Please click here for a larger view of this table.

Wolf Street howls about mortgage rates.

Fare you well my honey

Fare you well my only true one

All the birds that were singing

Have flown except you alone

Going to leave this broke-down palace

On my hands and my knees I will roll, roll, roll

Make myself a bed by the waterside

In my time, in my time, I will roll, roll, roll

- Grateful Dead, Brokedown Palace 

Those of us who watch the market closely... know that the market is now broken and subject to the vagaries of the machines and algos.

Most should just sit tight.

But, I must write, that this is a market with enormous trading opportunities.

As to the buy and hold crowd, as Grandma Koufax used to say... "rotzaruck."

From Peter:

What’s your definition of "slightly"? Is it a 3% economy? 2%? 1%? I’d guess 1.5% even though we printed 3.4% in Q4 and the Atlanta Fed as of today thinks Q1 will be 2.9%.

"Slightly" though is how the Fed’s Beige Book described the US economy. “Overall economic activity expanded slightly, on balance, since late February.” It didn’t say ‘strong’ and gets to my continued point of how mixed the internals of the US economy actually are. 

Further, “Ten out of twelve Districts experienced either slight or modest economic growth – up from eight in the previous report, while the other two reported no changes in activity.”

As for the biggest component of the US economy, “Consumer spending barely increased overall, but reports were quite mixed across Districts and spending categories. Several reports mentioned weakness in discretionary spending, as consumers’ price sensitivity remained elevated. Auto spending was buoyed notably in some Districts by improved inventories and dealer incentives, but sales remained sluggish in other Districts.”

Even the strength of the US economy over the past year, that being leisure/hospitality, is showing signs of mixed growth. “Tourism activity increased modestly, on average, but reports varied widely.”

We know manufacturing is still in a recession, though there are hopes of a bottoming. “Manufacturing activity declined slightly, as only three Districts reported growth in that sector.”

As I keep pointing out with C&I loans and confirmed by all the bank earnings and commentary, “bank lending was roughly flat overall.”

Helped by new build, “Residential construction increased a little, on average, and home sales strengthened in most Districts.” It is spring selling season, regardless of the pace seen. In contrast, nonresidential construction was flat, and commercial real estate leasing fell slightly.”

Continuing to highlight the BLS payroll report as an outlier relative to a variety of other labor market hiring stats and anecdotes, “Employment rose at a slight pace overall, with 9 Districts reporting very slow to modest increases, and the remaining 3 reporting no changes in employment.” Again, does this sound like a 3% economy?

As for the notable increases in insurance costs, “Contacts in several Districts reported sharp increases in insurance rates, for both businesses and homeowners.” St. Louis said this, “A retail contact reported that her small business insurance costs have doubled. In a similar vein, an insurance agent reported that homeowners are seeing increases in annual insurance premiums of 20 to 25 percent.”

Overall on inflation, the Beige Book said “Price increases were modest, on average, running at about the same pace as in the last report.” The rise in commodity prices though along with the Red Sea and Baltimore accident did come up. In NY, while the “pace of selling price increases remained modest, and the pace of input price increases remained moderate. 

Still, manufacturing firms pointed to more significant price increases for some raw materials, along with pricing volatility for electronics components. Looking ahead, input price increases are expected to pick up, with some contacts expressing concern about potential shipping route obstructions due to the Key Bridge collapse in Baltimore and obstacles in the Middle East.”

Also, I saw throughout the Beige Book growing evidence of profit margin pressures as cost increases continue in many areas, particularly labor and now raw materials again, but the ability to fully pass it on to consumers is more difficult.

Richmond differentiated and quantified the price situation. “According to our most recent surveys, growth in prices received by service providing firms was little changed as growth has remained around four percent for several months. Growth in prices received by manufacturers remained between two and three percent.” 

Also, “Some contacts noted that the higher cost of borrowing as well as higher energy costs have led to increased operating costs. Increasing labor costs, however, were the most cited factor leading to price growth remaining elevated.”

Atlanta said this on pricing, “Pricing power was characterized as "lumpy," with some firms maintaining the ability to pass through costs while others, particularly retailers and restaurants, struggled to preserve margins.”

To the flat y/o/y price environment in goods, from Chicago, “Several manufacturers indicated that raising prices had become more difficult in recent months and that their margins had shrunk. Consumer prices were up moderately overall.”

Some businesses are just having to eat margin. From St. Louis, “Small business contacts reported profit margins compressing on higher costs and an inability to raise final prices for consumers. A restaurant contact reported that even though food and labor costs have risen recently, final prices have not yet been adjusted. A textiles contact echoed this sentiment, but indicated the firm still lacks pricing power over brands and retailers; so, increases in final prices have not kept up with increases in costs.”

