I end the week with similar concerns that I started the week with:

• Consensus domestic and global economic growth expectations for 2017-18 are inflated.
• The consensus forecast of a "hockey stick" to US corporate profits growth over the next 12-24 months will likely disappoint.
• Valuations are stretched relative to sales and earnings prospects.
• The message of the US bond market is that growth will not meet expectations.
• A highly partisan Washington, D.C. -- both within the parties and between the parties -- will stall tax and regulatory reforms and infrastructure endeavors.
• Geopolitical risks are multiplying -- we as citizens and investors are not as safe as the markets presume.
• The new administration's policies and behavior will likely make volatility and uncertainty great again.
• Interest rates are likely to advance in a modest but steady manner over the next two years -- but the yield curve may flatten further as the Federal Reserve raises rates. (This will not be friendly to industries like baking and insurance.)
• Over the last month Mr. Market may be in the process of forming a top for the full year (more on this in next Monday's opening missive) --consistent with my 2375 S&P high discussed in my "15 Surprises for 2017."
• The risk in the S&P index, by my measures, is roughly three times greater than the reward. That 3-1 downside/upside makes stocks most unattractive.
• For 2017, be more concerned with return of capital than return on capital. 

Break in!

The Wall Street Juornal reports that Reince Priebus and Steve Bannon might be reassigned.

Real estate maven Mark Hanson illustrates the divergences in the California market:

Higher-end vs Lower-end housing...massive demand divergence & house-price compression trends, finally stand out.

I have great data in the sand states, especially Cali.

Last week I put out [a note] on the interesting demand divergence between the tech-centric NorCal and SoCal real estate markets.

Breaking the data down further, I found that (see chart below)...

• Sales up sharply in "HIGHER-END" tranches, but prices are DROPPING.
• Sales weaker in "LOWER-END" tranches, but prices are UP, moderately.
• "Lower-End" makes up ~90% of sales, meaning the moderate price gains here mask the declines in the core, leading-indicating, "Higher-End" tranches.

Demand Divergence & House Price Compression Is On (not just a CA trend)

This supports my thesis that's playing out slowly, but surely: Volume precedes prices and higher-end sale volume is increasing because sellers are coming down to hit the bids, which is leading to "house price compression". The Lower-end market makes up the majority of sales. But, prices are at a point it is forcing potential buyers to the sidelines, or to take-on exotic, interest only loans, to make the money payments affordable (for the first 3 to 5 years).

A few, large CA markets are sampled in the chart below.

A quick read off my laptop indicates last night's fear in the equity markets and this morning's early strength in bond prices have been repudiated.

It is a day, however, of modest price action in individual securities and in sectors.

I suspect as the trading session tails off, so will volume.

I am taking the balance of the day off for personal reasons.

Enjoy the weekend and thanks for reading my Diary today.

Today's action is modest and I don't seem to be missing anything as I am out of the office.
I have to admit being overcome by grief today.
I will try to make a couple of short posts this afternoon.
But my heart isn't in it to be honest.

Here's Peter Boockvar's take on this morning's weak jobs report:

"March payrolls grew by just 98,000 -- almost half analysts' estimates of +180,000. The two prior months were also revised down by 38,000. Of this, the private sector added just 89,000 jobs vs. the estimate of +170,000.

By contrast, the report's household survey said 472,000 new jobs were created, and because the size of the labor force only grew by 145,000, the U3 unemployment rate fell to 4.5% from February's 4.7%. That's the lowest since May 2007 and is just 0.1 percentage points from matching the mid-2000s expansion's low. The 'all-in' U6 rate was likewise down 0.3 percentage points to 8.9%, the lowest level since December 2007 and not far from 2006's 7.9% record low.

In terms of age breakdown, job growth was broad-based, with the 25-to-54-year-old in particular seeing a 186,000-job gain. The most notable improvement came for those without high-school diplomas, where the jobless rate dropped to 6.8% from a previous 7.9%. However, this is more due to a drop in the size of this segment's labor force (a higher minimum wage doesn't help the unskilled). ...

In stark contrast to what ADP reported on Wednesday, the Labor Department said Friday that just 6,000 jobs were added in construction and 11,000 in manufacturing. But the service side was where the real weakness was, with just 61,000 private-sector jobs created vs. 125,000 in February and 153,000 in January. Retail shed 30,000 jobs after losing 31,000 in the month prior, while the information sector hasn't seen net job growth since September.

