"Just one more thing."

- Lt Columbo

There was a lot of optimism about Micron's (MU) earnings and the early $5 advance in the share price.

Crickets from bulls after the $7.50 drop from the highs (on massive volume) -- ending down on the day after the gap opening:

That's another day on Wall Street -- where winners are regaled and losers swept under the rug.

A late-day-kick save kept the market from losing what it rose yesterday. I wasn't too surprised by the late rally, considering the calendar. I am offering some more (SPY) at $359.25 in the aftermarket.

Thanks for reading my Diary and enjoy the evening.

Be safe.

I just covered my small trading short rentals in (MSFT) $312.74, (NVDA) $275.68, (SNOW) $230.20 and (AAPL) $176.93.

Flip flop, flip flop.

Here is today's market breadth, biggest movers and heat map.

Market Breadth

View Chart »View in New Window »

Biggest Movers

View Chart »View in New Window »

Heat Map

View Chart »View in New Window »

Wolf Street is sooo good.

Back shorting some May (SPY) $435 puts at $5.80.

In other words, strangle back on (also short SPY $434 calls).

If you believe that Home Depot (HD) is a proxy for the U.S. economy, and if you also believe that Home Depot's share price is a reflection of the company's fundamentals -

Look at the HD chart and you should be concerned about domestic economic growth.

Cannabis company Trulieve (TCNNF) had on the face of it monster sales print - but adjusted for the Harvest acquisition organic revenues fell (small) sequentially. 

This is consistent with the fundamental weakness reported by its competitors. 

As I have said repeatedly, the near term price action of cannabis stocks will be driven by legislative news. 

Unfortunately the odds of SAFE being enacted this year is declining - I would attach only about a 33% probability. 

I am in for the long term in this space and have no unrealistic expectations over the near term.

The Fed's Esther George, a hawk and FOMC voter: "It's appropriate to expeditiously raise rates to neutral."

* Balance sheet size needs to decline significantly

* If inflation is still high at neutral funds rate, more hikes will be needed

* Favors a steady and deliberate approach on rate path

* Soft landing for the economy is possible but not assured

* More restrictive policy may be needed to cool prices

* There is considerable uncertainty surrounding economic and policy outlook

Adding to (SLV) at $23.05 now.

From Professor Galloway:




Inflation is widening America's wealth gap

· Prices have risen across the nation, and so have wages across all income levels.

· The lowest-earning households gained an average of $500 in earnings last year. But their expenses grew by almost $2,000.

· Meanwhile, the upper half of earners pulled further ahead as their incomes outgrew expenses significantly.

* Restoration Hardware, that is...

In case you missed the earnings call from RH (RH) last night, some of the comments from CEO Gary Friedman were very noteworthy. 

I'll let his words speak for themselves. 

In the prepared remarks: 

"While we enter 2022 with confidence that our efforts will continue to elevate and expand the RH plan for years to come, we also recognize there are several internal/external factors such as record inflation, rising interest rates, and global unrest that create uncertainty...While first quarter sales and margin trends remain healthy due to the ongoing relief of our backlog, we have experienced softening demand in the first quarter that coincided with Russia's invasion of Ukraine in late February and the market volatility that followed." (In response the company moderated earnings expectations for 2022). 

In the Q&A: 

Expanding on the guidance, "And I think you've got to kind of also consider the fact that you've got - it's clear now to everyone that inflation isn't going back to 2% even though Janet Yellen, not too many weeks ago, when it was 4-5%, said it was going to 2%. And two weeks later, it went to 7.5%, and now it's 7.9%. And we've got Jerome Powell saying that they waited too long. And now we're going to have two years of interest rate increases - rising interest rates. So, you've got a lot of news and a lot of noise out there, compounded by a war and invasion.

And I think the invasion of Ukraine by Russia just became a reckoning point, if you will, where people had to stop and pay attention to everything. And we saw our business slow about 10 to 12 points, and it's been relatively consistent during that period. When it returns to normal? Not sure. How aggressive is the Fed going to be? Not sure. There are things we know, and I don't mean to be a pessimist, but history would tell us four to five times the Fed raises interest rates over a sustained period, we have a recession. And I don't need to tell you guys that math. It's just a fact. So look, we tend to - as I like to say, pray for peace and plan for war."

On supply chains, the question was this, "whether the current supply chain environment has or is anticipated to impact these (product) launches in any way?"

