$425 million to buy on close.

No biggie.

* With 45 minutes left in the trading day, breadth is about evenly distributed (1,500 advancers, 1,400 decliners).
* Stocks had their obligatory 20 handle (S&P) rally from the lows and are close to the days highs at 3:15 p.m.
* A key feature was another drop in bond yields (3-4 basis points) -- with the 10-year U.S. note threatening to break 2.50% again.
* Oil up modestly as is gold (+$4.50/oz)
* Regardless of one's political views... Trump saying stupid thingsand Stephen Moore being stupid.
* Most sectors are experiencing modest price change.
* Banks only a touch off of yesterday's highs (and good gains) (Impressive!).
* Industrials better - with the (DOW) / (DWDP) complex trying hard.
* Google (GOOGL) , an obvious downside feature. Amazon (AMZN) trying its best to challenge $1,900 (which is not surprising after the big run).
* Disney (DIS) down for the second day in a row after its remarkable run.
Apple (AAPL) time, coming up...
Long SDS (large), GOOGL (large), AMZN (large), DOW, DWDP (large)
Short SPY (large) AAPL, DIS

So, President Trump is now calling for the Fed to cut rates by one percent and he is urging more quantitative easing.

We are in one big casino and the Fed is the House!

If excessively low rates, even those below zero, and QE were magic elixirs, the economies of Japan and the eurozone would be BOOMING.

 * Yiddish for craziness is three-fold (h/t Grandma Koufax).

My only trade today was in (SDS) .

Stephen Moore was interviewed on CNBC this morning.

The interview basically centered on Moore making the case for his appointment to the Federal Reserve.

From my perch Stephen Moore's nomination should be immediately rescinded for the following reasons:

* Moore's economic beliefs have been inconsistent while his economic forecasts have been consistently wrong-footed.
* In listening to the CNBC interview, the Fed nominee is clearly willing to change policy based on political expediency.
* Moore's writings demonstrate a considerable degree of inappropriate misogyny.
* That contempt has no place on the Fed or in our society.
* He doesn't appreciate the independence of the Federal Reserve.
* Moore's economic and social theories would undermine the U.S. economy.

Market breadth is now back to even as the obligatory 15-20 handle rally (from the lows) in the S&P occurs.

Despite some erosion in the indices, market breadth is reasonably even (1,300 advancers, 1,565 decliners on the NYSE).

I'm large long ProShares UltraShort S&P500 (SDS) now (average cost today of $31.15.)

Good data points from Peter Boockvar:

After a really mixed bag of regional manufacturing surveys with most down m/o/m, the Chicago index for April fell to 52.6 from 58.7. That was well below the estimate of 58.5 and it's the lowest since January 2017. New orders and production (weakest since May 2016) fell but backlogs got back above 50. Inventories remained below 50. The employment component fell to the softest since October 2017. Supply constraints continue to ease as supplier deliveries fell to the shortest since April 2017. Prices pressures were muted, driven by steel prices.

The Chicago MNI said this about the #, "This was a disappointing start to the 2nd quarter, with more firms cutting back on both production and employment against a backdrop of softer domestic demand and a global slowdown." I'll pin point this down further and say this is what happens when excessive inventory needs to be worked down, particularly in the auto sector where the Chicago region is very sensitive to because of its closeness to Michigan.

To the point of excessive auto inventories, this article was published yesterday from Automotive News, https://www.autonews.com/sales/near-record-inventories-pinch-dealers.

CHICAGO MANUFACTURING INDEX

Pending home sales in March jumped by 3.8% m/o/m after declines in 7 of the previous 8 months. That was above the estimate of a gain of 1.5%. I'll harp AGAIN on the impact of the SALT cap as sales in the Northeast was the particular weak spot, falling 1.7% m/o/m and down for the 3rd month in the past 4. It was more than offset by many likely moving down South and out West. Contract signings in the South fell 4.4% and jumped by 8.7% out West. As for that rise out West, NAR said "Despite some affordability issues in the West, the numbers indicate that there is a reason for optimism. Inventory has increased too. These are great conditions for the region."

The NAR still has the current level of sales in perspective as the industry is still pacing below historical trends, population adjusted. "In the year 2000, we had 5mm home sales. Today, we are close to that same number, but there are 50mm more people in the country."

