Another day of dip buying:

* However, market breadth was quite disappointing, with NYSE 1,232 advancers and 1,729 decliners.
* Qs over Rs (Russell down but not crowing) and Ss -- but the strength in Nasdaq was geared toward some of the FANG components. (Moreover the Nasdaq had the lowest volume of the year!)
* The Bobbsey Twins -- Google (GOOGL) and Amazon (AMZN) -- led the hit parade. Facebook FB was not far behind! (I am long all three.)
* Crude oil made another large move higher.
* Bond yields settle up by 2-3 basis points.
* Pot was hot.
* Lyft (LYFT) , a recent buy, rose by $2.60/share. (Buying more LYFT was my only trade today).
* Kraft Heinz (KHC) failed to hold the early gains. I bought small.
* Otherwise, after the initial buying, stocks more or less straight lined over the last five trading hours.

Picked at some Lyft (LYFT) today.

Amazon (AMZN) , our largest long, is now up exactly $500/share from my initial purchase and inclusion on my best ideas list in December.

JP Morgan moves (DDS)  to sell based on inventory build.

I will be out at a business luncheon from noon to 2 pm today.

From Peter Boockvar:

Existing home sales in March, mostly capturing contracts likely signed in the November-February time frame totaled 5.21mm, 90k less than expected and February was revised down by 3k. With the number of homes for sale increasing to the most since November, months' supply ticked back to 3.9 from 3.6 in February and vs 3.9 in January. The median home price rose 3.8% y/o/y but at $259,400 is the most expensive since last August. That said, the y/o/y price gain is below the 5 yr average of 5.4% and this home price slowdown is needed to encourage more younger people and first time buyers to enter the market. Maybe this, combined with lower mortgage rates, is why 33% of all purchases were from first time buyers which matches the most in years.

You've heard me talk a bunch about the cap on the SALT deduction and how that is damaging the home values in the high taxed states. Existing home sales in the Northeast fell to match the smallest amount since April 2015. The NAR said "The lower end market is hot while the upper end market is not. The expensive home market will experience challenges due to the curtailment of tax deductions of mortgage interest payments and property taxes."

Bottom line, as seen also in Friday's March housing starts miss, the NAR said "current sales activity is underperforming in relation to the strength in the jobs markets. The impact of lower mortgage rates has not yet been fully realized." This is because of 5 years in a row of 5.4% annualized price increases, almost triple the rate of CPI during that time frame. Thanks to artificially low rates and the encouragement that gave to the private equity industry to buy homes to rent, along with a low level of supply from new construction due to high costs of labor, lots and raw materials and add on high student debt, have a large number of young people renting instead of buying. Smoothing out the monthly noise puts the 3 month average of closings at 5.21mm vs 5.18mm over the past 6 months and vs the 12 month average of 5.27mm.

EXISTING HOME SALES IN THE NORTHEAST

This is a good post.

Three additional things to think about this morning: 

1. Given the amount of debt in the system, a CHANGE in rates will be more lethal than in the past.
2. Energy prices get into the system more than people understand. Energy is an INPUT cost. e.g., oil is used to manufacture pulp. Pump prices are rising.
3. Be prepared for lower corporate profit margins that may lie ahead.

Solid piece by Lance Roberts on "FOMO."

I reestablished my Kraft Heinz (KHC) long (small sized) between $33.50-$33.60 in pre-market trading.
I based this on the management change announced today.
More soon.

Last week in Operating in Your Circle of Competence, I cautioned that BlackRock's (BLK) Larry Fink's Bullish hyperbole and non rigorous market "melt-up" forecast should be questioned (or even ignored) and that "the last one in could be a rotten egg":

I prefer learning lessons when I make mistakes or observe others (possibly) doing the same.

When I watched BlackRock (BLK) CEO Larry Fink, express the view that the Fear of Missing Out ("FOMO") could result in a market melt-up this week in a CNBC interview, I waxed critically in Wednesday's opening missive (see below).

So, what was the lesson I learned (and perhaps others should learn) from Larry Fink's expression of market view?

My answer is we should all, as investors and traders, stay in our own lane - in our circle of competence. (And even if we are in our own lanes, as you can observe from some of my dumb market calls, we obviously still can make poor calls! But, at least I admit it.)

For example, I don't do currencies or commodities because they are outside of my circle of competence.

I like to say that market views are like butts, everyone seems to have one!

