Thanks for reading my Diary today an all week.
Enjoy the long weekend with your families.
Be safe.

I have added to my (SPY) and (QQQ) shorts in the last hour.

Memorial Day is the day we remember our heroes, who gave their lives so we can live in freedom.
No matter what we do -- place flowers on the graves of the fallen, observe a moment of silence or raise a flag -- no tribute is enough for their ultimate sacrifice.

It seems like a Friday in the summer.

Market breadth negative at 3-4, bonds higher in price (and lower in yield) and gold is getting a lift.

While stocks have rallied off of the -20 handle futures drop before the opening, there are few distinguishing sectors experiencing either strength or weakness in today's trading session -- in an atypically narrow trading range.

Twitter (TWTR) has been one of the better performing stocks this week - acting much like its brethren, FAANG, in a ketchup move.

Facebook FB continues to stand out to the upside.

Still, no trades today.

Gazing at the markets during lunch indicates little price movement. As I expected I am too pooped to pop.

And I think everyone else is as well!

Going to an early lunch with some friends.

No trades.

Looks like an inside day today.

A good day to do some research!

* I have added to my short book as the 'rip your face rally and mother of all short squeezes' might be ending
* The S&P Index has hit the top end of my anticipated trading range
* Big picture changes loom on the investment horizon - many of these paradigm shifts are disruptive and market unfriendly.
* China, the largest marginal driver of global economic growth is being targeted by the Trump Administration
* Rising trade, geopolitical and economic risks mean that stock valuations suffer

The proximate cause for the -20 handle drop in S&P futures was the China news of a crackdown on Hong Kong.

An ongoing theme in my Diary over the last three years and in my talk at John Mauldin's SIC yesterday was the subject of international discord:

I am a Jew.

In the Jewish religion at Passover there are asked four questions.

I have three that I wake up every morning before trading starts and I ask them of myself: Unfortunately, I don't like the answers - they are market unfriendly.

• In a paperless and cloudy world, are investors and citizens as safe as the markets assume we are?
• In a flat, networked and interconnected world, is it even possible for America to be an "oasis of prosperity" and a driver or engine of global economic growth?
• With the G-8's geopolitical coordination at an all-time low, how slow and inept will the reaction be if the wheels do come off?

There was more later on the lack of worldwide coordination and cooperation in my discussion:

There is an overarching level of uncertainty that is being combined with shifting and worrisome paradigm shifts.

One, in particular:

* Fading Globalization and Growing Nationalism - The abandonment of the post-World War II political/economic order and the lack of coordination and cooperation among countries in an increasingly flat, networked and interconnected world raise the issue of how slow and inept the reaction will be if the trade wheels do come off. Again, like lower birth rates, this will likely result in diminished secular global economic activity.

By heightening the anti-China rhetoric in the last week, to some, President Trump may be justifiably targeting China. Others believe he may be conspicuously seeking a scapegoat for the weak domestic economy and for the spread of Covid-19 around the U.S.

Regardless of which view you adopt, the outcome is dangerous in an already fragile global economy. Importantly, the lack of U.S. cooperation and coordination is not restricted to China.

Macro maven, Ian Bremmer, had several comments at John Mauldin's SIC on the subject:

"The Great Financial Crisis had international cooperation. This time, countries are blaming each other."

"There is a good chance of a Cold War between the U.S. and China."

Rising Trade, Geopolitical and Economic Risks Mean That Stock Valuations Suffer

* My short exposure has grown

Before last night's futures decline, the major Averages were up by about three percent on the week - taking the S&P right to the top end of my trading range (of 2950) - actually there was a +1% overshoot (statistically meaningless).

I used that rise to initiate a (QQQ) short hedge (in the belief of a pivot from growth to value), and establish a growing (SPY) short position.

Overnight and for the past several days, markets continue to test some of the areas on the charts. That looks to continue. Futures were much weaker earlier based on concerns about China and Hong Kong but, more importantly, earlier concerns about U.S./China trade tensions. Both have subsided slightly. Apparent good news on possible vaccine treatment is lifting futures off their lows. 

Market has slight upward bias going into three day weekend historically. 

We will continue to monitor the headlines as a potentially choppy Friday looms. 

Stay safe. 

Have a great weekend. 

Arthur

* Stock picking should be winning, it is not.

* Elon Musk is a hero that America needs.

* The poor outlook for restaurants.

Some important stuff from Peter:

China telling Hong Kong what national security rules are best for them is not going over well in Hong Kong as it shouldn't. Premier Li said "We will establish sound legal systems and enforcement mechanisms for safeguarding national security in the two special administrative regions, and see that the governments of the two regions fulfill their constitutional responsibilities." An opposition lawmaker in Hong Kong said it right in response, "This is the end of Hong Kong. I foresee that the status of Hong Kong as an international city will be gone very soon." It's a true shame. The Hang Seng fell 5.6% overnight and now we await the international community response. All of the region was red, also responding to the US selloff.

The only thing that China did today that was right was they got rid of their 2020 GDP target which achieving was a pipe dream. It also seems that any GDP target going forward is also being scrapped.

The BoJ met and announced the creation of another lending program. They will essentially provide free money to banks and if the banks take that capital and then lend it out, the BoJ will pay the banks a .1% interest coupon on that amount. It's all about getting money to companies during this economic downturn but the quality of some of these loans will certainly be in question if banks aren't careful.

