Mr. Market has been down in nine of the last 10 sessions.
In large measure the decline is a function of hastily crafted ("back of napkin") policy - delivered by tweets - from a White House that consistently conflates policy with politics.
Though I have repeated this phrase often....in a flat and networked world, this dictation and delivery of policy is dangerous and fails to acknowledge history.
Stated simply (and regardless of political views), the world is far more complex than our President (and his hard line associates) understand - and the markets finally are agreeing with me.
There is too little first level thinking and little second level thinking (that understands second order consequences of actions) in Washington, D.C.
Consumer and business confidence is on the line at this critical juncture for the markets.
Thanks for reading my Diary and enjoy the evening.

With sixty minutes left in the trading session we are at the day's lows.
While we are entering what I believe to be some support - machines and algos exaggerate short term moves, so I will simply watch in market neutral mode.
In watching the business media it is quite amazing that so many forgot how bullish they were 2-3 days ago - buying the dips.
I cautioned about FANGs last week in "Shades of 1999" and the brunt of the decline is in that space.
Clearly the new regime of volatility is with us and we are probably approaching an opportunity to make some trading long rentals.
But one has to be unemotional in the process.
I close the day in market neutral - a comfortable position to be in.
From my perch.

I continue to hear drumbeats that Procter & Gamble (PG) will restructure or break up.

The shares continue to be green in a sea of red.

I was going to make PG my Trade of the Week, but considering that I have done so in two of the last

three weeks, I thought it was PG overload!

I just added small to Alphabet (GOOGL) at $1,124.

From Sir Arthur:

S&P broke below the 50 DMA (2715) but so far has held at the 100 DMA (2702).

I just added to (BOX) at $25.13, and (DWDP) at $65.55.

I COVERED the balance of my Apple (AAPL) short at $181.40 -- its -$3.50 on the day.

I plan to short strength in this name.

Sir Arthur:

Some selling pressure on end of quarter/half rebalancing within portfolios. Sectors that have outperformed (FANGs?) are partially sold to reduce their relative weightings. Similar reweights on stocks versus debt (big Treasury supply coming into month end).

S&P trying to hold at key moving averages. See if S&P breaks 2700.

I covered my small short in (DIS) at $104.05.

DIS remains on my Best Ideas List (short) because I plan to short strength.

I covered the balance of my (SBUX) short at $50.34
.
Getting even more liquid.
Both (WMT) and SBUX stay on my Best Ideas List (short) because I would short strength.

Bidding (slightly under the market) for more (DWDP) and (BOX) (to replace $29 sales).
Covered my tag ends in (WMT) .

The Dallas Manufacturing Index in June improved to 36.5 from 26.8. That is the best in four months. New orders, backlogs and employment improved but again all came with rising inflation.

Prices paid rose to a 7 year high while prices received rose to a 10 year high. Wage growth rose to the 2nd highest level in 11 years. 

I don't know how much of the economic growth is the front loading of activity in anticipation of tariffs, how much is higher oil prices helping that industry and what is organic. 

Here are some noteworthy comments from the press release - they are worth spending a few moments to read:

Nonmetallic Mineral Product Manufacturing:

"The price of steel raw materials is causing costs to increase."

Primary Metal Manufacturing:

"We have experienced continuous growth from all sectors in iron casting sales. The two remaining inhibitors for growth are: 1. The severe lack of workforce in the north central Texas region. Numerous companies in our area are struggling to fill crucial manufacturing positions, and skilled labor is scarce."

Fabricated Metal Product Manufacturing:

"Steel tariffs to NAFTA partners is a mistake. Higher steel prices could slow down strong projects and the manufacturing recovery which started in fourth quarter 2017."

"I can't believe the effect the tariff response has had on the metals trade. Somebody needs their head examined if they think this is good for the American economy."

"We are about to raise prices for the first time in six years due to the rising cost of steel and aluminum. That is going to cause some uncertainty, with our customers looking elsewhere to purchase the products we manufacture."

Machinery Manufacturing:

"There is lots of uncertainty among manufacturers regarding the impact of the steel tariffs. Even steel sourced from the U.S. is rapidly increasing in price due to capacity constraints."

"We are operating at the lowest levels of our 70-year history. Chinese imports continue to depress pricing of our products."

"Inflationary pressures are of concern. Freight costs per mile are up. Metals are costing more, impacting a large number of purchased parts. Tariff escalation is not going to help."

"Business remains strong."

