• I would be suspicious of a new bull market leg ahead.

We are seeing a lot of conflicting signs (fundamental and technical), so I would be suspicious of a new bull market leg ahead.

I am heading out early to enjoy the weekend.

I want everyone to enjoy it as well!

And God bless you, Uncle Vinnie.

• What, me worry?

The 10-year U.S. note now yields 2.72%.

What, me worry?

• More pearls from real estate maven Mark Hanson.

I am expecting a pause in the housing market in the year ahead.

More pearls from real estate maven Mark Hanson:

Houses are 51% MORE EXPENSIVE to buy today using a 30-year fixed mortgage at 4.75% than in 2003 through 2007.  I know this sounds crazy but the math is the math (see items 1 through 4).

House Prices have no upside from here...just like in 2007 and 2010 when there were "credit events" that reset the market

The 2003-2007 "Bubble Phenomenon" -- when a minority of buyers using high-leverage "exotic loans" created incremental "comparable sales" that increased the value of all houses -- recreated in 2012-2013 by "exotic rates" and PE firms

Homebuilders, Existing Sales, home improvement/rehab et al in a lot of trouble. The past couple of weeks were a gift if you are structurally negative this sector, as the sudden loss of the largest stimulus in housing market history dwarfs the loss of the Homebuyer Tax Credit in 2010...a look what happened then

"This" Housing Market Can't Digest this Spike in Rates / Can't outperform without constantly easier rates/credit

I hear constantly that house prices have a lot of overhead room for appreciation and we "couldn't possibly be in a housing bubble because house "prices" are not close to the "peak".  This is a sophomoric, superficial statement that is absolutely incorrect.  You can't just look at house prices today vs 2006 and make the assumption they were "more expensive" then.  That's because most people buy with a mortgage. Even to investors paying cash, things like rents and relative yields determine how the true "price" of a house. 

Thus, based on the  i) "cost to pay" for a house using a mortgage at 4.75%   ii) and the amount of income required to qualify for a mortgage houses are far more "expensive" and "less affordable" today than they were at the margin from 2003 to 2007.  This might seem like a ludicrous statement to most everybody but nobody can argue with the math.  

What most don't realize is that incomes have fallen 50% from 2003 to 2007 with respect to qualifying for a mortgage...that's due to the loss of stated income;  intermediate-term interest only loans that qualified borrowers at interest only payments; pay option arms;  interest only HELOCs that helped eliminate down payments and mortgage insurance;  and higher allowable debt-to-income ratios.  Remember, from 2003 to 2007 everybody earned the exact amount of money it took to buy whichever house they wanted due to exotic loan programs and guidelines designed to increase "affordability".  Houses were never more "affordable" than during this time even with "prices" much higher than they are today. Today, with only a few loan programs and features available, people can buy only buy what they can afford to "pay off" in 10 to 30 years using income proven by tax returns and pay stubs.  

The 2003-2007 "bubble-phenomenon" driven by "exotic loans" vs the 2012/2013 "bubble" driven by "exotic rates" and PE firms

The 2003 to 2007 "bubble" phenomenon -- when the minority of buyers using high-leverage or "exotic loans" pushed up all house prices -- was very much like new-era "investors" are doing today when they regularly pay 10% to 20% over appraised value/purchase price buying according to a cash flow model.  BlackRock will tell you PE firms could not have possibly caused house prices to go vertical in the past 6 months because "nationally" they account for less than 10% of sales. Ok sure...but what they left out was that in 'regions' in which we have seen the greatest price appreciation new-era "investors" account for 30% to 70% of all sales. Moreover, they relentlessly "bid" for houses...far more houses than they ever buy. In fact, private and individual new-era "investors" bid on over 80% of all all houses in the Central Valley CA in May according a Real Estate broker source I have. So, there ya go. Case closed.  

