• Enjoy the weekend.

No market on close imbalance today.

TGIF!

Thanks for reading my diary today and all week.

Enjoy the weekend.

Prayers for Uncle Vinnie.

• I am back slightly net short.

I did replace my ProShares UltraShort QQQ (QID) long at about $46.325 on the late-afternoon ramp.

I also see a reasonably large buyer in Monitise (MONI.L/MONIF) now.

I am back slightly net short.

• For now.

I am still market-neutral and not shorting this ramp -- yet.

• David Kotok analyzes the fog of war.

Cumberland's Dave Kotok on the fog of war:

Today's news reports about Ukraine, Russia, and separatists demonstrate the fog of war in action. We have written on this subject recently.

Word comes today (see this Bloomberg piece) that the Ukrainian army has destroyed part of a column of military vehicles that crossed the border from Russia. Meanwhile, Vladimir Putin continues to insist that Russia has no military presence in Ukraine.

The details of Ukrainian military forces' engagement with separatists are lost in the fog of war. However, the interplay boils down to some fundamental realities. Putin does not want Ukraine to be part of NATO (North Atlantic Treaty Organization) or the European Union. That is a line he has drawn in the sand.

Putin continues to up the ante. In addition to his aggressive new moves with the convoys (humanitarian or otherwise) headed for Eastern Ukraine, he is making moves on his far eastern front that threaten Russia's relationship with Japan, as this Bloomberg piece explains.

One additional factor must be considered as we assess market reactions and geopolitical dynamics. Every passing day brings us closer to winter. It is the power of colder weather that allows Russia, as a key supplier of energy to Europe, to apply leverage. That leverage can take the form of higher prices, restricted volumes, a combination of both, or negotiations that directly or indirectly affect these additional costs.

Markets are reacting this afternoon to the ongoing developments, but in the fog of war it makes little difference what the specific elements are in each event. Instead, what drives market valuations is the knowledge of applied costs. No matter how Ukraine, Russia, and the separatists sort themselves out, the costs continue to rise.

We are continuing to maintain a cash reserve.

• Here are his closing remarks.

From Sir Arthur Cashin:

Traders puzzled that no other shoe has fallen. Raises some slight doubt about what really did happen. Almost all comments are from Ukraine side. Stay wary and have a great weekend!

• Scaling in at $46.55.

On this market rally from the lows, I am replacing the ProShares UltraShort QQQ (QID) that I sold earlier. I am doing so on a scale starting at $46.55.

• Your anger about Monitise, that is.

I know you are all steamed about Monitise (MONI.L/MONIF).

It is getting to me, too, today!

• Shorts or longs?

Who's more scared? Shorts or longs?

I would say that the answer, for now, is shorts.

• The yellow metal isn't rallying.

The fact that gold can't rally on today's news seems to be something of a repudiation of the gold bugs' core long thesis.

• I will sleep better over the weekend.

I have taken off my ProShares UltraShort QQQ (QID) for a small (net) loss, and I am back to market-neutral on the second leg lower.

I will sleep better over the weekend.

As I often write, the only certainty is the lack of certainty.

Trade, don't invest, and err on the side of conservatism.

• Here are his musings at midday.

Midday musings from Sir Arthur Cashin:

Rumormongers kick into high gear so be wary of what you hear. Pundits are mucking things up by filling air time with speculations. I still believe the key here is any Russian casualties. If so, Putin may be forced to act or see his popularity implode. I will continue to focus on the ten year yield as the most sensitive and possibly best informed.

• Here are his late-morning musings.

Late-morning musings from Sir Arthur Cashin:

Key here will be casualties. Any Russians killed or wounded.

Traders in a quandary as weekend looms and decisions must be made before the close.

• NATO weighs in.

Here is an apparent release from NATO that has just hit the newswires.

(NATO RELEASE) NATO chief Anders Fogh Rasmussen has confirmed an incursion by Russian armoured vehicles into Ukraine, saying it showed Moscow's continued efforts to "destabilise" its western neighbour.

