"Just one more thing."
- Lt. Columbo
I took a small trading long rental in Tilray  (TLRY) (at around $21.60) after the earnings release.
International sales were strong (albeit from a low base).
Beverage products will shortly be rolled out and the company expects to be EBITDA positive in the fourth quarter of next year.
This is a flat out speculative trade (of a decimated stock that has dropped from $300 a share in its speculative heyday), and I won't be in the trade for very long!

Despite the anticipation associated with President Donald Trump's speech at the Economic Club of New York (in which nothing new was discussed) and White House economic adviser Larry Kudlow's CNBC interview (nothing there, either) the day was another snoozer:
* Market breadth was about flat.
* Bond yields were 1-2 basis points lower.
* Gold and oil were unchanged.
* FANG stocks peaked in the late afternoon and suffered a bit of a reversal in the afternoon. (See my opener.)
* Banks, consumer non-durables, cyclicals and retail were mixed/flat.
I did little trading today.

It sure feels like it as complacency reigns supreme!

Chart of the Day

source: Real Investment Advice (Lance Roberts)

The Hartford Financial Services Group  (HIG) , following last week's beat and raise, continues to make new highs. HIG was put on my "Best Ideas List" nearly three years ago at $39.12 and is now trading above $61.50.

From my pal Tony Dwyer:

The S&P 500 (SPX) is up 23% for the year and 3.7% for the current quarter, which we believe discounts a less-negative economic and EPS view as we enter the end of the year. Our core thesis remains positive with low inflation, an easy Fed, a re-steepening of the yield curve, slowing but positive growth, better-than-expected EPS, and valuation expansion, although the tactical backdrop suggests a minor correction over the near term.

All four intermediate-term indicators suggest waiting to add exposure. The recent string of new all-time highs in the major equity indices have pushed our indicators further into the extreme overbought territory that led the July pullback:

· Participation waning. The percentage of S&P 500 (SPX) index components above their 10- and 50-day moving averages are currently at 62% & 66%, respectively. These have been dropping, suggesting the market has already begun correcting internally with less participation.

· Low volatility. The CBOE Volatility Index (VIX) Index has dropped to a much more complacent level at just 12, where it stood just prior to the July correction.

· Extreme overbought. Our trusty 14-week stochastic indicator is back to an extreme overbought level of 99 on a scale of 0-100. Again, such a level of overbought in a bull market isn't a negative thing, just a sign that it is time for a breather.

· Increased optimism. The percentage of Investor Intelligence bullish newsletter writers has risen to a complacent level of 57.1%. Again, this is not at the 2018 extreme levels of bullishness but does point to a bit of complacency.

Summary - The S&P 500 has reached into a level of overbought territory that suggests a period of consolidation and increased volatility may lie directly ahead. That said, our still positive core fundamental thesis, current valuation level, and history of year-end ramps in big years, suggests any weakness should prove limited and temporary (<5%) and provide a more attractive entry point for a move toward our 2020 target of 3,350.

The consistent buying continues -- into the 2019 meltup.

No trades today.

I am out of the office for a meeting.

* The recent reduction in my social media stock exposure reflects the likely continued acceleration in attacks (legal, legislative and regulatory) on these companies as we approach the November 2020 election
* The perception among investors of a more risky period of less profitable prosperity may lie ahead and could pressure social media stocks
* Investors may begin to ask whether the social media companies underspent and "over earned" in the past and could question their addictive qualities
* The time leading up to the election will highlight the powerful influence that social media companies have in society
* As the rhetoric increases with both Democrats and Republicans having the industry in their bull's-eye, the social media platforms will find themselves targeted, under more scrutiny and running the risk of much higher costs
* While the intermediate outlook for Twitter (TWTR) , Facebook FB , Amazon (AMZN) and Alphabet (GOOGL) remains outstanding with substantive first-mover advantage and critical mass, the short term is being disrupted politically, putting a limit to social media's share price upside
* I am comfortable with my current sizing and plan to continue to hold onto TWTR (large), AMZN (medium) and GOOGL (medium) even though the investment road ahead may be filled with political and legislative potholes over the next 12 months as their moats are essentially impenetrable 

Social media companies and their shares may land in hot soup over the next year as the companies are running the risk of being disrupted and becoming a prime target of criticism.

Over the last several weeks and after substantive moves higher, I have eliminated the shares of Facebook from my holdings and I have reduced from very large to medium in size my holdings in Amazon and Google.

This is a short-term (six to nine months) decision and is based on the notion that these companies and their shares will come under increasing and intense scrutiny and targeting by the actors in Washington, D.C.

In the extreme, investors may come to the conclusion that social media stocks have under spent and "over earned" in the past and that they are tools for addiction.

However, more likely (my base case) is that the superior price performance of social media stocks will take a six- to nine-month hiatus.

