Thanks for reading my Diary today.
I got a nice response from Jim Bianco about the column (Another Bear Bites The Dust) I wrote about him.
I will start tomorrow with his response!
Enjoy the evening.
Be safe.

I moved to large short in both Apple (AAPL) and Caterpillar (CAT) .

Market breadth has been hanging around 3-4 negative in a generally quiet day.
Sector and individual price changes are modest as the market consolidates after springing from the day's lows in the early going.

* I kid you not!

As W.D. Gann wrote, time points to price, price points to time. Time and price balance out or square-out at important turning points.

According to Gann's technicals, if Apple (AAPL) makes a nominal high above $355 that reverses lower - it could be a "Soup Nazi" sell setup!

A "Soup Nazi" sell setup is a new 20 day high that quickly reverses back below the prior high within the 20 day window. The caveat is to allow for at least a four day separation within the context of this 20 day window. This guards against a continuation move and provides for the idea of a high, a pullback, and a test failure of the high.

A break below $340 could open the door for $300.

In other words, there is "no soup for the buyers of the new high."

And, the way General Apple goes, so goes the soldiers?

Nice rally from the lows, I just added to my (SPY) short at $312.

Thomas C

U.S. banks brace for upcoming stress tests

total Q1 bank dividend payments: $32.7B
total Q1 bank profits: $18.5B

bank dividend cuts ahead...?

- CNBC

Dougie Thomas C

The only large money center bank that is vulnerable is Wells Fargo.
As I have repeatedly noted, WFC is the only major bank that will not earn ($0.75 EPS) its ($2.04) dividend

Bret Jensen

Big Beat...
Philly Fed Outlook +27.5 in June
June Philly Fed Business Outlook: +27.5 vs. -23 consensus, -43.1 prior (unrevised).

dougie Bret Jensen

I dont think the continued "beats" are that important.
It should be expected be cause we were at a standing stop Bret.
The question is how much of business and the domestic economy has been gutted from the shutdown?
Lodging, travel, airlines, education, restaurants, non res real estate, entertainment etc all face a 80% to 90% recovery with structural changes ahead. (see my opener)
Dougie

Peter on moods:

The individual investor got scared over the past week according to the AAII figures. Bulls fell 9.9 pts w/o/w to 24.4, a 5 week low while Bears jumped by 9.7 pts to 47.8, a 5 week high. This is in contrast to the II data which measures the mood of 'professional' investors. I keep thinking that individuals are voting their view of the economy and what they see around them on a daily basis right now while 'professionals' are chasing price.

With regards to monetary policy overseas, Taiwan kept rates unchanged at 1.125%. The consensus was for a cut to 1% while the Bank of Indonesia cut its reverse repo rate by 25 bps as expected to 4.25%. It's quite ironic that it is in emerging markets that we have positive nominal rates and the central bank of the biggest and most dynamic economy in the world thinks the US deserves zero rates. Norway, another developed nation, kept rates at zero while the SNB stayed at -.75% but said "In light of the highly valued Swiss franc it remains willing to intervene more strongly in the FX market." The current SNB bears no resemblance from the old SNB with NIRP and its portfolio of global stocks bought with money created digitally.

The Bank of England left rates unchanged at .10% but raised their QE program to 745b pounds from 645b as expected and to be done by year end. Markets instead await to hear what they have to say about negative rate policy. Why it's even a discussion after the experiences seen is not clear but crack pot ideas in the halls of central banks never seem to die. Even Jay Powell has kept the idea alive here when he said yesterday that "negative rates are not appropriate for the US at least at this time." Why couldn't he have said "not appropriate ever"? The pound bounced back above $1.25 in response as there were no surprises and they talked about the recovery that began in May and which in turn is leading to higher gilt yields.

The ECB announced today that European banks borrowed 1.3 Trillion euros from them in the TLTRO program where the ECB essentially pays banks up to 100 bps to take their money to go out and lend it. The banks can also buy sovereign bonds with this money and continues the feedback loop with bank balance sheets and their ties to sovereign bonds. Part of this money went to pay off previous TLTRO's while the balance would be considered fresh capital. A total of 742 banks tapped it and the ECB said it would 548b of net new liquidity. European bank stocks are little changed in response while sovereign bonds are up slightly as the take up was about as expected.

Of course reflecting the shutdown, Australia lost 228k jobs in May, well more than the estimate of down 79k while its unemployment rate rose to 7.1% from 6.4%. Again, lets see this data in July/August before assessing an 'after the opening' viewpoint. The Aussie $ is unchanged but bond yields there are lower. The ASX fell almost 1% in what was a mixed bag for Asian stock markets.

* It was lonely buying in March and it's lonely shorting/selling in June
* The lack of shorts emboldens me - both as a contrarian and as a student of the economy

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

The majority of large investors I am acquainted with and certainly most of the "talking heads" that parade on FinTwit and FinTV
are now (confidentially) bullish, based on what it appears to be the upwards share price momentum.

Many of these investors were bearish nearly 1000 S&P points ago.

My portfolio, in the last few days (and into the continued ramp), has increased in net short exposure.

My calculus of "fair market value" implies about -10 to -15% of risk to the markets - but there are some outcomes that could be worse, and take us to the lower end of my forecasted trading range. That range projection (2550-3010), continues to point toward risk towards the downside, that economic, profit expectations are unrealistic and that the plethora of issues could lead to an even more heightened regime of volatility (like we saw in today's intraday swing).

Against that we have enormous infusions of liquidity - that dirty water is something the bulls are desperately holding onto.

But I have to ask, as the market approaches its close, if zero interest rates and massive financial help to consumers and businesses represent such wonderful and riskless policy propositions - why haven't we instituted this policy in the past in order to smooth out cycles?

I have my own answer but I will let you all individually answer my rhetorical question!

As I summarized in my "broken window" post recently:

* We are just fixing broken windows right now -- not seeding future growth.
* It is my view that a lot of earnings capacity is being removed from the economy by the virus and riots.
* A new Democratic Administration (and blue wave) is highly likely -- it will prioritize redistribution over growth.
* The markets are overextended and wholly dependent on the Fed stimulus and liquidity.
* However that stimuli -- being used to stabilize businesses/the economy, employees' incomes -- is not likely to provide much of a catalyst for the future growth dynamic.
* That federal largesse has countered the Covid-19 economic shock by serving to weigh small businesses and large corporations with even more debt -- and that's a governor to growth.
* Meanwhile, paradigm shifts signal some permanence of job losses, a far slower than expected economic recovery and reduced economic potential and business "earnings power."


To me, from a policy standpoint, the U.S. has no plan for the future - rather than what to me seems like throwing fiscal and monetary darts at the wall and seeing what sticks without taking into account the long term consequences.

If economics and the real economy matters this market cycle could end in tears.

Finally, the lack of shorts emboldens me - both as a contrarian and as a student of the economy.

* Defund the SEC!

A new filing shows that Robinhood brought in close to $100 million in revenues by offloading stock and options order flow in 1Q2020:

A new regulatory filing shows trading firms paid Robinhood nearly $100 million in fees for stock and options order flow.

An update to Rule 606 implemented at the beginning of 2020 requires brokers to file more granular data about their order routing.

The new 606 filed at the end of May shows net payments made to Robinhood increased from $19.4 million in January to $45.4 million in March.

Payments for options orders made up the lion's share of total payments.

I added to my (SPY) short in the premarket trading gap (after the usual ramp in the middle of the night from the lows) at $312.25.

Danielle DiMartino Booth explains why Cass and cash suggests reducing cyclical exposure:

Even as the economy reopened, Cass Freight Shipping Volumes continued to contract in May; rail traffic has begun to recover - rail carloads and intermodal containers tied to port traffic remain depressed while intermodal containers reflecting domestic trucking have risen.

Virus-fueled uncertainty drove a rush to cash pushing the saving rate to a record high; a continued rollover in money market mutual fund assets and a rapid depletion of savings will signal rising confidence in the job market and by extension, big ticket purchases.

Record levels of incentives to buyers halved dangerously high Motor Vehicle Inventory Days; continued auto sales momentum is at risk as inventories have fallen, incentive spending has been pared, credit standards have tightened and demand has weakened.

