Dillard's (DDS) is right back in my buying zone after a second day of poor performance.

I am adding at $55.50 and have scale buys lower.

The price of bitcoin is down around 6%.

As I have recently written, I do not view bitcoin as an attractive investment or trade.

Hurricane Irma has taken dead aim at Florida this weekend; specifically, my house and office in Palm Beach appear to be in its path.

Accordingly, I have a lot of stuff to do this afternoon (remote control, as I am in Long Island) to ensure the safety of my home.

As a result, I will not be posting much after lunch.

Thanks for understanding.

Regular readers of my diary know I sometimes post things that replicate the theme of the "Tell Me Something I Don't Know" segment on MSNBC's "Hardball With Chris Matthews."

So... "Tell me something I don't know, Dougie."

OK, here it goes:

Speaking of my bond short (as detailed below), the contrarian in me is enthusiastic that iShares 20+Year Treasury Bond (TLT) inflows of $650 million on Wednesday were at an all-time record level, eclipsing the second-largest daily inflow in the spring of 2011.

The Nasdaq is underperforming the S&P 500 again today.

I expect this to continue and I am armed with a large ProShares UltraPro Short QQQ (SQQQ) long, a midsize ProShares UltraShort QQQ (QID) long and a midsize PowerShares QQQ (QQQ) short.

By my calculus the 10-year U.S. note is now discounting 0.5% to 0.7% real GDP growth over the next one to two years. This is an unlikely print.

iShares 20+ Year Treasury Bond ETF (TLT) is being mispriced too high even though central bankers hold most of the cards.

But I believe market forces will influence interest rates and move them gradually higher in the next year.

With the 10-year note yield at 2.05% -- the lowest level in 10 months -- and the long bond at 2.67%, I am moving to a large TLT short (at $129.05).

I am also putting on a ProShares UltraShort 20+ Year Treasury (TBT) trading long at $33.30.

If there are two constants this year they are that I am bearish and Tony "Dwyerama" Dwyer is bullish.

Tony is a longtime pal of mine, but we couldn't be more at polar opposites!

Here is Tony's latest:

The headwinds have become tailwinds. For most of this cycle GDP has been underwhelming based on the headwinds of weakening global growth, a strengthening U.S. currency, and sub-par domestic growth due to increased regulation and taxes. These headwinds have been reversed, and yet many have not changed their fundamental market expectations as a result. We believe the combination of a domestic reacceleration, the weakened U.S. Dollar, and a global synchronized recovery should allow for better than expected economic and earnings growth as we move into 2018.

Economic expectations should continue to improve. Our positive core thesis and 2018 S&P 500 (SPX) target of 2,800 are based on the fundamental domestic economic backdrop that continues to improve. Ultimately, history has proven the market correlates most closely to the direction of earnings, which is driven by economic activity. When you turn off the TV and Twitter and look at the data, economic activity has been re-accelerating (granted the hurricanes are going to skew the data for a while).

· Citigroup Economic Surprise Index continues to trend higher off the recent lows. Indeed, in the current cycle, whenever the CESI dropped to below -50 and turned, it trended to at least zero. The current level of -19 still suggests economic data should beat current expectations (pg.14).
· Demographics are coming into play. The Millennial Demographic are proving to be no different than other generations and are likely to represent an increasing percentage of income and spending as they age.
· Consumers and Small Business Confidence remains positive. The stubbornly high NFIB and Consumer Confidence readings (pgs. 15 & 18) - despite the perceived chaos in Washington - make it clear the animal spirits are driven by the knowledge that (1) taxes will not go up and (2) regulations are being eased. Full employment and a solid credit backdrop should allow for increased consumption.

Our positive core thesis has gotten stronger based on outlook for consumer AND business spending. Indeed, Capital Spending has been slower than normal this cycle as fear of increased regulation and taxes held long-term spending projects in check (pg. 27). That looks to have changed with the widely followed capital spending surveys such as the NFIB and Philly Fed at cycle or historic highs (pg. 24).
Any correction should be considered opportunity.

Despite the possibility of a bit more correction, we would add to our favored sectors on weakness because: (1) our positive fundamental core thesis remains in place; (2) a synchronized global recovery and domestic economic re-acceleration continues; (3) EPS and market valuations remain in an uptrend; and (4) the possibility of corporate tax cuts.

We believe our SPX 2017 and 2018 targets of 2,510 and 2,800, respectively, may prove to be conservative. The underappreciated economic reacceleration causes us to favor the "pro-growth" sectors such as Financials, Industrials, Materials and to lesser degree Energy Sectors.

Kroger (KR) meets earnings expectations but the shares are falling in premarket trading anyway, down nearly 8% as of this writing.

The problem is that company will hit headline consensus estimates only by reducing its 2017-18 capital expenditures by $600 million. For 2017, capex now is expected to be between $3 billion and $3.3 billion, which is lower than previously announced.

