"I satirize at all times, and my hyperboles are as nothing compared to the events to which they refer."

- Marshall McLuhan 

We are stuck in a fantasy legislative land. 

Goldman Sachs gets on board with my Hurricane Harvey/Budget view. 

Sell tech, buy energy?

Selling the rally.

Speaking the truth to power. The news and commentary in the business media is getting ever more repetitive, with commentators who forget what the say days before. Don't believe the hype  and I will continue to fight the power! 

Not surprisingly to many, Mr. Market displayed a nice rally of about nine S&P handles.

Last program standing will determine the last sixty minutes of trading.

The proximate cause was the Trump Pelosi and Schumer agreement on the debt ceiling tied to Hurricane Harvey relief  -- something I predicted ten days ago.

I both added to longs and shorts today.

* The US Dollar weakened.

* The price of oil gained +$0.47 to $49.13.

* Gold fell by -$7 to $1337. (After the big run I would rather be short than long now).

* Ag commodities: wheat +3, corn +2, soybean +3,and oats +3. (Potash Corp. of Saskatchewan  (POT) traded well today)

* Lumber -7.

* Bonds were lower, higher and ending lower. Looks to close the day at the low in price and high in yield. Yields rose by three basis points on the day - in the intermediate and long ends. As I wrote yesterday, I added to my bond short.

* The 2s/10s spread rose by one basis point.

* Municipals were lower in price while junk bond was slightly in the green.

* Banks rallied -- at 3PM at day's high -- after yesterday's shellacking. But Bank of America (BAC) , Citigroup (C) and JPMorgan Chase (JPM) up only fractionally. I add to Wells Fargo (WFC) almost every day -- and I will continue at current prices.

* Insurance companies slightly higher. Lincoln National (LNC) and Metropolitan (MET) (shorts) up modestly.

* Same for brokerages after Tuesday's schmeissing. Disappointing to bulls, I suspect.

* Autos have a better tone as replacement in Houston (and Florida) could eat up some of the outsized industry inventory.

* Consumer staples headed higher for the second day in a row. (Bruce Kamich on Campbell Soup (CPB) technical and Credit Suisse on the fundies)

* Old tech was mixed, a bit disappointing again for the bulls.

* Retail caught a bid with Target (TGT) , Dillard's (DDS) , Nordstrom (JWN) and Macy's (M) stronger.

* Ag equipment stronger.

* Energy ( (XLE) +$1.10) much better on higher energy prices.

* Biotech climbed higher though long Allergan (AGN) lagged. Speculative biotech stabilized after Wednesday's hit to the downside.

* Railroads quite strong on an upgrade.

* Media mixed

* (T)FAANG lower in the morning and midday, rallied in the afternoon.

Here are some value added columns from our contributors today on our site:

1. Tim "Not Judy or Phil " Collins thinks it is time to be alarmed.
2. RevShark, like Chauncey Gardiner, is just being there. 

3. Guy Ortmann on "crossovers." 

Two investment shorts -- Disney (DIS)  and Starbucks (SBUX) -- continue to lag

Though I am still in Long Island I just received this notice from my Palm Beach Councilwoman, Julie Araskog:

HURRICANE ALERT:
A Note To All Palm Beach Residents

You will probably receive emails from several Town Council members. We want everyone to take Hurricane Irma seriously.

My main goal is to keep our residents safe and to protect our Town as best we can.

I have spoken with the Town's Director of Public Safety, Kirk Blouin, our Town Manager, Tom Bradford, and our Assistant Town Manager, Jay Boodheshwar. Town officials are taking every precaution to protect Palm Beach from the possibility of an impact from Hurricane Irma.

As Chairwoman of the Public Safety Committee and my desire to protect resident lives, I urge you to evacuate if the Town of Palm Beach issues a mandatory evacuation order.

While I know many of you want to stay and protect the homes you love and worked hard to buy, no home is worth your life. Many of you have evacuated voluntarily. I appreciate all of the precautions you are taking.

Hurricane Irma is a Category 5 hurricane with powerful winds of 185 MPH. "We are talking about one of the strongest Atlantic hurricanes ever recorded," according to CNN.

If the storm should hit in its current state, the damage to life and property would be catastrophic!

