Another day in which the market bent a bit but didn't break:

* At 3:30 p.m. market breadth is moderately negative (1,288 advancers, 1,677 decliners).
* Bonds were virtually unchanged after the schmeissing last week.
* Gold -$5/oz and crude oil -$0.35/barrel.
* FANG continues to weaken led by Facebook FB . Amazon (AMZN) -$15, Alphabet (GOOGL) -$13.
* Boeing (BA) = world's fair.
* Banks cooling off (as I am expecting). Goldman Sachs (GS) downside leader (I would not chase and I recently sold down a very large position to medium sized as I did to my money center bank longs).
* Disney (DIS) (the object of my $140 shorting late last week) is rolling over (-$1.70).

Tremendous pushback on my Trade of the Week (Long (VXX) ), which gives me some hope!

I added to my (SPY) short at $308.33.

Megadeath and VIXtermination!

My answer : I would stay away (leveraged and rate sensitive) in light of my forecast for higher interest rates over the next few years...
From my BFF JTG and Thomas C:

23johnthegreek23 • 3 hours ago

Mark Grant suggests closed end funds with double digit yields in this environment.
Dougie, what say you?
Anyone?

Thomas C23johnthegreek23 • an hour ago • edited

problem #1- most CEF's are leveraged... and #2- the higher the yield the bigger potential for a cut in the distribution rate especially when the favorable % rate environment changes and goes against them... and #3- check the discount/premium to NAV before consideration of any buy stance. I am sure there are other issues and potential problems but those would be my standouts. imho

p.s. - that said, I know and follow Mark and he has traded rather well against these, however, the past several years has been good for the CEF bond sector and it can change on a dime.

As I have recently warned, Facebook's FB shares look like they are rolling over.

I just added to (VXX) at $18.48.

Back to see a nice recovery in the Indices (surprise, surprise!) led by Apple (AAPL) and Boeing (BA) .

I have expanded my Boeing (BA) position to very large.

In my view, the shares might have "finally" turned.

That said, this is not a short-term rental -- it's a long-term lease.

Out to a short business lunch, back at 1:30 p.m.

Last week's Trade of the Week -- Micron (MU) (short) -- is down by another $1 and is now almost $4/share lower than last Tuesday.

Notwithstanding the strong and persistent price momentum I don't see the basis for further gains:
* The Fed Is Pushing on A String: The Fed has now cut three times and there is no meaningful improvement in the domestic economic data. Indeed, as mentioned in an earlier post, fourth-quarter Real GDP growth forecasts have moved to 1% or less from 3% in the first-quarter of 2019 and 1.9% in the third quarter.
* Nor Are Some Stocks Higher From Easier Money: The Russell Index, supposed to be levered to domestic growth, is only 1% higher since the first rate cut in July. Meanwhile the CRB Index is down by over 3% and the 10-year TIPS breakeven is 20 basis points lower (to 1.55%) since that first cut in the federal funds rate.

Will corporate debt maturities get ugly?

* Three weeks ago I introduced a new column in my Diary
* Rate of change (absolutely and relative to expectations) is likely the most important near-term determinant of stock prices
* On balance, last week's data-based changes (four positive, one neutral and five negative)breaks the positive skein over the last few weeks

These days, change is happening oh so rapidly. It is leading to more of a sense of uncertainty and a heightened regime of volatility.

As a result, I initiated a new column three weeks ago, "What Has Changed at the Margin Over the Past Week," which is meant to assess the changing landscape of the economy, politics, geopolitics, interest rates, inflationary expectations, and, of course, the markets.

This weekly analysis and summary is data-based as I am trying to be objective, interjecting as little subjectivity as possible!

Here is what changed at the margin last week:

1.U.S./China Trade: Two weeks ago there seemed to have been a trade truce. However, both China and President Trump warned after the market's close last Friday) that the trade negotiations might not be going as smoothly as the market and consensus expects. This is a negative for the markets.

