Apple gets hit on this news near the close (taking the averages back down): 

*APPLE: PROPOSED TARIFFS AFFECTS WATCH, AIRPODS, APPLE PENCIL

*APPLE SAYS PROPOSED TARIFFS ALSO AFFECT MAC MINI, SOME CABLES

I wanted to end the week with a sincere thank you for reading my Diary.
I hope it provided some fresh (and lucrative) ideas and observations that you don't see elsewhere.
Enjoy the weekend.
And, lets be careful out there!

From Dwyerama (the bullish case):

This MarketWatch article caught a lot of attention yesterday because it highlighted our view the S&P 500 (SPX) could rally ~10% into year-end. Although many see that as a stretch and believe it is unusual, the last 30 years say it isn't.

Over the past 30 years, the S&P 500 has been up 20 times year-to-date (ytd) through August. Of those 20 instances, it was positive from the end of Aug close to peak 19/20 times with a median gain of 8.47%. Only 1994 showed no gain from end of Aug to year-end (Figure 1).

A gain of 8.47% from the 08/31/18 close of 2901 on the #SPX would be ~3150, which would be close enough to target for me. The question isn't whether there can be corrections - that is clear. The question is whether they will be temporary, and history and our core fundamental thesis still say buy weakness when it comes.

Figure 1 - History Suggests Positive Year = More Upside Toward Our Target
[cid:image001.png@01D4469E.D0D9F8B0]
Source: Bloomberg/Canaccord Genuity

Summary - Solid returns over the past few months may cause an environment ripe for temporary course adjustment, but the macro engine is running well, we appear to be on course, and it is relatively clear fundamental skies ahead. This means any major issue with the market is one of valuation. The SPX is currently trading at 19x trailing 12-month operating EPS - the same multiple as the end of 2016. That means the SPX is trading at the same valuation on trailing EPS prior to and after the bulk of Fed rate hikes, political theater surrounding President Trump, and the 2018 Tax Cut and Jobs Act. Given the positive fundamental backdrop listed above, it would take an economic catastrophe to make our 2018 and 2019 SPX operating EPS estimates of $160 and $168, too high, and as a result, we reiterate our 2018 and 2019 SPX targets of 3200 and 3360, respectively.

As promised, Dillard's (DDS) reached my buy zone under $73 (I sold some off last week at $79) and I added and moved back to medium-sized.

I have upped my Twitter (TWTR) long investment to 'very large.'

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."

I recently have emphasized the growing economic ambiguities and, used as an example, the -8% decline in the CRB Spot Commodities Index:

Today the price of lumber is limit down (-$15) and the home wrecking space is a downside feature.

New lows in Ford (F) and General Motors (GM) .

Ominous.

The ultimate irony would be if Apple (AAPL) acquired Tesla (TSLA) for $4.20/share!

I am adding to my short book on the continued breakdown.

No trades today.

CBS (CBS) = worlds fair!

Yes, there's the jobs number but we know really what today is all about. Is the Administration going to follow thru with another round of tariffs on China or not? If so, will it be $200b all at once? Will it instead be in tranches? At this point with no high level talks at all and with seemingly no progress and lower level ones it would seem like this is the path we will continue to go down. 

Meanwhile, Chinese FX reserves in the midst of its currency weakness fell by $8.2b in August, mostly giving back the rise seen in the two prior months. The level of $3.11 Trillion was slightly below the estimate of $3.115 Trillion and that is the least since October but is still pretty steady all things considered in terms of the extent of the yuan weakness. The Chinese government has pretty much stopped relying on FX intervention in order to protect these reserves and is now back to 'counter cyclical' steps to stabilize the yuan. Of course too they have capital controls and we have to admit at least to the US, foreign direct investment isn't so attractive anymore politically. Chinese stocks bounced, getting back most of yesterday's loss.  

CHINESE FX RESERVES

In the eyes of the BoJ, a key factor in getting higher consumer price inflation is seeing a sustainable rise in wages. Putting aside the problem if they both go up at the same pace, regular base pay in July in Japan rose 1% y/o/y. While that is down from 1.1% in June and 1.3% in May, it still is around 21 year highs. Japanese JGB yields have been pretty steady lately after the big change seen in July and early August but are still remaining near the recent highs. The 10 yr yield is at 11 bps (I know, only 11 bps) and the 40 yr is just below 1.0%. I still expect that 10 yr yield to drift towards 20 bps which the BoJ will tolerate.