To be frank, Larry Fink is a master of enlightened self interest. Keep in mind he is a bond guy. Based on his equity market prognostications over the last decade, he really has not demonstrated a core competence in stocks and should stick to his circle of competence. (And mark my words, in the fullness of time he will be thinking about a run in some of his beloved ETFs!) :

* In a July, 2018 interview on CNBC Larry Fink called for "a possible 10%-15% drop in the market Indices." Following that interview, stocks moved steadily and swiftly higher over the next three months and the S&P Index hit a 2019 high.

* In a Yahoo Finance All Market Summit on September 21, 2018 (at almost the exact market top) Larry Fink said "I'm not really concerned about whether we'll see a setback....With PEs down you can safely say the market is less expensive and cheap..." From that date to Christmas, the S&P Index fell by -20%.

* In a January, 2019 interview on CNBC - with stock prices much lower - Larry Fink was subdued and cautious about the markets (Fink's 2019 Predictions). In that interview Fink concluded that "until we have better certainty on trade and China" stocks will not move much higher. Stocks, in almost an uninterrupted manner, exploded higher from that date forward to today.

There are numerous other examples where Larry Fink's market views went wayward.

The bottom line is we should all do our own homework. Listen to everyone if you will but pay most attention to those that operate in their circle of competence (and remember that even those talking heads may be wrong-footed at times).

In case you missed yesterday's "FOMO" posts:

The Fear of Missing Out ('FOMO') or...'Last One in Is a Rotten Egg'!

* "FOMO" is not necessarily a legitimate and thoughtful reason to be Bullish
* 'Cause when life looks like easy street, there is danger at your door.
* "FOMO" is a strategy and argument (mentioned by Larry Fink yesterday on CNBC) for mindless momentum chasing without regard or mention of fundamentals - in it's highest or lowest form (depending on your view of it)
* The investment process seems to nearly always deteriorate in the later stages of a Bull Market and after optimism expands valuations
* As Grandma Koufax might have said, "Just because Larry Fink says its so, doesn't make it so!"

"We have a risk of a melt-up, not a meltdown here. Despite where the markets are in equities, we have not seen money being put to work... We have record amounts of money in cash. We still see outflows in retail in equities and in institutions."
- Larry Fink, BlackRock (appearing on CNBC)

The CEO of the largest money manager in the world, BlackRock (BLK) , told Squawk Box that the large retail cash positions coupled with a "shortage of good assets" and the likely continued level of low interest rates could contribute to the fear of missing out and a "melt-up."

Fink's comments, to this observer, were non-rigorous "first level thinking" and failed to detail the very important reasons why interest rates are low and why retail investors (who appear to be surrounded by the comfort of ever popular ETFs (hawked by BlackRock) may have some very good reasons to be wary of equities at this point in time.

To this observer, the world is clearly upside down - sure a "melt-up" is always possible. But to listen to Fink's "melt-up" thesis would you think that all is well with the investment world and "the sky is the limit"?

Importantly, global interest rates (with $11 trillion of sovereign debt at negative returns) are delivering a message of disappointing aggregate economic growth. So, low rates, in and of themselves is not, as Fink suggests, a reason to run to equities.

With growing political turmoil, the risks of a policy mistake, the lack of coordination between G-8 powers, untenable levels of debt (in both the private and public sectors), evidence that high frequency global economic statistics and the corporate profit outlook are eroding, and with central banks believing in a smooth monetization of debt - the outlook is not necessarily getting better as the price of financial assets continue to climb.

Indeed, despite Fink's protestations, investor optimism has actually materially risen - I base this statement on a near three multiple (year to date) expansion in the S&P's price earnings ratio. Coincident with this has been a reversal, from net short to a near 12 month high in speculative long S&P exposure - as well as an explosion in IPO offerings (many of them experiencing a "profitless prosperity.")

And, oh yes, investors (both institutional and retail) are now greedy as measured by the CNN Fear and Greed Index!

"Last One in is a Rotten Egg"

"Well the first days are the hardest days, don't you worry any more,
Cause when life looks like easy street, there is danger at your door.
Think this through with me, let me know your mind,
Wo, oh, what I want to know, is are you kind?"
- Grateful Dead, Uncle John's Band


Tony Dwyer¿ @dwyerstrategy

More

Does anyone else find it ironic I posted about a pause in the upside yesterday, and today all the headlines are about a possible melt up in stocks? we are not looking for a major correction, just an consolidation period after Tech has ALREADY melted up.

Yesterday, BlackRock's Larry Fink basically made the argument for more mindless momentum chasing (and passive investing) without regard to fundamentals and in the face of a monumental leap in valuation over the last four months (price earnings multiples, on a trailing basis, have expanded from 16.5x at 2018 year-end to over 19.0x today).

