*Shorts are worn out!

* And if you are a bear, that is not a 'bad thing.'

It was another day of market resilience -- much to the chagrin of the ursine crowd (me included).

The shorts/bears have likely been fairly worn out, and I wouldn't be surprised to see another new low in total short interest as a percentage of NYSE shares outstanding.

To this observer (who is still not short!), the entry point on the short side grows more attractive with higher prices - prices (as measured by the S&P Index) that our now at among the largest premiums to "fair market value" that we have seen in years.

I thank you for reading my Diary today.

In light of my Seabreeze launch and mild medical issue (ouch!) I was not focused on my Diary like I am normally -- so, frankly, I apologize for the mediocre input.

Enjoy the evening..

Be safe.

"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

Today's Affirmations is about the the uselessness of first level thinking.

Superficial, first level observations are reportorial and not analytical - and can provide little thoughtful or prospective guidance.

* First level thinking: "It's a good day for the Russell Index. "

* Second level thinking: "The Russell Index's fate is a function of two meme stocks ( (GME) and (AMC) )." As such, the Index is not really an indicator of the health of small capitalization stocks."

"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."

I am listening to a technical analyst on CNBC who is bullish on the Russell Index breaking out to the upside now. 

I am at the polar opposite - in the belief that the meme stocks are headed for a fall/crash and that their heavy percentage of the Russell will weigh the Index down.

Though NYSE breadth is 17-3, I see a sea of red on my monitor. 

Ns over Ss. 

The most speculative gewgaws are the upside feature ( (GME) , (AMC) , etc.) while digital currency related issues (as cyrpto appears to be rolling over) continue to be downside market leaders ( (MSTR) , (RIOT) , (GBTC) , (MARA) , (CAN) , etc.). 

Oil is flattish, gold is stronger (+$9/oz), and bond yields are higher (+1-2 bps).

I am offering some (GS) and (BYND) on the short side.

The only thing worse than Lateral Epicondylitis is the injection into the joint!

Back in the saddle now.

I have to run out to a routine medical appointment at noon.

Back in an hour or so.

In total AMC (AMC) has raised less than $1 billion from share offerings. 

If the case for AMC Entertainment's shares is, as Jim "El Capitan" Cramer seems to believe, is to buy more theatre chains, shopping centers or hotels... 

All I can say is -- my, oh, my.

The AMC rhetoric is so nonsensical that I will likely reshort the stock if the stock has another leg higher.

I hear a whole lot of talking and not too much thinking bout equities, digital currencies, etc. 

Too many worship at the altar of price momentum - knowing everything about price and nothing about value. 

I can't wait to capitalize on what I am seeing...

Thomas C

Federal Reserve is set to sell ETF holdings

The Federal Reserve is set to start unloading shares of exchange traded fund holdings that it accumulated during the pandemic. As of Wednesday last week, the Feds plan is to begin selling its positions in corporate debt over the remainder of the 2021 year.

Per Bloomberg, "Portfolio sales will be gradual and orderly, and will aim to minimize the potential for any adverse impact on market functioning by taking into account daily liquidity and trading conditions for exchange traded funds and corporate bonds," the Federal Reserve stated.

Below is a complete breakdown of what ETFs the Fed has outstanding positions in. Currently, the Fed is holding twelve different exchange traded funds, and they presently own 6.00% of the current outstanding shares of the largest corporate debt ETF NYSEARCA.

Furthermore, the Fed has holdings in NYSEARCA, NYSEARCA, NASDAQ, NASDAQ, NYSEARCA, NASDAQ, NASDAQ, NASDAQ, NASDAQ, NYSEARCA, and NYSEARCA.

If you have any question about the silliness going on with the plethora of digital currencies, I offer you this:

To further my point from Friday with the late 1990's stock charts of a few names that the movie we are seeing now with some stocks is just a sequel with a slightly different script, here was a front page cover of Forbes back in 1998, h/t SH.

The only definition I know of the word 'transitory' is "not permanent." The only question is not what we think that means but what the Fed thinks. Is it a few months? A few quarters? Was the 1970's inflation transitory because it eventually ended? Flex, the 3rd largest contract manufacturer in the world, with customers such as Ford, HP, Cisco, Ericsson, Bose, Ocado, Dyson, JNJ, and Philips to name a few, thinks that it's at least a year. The company's chief procurement and supply chain officer said this to the FT with regards to what they are hearing from their semiconductor vendors on when the supply issues will repair itself, "With such strong demand, the expectation is mid to late 2022 depending on the commodity. Some are expecting shortages to continue into 2023." We see May's CPI on Thursday and the PPI next week.

On the labor market front and the associated watch on wages, the NFIB said last week (ahead of their full report tomorrow) that Plans to Hire jumped 6 pts m/o/m to 27%, the highest since records were 1st kept in 1974. Good luck filling these spots as those that said they had Jobs Hard To Fill rose to another fresh record high. In turn, current compensation plans rose 3 pts m/o/m, the highest since February 2020. Future compensation plans rose 2 pts to the most since January 2020. The Fed's focus on only the 7.6mm jobs not replenished since February 2020 is just not looking at the full picture.

