"I am going to write a good Diary on Real Money Pro today... and I am going to help people. Because I am good enough, I am smart enough and doggone it, people like me."

- Daily Affirmations with Dougie Kass

I have been writing a lot in my Diary about a pivot from growth to value since mid-April.

Today's Daily Affirmations is from my own head and applying my own logic (?):

Riddle me this (does this make sense and how can the two factors coexist?): The Nasdaq turns green on the year and the two year Treasury note yield is at a record low 13 basis points.

I am not a licensed therapist, though.

"I deserve good things. I refuse to beat myself up. I am an attractive person. I am fun to be with."

"Price has a way of changing sentiment."
- Divine Ms. M 

Like Wednesday, momentum weakened late in the day -- but not materially.
The markets close benefited from a $1.25 billion market on close buy order.
While I end the day market neutral I plan to reestablish my short exposure if we move back towards the top of my expected trading range (2,550-2,950) or as I find overvalued individual equities.
Anecdotally, I am beginning to see some signs of giddiness:
* Twilio (TWLO) , and some others, feel and sound so 1999 to me.
* FinTwit and FinTV are growing more confident and emboldened, quickly forgetting their previous "retest" concerns. Historically, I have found that their hubris, when in the extreme, is typically a piercing orange/red light indicating potholes may lie ahead.
That said, individuals remain pessimistic (and I would like to see them more optimistic):
"AAII said Bears rose 8.6 pts to 52.7 which now exceeds the March high and is the most since April 2013 when the temper tantrum kicked in."
- Peter Boockvar
And the CNN Fear & Greed Index is still fearful, at "40."
The economic and profit fundamentals concern me (check out my jobs post this afternoon, I think it is important).
I was an on balance buyer today and at the end of the day, as previously mentioned, at market neutral.
My conviction level (discussed in this column earlier in the year) is not particularly high in either direction right now.
I have a bunch of company updates (following EPS releases) - Twitter TWTR, TreeHouse Foods  (THS) - that I hope to get to tomorrow or over the weekend.
Thanks for reading my Diary.
Enjoy the evening.
Be safe. 

From Gary "US Bonds":

123gary • 32 minutes ago • edited

CFRA MAINTAINS BUY OPINION ON SHARES OF TREEHOUSE FOODS, INC.
10:24 am ET May 7, 2020 (CFRA) Print
We lift our 12-month target by $3 to $58, 20x our '21 EPS estimate (THS's 10-year mean is 22x). We lift our '20 EPS estimate to $2.64 from $2.54 but lower '21's to $2.86 from $2.95. THS posts Q1 adj-EPS of $0.37 vs. $0.33, $0.04 above consensus. Organic sales rose 2.6% despite about 6 negative points from prior-year distribution losses. THS will lap these distribution losses by the end of Q2, which, combined with expected new business wins, should support sales growth in the second half of 2020. Surging retail demand amid the pandemic had a favorable impact this quarter as about 80% of THS's sales are in the retail grocery channel. THS's foodservice exposure is minimal (about 10% of sales) and about a fifth of its foodservice sales are to quick-service restaurants, which we expect to recover quicker than full-service restaurants. We maintain our Buy because if history repeats itself, private label in the packaged foods industry will win market share during this inevitable recession.

From Arthur:

Equity rally seems to sputter as we enter final hour.

Dow and S&P failed to exceed the highs of recent days and oil seems to indicate that this morning's rally attempt was a false one.

Testing will continue but bulls are losing the incentive.

* I can't emphasize how important the employment recovery charts (from "The Great Decession") below are!

Many are expecting a domestic economic recovery back to pre-Covid-19 levels by as early as late 2021/early 2022.

The data below is an attempt to strongly reject that notion.

We live in a consumer based economy.

What has history taught us about employment rolls and recovery following hard economic hits?

It took small business jobs four years to get back to the prior highs in employment following "The Great Decession of 2007-09."

It took eight years for medium-sized business employment to get there.

Considering the displacement of jobs in many key, labor-intensive industries (entertainment, sports, travel, restaurants, hotels, etc.), my guess is that it will take at least five years (and perhaps much more) for the U.S. to get back to the 2019 employment peak:

This is from my pal Brian Reynolds:

This post, from Mikey, is so good:

badgolfer22 • 10 minutes ago

I want you folks to put this in your pipe and smoke it ...the GDXJ has a market cap equal to what TWLO mkt cap has been added JUST TODAY.

