• How much to buy?

My mavens on the floor of the exchange see $500 million to buy.

Financials have $170 million to buy, and energy has $120 million to buy.

ExxonMobil (XOM) and Citigroup (C) have $90 million to buy, and PepsiCo (PEP) and AT&T (T) have $25 million to sell.

• Staying slightly short but my finger is itchy now.

• With stocks at the day's highs, I am doing very little.

Stocks are at the day's highs -- some not so much (e.g. Lowe's (LOW)).

Doing very little today.

• Nice reversal in oil to the downside today, back under $105 a barrel.

• I have sold out of the Treasury ETF.

Houskeeping item: I am no longer in the iShares Barclays 20-Year-Plus Treasury ETF (TLT).

• When the Fed says it's failing, stocks go up.

All risk assets seem to rise in price every time the Federal Reserve chairman states that he will continue to be accomodative.

But what he is really saying is that massive monetary easing is not working, so the Federal Reserve is forced to keep injecting liquidity into the system.

So, in reality, stocks in particular are rising when Bernanke is saying that the Fed is failing to catalyze the domestic economy.

How does this make sense?

Of course it makes no sense, because the U.S. economy is in a light form of a liquidtiy trap in which the lifting of asset prices (and net worth), which is supposed to result in a rise in consumer spending, is simply not working.

At some point the markets will reflect this.

• Here's what the man has to say at midday.

Midday thoughts from Sir Arthur Cashin:

Feels and smells like very nervous, painful short covering.  The amazing thing is that there is no air pocket pull back.  That suggests that the positions are/were huge and shorts keep bidding to reduce them to a more tolerable pain level.  Same likely true in gold.

As I said on TV ¿ "There is enough blood in Hedge Fund Alley to cater Dracula's daughter's wedding".

As Doug Kass, and others, remind, the real litmus test is in bond yields.  Ten year has crept back above 2.6 (went out at 2.68% pre-Bernanke).

Run rate very high in first thirty minutes.  Slowed steadily since.  Around 1:00, it projects to 660 to 740.

• The U.S. is likely in a light liquidity trap, and the Fed is pushing on a string.

Continuing the stream of thought from the last two posts.

Not only may have the Fed lost the bond market, but, my concerns are even more basic -- namely, that massive policy intervention is simply not working.

At best, the economy is growing only between 1% and 2% in real terms as the Fed's balance sheet has risen from under $700 billion in 2008 to nearly $3.6 billion at the current time.

The reality is that the U.S. might be in a liquidity trap (lite) and the Fed is pushing on a string.

From my perch, the implications for profit growth and valuations are not as promising as the market is reflecting today.

• Only the bond market can take the printing press away from the Fed.

Apropos to the last post, I will answer my own question.

Only the bond market can take the printing press away from the Fed, and it has started that process over the past month and will continue to unfold in the coming year.

• Bernanke may be out of words to calm down the markets.

The yield on the 10-year U.S. note is drifting back up.

Despite Bernanke's accomodative statement, the yield is now back over 2.61%.

Has Bernanke lost control of the markets?

What happens if the bond market continues to deteriorate and the bond vigilantes take control and take the yield back to the highs?

Bernanke may be out of words and bullets to calm down the markets.

And if, as I fret, economic growth is declerating, creating a challenge to corporate profits.

The fact that the Fed is potentially losing control of the bond market is not being acknowledge by many!

• I saw a buyer in Monitise (MONI.L) in London this morning.

• Seth Klarman is as good as it gets.

"If the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse."

-- Seth Klarman, Baupost

Baupost's Seth Klarman is as good as it gets. He is neither a perma-bull nor a perma-bear. He is straightforward, thinks analytically, logically and objectively.

Here, courtesy of Zero Hedge, are his recent musings. Read this, read it twice!: 

Zero Hedge: 

One of the most insightful comments explaining what happened last night, when Bernanke just killed all credibility that the economy may soon be able to stand up on its own two legs, comes from Seth Klarman who crushed the logic (or lack thereof) behind proclaiming any recovery in a world in which the only marginal factor preventing an all out collapse in the stock market and thus economy is, and continues, to be the Federal Reserve which has not only destroyed the market's discounting function, but with every passing day is taking over both the entire US economy (the Fed's balance sheet is now 25% of US GDP) and the US bond market (currently in possession of 30% of all 10 Year equivalents).

