Growth over value.

S&P up a bit and Nasdaq nearly +1%, in large measure thanks to the FB antitrust decision.

Meanwhile market breadth is not too sporty -- 1200 advancers compared to 1950 decliners.

Jim "El Capitan" Cramer says the pin action is "mind blowing."

I think the pin action is somewhere between bad and strange.

So, what else is new?

On a developing divergence: 

badgolfer22

This Led to Declines Every Time in the Past 93 Years

Jason Goepfert

Published: 2021-06-28 at 07:35:00 CDT

There is some weird stuff happening under the surface of the market.

Early
last week, the percentage of S&P 500 members above their 50-day
moving averages had plunged, even while the majority were still above
their 200-day averages. That has tended to be a good sign.

But...

The
problem is what's happened in recent sessions. Despite a push to new
highs in the S&P toward the end of the week, the percentage of its
members above their averages barely budged. In terms of divergences,
this one is gonzo.

Going
back to the mid-1920's, there have only been a handful of dates with
breaks like this. It happened in 1929, 1959, 1963, 1972, 1998, and 1999,
and all of them ended up preceding losses in stocks.

Several more
days (or weeks) with this kind of behavior should trigger all kinds of
risk warnings, the types of things we've been watching for since
speculation reached its heights in February.

From my pal Rich:

* Is it time to expect the unexpected?

* Too much "group stink" and "first level thinking" has invaded the markets

* As an example, just look at the shares of General Motors (GM) and Delta Air Lines (DAL) - both have been the subject of near universal optimism in the financial media and elsewhere (read: they are rolling over)

* Does it makes sense to be uber confident in view after a near doubling in the averages over the last 16 months?

* Always consider upside reward vs. downside risk - especially when few others are!

"To expect the unexpected shows a thoroughly modern intellect."

- Oscar Wilde 

The pervasive and foul odor of "Group Stink" continues. 

Importantly it is being delivered with extreme confidence and lives in a fully invested state. 

Massive agreement can be unhealthy to your investment portfolio. 

Most average, plain vanilla institutional investors -- as well as many large hedge funds -- basically are optimistic on the markets, the opening of the global economies -- they materially resemble each other with essentially the same portfolio construct. 

That construct typically includes FAANG plus (MSFT) , accounting for about one third of their portfolios. Add in some quality growth like Home Depot (HD) , Federal Express (FDX) , Visa (V) , Goldman Sachs (GS) , General Motors, a couple of oils (as they have been performing well) and any of a number of "opening trades" (like Delta Air Lines, Hilton (HLT) , etc.). -- and most portfolios are fairly correlated with each other. 

The herd is increasingly crowded and outside-of-consensus animals are few and far between. 

There are no critters, save, literally the Perma Bears who are fearful of a large market drawdown. Nor are many of the Bulls concerned that the S&P Index has nearly doubled since March, 2020. A panelist on Fast Money Halftime just said (hyperbolically) that we should totally disregard the lows of 16 months ago. 

Beware of this optimism, hubris and similarly situated portfolio composition at this late stage of the markets. 

Overconfidence is the way to give your soul and your portfolio to the devil an inch at a time. 

Ms Market often bites confident consensus views and construct in their collective asses - like the Cossacks, I see her in the not so distant horizon. 

Probably sooner than later.

Delta Air Lines (DAL) is one of most widely popular "opening stocks."

The shares continue to roll over - down another -$1.80 (4%) today., trading to $42.60. The shares were added to my Best Ideas List (short) at $48.82 in April, 2021. 

Here is my short thesis: 

Apr 19, 2021 ' 02:48 PM EDT DOUG KASS

Did I Mention That the Price of Oil Has Risen From $27/Barrel in November to $63 Today?