I don't know when, I don't know where, but with this printing orgy goin on, when gold starts to REALLY move...as Richard Russell always said 'there's no fever like gold fever'

I added sufficiently to my existing long positions this morning to take me back to market neutral.

Down to tag ends on Papa John's (PZZA) - its been a moon shot (but risk now exceeds reward).

I am adding further to (VIAC) , (WFC) , (BAC) , and (C) today ( (TLT) +$0.88).

Thomas C

CBS All Access adds 100-plus Paramount films

• In the latest move for re-merged corporate synergy, CBS All Access (VIAC +13.9%, VIACA +11.6%) has added more than 100 films from the Paramount Pictures library to its streaming content offering.
• That includes Oscar winners like The Godfather, Terms of Endearment and An Inconvenient Truth. It also includes popular films including Airplane!, Pretty in Pink and films from the Star Trek franchise.
• CBS All Access marked its best two streaming months in March and April as part of widespread stay-at-home orders, and this year has seen its top two months in terms of subscriber sign-ups.

As the S&P Index moves to the upper end of my expected trading (2550-2950), I will be adding to my small net short exposure.

But with S&P spot/cash at 2893, we are still nearly 60 handles from the top end.

I plan to be patient and I am not adding to my short exposure now - giving Mr. Market a wider berth.

Thank goodness for the town of beach!

Mission almost accomplished (and leak almost fixed!).

In Wednesday morning's note, we said bulls needed to blow away the previous day's highs. They failed to do so and lost credibility. Testing continued through day. Late day selloff attributed by armchair traders to Trump China commentary.

We think at least part of it had to do with the pullback in oil. Oil firmer this morning so they have futures higher.

They need to get a credible new high somewhere around perhaps 24500 in the Dow and we'll see where we go.

Testing appears to continue.

Arthur

* Municipal yields are rising.
* What happens when distressed markets dont give you distressed prices?
* Skeptical of hedge fund ideas.

Peter observes that retail investors are "beared up" and he discusses China:

While 'professional' investors got more bullish as seen in yesterday's II data, individual investors got more worried. AAII said Bears rose 8.6 pts to 52.7 which now exceeds the March high and is the most since April 2013 when the temper tantrum kicked in. Bulls fell 6.9 pts to 23.7 which is the least since mid October 2019. Bottom line, show me the II #'s and I'll say it's getting time to be cautious. Now I see the AAII figures and its better to be bullish. A stand off. Either way, both metrics only matter for the short term.

AAIIBEARS

AAIIBULLS

The pace of initial jobless claims is expected to slow for a 4th week to a still alarming 3mm people. Again, all eyes instead are on how many get hired back as businesses reopen throughout the month.

We saw some Chinese economic data for April and it was a very mixed bag. Exports surprised to the upside with a 3.5% increase y/o/y vs the estimate of a decline of 11%. Call it catch up (particularly to other Asian countries) as Chinese factories come back online and there was a spike in medical supply shipments for reasons we know. Imports though, many of which are used as an input to eventual exports, fell by 14.2% y/o/y, more than the forecast of a 10% decline.

The private sector weighted Chinese Caixin services PMI rose slightly to still a contraction level of 44.4 from 43 in March. The hope was it would get back to 50 as things turn back on. Caixin said "In April, the severe export shock on China's economy had a knock on impact on household income and consumption, as well as business investment. As the recovery of domestic consumption was limited and increased infrastructure spending was not enough to offset the plunge in external demand, the country's economy continued to decline year-on-year." The positive within the number is the expectation that things will get better from here. "The gauge for business expectations for the coming 12 months rose noticeably, suggesting that companies grew more optimistic about the prospects of a recovery in consumption."

The yuan is rallying but more so because the US and China will be having talks next week on implementing Phase 1 of the trade deal that right now seems like such a distant memory. If there was ever a time that highlights the idiocy of our existing tariffs on them is that US companies are paying the tax in this time of economic distress. Saving face is the only reason they still are in place it seems. Chinese stocks were down slightly overnight.

Norway joined the zero rate party taking their short term rate to that level from .25%. The move was unexpected as really what's the difference between zero and .25%. Andrew Bailey, the Governor of the BoE, said next month that "we could do more QE...But we're keeping all options open." As we have a major solvency challenge, not a liquidity one I'm not sure how any of this will matter. That said, this might just be blatant and intended debt monetization to finance all the fiscal stimulus. The pound and gilt yields are both higher notwithstanding Bailey's comment.