All the way back in 2014, I wrote a column entitled "The Power of Free" that cautioned to this inevitability. I wrote:

A bad meme -- a contagious idea -- began spreading through the United States in the 1980s: America is in decline, the world is going to hell, and our children's lives will be worse than our own. The particulars are now familiar: Good jobs are disappearing, working people are falling into poverty, the underclass is swelling, crime is out of control. The post-Cold War world is fragmenting, and conflicts are erupting all over the planet. The environment is imploding - with global warming and ozone depletion, we'll all either die of cancer or live in Waterworld. As for our kids, the collapsing educational system is producing either gun-toting gangsters or burger-flipping dopes who can't read.

By the late 1990s, another meme began to gain ground. Borne of the surging stock market and an economy that won't die down, this one is more positive: America is finally getting its economic act together, the world is not such a dangerous place after all, and our kids just might lead tolerable lives. Yet the good times will come only to a privileged few, no more than a fortunate fifth of our society. The vast majority in the United States and the world face a dire future of increasingly desperate poverty. And the environment? It's a lost cause.

But there's a new, very different meme, a radically optimistic meme: We are watching the beginnings of a global economic boom on a scale never experienced before. We have entered a period of sustained growth that could eventually double the world's economy every dozen years and bring increasing prosperity for - quite literally - billions of people on the planet. We are riding the early waves of a 25-year run of a greatly expanding economy that will do much to solve seemingly intractable problems like poverty and to ease tensions throughout the world. And we'll do it without blowing the lid off the environment.

-- Peter Schwartz and Peter Leyden, "The Long Boom: A History of the Future, 1980-2020,"Wired Magazine (July 1997)

History teaches us to beware and to be skeptical of new paradigms, especially when high valuations are incorporated in response to the optimism associated with the next big wave/boom.

Social media is a clear case in point.

When you give away something for free, the prospects for the number of things that you give away look damn good.

I have always marveled at the power of free. For example, it is amazing to behold the draw of free food -- even in the canyons of Wall Street's top banks managing directors and assistants swarm like seagulls to get a plate of wings and cold fries or greasy pizza. It is hard to deny that the free-ness isn't the driver.

Personally, my lunch standards definitely fall at a price of zero compared to full price.

I always come back to the following thought when considering all these great new social media platforms: When was the last time you were deterred from trying something that was free? How is this basic issue not discussed more often?

I sure as hell hope people like your thing or service enough if all they have to do is type in their 20 character email address to use it.

If you are selling something at a loss or at cost I would hope you are beating the established players that the market expects to make a profit, right?
The truth is that nothing is given away for free - surveillance capitalism works differently and sub rosa.

Ultimately, then, it all comes down to advertising. Advertising is driven by corporate and consumer spending. There will be some redirecting in advertising spending, but where are the new advertising dollars in a mature and stumbling-along economy going to come from? Real profits will have to come to support all these hundreds of billions of dollars in equity prices that early investors will look to cash out a realized return on in coming years.

A lot of things need to go well for the power of free to pay out all that it is promising.

Trade them if you like, but, with few exceptions, I would, for now, avoid investing in most social media stocks at current valuations.

Just like when you are stuck at your desk and you get to the free lunch buffet late and there is nothing left but a few soggy waffle fries, long-term investors will likely be disappointed (and maybe even shocked) with returns from current levels.

Recent Disclosures of Surveillance Capitalism Will Intensify the Scrutiny of Social Media Companies

As an example of surveillance capitalism's downside was the disclosure in the last week that Alphabet/Google's "Project Nightingale" has been collecting health data and more personal information on millions of Americans over more than 20 states.

More of these revelations and potential adverse political reactions to them likely lie ahead.

The (Potentially) Harmful Addictive Nature of Social Media

"Facebook is the new cigarettes. It should be regulated."
-- Marc Benioff

Benioff, at the Disrupt SF 2019 startup conference in October, famously uttered the above quote.

So, in addition to the surveillance issues, governments may begin to consider options to mitigate the harm to society (addictions) caused by social media.

While social media companies have recently tried to become more protective toward the consumer, their reaction may be considered too late by some regulators.

Bottom Line

I continue to believe that investors should be heavily weighted to social media stocks over the intermediate to longer term as their moats are essentially impenetrable. (Amazon is still likely to become the first $2.5 trillion company and trade at $5,000 a share.).

However, it now is clear that the time leading up to the 2020 election will highlight the powerful influence these companies have in society. As a result, the long bull market in the larger social media stocks may be put on a six- to nine-month hiatus, reflecting a clear inflection point in greater potential legal, legislative and regulatory disruption toward the social media companies and by the acknowledgement that the products are addictive. These changes and pressures are likely to multiply as we approach the November 2020 elections as how to deal administratively with "surveillance capitalism" becomes one of the primary policy positions of the Democratic Party.

But this is an issue that is also dear to the Republican Party.

