Thanks for reading my Diary today and all week.

I hope I provided some food for thought and analysis that helped you in your trading and investing.

Enjoy the weekend.

Be safe.

* I am shorting into the JHEQX roll ...

Regular readers of my diary know I sometimes post things that replicate the theme of the "Tell Me Something I Don't Know" segment that used to be on MSNBC's "Hardball With Chris Matthews." 

So... "Tell me something I don't know, Dougie."

OK, here goes:

The talk of the day - at hedge funds and institutional trading desks - is the JPMorgan (JHEQX) hedge fund roll.The roll is likely exerting a lot of upward pressure on the markets.

Here is a brief explanation. 

The roll might be responsible for some or a reasonably large part of today's ramp.

When it ends, stocks could mean regress. (Stay tuned!)

Not surprisingly FinTv and the business media has no clue nor has it ever been discussed.

But you heard it here.

Mike is correct - few are focused on the debt ceiling negotiations coming up: The Credit Strategist Blog

The Credit Strategist Blog

Michael Lewitt 
For the moment, nobody seems to be particularly worried about the upcoming debt ceiling negotiations. But this latest episode in the long-running series known as "How To Mismanage America" is shaping up to be a potential trainwreck. On one side, President Biden wants a clean debt ceiling hike with no conditions which is an unrealistic position based on his view that the Republican party is divided and will be blamed for a budget blow-up.
On the other side, the Republican majority in the House of Representatives is fragile, divided, and filled with more than a few members than can only charitably be described as nut cases unfit for office (the Democrats have their share as well). Not only are these kooks incapable of understanding the budget, but they are more interested in stirring up trouble on social media than governing (I would add the adjective "responsibly" but why even bother?).
Kevin McCarthy, whose speakership can be terminated at almost any moment by only a couple of his members, has to negotiate with Democrats and the Biden Administration while also herding this group of rabid and mangy alley cats into some semblance of unity, a job so painful that Donald Trump might not even wish it on Alvin Bragg.

At the very least, the best-case scenario seems likely to involve an eleventh-hour debt ceiling deal whose last-minute nature rattles markets and leaves underlying budget issues unresolved. Far less likely is a scenario where the debt ceiling is lifted comfortably before the Treasury starts freaking out about paying the bills.

And totally unlikely is a scenario where Democrats and Republicans come together to adopt a responsible plan to address out-of-control deficits that are slowly eroding the economic fabric of the country. None of this is positive for markets though it requires markets to pay attention to issues beyond the attention span of gerbils in order for them to matter. For the moment, this issue is not of that nature (and there are too many gerbils).

Right now, the parties aren't engaging in any public negotiations (they may be engaging in back door discussions but that doesn't seem to be the case). House Speaker Kevin McCarthy is pressing the president for a meeting to discuss Republican budget priorities (which he finally managed to assemble from the five factions in his majority), but the president wants Republicans to put forth a complete budget (like he did) before entering discussions.

Both the president's $6.9 budget as well as any budget Republicans would put forth are purely political documents with no chance of passage, but they create starting points for negotiations. I believe the law requires Congress to put forth a budget by early April but in today's world Congress routinely disregards the laws it expects everyone else to follow. And true to form, the House Budget Committee is saying it won't present a budget for months (i.e., after the government hits the debt ceiling this summer).

Instead, Republicans set forth several budget priorities to frame the negotiations. And this confirms the nature of the problem because these action items do little to address the fact that we are spending ourselves into insolvency. Republicans' priorities include the following: (1) returning non-defense spending to pre-pandemic levels; (2) clawing back unspent covid funds; (3) imposing modest work requirements on some entitlement programs; and (4 and 5) enacting policies to lower energy costs and enhance border security. While these items would be helpful, they are minor league stuff compared to what is needed to return to some semblance of budget discipline.

Among the notable proposals missing from the Republicans' list are the following: (1) means-testing Social Security and Medicare and raising the eligibility age for these bankrupt programs; (2) snuffing out the massive fraud in entitlement programs that are costing hundreds of billions of dollars annually; (3) eliminating duplicative government anti-poverty and social programs; (4) eliminating anti-poverty programs that only increase poverty by encouraging dependence on government rather than self-reliance; (5) eliminating duplicative education programs; (6) cutting massive waste in the military budget where more spending is needed on priorities and less on pork (which is appallingly extensive); (7) cutting wasteful spending on unproven green programs. There are many more similar items but this is a good starting point.

The federal budget requires a machete, not a scalpel, to chop out hundreds of billions of dollars of wasteful spending every year. The problem is that asking political parties to wield that machete is like asking them to commit Hari-Kari because the lifeblood of politics is legislators (recklessly) spending taxpayers' money.

The only way the budget can be reined in is by appointing an independent commission and giving it the power to implement real spending cuts based on objective criteria and removing politics from the spending process. As tough an ask as that is, anything less will not get the job done. Any presidential candidate worth his salt should support such a proposal and Americans should support it with open arms.

So while Republicans talk about budget discipline, they are just pretending. The only difference between them and Democrats is that Democrats don't even pretend to care about cutting spending.

While both parties engage in a kabuki dance about the budget, the debt ceiling has to be raised to enable the government to pay its bills. The last time the debt ceiling debate was pushed to the brink, America's credit rating was lowered. But even worse, this type of governance chaos plays into the hands of our enemies. China and Russia eat this stuff up and use it to appeal to other countries to further question America's commitments and strength.

Nobody really believes the U.S. government won't pay its bills because they know it can always print more money to do so. But these political shenanigans raise questions about the quality of American governance whose reputation is hardly in ascendance at home or abroad. Addressing the budget crisis responsibly presents an opportunity to restore that reputation if only our leaders would do so.

President Biden is counting on Republicans taking the blame if the debt ceiling talks blow up, but he is playing a dangerous game of chicken because today's Republican party is neither united nor rational. And Speaker McCarthy can't necessarily control his majority. The president would be wise to show leadership by exhibiting flexibility. If neither party negotiates constructively, there will be plenty of blame to go around. The sooner the parties start talking about this complicated issue that deserves months not days to resolve, the better the chances of avoiding an unnecessary disaster this summer.

At 12:45 pm:Great Breadth

View Chart »View in New Window »

Biggest Movers

View Chart »View in New Window »

Heat Map

View Chart »View in New Window »

I added to my (QQQ) short at $319.29.

Wolf Street on services inflation.

I am covering some more (RILY) and offering (BX) on the short side.

We are making some adjustments to our computer system between 1-2 pm this afternoon.

Radio silence.

The S&P Index is now within 20 handles of the high end of my expected trading range.

I am at my largest net short exposure since late January/early February.

Todd Campbell

The USD has been key to risk on and risk off as Dougie alludes to today in the diary. FWIW, here's the correlation of daily returns for some key tech and major market ETFs since '21:
View Chart »View in New Window »

Adding to (OXY) with the intention to be large sized - on any weakness.

For the second week in a row - the first short was successful - I am making (QQQ) short next week's "Trade of the Week." 

I want to use the end of quarter mark up as an opportunity to make a short entry now.

Adding to (NVDA) $275 and (AAPL) $162.76 shorts now.

I am expanding my net short exposure on this morning's ramp.

At 8:40 am:

View Chart »View in New Window »

Upside

- (INPX) +24% (earnings)
- (PEGY) +15% (earnings, guidance)
- (RUM) +14% (earnings, strength following former President Trump indictment)
- (DWAC) +11% (strength following former President Trump indictment)
- (YMAB) +11% (earnings, guidance; files to sell $150M mixed shelf)
- (IBIO) +8.6% (advances Anti-CCR8 Antibody Program to preclinical in vivo testing)
- (IMMP) +7.6% (announces positive final data in 2nd line metastatic NSCLC patients refractory to Anti-PD-(L)1 therapy at European Lung Cancer Congress 2023)
- (CYTK) +7.3% (COURAGE-ALS met criteria for futility at second interim analysis; to discontinue Phase 3 clinical trial of Reldesemtiv)
- (ARCE) +5.0% (earnings)
- (BRZE) +4.5% (earnings, guidance; to acquire Australian and New Zealand reseller Braze, terms not disclosed)
- (IONQ) +4.5% (earnings, guidance)
- (GRPN) +3.3% (names Dusan Senkypl as interim CEO; effective immediately)
- (VIPS) +2.0% (authorizes $500M share repurchase program)

Downside

- (VORB) -41% (reportedly laying off 90% of its workforce, ceasing operations for the foreseeable future)
- (CSSE) -30% (earnings; prices 4.7M shares at $2.30/shr in $10.8M offering)
- (CURI) -28% (earnings, guidance)
- (ASTR) -9.3% (earnings, guidance)
- (ENSC) -8.1% (earnings, guidance)
- (CKPT) -7.8% (announces $6.1M registered direct offering priced at-the-market under Nasdaq rules at $3.60/shr for 1.7M shares)
- (CYTK) -4.9% (earnings)
- (NKLA) -4.3% (prices ~89.3M share offering at $1.12/share)
- (GNRC) -3.4% (Tier1 firm Cuts GNRC to Underperform from Neutral, price target: $91 from $141)
- (BB) -2.0% (earnings)

Another great post from Danielle DiMartino Booth:



Not all canines are chihuahuas. This was the takeaway November 9, 2000, when Pets.com became the poster child of the dot.com mania, spectacularly filing for bankruptcy in one of the quickest journeys from IPO to insolvency in Corporate American history. "In the end," said CEO Julie Wainwright, we thought it was the best thing for our shareholders, who are our primary concern, since we're a public company. Obviously, that's sad."

Tragic it was indeed as today, the firm founded on its business model, is the success we know as Chewy.com. Pets.com went public that February, raising $82.5 million at $11 a share, and flamed out at $0.22 a share nine months later. Wiped out was Jeff Bezos' 54% stake in the startup. We can only venture a guess that the Amazon founder was dazzled by Pets.com's iconic sock balloon in the Macy's Day Thanksgiving Parade (which outlived the brand) to say nothing of its Super Bowl advertisements. The only thing that nearly outlived the firm's flameout was sell-side support for the stock. It was a fee thing, you know.

The dotcom era was also CNBC's Super Bowl. Reporters furiously paced the floor of the New York Stock Exchange every time another profitless company was set to splash out onto the Nasdaq Exchange. In the case of Pets.com, it topped out at $14 a share before embarking upon its quick descent.

That contrasts with today's hottest game in town. Since Silicon Valley Bank folded, the financial media's 'halftime report' arrives every Thursday and Friday afternoon after the stock market close with the releases of the Federal Reserve's H.4 and H.8 reports, respectively. If it's entertainment we seek, it's time to hold out for tomorrow's release of banks' holdings. Bloomberg's 'meh' take on yesterday's Fed balance sheet composition was summed up in its headline: "Fed's Emergency Loans to Banks Fall in Sign of Easing Turmoil." Now we await the verdict on what the deposit bleed into higher-yielding money market funds was. The bottom line: For now, the bank runs have been arrested.

Back in the real economy, it's increasingly apparent that the vestiges of the Employee Tax Credit are fading. Recall that at $25.4 billion, December marked the peak of the American taxpayer's payout to the well-to-do in the form of record 'business income tax refunds.' January followed with $19.5 billion in 'business interruption' handouts followed by February's $14.6 billion.

As this last pillar of post-pandemic fiscal stimulus crumbles, the most discretionary forms of spending are at risk. Before continuing, harken back to 2022's sell-side narrative, that services spending would grab the baton from its goods counterpart and power the next leg of U.S. consumption. True to the promise, not that the economists knew what was fueling the demand at the time, nearly $400 billion in business income tax refunds have been doled out since July 2020. In the aftermath of this taxpayer boondoggle, Citi reports that hotel occupancy has turned negative year-over-year (YoY, green line). Ditto for department stores per Redbook for the last four weeks (red line).

As for the fate of the broader landscape of U.S. consumption, with sales at department stores waning and dipping into negative territory in March, it was worthwhile to delve into aggregate retail inventories in February. Critically, the trend runs counter to the demand picture and rose 0.8% month-over-month. Under the surface, as is the case with Industrial Production, the supply of autos drove gains in December, January, and February. Conversely, non-auto retail inventories peaked last August. As the inventory correction gets underway, we anticipate more destocking to follow Redbook's trajectory into 2023's second half.

With 48 hours under our belt to digest the gist of the Bureau of Labor Statistics' (BLS) special advisory on the surprising number of eligible unemployed U.S. workers who had not applied for unemployment claims, we decided to apply the BLS' math to real-time data. A rolling guesstimate of the potential path for continuing claims should show that by the end of 2022, 55% of job losers who didn't file (1,478,000) woke to their eligibility. QI's dashed line projects a gradual increase over the last year as if the eligible workers had filed and been approved. The point is the picture would look starkly different under that scenario relative to the reported continuing claims that so becalms the broader investing community.

As an aside, a good chunk of the 45% who did not apply for jobless claims could not be bothered with such trivialities. Such is the station of the severanced white-collar masses whose collective lifestyles have nary been disturbed by the nuisance of visiting their local department of labor website.

Are we cheeky? Absolutely. The cossetted redundant will soon wake to the reality of recession. Such is the 2023 credit cycle, which is up and humming. Large-scale bankruptcies have started this year above all years save 2009 (lower right chart). Absentee filers for initial claims or not, this ups the risk that the layoff cycle shifts into high gear from here. On that note, the number of states with rising initial jobless claims has been north of 80% of the population in every week thus far in March and crested 90% in the week ended March 18. In plain speak, the U.S. economy is in the soup.