"I can confirm that last night we saw a Russian incursion, crossing of the Ukrainian border," he told journalists in Copenhagen on Friday after meeting with the Danish defence minister.

Ukraine's Forces Attack Russian Armoured Convoy

(SKY NEWS) Ukraine had said earlier that a column of armoured personnel carriers and military lorries had crossed into Ukrainian territory on Thursday.

"It just confirms the fact that we see a continued flow of weapons and fighters from Russia into the eastern Ukraine," Rasmussen said.

Ukraine's forces say they attacked a Russian armoured convoy that crossed on to Ukrainian soil "and part of it no longer exists".

• I am at about 10% net short.

I added small to my ProShares UltraShort QQQ (QID) position on the little rally that just fizzled.

I am at about 10% net short.

• Is it reactionary or a fundamental shift?

The question I ask myself is whether today's reversal is evidence of:

• a simple reaction to the Russia/Ukraine news; or
• the reversal points to a more fundamental market vulnerability at current levels.

As you know, my answer is closer to No. 2 than No. 1.

I am a short seller on a rally.

Most, however, should simply err on the side of conservatism.

• That is, if there is a short-term bounceback to the upside today.

If there is a short-term bounceback to the upside today in the markets, consider buying ProShares UltraShort 20+ Year Treasury (TBT, $55.30) for a quick rental.

• I am back to under 10% net short.

I have covered half of my SPDR S&P 500 ETF (SPY) and PowerShares QQQ (QQQ) shorts into the whoosh lower.

Back to under 10% net short.

• Stated simply.

• The lower-rate environment should begin to weigh on profits over the next few quarters.

I am offering more MetLife (MET) and Lincoln National (LNC) on the short side (but above the market) today, as the lower-rate environment should begin to weigh on profits over the next few quarters.

Both stocks are on my Best Ideas list.

• According to a report, more unrest in Ukraine.

Break in: On the news wires (Lysenko): "Ukraine Troops 'Destroy' Part of Armed Convoy."

• It is now well below my level.

Coca-Cola (KO) is now below $41, so I was unable to get an additional short off today.

• Here is his weekly wrap-up.

The Lindsey Group's Peter Boockvar summarizes the important macroeconomic events of the week:

Positives

1)US industrial production in July rose .4% m/o/m, one tenth more than expected and June was revised up by two tenths. Positively within, manufacturing production was strong as it rose a full 1%, well more than expectations of up .4%. The gain was mainly driven by a sharp 10.1% m/o/m and 21.9% y/o/y increase in motor vehicles/parts production off an unchanged figure in June.

2)The July NFIB Small Business Optimism index rose to 95.7 from 95 and is the 2nd best read of the year after touching 96.6 in May. Plans to Hire rose 1 pt to the best since September '07. Capital spending plans though still remain stuck in tight range. Inflation components, both labor and prices both hold at elevated levels.

3)The number of job openings in June rose to the highest level since 2001, hiring's rose as did number of quits. Demand for labor increases, supply is not to the same extent which will equal higher wages for some but unfortunately not all.

4)While taken with a massive grain of salt, Putin plays (pretends) nice and whether genuine or not, European markets bounce.

5)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. July jobless claims fell 33.6k, 3.6k more than expected and June was revised down.

6)The UK economy was a bright spot in Q2, rising .8% q/o/q for the 3rd quarter in the past 4 and thus at an annualized rate above 3%.

7)Both CPI and PPI in China were in line with expectations, giving the PBOC and Chinese officials some cover if they want to grease the wheels again, but which seems like a treadmill they can't get off.

8)In Japan, consumer confidence in July rose to an 8 month high and positively within, the income growth component rose to the highest since December and the employment figure was the best in 6 months. Income growth to offset rising inflation is the key missing link to a healthier Japanese recovery.

Negatives

1)Initial Jobless Claims rose by 311k, up from 290k last week and was 16k more than expected. The rise was likely some mean reversion after the low July levels due to auto shutdown seasonal distortion issues. The 4 week average that smoothes this out is 296k vs 294k last week, just off the lowest level since 2006.

2)US 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.