The earnings release provides a terrible narrative of the company's profit future.

No wonder Kroger no longer plans to provide secular growth projections.

Meanwhile, Kroger repurchased $1.7 billion in shares during the interim interval. This is poorly advised in light of the company's existential threat and shaky and uncertain sales and profit outlook.

"There is plenty more food for thought in this must-read 22 pages of observations. Howard closes his musings with this advice:

"If you refuse to fall into line in carefree markets like today's, it's likely that, for a while, you'll (a) lag in terms of return and (b) look like an old fogey. But neither of those is much of a price to pay if it means keeping your head (and capital) when others eventually lose theirs. In my experience, times of laxness have always been followed eventually by corrections in which penalties are imposed. It may not happen this time, but I'll take that risk. In the meantime, Oaktree and its people will continue to apply the standards that have served us so well over the last [thirty] years."

From my perch, greed reigns today.

As Howard relates, investors make the most -- and safest -- money when they do things that other people don't want to do. But when most investors are unworried and taking unusually high risks, asset prices are typically elevated, risk premiums are low and markets are risky.

It's what happens when there is too much money and too little fear."

--Kass Diary, "There They Go Again ... Again," July 27, 2017

In late July, Oaktree Capital Management co-chairman Howard Marks issued several market warnings in "There They Go Again ... Again," which I extensively highlighted in my Diary.

In that July memo Howard made these principal points in evaluating current conditions:

* The market uncertainties are unusual in terms of number, scale and insolubility.

* In the vast majority of asset sectors, prospective returns are about the lowest they have ever been.

* Asset prices are high and almost nothing can be purchased at a discount to intrinsic value. In general, the best we can do is find asset classes that are less overvalued than others.

* Pro-risk behavior is commonplace as most investors are embracing increased risk.

In the commentary Howard admitted he was likely issuing a premature warning because it is better to be cautious too early than to be too late in evaluating opportunities and conditions.

Howard is no stranger to cautionary memoranda. Back in 2005, in "There We Go Again," he shared some non-consensus concerns that were most prescient, as they would precede the worst economic contraction since The Great Depression. Reading that memo would have saved an investor a boatload of money.

I find most of Howard's commentaries as extraordinarily important in understanding market conditions and reward versus risk. His body of work always makes me think and it is invariably logical in argument and characterized by a heavy dose of analytical dissection.

Fast forward to yesterday's newest (and another value-added) memorandum from Howard Marks, "Yet Again?"

Howard starts his latest commentary with the following introduction:

"There They Go Again . . . Again" of July 26 has generated the most response in the 28 years I've been writing memos, with comments coming from Oaktree clients, other readers, the print media and TV. I also understand my comments regarding digital currencies have been the subject of extensive - and critical - comments on social media, but my primitiveness in this regard has kept me from seeing them.

The responses and the time that has elapsed have given me the opportunity to listen, learn and think. Thus I've decided to share some of those reflections here."

--Howard Marks, "Yet Again?" 

The body of Howard's memo deals with the media's reaction to his July memo and a further discussion of his views on bitcoin (and other cryptocurrencies), FANG, the ramifications of passive investing, investing in a low-return world and, of course, evaluating the state of the capital markets.

Howard concludes his latest memo with the following:

"A lot of the questions I've gotten on the memo are one form or another of 'So what should I do?' Thus I've realized the memo was diagnostic but not sufficiently prescriptive. I should have spent more time on the subject of what behavior is right for the environment I think we're in.

In the low-return world I described in the memo, the options are limited:

1. Invest as you always have and expect your historic returns.
2. Invest as you always have and settle for today's low returns.
3. Reduce risk to prepare for a correction and accept still-lower returns.
4. Go to cash at a near-zero return and wait for a better environment.
5. Increase risk in pursuit of higher returns.
6. Put more into special niches and special investment managers.

It would be sheer folly to expect to earn traditional returns today from investing like you've done traditionally (#1). With the risk-free rate of interest near zero and the returns on all other investments scaled based on that, I dare say few if any asset classes will return in the next few years what they've delivered historically.

Thus one of the sensible courses of action is to invest as you did in the past but accept that returns will be lower. Sensible, but not highly satisfactory. No one wants to make less than they used to, and the return needs of institutions such as pension funds and endowments are little changed. Thus #2 is difficult.

If you believe what I said in the memo about the presence of risk today, you might want to opt for #3. In the future people may demand higher prospective returns or increased prospective risk compensation, and the way investments would provide them would be through a correction that lowers their prices. If you think a correction is coming, reducing your risk makes sense. But what if it takes years for it to arrive? Since Treasurys currently offer 1-2% and high yield bonds offer 5-6%, for example, fleeing to the safety of Treasurys would cost you about 4% per year. What if it takes years to be proved right?

