Zero dark-thirty. There is something that I have always loved, and always hated about being on the move hours ahead of the rest of the continent. Working to gain an edge, to be one step ahead? That’s always been my MO. Whether in camouflage or on Wall Street, I have always found it personally advantageous, competitively jarring for my opponents, and one way to set a good example for those willing to follow… to have my head screwed on straight, my face shaven, and my uniform/suit on in neat order by zero three-thirty at the latest. That first half hour or so, checking European markets, commodity prices and the like, and checking messages that came in overnight… is so eerie. Love returning e-mails clocked with a three or a four handle. This morning though, is more eerie than most.
For this morning, the man whom I trust most… that man in the blackened window who looks kind of like me betrays a spectral, almost shadowy look. The strange feeling, this Monday morning of having to compete, either directly or indirectly… against the man who put us all here enters into the thought process. You see, the man who created TheStreet… and by extension, both Real Money and Real Money Pro with a vision of enabling for the hard-working retail investor, a way to access and engage with a sort of virtual Wall Street trading desk, has now left the room.
If unaware, I have written Market Recon for many years, decades even. For much of that time, Market Recon was only available to the clientele of the firm’s that I worked for (mostly hedge and mutual funds), my coworkers wherever I was hanging my hat at the time, fellow members of the NYSE, and whomever in the financial media I deemed to be Sarge-friendly. It came as the honor of a lifetime when Jim Cramer e-mailed me telling me that he thought that I wrote the best morning note on Wall Street, and asked if I would consider having the note published here. (I didn’t even know he was reading me at the time.) He also suggested that my trade ideas, that I had been sending to various hedge funds for years as a way to drive order flow, could be written up in an understandable format for retail investors.
You see… we are “Jim’s gang.” Talk about the 1961 Yankees? We are the industry all-star team that Jim put together… and we are still here. As much as it was a deep honor to work with Jim Cramer, it remains an honor to work with Doug Kass, Peter Tchir, Helene Meisler, Rev Shark, Chris Versace, Carly Garner, Bob Lang, Tim Collins, Bruce Kamich and so many others. Surely I have accidentally insulted many by limiting this list to a few names. That’s the kicker. The lineup assembled by the man with the dream is still right here… competing for the eyeballs and the intellectual stimulation that comes from engaging with an interested and discerning public.
So, I welcome you, my… no, “our” loyal readers. I welcome you and thank you for reading me this morning. May we stand back to back, and face together the uncertainties, and challenges of this modern carnival of realities. May we, together through our work ethic and ingenuity, discover opportunity, and thus… capitalize. May we, together, through our agility, identify challenges and either find the necessary strength to confront what needs confronting or through nuance, the ability to avoid what is best avoided.
That’s all I have to say on the topic. I will miss the man who put me here, but I am here for you. You are who you are. I am who I am. The warriors to your left and to your right are what matter this day. My name is Sarge. I am part of a team, an all-star team laden with talent so deep, I stand in awe. My team. Your team. This is Wall Street. The toughest place to make it outside of Parris Island that I know of. I invite you, hand extended to join me in both victory and defeat, hopefully more of the former. Team. We are… Always Faithful.
I Am Sure…
…That most readers last checked on U.S. equity futures on Sunday night, and went to bed thinking they might still look greenish in the morning. Not so fast. Evergrande filed for a suspension of trading in its shares in Hong Kong on what is Sunday night in NY, as planet earth’s most indebted real estate developer prepared for “a possible general offer” for its shares. A potential purchaser has not publicly emerged. That said, the Hang Seng Index, Nikkei 225 and Asia Dow all shaded red, as did U.S. equity index futures from that point. A flat to mixed opening across European markets appears to have taken at least some of the sting out of the initial algorithmic reaction. While we’re thinking on China, it has become apparent that the U.S. plans, or will at least try to kickstart new trade talks with Beijing, but the Biden administration will maintain Trump era tariffs on Chinese imports as it appears that mainland China has not lived up to that nation’s part of the original Phase One trade agreement.
Readers may want to pay attention to 30 day U.S. paper this morning. Short term U.S. sovereign debt has been extremely volatile, and from what I see early is being terribly under covered by the financial media. Since 02:00 ET, one month T-bills have paid as little as 0.06% and as much as 0.195%, while making the round trip between those two levels several times over a roughly three hour window.
The issue here is surely the quasi-October 18th deadline where the United States government would start defaulting on debt payments should the clown car in DC not get together and increase or suspend the debt ceiling in short order. No one really seems to know how soon this needs to be done, but if Democrats in the Senate are going to make use of the process of reconciliation in order to increase the debt limit so that they can borrow enough dough to make possible the passage of more than $4 trillion in aggregate fiscal spending plans, they need to get on their horse pronto.
It matters not that the Senate, the House and the president have all agreed to fund the federal government through December 3rd if there is no legal way to borrow another dollar. Understand? While Democrats fight over the size of the larger social and climate based budget framework, with the far left of that party holding hostage the largely agreed upon infrastructure bill, the Republicans of both houses, but especially the Senate want no part of the blame for the higher taxes which would be law and the possible acceleration in consumer level inflation that the larger spending package could act as kindling for. Thus we are left with a Democratic party that, for now, must act alone to increase the debt ceiling so that they alone can increase federal spending… but they can not agree on how aggressively to go about this. That kind of wraps up the gist of this whole ball of wax.
