At 4:25 p.m.:

In between writing and trading/investing I have had five separate company research calls today and I am exhausted — and it's only Monday!

Thanks for reading my Diary.

Enjoy the evening.

Be safe.

Out of Peapack-Gladstone Financial PGC.

Former President Trump has selected J.D. Vance as his running mate.

Here is what I tweeted out early this morning: 

For those that are interested in cannabis equities, Senator J.D. Vance is cannabis-friendly.

There were some that were concerned that Virginia Governor Glenn Youngkin would be Trump's choice, because of his anti-cannabis position.

From Charlie!

Technology drifts to day's lows:

With S&P cash now up by only +21 handles (and -33 handles from the morning's high) I have taken in a lot of my short Index calls for a quick profit.

I am seeing some market deterioration — albeit from elevated levels.

For example, Amazon AMZN just reversed down and hard (-$3.60).

I initiated my buy of Peapack-Gladstone Financial PGC prematurely months ago.

It was a mistake in timing.

The shares immediately slid to $20-$21 and I continued to buy on weakness.

In the last month the shares have rallied back to $25.27 — well above my average cost basis.

Meanwhile, the deterioration in the CRE market and in the domestic economy has accelerated (relative to my expectations).

Given the above and that I luckily have profited from my strategy of buying weakness I have begun to sell my PGC long above $25/share and I plan to exit this small position.

I have been a scale seller on strength in Index calls.

Moved from small-sized to medium-sized.

From Peter Boockvar:

At least in the NY area, the manufacturing recession continues on in July

With the first July industrial figure to be seen, the manufacturing recession continues on. The NY regional index was -6.6 vs -6.0 in June and around the estimate of -7.6. It’s been negative 8 months in a row and we know the national figure has been mostly negative for about two years.

New orders were around zero at -.6 vs -1.0 in June while backlogs fell by 10 pts to -11.2, a 6 month low. No inventory build seen yet as they came in at -6.1. Employment remained well below zero at -7.9. It was last positive in October 2023. The workweek was around zero. Delivery times remained low (supply chains good) while prices paid rose 2 pts to 26.5 but those received fell 1 pt to 6.1, the lowest in a year.

As for the 6 month outlook, business expectations fell 4.3 pts m/o/m to 25.8 but after doubling to 30.1 in June. After 3 months in a row of negative prints, inventory expectations came back to zero. Expectations for both prices paid and received were higher. Capital spending plans were little changed at 3.1.

The bottom line from the NY Fed, “Manufacturing conditions remained somewhat sluggish in NY State in July…However, firms remained fairly optimistic that conditions would improve in the months ahead.”

My bottom line, after about 2 years of contraction, I understand the hopes for a recovery and at some point we’ll get that long awaited inventory build but getting the timing right is not easy right now because end demand is so unclear and visibility is limited.

NY Mfr’g

New Orders

Prices Paid

6 Month Business Outlook

I further reduced my Green Brick GRBK long at $65.

With S&P cash +24 handles I am selling September in-the-money calls on a scale higher.

Adding to already sizeable MSOS in premarket trading.

The shares are lower based on the view that, if elected, Trump could squelch rescheduling.

I will discuss later why this is not likely the case.

Out of DJT at $39.

Housekeeping item: I just covered 3/4 of this morning's DJT short at $38.45 for a $8+ profit.

12:00PM: (INVITED) Fed Chair Powell participates in interview hosted by the Economic Club of Washington (Other details TBA. Event information: https://www.economicclub.org/events/honorable-jerome-h-powell-1);

4:35PM: Fed Bank of San Francisco President Daly (Voter) participates in session, "The Bull, the Bear, and the Banker" before the Fortune Brainstorm Tech 2024, Park City, UT (No prepared remarks expected. Audience Q&A expected. No group media interview. Livestream available)

Reflecting some concerns about tariffs and that tax and fiscal policies may be inflationary (in a Trump Administration), bonds are rising in yield and the yield curve is normalizing:

* The two-year Treasury yields 4.46% (flat).

* The 10-year Treasury yields 4.24% (+5 bps).

* The long bond yields 4.47% (+7 bps).

I would still, despite my view that the economy is about to turn lower, not lengthen maturities.

Upside:

-DJT +48% (odds of Trump victory in presidential election increase following shooting)

-ARTL +22% (receives FDA Clearance of IND Application for ART26.12, a Selective Fatty Acid Binding Protein 5 Inhibitor)

-CXW +7.7% (strength with increased odds of Trump election victory)

-GEO +6.9% (strength with increased odds of Trump election victory)

-ASNS +4.3% (receives software and service contract renewal of ~$1.5M from major North American customer)

-LEGN +3.9% (momentum from potential M&A news from Friday)

-MODD +3.1% (announces Proof-of-Concept Study for Personalized Metabolic Therapy utilizing the MODD1 Platform)

-SMCI +3.1% (confirmed to replace Walgreens Boots Alliance in Nasdaq-100 index, effective Jul 22nd)

-HUM +2.3% (health insurance names strength as odds of Trump election victory increase post-shooting)

-UNH +2.2% (health insurance names strength as odds of Trump election victory increase post-shooting)

-SHOT +1.9% (partners with KeHE Distributors to expand nationwide access)

Downside:

-LXEO -19% (announces interim Phase 1/2 Clinical Data of LX2006 for the Treatment of Friedreich Ataxia Cardiomyopathy)

-M -14% (terminates discussions with Arkhouse and Brigade; proposal lacks 'certainty of financing and compelling value')

-AN -6.1% (reports prelim Q2 with CDK incident impacts)

-STAA -4.8% (Morgan Stanley Cuts STAA to Underweight from Equal Weight, price target: $37)

-JWN -3.0% (weakness in sympathy with Macy’s)

-CLF -2.3% (to acquire Stelco, Inc. at C$70/shr cash-stock based on EV of C$3.4B)

-KSS -2.0% (weakness in sympathy with Macy’s)

As of 8:24 a.m.:

At 8:43 a.m.:

Occidental Petroleum price target lowered to $77 from $78 at Stephens Stephens lowered the firm's price target on Occidental Petroleum to $77 from $78 and keeps an Overweight rating on the shares. The firm is lowering its Q2 cash flow per share and EBITDA estimates 4% and 3%, respectively, to 8% and 13% below Street consensus, respectively, primarily due to pre-released realized oil, NGL, and gas prices, the analyst tells investors.

From Peter Boockvar:

Objectively looking at Trump trade/More euphoria/Air cargo/Earnings comments/Yen/China

PredictIt has a Trump win now up to 66% from 60% on Friday in light of the tragic events Saturday. It was at 55% right before the debate. Biden is down to 26%, down 1 pt and compares with 45% before the debate. My friend Eric Rosen, who pens the widely read Rosen Report on Substack twice per week, highlighted yesterday that Reagan got a 22 pt lift to his poll numbers after he was shot.

Everyone is passing around their favorite Trump trades but I think we've seen over the past century that stock market moves are more random than what a president can dictate. Yes, a change in the corporate tax rate was a big deal in terms of corporate earnings but that won't change much in the next four years. Personal tax rates certainly matter but at best we'll get a continuation of the current rates. The regulatory state can ease but with the Chevron ruling, judges and Congress now will be more influential on that. Healthcare payments are mostly driven by government so who is president might matter here as well as for defense spending. As for overall government spending, whether Congress is split or not in terms of parties of course will hugely matter but either way, government spending is out of control and will continue to be so regardless of who is president. I do believe though that whoever runs the FTC will have a big influence on the pace of M&A since it's been basically stunted over the past 3 1/2 years.

PredictIt/Trump in orange, Biden in white

Moving on. As measured by the Citi Panic/Euphoria index, the Euphoria is getting more euphoric as their index hit .52, up from .46 in the week before and you have to go back to 2021 to see a higher read. Again, take note because of the statistically significant implications, according to Citi, of a read this high. 

The World ACD gave us air cargo data on Friday in light of the squeeze higher in container shipping rates. The average spot rate for a cargo flight from Asia Pacific to the US on a per kilo basis is up by 68% y/o/y. The global rate of $2.57 per kilo is higher by 14% y/o/y. Again, as said with container prices now, someone has to eat this and we'll see who in the coming months/quarters based on what can be passed on to one's customers.

When a major developed country's currency trades at nearly a 40 yr low against the US dollar, it is not just a talking point for Wall Street. It has real world implications for that country. We keep talking about Japan and the yen and the damage a weak currency has on their standard of living as the cost of imports rises sharply and wage growth is still not keeping up with inflation. I'll add another problem for Japan that the NY Times business section pointed out over the weekend. "Plunging Yen Takes Toll on Military." The article said "The government has slashed orders for aircraft, and officials warn that further cuts may be imminent. Japan buys much of its military equipment from American companies, in transactions done in dollars. The government's purchasing power has been drastically eroded by the yen's diminishing value."

Tobias Harris has a Substack on Japan and is an expert on the dynamics there. He wrote on Friday, "Dissatisfaction with the yen is present throughout the economy. Kobayashi Ken, the head of the Japanese Chamber of Commerce and Industry, which represents small and medium sized enterprises, earlier this month called on the government and BoJ to adopt FX policies that take the struggles of SMEs into consideration. Meanwhile, Niinami Takeshi, chairman of the business federation Keizai Doyukai, somewhat unusually called on Friday for a rate hike to provide relief from the weak yen."

Also, "The rising cost of imported goods has led to a mood of despair on Japan's opinion pages, as editorial writers and experts lament Japan's relative 'impoverishment' and decline."

Bottom line, expect a rate hike and a large cut to QE at the end of the month from the BoJ. The yen is down a touch today after the sharp rally last Thursday and Friday.

On to the earnings calls from Friday:

From JP Morgan,

"In terms of credit performance this quarter, credit costs were $2.6 billion, reflecting net charge-offs of $2.1 billion, up $813 million y/o/y, predominantly driven by Card as newer vintages season and credit normalization continues. The net reserve build was $579 million, also driven by Card due to loan growth and updates to certain macroeconomic variables."

"Demand for new loans remains muted as middle market and large corporate clients remain somewhat cautious due to the economic environment and revolver utilization continues to be below pre-pandemic levels. Also, capital markets are open and are providing an alternative to traditional bank lending for these clients."

"In CRE, higher rates continue to suppress both loan origination and payoff activity."

"I still feel like when it comes to Card charge-offs and delinquencies, there is just not much to see there. It's normalization, not deterioration, it's in line with expectations. And as I say, we always look quite closely inside the cohorts, inside the income cohorts. And when you look in there, specifically for example, on spend patterns, you can see a little bit of evidence of behavior that's consistent with a little bit of weakness in the lower income segments where you see a little bit of rotation on the spend out of discretionary into non-discretionary...And so, it's not entirely surprising that you're seeing a tiny bit of weakness in some pockets of spend. So, it all kind of hangs together in what is in some sense actually not a very interesting story."

From Wells Fargo:

"Credit performance during the 2nd quarter was consistent with our expectations. Consumers have benefited from a strong labor market and wage increases. The performance of our consumer auto portfolio continued to improve, reflecting prior credit tightening actions and we had net recoveries in our home lending portfolio. While losses in our credit card portfolio increased as expected, early delinquency performance of our recent vintages was aligned with expectations."

"In our commercial portfolios, losses continued to be driven by commercial real estate office properties where we expect losses to remain lumpy. Fundamentals in the institutional owned office real estate market continued to deteriorate as lower appraisals reflected the weak leasing market in many large metro areas across the country. However, they still remain within the assumptions we made when setting our allowance for credit losses."

"Average commercial and consumer loans were both down from the 1st quarter. The higher interest rate environment and anticipation of rate cuts continued to result in tepid commercial loan demand, and we have not changed our underwriting standards to chase growth."

The drop in net interest income "was driven by higher funding costs, including the impact of lower deposit balances and customers migrating to higher yielding deposit products in our consumer businesses and higher deposit costs in our commercial businesses as well as lower loan balances. This was partially offset by higher yields on earning assets."

"Looking ahead, the US economy remains strong, driven by a healthy labor market and solid growth. However, the economy is slowing and there are continued headwinds from still elevated inflation and elevated interest rates."

Credit losses rose still in CRE not surprisingly. "Consumer net loan charge-offs increased $25 million from the 1st quarter to 88 bps of average loans. Auto losses continued to decline, benefiting from the credit tightening actions we implemented starting in late 2021. The increase in credit card losses was in line with our expectations as older vintages are no longer benefiting from pandemic stimulus as more recent vintages mature. Importantly, the credit performance of our newer vintages has been consistent with our expectations, and we currently expect the credit card charge-off rate to decline in the 3rd quarter."

Jane Fraser at Citi always gives a good lay of the global macro land and here is what she said:

"Looking at the macro environment as we enter the 2nd half of the year, US is still the world's most structurally sound economy. After a break in progress, inflation now appears back on a downward trajectory. Services spending has remained on an upward trend, although there are clear signs of a softening labor market and the tightening of the consumer budget. And, of course, you might have heard there is an election in November. In Europe, while rate cuts have begun, the region's lack of competitiveness continues to be a drag on growth."

More, "In Asia, China is growing moderately, albeit with government stimulus and their pivot to high-tech manufacturing is being challenged by tariffs on EVs and semiconductors."

From Fastenal:

"A tough quarter. Our net sales grew about 2%. Our underlying market remains challenging...we continue in that sub 50 ISM, and that's 19 of the last 20 months, we saw a blip in March that proved to be a head fake. It's an uncommonly long duration that weighs on US industrial production and consequently affects our daily sales rates because 75% of our revenue is industrial."

From the CFO, "We continue to experience sluggish business activity that has persisted long enough at this point to be spurring an uptick in layoffs and shift reductions. There were more and longer shutdowns around the July 4 holiday. Some of those frankly are continuing, and overall, industrial production continues to exhibit modest declines as we saw in April and May with the key machinery components being weaker than the overall index, and we're feeling that."

