I added to Wells Fargo (WFC) at $25.40 in the after hours after the expected dividend-cut announcement.

$600 million to buy market on close.

Jay

Unsolicited recommendation to Doug: you vs. Jim Cramer, Zoom debate, live on Real Money Pro. Subject, banks as investments.

Dougie Jay

To make my position clear.
I had very large holdings in financials.
I sold MS PNC and GS for good profits.
I cited a near term top on the 10% to 15% gap about three or four Fridays ago.
I expected backing and filling after the nice gains.
I turned around and shorted MS and I still have four positions long (C BAC JPM and WFC).
Short term outlook is mired by ever lower interest rates and a further disappointment likely on the domestic economic front.
The intermediate term outlook remains bright - and large capital gains might lie ahead - based on the value of the franchises and their ability to absorb losses.
The only bank that I expect to cut its dividend is WFC as I have repeatedly said, it is the only bank that will not easily earn its dividend in 2020.
Dougie

* How to capitalize on the market without memory from day to day?
* Read Rich Bernstein's 'Navigating the Noise: Investing in the New Age of Media and Hype'
* I used today's strength to expand my short exposure

In the market without memory from day to day, the daily "noise" is deafening - but it is full of sound and fury signifying very little.

Commentators will often and authoritatively give a confident view on the reasons for the day's movements. (That is a load of B.S. as daily moves are predominantly random noise). Stick with those that provide rigorous analysis and that remain consistent in view while others are losing their heads and responding to the day's fluctuations.

How do I try to capitalize on the "noise" and the heightened regime of volatility?

Establish A Market View: I possess a negative perspective, strong days like this, much like the recovery in stocks in the middle of last week, provides me with a shorting opportunity - which I have taken advantage of this afternoon. However, on days like Friday, characterized by a steep market swoon, I do not press my shorts on weakness - as better entry points - and better reward vs. risk - almost inevitably lie ahead.

Develop a Sense of "Fair Market Value": I live at 2750 based on the probabilities associated to five scenarios. Abrupt and large moves change the upside reward vs. downside risk. Respond to changing values. I often trade around core positions if individual stock moves are meaningful.

Always Reevaluate the Assumptions Underlying "Fair Market Value": When the fundamentals change, we must change.

Develop a Sense of the Trading Range: In addition to this calculus (I am 2500-3100 on the S&P Index) - buy the lower end of the range, sell the upper end of the range - I often ask myself what is the primary short and intermediate trend in the markets. That is helpful to me in placing individual orders in a wide range bound market.

Be Emotionless: If one is negative, when stocks ramp - sell and/or expand short positions. If one is positive, when stocks fall - buy and expand long positions.

Read Richard Bernstein's Navigating the Noise- Investing in the New Age of Media and Hype
Rich's book deals with differentiating useful from useless information.

Apropos to this column, and in light of today's "noise", I am ending the day with a larger net short exposure than I started the day.

Traders will look to see if there is any reaction after the Boeing test flight finishes, which according to my sources could be somewhere between 2:30/3:30 Eastern time.

Probably too early for news but traders will be homing in on the newsticker for any hint of any problems or success.

Arthur

I am offering some more Disney (DIS) and Caterpillar (CAT) on the short side now.

Cirque Du Soleil has filed for bankruptcy protection.

Look for more of these filings ahead... as entertainment and others industries get gutted from the spread of Covid-19, as discussed in my opening missive. 

I want you all to be aware I working on a column regarding my response to the bank stress tests.

That said, there is little that changes both my short term (consolidation, backing and filling) and intermediate
term (very upbeat).

I am bidding $20 for more SDS.

I have moved to a large-sized Twitter (TWTR) long.

* Twitter has been an amazing trading sardine over the last five years.* Here I go again!
Five days ago I reassessed Twitter (TWTR) (see below) and established a $30 price target.
The controversy regarding social media posts and the exit of several influential advertisers has pushed the stock down to under my buy level.
I have determined that these headwinds will likely be transitory and I have reestablished a Twitter long and I have covered my Alphabet (GOOGL) short for a large gain (its up modestly today after being -$75/share on Friday).
Here was my Twitter update last week, "Here's Where I'll Buy Twitter":

One of the stocks I will be buying if the market corrects is Twitter (TWTR) .

Trading at $31.69, I will be buying at $30 or lower.

Here is what I recently wrote on the company in "It's Time for Twitter To Change To a Subscription-Based Model":

* That strategy would reduce annual sales by approximately 30% but profits would soar and the stock price could double!
* I recently sold the shares but would aggressively buy them back under $30/share

Back in late May ("Goodnight Tweet Heart Its Time To Go"), I sold Twitter (TWTR) .

