Twitter  (TWTR) to be added to the S&P 500 Index.
Shares gap higher.
Fully priced, from my perch.

Surprise #2: The Trump Election Victory Establishes an Important Precedent and Is Followed by a Broad and General Movement in Which Prominent Businessmen, Celebrities, Sports Figures and Others Without Prior Political or Military Experience Consider Political Office. Among the individuals who initially express an interest in putting their hats in congressional and senatorial contests are Mark Cuban, George Clooney, Neil Patrick Harris, Ashton Kutcher, Justin Timberlake, Ellen DeGeneres, Oprah Winfrey, John Bon Jovi, Kevin Hart, Garth Brooks, LeBron James (who announces his 2018 retirement) and Peyton Manning.

Late in the year, Starbucks Executive Chairman Howard Schultz makes initial (and overt) plans aimed as an early attempt to become the 2020 Democratic presidential candidate and becomes a big favorite for the nomination as major donors, high-profile party operatives, powerful former politicians and leading current Democratic congressional members begin to rally around him.

-- Kass Diary, My 15 Surprises for 2017

Starbucks' (SBUX) Howard Schultz has announced that he is stepping down as Executive Chairman.

For two years I have offered that Schultz will seek the 2020 Democratic Presidential nomination.

I still believe so.

I am talking Unilever (UN) off of my Best Ideas List.
I initially shorted UN in late August, 2017 at $59.76.
The shares are currently trading at $56.12.

With about two hours to go in the trading session, stocks remain elevated.
Bonds are +4 basis points in yield, energy prices are weaker (crude down by a beaner). Gold -$2, copper + but agricultural commodities are taking a licking (wheat -17, corn -10, soybeans -18 and lumber down by 1%.
I remain, as posted in my opening missive about medium sized net long -- an uncomfortable position -- but sitting tight. (I still have a short sell stop in SPDR S&P 500 ETF  Spyders  (SPY) at $273 which seems unlikely to be elected).
Banks are not responding today to higher yields (Goldman Sachs (GS) is awful. I am flat the name.) Tech is the "world's fair." Biotech/big pharma is mixed. Consumer packaged goods finally have a heart beat. Defense is indifferent. Ag equipment is weak as is media. Retail, as I wrote about constructively last week (but only bought small), continues to shine (I am only long Macy's (M) ).

I have no shorts and I am long (KHC) , (PG) and (CPB) in the food space.

I expect a consolidation period ahead for the heavily hated consumer packaged goods companies.

Since there doesn't seem to be a darn reason to own gold, I am adding to GLD now.

Given the sharp climbs, I have sold out the balance of my (DDS) and (TWTR) longs just now at $86.20 and $37.37, respectively - reflecting the deteriorating reward vs risk parameters.
DDS was placed on my Best Ideas List in June, 2017 at $50.74.
Twitter was placed on my Best Ideas List in March, 2017 at $15.75.

Good pin action, again, in (DWDP) today.
The shares are moving back towards the level I sold some at ($68+). (Subsequently, I replaced the sold stock with new purchases on the selloff.)

This time I am holding on to my large long in the name.

I took another quick analytical look at Allergan (AGN) this weekend - for about 30 minutes.
I continue to pass based on the absence of positive catalysts.

From Peter Boockvar: All about Europe this morning:

Worries about Italy had a sharp impact on the Sentix economic confidence index for June which surveys investors. It fell to 9.3 from 19.2 and that is the lowest read since October 2016. The expectations component fell to the weakest since August 2012 soon after "Whatever it takes" was said by Draghi. Sentix said "The new government in Italy is giving investors fears for the eurozone." They also blamed the tariff fears. The component for Germany specifically fell to the lowest since July 2016.

I usually take confidence figures such as this with a grain of salt, particularly of investors, because a lot of the responses are more emotional than anything but it does coincide with the economic data over the past few months out of Europe coming in below expectations. I still though expect pretty decent growth in Europe in 2018, just not as strong as last year. I still believe the biggest threat to Eurozone stability is not a new populist Italian government, a leave from the euro, a Spanish PM change or other political issues but how will the region respond to the end of ECB QE and NIRP. As the dollar is generally softer today across the board, the euro is rising to a 1 1/2 week high.

After the upside seen in last week's eurozone May CPI, today's April PPI index rose 2% y/o/y, little changed with 2.1% in March but below the estimate of up 2.4%. Oil and commodity prices generally are certainly the main factor in the headline moves. PPI ex energy was up a more modest 1.3%. We hear from Draghi and the ECB next Thursday. I hope we hear more details about his plan for QE's end.

