This is a good one:

Thomas C • 30 minutes ago

Jim Bianco, head of Bianco Research, interviewed by Jim Grant of Grant's Interest Rate Observer:
Here is what he said on Grant's podcast:

"The amount of small retail that has been plowing into this market has been unprecedented. Goldman Sachs pointed out that 3% of all trades on the NYSE are now for an aggregate value of $2,000 or less...13% of all options trades in the United States are for one contract...We always thought that retail investors are chasers of momentum, but what we have seen is that in the month of March, when the stock market had one of its worst months in history, over 1,000,000 new accounts were opened by small investors...Not only are they buying into the decline, they are buying with reckless abandon into the decline, and further, they seem to be the most interested in anything that is collapsing."

This is unreal:

The headline above from "Zero Hedge" sums up the market perfectly! 

"Admitting a mistake is not a weakness; on the contrary, it shows an openness of your heart. It takes guts to say sorry. Only a strong and well-balanced individual with clarity of mind can do so effortlessly. Taking responsibility for your actions requires and develops your self-control. You become your own person."
¿ Vishwas Chavan, "Vishwasutras: Universal Principles for Living: Inspired by Real-Life Experiences"

Such weird times.

A record-setting percentage decline (as measured by time) has morphed into a record-setting percentage advance (also as measured by time).

The near generational opportunities I saw in March have morphed into what I calculate to be current overvaluation -- in very short order.

This morning Goldman's David Kostin offered his projection that S&P earnings per share in 2021 will set a new record of $170/share. What is his S&P target at year end 2020? Only 3000, or about 7% below cash. David admitted to say the risks to profits are to the downside -- reflecting valuation, tax policy and "momentum."

I don't believe we will even reach David's estimate by 2022, ergo my "fair market value" is 2750, minus 6% from David's forecast and about 13% below the current spot for the S&P. (I will have more on David's really good appearance tomorrow morning.)

That said, truth be told there is not much truth in the investment business.

On FinTwit or Fin TV there is no shortage of hubris, but there is a shortage of admission (of mistakes).

I try to own my mistakes (they are aplenty) and learn from them.

The many who were under their desk (I prefer to criticize by category and not by individual), failing to take advantage of what may prove to be generational lows in a number of large cap stocks (like Citigroup (C) , Disney (DIS) , Federal Express (FDX) , Bank of America (BAC) , JPMorgan (JPM) etc.) are now confidently bullish and some are trading worthless pieces of paper like Chesapeake (CHE) , Hertz (HTZ) and the many other shiny objects.
Absent an admission of being mistakenly bearish in March, we instead hear criticism of those that are cautious in June.

So be it.

It speaks volumes that the few who admitted mistakes in this cycle include Stan Druckenmiller and Warren Buffett. One is worth $6 billion and the other is worth $80 billion.

Enough said.

Enjoy the evening.

Be safe. 

$2.1 billion to sell market on close.

* The market's leadership is particularly narrow

The market is doing its best to confuse everyone.

After two days of an upward breadth thrust - we have reverted to a 4-1 negative imbalance of declining issues over advancing issues.

More importantly is the divergence between the S&P/Russell compared to the Nasdaq - with the later being buoyed by Facebook FB , Amazon (AMZN) , Apple (AAPL) , Microsoft (MSFT) and Alphabet (GOOGL) .

The non FAANG and MSFT market is foundering badly and most equities have given up Monday's price gains.

Particularly pronounced selling is being seen in retail, deep cyclicals, hotels, airlines and real estate.

And then there is the rapid retreat of the shiny objects of speculation like Hertz (HTZ) and Chesapeake (CHK) , among others.

The 10-year note auction was a poor one.

The yield of .832% was above the when issued of about .82% (thus tailed). The bid to cover of 2.26 was well below the previous 12 month average of 2.45 and the least since August 2019. And, dealers got stuck with 31.5% of the auction, the most since May 2019. 

The 10-year note is still up sharply on the day, but off its highs in response. The yield today is down by 5 basis points. I'm not sure what to make of this crappy auction. On one hand, the level of the 10-year yield is responding to relentless QE (although slowing) on the part of the Fed and low rates elsewhere in response to overseas QE and on top of speculation about yield curve control. On the other hand, if equities are right that the economy is going to come roaring back, why would the 10-years yield still be below 1%.

Either way, buyers are locking in negative real returns, if the implied 10 year inflation rate ends up being correct a rate of 1.27%. 

Here is a chart of the ten year inflation breakeven:



I covered my bond short last week.

And the bubble bursts: Chesapeake Energy Corporation (CHK) reopens -70% just now.

