A market on close buy of over $5 billion has triggered the buying near the close.

I have a 4 p.m. research call so leaving a bit early.

Thanks for reading my Diary.

Enjoy the evening.

Be safe.

The thing that is so unusual is not just the compression of volatility – it’s the preciseness.

In the last 2 weeks, QQQ is up 15% and IWM is down. That is near historic. But there has been no movement. Just a smooth grind in QQQ.

We’ve never seen anything like it.

In 2000, we had similar-ish return issues, but there was massive intraday and daily volatility. You’d have these wicked gap ups, that would reverse and get smoked, then open down the next day and rip to a new high. Massive intraday ranges.

Now – nothing. Just a slow grind. QQQ hasn’t taken out the afternoon lows of the prior day in 5 trading days. I’m not saying a down day, but not even a down half day !

Coca-Cola's KO shares may be rolling over — pressing the short.

My core expectation is that this low-risk short joins its consumer brethren.

Reducing further to tagends — Morgan Stanley MS and Goldman Sachs GS longs.

It remains my view that the continued weakness in the consumer-based equities is signaling a consumer-led economic downturn.

I suspect that even the Mag 7 will not be immune by year-end.

The market continues to not broaden out.

Buying weakness in "down and out" former institutional favorites — e.g. Starbucks SBUX, Disney DIS and Nike NKE — is still a fool's errand which is resulting in more investment losses.

Pressing Mag 7 remains the chosen path for most.

As noted in Sequoia's analysis, AI's $600 Billion Question, there may be a more shortened half life than many presume.

I am a $60-$61 buyer of Occidental Petroleum OXY.

Again.

I added to MSOS and VRNOF this morning.

Cannabis equities possess the best reward vs. risk of any sector I follow at the current time.

I have replaced my very small SPY / QQQ common short into short calls (in the money, August )

New investment short Coca-Cola KO is weaker after Pepsico PEP earning per share concerns by Bank of America this morning.

I believe the brokerage's concerns are well founded.

I recently began to accumulate a long position in Disney DIS:

Going Long on Disney

As you all are aware I have been bearish on Disney (DIS) for almost five years.

I initiated a Disney long under $98 this morning.

I don't think my entry point will prove ideal but I plan to be a scale buyer on weakness.

More early next week.

Today JPMorgan raised the company's earnings per share forecasts (based on theatrical release successes).

AI's $600 Billion Question

From Peter Boockvar:

How should we now define 'the market'?/Hopefully some reconciliation coming/Other notable stuff

You've got to hand it to French politics that the desire of keeping out Marine Le Pen's 'far right' (as referred to by many) party ended up electing more 'far left.' Strictly from an economic perspective the latter is worse than the former because of its anti-business belief in socialism (and whose leader is a blatant anti-Semite) but because Macron's party did better than feared, gridlock and/or political paralysis is being celebrated, albeit barely as the CAC 40 is up about .25% and oat yields are little changed as is the euro.

I'll leave the extreme bifurcated action in the stock market to the technicians as for what it means but it does to an extent match the divergences in the economy as well. As we prep for earnings, I would like to see some fundamental reconciliations. Meaning, if there is a portion of the US population that is buying more fountain soda rather than buying bottles/cans out of the fridge at a Casey's General Store in order to save some money, to use as an example of a crimped budget, and reflecting a 'choiceful' consumer as stated by the CFO of Walmart for multiple quarters now, are they going to buy the new Apple iphone with Apple Intelligence features or just keep their current one because the upgrade is not yet worth it? Is Amazon's retail business going to continue to grow quickly?

Also, we see many of the stocks in the Russell 2000 and the Mid Cap 400 that can't get out of their own way and if the business fundamentals substantiate that poor performance are these companies going to continue to robustly spend on advertising on Facebook, Instagram and Google? If job growth continues to slow, is Microsoft going to be able to keep up its growth rate selling Office 365 seats and hoped for Copilot subscriptions?

Also, the massive AI spend for many of these big companies is a HUGE expense, as we know, and if capitalized, they will experience much higher depreciation expenses for years to come. Outside of a few infrastructure beneficiaries like Nvidia, Broadcom, AMD, Dell, etc... and Copilot from Microsoft, where is the AI revenue coming from now?

As we all breathe the same economic air, I believe these questions should be asked by all of us and luckily we'll get some answers in the coming month. Lastly, if people are getting excited that the Fed is possibly closer to cutting interest rates, why aren't smaller company stocks doing better as they would most benefit via a lower cost of capital? Divergences and inconsistencies indeed.

