There was a lot to discuss today in my Diary. (Tomorrow will be no different.)
Thanks very much for reading.
Enjoy the evening.

Regardless of one's political views (and though it is hard to be authoritative about this) it is my strong view that the President's behavior has likely begun to adversely impact our markets:

As is customary, I trade around my positions -- especially those of an index kind.
The S&P 500 just dropped by 40 handles, and the Nasdaq by more than 100 points -- somewhat moderating the trade calculus of these shorts.
I just moved from large to medium sized in the SPDR S&P 500 Exchange-traded fund trust (SPY) and the PowerShares QQQ Trust (QQQ) , covering at $287.55 and $183.90, respectively.
I will move back to large-sized on a rally -- if it occurs over the near-term.
This brings me back to between small- and medium-sized net short of exposure.

* Not even Suits' Harvey Specter could save the S&P today.
* If the bond market isn't scaring you as an equity investor you are a blind man.
* There is nothing "like price to change sentiment." (hat tip Divine Ms M) The boys will now be bullish (and they sold the top).
* UBS is now predicting 1.25% 10 year note yield - and that forecast has gotten a lot of coverage in the business media today. But, a year ago they were predicting 3.1%. (Res ipsa loquitor. "Group stink" is alive and well)* Gold and the Volatility are today's only standout winners.
* Peak Trump? Reflecting his recent actions, his election odds are now likely to begin a slow decline (If the market indeed favors the current Administration and fearful of a progressive Democratic President, this becomes another market headwind).
* If Trump's election odds drop significantly, China will likely be reluctant to conduct serious negotiations with the Administration. World trade and global GDP will suffer - and that may be the message of the fixed income markets.

I sold the balance of my (VXX) long at $28.05 for another nice gain.

I just took off half of my (VXX) long (at $27.85) for a gain - moving from large to medium-sized.
Remember these sort of ETFs are for short term rental and not long term lease.
They are trading sardines and not eating sardines.

Two from an old pal:

The yield on the 10 year US note is down by eight basis points to 1.65%.

Here is a complete list on why the well respected Ed Hyman is still bullish:

I added to (CGC) on this morning's dip.

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."

WeWork will soon surpass Fidelity as the largest user of office space in Boston.

This is not to imply precision of forecast!
My expected trading range for Spyders is 270-275 to 290-295 (2725-2925 on the S&P Index) for the remaining four and a half months of 2019.
I use this projected range to calculate upside/downside which allows me to manage my S&P short hedge.
As the S&P moves towards the higher end of the range, as it did over the last few days, I increase(d) my short as the reward vs. risk on the trade (given the trading range parameters) improves.
And vice versa.

Mikey reminds me, apropos to my harping on the possibility of personal consumption weakness ahead, retail stocks are a minefield of weakness.

I have added to my FB $185.55, (AMZN) $1794, and (GOOGL) $1178 longs this morning.

Peter Boockvar on China, Hong Kong, European banks and Argentina:

For each day the Hong Kong protests continue the obvious worry is that the Chinese PLA walks into Hong Kong and then we have a mess on our hands. I'm going to guess instead that at least for a while, the Chinese will rely on covert activities and nothing more. Also, I'm going to venture a guess that officials both in Hong Kong and China are hopeful that when kids start going back to school in coming weeks, the protests will start to die down. This all said, instead of hoping that China will act more like Hong Kong at the time of the handover, the opposite is now the growing threat and reality. Treasuries and gold remain the flight to safety.

China announced that credit growth slowed in July and was well below expectations. Total financing came in at just above a trillion yuan at 1.01T vs the estimate of 1.625T. Of this, bank loans totaled 1.06T vs the forecast of 1.275T. Money supply growth as measured by M2 was also slower than expectations at 8.1% vs consensus of 8.4%. As the government wants banks to lend, we can argue that the slowdown in lending could very well be because of a drop in demand for loans in response to slowing growth. This could also very well be just a breather after the sharp jump in June where 2.26T worth of aggregate financing was extended. As the data came out after the Chinese market close we'll see tonight if there is any response of note.

I'm going to highlight again the persistent weakness in European bank stocks as it's becoming an alarming drop in the midst of the further growing pile of negative interest rate yielding securities and an ECB that seems intent to lower rates more. The Euro STOXX bank stock index is down 1.2% today after falling by 7% in the previous 6 trading days. The index now stands barely above the lowest level since July 2012. I continue to believe this is a growing crisis that not enough people are talking about and seem worried about, especially the ECB itself that itself to blame. This is a banking system for an economy that is as large as the US.

Euro STOXX bank stock index


Watch out for a likely big stock market selloff in Argentina after President Mauricio Macri lost badly in a primary vote which many now worry is a precursor for a defeat in the main election. It would be really unfortunate and big step backwards if the business friendly Macri is not given another term. Bonds are already trading down with yields spiking about 100 bps. The peso has yet to start trading today but will of course be much weaker when it does.

