$2.35 billion to buy market on close.

Today was another day of market strength.

Breadth was good - with 1845 advancing issues and 1100 declining stocks.

Programs continue to dominate the investment landscape (no negative tick in the last 40 minutes!) and dip buyers were conspicuous.

FANG and technology has reemerged as market leadership, while banks were relatively weak after a strong rebound over the last month.

Bond yields dropped back down and gold was flattish.

Very little trading today - which reflects my low conviction level.

I wasn't hit on my (DDS) and (M) bids.

Sold off some (PG) , down to tiny-sized.

Hartford Financial  (HIG)  jiggy today after the earnings beat.

Still going through the release and the conference call.

Back with my analysis by Thursday.

From my pal D2.

I would add that 4Q2018 was the worst for the markets since 4Q1931. In the first quarter of 1932 the market rallied by +20% and then dropped by -50%. I am not suggesting history will repeat itself, just pointing the out history:

MissD_Dallas

..confirmation email from Lance Roberts today and Real Investment Advice:

the highlight-
"This confirms our concern the recent rally has primarily been a function of short-covering and repositioning in the markets rather than an "all-out" buying spree based on a "conviction" the "bull market" remains intact."

David Rosenberg recently confirmed the same:

"Let's go back to December for a minute. This was the worst December since 1931, mind you, followed by the best January since 1987. This is nothing more than market that has gone completely manic.

To suggest that there is anything fundamental about this dead-cat bounce in equities is laughable. This is an economy, and a market, that couldn't even sustain a 3% yield on the 10-year T-note. It sputtered at the thought of the Fed taking the funds rate marginally above zero on a 'real' basis, even as it feasted on unprecedented stimulus for a such a late-cycle economy.

Yes, Powell et al. helped trigger this latest up-leg, not just at last week's meeting, but in the lead-up to the confab as well. The Fed has been crying uncle for weeks now."

https://realinvestmentadvic...

* All views are not equal
* Nearly every investment view has a different level of conviction
* Four principal factors have changed the predictability of investment outcomes
* The only certainty is the lack of certainty

"The best lack all conviction, while the worst are full of passionate intensity."
--William Butler Yates

Every morning, at about 4:30 am I think about my portfolios' gross and net exposure and how convicted I am.

The later issue, is an important one, which is not too frequently discussed.

Here is a column I recently wrote about conviction levels:

It is said that opinions are like buttholes -- everyone has one (and that includes me!)

It seems that in today's investment world in particular almost everyone has an opinion and a view on nearly everything. In many cases these views are delivered by self-confident messengers who seem to never be in doubt but are often wrong.

It also seems, that the more anonymous the person is, the more confident is the view! The Twitter platform comes to mind.

Few say, "I don't know."

But this is not a representation of reality.

The fact is that a view invariably is associated with differing degrees of conviction.

Nearly every strategist, analyst and portfolio manager is first asked about a "view" in the business media, but I can't remember the important follow up question: "What is your conviction level associated with that view?"

This very simple concept gets little discussion, but it should as it is very important, sometimes as important as a given view itself.

As an example, last night I "liked" Clemson. Based on my analysis I thought the spread of six points (Alabama was favored) was too great given Clemson's talent (of a Trevor Lawrence kind) and momentum, among other factors. But my conviction level was not high, so I wagered a small amount with Badgolfer -- thanks, Mikey! -- on Clemson to win.

The Clemson Tigers easily won the college championship by a score of 44-16, blowing out the Crimson Tide.

It is also true when investing that not all views are equal.

Investment Convictions Today Should Be Lower Than in the Past

There are four major factors that recently have contributed to rising uncertainty:

* Global central bankers are withdrawing liquidity -- As discussed in Monday's opener, the pivot toward tighter money reduces system liquidity. Liquidity and volatility are inversely related, so less liquidity means more volatility and less predictability.
* The market structure has changed -- The dominance of passive products and strategies are also contributing to the new regime of volatility that began in early 2018.
* The Orange Swan and political turmoil -- These factors are contributing to policy uncertainty, which in a flat world (see below) has broad ramifications to investors. The administration's hostility towards the other G-7 countries and a lack of sense of the world community (i.e., the abandonment of the post-World War II order) jeopardizes the U.S. leadership position and poses new economic and market risks
* The world is growing more flat, networked and interconnected -- Non-coordination and lack of cooperation among the largest countries in the world represents a profound and new risk. I continue to ask these three questions every day, as the answers might serve to raise uncertainties but also may be viewed as valuation busters in the fullness of time:

• In a paperless and cloudy world, are investors and citizens as safe as the markets assume we are?
• In a flat, networked and interconnected world, is it even possible for America to be an "oasis of prosperity" and a driver or engine of global economic growth?
• With the G-8's geopolitical coordination at an all-time low, how slow and inept will the reaction be if the wheels do come off?