Here is other side of the coin.
Israelis are no fools. Read the second to last paragraph of this Breitbart story, which makes it sound like the country remains very concerned: "The Health Ministry warned of an imminent second wave that will be far worse than the first with as many as be 5,000 people on ventilators, the Israeli N12 TV network reported."
That is big part of problem, still seems like nobody really knows, policy all over the place on this globally. Its amazing to me this far into it, that there are still so many questions.

No trades today.

* The Nasdaq over the S&P in the early going...
The Nasdaq has caught a bid today - thanks to analyst upgrades at FB and (AMZN) .
Apple (AAPL) , at a new high, is also helping the cause.
Overall breadth is lousy at 6-1 negative - perhaps negating the breadth thrust of the last two days.

Peter asks, "Who needs Las Vegas?"

It's great that Vegas is open again but who needs it when you have the stock market instead. With its June 15th 2021 bond trading between 3-4 cents on the dollar over the past week, Chesapeake Energy's stock, the bottom of the cap structure hierarchy, closed last Thursday $14.05, Friday at $24.80 and yesterday at $69.9. That was followed by chapter 11 plans after the close. JC Penney, already in bankruptcy proceedings, traded up by 55% on Friday and 96% yesterday. Hertz was $.81 last Wednesday only to close up 582% in the following 3 days to $5.53. Here is what some other energy stocks did yesterday: XTEG up 150%, Noble Corp up 161%, Whiting Petroleum higher by 152% and Denbury Resources higher by 106%.

Bottom line, after an incredible run since March, we now have clear froth in parts of the market. We know this level of speculation has coincided with a sharp increase in the activity of retail investors. It has also been encouraged by a zero rate/unlimited QE environment. Keep in mind, that QE money doesn't end up directly in the stock market but when interest rates are suppressed, it is meant to stimulate speculative behavior. As Glenn Frey once sang in 'Smugglers Blues', "It's the lure of easy money, It's got a very strong appeal."

CHK

JCPNQ

HTZ

The May NFIB small business optimism index rose to 94.4 from 90.9 in April and vs 96.4 in March and 104.5 in February. Just by reopening the economy again has the internals improving m/o/m. Plans to Hire rose 7 pts after falling by 8 in April. Capital spending plans got back 2 pts of the 3 lost last month. Plans to Increase Inventory was up 6 pts after 2 months of declines. Compensation, both current and future plans, was mixed. Those planning on higher selling prices remained negative but 4 pts less so. Tighter profit margins though and limited top line growth resulted in a 6 pt drop in the earnings trends to the weakest since February 2014. As for the broad feeling about things, those that Expect a Better Economy rose 5 pts, those that Expect Higher Sales was higher by 18 pts (but after plunging by 30 last month) and those that said it's a Good Time to Expand was up by 2 pts after dropping by 10 pts.

Bill Dunkelberg at the NFIB said "As states begin to reopen, small businesses continue to navigate the economic landscape rocked by Covid 19 and new government policies. It's still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safety."

I repeat my belief that come August/September it will be gut check time on what the state of the economy is in after most things have reopened and we try to go back to doing most of the things we were doing before covid but to what degree being the key question to be answered.

I'm not going to bother talking about some of the April data out today from overseas as it was in the heart of the self imposed lockdown.

We had looked for the averages to stall a bit on the overhead resistance bands of Dow 27350 to 27400 and S&P 3220 to 3245.

The Dow overtraded with a high of 27500. Thanks again in large part to Boeing. The overtrade did not bring an instant spark of follow-through. The S&P high was 3233. Bulls were helped by the Fed expanding its Main Street liquidity program and as alluded yesterday, the Fed and the anti-virus stimulus packages have been the thrust for the this multi-week rally.

Boeing results and the beginning of the Fed two day meeting may set the stage for trade today. Traders look for perhaps some consolidated action today and possibly tomorrow.

Stay Safe!

Arthur

* In nearly every market cycle, speculation in low-quality, virtually valueless and literally bankrupt stocks, marks a market top
* Statewide "shelter at home" orders coupled with the Fed's liquidity injections and commission-free trading (on most platforms) have contributed to the boon in speculation this year* Robinhood traders (and their 'shiny object' stock targets like Hertz) are symptomatic of this silly trading backdrop - its worrisome and could be symptomatic that painful market potholes lie ahead

"We don't steal from the rich and give to the poor. We steal from the poor because they can't fight back -- most of them -- and the rich take from us because they could wipe us out in a day."
- Robinhood

Socially we may be in 1968 ("2020 Is Looking a Lot Like 1968, Without the Good Music") but from a stock market standpoint things are looking a lot like the weird top in the first quarter of 2000 and/or like the top in the end of the third quarter/beginning of fourth quarter of 2007:

* The Early 2000 Top - In early 2000, the Dow Jones Industrial Average was the first major average to top out in January. Two months later the Nasdaq had its final move to the upside and while it took the S&P Index to a new high, the DJIA failed to make a higher high. The narrowness of the early 2000 move in the Dow Jones was so pronounced that the NYSE cumulative advance/decline line topped out in early 4Q1999, months before the DJIA recorded its top. Another feature of 2000 was the relatively few stocks guiding the Nasdaq higher.
* The Late 2007 Top - The weird part of 2007 was the absence of extreme bullishness. In that year, a sharp correction in July-August was followed by an abrupt rally to new highs by October. From there the S&P and DJIA dropped by about -55% each -- it took about 1 1/2 years.
* The Early 2020 Top - Bewildering was the speed of the February-March drop and the rapidity of the recovery in April-June. This contrasts to normal bear markets that are between six months to two years. The -34% February-March decline and the 40%+ rally in April-June -- neither was a bear market and the following rally was likely not a sustainable bull market. In terms of the historical precedent, today there is some similarity to both the speculative activity of 2000 and the lack of bullish investor sentiment in 2007.

If correct, we still have not had a primary bear market since The Generational Low in March, 2009. That's a long time and the clock may be ticking.

As Stan Druckenmiller commented yesterday on CNBC, the breadth thrust of last week was impressive but if you look carefully at the Nasdaq, for example, you would be surprised to see how many stocks have underperformed - as a handful of large stocks coupled with a group of speculative (but valueless) equities have been carrying the weight of the Average.

I expect the market to now experience some wild volatility swings. I am even considering going long VIX, something I have avoided over the years. 

Speculation

There is a place for speculative stocks in every portfolio.

But trading stocks that one knows is worthless (and that even have declared bankruptcy) because they are rising is a "fool's errand" to me. Implicitly, the trader who buys something that has no value for $4, $5 or even $8 is basing his trading decision that another fool will pay higher for something that is worth nothing.

It proved sub optimal in 2000 - for those that "hung on" - and it will likely again in the time ahead.

But time after time, many will declare the efficacy of the approach.

Aided by the proliferation of free trading on most of the larger platforms, the new dominant day trader, Robinhood, has recently brought on a degree of speculation last seen 20 years ago - at the end of the dot.com bubble.

The setup for speculation in 2020 was unique: statewide "shelter at home" orders coupled with the Fed's liquidity injections and commission-free trading (on most platforms) have contributed to the boon in speculation this year.

There are many glaring examples of chasing value less stocks these days - already bankrupt J.C. Penney (CPNQ), Chesapeake (CHK) (which closed at $69.92 last night and is now trading at $30/share - equities are the bottom of the capital structure) - its bonds (maturing in 2021) are at $0.04 on the dollar) , (WLL) , (NKLA) , and leveraged energy small caps - XTEG , Noble (NBL) , and so many others.

Perhaps the most conspicuous silly stage trading sardine is Hertz (HTZ) , which traded at $0.80 six days ago, opened higher at $3.37/share on Monday and closed +115% to $5.53 (+582% from last Wednesday), and traded close to $7 in after hours trading yesterday. The shares were back to under $5 this morning in the pre-market.

Finally, during periods of euphoria and speculation really stupid comments are made about how easy it is to make money trading bankrupt companies and declare how stupid the greatest investors of all time are.

Hubris, a late market cycle condition, has become contagious. Here on our site and on Twitter (TWTR) :

Bottom Line

The market is plain "goofy" and the recent advance has been accompanied by the worrisome amount of speculation in valueless securities.

Robinhood's motto is "Investing for Everyone."

Maybe not so much.

Today's dash for trash has an historical precedent in participation and outcome.

History rhymes.

Caveat emptor.

* In the last four days there have been more new cases in Florida of any four days in the pandemic.

Yesterday I observed:

It is time to pay attention to the numbers, especially post-protest.

I just spoke with an executive at a VERY large employer in a state that had limited Covid issues. All the sudden cases are spiking to the point where it is causing issues running the business. Broad-based across the state in the major metro areas as they cover all geographies. They had almost no issues prior to now. But all of the sudden they are. Importantly I am not even sure if the impact of protests is in these numbers yet ...

See this thread:

* Goodbye Brooks Brothers, Palm Beach
In my June 1 column, "2020 Is Looking a Lot Like 1968, Without the Good Music" recently I pointed to a slower-than-expected recovery in economic activity and profits -- amid a changing paradigm shift in retail, travel, entertainment and non-residential real estate.
As an example, I had been shopping here for as long as I can remember.