"President Trump-trade, tariffs and diplomacy-is leading to more uncertainty."

Computer and Electronic Product Manufacturing:

"It's like a switch was turned on in May and orders were abnormally high. June bookings look very positive so far."

Printing and Related Support Activities:

"We are busy now because of a large single order that we entered in May and that is being worked on now and into July. We are feeling the need to raise labor wages, which will require a price increase, but since all our materials seem to be increasing in cost, why should we miss an opportunity to include a small increase to cover rising wages? I am very concerned long term about this goofiness with tariffs and possible foreign-country retaliation. Much of what we use in materials and equipment comes from Europe and a little from Asia."

Food Manufacturing:

"Tariffs impacting the price of stainless steel are a concern. We also are in an agriculture-related environment, and commodity price increases and stability are of concern."

Paper Manufacturing:

"Tariffs impacting the price of stainless steel are a concern. We also are in an agriculture-related environment, and commodity price increases and stability are of concern."

I view S&P level of 2670 (an important Fibonacci #) -2725 as an important support level.
But I warn you that it is always dangerous when a funnymentalist is talking technical!

I had a nice shout out in this weekend's Randy Forsyth "Up and Down Wall Street" column.
Thanks to Randy.

I am very light in gross and net exposure as I don't see much of a "pricing edge."

Covered more (SBUX) at $50.63 based on improving reward v risk.

Covered some Apple AAPL and moved from large sized to medium sized.

A good gain.

With the S&P (-36) and Nasdaq (-140) indices at day's lows I am moving back to market neutral.
I have liquidated all my (SPY) puts (for a near double in about 10 days) and I have covered my (QQQ) short (for a +$6 gain).

With the S&P Index -33 handles I am taking in some of my (SPY) puts and covering a portion of my (QQQ) short - moving back to small net short in exposure.

I am trading aggressively and opportunistically in a new regime of volatility - influenced by policy and a changing market structure.

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
- Warren Buffett
I am constantly reminded of Warren Buffett's simple but brilliant investment philosophy and process.
The quote above is an example of that philosophy and brilliance.
And I should have remembered that when I invested in Campbell Soup (CPB) several years ago.
While I did take advantage of the recent price weakness and built up a very sizeable long position, it was clearly a mistake.
With the shares trading at nearly $42 (+$9 upside/-7$ downside) -- I have liquidated my entire position in CPB.
I am moving on and hopefully I will pay heed to The Oracle.
This sale moves my net short exposure higher.

Credit Suisse raises its price target from $30 to $32 on Campbell Soup (CPB) :

• Campbell isn't Kraft Heinz' top pick for an acquisition, but KHC probably could justify buying CPB for the cost savings if at the right price. However, we doubt that the Dorrance family, which owns 37% of Campbell stock, would sell the company when the stock is down 44% from its high. The board may consider splitting up snacks and soup at some point, but probably not this year since it would entail loading up the soup business with a huge debt load and significant dis-synergies
• According to our analysis of Nielsen data, Walmart's "experiment" with private label last year proved that it can survive in the soup category without Campbell's help even though it loses a little bit in the process. As a result, we think Walmart will either keep emphasizing private label or it will extract a compelling deal from Campbell that forces Campbell's profit margin lower.
• Our $32 target for Campbell applies a 13x P/E multiple on our FY 19 EPS estimate of $2.50, which assumes 200 bps of margin contraction. An unexpected sale of the company presents the largest upside risk to our target price.

Peter Boockvar's commentary is on trade this morning:

Let's separate the three different issues that the Administration is focused on addressing when it comes to their current strategy on trade taxes. Firstly, protecting the technology of American companies from Chinese theft, a very worthy goal and this article Friday in the NY Times highlights the challenges being faced. The second is trying to knock down the tariff induced trade barriers that other countries have relative to the US. We all want that. The last one, sort of a byproduct of number two, is trying to lower the US trade deficit. This one I believe is much more misplaced as an end to itself as trade is not a zero sum game and a deficit should not always be viewed as a negative and a surplus is not always a positive.

As for the first concern, we don't seem to have made any progress addressing with the current tariff plan but are at least calling China out deservingly so. The 2nd one might be gaining some traction in bits and pieces and hopefully continues. The 3rd is only a symptom of everything else. Either way and regardless of how one thinks this should all be handled, the means to the intended end is immediately having negative real world impacts.

