Repeating for emphasis.

I am shorting the tax reform news which appears to be an "all in" bet on supply side economics' ability to catalyze domestic economic growth.

Most importantly, there is no new news here -- its the same message that was materially contained in Trump's campaign platform and released last Fall. If the Trump team has been working on this tax package for the last six months, we certainly didn't see it today! Moreover, there is no clear route to passage of the tax bill. (Apparently the bond market agrees, as bond prices are at the day's highs)

While any analysis of such a broad based proposal is complicated (and there is only a broad outline compiled in a one pager with few details) -- I will make some initial points:

* (From my perch) the tax plan, as currently proposed, has little chance of being introduced given the likely deficit unfriendly ramifications (greater than $3 trillion will be tacked on) as well as the heated opposition (in context) from many quarters --the Fiscal Hawks within the President's own party as well as by the opposition, the Democrats.

* I do not believe the final proposal -- when delivered -- will serve to substantially increase the rate of domestic GDP growth which it must do in order to rein in the deficit.(Again, look at the bond market's reaction today - yields are two basis lower on the day and 3-4 bps lower than the high in morning trading). There are numerous structural reasons for this which are not addressed by the tax proposal. Moreover, there is no empirical evidence that lower statutory tax rates produces an expansion in capital spending. 

* I do not believe the final proposal -- when delivered -- will narrow the wealth and income gap (which is one of the principal reasons Trump won the Presidency) . Rather, like monetary policy over 2009-16, there will likely be a trickle up impact to the wealthiest with the largest balance sheets. A case in point is the elimination of the Alternative Minumum Tax -- with the acknowledgement that the most wealthy (like the President) will be the beneficiary.

* There is a great big loophole on pass-through income. And there is no mention of the elimination of carried interest -- another important Trump campaign promise gauged to bring back income equality.

* The unintended consequences of the Administration's tax reform outline is massive -- as it relates to US geographies (states like California, New York, New Jersey, etc.) and for a plethora of other reasons which I will discuss next week.

* Interestingly, the expatriation of foreign profits/cash was not included in the proposal -- that plan that is currently in preparation (according to Mnuchin).

Chart of the Day

Break in!

Netflix (NFLX) is getting hit following news that the FCC will propose to roll back net neutrality rules.

After the good 2-year note auction yesterday, the 5-year auction today was more mixed to the soft side.

The yield was above the when issued but the bid to cover was slightly above the previous 12-month average. Direct and indirect bidders took 63% of the auction vs. the one-year average of 68%. That is the least since July 2016 and thus left dealers with the most amount since then in any one 5-year auction.

The action in the bond market is truly fascinating. If only we could make it talk!

We keep talking about the differing messages all these markets are sending but it's really glaring over the past few trading days since the French election. Yes, long end yields adjusted higher this week but with the 10-year yield still only at 2.33-2.34%, well below the upper end of the recent range of 2.60%, what is that telling us about the US economy and tax reform?

The 2s/10s spread is only at 105 bps -- as documented in my "Takeaways" every day. It was at 100 bps the day of the election and thus we've essentially given back the entire 36 basis points widening after Trump won. The spread peaked on December 22.

What is going on here? We can say that Treasury buyers are focused on the here and now of slow growth (JPMorgan took down 1Q2017 projected Real GDP growth to +0.4%) at the same time the Fed is hiking rates and this explains the flattening.

As to what fixed income thinks about tax reform, it obviously still has questions on the size and timing of its implementation. The consensus is assuming this gets done late summer but the size is of course in question.

Stay tuned.

Break in!

Hospital stocks getting hit on the news that the Freedom Caucus has endorsed the President's new healthcare bill.

I have added (small) to my Twitter (TWTR) long -- just now at slightly under $16.

My update and analysis of the Twitter quarter (I liked!) will be delivered on Monday as I have to scoot out for the next two days at a teaching assignment at Tulane University in New Orleans later today.

Also, as a result of my travelling schedule there will be no "Takeaways" today.

Tomorrow you will be in the capable hands of "Meet" Bret Jensen.

