• I have an interview with a prospective investment.

I have to cut out early for an interview with a prospective investment.

Thanks for reading my diary today and enjoy your evening.

• It's TBT.

With the 10-year U.S. note in a "danger zone," let's move our market tell from Bank of America (BAC) to ProShares UltraShort 20+ Year Treasury (TBT).

The higher TBT and yields go the more problematic for the U.S. stock market.

• It now stands at 2.62%.

The yield on the 10-year US note now stands at 2.62%.

As the yield rises (as I expect) toward 2.70%, I expect this to be the next negative market catalyst.

• Slowly.

I am adding slowly to my short book as the market reversed from earlier lows.

The iShares Russell 2000 Index Fund (IWM), PowerShares QQQ (QQQ) and several individual stocks are my targets.

• New highs in Altisource Portfolio Solutions and Altisource Asset Management.

Altisource Portfolio Solutions (ASPS) makes a new high (adjusted for spinoffs) after excellent earnings.

Altisource Asset Management (AAMC) also hits another new high.

• Run, don't walk, to read Jim "El Capitan" Cramer's The Game Looks Rigged.

Jimmy honestly outlines his view of SAC's game on an unfair playing field.

• The document is at the link.

Here is the Southern District's complaint against SAC Capital.

• High yields have brought out only middling demand for debt.

After a mixed picture for the two-year and five-year note auctions in the past two days, the seven-year auction was mixed as well. The yield of 2.026% was a hair below the when-issued of 2.03%, but the bid-to-cover of 2.54% was below the previous 12-month average of 2.66% and the lowest since May 2009. A positive was that direct and indirect bidders took 65.2% of the paper, above the previous 12-month average of 57.2% and the most since Dec 2010.

Bottom line: Near two-year highs in yields only brought out mediocre demand for Treasury debt this week. Whether because of uncertainty to what comes next from the Fed, stabilization (at low levels) in European economies, and/or the belief in a second-half rebound in U.S. economic activity after punk growth in the first half, there is a definite change in tone in the U.S. Treasury market.

• A refresher.

Below is a good sovereign debt market/yield refresh.

Sovereign Debt

Source: Bloomberg

View Chart »View in New Window »

• The market goes up with my tell.

Bank of America (BAC), my market tell, turns up, and the market does as well.

• Rumor has it that Ackman's next target shifts away to Air Products

FedEx (FDX) is down big after the rumor of Ackman's next target shifts away to Air Products (APD).

• They are lower-risk ways to play the retail slowdown and housing pause.

Home Depot (HD) and Lowe's (LOW) are lower-risk ways to paticipate in a slowdown in retail spending and a pause in the housing recvovery.

I am back short the names.

• I am not selling this name.

Nice rebound for Northwest Bancshares (NWBI) after the market seems to have misinterpreted some nonrecurring charges in the quarter.

I am not selling this name.

I am a buyer of Altisource Residential (RESI) but below $18 a share.

• The real estate maven discusses today's slide in the sector.

More from real estate maven Mark Hanson on today's homebuilder schmeissing:

Good Morning...(actually it looks like it will be "another" good morning),

This builder thrashing phase is a key leading indicator that everybody is missing;  just like August to November 2011 was a big deal that everybody missed.

It's amazing that few still have anything to say about the housing sector that isn't uber-bullish and 100% dismissive of anything but a 5-year up cycle when most of the leading indicating,top-named builder stocks are down 20%+ from their recent highs (and/or down on the year), the broader ITB is underperforming the S&P by 10% ytd, and the "Surge" has instantly removed 15% of "affordability" from this housing market.

And as builder stocks crumble, daily upgrades on BAC are issued;  home improvement and Realtor companies trade at 20 PE's;  and a half dozen reality shows on rehabbing and flipping houses are climbing the ratings charts.

To get a handle on what stage of 'this' Fed-induced housing cycle we are in today, I think we have to look at this market as if it's the back of of 2011 in reverse.