Over the weekend the French PM met with President Xi and Xi expressed his interest in buying more Airbus planes. Harley Davidson filed an 8k this morning responding to the EU tariffs on their motorcycles. They said they expect "these tariffs will result in an incremental cost of approximately $2,200 per average motorcycle exported from the US to the EU. Harley-Davidson believes the tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers' business...On a full year basis, the company estimates the aggregate annual impact due to the EU tariffs to be approximately $90 to $100mm." The US is about to lose jobs from this because HOG "will be implementing a plan to shift production of motorcycles for EU destinations from the US to its international facilities to avoid the tariff burden." The American farmer is not too happy either right now with the price of soybeans at a 27 month low and China their biggest customer.

So in response to the trade spats we'll have some US companies shift production overseas and foreign companies move production to the US with one offsetting the other.

Q2 earnings season will now be flooded with commentary on the impact of what has been done and threatened. The growth worries has the US 2s/10s spread now down to 34 bps, a fresh 11 yr low. Because inflation pressures are only growing and the trade stuff will only exaggerate that, the Fed's job doesn't get any easier.

To address its own growth issues, the PBOC cut its reserve requirements for many banks to 15.5% from 16%. The South China Morning Post said "The move is a 'targeted operation' aimed at supporting the weak links in the economy and not a change to the country's 'neutral and prudent' monetary policy stance, the PBOC said." The news initially helped the Chinese stock market but the news last night that the US Treasury Department was working on limiting Chinese investments in US technology companies send the Shanghai comp down 1% and lower by 13.5% ytd. The H share index was down by 1.2% and weaker by 4.3% ytd.

With 40% of its economy dependent on exports, the German IFO business confidence index for June fell .5 pt to 101.8 but that was as expected. The expectations component was unchanged m/o/m but the current assessment fell by 1 pt. The headline number matches the lowest since March 2017. The IFO said "The tailwind enjoyed by the German economy is calming down." We've certainly seen that for the past few months in the data. The DAX is down 1.4% and by 4% year to date.

With (CPB) trading +$2.50 (at over $41) I am reducing my very large long holdings to medium sized.

This move is based on my perception of upside reward to $50-$52 on a deal and downside risk to about $35.

That's +$10 of upside and -$6 of downside -- still favorable but not as attractive when the shares were trading much lower.

This morning JP Morgan (JPM) opined on a possible Kraft Heinz (KHC) acquisition of Campbell Soup (CPB) , "When You Buy a Hat Like This I Bet You Get a Free Bowl of Soup."

I have long surmised that a Kraft Heinz acquisition of Campbell Soup made sense. Increasing management errors and poor execution, I thought - and have written - would be a near term catalyst for such a transaction.

I am in general agreement with a number of the brokerage conclusions:

* A deal would likely be in the low $50s.
* The transaction would be substantially accretive to Kraft Heinz and count be a stepping stone to future deals.
* CPB faces execution risk in the acquisition of Synder's Lance - CPB management's past incompetence will be put to a test.
* The Dorrance family represents a less significant hurdle to a deal than in the past.

From JP Morgan:

Accretion Analysis (with Scenarios)

• We model 20%+ EPS accretion to KHC from a CPB deal, inclusive of synergies. In our accretion model, we make the following assumptions. 1) Premium: We model KHC paying 40% above CPB's closing price last Friday (well above the typical ~25% we typically model, as we presume an unusually large offer would be needed to entice the Dorrances). 2) Financing: We assume 100% cash-for-stock (with cash raised by KHC issuing debt at 4.5%), bringing pre-synergy leverage to 5.5x. 3) Synergies: We think it is reasonable, given 3G's history of intense cost-cutting, to assume that synergies would be greater than the 7% typically modeled in packaged food deals. We model them at ~10% of CPB's FY19E sales. 4) Sales dis-synergies. We assume that 2% of CPB's sales would be shed under KHC's aegis.

• In terms of assumptions, the accretion model is far more sensitive to synergies than to the premium paid. If we were to assume a 25% or 60% premium rather than the 40% in our model, then all else equal our EPS accretion only varies between 21.4% and 17.2%. If we assume synergies of 12% of CPB sales, we get accretion of 22.8% versus only 11.4% at 5% synergies:

• For the purposes of this analysis (and simplicity), we assume KHC buys all of CPB. There are many other possibilities, including KHC wanting to divest the Campbell Fresh and bread assets, but we will leave this discussion for a different time.

