• Thanks for reading today.

Like my cards in last night's Texas Hold 'Em and Omaha game at my friend/buddy/pal Randy's house, today's market was sick.

I had a good night at the game (read: I won big), and I had a fine day today cuddling my with Mr. Market -- a market that is "on tilt."

Thanks for reading my Diary, and enjoy your evening.

• Another drag on the retail sector.

L Brands (LTD) guides lower, taking more steam out of retail.

• How much to sell?

My mavens on the floor see about $475 million to sell market on close.

In terms of sectors, consumer staples, consumer discretionary and information technology each have about $75 million to sell.

Caterpillar (CAT) has $30 million to buy, and JPMorgan Chase (JPM) and Devon Energy (DVN) each have $20 million to buy. ExxonMobil (XOM) has $32.5 million to sell, and IBM (IBM) has $25 million to sell.

• And back to neutral on the market.

I am out of ProShares UltraShort Russell2000 (TWM) between $16.05-$16.10 and back to a market-neutral position in my portfolio.

• Locomotion.

I am scaling out of my ProShares UltraShort Russell2000 (TWM) long at $16.05 and higher, but I will be out by day's end.

• Here is his clear analysis.

Below is a clear analysis of the FOMC Minutes by The Lindsey Group's Peter Boockvar:

To the direct issue of whether the Fed will change policy at the September meeting or not, there is nothing specific in the July FOMC minutes about September but there was also nothing that said otherwise and it's this that the market is focused on in response with the assumption that September it will be. Always being data dependent, "if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year. And if economic conditions continued to develop broadly as anticipated, the Committee would reduce the pace of purchases in measured steps and conclude the purchases program around the middle of 2014." I emphasize that there is nothing in this quote that is new.

Echoing what Lockhart and Bullard said in speeches over the past few weeks, "a few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases." Combining this with the 1st paragraph show that the minutes weren't definitive on September but only "a few" that wanted to patient points to several that didn't.

On the markets response to the taper possibility, some acknowledged that "financial market conditions had tightened significantly" however, "several others judged that the rise in rates was likely to exert relatively little restraint." This also hints at a September taper.

On the concept of the 'wealth effect' that the Greenspan/Bernanke regime have so relied on, "a few participants expressed concern that higher household wealth might not translate into greater consumer spending, cautioning that household income growth remained slow, that households might not treat the additions to wealth arising from recent equity price increases as lasting, or that households' scope to extract housing equity for the purpose of increasing their expenditures was less than in the past."

• We learned little from the minutes that weren't known previously.

Bottom line on the FOMC minutes: We learned little from the minutes that weren't known previously.

The volatile reaction by the fixed-income, U.S. dollar and equity markets were exaggerated to the downside.

Tapering/QE policy remains data-dependent.

And the backdrop for stocks remains volatile with a likely lower bias.

• Staying in motion.

I am back buying ProShares UltraShort Russell2000 (TWM) at $15.91 now.

I sold out all my trading longs bought into the 15-handle drop following the FOMC minutes.

Stay in motion -- in locomotion!

• And an investor's inferno.

Again for emphasis: The is a great trading market for opportunistic traders. (It's not a strategy for everyone, though.)

For investors, it's a not-so-great market backdrop.

I continue to view the top being in for the U.S. stock market this year.

Rallies will likely be limited in scope and duration.

I am out of all my index shorts, as mentioned previously.

• The next trade I like on the long side is TLT.

The market is now up on the day!

The next trade I like on the long side is iShares 20+ Year Treasury Bond ETF (TLT).

• That was fast.

Taking the small gain in the Citigroup (C) long rental now at $49.80.

• And I added to some longs.

As I commented on Columnist Conversation, I covered more index ETF shorts in the initial swoosh lower. Well, I just covered the balance of those shorts as follows: SPDR S&P 500 ETF Trust (SPY) at $164.25, PowerShares QQQ (QQQ) at $75.20, and iShares Russell 2000 Index Fund (IWM) at $101.25.

The S&P futures were nealry 15 points lower, and I suspect we could see a nice rally over the balance of the day as there was little new in the FOMC minutes. The Fed has now a more realistic view of a mixed domestic economy.