I don't care too much about "weak" quarterly earnings.  Builders don't necessarily trade on quarterly earnings.  Most housing perma-bulls don't care about a bad quarter in the context of the consensus "5-year bull housing cycle".  In addition, these stocks have been perfectly capable of opening down 5% of bad news and closing up 5% on dip buying.  But not over the past 10 weeks...they have looked terrible and underperformed the market notably.   And I maintain that due to their small size and sensitivity to minor changes in fundamentals they are fantastic leading indicators...they sure were in Q3/4 2011.

The present market, consensus, and sentiment backdrop is the EXACT REVERSE of when we got bullish the sector in Aug/Sept 2011 on the Fed Twist inspired crash in mortgage rates and nobody wanted to hear anything of the sort.  At the time, nobody had anything positive to say about housing or wanted to acknowledge a universal basing pattern on housing related stocks and what that could mean in the context of the Fed pushing rates down from 5.25% to 3.5%.

Looking back at the period from August to November 2011 and what followed, you could have missed the entire early builder trade and made a fortune being "late" (getting bullish builders in Q1 2012) just by recognizing what was going on.  Trust me, I know this painfully well.  I caught the August to December up move but panicked in December, up 40%.  'Others' jumped on the band wagon in Q1/Q2 and caught the second wave higher while I (unfortunately) spent my time on the granular in an effort to prove the move was mostly Fed induced and the macro housing market is so structurally deficient it would be impossible for "escape velocity" and a "durable recovery" to occur.

Of course, now -- that 2013 has been great to us with respect to housing sector performance, especially the past 3 months -- I am thankful we dug so deep.  I feel I know the micro on "this" housing market better than I have known any market.  As such, I am confident this is only the tip of the "triple-dip" iceberg.  And in the coming weeks and months it will become painfully clear that without the Fed being able to control rates and push them incrementally lower -- mortgage rates in the low 3's -- 10s in the mid 1%'s -- 'this' housing market doesn't have enough energy to get out of it's own way.

The builder stocks are now telling us the best is over and investors are skeptical of earnings power and the "Surge".  Even before the "Surge" this sector was way over valued with stocks 1 to 2 years ahead of the data and earnings. And I believe that starting now and continuing for several quarters the builder pain will transmit to ancillary names like BAC, HD, and RLGY for example that got so hot as builder stocks soared. This is when things will get really exciting.

As I detailed yesterday on the New Home Sales report, the internals were terrible. Not only were March, April and May sales revised notably lower turning past consensus beats and subsequent sector stock rallies into bogus events.  But also builder pricing power on the "Surge" has been negatively impacted more sharply over a 2-month period than at any time since the big crash was actually occurring in 2008/09.  And in yesterday's report from "June" 10s averaged 2.15% through mid-June meaning the "surge" wasn't even fully into the market. July, August, etc will show the real damage in building pricing power from the "Surge".  Moreover, Existing and New Sales volume will come under pressure indefinitely. And it won't be too long before we hit the inflection point when YoY sales go negative.

Last, but definitely not least, the Fed has not been able to stabilize Bonds. As bond yields moved lower in the past 2 weeks everybody become forgetful and complacent once again...very fast this time around.  But with 10s back to a major pivot at 2.6% a knee-jerk to 2.75% or even 3% could be here quicker than anybody understands.  If this happens, the entire housing sector -- including banks, improvement, and ancillary segments -- will have an enormous air pocket underneath it.

To sum all this up...everybody remains uber-bullish the housing and related sectors -- and continue to upgrade the most loved names -- despite leading indicating builder stocks telling us that something is very wrong, interest rates being back on the rise and close to a break-out, and high-frequency housing data being a month or two from rolling over in earnest.

To me, this is the exact reverse of August to October 2011 meaning despite a lot of damage already being done to "builders" we are still in the early stages of a multi-quarter housing sector reversal in which the builders are simply leading all the other high-flyer "housing related" names. 

• From Joe Saluzzi.

Here is an amazing tweet regarding on Facebook's (FB) trading today

• Here are some reasons.

