• Something to watch for.

Look for an avalanche of commodities hedge fund closures between now and year's end, much like this one.

• At 3:49 p.m. EST there is only $150 million to buy market on close.

• Anatomy of a "flash crash." 

Zero Hedge has a great blow-by-blow of Apple's (AAPL) "flash crash" this morning.

• A housekeeping item.

I added to my iShares Russell 2000 (IWM) short at $118.19 on Nov. 26. I'm now covering half the short at $115.30. 

• There be (unseen) dragons.

With oil stocks supporting and levitating the Dow, I say (confidently) that this is the WORST down 22 DJIA day I can ever recall.

There is carnage all over the market.

• Meet me in Palm Beach.

A reminder that if any subscribers are in the Palm Beach, Fla. area, I am having a book signing on Thursday, Dec. 4. 

Please join me!

• Out of XOM and CVX.

I have sold the balance of my energy longs in XOM ($92.05) and CVX ($111.22) on the near $2.603 per barrel rise in the price of oil.

• From Sir Arthur Cashin:

As you may recall, offshore trading influence hit a wall shortly after 10:00 but came back on and lasted into the European close.

Run rate at 12:30 projects to an NYSE final of 820/900 million shares.

• Jim Rogers is still bullish on commodities and Generalissimo Francisco Franco is still dead.

• More on oil.

I am hearing a lot of optimism in the business media regarding sharply lower oil prices. (Uh, were they worried about higher oil prices? No, they were not -- as long as they didn't move up rapidly!) 

My suggestion is to see if you can get a copy of Bridgewater's recent analysis on the economic ramifications of lower oil prices. I will try to summarize their findings tomorrow.

• Another installment.

Occasionally I post something that replicates the theme of The Chris Matthews Show segment, "Tell Me Something I Don't Know." 

OK, Dougie, tell me something I don't know!

The price of gold has rallied by more than $55 per oz. from this morning's lows. 

• From Sir Arthur Cashin:

S&P and Nasdaq retest morning lows (Nasdaq violates slightly) while Dow stays well above. Likely Apple influence on Nasdaq and S&P.

• In and out.

I'm out of Devon (DVN), have small longs in Exxon Mobil (XOM) and Chevron (CVX).

• Caterpillar is down.

Recent short and Best Ideas list member (on the short side) Caterpillar (CAT) is down again today. Now down about $8.50 in the last few trading days after the Deere (DE) miss.

• Alibaba continues to get schmeissed.

"You don't realize how easy this game is until you get up in that broadcasting booth." --Mickey Mantle

Last week in the business media there was nearly a universal view that Alibaba (BABA) was heading higher; after all, it was trading at an IPO high of $120 per share. Those talking heads talked fast, were self-confident and absolute of view.

Today the shares are $108.60.

Here is the five-day chart on Ali Blah Blah.

You will not likely here those commentators question last week's wisdom this week. Nor will you hear anyone of the respondents say, "I was wrong."

But we most certainly learn another lesson. The lesson learned? Be independent of investment thought and do your own investment homework (as I mentioned in today's Chairman's Club event).

 --Kass Diary, "A Cautionary Tale: What We Can Learn From Ali Baba" (Nov. 19, 2014)

Ali Blah Blah, the hedge fund community's favorite tech stock these days, continues to get schmeissed (down by nearly $6 per share).

The message (from The Oracle of Omaha)? Be fearful when others are greedy.

• Mid-morning musings from Sir Arthur Cashin.

Early selling may have had an offshore component (when you can't sell 'em where you are, sell 'em where you can).  Part evidence is that first 30 minutes of trading extrapolates to nearly a billion shares on the NYSE.  That will change as run rate hit wall at about 10:05.

S&P tested support at 2048/2051 (low 2050) and bounced.

Seasonals for week, month and next eight months have strong upward bias (years ending in numeral 5, pre-election year, at term end, etc., etc.).

Run rate later.

• The Lindsey Group's Peter Boockvar on this morning's economic release.