2. The Domestic Economy: Third-quarter Real GDP came in at +1.9% while fourth-quarter forecasts, as I highlighted in "GDP Uh, Oh!" are dropping like a stone, with forecasts now under 1%.
The October ISM services index rose to 54.7 from 52.6, which was a three-year low, and was 1.2 points above the estimate of 53.5. While the headline figure rose, the breadth was the same as last month with 13 of 18 industries surveyed seeing growth, unchanged month over month. More reported a contraction totaling five in October vs. four in September. ISM said while the "non-manufacturing sector had an uptick in growth after reflecting a pullback in September, the respondents continue to be concerned about tariffs, labor resources and the geopolitical climate." This is a market negative.

3. The U.S. Consumer: The initial November University of Michigan consumer confidence index was little changed with October at 95.7 vs 95.5 last month. The estimate was for no change at 95.5 while the internals were mixed as Current Conditions fell 2.3 points while Expectations were higher by 1.7 points. One-year inflation expectations held at 2.5%. With respect to the labor market, those expecting higher Income fell two points but after jumping nine points last month. The employment component improved by eight points and was back to where it was during the summer. Spending intentions softened as those who plan on buying a vehicle fell five points to a three-month low. Those who plan on buying a house fell one point but after rising by two points in October. Those who want to buy a major household item fell seven points but did rise by 10 points last month.
Looking at the Markit PMI's index on services, it is barely above 50 at 50.6. That's the lowest since early 2016. Its employment component fell to a 10-year low, which was a combination of less demand but also still the difficulty in finding new workers ho are qualified. Markit said "voluntary leavers were not replaced and firms struggled to fill outstanding vacancies." Also of note, new orders fell below 50 "for the first time since 2009." There was some optimism over the possibility of a trade deal and the Fed rate cuts helping. "However, the overall degree of optimism remains sharply lower than this time last year as companies remain concerned by ongoing uncertainty about the outlook."
The number of job openings in September fell to 7.02 million, the fewest since March 2018.
The weekly Bloomberg consumer confidence figure (the old ABC number) dropped again this week to the lowest level since March. The components of State of Economy, Personal Finances and Buying Climate all fell.
Third-quarter productivity disappointed, falling by 0.3% quarter over quarter annualized vs. the estimate of up 0.9%. Versus last year, productivity still was up 1.4% but a moderation from the 1.8% and 1.7% gains in the prior two quarters. Due to the quarter-over-quarter fall in productivity, unit labor costs jumped by 3.6% quarter over quarter and 3.1% year over year. That year-over-year gain follows a 2.6% rise in the second quarter, which is the biggest rise since the first quarter of 2014.
Within the U.S. September trade data, exports fell to the lowest amount since April. Imports dropped to the lowest level also since April.
This is a negative for the markets.

4. Foreign Policy: No change. This is neutral.

5. The Fed: Two weeks ago the Fed cut interest rates by 25 basis points, its third cut in as many meetings. With the third insurance rate cut in, markets hope for a soft landing. There was no change in rate expectations over the last week. The Federal Reserve's Senior Loan Officer Survey points to a still very mixed situation. Demand for commercial-and-industrial (C&I) loans softened, which has been seen in the weekly data, but standards were mostly unchanged. About 85% of banks said investment in plant and equipment weakened in some fashion. Banks tightened standards for commercial real estate loans but demand was little changed. In line with the drop in mortgage rates, residential loan demand picked up while standards were steady. Overall, apositive for the markets.

6.Brexit: Things have stabilized a bit. This is a slight positive. 

7. U.S. Politics: The announcement that Mike Bloomberg is considering a run for the presidency is likely a positive for the markets and economy (anti-progressive Warren/Sanders wing). This week the public impeachment proceedings start. The two might balance almost each other out. This is likely a neutral to slightly positive for the markets.

8. Corporate Profits:There was a host of disappointing earnings reports in the past week. It looks like this quarter will exhibit declines of 2% to 3% in reported earnings. Last week, unlike the prior week, bad news was met with some bad stock action. This is anegative for the markets.

