• Calling an audible.

"One last thing."

-- Lt. Columbo

I am going to call an audible and sell my iShares 20+ Year Treasury Bond ETF (TLT) rental now on this small pop and reassess it over the weekend.

• The rally could be attributed to the expectations for his upcoming dovish interest rate column.

"One more thing."

-- Lt. Columbo

The market is rallying on the expectation of a dovish interest rate Hilsenrath column in The Wall Street Journal.

• I am outta here early like the New York Yankees' hopes!

Thanks for reading my diary this week, and I hope it was helpful.

I am outta here early like the New York Yankees' hopes!

Enjoy the weekend, and God bless you, Uncle Vinnie.

• Here is a good summary of this week's macroeconomic events.

The Lindsey Group's Peter Boockvar summarizes the week: 

Positives

1)Initial Jobless Claims fall to 320k, 15k less than expected and brings the 4 week average to 332k, the lowest since November '07.

2)Multi family housing starts in July rise 63k and permits up by 37k as this particular housing sector is seeing secular improvement.

3)NAHB home builder sentiment rises to 59 from 56, the best since November '05 as both present conditions and the outlook rise but prospective buyers traffic was unchanged. What will higher rates do in coming months?

4)NFIB Small Business Optimism index rises to 94.1 in July from 93.5 in June but little changed from 94.4 in May. Plans to Hire rise to most since Aug '12 but cap ex plans were unchanged and those expecting a better economy fell 2 pts.

5)PPI in July benign as headline figure flat and core rate up just .1%. Pipeline inflation modest but CRB index up almost 6% since end of June.

6)UK retail sales and jobless claims in July and home prices in June all better than expected.

7)EU GDP finally grows again in Q2 by .3% q/o/q after 6 straight quarters of contraction.

8)EU IP in June gains .3% y/o/y, the first y/o/y increase in almost 2 yrs.

9)German ZEW investor confidence in their economy rises to 5 month high at 42 vs 36.3 and estimate of 39.9. Current condition component rises to one yr high.

10)Japanese machinery orders in June fall just 2.7% m/o/m after gain of 10.5% in May and better than the expected drop of 7%.

11)In light of concerns with Chinese growth, Hong Kong's economy grows .8% q/o/q in Q2, above the estimate of .5%

Negatives

1)Global bond markets take over monetary policy with rate rises everywhere as the adjustment process continues but at quickened pace. In the context of extraordinary policy and seen after the end of QE1 and QE2, there will never be 'the right time' to pull back but it's a process that must occur for any hopes of economic normality.

2)July US CPI rises back to 2% y/o/y, the highest since February.

3)Single family home starts fall 13k to 591k, the lowest since November and permits fall by 12k.

4)UoM confidence in August drops 5.1 pts off 6 yr high to 80 and below the forecast of 85.2.

5)After falling 1.7% in 2012, US Productivity down another 1.7% in Q1 annualized and rebounds just .9% (also annualized) in Q2.

6)IP flat m/o/m in July vs expected gain of .3% as manufacturing production falls .1% led by auto's.

7)Both NY and Philly manufacturing indices in August moderate from July.

8)From GDP standpoint, Business Inventories continue to flat line in July but hopefully a healthy set up for future build when end demand more sustainably picks up.

9)MBA said refi apps fell another 4.4%, down for the 13th week in the past 14 to a fresh two yr low. Refi's are now down 59% over this 14 week stretch. Purchase apps drop 5.4% to a 6 month low.

10)US Retail Sales in July up just .1% ex gasoline as interest rate sensitive auto sales fall by 1% (still up solid 15% y/o/y) and building materials down by .4%. Sales ex the above rise a better .5%. More US retailers this week talk of challenging environment.

• Let's review.

My look back at the week's daily diary highlights borrows its title from a popular 1960s BBC comedy show hosted by David Frost.

On Monday, I began the week with "Mistaken Mavens" -- bulls have ignored many developing headwinds. Monitise (MONI.L) had a big win in Canada, laying the framework for a monster move higher in the stock during the week. I added to my iShares Russell 2000 Index Fund (IWM) short at $104.10 (and my other index shorts throughout the week), and I updated my "Levels" post, rating and giving buy levels on 86 different stocks. Finally, I mapped out my strategy to purchase more Potash (POT) under $30.

In Tuesday's "Early-Morning Market Look," I updated my market view. Small business confidence remains poor. Midmorning, I produced my most important column of the week, "The Top 10 Reasons Why the Market May Have Peaked for the Year." I added further to my index shorts. More evidence was seen that the U.S. housing market could stall in the months ahead. Finally, in "Why I Disagree With Jim Cramer on Apple," I made the negative case for Apple (AAPL) after Icahn disclosed his stake.