During hurricanes, trees can be uprooted, lifted in high winds, and dropped on your home. Even hurricane windows could break due to flying debris or catastrophic wind.

While it is unclear as to whether Hurricane Irma will hit landfall in Palm Beach or cause catastrophic winds in our area, we urge you to take all precautions necessary, including evacuating the Island if an evacuation order is issued.

While I do not want to scare you, the Governor issued a state of emergency for Florida due to the seriousness of this hurricane. It is important that I present information and instructions to keep you safe.

Below, I list two different links for you to receive information on hurricane preparation, evacuation, and signing up to receive alerts and information from our Town.

TOWN ALERTS: Police, Hurricane and General Town alerts by following these steps:

1. Go to www.townofpalmbeach.com
2. On the left, click on Emergencies and Alerts
3. On the right under tools click on: notify me
4. Enter your email address at the top
5. To receive emails, click on: I prefer to receive HTML emails
6. To receive texts, click on: I would like to receive text messages and enter cell phone number and press save
7. On the right, click on each agenda or update you would like to receive: Council Meetings and Agendas; Coastal Protection, which includes all agendas and backup for the Shore Protection Board.
8. Under alerts, click on the phone icon to receive alerts on your cell phone or the email icon to receive emails or click on both to receive emails and texts.
9. Click on the phone icon.
10. "Can I get your number" will appear.
11. List the cell phone number you would like contacted.
12. Click on each alert you would like to receive: hurricane alerts, traffic alerts...
13. You will receive texts or emails or both to confirm you would like to receive the notifications you requested. Once you confirm, you will begin receiving notifications.

FOR INFORMATION ON: HURRICANE PREPAREDNESS, EVACUATION ZONES, AND SHELTERS:

Channel 25 has information posted on its website to download information for the area including hurricane preparedness for inside and out, hurricane supply lists, evacuation zones, shelters in the county, and other valuable information. Follow the directions below to see WPBF 25 First Alert 2017 Hurricane Survival Guide:
1. wpbf.com
2. scroll down to Chronicle: Surviving the Storm / Hurricane checklist
3. Click here to download the 2017 WPBF First Alert Weather Hurricane Survival Guide

Please feel free to contact me anytime at jaraskog@townofpalmbeach.com

God Bless you. I pray you all stay safe and that Palm Beach is spared any damage from Hurricane Irma.

Julie

Allergan (AGN) has fallen from its rally high of about $231 (where I pared off some of my position) and is now back to under $223.

There is nothing fundamental, that I am aware of, to account for the decline (which is really just "noise) -- beyond a rotation out of biotech.

As always, I trade around my positions (long and short) -- and I am starting to reestablish a large AGN position starting here ($222.65) and on a scale lower.

But, in light of my overall market view (negative) I am taking "baby steps" in my accumulation.

The markets have rallied on news that Trump and the Democrats agree on debt limit coupled with Harvey storm relief and funding.

Conversely, bonds are selling off and  iShares Barclays 20+ Year Treasury Bond ETF (TLT) (-$0.50) is at the day's lows. (I have been adding to my bond short, as I have written, over the last day.)

With the DJIA +80 and S&P Index +9 handles, I am shorting the rally.

Specifically I am adding to ProShares Trust UltraPro Short QQQ ETF  (SQQQ) at $27.21 now -- replacing yesterday's sales on a scale lower..

Quite frankly (and that's why I repeat this meme so frequently), many "talking heads" in the business media (aka Carpet Sweepers) forget their previous interest rate forecasts -- all said with self confidence and even glibness.

"I wasn't licensed to have one
The minute they see me, fear me
I'm the epitome, a public enemy
Used, abused without clues
I refused to blow a fuse
They even had it on the news
Don't believe the hype"

- Public Enemy, Don't Believe the Hype

The same applies to their very popular and near universal long call on financial stocks like Bank of America (BAC) and Goldman Sachs (GS) .

I have remarked (and will continue to) that these characters talk so fast that I think they forget what they said a day or week ago.

And they certainly never admit they were wrong -- perhaps for fear of sounding like a human being who makes mistakes all the time.

From my perch, they have little or no accountability or credibility... but they keep on "squawking."

