During Micron's conference call on Thursday the company, as expected, guided sales and EPS lower.
While the current gross margins are holding, the company said that they will be vulnerable to the imposition of tariffs.
I went into this trade with a very short term horizon and I have covered my MU short at $43.90 on the news for a profit -- based on the large reversal in the share price as revenues, profits and margins are vulnerable to a reset over the next few quarters.
Micron is a commodity player that I have followed for years - the company's cyclical upturns yield big earnings surprises to the upside and cyclical downturns also yield big surprises to the downside (helping to explain its low P/E through the cycles).
While a large buyback could insulate the expected downturn in the company's fundamentals, I remain on the opposite side of David Tepper who has publicly stated his attraction to the name.https://www.investopedia.com/news/why-david-tepper-bullish-beatendown-micron/
I expect some Street downgrades tomorrow.

As an old school guy who bases his trading and investing based on fundamentals (what Carter Worth calls "funnymentals") and not price momentum, I am taking a trading short rental in Micron (MU) -- which has gapped by more than $2/share from the trading close on a headline beat.
Reading through the earnings release there was "less there there" and I believe that Micron will likely guide lower.

"Just one more thing."

-- Lt. Columbo

For the second day in a row, leveraged Gold ETFs (e.g. (JNUG) and (GDXJ) ) were bid for.

This might augur well for the near-term performance for the price of gold.

"Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."
- Sir John Templeton
As Divine Ms M writes, "There is nothing like price to change sentiment."
Investor sentiment, based on an anecdotal perusal of the business media, is (arguably) moving from complacent to self confident and glib.
And in certain cases (the cannabis space) it may be moving to the giddy and euphoric phases.
Thanks for reading my Diary and enjoy your evening!

I added to my largest position, (DWDP) , this morning.

I have a $80/share twelve months price target.

DWDP is basically my only industrial holding.

All week many talking heads in the business media have suggested that, on an historical basis, the S&P Index is fairly to underpriced at around 17.5x.

However the price to sales ratio - and other traditional metrics like market capitalization to GDP - are at or near record highs.

The former measure, price to sales, has now eclipsed the level achieved during the dot.com bubble of 1997-2000.

European consumer confidence dropped in September to the lowest since May 2017 amid the selloff in EM assets.

It is clear that my Ludacris Forecast will not be realized today!

In response to some emails - this time I expect to hold on to the banks for years, they are not a trade.
I have four bank stocks on my best ideas list - representing one quarter of my 16 names.

I am no longer short homebuilders.

My interview this morning on Bloomberg:

Let's go to the tape (at the 23 minutes 10 seconds mark).

At the late January, 2018 market peak - 8/11 S&P sectors hit all time highs.
At today's new record, only 3/11 sectors (technology, healthcare and consumer discretionary) have hit all time highs.

Defense stocks (e.g., (NOC) -$9) are down massively on Trump tweets that throw new doubts into defense appropriations deal.

From Peter Boockvar:

Existing home sales in August totaled 5.34mm annualized, 30k less than expected and that level is unchanged from July. Home prices rose 4.6% and is below 5% for the 3rd straight month which I believe is a welcome retreat for would be home buyers. Months' supply was unchanged at 4.3. Those first time buyers made up 31% of total purchases which is about in line with trend but still well below historical trends. On this last point the NAR said "Rising interest rates with high home prices and lack of inventory continues to push entry level and first time home buyers out of the market. Realtors continue to report that the demand is there, that current renters want to become homeowners, but there simply are not enough properties available in their price range."

Bottom line, the 5.34mm pace of sales for the 2nd month in a row is the slowest since February 2016 for the reasons stated and known. Price with rising rates has slowed the pace of transactions.

EXISTING HOME SALES

The consensus trade as we entered 2018 was that, in light of a synchronized global expansion, emerging markets should be favored over U.S. equities.
The consensus trade as we enter the fourth quarter of this year is that the S&P Index, buoyed by record corporate profits, is the preferred global investment vehicle and will continue to exhibit a spirited climb in 2019.