Seth Klarman:

Is it possible that the average citizen understands our country's fiscal situationbetter than many of our politicians or prominent economists?

Most people seem to viscerally recognize that the absence of an immediate crisis does not mean we will not eventually face one.They arewary of believing promises by those who failed to predict previous crises in housing and in highly leveraged financial institutions.

Theyregard with skepticism those who don't accept that we have a debt problem, or insist that inflation will remain under control. (Indeed,they know inflation is not well under control, for they know how far the purchasing power of a dollar has dropped when they go to the supermarket or service station.)

They are pretty sure they are not getting reasonable value from the taxes they pay.

When an economist tells them that growing the nation's debt over the past 12 years from $6 trillion to $16 trillion is not a problem, and that doubling it again will still not be a problem, this simply does not compute. They know the trajectory we are on.

When politicians claim that this tax increase or that spending cut will generate trillions over the next decade,they are properly skeptical over whether anyone can truly know what will happen next year, let alone a decade or more from now.

They are wary of grand bargains that kick in years down the road, knowingthat the failure to make hard decisions is how we got into today's mess. They remember that one of the basic principles of economics is scarcity, which is a powerful force in their own lives.

They know that a society's wealth is not unlimited, andthat if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse.For if you must rescue everything, then ultimately you will be able to rescue nothing.

They also know that the only reason paper money, backed not by anything tangible but only a promise, has any value at all is because it is scarce. With all the printing, the credibility of our entire trust-based monetary system will be increasingly called into question.

And when you tell the populace thatwe can all enjoy a free lunch of extremely low interest rates, massive Fed purchases of mounting treasury issuance, trillions of dollars of expansion in the Fed's balance sheet, and huge deficits far into the future,they are highly skeptical not because they know precisely what will happen but because they are sure that no one else--even, or perhaps especially, the  policymakers¿does either.

• Boenning & Scattergood's Rich Farr weighs in.

The core of my cautious market outlook (and ironically, where I have been wrong, as the market has been more preoccupied with liquidity) is that economic growth is slowing and represents a challenge to corporate profits. 

Here is the latest from Rich Farr at Boenning & Scattergood (which follows Goldman Sachs and Barclays in lowering growth forecasts). I would note that Rich is now where I live in terms of real GDP estimates for the full year and last half of 2013. His (and my) growth forecasts are well below consensus:

UNEMPLOYMENT CLAIMS RISE UNEXPECTEDLY TO 360K:

According to the Department of Labor, seasonally adjusted unemployment claims increased for the first time in three weeks, up +16k to 360,000 last week.  This is much higher than the forecast of a slight decline and it is the highest level since May 10th (363k).  More importantly, the trend in initial claims has now reversed as the four-week moving average of seasonally-adjusted claims increased +6k to 351,750, which results in a Y/Y decline of -6.4% Y/Y (-9.2% Y/Y prior and -10.2% the week ending May 3rd.  Essentially, claims are becoming "less good".).  As for Continuing Claims, they increased +24k to 2.977 million (SA) but its four-week moving average slipped -3,500 to 2.971 million (down -10.2% Y/Y vs. -10.3% prior).Please see today's note for complete analysis.

OUR GDP MODEL CONTINUES TO DETERIORATE ¿ WE ARE LOWERING OUR GDP FORECAST:

Unemployment Claims, taken on their own would not be a large enough factor for us to revisit our forecast.  However, the rising trend in unemployment claims are now part of a mosaic of factors that suggest 2H 2013 GDP deterioration.  Other factors that may result in a weaker 2H include: 1) Rising Gasoline/Energy Prices will negatively impact GDP Growth ¿ most notably in 2014, as the lag effect is usually six months.   2) Higher interest rates are already hitting the mortgage market, and may spill over into other borrowings soon enough (both consumer and corporate).  3) Hurricane Sandy reconstruction likely distorted seasonal data in 1H 2013, making 1H look better than normal.  4) The sequestration is now beginning to hit and will have a meaningful impact on 2H GDP (we think sequestration is a drag of -0.5% or more.  5) The debt ceiling fight may become a far bigger issue in Q3 than the market currently appreciates, as the improvement in the Federal Budget has made politicians less inclined to negotiate.  Uncertainly can lead to declines in business investment and overall risk-taking.  6) We expect that Yen weakness will have ripple effects into U.S. manufacturing (not to mention, manufacturing in both the United States and Europe is already in a fragile state).