Subscriber Comment of the Day from TommyC:

Atlanta Fed's GDPNow Forecast for Third Quarter Is 2.9 Percent

Retail catches a bid.

Impressive, considering the continued strength in the price of oil. ( +$0.53 to $49.19).

Leading the retail hit parade are Macy's (M) , Nordstrom (JWN) , Dillard's (DDS) , Target (TGT) and Kohl's (KSS) .

Thus far, Trade of the Week (short Procter & Gamble (PG) ) has been a poor selection.

The proximate reason?

Perhaps it is that consumer staples have gotten a bid based on the unexpected yield decline this week. (Most of the stocks within the space have reasonable yields vis a vis Treasuries.)

Credit Suisse on Campbell Soup:

Following up on Campbell Soup's (CPB) public disagreement in the soup category with Wal-Mart (WMT) , Credit Suisse says the dispute specifically relates to Wal-Mart's demands for lower everyday price points on Campbell's condensed soup products. While this dispute does not appear to involve General Mills'  (GIS) Progresso brand or the ready-to-serve category at this time, the analyst notes that Wal-Mart presumably could threaten to give more shelf space to General Mills or its Great Value brand at Campbell's expense. Campbell and Wal-Mart are still negotiating, it may be a good thing for the stock if Campbell can get Wal-Mart to agree to a compromise. The analyst reiterates an Underperform rating and $43 price target on CPB.

Mid morning musings from Sir Arthur Cashin:

Today's bounce-back looks like a bit of a "correction" to yesterday's selloff based on fact that best bouncers are those who suffered most yesterday.

Geo-political tensions linger in that safe havens are basically unchanged.

Fischer's resignation gives Trump most potential influence on Fed than any president since Wilson (initial appointer). Cohn may have less than a clear shot to replace Yellen as Senators Warren and Sanders will call it a sellout of Main Street and a give to Wall Street. Bannon will likely attack from the right.

iShares Barclays 20+ Year Treasury Bond ETF (TLT) turns positive on the day (and at day's high) -- one of my important (negative) tells for the equity market.

Energy Select Sector SPDR Fund  (XLE) at day's high.

Overall, stocks at day's lows as Nasdaq solidly lower -- led by (T)FAANG. Amazon (AMZN) -$5 (after being +$5), Alphabet (GOOGL) -$9, Tesla (TSLA) -$8.

Sell tech, buy energy?

I remain bearish of technology.

My Trade of the Week over the last two weeks was an expression of this outlook, long ProShares UltraPro Short QQQ (SQQQ) (leveraged inverse Nasdaq), reflecting the signs of nascent weakness in FANG and what I see as extended valuations in old technology.

Moreover, in my last post I noted that strength in energy stocks is historically associated with the later stages (and sometimes end) of Bull Markets.

My pal Steve "Hernan" Cortes "de Monroy y Pizarro Altamirano," the Marquis of The Fox Business Network, believes a rotation out of tech and into energy may lie ahead as depicted in his chart:

I am not so certain about buying oil-related stocks, but I feel strongly about being short technology.

"Days like Tuesday always give the bears some hope that the long-awaited market top is finally here, but they still need to prove their case. If you take a quick glance at the indices since the election you will see that the bears have had absolutely no success in generating downside momentum. Every big negative day has been followed by a quick rebound.

One of the primary reasons that this keeps happening is that the bears are trying too hard. They are convinced that disaster is right around the corner and they become overly excited when we finally do have a dip. This leaves them vulnerable to the ubiquitous computers that are set to buy dips automatically. Over and over the bears think they are going to gain some traction, but the price action catches them by surprise and they are forced to relent. They are unable to convince the market that there is real danger here."

--Rev Shark, "Bears Have Ammo Galore but Still Can't Shoot Down This Market"

As Rev Shark continually has observed, the market continues to be resilient. Most if not all of the markdowns have attracted dip buyers (see Rev's comments above).

Yesterday's schmeissing may be another example and I might be wrong for pressing my shorts, but here are some of my answers to the questions contained in the headline of this post:

* The stubbornly low bond yields. Ten-year and 30-year bond yields are basically flat after yesterday's large yield drop. iShares 20+ Year Treasury Bond ETF (TLT) has bounced a bit after being worked over at the get go.