I added to Citigroup (C) at around $49.15, Radian (RDN) under $12.80 and increased my iShares 20+ Year Treasury Bond ETF (TLT).

• It's falling hard, and I'll keep buying.

Potash (POT) is stinking up the joint today -- but I continue to buy (gingerly) on a scale lower.

• I just took a nibble at $49.30.

I have been watching and waiting for an entry point on a long rental in Citigroup (C).

I just nibbled at $49.30.

• Here's a recap.

I have added to my Apple (AAPL) short at $505.70, paid 29.53 for more Potash (POT), purchased more Radian (RDN) at 12.91 and reinititated a iShares 20+ Year Treasury Bond ETF (TLT) long at $102.77 (I like this one in particular over the near term).

My ProShares UltraShort Russell2000 (TWM) long has been liquidated at $16.28, and I have covered (near the day's lows) some of my index shorts -- namely, SPDR S&P 500 ETF Trust (SPY), PowerShares QQQ (QQQ) and iShares Russell 2000 Index Fund (IWM).

Finally, I have added to my Herbalife (HLF) put position.

• And I will enjoy the rest of the summer with reduced short positions.

Today is Aug. 21, and those who are not on summer vacation will likely be shortly.

As a result, the next two weeks is going to occur with even less volume than we have recently seen.

Stock moves will become increasingly arbitrary and influenced by modest changes in psychology.

I don't want to expose myself to this -- moreover, I will be out early next week, as I will be taking my son Noah to orientation for his PhD program in psychology at the University of Pennsylvania, and I want to enjoy myself and not pay attention to what occurs between 9:30 a.m. EDT and 4:00 p.m. EDT.

As a result, I feel it is prudent to book half of my index shorts now into this morning's swoosh lower.

I am also closing out my ProShares UltraShort Russell2000 (TWM) long taken yesterday.

• The real estate maven follows up his earlier comments.

Here is a follow-up by real estate maven Mark Hanson on today's housing data:

We got our big beat in Existing Sales this morning, as forecasted. But it was a dirty beat...definitely weaker internals than I expected and the small MoM increase in NSA sales were mostly all from the "Northeast" region; a region not known to ever be a "blow-out". When normalizing for 10% more days MoM in which to close escrows, real sales were actually down MoM by 5.6%.  And in the leading indicating Western region sales were down 7.6% headline; much more when normalizing for 10% more days in the month.

This was the top in sales volume and prices for a long time.  In fact, next month the "August" Existing Home Sales should go negative YoY for the first time since June 2011, at least on a real NSA basis.

Considering "July" sales are from purchase and pricing decisions made in May and June -- when rates ranged from historic lows to 10s at 2.15% as a proxy -- the results were very disappointing.  And the May & June rush to buy on "rising' rates -- escrows that closed in July and were reported today -- marked a significant top in sales volume and prices akin to the sunset of the 2010 Homebuyer Tax Credit that ushered in the "double-dip".

Unfortunately, our favorite beaten down builder and nose-hemorrhaging ancillary stocks (on which to be bearish) are not popping as much as I had hoped on the data.  

On the weak internals...

Highlights...

1)  There were 10% more days in July in which to close escrows, yet the MoM sales only increased 3.8%, or 19k sales.  On a daily basis real July sales were down 5.6% MoM.

2)  The Northeast -- never known for anything spectacular in housing -- printed sales up 16k units MoM, or 84% of the entire MoM national sales gain.

3)  In the leading indicating West -- surely a proxy for the institutional buyer who has driven volume and prices for 4 quarters -- sales were DOWN 7.6% and at a 4 month low.

4)  Additionally, in the South -- another good proxy for institutional money -- sales were only up 1.5% MoM, despite 10% more days in July to close escrows.

5)  Average prices were down national MoM for the first time this year with the South down 2.3% and Midwest down 0.5% MoM.  In these flyover regions, in particular, this is an indication that with rates up houses are too expensive. Moreover, it may show that the days of the institutional money recklessly paying 10% to 20% over ask price/appraised value are over.

It is evident in these results that even though rates had not fully "surged" at the time "July" existing sales went into contract (May & early June rates were still great), sales volume and prices were already being effected.  And there is strong evidence that points to new-era institutional "investor" capital moving to the sidelines in May and June.

• It looks good at $12.88.

I am back picking at Radian (RDN) at $12.88 now.

• Just ringing the register.

I am taking off some of my ProShares UltraShort Russell2000 (TWM) at $16.30 now (purchased yesterday) for a $0.30 profit in order to ring the register.

• Here are some of my deep thoughts.

With the release of the Fed minutes only a few hours away, here are some of my deep thoughts.

It remains my view (and apparently of the San Francisco Fed) that quantitative easing is losing its effectiveness and that, over time, QE has done less than expected by the Fed.

In essence (and with the benefit of hindsight), QE lifted asset prices, but the sensitivity of economic growth to the rise in stock prices was weaker than it forecast, as the decline in the velocity of money has offset the growth in the money supply.

There are many reasons for this, including the private sector's deleveraging, a loss of business confidence and rather than lending out the liqudity that was provided by the Fed, the banking industry has increased its excess reserves.

After several years of quantitative easing and little growth to show for it, we are left with the question as to whether the U.S. is in a (light) liquidity trap that will lead to slowing and disappointing domestic economic growth and a challenge to corporate profits.

If we are (and I believe it to be the case), the outlook for equities is much more negative than many suggest. At the very least, this consideration/threat forms the basis for a lengthy period of market consolidation and underscores the likelihood that the U.S. stock market has topped for the year.

• So much for that Argus upgrade.

Herbalife (HLF) was up $2.20 a share in premarket trading on an Argus upgrade; it is now down on the day.

• The Equator acquisition could raise Altisource's sales to over $1 billion and its EPS to almost $10 in 2014.

The Equator (mortgage solutions provider) acquisition this week by Altisource Portfolio Solutions (ASPS) will be accretive and could raise Altisource's sales to over $1 billion and its EPS to almost $10 in 2014.

• Hindsight is 20/20.

With the benefit of hindsight, I made a mistake in covering the life insurance stock shorts -- Prudential (PRU), Lincoln National (LNC), MetLife (MET) -- as well as my Danaher (DHR), Yahoo! (YHOO) and Grand Canyon Education (LOPE).

So you know.

• I am a buyer but only under 40 pence.

Over there, Monitise (MONI.L) is down one-fifth of a pence, to 45.50 pence (down 3%).

I am a buyer but only under 40 pence.

• Existing-home sales in July measure closings of contracts signed in May and June.

Let's also remember that existing-home sales in July measure closings of contracts signed in May and June -- only at the beginning of the rate rise!

Even the National Association of Realtors wrote, "[T]he initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers."

• When interest rates initially rise, home activity improves, but after the initial climb, interest rates dull and stall out housing.

On the surface, the better-than-expected home sales suggest that interest rates haven't dulled the housing market.

This is wrong.

In every single cycle when interest rates initially rise, home activity improves (most often dramatically) as fence-sitters get off the fence.

After the initial climb in turnover, interest rates dull and stall out housing.

So it will be in this cycle and in the months ahead.

• I shorted more shares at $505.70.

I added to my Apple (AAPL) short at $505.70.

• I am buying TLT at $102.70.

With growth slowing, I am going back into a small long iShares 20+ Year Treasury Bond ETF (TLT) at $102.70 now.

• I bought a small tranche at $29.72.

I added small to Potash (POT) at $29.72, increasing my buy level point mentioned earlier today.

Screw HSBC! I think the firm is wrong.

• Mark Grant talks about bonds.

This morning Southwest Securities' Mark Grant talks bonds...and Mae West:

"When choosing between two evils I always like to take the one I've never tried before."

-- Mae West

There is an overlooked play in the bond markets that I have touched on before but I wish to explain further this morning. Any number of thoughtful people have asked me about this play in Agencies and a few have wondered how it can remain available and I will endeavor to provide some illumination.

The play is to outright buy or swap fixed coupon Agencies for callable ones where the yield is +/- 10% to the call. What keeps this play afloat are institutions that bemoan the shorter duration, those who rely totally on OAS calculations and nothing else or those people that are not familiar with Agency step-up securities where the step-up in coupon may well force the call.

When I was young, people called me a gambler.

As the scale of my operations increased I became known as a speculator.

Now I am called a banker.

"But I have been doing the same thing all the time."