I got a need for speed and perhaps a Ludacris Forecast (haven't made one in quite a while)... the S&P makes an all-time high and closes lower on the day.
Just a hunch - perhaps I am looking too closely on the continued deterioration of the (IWM) / (SPY) relationship that Divine Ms M pointed out this week? Or perhaps I am observing the silly retail speculation that is today broadening out into the peripheral (pharma) pot plays?
What's your fantasy?

Peter Boockvar on rising rates and overseas stuff:

US yields are taking a breather being little changed after a pretty persistent rise with 4 weeks of gains. A close in the 10 yr yield above 3.11% would put it at the highest since 2011. The rise in rates I guess wouldn't matter that much if it wasn't for all the debt out there (global debt is $247 Trillion, 318% of GDP), particularly on the corporate side. Total US business debt as a percent of GDP is at a record high in an expansion. The peak was in the economic trough in Q1 2009. There is a lot of cash on corporate balance sheets but most of that is at a select few technology companies. I read a stat on cnbc.com yesterday that of high yield companies, the cash to debt ratio closed 2017 at 12%, below the 14% level seen in 2008.

In a recent report McKinsey said "almost 40% of all non financial corporate bonds are now rated BBB" vs 22% in 1990 and 31% in 2000. According to PIMCO, "the net leverage ratio for BBB issuers rose from 1.7 in 2000 to 2.9 in 2017." In the last cycle it was household debt that was the problem, this time around it's on the corporate side, along with the government.

As expected, the Norwegian central bank joined the rate hike club with a 25 bps raise to .75%. It is their first interest rate increase since 2011 and they will likely do so again in Q1 2019.

In contrast, the Swiss National Bank remains trapped at -.75% with its policy as they left things unchanged. They remained obsessed with weakening the Swiss Franc. Switzerland will remain with NIRP even after the SNB raised its growth estimate for 2018 to 2.5-3% from 2% seen in June.

UK retail sales ex auto fuel rose .3% m/o/m in August, better than the estimate of down .2%. The ONS said sales were helped by household goods like electrical appliances and furniture. The pound is getting a lift in response and it's at a 2 month high vs the US dollar and the US dollar index is quietly at the lowest level since late July. The recent dollar strength has really only been against EM. If the dollar can't rally under the current circumstance of rising real rates with a central bank far ahead of others in their tightening cycle, I'm not sure what will get it to rally significantly against developed currencies.

Lastly, Shinzo Abe in Japan will get another 3 yr term as expected. After saying last week that the BoJ should not be easing forever, he said today that he will "leave monetary policy up to the Bank of Japan." Yesterday the BoJ said they'll keep easing but it's obvious that a stealth taper has been going on. Yesterday Kuroda said "Whether it's monetary easing or tightening, no one wants to continue it forever. It's the same with central banks everywhere. They want to achieve their objectives as quickly as possible, and then start the normalization process." The 10 yr JGB yield closed overnight at .12%, matching the highest level since early August. I expect this to eventual get to .20%, the upper end of the YCC range that the BoJ will tolerate. The 40 yr yield is just below the highest since January

Yesterday, in recognition of the continued equity strength and its "forgiving nature" coupled with the pace of interest rate rise over the last few weeks - I moved from small-sized to medium-sized in my bank exposure.
The shares rose smartly higher from my morning purchase levels (+2% to +3%) reflecting continued stock market strength and weakness in fixed income throughout the afternoon.
I had been small-sized recognizing the lackluster 3Q2018 EPS picture.
By the same token, there is no group that I favor more on an intermediate term basis.
This move will still allow me to be open to buy any bank stock weakness - if the market corrects and/or bank stocks respond poorly to in line third quarter numbers.

I will be on Bloomberg radio at about 9:45 a.m. this morning talking about interest rates as an alternative to stocks, the appearance of speculative activity (and what it might mean) and, of course, those Damn Yankees!

* Tilray is now a sideshow of classic speculative activity - it will likely end badly* Neither go short nor go long (TLRY) * Ignore TLRY and move on, it's a distraction and you may miss other opportunities

Henry: (narrating) "And then there was Jimmy Two Times, who got that nickname because he said everything twice, like":
Jimmy Two Times: "I'm gonna go get the papers, get the papers."
- Goodfellas

* Tilray is now a sideshow of classic speculation

Yesterday I wrote cautionary comments on Tilray - like Jimmy Two Times I will do so again this morning, for emphasis.