Gary said: 

"What do you think? Of course it's impacting the launches. I mean everything is somewhat late and a little fragmented as it's coming together...But when you think about countries like China, Vietnam, or some of the places that we have big sourcing out of - yes, it just all got kind of cooped up. So we - I think we're about a couple of months behind...we thought we might launch with 450 or 500 pages in contemporary. I think it's going to be probably more like 300 to 350 pages, just stuff is late. My sense is it might even be later. I mean the supply chain; I think many of us thought it would have been caught up by now. I mean, we'll be lucky to be caught up by the end of the year.

And because it's just hitting everybody from all angles, all the raw materials all the transportation issues, not just the transportation getting it to us. Our vendors having to get all of their component from all over the world shipped to them...we're in a world that is - it's just - I've never seen it so chaotic, honestly, from an execution point of view, whether it's construction, sourcing, manufacturing, shifting the supply chains, freight."

On housing and more on Janet Yellen and the Fed: 

"You've got housing prices at all time highs. I mean, is it sustainable? I don't know for how long the math. Doesn't makes sense on kind of what's happening in the housing sector and other places that you've got inflation like I've never seen. Now I was telling people when Yellen said, we're going back to 2%, we were just signing our new freight contracts, ocean freight contracts. I just wonder if anybody at the Fed has picked up the phone and called a business person and said, hey, what do you think is happening with inflation? How's ocean rates? How is this? How is that?

I mean, I think, I don't' think anybody really understands what's coming from an inflation point of view because either businesses are going to make a lot less money, or they're going to raise their prices. And I don't think anybody really understands how high prices are going to go everywhere, in restaurants, in cars and everything. It's - and I think it's going to outrun the consumer. And I think we're going to be in some tricky space."

And Gary's approach: 

"So everything is kind of happening at once. And I think you got to prepare for war. I mean, if you're going into a very difficult, unpredictable time, you just got to be super flexible. You've got to be able to improvise, adapt, overcome and kind of be ready for anything."

View Chart »View in New Window »

At least Germany is hearing footsteps...

I still have small trading short rentals in (MSFT) , (SNOW) , (AAPL) and (NVDA) .

The Little Chief put together the chart below of the two year US note yield vs. the three month US note yield.

"It sure looks like you generally want to be flat stocks when it's this high. BUT if we have started a bear market - run for the hills (see spring, 2002)":

View Chart »View in New Window »

I added to my Tesla (TSLA) short this morning.

Buying more iShares Silver Trust (SLV) at $23.01.

With (SPY) trading up to $440.60, I am reshorting some deep in the money SPY calls now.

Starting small.

Thomas C

"Based upon our bottoms up analysis, quarterly rebalancing will see a move out of stocks and into bonds..."

- J.P. Morgan / Dubravko Lakos / Global Head of Equity Macro Research

"Buy the banks."

Mike Mayo / Wells Fargo

- CNBC

dougie kass Thomas C

I totally disagree
1. global economic weakness, eu recession, US sub 1% growth
2. lapping best credit conditions a year ago, compares difficult
3. capital market activity, compares difficult
4. technology expenses to compete have been underestimated
5. loan growth will weaken
6. overowned group
7. estimates too high
dougie

I shorted Tesla (TSLA) for the first time in quite a while yesterday:

* Oh, Danny, this isn't the fall of 2007, is this the fall of 2007?

* My laundry list of concerns...

"Oh, Danny, this isn't Russia, is this Russia?"

- Ty Webb, Caddy Shack

As the market continues its two week rip higher the fundamental backdrop is not improving - in fact, it is eroding. 

The divergence between inflated stock prices and economic reality - higher and sustained inflation, slowing growth = "slugflation" - has arguably created the most unattractive market reward vs. risk in a long while. 

Over history, markets often ignore reality - it did in early 2000, in late 2007 and in late 2019. 

Here is a laundry list of my concerns and the market's challenges: 

* In his recent remarks, Fed Chairman Powell stated that it would take at least three years to get inflation back on track (2% or lower). I didn't hear any commentators, especially those of a bullish-kind, mention this important fact. In saying this, Powell has acknowledged that it should have reduced the Fed's balance sheet and should have raised interest rates sooner.

* As a result of this comment and recent inflation readings, here and over there in Europe this morning, I expect a front-loaded 50 basis point increase starting at the May meeting. If energy and food prices continue to rise, a 75 basis point hike at one meeting is possible.