As for stock market sentiment, it is getting even more extreme when seeing the Citi Panic/Euphoria index and Investors Intelligence survey. The former hit a new high dating back to 2021 at .46. The Bull/Bear spread in the Investors Intelligence survey is now 46.1 pts where I consider above 40 an extreme read. Bulls rose to 63.1 and Bears fell to 16.9 from 61.5 and 18.5 respectively. Also of note, and thanks to my friend Helene Meisler, the National Association of Active Investment Managers shows a print over 100%, reflecting the upper end of long exposure. And there is a 15.6 pt spread between Bulls and Bears in the AAII data as of last Wednesday, though that is down a touch w/o/w.

Bottom line, the Bulls have been right on the very big stocks, of course driving the big indices, and the Bears have been right on the mid to smaller stocks.

This was a funny quip, which my friend Randy Forsyth mentioned in his weekly 'Up and Down Wall Street' piece in Barron's. He cited what Piper Sandler "strategists on Wednesday wrote in a report that they were 'Dropping Coverage of the S&P 500'...Their more serious point, they wrote in a client note, is that the large influence of these few stocks means the S&P 500 no longer represents 'the market.'

After another string of softer data last week the odds of a September rate cut are growing but there is no easy road for them. As I was out Friday, in case you didn't see the updated shipping cost data, they continue to skyrocket. The Shanghai to Rotterdam container price jumped by $734 w/o/w to now over $8,000 at $8,056. It was just under $1,700 to start the year and was around $2,000 pre Covid, though still off its panic highs of a few years ago. That's the most expensive since August 2022 and is coming right before crucial holiday goods start to get shipped. The Shanghai to LA trip is now around $7,500 at $7,472, up $799 w/o/w.

WCI Shanghai to Rotterdam

 WCI Shanghai to LA

Ahead of CPI on Thursday, as heard from Fed members they continue to rely on PCE instead of CPI in terms of measuring inflation in their minds and conveniently for them, the former is running about 100 bps less than CPI, as it typically does, because of a smaller allocation to housing and a bigger one to healthcare which measures costs consumers don't actually pay as it calculates what the government, via Medicare and Medicaid and insurance companies pay instead. I bring this up again because the fate of monetary policy is being based on what inflation statistic the Fed chooses they like and in contrast to them, I believe CPI is better than PCE but it of course doesn't matter what I think.

This is what MSC Industrial said in its earnings call last week (coming a few weeks after they lowered guidance) and is a major distributor of thousands of items to the industrial/manufacturing side of the economy. "As we mentioned a couple of weeks ago, conditions remain soft, especially in metalworking related end markets such as heavy machinery and equipment and fabricated metals. This softness is reflected in recent readings of industrial production, sentiment surveys such as the PMI and in our estimated June growth rate, which is in line with our revised outlook. Looking at growth by customer types, the softness is most notably felt in our core customer base, many of whom are heavily exposed to metalworking manufacturing."

The Bank of Japan was given another reason to hike rates and trim QE at the end of the month after the May wage data came out. Base pay rose 2.5% y/o/y from 1.6% in April and reflected the recent 'Shunto' negotiations. That is the fastest pace of growth since 1993. The 10 yr JGB yield rose 1.6 bps to 1.095% and is just a few bps from the highest since 2011. The yen though is down a touch after the rally in the two prior days. I'd be shocked, again, if the BoJ didn't further tighten policy in 3 weeks.

Base Pay growth in Japan y/o/y

10 yr JGB Yield

In Europe, Germany said its exports fell 3.6% m/o/m in May, worse than the forecast of down 2.8%. We know that the German manufacturing juggernaut is getting hurt by the global manufacturing recession, the economic softness in its biggest trading partner in China, and the shift in consumer spending to services from stuff.

The June Sentix investor confidence index in the Eurozone fell to -7.3 from +.3 and well below the estimate of -.5. Sentix said "The recent recovery of the European economy has come to an abrupt end." They cited weakness in the Germany economy and "The French elections are contributing to the growing concern, as is the increasing slowdown in the US economy. The overall index for the US fell for the 3rd time in a row to its lowest value since January 2024."

From JPMorgan:

US: Futs are mixed with small-caps leading as bond yields are +2-3bps and 10Y yield fails to fall below ~4.25% level. Pre-mkt, Semis are higher ex-NVDA with the balance of Mag6 names in the green. USD is flat following its worst week since early March. Cmdtys begin the week under pressure with weakness across all three complexes. Today’s macro data focus is on NY Fed’s 1-year inflation expectations, but the impactful data comes from CPI/PPI on Thurs/Fri and the 10x Fedspeakers this week. We may see US markets chop sideways into CPI and the kick off of earnings season later this week, though we are still in a period of positive seasonality.

and...