Our model now suggests 2013 GDP growth will be just 2.0%, its lowest reading of the year.  Given that we are assigning an additional drag from sequestration of -0.5%, our new 2013 GDP Forecast is just 1.5% (down from 1.7%).  Let's face it; we need to stay a little below the IMF's official forecast of 1.7%, given their track record!  Note that our model suggests that 2H 2013 GDP could be BELOW 1.0%.  As for 2014, it's too early to assign a forecast, but our model has taken 50 bps off its 2014 growth projection over the past several weeks.

• I wouldn't short them yet, though.

Homebuilder stocks are up smartly following Bernanke's accomodative stance as far as the eyes can see.

But the 10-year U.S. note yield has only dropped by about 8 basis points and is still over 100 basis points above the May levels.

My concerns about a pause in housing remain intact.

I would pare back or eliminate homebuilding stocks now.

I wouldn't short them yet, though.

• Look for a dead-cat bounce in bond-equivalent stocks and for a correction in select financials.

I expect a dead-cat bounce in bond-equivalent stocks (consumer staples, higher dividend yielders).

I also anticipate certain sectors that have benefited from the perception that interest rates will move higher (e.g., brokerages such as Schwab (SCHW) and life insurers) to correct some of their recent gains.

• I will likely pare back some of the recent purchases if the stock moves over $3.

In response to emails, Chimera (CIM) is rebounding on the relief on the interest rate front.

I will likely pare back some of the recent purchases if the stock moves over $3.

• A closer look.

Initial jobless claims rose 16,000, to 360,000, which was 20,000 more than expected and the highest since early May.

This brings the four-week average up to 352,000 from 346,000.

Continuing Claims rose by 24,000, but extended benefits were lower by 23,000.

I would note that the data was compiled during the holiday weekend, and there is some seasonality with the end of the school year and also scheduled auto plant shutdowns.

• Run, don't walk, to read Jim Cramer's latest column.

I just loved reading Jim "El Capitan " Cramer's "Doesn't Jibe With the Happy Tale."

It is a tale well done.

• Again, growth slowing.

Break in: Jobless claims rise an unexpected 16,000.

Again, growth slowing.

As someone who bases his market outlook on fundamentals and not central planning, color me frustrated.

• And the market's reaction to it.

And now behind me, in the land of the frustrated bears, Southwest Securities Mark J. Grant:

And I guess the final thing I would say in terms of risks of course is that we have seen some tightening of financial conditions, and that if, as I've said and as I said in my press conference and other places that if financial conditions were to tighten to the extent that they jeopardize the achievement of our inflation and employment objectives then we would have to push back against that.

-- Ben Bernanke

The markets are flying. The Dollar is getting slammed. It seems rather like we are all talking to Alice's Caterpillar who is sitting in the tree and pointing in both directions. One may postulate that either we are lost or that Mr. Bernanke is not too sure where he is heading.  Since we are perpetually stuck in playing "Ring around the Rosy" with the Chairman of the Federal Reserve Bank it seems like "around" is in fact the direction we are going.

Stop. That is not spoken correctically. It goes: How doth the little crocodile improve his shining tail. And pour the waters of the Nile, on every golden scale. How cheerfully he seems to grin, how neatly spreads his claws. And welcomes little fishes in, with gently smiling jaws.

-- The Caterpillar, Alice in Wonderland

After reading and re-reading the Chairman's prepared text and then his question and answer session I am, frankly, confused. I feel rather as if he said, "Yes but no and take my word for it that is exactly what I mean." Statements like this make investing quite difficult. Statements like this make life quite difficult.