Bottom Line:From 2003 to 2007 "exotic" loan programs and easy guidelines drove incremental high-leverage buyer volume, which was responsible for providing enough "comparable sales" to lift all house prices.  Over the past year PE firms were the "incremental" high-leverage buyer -- regularly paying 10% to 20% over appraised value/purchase price -- lifting the "value" of all houses.  Comparable sales are like a virus...it only takes a few to influence dozens or hundreds within a one square mile area surrounding the comparable sale both on the upside and downside.  

Item 1) House "Purchasing Power" has plunged by 37% relative to 2003 to 2007

The example below shows how much house could be bought on $66k/annual income using the popular loan program types of each period.

Bottom line:  House "Purchasing Power" by those buying with a mortgage has plunged 37% from 2003 to 2007

Item 1)  House "Affordability" has plunged relative to 2003 to 2007...it's 51% more "Expensive" to buy a house than from 2003 to 2007 when using a mortgage

The chart below shows how much income it took to buy a $523k house from 2003 to 2013.

Bottom Line:  During the "bubble-years" one could "legitimately" buy a $523k house on $66k a year. Now it takes $100k a year to buy the same house.

Item 3)  Income needed to buy a $330k house from 2000 to 2013 using popular loan programs, guidelines and rates of each period

Bottom Line:  On a longer term view showing all years it's easy to see how "affordable" houses were from 2003 to 2007. And how the Case-Shiller positively responded to the affordability.

Item 4)  Income required to buy a $330k house from 2000 to 2013 (not showing Case-Shiller) overlay

In this chart I removed the CS overlay in the pervious chart for the purposes of cleaning it up...again, houses have never been more "affordable" than from 203 to 2007

Builders to be hit by a 19% fall-out rate on the past 6 months of new home "contracts" on rate surge.  This is in "addition" to the organic fall-out they will experience, which is priced into the market.

From Dec to May (past 6 months) there were 229k reported "New Home Sales";  YTD there have been 202k. Obviously, not all of these are "sales" in the traditional sense, rather "agreements" to buy at a later date for a specific price.  For most, the "price" is determined by how much they can "afford" given how much cash-down they have and how much of a mortgage loan they can qualify for using the going mortgage rates. And during the entire past 6 months ending May -- the last month for which we have New Home Sales data -- rates were at "historic lows", sub 3.5%.

Bottom Line:  But all that has changed now...today rates are over 5% and at least half of builders' new home "sales" are to a buyer lacking a "mortgage rate lock".  This changes everything.   A large percentage of the past 6 months of builder "sales" will never close. This means builders will have to increase sales substantially in Q3/Q4 to make up for the impending spike in contract cancellations or they will miss numbers terribly.

• I added to Monitise (MONI.L) this morning.

• But higher crude oil (a tax increase) and higher interest rates are not the ingredients for a new bull market leg.

• Currently, my favorite long is Northwest Bancshares, and my favorite short is Danaher.

Favorite long: Northwest Bancshares (NWBI).

Favorite short: Danaher (DHR).

• Crude is trading near $103 a barrel now -- a headwind!

• Run, don't walk, to read the latest 'Ask Noah' column over on our flagship site.

Run, don't walk, to read this especially timely "Ask Noah" column on TheStreet today, "Shut Up and Listen."

• Small.

I just bought small Chimera (CIM) at $2.77.

• The firm now expects a +1.6% reading.

Goldman Sachs takes down its second-quarter 2013 real GDP tracking to a +1.6% expectation.

Katie bar the doors, if domestic growth slows in the second half of the year while interest rates are rising.

• It looks like smartphone sales are waning.

Samsung'sguidance indicates a slowdown in smartphone sales -- again, not a positive sign for Apple (AAPL).

As I mentioned a few days ago, our channel checks are negative on Apple, and if I was long, I would use the recent strength as an excuse to reduce the position.

• Discouraged workers increased by +247,000 in the month, to 1.03 million.

In parsing the jobs report, I picked up an intersting statistic.

Discouraged workers increased by +247,000 in the month, to 1.03 million. That is the highest print in this series in eight months.