Fink has become consensus-like and non-vigorous with his view and sentiment which appears to be changing with higher stock prices (as he has been quite negative at times of market duress over the last few years).

He also may be late in his view - reflecting the aforementioned valuation gains since Christmas Eve.

Fink's warning of a "melt-up" may be correct but, at a near height in equity prices (and though I sanction listening to "everybody" in order to become a better investor), the BlackRock CEO's comments are a primer of what not to pay attention to.

But, to be direct, what should we expect from the largest purveyor of exchange traded funds in the world?

My advice? Be fearful when others are greedy and do your own homework - and don't listen to the merchants of finance on Wall Street who have deep seated and vested interests in a particular investment outcome.

***

I went on to observe that after hearing Larry Fink and being involved in trading and investing in markets over the four decades is, how many times does greed end in laughter rather than in tears?

Greed kills is something I have made a career preaching to myself!

My pal Rosie reminded us of another melt up prediction fifteen months ago: 

David Rosenberg¿@EconguyRosieApr 18

More

So we have Larry Fink talking about a "melt-up" which is hilarious since that was the exact term that Jeremy Grantham used in January 2018, just ahead of a 10% correction at the time. Sell, Mortimer, Sell!

Divine makes some interesting observations this morning:
* Breadth flattening out (something I have been highlighting in my Diary).

* New lows are climbing.

A push back on the inflation debate this morning from my pal Peter Boockvar:

In light of the new Bloomberg Businessweek Magazine cover this week "Is Inflation Dead?" (just as oil trades at a 6 month high on supply issues) and the WSJ article titled "Fed officials contemplate thresholds for rate cuts" I'm going to comment a bit here on the inflation debate since it has a direct influence on Fed behavior. I believe there is a faulty and incomplete view of the government inflation stats that has been and still is driving Fed policy. I'm not going to get into the curse of the magazine cover.

It's nothing new for me but I'm still amazed how superficial the inflation discussion is among Fed officials and among many others. This 2% inflation God they've created, that we all need to pray to and a manna we must all reach at all costs has become a dangerous goal.

Let's start with the basic concept that 'inflation' can be defined as too much money chasing too few goods. I'll add this, inflation is a tax. I'm now going to touch upon a few disconnects and misunderstandings.

1) The Fed gets an A+ for creating 'too much' money but what they don't understand is that it has created 'too MANY' goods via excess capacity in many different areas that have and are financed by that easy money. So all that monetary easing actually laid the basis for lower goods prices that the Fed has tried to inflate. In last week's industrial production figure for March, capacity utilization was 78.8%, still below the 50 year average of 80% in the 10th year of this economic expansion. Do they realize this?

2) The Fed has chosen to focus on the PCE measurement of consumer prices instead of CPI. As stated here many times, healthcare is the biggest component of PCE where much is driven by Medicare and Medicaid reimbursement rates. So we have the Fed making monetary policy based on an inflation metric whose biggest component is price fixed by the government. Superficial analysis. The CPI measures actual out of pocket medical spending. Core CPI has been 2%+ for 13 straight months thru March. Thru January core PCE has seen one print above 2% since 2012. Thus, we have monetary policy being driven by a cherry picked measure of consumer price inflation. Why CPI instead of PCE?

3) Asset price inflation of course is not part of any Fed discussion on where 'too much money' ends up even though their prints are all over the prior too booms and busts. In the search for consistent 2% annual inflation this time around, the world's central banks have blown the bubble of all bubbles in global bonds in the current monetary boom. Bank profitability has suffered as a result and savers have gotten slammed. Also, if 'financial conditions' matter to monetary policy makers when they are too tight why is it completely forgotten when they are too loose?

4) The biggest cost of living for most is housing. Anyone catch the mid 2000's home price inflation driven by exceptionally low rates at the time? That's been replaced now by rental increases that have run north of 3.5% per annum for years and home prices that are back to record highs in many markets. That Millennial and/or first time home buyer doesn't want to hear about the Fed's whining that inflation is too low and they are not hitting their target.