I'll use this comment on JGB yields to segue into the action in European and US sovereign bonds. Italian bonds are rallying again with the 10 yr yield back below 3% after jumping by 12 bps yesterday. The new government is trying to convince again the EU that their next budget will be closer to 2% of GDP than 3%. The German 10 yr yield is higher in contrast as it has been the flight to safety trade during this Italian wild ride in their bonds. US Treasury yields I have to say are remaining pretty sticky with the 10 yr yield up on the week in spite of the pullback in US stocks. I'll say again, we are now 3 weeks away from the next big test in bonds as the net liquidity injection from the Fed, ECB and BoJ will go to zero in Q4 vs $100b per month in Q4 2017. The liquidity tide is changing big time and not for the better. 

After the disappointing factory orders number for July in Germany, they missed too relative to expectations in their export and industrial production figures. Exports fell .9% m/o/m instead of rising by .3% as expected. This follows no change in June. IP was weaker by 1.1% m/o/m vs the expected rise of .2%. On the IP side, the German Economy Ministry is saying it is mostly related to "temporary bottlenecks in passenger car registrations under the new driving cycle", referring to emission changes. That doesn't account for the weakness in exports as German falls victim to the slowdown in global trade.

Industrial production in France in July did exceed forecasts but Spain missed. The euro is little changed here in response to all this July data and hanging above $1.16. For all the dollar strength against many emerging market currencies, the euro heavy dollar index is back below 95 and pretty much smack in the middle of its two year trading range.

I'll finish today's piece by talking about what Fed Vice Chair John Williams said yesterday and what Fed President Eric Rosengren said overnight. Williams in case you missed it said if the data "were to require us to move interest rates up to the point where the yield curve was flat or inverted, that would not be something I would find worrisome on its own." This is in contrast to Bullard, Bostic and Kaplan who seem to be obsessed with purposely not inverting the curve. Since Williams is Vice Chair, his words carry much more weight. 

Rosengren acknowledged that their current inventory of tools "may not be sufficient to offset future shocks, reducing the capacity available to policymakers to insulate the economy from future adverse shocks." What he won't say is that this is a problem of the Fed's doing because they have been so damn slow in reversing their historic accommodation. That will be the difference in the next economic downturn, whenever that might be. The Fed just won't be the savior that many have been accustomed to in the past. The same can be said for the ECB, BoJ, BoE, SNB, Riksbank, etc...

* The timing (and price) of a deal seems right now

The Appeal of Twitter

The recent Congressional hearing with Twitter's (TWTR) Jack Dorsey (and Facebook's FB management) makes one thing apparent, and that is the public forum TWTR has become is singular in its uniqueness.

This uniqueness (and scarcity value) alone may make it a value at current prices for a potential acquirer - especially at today's valuation.

Despite the eradication of fake accounts and the uneven course of usage, the scarcity value of Twitter is steadily expanding. This is occurring at a time in which the currency for a possible takeover has climbed over the last six months, as (despite the recent dip) the shares of potential acquirors have exhibited large year over year gains.

In the fullness of time, there is little question that engagement and advertising will continue to benefit from the uniqueness of the Twitter platform and for the need to diversify away from Facebook and Alphabet (GOOGL) .

As a result, I recently raised my estimate of private market value to $50/share compared to the current price of $30.75.

The Timing for a Google/Twitter Combination Seems Right

Taking a page out of Amazon's (AMZN) acquisitive approach towards aggressively expanding it's empire (through tactical vertical and horizontal strategic industry moves), it seems increasingly likely that Google may consider the acquisition of Twitter in order to consolidate and provide even broader business functions.

Moreover, as a result of the factors leading up to the this week's Congressional hearings, all social media companies now will be faced with continued and rising costs associated with the monitoring and supervision of search and data dispensing functions as well as the proliferation and eradication of fictitious (robot and untoward/incendiary) accounts. Twitter may not want to take up the large cost of the project (that Jack Dorsey has recently agreed to undertake) and may reach out to Google in order to lighten and consolidate the additional expense load.

The timing seems right, particularly given the current Administration's apparent lack of interest in pursuing antitrust restrictions on Amazon (et al). Indeed, Google may want to move forward (post haste) with a takeover of Twitter before the possible assumption of a Democratic majority in the House and Senate in November, and even before a possible change in the White House's occupancy in 2020 - as those potential changes may result in renewed assessment of antitrust (which could limit the ability of Google, Amazon and others to grow internally and externally).

At $30.75/share, Twitter's enterprise value is only $23 billion - according to my analysis (discussed earlier) its private market value is about $50/share.

Google has the cash ($76 billion) and the currency (a market capitalization of $825 billion) - and the recent decline in Twitter's shares may provide an opportunistic time for such an acquisition.

I would rate the likelihood of a transaction over the next 12 months at between 35% and 50% - which is a relatively high probability.

Just when you think it can't get worse for Elon Musk and Tesla (TSLA) - the Joe Rogan Experience #1169 https://www.youtube.com/watch?v=ycPr5-27vSI

I will be out of the office this morning for a dentist appointment (root canal!) and some other personal errands.
So my posts will be infrequent and short.