65 – it is up 1% in one week – so let the games begin…. someone wins and someone loses…

US futures are mixed…Dow futures are -32, S&P’s +6, Nasdaq +45, while the Russell is +4.

European markets are flattish- other than Spain – which is down 1.2% (can’t find anything to explain) I mean Spanish clothing giant ZARA reported interim results and they saw revenue GROW by 9% in the month (November/December) vs. the same time last year… hardly a negative story. I think it’s just the usual year end re-positioning…the IBEX is up 17% ytd…Let’s see where that money goes? Where do they find ‘opportunity’. France is the underperformer – 1.8% ytd while the UK is up 7.25% ytd…Euro Stoxx is up 9.5% while Germany, and Italy are up 21% and 14% respectively.

The S&P ended the day down 18 pts at 6034 in what I hope is more digestion after the surge higher since the election. I would not be surprised to see us retest 6000 – not a move that should concern anyone (that’s a 0.5% move). If it fails to hold that then we could see it test trendline support at 5880 – again – that would not be a disaster at all (down 2.6%), but it would allow the market to settle down a bit.

Again, at this point, I would let the portfolio ride only by making last-minute changes due to tax planning issues. New money should be sitting in a gov’t mm fund earning 4.25% while we wait for the new year – where I fully expect (or hope for) some early weakness to take the froth out. In the end – patience is a virtue.

Linguine in lobster sauce

Here is another pasta recipe for Christmas Eve – the Lobster sauce is delish.

Here we go. You need to make this dish on the 23rd so that it sits overnight in the fridge.

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 the kitchen ready crushed - then buy the plum tomatoes in juice and run them through the blender or food processor - leaving a bit chunky.... Bring to 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 me to cook for about 30/45 mins. Let it cool and then put it in the fridge. 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.