Optical stocks are being taken to the woodshed today -- Oclaro (OCLR) -$0.86 (-10%), Lumentum (LITE) -$2.15, MACOM Technology Solutions (MTSI) -$4.00, Acacia Communications (ACIA) -$3.00, Applied Optoelectronics (AAOI) -$2.00 and Fabrinet (FN) -$2.90.

I recently wrote several columns and made remarks in our Comments Section -- in opposition to the upbeat view of my arch nemesis "Jack" (who I really don't wish badly) - regarding the negative near term fundamental outlook for optical stocks. 

I went on to write that the only saving grace would be takeovers -- but in light of the references made by Finisar (FNSR) and others this was unlikely until the down cycle accelerated and stocks were cheaper.

Today the group is broadly lower based on some of these factors:

* MTSI had downbeat comments (-$4)

* Goldman Sachs took down optical numbers.

* Rosenblatt, a research boutique, had negative fundamental comments.

* A New York Times report of a broadened U.S. probe of Huawei.

I would continue to avoid the optical space.

I am now pouncing (more aggressively) on the short side.

"I see trees of green

Red roses too
I see them bloom
For me and you..."
- 'What a Wonderful World,' Louis Armstrong 

Great analysts have been replaced by great coders -- in our wonderful world of investing dominated by Quants and others that worship at the altar of price momentum

"I hear babies crying

I watch them grow..."

Our investment world is all twisted around by a number of new structural influences. 

Remember what I have written about the risk of machines ... and consider that, at any time, it can lead to inconsistent and spastic markets that have no memory from day to day.

We no longer face our fathers' markets.

Investment horizons should be close and shortened.

Bond prices are gaining and the 10-year yield just broke (ever so slightly) 2.32%.

Meanwhile, Nasdaq still holding but doesn't seem to have the "oomph" of the last week or two.

I remain laser focused on the Nasdaq and ready to pounce on PowerShares QQQ Trust, Series 1 (ETF) (QQQ) short.

Stay tuned.

Mid-morning musings from Sir Arthur Cashin:

Market is hypnotized, awaiting tax proposals at 1:30.

Crude inventories actually grew in aggregate, the drop in crude itself inspired light buying in WTI.

Going radio silent at noon and then a recuperation holiday until Tuesday. Stay well!

Here is a synopsis of my short-term thinking as it relates to my near-term trading tactics: 

• The market has been buoyed by a handful of stocks of a technology kind.
• From my perch, (T)FANG has been materially exploited.
• The Nasdaq is getting overbought now.
• As mentioned at the outset, SPDR S&P 500 ETF  (SPY) short interest has been materially reduced and is now back to 2007 levels, and as Peter Boockvar related earlier, bullish investor sentiment has risen in the last week.
• The long-expected tax reform package is now on our doorsteps, though approval and execution without impacting the deficit is likely problematic. The rumor of the package has been bought -- perhaps the news will be sold.
• The 10-year U.S. note yield has risen by about 17 basis points from last Tuesday's low yield of 2.16%. Yields again could test the resistance at 2.32% (it is now 2.329%). If bonds rally in price and decline in yield, this could get the risk-parity crowd to sell stocks and buy bonds. 

The key to me is the Nasdaq, and I am laser-fixed on the near-term action of that Index today.

I will be selling more aggressively if the Nasdaq begins to slip, which is quite possible. If not, I will continue to probe on the short side, taking baby steps as mentioned earlier.

Ahead of earnings, Hartford Financial Services Group (HIG) -- my Trade of the Week -- is doing nicely.

I  have been adding to this name all week.

At over $240, Allergan (AGN) breaches some upside resistance this morning.

AGN remains my favorite large-cap long for 2017.

I am not selling Twitter (TWTR) after its earnings beat.

I am working on the quarterly report release now -- I expect a column later in the day.

"There is a ground-breaking book that has just come out... Baby Steps!

It means setting up small goals, one day at a  time..."

--"What About Bob?" 

I have moved my ProShares UltraShort S&P 500 ETF (SDS) (at $13.10) and ProShares UltraPro Short QQQ ETF (SQQQ) ($34.65) longs from small to medium in size.

I am small net short in my portfolio in aggregate terms.