* FANG continues to show signs of a rollover. Note that Amazon (AMZN) , typically higher (again) this a.m., couldn't hold its gains (now flat). Tesla (TSLA) and Alphabet (GOOGL) each are down more than $4 in the early going.

* Banks, too, are showing little in the way of turnaround from a 3% drop on Tuesday.

* I have observed in the past that energy stocks' strength often accompanies a market top. (Typically energy is the last group to rally). Note that oil and oil services were strong in a down tape on Tuesday and are higher again today. Halliburton (HAL) and Exxon Mobil (XOM) (UBS upgrade) are upside features.

Is it different this time?

Stay tuned.

This morning Goldman Sachs economist reduced the chances of a U.S. government shutdown to 15% from 35% on Aug. 30 in the aftermath of Hurricane Harvey.

I have been strongly suggesting this since the disaster:

A Market Silver Lining from Harvey's Dark Cloud

Aug 29, 2017 ' 9:43 AM EDT

Let me start by stating the obvious -- Hurricane Harvey is a terrible natural disaster that has harmed untold numbers of families.

Many have opined that the rebuilding effort will add a couple tenths of a point to domestic GDP over the next 12 months. It probably will.

But what I want to touch on briefly is an important upside - the magnitude of the hurricane's damage reduces the chance of a debt default to almost zero.

Let me explain.

President Trump has said that he only will sign debt and budget bills that incorporate the financing of a wall between Mexico and Texas. This proclamation has presented a possible crisis in the minds of many market participants.

However, in all likelihood Trump now will be forced to approve a temporary (maybe three months in duration) debt ceiling increase and budget bill as it likely will be batched by Republicans (led by Senate leader McConnell and House Speaker Ryan) with a large relief package for Hurricane Harvey, even if the funding of the wall is not included.

In other words, the president now has an "out."

And so the market has an out, as there likely will be no debt crisis in the September and October time frame.

I added to my SPDR S&P 500 (SPY) short.

This morning's average is $246.80.

This is not market-related, but in an attempt to continue to veer away from partisanship, here is an uplifting YouYube video in which Jimmy Fallon's show contributes $1 million to J.J. Watt's Hurricane Harvey relief in Houston.

My good friend Peter Boockvar, chief market analyst with The Lindsey Group, writes about things people say:

Fed President Neel Kashkari yesterday "maybe our rate hikes are actually doing real harm to the economy." The Fed has hiked 4 times over a nearly 2 year time frame and he truly believes that after 7 years of zero interest rates and multiple rounds of QE that resulted in more debt and malinvestment, bubbles in asset prices and pulled forward economic behavior. I'll show him this chart of the Goldman Sachs Financial Conditions Index since late 2015 right before the first rate hike where the lower it goes, the easier the conditions.

GOLDMAN SACHS FINANCIAL CONDITIONS INDEX

We took note of Fed Governor Lael Brainard's comments early yesterday when she said "My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target." She of course is talking ONLY about consumer price inflation which she wants higher. In fact should said it is "more important than ever that we get to 2% inflation." It's another way of saying it's crucial that we raise your cost of living by that amount. Why, I'm still not so sure. Anyway, she did seem worried about asset price inflation when she said "It is important to be vigilant to the signs that asset valuations appear to be elevated, especially in areas such as commercial real estate and corporate bonds." So therein lies the tradeoff the Fed is stuck in. Either way, we know what the Fed will do in a few weeks in initiating QT and the December meeting is 3 months away and isn't yet worth thinking about. On her worries about low consumer price inflation, Brainard should be happy that the CRB raw industrials index closed higher yesterday for the 12th day in the past 14 and is at a 3 year high.

A day before Mario Draghi and the ECB will hem and haw over when and how much to taper QE, the CEO of Deutsche Bank called them out by saying "We are seeing signs of bubbles in ever more areas of capital markets where we didn't expect them...The era of cheap money in Europe should come to an end, despite the strong euro. I welcome the recent announcement by the Federal Reserve and now also from the ECB that they intend to gradually bring their loose monetary policy to an end." On negative interest rates he said its resulting in "ever greater upheaval." I'll continue to refer to NIRP as a Weapon of Mass Confiscation. He also used this to said "US banks enjoy a competitive advantage due to the local interest rate environment" in that US banks have seen a greater rebound in profits while European bonds are getting taxed via NIRP. As banks are the transmission mechanism of monetary policy, we all have to wonder why central bankers think that damaging bank profitability is a good strategy. The Fed is guilty too. Wanting to flatten the yield curve via QE and Operation Twist doesn't really lift the animal spirits of loan officers.

