• Thanks for reading my Diary.

I am cooked and outta here early like Sully's girlfriend on her trip to Los Angeles on Showtime's Ray Donovan. 

Thanks for reading my Diary and enjoy your evening.

• What I'm buying to take advantage of profound overvaluation.  

The sky was all purple

There were people runnin' everywhere

Tryin' to run from the destruction

You know I didn't even care

'Cause they say two thousand zero zero

Party over, oops out of time

So tonight I'm gonna party like it's 1999!

--Prince, "1999"

I just adored Jim "El Capitan" Cramer's column, "Zillow is Overvalued".

The fact is a number of leading Nasdaq stocks (you probably already know a number of them) are equally overpriced that I have been researching. The problem is, nearly every one of the overvalued stocks are heavily shorted, thus, they are ineligible based on my shorting strategy to short equities individually.

But that doesn't mean I can't buy puts!

Indeed, I have begun to put together a package of stocks and corresponding out-of-the-money puts (read: defined risk!) that I will be buying to take advantage of what I view as profound overvaluation. 

But for now they are partying like it is 1999!

Stay tuned.

• Closing TWM.

With the benefit of hindsight I suspect I forced the ProShares UltraShares Russell200 (TWM) purchase, so I am closing out my long at a small profit.

I got a little of my Trading Jones back ... dope on a rope.

• Last Sale in J.C. Penney (JCP) is $12.58.

Citigroup, which underwrote the J.C. Penney sale by Ackman's Pershing Square, is now underwater on its JCP purchase as the secondary was priced at $12.90 (But Citigroup paid $12.60 net of commissions for the near-40 million share block).

• There is a near unanimous view that interest rates will rise.

In Why I am Buying Bonds Now I outlined my out-of-consensus view on bonds.

And with all the poo-pooing, I would note that yields are starting to go back down today.

I am a buyer of TLT under $104.

•   ... yet

The Great Rotation (out of bonds and into stocks) is neither Great nor Rotating ... yet.

The Investment Company Institute's mutual fund data indicates a continued reduction out of bond funds, but only a limited amount of dollars is going into domestic equity funds. Most of the funds are moving into money market funds and international hybrid stock funds (that can invest in both stocks and bonds). 

During the first three weeks of this month $1 billion of domestic equity funds has outflowed vs. $6 billion leaving in July. Investors bought $7 billion of international equity funds compared to $10 billion of inflows in July. Bond funds have experienced $17 billion of liquidations in August (July saw $22 billion redeemed and June experienced $60 billion of redemptions). 

Year to date there has been a modes t$16 billion of inflows into domestic equity funds. International equity funds have received a hefty $85 billion in inflows so far in 2013. Year to date bond fund purchases are virtually zero (only $7 billion).

In the past I have outlined the reasons why a Great Rotation out of bonds and into stocks is not likely in this cycle and nothing I see in 2013 so far disputes my claim.

Indeed, given demographic issues (the need for yield by post baby boomers), I continue to expect a rotation back into bonds when interest rates rise (especially if rates rise swiftly). Moreover, the more meaningful the bond losses, the more risk averse the retail investor may come as it relates to equities. (Conversely, the more gradual the rate rise the better chance for stocks to attract inflows).

• From Sir Arthur Cashin.

Here are some midday musings from Sir Arthur Cashin:

Stocks float higher on belief we have hit the pause button on Syria (see gold, oil, etc.). Rebound seems to lack both conviction and volume.

At noon the run rate looked lower than yesterday. With Europe now closed, tape may slow further.  Range looks like 510/590.

• Here's my cost basis.

My ProShares UltraShort Russell2000 (TWM) long rental cost basis is about $15.94.

• I would like to make my Diary as valuable as possible.

To do that, I would appreciate it if subscribers consider sending me suggestions over the balance of the week in the comments section as to what you would like to see more of, less of or anything else on your mind.

For example, Kim and I have been discussing the Early Look column that I am now publishing first thing in the morning. Is it too long or are there additional subjects that you would like to incorporate in it? Would you prefer more original analysis rather than links to outside sources? Would you prefer to see it broken up into two or three posts?

Would you prefer the earnings and economy outlook in Columnist Conversation if it is posted earlier?

Another question might be regarding trading rentals. Would you like to see more or less of these? Do you want more of a day's-end synopsis of the trading rentals?

In terms of investment ideas would you like to see more lengthy analysis of individual stocks? Would you like me to establish a rating system that would prioritize my investments?

I hope you see where I am going!

You can also send suggestions to kamal.khan@thestreet.com

And thank you.

• Back in.

Starting back buying ProShares UltraShort Russell2000 (TWM) starting at $16 and on a scale lower.

• Cue Teddy KGB joke.

I sold my SPDR S&P (SPY) rental at $164.33 just now.

• What the GDP figure really means. 

The good news was that the second-quarter 2013 real gross domestic product figure was revised higher.

The bad news is that the revision will not likely be beneficial to the stock market. Indeed, it could have a negative influence. 

Here is why.

Reflecting the narrowing trade deficit (which was reported after the preliminary second-quarter GDP was released), the second-quarter 2013 revised real GDP was in line with expectations.

The core consumption deflator was +1.2% year over year (steadily dropping from +2% at the beginning of the year). The Fed's inflation target is 2%, so the below-target rate suggests that a September tapering ("lite") will occur, but it might be towards the lower end of reducing purchases by only $10 billion per month. And it might only involve the buying of Treasuries, not mortgage-backed securities.

Also in the report, GDP-based profits were +4% -- in line with the rise in S&P 500 profits -- but taking out financials, the gain was negligible and poor in quality. Most important, second-quarter inventory accumulation was higher than expected.

Moreover, to make the start of tapering even "lighter," I expect it will initially be centered on Treasury securities, not MBS.

Second, GDP based profits were up 4% to 5% in Q2, in line with S&P 500 profits. Like S&P 500 profits, the gain was centered in financials, and quality of earnings is poor.

Third, there was more inventory-building in Q2 than originally reported, suggesting less of a boost to third-quarter GDP from inventory accumulation; this will take away from third-quarter GDP growth.

Today's report suggests little acceleration in second-half domestic economic growth, a continuing concern of mine. It also does not bode well for corporate profits.

I expect consensus second-half economic growth expectations to be lowered coming weeks.

• I established a new position.

I took a long SPDR S&P 500 (SPY) rental at $163.44 in premarket trading today.

Southwest Securities Mark J. Grant calls on Buffalo Springfield's "For What It's Worth" (often referred to as "Something's Happening Here," a song I have long chronicled in my Diary).

Here is my favorite rendition.  

"The Fixed Income markets, which almost always lead the Equities markets in setting the trend, are experiencing difficulties. Yesterday's five year Treasury auction was not far off a serious problem. It was the lowest demand for this auction since July 2009 with a bid-to-cover ratio of 2.38, according to the Treasury, and this is after the spike in yields which we have experienced recently. Volume is also dropping significantly as ICAP PLC, the largest inter-dealer broker of Treasuries, reports a decrease in trading to $292 billion yesterday which is benchmarked against the high volume for the year on May 22 at $662 billion. Indirect bidders, foreign central banks for the most part, only purchased 40.3% of the auction which is down from 44.2% for the last ten sales according to data supplied by Bloomberg which is an almost 9% drop in demand.

Then we had a troubling moment in the 10 year Russian Sovereign auction yesterday. According to Der Spiegel only one bidder showed up and this was when the offering was 7.70-7.75%. Now Russia has a debt to GDP ratio of 11%, according to the Russian government, versus 82% for Germany whose 10 year is about 1.85%. I wonder if the telltale sign here is just about Russia or is part of it about risk in general. There certainly seems to be a risk-off indication here. God forbid America held an auction and no one showed up. It makes me cringe to even think about something like that!

Then in the corporate debt markets there are certain signs of trouble brewing. According to data supplied by J.P. Morgan recently corporate debt is now 2.09 times EBITDA which is barely off the 2.13 number in the third quarter of 2009. For non-financial companies JPM reports an increase of debt through the end of second quarter of 9.1% to $2.9 trillion as EBITDA dropped -2.3%. The days of wine and roses not only for low cost debt but for earnings valuations both for debt and equities may be coming to an end. The financial engineering that has driven a lot of valuation models is not looking so healthy these days in my view. Bonds will readjust first and then equities are likely to follow which is one of the reasons why I think a correction is still ahead of us in the stock markets.

Next, if you look at the S&P 500 average daily volume, you will note that it is the lowest for any month during the last sixteen years. This is a significant observation in my view because it is another indication of risk-off that seems to be surging through the market places. Equity volumes peaked in 2007 and we are now trading at about 26.2% of those levels. This is all while, according to NYSE data, margin debt is only -0.59% off all-time highs and with the rapid growth of leveraged ETF's, in my view,  we are probably at real all-times highs now in leverage. Consequently if a sell-off does occur then the downward pressure may be magnified past what we have ever seen before in equities as margin calls hit both people and these levered funds.

There's something happening here

What it is ain't exactly clear...

I think it's time we stop, children, what's that sound

Everybody look what's going down"

• I'm in 100% agreement.

In his opening missive, "An Impending Flood of Profits," Jim "El Capitan" Cramer writes (after interviewing Realogy's (RLGY) Richard Smith last night on "Mad Money") that the biggest bang for your buck in housing may be Radian (RDN), not Realogy.