Below are some of the reasons why I am getting shorter now:

• Market looks tired and appears to be rolling over.
• Arguably better economic news (which I view, by contrast, as mixed) has been discounted and so has a modest acceleration in third-quarter domestic economic growth.
• Over there, too much has been made of better eurozone economic data. As discussed yesterday, the data only suggests +0.2% real GDP growth in third quarter 2013.
• I am convinced that revenue and profits will be disappointing in the second half of the year.
• Tapering will likely start in September.
• Interest rates will continue to climb.
• The housing recovery will pause.
• Uncertainty regarding the next Fed chairman.
• In today's opener, I include other reasons.

• I continue to suggest selling the group.

Homebuilder stocks are getting schmeissed today, and I continue to suggest selling the group:

• Yesterday, I disagreed with Realogy's (RLGY) Richard Smith on home affordability. I believe he is using wrong and old metrics in assessing affordability.  First-time homebuyers, through a combination of more stringent credit standards, rising home prices (in part because of new-age institutional purchases of homes) and higher mortgage rates, are being priced out of the market.
• Interest rates are on the ascent. Even though rates are low by historic standards, it remains my view that the recent rate rise will have an outsized impact on housing demand.
• A pause in the housing recovery remains my baseline expectation.

• I am completely out of this position.

Housekeeping item: I am out of Chimera (CIM) now.

• At $103.90.

I am adding to my iShares Russell 2000 Index Fund (IWM) short at $103.90 now.

• Appreciably.

I added appreciably to my PowerShares QQQ (QQQ) short in premarket trading today.

• Again.

After this morning's economic data were released, Goldman Sachs lowered its second-quarter 2013 real GDP tracking to +0.6%.

• He wonders if the city is a template.

This Morning, Sir Mark J. Grant asks if "Detroit is a template":

When the bank depositors money was confiscated in the Cyprus bailout we all wondered, and rightfully so, if this was to be the template for bail-ins in the European Union. Cyprus marked a decided shift in policy for Europe. The days of using taxpayer money had come to an end and a new era had begun. The game had changed.

In considering the bankruptcy for Detroit I wonder if we have not reached a shift in policy in the United States and what it might mean for the Municipal bond market. A Federal Judge has now ruled that the filing is valid and that the Chapter 9 proceeding is legitimate and will be decided on in Federal court. So here is the first piece of the template; municipal bankruptcies will be a matter of Federal law and not state law.

The current plan, not accepted by anyone yet, means a 90% loss for Detroit municipal retirees, an 81% loss for unsecured creditors, and a 75% loss for secured creditors. No joy in Mudville for any camp here. There will be the normal bickering, shouting and hand waving as everyone fights over what little money is left.

What also is becoming clear, and long a speculation about Municipal bond bankruptcies, is that neither the County or the State or the Federal government has any intention of helping Detroit through this process. It is becoming quite clear that the city is being left on a stand-alone basis.

Sen. Lindsey Graham, R-S.C., has introduced an amendment to ban the Federal government from bailing out Detroit or any other municipalities. "There is no doubt Detroit has huge problems, but they are facing problems of their own making," Graham says in e-mailed statement. Graham's amendment to the Treasury Budget Bill would ban using Federal funds to buy or guarantee any asset from any municipal, local or county governments facing default. The measure also would prohibit the Federal government from issuing lines of credit or giving any financial help to avert bankruptcy. In other words no money or any sort of guarantee for "debtor in possession" financing.

This then raises several delicate questions about how Detroit, or any other municipality, is going to exit from bankruptcy if no bond seniority is available or can be granted. What I think can be said here is that the risk of owning Municipal bonds has just risen by a significant measure and that a new appreciation for the risks associated with Munis must be considered and accounted for in the spreads of Munis to other types of bonds.

If a city is going to be disassociated from a State and if a State is not going to be supported by the Federal government then the old suppositions that have long been a part of the Municipal bond market must be re-examined. The bond issues are just the normal fighting about money ones. The pension issues though may raise problems of a more difficult sort.