Bottom line, we're in the key selling season and this metric points to buyers responding favorably to the drop in mortgage rates and likely the slowdown in the pace of home gains. To the latter point, the S&P CoreLogic 20 city home price index for February saw home price gains slow to 3% y/o/y, the slowest since September 2012. This slower pace of housing inflation is a GOOD thing as it brings more buyers to the table as the 5-6% annual price gains were pricing too many out of the market.

The Conference Board's consumer confidence index for April rose 5 pts m/o/m to 129.2, 2.4 pts better than expected but follows a 7.2 pt drop in March. The 6 month average smoothing this out is 128.3. Both the Present Situation and Expectations components were higher m/o/m. One yr inflation expectations fell one tenth to 4.5% m/o/m but after rising by 3 tenths in March.

Helping were the answers to the labor market questions. Those that said jobs were Plentiful jumped by 4.3 pts to match the most since January 2001. Those that said jobs were Hard to Get fell .5 pt but after rising by 2.1 pts in March. Current conditions for business got back some of what it lost last month while expectations recovered all of last month's drop. Employment expectations improved slightly after the March drop. Income expectations were basically unchanged.

Notwithstanding the headline gain in confidence, spending intentions weakened for durable goods. Those that plan on buying a vehicle fell .6 pts m/o/m. Even with the jump in pending home sales, those that plan on buying a house fell 1.4 pts to the least since June 2016. Those that plan on buying a major appliances dropped to the least since July 2018.

Bottom line, confidence in this cycle peaked in October but still remains at a good level as seen in the chart. Either way, we know this data is just coincident and tells us nothing about how consumers will behave in coming months.

CONSUMER CONFIDENCE

Recent shorts such as T. Rowe Price (TROW) , Franklin Resources (BEN) , Micron Technology (MU) , Intel (INTC) and Apple (AAPL) are beginning to pay off!

* The "Powell Pivot" has likely been fully discounted
* The last two times the Fed ended its rate hike cycle, a recession and bear market followed
* Worry, baby...

"Well it's been building up inside of me
For oh I don't know how long
I don't know why
But I keep thinking
Something's bound to go wrong...
I guess I should've kept my mouth shut
When I started to brag about my car
But I can't back down now because
I pushed the other guys too far."
--The Beach Boys, "Don't Worry Baby"

"Don't Worry Baby," written by Brian Wilson, was the B-side of The Beach Boys first No.1 song, "I Get Around." Rolling Stone magazine ranked the song No. 178 of all-time and Pitchfork Media made it the No. 14 best song of the 1960s.

Brian Wilson cited the song as his attempt to capture the essence of his all-time favorite record, "Be My Baby," by The Ronettes. (Wilson has estimated he has listened to "Be My Baby" more than 1,000 times.)

The song, as originally performed by The Beach Boys, is sung from the point of view of a teenager who reluctantly agrees to a challenge to race a rival after rashly bragging about his car, and is reassured by his girlfriend's plea to take her love with him when he races.

David Howard wrote that "Don't Worry Baby" was a "subtle harbinger for the growing dichotomy within the California Sound." While "I Get Around" symbolized the sunshine ideal in all its carefree splendor, "Don't Worry Baby" suggested something entirely more pensive and even slightly dark underneath its pristine facade.

Perhaps the market's façade is also less pristine and the "Powell Pivot" may be overdone in influence, notwithstanding the roars from the crowd following one sensational run since Dec. 24, 2018.

Why You Should Worry Baby!

Here are some reasons to worry:

* Slowing Domestic Economic Growth: I see going forward nominal GDP in the U.S. at nearly recessionary growth levels. There was less than meets the eye in the first-quarter headline Real GDP growth rate of 3.2%. The accumulation of inventories, large doses of government spending and a sharp improvement in exports will likely subtract from the second-quarter growth rate. Moreover, consumer spending is clearly slowing (first-quarter consumer durable spending was down 5%), along with housing and non-residential construction now. Commodities are down in each of the last five days and are now at a seven-week low. Finally, credit card charge-off rates are rising sequentially, as are delinquency rates.
* Slowing Non-U.S. Economic Growth: Economic confidence in the European Union has hit a 10-month low. Hong Kong exports to China are falling post haste (down 10% in March). Finally, last night's disappointing Chinese data questions the foundation of growth in that region.
* The Earnings Recession: A strengthening currency, sub-4% nominal U.S. GDP growth and rising wage and salary costs pose threats to corporate profitability this year. While estimates have improved from year-end, first-quarter profits still look to be down by more than 2%. According to Rosie (David Rosenberg), fully 84% of those companies issuing guidance have been negative. Second-quarter profits look negative, again. As I have chronicled, profit margins peaked several quarters ago (3Q 2018). Going forward, it seems to me that commodities and interest expenses are likely troughing and that wage growth may accelerate from here, pressing margins. Finally, don't fall for the fact that 77% of the reporting companies have beat "estimates." This is what I refer to as the "Twit Olympics" where estimates are taken down and guided to levels that almost certainly will be beat.
* The Last Two Times the Fed Ended Its Rate Hike Cycle, a Recession and Bear Market Followed
* The Strengthening U.S. Dollar: More than 40% of the S&P component's sales are non U.S.-based. A strong U.S. currency will be a profits headwind over the remainder of 2019.
* Message of the Bond Market: Stated simply, the 10-year U.S. note is sending the message of slowing global economic growth.
* Untenable Debt Levels: I have already spent quite a lot of time making the case that debt is a governor to growth. The greatest subset threat is sovereign debt, which for now is being ignored.
* Credit Is Already Weakening: With GDP up by more than 3% in real terms in the first quarter, one should be asking, "Why are bank credit and leveraged loans weakening?" The proliferation of "covenant lite" financing and the existence of increasingly excessive leverage are worrisome. Bankwide loans are weakening (are inventories bloated?); it's the most sluggish trend seen since 2016. The ratio of debt upgrades to downgrades this year is also at the worst level in three years. As well, the leveraged loan market is seeing outflows and distressed debt is beginning to see an acceleration in write-offs. Finally, the search for yield, coupled with low interest rates, causes mischief and the misallocation of resources -- for example, the silly issuance of 100-year Argentina bonds that now sell for about 66 cents on the dollar (they were issued at par).
* The Abundance of Uncertainties: I like to say that never in my investing career have there been so many possible market, political and economic outcomes that could turn out adversely.
* Political Uncertainties and Policy Concerns: The widening spread between haves and have nots has resulted in transformative political change. Not only does the schism have adverse economic and social implications; it also could lead to dumb policy.
* Valuation: Many claim that the "Powell Pivot" and its likely ramifications of lower rates for longer provides a cover for equities. But stocks, currently valued at 17x forward earnings, are now more than two price-to-earnings (P/E) multiple points above the average level of the last decade -- a period of time in which rates were mostly at or near generational lows.
* Positioning Is to the Bullish Extreme: As noted last week by my pal Peter Boockvar, chief investment officer at Bleakley Advisory Group, the net speculative position in short VIX futures is at an all-time high. And all-time is a long time.
* Rising Bullish Sentiment (and The Bull Market in Complacency): The CNN Fear & Greed Index is extended toward Greed now. Barron's Big Money Poll lists only about one-sixth of the respondents as bearish.
* Non-Conformation of Transports: The Dow Theory is shining an amber light in 2019's sea of market green. I am surprised so few technicians have mentioned this warning flag.

Bottom Line

"Dougie, always remember, the Cossacks will be coming."
--Grandma Koufax

I have been an investor for over four decades. While I fully recognize the gravitational force of stocks higher, I always worry.

This is not "The Eve of Destruction," released a year after "Don't Worry Baby." 

But, given the body of uncertainties and host of concerns expressed in today's opening missive and over the last two months, my advice is:

Worry, baby.

My friend Peter Boockvar, chief investment officer at Bleakley Advisory Group, discusses an "insurance cut":

There has been chatter from Fed members Charlie Evans and Rich Clarida and some writers that the Fed should consider 'insurance' rate cuts ala 1995 and 1998 as lower inflation gives them cover. I say this: Firstly, in 1995, the REAL fed funds rate was 300 bps vs 50 bps today (looking at CPI) and thus giving the Fed room to cut and what happened after that 1998 rate cut in particular was it triggered the blow off phase of the greatest stock market bubble in US history. Secondly, if the Fed wants to deposit itself directly into the inequality debate (which they should be in the middle of anyway) ahead of the 2020 presidential election, they can substantiate a rate cut by saying the cost of living of the average American is too low. Bernie Sanders and Elizabeth Warren would have a field day with the Fed if they ever came around to understanding what drove a rate cut, that being wanting higher inflation as opposed to responding to noted weakness in economic growth. Does the Fed understand what drove the Yellow Vest protests in France? Thirdly, the correlation between central easing and higher inflation is pretty specious over the past 10 years. Just ask Haruhiko Kuroda and Mario Draghi.

The Fed instead should take precious care with what few possible rate cuts they have and save it for a legitimate rainy day where a slowdown in economic growth would warrant it. Also, if they are going to play the symmetry game of tolerating a 2.5% inflation rate if we see 1.5% it also implies they won't hike if we see 2.5% and therefore shouldn't cut if we see 1.5%.

I will still hammer home the point that low inflation is not itself a threat to economic growth, it's just an outgrowth of underlying business activity that shouldn't be manipulated. Some prices go up, some go down. Central planning the desire for a specific rate is nonsensical. Finally, there is this fallacious belief on the part of central bankers that deflation is evil because consumers will hold off buying things in anticipation of even lower prices. Thus the corollary is if people believe prices will rise, they will buy more. To that I say, the history of the US consumer (Walmart and Amazon certainly can attest) or any for that matter, shows they buy more the lower prices go and less when they rise.

I'm sorry for continuing to harp on this but I feel it's necessary to give a contra opinion to the conventional thinking we hear from the Fed and other central banks that has resulted in their huge intrusion into our markets.

There was no follow thru from the better than expected March China data in April and instead there was some give back. The state sector weighted manufacturing PMI fell to 50.1 from 50.5. The estimate was for no change. New orders, employment, inventories, backlogs and business expectations all fell. Export orders did rise by 2.1 pts but still remain below 50 at 49.2. As the recent Chinese stimulus has focused on small and medium sized businesses, manufacturing confidence for small businesses did rise by .5 pts to 49.8 but fell .8 pts for medium sized ones. Large company confidence fell. The private sector weighted manufacturing Caixin index also fell to around flat line, down by .6 pts m/o/m to 50.2. The estimate was for a slight rise to 50.9. New orders fell, export orders dropped back below 50 as did employment.

As for the Chinese services side, the state sector weighted index fell too m/o/m. It dropped by .5 pt to 54.3 vs the estimate of 54.9. New orders, backlogs, export orders and future business expectations all were lower from March.

It was Saturday March 30th when China reported its March upside surprise in this data and that Monday the S&P 500 rose 1.2% in response in what was the early stage of an 8 day winning streak. Overnight, the Shanghai comp rose .5% but follows a near 7% decline over the past week while the H share index dropped by .8%, the Hang Seng was weaker by .7% and the Kospi fell by .6%. For the month, the Shanghai comp fell .4% after a monster first 3 months higher. The China stimulus this time around is certainly more directed rather than broad based and as I said yesterday, I'm not sure how much spills over outside the country. Either way, it is meant more to soften the slowdown rather than reverse it.

Industrial production in South Korea in March fell 1.4% m/o/m, a touch better than the estimate of up 1% but the February figure was revised down by 8 tenths with the combined weaker figure reflecting the global slowdown we know is going on. Continuing on this theme, Thailand said its exports in March fell 4.2% y/o/y while imports were down by 5.8%.

Shifting to Europe, the French Q1 GDP figure was as forecast up by 1.1% y/o/y and the Italian economy reversed its Q4 contraction with a .1% y/o/y Q1 gain, two tenths more than expected. We'll take a beat in Italy but their economy is essentially flat lining. Spain remains a bright spot in terms of growth as they reported a 2.4% y/o/y gain, one tenth more than expected.

The initial estimate for the entire Eurozone for Q1 is growth of 1.2% vs the estimate of 1.1%. That is the slowest rate of growth since Q4 2013. As for the March unemployment rate, it shifted down by one tenth to 7.7% and that is the lowest since September 2008 and is creeping closer to the pre recession low of 7.3% in 2007. Bottom line, expect this time of GDP growth for the rest of the year, around 1% which will be the weakest since 2013, soon after we heard 'Whatever it takes.'

