Thanks so much for reading my Diary today.

Enjoy your evening!

There is $350 million to buy market on close as of 3:46 p.m. EDT.

I continue to follow and analyze Home Depot (HD) closely. 

In the first week of March the company reaffirmed itsguidance of $5.11 to $5.17 on a 4% rise in sales to $87 billion. Comps were estimated at about +4%, flat gross margin and a 60-basis point improvement in operating margins. 

As I mentioned recently ( in My Trip to Home Depot), I expect HD to beat guidance in the quarter to be reported early Tuesday morning and to raise full year guidance to perhaps $5.30. A moderate beat is likely incorporated in the share price.  

Consensus for first quarter 2015 lies at $1.15 earnings and +5.5% rise in revenues to more than $20.8 billion. 

Although Home Depot missed both earnings per share and sales in first quarter 2014, during the last two quarters the company has beaten consensus expectations by $0.08 and $0.11, respectively. 

Contrary to my expectations, life insurance companies'  shares remain strong. MetLife (MET) and Lincoln National (LNC) reside on my Best Ideas list (short!) under the umbrella of higher rates. 

Since I expect the short-term direction of rates to make a slight inflection point lower this summer and because the stocks are trading at or above private market values. (my calculation), both stocks are on my "short more" list in the time ahead.

The yield on the 10-year U.S. note has risen by eight basis points (to 2.23%) and the yield on the 30-year U.S. bond has climbed by 9 basis points (to 3.01%) today. 

As I recently wrote last week, I would not be surprised if the yield on the 10-year U.S. note has already peaked for the year (at 2.36%).

Coincident with  disappointing second quarter 2015 Real GDP growth prospects (and only modest improvement in the year's second half), I anticipate yields moving back toward 2.00% in the next few months.

While keeping TBF (long) and TLT (short) on my Best Ideas list --owing to higher-expected yield expectations in 2016-17)  --  I plan to now take off half of my TBF long and half of my TLT short for some very good gains from March.

Shares of many money center and regional banks that I have written about are making new highs today. I would not disturb holdings in this, my favorite long sector.

Several are on my Best Ideas list, including today's addition of Midsouth Bancorp (MSL).

The divergence between the Dow Jones Industrial Average and Dow Transports grows more conspicuous.

Dangerous Divergence?

Source: Mark Hulbert

View Chart »

Piper reiterates it's Midsouth Bancorp (MSL) buy this morning, citing many of the factors I did earlier in the day.

One of the more interesting factoids in the report is that MSL has had only $2.4 million in cumulative energy charge-offs since 1985.

The chart below shows MSL's under performance over the last six months compared to other energy lenders -- Comerica (CMA), Zions Bancorporation (ZION), Prosperity Bancshares (PB), Hancock Holding (HBHC), IberiaBank (IBKC), Cullen/Frost Bankers (CFR) and BOK Financial (BOKF).

Here is Carl Icahn's letter to Apple (AAPL) CEO Tim Cook this morning. It is interesting theater, but I oppose many of his metrics and analysis that conclude that Apple should have a market multiple.

Speaking of Apple, here is Tim Cook's commencement speech at George Washington University over the weekend.

Midsouth Bancorp (MSL) is a small, Louisiana-based bank with 58 branches in that state and Texas. The shares are heavily owned by insiders and several top-notch institutional advisors (including Jacobs Asset Management, Heartland Advisors) have meaningful ownership stakes.

Despite a $210 million enterprise value, I have started my first review of MSL because I believe the buy is particularly timely in light of the year-to-date share price underperformance and I am placing MSL on my Best Ideas list.

The shares started the year above $17 but concerns about its energy book and weak first-quarter earnings have moved the shares back down to about $13.25. My 12-month price target is $18 (1.4x projected year-end 2016 tangible book) and my year-end 2016 target is $20 to $21 (bringing the shares only back to July 2014 levels) and representing a 4% to 5% core deposit premium (total core deposits are about $1.4 billion). The shares are being eliminated (June deletion) from the Russell 2000 Index (because of market-cap considerations) and this has likely exacerbated the drop in share price. (Note: stocks often bottom a month or so before that deletion in the index.)