Same situation in Minneapolis, “Input price pressures remained greater than final price pressures. A professional services firm indicated that it was approaching a limit in its ability to pass on labor cost increases because customers were pushing back on pricing.”

In KC region, “Several business contacts reported a significant increase in their operating expenses, highlighting notable growth in business insurance costs. Contacts anticipate greater difficulty passing along those operating costs to customers, thus further compressing profit margins.”

Out west in the SF District, “Input costs were generally stable, although some reports indicated higher costs for utilities, energy products, electrical supplies, lumber, and insurance. In some instances, the higher costs were passed through to prices, but some firms in food and beverages and consulting services observed resistance to price hikes from their increasingly price-sensitive consumers.”

Yesterday's buys of cannabis -- TRSSF, TCNNF, GTBIF and CURLF - some on my Best Ideas List -- are ripping on the news in the prior post in my Diary.

"But Jesus told him, “Put your sword away. Anyone who lives by fighting will die by fighting.""

- Matthew 26:52

Another continuing concern in my Diary over the last few years is the potentially harmful impact of market structure changes. Think portfolio insurance and October 1987.

Specifically, the dominant role of products and strategies that worship at the altar of price momentum.

Unfortunately, momentum chasing works both ways.

* This is substantive...

Great column on McDonald's by Chris "Not The Designer" Versace, here.

"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

The market now feels like it is an accident waiting to happen.

The dominance of passive investing masks the internal market weakness. The average stock is back to December, 2023 levels.

Technically there are more and more cracks beginning to emerge.

"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 added to VKTX this morning.

I am trying to buy more weed - not around the corner on the floor!

FCronkhite

Doug:

How do you protect your trade in TCNNF when you can't put in a stop (at Fidelity)?

_____

Dougie Kass

I don't use firm stops.

I develop a value of a company.

I start small based on the notion that I cant find the bottom.

As the discount to that intrinsic value widens, I buy more.

Vice versa on shorts.

The complexion of the Nasdaq has most certainly changed in recent days.

Today Spruce Point Capital Managment issued a bearish analysis.

Upside

-AGFY +68% (to merge with Nature’s Miracle Holding in stock deal)

-PLCE +34% (announces $90M in new unsecured financing provided by majority shareholder Mithaq Capital)

-CXAI +21% (earnings)

-CTSO +7.1% (STAR-T Pivotal Trial Results to Be Featured as a Late-Breaking Presentation at the 2024 American Association for Thoracic Surgery Annual Meeting)

-UAL +5.1% (earnings, guidance)

-BYON +3.4% (hearing Maxim Initiates BYON with Buy, price target: $50)

-MBLY +3.2% (said to attain 46M in EyeQ6 Lite assisted-driving chip orders to date; confirms Mobileye EyeQ6 Lite launches to speed ADAS upgrades worldwide)

-AA +2.9% (US Biden Administration calls for higher tariffs on China steel and aluminum)

-OMC +2.8% (earnings, guidance)

-TPR +2.8% (FTC said to be preparing to block Tapestry deal)

-ATAI +2.3% (announces the publication of Beckley Psytech’s Phase 1 study of BPL-003 in the Journal of Psychopharmacology)

Downside

-SAGE -19% (Phase 2 PRECEDENT study of Dalzanemdor (SAGE-718) in treatment of Mild Cognitive Impairment in Parkinson’s Disease did not show statistically significant differences versus placebo on the primary endpoint)

-JBHT -7.4% (earnings, guidance)

-ADSK -5.8% (provides update on delayed Form 10-K filing; Internals investigation is ongoing and prior financial statements not expected to be affected)

-ASML -5.3% (earnings, guidance)

-APG -4.8% (confirms pricing of 11M shares at $37.50/shr for gross proceeds ~$412.5M)

-USB -3.6% (earnings, guidance)

-NMHIX -3.2% (to merge with AGFY in stock deal)

-TRV -3.2% (earnings, guidance)

-IBIO -2.1% (Holders file to sell 10.6M shares) 

View larger here.

View larger here.

From Peter:

When a central banker speaks, they know to choose their words very carefully because how sensitive markets are to every single word. When a speech is prepared, those words can be especially crafted. With the topic yesterday being focused on Canada, Fed Chair Powell could have chosen to say nothing about US monetary policy. 

Instead he said this from written notes, "The recent data have clearly not given us greater confidence, and instead indicate that it's likely to take longer than expected to achieve that confidence...If higher inflation does persist, we can maintain the current level of restriction for as long as needed." 

We saw the 2 yr yield touch 5% in immediate response but did back off. Message though has been sent, by him and his colleagues that June is likely off the table. In the fed funds futures market, rate cut odds at that meeting are down to just 16%. As for July, they stand at 32%. A rate cut in fact is not fully priced in until November with September odds at 80%. Again though, this will all change with incoming data but it is how the market is priced today.

