As of 4:26 p.m.:

Nvidia’s Huang Sold $323 Million of Stock in July Before Decline

I have moved to very large OXY.

Another mischaracterization of the general health of S&P EPS on Fin TV just now (yawn!):

Google's GOOGL adverse court decision hurts Apple AAPL (and we can see the swift decline in the shares).

From Morgan Stanley:

"GOOGL would likely need to see 15%+ search traffic losses in order to make TAC reductions NPV negative. Given the high utility and continued innovation of GOOGL's products, differentiation of the logged in ecosystem, etc, this to us seems like a low probability risk.

For Apple, in a worst-case scenario (total TAC elimination globally), we see 15% EPS downside risk (~$1.20 FY25 EPS), but there are a number of other potential less severe outcomes that are possible, and we would ascribe a low probability to this worst-case scenario playing out."

* Should we listen to Chip Diller (Kevin Bacon) in Animal House or to Dan Ives on Twitter and Bloomberg?

Chip Diller:

Animal House - Remain Calm, All is Well! (youtube.com)

https://www.youtube.com/watch?v=wWBiLeVy45k

Or Dan Ives on Twitter:

And on Bloomberg:

Watch This Is Still a Buying Opportunity, Ives Says - Bloomberg

I covered my Coca-Cola KO short for a push at $67.82 (-$1.52) just now.

And I am glad I sold most of my Procter & Gamble PG long on Friday's rotational ramp (+$4.50) in consumer nondurables:

My PG Long

At $169.42, I moved to very small long Procter & Gamble (PG) (which has benefited mightily from the sector rotation this week).

Position: Long PG (VS)

BY DOUG KASS AUG 2, 2024 10:00 AM EDT

Wolf Street howls about the markets... 

Recommended reading!

Nvidia's Blackwell Reworked - Shipment Delays & GB200A Reworked Platforms (semianalysis.com)

Another one from Friday:

There Are Many Great Charts That Lie at the Bottom of the Sea

"Many receive advice, only the wise profit from it.”

- Harper Lee

I sent caution to the wind earlier this week and late last week in my daily "Charting The Technicals" column — as there was a self confidence (bordering on hubris) expressed by the technicians in a likely explosive bull market leg.

From my July 29th column TheStreet Pro:

Charting the Technicals

* Confident technicians embrace small-cap...

* Ten cuidado!

From my July 26th column TheStreet Pro :

Charting the Technicals

* Some editorial comments about hubris and full dependency on charts this morning.

* I previously warned that the plethora of technical analysts quoted in 'Charting the Technicals' have been confidentally bullish into the recent market decline.

* To me, though, the only certainty is the lack of certainty — as Grandma Koufax often reminded me ("to be aware of the Cossacks").

* A contrarian, independent and fundamental view is often important to consider and sometimes to implement.

* That is why, to me, a sense of fundamental value is so important (vs. a blind eye towards price momentum — which is the foreplay of machines and algos).

* In looking at the charts I find extreme readings in RSI and in the S&P Short Range Oscillator as guiding technical stars to be superimposed with a fundamental understanding of value in the Indices, sectors and individual stocks.

“The best plan is to profit by the folly of others.”

- Pliney The Elder

Ummm... that failed to develop.

Position: None

BY DOUG KASS AUG 2, 2024 11:05 AM EDT

From JPMorgan:

US: Futs are sharply weaker with Tech weaker as the global AI/Semis trade is sold and small-caps are re-shorted; both NDX/RTY futs have pared their largest overnight losses as VIX spikes above 40. Pre-mkt, NVDA -9.3%, AAPL -8.6%, TSLA -7.4%, MSFT -4.5%, AMZN -3%, META -6%, GOOG -5% and Semis are under pressure. Bond yields are lower with the yield curve bull steepening and 2s/10s ~4.5bps from being fully dis-inverted. Today’s macro focus is ISM-Srvcs (51.0 survey vs. 48.8 prior), Sr. Loan Officer Survey, and 2x Fedspeakers.

and....

