• I pocketed a small gain.

I covered my Cisco (CSCO) short rental at $24.45 (per share) for a small gain just now.

• The stock is ramping on "better" sales earnings.

"One more thing." -- Lt. Columbo

I took a short rental in Cisco (CSCO) on the ramp off the "better" sales earnings ($25.45). The disturbingly low margins catalyzed me on this trade -- perhaps the company "bought" some business -- and a larger-than-expected buyback.

• Enjoy your evening.

Thanks for reading my diary today.

Enjoy your evening.

And God bless Uncle Vinnie.

• Run, don't walk, to read John Hussman's work.

Here is an excerpt from John Hussman's work (hat tip John Mauldin):

Raghuram Rajan, the governor of the Reserve Bank of India and among the few economists who foresaw the last financial crisis, warned last week that "some of our macroeconomists are not recognizing the overall build-up of risks. We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost. Investors say 'we will stay with the trade because central banks are willing to provide easy money and I can see that easy money continuing into the foreseeable future.' It's the same old story. They add 'I will get out before everyone else gets out.' They put the trades on even though they know what will happen as everyone attempts to exit positions at the same time."

As a market cycle completes and a bull market gives way to a bear market, you'll notice an increasing tendency for negative day-to-day news stories to be associated with market "reactions" that seem completely out of proportion. The key to understanding these reactions, as I observed at the 2007 peak, is to recognize that abrupt market weakness is generally the result of low risk premiums being pressed higher. Low and expanding risk premiums are at the root of nearly every abrupt market loss. Day-to-day news stories are merely opportunities for depressed risk premiums to shift up toward more normal levels, but the normalization itself is inevitable, and the spike in risk premiums (decline in prices) need not be proportional or "justifiable" by the news at all. Remember this, because when investors see the market plunging on news items that seem l ike "nothing," they're often tempted to buy into what clearly seems to be an overreaction. We saw this throughout the 2000-2002 plunge as well as the 2007-2009 plunge.

• At $47.10.

I am adding to my ProShares UltraShort QQQ (QID) long at $47.10.

• I am adding.

An observation: First uptick in Ocwen's (OCN) shares since my Bar Mitzvah.

Adding.

• Run, don't walk, to read Knowledge@Wharton's "Can the U.S. Afford Another War with Iraq?".

From Knowledge@Wharton: "Can the U.S. Afford Another War with Iraq?".

• A potentially toxic retail profit outcome lies ahead in the second half.

The drop in gross margins of 30-plus basis points reported by Macy's (M) today is a real eye opener.

When we combine an extremely promotional retail environment (as the Internet rapidly gains market share) with the screwflation of the middle class (rising costs of the necessities of life as wage growth is nonexistent) and a slowdown in the U.S. housing markets (traffic and prices), a potentially toxic retail profit outcome lies ahead in the second half.

I am short Market Vectors Retail ETF (RTH) and SPDR S&P Retail ETF (XRT) and net short retail, with the only long exposure in cheapie Bon-Ton Stores (BONT).

• Former support becomes resistance.

The former support level on the 10-year U.S. note yield of 2.44% was tested three times, but it is now serving as minor resistance with the yield at 2.41%.

• Closed-end municipal bond funds remain my favorite asset class.

As I mentioned in Monday's opening missive, my favorite asset class/sector remains closed-end municipal bond funds.

Still relatively large discounts to net asset value combined with a yield reach around the world should continue to buoy the group.

The funds are all nicely higher again today.

• At $25.25.

As I wrote yesterday, Ocwen (OCN) is within a few days (at most) of being allowed to reenter the market and to repurchase stock.

In anticipation that this will stabilize the shares, I am starting to add to m y position at $25.25.

• Today's 10-year auction was just so-so.

Similar to yesterday's weak three-year note auction, today's 10-year auction was just so-so.

While the yield-to-cover was above the 12-month average the yield tailed a touch.

The yield curve continues to flatten -- from year-end 2013 to today the two-year/10-year spread has dropped by nearly 70 basis points, to 200 basis points -- just like it did after QE1 and QE2 were concluded. Factors contributing to the flattening include the U.S.' relatively high yield compared to European sovereign debt, intensifying geopolitical worries and a weakening U.S. consumer, among other factors.

• Here are six reasons.

In the comments section a subscriber asked me why I have sold my Bank of America (BAC) long rental:

1. Bank of America was a rental not an investment.
2. I don't like the market.
3. I don't like the banking sector.
4. Bank of America's shares have responded poorly relative to the government's decision to allow the company to raise it's dividend.
5. The important (for Bank of America) mortgage business is slowing in the face of continued hesitancy of the U.S. residential housing market.
6. Yields continue to be under pressure, threatening Banc of America's net interest margins.

• Here are his musings at midday.