3)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. Refi applications fell 4%, are down 38.4% y/o/y and continue to hover around the lowest level since 2008.

4)Foreigners were net sellers of US Treasuries in June totaling a net $20.8b, bringing the year to date purchases to $108.4b, well more than the full year amount of $42.9b in 2013 but well below the $400b+ seen in both 2011 and 2012. China and Japan were each net sellers but that was all due to a large maturation of short term bills as both were buyers of notes and bonds.

5)This could have been in the positive category as the figures were in line but I'll state why it's here. PPI rose .1% m/o/m headline and .2% core with 1.7% and 1.6% y/o/y gains respectively. Seems benign but the trend year to date is not so much. Both headline and core PPI have risen an average .2 m/o/m for the 7 months of 2014, thus annualizing above 2%. CPI is out next Tuesday and headline print is expected to be up 2% for the 4th straight month. We don't have an inflation problem (at least yet). The problem we have is monetary policy that doesn't match up with 2% type inflation that we're currently experiencing according to the government's measurements.

6)The preliminary August UoM consumer confidence index fell to 79.2 from 81.8, 3.3 pts less than expected and is the weakest print since November '13. The increase in the Current Conditions component was more than offset by the Economic Outlook that fell 5.6 pts. Also of note and to my point on inflation, one year inflation expectations rose to 3.4% from 3.3%, the highest in two years.

7)The NY manufacturing index, the 1st August industrial report out, fell to 14.7 from 25.6 and below the estimate of 20.0. It's the lowest in 4 months with drops in new orders, backlogs, inventories, and employment. To the inflation discussion, prices paid rose to the highest since January and prices received is at a 4 month high.

8)The euro zone economy flat lines in Q2 as Germany and Italy contract and France goes nowhere for the 2nd straight quarter.

9)The German ZEW investor economic expectations index fell sharply to 8.6 from 27.1, well below the estimate of 17. It's the weakest since December '12 and the current conditions component fell to a 7 month low, dropping to 44.3 from 61.8. The ZEW said "the decline in economic sentiment is likely connected to the ongoing geopolitical tensions that have affected the German economy by now... Since the economy in the euro zone is not gaining momentum either, the signs are that economic growth in Germany will be weaker in 2014 than expected."

10)UK wage growth remains punk, rising just .6% y/o/y ex bonus', well below the rate of inflation and explains why Carney doesn't want to raise rates yet but can he really move wages higher without inflation going up too?

11)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.

12)Japanese machinery orders grew 8.8% m/o/m in June after falling by 19.5% in May but that was well below the estimate of an increase of 15.3%.

13)Aggregate financing in China 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. Retail sales, IP, M2, and fixed asset investment all rose less than expected.

14)The Hong Kong economy unexpectedly contracted in Q2 by .1% vs the estimate of a gain of .4%. It's the first negative print since Q2 '11 and the government cut its full year 2014 growth range to 2-3% from 3-4%.

• So you know.

Housekeeping item: I have covered my JPMorgan Chase (JPM) short.

• My price is $26.

I am bidding $26 for more Ocwen (OCN).

Remember, I expect the share buyback to be reinstituted shortly, upon the filing of the 10Q.

• With the shares down, you will not hear from the talking heads who were celebrating last night.  

Last night many celebrated J. C. Penney's (JCP) results.

There was less than meets the eye to the company's quarterly performance, and were it not for the heavy short interest, I would have shorted the gap after the close.

At $9.45, the shares are now down from last night's high of over $10.65, and today you will not likely hear a thing from those talking heads who were in a celebratory mood on Thursday evening.

• He takes a good look at the numbers.

In this morning's commentary, Sir Mark Grant says that the numbers dont lie:

Here are the numbers. Let them have a good look at you. Let them stare you in the face. They know what they represent. The question is can you look at them and gain any insight?

"Get your facts first, then you can distort them as you please."

-Mark Twain

Now you can say what you like but it is pretty tough to construct a rational argument that the central banks aren't influencing the markets. The boys and girls, on both sides of the pond, are now significant participants in the Great Game. They are players, they are the referees and they command the biggest amounts of money on the planet.