Wednesday brought another "Early-Morning Market Look" and discussion of strategy. Real estate maven Mark Hanson chimed in on the weakening housing market. In "Omega's Sliver of Apple Pie," I related why Omega's Apple buy doesn't amount to much. I traded Apple successfully from the short side during the week. Retail stocks began to break down, which has been a continuing theme of mine. I made a ludicrous forecast that the market would be down by 1% on the day in Columnist Conversation -- I was almost right (and very right linking the next days' performance!).

Thursday's "Early-Morning Market Look" gave a good market synopsis of my views. I stopped myself out of my life insurance stocks and began to accumulate a long rental in iShares 20+ Year Treasury Bond ETF (TLT). My jerk-of-the-week award went to my premature covering of Home Depot (HD). I covered my IBM (IBM) short for a gain and reviewed my long and short portfolio. In "Rotate This!" I tried to put to bed the notion that a great rotation out of bonds and into stocks was forthcoming. I initiated a Radian (RDN) investment long and added to my Altisource Residential (RESI) long. I was hearing that an industry call was being made on the potash market that was more constructive on pricing, with checks revealing firming demand out of Asia. Good for our Potash long, which continued to thrive even in Thursday's tough market. In "Beware the Momentum Cult," I warned about bulls who worship at the altar of price momentum. I began to sell my ProShares UltraShort Russell2000 (TWM) at a loss. (On Friday, I ditched the balance of the position.)

On Friday, I started out with "The Bear Case for Retail," and in addition to my existing Market Vectors Retail ETF (RTH) short, I put my money where my mouth/pen is by getting on the short side of VF Corporation (VFC), Polo Ralph Lauren (RL) and even -- gasp! -- Herbalife (HLF; via puts, mind you!). Mark Grant gave his two bits on stocks and bonds. Looking forward, if the market were a song, it would be The Moody Blues' "Ride My See-Saw."

And that was the week that was.

Phew! It was a long one.

• Be careful out there in stockland with the yield on the 10-year U.S. note at 2.825% now.

• I own the September $60 puts

I have added Herbalife (HLF) to my short retail basket.

That's right: Herbalife!

Herbalife is, after all, a retail stock -- a controversial retail stock!

But in keeping with my basic tenet of not shorting heavily shorted stocks, I own the September $60 puts.

• I live at $30 on the buy side.

Potash (POT) is weakening.

I live at $30 on the buy side.

• Small.

I have added a small Polo Ralph Lauren (RL) short to my retail short basket just now.

• They are RTH and VFC.

In retail, I am short Market Vectors Retail ETF (RTH) and VF Corporation (VFC).

I am looking for more names.

Stay tuned.

• Here is his take on the University of Michigan survey.

The Lindsey Group's Peter Boockvar on the consumer confidence release:

The preliminary August UoM consumer confidence figure fell 5.1 pts to 80 which was 5.2 pts below the consensus. This comes though off the highest level since July 2007. Current Conditions fell 7.6 pts and the Outlook was lower by 3.6 pts, both to 4 month lows. One year inflation expectations held steady at 3.1% and is about in line with the 10 year average of 3.2%.

Bottom line, while below expectations, confidence as measured here is still above 80 for the 4th straight month as the labor market has improved, especially seen just yesterday with an almost 6 year low in initial claims. In a bigger context, only 200kish monthly job gains and an elevated unemployment rate has confidence still below its 20 year average of 87.4 and well below its record high of 112 in January 2000. This all said, confidence data is anecdotal and coincident in nature and says nothing about what consumers will do in coming months.

• Here are more of his observations.

More observations on stocks and bonds from Southwest Securities' Mark J. Grant:

"I find your lack of faith disturbing."

-- Lord Vader

I am afraid this fellow would find my lack of faith quite disturbing. "Ye of little faith" would be an accurate description of me these days though, thankfully, the subject is not a Deity but Europe. Yet my certainty rests upon a bedrock that cannot be rationally disputed.

For hundreds of years people were told that the Earth was flat. If you held another position you were labeled a heretic. I don't mind if you wish to associate that label with my thinking. What I would mind greatly, however, is being wrong.

I know that if someone or something lies to me about one subject that they will have no compunction about lying to me about another subject. I also know that the debt claims made by Europe for each nation in their Union are not the truth. Many of you have read my previous commentaries where I cited the Bank for International Settlements and the European Union itself where they state, in no uncertain terms, what is counted and not counted in the compilation of a sovereign nation's debt. They do not count contingent liabilities, they do not count Federal guaranteed debt, they do not count derivatives and they tally up loans for bailed out institutions not as liabilities but as investments and move them to the left side of their balance sheets. What they do with their financial statements for the sovereign nations in Europe would get any CEO or CFO tossed into jail in the United States. Yet they put out their debt numbers as if they were factual which clearly, given their methodology they are not and then they hope and pray that everyone believes them and then acts as if they were accurate. This is my opinion.

Truth is a funny thing. You can trample it, you can toss it into the gutter, you can put on your rose colored glasses and pretend but it always seems to show up eventually and generally when it is inconvenient for those that spun the lie. That is my observation about life. That is also my observation about the markets.

Every man is free to believe what they like. No man, however, is free from the consequences of irrational thinking.

So then it is my viewpoint that Europe manufactures data to suit their own intentions and then I read that Europe is finally done with their recession. How convenient is it that this is just one month before the German elections. How convenient is that?

Then this fantasy is rolled out all day long in one headline after another and then nirvana is touted so that we begin to see headlines suggesting that money should rotate from U.S. investments to European ones. Great lies breed small lies and the sucker punch is thrown once again.

Duck!

I want to discuss one other subject this morning where inaccurate data is being flung around like so much chaff in the wind and that is the American Stock market. There has certainly been a large amount of money that has come out of the bond markets since the word taper was meant for something besides a candle. There has been no great rotation though into equities. This statement is not accurate. Most of the money has gone into cash or cash equivalents. Only around one percent (1.00%) of the money that has left bond funds has gone into equities.

Next there is the perception that a lot of pension funds and individuals have been damaged due to the rise in yields. This is certainly true to some extent but not to the extent widely thought and the actual data also belies a new and perhaps surprising bit of information.

Public Pension Funds---Percentage of Fixed Income Investments

1993               46.00%

2003               28.00%

2013               22.00%

Private Pension Funds---Percentage of Fixed Income Investments

1993               24.00%

2003               14.00%

2013               12.00%

American Household Financial Assets---Percentage of Fixed Income Investments

1993                9.00%

2003                7.80%

2013                9.20%

*Data sourced from Contraryinvestor.com "Oh Behave Mr. Bond?

What all of this signifies then is that the rise in yields, painful for some, has not been nearly as painful for all of these classes of investors as is the consensus opinion. Conversely, the pain felt in the surge in bond yields is multiplied significantly by a decline in stock prices.  The last few days the hit in equities has erased far more wealth that is generally thought. Given recent corporate earnings and guidance, especially in the Consumer segment, we may see an even greater sell-off in equities that is far more meaningful than the hike in bond yields.

So far this year we have seen gold down, commodities down, Emerging Markets down, bond prices down and so why the surprise that the equities markets will not follow the same path? There is no "gotcha" moment here just some reasoned deductive thinking. If there is any surprise here it is just how much a decline in the stock market hurts investors of every class. Bond pain squared or perhaps quadrupled.

Each of you is free to believe what you like. However do not expect me to accept your beliefs if they are not solidly based upon the facts. I am afraid that many facts are being distorted these days and that the truth is an often maligned ethic. However I can assure you that the truth will eventually surface and that the consequences will more than offset the charade.

• I plan to buy it back on any weakness.

I am selling my ProShares UltraShort Russell2000 (TWM) for a loss.

I plan to buy it back on any weakness.

• The stock is getting its groove on.

Radian (RDN) is getting its groove on this morning.

• I have begun averaging into a small short rental in VF Corporation.

As I mentioned in my retail post, I have begun averaging into a small short rental in VF Corporation (VFC).

• So says Mr. Market.

Ride, ride my see-saw

Take this place

On this trip

Just for me.

Ride, take a free ride

Take my place

Have my seat

It's for free.

-- The Moody Blues, "Ride My See-Saw"

If the market is a song, the backdrop music for the balance of the year would be The Moody Blues' "Ride My See-Saw."

Good for opportunistic traders, bad for the buy-and-hold crowd.

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

Fare you well, my honey, fare you well my only true one.

All the birds that were singing are flown, except you alone.

Going to leave this brokedown palace

On my hand and knees, I will roll, roll, roll.

Make myself a bed in the waterside

In my time, I will roll, roll roll.

-- Grateful Dead, "Brokedown Palace"

The rundown:

• S&P futures are up 4;
• Nasdaq futures are up 8;
• European markets are mixed;
• Nikkei is down 0.8% (about flat on the week);
• China Shanghai is down small;
• gold is up $4 (broke out to a two-month high yesterday);
• crude is flat; and
• the 10-year U.S. note yields 2.78% (no change after hitting the highest yield yesterday since July 2011).

Worth Mentioning

Stocks had their worse day in over two months on Thursday (as volume rose, a poor signal). The proximate causes?

• higher interest rates;
• worse-than-expected high-profile company earnings, including Cisco (CSCO), Macy's (M), Nordstrom (JWN), Wal-Mart (WMT);
• mixed economic signals (e.g., below-consensus Philly and Empire Fed readings, disappointing industrial production and better jobs data, albeit with poor-quality, lower-earning jobs); and
• the Fed losing control of the bond market.