* The airline industry looks like a good short setup

As I have been adding to my Delta Air Lines (DAL) short I wanted to reposte my short thesis:

Mar 16, 2021 ' 08:10 AM EDT DOUG KASS

Minding Mr. Market - A Quick (and Skeptical) Look at the Airline Industry

* The charts are moving from the lower left to the upper right

* As balance sheets grow more levered, energy prices rise and "earnings power" is reduced

We are at the stage of the markets that skepticism and doubt have left the building.

In simplest terms, we are at the polar opposite of 12 months ago, when fear permeated our markets.

Low interest rates and a series of effective vaccines have cleared the investment skies - and price momentum has been the short side's greatest enemy and the long buyer's closest friend.

Last night I over heard a conversation on airlines on Fast Money Halftime in which the merits of owning the sector were debated. Generally the panelists were upbeat, indifferent to the enormous amounts of debt loads added to the industry's collective (right hand side of the) balance sheets, a large swing to negative tangible equity, the uncertainties associated with the outlook for business travel and to the sharp climb in the price of energy products, the industry's greatest cost of goods sold.

It seems that the prevailing view is that, with the domestic and global (?) economies opening up and with operating costs reduced, the airline group is a must own - at least when the U.S. economic delta erupts to the upside.

In the last 12 months, Delta Air Lines' (DAL) net debt climbed from $8 billion to almost $21 billion (as total debt has risen from $17 billion to $36 billion). Delta's share price (at $50, up from $19) is now within about $10/share from pre Covid levels. Tangible book value has swung dramatically negative. These juicy headwinds were not fully discussed.

A Silly Season On Steroids?

During periods of investor optimism that we face today, our guard drops as rising stock prices become the guiding light and sole determinant in the decision making process for traders and investors. Security analysis and funnymentals are pushed to the side. And, the confidence expressed by the bullish cabal almost becomes deafening as does the criticism aimed at the doubters.

Color me skeptical, but not yet short, the airline industry.

But I plan to be.

"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 possible slowdown ahead for U.S. economic growth.

The Atlanta Fed has cut its U.S. economic growth estimate and the NY Fed just reduced its 3Q2021 growth projections.

"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."

Eigen Man TechNova

I'll take that. Also looks like VIAC has been crushing it on the short term ad market: https://digiday.com/marketi... It's paywalled but can see this:

"The $20 billion television upfront marketplace has wrapped up the negotiation phase, with the major broadcast network owners walking away with dramatically increased prices for their linear ad inventory, according to media buyers at several major agencies, most of whom spoke with Digiday on condition of anonymity.

Viacom/CBS, the last of the major TV players to finish negotiations, held out longer than its competitors and secured cost-per-thousand viewer (CPM) increases in the 22-25 percent range for its prime-time ad inventory over last year's rates, buyers told Digiday."

dougie kass Eigen Man

Eigen,

I wrote about the strength of the upfront market two weeks ago - it was my rationale for making VIAC FOX and DISCA my trades of the week:

Jun 14, 2021 ' 09:05 AM EDT DOUG KASS
Trade of the Week - Long Fox, ViacomCBS, and Discovery
* Linear TV network demand is surprisingly strong

* Scatter pricing is at all time highs

Contrary to general expectations, the post pandemic upfront TV market is robust with double digit ad growth.

This is unexpected and could result in an improving environment for both the profits and share prices of Fox (FOX) , ViacomCBS (VIAC) , and Discovery (DISCA).

Friday was a pretty good day for the bulls overall. The S&P, which had its worst week of the year in the prior week, managed to enjoy the moves up this week to give it its best week since early February. I guess that kind of negates what looked like a further downdraft that we were waiting on the seasonal pattern and, we may, in fact, hopefully beginning the anticipated move up into mid or possibly late July.

The star of the day was the Dow Jones, which benefitted greatly from the outstanding results of Nike. Nike's move was strong enough to add over 120 points to the Dow in its significant rally and, Nike's performance was so notable that it put a little bit of a rocket under the whole retail sector, although their model is changing as they move along. Nevertheless, it has some general retail overtones and, that put a bid under the entire retail sector.