The Argentinian peso is crashing by around 20%. The Merval stock index is opening soon.

Added to (KHC) long at $26.25 and to my (TLT) short at $141.55

* Trade and manufacturing weakness is now negatively impacting services which in turn will hurt the consumer via slower hiring and wage growth
* A continuing strong consumer? Not likely
* Look forward, not backwards
* Domestic economic growth is slowing to a rate far worse than the consensus expects
* In terms of market strategy I continue to believe that volatility is underpriced and stocks are overpriced.

"Maybe Christmas, the Grinch thought, doesn't come from a store."
- How The Grinch Stole Christmas

To state the obvious, investing is the process of discounting the future.

Mr. Market looks forward and not backwards.

To paraphrase the Oracle of Omaha:

"Investment wisdom/vision is always 20/20 when viewed in the rear view mirror."

Unfortunately too many comfortably look at headlines to determine their trading and investing decisions. Depending on market conditions this can work for days or weeks (abetted by the price worshiping altar of risk parity and other products and strategies that follow price) but the market to quote Warren Buffett, over the long run "the market is a weighing machine and not a voting machine."

First-level thinking can make you a few quick bucks but not meaningful long term bucks. Complacency breeds first-level thinking and so do the machines and algos who know everything about price and nothing about value.

Most notably the indicators of a continuing strong U.S. consumer are flashing clear warning signs.

Today's economic and market cycle is far different than the dot.com boom in the late 1990s/early 2000s or the period that led up to The Great Recession in 2007 - but there are some ominous similarities (especially on the heavily laden debt front). and strong messages being delivered that can no longer be ignored. (A 1.68% ten year US note yield - down five bps today - and $14 trillion of negative yielding sovereign debt outside the U.S. come to mind!)

While business fixed investment is faltering and the manufacturing sector's weakness has begun to seep into the services sector - the consensus still thinks personal consumption activity will be the straw that stirs the U.S. economy's drink.

However, as I have written extensively over the last three months my view that economic growth in the U.S. is slowing and that the outlook for continued growth in consumer spending is misguided.

If I am correct in my multiple and growing concerns - including but not restricted to an all time low in G8 cooperation, the likelihood that the U.S./China trade rift will last for years, continuing policy risks (provided by an Administration who hastily constructs that policy and delivers it by tweet) and an avalanche of debt.

Here are some recent columns extracted from my Diary that question the sustainability in the growth of personal consumption expenditures:

* Kuddles Speaks
*Run to Daylight
* There Will Not Be a Soft Landing
* Quiet Riot

My column from August 2, 2019, U.S. Growth is Slowing, addresses my near term concerns and focus on a possible downward inflection point with the consumer:

The payroll data this morning gave us a strong glimpse of deterioration in economic activity.

While jobs grew by +164k, the -0.3% decline in the work week (companies first cut hours worked and then bodies!), according to most economists, equates to a loss of -375k jobs.

Add +164k to the loss of -375k jobs and we get a -211 loss of jobs or a -0.2% decline in the aggregate hours worked index.

That means we are back to below March's levels.

This important economic datapoint, which I believe is responsible for today's market weakness, confirms yesterday's weak ISM report and, more importantly, augurs poorly for the upcoming industrial product release.

It also is a cautionary tale for the previously strong personal consumption expenditures data (was it an aberration?) - which grew by +4% in 2Q2019 after two consecutive quarters of only +1% growth. Moreover, the work based income data (average weekly earnings) moved to negative in real terms. Meanwhile, temporary labor data continues to stall - almost always a leading indicator of weakness.

Finally, the last three payroll reports have resulted in downside revisions - which typically is another signpost of lost
momentum.

A sub 2% GDP for 3Q2019 seems to be in the cards - and that's before the trade announcement of more Chinese tariffs yesterday.

Bottom Line

* The U.S. is still the best house in a bad neighborhood but our house is now showing need of repair
* Despite the cheerleading and fanfair, supply side tax reductions have failed to narrow the wealth/income gap and have not sustained a more rapid pace of domestic growth (as we are now moving towards a sub +2% real GDP) at a time that the global economy is sputtering
* Non U.S. economies are chilling and, in an interconnected world, S&P companies are vulnerable and increasingly dependent on non domestic markets
* Given the current S&P earnings slowdown/recession, it is reasonable to conclude that the market's recent rally has been predominantly based on the liquidity associated with a global central bank easing
* Don't take Fed's (or other central bankers')actions on face value - consider second-level thinking ("The Fed is Pushing on a String")
* Valuations are now elevated to historical extremes that are typically seen at or near important market tops
* Investors are increasingly complacent and fearful of missing out - this has spurred recent market gains

In terms of market strategy I continue to believe that volatility is underpriced and stocks are overpriced and uniquely vulnerable today.

My concerns regarding U.S. and global GDP, the US consumer and the U.S. stock market have recently multiplied.