The bank disappointed in the first quarter of 2015 with EPS of $0.12, below consensus of $0.34. Midsouth recorded substantial reserve-building -- a $4 million incremental loan-loss provision as well as a $500,000 provision for "potential but unidentified loss exposure."

According to FIG Partners:

"Criticized Energy Loans are 13.5% of this portfolio sub-set (just 14 out of 488 relationships), and less than $1 Million are nonaccrual. The Energy-specific Reserve allocation is 1.8% of the Total $288M in Energy exposure. The remaining $15 Mil. in Reserves for MSL's non-Energy Loans are a 1.1% reserve ratio. In the past quarter, net charge-offs were 0.36% of Loans and the NPAs-to-Loans relationship was just 1.37% up from 1.2% at 12-31-2014."

Here is a summary of my basic investment case:

• The bank's share price and results will likely recover from higher oil prices. Twenty-two percent of total bank loans are energy related ($290 million). MSL is a good collateralized lender that has successfully navigated volatile oil prices in the past with minimum losses. Already many bank stocks in Texas and Louisiana with large energy exposure have recovered in share price, coincident with the rise in the price of crude oil.
• Solid core deposits and healthy loan growth. Deposit and loan growth was +2% sequentially (CDs represented only 15% of the bank's funding base (in first-quarter2015) and loan growth was +8% year over year.
• Strong core earnings. While comparisons will be difficult over the next six months, fourth-quarter 2015 should mark the reacceleration of earnings growth (estimated at +30% year over year). The bank's return on assets should rise to 0.9% next year from 0.6% in 2015, generating a 20% rise in tangible book value from below $11 per share to nearly $13. From earnings of $1.05 this year, bet income is likely to rise to $1.55 in 2016. The projections might prove conservative, as adjusted for recent loan-loss-provision adds, MSL is running at a $1.50 per share recurring annualized earnings rate.
• MSL has been an effective acquirer of smaller banks. I expect this trend of bank rollups to continue, though the strategy is on hold until the share price rallies. When the markets stop worrying about energy lending issues, the shares could move into the low $20s and the bank will likely resume its accretive purchases of banks in their contiguous market area. Organic growth from those acquisitions could buoy EPS above $2 per share in the next few years, producing a three-year price target of $25 to $30 per share.
• Strong Management. CEO Clive "Rusty" Cloutier is a capable and colorful executive who has stood the test of time in the volatile energy sector.
• Year-end 2016 tangible book is projected at about $12.75 per share. The share price is only modestly higher than current book value of $10.65 (which, as I noted, will rise rapidly over the next few years).
• Effective cost-cutting continues. This could carry the efficiency ratio to levels better than expected.

• An annual dividend of $0.36 provides 2.8% current yield.

Editor's Note: Please note that due to factors including low market capitalization and/or insufficient public float, we consider MSL to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Reflecting my near-term market concerns, this week's trade is to buy June SPY $212 puts (closed at $3.17 on Friday).

This is the first option play that has been suggested as my The Trade of the Week.

• The Lindsey Group's Peter Boockvar addresses comments by Chicago Fed President Charles Evans, as well as the Atari vs. Xbox debate in his morning commentary:

Charlie Evans, the uber dove who continues to believe in the magic of monetary policy, is out again today saying the Fed should wait 7 years with rates at zero as 6 is just not enough. His main 'concern' is that inflation is not high enough and the Fed is not meeting its own arbitrary inflation goal of 2% (although their Congressional mandate is price stability, not 2% annual inflation). There was a particular paragraph in today's speech which has me convinced that Mr. Evans has never been to Silicon Valley or Redmond, Washington and maybe doesn't have or use a smartphone or any other technology product.