From Danielle DiMartino Booth:

• Canada's May jobs report beat expectations with hours worked rebounding 13% on an annualized basis above the second quarter-to-date average; construction led the way but the momentum for a turnaround in housing is at risk
• In recent months, Canadian housing starts have been skewed by major provinces being in lockdown mode at different times, making historical comparisons impossible; the national downward trend is expected to hold, exacerbated by the continued absence of foreign buyers
• In April and May, permanent job losers outnumbered temporary losers by nearly two-to-one; with more than three million permanent job losses in two months, housing will weigh on Canada's recovery, which is reflected in the 350% YOY spike in banks' loan loss provisions

And you thought everything was bigger in Texas. The world's second-largest country is so big it has 30 national parks that are bigger than 30 individual countries. Think Armenia, Denmark and El Salvador. At 17,300 square miles, Wood Buffalo National Park is the biggest of them all, dwarfing the size of 124 nations, including Switzerland. Established in 1922 to protect the last remaining herds of bison in northern Canada, it is also one of the planet's two nesting sites of whooping cranes. As for beauty, if you ever want to take in Canada's Northern Boreal Plains, you know where to go.

Among other Canadian wonders, Canada's pandemic curve continues to flatten. The total number of confirmed cases over the seven days ended June 5 fell below 1,000 for the first time since March. Also, for the first time since March, the oil rally has pushed Western Canada Select spot prices near $30 per barrel. Canada's stock market, the S&P/TSX Composite, has bounced 42% off its March 23 low, leaving just 12% to go to fully retrace the February-March selloff. And the spot Canadian dollar rose to just under C$0.75, the lower bound of the pre-COVID range.

On the less promising front, Canada also boasts the second-biggest housing bubble in the world, at least as measured by the house-price/income ratio. That doesn't bode well in light of last Friday's May jobs report. And no, we don't mean the U.S. employment figures. That said, there were similarities to the bizarre U.S. data. At 290,000, Canada's job gain stood in stark contrast to the 500,000-decline expected -- the second-widest upside surprise on record.

We would remind you that jobs don't determine economic recoveries; hours worked do. The product of employment times weekly hours equals GDP's labor input. In Canada's low productivity economy -- 1% is the long-term average -- hours worked is the swing factor for short-run growth prospects.

Hopes for a third-quarter rebound are pinned on momentum in May's hours worked. At a 13% annualized, it rings in above the second-quarter-to-date average. The industry leading the charge is construction, up 39% annualized on the same sequential basis. Past performance is no guarantee of future returns -- the -34% year-over-year plunge (green line above) may not carry through to the third quarter, which gets onto the subject of reopening technicals.

Blowing past forecasts calling for 160,000, Canadian housing starts hit 193,500 in May. But this number was yet another statistical quirk -- a reflection of Québec's reopening the construction spigot on April 20 after lockdown measures were lifted. The rub is the Canadian Mortgage and Housing Corporation excluded Quebec in April's Starts and Completions Survey. Rather than try to make sense of an apples-to-oranges comparison, toss out May's starts data as it can't compare to April's 166,500.

And then there's Toronto -- its 51.2% May decline to 29,700 followed a massive build in April to 60,900, pull-ahead demand before its April 3 lockdown. Given still-steady COVID-19 case counts, Ontario premier Doug Ford announced yesterday that Toronto and surrounding areas will remain locked down.

Forecasters will still bet on a technical rebound in Toronto. One thing stands in their way: Permanent job losers of 2.6 million in April and 2.3 million in May outnumber those on temporary layoff (1.3 million in April, 1.1 million in May) by a two-to-one margin. The near-200% year-over-year increase, inverted on red line suggest that Canada's housing sector will sustain permanent damage. And that's before you factor in the continued absence of foreign buyers who first inflated the housing bubble.

In the case of China, in a recent recap of China's "Two Sessions," the most important political meeting of the year, Alicia García Herrero observed what has become increasingly apparent -- China's fiscal latitude -- is not what it once was. The Chief Economist for Asia Pacific at Natixis also noted that 60% of the universe of Chinese listed companies' debt is in the hands of state-owned companies, meaning consolidated public debt is higher than that of the U.S. and most European countries.

The silver lining, for the Chinese, is that they have sufficient domestic savings to hold this debt domestically. It's keeping that cash cache inside China that will be the trick: "In this regard," García Herrero wrote, "one should expect financial repression to remain even more pervasive -- supported by capital controls -- so as to cushion the negative impact of climbing public debt to counter the pandemic."

Aggregate the evidence and it's no surprise that TransUnion expects the Canadian mortgage market to deteriorate. Using 40 metrics including forbearance and credit to assess the outlook, the credit rating agency's analysts see a greater likelihood of a "severe" scenario playing out, including mortgage originations dropping and delinquencies doubling.

In anticipation of such a fate, Canada's Big Six banks have ramped up their credit loss provisions to nearly $11 billion, an increase of almost 350% year-over-year, exposing banks' concerns of imminent delinquencies. In the case of housing bubbles, it is likely Canada would prefer its bubble wasn't so big.