Tweedle Dum: If you think we're waxworks, you ought to pay, you know.

Tweedle Dee: Contrariwise, if you think we're alive you ought to speak to us.

Tweedle Dee, Tweedle Dum: That's logic!

After musing, pondering and a long session with a Churchill sized cigar, which is one of the means that I use to consider weighty matters, I finally reached a conclusion. The answer is: we are moving full speed ahead and the direction is "around." We are not moving forward. We are not moving backwards. We are tethered. Mr. Bernanke is swinging the rope and we are all going "around."

You see, he was going for the Holy Grail. The boys all took a flier at the Holy Grail now and then. It was a several years' cruise. They always put in the long absence snooping around, in the most conscientious way, though none of them had any idea where the Holy Grail really was, and I don't think any of them actually expected to find it, or would have known what to do with it if he had run across it.

-- Mark Twain

• Interesting data from BTIG/SentimenTrader.

Here is an interesting tidbit from my friends at BTIG: 

The only other times in five years that crude oil rallied more than 10% over a two-week period to a new 52-week high were 10/16/09, 1/4/10 and 2/23/11. Over the next three weeks, the S&P rallied a maximum of +1.6% on average, and declined a maximum of -4.6% on average as it entered a 2-3 week correction phase each time. Going back to 1983, the S&P was 3 times more likely to suffer a -5% decline over the next few weeks than enjoy a +5% rally after such surges in crude oil.

-- SentimenTrader

• Let's take a peek at overnight and early-morning price action in the major asset classes.

Asset prices broadly climbed higher based on the general interpretation of Bernanke's comments as being more dovish than anticipated.

In essence, Bernanke emphasized that tapering does not mean raising interest rates, which is what we all knew prior to the press conference. Implicit in his comments are apparently new concerns regarding economic growth, potential deflation and the labor participation rate.

• S&P futures +16;
• Nikkei +;
• European markets + (but off highs);
• euro +;
• crude -$0.60;
• gold +$33; and
• the 10-year note yields 2.56%.

Worth noting:

• I remain slightly net short.
• While I am moving toward the "big short," the market's momentum and, now, and the Fed's continued intervention/central planning (which prevents natural price discovery) holds me back.
• If you don't agree with my statement on central planning's impact on the capital markets, consider that Bernanke's previously hawkish press conference led to a 95-handle drop in the S&P 500. And the Fed fiesta coupled with yesterday's press conference has resulted in a 95-handle rally in the S&P 500.
• What I am short, though, even in modest amounts, hurts/sucks.
• That said, to me, the market's initial reaction to Bernanke's press conference comments seems overexaggerated (more on this in my next post).
• Half of the Fed governors see tapering by year-end. 
• Here are some key passages in FOMC minutes.
• After the last press conference, some Fed members didnt want to discuss much publicly. They are all over the place.
• The Fed will push back if conditions warrant. Nothing new here, either.
• The Fed wakes up to the real unemployment issues.

In the press:

• In the The Wall Street Journal, "Fed Affirms Easy-Money Tilt."
• A Charles Schwab op-ed piece in The Wall Street Journaldiscusses why retail investors are fleeing the stock market.
• The New York Times delves into diverging Fed views.
• CNBC covers Fed speak.
• CNBC also addresses how the housing recovery is slowing (talking my book).
• Zero Hedge argues that the Fed has lost credibility and control.
• The Telegraph reports that the wheels coming off of Southern Europe (again, talking my book).
• Business Insider advises us to ignore this week's jobless claims figures. 

Today's economic releases and other catalysts:

• BOJ meeting (decision out early Thursday morning). 
• ECB publishes its monthly report (out 4:00 a.m. EDT). 
• U.S.-China strategic and economic dialogue to be held July 10-July 11, 2013, in Washington, D.C.
• Fed's Tarullo testifies (11:00 a.m. EDT). 
• U.S. import prices and continuing claims (8:30 a.m. EDT). 
• Monthly U.S. budget statement (2:00 p.m. EDT).
• Retailers report their June sales
• Earnings after the close -- Infosys (INFY).
• SEMICON West in San Francisco (July 9-July 11).