-- Sir Ernest Cassel

So in this play you have the same credit so there is no additional credit risk. In my opinion the yields on most callable Agencies are now better than the non-callable ones. Your duration shortens but your potential upside (the receipt of possibly 10% or more on an Agency credit or more if called) trumps the bond duration in my view by not just the reward but by the duration of the call and, especially in the case of step-up securities, the increase in coupon may well force the bonds to be called.

You also have another thing going for you here which is the yield curve. According to the last several Federal Reserve minutes the Fed has sworn, testified and said it was absolute that they would not be raising short term rates any day soon. Longer rates, all along the curve though have risen dramatically in recent weeks. The probability of the Agencies issuing longer dated debt now has been vastly minimized. The 2-30 spread is now +352 bps while the 2-10 spread is now +248 bps. It is my opinion that new Agency debt, as well as all other debt, is going to be focused in the short end of the curve where issuance will pile up so that any kind of significant step-up can be offset by calling the longer bonds and issuing shorter debt.

You also have world events in your corner for this play. Problems in Europe, problems in Asia, problems in the equity markets may well send investors back to Treasuries and back to the debt markets as a safe haven bet. Retail may wander around but when an institution can get a 6.00% return in senior debt versus a 6.00% dividend the tide turns towards the higher part of the capital structure. The latest rise in yields will begin to turn the tide in my opinion.

Two guys were both watching the television when the news came on. It showed a guy on a bridge who was about to jump, obviously suicidal. "I'll bet you $10 he'll jump," said the first guy. "Bet you $10 he won't," said the second guy. Then, the guy on the television closed his eyes and threw himself off the bridge. The second guy hands the first guy the money. "I can't take your money," said the first guy. "I cheated you. The same story was on the five o'clock news." "No, no. Take it," said the second guy. "I saw the five o'clock news too. I just didn't think the guy was dumb enough to jump again!"

What is your worst downside here; the bonds don't get called. So you probably own a lower coupon but get a higher yield. If you buy a step-up Agency though your coupon will increase as time passes. You must scrutinize every available Agency and make some judgments but I think some effort is worth the trouble now if you can capture a few bonds that get called. I like plays where the risk is minimal and the reward is outsized and the recent rise in yields have allowed for this bet to be made and I believe the idea is well worth your consideration.

We put money down on the table for a living. It is just a matter of where you are going to place it.

Come to Papa!

• I would continue to avoid all housing-related stocks.

Real estate maven Mark Hanson chimes in negatively on the remodelling outlook:

- HD "Q2" positively influenced by "surge" in rates...Existing Home Sales consensus beat tomorrow will confirm this 

- During half the quarter rates ranged from historic lows to 10s at 2.15%.  During the back half of the quarter, panic-buyers and sellers boosted "prep", sales, and inventory levels.

- Serious comp problem in Q3/Q4

In their quarter ending August, counter intuitively, HD sales were "buoyed" by rising rates and the "PBRC" phenomenon.  That's "panic-buyer, rate-chasers" jumping off the fence -- acting all at the same time in May and June on the "surge" -- pulling forward a ton of demand.  This phenomenon will be evident tomorrow morning when the "July" existing sales are released and beat consensus estimates handily.

But remember -- perhaps more important to HD -- the PBRC phenomenon has FLIP-SIDE...the "PSRC" phenomenon.  These are the panic-"seller", rate-chasers;  those sitting on distressed, flip, and/or rental inventory who -- because of a catalyst -- decide it's a good time to sell...all at the same time.  Inventory is up sharply YoY, we know that.  In fact, in the past couple of months in the western region -- where I have great access to real-time MLS data -- I am tracking large jumps in investor levels going "out of" the busy season...something you rarely see.  This coincides perfectly with the "rise" -- then late June "surge" -- in rates.  As such, I believe the spike in inventory levels is due to the rate surge and a large cohort of "investors" sitting on "excess inventory" -- or inventory that will fetch a nice profit today that might not if rates continue to surge -- all acting at the same time.

Based on listed inventory and house sales levels in the Home Depot Q2 months of May, June, and July (note, in May rates were at historic lows and in the first half of June 10s only yielded 2.15% on avg), those buying and "prepping" houses for sale -- spending money of them -- was at a peak.  And a lot of this supply was pulled forward due to the "surge".  Add this to the "panic-buyer, rate-chaser" buyer group that pushed "July" existing home sales closings to a 2013 high (reported tomorrow), and it was improbable that HD would have a bad Q2.  Now, it's improbable that the Q2 performance can continue in Q3/Q4.