Meanwhile, hourly wages were higher by 0.2% m/o/m and 2.7% y/o/y, as expected. Weekly earnings were likewise up 0.2% m/o/m and 2.4% y/o/y -- pretty much in line with the modest trend. ...

The bottom line -- while this report was disappointing, the three-month trend of 178,000 jobs created isn't really much different than the 187,000 average seen in 2016. It just confirms the slowing that we've seen over the past few years. (Monthly job gains averaged 226,000 in 2015 and 250,000 back in 2014.)

I want to make something very clear -- we are late in this economic expansion, and with the unemployment rate now down to 8.9% "all-in" and 4.5% in the widely followed U3, it's tougher and tougher to find good employees. Thus, it's the supply side of the equation that's the likely reason for this jobs miss relative to expectations.

That said, economic growth is likely to be only about 1% this quarter, with weak productivity. Adding about 180,000 jobs per month on average isn't adding much in terms of growth.

The 10-year U.S. Treasury yield is holding the lower end of its recent 2.30%-2.60% range after breaking below that for a few minutes right after today's report came out.

I'm still bearish on bonds and don't believe we'll break much below these levels. As for stocks, tax reform had better come sooner rather than later, because anything that gets shifted into 2018 will just halt activity in 2017."

The only question I have given my perception of market risk is: "How short should I be?"

My pal Peter Boockvar, chief market analyst with The Lindsey Group, weighs in on last night's military action against Syria and what it may mean for the markets:

I have to leave the geopolitical analysis to others with what went on last night and try to focus on what impact, if any, it will have on markets. Typically these kinds of events don't really matter more than a few days and this one definitely shouldn't either. I went to sleep with the S&P futures down 13 pts and now they are essentially unchanged so that helps to confirm my belief. If anything, maybe some of the networks and newspapers will stop the constant, non stop Russia/Trump bedfellow reports now that the Russian's aren't happy with us as Assad is a buddy of theirs. Oil is up by almost 1% with the front month contract at a one month high even though Syria doesn't produce much and gold is doing what it typically does after these type of events, trade up but those moves rarely last. The Russian Ruble is down 1% vs the dollar and the RTS stock index is lower by 2.6%.

The US invaded Iraq on March 20th 2013 with 'shock and awe' and the bear market ended about a week before on March 11th. Granted the market sold off about 15% from two months earlier as the war rhetoric built to its eventually beginning but all throughout that seemingly endless war, markets recovered from the rough bear that started in March 2000. Bottom line, Syria and our response will be news all day and all weekend but shouldn't matter at all for markets. Trump's tax plans and the direction of global monetary policy will still be the main drivers this year.

A day after the March Income Growth component within Japan's consumer confidence index touched its highest level since 2007, regular pay in February disappointed with a .2% y/o/y gain after a .6% gain in January. Helping the headline cash earnings boost of up .4% was a rise in overtime and bonus'. Real earnings continue to do no better than the modest rise in inflation. The fallacy of wanting higher inflation is if wage growth just keeps up at a similar pace, the wage earners are still no better off than they are today. Thus, the Abe focus should be solely on generating faster real growth, not the nonsense of believing that higher inflation drives quicker economic activity. Even with the higher yen and the overnight weakness in the S&P futures, the Nikkei closed up by .4% but only after falling by 1.4% yesterday. It's still down for the week and lower on the year.

China's FX reserves in March totaled $3.009 Trillion, a touch below the estimate of $3.011 Trillion but up $40mm from February. This follows the yen which was basically unchanged vs the US dollar in the month of March but was helped slightly by the US dollar weakness against China's other holdings. The bulge in Chinese savings is being kept in the country via tightening capital controls. The huge imbalances though still remain. The Shanghai comp was up slightly while the H share index was flat.