I am 100% in agreement with Jim's conclusion on RDN.

Here is a link to Jim's interview with Realogy's Richard Smith last night.  

In "There's Realogy -- Then There is Reality" I cautioned that Realogy's Smith had overstated the improvement in affordability facing home buyers today. And then in "Pause in Housing" I suggested that housing's recovery was about to pause/stall.

Yesterday I posted a brief column on Radian, which currently holds my favorite stock designation.  Fading competition, growing market share, a rolloff of unprofitable legacy mortgage insurance and an increase in profitable new business (at wicked high incremental margins) are the ingredients for an outstanding profit story for Radian in the years ahead.

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

S&P futures +4, Nazzie futures +12, European Markets mixed (highlighted by VOD confirming it was in talks to sell its stake in VZW back to VZ), Nikkei +0.90%, China Shang Hai -0.20%, euro -, crude -$0.80, gold -$9 and the 10-year yields 2.79% (+1 basis point day over day).

Worth mentioning:

• Wednesday' Market Dull amid Light Volume ¿ It was a disappointing (small) gain within the context of recent large losses. Importantly, as has been the case in many trading days in the later part of the month, stocks closed near their lows. The trading volume in August is the lowest in 16 years. And the volume/liquidity over the next two days might be nearly non-existent as attendance thins even further. With a  three-day weekend ahead and a major geopolitical catalyst looming there is little incentive to raise risk exposure.
• My Market Moves Yesterday -- I traded opportunistically on Wednesday, recording a small gain on TWM short (!) and a day trade (on the long side in SPY). But, my gross exposure is now at the smallest level all year.  I am still basically in market neutral mode. 
• Stock Market View -- As described in "Top Ten Reasons Why the Market has Topped For 2013" I suggested the correction could reach to 1550-1600 (S&P level) and I will stick to this projection.
• Bond Market View -- Bond yields rose yesterday, following several days of lower yields. I would be a buyer of TLT under $104.
• Don't "Force" Trades -- A "Market Trading Jones" is a recipe for poor returns (though it bolsters your brokers' pocketbook!) I don't expect to do much through the balance of the week. Nor do I expect much price movement in the indices.
• September Tapering Looks More Likely to CNBC's Steve Liesman 
• Yellen Down Plays Her Chances ¿ It is looking more and more like Summers.
• Syria Dominates/Overwhelms the News ¿ I described my take in the column "Syria, Oil and the World Markets" A brief, focused military attack still looks likely, but it might come several days later than most had expected.The UK Prime Minister answered domestic criticism of involvement in Syria and promised to hold a parliamentary vote on the matter next week.
• Boehner and Others Try to Push Back the Administration's Syria Decision
• Important News Out of China in Days Ahead -- The formal NBS PMI hits Sat night Aug. 31 and investors are modeling an improvement to 50.6 (vs. 50.3 in July).  The HSBC reading (due Sun night Sept. 1) is projected  to rise meaningfully (from 47.7 in Jul to 50.2 in Aug).  China's other big August economic data will be reported during the week of Sept. 9.
• Bank of England to Stimulate
• And Over There -- MONI.L makes another high, rising by five percent to over 49 pence after yesterday's nice research initiation.
• And Further West -- Questions are rising regarding the effectiveness of Abenomics as Japan's July Retail Sales declined 0.3% y/y; +0.1% was expected. Large-scale retailer sales (store-to-store) declined 1.6%; -0.5% was expected.

In the press:

• National Journal and Wall Street Journal: Affordable care looking unaffordable.
• Washington Post: The emerging market bubble bursts.
• WSJ: Bombing Syria could break a political stalemate.

Here are today's potential economic and earnings catalysts that could impact trading:

• Eurozone M3 money supply for Jul (4amET)
• U.S. GDP revision for Q2 8:30amET (+2.2% E, Personal Consumption +1.7%E, GDP Price Index +0.7% E and Core PCE +0.8%E)
• U.S. jobs claims (332k E) Continuing claims 2(.988 million E)
• Fed's Bullard, Lacker speak 
• EU's Rehn gives keynote on "New Growth in Europe"
• ECB's Nowotny and Mersch speak
• VMW's VM World runs Aug 26-29 in San Francisco. 
• B. Riley Silicon Valley Tech Tour.  Aug 26-29.  Silicon Valley. 
• LSTR mid-Q update
• Earnings before the open: Carrefour, CIBC, COCO, CPB, MIK, PLL, Toronto Dominion, WPPGY
• Earnings after the close: BEBE, CRM, OVTI, PSUN, SPLK

LONG TLT

• In trading over there.

Monetise (MONI.L) trades as high as 49.50 pence (+5%) to new highs.