The front month oil contract is rallying to a 3 week high as Aramco said they are raising prices for all their grades of oil in June. Brent crude is back above $30. Also combine this with the modest pick up in demand as more things reopen. I still think oil prices are carving out a bottom. Speaking of more things reopening, France and the UK on Monday will start to reopen some businesses. The Netherlands is opening hair salons, nail salons and beauty parlors on Monday. Also there, restaurants, bars and movie theaters will open on June 1st. Italy is planning for the same on June 1st.

Besides the earnings beat (which looks clean), the most important factor in the ViacomCBS (VIAC) release is the expanded distribution agreement with Alphabet (GOOGL) .  

I continue to believe that VIAC is a logical fit with a number of companies - including Google, Netflix (NFLX) , Amazon (AMZN) , Apple (AAPL) , Verizon (VZ) , and others.

(VIAC) beats:
"With more consumers at home, ViacomCBS streaming platforms had their best month, with accelerated subscriber growth and consumption, reinforcing consumer demand for its content."
More to come.

As mentioned late yesterday, one of the key takeaways in Wednesday's trading was the schmeissing in the bond market - (TLT) (which I am short and have been adding to recently was -$3 on the day).

Tony believes that the stage is set for a rising in 10 year US note yields:

The recent rise in the 10-year U.S. Treasury (UST) yield coupled with a combination of three factors could cause near-term upward pressure on the long-end of the UST yield curve:

• Historic monetary and fiscal stimulus. On Tuesday the Vice-Chairman of the Federal Reserve continued to suggest that even more monetary and fiscal stimulus is likely needed to improve the outlook for economic growth as we emerge from the economic shutdown. In addition, at the last post-FOMC press conference Fed Chair Powell reinforced there is no limit to what they will do to keep credit flowing and the economy recovering once the country re-opens. In order to finance the historic stimulus packages, there is certain to be a ramp in Treasury offerings, and we got a taste of that with today's quarterly refunding announcement.
• Huge Treasury supply. On Wednesday, the Treasury Department announced a larger-than-expected quarterly refunding plan that is focused on the longer end of the U.S. Treasury Yield Curve. The Treasury announced they were bringing back the 20-year U.S. Treasury Bond beginning in May with an offering size of $20 billion. In addition, the Treasury plans on offering $32 billion of 10-year and $22 billion of 30-year, and stated in the release, "While the initial increases in financing related to the COVID-19 outbreak response were focused on Treasury bills, Treasury expects to begin to shift financing from bills to longer-dated tenors over the coming quarters." Simply put, they are going to issue and incredible amount of paper on the long-end.
• Intermediate-term sign of momentum shift. The 10-week rate-of-change for the 10-year bond yield hit a historic low in March by a wide margin. The closest comparison would have been in 12/08, and while that did not mark the ultimate low, it did lead to a rapid rise in rates once the momentum turned up from such a historic decline (Figure 1).

Figure 1 - Reversal in 10-week ROC points to higher yield

Summary - The historically low level of the 10-year U.S. Treasury yield and the Treasury Department's willingness to finance the deficit spending further out on the yield curve over coming quarters sets the stage for a re-steepening of the 2-10-year U.S. Treasury Yield Curve as we move further into the current recession (Figure 2). We believe it is too early in the rise of the 10-year UST yield and steepening of the yield curve to adopt a more offensive sector position, and our signal should be when there is an associated rise in the relative performance of the S&P Financial and Industrial sectors, which made a relative performance low yesterday (Figures 3 & 4). This suggests the rise in the 10-year UST yield is due to increased supply rather than an expected surge in economic activity. While a tactical rally is possible in the "banks and tanks" given the extent of the relative underperformance and potential bounce in long-term UST yields, we are looking for the economically sensitive sectors to change their poor relative performance trend before we make a more sustainably offensive move. That said, a rise in rates and steepening of the curve is a good start toward that end.

Figure 2 - Yield curve steepening likely to continue, just like prior early recession periods

Figure 3 - S&P Financial sector making relative performance low

Figure 4 - S&P Industrial making relative performance low

I was preparing a lengthy opening missive on Emerging and New Paradigms, but I am going to rip up the script as we have a number of our larger holdings reporting this morning.
I will publish Paradigms on Friday or Monday.

U.S. and China trade representatives to meet next week -- and futures +40 handles!