Midday musings from Sir Arthur Cashin:

Looks like a boy who cried wolf rally as virtually all markets around the globe show green.

They are pushing hard against presumed rigid resistance at S&P 1945/1950 (backup moving average resistance around 1953).

Geo-political monitors show mixed bag with convoy still enroute ¿ gold flat, oil soft. Ten year yield may be reacting a bit.

Busier than yesterday but not by a whole lot.  At 12:15, run rate projects to an NYSE final volume of 570-650 million shares.

• This was just a trade.

I have sold my Bank of America (BAC) trading long rental.

• There is not much liquidity in RTH.

I couldn't get much Market Vectors Retail ETF (RTH) because of lack of liquidity so I established an SPDR S&P Retail ETF (XRT) short as well.

• I think that today's rally will reverse.

I am playing today's rally as if it is a fake out and will reverse.

Adding to shorts on this strength.

• At $96.06.

I added to my PowerShares QQQ (QQQ) short at $96.06.

• I've come to go long you again.

I am back long ProShares UltraShort QQQ (QID) at $57.56.

• Here is the firm's take on retail sales.

Goldman Sachs on the retail sales report:

BOTTOM LINE: The July retail sales report was softer than expected. We reduced our Q3 GDP tracking estimate by two-tenths to +3.1%.

US-MAP:

Retail sales ex-autos -4 (4, -1)

KEY NUMBERS:

Retail sales Flat (mom) for July vs GS +0.2%, median forecast +0.2%

Retail sales ex-autos +0.1% (mom) for July vs GS +0.4%, median forecast +0.4%

Retail sales "core"/control +0.1% (mom) for July vs GS +0.5% median forecast +0.4%

MAIN POINTS:

1. July headline retail sales were flat (vs. consensus +0.2%). Core retail sales¿used by the Commerce Department to calculate consumer spending in the GDP report¿rose 0.1% (vs. consensus +0.4%). By category of spending, the report showed relatively broad-based softness, with the weakest sales growth in general merchandise (including department stores), down 0.5%. Core retail sales growth was also revised down by one-tenth in each of May (to +0.1%) and June (to +0.5%). Outside of core sales, auto sales edged down 0.2%, foreshadowed by the decline in unit sales already reported by dealers, while building material (+0.2%) and gasoline station (+0.1%) sales grew modestly.

2. We reduced our Q3 GDP tracking estimate by two-tenths to +3.1%. Our past-quarter Q2 tracking remained unchanged at +3.9%.

• At $59.77.

As mentioned earlier, I have shorted Market Vectors Retail ETF (RTH) at $59.77, and I am now net short the consumer via retail ETF.

• Namely, retial sales.

Peter Boockvar parses the retail data:

Retail sales in July were soft, rising just .1% ex auto's and gasoline and at the same rate at the core level which also takes out food service and building materials. This compares with the expected rise of .4% m/o/m for both. Sales ex gasoline were flat. Auto/parts sales fell .2% m/o/m but is still up a solid 6.5% y/o/y (as seen in the monthly vehicle sales data this year, helped by subprime borrowers). Sales fell at department stores (down 3 straight months and follows Macy's earnings today), for online retailing (a modest .1% m/o/m but still up 6.6% y/o/y), furniture and electronics (down 4 straight months but should lift when Iphone 6 comes out in the fall). Sales of building materials, food/beverages, health/personal care, clothing, sporting goods and restaurant/bars were higher. Bottom line, the core rate of spend was up a nominal 3.1% and thus around 1.5% real which will result in a downward revision to Q3 GDP forecasts by a few tenths all else equal. Consumer spending still seems lumpy and uneven, certainly at different spectrums of income. Terry Lundgren, CEO of Macy's said this in today's press release, "many customers still are not feeling comfortable about spending more in an uncertain economic environment." Hopefully helping going forward though will be the improving labor picture (however slowly) and increased wages for those that have pricing power in an ever tighter labor market. While I still believe the Fed will be a wet blanket with the reduction in their accommodation, with $8.5T sitting in cash at the household level, they will certainly cheer higher rates where for every 100 bps of hikes would put $85b of extra interest income in their pockets.

• I plan to reestablish my RTH short in order to get back net short in retail.

The general slowdown in retail sales, highlighted by Macy's' (M) miss last night, suggests that the consumer is now weakening relative to expectations.

I have but one retail long, Bon-Ton Stores (BONT), which is unlikely to deliver very good second-quarter results. While this is generally recognized and expected, I wouldn't be surprised to see some near-term weakness in Bon-Ton shares.

That said, I am an investor not a short-term trader in Bon-Ton, as expressed recently.

I was previously short Market Vectors Retail ETF (RTH), and I plan to reestablish that short in order to get back net short in retail.

• Here is his morning commentary.

This morning Peter explores housing, China, Japan and England:

There is still no traction in the US housing market as the MBA said mortgage applications to buy a home fell 1% w/o/w to a 6 month low. The index is down 9.5% y/o/y and continues to reflect the reduced interest on the part of first time households to buy instead of rent, whether due to tough (but a bit less so) loan demands, high prices driven by the Fed (growing list of unintended consequences of QE and ZIRP) and/or too much personal debt (student loans?). Refi applications fell 4%, are down 38.4% y/o/y and continues to hover around the lowest level since 2008.

The slow drip and modest US stock market correction going on did take out more bulls from the weekly II data but there are still almost no bears. Bulls fell to 46.4 from 50.5, a 6 month low but all went into the Correction camp which rose to a 6 month high at 37.4. Bears remain in caves at 16.2 from 17.1 last week.

There was a dramatic slowing in the pace of loan growth in July in China. Aggregate financing totaled just 273b yuan, well south of the estimate of 1.5T, down from 1.97T in June and the slowest since October '08. While there was a plunge in the amount of loan growth from the shadow side of banking, new bank loans also plunged to just 385b yuan vs the estimate of 780b. To calm people down from thinking that all of a sudden authorities are cracking down on banks, the PBOC made a point to say that growth has picked up in August to a monthly pace of 900b-1.5T yuan and said "money supply, credit and aggregate financing are expected to maintain stable growth in the future." They are also claiming the July weakness was related to greater risk control and regulation but there was also likely a property loan slowdown too of substance that was a part of this. These figures also come with retail sales, industrial production, fixed asset investment and M2 growth all rising less than expectations in July. The Shanghai index fell more than 1% immediately after the loan data but crawled its way back to unchanged as the flip side of today's data is the belief that the PBOC will start easing and encouraging loan growth again. The China Hong Kong index rallied 1.2% in the last hour and half of trade. Copper however is trading at a 7 week low.

Japan's economy contracted by 6.8% annualized in Q2, a touch better than the 7% decline that was expected but Q1 growth was revised to 6.1% growth from 6.7%. In Q2, spending was worse than estimated while business spending was less so. With the volatility surrounding the tax hike and BoJ generated inflation, the Japanese economy on a real basis is back to where it was in Q2 '13 in terms of size. It will bounce back in Q3 but faster income growth in the face of higher inflation is desperately needed. With a tightening labor market, they should get the wage gains but the world is watching to what degree as Japan will get its own book on the grand experiment of dramatic central bank activism. I'd say 25 years is enough time to measure and it's easy to say it hasn't worked.

Just as the Fed has moved the goal posts of what would trigger a reduction in accommodation, remember when Mark Carney of the BoE said a 7% unemployment rate would mean a possible rate hike. Well, for the three months ended June, the UK unemployment rate fell to 6.4% from 6.5%, as expected but is at the lowest level since December '08. Unfortunately though, wage growth is pathetic as it was up .6% y/o/y ex bonus', well below the rate of inflation and explains why the BoE is afraid to raise rates. July jobless claims was a positive, falling 33.6k, 3.6k more than expected and June was revised down.

• Here are his contrary views.

Some more contrary views on interest rates from Sir Mark J. Grant (as the Wizard boards the American Queen Riverboat):

"Look at Roosevelt, look at Churchill, look at old fella what's his name in The African Queen."

-Lauren Bacall, How to Marry a Millionaire

She was bigger than life. She knew how to make men whistle. She was always and forever tied to Bogart. She will certainly be missed. I wish her well on her next adventure!

Ours is a useful trade, a worthy calling. With all its lightness and frivolity, it has one serious purpose, one aim, one specialty--and it is constant to it: the deriding of shams, the exposure of pretentious falsities, the laughing of stupid superstitions out of existence. And that whoso is by instinct engaged in this sort of warfare is the natural enemy of royalties, nobilities, privileges and all kindred swindles, and the natural friend of human rights and human liberties.

-Mark Twain

That is the guts of it, Mark Twain's quote. It is at the center of what I try to do in the financial markets. It is expressed in a manner that I strive to attain but I fall short of my fellow Missourian. This statement, so well phrased, represents the guiding principles of my commentary.

As the American Queen lumbers down the Mississippi River and glides past the towns and villages that rest rather sleepily on her banks one cannot help being filled with the history represented on her shores. Thoughts of Becky Thatcher and Huck Finn cascade through my mind. I am adrift in wonder.

It is easy enough, out here, to see how you could just be focused on America. The Heart of America beats strongly and if the economic models, portray nothing other than the American economy on a stand-alone basis, then the results might call for higher interest rates and a stock market that is a rainbow without end.  Americans tend to be myopic in their thinking but the time of America being insulated from the rest of the world is long gone though clearly not forgotten.