The US manufacturing index as measured by the ISM was a bit better than expected in November at 58.7 vs the estimate of 58.0 and vs 59 in October which was the highest since 2011. New orders were up only slightly but at a high level of 66.0 with 11 of 18 industries seeing growth (6 saw not change with apparel seeing a decline). Backlogs improved by 2 pts to 55, the best since April. Inventories at the manufacturing level fell 1 pt after rising 1 pt in the month prior and it rose 2 pts at the customer level to the breakeven level of 50 for the first time November '11. Employment was down by .6 pts to 54.9, below the 6 month average of 55.7 with 11 of 18 industries seeing more hiring. Surprisingly and which doesn't square with any other data points, export orders rose 3.5 pts to 55.0. Prices paid dropped a sharp 9 points for reasons obvious to energy. Of the 18 industries surveyed overall, 14 saw growth which compares with 16 in October. One still seeing growth was the petroleum sector and we'll for how much longer unfortunately. The ISM said "Comments from the panel are upbeat about strong demand and new orders, with some expressing concerns about West Coast port slowdowns and the threat of a potential dock strike." Bottom line, the manufacturing index was a pleasant surprise as US manufacturers are experiencing nothing like the lackluster activity other countries overseas are experiencing which also makes the jump in the export component today suspect. The 10 month low in the Markit measure of manufacturing certainly didn't square with the ISM read especially with Markit saying "new export orders fall at the most marked pace since June '13." Also, a 3 year high of inventories at the customer level is worth watching looking forward but overall US manufacturing is the best of the bunch.

• On Oaktree.

Oaktree Capital (OAK) was favorably mentioned in a feature article in this weekend's Barron's.

• Apple (AAPL) flash crash.

Here are two intraday charts on Apple today, which fell a quick 7% in full flash-crash mode.

Kill the quants before they kill our markets.

• Hard to envision a better environment.

It is hard for me to envision a better environment to own closed-end municipal bond funds than exists today and could persist over the next few quarters.

• I will await more energy-sector panic.

With oil prices bouncing (+$1.30) recent buysChevron (CVX), Devon (DVN) and ExxonMobil (XOM) are rallying.

For those that have a trading/short-term timeframe, I wouldn't be in these names.

But from a several-year horizon I would hold and accumulate on weakness.

That said, my fear of the general markets has led me to pare back last week's buys.

I will await more panic in the energy sector, if it develops, for a better entry point.

• This time, Friday's weakness in the Russell Index might have proven to be a short-term market tell to the downside.

• Last week I added to my MetLife (MET) and Lincoln National (LNC) shorts.

Seems to be that this is the ideal setting (low rates, vulnerable equities) for these shorts.

• Malinvestment could be sowing the seeds for the next business downturn, sooner than many feel possible.

"The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers' stone to make it last." -- Ludwig von Mises (1940)

"Panics do not destroy capital, they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works." -- John Mills (1867)

Free money (and zero interest rates) are the fathers of malinvestment.

Over history, the artificially low cost of credit and central bankers' unsustainable increase in the money supply trigger poorly-allocated business investments.

The dot-com bubble in the late 1990s, the U.S.housing bubble in 2002-07 and the proliferation of those "financial weapons of mass destruction" (derivatives) are past examples of what Austrian economist F.A. Hayek called a byproduct of errant monetary policy, which produced low interest rates and, eventually, misleading relative price signals. causing a boom followed by a painful bust. 

Today, the Federal Reserve and, for that matter, central bankers around the world, have made a mockery of fundamentals as a slowdown in the rate of global economic growth (see overnight data in Chin, Germany and the U.S. (retail sales)) have coincided with a near parabolic move in the U.S. stock market over the last six weeks. 

Nonetheless, investors' confidence in central bankers' ability to engineer escape velocity and a self-sustaining trajectory of global growth is at a bullish extreme, manifested in relatively high valuations (at over 17x earnings). This comes despite 25% of the world's GDP barely growing (with Brazil, Japan, Italy and Russia in recession) and Germany's and France's flatlining growth and with the U.S. growing at only 2% to 2.5%.

In light of recent events, we must comment on the price of energy products. The thesis that an oil price collapse of 40% in only a few months is market and economy constructive is a weak one and is indicative of the bubble, like optimism of the type that permeates through the U.S. stock market. Do observers really believe that all of a sudden the market has become oversupplied by so much oil?

Free money drives misallocation of capital and overinvestment. This time it washed up in fracking and energy (see below). But energy messes with geopolitics in ways that telecom and housing does not and this could prove to be much more destabilizing than other bouts of over investment. It is not like Russia or Iran are going to just go gently into that good night -- they could cause trouble. (Perhaps this even explains why Russia's Putin saw this coming a while ago and why he invaded Ukraine). 

Misleading price signals (manifested in a new all-time high in the S&P Index) are being communicated to market participants. But signs of malinvestment and misallocation of resources have cropped up and represent risk to investors. 