"Jack of all trades, master of none" is a phrase used to describe someone who's somewhat proficient across a wide swath of skills yet has not managed to be in command of a single one. One envisages a middle-of-the-road occupant, someone mired in mediocrity. Hence the irony of Robert Greene's deathbed description of "an absolute Johannes fac totum" (Jack-of-all-trades) with reference to actor-cum-playwright William Shakespeare. Derision was abundant throughout the Oxford and Cambridge graduate's 1592 work Greene's Groats-Worth of Wit. For spite's sake, Greene took a stab at Shakespeare's having not attended university calling comparing his work to that of an "upstart crow, beautified with our feathers," a thinly veiled accusation of plagiary.

In the spirit of QI inspired innovation, we've identified a candidate that is both a jack of all trades, but only master of some. Cass' Freight Shipments Volume wears many hats. The kinetic energy generated by the movement of goods in the supply chain, especially the inventory cycle, guides GDP. The data also lead the Fed's preferred inflation gauges, both the headline and core personal consumption expenditures price index, as well as the trend in U.S corporate earnings.

Despite the reopening hype, Cass is not throwing off much heat. Through May, shipment volume contracted 23.6% versus a year ago (red line), the weakest performance since the Coronavirus pandemic began and on par with the worst months of the last recession.

With the second quarter almost closed, Cass noted that double-digit volume declines were prevalent "for most carriers across most modes in the U.S., including truckload, LTL [less than load], intermodal, and rail." The flipside is customers with e-commerce exposure which "remains a hot area, as long-term trends in consumer buying patterns were accelerated in recent months."

Trends in the three main components of railroad traffic illustrate the divergence. So far in June, rail carloads fell 22.0% compared to year-ago levels while that of intermodal containers, reflecting port traffic, were down 10.8%. Intermodal trailers, which reflect domestic trucking, saw activity rise 4.3%. Taken together, movement of goods via rail is off the lows hit eight weeks ago. The -13.5% annual decline in the week ended June 6 was not near as deep as this episode's low point of -20.4% hit the week ended April 11 (green line).

As 'less bad' as everything is looking, we couldn't help but notice the folks at Cass saying they were "surprised to not see more of an up-tick in May." For its part, cash couldn't agree more with Cass. The stockpiling in cash reserves echoes the pervasive uncertainty in Cass volumes. We know what pent-up demand looks like when it's shot out of a cannon upon the economy reopening. The cash remains on the sidelines looks to be held in check to be safely deployed after we've seen the other side of reopening.

We illustrate the cash build two ways - the traditional personal saving rate (purple line) that rose to a record high 33% in April and the higher-frequency, weekly money market mutual fund assets (both institutional and retail) from the Investment Company Institute. We look for the former to begin to decline as the economy continues to reopen, and separately, as increasingly income-depleted households tap their rainy-day funds. The latter has just begun to roll over - it's up only 48.8% year-over-year in June, off its 54.0% May peak.

To cross pollinate the trends in Cass and cash, we turned to one indicator. Every month, following the release of U.S. auto sales, Ward's Auto publishes motor vehicle days' supply. In April, days' supply crested at 119 days, just two fewer days than January 2009's 121 days. This massive oversupply was wiped in May as days' supply fell to 61. That's how zero-financing for 84 months incentivizes would-be buyers. A word of warning from Cox Automotive Chief Economist Jonathan Smoke on that count: "Inventory shortages, fewer incentives, weaker demand and tightening auto loan standards could slow the industry's sales momentum in the second half of the year.

As to the fate of the transports sector, the auto sector should help guide its prospects. Rapid drawdowns in the saving rate and money market funds would signal a willingness to spend beyond one's means tied to a recovery in income expectations. A slow grind down in cash reserves would imply lingering high unemployment.

Households, for their part, are all smiles. As per June's preliminary University of Michigan data, lower unemployment expectations hit a record high 50% while higher unemployment expectations were green-lighted at 25%. And yet, the layoff announcement parade continued unchecked. Yesterday alone, AT&T, Hilton, Schlumberger and T-Mobile all announced U.S. job cuts.

It would be great if sanguine U.S. consumers were all jacks of all trades. Think of the ease with which one could job hop. Alas, early June's oversupply of unemployment optimism only implies the direction, not the speed of the decline in joblessness. The asymmetry suggests greater chances for disappointment in the transport sector recovery, validated by Cass' expectations that a recovery to 2019 levels will not arrive until next year. Lightening up on positions in this cyclical sector seem warranted.