Bottom Line:  HD's Q2 top line sales should have been great...we will see confirmation of this when "July" existing sales are released tomorrow. In fact, "weak" HD earnings were one of my "wildcard" risks that could upset the apple cart before Friday's New Home Sales are released.  Expect the same from Lowe's tomorrow.

But because HD's Q2 sales were influenced in the way I describe above -- on the "surge" in rates -- and during half of the quarter rates were at record lows taking house sales to 2013 highs, then it presents a serious comp problem for Q3 and Q4. That's because housing market activity last year picked up sharply in Q3/Q4, as institutional investor deployed capital in earnest, and remained elevated through year-end.  This year -- in Q3 and Q4 -- sales and prices will be depressed due to the "surge", as PBRC's and PSRC's had such a small window -- 2 months as rates surged -- in which to act...HD's Q2.  Moreover, HD is highly levered to "distressed" sales and subsequent large scale rehabs for flip or rent..."distressed" in key regions is down 50% to 80% YoY and will not increase in Q3/Q4.

The HD quarter was great...as good as it gets at least for the top line.

• Ferts lowered at HSBC.

HSBC lowers the potash sector to Underweight -- Mosaic (MOS) and Potash (POT) price targets go to $33 and $22.50, respectively.

I will be an opportunistic buyer of Potash, probably in the range of $29.00-$29.50.

• Don't buy the view that stocks will climb as interest rates advance.

Throughout the past month, we have listened to numerous commentators and talking heads, who postulate that stocks can climb higher and that the domestic economy is insulated from higher interest rates, as long as interest rates don't advance too rapidly.

We are further informed that, over history, stocks often rise coincident to an increase in interest rates.

Well, rates are advancing rapidly -- yields have doubled in most maturities over the past few months, and the recent rise in terms of time is among the swiftest in history -- and the economic impact will be considerable in a system that has grown accustomed and is addicted to low interest rates.

This morning's mortgage data are supportive of my claim above and consistent with the view that the housing recovery is pausing/stalling. Higher mortgage rates (up 95 basis points in the last year and at a two-year high) and rising home prices are adversely impacting affordability, especially for the first-time/organic buyer. And the changing (more stringent) credit standards (no more low-/no-documented mortgages and the elimination of aggressively constructed mortgage vehicles) have further reduced affordabilty.

Mortgage applications last week dropped 4.6%, their lowest level since April 2011. Year over year, these applications are down 44%.

Refinacing applications last week dropped a large 7.7% and are now down 57% year over year. This is the lowest level in nearly three years, and they have declined for 10 straight weeks, owing to higher mortgage rates and stagnating incomes (which is being exacerbated by reduced refi cash flow into households and a five-year low in the savings rate).

New mortgage applications dropped by -1.2% and are up 4% year over year. Current applications are at the lowest since the beginning of 2010.

Bottom line: I don't buy the optimism presented in the view that stocks will climb as interest rates advance.

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

The rundown:

• S&P futures down 4;
• Nasdaq futures down 8;
• Nikkei up 0.2% (strength in tech/telecom while basic materials and energy lagged);
• China Shanghai flat (remember, flash PMI tonight);
• European markets down;
• euro down;
• crude flat;
• gold down $8; and
• the 10-year U.S. note yields 2.83% (unchanged day over day).

Worth mentioning:

• Yesterday's market was light in volume, disappointing in ability to bounce and, once again, displayed a weak close, for three weak daily closes in a row. Veteran technical analyst Stan Weinstein (The Professional Tape Reader) always emphasized the importance of the last half hour or hour of trading as a meaningful technical indicator. As for my trades, I reinitiated a sizeable ProShares UltraShort Russell2000 (TWM) long and added to Radian (RDN), which climbed by 3% on the day. I remain net short.
• I remain of the view that the market has topped for the year, and a 38% retrace from the November 2012 lows is my base case expectation, implying S&P 1550-1600. "Fear the taper," as the public and private sectors are addicted to interest rates -- it's different this time "Downtown" Josh Brown. As always, the only thing I am certain of is the lack of certainty. That said, most traders should consider maintaining above-average cash positions and below-average equity positions in a market that is likely to remain volatile. I remain short the major indices and long only a handful of special situations, as in a market correction/bear, the definition of special narrows!
• Trade opportunistically, and be independent in view. We have observed that, immediately prior to the recent correction, many strategists raised their market price targets under the pressure of the strength and momentum in stock prices. And some of the most passionate, glib and self-confident bulls have turned on a dime once prices shifted lower, which is a true measure of the degree that so many worship (lemming-like) at the altar of price momentum. Again, if gazing at a chart told us the truth, a 10-year-old could do this. Charts and price momentum show us what has happened in the past, not what will happen in the future. In the final analysis, "price is what you pay, value is what you get." And risk happens fast.
• We have all been around this before. Change the names of the stocks in every cycle. Iomega becomes XX, and AOL/Time Warner becomes YY. And in every cycle, just when traders decide it is futile to fight the short battle against companies whose profits are unsustainable or nonexistent andwhose share prices erupt to the sky with individual investors' portfolios overflowing with their holdings, the stocks come crashing down. Nothing changes. History rhymes.
• Attorney General Holder goes on the offensive -- just as Goldman Sachsscrews up and diminishes investor confidence
• The European sovereign debt crisis (chapter 20!). Once again, Southwest Securities' Mark Grant had this one right!
• Fed minutes today!
• Boockvar speaks on the collateral damage of rising interest rates and other stuff -- Emerging market currency weakness is continuing. The freefall in the Indian rupee carries on (down another 1.2% vs the US$) and sent the Sensex index lower by 1.9% to near a one yr low and is down by 7.5% over the past four trading days. Add the Malaysian ringgit to the list of weak currencies as it's falling to a three yr low vs the US$ after Q2 GDP rose 4.3% y/o/y, but below the estimate of 4.7% and the Malaysian government lowered its 2013 GDP forecast to growth of 4.5-5% from 5-6% due to 'external demand weakness.' The Indonesian rupiah is falling to the lowest level since April 2009 but the Jakarta stock market bounced 1% following an 11% plunge in the prior four days after the country's largest state owned pension fund said it's buying stocks and the Indonesian President said he'll unveil new economic policies on Friday to stem the weakness. Lastly, the South African Rand is dropping to the weakest level since March '09 after CPI in July rose 6.3% y/o/y, just above the estimate of 6.2% and the highest since January 2012.
  
  I continue to highlight this emerging market weakness to quantify the collateral damage of the rise in US interest rates and show which sovereign emperor's aren't wearing their clothes which prior to the spike in rates not many paid attention to.
  
  In the developed world there was a much better than expected UK manufacturing orders index which rose to zero from -12 vs the estimate of -8 and is at a two yr high. In the US, with the average 30 yr mortgage rate back to matching a two yr high at 4.68%, refi applications fell another 7.7% to the lowest since April 2011 but purchase apps rebounded by 1.2% after falling 5.4% last week. July Existing Home sales are out at 10am and the FOMC July minutes at 2pm.

In the press:

• The New York Times -- "Wanted: A Boring Leader for the Fed"; Thomas Friedman reports that Egypt is close to the edge.
• Financial Times -- "Why Has the Fed Given Up on America's Unemployed?" 
• The Washington Post -- the screwflation of the middle class will hurt retailers (ralking my book!). 
• The Wall Street Journal -- The issue of transparency discussed.

Some potentially impactful earnings, conference and economic catalysts:

• U.S. existing home sales for July (10:00 a.m. EDT, 5.15 million estimate)
• Fed releases minutes from the July 30-31 meeting (2:00 p.m. EDT)
• China flash PMI for August (Wednesday night)
• Yum! Brands (YUM) analyst meeting  
• EU ministers meeting to discuss Egypt
• Morgan Stanley Semi & Semi Cap Equipment Corp. Access Day (Aug. 21-Aug. 22, Boston)  
• Earnings before the open -- AEO, CTRN, Heineken, LOW, PETM, SJM, SPLS, TGT, TOL
• Earnings after the close -- HAIN, HPQ, LTD, SMTC, SNPS