History may not repeat itself but as Mark Twain reminds us, history does rhyme.

It is natural to compare the high fliers of 1998-2000 (dot.com stocks and high tech stocks like Cisco (CSCO) ) and ask whether the pot stocks, and Tilary in particular, are outliers and if this is a market warning sign consistent with prior market peaks characterized by silly valuations? 

To me, Tilray is symptomatic of retail over enthusiasm bordering on lunacy - it's an example of speculative money flowing to the next shiny object. It is systemic in a different way than the big cap tech overvaluations of 2000, but it rhymes (as I mentioned). The later was more at the center of the market bubble in 2000 while pot/TLRY is at the margin like crypto late last year/early this year (when a peak in the market came right after bitcoin's peak price of about $20k.

The exponential climb in Tilray's stock has occurred because of several reasons (some logical, but most likely illogical):

* Tilray is one of the few, relatively large U.S. stock plays on the cannibas market.
* Investors are attracted to the large addressable market and applications for the use of marijuana.
* The company's 2018 IPO employed a classic strategy that briefly worked during the dot.com era - sell a relatively small dollar value of shares so a favorable demand/supply equation is at work.
* With many naysayer a large short interest has developed and has turned into a Resorts-like short squeeze. With a small float and large interest/buying demand on the part of traders the stock is now a "hard to borrow" and borrowing costs are approaching 800% - creating a feeding frenzy:


Source: Charlie Bilello

* Favorable/profitable previous experience by traders, at least in the early stages of other speculative outbursts - in crypto currency, 3D printing, alternative power companies and others - and a positive market backdrop (bordering on complacency) provides more demand fuel.

As I mentioned yesterday:

Tilray now has a market cap of over $20 billion.

This compares to Western Digital (WDC)  at $17.5 billion, Hartford Financial (HIG)  at $18 billion, to Kellogg undefined at $25 billion and to the market cap of only $22 billion for Twitter (TWTR) (which is my largest long position).

Here's more from Dougie Two Times in Wednesday's Diary:

Pot stock Tilray, Inc. (TLRY) is trading at $215/share (+$60 in premarket trading).

The short squeeze is reminiscent of Robert Wilson's legendary short in Resorts International.

The price action in Resorts, Tilray, Tesla (TSLA)  (two years ago) , etc., are examples of why my basic and first tenet in short-selling is to avoid stocks with high short interest as a percentage of float and as a multiple to average daily trading volume.

I have learned this lesson the hard way and I have the scars on my back from that experience.

But this tenet has worked out well in my short strategy as I have avoided short squeezes over the last 10-15 years!

Tilray was featured in a segment on Jim Cramer's "Mad Money" last night. Brendan Kennedy, TLRY's CEO, seems to be a perfectly nice fellow. But do yourself a favor -- neither go short nor go long Tilray shares.

Both actions are gambling and not trading or investing.

This recommendation will save you a lot of money and aggravation.

My strong advice is take TLRY shares off of your stock monitor and move on from it - your investment portfolio and emotional well being will be far better off for doing so.

Here is the tape of last night's "Mad Money" segment.  

Bottom Line 

Take the advice from Goodfella's Paul Cicero: 

"Just stay away from that garbage."

* Move over T.I.N.A. ("there is no alternative") and say hello to C.I.T.A. ("cash is the alternative")* The difference between short term Treasury bill yields and the dividend yield of the S&P Index is at a ten year high
It is astonishing how stocks are ignoring the rise in interest rates which is now becoming a rapid rise in interest rates.
Remember, many have stated (e.g., Leon Cooperman and Warren Buffett) that stocks are cheap relative to bond market yields.
Not so much anymore.
Short term Treasury yields are at ten year highs.

Source: Charlie Bilello
Indeed, one has to go out only one month in Treasuries to get a 2.08% annual return - this compares to the current dividend yield on the S&P 500 Index of only 1.75%.
The difference (of 43 basis points) in the three month Treasury bill return (2.18%) and S&P yields (1.75%) is the largest in a decade:

Bottom Line
Buying overvalued stocks because bonds are even more overvalued has the feel of choosing a less painful poison.
How about just being patient and not taking the poison at all?