I agree he should not have greater confidence. When he celebrated New Year's Eve, the 2 yr inflation breakeven was at 2%. He was looking good going into 2024. Today it stands at 2.93% with the CRB index up 12.5% year to date. Now, he doesn't have to conduct policy just on commodity prices but it does complicate their decision making and influences their confidence on achieving 2% sustainably.

We also heard from ECB president Christine Lagarde yesterday in a long form interview on CNBC with Sara Eisen. Lagarde acknowledged the rise in energy and other commodity prices. She acknowledged the euro weakness, especially in light of the weak yen, and how that can influence inflation. Irrespective of these factors, she and her colleagues seem pretty set on cutting rates in June with the swaps market pricing in a total of 3 this year.

Interesting too is with the ECB balance sheet. In February 2020 it stood at 4.67 Trillion euros and almost doubled in size by June 2022 at 8.84 Trillion euros. Part of this huge expansion was the ECB's Targeted LTRO program where they lent banks money at cheap rates. As a lot of that has been paid back and why the ECB balance sheet is down to 'just' 6.60 Trillion euros, Lagarde said yesterday that they plan to keep on shrinking it even as they cut interest rates.

The Fed's balance sheet, where likely in May they'll announce the slowdown in monthly QT but possibly extent it out time wise, it still remains well above its February 2020 level of $4.15 Trillion with it currently at $7.44 Trillion, down about $1.5 Trillion from its peak.

ECB Balance Sheet in euros

Fed's Balance Sheet

Let's get to some earnings calls.

From LVMH on the US consumer, "The American consumer is a bit negative, but not that negative...The aspirational customer has to adapt to the new normal...It's just going to take time." The 'new normal' the CFO was referring to was higher prices for its goods.

From Bank of America:

"Average loans in the first quarter of $1.048 trillion were flat compared to the 4th quarter, and they improved 1% y/o/y as solid credit card growth was partially offset by declines in securities based lending. Commercial loans grew modestly y/o/y. We experienced modest improvement in revolver utilization in commercial lending in the first quarter, and that's being offset for the most part by paydowns, as larger client financing solutions are being met through capital markets access." 

I'll add, of course, most small and medium sized businesses don't have that same access.

I believe this is why the stock sold off:

"Net charge-offs of $1.5 billion increased $306 million from the 4th quarter, driven by continued credit card seasoning and commercial real estate office exposures, as swift revaluations from current appraisals and resolutions drove higher charge-offs. The net charge-off ratio was 58 bps, a 13 bps increase from the 4th quarter." They do though believe that consumer net charge-offs will start to level out "over the next quarter or so."

PNC Financial is also seeing no loan growth. "Compared to the 4th quarter, average loan balances decreased 1%, primarily driven by lower commercial loan balances...driven by lower utilization as well as soft loan demand...Consumer loans declined approximately $600 million, driven by lower credit card and home equity balances." Borrowing money is expensive I say.

On the credit side, "Non-performing loans increased $200 million or 9%, almost entirely driven by CRE, which increased $188 million...Total delinquencies of $1.3 billion decreased $109 million, or 8% driven by lower consumer and commercial delinquencies."

From JB Hunt, the major trucking company whose stock is down sharply pre market:

"The market continues to be challenging...We continue to view the market as out of balance and customers have been and are taking advantage. We've been surprised by the competitiveness in the bid season thus far...there's an oversupply of capacity and that's not exiting quick enough."

This does lead to lower trucking prices, but "we continue to face inflationary cost pressures, despite also facing deflationary pricing pressure."

In their intermodal business, "Volumes in the quarter were flat y/o/y and by month were down 2% in January, up 3% in February, and down 1% in March...We have been surprised by how much competition we are seeing in bids."

"The 4th quarter uptick in demand for us was a surprise, and our system was able to accommodate capacity to execute on it. Equally, coming out of the 4th quarter we were surprised by the magnitude of the decline in the 1st quarter. I don't have a great answer in terms of what the catalyst was...Maybe what we experience in the 1st quarter was actually a little bit of a return back to normal off of a higher 4th quarter, and we've got to wait and see where the year takes us at this point."

With travel, which we know has been an economic bright spot, United said this in their earnings release:

"The demand environment remained strong with a double digit percentage increase in business demand q/o/q, as compared to pre-pandemic." Their earnings call is this morning.

With the economic data today, and even with another rise in mortgage rates, purchase applications did rebound by 5% w/o/w after falling by 4.7% in the week before. Refi's were little changed. We know buying a home is expensive, especially acute for the first time buyer who doesn't have an inflated valued home to sell before buying a new one.

Helped by a weaker yen, Japanese exports in March rose 7.3% y/o/y, helped by a 12.6% rise to China, but that was about as expected. Hurt by a weaker yen, imports fell 4.9% y/o/y but also as forecasted.