Here are the most visible examples of malinvestment that might have already developed:

• Sell Low, Buy High? (Too Aggressive Corporate Buybacks?) -- Animal spirits have substantially lifted corporations' share repurchases, while capital spending remains moribund. But perhaps, as history has shown us (at Cisco (CSCO), IBM (IBM) and at and many others), corporations are becoming too aggressive in their buyback strategies. As an example, a company that I follow and had previously invested in repurchased 10% of its outstanding shares at more than $100 a share this year. Their shares currently trade at around $50-$55 a share. The difference of $50x 2 million shares repurchased, or $100 million, has evaporated into thin air in 6-8 months. 
• Energy-Related Risks Abound -- The oil landscape (oil and shale exploration/capital spending and the proliferation of master limited partnerships and high-yield energy debt) owe their existence to ever-rising energy prices. (It feels like déjà vu all over again, as was the case with the mushrooming in real-estate based debt/derivatives a decade ago). Production/capital spending cuts and reduced employment, lower prices for MLPs and a sharp markdown in high-yield energy-related debt may loom ahead.
• Commercial Real Estate's Unrealistic Cap Rates -- The most knowledgeable people I know in commercial real estate all say prices are so high for prime commercial real estate that, to quote Crazy Eddie, "the prices are insane!" Frankly, high-end residential prices -- in urban areas -- are no less insane. Investors, it seems, haven't learned from history and are repeating previous mistakes made less than a decade ago. 
• European Sovereign Debt, U.S. Treasuries and High Yielding Junk -- The former represents potential systemic risk issues in the EU banking system. The 30-year bull market in Treasuries holds the risk of huge potential losses for all investors in the decade ahead. And high-yielding junk bonds (especially of an energy kind) could lead to an across-the-board selloff in credit markets, importantly impairing the corporate buyback apparatus. Should oil prices drop further or just stabilize (and not rise) from current levels, it will translate into lessened global liquidity and impairment of the economies of energy exporting countries.
• Social Media, High P/E Stocks and the Valuations Of Emerging Private Companies (Uber, etc.) -- Arguably, once again, investors have flocked to a new paradigm with gusto and perhaps overexuberance. As previously stated, I am not a believer in social media, new tech, sustainable profit margins of the cloud, the endless power of big data, the optimistic prospects for smart advertising and the like being profit machines for decades. I am not even a believer that a majority of these companies will be profit machines ever. Rather, the new social media paradigm is reminiscent of another new paradigm infamously featured in a column in Wired Magazine back in 1997, "The Long Boom: A History of the Future 1980-2020." Written by Peter Schwartz and Peter Leyden, the article started with the following: "We're facing 25 years of prosperity, freedom, and a better environment for the whole world. You got a problem with that?" This notion proved to turn out poorly, as two recessions (one was shallow, the other represented the deepest contraction in nearly 80 years) followed soon after during the next decade. And money spent on speculation in technology (at inflated prices) vanished into money heaven, in what can only be described as one of the greatest stock market misallocations of capital ever. 

Bottom Line

In the mid-2000s the malinvestment of capital nearly took down the world's economic system and stock markets.

Of course, that era was unprecedented in terms of the misallocation of resources.

To the extent that the global growth recovery is sub-par, fragile and vulnerable, the emergence of new and different signs of malinvestment might have a potent and adverse impact on economic growth (especially at the margin) in the years ahead and could be sowing the seeds for the next business downturn, sooner than many feel possible.

• From the Street of Dreams.

BTIG reiterates its Buy rating and price target of 92 pence for Monitise (MONIF).  

Though BTIG is still more optimistic than me over the next few quarters, I would note that its research does concede that, as I have cautioned, the short-term outlook for sales/sub growth (and perhaps even pricing) remains uncertain. As such, BTIG takes down its (previously aggressive) revenue number for 2015-16.

I have called Monitise, despite its increased alliances, "a show-me stock."

While Buy-rated Monitise's (AIM: MONI; OTC: MONIF) announcement on

Thursday that it had attracted £49.2mm in new equity investments from

Santander (SAN SM ¿ Not Rated), Telefonica (TEF SM ¿ Not Rated) and

MasterCard (MA ¿ Not Rated) represented an important endorsement of

the company and its business strategy, it also resulted in dilution of its

existing shares.

We believe MONI shareholders should view such dilution as a small

price to pay for the enhanced support of some of its most impactful

partners as it lays the foundation for future growth that we think will

result in the achievement of the company's FYE18 targets of 200mm

registered users at an ARPU of £2.50, an EBITDA margin of at least 30%

and a sustainable gross margin of 70%.

We continue to have confidence in the company's ability

to achieve its longer-term targets, but we also acknowledge that our

near-term revenue estimates are a tad too aggressive.

