Nasdaq futures are 20 handles above my cover only a little while ago and S&P's are +8 handles off the lows, confirming again this is a great market to trade in but not to invest.

Thanks for reading my Diary today and enjoy your evening.

Nasdaq futures are 20 handles above my cover only a little while ago and S&P's are +8 handles off the lows, confirming again this is a great market to trade in but not to invest.

Thanks for reading my Diary today and enjoy your evening.

Really Ben? .@benbernanke $peaking Deal in Taipei 2015 Sees no bubble similar to US housing pre-crisis 2007 Subprime is contained

¿ Lawrence McDonald (@Convertbond) May 26, 2015

• Housekeeping item.

With Nasdaq futures now down by 73 handles, I am taking off my QQQ short and moving back to market neutral.

"Many existing home owners still have low teaser rates, low rate adjustable mortgage loans or have refinanced down to low fixed mortgage rates, all of which are no longer available or have limited availability.

Now, with fixed-rate 30-year mortgage rates rising above 4%, many existing homeowners who plan to sell because their home has grown inadequate relative to their needs and want to trade up to more expensive homes are likely to begin to be forced into not selling (and then buying a larger home) because they can no longer replace their low mortgage rates with anything close to their previous mortgage rates.

The rise in mortgage rates will also likely have a materially adverse impact on home refinancings. Refinancings have historically provided a significant impetus to home renovations and refurbishings, as it delivers cash directly available for home improvements.

In addition, home affordability also will be negatively impacted by the nascent rise in inflation (most notably the recent rise in crude oil prices and other commodities) that digs into real incomes and consequently affordability.

Look for softness in housing fundamentals (sales activity, home prices and in renovations) during the second half of the year and reconsider investment in home builders and home improvement companies."

-- Daily Diary, "The Housing Recovery Will Sputter in the Second Half of 2015" (May 6, 2015)

On Fast Money: HalftimeReport today, Scott "Judge" Wapner asked why all the panelists were unanimously bullish on housing. The gang gave a number of reasons: rates won't rise too rapidly, household formations are climbing, an improving labor market and pent up demand were among many factors. Let's go to the videotape.

Respectfully, I hold to a different and more cautious view:

1. While the high end will benefit from an "exclusive" economic recovery that has aided the well-to-do -- higher home prices have sowed the seeds to reduced affordability and will hurt mid-level priced housing sales activity going forward. (The issue has not been the cost of capital or the level of mortgage rates for years).
2. Interest rates have to only rise slightly to adversely affect housing, as many are locked into low adjustables and teasers, so they are less likely to "move up" to larger and more expensive homes as they can no longer replace low-level mortgage rates. Mortgage credit is no longer freely available (as was the case eight years ago) as mortgages standards having been raised materially, so yesterday's no doc/lo doc mortgage of $250,000 (rates low or zero) is today's equivalent to a $450,000 mortgage (when normalizing the "terms").

I would avoid housing-related securities.

More from Art Cashin:

Further to the levels -- The 50 day moving average in the Dow is 18,010.76. In the S&P it's 2097.19.

The two-year Treasury note auction -- extremely sensitive to expectations for the first Fed rate hike -- was very ordinary.

At an auction yield rate of 0.648%, the most since December, it was right in line with the when-issued, and the bid-to-cover of 3.40 was about exactly in line with the previous 12-month average of 3.42. The slight positive was that dealers were left with 40.5% of the auction, less than the 12-month average of 47%.

Janet Yellen and Stanley Fischer have given  no new clues on when rates will first move higher. Of course, the FOMC minutes said it's unlikely to be in June but we do get the PCE and May payroll report before the June meeting. If any firmness is seen in the core PCE rate as we're clearly seeing with the CPI, June will not be off the table, especially if we see a rebounding jobs figure. Either way, the Fed seems itching to raise rates in order to get off zero and looking for an excuse to do so.

• Midday musings from Sir Arthur Cashin:

The bulls try to circle the wagons but receive no help from the Transports so far. Run rate has slowed slightly. In the first 90 minutes, the run rate projected an NYSE final of 820/900 million. With Europe closed, we slow to a 12:15 project of 750/830 million.

Fischer at 12:30, may bring volatility.  WTI inches toward the previously mentioned lows.

Over the last few weeks, I have posted that I have dramatically raised my exposure to closed-end municipal bond funds -- taking advantage of price drops due to fears of an interest rate rise (which is certainly not happening today and I am not expecting in 2015).

It is important to note that many high-quality municipal bonds are now yielding 20% to 30% higher than Treasuries (on a pre-tax basis).

Over history, this has been a good time to own both munis and closed-end muni funds as the spread between taxable and non-taxable paper narrows.