Quick Facts about KHC and CPB

• KHC. 1) Ownership: KHC is majority held by Berkshire Hathaway (26.7%) and 3G (23.9%). 2) Geography: KHC is primarily US-based (70% of 2017 sales), with Canada comprising another 8%. 3) Product mix: Per Nielsen, KHC's primary US categories are cheese (23% of sales), lunchmeat and processed meat (15%), prepared foods (14%), meal combos (7%), condiments (7%), and coffee (6%). Given the lack of category overlap with CPB, we do not see any material antitrust concern from a potential deal. 4) M&A: On numerous occasions, KHC management has expressed its interest and readiness in buying assets. For example, last quarter, CEO Bernardo Hees said, "We are very disciplined in the approach we have about M&A, really looking at things as two plus two is more than four."

• CPB. 1) Ownership: Per the company, the Dorrance family and related entities own less than 50% of the shares today (we believe the figure is in the low 40% range). 2) Geography: CPB is primarily a US company. 3) Product mix: Following the recent deal for LNCE, CPB expects its sales to be 46% baked snacks, 27% soup, 17% simple meals, and 10% beverages. 4) History: The company dates back to 1869; its iconic can design was created in 1898. 5) Strategic review: On 5/18/18, CPB announced a new strategic review; the company has not stated whether a sale would be considered and has not commented on the Post's story. Based on our previous discussions with management, we believe a sale of the company is not actively being considered, but this is not the same as saying a bid would be automatically rejected.

Kraft Heinz: The Case for the Deal

• The deal would probably be highly accretive to EPS. As discussed above, our base-case scenario projects 20% EPS accretion once synergies are realized. If our other assumptions are correct, then we believe KHC could pay over $100 for CPB before the deal became dilutive post-synergies.

• Campbell could be an effective stepping stone to a larger transaction. It feels awkward to refer to CPB, an $11.6B company founded four years after the Civil War, as a potential stepping stone for anything; however, for 3G and KHC this is what it may be. The name of the book about 3G is Dream Big, which on its own suggests that CPB, one-seventh the market cap of KHC, is not a strong fit for the Brazilians' model. But for 3G to truly dream big and ultimately buy a much larger business, it will likely have to issue KHC stock, which it may be loath to do presently with the shares off 34% from their peak. Perhaps by buying CPB and driving EPS higher, KHC could see a rise in its shares, thus providing ammunition for a bigger transaction a year or two hence.

• 3G and Warren Buffet love brands. Despite recent sales trends, Campbell Soup is one of the country's best known brands (few others have been the subject of Andy Warhol paintings, for example). Throughout its history, 3G has sought strong brand equities (Kraft, Heinz, Budweiser, et al). One reason for this, in our view, is that brands need resilience to thrive under the weight of 3G's efficiency efforts. Much like Heinz remains the dominant brand in ketchup despite supply chain issues a few years ago, the Campbell Soup brand would probably be only minimally harmed if product were off shelves for a short period.

Kraft Heinz: The Case against the Deal

• CPB does not entirely fit the strategy laid out by KHC management. Last quarter, Mr. Hees said, "Our framework for capital allocation, organic and inorganic, has not changed. We continue to like big brands. We continue to like business[es] that can travel, and continue to like business that we can generate efficiency that can be invested behind growth, brands, products and people." On the one hand, this outline partially describes CPB, which has a couple of big brands (Campbell's, Pepperidge Farm) and would create strong efficiencies. On the other hand, we question whether CPB's business can travel well globally (the company failed in Russia and China a decade ago). And recently, in our opinion, KHC management has emphasized its desire to buy healthy top-line growth, a quality we might consider absent from CPB at this time.

• CPB would add major execution risk to KHC. Campbell Soup is a company undergoing a major transition today. It has no permanent CEO; lost a great deal of promotional shelf space with Walmart last winter; just bought Snyder's Lance, a business with numerous executional challenges of its own; has watched its Bolthouse brand start to shrink; and now operates three distinct DSD systems. If KHC just wanted the soup business, we could see the logic, but adding the entire company could be problematic, in our view. To account for this risk, in our scenario analysis valuation (below), we assume that KHC+CPB post synergies should trade at a P/E discount to KHC alone.

