Thanks for reading.

Enjoy the weekend.

Be safe.

Here is an interesting five minute interview with Judy Shelton.   

She seems to touch on a lot of the key points. Of course, since she is not simpatico with what is going on, she is not officially part of the system. That is how it works now, and a big part of the groupthink problem. 

One area where I disagree with her, towards the end she talks about the Fed's purchases of Treasuries turning into excess reserves that are ring-fenced at banks, and do not enter the economy.   

I disagree as I believe those dollars enter the economy two ways: 

* Via the fiscal side of the house which is spending the money in various ways in unprecedented fashion including paying people to not work, which the Fed is financing, and perversely uses that logic to remain a one mandate Fed while they reinvent the other part of their mandate about price stability which Shelton correctly identifies as oxymoronic. 

* Via asset prices. Whether by some direct mechanism that is not well understood, or just via the power of moral suasion, or by keeping rates down in our fake Treasury market, the money printing drives asset prices up.   

It is all a distinction without difference.   

It does it. 

I will be out for a lengthy business lunch today.

The May headline PCE inflation deflator rose +0.4% in month over month and by +0.5% at the core after gains of +0.6% and +0.7% in the month prior for each. Both though were one tenth less than expected but forecasts were raised after the CPI print a few weeks ago which exceeded the estimate. The year over year rates were as expected due to rounding with a headline gain of +3.9% and core increase of +3.4%. Yes, easy comps, but that is about to end. The goods side drove the price gains but services inflation is quickly catching up, particularly for rents. 

As stated, expectations rose when CPI was well above estimates seen a few weeks ago so the PCE is within that context. Core PCE in the past three months, month over month, is running at an annualized rate of +6.3% and I believe with wage gains now picking up steam as said by just about every single business I hear from, price pass-throughs are really only beginning.  

Spending, when including the April revision, was as expected with income slightly better and a smaller than expected drop. The savings rate moderated for a second month after the March spending bill induced spiked to 2.4%, the lowest since the pre COVID level of 8.3% and compares with the 20 year average of 6.9%. 

With respect to income, the most important component is wages/salaries for private industries and they rose .8% m/o/m after two straight months of +1.1% month over month gains and is up by almost +16% year over year. On spending, expect inflation to make up a growing portion of the nominal increases which it has already begun to do. Also, we saw a shift to spending on services from goods but that is in part because for some goods it now takes two months to get. 

There wasn't much of a response in yields as they are down a hair just below 1.49% vs 1.49% right before and inflation breakevens are right where they were prior to the print. The dollar is near the low of the day. I'll repeat my belief that the sharp rise in rates this year has reflected these currently hot inflation stats and the next driver will be in the months to come when they remain hot. As a reminder, the 5 year yield has gone from 0.35% to 0.90% today, the equivalent of about two rate hikes. The 10 year yield is up 60 bps. 

Here is a 20 year chart on Core PCE (month over month): 

* At $349.70 

The many Group Stinkers that worship at the altar of price momentum (read: Fin TV, money managers, scribes, commentators, etc.) universally liked Amazon (AMZN) and its price action up to this week. 

We witnessed the adulation incessantly in business media platforms as Amazon's shares continued to move from the lower left to the upper right. 

This recalls Divine Ms M's wonderful pinned tweet: 

"There is nothing like price to change sentiment."

While I am quite optimistic about Amazon over the next several years, I cautioned on AMZN on Wednesday - citing three potentially significant headwinds over the near term. 

Today league leading Amazon is down another - $45/share after being down by about -$60/share on Thursday. 

This, and the developing/narrowing breadth characteristics, have moved me to finally take a short term rental shorting the Nasdaq.

* Don't buy headlines (its rear view mirror)

* Rather, consider reward vs. risk - especially in light of the extended ramp up into CCAR results

I am not sure if anyone was as rabid a rabid champion of bank stocks over the last 15 months than I have been. 

However, with a more than doubling in share prices most bank stocks now seem fully valued. (Note: 2Q EPS reports could be in line to disappoint owing to reduced capital market activity and lower net interest income.)