* A more hawkish Federal Reserve particularly done into a period of moderating economic growth is a toxic cocktail for stock valuations.

* Though this sort of developing rate rise trend is alarming enough, the loss of liquidity in the deleveraging of the Fed's balance sheet might be more meaningful - and deleterious - to the equity markets.

* Meanwhile, the global economy, even before the rate hikes, is deteriorating far faster than the consensus expects.

* "Slugflation" lies ahead.

* "Peak housing" - as mortgage rates lift to over 5% and home prices are literally through the roof - is upon us. Pending home sales are turning down and refinancings will shortly evaporate.

* Inflated auto prices will adversely impact the car business. And so will the high prices of nearly everything else - from Starbucks (SBUX) coffee to refrigerators.

* Bullish auto observers are unfocused on neon shortages - and broad parts shortages will plague the auto business into next year.

* Not only with inflation be persistent, economic growth lower, but supply chain dislocations/disruptions will not be fleeting.

* The Ukraine/Russia war will exacerbate both inflation and supply chain problems - that fallout will be longer lasting than most expect.

* I expect consumer confidence to suffer in the months ahead and for those that say the consumer is fine - they should look at the data and dwindling savings rate.

* Food shortages and rising food prices - given the lower production of corn and wheat and the rapidly rising expense of fertilizer and gas - are on tap over the next six months.

* The potential exists for a global food crisis in 2023 and, with it, social uprisings.

* Globalization, the practice and ideology, is dead and, with this and other factors, U.S. corporate profit margins have peaked.

* And so is global cooperation dead with geopolitical risks residing on three separate continents.

* European inflation is at the worst levels in 75 years - and the ECB will have no choice but to raise rates faster than the consensus expects.

* Europe will be in a recession in the second half of this year.

* China's economy - the driver of worldwide economic growth - is foundering.

* We still remain terribly vulnerable to sourcing of critical products and materials in China. An economic war between the U.S. and China is not out of the question - as China could interrupt that product flow in at any point in time.

* Real U.S. GDP will be under 1% over the next six months and the odds of a 2023 recession are mounting quickly.

* The widening gap of political partisanship in the U.S. will result in a failure of important legislation at a time of political, social and economic headwinds and upheaval. 

As a result of these factors/observations/analysis/opinions, I am of the view that we are in a Bear Market rally.

* Austria's 100 year bond is -55% in the last 18 months!

Duration bites and Apple's (AAPL) presence: 

Thanks to my friend Luke Groman for pointing this out last week in his newsletter and take a look at the Austrian government 100 year bond issued a few years ago that matures on June 30th, 2120. Duration bites right now and there is no better example than this bond which is down 55% from its peak in December 2020. This is not a meme stock and not a high flying tech stock but a sovereign bond with an AA+ credit rating. The problem is the duration is so long and thanks to the enticement of the ECB at the time, the coupon is just .85%. Now if you're going to live another 98 years or pass it on to your kids or grandkids or to the descendants of your investors, you'll be fine because they can hold it to maturity and eventually get their principal back. But if you're going to mark to market or you need the money now, sorry.

Austrian 100 yr bond price

This is an interesting stat I found on Twitter from Charlie Bilello who pointed out yesterday that "Apple's 7.1% weight in the S&P 500 today is the largest weighting we've seen for any individual company going back to 1980." The still heavy reliance on so few.

I'll see the II investor sentiment data later but after touching 13 a few Monday's ago, the CNN Fear/Greed closed at 54 yesterday which is considered Neutral.

We're all of course watching the yield curve and trying to discern the message but I want to repeat again, this is what always happens when the Fed tightens monetary policy as the 'soft landing' scenario is a rare occasion and the more debt that low rates have encouraged over the years and the high sensitivity our economy now has to changes in the cost of capital, it only reduces the odds of it happening again. Philly president Harker on CNBC yesterday did throw out a new line that the Fed is trying to achieve and that is a 'Safe Landing.' Trying to explain what that is he said the landing will be bumpy but they don't want too much of an economic slowdown. We certainly all want that but we'll see.

To my point that this is always what happens upon a change in Fed policy, the yield curve flattening really started in earnest on June 16th 2021, the date that Jay Powell told us that they are finally thinking about tapering its asset purchases (and thus taking out one of the 'thinking' terms used previously). The red arrow below is pointing to that day. The top in steepening was in mid March 2021, a few days after Powell said they are thinking about thinking about...