• DSD is becoming less attractive in general. Direct-store-delivery, or DSD, is the process by which manufacturers deliver products straight to customers' stores, bypassing customer warehouses or distribution centers. Years ago, when food retailers were less sophisticated, preservatives were less prevalent, and packaging was less effective, DSD served a meaningful purpose across a number of categories, including beer, salty snacks, carbonated soft drinks, cookies, crackers, bread, and milk. For categories with short shelf lives (e.g. bread and milk), DSD is still a critical tool, as it shrinks the time between production and sale. For categories with high turnover (CSDs, beer, salty snacks), DSD can help reduce out-of-stocks. These categories are also sold at higher-than-usual rates to convenience stores, which in our view are less sophisticated about merchandising than large, dedicated grocers. But for categories like cookies and crackers - which still comprise the bulk of CPB's snacking business - DSD has become less useful. These are slower-turning products that do not break as often as they used to, and last longer thanks to preservatives. There is a reason Kellogg migrated its Keebler business away from DSD last year.

In addition, DSD in general - even for items like bread - is not as important as it used to be. More consumers are buying products online, where DSD is essentially meaningless, and food retailers such as Kroger have migrated most merchandising decisions to central HQ rather than leave them in the hands of store managers. This minimizes the effectiveness of local DSD route operators. True, 3G has shown in the past a willingness to buy DSD assets (see AB InBev). But as mentioned, we think DSD is more valuable in beer than in cookies and crackers, and less valuable overall every day.

• Not every CPB-owned brand is iconic. As mentioned, we can see the logic in KHC wanting the Campbell's Soup and Pepperidge Farm brands. We see less sense in wanting some of CPB's other products, including those that a) compete directly against major players such as PEP's Frito-Lay, b) are in structural decline (V8?), and/or c) are in commodity-oriented categories (carrots). We question the desire of 3G to own many of these less attractive assets.

Campbell: The Case for the Deal

• Deus ex Machina. The "pro" argument for CPB holders would be fairly simple. Investors could either hold the shares today (Friday's close: $38.52) when CPB has a) no CEO, b) major integration risk (from the purchase of Snyder's-Lance), c) meaningful operational risk (running three separate DSD systems), and d) declining consumer demand for its products.... Or investors could be bought out for what we see as a likely range of $50-$58/share (30% to 50% premium, bracketing the 40% we model above).

Campbell: The Case against the Deal

• The Dorrance family may not want to sell. Though he did not found the company, John T. Dorrance invented the formula for condensed soup in 1897, became company president in 1914, and eventually bought out the Campbell family. His heirs still control a plurality of the shares today, and three of them (grandchildren Mary Alice Malone and Bennett Dorrance, great-grandson Archibold Van Beuren) sit on the 12-person board of directors. We can see a number of reasons for a Dorrance heritor to resist a sale, including a) the desire to keep receiving a dividend; b) a dedication to the family legacy; c) a commitment to the city of Camden, NJ; and/or d) tax purposes (the cost basis on stock that went public in 1954 is effectively zero).

But as mentioned, we do not think the Dorrances have enough stock to block a deal without help. Assuming 43% Dorrance-family ownership, just 76% of outside shareholders would need to vote in favor of a takeout proposal, with the remainder abstaining. For comparison, Snyder's-Lance's recent takeout by CPB was approved with 90% shareholder participation and 99% voting in favor.

Lastly we believe, based on our previous conversations with company leadership, that certain Dorrance family members have perpetuity trusts in place to minimize the tax impact from gains on sale.

In happier news, the New York Postreported over the weekend that Kraft Heinz (KHC) is interested in acquiring Campbell Soup (CBP) !
Here is what I wrote last week on the subject of consumer packaged goods mergers:

A Pinnacle-Conagra Merger May Mark the Beginning of Food Industry Consolidation

Jun 22, 2018 ' 8:25 AM EDT 

* The rationale for more mergers and restructurings grow more compelling

"A steady stream of disappointing earnings releases has recently underscored my initial negative thesis. The share prices of consumer packaged goods companies have regularly hit new lows in recent weeks.

Given current low valuations, dividend yield support and still valuable franchises -- I now believe most of the decline is over and the fundamental challenges, finally now recognized, may have been discounted.

Most companies have tried to combat the wreckage in their core businesses by developing "fresh" food product offering alternatives. And most, like Campbell Soup (which I am long), have failed to execute that transformation well.

Meanwhile, the pressure of pressure on average selling prices and the cost squeeze (of rising steel/aluminum prices, higher freight costs and other feedstock cost increases) have weighed on core operations.

Which leads me to conclude that only a bold initiative of large mergers may be the solution to the plight of packaged food companies.
Large acquisitions, mergers of equals and a broad industry consolidation may be the only potent solutions which would serve to create important economies of scale, sizeable cost saves and needle-moving synergies.