• Real estate maven Mark Hanson opines about South Beach:

Summary:This is an update to my monthly coverage on Miami Beach -- a leading indicator market to multi-family mal-investment and foreign demand for vacant condos & money laundering -- which is in the midst of a powerful bear market in demand, yet a surge in prices; ttwo conditions that should never go hand-in-hand, except in a bubble.

Bottom line: Volume and supply are supposed to dictate prices.  But, in Miami demand has dropped while supply has risen continuously for the past three years.  Like virtually every other high flyer market around the nation, this "demandless house price surge" is being driven by something other and far more powerful than traditional housing economics. This is exactly like 2003-2007 and is unsustainable, as unorthodox liquidity is volatile liquidity.

Miami Beach

Demand has plunged to cycle lows and supply has surged to an average of 15-months in 2015, with 10s of thousands of units in the early and mid-stage production pipe (greater than in 2006) that can't be absorbed without a plunge in prices, or a fresh tidal wave of foreign and domestic speculators.  Several "hot" condo markets around the country are now trending in this direction, but nobody's talking about it yet.

We know supply here will surge for at least 2 more years based on what's in the pipe.  The question is, what can make demand double or triple (more needed if rates meaningfully rise), which is what's needed to prevent a price collapse. 

1)Bear Market Miami Beach Supply / Demand dynamics on one and three year measures

• FOR SALE UP 18% FROM LAST YEAR
• SOLD DOWN 15% FROM LAST YEAR

• FOR SALE UP 34% FROM 3-YEARS AGO
• SOLD DOWN 10% FROM 3-YEARS AGO

Bottom line:Judging by these supply/demand fundamentals, prices should be weak...this should be a "buyer's market" for certain.

NOTE:  Supply is the "light green" bar going skyward and demand is the "dark green" and "red" lines going nowhere.

2)BUT, prices are soaring and completely detached from demand and supply fundamentals.

• ·PRICES UP 11% FROM LAST YEAR
• ·PRICES UP 40% FROM 3-YEARS AGO

Bottom line:  If it walks like a duck and quacks like one, it can pretend to be a swan for a while.  But, it will eventually waddle and quack because it's a damn duck, not a swan.

How I see it...

1) The 2003 to 2007 era was all about "unorthodox demand (every mom & pa in America) with unorthodox capital (exotic loans) creating a wave of incremental, speculative, and volatile liquidity", which pushed house prices far beyond fundamental valuations and that went away as suddenly as it arrived.  When the unorthodox, easy liquidity left, house prices re-attached to traditional housing economic drivers, or "returned to normal", resulting in a hard reset lower.

2)The 2012 ¿ 2015 era has been no different, just different players;  "unorthodox demand (insti's and foreigners hiding capital) with unorthodox capital (Fed, oil, and weak dollar) creating a wave of incremental, speculative, and volatile liquidity" that has pushed house prices far beyond fundamental valuations and that will go away as suddenly as it arrived, due to one thing or another.  When the easy liquidity goes away, house prices will re-attach to traditional housing economic drivers, or "return to normal", resulting in a hard reset lower. 

Based on demand in various "hot" spec markets across the nation, the housing market is experiencing  a modest liquidity drain over the past few quarters on the surging US dollar, oil market crash, and economic slowdown / corruption crackdown in China.

Bottom line:  The 2003 to 2007 and 2012 to 2015 periods had virtually identical drivers and responses, but involved different players.  As such, why should we expect a completely different outcome? 

Like Mark  Hanson, I see, after several years of climbing home prices, housing reattaching to traditional housing drivers and a "return to normal," resulting in a hard reset lower in turnover and prices.

• Houskeeping items.

I am closing out the balance of last week's and this week's first "Trade of the Week" -- SPY June $212 Puts at about $3.80 for a nice gain.

I am also closing out (covering) half of my SPY shorts -- moving the position size from medium- to small-sized and taking back my net short exposure to "modest."

• Mid-morning musings from Sir Arthur Cashin:

Transports threaten to break 8400, putting pressure on other equities. Bulls couldn't hold S&P 2120 or 2115. Should 2100 be tested, it better hold.

WTI is within hailing distance of its 5/19 intraday low of 57.93. A decisive break could suggest a new meaningful leg down.

This week's "Trade of the Week" is to buy the Market Vectors Agribusiness ETF (MOO), which consists of the following Top 10 holdings:

MOO Top 10 Holdings

Source: Yahoo! Finance

View Chart »View in New Window »

The reasons for my recommendation?