• At $17.10.

I am bidding for more Altisource Residential (RESI) at $17.10.

• I shorted more shares at $64.20.

I shorted more shares of Danaher (DHR) at $64.20 today.

• I covered this morning's tranche at $161.40.

Housekeeping item: I am taking in my SPDR S&P 500 ETF Trust (SPY) short at $162.90 done prior to the release of the jobs data this morning.

I have just covered at $161.40.

I am maintaining my core SPY short, however.

• I slightly expanded my short exposure.

Obviously, the action is poor, as the reality of the domestic economy's vulnerability to higher interest rates sets in.

The S&P 500 is also obviously showing signs of failing at the 1624 level after bursting through it in early futures trading -- never a good sign.

I slightly expanded my short exposure, as documented earlier, into the ramp (at one time S&P futures were +22 handles, now +4 only).

• I added to my Russell 2000 short this morning.

• Northwest Bancshares is a winner today, but Chimera continues to prove a disappointment.

On the positive side of the equation, Northwest Bancshares (NWBI) breaches $14 to the upside.

I am sticking with this name.

On the other hand, mortgage REITs such as Chimera (CIM) are getting schmeissed, as the rapidity of the rate rise will reduce earnings and divdend payouts. (That is why I took the name off my "Best Ideas" list.)

The only reason, unfortunately, to own this name is for an Annaly (NLY) takeover -- fingers crossed but realistic.

• Here is my view of what the 10-year yield should be.

The time to have shorted bonds might have been in 2012 when no one wanted to.

As I exhibited in my Value Investing Congress presentation on shorting bonds in May over a year ago, over time, as many have observed, the 10-year yield typically trades between 0.8x and 1.0x times nominal U.S. GDP.

If we assume that real growth is about 2.25% and inflation is at 1.40%, then we have nominal growth of 3.65%.

I believe strongly that structural headwinds and the residue of the depth of the last recession will continue to constrain growth, so 0.8x (at low end of the range) seems a more reasonable multiplier -- 0.8x 3.65% = 2.82%, not far from the current yield of 2.69%.

That said, as I wrote in beware the interest rate cliff, I believe many market participants are underestimating the vulnerability of the U.S. economy to our addiction (in the private and public sectors) to lower interest rates.

It is different this time.

Very different.

• Goldman Sachs' economic maven's prediction on the jobs report.

From the economic mavens at Goldman Sachs (who have over 100 economists) on today's jobs report:

Jan Hatzius expects a fairly lackluster employment report for June, with nonfarm payroll growth of 150,000 (vs. cons 165,000, prior 175,000), similar to the average of the past three months, and a drop in the unemployment rate to 7.5%, a reversal of last month's uptick. June may see the greatest impact of any month this year from sequestration and we have seen no signs of a pick-up in manufacturing employment.

• Beware the interest rate cliff.

Repeating for emphasis: Beware the interest rate cliff.

• I share his concerns.

Below are this morning's pearls of wisdom from Sir Mark J. Grant of Southwest Securities.

I agree strongly with his concerns and, in the months ahead (with growing currency issues), look for U.S. multinationals to warn that the stronger U.S. dollar will hurt profitability.

"Always remember, your focus determines your reality."

-- George Lucas

Our reality has changed in the last twenty-four hours. The Bank of England and the European Central Bank have re-affirmed their old positions since the Fed has changed tacks. The initial reactions will be a spike in equities and a fall-off in the valuations of the Pound and the Euro to the Dollar. These, however, are first blush reactions as the color fades from the bloom.

It may well be, as Europe is in much worse financial condition than the United States, that there is a policy reason for the European positions but it may well also be a calculated move to devalue the major European currencies. Whatever the actual reasons, the European statements have certainly sounded the trumpet that the "Currency Wars" have reignited.

The impact of the Euro/Dollar at 1.25 and then 1.20 will be a positive for Europe as exports rise and a negative for America as exports fall and imports rise. The sword could be double edged though as the Fed, in response, begins to cull back on the more than $1 trillion that it has lent to the European banks. Many truths will be shrouded in mystery but the impact will be there regardless.