EQUITY AND MACRO NARRATIVE: Last week, the SPX lost 2.1% to finish its first 3-week losing streak since April as the market reacted negatively to macro data and AI/Tech earnings as it shifted from a Goldilocks/Broader Rally narrative to one characterized as a Growth Scare with investors beginning to adopt a recession playbook. Defensive (and rate sensitive) plays Utilities and Real Estate outperformed with Utils adding 4.3% and RE adding 2.8%. NDX lost 3.1% and RTY lost 6.7%; RTY sits about 4% above its pre-July squeeze level. Last week’s Fed meeting had supported the Goldilocks narrative before NFP shifted the market to a Growth Scare; consequently, US Chief Economist Mike Feroli updated his Fed outlook from 50bps of cuts to 125bps of cuts with a cadence of 50bps at both the September and November meetings followed by 25bps at each meet thereafter. Feroli thinks the Fed is at least 100bps offsides. With these developments, Co-Head of US Rates Strategy Jay Barry now sees the 10Y yield falling to 3.50% by YE24 with 2s/10s fully dis-inverting by the end of September.

The SPX is down 5.7% from its ATHs, a full 10% correction implies 5,100, a 15% downdraft implies ~4,815 level, and a 20% bear market is trigger ~4,530. As we think about the next few weeks/months for stocks, I think it is worth starting with comments from Dubravko Lakos-Bujas, our Chief Global Markets Strategist, and Elan Luger, our Head of Global Equity High Touch Trading.

Dubravko’s view (full note is here):

Given robust investor sentiment and elevated positioning, we recommend diversifying away from momentum tail risk by adding allocation to anti-momentum Defensive Value plays (i.e., Utilities, Staples, Healthcare, Telecom, Dividend Aristocrats) and away from pro-cyclical exposures (Industrials, Consumer Discretionary, Financials, and unprofitable Small Caps). Also, Defensives are a hedge against the unknowns, trade at a cheaper relative multiple (Defensive vs. Cyclicals valuation spread at lows), and offer a higher shareholder carry than most Tech and Cyclical industries. Our equity outlook does not account for tail events even though there are plenty that could be a catalyst for higher volatility, rapid deleveraging, and a sharp break in global markets (e.g., rates and FX risks due to unsynchronized inflation and growth cycles such as between US and Japan, tightening global liquidity, elections, and geopolitical risk).

This one slipped through the cracks for earlier today:

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

Another one from Friday's Diary:

Market Structure Risk

* As the movie is now running in reverse...

I have long been worried about market structure risk — something the business media never addresses and always dismisses.

With everyone on the same side of the boat and worshipping at the altar of price momentum — an inflection point in that momentum (seen vividly this week) has the potential of producing an October 1987 selling climax.

Be forewarned.

Position: None

BY DOUG KASS AUG 2, 2024 10:40 AM EDT

I am out of all my Index positions now.

With Nasdaq futures +800 handles from this morning's lows I am out of the tech stocks I purchased (that I began to accumulate in the Friday selloff).

I expect (or am hopeful!) of a Berkshire Hathaway BRK.A BRK.B filing of an Occidental Petroleum OXY add tonite or tomorrow nite.

From Peter Boockvar:

ISM services rundown/What stocks do from here is really important for overall economy

The July ISM services index rose to 51.4 from 48.8 (which was the weakest since 2009 not including Covid) and that was just above the estimate of 51. After dropping by 7 pts last month, new orders rebounded by 5.1 pts to 52.4. Backlogs dropped almost 7 pts last month and bounced by 6.6 pts to 50.6. Inventories mostly reversed the June drop and finished July at 49.8. Employment rose 5 pts to back above 50 at 51.1 after 5 months below. Supplier deliveries fell back below 50 while prices paid rose a touch, by .7 pts to 57 and is in line with the 6 month average.

Specifically on employment, “Have many open requisitions to fill and personnel to train for the fall and 2025 ramp up” and “Higher productivity instead of replacing turnover.”

On inventories, “Intentionally working down inventory.”

With new orders, “Many projects in our queue” and “Additional data center projects are coming out for bid.”

In terms of breadth, 10 of 18 industries saw growth vs 8 in June and 13 in May. Eight industries saw a contraction, the same amount seen in June and the balance saw no change.

The ISM said, “Survey respondents again reported that increased costs are impacting their businesses, with generally positive commentary on business activity being flat or expanding gradually. Comments continued to express a wait-and-see attitude regarding the upcoming presidential election, with one respondent expressing concern over potential increases in tariffs. Many panelists noted a return to more stable supply chain performance, albeit with higher costs.”

Bottom line, the 51.4 print has the ISM services index right in line with its 6 month average, obviously back above 50 but not by much. Also, only 10 of 18 industries are seeing growth. We’re at a very interesting moment with the US economy where the only real areas of strength I’ve seen is in healthcare, anything touching government spending (healthcare is big part of that) and incentives, AI capital spending, and high end consumer spending. If the stock market is in for turbulence and a further selloff that lasts more than just the few weeks we’ve seen, I’d expect some buckling and pausing with that higher end spend. You can be sure too, that employers will further pause the pace of hiring’s too if markets further correct.

ISM Services

New Orders

Employment

Inventories

Prices Paid

Number of Industries Seeing Growth

I am out of all my short-term rentals now.

From The Credit Strategist: 

'The Mean Season'

From Peter Boockvar: 

That was some carry trade...

I've talked a lot about the BoJ, JGB's and the yen this year emphasizing the importance of the shift in policy for not just Japan but global markets. Also I constantly ridiculed the BoJ all year as they redefined the word 'patience' when it came to unwinding their excessively easy money in the face of persistent inflation. That said, never in my wildest market dreams and any analysis I've done had any idea to the extent of the epic leverage that was built up in the yen carry trade that is now clearly evident in the unwind. That we have to repeat saying 1987 and market crash in the same sentence is truly stunning as is the global nature of this trade. We have seen just another central bank overdue it with their easing, a massive amount of excess built up as a result and now the nasty unwind. 

Corporate Japan though has made some important changes for the better over the years in terms of returns on equity, unwinding share cross holdings, corporate governance, a focus on shareholder value, etc... so Japanese stocks will rebound but again, these moves are quite stunning. 

The 10 yr JGB yield fell a very sharp 16 bps to .79% and the yen continues to rip.

And by the way, 1987 is not the only reference in global markets. The Taiwanese TAIEX, lower by 8.4% overnight, had its worst day since 1967. 

I hear people blaming the Fed for this but Japanese stocks just crashed because of the yen rip not because of the Fed and even at the open, the S&P 500 is still around 5200, still up from 4770 year to date, a gain of 9% not including dividends. I've also heard people opining on whether the Fed is now going to have an intra-meeting interest rate cut and I put the odds of that at about zero. It would smack of panic and would actually make the situation worse.

Nikkei

10 yr JGB Yield

Yen

With respect to the US 10 yr yield, this is a key spot of around 3.75% as this was the level from which we ran to 5% last summer in response to the BoJ widening yield curve control. I've circled that time frame.

US 10 yr Yield

I've also heard people blame Friday's payroll miss on Hurricane Beryl. While I'm sure some jobs were impacted in the Houston area, we've been seeing growth slowing in the state of the labor market even before the print. I'll use an anecdote here highlighting what I don't see as a big impact. 

From Mister Car Wash, a stock we own and there they have 42 stores in the Houston area:

During the storm, "They were closed on average. The average came out to about 2.9 days for the time that they were closed." That's not much time. 

Shifting to the US rental story because of its importance to the Fed's fight against inflation, here was what Camden Property Trust said of note on Friday's earnings call:

"Yes, we are at a 30 yr high for apartment deliveries, and yes, this is limiting rent growth in most of our markets now. The good news is that our markets are adjusting quickly to the post-pandemic low interest rate development frenzy. Starts are still projected to fall to just over 200,000 apartments in 2025. New deliveries should peak in 2024, falling 21% in 2025 and another 54% in 2026, which would be a 13 year supply low point. Apartment demand continues to be strong."

Also, "During the first half of the year, net apartment demand was over 200,000 apartments, matching 2018 and 2019. Witten Advisors projects 2024 apartment demand to be in the 400,000 range. The main driver of apartment demand is household formation, driven by population and employment growth, apartment affordability, and positive demographic trends. The most recent 2022-2023 census data reported that the top 10 cities increased their population by 710,000. Nine Camden markets are in the top 10. The bottom 10 cities reported a loss of 200,000 people."

"Apartment affordability continues to improve as resident wage growth has been over 5% while rents have been relatively flat...Mortgage rates and rising home prices have kept move-outs to buy homes near historic lows. 10.3% of Camden residents moved out to buy a home in the 2nd quarter. The monthly cost of owning a home today is about 60% more than leasing an apartment."

To repeat what I mentioned on Friday, "Rental rates for the 2nd quarter showed signed leases down 1.8% and renewals up 3.7% for a blended rate of a positive .8%...Renewal offers for August and September were sent out with an average increase of 4.6%."

From Equity Residential last week too:

There "are several trends that continue to support rental housing performance, including high homeownership costs, limited for sale inventory and a steady though moderating employment picture. We continue to see high levels of retention among our residents due to elevated homeownership costs with homeownership crossing record levels last month, making rental housing a good value alternative."

They saw a blended rate of rental growth of 2.4% in the first half and guiding to 2.5% for Q3. This includes about 4.5% renewal rates. 

Coincident with the stock market selloff last week, credit markets did as well. The CCC credit spread blew out to 9%, the highest since last December. The overall high yields spread rose to the most since January of this year. Thus, no one in markets was spared. 

CCC Credit Spread

High Yield Credit Spread

Moving overseas, China's July Caixin services PMI rose to 52.1 from 51.2, helped in part due to tourism from overseas. Also, "The labor market shifted from contraction to expansion." While the broad macro consensus on the Chinese economy is broadly negative for obvious reasons, don't count it out as they will get thru this residential real estate downturn with much less leverage and speculation.

Singapore said its July PMI rose 2 pts to 57.2, outperforming most of the world. Hong Kong's remained below 50 at 49.5, though up from 48.2 in June.

On Singapore, "Business activity growth was observed across the majority of sectors tracked, led by firms in the transport, information & communications segment."

The Eurozone and UK July service PMIs were left little changed with their initial prints seen a few weeks ago.

Out of SPY at $520 and QQQ at $437; out of ARM at $107.

Out of Google GOOGL at $161.10

I sold Apple AAPL at $209.

I am out of NVDA at $99.15

I am out of AMZN at $159.52

* What is Warren Buffett thinking?

* Nvidia faces a fork in the road!

From ZeroHedge: Warren Buffett has sold half of his Apple stake.

Buffett Calls The Top: Berkshire Quietly Dumps Half Its Apple Shares Amid Unprecedented Selling Spree

It is amazing he was able to do this so quietly and without affecting the stock price. Kudos to his trading desk. Although for all intents and purposes he sold a lot of it back to Apple AAPL.

“Sold to you!” as they say. Silly old man getting out ahead of all of the AI stuff. What is he thinking?????

From CNBC: Warren Buffett's Berkshire Hathaway sold nearly half its stake in Apple

***

Appended below, more detail on the problems NVDA is having with its new part. Seems to me this problem may not be so easy to fix, and who knows how it will perform if and when it is fixed.

One other challenge this whole thing may have.

I do not think the foundational technology to generative AI will ever work, a whole new approach is needed. Hallucinations are a feature, not a bug. The new approach does not yet exist.

But to continue to milk the generative AI approach, which is currently much too expensive – operating and capital costs, including power, huge advancements in silicon technology are necessary. The silicon needs to get cheaper, and much more efficient.

However, it is already getting really hard to do that. We seem to be at the point where Moore’s law is close to being tapped out. It is getting incredibly expensive and complicated to move down process nodes now. We seem to be at the end of the rope. I wonder if the whole industry has gotten way out over its ski’s and has really bitten off more than it can chew?

Below is an article on Moore’s law. But first also note Intel’s INTC parts are also blowing up, which is part of their many issues. Advanced Micro Devices AMD has had challenges recently as well with their Ryzen parts: There is no fix for Intel’s crashing 13th and 14th Gen CPUs — any damage is permanent.