EUROZONE UNEMPLOYMENT RATE

Finally in Europe, while the German economy has slowed dramatically to little growth, the labor market remains solid. Their April unemployment rate held at 4.9%, the lowest since reunification and there was a drop of 12k in the number of unemployed, more than the estimate of down 7k. In response to all this data out of Europe, the euro is bouncing and yields are rising with the German 10 yr yield in particular up by 3 bps and back above zero. Germany employers seem to be betting on the current slowdown in economic activity won't last. Let's hope.

Danielle DiMartino Booth continues to be cautious about the domestic economy (I agree, and again, will be discussing in today's opening missive). From Danielle:

"Welcome to Fantasy Island!"

VIPs

• While 52% plan on taking time off this summer, 48% won't take a vacation or are undecided according to a new survey by com; respondents are foregoing travel because they can't afford it with day-to-day bills or are paying down debt
• S. domestic airline passenger traffic is trending lower; in February, traffic skidded to a two-year low of 1.4% from last September's three-year high of 6.0%
• The U.S. Personal Spending data include vehicle rental volumes which contracted -0.7% over last March from its cycle peak growth rate of last August's 15.5%; fewer foreign travelers to the U.S. explains some of the weakness in car rentals
• A bright spot has been vehicle-miles traveled which rose 1.8% year-over-year in January; staycations will be an increasingly viable option for money conscious households
• S. hotels ended the first quarter with low growth and weakening demand pressuring pricing; if trends persist, the leisure industry may have a cool, cool summer

My pal Tony remains bullish:

The cause for pause<https://canaccordgenuity.bluematrix.com/sellside/EmailDocViewer?encrypt=2a155378-c4da-4afb-b093-edebbb6bc37d&mime=pdf&co=Canaccordgenuity&id=CA-InternalResearchDistribution@canaccordgenuity.com&source=mail>

Although our fundamental core thesis remains positive, given a backdrop of low inflation, the dovish Fed pivot, a re-steepening yield curve, slowing but positive growth, better-than-expected EPS, and valuation expansion, the tactical backdrop continues to suggest a minor correction over the near term, with any drawdown limited to less than 5%. We base our view on three main factors:

• Our four key tactical indicators remain near extreme overbought/optimism levels. We adopted a more neutral tactical position due to the drop in the VIX, decline in the percentage of SPX components above their respective 10- and 50-day moving average, extreme overbought condition in our trusty SPX weekly stochastic (Figure 1), and expansion in the Investor's Intelligence reading of bullish newsletter writers. None of these factors highlighted in pause in the upside<https://canaccordgenuity.bluematrix.com/docs/pdf/37a3d782-babc-4149-b6f1-a4ddb103cda3.pdf> have been relieved as the market has grinded to a new record high.
• Breadth thrust 3-month target exceeded. The S&P 500 (SPX) has thus far exceeded the 5.1% median 3-month gain following more than 90% of SPX stocks above their 50-day moving averages that took place on 02/15 as highlighted in upside extreme points to new highs<https://canaccordgenuity.bluematrix.com/docs/pdf/ee9fefec-0fbf-419b-866a-e4a9b4fab282.pdf>. Only three of the fourteen occurrences since 1990 have seen a 3-month gain above the current 6.6% (Figure 2).
• EPS fear has largely been reversed. The fearful atmosphere surrounding the Q1/19 EPS reporting season has largely been reversed by the upside surprises thus far as highlighted below. That leaves us with less skepticism ahead of a plethora of economic data that is likely to show further slowing, coupled with fear of corporate governance as the political environment continues to heat up. While we do not expect a meaningful change in the EPS outlook or significant drawdown, weaker data increased anti-corporate rhetoric could cause a bit of indigestion.