First, as you can be seen in the chart below, MOO has broken out of a three-and-a-half-year base:

MOO Long-Term Chart

Source: BigCharts

View Chart »View in New Window »

Other reasons:

• Deere's shares (DE) have broken out of an extended base, too. The company also announced a nice earnings beat last week.
• I'm already bullish on Potash Corp. ofSaskatchewan (POT) which has been on my "Best Ideas" list for an extended period of time.
• The fertilizer and agriculture sectors stand to benefit from a burgeoning middle class around the world.  

Most folks will elect to buy MOO outright. I've begun purchasing it with a $57 limit and am working as a scale buyer lower.

However, given my negative market view, I like the idea of a pair trade -- going long on MOO and short on SPY.

Housekeeping item: I'm selling half of last week's (and this week's) Trade of the Week -- SPY June $212 puts -- at about $3.50 for a nice gain.

Peter Boockvar parses through home sales, confidence, services and manufacturing:

"New home sales in April totaled 517k annualized, slightly above the estimate of 508k and up from 484k in March (revised up by 3k). The number is just off the multi year high seen in February when it touched 538k but to put the figure in a broader perspective, the 30 year average is 708k and the '05 bubble peak was 1.39mm. Months supply fell to 4.8 from 5.1 in March and vs 4.6 in February. Home price gains were aggressive, rising by 8.3% y/o/y and 4.1% sequentially. Bottom line, new home sales remain historically depressed which of course means tremendous upside in coming years. That said, high single digit home price gains is not sustainable relative to income growth and even rent growth which was 3.5% in Friday's CPI. The first time household with these kind of price gains will remain more happy renting than buying.

Consumer confidence in May rose 1.1 pts to 95.4, about in line with the estimate of 95. The level is still near the highest in this expansion but off the 103.8 seen in January and 101.4 in March. There was a 3 pt rise in the Present Situation component after falling by 4.4 pts in April. Of note, the Expectations component fell just .2 pts but to the lowest level since September '14. The answers to the job market questions were mixed. Those that said jobs were Plentiful rose 1.7 pts after falling by 2 pts in April. Those that said jobs were Hard To Get rose 1.4 pts to the highest since November. The overall employment outlook rose .8 pts but only after falling by 1.5 pts in April. Expectations for income growth were unchanged with last month. Those that plan to buy a home within 6 months rose .4 pts to 5.5 which is a touch above the 6 month average of 5.2. Those that plans to buy a car rose .8 pts to 11.9, essentially in line with the 6 month average of 12.1. Likely due to the rise in gasoline prices, one year inflation expectations rose to 5.1% from 4.9% last month vs the 6 month average of 5%.

Bottom line, while there was little change in the headline figure, consumers were more cautious about the short term outlook relative to how they feel right now. Either way, confidence figures never are market moving and tell us nothing about economic growth in coming quarters. The Fed on a few occasions has cited higher consumer confidence and while they are right, it should not factor into any forecasting models.

Markit's index of US services in May fell 1 pt m/o/m to 56.4. It's the lowest since January and compares with the 12 month average of 57.6. New orders moderated but payroll growth was still good as it rose to the best level since June 2014. On the cost side, "input cost inflation edges up to a 9 month high...which a number of survey respondents attributed to higher fuel costs. However, output charge inflation was only modest, having eased since April."  Putting the services index with last week's manufacturing one puts the composite index at 56.1 vs 57 in April. It's also the lowest since January but remains well above 50. Positively, business optimism about the future rose to a 6 month high. The Markit economist expects a Q2 GDP rebound of 3%.

Following ho-hum manufacturing reports from the NY and Philly regions, Richmond was (uneventful) as well. Its index was +1 vs -3 in April.  The one yr average is +5. At least seen in the manufacturing indices, there hasn't been much of a Q2 rebound whether due to the strong $ notwithstanding the recent selloff, softness overseas or an adjustment after the big inventory build in Q1."

Again, for emphasis, I think the banks are overbought now and I wouldn't chase.

That said, I am not selling any bank shares.

As an aside, the CEO of Fifth Third Bancorp. (FITB) will be on CNBC in the next segment.  

A reminder -- I am out of my SPDR Gold Shares (GLD) long position.

Going forward, I plan to deliver one long and one short Trade of the Week each week.

Last week, my first trade was June $212 SPY puts at $3.02/share (subsequently added to on a scale down to $2.42 on Friday). My second Trade of the Week was Long Yahoo! (YHOO) at $42/share. 

This week, my first trade is again the June $212 SPY put. My second trade -- a long position -- will be delivered later today.