If the municipal works are going to lose a large part of their pensions then you may expect a significant hue and cry in both the State and Federal legislatures. It may be that eventually each State oversees the municipal pensions in their State in a manner which has not been found before. This would result in all kinds of new regulations and oversight that are not in place currently. Also if the Federal government would decide to guarantee in some form municipal pensions then large liabilities would be added to the Federal deficit.

However this plays out I think it is a reasonable assumption that the regulations for Municipalities and their pension obligations will not be what has been found in the past.

• Here is a recap.

Below is a recap of this morning's economic data from The Lindsey Group's Peter Boockvar:

Initial Jobless Claims totaled 343k, up 7k from last week and was 3k more than expected. The 4 week average though did fall to 345k from 347k. Continuing Claims saw a sharp decline of 119k but comes after a gain of 163k in the two weeks prior. Extended Benefits fell by 21k. Bottom line, the pace of firing's continue to hover near the lowest since early 2008 but the 343k for the week is just in line with the pace seen over the past three months. In terms of translating this level of firing's to hiring's, we've of course seen private sector job gains of around 200k over the past few months, a pace that should lead to a reduction in Fed asset purchases sooner rather than later according to their textbook.

Durable Goods orders in June jumped 4.2% m/o/m, well above the estimate of up 1.4% but it was all due to aircraft as orders ex transportation were unchanged vs the expectations of a rise of .5%. The core cap ex figure rose .7%, higher for a 4th month and .1pp above the estimate. Shipments though of non defense capital goods ex aircraft, which gets plugged into GDP, unexpectedly fell .9% and could impact Q2 GDP estimates downward.

Bottom line, outside of the jump in aircraft, orders didn't grow m/o/m as the gains in auto's/parts and for machinery was offset by drops in computers/electronics and electrical equipment. This said, on a y/o/y basis, core cap ex rose 6.1%, the best gain since Feb 2012 pointing to hopes that companies are looking to start spending again.

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

The rundown:

• S&P futures down 9 handles;
• Nikkei down 1.15%;
• European markets down -- a lot of earnings disappointments overnight, including ABB Limited (ABB), BASF, Software AG, etc., and U.K. GDP in line at +1.4%;
• euro down;
• crude down $0.80;
• gold down $7; and
• the 10-year U.S. note yields 2.60% (up 1 basis point).

Worth mentioning -- for perspective, in this section, I am trying to provide a perspective on yesterday's market behavior and factors that could influence today's price action; I am also explaining what and why I traded/invested during the previous trading day:

• I have been deliberately expanding my short exposure over the past several days. I further expanded my short book yesterday. My short exposure is at the highest level in two months.
• It remains my view that housing's recovery will pause, market expectations of a second-half acceleration in the U.S. and global economies might be wrong, QE has lost it's effectiveness and that the valuation improvement seen thus far in 2013 is likely over.
• Moreover, second-quarter top- and bottom-line results are less positive than being voiced in the business media.
• I am also of the view that the Fed has lost it's control over the markets and that interest rates will continue to  rise, posing a threat to growth and price/earnings multiples.
• Investor sentiment, too, seems universally and far too optimistic, pointing to a bull market in complacency.
• A backdrop of slow nominal GDP growth will prove to be a challenge to corporate sales, profits and margins. The multiyear improvement in productivity has come to an end. Year-over-year consensus on profits are for third quarter 2013 to be up 6% and fourth quarter 2013 to be up 10% --  too high.
• If you haven't read Raymond James' Jeff Sault's thread of market commentary over the past two weeks, I would try to get ahold of it. He chronicles the concept of an important top in his work. Also, check out Jim "El Capitan" Cramer's "Is This the Tipping Point?" post from yesterday afternoon.
• As I suggested in my recent appearance on CNBC.com's "Futures Now," a yearly high in the S&P 500 could be put in during July.
• Yesterday's market looked tired. An Egan Jones downgrade of Germany's sovereign debt was rumored. A potentially important reversal from early-morning futures strength to a weak close on Wednesday might prove to be a pivotal day. (Note: I called for a ludicrous forecast yesterday.) More evidence of  a potential market rollover can be seen in weak futures this morning. My market tell continues to be Bank of America (BAC).
• On Wednesday morning, I further reduced my Chimera (CIM) long, and at the close of the day, I explained why I plan to  eliminate the postion today -- namely, due to the mortgage-backed securites mess.
• It looks as though the Fed fiesta might be finished. Should we be on the lookout for a September tapering? I think so.
• The DOJ investigates Wall Street's warehousing of metals.
• Is China warming up to new stimulus? Shanghai was down a 0.5% overnight.
• It seems like there will be no great rotation, as bond investors turn to cash.
• We will have a FOMC decision on July 31 (I expect a Sept. 18 taper), Bank of England and ECB decisions on Aug. 1, July PMIs also on Aug. 1, and a jobs report on Aug. 2 (an important event potentially).

