We started with the June Employment Report, which was in-line but had big upward revisions to previous months. That rattled the bond market and sent the 10 up precipitously - and equities didn't like it all that much.

The open was modestly weak, nothing big there.

Let's dig into this report a bit.....

Unemployment hasn't changed (allegedly) at 4.5%.

Manufacturing lost jobs again, as did retail. Temporary help fell for the 5th straight month - a leading indicator of hiring slowdowns.

The strongest gains were in health care, social assistance, food service/bars and government, with all of the government change in state and local. Professional and business services were flat.

Construction was claimed to be "little changed." Of course the Bull****LaborStatistics department doesn't count all the illegal immigrants - either on the hiring or firing end - associated with residential construction.

Average hourly earnings increased 3.9% annualized (0.3% on the month), below the rate of inflation when one includes food and energy. Of course we know that nobody eats or drives, so "core" is a perfectly good inflation gauge.

Url is approaching $73, absolutely flying. I took my oil position off about a week ago - too early. Oh well. That's ok - higher oil will make my PUTs and shorts pay I suspect. There's nothing good here and I expect we may see $80, although my target is in the mid 70s.

The 10 is headed higher in yield; this is likely to continue. Heh guys - maybe Bill Gross is right and we really do have a new, multi-year bear market in bonds?!

The IPhone's activation software has apparently been hacked, and soon will come a hack on the simlock. Bet on it. Time to short AT&T? Maybe not. But this is guaranteed to pizz off both Apple and A&T. See what you get for trying to play "exclusive" games guys? Oh yeah - the guy doing it isn't in the US - good luck suing him. I opined on my view of the valuations of the "Four Horsemen" last night; I still smell March..... of 2000.....

RIMM has resumed being stupid on the back of a $350 price target. Who are the assclowns who read headline numbers but claim to be "analysts"? As I noted in one of my comments last night to the blog, you guys who have RIMM long had better pay close attention to the income statement in the last quarterly releases, then tell me how declining gross margins and huge upticks in receivables translate into "great prospects" and 12 month price targets 60% above today's trading levels. I know, I know, you have big profits. Let me give you a piece of advice - take them now before they disappear! Remember, Bears and Bulls both get fat, but pigs get slaughtered. If I'm later proven right, you can bet the "I told you sos!" will be flying hard and fast. I'm looking closely at a $210/190 vertical PUT spread on this one if I can get a good entry point. Its a bit expensive right now; I want to see under $5. May not get there.

And the broader market? It is totally ignoring the signs of stress. Oil over $72 and looking like it could head towards $80 - especially if we get a storm in the Gulf or a "problem" with Iran. Higher real interest rates. Absolute crap Redbook and ICSC numbers on a sequential - not just "one time" basis.

Government folks saying on national television that employers are saying "we either hire illegal workers or we go out of business." In other words "our cost structures won't support the prices we need to charge if we pay market prices for labor, so we are, effectively, hiring serfs - or slaves - who we can underpay knowing they won't complain because they'd be arrested." Yes, I really did hear that on CNBS just a few minutes ago (10:20 AM CT - Gutierrez!)

Again and again I hear and see things that tell me this is March of 2000, not July of 2007.

Let's add to this - of Hedge Funds, a stat I saw fly by the other day was that only 7% are net short. Seven percent. Unbridled bullishness? I think so. Unprecedented margin debt, market "pros" all pounding the "buy buy buy" table, Hedgies (who are 30% of the market now in equities!) 93% net long, and on and on and on.

You guys who think this is a "buy buy buy" - I disagree.

This is a "sell sell sell" if you're long - take the profits now while you still have them.

I have absolutely no idea what causes the "boom", but that it is coming is, in my opinion, all but guaranteed.

Now add to this that we will be getting higher taxes - on investment, on high earners, on down the line 18 months from now.

We are nearly certain to get a Democrat President, which means no roadblocks to a higher tax political agenda. Wanna bet against that? Ok, who's the Republican candidate who (1) will get nominated and (2) can win?

And by the way - I think that sucks. I believe it will lead to tears - and not just in the markets either.

But isn't the market a discounting mechanism of things to come a year to 18 months out? Hmmmm.... maybe not. I think what we've got here is a market that is going up because people are throwing money at it to make it go up. They're not analyzing the companies they're "investing" in, any more than the Chinese are who are driving up the Shanghi index. Its simply "the market is open, therefore it will rise, and if I don't buy now I'll get priced out."

Shades of the R/E market in '05? Hmmmmm.....

We know how this ended the last time, and we know how it will end this time too.

We are arguing about the timing.

Every time I see this, I am reminded that this is what a "blow-off top" looks like. Markets that refuse to respond to actual fundamental changes in their underpinnings. I remember 1999 when I exited, and I remember watching the Nasdaq blow higher on a daily basis, oblivious to the fact that the "earnings" were either totally nonexistent or financially engineered, and that "this time its different."

Home builders, for example, are all up strongly today, averaging around 3%. Short-covering? I don't know man. Meritage reported crap results and outlook - how is this a "bottom"? So what's driving it? I can't find a reason for it - but the price action is what it is. Short squeeze? Based on what? Looks like an opportunity to short more and harder to me.

When these things start to happen in a market, you buckle up. You either have the courage of your convictions or you do not. If not, get the hell out, go to cash, and wait.

We've seen some of this kind of "upward levitation" the last few months, but now its getting really insane. The 10 is rising again, up 3% in two days. That's a huge move in the bond market, and appears to be confirming that we really do have a bear market in bonds - the downward move was a gap fill, and now we're back on our way upward. And this is not just here - the Bund is up strongly as well - multiyear highs on that one. If Bill Gross is right we're looking at 6% 10 year rates within the next year or two. Wanna be in equities in that environment? Not me!

How do higher borrowing costs translate into 3% improvements in home builder prospects? They don't. But that's what Mr. Market is saying today. Or is that just a "let's squeeze people before earnings season starts - oh no, there might be good news out there somewhere!"

Maybe. That siren song sounds like "short harder" to me.

I am all for a stronger economy and a stronger market. Show me the stronger economy! Don't show me a "cooked" CPI number where we substitute hamburger for steak when steak gets expensive. Show me the real price of steak as it changes over time. Ditto for milk, eggs, etc. Show me the true price of houses, including the "free" BMW or pool that was given to the buyer. Show me the true employment picture, including all the illegal Mexicans who are now unemployed because the housing sector has gone to crap - and who aren't spending at WalMart! Oh wait - the ICSC shows us that, doesn't it?

Price action today has been interesting. One thing that technicians are likely to note is that despite the big run we held technical resistance levels. 13,650 held on the Dow, which was a key marker that people have been looking at for upside penetration. The S&P held 1535, which was also one of my markers, although the real number to watch there is closer to 1550, the all-time intraday high. We threw a pin through 1530 but didn't pop it on the SPX. The only index to actually break through has been the Nasdaq. On what? Amazon, with its 116 P/E, is up again?

Is this about LBO/PE activity? Really? Then how come the LCDX is for dog****? What's THIS table say to you?

Time	Price	Spread
Midday (06Jul07)	97.00	202.2
4pm Close (05Jul07)	97.15	197.8
Midday (05Jul07)	97.15	197.7
1pm Close (03Jul07)	97.35	191.8
Midday (03Jul07)	97.35	191.8
4pm Close (02Jul07)	97.42	189.9
Midday (02Jul07)	97.50	187.5
4pm Close (29Jun07)	97.73	180.7
Midday (29Jun07)	97.84	177.7

Lemme 'splain.

You do a deal on the 29th, and assume a "spread" of 178 bips. Midday today, that spread is 202 bips, or a rise of 24 basis points, roughly 1/4%.

Now let's say you geared up 20, 25 times to do that deal on the debt.

Ok, so your debt costs go up 0.25%. No big deal right? Wrong. You only had 4% of the deal in the game originally and the rest of the players still want 100% of their money! If they can't get it, they might decide not to do the deal at all. It is a certainty that they won't do it at the old price! You hear creaking in the pressure vessel and cracks start to appear around the edges......

How do you avoid this? You renegotiate the deal, of course. But to do that you have to give something up. Maybe its covenants, maybe its some of your profits.... maybe you can't get people to take the deal at any price at all that works for you and the whole thing goes "boom".

Now note that this deterioration all happened in one week, and it is not reversing! Indeed, if anything it looks like on an average basis it is getting worse.

Still think LBOs and Private Equity are ok? Or is the rush of bond issues the last week or so because the guys doing the deals KNOW that the curtain is coming down and they're all scurrying like rats trying to avoid getting caught under it as it descends?

The ABX was fairly flat today, with one big exception. The "AA" tranche - you know, the one that's supposed to be "really safe" - is down big again today, now trading at 98.55. That sucks - it had a coupon of fifteen basis points. How much of your spread has disappeared over the last couple of weeks again? Still wanna buy some ABX instead of just picking up some nice, safe Treasuries? Booya!

In the CMBX, something even more ominous is happening. While the "BB" (junky) tranche came back in a bit and most of the rest was flat, the AAA tranche, the supposedly "safest" of all, deteriorated bigtime today. The spreads in that AAA paper are so small to begin with that even very small moves are a big deal if you're holding it. You gotta love that.

We've also got what now looks like a triple top in the Dow and S&P, and a Nasdaq running away. Wait a second...... where have we seen that one before? Hmmmm.... let me set my wayback machine about 7 years in the past.......

I'm impressed.....

...... with the level of mania in the market, not with the underlying realities.

Here's something to think about guys - the market clearly wants to go higher. What's holding it down and keeping this to a "dull" roar? Treasury rates and Oil. Get a solid drop in both and you're very likely to see equities rip upward. Not because they should on the fundamentals - but just because the people in the market want to play "Lets Build A New Mania!" and "You'll Be Priced Out If You Don't Buy Now!"

The problem with manias, of course, is that they have a nasty habit of turning to tears just as fast, and frequently with twice the violence of the run upward.

This means we're living in a very, very dangerous time, with the major markets poised on a knife-edge. I have absolutely no idea which way this thing breaks in the short term - my thesis appears to be holding, which is that we're trying to challenge the highs (and failing to punch through) but we're also not (yet) triggered to the downside - but in the intermediate view I still can't find a reason to believe that the economy - or equity prices - should be trading where they are.

Do not ride this game on margin! Although I'm quite convinced that we're headed for tears, we could also get a tear first. As in tear upward. If you're not on margin, you don't care. If you are relying on margin to maintain a short position you're going to raped and forced to cover if that happens. Get the fork out and go to cash for a bit.

That's one of the ways these things burn out, but let's not have any of the people reading the blog here be part of the "burn" in that equation!

Next week we start earnings, which has the potential to be really nasty one way or the other. IMHO its too tough to call right now; we may well break towards all-time highs and even surpass them for a short while. If that appears to be evident I will cover my shorts and play options on the long side for a while, with a very, very itchy trigger finger - looking for a top to short into. Screw shorting into the hole, I'm going to short into the tip of the spear!

But given the price action into the close - selling off quite strongly as we head towards the end, with just a bit of a tail up in the last couple of minutes - I'm not sold on Monday being a good day.

A few hedgie explosions over the weekend could make things very, very interesting. So could more trouble in Asia, although China may be aborting its plunge. Tough to know, which is why I hate that market - they're the freaking Energizer Bunny, making our market look positively tame.

Also next week I may be offline part of the week. I'm considering taking the week off more-or-less; I'll still keep up and will post from time to time, but probably not on a daily basis..... more likely you'll find me on the forum than here, simply because its faster and easier to dash off something quick.

Have a great weekend!