The now 4.80% average 30 yr mortgage rate led to another double digit decline in the pace of refi's as the MBA said they declined by 14.9% w/o/w after falling by 14.4% last week. They are lower by 60% y/o/y. Purchases again though held in as they were up .6% w/o/w as fence sitters get off the fence. They are still down 10.1% y/o/y and after there are no more fence sitters, expect the pace of home purchases to slow as the affordability squeeze gets more pronounced. What buyers are also doing is shifting to ARM's and their lower rates as ARMS as a % of total number of loans did tick up to 6.6% from 6.4% last week and vs 5.6% in the week prior.

Refi's

Ahead of the expected March CPI print at 8am est from Germany which is supposed to be up 6.8% y/o/y, Spain said its CPI was up 9.8% y/o/y in March, well more than the estimate of up 8.4%. Thanks to the spike in energy prices, the cost of living was higher by 3.9% in March alone. Christine Lagarde still is conducting QE and has negative rates and talked many times over the past year about transitory. In response, European bonds are selling off across the board with the Spanish 10 yr yield in particular up by 6 bps to 1.55%, the highest since November 2018. The global bond bubble continues to leak air.

Spanish CPI y/o/y

Also out of Europe was the March Economic Confidence index which fell to 108.5 from 113.9 but about as expected and certainly not surprising. Consumer confidence plunged to -18.7 from -8.8 and retail and manufacturing also softened. Thanks to the 'let's live with it' approach to Covid did help the services component which rose 1.5 pts m/o/m while construction was little changed. The euro is lifting and the dollar is weaker across the board.

Lastly, thanks to the BoJ buying for a 2nd day, the 10 yr JGB yield and longer term yields backed off and the yen is rallying after Kuroda met with the new PMI Kishida to try to talk down the connection between QE and the yen, however insincere that is.

Crouching Tiger, Hidden Problems by Doomberg.

Interesting post from Bramo:

As you all know I am not much of a technical analysis guy, though I respect those that can thrive using technicals as a primary trading factor, as my signposts are fundamentally based. 

Tactically I make my investment decisions by speaking to corporate managements and by developing a variant view - relative to consensus - of a company's and a sector's intermediate term prospects. 

I focus on developing intrinsic value calculations - which lead me to an upside reward vs. downside risk calculus. In a perfect world (we do not live in one!) the process leads me to the concept of "margin of safety." 

But, like my pal Jim "El Capitan" Cramer, I also pay some attention from a trading standpoint to the S&P Oscillator. 

On March 14th the Oscillator was -5.23% -- way oversold. 

At the close on Tuesday, the Oscillator was 6.69% -- way overbought. 

Res ipsa loquitor.

Volume on the exchanges is an important market factor to me.

It continues to decline on "up" days - and, to some degree, seems to being replaced by large volume in speculative weekly calls:

One can only hope (!):

* The market (and money) never sleeps

"Workin' on our night moves
Trying to lose the awkward teenage blues
Workin' on our night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."

- Bob Seger, "Night Moves"

I described the importance that overnight futures trading holds for me in this column a few weeks ago. It is a guidepost to my strategy in the regular trading session.

Moreover, the overnight/early morning futures hold opportunities as they are (1) inefficient, though liquid, and (2) it seems fear and greed is often exaggerated outside the regular trading session.

It was a relatively quiet evening/early morning for futures. Gold was +$8 and Brent crude was +$2 to about $112.50 a barrel.

Bond yields are unchanged.

S&P futures peaked at +3 and bottomed at -21. At 5:50 am ET they were at -13.

Nasdaq futures topped out at +27 and dropped as low as -89. At 5:51 am ET they were at -60.

In terms of my trading in the indexes, Tuesday I took off my strangle (I covered my short (SPY) calls and puts) and covered some trading short rentals - as a risk management exercise/move - live to play another day! While the position turned out to be directionally incorrect, the big drop in the VIX, from near 30 to under 20, resulted in a lesser loss than if I flat out shorted SPY.

Speaking of being short SPY, I added at $460.17 a few minutes ago.

I am looking for a large month end reallocation trade out of stocks and into bonds tomorrow. I have been wrong on the direction of the market and the magnitude of the two week rally and I may very well be wrong with this expectation!

As I said, money never sleeps!