He said this: "Simply put, inflation is too low. Just as too high inflation can impose significant costs on the economy, so can too low inflation. When prices and, along with them, wages and incomes rise at a slower rate than anticipated, borrowers' fixed monthly loan obligations become more burdensome. These costs now have been accumulating for the past six plus years that inflation has underrun the FOMC's 2% target that borrowers had relied upon. To meet these higher real costs, borrowers must cut back on other spending, reducing aggregate demand and ultimately weighing on economic activity. This is an important reason why we need to achieve our 2% inflation objective."

I respond with this: this view of the economic world is the exact opposite of the technology business model where better and better products are achieved every year at lower and lower prices to consumers where the lower prices bring more and more demand which in turn creates the supply of better and better products. The cycle has created more wealth over the past 30+ plus years than the entire GDP of many countries and the quality of life and standard of living of billions of people have benefited as a result. About 35 years ago I saved up $150 to buy an Atari game console. Today, for that same $150 I can buy an Xbox 360. That's better called progress, not deflation.

I firmly acknowledge that some businesses need ever higher prices in order to drive the topline but I just wanted to point out that I don't see evidence of the effectiveness of a one size fits all monetary policy of 2% inflation. I also want to defend savers whose now $10T of savings has been raped and pillaged for almost a decade by the Fed and higher inflation while short rates stay at zero would only be more pain. Borrowers have already had the red carpet and endless champagne laid out for them for many years now. Lastly, Mr. Evans should take a look at what happened to the German bond market over the past few weeks after Eurozone M3 on April 29th showed the fastest rate of gain in 6 years. The desire for higher inflation in the face of an epic global bond bubble? Be careful what you wish for. Mr. Evans and his colleagues should be more focused on stable money which is the real precursor to price stability and maximum employment.

In Japan, machinery orders rose 2.9% m/o/m in March, almost double expectations of 1.5% but only after February was revised down by 100 bps to a decline of 1.4%. For the quarter as a whole, business investment should be positive q/o/q. The Nikkei was higher by .8% overnight.

The stimulus move in China of easing the restrictions on buying second homes (lowering down payment requirements and now interest rates), did show up in the April data of home prices. The number of cities showing a price increase for new apartments m/o/m rose to 18 from 12 in March and vs just 2 in February. For existing apartments, 28 cities saw a price gain vs 12 in March and 5 in February. On a y/o/y basis, prices for both new and existing apartments were still down in 69 of 70 cities, the same amount as seen in March. Chinese authorities have certainly become more concerned with the economic slowdown and we can add another step they are taking to reflect this. They will ease restrictions on the ability of local governments to borrow more money from local government financing vehicles they have set up and if any LGFV gets into trouble, banks are being told to ease and extend payment schedules. More debt to cure the hangover of too much debt is back as again the desire for short term growth overwhelms the need for longer term financial health and stability.

Since it is my view that selected money center and regional bank stocks represent unique and solid long term values, I am going to introduce a series of analyses over the next few weeks on many of the less researched and not as well known regional banks I currently own.

Several of the regional banks to be discussed are not very liquid (I would say, be disciplined and price-sensitive if you decide to buy in), but the upside/downside profile is quite rewarding and could justify investment.

The first such analysis will be delivered later today.

"There's a lot of baggage that comes along with our family, but it's like Louis Vuitton baggage."

-- Kim Kardashian

Keeping Up With the Kardashians is an American reality TV series that has been on the E! network since 2007. The series focuses on the professional and personal lives of the Kardashian-Jenner family, with emphasis on the Kardashian women: Kim, Kourtney, Khloe, Kendall, Kiley and Kris. Most recently, Bruce Jenner (who is undergoing a gender transition) has been a series focus.

Keeping Up With the Kardashians takes the "famous for being famous" concept to a new level. It appears that the core appeal to many is the outrageous stuff that comes out of Kim's and the others' mouths, which is actually occasionally funny.

"Even when you think something about the Kardashians could be interesting, it's not."

-- David Hinckley, New York Daily News

To me, Keeping up With the Kardashians is a metaphor for the market, as the popularity of both are foreign to me, and the story lines often seem fabricated. At times, the series (consisting of a group of desperate people doing little) seem to be like Mr. Market, consisting of a bunch of theses woven together in an attempt to climb to the margins of fame and to new records.