Going to cash (#4) is the extreme example of risk reduction. Are you willing to accept a return of zero as the price for being assured of avoiding a possible correction? Most investors can't or won't voluntarily sign on for zero returns.

All the above leads to #5: increasing risk as the way to earn high returns in a low-return world. But if the presence of elevated risk in the environment truly means a correction lies ahead at some point, risk should be increased only with care. As I said in the memo, every investment decision can be implemented in high-risk or low-risk ways, and in risk-conscious or risk-oblivious ways. High risk does not assure higher returns. It means accepting greater uncertainty with the goal of higher returns and the possibility of substantially lower (or negative) returns. I'm convinced that at this juncture it should be done with great care, if at all.

And that leaves #6. "Special niches and special people," if they can be identified, can deliver higher returns without proportionally more risk. That's what "special" means to me, and it seems like the ideal solution. But it's not easy. Pursuing this tack has to be based on the belief that (a) there are inefficient markets and (b) you or your managers have the exceptional skill needed to exploit them. Simply put, this can't be done without risk, as one's choice of market or manager can easily backfire.

As I mentioned above, none of these possibilities is attractive or a sure thing. But there are no others. What would I do? For me the answer lies in a combination of numbers 2, 3 and 6.

Expecting normal returns from normal activities (#1) is out in my book, as are settling for zero in cash (#4) and amping up risk in the hope of draws from the favorable part of the probability distribution (#5) (our current position in the elevated part of the cycle decreases the likelihood that outcomes will be favorable).

Thus I would mostly do the things I always have done and accept that returns will be lower than they traditionally have been (#2). While doing the usual, I would increase the caution with which I do it (#3), even at the cost of a reduction in expected return. And I would emphasize "alpha markets" where hard work and skill might add to returns (#6), since there are no "beta markets" that offer generous returns today.

These things are all embodied in our implementation of the mantra that has guided Oaktree in recent years: 'move forward, but with caution.'"

--Howard Marks, "Yet Again?"

Run, don't walk, to read Howard Marks' newest commentary.

My good friend Peter Boockvar, chief market analyst with The Lindsey Group, writes about the strange brew in the foreign exchange markets (I would also note the disappointing German economic data at a time when consensus is very bullish on the European Union.):

The strangest behavior in markets yesterday was the rip higher in the euro after Mario Draghi's press conference at the same time European sovereign bonds spiked up in price and down in yields. My only guess is the euro further priced in a tapering of QE to be announced in October and initiated in either December or January while the bond market assumed that it would remain a really slow process. The euro today is holding its gains and advancing some more from yesterday's close while European yields are rising and getting back some of what it lost yesterday after a Reuters story this morning that said "ECB policymakers meeting on Thursday were in broad agreement that their next step will be reducing their bond purchases and discussed 4 options, 2 sources with direct knowledge of the discussion said." They talked about to what extent to cut the monthly buys at the same time maybe extending the deadline. Either way, the ECB flow of money into European assets will slow again in coming months. I repeat again that European bonds, both sovereign and corporate (high yields down below 2.5%) are a disaster waiting to happen. BNDX is an etf to short as 56% is in Europe.

For the 2nd month in a row, Chinese exports missed expectations. In August they rose by 5.5% y/o/y in US dollars, just slightly below the 6% rise and that is the slowest rate of gain since February. Exports to the US rose by 8.4% y/o/y, to the EU by 5.2%, to Japan by 1.1% and higher throughout the rest of Asia. Imports though did beat as they jumped by 13.3% vs the estimate of up 10%. As for their demand for commodities, they held steady in copper vs July but are down almost 13% y/o/y and the price of copper is down 1.5% in response. Coal, steel, refined oil products and iron ore all rose from July. Soybean imports fell m/o/m after July's jump but are still up 16% y/o/y and remain robust.

Bottom line, the yuan continues to rip higher, up by 2% month to date after rallying by 2% in July and this likely had some impact on export volumes but we've also seen some mixed production data out of Germany the past few months relative to expectations. Is there a connection? Maybe and something worth monitoring but I'm not sure yet. The stronger yuan likely have helped the import side to some extent. The Shanghai comp did not respond at all to the data as it was dead flat. The H share index though rallied .5%.

After weaker than expected factory orders and IP in July out of Germany seen earlier this week, exports were up just .2% m/o/m, well below the forecast of up 1.3%. Imports also missed the estimates. Was the export number impacted by the stronger euro? Likely but exports to non eurozone countries grew by 10% y/o/y vs the 6% rise within the eurozone.

French IP met expectations in July by the manufacturing component missed with a .3% m/o/m gain, half the estimate. Spain's IP data also was below the consensus. I'll repeat what I said a few days ago, the European economic data has got more mixed in July relative to expectations. UK IP met expectations with slight upside on the manufacturing side led by a bounce back in auto production.