* When it's time to sell you won't want to, and when it's time to buy you won't want to, either!

* I have used this week's end-of-quarter rally to move back to net short position

* The market's advance is extended and downside risk now dwarfs upside reward

"Mother, mother
Everybody thinks we're wrong
Oh, but who are they to judge us
Simply 'cause our hair is long
Oh, you know we've got to find a way
To bring some understanding here today"

- Marvin Gaye, "What's Going On0"? https://www.youtube.com/watch?v=fPkM8F0sjSw

* From trouble ahead, trouble behind to a market that just won't like be much fun (since I quit drinkin') to You Can't Roller Skate With a Buffalo Herd (meaning it's a tough market to navigate these days). And soon thereafter the market was down 4%-6% from the early February highs -- and The Law Won! Wednesday I moved to Long Island's Billy Joel so I can finally find what I am looking for. Thursday was no futures column -- lyrics silent! Then the swoon (and SIVB) took the markets by surprise - in this not so magic moment... To Tuesday's optimism, I saw the market's party lights. Wednesday, with Credit Suisse concerns (and a hat tip to Yogi Berra), it felt like deja vu all over again. On Monday we got Ludacris... time to make money, money maker?

Then, dealing with the extreme volatility I am reminded of that great song, "I Would Rather Have a Bottle in Front of Me Than a Frontal Lobotomy."

And, late last week, what a crazy freakin' market -- great for opportunistic and unemotional traders, but not so great for the buy and hold crowd!

On Thursday, as echoes of a bull market are resumed, we are happy together? But wait, over on The Death Star (CNBC) consider how many times a bull market was mentioned after similar advances during the Dot.com bust of 2000-2002!

Today, I ask ... what's going on?

"What's Going On?" wasn't the same kind of breakthrough as "Papa's Got a Brand New Bag" or Sly and the Family Stone's "Dance to the Music." But it did establish a new kind of adult black pop by bathing Marvin Gaye's voice in an almost weightless atmosphere of post-psychedelic rhythm and harmony. "What's Going On?" is the matrix from which was created the spectrum of ambitious black pop of the seventies: everything from the blaxploitation soundtracks of Curtis Mayfield to Giorgio Moroder's pop-disco. Not bad for a record with back-up vocalists that included a pair of pro football players!

But neither its influence nor its role in breaking the grip of the Motown machine is what makes the song great. It's great because it's every bit as gorgeous as it is ambitious. After making it, "I felt like I'd finally learned how to sing" Gaye told biographer David Ritz. Gaye taught himself to "relax, just relax," which resulted in a vocal that moves through a dreamscape in which facts and wishes are equally terrible. The song is most famous for attacking war and poverty, but it's also an affirmation of love. And that's why, for all its references to long hair and Vietnam, the song will never sound dated.

At its best, "What's Going On?" amalgamates soul and Latin jazz, but at times it's so laid back that it approaches Hollywood schmaltz. What saves it is the unmistakable Motown underpinning that comes from James Jameson's liquid bass and what might be castanets but could just as easily be fingers popping. All the label's session stalwarts are there and they never played better, maybe because they'd never been so stringently challenged.

You don't make music like this unless you are surrounded by loved ones.

"You are never as smart as u think you are when you are making money or as dumb as u think when losing."

-- Unknown

"The stock market will do whatever it has to do to embarrass the greatest people to the greatest extent possible."

-- Wally Deemer

"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"

This daily Futures feature is like inside baseball. I try to show you and write about what I believe thoughtful hedge fund managers are looking at when they awake -- let's call it our normal routine -- setting the stage for their strategy for the day. The market is a complicated mosaic and the more info you have, the better trader and investor you will be!

The market (and money) never sleeps -- and neither do I, it appears! I have previously described the importance that overnight futures trading holds for me here. 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 are often exaggerated outside the regular trading session. I frequently try to capture those efficiencies by trading actively both in the pre- and after-market sessions.