Baby steps around the office today!

My pal Peter Boockvar, chief market analyst with The Lindsey Group, says MACA, but... (and check out investor sentiment, which conforms with my initial post this morning on reduced SPDR S&P 500 ETF (SPY) short interest): 

MACA (competitive)! Go big or go home and a 15% corporate tax rate will certainly make that happen. I'll leave it to others to figure out if and how we get there (will obviously be tough) but the implications will have to also be measured by any change in interest rates in response in gauging the impact on corporate earnings and for other obligations. In other words, we can't just do an 'all else equal' analysis. If the administration is going to rely heavily on dynamic scoring and thus assume a higher economic growth rate to 'finance' the tax cut, well then we have to assume too that interest rates will go higher both on growth possibilities and budget deficit ones. By the way, for a while deficits didn't matter but nothing negative does in a bull market. If we are no longer in one, maybe this time it matters. We still need buyers for all this paper and the foreigners have said 'no mas' and the Fed might just do the same by year end. Also with respect to corporate earnings, lowered interest expense was a huge boost since the earnings trough in '09. 

So let's put numbers around all this. The CBO forecasts the government will take in $320b of corporate income taxes in fiscal year 2017. Let's assume this gets cut in half and companies receive $160b (will likely be less because of offsets but let's assume). As of Q4, total business debt in the US was $13.47 Trillion. Thus, if interest rates rise 100 bps, we can add about $135b in higher interest expense. For households, we can $147b of higher interest expense on mortgages, credit cards, auto and student loans, etc... and for government at all levels we can add about $200b. Now there are certainly timing issues here in that there is plenty of fixed rate debt with maturities that stagger in coming years but you can see my point how important any interest rate response might be to a growth and budget busting enhancing tax cut. I want to be clear, making US companies more competitive from a tax perspective is crucial and I am all for this. We just can't analyze it though in a vacuum and must acknowledge the potential response in the bond market with the large amount of debt, particularly on the corporate side, and the artificially low level of interest rates that fed that beast over the past 10 years.

For those borrowers not locked in to fixed rates, such as LIBOR based borrowers, 3 month LIBOR has already gone up almost 100 bps over the past two years and if the Fed follows thru on its rate hike plan, we will see another 100 bps rise over the next year. See 3-month LIBOR chart:

Stock market sentiment according to II got more bullish w/o/w. Bulls rose to 54.7 from 51.9 last week where most came out of the Correction side that saw a 2.4 pt drop. Bears remained in a tight, albeit very low range as it fell to 17.9 from 18.3. Bottom line, the S&P 500, DJIA and Russell 2000 peaked on March 1st when sentiment got to its most extreme in 30 years and I still feel that in order to achieve another leg higher of substance, sentiment has to cool first. 

Mortgage applications to buy a home fell 1% w/o/w and that's after a 3.4% drop last week. The y/o/y change is essentially unchanged and the index level is at a one month low. We are smack in the middle of the important transaction season and I would have preferred to see some better gains in this gauge. This is with the average 30 yr mortgage rate which fell to a 5 month low at 4.20%. Instead, refi's got a boost of 7.2% w/o/w but they are still down 34% y/o/y as rates are 35 bps higher than a year ago.

Speaking of the business media, there was no discussion of disappointing earnings results/guidance at Discover Financial Services (DFS) and Capital One Financial (COF)  reported after the close.

And here is my Tweet of the Day (net chargeoffs at COF):

Fortune comes a crawlin,' calliope woman, spinnin' that curious sense of your own,

Can you answer? Yes I can. But what would be the answer to the answer man?'

--Grateful Dead, "St. Stephen"

As a bonafide Dead Head in the 1960s (71 concerts), I admired that the band's lyrics were so abstract and subject to interpretation, much like the markets.

Among my favorite Grateful Dead songs is "St. Stephen" -- lyrics written by Robert Hunter and Jerry Garcia and Phil Lesh composing the music.

I saw it performed live for the first time when the Grateful Dead appeared at the Fillmore East in September 1970.

St. Stephen is a song that is narrow and deep like the arrow being shot.