As we noted on Friday, the action was solid across the board with the exception of a slight glitch in the high cap techs, which we think was the result of a mild bump in the ten-year that, however, benefitted the financials, which responded to the improving yield. The movement on the ten-year was not large but as I have been noting for weeks at a time, right now it is more of a thermometer than anything else and, traders look for changes in direction no matter how slight and, how close it is to certain significant spots like 102 on the thermometer or even 100. So, what we managed to gain was maybe 4 basis points, which in the old days, might have been seen as almost insignificant. But it did move up and, that as we say, helped the financials and gave a mild, very mild negative to the high cap techs.

The move in the ten-year, I think, was inspired in large part by a hotter than expected PCE, which added to the debate about recent inflationary pressures and, were they transitory or not but, overall, the bulls really had little or nothing to complain about.

Another factor in the market was the very large annual Russell rebalancing, which some traders felt may have had secondary or incidental influence on the not insignificant selloff in the Dow in the final 40 minutes of trading. Were they selling some of the Dow to give them cash to add on to some of the Russell stocks they needed to rebalance? I don't think we will ever fully get to know but that is certainly the way it did appear.

Another factor in the topic of conversation was something that may have influenced action in the ten-year was the discussion of the upcoming non-farm payrolls, which will be due Friday of this week. There was a lot of chatter on the tape with people speculating how strong they would be and, aside from the payrolls themselves, there was a great deal commentary that recent movements may, in fact, take the unemployment rate down and, people are looking at it coming in at 5.5%, which may get the Fed's attention. As you will recall, the Fed has gotten somewhat away from looking at inflation through things like PCE and,

concentrating rather heavily on items like the payroll numbers and other things around the employment picture. Many traders think that is a mistake because some of the changes in employment may be structural around things like retirement and/or sudden gaps in the skills required to meet certain jobs. But that is a story of another day.

All in all, a day for the bulls as we said and, we will look very carefully as this week progresses to see if we are now moving into that seasonal rally into the middle or third week of July.

We promised to review what we thought was the somewhat confusing picture of inflation, particularly in commodities and, the fact that the People's Bank of China had been tightening up their reserves and money supply in the face of what looked like a new resurgence of COVID. One would think, if you were going to see another outbreak of the disease and the presumed lockdowns that would go along with it, should leave the central bank loosening.

That logically should induce a central bank to keep rates reasonably loose and, keep the economy moving and, even growing so it can help over the bump with the lockdowns that would come.

One of the reasons they may have been nervous comes from some pretty interesting sources, including the famous Kyle Bass who has noted that agricultural inflation in China has been moving quite smartly higher. Those of us who follow such matters less closely tend to forget it easily but food prices in China are absolutely important. Every government that has been overthrown in the past two thousand years (some claim as long as five thousand years) has been overthrown because of inflation and shortages in food and food prices. We all forget, despite what we recall from the pictures from the Tiananmen Square protests had, in fact, happened in large part because of food prices.

Interestingly, our friend, Peter Boockvar passed along some recent write-ups on things like corn and other items in China, which are beginning to see prices go down and, if Chinese agricultural and food prices do begin to pullback, as have things like copper, iron and, even lumber that could be important not just for the Chinese economy but for inflation worldwide.

We will try to pick a good source for that data and, keep you up but we did promise to explain what apparently was causing that seeming paradox with Chinese banks tightening up in the face of further COVID outbreaks.

Over the weekend, things are relatively calm. Most global equity markets are mixed to slightly softer amid some concerns that further COVID outbreaks may be occurring. Hong Kong canceled its morning session in the face of a torrential rainstorm. We hope they can make it through the afternoon session if the storm goes through.

The economic calendar in the U.S. is light to non-existent. There are four or five Fed speakers due so, we will see if any surprises pop up. The President of the New York Fed, I think, is among those due to speak. Since he affected equity markets recently, I am sure they will be watching his commentary.