The Gospel According to Peter Boockvar:

The yield is curve is steepening again with the 2s/10s spread narrower by 3 bps today, by 10 bps over the past week and 15 bps over the past two weeks. The 2 yr yield at .62% on the heels of the fastest m/o/m core rate of gain in CPI is a main factor as a June rate hike we believe is still not off the table and if it is, we're only talking 3 months thereafter that we'll finally get our first rate hike in 9 yrs, maybe. Fed Vice Chairman Stanley Fisher yesterday expressed the Fed's self imposed dilemma of "which is better, early and gradual or late and steep?" "If the US economy is growing very, very slowly we will wait. If the economy is growing faster we will do it quicker" He also said "if we raise the rate from zero it will be harder to go back to zero if there is a problem." I say to that, by not getting off zero, the Fed has no ammo if there is a problem. Lastly, Fischer continues to differentiate between a modest hike and what would be considered tightening, "what we are thinking about is raising the interest rate from zero, which is an ultra expansionary monetary policy to a quarter percent, which is an extremely expansionary monetary policy. This will be a gradual process." Due to the rise in yield on the short end, the never ending annoyance that is Greece, and the aftermath of Spanish elections, the US dollar is also getting some of its legs back, particularly against the yen which is breaking down to a fresh 8 yr low vs the dollar. The euro is back below $1.10.

Durable goods orders in April will be key US data point today. We also see new home sales, home prices, consumer confidence and the Richmond and Dallas manufacturing indices.

The Spanish elections over the weekend that resulted in a 2.3% decline in the IBEX index over the past two trading days was best described by the FT today: "There is little doubt as to who emerged victorious in Spain's regional and local elections. In no particular order, the winners were: confusion, fragmentation and unpredictability." One of the best growth rates in the European region over the last year was not enough to help Spain's ruling Popular Party that "lost heavily" according to the same FT article. Spanish bonds are also trading down with the 10 yr yield higher by almost 6 bps in the last two days. In sympathy the Italian 10 yr yield is up by 5 bps to just shy of the highest since January. The Podemos party, which is Spain's equivalent of Greece's Syriza party, also made inroads. Speaking of Greece, the drama never ends and the Greek 2 yr note is spiking by 250 bps to a fresh high of 25.65%. Greek officials will be talking again with the European Commission and the IMF today. The Greek government has basically run out of money so it's another bridge loan coming or a default within the next week or two. Expect the former.

• "An Interest Rate Rise. Unlike some of the recent market drops, the bond vigilantes have emerged with a vengeance. German Bund prices have crashed (yields have risen from six basis points to nearly 80 basis points in their 10-year). After decades of inertia, the vigilantes are hungry, and have abruptly wrested control of the markets from Mario Draghi. As I have written, U.S. bond yields have, in fact, ratcheted higher once the anchor of low EU interest rates was lost. Valuations Impaired by Higher Rates. Almost every model that calculates market valuation relies on imputing and discounting of a risk free rate of return. Stated simply, high rates increase the hurdle rate and reduce theoretical price/earnings multiples in a fair-market calculation. Weakening Economic Data. Recent high-frequency data in the U.S. and outside of the U.S. remain mixed to lower than consensus expectations. Thus, before this week's downside equity move, the chasm between financial asset prices and the real economy widened ever further. Inflation and Inflationary Expectations Rising. Inflation is being buoyed by higher employment compensation, lower jobless claims, a reversal of U.S. dollar strength, rising rents and home prices and higher oil and non-energy commodities prices. Too Bullish Investor Sentiment. Complacency, as measured by still-buoyant retail investor sentiment (up until this week) and in (according to ISI) a sharp rise in hedge-fund net long exposure, produced a lot of "offside" players who did not anticipate the equity downturn."

--Kass Diary, Is It Real or Memorex? (May 8, 2015)

Market tops are a process, and I continue to believe a broad top is being made in 2015's first half. The good times might really be over.

Of course, nothing is more obstinate than a fashionable consensus -- as it's almost always a good bet that the crowd will generally prefer sticking together. But my concerns are plentiful (and not restricted to the following):  

1.  There's no margin of safety left, as numerous secular headwinds remain.

2. Peak profit margins, peak liquidity, peak activists.

3. Peak buybacks and peaking confidence in central banks.

4. The widening chasm between stock prices and the real economy.

5. Many valuation measures are inflated -- and if not bubble-like, they're at least excessive.

While no one knows for sure where Mr. Market and the global economy are headed, I'm convinced that the following 13 key "big-picture" factors could weigh on markets and the real economy over the balance of this 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. The 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 ZIRP, 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's already 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.

13. Mindless Buying. Case in point, Chinese equities.

 "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

I will almost 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 (China, et al), etc. -- they'll wonder how stupid investors were to have bought in.

The bottom line: Short in May and go away.