Continue to expect Q1/19 EPS to end up positive. Almost half of the SPX components have reported earnings so far, and as we anticipated due to historical precedent, earnings growth has improved toward positive growth from the -2.0% growth estimate at the start of the EPS reporting season. With a busy week of earnings reports ahead of us, we wanted to highlight the current SPX operating earnings estimates (Source: I/B/E/S data from Refinitiv):

• Q1/19 EPS growth is estimated to be down -0.2%, but as we have said, the end result should be a small positive. Since 2009, every quarter has been revised higher from the first day of EPS reporting season to the end by a median 3.5% (Figure 3).
• One company skewing results significantly lower. According to David Aureilo of Refinitiv, excluding the Facebook legal fee, the blended SPX operating EPS would be up 2.1% vs. the current blended estimate of a loss of 0.2%.
• 77% of companies beating estimates. Of the 46% of S&P 500 companies that have reported Q1 earnings so far, 77% have reported above analyst estimates.

Alphabet/Google (GOOGL) was nearly everyone's favorite "value play" in FANG.

However, unlike Amazon (AMZN) and Facebook FB , Google's first-quarter release failed to meet expectations.

As I warned yesterday, the shares of Google were elevated and "priced to perfection" going into the quarterly print.

Specifically, sales missed by 6% and website growth fell below the +20% growth rate for the first time ever (commentary about "product changes" did not clarify the miss to me).

An aggressive hiring spree at Google Cloud produced higher headcount growth (and expenses) than expected. Though margins improved in Q1 the expectation of a further pickup in expenses in the current period suggests that margins will weaken in the quarters ahead.

Here are the three main problems as chronicled by Morgan Stanley:

1. Websites revenue missed at +19% cc vs consistent low 20s growth over the past few years. Falling below the +20% level is a psychological negativefor growth investors, especially given FB + TWTR + SNAP all *beat* ad revenues in 1Q and AMZN ads *reaccelerated* in 1Q after a decel in 4Q. The CFO reiterated the vague commentfrom last call that'the timing of product changes in advertising can at times have an impact on y/y growth', which sounded relevant to the reported quarter and a forward looking comment, meaning further decel is possible. However, management gave no incremental color in the Q&A on what those changes actually are, and there's no discernible change you can find on the product anecdotally.

2.Headcount growth forecast was tweaked to now 'moderate slightly' from 2018 vs simply to 'moderate' on the last earnings call. Every word matters given lack of official guidance and it sounds like the delta is more aggressive hiring in Google Cloud, consistent with Thomas Kurian's ambition to build an enterprise sales force. MS modeled headcount up +18% in '19 vs +23% in '18, which looked conservative heading into the call, but now not so much. On the bright side, capex language was unchanged with plans for growth to'moderate quite significantly', but against a +90% comp in 2018, so less meaningful.

3.Expenses are expected to 'pick up' in 2Q. The CFO said that the 'pace of investment in 1Q reflected a timing shift in spend, and expects these expenses to pick up in 2Q'. It's unclear whether that comment refers to broader opexor sales & marketing specifically, but still not good on a sequential basis. 

Bottom Line

While Google will likely be in the penalty box until the second quarter is delivered, the secular growth prospects remain attractive for the company.

As stated previously I am a $1,150 buyer of more Google shares.

I will have more on Google later in the day...

Overnight market excitement was dampened by Alphabet/Google's (GOOGL) disappointing results and a miss in China's PMI.  
China economic transaction has been a feature of the bullish market commentary. It's now being tested with Monday night's large miss to consensus expectations.
More in my opening missive coming up...

The S&P 500 Index rose to a new all-time high on Monday, for the 210th time in the last six years.
The year-to-date return is the best start to a year since 1975.

Sign of the times:

Late yesterday Twitter (TWTR) made some important announcements:

BRIEF-Twitter Says Expanded Lineup Of New Live & On Demand Premium Video Programming

6:31pm ET, 04/29/2019 - Reuters

April 29 (Reuters) - Twitter Inc:

* TWITTER - EXPANDED LINEUP OF NEW LIVE & ON DEMAND PREMIUM VIDEO PROGRAMMING

* TWITTER - ANNOUNCED VIDEO CONTENT DEALS WITH UNIVISION, THE WALL STREET JOURNAL, NFL, ESPN, AND VIACOM AMONG COLLABORATIONS

* TWITTER - ALSO ANNOUNCED VIDEO CONTENT PARTNERSHIP WITH BLOOMBERG, TIME AMONG OTHERS