EQUITY AND MACRO NARRATIVE: Last week, SPX added 2.0% in the holiday shortened week; NDX added 3.6% and the RTY lost 1%. This price action occurred with the macro narrative shifting from Goldilocks to slowing growth but slower growth with a Fed put. This narrative shift was triggered by weaker than expected ISM data, with ISM-Srvcs falling 5.0 points MoM, increased unemployment, and weaker Durable/Cap Goods data; this dovetails with a weakening housing sector where we tend to see unemployment move higher before other sectors on a pathway towards recession.

Bond markets are now coalescing around September as the first cut, with implied probabilities increased from ~55% at the beginning of the week to ~75% by the week’s end; some clients are not closing the door on a July cut if we see this week’s CPI print come in materially cooler. The yield curve bull steepened (2s/10s) on the back of the weaker macro data though the very front-end did not experience much of a move and 3M/10Y further inverted; the impact was to send the USD lower which aided commodity appreciation with the BCOM adding 1.5% for the week, led Oil and Metals.

Where from here? At first glance, last week challenges the bull thesis (at/above trend GDP + positive earnings growth + paused Fed) from the macro data perspective. The combination of weak ISM and labor data is creating downside risks to current quarter GDP forecasts. Before we consider the delay until a recession, Bruce Kasman hosted a call where he notes that if you look at a labor income proxy (wages * hours) you see a 5.3% QoQ annualized rate which means that real income growth is positive, meaning the Consumer is far from being a drag on the economy. A less positive update is on productivity where Bruce says that it appears to have fully stalled, and it appears increasingly like the spike in productivity experienced earlier than year may have been more cyclical than structural. Expanding beyond the US, Bruce is of the view that Soft Landing probability has increased with Global PMIs pointing to 3.1% GDP growth rate, about 1%-point above his team’s 24H2 forecast. There are 3 key risks to his positive view:

* US labor market data, including revisions, is slowing more sharply and there are questions as to where the labor market stabilizes.

* From forecasting perspective, the 0.5% increase in US employment, which has been a reliable signal for a recession may be giving a false signal now given sampling issues and other correlates have remained stable (JOLTs layoff rate, insured unemployed rates, and rate of employed moving to unemployed, etc.).

* Much of the downshift in global PMI comes from the EU where the team has a great than 1% forecast for GDP growth for 24H2; there now appear to be downside risks to that forecast.

* Activity indicators are falling alongside already depressed sentiment indicators. Consumption tends to trend with sentiment.

We remain tactically bullish but with slightly less conviction. The reduced conviction comes from the recent macro data, which continues to print below expectations, e.g., ISM-Srvcs. This data can rebound quickly as the last time ISM-Srvcs printed around this level was Dec 2022 which then gave way to higher prints for 15 consecutive months. In the very near-term, we need CPI/PPI to support the cut hypothesis and would be good to see Retail Sales tick higher to help assuage concerns on GDP growth. Separately, we still need to see earnings season deliver and while the expectation of 9% YoY EPS growth may prove to be too high, if you see the SPX deliver at least 5.5% - 7% range, the bullish thesis remains intact.

This table is a valuable resource for momentum-based short-term traders:

A mea culpa!

Maybe I am wrong and the chatbots really are intelligent and the technology actually works great.

At least it figured out there are not really any honest politicians. Granted, the answer is a bit lacking, because of the three honest politicians in Congress that it could come up with, one is not in Congress, the other one is dead, and the third is from California (tongue firmly in cheek)!

Plus, a quick old fashioned internet search quickly showed me two articles, one where she seemingly was suggesting President Biden was completely cogent and the other where she was seemingly suggesting the economy is really good, but people somehow just don’t realize it. Therefore the right answer is ZERO, and it didn’t take billions worth of CAPEX and a nuclear reactor to figure it out!

Question: Are there any honest politicians in congress?

Answer: While it's difficult to definitively label any politician as entirely honest, there are some members of Congress who have gained reputations for integrity and transparency. However, it's important to note that perceptions of honesty can vary based on individual perspectives and political leanings. Here are a few examples of politicians who have been recognized for their efforts towards honesty and accountability:

1. Katie Porter: Representative Katie Porter has gained attention for her direct questioning style and use of visual aids during congressional hearings. She is known for holding officials and executives accountable and educating the public on complex issues.

2. Mike Causey: Although not a member of Congress, North Carolina Insurance Commissioner Mike Causey demonstrated integrity by working with the FBI to expose corruption, even when it involved members of his own party.