They are in!

The economies in Europe are far weaker than the economy in the United States. Most have higher rates of unemployment, larger debt to GDP ratios and weaker growth than America. Yet their 10 year sovereign yields are equal to, for the weakest of countries, and far less, for the stronger countries, than the 10 year Treasury yield of the United States.

As significant, in my view, as the rally in price is the corresponding decline in yield that we have seen year-to-date. The American 10 year's drop in yield has lagged every major country in Europe and by a wide margin. One might think, if the numbers are carefully considered, that we have a ways to go. That would be my view but then I continue to find myself wandering alone in the forest with placards on each tree proclaiming higher yields to come. Every lead bank has nailed them there and they keep bringing out new signs and then banging them into the bark.

Save the trees!

"Curious and curiouser."

-Alice in Wonderland

Now you might think that some of the people who have been calling for higher yields might one day say that they were wrong. This, however, has not been the case. In fact just the opposite has been exactly the case. The screams for higher yields have increased in numbers while the volume keeps getting turned up. The noise is painful.

My ears hurt!

"The trouble is not that the world is full of fools, it's just that the lightning isn't distributed right."

-Mark Twain

Today I will arrive in Hannibal, Missouri. I am going to walk two blocks to the house of Mark Twain. I doubt if Mr. Clemens would have given a damn that I went to see his childhood home but I am positive that he would have approved of how I got there on a riverboat steamship.

Ernest Hemmingway called Huckleberry Finn, "the best book we've ever had. There was nothing before. There's been nothing as good since." I cannot dispute his opinion.

I am secretly hoping that my trek to Mark Twain's house, my visit to the sacred shrine if you will, might bless me with some insights that sharpen my writing skills. We are both Missourians after all so perhaps he might direct some kindness in my direction from wherever he resides at present. One can always hope.

"You can't depend on your eyes when your imagination is out of focus."

-Mark Twain

• According to the University of Michigan survey, that is.

Break in: University of Michigan consumer confidence falls to 79.2 against expectations of 82.5 and last month's 81.8.

• At $24.60.

I offered more Cisco (CSCO) short at $24.60.

• Above $41.

I am adding to my Coca-Cola (KO) short above $41 now.

• The shares have gained the interest of Senator Investment, and I am a buyer at $14.

Event-driven hedge fund Senator Investment has taken a 6.2% (passive) position in Radian (RDN).

While I have slightly reduced my price objective for this name (owing to the new proposed capital requirements), I am a buyer under $14 a share.

• He's betting more against the market.

A man came down from Sinai Mountain, with words of truth for us all.

How we bowed and knelt down

How we worshipped well.

And when it came to listening

We listened little, if at all

If at all.

-- Richie Havens, "Minstrel of Gault"

According to his most recent 13-F filing, George Soros has increased his bearish bet on the market (hat tip Business Insider).

• Here are the firm's expectations.

Goldman Sachs offers its expectations on next week's Jackson Hole meeting:

• This year's Jackson Hole economic symposium will focus on the topic of "Re-evaluating Labor Market Dynamics." Although not officially confirmed, Chair Yellen is widely expected to speak at the conference, most likely on the morning of Friday, August 22.
• We expect Yellen's remarks to generally be dovish in tone, emphasizing the degree of slack remaining in the labor market using a "dashboard" approach. Possible dovish surprises include discussing the possibility of an inflation overshoot. Possible hawkish surprises include increased focus on the degree of improvement in the labor market and the uptick in the inflation trend. The Jackson Hole economic symposium is often a focus for market participants. Traditionally, the Fed Chair delivers the keynote address, which has occasionally provided clues about upcoming policy changes. In addition, presented papers¿such as Michael Woodford's 2012 contribution¿have sometimes been bellwethers for shifts in the leading-edge thinking on monetary policy. This year's event will occur from the evening of Thursday, August 21 through Saturday, August 23. The schedule has not yet been officially released, but should be posted on the conference website at 6PM MT (8:00PM ET) on August 21. The title of this year's conference is "Re-evaluating Labor Market Dynamics."