I wanted to repeat, for emphasis, a late yesterday tweet I delivered warning about chasing the large money center banks in the aftermarket on Thursday: 

Jun 24, 2021 ' 05:50 PM EDT DOUG KASS

My Tweet of the Day (Part Deux)

"Just one more thing."

- Lt Columbo

Dougie Kass @DougKass

now

If you have watched as the bank stocks double and you woke up from your sleep and just bought the banks (after the close) based on the Stress Test results -- you are in the wrong business. @realmoney@WilfredFrost@SaraEisen@RiskReversal@SquawkCNBC@jimcramer@tomkeene

Dennis Gartman has given up (and has reversed) on his bearish market view: 

"Finally as for equities, the good times continue to roll on and fighting an expansionary Fed is a mug's game of detrimental consequences. Every time I err bearishly, I err; every time I err bullishly, I benefit. This is all late stage madness but the trend is up and there is nothing other to do but to remember that the stock markets in Zimbabwe and Venezuela soared as the monetary authorities there were even more expansionary than the Fed. It's come to this..."

Rolf Thrane

Charts from the tweets above are interesting. What I don't understand is how anyone can be an investor in this environment. What is the probability that this market will not see a very substantial down draft at some point when:
- the Fed tapers off buying
- Inflation numbers keep coming in on the high side and they have to raise fed funds
- Taxes - Corporate taxes and capital gains taxes and many many other problems

What stock will not get slammed eventually? So it is a day to day trading game. The Keynesian musical chairs. What do you tell investors? Go long Google, Amazon, and Apple - because they are immune to what might be a very significant downdraft - In a market at these all time mega highs, driven by insane monetary policy ? This is a sh*&^%t market. I am not going long any stocks to hold. I will just be pissing away money.

dougie kass Rolf Thrane

non consensus

Rolf Thrane dougie kass

everyone I am talking to thinks the market is insane. And so do you. I may have a non-consensus circle of pals, but I think there are a lot of Closet Bears out there.

dougie kass Rolf Thrane

1. Not a soul I know, save Perma Bears, believe a large drawdown in stocks is possible. None, nada, zero.
   2. Most everyone I speak to are "dancing while the music is playing" - as Lee Cooperman described, fully invested bears..
   3. No one sees meaningful risk to bonds - as Fed has the markets back. The bond vigilantes are still in hibernation.
   4, The changing market structure has exaggerated the market advance, significiantly so. A loss in momentum could reverse this.
   5. Watch what people do and not what they say.

I believe, in contrast to consensus (and more in line with you), that the reward v risk is as bad or worse than at any time in recent years.

But I am not yet short. Yet is the operative word.

Dougie

* I have unfinished business

Next Thursday, July 1, with great anticipation and excitement I will be launching Seabreeze Capital Partners LP. Here is an explanation of my journey!

This column is not about my objectives for my new hedge fund of generating superior investment and trading returns, adjusted for risk, for my 50+ Limited Partners. 

Rather, this is about what you should expect and how the delivery, context and quantity of my Diary's content might change - especially from what you have been reading over the last 7-8 years. 

Most importantly I will most likely always have a much larger book of trades and investments, long and short, in my Partnership's portfolio compared to recent years when I was managing separate accounts. This means I will have a lot more actionable ideas in my Diary than in the past. 

I will be spending much more time talking to company managements, conducting financial analysis and working with a team of my own in-house analysts at Seabreeze. In addition, I will be trading far more aggressively and actively. So much so that I might try to figure out having our editors establish some sort of discipline/approach to following my activity - that is subscriber friendly and indicates more directly the success or failure of those ideas. 

I have not determined yet but this sort of heightened responsibility and activity might result in eliminating the size - small, medium, large - of my positions in the disclosure section, as it might be too cumbersome given my increased trading/investment activity and other responsibilities. I may also decide, over time, to reduce somewhat the number of columns I write. There are some days I deliver in excess of 30 columns, which is far beyond the commitment that I accepted 24 years ago of about six columns per day. 

Ideally, I would like to start participating in daily or biweekly videos - its a great and efficient way of communicating. The RealMoney Pro team is working on this project now. 