So, the yield on the ten-year will be watched closely to see how much it moves either above or below the 1.50% level as the first of those thermometer points that we spoke of.

We are, as I say, leaning toward seasonal patterns showing slightly better times. Let's see if the bulls can follow and, add on to their progress. As we said previously, overnight, the U.S. equities look a bit indecisive this morning.

At any rate, remain alert and nimble and, please stay safe.

Arthur

As a holder of FedEx for clients and myself, I went thru the earnings call and here are some quotes with respect to labor costs, a key component to the question of 'transitory' or not and when more capacity will come on line in the context of skyrocketing transportation costs, which also gets to the 'transitory' question.

From COO Raj Subramaniam: "The inability to hire team members, particularly package handlers, has driven wage rates higher and creates inefficiency in our networks as we use overtime to cover open shifts and route volume around known constraints."

From CMO Brie Carere: "Global air cargo capacity remained down 10% y/o/y as of April, mainly due to the reduction in passenger belly capacity. We expect air cargo capacity to remain constrained through at least the 1st half of calendar year 2022. Recovery will be slow, potentially episodic, and a full recovery is not anticipated until 2024. We believe a favorable pricing internationally should continue through fiscal year 2022."

A chart of the Drewry Hong Kong to LA container rate per 40 ft box, is up 6x where it was pre COVID. This cost gets rolled into every single item that gets shipped. This is more than just a post COVID phenomenon where a lot of passenger planes that carry cargo were grounded. We've seen major consolidation in the global container shipping market over the past 3-4 years that gives the surviving operators pricing power.

There's a chart of the US Dry Van Market Demand index from Truckstop.com. While off its spike peak in February, it is up 5x from before COVID. Thanks to the tariff induced manufacturing recession that began in mid 2018, we saw a slew of truck company bankruptcies in 2019 where a lot of capacity came out of the market and was also a set up for the price jump.

To my point that monetary policy is impotent in that sense that it is actually hurting the most interest rate sensitive sector of the US economy, that being housing because it ran it too hot, Redfin said this on Friday: "The housing market continues to cool as mortgage rates tick up above 3% for the 1st time in 10 weeks. The Redfin Homebuyer Demand Index - a measure of requests for home tours and other home buying services from Redfin agents - has fallen below 2020 levels for the 1st time this year...As a result of declining sales, the active supply of homes for sale has crept up 5% from the 2021 low in mid March. However, home prices are still rising, homes are selling in fewer days than ever and more homes than ever are selling above list price. These indicators will take longer to reflect a slowdown since they are based on homes that went under contract a month or two ago."

Why is this? "Some homebuyers are pausing or abandoning their plans to buy because homes in their area have gotten too expensive" said the Redfin chief economist.

In every FOMC statement since the Fed began exploding the size of their balance sheet higher beginning again last year they've included this rationale, "These asset purchases help foster smooth market functioning..." Looking at these daily overnight repo numbers, it is clearly apparent now that QE has resulted in major market disfunction.

Hong Kong's trade data for May was about as expected with exports higher by 24% y/o/y and imports up by 26.5%. Exports to China rose 27% and to the US by 6%. A government spokesman said "Looking ahead, the further revival of demand from major economies should auger well for Hong Kong's export performance in the near term." We are typically very focused on the US and the pace of reopenings and so on, but many forget that the rest of the world is only now more broadly doing so, particularly in Asia. Asia was great in containing the spread but has lagged in rolling out the vaccine. The Hang Seng was little changed overnight.

It's not market moving but the only thing of note in Europe was the import price data for Germany which just further confirms the global nature of inflation right now. Import prices in May rose 1.7% m/o/m after a 1.4% m/o/m gain in April, 1.8% jump in March, a 1.7% m/o/m increase in February and 1.9% spike in January. These are m/o/m moves! Versus last year, they are up 11.8%. The 10 yr German inflation breakeven is up 2 bps today at 1.35%. It was 1.08% in middle of January 2020. 