PLANS TO HIRE

POSITIONS NOT ABLE TO FILL

CURRENT COMPENSATION

FUTURE COMP PLANS

China's trade data showed big increases in May on easy comps and in response to the global reopening. Exports were up by 28% y/o/y vs the estimate of up 32%. To the US they grew by 21% y/o/y and to the EU by 13%. Imports grew by 51% vs the forecast of up 53.5%. China continues to have a voracious appetite for soybeans as imports grew by 29% m/o/m (and up by 12.8% y/o/y). They slowed their imports of iron ore from April by 9% but are up big this year and slightly with copper, also up a lot year to date. Oil and natural gas needs rose m/o/m. Keep in mind though, these commodity import numbers are also juiced by price in addition to volume. The yuan is little changed and is responding more to the PBOC's attempts to slow the pace of gains. The Shanghai comp was up by .2% but the H share index was lower by .5%.

Europe has nothing market moving today but Germany reported its factory orders figure for April. They fell by .2% m/o/m vs the estimate of up .5% but this was completely offset by a 9 tenths upward revision to March. Germany is dealing with the same supply problems as everyone else is, particularly on the auto side, but all of their weakness was in domestic orders as foreign orders rose. The euro is little changed but bond yields are slightly higher along with the increase in US rates (which remain in the 1.50-1.75% range until I believe the next few months until people realize the stickiness of inflation and send it above 1.75%). The ECB meets on Thursday and all eyes are on the extent they are talking about when to begin the taper of their PEPP program in light of the E part, Emergency, that appears to be over.

The Mexican peso is rallying after President Obrador kept control of Congress but lost his super majority that he was planning on using to further shift their economy towards that of Venezuela. Mexican businesses are very happy with this election outcome. Businesses though remain on edge in Peru where their election yesterday is too close to call. The communist candidate Castillo is also interested in emulating Venezuela to an even bigger extent. The business supported candidate Keiko Fujimori has a slight lead. I understand the economic frustration of many, especially after the past year but I'm not exactly clear what is so attractive with the Venezuelan model that many are intent on recreating in their own countries in Latin America.

Since I accidentally seemed to have summed up Friday's action in the late morning update, there is no sense in reinventing the wheel, so why don't we start by reprinting that now.

Late Morning Update:

The non-farm payroll number was "goldilocks" enough to assume that the Fed would stand down a bit longer, that has moved the yield on the ten-year from 1.62 down to 1.57, and that was more than enough to give the equity Bulls some room to run so far. The rally is unspectacular, but they did manage to get to highs, higher than yesterdays, which maybe hint that the Bulls are regrouping for next week. But, for now keep your eye very sharply on that ten-year yield, see if it changes direction and begins to head higher. That might send some of the Bulls to the sideline.

Be wary, stay safe and have a wonderful weekend

Arthur
__________

There is very little question that the change in the yield on the ten-year was very much the entire story of Friday's action. The fact that it moved down 7 ticks without an uptick reversal was confirmation, which I have been writing time and time again of the last couple of weeks. You should look at the ten-year, not like a Bitcoin or other chart action, but more like the thermometer with which you are taking your child's temperature. The key things are the direction of each change and its proximity to certain key levels on the thermometer such as 100; 101.5; clearly 102 when you may become slightly more alarmed.

So, the bulls were greatly emboldened. As I say, the yield moved 7 straight basis points lower and, further away from 1.65% that many traders look to. Now, I say the bulls were emboldened but here you have to take an asterisk. I think there are hedge funds are others who are utilizing robotic trading and, they simply mirror just what we are talking about.

If the yield moves down a basis point, that might inspire some buying or at least bidding and, if it moves a second one, that confirms to the algorithm that their moving in an advantageous direction.

So, that may be hard for you to believe that some people are running their money on autopilot but take a look at AMC and a few other things, you can see we are not following all the usual trading patterns as people innovate for ways to trade and make money.

Even if we are using those algorithms, they don't just shrug off and walk away. They will have a couple of drinks at the bar or maybe watch a ballgame. They monitor from afar but, in the immediate term, it is the algorithms that make the decision.

At any rate, they never really had a down tick so, we didn't have to test the support and, as I said in the update, they traded above the previous day's highs, which was certainly helpful to the bulls and give us a bit of a quandary. The seasonal pattern would suggest a little choppy negativity through this week, but the bulls certainly saw the closing bell on the offensive. So, we will have to think again and regroup.

Overnight, markets are showing very small changes. Asia is mixed. Europe is mixed with a slight lean to the sell side, probably prompted by the German factory orders.

U.S. futures are also mixed. They were jolted a little bit by comments from Treasury Secretary Yellen about progress toward a minimum corporate tax perhaps internationally and, that somewhat higher rates here would not be troublesome to the economy. Those comments are not fully digested but have the markets sputtering a little bit as dawn reached Manhattan.

Obviously, we are going to keep an eye on the ten-year, which direction it moves in is one factor and, of course, if it begins to move above 1.60% and then how much closer does it get to 1.65%.