The wild ride in Italian bonds continues today but luckily they are rallying further with the 2 yr yield down to 72 bps, lower by 35 bps on the day. It still remains well above where it was 4 weeks ago at -.31%. The 10 yr yield is down by 15 bps to 2.54% vs 1.76% one month ago.

Greece's economy grew by 2.3% y/o/y in Q1 with the q/o/q gain of .8% vs the estimate of up .3%. The 2.3% growth rate from last year is the best since Q1 2008 as the country recovers from its own Great Depression. I find Greek stocks intriguing as the Athens stock market is still down 85% from its 2007 peak and if the head of the opposition New Democracy party Kyriakos Mitsotakis becomes the next PM either in an early election this year or after the scheduled one next year, it would be a big positive.

Pressing some individual shorts, including (GM) and (SBUX) .

* Pay attention to Italy * Its a symptom of too much debt and not enough economic output to support its service* Be skeptical of short term market moves in in a market dominated by strategies that worship at the altar of price* The new regime of volatility is likely with us for the remainder of 2018

"What should have happened? First, I think it would have helped to have some perspective on Italy. The country's gotten pretty dysfunctional, with almost no growth whatsoever. There's also that aforementioned 11% unemployment rate, plus an immigrant population that all parties concede will cost more than the country can currently afford.

At the same time, Europe's recent history of chaos has provided multiple opportunities to invest here in America, because you can count on some people panicking over the "black swan theory." Finally, you can be sure that what happens in Italy won't be related to any individual companies, as all anyone cares about now are the indices. Those trade both here or abroad as if they're their own beasts these days, unrelated to anything corporate at all like earnings, or dividends, or prospects.

Now, I concede you can't not report these things in the media. But I also think that the Italian crisis should have been reported in the light of what it really was -- an oddity that produced a quick spike in Italian bonds as a product of a government changeover. Nothing more.

But on a slow news day with almost no earnings and the usual Trumpian trade tensions growing less and less newsworthy, it was something new and exciting to report. And it was easily framed as frightening and worrisome, because there are no consequences whatsoever for it not to be framed that way. If it turned out to be terrible for our markets, the dread would be warranted. But if it turned out to have a positive resolution (which was the case), well, nobody pays for the scare stories.

It's an asymmetrical standard at work, and the only two things you can do are 1) expect it and 2) exploit it. Otherwise, shame on you for selling given how often these European "woe-is-me" stories burst onto the scene, explode and then recede within a few weeks' time. Or even less in the case with this particular Italian job". 

- Jim "El Capitan" Cramer  - "Rome's Political "Crisis' Was Just an Italian Job" discusses the past week in review - particularly from his vantage point of the Italian "debt crisis."

I agree with some elements of Jim's missive and disagree with others.

I agree that the market downdraft provided a short term opportunity in the U.S. - that is about history and about the passive strategies and products that dominate our markets and tend to exaggerate short term moves. 

My tactical response, as described in a series of columns last Tuesday was to cover my Spyder shorts for a nice profit, and I went net long in exposure. Seeing the market with no memory from day to day emerge (Tuesday - down big, Wednesday - up big, Thursday - down big) I went on to (incorrectly) scale into a short as stocks rallied after a few days of inconsistent price action later in the week - and I incurred modest losses on my Spyder hedge which I covered in premarket trading.

But more importantly I believe the Italian debt crisis is not an oddity - it lies at the epicenter of a world (private and public) immersed in debt as the global economic recovery ages. It is an example of the systemic financial problems and risks in Europe that have been swept under the rug - and that, over the intermediate term, should not be dismissed as a "one off." This is particularly true if the ECB, as planned, moves away from a "money for nothing" policy.

Indeed as I remarked, while that Italian indigestion could elongate our domestic economic expansion - as the risk of a short term shock in higher inflation and interest rates abate - we should not lose sight that the synchronized economic expansion is growing more ambiguous and that the world, like never before, is flat and interconnected.

Mark Grant touches on this alternative view in is his commentary this morning:

I honestly believe that the markets, and most investors, do not understand exactly what is happening in Italy. Of course, the boys in Brussels, and Berlin, will claim that nothing of significance is happening, at all, in Italy, but then what else is new? I have the sense that these people understand, well enough, but they are following the time worn German playbook, "Deny, Deny and Deny."

