• "One last thing."  -- Lt. Columbo

As expected, the U.S. Treasury has announced the sale of all of its remaining AIG (AIG) shares just now at $32.50 a share.

• It is nice to be back.

Thanks for reading my Diary today. And, again, thanks to Tim "Not Phil or Judy" Collins and the two Bobbys for filling in last week.

Enjoy your evening.

I will.

• Microsoft (MSFT) and Walter Energy (WLT).

Mr. Softee is getting jiggy and takeover chatter continues regarding WLT.

• I am reducing my long book to under 30% now.

• With 90 minutes to the trading day's close, here are the numbers.

S&P 500 - 276 advancers to 215 decliners.

NYSE -1007 advancers to 832 decliners.

NASDAQ - 1022 advancers to 819 decliners.

Russell 2000 - 970 advancers to 922 decliners.

Volume on S&P is 10% LOWER than past 10-day average, 14% LOWER than past 30-day average and 6% LOWER than the same time of day Friday.

• Goldman Sachs weighs in. 

Apropos to my China post this morning, this from Goldman Sachs just now: 

"Our Equity Trading Strategies group is recommending a tactical long position in the MSCI Emerging Market equity index (MXEF), (with) a target of 1125 and a stop of 985, following some incrementally supportive China data over the weekend and ahead of the earliest bits of the December data set."

One thing I didn't mention earlier is not only are we seeing a quickening pace of economic activity in China but the share prices are still at a 20% discount to the emerging markets benchmark.

• I have recently added to my Grand Canyon Education (LOPE) short.

Check out the consistent insider sales.

• Looks like a delay.

AIG's (AIG) large asset sale announced over the weekend probably delayed the company's secondary from late November to mid-December.

The good news and asset gain reinforces my view that an offering is imminent and will be well received, probably from higher price levels than I formerly expected.

I plan to be a buyer.

• Thanks to Josh Brown for his kind words. 

This is the nicest and most touching thing that has ever been written about me, from "Downtown" Josh Brown. 

• Catch me in action on CNBC.

A heads up - I will be on Fast Money Halftime today.

It will be nice to be back with the Judge and the gang.

•  Farewell to an old friend who was one of a kind.

An old friend, Saul Steinberg, died on Friday.  

I met Saul (he grew up near me in the south shore of Long Island), who was 10 years older than me, after he started Leasco Data Processing Equipment at the age of 22. I invested in the stock as a "yute" and made a bundle. 

Saul was a financial prodigy, endowment with an aggressive nature that had never been seen until he surfaced in the business world.

In 1968, Saul acquired Reliance Insurance Company at the age of 29.

In 1969, at the age of 30, he tried to acquire Chemical Bank but was push backed by the financial establishment. Several years later he had an unsuccessful run in an attempt to acquire Walt Disney Productions.

I graduated Wharton as did Saul, and the main building of the Wharton Undergraduate is called Steinberg-Dietrich Center. He served as chairman of Wharton's board of overseers for over 15 years and continued as a member of the board for many more years.

My favorite story was when my wife and I went to his 40th birthday party at 740 Park Avenue. (An apartment that I believe he eventually sold to Henry Kravis.)

We couldn't stay much beyond dinner, as we had to meet some friends at another party, so we went to say goodbye to Saul.

Saul said he thought we should consider staying for dessert and for the entertainment. We did, and out came Patti LuPone, who at the time was the star in the Broadway show Evita. She put on an amazing show.

Saul enjoyed life and lived hard.

I will never forget attending his son Jono's (who is married to my friend/buddy/pal CNBC's Maria Bartiromo) bar mitzvah (I think it was at the Pierre Hotel). It was amazing.

Above all, I remember Saul's cherubic smile and friendship when I was a wet-behind-the-ears neophyte on Wall Street.

Stated simply, they don't make them like Saul anymore.

Rest in peace, Saul.

• The economic data out of China has clearly improved.

It seems as if it was only a few weeks ago that there was rising confidence in a Chinese hard landing.

Continued worries about the legitimacy of the economic data from that region, weakening PMIs and poor prospects for the country's export markets contributed to a technical breakdown in the FXI, which many thought was a continuation of the deep bear market of 2010-12.

But back in September I embraced the Chinese market and I now hold on to a 5% long weighting in the FXI, with an average cost of about $36/share.

Since then, the economic data out of China has clearly improved.

Little Second-Level Thinking About China Two Months Ago

At that time, I wrote that too many were worrying and embracing the technical breakdown. But there was no second-level thinking regarding how poorly Chinese stocks were being valued (in absolute terms and relative to other emerging and developed markets (like U.S. stocks).

Three months ago, the current valuation metrics for Chinese companies were growing cheaper by the day, with forward P/E multiples of only 7.8x, an average dividend yield 3.9% and with a lowly price-to-book of 1.3x.

The Chinese stock market has risen by only about 5% since then, so the stocks still appear dirt cheap in both absolute and relative terms. By contrast, the S&P 500 trades today at a bit over 14x earnings, has an average dividend yield of 1.9% and  price-to-book value is 2.1x.

As I wrote previously, there remains a lot of distance/daylight between the valuation of Chinese stocks and U.S. stocks.

My question is if China is indeed the growth driver of the world's economic community, doesn't this highlight how cheap stocks can get when growth is in question? But now that the growth prospects are mending in China, I suspect the sharp undercut to value months ago for Chinese stocks will be followed by the potential for a surprising rally over the next few quarters.

The fundamental improvement in Chinese stocks has now been accompanied by a sharp reversal in improving technical backdrop for equities over there. (This is something Sir Denny Gartman recently highlighted in his daily newsletter).

Several highly-regarded technicians have joined the FXI train in recent days and I expect the rally in Chinese stocks in 2013 will be one of next year's biggest surrpises.

• There are no economic releases today, but here is the schedule for Tuesday and Wednesday (with consensus forecasts).

Economic Indicators

Source: Bloomberg

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• On Friday I took a small long rental in Microsoft (MSFT).

The rental was based on price (always a mistake) at $26.46, but more importantly on the chance of a special dividend payout between now and year end.

This is nothing more than a short-term lease as MSFT represents old tech and I don't view it as an investment..

• The case for a continued stock market rally into early 2013.

Since September my calculation of Fair Market Value has been 1415.

Friday's S&P close was basically on top of that calculation at 1418. Adjusting for the slight weakness in the S&P futures we are now right on my Fair Market calculation. (Remember my Surprise List for 2011 predicted the exact S&P Index close on Dec. 31, 2011). Maybe two times is a charm?

While there has been some volatility in the averages since September, so far so good in terms of our forecast as it's been consistent and pretty much spot on.

My near-term view is that a combination of the technical tea leaves, improving and emerging economic fundamentals, global excess liquidity (the difference between money supply growth and GDP growth) when combined with the year-end seasonality could result in an overshoot to the upside (of my Fair Market Valuation calculation) in the weeks ahead.

Many investors (institutional and retail) remain cautious (and fearful of the ramifications of the fiscal cliff, rising capital gains and divdend tax rates) and would be offsides should markets continue to rally. A cooperating bond market (lower prices and higher bond yields) could provide an important buoy to stock prices just when the notion of a reallocation trade out of bonds and into equities has been all but forgotten.

Since Tim et al are of a technical bent I thought I would start by giving my two bits on the market's technicals. (Just a great job by Tim and the Bobbys, many thanks!)

The Technicals

• Favorable Technical Action. There was every reason for stocks to consolidate after rising from 1360 a few weeks earlier. (It is often how stocks react to news than the news itself). Mr. Market approached last week (when I took off from writing my Diary) in a slightly overbought condition. Despite seemingly limited little progress (to many) in the budget negotiations, stocks fared well in basically a sideways-to-slightly-higher action.
• Stocks Rise Despite Apple's Fall. The failure of bellwether Apple's shares to rally -- it continued to test the downside (and had its worst one-day percentage decline in four years) -- was easily absorbed by the markets.
• Good Internal U.S. Sector Action. Most conspicuous has been the improved relative and absolute action of the financial sector from both the November low and from a week ago. (It has been typical in recent years for the financials to lead markets to the upside and downside). Importantly, the superior relative performance of the financials has spilled over to the industrials. The XLI (S&P industrials) has fully retraced the correction, which followed the early November results and is now testing its post 2009 cyclical highs (See chart below). This is the sort of strength in economically-sensitive stocks is likely providing a message that current recessionary (and fiscal cliff fears) are overblown.

XLI

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• The Surprising Strength in Non-U.S. Stocks. One of the most important features of the recent advance in the U.S. Stock Market is that it has been accompanied by strength in the international markets. Despite the hysteria over the European sovereign debt crisis, European markets hit 2012 highs last week. Most Asian markets have done the same and even the depressed Shanghai and Japanese markets are recovering strong. As evidence of the broadening strength in the international stock markets, the global accumulated advance/decline line for the MSCI all-country index has hit a new high. (This provides the signal that a top in the international markets might be months away).

MSCI

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• A Caveat. The technical condition is not perfect. Despite the visible technical improvement, Mr. Market remains overbought, so we have to closely watch whether last week's market action is part of a broader market topping thesis. Moreover, the strength in large-cap stocks over the IWM and QQQ has produced a flattening in breadth as investors continue to prefer safety. This, too, is a late up-cycle indicator, but it could reverse, so let's stay on the lookout for continued divergence (which would be more worrisome). Finally, while sentiment improved into the post-election selloff it has recently deteriorated again.

NYSE Overbought/Oversold

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The Fundamentals

• Fiscal Cliff and Tax Cliff Fears Are Overblown. As discussed above, Mr. Market has been resistant to fiscal, economic and tax cliff concerns. (My view that fears of a Fiscal Cliff are overblown remains intact. In fact, the chance of our leaders formulating a grand fiscal bargain in 2013 is at least 50/50 from my perch. Moreover, the relative strength in large-cap stocks that provide good overall return (of capital gains and dividends) are beginning to emphasize that the fears of Taxmageddon (and higher tax rates on dividends and capital gains) are a figment of the media's imagination (don't believe the hype).
• A Manufacturing Renaissance in the U.S. May Be Brewing. Not only do the technicals of the industrial sector (XLI) support this notion, but there are other signs that a potential manufacturing recovery is heading back to our shores. Importantly, the labor cost advantage of non-U.S. markets is narrowing. Apple (AAPL) has announced its intention to begin to move some manufacturing operations back to the U.S. Other companies have announced the same. I would not be surprised if fiscal and tax policy in the U.S. accelerates this trend in the year ahead. (For these reasons I am looking to buy Caterpillar (CAT), Cummins (CMI), Eaton (ETN) and other industrials on weakness).
• High Frequency Domestic Economic Data Is Supportive of 2% Real GDP Growth. I remain of the view that, similar to housing and the consumer sector a year ago, the U.S. corporate sector is now pent up, not spent up. Hirings, business spending will follow the renewed confidence likely following a fiscal cliff compromise in the weeks ahead. A broader and grand bargain in 2013 could improve domestic growth conditions and an unanticipated growth scare remains a possiblity in the second or third quarter of 2013. A durable and multi-year housing recovery (currently gaining steam) coupled with a thriving U.S. auto market will take some of the stink out of the fiscal drag. That said, all is not perfect. The stronger-than-expected third-quarter U.S. GDP (+2.7%) benefited artificially from large government outlays and inventory accumulation in the private sector. On the other hand, a Hurricane Sandy rebuild will be a plus to first-half economic growth.
• EU Economic Growth is Stable and In Line with Previous Expectations of Slightly Negative Real GDP Growth in 2013. Though subpar growth lies ahead, Draghi has done an excellent job in reducing sovereign debt yields and by instituting fiscal reforms over the last several months. One caveat, now that Italian Prime Minister Monti has announced his resignation over the weekend (and with the likely return of Berlusconi) we must monitor whether Italy's new regime attempts to reverse the deficit and debt reductions and fiscal progress recently agreed to.
• China's Landing is Officially Soft. Fears of a hard landing in China seem misplaced. Third-quarter 2012 Real GDP of +7.4% should accelerate to about +7.8% in 4Q 2012. I currently have a 5% weighting in the FXI and, as I will reveal in my next column, I expect the upside to the Chinese stock market to be one of the bigger surprises for 2013.
• Some Acceleartion in Global Economic Growth Is Seen Ahead in 2013. After an expected real GDP growth rate of slightly less than 3% in the year ending December 31, 2012, next year's global growth rate might improve to +3.3%. Though still a tepid rate of growth, it is far MORE than the growing cadre of Recessionistas expect and could support reasonable corporate profit compares in 2013-14. (I remain concerned about the Earnings cliff, but not as concerned as a month ago).
• Global Excess Liquidity Continues to Provide a Blanket of Security to the World's Stock Markets. Central banks' commitment to global easing could offset, to some degree, the risks associated with a potential cyclical peak in earnings and profit margins as well as the world's dependency on monetary and fiscal support systems.