For now, the resistance numbers look like Dow 34920; S&P 4268 and Nasdaq 13990. The support levels will basically be around Friday's lows. To refresh your memory that would be Dow 34615; S&P 4208 and Nasdaq 13692.

The calendar is virtually non-existent for today, but we are moving into the G7 meeting where attention will be paid to any comment on Covid and also any further comment on a minimum corporate tax accepted universally.

Let's see how they start the new week.

Be wary and please stay safe.

Arthur

* Markets rose in the first half of 2021 despite all odds... and a bunch of negative triggers

* Nevertheless, with headwinds accumulating and fools rushing in, upside reward may be dwarfed by downside risk

* Tops are processes (bottoms are events)

(Dave Portnoy Explains The History Of 'One Bite' And His Favorite Pizza Joints)

As the first half of 2021 winds down, stocks ignored a number of headwinds (below) and the major indices are near record highs: 

* Tesla (TSLA) and ARK (ARKK) collapsed

* SPACs soared and crashed

* Archegos and Melvin Capital blew up

* Cryptocurrencies corrected

* Inflation and inflationary expectations rose 

When Fools Rush In

During the first six months of the year, speculation returned post haste. 

Meme stocks and other gewgaws were embraced by gamblers and speculators, in part because of the Fed-induced liquidity and stimulation checks. But the adoption of the YOLO Trade ("You Only Live Once") - reflected in a record amount of new account openings in late 2020/early 2021 - probably runs deeper than just liquidity provided by global central bankers. Indeed, the deepening gambling element has been reflected in unprecedented call options activity - likely inexperienced traders being inexperienced. 

As a further confirmation of the times, CNBC, now has an AMC bug under their stock futures mention (at the bottom right of the TV screen). 

I would say with some authority, and given the precedent of history, that clutching this sort of gambling/betting attitude is a late Bull Market cycle phenomenon. 

Though company buybacks have moderated, negative real interest rates - and nominal short term rates of a few basis points - have produced large inflows into stock funds, a further stimulant for equities at a time in which the spread of COVID-19 has moderated dramatically. 

My view advanced recently is that a near doubling in the Indices from March, 2020 combined with rising individual and corporate taxes and the specter of margin pressure from elevated input costs and higher federal statutory tax rates, could be formidable obstacles to further market advances, placing significant pressures on stocks despite the recent and impressive price momentum: 

I am unequivocal - as written last Tuesday I remain manifestly bearish on both stocks (value, growth and meme), bonds, Bitcoin and NFTs:

* Stocks and bonds are richly priced. It makes no sense to say, as many do, that equities are inexpensive against an overpriced asset class (fixed income). Most traditional metrics indicate that stocks are at least in the 95th percentile - a non trivial amount of indicators of valuation are in the 99th percentile.

* Cryptocurrencies are vulnerable. As I have written:

"The problem with fiat currencies, like the U.S. dollar, is that monetary authorities can create an unlimited amount of new dollars or other currencies - making it look, to some, like a Ponzi scheme.

The problem with cryptocurrencies, like Bitcoin and Ethereum, is that anyone can make an unlimited number of new cryptocurrencies- making it, too, look to some like a Ponzi scheme. Ponzi schemes and scams ae only visible to those that have no sense of history or want to believe in magic.

I believe cryptocurrency is like Tinkerbell's light - its power source is based solidly on enough children believing in it."

* NFTs - neither an art form nor a platform - exemplify the absurdity generated, in part, by liquidity and fairy dust (adopted by lemmings running towards the cliff).

* The popular and "cool guys," value stocks, are now extended. That (arguably) includes banks, industrials and "opening" stocks.

* The outlook for growth stocks will depend, importantly, on the future level of inflation and on what level GDP will be sustainable after the initial burst of growth. That debate's results will largely depend on whether the trajectory of the current abnormal GDP growth can moderate to a healthy pace in late 2021/2022 - or will the enormous levels of debt (and its rising servicing load) work (and weigh) as a governer to aggregate growth. (Here is a good synopsis of the debate, excerpted from John Mauldin's Thoughts From The Frontline)

* The return of Meme stocks ( (BYND) , (GME) , (AMC) ) will likely be short-lived. (I added Beyond Meat and AMC to my Best Ideas short list late last week -- On Friday, GameStop's shares fell by -$46/share and AMC's shares declined by -$13/share from their intraday highs.) I will go one step further, it is my view, that those who are endorsing some of these worthless gewgaws will be made to look foolish and undisciplined in the fullness of time.

Here is the tape of my Bloomberg interview from last Wednesday

Here is a summary of my thoughts that I prepared for that interview.

But first, are you experienced?

Bottom Line

As for me, though not yet net short in exposure, I remain bearish - with the forward 12-month P/E ratio for the S&P Index at 21.1x, well above the 5-year average (18.0x) and the 10-year average (16.1x).

And I give Sam's Pizzain East Hampton, New York - one bite, everyone knows the rules - a "9.4." 

I hope to see you there (hi Graham and Marta) this summer!!

From Charlie Bilello, here.