• Thanks for reading my diary today.

I am leaving right at the close for a meeting with a promising investment.

Thanks for reading my diary today.

And enjoy your evening.

• Waiting for the right pitch seems to be a reasonable strategy at these price levels.

Speaking of dopes, chasing stocks and indices in such a period of profit, political, policy and economic uncertainty seems a poor strategy to me -- and doing it with a glib confidence is really arrogant to me.

I see brokerages pressing some of the better bets recently, including Goldman Sachs on the life insurers yesterday (after a huge run) or Visa (V) today -- and I jsut dont get it.

I don't possess a crystal ball, but even though the market might continue its ascent (though I am betting it won't!), with every rise, the reward/risk ratio deteriorates.

That is my two bits.

Patience is a virtue and waiting for the right pitch seems to be a reasonable strategy for most at these price levels.

• According to press reports.

SEC staff is said to have opened inquiry into Herbalife (HLF).

• Here is my worse trade of 2012.

I was negative on the for-profit education sector and decided to short Grand Canyon Education (LOPE) instead of Apollo Group (APOL) or any of the other stocks in the group.

Here is the comparison of Grand Canyon and Apollo share prices last year.

Truly pathetic.

Lesson?

I should have taken a broad short position in the top five stocks in the sector instead of focusing on Grand Canyon Education.

• To me, this has more meaning than the Loeb/Ackman Herbalife showdown.

It has been announced that there are no new entrants to the Baseball Hall of Fame in Cooperstown this year.

To me, this has more meaning than the Loeb/Ackman Herbalife (HLF) showdown.

Or maybe not!

I would avoid Herbalife now.

• Most metrics were weak.

Let me give you my impression of the 10-year U.S. note auction.

Most metrics were weak:

• The yield of 1.863% was above the when-issued market of about 1.85% to 1.86%.
• The bid-to-cover was 2.83, well under the prior 12-month average of 3.02.
• Direct and indirect bidders took 43% of the auction, which  is the lowest since October 2011, so dealers got stuck with a lot of merchandise.

Bottom line: As expressed in my "15 Surprises for 2013," the Fed will likely remain easy for longer than most think. (There was confusion with the recent Fed minutes issuance.) That said, the effectiveness in inlfuencing rates has virtually disappeared. (Note: Mortgage rates are at a two-month high.)

Meanwhile, while stated inflation seems tame, future expectations are elevated. In fact, the implied inflation rate in the 10-year TIPS is 2.57%, the highest level since October, and the five-year forward breakeven inlfaiton rate is 3.03% (a one-month high).

• We have some moving average convergence on the S&P 500.

The 10-day and 20-day moving averages of the S&P 500 have converged.

S&P 500

Source: Bloomberg

View Chart »View in New Window »

This is usually a technical warning signal.

(Editor's note: This was originally posted with an incorrect chart, which has been replaced with the correct one.)

• Here are the results.

Below are the results of the 10-year U.S. note auction.

• Here's a chart of sector performance.

Below is a great look at the composition of today's S&P 500 performance by industry/sector.

S&P 500 Sector Breakdown

Source: Bloomberg

View Chart »View in New Window »

• It will speak volumes.

Let's closely watch this afternoon's 10-year U.S. note auction (1:00 p.m. EST).

it will speak volumes.

• Run, don't walk to read the latest post in "The Borowitz Report."

"A Letter From A.I.G." is classic Borowitz!

• This could signal a reversal of fortune for the stock market.

In "On Reversal Watch," I cited that we should watch a drop in bond yields as a possible precursor to stock market weakness.

Well, ProShares UltraShort 20+ Year Treasury (TBT) just turned down on the day and is trading at its lowest level of the day.

• Here's a whiff.

Breadth at 11:35 a.m. EST:

• S&P 500 -- 363 advancers to 128 decliners
• NYSE -- 1,268 advancers to 557 decliners
• Nasdaq -- 1,388 advancers to 698 decliners
• Russell 2000 -- 1,290 advancers to 592 decliners

Volume on S&P 500 is 23% higher than past 10-day average volume, 10% higher than past 30-day volume, and 5% higher than yesterday for this time of morning.

• Autos, banks, brokerages, Apple and bonds are on my radar for signaling a reversal.

If there is to be a price reversal today, I would look for emerging share price weakness in autos, banks and brokerages.

I am looking to see if Apple (AAPL) makes a lower low on the day.

As well, I would watch bonds -- further yield weakness (and bond price strength) will likely portend stock price weakness.

• Autos have stalled.

We've been through

Some things together

With trunks of memories still to come

We found things to do

In stormy weather

Long may you run.

Long may you run.

Long may you run.

Although these changes have come

With your chrome heart shining

In the sun

Long may you run.

-- Neil Young, "Long May You Run"

Disappointing share price action in the cars -- General Motors (GM) and Ford (F).