According to media reports citing inside sources, Chair Yellen will speak, probably on the topic of the labor market. Usually, the Fed Chair speaks on Friday morning at 10:00AM. Speeches at Jackson Hole are not televised live, and the Chair's speech typically does not include a Q&A session afterward. Yellen has spoken on the topic of the labor market on several occasions since becoming Chair, and her remarks have tended to be quite dovish. We see little incentive for Yellen to deviate significantly from her past remarks, and we do not expect Jackson Hole to be a "thriller" this year. She is likely to revisit themes such as the importance of evaluating labor market conditions broadly via a dashboard approach. Fed communication has already shifted to some extent in this direction, as the July FOMC statement said that "a range of labor market indicators suggests that there remains significant underutilization of labor resources," replacing narrower prior language stating that "the unemployment rate ... remains elevated." Exhibit 1 shows our "Yellen dashboard," comprised of labor market indicators the Chair has previously highlighted. It is clear that broader U-6 unemployment, the participation gap, the rate of wage growth, the hiring rate, and the quit rate suggest a weaker-than-normal labor market.

If she wants to break new ground, there are a few different ways to enhance this message and make it more pointed. One option would be to distill the dashboard into a composite index that combines such disparate indicators as part-time employment, gross hiring, and nominal wage growth. The problem is that this would probably box in the Committee too much, so it may be preferable to leave the specifics to staff working papers that do not have as much of an official imprimatur, as well as to outside research. Another possibility would be for her to lay out a case why letting inflation overshoot a bit in the near term in a "high-pressure labor market" could pay significant dividends in terms of drawing people back into the workforce. San Francisco Fed President Williams explained the logic in a working paper some time ago¿we discussed our own version in the past¿and we strongly suspect that Yellen is sympathetic to it. That said, it is unclear whether she would want to send such a strong message about the optimality of an inflation overshoot at this point. Finally, Yellen could increase her emphasis on the lack of pickup in wage inflation. Wage inflation has been stuck around 2% in recent years, showing little of the improvement found in a number of other labor market indicators.

Regarding possible hawkish surprises, at her semi-annual monetary policy testimony before the Congress, Yellen did indicate that "broader measures of labor utilization have ... registered notable improvements over the past year," somewhat more positive language than she had used in the past. Any continued shift in this direction would be hawkish on the margin. However, data arriving since her July testimony have probably not significantly changed the story. In addition, any hint toward a shifting view on the degree to which slack in the labor market is cyclical vs. structural would be notable, but we do not think this is likely. Sharper focus on the firmer recent inflation trend¿which she previously dismissed as "noisy"¿or any expression of increased concern about financial imbalances would also be hawkish surprises.

Yellen will reportedly not be the only high-level central bank official speaking at the conference. Media reports cite Bank of Japan Governor Kuroda, Bank of England Deputy Governor Broadbent, and Central Bank of Brazil Governor Tombini as slated to speak on the topic of "labor markets and monetary policy.

• Due to a change in outlook, I have reduced my large short bond exposure.

The yield on the U.S. 10-year Treasury note closed at 3.03% on Dec. 31, 2013.

As mentioned in my  "15 Surprises for 2014," I started the year with an outside-of-consensus view that the bond yields would decline for all of the year, trading in a range of between 2.50% and 3.00%. My view was predicated on my projection that domestic real GDP growth would be well below expectations at about 1.75% (or almost half that of the consensus) and that global growth would only rise by about 3%.

The 10-year yield has steadily dropped throughout 2014 and now stands at 2.395%, slightly below the lower end of my anticipated range, as signs of slowing global economic growth continues to weigh on bond yields around the world.

I had previously expected the 10-year U.S. note to close the year at around 2.75% to 3.00%. I would now reduce that year-end 2014 forecast to approximately 2.75%. While I still expect rates to rise over the balance of the year and into 2015, the climb in yields will start from a lower level than I anticipated and could descend to a lower yield as well (relative to my previous expectations).

