Market Recon Tuesday

Good Morning,
                        Yesterday’s equity markets closed unchanged on no volume, and there was an incident in our nation’s capitol that those same markets never really reacted to.  Other than that, Wall Street was pretty quiet on Monday.  Oh, there was that revision to January Personal Spending that knocked the tar out of first quarter GDP expectations.  Then again…all things considered, the Atlanta Fed’s GDP Now forecast of 0.6% for the quarter would make 2016 the best Q1 since 2013, so ….. party on, dudes !!!
                       Global equities seem to be edging sideways to lower in very general terms, as Europe awakens from a very long holiday weekend, and China holds their collective breath until they put their PMI data to the tape on Thursday night.  You may have noticed that Crude is starting to act heavy again.  Short coverings can only take you so far.  Rig counts, at least in North America have stopped shrinking to the degree seen earlier this year.  OPEC hasn’t done anything, and supplies continue to grow.  Then again, trading on fundamentals is just kooky nowadays.
                       OK, gang… this is really Janet’s show today.  There’s plenty to look at, and listen to, but she is the one who will move the marketplace.  Think she’ll clear things up ??  Maybe enough for the algos to pick a direction for the afternoon.  Not long or even medium term though.  No, that’s just silly talk.
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Allocation
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                        Tweaking our allocation for the second quarter looked a whole lot easier a couple of days ago, when we thought that consumer spending was stronger than it actually was in the first quarter.  We knew that the strong dollar had presented a roadblock for multinationals, but we now know that domestic demand has remained weak as well.  Guess that’s why the Russell 2000 has not performed as one might expect.
                        We played it pretty safe (defense wins championships) in that first quarter, and I think that strategy served us rather well.  So what to do now ??  Our cash level was a very high 35% going into the new year.  It got even higher than that in mid-February, and that wasn’t because we had more cash on hand.  Eeek..Chutes and Ladders.  Still standing.  What I’m thinking of now, is taking Cash down to 27.5%, and moving that 7.5% into Equities, to bring Equities up to 47.5%.  Our concentration in Q1 was in Staples, and in Dividend names.  Despite the recent poor performance in consumer spending, the extra 7.5% will go mostly toward Discretionary names.  We still want some exposure to Energy (Only Production), Airlines, and Health Care (Providers).  No Bio-Tech. Never.  Figure on playing into multi-nationals while the dollar is weaker, and adjust if the DXY strengthens back to previous levels.  We currently have Gold at 7.5%.  That remains the level as long as the physical commodity remains above $1210 an ounce.  That is your mental stop order.  Below that, we puke a third of the position (2.5%), and move it into equities, jacking that number to 50%.  We do not go below 5%.  If Gold should rip through $1300, you can go to 9% for a trade.  That can come out of cash.  As for bonds, I have maintained a 17.5% allocation…well, basically since the cows came home.  I expect to loosen the concentration in Treasuries somewhat, and increase Corporate.  Getting help in this space is advised if you are not comfortable.  Okay to do certain municipals, and we are not touching Junk… no matter how tempting.  Avoiding Bio-Tech, and Junk bonds will keep your personal beta in check.  We are not trying to be Babe Ruth here.  We are very happy to be Rod Carew, or Wade Boggs.
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Important Note:  As always, remember gang, I’m just a guy thinking out loud.  I tell you what I’m doing, or what I’m thinking of doing.  Your trades are yours, and yours alone.
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Dazed and Confused
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Bright and Early
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Fed Speaker: San Francisco Fed Pres. John Williams spoke on monetary policy, and global economics just a few minutes ago from Singapore.  Formerly a perma-dove, Williams has recently been advocating for an April increase in the Fed Funds Rate, after having not dissented less than two weeks ago.  Such a hero.  On top of that, this is the guy who just yesterday, said the US economy was doing “quite well” as his colleagues at the Atlanta Fed were lowering their Q1 GDP forecast from 1.4% to 0.6%.  Nice job, sparky.  Maybe….don’t read the comics on the way to work tomorrow.
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08:55 ET
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Redbook (Weekly):  This item seems to have held at this level without yet going into contraction.  Last week’s print cam in at growth of 0.8% y/y, and as long as we see something above 0.5% today, I think this one gets overlooked.
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09:00 ET
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Case-Shiller HPI (January):  Remember, January was a pretty decent month for housing.  This one is coming off of a 5.7% y/y non-seasonally adjusted release for December.  Expectations for today are for a 5.8% y/y number, but the range is seriously skewed higher.  No promise, but a surprise with a six handle is not a crazy thought here today.
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10:00 ET
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Consumer Confidence (March): This item, not to be confused with the twice a month, University of Michigan number, missed very badly last month, hitting the tape at 92.2, it’s second lowest showing since the start of 2015.  We very sheepishly look for a rebound to something close to 94 today, but if the Consumer Spending data that we saw yesterday is any indication, US consumers do not feel so confident.
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11:30 ET
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Fed Speaker:  Fed Chair Janet Yellen will talk about economic conditions, and monetary policy in New York City.  It was less than two weeks ago, that the Fed Chair doved it up at her press conference despite Fed mandates, and targets having apparently at the time been met.  Then she let the dogs out to talk the dollar back up (global cooperation ??), and reign in markets a bit.  Now that Core PCE disappointed, and Consumer Spending has grown far less than previously thought causing massive reductions in first quarter GDP forecasts, well you get the picture.  She now has the flexibility to do whatever she wants, or needs to do.  This speech is the most important thing you will tackle today.  My best guess is that she will as unclear as possible regarding both economic conditions, and monetary policy.
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13:00, and 16:00 ET
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Fed Speaker:  Dallas Fed Pres. Rob Kaplan, not a voting member of the FOMC…will speak twice today from Austin, Texas.  He will even open himself up to questions, which is the right thing to do….but, not a soul will notice, because the Fed Chair will have already stolen the show.
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Tuesday’s Earnings Highlights
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Before the Open: LEN (.52), MKC (.69)
After the Close: SONC (.16)