9. The U.S. Stock Market: Up about by another 1% on the week. The S&P 500/Nasdaq/Wilshire 5000 hit new all-time highs. A positive for the markets.

10. Overseas Economies: The trade data out of China were less negative than expected. Exports in October fell 0.9% year over year vs the estimate of down 3.9%. Imports were lower by 6.4% year over year, a touch above the forecast of down 7.8%.

The Eurozone October services PMI was revised to 52.2 from 51.8 initially; that was 0.4 points better than expected and up from 51.6 in September. It still is the second-lowest read since January, and Markit noted, "A marginal increase in new business volumes signaled during October, with growth only slightly up on September's 8-month low. Export trade remained especially weak, declining for a 14th successive month."

The Eurozone manufacturing PMI for October was revised to 45.9 from the initial print of 45.7 and up from 45.7 in September, which was the lowest in seven years. This level equates to a decline of more than 1% annualized in industrial production according to Markit. It cites Brexit and U.S. trade policy as the main culprits. How are Eurozone companies dealing? "The focus of manufacturers remains on cost cutting, reducing inventories and investment spending while also lowering payroll numbers at an increased rate," Markit said.

Germany said its exports in September rose 1.5% year over year, better than the estimate of up 0.3% and August was revised up by 0.9 points. Exports to the U.S. helped to offset weakness to China, its biggest trading partner. Imports also beat the Street estimate with their 1.3% year-over-year rise vs. the estimate of no change.

Germany's industrial production figure for September was about as expected. It was still down 4.3% year over year, led lower by manufacturing. The Economic Ministry said "The weakness in industry is not yet overcome. But the recent slight improvement in orders and business expectations brightened the outlook for the fourth quarter somewhat." German factory orders in September surprised to the upside with a 1.3% month-over-month increase vs. the estimate of up 0.1% and August was revised up by 0.2 points. The Economic Ministry was hopeful that this "could signal a bottoming out of orders."

The UK services PMI in October improved slightly but did get back to 50 from 49.5 in September and was up versus the estimate of 49.7. Markit said "The outlook improved slightly as a number of firms expected Brexit to be resolved early next year, reducing uncertainty, but overall sentiment remained historically weak."

The October construction PMI in the UK rose to 44.2 but was off a recessionary level of 43.3. The estimate was 44.1. Market said, "Civil engineering was the worst-performing area of activity in October, with business activity dropping at the fastest pace in ten years...House building has also lost momentum this autumn amid a broader slowdown in market conditions...There are clear signs that construction firms are positioning for an extended soft patch for project starts, as highlighted by a further decline in purchasing volumes and another month of cuts to workforce numbers through the non-replacement of voluntary leavers."

Taiwan, a key tech exporter, said its October exports fell 1.5% year over year vs. expectations of down 0.3% while imports were lower by 4.1% year over year vs. the estimate of down just 0.1%. Exports specifically to China fell 3.5% year over year but rose by 18% to the U.S. The Taiex was lower by 0.2%.

Hong Kong's October PMI fell further to 39.3 from 41.5 and was well below the breakeven of 50.

Singapore's PMI weakened further below 50 at 47.4. Markit said "Difficulties endured by Singapore's economy have merely intensified at the start of the fourth quarter, with firms registering historically marked drops in demand and output, as well as cut backs to staffing levels. Weak regional economic activity across Asia has also clearly sent shock waves through the domestic economy, and panelists have subsequently curbed their expectations for the coming year."

The Japanese services PMI for October fell below 50 to 49.7 from 50.3 in September. It's the first time this area of its economy has entered a contraction in over three years. Japanese companies have had to deal with the VAT hike and a typhoon, where both obviously disrupted business. Positively, the expectations component remained above 50 as "Plans to hire new staff and invest underpinned the confident outlook."
Industrial production in France in September was a bit light relative to expectations but the manufacturing component specifically did beat the estimate by 0.4 points with a 0.6% month-over- month gain. Autos, though, were soft. These, in the aggregate are negative for the markets.

Bottom Line

Rational people think at the margin.