If you want wage growth in Japan, make sure to be a part time worker because it ain't happening much for those full time employees. Regular pay for full time workers rose .5% y/o/y but was more than offset by a 2.2% y/o/y drop in bonus payments. The net result was a .3% drop in cash earnings. Part time workers that get paid by the hour saw wage growth of 2.9% y/o/y instead. The offset though is they are working less hours. Bottom line, the frustration continues for Japanese workers notwithstanding labor market squeezes and the BoJ should just give up its 2% inflation obsession. The yen, the Nikkei and the JGB market didn't respond much as they are all about unchanged.

German factory orders in July disappointed with a .7% m/o/m drop instead of rising by .2% as forecasted. The weakness was driven by domestic and eurozone activity so we can't blame the stronger euro. Orders to non eurozone countries grew by .6% m/o/m. While the Germany economy is certainly the rock of the region, the recent data has gotten to be more mixed. There was no worries on the part of the Economic Ministry as they said activity is back to pre recession levels and "Manufacturing turnover and sentiment gauges confirm this positive picture. Indicators signal a continuation of the solid recovery in manufacturing." I'll continue to give the German economy the benefit of the doubt. The German DAX though remains in correction mode as its 6% below its mid June high coincident with the stronger euro.

As mentioned above, John Cryan at Deutsche Bank talked about bubbles. Well, in German construction, obviously hugely sensitive to interest rates, Markit in its Construction PMI index for Germany said they saw the "fastest rise in new business since survey began in September 1999." Employment rose to a 1 ½ yr high and "inflation of subcontractor rates remained close to June's record high, while prices for construction inputs increased at the sharpest rate in nearly 5 ½ years." QE and negative interest rates are appropriate policy?

Stock market sentiment was completely unchanged w/o/w with Bulls at 49.5, Bears at 19.1 and those expecting a Correction at 31.4. II said "There were new bullish shifts, generally noting the market's rebound, but they were offset by increased caution among some former bulls. They mostly noted the historic weakness for Sept/Oct coinciding with some worrisome indicator signals and the current uncertain geopolitical conditions." What's clear this year is as Bulls got above 60, markets cooled off and then ramped again as it fell back to around 50. The Bear side remains microscopic as they've been beaten into submission.

After 3 straight weeks of declines that took the purchase component of the weekly MBA mortgage data to the weakest level since February, they rose a slight 1.4% w/o/w and the y/o/y gain has moderated to 4.7% from 7% last month. With the leg lower in mortgage rates to the lowest level since mid November, refi applications rose by 5.1% w/o/w but remain down by 39% y/o/y.

My investment methodology is geared toward trading around both my long and short positions.

I do this, in part, because quant strategies, ETF rebalancing and general swings in sentiment often exaggerate near-term moves.

Yesterday, as an example, I took off some Goldman Sachs (GS) (on my Best Ideas List as a short) and SPDR S&P 500 (SPY) shorts, maintaining my core positions.

I just reshorted some of the SPY I covered in yesterday's schmeissing at $246.67 in the premarket.

I plan to replace my small (%) GS cover from yesterday on a $5 or so advance in the shares.

"The nation must enforce a limit to immigrants in the U.S...."

--Attorney General Jeff Sessions

"I have a great heart for the folks we are talking about. I have a love for these people..."

--President Trump (after sending out a tweet that Dreamers will be deported earlier in the day)

"If Congress doesn't fix it, I will..."

--President Trump

Throughout the last nine months I have emphasized that the inability of the White House and Congress to deliver initiatives and legislation that would stimulate economic growth will weigh on our capital markets.

Many have argued and disagreed with me.

When I have cited the developing legislative failures and growing inability of the White House to deliver growth measures, the charge was that I was being partisan.

The reality is that nearly everyone is partisan and most hold to a particular political point of view.