Singapore reported a big 21% y/o/y drop in non-oil exports but most of it was a sharp drop in pharma exports, lower by 70% y/o/y though exports of electronics products were down by 9.4% y/o/y too.

In the UK, March CPI did moderate to a y/o/y gain of 3.2% from 3.4% but that was one tenth more than anticipated. The core rate of 4.2%, slowed from 4.5% in February but also one tenth above expectations. Wholesale prices, both input and output costs, were about as forecasted.

Bottom line, the trip down to 2% inflation, however arbitrary even that number is, is no easy glide path. The 10 yr inflation breakeven though is down 2 bps to 3.85%, but was up 12 bps in the prior two days. Gilt yields are slightly higher as is the pound. The BoE's job is not easy either but Governor Bailey speaking yesterday is hinting that just like Lagarde, they don't need to wait for the Fed to start cutting if they choose to.

10 yr UK Inflation Breakeven

From Q:

* Chop Tuesday

* In the market without memory from day to day, stock futures rebounded overnight (but at 5 a.m. were coming off the highs). The Oscillator stays oversold -- at -6.01% vs. -6.29%

* Bond yields are flat to lower

* The U.S. dollar is weaker against the yen

* Oil is down a bit after the recent ramp higher

* Based on last week's data, inflation will be prickly and "slugflation" might lie ahead

* Gold is materially unchanged... silver is +$0.24

* Bitcoin is +$700 

"Yeah, one Wednesday evenin'

When the storm be sinkin' low

She been gone, she been gone

People one year at a day

She been gone, she been gone

People one long year at a day"

- John Lee Hooker, "Wednesday Evening Blues"

"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 hold 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 brief observations I wanted to highlight and provide a summary of overnight price movements in various asset classes:

* Stock futures were volatile overnight. A bit weak most of evening but rallying starting about 4 a.m. S&P futures peaked at +31 and bottomed at -3. Nasdaq futures peaked at +122 and bottomed at -43 At 4:47 a.m. ET, S&P futures were +27 and Nasdaq futures were +102.

* Commodities are mixed. Brent crude -$0.33 to $89.69 after a brisk run higher in recent days.

* The S&P Short-Range Oscillator has moved back into a deeper overbought at -6.01% vs. -6.29%.

* The VIX is at 17.99 (-0.41). We have capitalized on the higher VIX over the last three trading sessions by selling more straddles.

* The U.S. dollar is weaker against the yen, euro and pound.

* Interest rates are lower. The yield on the two-year Treasury is 4.95% (-2 basis points). The yield on the 10-year Treasury is also -2 basis points at 4.64%. The long bond yield is flat at 4.75% (+6 basis points). Over there, gilts are unchanged.

* Overnight, the inversion of the 2s/10s Treasuries curve is down to -31 basis points.

* Gold was the "world's fair" in the last two weeks. It's settling down amidst profit taking, -$0.30 at $2,407. Silver is moving merrily along and up another two bits. .

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 McDonald's Shares Have Tanked

Minding Mr. Market (finally back to market neutral)

Why the S&P Is Lower

Tech as in Dreck (Apple and Tesla)

Getting High With a Little Help From My Friends

First the New York Jets, Now Johnson & Johnson!

Insane in the Membrane (intraday volatility, that is)

Here were yesterday's trades:

Moved to large long Viking Therapeutics VKTX

Move to very large long AdvisorShares Pure US Cannabis ETF MSOS; Trulieve TCNNF new buy; added to other cannabis

The bill for the DJT Grift is presented.

We reshorted DJT recently and have actively traded the name.

As previously mentioned, it is my view that few retail investors should short this name.

I post this on the basis of transparency but, more importantly, for the many who have asked about buying the dip!

“Stoic detachment combined with emotional awareness is the perfect combination for stocks. Feel the fear, but let reason decide.”

- Joel Tillinghast

Bonus- Here are some great links:

Weighing Bearish Evidence

A Changing Market Complexion?

Potential US Dollar Hurdles

The Thing That Doesn't Mix

* On growing CRE losses...

The average stock is back to December 2023 levels - with momentum much worse:

* Higher consumer and corporate tax rates lie ahead...

* And so does "slugflation"

"The only good economist I have found is the stock market. People say it has predicted seven out of the last four recessions. That’s still better than any economist I know.”

–Stanley Druckenmiller

One of the core concerns I have been writing about is the undisciplined fiscal spending - from both sides of the political pew - which will likely, in the fullness of time, result in higher individual and corporate taxes:

Indeed, I don't know how many times I have highlighted words, graphs and tables regarding the annual deficit and the rising cost of servicing our burgeoning US debt load:

Well... the rise in the capital gains tax in Canada likely foreshadows what will occur in the years ahead in the US:

Slugflation lies ahead.

Slugflation is not market friendly.