Perhaps this is a short-term peak in the sector.

It's been a great run.

• Confirmation bias? Or just plain hypocritical?

It is strange that many of those talking heads that have previously seen a sub-15 VIX reading as complacency are now interpreting a very low VIX as a market positive.

Confirmation bias?

Or just plain hypocritical?

Inquiring minds want to know!

• I shorted more shares at $146.22.

I have added to my SPDR S&P 500 ETF Trust (SPY) short at $146.22 just now.

• It is overbought.

Occasionally, very occasionally, I make a short-term rental based on technicals.

Today I am, as I just shorted a small position in Goldman Sachs (GS) at $134.20.

Proximate reason? Very overbought.

• David Faber cofirm that Morgan Stanley will cut jobs.

David Faber is on CNBC confirming my Morgan Stanley (MS) jobs cut post on Columnist Conversation now.

• I shorted more shares at $87.10.

I added to my iShares Russell 2000 Index Fund (IWM) short at $87.10 just now.

• Here we go.

With his permission, below are today's pearls of wisdom about the loss of price discovery from Southwest Securities' Mark Grant:

The last year in the financial markets may be defined by several words which include "postponement, Draghi and accounting." These are the underpinnings of what occurred in the last twelve months and they are the bedrock for what is likely to take place in 2013. We begin the New Year from where the old one left off and the future will be defined by how the utilization of these three words gets enacted.

I do not like to make things complicated. In fact, I try my very best to make things simple. During my career on Wall Street I have been confronted numerous times with economists, much to my chagrin, who try to make things more complicated in an effort to prove their vast intelligence I would guess but, in the end, most institutional investors, very bright people themselves, are alienated by this exercise as I am. If you can understand where you are standing and what is going on around you then the next steps are not that complicated and the winning strategy of last year is often the losing strategy of the next which is why it is so critically important to gauge your current surroundings correctly.

Postponement

The world has done everything humanly possible to put off any tough financial decisions and that is especially true in Europe and in America. The leaders on both Continents just cannot take the heat and so everything possible has been pushed forward in the hopes that economies will improve and that growth will cure the ills brought on by the lack of any real leadership. Unfortunately this has not been the case and so the central banks of the world have picked up the slack which has been an interesting exercise but one fraught with consequences. With all of the central banks on the planet engaging in this exercise and no place to invest off-world the possibilities for the use of capital were constrained and hence our very low yields. The Fed is pumping $95 billion a month into various markets and the combined actions of all of these central banks means that eighty percent of all new supply is soaked up by these institutions leaving a small window for private capital. It was in the spring of last year that I suggested buying long maturities of whatever credits you could stand and this strategy has been a winning one that continues because there is no place else to go; the compression has been unrelenting. You cannot fight city hall and you cannot fight the worlds' central banks and so regardless of other fundamentals that would function in normal times the ability to print money and then use it in various known and only guessed at ways wins the battle.

Draghi

The centerpiece of the success of lower yields in all of the countries in Europe rests squarely upon Draghi's "Save the World" plan where the ECB will backstop everything. This speech was the single most important one of 2012 by any stretch of imagination and its ramifications define the economic landscape in Europe from then until now. Mr. Draghi's promise, attached to the condition of the entire European Union backing the concept, has not been put to the test but I fear it will during this year. It will then depend upon various individual nations and whether they will go along with using their citizen's money to pay for the debts of other nations. Any rise in nationalism may thwart Mr. Draghi's promise but this will all play out as one nation after another hits the wall which they will because there is no longer enough free capital in many nations to prevent it. A careful examination of the numbers and the possibilities limit what can be done in 2013 and the countries in question are Greece, Portugal, Cyprus, Spain and Italy. In each of these nations the government has raided public sector funds, pension funds, any monies that will not impact the national debt to GDP ratios and while 2012 allowed them latitude; 2013 will not because each of these nations has about exhausted what was available. I predict that 2013 will put the Draghi promise to the test and there will be considerable rancor during the process. The other side of the coin here is social unrest that I believe will surface in the spring so that the present general belief that things have improved in Europe is nothing more than a hope which is fashioned by political design. In other words; don't count on it.