It's old news but Japan's initially robust 4% Q2 GDP performance was moderated in the revision to 2.5% annualized as capital spending was revised down. Along with broad dollar weakness, the yen also is ripping higher and sits at the highest level since November 11th.

Don't fight the markets, especially in FX. Eventually you will lose.I send this message to central bankers who try their best to battle the FX market that trades $7 Trillion per day in notional value. All the QE and NIRP that the BoJ and ECB have initiated, let alone the NIRP and QE out of the Swiss, Danish and Swedes, doesn't always result in an FX level that you want it to be. Also, remember the history of direct failed FX interventions, particularly in Japan. Again, buy gold and it is approaching the highest level in 4 years. Unlike crypto currencies which now seemingly can be created in an unlimited fashion by anyone with a computer (there are now more than 1000 different ones), gold supply is really hard to get out of the ground, grows only about 1% per year and has been around for 5000 years. Also, why is every picture of bitcoin in the color of gold?

I plan to end this holiday-shortened week more heavily short than I started the week.

In a parody of a scene from the movie "Ghostbusters," I concluded yesterday's Diary posts with "No Mass Hysteria, Yet," in which I observed, though the market as a whole was flat (see Rev Shark), there have been a multitude of conspicuous and accumulating individual stock potholes, many of which I have been short. As I noted on Thursday:

"Following the unexpected Pelosi/Schumer deal with the president establishing a three-month extension of the debt ceiling -- market activity was generally subdued (also unexpected in light of the agreement).

But under the surface I am seeing a growing number of "head and shoulder" charts (yes you heard me right!) as a number of popular longs get schmeissed under the weight of weakening fundamentals.

Coming to mind are Starbucks (SBUX) , Comcast (CMCSA) , Disney (DIS) , General Electric (GE) , Goldman Sachs (GS) , Morgan Stanley (MS) , Leggett and Platt (LEG) , Fox (FOXA) , Viacom (VIAB) , Liberty Global (LILA) , Newell Brands (NWL) , Navient (NAVI) , DISH Network (DISH) and many others.

I started the day quoting comedian and movie maker Woody Allen.

I will end the day quoting Drs Venkman, Stantz and Spengler. Also, the Mayor and Winston Zeddemore.

Though Ghostbusters' Dr. Venkman, in a hyperbolic tone, suggested "mass hysteria" may lie ahead for New York City -- thus far there is no hysteria in the equity markets, just an eery calm in the face of political mayhem and uncertainty coupled with a slew of high profile profit warnings.

However, it remains my concern that the dual pillars of a "flight to safety" - gold and bonds - have been spectacular gainers all this week and, especially today.

I close the day aggressively and with a maximum net short position in accordance with many of the headwinds I see -- some of which I highlighted in this morning's opener which discussed my ten questions in "If to Love is to Suffer, as Woody Allen Wrote, Then He Would Love This Market."

So, while there is no mass hysteria yet (in the markets), perhaps an unsettled market backdrop seems increasingly possible.

As always, evaluate reward vs risk (upside vs downside) in your equity holdings. We can see clearly what has happened to consensus longs like Disney and Starbucks and many others in the past few weeks and months. More company and sector potholes may lie ahead.

Again, this is no time for hyperbole or hysteria, but an elevated cash position may make sense in order to take advantage of possible values that could develop over the balance of the year."

--Kass Diary, "No Mass Hysteria, Yet"

Many sectors (such as financials) and individual stocks are rolling over, providing lucrative short-selling opportunities.

As I wrote early in the day the abundance of head-and-shoulders charts in individual stocks is far different than the overall market's continued resilience.

The question to me is whether the aforementioned individual stock and sector breakdowns are a precursor to broader market weakness.

My answer has been clear -- yes, it could be.

Given my assessment of risk versus reward -- roughly 3.5 times more downside to risk -- I am positioned and anticipating a broader market decline in my portfolio.

In premarket trading, S&P futures are down 10 and Nasdaq futures are down 20.

Importantly, bond yields continue to plummet. The yield on the 10-year U.S. note is down another 3 1/2 basis points to 2.028% and the 2s/10s curve is two basis points lower to 77 basis points, another new low. Dismissing this as not being a signpost of slowing domestic growth may be an investment boner. (It should be noted that, as related by Zero Hedge, there are now severe dislocations in the Treasury repo market.)

My largest sector short exposure is in financials, where my only long is Wells Fargo (WFC) (in which I have a large position) and which should be hurt by the present structure of interest rates.

My second-largest short exposure is in technology, which appears to be rolling over technically. I would note that Alphabet (GOOGL) and Amazon (AMZN) are well below their 2017 highs.

My third-largest short exposure is in consumer staples, where I see an existential threat to the sales, profits and margins of consumer packaged goods companies and their shares.