In the press (good stuff if you have some extra time to do reading!):

• The Wall Street Journal -- "The Inequality President"; "Facing Up to America's Pension Woes."
• National Journal -- Senate tax reform?  
• The Telegraph -- Can Abenomics save Japan? 
• The New York Times -- Immigration deal possible.

Economic and earnings catalysts today:

• Eurozone M3 for June (4:00 a.m. EDT, came in at 106.2, in line)
• Germany Ifo survey 
• U.S. jobless claims (8:30 a.m. EDT, intial expectations are for 340,000 and continuing expectations are for 3.025 million)
• Durable goods (8:30 a.m. EDT, +1.4% estimate, ex-transports +0.5% estimate, cap goods orders nondefense +0.6% estimate, shipments +1.1% estimate)
•  Earnings before the open: ABB, Actavis (ACT), Aixtron (AIXG), Alaska Air Group (ALK), Airgas (ARG), Ashland (ASH), Bunge (BG), Benchmark Electronics (BHE), Biogen Idec (BIIB), Bemis (BMS), Bristol-Myers Squibb (BMY), Boston Scientific (BSX), BT Group (BT), BorgWarner (BWA), Cameron International (CAM), Cap Gemini, Celgene (CELG), Colgate-Palmolive (CL), Credit Suisse (CS), Dana Holding (DAN), D. R. Horton (DHI), Dunkin' Brands (DNKN), Diamond Offshore Drilling (DO), Dow Chemical (DOW), France Telecom, General Motors (GM), Health Net (HNT), Harley-Davidson (HOG), Starwood Hotel & Resorts Worldwide (HOT), International Paper (IP), Janus Capital (JNS), Lazard (LAZ), Legg Mason (LM), Lorillard (LO), Landstar System (LSTR), Southwest Airlines (LUV), Luxottica (LUX), MoneyGram International (MGI), Mead Johnson Nutrition (MJN), 3M (MMM), Realty Income (O), Precision Castparts (PCP), Pulte Group (PHM), Reliance Steel & Aluminum (RS), Raytheon (RTN), Rayonier (RYN), SABMiller, Shire (SHPG), Silicon Laboratories (SLAB), Synovus Financial (SNV), Telefonica (TEF), USG Corporation (USG), Valley National Bancorp (VLY), Wesco International (WCC) and Xerox (XRX).
• Earnings after the close: Amazon (AMZN), Chubb (CB), Cliffs Natural Resources (CLF), Expedia (EXPE), Federated Investors (FII), Flextronics International (FLEX), Freescale Semiconductor (FSL), Gilead Sciences (GILD), Global Payments (GPN), Informatica (INFA), KLA-Tencor (KLAC), Lattice Semiconductor (LSCC), McKesson (MCK), Molina Healthcare (MOH), Maxim Integrated Products (MXIM), NetSuite (N), Newmont Mining (NEM), Principal Financial Group (PFG), Qlik Technologies (QLIK), Reinsurance Group of America (RGA), Republic Services (RSG), Samsung, Starbucks (SBUX), Standard Pacific (SPF) and Validus Holdings (VR).