• Though There 's NO MORE Pain in my Chest, I Still Wish You The Best With a ... Forget You!

"Any idiot can face a crisis -- it's day-to-day living that wears you out." -- Anton Chekhov

Over the last two months in my Diary I have occasionally and vaguely alluded to a personal issue I have been facing.

All of my investors, many of my close friends including several of my pals in the media are already aware that I have had a serious health problem.

As you all know after more than a decade of my writings on The Street, I am transparent in my writings regarding my economic and investment views, but I purposely refrain from introducing my personal views and thoughts and meaningful events in my life as this is not what I have been hired to do.

But taking off an uncustomary week from writing my Diary last week brought on a large number of inquiries from subscribers (almost as if they knew whassup!) and given last week's development I am opening up this morning.

In late October I was diagnosed with cancer. Originally it was thought only to be in my prostate, but an ensuing bone scan revealed that it might be in my ribs, which would not have been a good thing.

Early last week I learned that the cancer had not spread outside my prostate and that the indicated metabolic activity (and potential bone cancer) was simply a byproduct of a harness racing driving injury incurred 23 years earlier (in which I broke seven ribs) and was not an indicator of more cancer.

On Dec. 5 I underwent surgery (for nearly four hours, ugh) at New York Presbyterian Hospital in New York City and I am happy to report that I will recover 100%. In fact, despite a lot of soreness I consider myself already recovered.

I am proud that since the time I found out about my health issue has coincided with what I like to think have been some of the most productive times in my Diary (both in quantity and, hopefully, in quality), in my media appearances and, importantly, in my hedge fund. I have not missed a step.

And I am quite confident that following my successful operation the same will hold true in the future.

I guarantee you all that I won't be missing many steps.

I am glad to be back with all of you today and I wanted to express my heartfelt thanks for all of your concerns expressed over the last few weeks.

Let me first thank Dr. Ash Tewari and Richard LeFrak who form the foundation of the Lefrak Institute of Robotic Surgery in the Department of Urology- Robotic Prostatectomy program at New York Presbyterian Hospital at New York Weill Cornell Medical Center. Ash is the warm, compassionate and talented founding director and Richard is the guiding source of financial generosity which funded the Institute and that has enabled it to continue to grow.

(Here is an informative discussion by Ash, Confronting Cancer: A Fight  We Can Win from the Hindustan Times Leadership Summit 2012).

I wanted to offer some special shout outs to some of my supportive friends in the investment business who I confided in, like my courageous "Uncle" Vinnie" Farrell, "Berko," Fast Money's "Gentleman" Tim Seymour, CNBC's "Herbela" Greenberg, Tony "Dwyerama," Danny "The Red Sox Sux" Robinson (our editor), Real Money's "The Divine Ms. M,", Scotty B (who always has my back at Seabreeze Partners) and the many others including my mentor and the bravest man I know John "Sully" Sr., Harvey "The Horse" Gold, The Always Remarkably Helpful Joel and Helen, Mikey and Amanda (and my Three Little Girls), the always dependable Stevie M., "Uncle" Lee, the gallant Stan "The Man" S., "The One and Only" Pablo, "Saul the Jeweler," Mark G. ( the only Yankee fan from Boston), Markie and Wendy B., my best pal Barry and of course, Georgie (who originally introduced me to Dr. Ash) -- all of whom I confided in and who held my hand during the past few scary weeks.

Most importantly, I want to thank my family.

One last thing. As you all know I often like to capture market conditions with a song title. So, if this damn cancer was a song it would be, of course, Celo Green's FXXX YOU.

And F you too, cancer!