"Expect More Turbulence Ahead": Kenny Polcari Explains Why The Rally "Does Not Have Legs"
The 38 year market veteran offers up his take on U.S. China relations, oil, SNAP's effect on markets and the state of stocks in the U.S.
Friend of Fringe Finance and well known financial news contributor - as well as 38 year veteran of markets Kenny Polcari has been kind enough to share his most recent thoughts on the market with our readers.
I’ve been lucky enough to be friendly with Kenny for about a decade now, and he was the first guy to ever take me on what I can only describe as an unauthorized tour of the NYSE trading floor, where I not only got to personally tell several confused specialists and market makers that the Chinese names they were trading were frauds that didn’t even exist, but also
The tour didn’t last as long as I would have liked, to say the least. But I’ve always appreciated Kenny’s willingness to welcome people into his busy world for nothing in exchange, and his decades of experience, which gives you a pulse on markets that only time can help you recognize.
For those who aren’t familiar with Kenny or don’t recognize him from TV, he is Managing Partner of Kace Capital Advisors, Chief Market Strategist at SlateStone Wealth, and a Managing Director at Campfire Capital a boutique investment bank. He started his career on the floor of the New York Stock Exchange (NYSE) as an institutional broker back in the early eighties when the march of electronic trading was already taking its first steps, and the great bull was first learning to run.
Heading into the open on Tuesday, Kenny shared with us some of his thoughts on the market and the macroeconomy.
Kenny On U.S. China Relations
“Stocks rallied nicely [Monday] (but sold off overnight – we will get to that later), much of the rally being credited to news out of the Asia Pacific region, which I think was helpful but was by no means the reason,” he wrote.
“First, we learned that [President Biden] is considering removing Trump-style tariffs on China. Then, we learned that [President Biden] has partnered up with 12 Indo-Pacific countries: Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam (these countries along with the US represent 40% of world GDP) to form a new economic powerhouse.”
Kenny writes: “The joint statement suggesting that this new pact will help them collectively ‘prepare our economies for the future’. Notice that China is not part of that pact, because [China] is the reason this new pact exists; to diversify away [from] global risk - risk that has now upended so much of the global supply chain following massive disruptions due to the coronavirus pandemic and the Orwellian lockdowns that have forever changed the world.”
He continued: “Toss in the unprovoked attack of Ukraine by Russia and you realize the need for a solution to the China/Russia problem that has been simmering under the surface for years and is now exposed.”
[QTR’s note: This Russia/China alliance is something that I have been writing about at length, for months - here and here are two good places to start.]
Kenny continued: “Now, what is interesting to me though, was the 3rd announcement concerning China, igniting another possible ‘geo-political crisis’. The [announcement] that left the White House scrambling to clarify Biden’s comment that the US (and the West) would defend Taiwan in case President Xi felt like ‘pulling a Vlad’ and forcefully going in to take Taiwan back.”
“That was a significant negative market moving comment (because it suggests another possible military confrontation),” Kenny wrote, “but one that the algo’s and trader types chose to ignore, and to their peril, as stocks are in sell mode again [Tuesday] morning.”
”The White House scrambled to clarify [Biden’s] comments, saying that what he meant was that the US and West would provide military equipment and intel to support Taiwan but not commit any troops (feels very Ukraine like).”
Kenny wrote: “In any event, the comment was not expected, caused all kinds of angst in DC as well as in China, and while the White House tried to ‘walk back the comments’, they are out there and you can bet that Xi is not pleased - so there is more to come – you can be sure of that.”
Kenny on Oil
Kenny also opined on the price of oil heading into Tuesday’s session.