One request from all of you. I would really appreciate it as we go through this together, that, especially during the early period of Seabreeze's startup, subscribers can offer some solid recommendations how I can provide a better and more value-added Diary. I promise to take your recommendations seriously. 

Please wish me luck in this venture and, as always, and sincerely, thanks for supporting my Diary platform since 1997.

I mentioned yesterday the two paths being taken by central banks with emerging market central banks (and some developed ones) trying to normalize and skating to where the puck is going and the largest developed central banks that haven't even showed up to the arena. The Bank of Mexico yesterday surprised markets with a 25 bps rate increase to 4.25% and interestingly said this: " Although the shocks that have affected inflation are expected to be of a transitory nature, given their variety, magnitude, and the extended time frame in which they have been affecting inflation, they may pose a risk to the price formation process." I don't believe the BoM even bothered with QE so no need to taper anything. The Mexican peso rallied yesterday by 1.7% and is up again today for the 5th straight day vs the US dollar and at a 2 week high. The Mexican 10 yr yield jumped by 11 bps yesterday and is closing the week higher by 25 bps at 7.05%. Yes, 7.05%. Emerging markets are the only place you can get risk adjusted yield but FX risk is still there. I'm long EM, local currency bonds.

Mexico follows the central banks in Brazil, the Czech Republic, Hungary, and Russia in the last few weeks along with the groundwork laid in Norway and South Korea for rate hikes. "Yes, there are two paths you can go by, but in the long run there's still time to change the road you're on" once sang Robert Plant.

The stock market got excited by the infrastructure bill likely passage while the bond market yawned. I believe it was a yawn because it is $570b of new money spread out over 5 yrs and thus is peanuts and it's just predominantly going to filling in potholes, and repair and maintenance to airports and bridge. And good luck finding workers and getting planning and permitting done in a quick period of time. As we saw in 2009, there is no such thing as shovel ready. I do want to emphasize though that we need these improvements along with broadband in rural areas and power grid additions and those businesses in providing picks and shovels will benefit but there are no Hoover Dams or Tennessee Valley Authorities being built here.

In the city of Tokyo in June, headline CPI was flat y/o/y but the estimate was for down 3 tenths. Ex food and energy prices were also unchanged vs the forecast of down .1%. Government induced lower cell phone charges are a main factor and alone cut 4 tenths from the CPI print. They fell 28% y/o/y. Also, the fits and starts reopening is an influence too. Japan has experienced much more intense wholesale price pressure like the rest of us. There was no market in response in JGB's while the yen is down a touch and the Nikkei rallied by 2/3 of a percent. I remain bullish on Japanese stocks.

Consumer confidence in German jumped to -.3 from -6.9 and that was better than the estimate of -4.0. After what has gone on over the past year plus, there is of course a lot to look forward to but still a ways to go with respect to confidence regaining its pre COVID level as seen in the chart.

The UK CBI retail sales index for June rose 7 pts m/o/m to 25 and that was well better than the expected drop to 11. CBI said "After a generally gloomy 2021 so far, the sun finally shone for retailers in June, with seasonal sales volumes the strongest since November 2016. This was the latest sign that the success of the vaccination program is feeing through to stronger consumer confidence which, along with the re-opening of hospitality, is encouraging shoppers back onto the streets." Nothing is perfect though as "The return of demand is patchy, with inner city footfall still well down. The outlook is also clouded somewhat by supply pressures, with stocks seen as too low compared with expected sales, as logistical and capacity challenges continue to hamper global activity." I like UK energy, bank, REIT and supermarket stocks.

I mentioned yesterday the continued gains in business confidence in Germany and France. Today economic sentiment in Italy rose to 112.8 from 107.3 and that's the best since 2007. Some of this is clear economic bright spots but I'm sure some is confidence in Mario Draghi and the slew of money that is coming their way from the 750b euro loan/grant program.

I am accustomed to touts on Fin TV, Twitter and on reddit.

But cheerleading from the corporate suite is a new one and it is almost always a red flag: