I am now short very small QQQ at $697.78.

Position: Short QQQ (VVS)

The following is from Peter Boockvar:

US manufacturing continues with its rebound

The July ISM manufacturing index rose 2.3 pts m/o/m to 55.6 and that was better than the estimate of 53.9. This is the 7th month in a row above 50 as the US manufacturing sector, globally too, finally gets out of its 3 year recession.

New orders at 56.7 are up from 56 in June while backlogs were higher by 4.5 pts to 55. Inventories were above 50 for a 2nd month at 51.2 and this increase over the past four months reflects I continue to believe the stockpiling that has gone on since the conflict in the Middle East began as buyers get ahead of both supply and price issues. Customer inventories remain low though at 40.7 and remaining well below 50.

Export orders rebounded back above 50 at 53 from 48.5. Positively too, employment was up by 3.1 pts m/o/m to 52.8, the first time above 50 since September 2023. Breadth wise though, just 6 of 18 reported an increase in jobs with 6 cutting jobs and 6 seeing no change.

Supply issues remain with the ‘Supplier Deliveries’ component at 58.9 well above 50. Prices paid dropped 1.9 pts to 71.1 but still 21 pts above 50 with 14 of 18 industries saying they paid higher prices. The one paying less was in petroleum and coal.

Breadth improved a touch with 15 industries reporting growth vs 14 in June. Only one contracted, that being chemical products vs three in the month before. The balance saw no change. This was said by a company in chemical products, “Definitely a downturn within several of our business units, mainly the consumer products division. High freight costs, both for truck and ocean, and longer lead times are concerning. Pricing was moving downward until the Iran war started again.”

Bottom line, as seen with the comments below, most of the economic enthusiasm comes from those selling into the data center construction, along with aerospace & defense. We also have the inventory restocking. Of note too was the paper company saying that Asian customers are buying their paper from someplace else because of tariffs.

Nothing market moving though and bond yields still down on the day with the 4.67% on the 10 yr being a key level (vs 4.68% as of this writing) as it was the May peak. Prior to that watch 4.79% as it was the January 2025 peak and of course 5% before then that we touched for a day in October 2023 and which I believe we will be retesting again.

“We are seeing a very opportunistic and reactive marketplace. If shortage items become available, we opportunistically buy. Some customers are reducing inventory; others are pulling forward demand. As many customers that are slowing down, an equal number are growing. It looks like a lot of shuffling and shifting market share.” [Chemical Products]

“We continue to operate in a favorable demand environment driven by growth in the semiconductor, AI, advanced packaging, and high-performance computing markets. Recent company reports indicate strong sales growth and continued investment in manufacturing capacity, technology and customer-support capabilities. This scenario supports a positive business outlook and creates opportunities to leverage increased purchasing scale across the enterprise.” [Computer & Electronic Products]

“Now that it seems the buildout of AI infrastructure globally is nearing real activation, products going into data centers are at full procurement and manufacturing ramp-up. Thus, demand for our semiconductor end products and connectivity (power, networking and photonics) is booming. Similarly, defense is at an all-time high, with most of our product orders going to these two industries. Order volumes for medical, industrial and consumer products are markedly lower.” [Machinery]

“Aerospace and defense demand continues to be strong and growing, based on business backlogs. Competing for scare supply — electronics, certain critical minerals and other categories — is challenging on-time fulfillment for our supply chains. This is expected to get worse with co-dependent sectors also remaining strong and restocking challenges for automotive electronics.” [Transportation Equipment]

“Continued tariffs on products utilized in our product lines are being monitored by the business, which is working to mitigate or limit tariff risk. Geopolitical risk, especially in the Middle East, pertaining to commodity and energy markets remains a concern. There has been some increased cost and transit time for rerouted shipments due to conflicts in the Red Sea, Strait of Hormuz and Suez Canal.” [Transportation Equipment]

“Business is still solid; we will increase revenue by 3 percent to 5 percent. We are considering foreign steel purchases for early next year because domestic steel mills are getting greedy.” [Fabricated Metal Products]

“No normalcy in sight in the world of metals. It makes me yearn for the coronavirus pandemic chaos, which was more manageable than whatever this is that we are in. At least business is better; however, the components of good business are not. Sharp pricing downturns in aluminum will make things more interesting, as supply levels will prevent those decreases from taking hold across the board. Getting customers to understand that is not always easy.” [Primary Metals]

“The pricing volatility and lead-time extensions in this market are arguably worse than the pandemic era. During COVID-19, we saw a surge of price hikes and inventory buy-ups, which caused constraints that eventually leveled out. We are seeing nothing but consistent upward trends for both pricing and lead times that show no signs of slowing down. Specifically, 5-percent to 25-percent price increases for printed circuit board assembly components and 15-percent to 45-percent increases for bare boards are negatively impacting customer demand outlook into next year. This isn’t sustainable.” [Electrical Equipment, Appliances & Components]

“Our customers in Asia continue to procure elsewhere to avoid paying a tariff. While the Iran war was paused, it was terrific to see fuel prices (and delivery costs) falling steadily. Now that skirmishes have resumed, we expect fuel to rise again.” [Paper Products]

ISM Mfr’g

Inventories

Prices Paid

Employment

– NYSE volume 15% above its one-month average; 
– Nasdaq volume 76% above its one-month average;  
– VIX index: down 1.44% to 15.76

Positions: None.

From 10:58 a.m. ET

Positions: None.

Moved  from very small to small-sized short SPY (SPY) at $754.54.

Position: Short SPY S

Getting my sea legs back.

Positions: None.

Positions: None.

Today’s Treasury Action

11:30 a.m.: Treasury hosts a $92 billion 3 and $79B 6 Month Bill Auction; 

3:00 p.m.: Treasury Financing Estimates

Economic Calendar

Positions: None.

* I continue to call B.S. to the anticipated projections for productivity enhancement, the largely positive expectations for marginal aggregate economic growth/activity from AI and to the unrealistic forecasts for return on invested capital of the AI capital spending spree…

* If the dreams of AI (job) cost saves are realized, how is the U.S. economy to function? 

“When you combine ignorance and leverage, you get some pretty interesting results.”

– Warren Buffett (1993 Lecture to Columbia Business Graduate School Students)

With regard to The Lack of Situational Awareness Hedge Fund, one point that has not been made yet is the moronic investors there. If you put all your money on one number at the roulette table, if it hits, you take your winnings and run away from the casino as fast as you can. It sounds like almost none of the imbeciles in the fund did that. You would think the fund’s performance would have set off some alarm bells for anyone with a brain about the amount of risk that was being taken. But I guess it didn’t. Why? Because apparently, a lot of the capital in the fund came from Silicon Valley VC types who were all drinking the same Kool-Aid, and also have zero concept of risk. Better lucky than good I guess. A lot of dummies have made a lot of money in recent times. This is what a lack of price discovery and too much money in the economy can do. But as they say, he who is closest to the monetary spigot drinks the most, until they don’t, I guess.

One analysis that would be interesting to do would be if all the revenue forecasts came true for the model providers (OpenAI, Anthropic, Gemini, Grok AI, whatever Meta (META) calls its thing, all the Chinese and open source, etc.), how many implied jobs saved would that be? For example, I saw one forecast from a prominent pundit that had Anthropic at $2 trillion of revenue in 2030, and still growing rapidly. My guess is these are the types of numbers investors are being shown. 

At any rate, their revenue is the customer’s expense. If the idea of AI is to replace jobs, at $100k per job, $2 trillion of revenue is 20 million jobs replaced. That is Anthropic alone. I suspect the revenue forecasts for OpenAI are the same. Another 20 million jobs down the tube by 2030 alone. Remember both are meant to still grow exponentially from that point. The forecasts for those two alone imply 40 million jobs gone by 2030 and then continuing to eat jobs at an exponential rate.

To put that in perspective, there are 160 million employed Americans. But only 20% make $100k or more. Let’s call those white collar jobs – those are the type of jobs AI is supposed to replicate. Twenty percent of 160 million is only 32 million jobs. So somehow only two of the AI companies displace 40 million jobs when there are only 32 million people in those jobs to begin with. If you wanted to argue lower-end jobs, like the $50k type, well that would be 80 million jobs. $51k is median income in the U.S., and that would be half the labor force down the tubes. This is only OpenAI and Anthropic. I have left out the revenue forecasts for all of the other players that are also heavily investing and meant to be doing the same things.

If this were to ever happen, how exactly is the U.S. economy supposed to function? I certainly do not want to hear any retorts about Jevons Paradox and how these are productivity enhancement tools.  These things are not Microsoft Excel. Excel costs about $10-$20 a year. It does not take trillions in capex to run. It takes a PC.  hat is a productivity enhancement tool. The AI companies, given the underlying cost base, are all about replacing labor. That is the only way the massive amount of investment could pay for itself. 

Said another way, for their customers to pay them this amount in revenue, they will have to realize more than that amount in cost savings, otherwise there is no point, it just becomes increased expense. AI cannot do anything that humans can’t already do. It is just a trade. The tech does it, or the human does it. That assumes the AI can even do it to begin with, which in many cases, it cannot.

Of course, I do not believe any of this, because I do not think (as expressed in some of the 225+ More Tales series I have written) Gen AI works well enough to replace large swaths of white collar labor, and it never will. Which is why the investment dollars into it will never be re-captured.  Further, I believe the revenue (and profitability) forecasts being put out there for all the model providers are total poppycock and imply things that are just not possible for a variety of reasons. I gave one example, there are probably many more.

WSJ:  “The push to expand head count, at least modestly, is a reversal from the prevailing corporate messaging during much of the AI era. Major employers largely held back on adding people due to economic uncertainties or a belief that artificial intelligence could shoulder more tasks on the job. But some executives say the costs and limitations of AI now demand that more people be added; others want to hire people back following layoffs.”

Big Companies Are Starting to Hire Again, Defying Predictions of AI Wipeout

Bottom Line 

I continue to call B.S. to the anticipated projections for AI productivity enhancement, the largely positive expectations for marginal aggregate economic growth/activity from AI and to the unrealistic forecasts for return on invested capital of the AI capital spending spree. 

Position: None

I will be out of the office from about 7 AM to 10 AM.

I have purchased an automobile that requires me to drive to the DMV in Riverhead, Long Island (from East Hampton) and I have to change the title and register it. (Can’t do it by mail!)

I have been procrastinating the trip but I want to drive the car this summer.

Position: None 

The S&P Short Range Oscillator moved a bit back toward neutral at -0.77% vs. -1.46%.

Position: Short SPY (VS)

Dougie Kass

Sunday Night Trading 

Reshorting SPY (1015PM):

$750.61

Position: Short SPY (VS)