It has been my experience that rate of change (absolutely and relative to expectations) is likely the most important near-term determinant of stock prices.

On balance, last week's data-based changes (four positive, one neutral and five negatives) break the recent run of net positive weeks.

These short-term weekly changes should be also viewed in the context of one's intermediate-to longer-term outlook and relative to one's risk profile/appetite and time frames.

A reminder that I recently:
* (Reluctantly) pared back my very large positions in Citigroup (C) , Bank of America (BAC) and Wells Fargo (WFC) to medium in size 
* Eliminated Facebook FB
* Reduced from very large to medium in size in Alphabet (GOOGL) and Amazon (AMZN)

Peter Boockvar just sent me this email, which nicely modifies my iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) purchase. (My Trade of the Week, below):

As we enter the week with hopes for some trade document by week's end and as we all debate what's priced in and what's not, the VIX on Friday closed at around the lowest level since early October 2018 at 12ish. Late Friday, the CFTC data for the week ended last Tuesday revealed that non commercial (speculators) in the VIX futures were the most net short on record. And this closed at 91, https://money.cnn.com/data/ fear-and-greed/. Thus, to state simply, expectations are high.

NET SHORTS in VIX FUTURES

My Trade of the Week is long the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) , which closed last Friday at 18.64.

* Last week's Trade of the Week (short Micron (MU) at $49.62) served us well, producing a nearly 5% return in four days.
* Let's try to go for two in a row!

The market is now very substantially underpricing risk.

As I recently wrote in "Many Have Been Loving the Market Too Long ... They Can't Stop Now":

If Otis Redding has been loving her too long, traders/investors may also be loving the markets too long (whether measured by fundamentals, sentiment or valuation...and even politics):

* In duration, at over 124 months, the Bull Market is old.
* And so is the economic recovery long in the tooth - particularly with years of near zero interest rates having pulled forward sales and profit growth.
* Fundamentals (global economic growth and U.S. corporate profits) are deteriorating.
* We are in an "earnings recession." Factset just shifted their 4Q2019 S&P EPS estimate to slightly negative - that would be the fourth quarter in the row if negative.
* Consensus S&P EPS estimates for 2020 (year over year) of +11% are too optimistic. (I am using +5%).
* Arguably, the U.S. political landscape is filled with more hate than anytime in history. Nothing will get done. The widening wealth and income gap will not be addressed - and that holds adverse social and economic ramifications. No infrastructure, nothing.
* Trump is faltering and the impeachment process is gaining steam. That's market and business unfriendly.
* The probability that a Democratic progressive will win the Presidential election in 12 months is rising. That's also market and business unfriendly.
* The world's political and economic landscape is enveloped in nationalism and the lack of coordination and cooperation between the major economic powers.
* Valuations, based on historic measures, are elevated in the 95th percentile or higher. (Just check out Buffett's fave valuation metric, stock capitalization as a percent of GDP).
* The spread between GAAP and non GAAP earnings has never been wider. I am not sure why "talking heads" only use non GAAP these days - but it creates the perception of an artificially low S&P price earnings multiple. ("Last year, 97% of S&P 500 companies used non-GAAP metrics, up from 59% in 1996" - WSJ)
* Our fiscal policy has lost any semblance of discipline - and few are concerned about the adverse economic ramifications.
* Our monetary policy is on overdrive - and, again, few are concerned about the adverse economic ramifications.
(Investors should consider what Ray Dalio said yesterday on CNBC - central bank responses to the crisis have conditioned investors to do the opposite of what is in their long term interests because it has convinced them that this is a normal environment that can continue indefinitely. But we know it can't.)
* Investors are complacent and certain measures (e.g., put/call or CNN Fear & Greed Index) indicate complacency, at the least, or extreme greed, at the most.

What the bulls do have is price momentum, which, in a quant- and ETF-dominated market, drowns out the concerns of the many just like Otis Redding's profoundly soulful voice did in the mid-1960s.