It is a dangerous game when the world's central banks that have been working for the last five years in unison and now they head down different paths. You may expect tears at the seams and various ripping sounds as Europe moves away from the Fed. Mr. Carney and Mr. Draghi have buddied up while poor Ben is left to wander alone.

The trumpets that had heralded "The Three Kings" now sound just for two and the drums that have beat in unison now will sound a disconnected harmony.  America has gone left and Europe has gone right and there will be consequences for both.

I mention one other thing this morning that is surely coming and it will be the hammering of the gong. The ECB has massive securitizations that are being carried at par (100 cents on the Dollar) at the ECB and at the European banks. The losses, with many tied to Real Estate, must be staggering. There will be a time, a moment, after "extend and pretend" runs out when these losses must be faced. These securitizations are guaranteed, in the case of Spain as one example, by the sovereign ($51.6 billion in the case of Spain). Others, I have heard, are guaranteed by the major European banks. The poorer nations in Europe will want the ECB to take the hits, shared losses, but Germany will vehemently object.

France, Italy, Spain, Portugal and Ireland cannot afford the losses. The hits would bankrupt or severely impair most of the European banks. The clock is running and midnight will be approaching sometime during the next twelve months.

I fear what we don't know and what is hidden. Realization will eventually arrive because it must. A very unpleasant reality will surface. When you shout and scream and make false claims that the money is in the drawer the day will arrive, because you need the money, that you open the drawer and it is not there. That day is one of reckoning. The Europeans will not enjoy it!

• Let's take a peek at the overnight and early price action of various asset classes.

It is up up and away on the global markets:

• S&P futures +14;
• Nikkei +;
• European Markets (two days) +;
• euro -;
• crude flat;
• gold -$18; and
• the 10-year U.S. note yields 2.54% (+4 basis points).

Worth Mentioning

Draghi bulls markets -- Draghi's remarks are the proximate cause for the global stock rally yesterday and today. As I wrote on Thursday in Columnist Conversation:

The Draghi press conference was more dovish then expected by most, and this had a postive impact on markets around the world.

Draghi said that interest rates will stay low for an extended period of time, a move toward interest rate guidance, and this is new for the ECB.

This was generally expected in the aftermath of the correction in stocks/bonds post Bernanke's press conference.

S&P futures are +14, and European markets are ahead by almost 3%.

Most sovereign debt yields in the eurozone have declined.

Bottom line: The ECB has been relatively tight vis-à-vis the U.S. Fed even despite limited signs of economic recovery. Today's press conference is an attempt to break through jawboning to guide on interest rates and to imply ease for some time too come.

Wiener and still chompion! -- Another July Fourth and another win for Joey Chestnut, who set a new world record in Nathan's Famous Hot Dog Eating Contest!

Market positioning -- I remain slightly net short.

Chinese checkers -- Here is an interesting Bloomberg story on China data mining:

China suspended the release of industry-specific data from a monthly survey of manufacturing purchasing managers, with an official saying there's limited time to analyze the large volume of responses....

We now have 3,000 samples in the survey, and from a technical point of view, time is very limited -- there are many industries, you know," Cai Jin, vice president of the China Federation of Logistics & Purchasing, which compiles the data with the National Bureau of Statistics, told reporters yesterday in Beijing....

The disappearance of data on industries including steel adds to issues hampering analysis of the world's second-biggest economy, after fake invoices inflated trade numbers this year. Neither the federation's nor the statistics bureau's statement on the manufacturing Purchasing Managers' Index this week gave readings on export orders, imports and finished-goods inventories or an explanation for the omissions.

Goldman eyes U.K. stocks -- On Wednesday, I noted Steve Cortes' view that the U.K. market has become attractive relative to U.S. stocks. Now Goldman chimes in on the same page.

All eyes on the jobs report -- And I have not a clue on the number.