(FOX) , (VIAC) and (DISCA) were my recent Trades of the Week. 

Apparently I was a week early!

* "Group Stink" stunk up the joint in the first half of the year

* The last half of the year likely holds some more surprises as the bull market in complacency could peak

* Look for the unexpected

As we move this week to the end of the quarter, and complete the first six months of the year, we were met with numerous surprises thus far this year in equities, bonds, gold, Bitcoin and in other asset classes:

* Despite supply bottle necks, the blow ups at Archegos and Melvin Capital and a sharp rise in inflation and in interest rates -- the equity rally continued apace in the first six months of 2021 with nary a downtick.

* The S&P and Nasdaq Indices made all-time highs.

* Volatility stayed depressed.

* Economic and profit growth beat consensus expectations as consumers were pent up and not spent up.

* Meme stocks exploded to the upside, fell dramatically and regained popularity in 2Q2021. Who would have thought that (GME) and (AMC) would be market leaders?

* SPACs fell by almost 60% in price in the first half of the year. Though a recent rally has buoyed the sector, most SPACs have been disappointing performers.

* Interest rates rose - and it looked like the 10 year US note and long bond yield would rip to the upside. Then, surprisingly, intermediate term and long term interest rates fell back down to earth - even though domestic and global economic growth was much better than projected.

* Despite a backdrop conducive to appreciation, gold and silver prices fell in the first quarter, managing only a modest gain in 2Q2021.

* Bitcoin and other digital currencies took the oxygen out of the precious metals room, advancing dramatically in the first few months of the year and then fell by over 50%. Collateral cryptocurrency equity plays were down dramatically from their highs. ( (MSTR) $1300 to $550, (GBTC) $58 to $27, etc.)

* The Fed remained steadfast in policy despite these pressures.

* The New York Yankees are second to last in the AL East.

Early next week I will review some of my 15 Surprises for 2021 - there were some very accurate ones and others that were wrong footed - but, in the main, I did fairly well.

Whither the Balance of the Year?

We all would love to have a crystal ball in predicting the course of the last half of this year - but mine, to be honest, is fairly cloudy and I have a relatively low conviction.

The only certainty I do have is that there will be more uncertainties and numerous more surprises:

* Market pressures might mount in the next six months.

* Stocks, which have decoupled from the real economy, could suffer a small double digit decline during the balance of 2021 - as we return to the "reality" of slowing and subpar growth, continued inflationary pressures and from the need to finance a growing debt load and deficit.

* It's likely a good bet that higher, perhaps much higher, volatility will be a cornerstone of the next six months. The VIX, currently at comfortably low levels, may move to and establish a new and elevated trading range.

* I expect domestic and non U.S. economic growth, as well as corporate profits, to miss relative to expectations. We may have already witnessed the peak rates of gains - by a large degree.

* Just when an increased amount of observers are thinking "transitory," inflation could be surprisingly stubborn - particularly if the rate of economic growth does not decelerate markedly.

* The multi-year expansion in stock valuations could come to a halt and the price earnings multiple of the S&P Index may contract - perhaps, measurably.

* The Fed could become more hawkish.

* Democrats and Republicans may grow more conciliatory, less partisan and ever more undisciplined fiscally.

* There could be more and growing signs that the U.S. is losing its reserve currency status and with the Treasury having to finance an increased level of spending - U.S. interest rates may spike.

* Old media is the subject of intense takeover activity (read: ViacomCBS (VIAC) ).

* I might make money shorting the Indices.

* The New York Yankees win the World Series.

Bottom Line

The last half of the year, like the first half of 2021, may be another period in which consensus falls flat.

Look for the unexpected.

George Noble

Noble Capital Advisors, CIO

MUST READ. BRILLIANT ANALYSIS. THE IMPLOSION OF TETHER WILL DESTROY BTC.

Rosh Gadol on Twitter