• I continue to be wrong-footed and, as a consequence, have a dearth of long ideas.

Thanks for reading my Diary today. I am sorry I continue to be wrong-footed and, as a consequence, have a dearth of long ideas.

This, too, shall pass. Hopefully! Enjoy your evening.

• July vehicle sales came in at the seasonally adjusted annual rate (SAAR) of 15.670 million vs. estimates of 15.8 million.

• How much to buy?

My mavens on the floor of the exchange see about $900 million to buy on the close.

In terms of sectors, financials at $250 million and health care at $170 million lead the buy side.

Johnson & Johnson (JNJ) has $75 million to buy, ExxonMobil (XOM) has $50 million to buy and Chevron (CVX) has $30 million to buy. No sales.

• Another sacrifice to the short gods.

I covered my Lowe's (LOW) short as another sacrifice to the short gods.

• Bond yields and crude are up, while the homebuilders index is down.

High tick on bond yields and in the price of crude oil at the close -- while the low tick in the SPDR S&P Homebuilders ETF (XHB) is made.

• For now, it is not spooking equity trading.

The bond yield liftoff continues apace this afternoon with the 10-year U.S. note now yielding 2.72%.

The Fed is losing control of the bond market, which should be spooking stock investors.

For now, it is not spooking anyone.

• Slightly under the market.

I am still bidding for Northwest Bancshares (NWBI) and Altisource Residential (RESI), slighlty under the market.

• I have covered Yahoo!, Danaher and Home Depot.

Houskeeping item: I have covered my Yahoo! (YHOO), Danaher  (DHR) and Home Depot (HD) as a sacrifice to the market gods today.

• The 10-year yield watch continues.

Now at 2.70%, the line in the sand, and only four basis points from a two-year high.

• Fertilizer stocks could be stabilizing.

But I would give the group a few more days before I committed on the long side.

Watching closely, though.

• The best in long.

Question: What has been the best "sector" to have been long in 2013?

Answer: Heavily-shorted cult stocks. 

• Today's Ocwen price move has the potential be in line with what I originally paid for the shares several years ago.  

Here is an amazing statistic.

Ocwen's (OCN) shares are now +$3.50. If it rallies another $1.50 today -- the daily price move will be in line with what I originally paid for the stock several years ago.

• Answers to follow in the next few trading sessions.

Below are five questions I am asking myself today:

1. Given the economic data recently released for the eurozone, China and the U.S., should second-half growth expectations be increased?
2. In light of the better economic activity in July, what will the yield on the 10-year U.S. note be at year-end and for 2014? Will this yield impact equities?
3. Is the Fed behind the curve in not tapering yet? If it is, should this adversely impact stocks? (See earlier post on this subject.)
4. With European growth stabilizing, are EU stocks attractive (absolutely and relative to other areas of the world, including the U.S.)?
5. Should my market expectations be changed? What is the downside and upside to the S&P over the balance of this year and into 2014?

My answers will follow in the next few trading sessions.

• It's my first short that is such today.

Home Depot (HD) is my first short down on the day.

• Run, don't walk, to read the latest issue of Knowledge@Wharton.

Knowledge@Whartonchimes in on the tapering argument in this week's issue.

• Presently, my favorite long is Monitise, and my favorite short is McDonald's.

Favorite long: Monitise (MONI.L).

Favorite short: McDonald's (MCD).

• Today is the first day in a while that I have not added to my short book.

For those who are bearish, I would observe that today is the first day in a while that I have not added to my short book.

You are all officially forewarned!

Seriously, though, doing nothing.

• And the fact that it hasn't yet should have hurt valuations.

With strong labor and manufacturing reports, it is likely that core inflation has bottomed and that inflationary expectations will lift. As well, the rate of growth in unit labor costs will accelerate as productivity slows.

The Fed should have already tapered. And the fact that it hasn't yet should have hurt valuations, but so far it has not.

How long should the Fed be extremely accommodative with payrolls expanding at a 200,000 pace per month, with manufacturing activity increasing and inflation bottoming?

Interest rates and inflation will continue to rise, perhaps at an accelerating pace, a condition I thought would hurt market valuations.

So far this has not been the case.

• Another positive number to force the hand of the Fed.

The ISM manufacturing index for July was 55.4, well above expectations of 52, up from 50.9 in June and the best figure since June 2011. New orders jumped to 58.3 from 51.9, but backlogs fell 1.5 points to 45, the lowest since November. Production, following previous order rates, spiked to 65 from 53.4. Importantly and in contrast to what ADP said, the Employment component rose to 54.4 from 48.7, the best since June 2012. Export orders, after rising 3.5 points in June, fell 1 point. Inventories at the manufacturing level were lean, falling 3.5 points, to 47. Customer Inventories rose by 2.5 points but remained below 50. Prices paid moderated 3.5 points, to 49.0, the lowest in a year notwithstanding the energy price jump.

Of the 18 industries surveyed, 13 saw growth, four contraction with one seeing no change. The ISM summed up the report by saying, "Comments from the panel generally indicate stable demand and slowly improving business conditions."

Bottom line: Maybe that second-half recovery is going to happen, but coming after a 1.3% pace in the first half, it is an easy bar to beat. Interest rates are jumping again in response to the number, and the pressure will again intensify on the FOMC if today's ISM and claims data is followed by a good payroll report tomorrow. For the economy, the test will be whether it can handle higher rates, and the same needs to be said for stocks at these levels.

• Nearly 2.70%. 

The yield on the 10-year is now nearly 2.70%.

Watch this.

• The company's cousins should prosper in the time ahead.

Strong revenue beat at Ocwen (OCN), and profits, adjusted for nonrecurrring items, were higher as well.

The company's pipleine grew to $400 billion, which means that Ocwen's cousins -- namely, Altisource Portfolio Solutions (ASPS), Altisource Residential (RESI) and Altisource Asset Management (AAMC) -- should prosper in the time ahead.

• After witnessing the S&P hit 1700, I am watching and letting the market play out.

Mr. Market's mission to 1700 has now been accomplished!

I am watching and letting the market play out.

• It is the lowest print since early 2008, and should spur a September tapering.

The initial jobless claims number (326,000) was well below expectations of 345,000.

This is the lowest print since early 2008.

Some are saying that July is a funky month as seasonal adjustments are materially affected by auto plant shutdowns.

This likely translates into a 200,000-plus number for tomorrow's payroll report.

If accurate, the Fed should start moving towards a September tapering.

But as Peter Boockvar questions:

Their conundrum is whether the current higher pace of job growth will result in a 2nd half economic rebound or does the sluggish GDP growth eventually lead to a slowdown in job gains. Either way, printing $1T per year is just not sustainable and the 10 yr yield is back above 2.60% after dropping below it by yesterday's close.

• Most of the liquidation of fixed-income funds has found its way into money-market funds.

The "Great Rotation" remains elusive, as bond losses have resulted in a rotation into money-market funds.

In June, retail investors sold $6.7 billion in domestic equity funds. That is the third consecutive month of liquidation. Bond funds were hit by $60 billion of sales. (Note: Year-to-date, individuals have purchased $32.5 billion in bond funds.) Most of the liquidation of fixed-income funds has found its way into money-market funds.

Thus far in July, there has been a trickle back into domestic equities but nothing decisive.

• Ford misses sales forecasts.

• The central banks' target and deposit rates are unchanged. 

The outcome of the ECB meeting was in line with expectations, keeping target and deposit rates unchanged. Not surprisngly, Draghi's language in the press conference was dovish.

Despite the lack of surprises, the euro has dropped, and European stocks have climbed further to the day's highs.

As I mentioned, investors are responding repeatedly (and positively) to the same commentary by central bankers around the world. 

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

The rundown:

• S&P futures +11;
• Nikkei +2.40%;
• China Shanghai +1.75%;
• European markets ++;
• euro -;
• crude +$1.80 a barrel;
• gold +$11; and
• the 10-year U.S. note yields 2.61% (+2 basis points).

Still Bearish

I continue to scale into more shorts, and I remain bearish. Mr. Market continues to take more comfort in dovish monetary policy and is taking less discomfort than I thought in the challenging sales and profit landscape ahead. From my perch, Mr. Market remains extraordinarily forgiving relative to the true state of the real economy.

Why Are Futures Higher?

The proximate cause for the early futures strength was the report of Chinese economic data overnight. There were actually two manufacturing indices released -- one delivered by the government and the other by Markit/HSBC. The July (government) manufacturing index came in at 50.3 compared to expectations of 50.3 and with 50.1 in June. (Note: Over the past year, this index has averaged about 50.1 contrasted with a long-term average for the index of 53.0). My interpretation of the data is that activity in China has stabilized at a low level and manufacturing activity is still expanding but below trend-line growth. The important export component remained below 50, indicating a drop in export levels, but did climb from 47.7 to 49 in July. By contrast, the July HSBC/Markit manufacturing index was inline with the consensus forecast at 47.7, and June was 48.2. The HSBC index has consistently averaged about 2 points below the government index over the past several months. The message of this index is that there is continued modest weakness in manufacturing activity.

Chinese Economic Data Offered Two Messages

The government's July data indicates moderate manufacturing strength while the HSBC Index signals continued modest weakness in activity. In other words, the gap between what the government is saying and what private companies are saying is widening. The rate of growth of the manufacturing economy in China is decelerating. In all likelihood, a 7% GDP growth rate seems a reasonable estimate for 2013, but it is unreasonable to expect any acceleration, owing to the weakness in emerging markets and the eurozone -- both of which are large export markets of China. Moreover, for now, new leadership in China appears willing to sacrifice growth for lower property price inflation and financial/economic stability. It remains important for China to avoid a sharp drop in GDP as the world's markets are dependent on this region as an engine of growth. Consumption must be raised, capital spending must be reduced, property price inflation has to be contained, and the banking sector must be on firmer footing.