(Technically speaking) the recent price action coupled with growing fundamental concerns continue to support the possible view that January 2018 marked a significant and important market top. (Remember tops are processes and bottoms are events!).

As the S&P advanced last week from the recent selloff I bought volatility and raised my net short exposure.

Most investors are looking in the rear view mirror at the consumer. Danielle DiMartino Booth and I (more on my views coming up next) are not. Here's Danielle:

Will The Grinch Steal Christmas? 

• Credit card borrowing peaked in November 2017 and fell in June with U.S. households reducing their credit card balances by $80M; the ratio of household debt to disposable income is perched at the second-highest late-cycle peak on record
• Business debt in its various forms is at a record 74% of GDP, or $15.5T, with high frequency data indicating that businesses are beginning to struggle to service their debt loads as the economy slows and margins compress
• NACM's Credit Manager's Index tracks the amount of credit extended to customers as well as timely collections; Dollar Collections peaked in May for Manufacturing and Services followed four months later pushing levels to the lowest since the last recession.

Waiter: Excuse me señor, you are a member of the club?
Fletch: No, I'm here with the Underhills.
Waiter: The Underhills? They are left, Señor.
Fletch: Oh they'll be back. He went out for his urinalysis.
Waiter: Would you like some drinks, señor, while you wait? I will put it on the Underhills' bill.
Fletch: Oh, yes. Very good. I'll have a Bloody Mary, a steak sandwich and a...steak sandwich.

It's August and in these dog days, things may be slower at work. If you've never seen Chevy Chase as Fletch, take our word for it - he's at his deadpan best. Capitalize on your free time and stop, drop and roll the film. The particular scene quoted above is as good as it gets. Had the 1985 hit movie been released today, the Underhills would become a meme and go viral on Twitter.

A different sort of tweet got us wondering whether households need to put their charges on someone else's tab. Last week, QI friend David Rosenberg tweeted out that the second quarter ended with U.S. households trimming their credit card balances by $80 million and cutting back on fill-ups at the pump. Wait. Aren't we supposed to be taking that vacation and buying back-to-school clothes? Shouldn't those two indicators be moving in the opposite direction?

As you can see on the red line above, the growth in credit card borrowing peaked out in November 2017 and has been drifting down in sawtooth fashion since. Revolving credit may not be a glamorous data set, but it is a subject of debate among economists. The conventional wisdom is that households whip out the plastic when they are more confident in the prospects for the future of their paycheck growth.

While QI appreciates the logic, we prefer to look first to income growth and then at credit card spending and then layer on where we are in the cycle. Did the decline in weekly earnings to 2.6% from January's 4.0% rate prompt April and May's surge in credit card use? Is the June swoon that followed signaling households are tapped out?

As Rosenberg warned, with the subprime mortgage peak taking the top spot as a given, the ratio of household debt to disposable income is perched at the second-highest late-cycle peak on record. Yes, households have deleveraged in the current cycle, albeit not by choice in the case of more than 10 million foreclosures. But they're still weighed down by bigger debt loads than they shouldered at the peak of the dotcom boom. Remember that the next time a Fed official brags on the health of household balance sheets.

At least Jerome Powell recognizes that business debt in its various forms at a record 74% of GDP, or $15.5 trillion, is not a picture of good health. Falling interest rates could help keep the growth trend alive attendant with zombie companies weighing on the economy. But higher frequency data suggest that like households, companies may have begun to buckle under the strain of their debt service as margins get squeezed.

We've long been fans of the National Association of Credit Management's Credit Managers' Index (CMI). Purchasing managers indexes may get all the love and headlines, but those charged with extending credit to their firms' customers see economic activity through a different lens. The CMI digs deep to reveal the amount of credit being extended and dollar collections - how much money is coming in from customers who buy on credit. It then reports on whether those customers are paying on time or in arrears.

The trend of manufacturing (blue line) leading services (yellow line) into the slowdown is manifest in the CMI. Dollar collections at manufacturing firms peaked last May while those of services trailed, topping out four months later in September 2018.As per the CMI, though dollar collections in manufacturing have yet to contract, July's nosedive "is worrisome as it suggests that income flow is weakening fast." Aside from the April 2018 initial trade war Trump Tweet, which recovered within weeks, we haven't seen a weak collections streak parallel to today's run since the last recession. Notably, credit extended is also coming down fast in the factory sector.

The services sector is anything but immune. We're not there yet, but should be mindful of the progression of events that begins with slowing dollar collections morphing into collection challenges and ultimately bankruptcy. While bankruptcies have yet to move up materially, NACM's Chris Kuehl did express concern that, "many of the bankruptcies are taking place with larger companies and they have tended to come in the retail sector as well as in industries that rely heavily on global trade-import side or export side."

Between slowing income growth, tapped-out consumers choking on expensive debt and fresh tariffs being imposed on September 1st, it's looking like the upcoming holiday season could be anything but happy for the weakest players in the retail space. If only the Underhills were there to sign the check when you needed them most.