Those who are reactive scoff out the above concerns as irrelevant to the market over the short term, that they will matter when the market tells us so.

Fair enough.

However, anticipatory traders and investors base their decisions -- both in the short- and intermediate term -- on probabilities and an assessment of reward vs. risk.

When it is determined that the risks are stretched over rewards (and vice versa), anticipatory traders and investors move in order to take advantage of the price discrepancy against fair market value.

Price, to the fundamentalist, is not truth.

Rather, price presents opportunity in its purest and absolute form, and not measured against the reactive traders' preoccupation with price and its momentum.

To be sure, in the final analysis, it is "horses for courses," and both reactive and anticipatory methodologies can prove profitable. 

Bottom Line
Summarily, price momentum does not drown out the very real fundamental headwinds and my calculus that upside reward is dramatically dwarfed by downside risk, and that is the case more than at any time since the March 2009 Generational Low in equities.A CaveatVXX is not for kids. It is for me... now.
Moreover, VXX is viewed as a short-term rental and not a long-term lease!

NowCast from @NewYorkFed

 --Real GPD well under +1% for Q4:

Hong Kong and China from Peter Boockvar:

The continued and disturbing impact on life, limb, civility, business, etc. of the Hong Kong protests -- where I applaud the stance and messaging but there seems to be no end in sight -- is back to negatively impacting markets in the region and elsewhere today. The Hang Seng index closed lower by 2.6% while the Shanghai comp lost 1.8% and the H share index gave up 2.5%.

Loan growth in October in China slowed to a pace well below expectations. Aggregate financing totaled 619b yuan vs the estimate of 950b with bank lending making up 661b yuan of this vs the forecast of 800b. Thus, the shadow side saw an outright decline in credit extension. Total lending is down 16% y/o/y. October typically sees a decline relative to other months of the year because of a holiday, but this was certainly more so than expected. Nonfinancial business borrowing was the least since August 2016 as the demand for credit wanes in light of the economic weakness and the trade battle with the US. This data came out after the markets closed in China.

Japan's core machinery orders in September, a very volatile figure month to month, fell 2.9% m/o/m, worse than the estimate of up 0.9% and follows a 2.4% drop in August. This is now the 3rd straight month of declines to close Q3. Hopefully we'll get that Q4 rebound, but to what extent is unknown as the country deals with the VAT hike and its industrial sector faces what comes next between the US and China. The Cabinet Office estimates core orders will rise 3.5% in Q4. The Nikkei was lower by 0.3% and the 10 yr JGB yield fell for the 1st day in 6 by 1.3 bps to -0.06%.

The UK economy in Q3 grew by 1% y/o/y, one tenth less than expected, down from a 1.3% pace in Q2 and is the slowest rate of gain since Q1 2010. Versus Q2, growth was 0.3% vs the estimate of 0.4%. Consumer spending was good but offset by weakness in capital spending and inventories. I'm optimistic that Boris Johnson will win handily next month and a Brexit deal will soon follow. I like UK assets denominated in pounds. The pound is higher today, but UK stocks are following all European markets lower.

As the Fed is back to cutting rates again in order to encourage the rest of us to borrow more money, please read this article as years of easy money always seems to result in the same thing and a lesson never learned by our central bankers.

--Signal failure.
--Asset management -- how safe is your job?
--What is a mutual fund worth?

Group Stink has, as its base assumption, that the consumer will continue to be strong.

Danielle DiMartino Booth (and I) disagree:

• In the past two weeks -- led by those in the Midwest, renters, part-timers and those making $50,000 or less -- the Bloomberg Consumer Comfort Index has declined 4.3 points, its steepest decline since 2011; its Personal Finance Index sunk to a 10-month low despite peak stocks
• Since June, households have built more cash than credit, a.k.a. de-levered; this coincides with three of the last four months' declines in revolving credit with the two months through September marking the first back-to-back declines in more than seven years
• The Bloomberg Consumer Comfort Index's two-week fall led by those making $50,000 or less occurred alongside two weeks of continuing claims rising over the prior 12 months, the first of the cycle; a third week of deterioration in these two indicators would establish a trend