As such, we are reducing our 1H15 revenue estimate to £55.9mm from

£67.5mm, our 2H15 revenue estimate to £68.0mm from £72.8mm, and

our FY16 revenue estimate to £204.3mm from £221.1mm.

At the same time, we emphasize that our thesis on MONI is based on an

anticipated trajectory of revenue and EBITDA growth that we believe

will accelerate over the next few years, and that at this point the

announcement of new partnerships and the expansion of existing

partnerships continues to outweigh the significance of near-term

operating results.

Valuation: Our 92p price target is based on 12x FY18E EBITDA of

£198.7mm discounted back at 8%.

Monitise's shares are trading down by about one penny in London trading this morning.

I have not yet added to my long position.

• Boockvar on the global data.

This morning, Moody's has taken down Japan's credit rating by a notch to A1.

All is not rosy on the data front, as the disconnect between slowing global growth and rising equities continues apace.

Peter Boockvar chronicles the disappointing economic data around the world this morning.

Ahead of the US ISM manufacturing index release where expectations are for a 1 pt decline to 58 off the best level since 2011, manufacturing data overseas was very mixed and are pointing to a very lackluster and uneven global economy. China's state sector weighted PMI fell closer to flat line at 50.3 from 50.8. That was slightly below expectations of 50.5 and the weakest since March. Weakness was seen across the board with export orders in particular falling to 48.4 and backlogs dropping to the lowest since June '13 at 43.9. The final HSBC measure of mostly private sector firms was left unrevised at the breakeven of 50.0. The Chinese H shares in Hong Kong were lower by 3% on the soft data. South Korea's PMI was up but still remaining below 50 at 49. Japan's final read was little changed at 52.0 and compares with its year to date average of 52.3. Taiwan's PMI fell to 51.4 from 52.0 and Indonesia's was down by 1.2 pts to 48.0. India was a bright spot (Go Modi!) as its PMI rose to 53.3 from 51.6.

In Europe, the manufacturing PMI was revised to 50.1 from 50.4 initially and it's the slowest since June '13. Germany led the downward revision as its PMI fell back below 50 at 49.5, the weakest also since June '13. French manufacturing remained in contraction but a bit less so at 48.4 vs the first print of 47.6. Italy also remained below 50 but Spain was a bright spot (as Spain has been aggressive with their labor market and other structural reforms) at 54.7 vs 52.6. The PMI in the UK was up a touch to 53.5, a 4 month high from 53.3. The strength in the UK was domestic as export orders fell for a 3rd straight month.

What the European weakness means for the ECB is unclear both in terms of timing and possibility of sovereign QE. Fighting against lower oil prices to achieve some inflation target seems like nonsense at this point. Also, another German ECB member, Sabine Lautenschlaeger, said over the weekend with respect to sovereign QE, "a consideration of the costs and benefits, and the opportunities and risks of a broad purchase program of government bonds does not give a positive outcome at the current time...The hurdles for further measures are very high." This follows her colleague's comments, Weidmann, on Friday that said the ECB can't increase the growth potential of the region. Expect no more ECB moves on Thursday and we'll see what comes next year. The euro is higher after the weekend's comments as the Germans seem dead set against sovereign bond purchases. This likely won't stop Draghi but his support will be more splintered beyond what he's currently doing with asset purchases.

With respect to gold, the Swiss initiative got pounced. While a no vote was widely expected, the extent of it was not. That said, it was more symbolic in that it's the first time in the current money printing world that we live in that someone spoke up and said enough is enough. For the price of gold though, India's announcement on Friday that they will further relax import curbs is much more relevant as we'll continue to see physical gold going from West to East.

In the US, both Shopper Trak and the National Retail Federation said retail holiday spending from Thanksgiving thru the weekend was weak. The NRF specifically said there were more than 6mm less shoppers to stores than they had predicted. While retail stocks will likely get impacted after the extraordinary run they've had, I say throw out all the historical holiday spending models as online purchases and constant discounting make the overall season impossible to call this early on. We'll also have to see how much the decline in gasoline prices offsets the biggest bright spot in the US economy over the past 5 years, our oil and gas industry that is now very likely headed for a recession. This industry directly and indirectly accounts for 10mm jobs and about 1/3 of all capital spending. On the other economic side, for the average consumer who averages 12,000 miles per year of driving at an average of 20 miles per gallon, the .50 y/o/y decline in gasoline prices will equate to about $300 per year in extra savings. Throw in the benefits to transportation companies and industrial companies that use oil as a raw material and it still won't likely be an offset as overall US growth will be lower if crude prices stay at around current levels. Existing wells will continue to pump but most new ones won't be spud.