It is natural for some of my views to filter into my Diary -- it can't be helped. But what can be helped is to avoid a fuller discussion of my views -- a distinction. And I have promised never to do that.

I bring up the odds of failing initiatives solely because it is my belief that the core foundation of domestic economic growth is weak and requires fiscal stimulation through tax cuts and reform and other measures.

The failure to deliver is not likely to be market-friendly.

As for DACA -- the Deferred Action for Childhood Arrivals policy implemented by President Obama -- it is one of the most important immediate pieces of legislation facing the White House and Congress. It impacts not only nearly one million people living in the U.S., but to many -- with an estimated 75% to 80% of the country in support of DACA -- it also cuts to the core of American values.

Yesterday's DACA decision by the president reinforces my notion that there will be no important administration initiatives passed this year -- a point I made as recently as in yesterday's opening missive.

Stealing pieces of America in Charlottesville, Virginia, and now in immigration, the relationship between the administration and Congress is likely to grow even more fractured.

And it remains my view that Charlottesville and DACA represent inflection points in not only the president's popularity but, more importantly, that the likely necessary initiatives to buoy domestic economic growth are doomed to fail.

President Trump pivoted four times on the DACA decision on Tuesday, tacking one way and another based ostensibly on input on television.

Is DACA going to be rescinded as suggested by Trump's attorney general, or is the president going to address it in six months after Congress again stumbles?

Over the last year, both the leadership of the Republicans and Democrats has weakened as the president has sought more power in this vacuum.

In the midst of an overloaded legislative process -- a debt ceiling increase, a budget, regulatory and tax reform, a possible war or military escalation with North Korea and immigration -- Trump laid the DACA decision in the lap of Congress yesterday.

While I am certain that many Trump supporters will disagree, to this observer several questions have been raised yesterday and over the last few months:

* Can Trump finish a complicated legislative thought?

* Does Trump realize the consequences of his decisions and tweets?

* Given the popularity of DACA (apart from Trump's 30% base), has Trump dropped another poisonous bomb among Republicans?

* Is the president so superficial in the way he has played DACA that he doesn't understand another issue?

* Isn't this fall tough enough to enact the legislation that Congress faces? Why place more obstacles in the way?

* How long is it before Republican leadership admits that Trump doesn't fully grasp the issues and policy?

* How long will it be before Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan tell the president to simply stay away from legislation and let them take over?

* Is anyone in Washington willing to make the system to work?

Bottom Line

Since last December I have emphasized that the Art of the Real Estate Deal is far less difficult than the Art of the Washington, D.C., Deal.

I stand by this statement, as it is supported by the limited legislative progress seen over the last several months.

Important initiatives that in my view are needed to support elevated valuations in the stock market are not likely to be delivered this year.

This may be an integral reason to be bearish on equities.

I wanted to piggyback on my closing comments yesterday with some additional worrisome observations on the financials and fixed-income markets: 

* Banks/financials were down by about 3% on Tuesday. From The Divine Ms. M's opener this morning:  

But it was the Bank Index that captured my attention. It broke under the 200-day moving average for the first time since July 2016, several months before the election. Remember that the 200-day moving average represents the average price over the last nine to 10 months in the market, which is why it's important to note it. It is, for now, still rising. A rolling-over moving average is more bearish than a still-rising one.

The red line represents short-term support. A break of that shows much better support near 88. But here's the real problem: If bonds don't come down soon, won't any rally back into the 94 area get sold?

My largest industry-specific short exposure is in financials -- specifically Citigroup (C) , Bank of America (BAC) , JPMorgan Chase (JPM) , MetLife (MET) , Lincoln National (LNC) , Morgan Stanley (MS) and Goldman Sachs (GS) . 

* Ten-year U.S. note yields are now at the lowest level since last November.

* Debt ceiling concerns are rising. The four-week Treasury note yield is now the same as the two-year Treasury note yield.

* Pay more attention to the junk bond market. My technically wise friends are saying to me that iShares iBoxx High Yield Corporate Bond ETF (HYG) and SPDR Barclays Capital High Yield Bond ETF (JNK) -- the two largest high-yield ETFs -- might be recording a head-and-shoulders top, an indication of a bullish to bearish reversal.