I would expect Buffett's Berkshire Hathaway (BRK.A) (BRK.B)  and 3 G Capital to be among the key players in this possible industry development and anticipated transformation."

- Kass Diary, "The Case for Large Consumer Packaged Goods Mergers, Consolidation Grows More Compelling"

This morning Pinnacle Foods (PF)  has announced that it has restarted merger conversations with Conagra (CAG) .

As discussed in late May, I expect a series of large mergers in the foods and consumer packaged goods sectors given the competitive business landscape, the need to rationalize their business (and cut fixed costs), and in order to resuscitate some pricing power. (At about that time, after being net short consumer packaged goods, I turned positive.)

Pinnacle and Conagra may mark the beginning of this trend.

I currently have large sized holdings in three out-of-favor consumer packaged goods stocks: (CPB) , (PG)  and (KHC)

* The Titanic May Be Soon Hitting the Ice
* Downside Risk Overwhelms Upside Reward
* The New Regime of Volatility Is In Place, Accelerated By the Possibility of Policy Mistakes and a Changing Market Structure
* Trade More, Invest Less: Think Trading Sardines and Not Eating Sardines


It's just another manic Monday
I wish it was Sunday
'Cause that's my fun day
My I don't have to run day
It's just another manic Monday
-- Bangles, Manic Monday

The Bangles "Manic Monday," was actually written by Prince, using the pseudonym "Christopher." Often compared to The Mamas and The Papas, " Monday, Monday" it was a 1986 release and the group's first big hit.

The proximate cause for the early morning future's drop (-17 handles) is the heightened trade tension between China and the rest of the world with the U.S. - something Jim "El Capitan" Cramer and I have been consistently cautioning about.

The leveraged ETFs and quant strategies (e.g., volatility trending and risk parity) and changing market structure may take it from there and could create a turmoil filled and volatility trading session today.

Donald Trump is Making Economic Uncertainty and Market Volatility Great Again as the second order impact on trade, global economic growth and business confidence is being upended at a time stocks are elevated in price and valuations (particularly against GAAP expectations). ( A talking head on CNBC just told my pal Brian Sullivan that "earnings quality is terrific." No it isn't, that Wall Street pablum and "Group Stink" as the gap between Non GAAP and GAAP earnings have never been wider. Stocks, measured against GAAP #s are preposterously inflated).

#MUVGA

Meanwhile, the partisanship in Washington, D.C. - on both sides of the pew - has never been more pronounced and a disquieting backdrop of animus and hostility reins. The impact of this condition on consumer and business confidence remain unknown.

Valuations are contracting, stocks are beginning to ignore good results (e.g., Micron Technology (MU) ) and the risks of policy (both fiscal and monetary) miscues are rising -- at a time in which monetary policy around the world is pivoting towards tightening.

Meanwhile the benefits of the corporate tax reduction is trickling up and not trickling down.

Bottom Line

I was long as the S&P Index rose in early June. but I moved back into a net short exposure (via defined risk (SPY) puts and with a short (QQQ) ) at mid-month as signs of global economic ambiguities multiplied, investor optimism grew and the threat of policy mistakes increased -- and the downside risks were heightened as measured against upside reward.Market Downside: 2400 to 2450
'Fair Market Value': 2500
Trading Range: 2550-2750 to 2800
Current S&P Cash (Adjusted for this morning's future drop): 2735
Here are the current reward versus risk parameters (based upon the -15 handle drop in S&P futures, 2735 S&P equivalent):
1. There are 310 points of downside risk against only 65 points of upside reward (compared to the top of the expected trading range) in my new pessimistic case (2400-2450). This is an overwhelmingly negative reward vs risk ratio (5:1).
2. Compared to 'fair market value,' (2500) there are 235 points of downside risk versus only 65 points of upside reward. That's a negative 4:1 ratio.
3. Against the expected trading range, there are 185 handles of downside risk and only 65 points of upside reward (to the top end of the anticipated trading range). That's a 3:1 adverse ratio.
There are moreShades of 1999 and signposts that FAANG may have peaked, while we face a new regime of volatility reflecting a host of factors and the possibility of increased economic and market outcomes (many of which are adverse).
A changing market complexion is occurring coincident with global monetary tightening - making equities and other long dated assets less attractive as the risk free rate of return expands.
I wish it was Sunday.
That's my fun day.