It was nice "being with you" all today - I hope some of my material was value added.
Enjoy the evening.

Last week FAANG stocks appeared to have had an upside blow off. (This week the stocks suffered).

Today bank stocks appeared to have had the mirror image - a mini panic (after 12 consecutive lower trading sessions) to the downside.

(C) , (BAC) and (JPM) are all several percent off of the morning's low prices.

I added to banks - across the board.

That's the extent of today's trading.

Banks turn green and may break their eleven day "schneid."

From Peter Boockvar:As has been the trend for a while now, we had another mediocre Treasury auction. The 2 yr was priced to yield 2.538%, a touch above where it was trading at just prior. The bid to cover of 2.73 was below the 12 month average of 2.85. Also of note, dealers got stuck with 42% of the auction, above the one year average of 37%.

Bottom line again is that a yield last seen 10 years ago is still not enough to generate much excitement. We know we have more Fed rate hikes to come, rising inflation, huge supply, and foreigners that are finding other things to do with their excess reserves. There was not a response in the now off the run 2 yr and the spread between it and the 10 yr is unchanged at 34.5 bps but at an 11 yr low.

2s/10s spread

Procter & Gamble (PG) continues its multi-week advance.
Although I don't know this to be true, high above the Alps, my Gnome is hearing the drumbeats of restructuring that are sounding louder and louder.

At this stage I wouldn't categorize today's small rally in the S&P Index as very impressive.
I would categorize the small rally as predictable.
And I am indifferent towards shorting such a small move, feeble as it is thus far.
My guess is that it doesnt make much progress.
I have made no material trades today and I remain market neutral in exposure.

The Conference Board Consumer Confidence index for June fell to 126.4 from 128.8. The estimate was 128. This though comes after a 3.2 point rise in May. The month over month modest drop was led by the Expectations component which fell to a 6 month low while Present Situation was little changed. The answers to the labor market questions were mixed. Those that said jobs were Plentiful fell 2 points but only after rising by 4 points last month. Those that said jobs were Hard to Get fell .7 points to the lowest level since 2001 and reflects the record number of job openings relative to the available labor for them. Investors should disappointed to see though that those expecting Higher Income fell to the least since April 2017. I'm at a loss on that one considering all the other wage confidence data (hard data pointing up) I've seen pointing higher, particularly in the NFIB and University of Michigan confidence data. 

The spending intentions were mixed too. Those that plan on buying a car/truck this year fell to the lowest level since October 2015 (in the midst of the stock market falling about 10% that month). Those that plan on buying a major appliance (like a fridge, washing machine, TV, AC, etc...) fell almost 3 points to the least since July 2017. Those that plan on buying a home did rise .4 points but only after falling by 1.4 points last month to the lowest since 2016.

Lastly, one year inflation expectations held at 4.9%, matching the most since September 2016.

The Conference Board said simply "Consumers' assessment of present day conditions was relatively unchanged, suggesting that the level of economic growth remains strong. While expectations remain high by historical standards, the modest curtailment in optimism suggests that consumers do not foresee the economy gaining much momentum in the months ahead." If you work at a company that is touched or soon will be by tariffs, it would seem to be understandable that there would be some trepidation on what comes next even though things are good right now.

Regardless, consumer confidence data is never market moving.

The Richmond manufacturing survey rose 4 pts month over month to 20, a 4 month high and that was 5 points better than expected. New orders, backlogs and employment all rose. On the latter, it still is really hard to find new employees as Availability of Skills Needed fell sharply. Capital spending plans were mixed. Wages held at just off the highest level in 21 years. Price pressures intensified as prices paid rose to the highest level since October 2012 and prices received rose to the most since December 2012. There is however hope that higher costs will abate in the coming 6 months.

Bottom Line

Thus far we've seen a good New York, Dallas and Richmond manufacturing surveys and a softer Philly figure. I'll say again though, I don't know what is organic and what is a quickened pace of activity to get ahead of tariffs that will affect hundreds of products and thousands of businesses.