I suspect the change came during the first World War but we won that one and then the second one and have pretended ever since. Then with Korea and Vietnam, 9/11 and now trouble spreading like wildfire across much of the world we are reminded, once again, that we cannot isolate ourselves but are part of a larger and global playing field. This is true politically and also true for the financial markets.

Then, besides wars and events, the internet and the speed of the delivery of news, goods and services has altered the markets in ways that could not even be imagined a decade ago. This is not a lifetime ago or a generation ago but a scant ten years ago. The velocity of information no longer belongs to the Post Office or the evening news but is instantaneous and now as it flashes across computer and tablet and cell phone screens. The financial markets are played in real time these days and this fact cannot be ignored.

If you consider the interest rates in Europe and their declining economies and their lack of growth and do not think this will affect the United States then yours is a world of make-believe. If you look at the travails of both China and Japan now and do not think their issues will spread beyond their shores then you finally found Never-Never Land. If you think the Fed is all that there is and that the actions of the European Central Bank will not impact America then find Alice and ask for some of what she has been drinking.

We live globally. We are not isolated.

This is my single point of the morning.

• Investors and traders should always adopt a healthy skepticism of fads.

"Candy's IPO will get crushed like Zynga," said Doug Kass, founder of investment shop Seabreeze Partners Management. "The games business is no different than the movie business," Kass said. "One great hit doesn't ensure that the next movie will be a hit."

-- New York Post interview with Kaja Whitehouse, "Wall Street Wary of Candy Crush Maker's IPO") Feb. 18, 2014

In after hours trading last night the shares of Candy Crush's parent company King Digital Entertainment (KING) dropped by over 20% after an earnings miss and weak guidance.

For over 15 years I have advised (in my diary on Real Money Pro and on TheStreet) that investors and traders should always adopt a healthy skepticism of fads (particularly ones that we play on our computer or smartphones!).

Importantly, beware of false investment icons that embrace the current rage of popularity but, like Gertrude Stein said, "have little there there." Case in point: Look at the share price decline of nearly everyone's retail favorite Macy's (M) after it's earnings miss this morning.

Those who worship at the altar of what is most admired and at the altar of price momentum often get burned.

This is true especially in the IPO market -- one of the most obvious bubbles extant these days.

As my buddy/friend/pal Jim Grant wrote in his masterful book Minding Mister Market: Ten Years on Wall Street with Grant's Interest Rate Observer:

Wall Street exists for a purpose: not to produce disinterested research, not to provide "service," not to raise capital for a growing America, but to sell stocks and bonds.... The higher the market, the easier it is to sell but the more disingenuous the sales pitch becomes. (In almost every other walk of commercial life, people buy more at lower prices: in the stock and bond markets, they seem to buy more at higher prices.)

For the sake of your investment well-being, never forget Jim's message.

• Where it began.

The rundown:

• U.S. futures are broadly stronger. (S&P futures are up by 9 handles, and Nasdaq futures are 18 handles higher.)
• European stocks are higher this morning (on average) by about 0.50%.
• Nikkei is up 0.35%. In economic news, second-quarter 2014 real GDP was a bit better but still almost a 7% drop. With a large inventory build in the second quarter, back-half growth estimates are being downgraded. And, increasingly, investors are expecting that the second phase of the consumption tax hike will be canceled. In response, the Japanese yen is weaker. Within the indices, financials materials and telecoms gained, while energy and healthcare lagged. Kanto Denka and Fukuda both surged on back of positive earnings news. Dentsu also saw an earnings-related lift.
• China is up 0.06%. Economic data were weaker than expected, but the magnitude of the miss wasn't big. July loan creation was disappointing after a better June. Within the regional market, energy, materials and utilities were strong, while healthcare and industrials lagged.
• Foreign-exchange is quiet this morning. The U.S. dollar is up 0.16%, and the euro is lower by 0.10%.
• Gold is down $1 an ounce, and crude oil is flat. Copper prices are falling by 0.7%.
• The yield on the 10-year U.S. note is up 1 basis point to, 2.46%. Sovereign debt yields are unchanged. In my "15 Surprises for 2014," I predicted that the 10-year yield would range between 2.50% and 3.00%. (It closed 2013 at 3.03%, and the consensus was 3.50% to 4.00% at that time.) I shorted U.S. bonds, selecting ProShares Short 20+ Year Treasury (TBF) as my preferred vehicle. I added to TBF yesterday and Monday.

Global stocks are stronger this morning in the face of a spate of mixed news.

Over here the focus will be on July retail sales (8:30 a.m. EDT). Also, the Fed's Dudley talks at 9:00 a.m. EDT and Rosengren at 9:30a.m. EDT.  Before the opening comes earnings reports from Macy's (M) and Deere (DE, a tad disappointing), while NetApp (NTAP) and Cisco (CSCO) are delivered after the close.

In Europe, second-quarter 2014 real GDP is out tomorrow morning.

And here is the best of Robin Williams.