U.S. and Shanghai Markets Display Irrational Exuberance Regarding China's Data

The market's volatile reactions to insignificant changes in economic data points is nuts. One explanation, however, is that the Chinese stock market is oversold and has declined in seven of the last 10 weeks. Another reason could have to do with high-frequency traders and strategies that are algo-based that have a "fast finger on the trigger." Or maybe it is just plain foolishness.

Eurozone Economic Data

The final July eurozone manufacturing index came in at 50.3 vs. the preliminary number of 50.1 and 48.8 in June. This is the first print above 50 in almost two years and signals stabilization -- my guess would be about +0.2% real GDP for third quarter 2013 -- albeit from low levels. The components were encouraging, with both shipments and new orders higher. This release was impactful to the European markets (and aided the rise in S&P futures). In a CNBC interview with a Procter & Gamble (PG) executive this morning, the company's representative indicated that European sales are more or less flat, confirming the aforementioned economic data.

It Isn't 'If' but 'When'

The FOMC statement was a market nonevent though some called it more dovish. I continue to see a September tapering.(Note: There will be two labor department reports in the interim interval.)

Economic History Is Rewritten

I suppose you can fool most people all of the time, but the revisions were full of sound and fury, signifying nothing (and not market-impactful). And the state of the domestic economy remains debatable. The economic revision results in a -0.8 change (from +1.8% to +1.0%) in first-quarter 2013 real GDP and a +0.7 change (+1.7% from 1.0%) relative to expectations for second-quarter 2013 real GDP -- little change net-net. Business Insider reports that Goldman Sachs announced that it is likely that the Fed downgrades its economic projections in September. (Note: Tax-witholding data signals income weakness.) Goldman Sachs also chimes in on second-quarter 2013 sales and profit results:

So far, 346 S&P 500 companies have reported 2Q results (73% of total cap). 47% of companies reporting have beaten earnings estimates (in-line with the historical average) and 13% have missed estimates (vs. average of 15%). The average EPS surprise has been 5.9%, above the 4.7% historical average. 33% of companies reporting have beaten revenue estimates (below the historical average of 36%) and 18% have missed estimates (vs. average of 20%). The average revenue surprise has been 0.6%, below the 1.0% historical average. Excluding Financials, 44% of companies beat earnings estimates and 13% missed. 33% of companies beat sales estimates and 21% missed. Historical averages listed above are calculated on the last 40 quarters of earnings results.

Finally, as to the auto share price weakness on Wednesday, this article might explain the weakness in General Motors' (GM) shares.

Look at Nominal GDP to Gauge U.S. Economic Activity

From The King Report this morning:

Due to inflation accounting chicanery, investors and pundits should analyze Nominal GDP. The following Nominal GDP chart shows that sharp Nominal GDP growth occurs early in economic recovery. Then a two to three-year base is formed. When that base is violated, the economy is in big trouble.

Nominal GDP y/y ¿ Once the multi-year base is violated to the downside, the economy suffers. It is clear that the US economy is now in big trouble. Dubious inflation accounting is obfuscating the true economic condition, just like in 2007. How many people will ignore unsavory facts again?

In the press:

• The Telegraph -- The commodity supercycle status. 
• The Wall Street Journal -- "Data of Prosperity Past"; Arthur Brooks on how the President ignores the poor; Hilsenrath's "Tepid Growth Restrains Fed." 
• National Journal -- Boehner's positioning. 
• The Washington Post -- Is Don Kohn in the Fed head mix?; "The Case for Larry Summers." 
• Roll Call -- "Obama Slams Left for Attacking Larry Summers."

Economic and profit catalysts that could be market impactful:

• Eurozone manufacturing PMI for July (4:00 a.m. EDT, slightly better than preliminary data).
• BOE meeting (7:00 a.m. EDT, no change was made).
• ECB meeting (7:45 a.m. EDT press release, 8:30 a.m. EDT press conference).
• Spanish PM Rajoy to address Parliament on scandal on Aug. 1.
• U.S. jobless claims (8:30 a.m. EDT, 345,000 initial claims estimate, 3 million continuing claims estimate).
• U.S. Markit PMI for July (8:58 a.m. EDT, 53.2 estimate).
• U.S. manufacturing ISM and construction spending (both at 10 a.m. EDT, 53.8 estimate).
• Construction spending (+0.4% estimate).
• Auto sales for July (15.8 million estimate).
• Google (GOOG) launching new Moto X.
• Earnings before the open -- ACW, ADP, ANSS, ArcelorMittal, AVP, BZH, CAH, CHK, CI, CLX, CME, COP, COV, DTV, DYN, FLR, ITG, ITT, K, Lloyds Banking Group, MPC, MYL, MWW, NILE, NYT, PG, Sanofi, SocGen, Sony, TDC, TWC, WLT, WWE, XOM.
• Earnings after the close -- AIG, AIV, ARB, AVG, KRFT, LEAP, LNKD, MELI, ONNN, ONXX, OPEN, PRO, SBAC, SYNA, TLAB, TTMI, VCLK, WTW, WWWW.