The reason I want you to remember these questions is that the answers might serve as valuation busters in the fullness of time..."

- Kass Diary, "This Ain't No Seder, I Now Have Eight Questions" (2017)

Differing Conviction Levels and the Uncertainty of Views

"I'm astounded by people who want to 'know' the universe when it's hard enough to find your way around Chinatown."
--Woody Allen

Besides the four contributors that form the foundation of growing uncertainty, there are other factors that may reduce conviction of views.

Price is an important consideration.

For example, with the S&P 500 Index advancing by nearly 130 handles (adjusted for Tuesday morning's futures rise) since the close of trading last Thursday to almost 100 handles above my "fair market value," the conviction level of my many individual long holdings -- many of which are up 20% or more in a brief period of time -- is much lower than from three trading sessions ago.

For that reason and others, I have adopted a market neutral position, which is a manifestation of my lack of conviction in either direction.

The Rare Time of High Conviction Should Be Followed in Practice

"Soros has taught me that when you have conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage."
--Stanley Druckenmiller

I didn't want to end this missive without mentioning that, though uncertainties reign, when your conviction is high you should not be reluctant "to go large."

In the last 30 years, George Soros and Stanley Druckenmiller are the best practitioners of convicted and concentrated investment positions/bets.

This was also the case, at least for me (on a more limited scale), when the S&P in the last week of December 2018 collapsed to 2340 (now at 2560 only a week later) and I moved to a large net long exposure.

Then there is the rare bird, Berkshire Hathaway's (BRK.B) Warren Buffett, who, more than anyone in modern investment history, has a documented history of confidence and large, concentrated portfolio investments that have manifested in the delivery of remarkable investment returns over the last five decades.

Bottom Line

"Our destiny is frequently met in the very paths we take to avoid it."
--Jean de La Fontaine, Fable 16

For the reasons addressed in this morning's missive, my conviction levels over the last few years are far lower than they have been in the past, especially when compared to when I started out in the investment business more than four decades ago.

For me, my conviction is strongly a function of rising uncertainties -- in policy, politics, market structure and interconnectivity -- as well as the difference between current share prices and my calculus of intrinsic or fair market value. While it is counter-intuitive to momentum-based strategies, my conviction rises when the spread between current share price and intrinsic value widens. As the spread contracts, my conviction is reduced.

These factors help to explain my weightings -- small, medium and large -- which tend to be a reflection of my varying conviction levels and the consideration that it is increasingly hard to find the ideal entry point!

Given the market advance of more than 200 S&P handles from the Dec. 24 lows, today, here on Jan. 8, 2019, I am less convicted than I have been in some time. This helps to explain my very slight deviation from market neutral (small net short exposure).

In the final analysis, all investment views are not equal.

The VIX turns green.

Here is my Bloomberg interview from this morning.
My segment is at the 21 minute, 40 second mark.

The S&P is now +400 handles above its Christmas Eve low - and is at its 200 day moving average.
The Index is the most overbought since September.

Source: Peter Boockvar

I am bidding slightly under the market for more (DDS) and (M) .

From Neil "The Real Deal":

Neil S • 

Nomura - "We judge that CTAs clearly have flipped to the long side in the US equity market for the first time since last December. Although their current systematic buying is very moderate. As long as equity volatility does not soar mechanical buying for trend-following tends to continue"

The S&P Index is starting to feel a lot like August/September, 2018.
* No fear.
* No memory.
* Unquestioning and little skepticism.
* A lot of complacency.
* Detached from the real economy.
* Buying the dip and not selling the rip.

I will be on Bloomberg radio with Tom Keene at about 9:30 am this morning.

Peter Boockvar on global growth trends:

The revised January services PMI for the Eurozone was lifted to 51.2 from the first print of 50.8 and that puts it unchanged with December. That though is a 49 month low with France and Italy "the primary sources of weakness, with both countries registering declines in activity during January." Business improved in both Germany and Spain. The combined manufacturing and services index is at 51, the weakest in years. Markit said "The Eurozone has started 2019 on a flat note, with growth close to stagnation amid falling demand for goods and services." They forecast this level as equating to growth of just .1% q/o/q which would be the slowest since 2013. They summed up the report by saying "The survey indicates that political uncertainty, both global and local, is increasingly taking a toll on growth, dampening demand and driving increased risk aversion. Add in rising global trade tensions, Brexit uncertainty, the 'yellow vest' protests in France and a spluttering auto sector, it's clear that the business environment is at its most challenging since the height of the region's debt crisis."