In Europe we saw February industrial production figures from the 3 major economies there. German IP rose 2.2% m/o/m which was much better than the expected decline of .2% with a partial offset from a 6 tenths downward revision to January. French IP disappointed with an unexpected 1.6% m/o/m drop after a .2% fall in January. The estimate was for a bounce of .5% and manufacturing weakness led the way. I'm hopeful that a Macron victory in France could be game changing in shifting the government's focus to policies that free that economy from the clutches of the welfare state. UK IP was also a miss with an outright decline m/o/m led by a negative month for manufacturing for a 2nd straight month. It seems that the benefit from a weaker pound has already run its course. The production of commodities was also negative after a rise in January. Bottom line, these are all February numbers so aren't really market moving events. Also, a mild winter also tempered utility output.

We also saw an upside surprise with German exports in February and with 40% of their economy dependent on exports, it's obviously important. Home price gains in the UK for the 3 months ended March saw the slowest rate of gain in years, 3.8% as the Brexit fallout continues on property markets. The BoE is about to conclude their QE purchases of corporate bonds, well before the expected end date because of their success in buying plenty of bonds much quicker than they expected. Thus, soon add the BoE as another central bank that is pulling back in some fashion from its extraordinary policies.

Melania and Donald Trump with Chinese Presient Xi Jinping and his wife (Peng Liyuan) right before dinner at Mar-a-Lago last night. (Photo: Palm Beach Daily News)

Last night I joined a party of six to have dinner at Mar-a-Lago, President Trump's Winter White House. Our host was a friend and well-placed Republican.

Our route to Mar-a-Lago was characterized by an unusual amount of security -- barricades, Secret Service, Palm Beach police -- and local and national TV stations who were photographing the evening's affairs from outside the Trump compound.

There were only a handful of protesters compared to my Christmas visit there, when hundreds protested.

I periscoped the experience in his car as I began to approach Trump's Winter White House.

As is now customary, all cars proceeded into a security area outside the president's compound; there, we were all asked to show identification. My friend's car was thoroughly inspected by the Secret Service. Dogs were used to sniff out potential bombs, mirrors searched the underbody of the autos and engines and trunks were thoroughly inspected

Here is my video of the security process last night that we experienced. 

As we approached the side entrance to have dinner and walked down a red carpet to the main entrance, I continued to periscope.

Here is the periscope video as I entered Mar-a-Lago. You can see I passed the main pool and Baron Trump's jungle gym and play set.

At the end of the video I was approached by Secret Service and was forced to stop videoing. An agent -- you can see him approach me at the end of the video -- told me I had to delete all of my videos and I was not permitted to take pictures or videos in Mar-a-Lago or my phone would be confiscated. (Later I learned about five to 10 cell phones were indeed confiscated.)

To my surprise, our party of six was escorted to what generally is considered the prestigious and most highly sought table in the outside area, right next to the bar and entrance that leads into the main inside dining room where the president was dining. We were about 50 feet from their dining room and all night we could see the president's party and his cadre of Secret Service through a large window near our table.

As we approached our table Lt. Gen H.R. McMaster passed the dining crowd, all of whom stood up and applauded.

I recognized most of the Mar-a-Lago club members in the outside dining area; there were about 100 people having dinner. It seemed to be a slightly smaller than usual group of Trump's "friends" and close club members. We had to submit identification to the Secret Service about a week in advance, and we were told that everyone attending dinner at the club was vetted.

The dinner was nice but uneventful, save for the heavy dose of Secret Service support. (As an aside, I did notice a couple Fox news broadcasters at the bar, but none from CNN or MSNBC!)

Speaking of heavy doses, on principle I had the legendary "Mary Trump's Meat Loaf," and it was delicious. 

Here is a photo I took in late December as I entered Trump's club/home:

Of course, as we all know the dinner was a prelude to a dramatic announcement by the White House.

Unbeknown to all of us, last night the president enforced the red line regarding Syria's use of chemical weapons against its own people initially intended but not enforced by President Obama by launching missiles in an attack on a Syrian airport. This occurred right after Donald and Melania Trump, Gary Cohn, Sean Spicer and some others appeared from the main indoor dining room to say hello to his crowd of Mar-a-Lago friends and club members who were dining al fresco.

S&P futures dropped as much as 17 handles (now down only four) and gold has advanced by $14 an ounce and the yield on the 10-year U.S. note fell by as much as six basis points (now down by only two basis points).

Here is a good summary of this morning's price changes in major asset classes. (Hat tip Zero Hedge)

This morning I must attend to some personal issues related to the passing away of my friend's son early this week.

My a.m. posts will brief and hopefully on point.