Accounting

The debt to GDP ratios for each nation in Europe are nothing more than gimmickry. They lack any semblance of truth. It is not a matter of they could be legitimately counted one way or another because the not counting of liabilities, contingent, actual and those belonging to various branches of the government do not change the fact that they must be paid for in the end. If Bankia's debt at the ECB are accepted because they are guaranteed by the government of Spain and then Bankia cannot pay them who do you think will be forced to pick-up the bill? This example is happening in Greece, Portugal and now Spain so that the shifting and cover-up of liabilities will come to the fore as the debts must be paid and the capital of the sovereigns, without question, will diminish. Phony accounting does not change the facts; it just tries to fool investors as the primacy of its goal. In normal circumstances this would not be enough for any longer duration of time to prevent a return to higher yields but when the central banks act in concert with this scheme and hand out money like manna from heaven then the plan succeeds as demonstrated by what took place last year. I caution you however, one year's winning strategy can be the next year's disaster and as Spain, Greece and Portugal line up again for more and more money the political considerations may change the course of events. All that stands between the two vicious sirens of the running out of money and the demands for more of it is an untested promise made by Mr. Draghi which will be put to the test in 2013 I believe. Those of you that represent the large battleships of the investment world will be strained and perhaps constrained by your size in moving assets. You will have to be way out in front to prosper in my view and the shift will likely be painful. Longer dated floating rate notes and bonds tied to inflation may well hedge some of the aggravation as newly printed capital to bail-out the sovereigns curtails any inflow of money into the equity markets.

The central banks, phony accounting and a promise by the ECB may well have saved 2012 from an implosion but 2013 brings a new set of circumstances that are far less appealing than last year. Stay safe!

• I added to my Procter & Gamble (PG) long this morning.

• BofA bumps up earnings estimates for Express Scripts.

Brother Bank of America/Mother Merrill Lynch raises earnings estimates this morning for Express Scripts (ESRX) based on more ambitious capital allocation assumptions.

• Run, don't walk, to read Tom Graff's latest musings on what lies ahead for the bond market.

Run, don't walk, to read part one of Tom Graff's bond series from yesterday "Bond Market Outlook for 2013, Part1."

While I might not agree with some of his conclusions it is very well done and thought out.

It is interesting to note that Tom's use of base case and alternative cases are similar to the way in which i produce my fair market value calculation of the S&P 500.

I am looking forward to part two on Friday.

• Don't get bullied.

The Divine Ms. M. makes an interesting point today regarding the growing market optimism.

Last week's fiscal cliff deal coupled with a nice stock market rally has brought out the bulls.

As Divine points out, Investors Intelligence bulls rose to 51.1 from 47.8, which is the highest reading since the September top, while the bears fell to 23.4 from 24.5, matching the lowest in seven months.

Sentiment is not the sine qua non, but, over history, when the reading gets above 50, it's a reasonably accurate contrarian indicator.

As well, with the spread between bulls and bears now at 27.7, it is near the dangerous levels around 30% said by II itself. The high mark for the S&P 500 in 2012 coincided with the previous peak in bulls. Thus, from strictly a short-term perspective, rising bullish sentiment suggests some market caution -- just as many are getting bulled up.

• Is Facebook the new Apple?

Business Insiderreports that Facebook (FB) is inviting the press to a mystery event next week.

Is Facebook the new Apple (AAPL)?

• Here it is.

Below is a rundown of the economic calendar and the consensus expectations.

• The technical crowd and the fundamental crowd are both too upbeat after the first week of trading in 2013.

My general impression is that the consensus of both the technical crowd and the fundamental crowd is upbeat after the first week of trading in 2013.

It is encouraging to technicians that the indices have held onto most of the gains following the fiscal cliff fiasco -- and there is the lame and random January indicator, which I personally give almost zero predictive ability.

Fundamentalists see an upbeat backdrop as they cite improving economic momentum in the U.S., Europe and China. They throw out the first quarter of 2013 and talk about "cliff fatigue." Some even say it's OK if we end up without an agreement on spending and entitlement cuts. The bulls just want the government out of the way -- and it will be business as usual.

From my perch, I disagree with both.

The price charts are a picture of what has happened in the past and don't indicate with precision what will happen in the future.

Fundamentally, too, as I described in my "15 Surprises for 2013," there is less than meets the eye to the generally upbeat impression that momentum is gaining. I think it odd that few are incorporating the impact of the Jan. 1 tax hikes on personal consumption. And I believe the multiplier applied to those tax-rate hikes is being underestimated.

Importantly, I don't think the bullish fundamentalists recognize the dependency and lack of sustainability in fiscal and monetary policy or that our budget is out of control and zero interest rates should not be considered a permanent condition.

Important, to me, is that the outlook for corporate profits is weakening.

I start the day at about 25% net short. 

• Unfortunately, there will likely be more to come.

The New York Timesreports that Iranian hackers are escalating a cyber war, with Iranian government ties mounting numerous cyber attacks in recent months.

Surprise No. 7: There will be four market influencing black swan events in 2013.

As I have observed, there is a growing frequency of black swans around the world, and 2013 will be no exception -- climate change and technological disruptions play a significant role on the financial markets this year:

...

4. A cyberattack. The U.S. experiences a major cyberattack on the power grid or other key infrastructure target. The source of the attack is not detected. Cybersecurity stocks soar, while the overall market experiences a 3%-4% drop.

-- Doug Kass, "15 Surprises for 2013"

Unfortunately, as described in my surprise list for 2013, there will likely be more to come.

Some may be market- or economic-impactful.