As ridiculous as it seems, because not one of us believes that the U.S. will default through an inability to meet its obligations, but would do so as a political tool, the possibility becomes more realistic with each passing moment. My thoughts? I have stated often. At heart, I am a hard money, fiscal conservative. Politically I see things through the prism of Austrian style economics. Realistically, and maybe more because my job is to interpret the financial markets in such a way as to adapt to, not change the environment so that I might turn a few bucks here and there… I am flexible. In other words, I have both an economic and political opinion, but at the end of the day, I am a financial mercenary. Having a debt ceiling is foolish, being that it only ever matters to the party currently out of power and never really does what it was intended to… curb federal spending.
In addition to Evergrande, Beijing, and the ongoing fiscal freak show in DC, the global economy still struggles with ongoing kinks in supply chains everywhere. Caused by the pandemic, this condition is the primary force behind what is being seen as slower growth (Despite last week’s impressive U.S. September manufacturing ISM report) and both increased producer and consumer level inflation. This is what is known less than affectionately by folks my age and older as “stagflation.”
By the way, the Fed’s (Don’t get me started on the Fed) general perception that inflation would be transitory is not incorrect, not yet anyway. Forget putting a timeline on what is transitory. We can not know what was transitory and what has become structural until these constraints on input are eased. Kapeesh? You see some “clown” on TV referring to inflation as either permanent or structural with certainty right now? You have either found someone intentionally trying to be a loudmouth or someone simply incapable of doing the necessary homework. Steer clear.
On the Fed, there is more to this trading thing than I think we know, and quite frankly, though he might have no part in it, I think it puts a bad look on this Fed Chair. His chances at re-nomination, though I think I would prefer it, are certainly not what they were a week ago. Aside from the political side of monetary policy, which should not exist, I think we all know that this Fed and all reserve currency central banks would like to normalize monetary policy, but will at some point be forced to finance irresponsible fiscal policy.
Remember The Rules
Life is uncertain. Markets are uncertain. Policy remains uncertain. Of these three things, I am indeed certain. I have not gone over the rules for quite some time, so maybe we have a couple of new readers that might be unfamiliar. The goal here is to win. How do we win? By having an organized code of discipline that allows some flexibility while developing for the investor/trader, their own style. One, we enter no position without an explanation. “I took a shot” and “It was running” are not explanations. If you can not tell the kid next to you something about a company’s stock, should you really bet the grocery money on that stock?
There are “musts”… every trader must have a basic understanding of both fundamental and technical analysis. Otherwise how will you know that you disagree with myself, Doug Kass or Bruce Kamich on a given name? Be able to defend your stance. Know what a balance sheet looks like. Learn pattern recognition. Every position must have at least two prices written next to the last sale in your notebook. Every position must have at least one target price and at least one panic price. I would also like to see a pivot, but I understand that sometimes one is not properly produced. Targets must be more aggressive than Panics. This allows the batter to profit over the longer run even if he/she bats less than .500. You dig?
And, we follow the necessary steps. We…
1) Understand… the environment for what it is.
2) Identify… both threats and targets of opportunities in real time. Recognize avenues of attack.
3) Adapt… We are humans. We are the last of the upright hominids because we adapt. “Adapt or die”, it really is that simple in life and in markets. After you are in, it’s all about risk management. which lucky for all of us happens to be what I am best at.
4) Overcome… Admit when wrong. Never admit defeat. Never. There are two answers. “I can” and “I haven’t figured it out yet”… there is and will never be “I can’t”. That term is for losers. We have none of those here. ( I realize that you can’t jump nine feet in the air, you know what I mean, wise guy.)
5) Maintain… Resume the mission. Carry on. Seek to understand the changed environment.
Not a lot on the calendar this week, which is good. We have enough on our plate already. JP Morgan (JPM) , Citigroup (C) , Bank of America (BAC) , and Wells Fargo (WFC) all go to bat next week as the third quarter reporting season gets under way. Before we get there, General Motors (GM) will hold a four hour investor event this Wednesday afternoon. Somehow, Mary Barra will try to match the show put forth by Ford Motor’s (F) Jim Farley last week, but that will be a tough act to follow. Farley aced his overall week. It’s all about going electric for these two legacy auto makers at this point.
Then it’s onto “Jobs Day” this Friday. After an awful looking August, a rebound in job creation is almost necessary for this September report as well as the October report due in about a month. Only then will we know if the reductions made to labor force participation throughout the pandemic have become structural.
Economics (All Times Eastern)
10:00 – Factory Orders (Aug): Expecting 1.0% m/m, Last 0.4% m/m.
The Fed (All Times Eastern)
10:00 – Speaker: St. Louis Fed Pres. James Bullard.
10:00 – Speaker: Boston Fed Pres. Eric Rosengren.
Today’s Earnings Highlights (Consensus EPS Expectations)
After the Close: (PEP) (1.73)