Vinny Gambini: Ms. Vito, you're supposed to be some kinda expert in automobiles, is that correct?... Is that correct?

[she folds her arms and turns her back on him]

Judge Chamberlain Haller: Would you please answer the counselor's question?

Mona Lisa Vito: No, I hate him.

Vinny Gambini: Your Honor, may I have permission to treat Ms. Vito as a hostile witness?

Mona Lisa Vito: You think I'm hostile now, wait 'til you see me tonight.

Judge Chamberlain Haller: Do you two know each other?

Vinny Gambini: Yeah, she's my fiancée.

Judge Chamberlain Haller: Well, that would certainly explain the hostility.

- My Cousin Vinny

More than even technology or biotechnology, if I was going to position in a sector that has a favorable longer term reward relative to risk, my current choice would be the money center banks.

Like My Cousin Vinny's Mona Lisa Vito, I have some Street Cred as I have been following money center and banks since I was a yute. And as a yute, (while I was getting my MBA at Wharton) I coauthored the book "CITIBANK", with Ralph Nader and The Center for the Study of Responsive Law.

More on this next late week, after the July 4th holiday - as I am working on a longer analysis.

Purchased (BAC) ($28.15), (JPM) ($103.78) and (C) ($64.90) in a new managed account just now.
An investment and not a trade.

"The Beer Bet" from Lance Roberts.

My pal Peter Boockvar discusses liquidity, flows and trade:

The worry over the impact of global tariffs is of course front and center. I do want to remind people though that starting next week, the liquidity flow from both the Fed and ECB will go negative for the first time in years. The Fed's QT will increase to $120b in Q3 while the ECB will be injecting $105b (at current FX rate). This gets more pronounced in Q4 when the Fed's balance sheet shrinks by $150b and the ECB will be adding just $53b. Thus, the BoJ is the clear standout in its QE policy but which has been slowing anyway.  I continue to believe all this really matters and is a key reason for some of the financial accidents we've seen so far this year (blow up of short VIX trade, Turkey, Argentina, Italy and broader EM weakness). 

We got good news on the trade front out of Hong Kong for May as exports jumped by 16% y/o/y, well more than the estimate of up 8.5%. As I've said before though, I don't know how much of this was front loading activity ahead of the actual implementation of the announced tariffs and what was organic. Exports to China grew by 19.2%, to the US by 12.5% and to Germany by almost 17% to name a few of their customers. Imports were up by 16.5%, above the forecast of up 11.3%. The Hang Seng index started the day deep in another hole by more than 1% but rallied by days end to finish down by only .3%. Both A shares in Shanghai and H shares in Hong Kong closed red again. The Shanghai index is now down exactly 20% from the January 24th recent high. Hopefully we're close to a short term bottom as the contrarian in me read a headline this morning, "China stock rout may worsen, analysts warn no end in sight." 

I've talked about Sweden in the past for the sole reason of their negative interest rate policy which is becoming more and more untenuous because of a near 6 year low in the Krona vs the euro, rising consumer price inflation, a housing bubble and good GDP growth. Well, today they reported that PPI rose 6.3% y/o/y, up from 4.9% in April. For comparison, you can buy a 25 year Swedish government bond and collect a coupon of 1.16%. If you buy a 5 yr note, you'll pay .10%. The point is, we are seeing the Riksbank and other central banks getting stuck in policy that they are finding really difficult to get themselves out of. 

After the slightly better than expected new home sales data yesterday and ahead of Friday's pending home sales news, Lennar reported a good quarter and said in their release, "Concerns about rising interest rates and construction costs have been offset by low unemployment and increasing wages, combined with short supply based on years of underproduction of new homes. Demand remained strong as we continued to see pricing power support margins while affordability remained consistent." This is good to see in light of the plateau we've seen in the full industry data over the past few months but the push and pull among the macro factors affecting housing will continue I believe. The big, well capitalized companies such as Lennar can certainly handle rising labor costs, raw materials and lots much better than smaller ones in terms of protecting margins and being price competitive. 