Mr. Salvini has stated, "As Italians, not as slaves of Berlin or Brussels." It is a different time, as history echoes, once again, but I recall the rather famous words of Seneca the Younger (4 BCE-65 CE), "The master eats more than he can hold; his inordinate greed loads his distended belly, which has unlearned the belly's function, and the digestion of all this food requires more ado than its ingestion. But the unhappy slaves may not move their lips for so much as a word. Any murmur is checked by a rod; not even involuntary sounds - a cough, a sneeze, a choke - are exempted from the lash. If a word breaks the silence the penalty is severe. Hungry and mute, they stand through the whole night."

Mr. Salvini, rightly or wrongly, feels that Italy has been enslaved and he has bound with the Five Star Movement in his fight against the European Union. That much is clear to me. Did you expect him, in his first few days in office, to try to overthrow the European Masters? I believe that he, and the newly elected Italian government, have other tactics in mind. I also believe that they will begin to be effectuated in the not too distant future.

The New Yorker Magazine joins me in my contrarian corner. "Looking further ahead, however, there is great uncertainty surrounding not just Italy but the entire nineteen-nation eurozone. For the first time since it was formed, in 1999, the monetary union will be confronting a government in one of its core member countries that is implacably opposed to many of its rules and policies." You see, I may hold the minority view on what is about to happen in the European Union, by way of Italy, but I am not totally alone in my sentiment.

The new government has a very distinctive policy agenda, which includes the establishment of a state-provided universal basic income. The League coalition also supports higher spending in various areas and it is also calling for a flat tax of fifteen per cent. Both parties want to roll back the quite unpopular pension reforms, that the E.U. regards as essential.

The E.U., it should be noted, doesn't prohibit specific policies, but it does enforce broad fiscal targets that limit how much member countries can tax and spend. If the new government in Rome flouts these policies, Brussels will demand changes and most likely threaten it with fines. Brussels will shove, and Rome will shove back and that is when the real rebellion will occur, in my estimation.

Depending on how antagonistic the situation becomes, the European Central Bank could even threaten to withdraw its support for Italian government bonds, which it has been purchasing in large quantities, as part of its quantitative-easing program. The number is approximately $400 billion of Italian bonds, to date. One caveat of the ECB's program is that any member government has to formally agree, in writing, to the policies and regulations of the European Union, before they will buy bonds and provide financial support. I just do not see the new Italian government signing up for what is going to be demanded.

I recall the words of Yanis Varoufakis, during the Greek crisis, "If you insist on policies that condemn whole populations to a combination of permanent stagnation and humiliation, you will soon have to deal not with Europeanist leftists like us but, instead, with anti-Europeanist xenophobes who see it as their vocation to disintegrate the European Union." A decent prediction and a coming reality, in my view.

In any event, regardless of your personal view, what cannot be dismissed is that there is now a formidable amount of "risk" on the table for the European Union as it confronts the demands of the new Italian government. If you can honestly deny that, then you have been wooed by the political comments rolling out from Brussels and Berlin almost non-stop. "Do not be taken in," I say, "because this is a very dangerous situation."

Play the Great Game as you will but when I see Grant's first ten rules, "Preservation of Capital," under threat, then I am no longer willing to enter the arena. I am out of Italy. I am out Italian banks. I am out of European banks, in general, because of counterparty risks. I am also out of the European Union, as a general theme, because of the upcoming Italian revolt, which I believe will be taking place.

Spartacus has returned!

Bottom Line

Italy's debt crisis isn't a "one off." It is symptomatic of the potential emerging risks - in an aging global recovery - in an increasingly flat world that is immersed in historically high debtloads (in both the private and public sectors).
2017 was a year of hope (and too little second level thinking) - that corporate tax reform would catalyze growth (and "trickle down") - as multiples on the S&P Index expanded by three points. Wall Street prospered over Main Street.
2018 is a year of reality setting in (and too much first level thinking) - with a compression in price earnings ratios. With all the earnings excitement consider that stocks are basically flat for the year. Main Street is prospering over Wall Street.
The global expansion is aging. Note that employment, in particular, is a reliable indicator of a late economic cycle. (Consider the last time we were at 3.8% unemployment was April, 2000 - which marked the top and end of a 10 year "up" economic cycle). That was the lowest unemployment rate in a half a century, exactly the same unemployment rate (3.8%) that exists today.
While it "appears" that we are moving back to the upper end of a trading range, the market remains one without any memory - one that is dominated by products and strategies that frequently provide false signals.
Be skeptical of what the market is saying (over the near term), stay opportunistic, consider the emerging risks (which almost always appear when interest rates climb in a leveraged backdrop) and be flexible and impassioned in your trading -- in the new regime of volatility that is upon us.