It's seemingly the story of an early Christian martyr "Stephen" who was the first deacon ordained by the apostles (though some interpret it to be about Stephen Gaskin, the Haight-Ashbury spiritual leader who founded The Farm) -- with the symbol of mystery, a rose, going in and out of the garden. We see a wishing well and the golden bell and the ladyfinger writing "what for?" across the morning sky.     

Like analyzing the S&P 500 Index the song was filled with questions, and unlike talking heads who have confident answers to every question ("answers aplenty in the bye and bye"),  unanswered questions ring throughout the song ("did it matter? does it now?").

But my favorite line is "wherever he goes, the people all complain." Like in the market commentary in the business media, no one enjoys being told the tough truths. In ancient times, that would get you stoned/killed; today it gets your shorts squeezed or the ursine get ridiculed on the set!

Near the end is the lyric, "Saint Stephen will remain, all he's lost he shall regain," and it ends with the words I started this column with -- a verse that ends with an answer to a question that is then questioned itself:

"But what would be the answer to the answer man?"

Today's opening missive reflects a critical assessment of some of the advice delivered through the business media from the Wolves of Wall Street.  

These days there are many in the world of the business media that pretend to be the answer man, but some are nothing more than "carpet sweepers" and charlatans who express superficial market and company views. They are often non rigorous -- miles long but only inches deep -- as they prepare quick sound bites after quickly glancing at a chart or reading a summary of an quarterly earnings report.

They, unlike the Grateful Dead song, "St. Stephen," seem to have answers to every question, and too many swallow it hook, line and seeker. 

Unfortunately, there is little accountability, with limited follow-up of both good and bad ideas),and even less vetting of qualifications and past investment history.

Those who are offered platforms in the business media often represent or own investment companies that advertise on the networks. This is currently not disclosed, but it should be.

Often the most adamant of the group of talking heads only trade odd lots (small amounts of stock), so their disclosures and confidence in their ideas is overstated though the delivery may be strong and self-confident -- dramatically so at times. (In addition to the names of equities, quantities and size of positions owned should be disclosed, but this is not the case right now as it could prove embarrassing to the representative of the ideas).

It seems from my perch that too often stars are made of non-stars in the investment business. 

Investing Is Getting Harder, not Easier, in a World Dominated by Quant Funds

Ideas are seamlessly and readily offered.

Despite the oversimplification of recommendations into brief sound bites, the complexity of today's markets is best seen in the high-profile closures of a number of hedge funds.

But answers are aplenty from the Wolves on Wall Street in a market mosaic that has become so complex and is governed by a bunch of Ph.Ds who man the machines and algorithms that worship at the altar of price momentum and are agnostic to balance sheets, income statements and private market value.

In, "Why Don't You Get a Job, Spicoli?"I recently wrote: 

Brad Hamilton (played by Judge Reinhold): Why don't you get a job ,Spicoli?

Jeff Spicoli (played by Sean Penn): What for?

Brad Hamilton: You need money.

Jeff Spicoli: All I need are some tasty waves, a cool buzz and I'm fine.

-- "Fast Times at Ridgemont High"

After long being addicted 24/7 to business TV, I've tried to meaningfully eliminate its role in my day and materially reduced my consumption of it. But sometimes the methadone wears off and I retreat back into the addiction -- and I just marvel every time I "take a hit" (as I did this morning).

Did you ever ask yourself: "How does everyone in the biz media seem to know everything about every subject -- economics, politics, market structure and everything else under the sun. And how, of course, do they know whether to buy, sell or hold every single stock?"

These talking heads offer an opinion on every single subject -- and confidently so. But, as Warren Buffett once advised about stock-market forecasters, keep your children and investment portfolios away from 'em.

As far as I'm concerned, the business-TV commentators might consider adding three words to their vocabularies: "I don't know."

Me? I worked at All-America Burger -- seven months ago.

These Wolves on Wall Street recite mostly Genuine Gibberish.

"I don't know."
   --Jeff Spicoli (Sean Penn), "Fast Times at Ridgemont High" 

Often wrong but never in doubt, the talking heads in the business media have answers to nearly every single question.

They conveniently forget their wrong answers.

In fact, many forgot what they said a week ago!.