5) Hedonic adjustments are fooling the Fed and others into thinking inflation is too low. This is how the BLS defines it: "In price index methodology, hedonic quality adjustment has come to mean the practice of decomposing an item into its constituent characteristics, obtaining estimates of the value of the utility derived from each characteristic, and using those value estimates to adjust prices when the quality of a good changes." Thus, the BLS is determining whether the 'utility' you get from new technology is more or less than the increase in the price of the car. If yes, the 'price' magically declines and vice versa even though in real life people pay with actual money. To quantify, Kelley Blue Book said the average vehicle price finished 2018 at $32,544. That is up 14% over the past 5 years. It is up 28% over the past 10. According to the BLS measure of CPI, the price of a new car/truck is DOWN by .3% since 2013 and up by just 11% over the past 10 years. Going back 20 years, the average new vehicle price in real life is higher by about 65% while the BLS in fantasy land says it is up by only 2%. YES, the BLS said the average price of a vehicle is up by ONLY 2% over the past 20 years, not per year but in total. This is not reality for the average household consumer and budget but the Fed is basing monetary policy off it. The high cost of a vehicle has consumers stretching out payments to 7 years.

US CPI NEW CARS & TRUCKS price index


6) As any consumer of WalMart, Amazon or anything else, the average US buyer embraces lower prices and deals. After all, WalMart became the biggest private sector employer in the country on a very simple motto, "Every Day Low Prices." Would they have made it if prices went up 2% each year? 

As many goods prices within technology fall every year, what items do Fed members believe should rise by more than 2% to average out at 2% for everything? In 1980, a fully loaded IBM personal computer cost $3,000. If it went up in price 2% per annum since, it today would be about $6,400. On March 20th, Jay Powell said low global inflation was "one of the major challenges of our time." Imagine if a PC today costs $6,400. That would be the major challenge of our time. 



7) Finally, this is a chart of PCE inflation over the past 30 years. The cost of living has only gone straight up. This is not stability.

CORE PCE INDEX

In conclusion, I discuss these things to try to widen the discussion and thought on inflation and try to make silly the Fed's obsession with an increase of 2% inflation per year (however narrowly they define it and ignore all the assets that they inflate in price) and the ends of the earth they've gone to get it. I beg the Fed for some self introspection and stop their faulty analysis of inflation. While Charlie Evans is worried about the Fed's credibility in achieving 2%, the average Wal Mart shopper could care less and would not be happy being told by him that a 2% annual increase in their cost of living would serve them well. Reality is quite different than what the Fed's econometric models spit out. 

I digress. As seen on Friday, March housing starts were well below expectations totaling 1.139mm annualized. The estimate was almost 100k higher at 1.225mm and February was revised down by 20k to 1.142mm. Single family starts saw no rebound from the sharp February fall and at 785k, down 3k m/o/m, now sit at the lowest level since September 2016. Multi family starts were unchanged. 

The caveat within the starts news is the 18% m/o/m drop in starts in the Midwest and I wish I can quantify the impact of all the flooding in that region. That said, permits in the Midwest fell in March as they did in the Northeast and South while the West rose but still not getting back what it lost in February. Overall, single family building permits fell to the least since August 2017. Multi family permits fell 13k m/o/m but at 461k are still holding well above the 20 year average of 383k. 

Bottom line, the Spring season certainly got a boost from lower mortgage rates but because that is only offsetting record high prices in many regions, the overall benefit is more muted. 

SINGLE FAMILY HOUSING PERMITS


Chinese stocks fell sharply overnight by 1.7% driven by a 3.8% drop in property stocks after the Chinese politburo on Friday repeated that "homes are not for speculation." There is also the belief with the economy stabilizing, monetary policy will be less accommodative. Copper is down for the 4th day in 5, by .3%. The Aussie $ is down slightly but their stock market was down for the holiday. 

The weak global trade data has continued into April. South Korea reported its exports fell 8.7% y/o/y in the first 20 days of April. That's the 4th month in a row of declines. Of note, semi shipments plunged by 25% y/o/y (semi's make up about 20% of South Korea exports). The Kospi index was open and was flat on the day. 

Taiwan said its March exports dropped by 9%, almost double the estimate of a decline of 5%. That's the 5th month in a row of y/o/y drops. The fall in electronics and electrical products led the weakness. 

In light of the tech softness in these two tech powerhouses, it will be real interesting to hear what US tech companies have to say about Q1 earnings and whether the extraordinary run in their shares, especially semi's, was warranted on that 2nd half recovery hopes. 

Here is a possible reason why S&P (-7) and Nasdaq (-20) futures are unaccustomed lower this morning.

Mortgage rates have declined nearly one percent since October 2018, yet single family housing permits recently hit a 19-month low.

Data in coming months will determine whether the combination of Chinese and Fed easing is enough to sustain economic momentum.