* The market is broken in price and in structure* Over the near term the easy money may have been made on the short side
* Over the intermediate term (the balance of 2018) the market outlook remains bearish
* We may now be seeing the initiation of three strong trends: the breakdown of Growth vs Value, the peak in the strong relative performance of the Russell Index and a turn in International stocks vs Domestic stocks (more on this later in the week)
"Going to leave this brokedown palace,On my hand and knees, I will roll, roll, roll.Make myself a bed in the waterside,In my time, I will roll, roll roll.''
- Grateful Dead,Brokedown Palace
Make no mistake about it, while Mr. Market may very well rally after dropping in nine out of the last 10 trading sessions -- equities (in price) and the market (in structure) is broken.
After the recent downturn I have several additional and tentative conclusions:
1. Over the short term, the easy money has probably been made on the short side (note: the put/call ratio climbed to 111%) - but a downturn back to my "fair market value" for the S&P (of 2500) may be closer at hand, over the second half of 2018.
2. It looks increasingly likely that a blowoff to the upside occurred in the FAANG stocks last week (as I warned in 'Shades of 1999')
3. Many high profile stocks have made important highs (earlier in the year) and now are drifting lower in a consistent fashion. A meaningful recovery in the share prices (of popular) Goldman Sachs (GS) , Micron Technology (MU) , biotech and technology stocks may be difficult to achieve.
4. Overall breadth is breaking down - something we initially observed when new highs were contracting and new lows were expanding (h/t Divine Ms M) about 2-3 weeks ago. See here, and here.My Moves Yesterday

"In a bed, in a bedby the waterside I will lay my headListen to the river sing sweet songsto rock my soul"
As the S&P futures moved to nearly 50 handles lower in Monday's trading I unemotionally moved into action and covered my (QQQ) short and sold out all my (SPY) puts - moving from a medium sized net short exposure to market neutral.
I also covered the balance of my shorts in Disney (DIS) and Starbucks (SBUX) , while adding to Alphabet (GOOGL) , Dow Dupont (DWDP) and Box (BOX) longs and selling out my large Campbell Soup (CPB) holdings.Bottom Line"Goin to plant a weeping willowOn the banks green edge it will grow grow growSing a lullaby beside the waterLovers come and go - the river roll roll roll"
I am at my lowest gross and net exposure (market neutral) in over six months because I do not believe, after the significant drop in equities since May, that I have much of a short term 'edge.'
After nine out of 10 losing sessions, a small bounce back is possible and the easy money (over the near term) may have been made on the short side.
But, in no way am I bullish - as the downside risk relative to the upside reward are between 2:1 and 4:1 negative (on a forward 12 month basis). Here is my current calculus of the risk parameters:
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 movement): 2725 Here are the current reward versus risk parameters (based upon the -1 handle drop in S&P futures, 2735 S&P equivalent):
1. There are 300 points of downside risk against only 75 points of upside reward (compared to the top of the expected trading range) in my new pessimistic case (2400-2450). This is a negative reward vs risk ratio (4:1).
2. Compared to 'fair market value,' (2500) there are 225 points of downside risk versus only 75 points of upside reward. That's a negative 3:1 ratio.
3. Against the expected trading range, there are 175 handles of downside risk and only 75 points of upside reward (to the top end of the anticipated trading range). That's a 2.3:1 adverse ratio.
The meaningful damage of the last two weeks has produced a broken market which has been damaged technically (and maybe even fundamentally) - suggesting that the outlook for the second half of the year (as I have previously projected) has deteriorated.
Many stocks and sectors have almost certainly made important highs in the first half of 2018 and I continue to believe that the market peaked in late January and the new regime of volatility will remain in place over the forseeable future.
I am a short seller on strength."Fare you well, fare you well, I love you more than words can tell,Listen to the river sing sweet songs, to rock my soul."