They routinely emphasize their winning plays and ideas.

And, importantly, they have no recognition of these three important words: " I don't know."

They talk fast. As a matter of policy, my view is that the faster a talking head speaks, the more superficial the analysis and less valid the conclusions are likely to be.

Confident of view, certain of outcome and often shallow in depth and research vigor, it's mostly genuine gibberish that should be avoided in order to protect your investment well-being.

Don't buy the pablum.

Don't rely on their glib statements of fact and predictions of the future, typically based on one-dimensional chart gazing or other techniques.

They generally are selling you something.

The investment mosaic is more complex than reflected in the rather simplistic opinions of these fugazzis -- it's a combination of fundamental, valuation and sentiment.

And, if it was as easy as represented in the business media, librarians would be the richest people in America. (Warren Buffett)

Our Jim "El Capitan" Cramer is a clear exception to the rule. His commentary is based on decades of successful investing and outperformance in a real hedge fund. Moreover, he incorporates a strategy and research process of regularly interviewing corporate management -- something very few do! (There are others like Jim, but they are few and far between).

The business media is in the business of making their commentators and talking heads appear to be stars. But the real investment stars are mostly in the background and rarely seen.

Subscriber Tattoo522 thoughtfully writes today in our Comments Section: 

OMG, this quote from The New Market Wizards book perfectly cuts to the chase of a point I've tried to make here many times. It's regarding a blackjack card-counting gambling team (that the very successful trader had been a part of early on), but as the quote says, it directly relates to stock traders, too.

"People have a basic need to be recognized. He had a need to be recognized--even by the casinos. Until you get barred, the casinos haven't recognized that you're a good player. There are direct parallels to trading in the markets. The people who want to be recognized as the greatest traders are probably not the greatest traders. Egos get in the way of the process."

Remember this the next time you feel you ought to be impressed by an anonymous internet poster talking about unverifiable trades. There's a real human need to feel more important/successful than we really are. The only real measure of trader success then becomes what you can verify, and that's his/her track record of entries AND exits posted here in near real-time. As a adjunct to that, the very best trader on this Diary probably doesn't even have a DISCUS screen name, because he/she has never made a single comment.

Bottom Line

It is said that genius is a rising market.

I admit this morning's opening missive is a primal scream against the delivery of insincere, superficial and defective opinion and recommendations from the answer men on Wall Street. After eight years of market gains, the bullish talking heads -- strategists, analysts, money managers and commentators -- are growing more defiant and self-confident.

There are some notable exceptions -- e.g., Andrew Sorkin, Carl Quintanilla, Dave Gura, Tom Keene and Jim "El Capitan" Cramer -- but generally I wouldn't confuse the pablum and mountains of advice we see daily in the business media as being thoughtful and rigorous. 

Often the communications from the posers aren't even honest anymore. (No, I won't name names -- you all know who I am referring to).

My advice is to turn off the television and start to do your own homework. We all control our own investment destiny and are responsible for making our own investment decisions. Read as much as you can, survey opinions based on analysis (see above), gather up facts, think logically and develop thoughtful arguments.

And, consider not necessarily a linear price target conjured out of the air but probabilities and upside/downside to determine the reward versus risk.

Most importantly, avoid the Wolves on Wall Street who data mine, are generally superficial in their analysis and are certain in view -- but, like P.T. Barnum, are trying to sell you something.

If you go back to my recent case to short bonds, "Consider Selling Bond Holdings Before It's Too Late," I mentioned that a potential near-term catalyst was:

• Speculative Shorts Are Reduced: The short bond market positioning has been reduced in the recent drop in the 10-year U.S. note from 2.60% to 2.21%. The large Treasury bond short position has dwindled as more than 500,000 contracts have been covered, leaving the speculative shorts back to pre-November 2016 levels.

Source: Zero Hedge

This morning I wanted to mention that SPDR S&P 500 ETF (SPY) short interest has contracted to the lowest level since May 2007; this is a measure of rising bullish sentiment -- or give up by the short community -- and, though not a great timing tool, could suggest that there may be some downside pressure in the S&P over the short term with not as many shorts to cover left!