It helps to be familiar with your source of inspiration. Suffice it to say Hugh Cregg III qualified on this count despite a well-to-do upbringing in San Francisco's Bay Area and being carted off to a private prep school in New Jersey. As artists tend to, Hugh forged a different path than pedigree suggested of the bookish student athlete who earned a baseball scholarship. Somehow, he ended up working as a truck driver, a carpenter, a short order cook, a partner in a landscaping business and even a street corner singer in Europe before finally making a name for himself. Though it wasn't his first hit, with a breadth of experience as inspiration, Huey Lewis would one day hit it big with "Workin' for a Livin'."

Working men and women have been among the most content Americans in recent years. As we've written extensively in recent months, CEO confidence has been cascading downwards while that of the lowest income earners has held at some of the highest levels. In fact, September's consumer sentiment for the lower third of income earners was stronger than all but one month of that go-go decade - September 1988; only the late-1990s internet bubble was better.

With that as a backdrop, we couldn't help but notice the high-frequency Bloomberg Consumer Comfort Index sliding by the most in eight years two weeks back. But what's one week? And then it fell again when reported this past Thursday, reinforcing the 4.3-point two-week decline as the steepest since 2011. But it was the internals that inspired today's chart. Absolute confidence levels were at one-year lows for those in the Midwest, renters, part-time workers and those with annual incomes under $50,000. More curiously yet, the Bloomberg Personal Finance Index (yellow line) slid to a 10-month low... with stocks at all-time highs.

Any worries surrounding the Bloomberg series were dismissed the minute the University of Michigan's preliminary November sentiment data hit the wires Friday morning. Instead of falling to 95.0, the index rose to 95.7 from 95.5 in October. Moreover, 55% reported improved financial conditions (green line) prompting survey director Richard Curtin to enthuse, "A higher proportion has been recorded in only four other surveys in over a half century. Moreover, the all-time peak was barely higher at 57%." Some 43% pointed to income gains while 19% cited lower debt and improved financial assets.

Could the emergent trend come down to those who do and don't own stocks? It's no secret that those who make $50,000 or less are not typically among the 52% of Americans who own stocks. This cohort is more likely living paycheck-to-paycheck and making decisions about how to make ends meet as opposed to how to spend their stock riches.

That brings us to the red line above, a pictorial of those who are preoccupied with paying bills via current income or credit. In what may twist the brain, economists like to see this Credit-to-Cash spread stay above the '0' line demarking credit card debt growing faster than cash equivalents.

Remember, this is a confidence game. The more confidence you have in your finances, the more willing you are to go out on a limb and take on credit with the requisite certainty you can pay it back in the future. Starting in 2017, lower income's happy heyday, leveraging-up was indeed taking place. But the spread moved into negative territory in June as households began to de-lever; since then, the spread has fallen deeper into the red.

Household budget fatigue would theoretically go hand in hand with depressed discretionary spending. We'd venture that more families will be occupying relatives' guest rooms rather than adjoining hotel rooms this holiday season reflecting the last 18 of 22 weeks that have seen declining year-on-year hotel occupancy. As is the case with household deleveraging, the hotel downturn also started in June. As a rule, "transient," or consumer, hotel rates are the first to adjust ahead of "group," rates, as in businesses that book far out in advance.

Rounding out the retrenchment thesis, June also marked the first of the past three-in-four months revolving credit growth -- the Federal Reserve's term for credit cards -- has slowed. September also marked the first back-to-back monthly declines we've seen in more than seven years.

While we are not yet at the third-week point which establishes a trend, we did note a parallel in this past week's data. The second straight week of declines in Bloomberg Comfort, led as such by those making $50,000 or less, coincided with the second consecutive week of continuing claims -- Americans collecting unemployment insurance -- increasing by 2% or more over the prior 12-month period. Yes, we'll be following both releases closely this Thursday to see if those less comfortable with their finances continues to rise alongside those who'd rather be Workin' for a Livin'.