Promotionally minded, Kim Kardashian (the series' central focus) reminds me of Tesla's (TSLA) Elon Musk, another master of boosterism, and even to the bubble in private-equity startups in technology and social media that exists today.

I watched this season's Keeping up With the Kardashians first episode last night, and I remain dumbfounded by the appeal. In the same manner, I am stupefied by the market's advance over the past 12 months.

Last week I published Paul Tudor Jones' 13 rules. The most relevant one, and reflective of where we are in the Bull market cycles, is this one:

"There is no training -- classroom or otherwise -- that can prepare for trading the last third of a move, whether it's the end of a bull market or the end of a bear market. There's typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it."

Paul Tudor Jones is not a man to fade after decades of delivering superior investment returns. His are such good words of advice.

I continue to hold to the notion that the market is in the process of topping out (conceivably, like the Kardashians' popularity) -- perhaps in a major way -- and that we are in the eighth or ninth inning of the bull market advance.

As Paul Tudor Jones extolls, there is often no or little logic to the last third of a bull-market or bear-market move. Jones suggests "living it." I suggest trading around it.

I will guarantee to all of you that when historians look back at this investing period (and Keeping Up With the Kardashians -- the bad-news-is-good-news thesis, the unparalleled role and confidence in the Federal Reserve, the buy high mentality of corporate share buybacks, the multitude of developing malinvestments, etc. -- they will admit to how stupid investors were to have bought in.

I maintain the view that there is a limited margin of safety in equities today, and while no one knows (with certainty) where Mr. Market and the global economy are headed, I am convinced that the following additional 12 key "big picture" factors could weigh on markets and on the real economy over the balance of the year and into 2016:

1. Multiple and unpredictable outcomes: There have likely never been in history more numerous market and economic outcomes, some of which are adverse and most of which are being ignored by market participants.
2. Stuff happens: Black Swans appear to be happening with greater regularity.
3. Weak growth ahead: Central bankers' aggressive monetary antics have only produced subpar global economic growth.
4. Borrowing from the future: Zero interest rate policy (ZIRP) has borrowed past and present sales from the future, underscoring the challenge of future economic growth.
5. Unknown consequences of policy: No one knows the consequences of an extended period of ZIRP "punch bowls," often resulting in aberrant behavior and hangovers.
6. Making no sense: Indeed, if there were no consequences to zero interest rate policy, interest rates could have been held at zero forever -- in the past, as well as in the future.
7. Stop looking up, start looking down: Monetary overkill (in duration and in the level of interest rates) may produce the adverse consequences of malinvestment. It has resulted in the hoarding of cash and reduction in spending by the disadvantaged savings class.
8. Uneven and less dependable growth: The "exclusive prosperity" of the haves (vs. the have-nots) is politically unstable, leads to more uncertainty (and unexpected outcomes) and will likely have a negative and more volatile impact on our social system, on the global economy and on our markets.
9. Tom Friedman has the ticket: Our world has never been more flat, more networked and more interconnected. As such, the notion of an "oasis of prosperity" is not likely rooted in fact.
10. Trouble ahead, trouble behind: Terrorism and religious radicalism (political and economic) will be more of a threat in the future than in the past.
11. Treacherous technology: In a paperless (and "cloudy") world, investors and citizens are not likely as safe as the markets assume.
12. Lack of coordination: Geopolitical coordination is at an all-time low and isolationism seems likely to be a mainstay in the time ahead.

Being in market-neutral mode for a while, I have again been taking baby steps on the short side in the past week and I start the day net short, with my preferred vehicles in risk-defined SPDR S&P 500 (SPY) puts and in a medium-sized SPY short.

One last thing -- did I mention that I plan to watch the second episode of Keeping Up With the Kardashians tonight? Who knows, like bank stocks the series might actually begin to grow on me!

"If I had known better, I would have done better."

-- Kim Kardashian