3. Paul Wellstone: The late Senator Paul Wellstone was known for his authenticity and principled stances. He was appreciated for being on the right side of issues and declining even small gifts to avoid any appearance of impropriety.

.

It's worth noting that many honest politicians may not receive widespread attention, because they are simply doing their jobs effectively without generating controversy. As one commenter pointed out, "The nuts and bolts of most politics are boring as shit and the good, honest, hardworking politicians by necessity fly so low under the radar almost no one hears about them." 

Ultimately, political honesty is complex and can be influenced by various factors, including the need to compromise, the pressure to win elections, and the challenges of navigating a system that often rewards partisan behavior. While there may not be a perfect example of an entirely honest politician, there are certainly those who strive for transparency and integrity in their work.

The is good news about the AI not working right is that maybe the robots will kill themselves before they kill us! 

 https://itc.ua/en/news/korean-robot-commits-suicide-after-a-year-in-public-service/

Having said that, even if the robots don’t kill us, the theoretical self-driving AI cars might. (Tesla's TSLA shares have recently been on a tear). It is amazing this stuff is allowed, because it is still an experiment, which is being done on real-life human beings. 

At any rate, as I said in prior "Tales" commentary, after all the time and money, this stuff still does not work right, because the underlying technology is not stable, and has real limits. The chatbot guys and the self-driving guys keep telling us success is right around the corner, yet with each new release (if it happens because it is delayed again because it is still not working right as usual) the same problems persist or get worse.  

The chatbots still hallucinate, and the self-driving cars also still hallucinate, for lack of a better term. But don’t worry, it’s going to all be shining bright real soon, they keep saying (back in March): 

I feel bad for the police officer in this one, because he should be arresting somebody. Why can a robot get away with this, but I can’t? 

People can do dumb things, but this dumb? And if people do things this dumb, at least it only takes $10 for the 6 pack of Coors light as opposed to billions of dollars of CAPEX and a nuclear reactor to boot!

Here are some other examples of where things stand with self-driving AI, and again this lab experiment is being done with real people involved. Many of these fails are very recent too. Even the pharmaceutical industry seems to have higher standards for their clinical trials: 

* Car on tracks. 

* Train crash 

* Red light runner

* Deadly driving

* 736 Crashes, 17 deaths

Per the prior point about AI citing prior AI and its attendant hallucinations, leading to an infinite doom loop:

 “This is a really rampant problem on Google right now, and it's hard to answer specifically why it's happening,” says Lily Ray, senior director of search engine optimization at the marketing agency Amsive. “We've had some clients say, ‘Hey, they took our article and rehashed it with AI. It looks exactly like what we wrote in our original content but just kind of like a mumbo-jumbo, AI-rewritten version of it.’”

Google Search Ranks AI Spam Above Original Reporting in News Results

And here is the coup de grace - suggesting President Biden, who is having some obvious issues ... (having hallucinations is supposed to help?).  It is amazing what the world has come to on so many levels:

 Opinion: It’s Time for the Biden Campaign to Embrace AI

From Liz Ann:

... And I don't see anything wrong, here, either ...

And I don't see anything wrong here, either ...

I see no problem here.

We are all momentum traders and investors now:

Logic and fear have left the building.

The momentum for passage of the amendment in Florida to legalize adult cannabis use is accelerating:

Trulieve TCNNF is the primary beneficiary of passage.

I add daily on cannabis weakness.

OP-ED: The War on Drugs has failed: The path to sensible marijuana policy (amsterdamnews.com)

On gold:

* Some random signposts of declining economic activity

Keep in mind GDP=C +I + G. If you take delta G out of the first-half numbers, there is not much left. Looks like slugflation to me. Not great at these clearly high valuations (as noted here in Wednesday's opener).

However, interest rates are clearly peaking.

The Fed will be late as usual.

I have numerous reports, for example, of local auto dealers on the east and west coasts of Florida offering large incentives (even free vacations!) with a car purchase. (I guess the usual fun picture of his family and dogs didn’t sell cars!)

Clearly, fundamentals don't matter in a market dominated by price momentum and animal spirits.

More evidence of investor complacency:

Meanwhile, the S&P Short Range Oscillator stands in overbought ground — at 2.03%.

Two from Wolf Street:

* The Most Splendid Housing Bubbles in Europe: Biggest Price Drops in Germany, Finland, Sweden, Austria, France, Denmark | Wolf Street

* Fed Balance Sheet QT: -$34 Billion in June, -$1.74 Trillion from Peak, to $7.22 Trillion, Lowest since November 2020 | Wolf Street