* Consumer packaged goods stocks are oversold and now represent value
* Given the share price decline, I expect pressure on PG management to split the company into three parts

"Low Expectations Are Now Discounted: Today, sales, profit, and market (investor sentiment) expectations are low for Procter and Gamble (PG)  - its historically premium valuation has cratered (and now stands at a lowly 16x forward 2019 consensus estimates of $4.42/share). Deutsche Bank, BankAmerica and Argus Research have recently downgraded the shares in late April, 2018.

Even without a breakup, PG's share price is relatively inexpensive - back to July, 2012 levels - and the reward vs risk has turned more favorable (over a time frame of 12 months upside reward is +$5 to +$8 against downside risk of -$2 to -$4). A breakup (which now appears to be increasingly possible) would yield a much higher upside (in the mid $80s).

Investors are now being paid handsomely to be patient as, based on a dividend rate of $2.87/year, the dividend yield is very close to 4% and its market capitalization is down to $181 billion and its enterprise value down to $217 billion."

- Kass Diary, I Am Double Upgrading Procter & Gamble

For the reasons mentioned in my lengthy analysis in mid-May, and for the second time in three weeks, I am making Procter & Gamble my Trade of the Week, again.

"GDPR, the European Union's new privacy law, is drawing advertising money toward Google's online-ad services and away from competitors that are straining to show they're complying with the sweeping regulation. The reason: the Alphabet ad giant is gathering individuals' consent for targeted advertising at far higher rates than many competing online-ad services, early data show. That means the new law, the General Data Protection Regulation, is reinforcing-at least initially-the strength of the biggest online-ad players, led by Google and Facebook."

- Wall Street Journal, Google Emerges as Early Winner From Europe's New Data Privacy Law

For some time I have been concerned that the large social media stocks faced an existential threat of greater regulation. I was particularly concerned that Amazon's (AMZN) vertical and horizontal growth paths would be viewed adversely (from an antitrust basis) and that the growth and their profits would be limited by likely government intervention.

It is now clear that my concerns, at least for now, were unwarranted (and not timely) - not because more regulation isn't emerging but because the imposition of expensive privacy laws especially on the transmission of personal data (and possible restrictions to growth) are entrenching the larger social media companies.

This development is much like what happened to the largest tobacco companies when advertising restrictions were imposed.

With moats deepening and not weakening at Facebook FB , Alphabet (GOOGL) and Amazon (all of which share personal data) - my initial concerns were misplaced. (See this Wall Street Journal article) While the share prices of some social media stocks may be overpriced, the regulatory headwinds are less powerful than I initially feared and should, for now, not be viewed as a negative for FANG.

(As you are all aware I practically abandoned the thesis because of the share price momentum and I haven't been short Amazon for months - but a large opportunity set was missed. I am taking the shares off of my Best Ideas List)

I remain long Alphabet (Here is my thesis)

With the big getting bigger, Twitter (TWTR) is also a beneficiary of the evolving social media trends discussed here this morning and helps to explain the parallel move higher of Twitter's share price with the recent sharp moves of Facebook and Google.

It now appears that the S&P 500 could move over the near term to the higher end of the revised trading range that I outlined last week.

As a reminder, I modified my pessimistic-case fair-market value and trading-range forecasts for the S&P 500 last week in Welcome to theHotel Europa as follows:

My Previous S&P 500 Forecast:

• Fair-market value: 2,400
• Market downside: 2,200
• Trading range: 2,550 to 2,725 or 2,750

My New S&P 500 Forecast:

• Fair-market value: 2,500
• Market downside: 2,400 to 2,450
• Trading range: 2,550 to 2,750 or 2,800

Now, I've promised to more reaction-oriented and less anticipatory in my strategy of hedging with the SPDR S&P 500 ETF (SPY).

So with things looking better in the near-term, I eliminated my S&P 500 hedge for a small loss Monday morning in premarket trading. All in all, I've moved my aggregate exposure to medium-sized long from a previous small net short.

However, I have a $273 sell stop (short) on the SPY shares that I just covered.