From MIT CSAIL Alliances:

The Death of Moore’s Law: What it means and what might fill the gap going forward

Moore’s Law was never meant to last forever. Transistors can only get so small and, eventually, the more permanent laws of physics get in the way. Already transistors can be measured on an atomic scale, with the smallest ones commercially available only 3 nanometers wide, barely wider than a strand of human DNA (2.5nm). While there’s still room to make them smaller (in 2021, IBM announced the successful creation of 2-nanometer chips), such progress has become prohibitively expensive and slow, putting reliable gains into question. And there’s still the physical limitation in that wires can’t be thinner than atoms, at least not with our current understanding of material physics.

THE REALITY: MOORE’S LAW IS OVER

If you ask MIT Professor Charles Leiserson, Moore’s Law has been over since at least 2016. In conversation with CSAIL Alliances, he points out that it took Intel five years to go from 14-nanometer technology (2014) to 10-nanometer technology (2019), rather than the two years Moore’s Law would predict. Although miniaturization is still happening, the Moore’s Law standard of doubling the components on a semiconductor chip every two years has been broken. The implications are far-reaching and, Professor Leiserson admits, concerning, especially with the recent frenzy around generative AI and large language models (LLMs). He says, “the only way to get more computing capacity today is to build bigger, more energy-consuming machines.

Read more at: https://cap.csail.mit.edu/death-moores-law-what-it-means-and-what-might-fill-gap-going-forward

The following is from: Nvidia's Blackwell Reworked - Shipment Delays & GB200A Reworked Platforms (semianalysis.com)

Here are the U.S. select premarket movers as of 7:55 a.m. ET:

Upside:

-K +11% Mars said to explore acquisition of Kellanova

-CG +1% earnings; Cogentrix sale

-FRPT +3% earnings/guidance

-ZVRA Confirms FDA Advisory Committee Votes Favorably (11 yes, 5 no) that the Data Support Arimoclomol as Effective Treatment for Patients with Niemann-Pick Disease

-TSN +1% earnings; guidance

-DNB confirms received inbound interest from third parties and has retained Bank of America to assist

-TWKS +20% to be taken private by Apax Funds for $4.40/shr in cash

Downside:

-NVDA -9% Blackwells delay report

-AAPL -8% Berkshire cut stake

-BRK.A -4% earnings; Apple news

-BNTX -3% earnings

-ATNM -35% Iomab-B Phase 3 SIERRA trial is not adequate to support a BLA filing

* ARM $99.8

* NVDA $93.66

* GOOGL $157.84

* DKNG $28.78

* AMZN $156.78

I added to Occidental Petroleum OXY in premarket at $55.52.

The following purchases were executed early (4 a.m.) this morning: 

* Amazon AMZN $159.82

* Apple AAPL $200.91

* SPY $518.81

* QQQ $428.89

From Friday (for emphasis):

Minding Mr. Market: Consider Your Sources of Investment Information

"Praise by individual, criticize by category."

- Warren Buffett

Given the market's possible return to reality, it is a good time to consider the past sources of your investment information.

There is nothing wrong about being wrong about stocks.

There is something wrong about possessing excessive confidence and lacking humility — particularly given the host of fundamental uncertainties that many have been ignored as stocks moved ever closer to the sun.

There is something wrong with not taking ownership of one's investment and trading boners when delving out investment recommendations. They are typically asset gatherers who throw a lot of ideas against the wall, do little research, memorize sound bytes and emphasize only their winners.

There is also something wrong when stocks recommended (for example, American Express (AXP) , Goldman Sachs (GS) and Amazon (AMZN) ) are capable of declining by between -$15 and-$30 in ONE DAY as they are today!

It means to this observer that the upside rewards vs. downside risks are simply miscalculated — usually by the recommender worshipping at the altar of price, not conscious of intrinsic value and non-existent security analysis (and just chart gazing).

For me the dynamic of reward vs. risk is at the core of individual stock selection.

So is the concept of "margin of safety."

In a bull market reward vs. risk and safety are ignored until it is too late.

As a consequence it is a good time to consider one's sources of investment information going forward.

This has been a consistent refrain of mine in my Diary, after all, its only when the tide goes out do we know who is swimming naked.

I will take The Oracle's quote (above) to heart and not name names — but you all know who they are.

Keep them away from your stock portfolio.

There, I am done with the sermon.