Burberry stock is down sharply today both in part due to "a backdrop of slowing luxury demand" the company said and likely execution issues too where the CEO is leaving. Other luxury makers are down in European markets.

China reported a slower than expected GDP growth rate for Q2 of 4.7% vs the estimate of 5.1%. Softness in retail sales was a main factor. As home prices continue to drop, the wealth impact is notable with so much consumer money tied up in their homes. I hear more cries for stimulus and easing but time is the only healthy cure at this point for the residential real estate downturn.

The Shanghai comp was little changed in response but stocks in Hong Kong sold off after last week's rally.

OK on the topic of I shouldn’t, but I am, one more on the subject of I shouldn’t, but I am.

Interesting chart below from Goldman Sachs GS.

What the chart shows is that the companies who provide the equipment (semiconductors, etc) for the AI buildout have had very positive stock price performance. But the companies that sell what the AI provides (the “hyperscalers," have had poor and divergent stock price performance. In third-grade terms, they are spending a lot of money on the product offering (AI), but losing money doing it. Reasons why they are losing money doing this:

* It is incredibly expensive. Capital, and operating expense (inclusive of power).

* For many applications, it does not work very well or add a lot of value, therefore they cannot charge enough (if anything) for the service they are offering.

This of course, is not a sustainable proposition. They "hyperscalers" are not the U.S. government, and they will not subsidize other entities at their own expense on a sustainable basis.

from Goldman:

US Equity Views: An update on AI and US equities

10 July 2024 | 4:25PM EDT

The AI trade is under increasing scrutiny. The average stock involved in the infrastructure build-out of AI (Phase 2) has returned 26% YTD, but stocks with enabled revenues (Phase 3) fell by 19% between February and May. Investors are increasingly concerned about the potential returns to the hyperscalers' AI investment spending. Relative to cash flows, TMT capex and R&D remain well below Tech Bubble levels. However, analyst sales estimates for the hyperscalers have not increased commensurate with investment spending. We expect Phase 2 of the AI trade to continue alongside ongoing investment spending. Investors should focus on sales revisions as a key indicator for the durability of the AI trade.

As I noted last week, given the economic slowdown and rates likely to be higher for longer — I don't expect small-caps IWM to sustain its recent gains.

And with equities about to make a challenge towards another high (given the strength of stock futures), I remain negative on the market's outlook over the next six to 12 months.

From (Breakfast With) Rosie this morning:

The S&P 500 now commands a 21.6x forward P/E multiple or a 4.6% earnings yield. Meanwhile, we can pick up 5.3% in the T-bill market, 5.3% on a short-dated piece of investment-grade corporate paper, or 4.5% for the two-year Treasury note. There are alternatives with more alluring risk-adjusted return potential.

My comment of the morning:

Dougie Kass

I have reshorted DJT in premarket at $46.52

I discourage most/all in following me on this volatile short!

Senator Warren on cannabis. 

Elizabeth Warren Warns Of Amazon And Big Tobacco Entering Marijuana Market At Anti-Monopoly Event - Marijuana Moment

Given questions regarding President Biden's health coupled with the assassination attempt of former President Trump I wanted to repost one of my surprises from my Surprises for 2024.

 Doug Kass: My 10 Surprises List for 2024 - TheStreet Pro:

Surprise #1. Donald Trump is convicted of obstruction and conspiracy.

In an agreement between the former President and the current President, Biden pardons Trump in exchange for Trump agreeing to leave the 2024 Presidential race. Governor Ron DeSantis finishes third in both the Iowa and New Hampshire primaries and drops out of the race -- with Nikki Haley capturing many of his supporters -- closing the gap with Trump. Chris Christie drops out soon thereafter while Vivek Ramaswamy hangs on to the bitter end. Nikki Haley becomes the Republican Presidential nominee.

In early September, shortly after Biden wins the nomination, the President suffers a health emergency and, like Trump, leaves the race. If Trump indeed has left the race, Governor Gavin Newsom is selected as the replacement nominee for Biden. If Trump is still in the race (and not convicted) and Biden does have a health emergency, the Democrats draft Governor Gretchen Whitmer after first trying to attract Michelle Obama into the fray (she demurs). Whether the contest is between Haley/Newsom or Trump/Whitmer, the winner will be the first woman President...either Nikki Haley or Gretchen Whitmer.

"The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them."

- Peter Lynch

Bonus — Here are some great links:

Stock Market and Crypto Analysis

Post July 4th Flip Flops

Opportunities Away From Big Tech

Efficient Markets - LOL!

XLC ETF

DJT is +$17 (+54%) in premarket.

About three weeks ago we covered our short much lower:

Housekeeping

Housekeeping item.

I have covered my small (DJT) short at about $27/share in premarket trading.

JUN 21, 2024 6:53 AM EDT

I plan to reenter the short subject to availability and cost.