Danielle DiMartino Booth discusses stagflation, again:

• Double-digit unemployment on a scale not seen in postwar America should push the trade-off between joblessness and inflation into the unknown; the year 1941 was the last time unemployment was north of 10% and inflation was below 2% in concert
• Twenty percent of the S&P 500 has suspended forward guidance in the current first-quarter earnings season; pervasive uncertainty translates to risk of significant negative potential outcomes for revenues and profits in the second quarter and beyond
• While high unemployment and pulled guidance point to stagnation, rising inflation would push the economy into stagflation; massive Fed and fiscal stimulus risk weakening the dollar which would indeed produce this daunting scenario

Twenty-two days is all it took Baby Yoda to break the internet. The start date: November 12, 2019. That day, Disney+ launched and with it, Baby Yoda's series Star Wars: The Mandalorian went live. Fans spiked Google search trends in two waves, with an eventual peak on December 3-4. The little green one's rise was so popular that he was trending twice as much on Facebook and Twitter as some of the Democratic presidential candidates. We learned this week that "The Child" - his stage name - will return in season two.

On Star Wars Day, May the 4th, Filmmaker Robert Rodriguez tweeted that he was truly humbled to say that he "had the very rare privilege of directing the biggest star in the universe. We will have to wait to stream the next Baby Yoda episode. Until then, in the event you've been in another galaxy since May 25, 1977, block off the 25 hours needed to marathon binge all 11 Star Wars movies (including Solo and Rogue One). If you know someone for whom this recession has morphed into a depression, as in they've lost their job, this unprecedented entertainment event could be an outstanding distraction.

With the additional 3 million initial jobless claims expected to be reported this morning, one in five working Americans will be among the ranks of the unemployed. Tomorrow morning, the April unemployment rate will make a "Kessel run" to the empty quadrant of the chart du jour. The 75 economists who make up Bloomberg's survey are akin to economists' answer to the Wild West -- calling for the unemployment rate to fall anywhere between 11% and 22%. Until then, enjoy this last day of the "Outer Rim" of Quadrant II remaining officially unoccupied.

In the postwar era, unemployment has never been north of 10% and south of 2% in the same month. Three months ago, to the day, we illustrated the above chart, but in a different fashion. We used the Fed's preferred inflation gauge, the Personal Consumption Expenditure (PCE) deflator and the vertical line designating the quadrants was aligned to the old impossible of 4% unemployment, not 10%. The chart's earlier iteration depicted nirvana -- an unprecedented 14-month stretch of sub-4% unemployment accompanied by inflation below 2%.

So much has changed in 90 days. But more to the point, why did we decide to roll out a new version of the empty quadrant with the Consumer Price Index (CPI) as our favored inflation metric? With the Fed behaving like a bunch of anti-capitalists, we saw this as an opportunity to add an element of reality to the picture. The CPI measures prices based on what occurs in the markets for goods and services (notwithstanding the imperfect owners' equivalent rent). It has practical uses such as inflation benchmarking for Social Security payments and wage negotiations by unions.

The CPI is also America's most visible inflation guide. Thus, it juxtaposes nicely against Main Street's most recognizable economic indicator, the unemployment rate.

Yesterday's ADP employment report all but cemented the labor shock that goes public this Friday. Save private education, widespread declines in April by company size and across all other industries was evident. Some of these dislocations are temporary furloughs from state-mandated shutdowns of nonessential businesses. But something about the first-quarter earnings season doesn't sit well with us.

Many public firms have steered investors into the unknown -- and we don't refer to empty quadrants. As per BofA Securities, one in five companies in the S&P 500 have suspended guidance; more than half of those firms are domiciled in the key cyclical sectors of consumer discretionary and industrials.

It's no coincidence that ADP reported 16 million job cuts in Leisure/Hospitality, Construction, Manufacturing and Wholesale/Retail Trade and Transportation. If that's what the labor (cost) side of these firms looks like heading into the second quarter, we're not in the dark about firms' top and bottom lines prospects. It's a given that both will be negative and worse than the first quarter.

Flying blind is never by design. Absent visibility, we must ask: Is the U.S. economy careening into stagflation? We alluded to this in yesterday's Feather. In today's illustration, stagflation equates to quadrant III. It's rarely been visited in the postwar period. Since 1948, only the 10-month span from September 1982 to June 1983 stumbled into that economic morass.

Ask Yoda and he might say, "Flation, Stag-." The Stag part is abundantly clear from higher unemployment and Corporate America putting guidance on hold. The Flation part is short for expectations of higher inflation. No doubt, the fearful Fed and our feckless fiscal leaders throwing kitchen sinks in every direction is designed to counter a massive decline in the U.S. economy. But that's not a recipe for a stronger dollar. Quite the opposite, it is. A weaker dollar would make the Flation part much more a certainty.