It continues to be my view that tapering will occur this year (probably September) and that this is a policy mistake, as the foundation of domestic economic growth remains cracked. Meager top-line sales growth will pressure bottom-line profit growth, with profit margins nearly 70% above their historic trend line.

The glare of quantitative easing, which has expanded P/E multiples, has caused investors to lose focus of weakening profit momentum (ex-financials -1% in second quarter 2013 compared to +1.5% in first quarter 2013) -- that glow will likely wane with tapering. This is especially true when the factors that contributed to the profit margin rise, including low interest rates, light depreciation expense (capital spending has been depressed) and subdued labor costs, all begin to reverse (and offset modest sales improvement).

Despite Randy Newman's protestations, I remain net short. I am short the indices and long only one-off"special situations such as Monitise (MONI.L), which is trading higher at 48 pence in London Stock Exchange trading. (Is George Soros a short person?)

I am maintaining my market view that a 2013 top is in place. The reward/risk ratio is still negative as this year's expansion in P/E multiples is likely complete. That said, unlike the throng of more confident bullish investors who are committed to buying every dip,  I continue to recognize that the only thing I am certain of is the lack of certainty. Accordingly, I will stay liquid and opportunistic in the near term while maintaining a short bias.

In my diary, I write transparently why, what and when I am trading/investing. And while I don't make specific recommendations, I strongly am of the view that most investors should continue to maintain above-average cash reserves. This is not a time to buy-and-hold -- it will come again -- rather it is a time to trade opportunsitcially, for me. (Note: Actively trading or shorting is not for everyone.)

Yesterday, I took a profit in a ProShares UltraShort Russell2000 (TWM) long rental (which is still long core position), added to my Altisource Residential (RESI) long, initiated a long rental in iShares 20+ Year Treasury Bond ETF (TLT) and a long investment in Radian (RDN), traded Apple (AAPL) back and forth and shorted more indices.

In the press:

• Financial Times -- "Eurozone Recovers in spite of Itself."
• The Economist -- Egypt's bloodbath. 
• USA Today -- "Is Bullish Stock Market Story About to Change?"
• Project Syndicate -- "China's Reform Anxiety."

Possible impactful catalysts on the economic and earnings front:

• Nonfarm productivity (+0.6% estimate), unit labor costs (+1.2% estimate).
• U.S. housing starts (900,000 estimate), building permits (945,000 estimate) for July at (8:30 a.m. EDT).
• Michigan Confidence for August at (9:55 a.m. EDT, 85.1 estimate).
• court hearing in Icahn's lawsuit against Dell (DELL).

• Expect retail stocks to suffer in the second half.

In "Retail Faces Defining Week,"Jim "El Capitan" Cramer outlines his concerns about the retail sector.

I am in complete agreement.

On July 15, I initiated a short in the Market Vectors Retail ETF (RTH) -- I also shortedHome Depot (HD) and Lowe's (LOW) on July 25, both of which I foolishly covered on Aug. 1.

I feel confident in this negative sector view based on the following observations:

• Most importantly, the U.S. savings rate is at a more-than-five-year low. In other words, the 2012 and early-2013 strength in retail sales has borrowed from future retail sales.
• Over the past few months durable purchases (autos and homes) have been relatively robust while apparel has been weakening. The former purchases are typically financed while the latter are not. This suggests to me that personal tax rate hikes, stagnating real incomes, insecurity over the economy and the jobs market are beginning to take a toll on the average Joe, especially when he needs to pay cash and can't finance a purchase. I have been trying to short VF Corporation (VFC), as a high-priced proxy for the apparel sector all week and will continue today).
• The retail sector has outperformed the market over the past several months and is vulnerable.
• Higher interest rates have caused a collapse in refinancings, which has historically served to buoy household income and spending. This is occuring at a time when incomes are stagnating while the costs of the necessities of life are increasing (what I have described in Barron's as the screwflation of the middle class). With interest rates rising, I expect this contribution to household incomes to deteriorate further.
• The most important headwind to the consumer is rising gasoline prices, which will press the consumer's real income more.
• Listen to Citigroup's (C) second-quarter conference call in which the bank expects weakening North America consumer business.
• Finally, retail optimists continue to point to aggregate jobs growth. My response is that the job growth is occurring in low-paying and temporary jobs (i.e., this growth is of low-quality). Just look at the average hourly earnings in the last BLS report; they were down.

The recent weak retail sales and profit guidance from Macy's (M), Wal-Mart (WMT), Polo Ralph Lauren (RL) and Nordstrom (JWN) are clear signals that we should expect less-than-consensus personal consumption expenditures in the second half and that retail stocks will likely suffer. And the mix change -- that is, strength in durables (hard goods) and weakness in non durables (soft goods) -- augurs poorly for future retail sector profitability.