Is it any wonder that German yields are negative out to 8 years and the 10 yr yield is less than 20 bps even with the ECB done increasing the size of its balance sheet? That France is paying just .59% on a 10 yr vs .90% in October or Spain at 1.24% vs 1.74% a few months ago? And even the Italian 10 yr at 2.72% is no different than the US 10 yr yield? Bottom line, QE and NIRP don't work.

To this point, this piece released yesterday by the San Francisco Fed I believe is complete nonsense.

NIRP in the US would blow up the money market industry, the source of $3 Trillion of funding for a variety of short term debt. And, how exactly would a tax on capital lead to faster growth?

The UK economy is also at stagnation as its services index fell to 50.1 from 51.2 and the composite index with manufacturing is down to 50.3. New orders fell to the lowest since April 2009 "as customers tightened their belts" and "service sector employment fell for the first time in the past 6 years in a sign that the slowdown is feeding through to the labor market...Such worries were in turn most commonly linked to heightened Brexit anxiety, though wider global political and economic factors were also seen to have been taking their toll on demand."

Is it any wonder that the UK 10 yr Gilt yield is at just 1.27% vs 1.73% back in October? The pound is down slightly just above $1.30.

Japan's services PMI for January rose to 51.6 from 51.0 in December and vs 52.3 in November. It seems to be the same story with many countries that for now there is better performance on the domestic side with services and weakness with exports in manufacturing. Markit said "The improved expansion was supported by healthy inflows of new business from domestic clients, as a renewed decline in export orders was observed." Combining manufacturing services has the composite index at the lowest level since September 2016, "indicating the downside momentum in Japan's underlying growth trajectory." The key question is whether Abe will follow thru with another increase in the VAT rate come October.

Notwithstanding the services uptick is it any wonder that the 10 yr JGB yield is still a hair below zero at -.009%?

JGB 10 yr yield

The Reserve Bank of Australia kept rates at 1.5% as expected but they are in a tough spot as their housing bubble is now unwinding. They said "The housing markets in Sydney and Melbourne are going through a period of adjustment, after an earlier large run up in prices. Conditions have weakened further in both markets and rent inflation remains low." On the other hand, "the stronger labor market has led to some pick up in wage growth, which is a welcome development." Overall they believe "The outlook for global growth remains reasonable, although downside risks have increased. The trade tensions are affecting global trade and some investment decisions." The overall tone has them holding at the current rate level for the foreseeable future. 

I highlight the RBA for two reasons, Australia hasn't had a recession in 28 years but is now threatened with one because of falling home prices and the RBA never fell for the allure of QE, deeply negative real interest rates, or anything close to zero on a nominal basis. The ASX rallied 2% overnight and the Aussie $ is up a touch. 

Finally, I didn't highlight it yesterday because it was an old November number but capital spending in the US definitely slowed into year end. Non defense capital goods orders ex aircraft, aka core capital spending, fell .6% m/o/m in November, the 3rd monthly decline in the prior 4. We'll soon see December but with everything going on that month, I'd be hard pressed to think it improved. The US consumer right now is the main pillar of US growth with a strong labor market and rising wages. 

* Amazon and Google spent more than the consensus expected
* Disney may follow tonite with the same larger than anticipated spend

Amazon (AMZN) led the hit parade of higher expenses last week and its share price suffered.
Last night, Alphabet/Google (GOOGL) (value investors' favorite FANG stock) followed suit. It's shares +$20 on the reaction to the better headline EPS number, fell by nearly $60/share in the ensuing minutes after it was revealed that capital spending soared (headcount, etc.), "other" losses expanded, operating expenses rose and free cash flow suffered.
I expect the same problem to confront Disney (DIS) (and its common shares) when it reports tonite, after the close (and over the next several quarters), as it becomes clear that the popular entertainment company faces a larger than expected spend to develop its streaming business.
Bottom Line
When the spend line ramps up - for whatever reason (e.g., plant and equipment, research and development, headcount, compliance costs, adding new business lines, etc.) - the share price usually stumbles.

"How did you go bankrupt? Two ways. Gradually, then suddenly."
--Ernest HemingwayGood observations by The Divine Ms M this morning.