This changed expectation lessens the near-term appeal of my short bond thesis, and I have reduced my large exposure to ProShares Short 20+ Year Treasury (TBF).

As a result of this conclusion, I plan to add to all of my closed-end munciipal bond funds on any weakness.

• Here is his morning commentary.

The gospel according to Peter Boockvar:

Putin's Kumbaya comments yesterday continue to help European markets today with the DAX in particular up for a 3rd day and higher by 3%+ on the week as of this writing. The index though remains almost 200 pts below its 200 day moving average and of course reflects the economic concerns emanating from the Russian/Ukrainian spat on top of sluggish growth in the whole region due to a continued sclerosis in economic activity. The UK continues to be the standout in the region as its economy grew .8% q/o/q, in line with expectations but has now grown at an annualized rate above 3% for the 3rd quarter in the past 4. Mark Carney though has now shifted his rate hike goal post to generating wage growth, which of course is noble, but I'm not sure how monetary policy can directly boost wage growth without boosting inflation at the same time.

The Hong Kong economy unexpectedly contracted in Q2 by .1% vs the estimate of a gain of .4%. It's the first negative print since Q2 '11 and the government cut its full year 2014 growth range to 2-3% from 3-4%. The economic decline was led by a drop in household spending and likely is a spillover from the mainland crackdown on government officials reckless personal spending of other people's money. Chinese stocks on the mainland shrugged it off as did the Hang Seng index on the hopes that bad news is good news in terms of pressuring officials to 'do something.'

In the US, PPI today and CPI Tuesday will be a focus. The US treasury market, influenced by a variety of global factors, implies little concern with inflation as short term inflation breakevens have come down along with the CRB index. But, the 10 yr breakeven has remained very steady above 2.20%. While well off its 2014 high, the CRB index is still up 3% year to date, the CRB food stuff index is up 6% y/o/y and the Journal of Commerce index of 18 industrial materials is just off its highest since 2011. Also, it has been the services side of the inflation stats that has driven .2% per month on average each month this year in both the PPI and CPI figures. This of course annualizes to north of 2% for both. Higher rents in particular are a problem for many (35% of households rent, the most since 1995). My point is not to say inflation should be a worry (many think the exact opposite), just that it is more sticky than many believe and even if it settles in around 2%, zero interest rate Fed policy doesn't square with that. This discussion also doesn't include the argument that the growing demand for labor is not being met by enough supply which economics 101 says something about wages (at least for some) in coming quarters.

• Where it began.

A minstrel came down from Gault, with scores of tales to tell. 

Some of them were true and some were false and some we knew too well. 

It was told in fire, it was told in ice, 

It was told a million times though it need not be told twice.

-- Richie Havens, "Minstrel from Gault" (first song sung at Woodstock)

The rundown:

• U.S. futures are building off the week's gains. (S&P futures are up by 5 handles, and Nasdaq futures are 14 handles higher.)
• European stocks are strong, with gains of nearly 1%.
• Nikkei is flat, rallying from early losses. Healthcare and financials outperformed, while financials and energy lagged. The Japanese yen continues to decline and is approaching the lower end of the recent range.
• China is up 0.92%. No news. All sectors were higher, led by tech and consumer. TCL, the largest publicly traded consumer electronics company, rose by over 10% after very positive earnings.
• The U.S. dollar is down 0.04%, and the euro is higher by 0.07%.
• Gold is down by $2 an oounce, and crude is unchanged. Copper prices are up 0.16%.
• The yield on the 10-year U.S. note is down by 1 basis points, to 2.39%. Sovereign debt yields are slightly lower.

Global stocks are higher, ending the week on a strong note. Europe and Japan opened flat to slightly higher but have been building on gains.

Geopolitical pressures seemed to have eased. There has been little macroeconomic news. Bearish sentiment has the biggest weekly drop since August 2013.

Today's U.S. economic data (with expectations in parentheses): Empire manufacturing index (20), PPI (0.1%), core PPI (0.2%), industrial production (-0.3%), capacity utilization (79.2%), manufacturing production (0.4%), University of Michigan confidence (82.5).