Here are some brief observations I wanted to highlight and provide a summary of overnight price movements in various asset classes:

* Stock futures rose throughout most of the night (though the range was narrow). S&P futures had peaked at +14 and bottomed at -2. Nasdaq futures peaked at +56 and bottomed at -10. At 5:39 a.m. ET, S&P futures were +6 and Nasdaq futures were +3:

In my portfolio I am now emphasizing an Invesco QQQ ETF (QQQ) (tech) short:

* Yesterday was the second day in a row of lower volume (higher stock prices with reduced activity is typically a negative harbinger):

* Despite all the volatility and the recent upward bias, we remain in The Chop Bucket (300-4100). Adjusting for the small rise in stock futures (at 5:25 a.m.), the S&P sits at 4055, near the top end of expected range. According to my calculus, there are about + 50 handles of upside and - 350 handles to the downside. (precision NOT intended!)

* The intermediate-term outlook for stocks remains difficult in light of the competition and a sea change and new regime of (still) higher interest rates. As previously noted the widening gap between the S&P dividend yield and Treasury bills is getting ever more extended. The differential between the S&P dividend yield (now sitting at only 1.69%) and short-duration Treasuries (the six-month bill yield is 4.93%) is as wide as its been in several decades. From an historical standpoint the lowest dividend yield was 1.11% (August 2000) and the highest dividend yield was 13.84% (June 1932). The mean S&P dividend yield over the last century was 4.27%.

* In response to the rally, the S&P Oscillator remains overbought, at 2.95% at the close yesterday, compared to almost -6.00% at the middle of last week (oversold). The VIX is back to pre-bank crisis levels (19.22). Both gauges are great trading tools in a Chop Bucket. I buy oversolds and sell overboughts. Most everything is now overbought.

* The U.S. dollar is stronger against the yen, euro and sterling. This is typically a risk-off indicator:

* I have been continually writing that bonds should be at center stage to equity weightings -- it's all about the rates. In the midst of the banking crisis I sold a lot of my Treasuries in light of the downward move in rates. I have bought them back on the run-up in rates in the last few days. I added to one year bills on Thursday.

* The Two-Year Treasury yield is +5 basis points at 4.15% and the 10-Year is +1 basis point to 3.562%. Over there, the yield on the 10-Year U.K. Gilt bond is +2 basis points. (Equities are ignoring the recent rate rise, but I am not!):

* The 10s/2s Treasuries curve has been making dramatic daily moves back and forth. The curve is now back up to -59 basis points.

* Commodities - where there are no zero days to expiration options! - are broadly lower. Brent oil is -$0.22 to $78.98. As mentioned yesterday, for months I have been avoiding energy stocks, but I am now getting interested for the first time in a while on price. The notion, expressed in business media, that energy stocks are well-positioned even with lower oil prices was fanciful as I have been writing in my Diary. My first oil purchase occurred earlier this week -- Berkshire fave Occidental Petroleum (OXY) :

* Gold has continued its big run and is breaking out to the upside, though it's flat this morning near $2,000:

And here:

* Bitcoin is -$140 to $27,800:

Here is a synopsis of some of my columns I believe were important, or in the event you were out for the day and/or did not read my Diary. The principal intent is to review the logic of my market moves and other factors:

Why I Moved Into a Net Short Exposure

Miller Tabak on the Rate Cut Outlook

The Business Media Too Often Treats Wrong-Footed Perma Bull Analysis as Royalty

My Bloomberg Interview

Forecasting Is Difficult 

I Moved Into a Short Position on Yesterday's Strength

And here were Thursday's trades:

* Sold more SPDR S&P 500 ETF (SPY) and shorted more QQQ

* Added to Paramount Global (PARA) and OXY longs

* Initiated a trading short rental in Nvidia (NVDA) (added to that short in premarket this morning)

This table is a good resource for short-term traders:

Themes and Sectors

View Chart »View in New Window »

From JPMorgan:

US: Futures are up small with small caps leading. SPX closed above its 50dma for two consecutive days. Bond yields flat, USD stronger, VIX up 1%. Fedspeak supports at least one additional hike, which would take rates to 5.00% - 5.25% range. Commodities are giving back some of their weekly gains. The EU inflation print (detailed in the next bullet) shows a gap down in headline inflation while core remains sticky; does this pattern hold for the US? US PCE numbers print at 8.30a ET and may follow the same pattern from CPI earlier this month. We also receive Chicago PMI, Personal Income/Spending, and Univ. of Michigan data.

EQUITY AND MACRO NARRATIVE: Sentiment appears to be shifting from extremely bearish toward neutral; but the headlines surrounding SCHW show that we may not be out of the woods, yet. The uncertainty surrounding the banking crisis has led some investors to inquire about credit-induced contagion. Our Chief Global Economist Bruce Kasman has written a timely note, please see below for a summary but the full note is worthy of reading.

I am pressing my trading short rental in Nvidia (NVDA) in premarket trading.