* I am watching closely for a change in leadership and a pivot from growth to value
* A skeptical view of a bifurcated market led by a handful of high growth stocks (FAANG plus MSFT) that have done the market's heavy lifting
* Reviewing the attributes and negatives of The Big Six
* I had previously sold out my long investments in Amazon, Facebook, and only own a small position in Alphabet

I have been arguing for two or three weeks that we will likely see a pivot out of (MSFT) and FAANG and into value.

While, thus far it has not occurred, I am still of the view that this pivot will occur.

That pivot is the basis for my large Nasdaq short, that I have been averaging into.

(QQQ) short was my Trade of the Week several days ago.

Here is my expanded thesis in "Is It Time To Sell MSFT and FAANG?"

Danielle DiMartino Booth on the Fed and Treasury's supportive activity:

• The Fed has established programs to provide liquidity for the Coronacrisis, however, fiscal stimulus is needed to boost growth more directly; The Fed is willing to provide additional support, but without more demand for its lending programs or a new fiscal package, the Fed cannot act
• Fed's liquidity programs represent less than one-third of the balance sheet expansion; most of which has been utilized for FX swap lines for the dollar funding markets outside the U.S. rather than benefiting companies inside our borders
• The PPP program has not met small businesses' needs, as many that were solvent prior to the crisis are struggling to access necessary bailout funds to survive; a Universal Basic Income-lite program could provide a viable alternative during this time of need

Before there were click rates and click bait, "click" described a sound, one of a mold striking metal. In the jargon of one who operated a printing press, this click emanated from a "stereotype block." To produce the desired sound, at least in French, one would have to "clicher." This etymological journey ends with editors' worst nightmares -- clichés. The only thing to make the disdain run deeper than that for the stereotypically trite is the dreaded combined clichés.

That's what makes it so delicious to report that Jerome Powell is putting the cart before the horse he brought to water but couldn't make drink. What's worse, he can't give it away for free, that is, stimulus to waylaid U.S. workers. It's plain that the Federal Reserve's actions have saved Wall Street. But the Fed's work goes beyond backstopping investor losses. Maximizing employment is even a formal Fed mandate, one that's proving to be a deeper challenge in light of the failed fiscal efforts at protecting jobs thus far.

What if, though, the Fed is trying to build a bridge to the other side of the Coronacrisis by harnessing the power of its printing press? The only thing standing in its way is a lack of legislated stimulus. You can't monetize debt that hasn't been created. In a rare Sunday evening interview on CBS' 60 Minutes, Powell openly appealed to Congress to act.

Bond strategist George Goncalves posits that these major appearances are anything but happenstance. In a 60 Minutes interview that aired March 15, 2009, former Fed chair Ben Bernanke said the Fed was working on further easing measures. Three days later, the first round of QE was launched. Then on December 5, 2010, following a very weak jobs report, Bernanke urged Congress to extend the Bush tax cuts. Amid stern opposition from his own party, the following week former President Obama came out in agreement with Bernanke.

"Chair Powell has made it clear that the Fed could do more but that requires there to be demand for their liquidity and/or more Treasuries to buy," Goncalves said. "at the same time, he's continually steered the focus back to fiscal stimulus being more appropriate given the nature of the health crisis."

In Goncalves's view, Powell's resoluteness goes beyond breaking the logjam of current Republican holdouts opposed to the next multi-trillion stimulus bill. The Paycheck Protection Program has largely failed. And it's not clear what uptake will be for the Fed liquidity programs vs. 2008 to say nothing of the Main Street Lending Program. "Powell could have an eye to Congress launching a Universal Basic Income-lite during this time of need until the worst of the virus effects on the economy have passed."

The only thing missing: Treasury debt issuance needed to fund such an enormous undertaking. However, lawmakers describe it, the Fed will have the printing press warmed up and ready to roar. As Powell said, "We're committed to doing everything we can as long as we need to."

"It's not as if the Fed is new to lending Uncle Sam a helping hand," Goncalves added. As you see in today's chart, if we compare how the Fed's balance-sheet is expanding today to its 2008 financial crisis response, nearly two-thirds of the growth stemmed from Treasury and mortgage-backed securities purchases.

We forget that in 2008 Fed stimulus led with emergency liquidity injections via a vast array of Special Purpose Vehicles. They rolled off nearly as quickly as they appeared. And what do you know? Thus far, the Fed's liquidity programs only represent one-third of the balance-sheet expansion. And you still have to discount this weighting given a good chunk of this liquidity is funneled into the FX swap lines that help maintain order in the dollar funding markets but do nothing to benefit small businesses back home.

We get that these liquidity programs can expand to meet the challenges of reopening the economy. To the extent they're not tapped, though, the Fed is powerless to stimulate growth. That brings us back to Powell practically begging Congress to legislate more spending.

The real tragedy is the pool of helicopter money recipients is growing at an unnecessarily fast pace. Unlike big business and the wealthiest with ample access to bailout funds, countless surveys and a myriad of anecdotes evidence that it's too late to rescue many of America's 30 million small businesses. Big and insolvent firms are being bailed out while small solvent businesses can't access liquidity.

As for Powell's good intentions, handouts can't arrest the onset of the skills atrophy that so plagued workers for the past decade defined by an acute skills shortage in the U.S. workforce. Being forced on the dole is an affront to countless hard-working Americans who've lost the solid businesses they've built through no fault of their own.