As Alphabet/Google (GOOGL) and Facebook (FB) have become ever more dominant (and profitable), Twitter has taken a backseat - in sales, profits and average revenue per user (half of Facebook).

Twitter's advertising model has failed the company. Twitter still doesn't have scale for an ad model and the ad tools they have are suboptimal.

It is time for Twitter to make a wholesale change and adopt to a radically different business model - one based on subscription fees.

As Professor Scott Galloway recently wrote:

"Their opportunity is to acquire distressed media properties, go vertical and move to a subscription model. Subscription fees should be based on the number of followers. If @kyliejenner can garner $430,000 per promoted tweet, she will pay $10,000 a month to maintain her revenue stream and @karaswisher (1.3 million followers) would pay $250 a month. Verified accounts with less than 2000 followers would remain free to maintain critical mass."

Twitter should also consider acquiring some of the very inexpensive media properties that remain independent (e.g., Conde Nast, Hearst McClatchy, etc.) which - like other streaming platforms, could buoy the aggregate subscription offering.

There is also a huge B2B market opportunity - after all, Twitter has now effectively replaced investor relations firms, marketing, news agencies and public relations firms. Many companies would be price inelastic to a monthly fee.

While Twitter would probably lose approximately 30% of its current sales, profitability and the stock price could soar in a move to subscription based services.

Professor Galloway goes on:

"The subscription model also has a free gift with purchase - identity. People are less awful when their name and reputation are attached. Ad-supported platforms are incentivized to allow bots and Russian interference, and to provide more oxygen to ideas that lack merit but are incendiary. Rage equals engagement, which translates to more Nissan ads. Remember that time when Netflix or LinkedIn really pissed you off? That was Twitter or Facebook."

The final point is that since the company is so bad in the advertising function now - Twitter would benefit of an upgrade to a subscription model as the company would likely forfeit much less advertising to Facebook and Google (both of which monetize users, as I mentioned, more than twice as Twitter).

Bottom Line

A move to a subscription-based model will inure to Twitter's bottom line and to its share price.

The time has come.

Pending home sales in May bounced strongly from the April weakness with a +44.3% month over month gain after the -22% drop in the month prior and a -21% decline in March. For perspective though, the index level of 99.6 compares with 111.4 in February and 108.9 in January, but of course getting close to what was lost. 

The NAR said, "More listings are continuously appearing as the economy reopens, helping with inventory choices. Still, more home construction is needed to counter the persistent underproduction of homes over the past decade."

Bottom Line

This figure measures the contract signings of existing homes and having in person open houses helped as has the growing desire to live in the suburbs from the cities. Of course low mortgage rates help too but mortgage rates have been low for a while. I've said before, after this pent up demand for single family homes abate, the industry should more ebb and flow with the jobs picture as well as wages. 

Here is a five year chart on pending home sales:


Source: Peter Boockvar 

* The markets face a near perfect storm of economic, health, social, geopolitical and political risks that are multiplying in quantity and impact - at a point in time that valuations and stock prices are arguably elevated.
There are a number of important questions that investors have to answer today in order to position in the markets (my quick answers to each question are in boldface):
1. How much worse will the spread of Covid-19 be as we move into the Fall? (Probably Worse)
2. What is the timeline for a vaccination? (2021)
3. Will an acceleration in the virus' spread lead to more meaningful business contradictions and disruptions? (Likely)
4. Will the recent decline in President Trump's popularity lead to a Democratic win (even sweep) and result in a significant upwards change in the effective tax rate for individuals and corporations and in the elimination of tax loopholes (carried interest, real estate exchanges, wealth tax, etc)? Relatedly, will the social/political schisms lead to deleterious economic and social consequences? (Likely)
5. Has the Federal Reserve ("pushing on a string") exhausted measures (fiscal and monetary) to energize domestic economic growth? It is not the cost or availability of credit that is holding back business or capital spending today? Will further interest rate cuts (into negative ground) "backfire", scaring investors to the realities of current business conditions and worrying them as to how hard it will be to revive growth. Will investors begin to focus on the gutting of the bank system (similar to Japan and Europe), the developing and intensification of the pension crisis, the widening income/wealth gap and will policy result in inflation? (Yes)
6. Whither S&P earnings in 2020-22 - specifically, will corporate profits "grow into" current valuations? (Tough Sled)
7. What will be the "permanent" impact in gutting out small and large businesses from the demand shock of 2020? (Meaningful)
8. What will the change in "behavior" as a result of the pandemic have on our education system and on business directly impacted (e.g., non residential real estate, travel - airlines, restaurants, lodging, entertainment, etc.) and to what degree will this have in terms of permanent impact on the US recovery in economic and profit growth? (Meaningful)
9. Will the recent strides in nationalism result in a meaningful reduction in world trade and global GDP? (Yes)
10. Are the recent protests a precursor to an extended period of civil unrest (that could disrupt our economy)? (Likely, as many are in a world of hurt - See #5)
11. Will the recent attacks towards revenue-based social media companies meaningfully impact their businesses (revenue and profitability growth) and provide a headwind to FANG, testing its important leadership? (Somewhat)
12. Will the Robinhooders of 2019-20 incur devastating losses, similar to speculators' (large losses) following the dot.com bubble in 2000 and the Great Decession in 2007-09? Will the markets lose "the next generation" of investors and traders? (Probably)
13. Is the S&P in the process of making an important top? (Maybe)
Unfortunately, I am sorry to conclude that the answers to many of these questions are not market friendly, and helps to explain my bearish market posture, as I will discuss in my Diary today and over the next few days. Is a Swoon Ahead?
On June 8th the S&P peaked at 3232, a spectacular rise from the March lows, and quickly dropped to about 2996. Approximtely a week later the market proceeded to rally back to 3150 and soon thereafter declined to 3050. About a week ago the S&P advanced back to 3150 and is now at about 3010.
The S&P has declined by -7% in the last three weeks.
Could it be that June 8th high was the mirror image in terms of sentiment and price to the March 23 low?
Like Bruce Willis, bull markets died hard and I would not expect a straight down move.
However, given my above concerns, this time it feels different.
My baseline case is that the markets stage a slow but steady ("stair case") move lower over the next few months.
I expect a long, hot summer of disappointing economic activity, relative to expectations, and for a difficult and heightened regime of volatility for the capital markets.
Accomodative world central banks seem to be the sine quo non for many investors - forcing many into long dated assets - like stocks.
But the monetary authorities are dirtying the float and have exposed an economy reality.
We combine this with civil unrest and a spreading virus which leads us into the November election - the icing of an unappetizing dessert.
Sell in June and avoid the swoon.

* Revealing Warren's weakness.
* Markets bomb out, investors carry on.
* This is not the end of cities.

We know the Fed was beginning to buy corporate bonds but now that it has been released exactly what they've bought so far, one can only ask "why?" Monetary policy has now reached a new low in the US as Apple, Walmart, Berkshire Hathaway Energy, CVS, McDonald's, AT&T, Coca-Cola, Comcast, the US bonds of foreign car makers like Daimler and Toyota to name a few have been purchased. The total number of company bonds bought is 119 of up to 794 they will buy. The Fed in March used the claim that market dysfunction was why they announced this program. That is a bad rationalization when you are talking about these high quality bonds because it assumes there is not enough private buyers for them which is nonsense. In fact, the deeper the Fed gets involved, the WORSE the market functioning will become. Look at the Japanese bond market where on some days JGB's don't trade. So now that market dysfunction is not apparent, the Fed is just doing it just to do it because they said they would. These companies don't need a lower cost of capital in order to prosper but instead the Fed is further limiting the investment opportunities of investors and created further distortions in the pricing of private sector assets.

We saw last Wednesday a near extreme in the weekly Investors Intelligence Bull/Bear number with the spread nearing 40. Here is an updated chart of the Citi Fear/Euphoria index. Still extended. Individual investor sentiment is the only thing subdued.

I don't believe May economic data is relevant but here is the trade data out of Hong Kong. Exports fell 7.4% y/o/y vs the estimate of down 5.5%. They rose .3% y/o/y to China as that economy was earlier than most in reopening but fell 14.4% y/o/y to the US. Exports to the rest of Asia and Europe fell too. Imports were lower by 12.3% y/o/y, more than the estimate of down 8.5%. The bottom line is obvious due to covid. The Hang Seng fell by 1%.

In Europe, the June Economic Confidence index bounced to 75.7 from 67.5 but that was below the estimate of 80. All of the confidence components, including manufacturing, services, consumer, retail and construction rose m/o/m. For perspective, this figure was 103.4 in February so a ways to go but with the reopenings we are at least headed in that direction. How long it will take though is the main question. The euro is higher and continues to trade well vs the dollar in light of all the issues the Eurozone faces and with the ECB monetary policy being more insane than the Fed's. Merkel and Macron meet today to discuss the EU 750b spending program. Stock and bond markets are mixed.

Diane DiMartino Booth on trade:

• China is Singapore's largest trading partner and a global bellwether for trade which provides cleaner insights into the Chinese economy than official data; such is the depth of the current downturn the WTO has warned Singapore's trade could contract by 40% in 2020
• While China's industrial profits were reported to have risen in May, Singapore's unexpected contraction in both industrial production and total trade suggest the pent-up demand impulse may be quickly fading; we look for total world trade, reported with a lag, to follow Singapore
• Federal Reserve Swap line usage has been declining but this reprieve may prove short-lived echoing 2008 in which demand rallied into year-end; conversely, the ebbing may reflect weakening trade and declining demand for dollar-denominated commodities and products

Sometimes a fuzz-box does the trick. As dueling legends have it, an amplifier either fell off the top of the band's car or was rained on. Whether it was Sam Phillips' version or that of Ike Turner, in what's been called the first rock 'n' roll record in history, 1951's "Rocket 88," had a distorted guitar sound that proved the envy of the music world. Another accident - a blown transformer - inspired Engineer Glenn Snoddy to reverse-replicate the fuzz following a 1960 Nashville recording session. He sold his circuit design to Gibson, which debuted the Maestro FZ1-A Fuzz Tone in 1962. Intrigued, young guitarist Keith Richards experimented with the Maestro while touring the United States in 1965. Of "(I Can't Get No) Satisfaction," Richards said that, "With the addition of a fuzz-box on my guitar, which takes off all the treble, we achieved a very interesting sound."

Interesting worked magic making for the upstart British band's first No. 1 single in the United States. In that same tempestuous summer, the people of Singapore were also displaying dissatisfaction with their brief two-year tie-up as part of the Federation of Malaysia. The deeply imbalanced Malay-Chinese populations were too divided along communal lines to hold the union together. At 10 am on August 9, 1965, Radio Singapore announced the formation of an independent and sovereign state. At the time, per capita income was $500. That figure is projected to surpass $60,000 this year.

Strategically located and shepherded by Lee Kuan Yew, its founding father and visionary leader, the nation fulfilled its mission to, "develop Singapore's only available natural resource, its people." It has since become an exemplar of global education and economics. The city-state of 5.7 million sees up to 40% of the world's maritime trade pass through its ports.

But there is downside to being a global trading hub in 2020, a year in which the World Trade Organization predicts global trade could contract by as much as 30% over the prior year, a level on par with the Great Depression. In the case of Singapore, trade could fall by more than 40% even as its services sector reels in response to COVID-19. Hotels and restaurants are operating at a fraction of capacity while its pride in the sky, Singapore Airlines, has grounded more than 90% of its fleet. A casualty of the trade war, its GDP grew by just 0.7% in 2019, while its shipments contracted by 9.2%, the worst showing since the global financial crisis (GFC).

Because China and the United States are respectively Singapore's largest and second-largest trading partners, its trade figures are not only perceived as a global bellwether, but also a clean (not doctored) take on the health of the Chinese economy.

In the words of QI's friends at the China Beige Book (CBB), "We're at the point where small lies just don't move the needle anymore." This Tweet captured the essence of Saturday's pronouncement that China's May industrial profits had risen by 6% over the prior 12 months, the first positive read since last November.

We place greater stock in the results of CBB querying the 3,300 firms and 160 bankers it tracks on the mainland. While growth did turn "barely" positive in the second quarter, "the year-over-year picture shows an economy still mired in deep recession."

Singapore's data reflect as much, with industrial production surprising to the downside, sliding by 7.4% year-over-year in May, reversing April's 13.7% increase. This is the lack of follow through we've been warning about encoring pent-up demand's post-reopening initial bounce.

As for Singaporean total trade, it fell by 27.5% in May, burying any precedent (yellow line). This gives us a taste of what's to come for global trade, which is reported with a long lag by the Netherlands Bureau for Economic Policy Analysis' Trade Development Board. Its April figure of -16.2% (blue line) over the prior year suggests the January 2009 low of -19.0% could be taken out this year.

What will be interesting to watch alongside this is the trajectory of the Federal Reserve's swap line usage (green line). QI amigo George Goncalves points out that there was a similar move down to what we've seen in recent months which could repeat the early 2008 "head fake," when the FX swap lines were drawn down only to only come raging back in use into that fall as the GFC deepened.

Alternatively, QI's Dr. Gates notes that swap line bulges have historically tracked trade-weighted U.S. dollar movements. The recent weakness in the dollar might reflect dissipating demand for commodities and other products denominated in USD. We could be seeing the beginning of a corroboration of this signal in new export orders in the June flash PMIs via Markit. We saw smart rebounds from Australia to the Euro Area to the U.S.

The one exception was Japan, where new orders remained weak at 35.4, up from May's post-COVID low of 30.8. Gates warned, "This sets up risk that global PMIs could disappoint." With deference to China's fuzzy math that plays well to naive audiences, the continued weakness in Singapore's data concur.