At the epicenter is the perception of Facebook, a company that arguably has not properly responded to privacy issues and has skated its obligations regarding data portability and has not helped its cause and the cause of its shareholders. Recently, "the fool on the hill," Facebook CEO Mark Zuckerberg, provided testimony in Washington, D.C., in defense of this company. He did not fare well. To me, Zuckerberg and Facebook have brought on a lot of their own problems on themselves and the industry by not properly responding to the issues of privacy protection and data portability over the last several years.

While rhetoric (and possible legislation and regulation) could limit the near-term upside on some of these stocks, the relatively strong fundamentals, critical mass and first-mover advantage likely protects the downside.

After reducing my social media positions over the last month I will now sit tight with my current exposure and, in any meaningful weakness, I may consider adding.

But for now, billionaires and social media companies' surveillance capitalism are being targeted, possibly from both sides of the pew.

Investors are beginning to ask whether these companies under spent and "over earned" in the past and whether the companies are addictive.

Surveillance capitalism and the power of free is now being questioned and is under a focused attack, and that is likely to be a headwind to the large social media stocks over the next nine months.

My pal Peter Boockvar, chief investment officer with Bleakley Advisory Group, takes a look at on jumping Japanese bond yields, U.S. small business optimism and various overseas economic data. 

The key today is what President Trump says in his speech at 12pm est at the Economic Club of New York with respect to the China negotiations. Will we get details on the substance of the deal and the state of the tariffs or still generalities? Hopefully we get the former which would also imply we're days away from seeing the actual agreement.

I'll emphasize again the profound change possibly happening in bond yields overseas and what that can mean for US yields. The Japanese 10 yr JGB yield jumped another 4.3 bps to just a hair below zero at -.02%. This is the least negative since mid April and is now really jumping. In response, the Topix bank stock index is at the highest since April. Last week there was a soft 10 yr auction and today was a messy 30 yr auction. I'll repeat, for the first time in more than 20 years of BOJ easing, they are telling everyone that they want higher long term interest rates in order to breath some life into their banks. This is a big deal in the context of the biggest financial bubble every blown. Sorry for the hyperbole. Yields are up slightly in Europe and the US 10 yr is at 1.94-.95%.

10 yr JGB YIELD

The October NFIB small business optimism index improved by .6 pts m/o/m to 102.4 after falling in the two prior months by a total of 2.9 pts. For perspective, this number has averaged 102.9 year to date and the peak in the expansion was 108.8 in August 2018 just as the tariff fight was about to intensify. After falling by 3 pts in September, Plans to Hire rose by 1 pt but finding the needed help is still the big challenge. With this, current Compensation Plans rose by 1 pt while future Comp Plans jumped by 4 pts to the highest since May. Those planning an Increase in Capital Spending was up by 2 pts to 29% after dropping by 1 last month. That is the most since it printed 30 in May and there was also an increase in those expecting to increase inventory. Those that Expect Higher Sales, Expect a Better Economy and said it's a Good Time to Expand all were up by 1 pt after declining in the month prior. With respect to inflation, those that want Higher Selling Prices rose 2 pts but after declining 3 pts in September. Finally and seen in Q3 corporate earnings season, earnings are declining. The Positive Earnings Trends component fell 5 pts to the lowest level since February.

Bottom line, the NFIB President is optimistic, "Small business owners are continuing to create jobs, raise wages, and grow their businesses, thanks to tax cuts and deregulation, and nothing is stopping them except for finding qualified workers." With respect to this last point, "Firms are likely to continue to offer improved compensation to attract and retain qualified workers because the only solution in the short term to an employee shortage is to raise compensation to attract new workers and to train less qualified employees." On that earnings stat above, labor costs are the biggest driver of corporate profit margins.

On the impact of tariffs, "30% of small firms reported negative effects from trade policy" and "Making major commitments about production and distribution will be more difficult until import and export prices are stabilized with trade agreements." My bottom line, small business confidence is still hanging in there but has certainly moderated. Either way, the number is not market moving.

NFIB SMALL BUSINESS OPTIMISM

In the UK for the 3 months ended September, 58k jobs were lost after a drop of 56k in the prior month but not as bad as the forecast of a decline of 102k. The unemployment rate did tick down by one tenth to 3.8% which is still near the lowest since the 1970's. Earnings growth was still good ex bonus' but slowed to a 3.6% y/o/y increase from 3.8% in the prior month. Of note and pointing to more jobs weakness, jobless claims in October rose to 33k, the most since March 2017. Of course the Brexit uncertainty has its fingerprints all over this data so until this is resolved most likely in early 2020, the economic visibility will still remain cloudy. In response the pound is down slightly while gilt yields are little changed. The FTSE 250 is flat and includes mostly domestic UK stocks.

Investors in Germany in November are hopeful ('hope' is the key word here) that a China trade truce and Brexit deal will lead to a bottom in their economy. The ZEW index improved to -2.1 from -22.8 and that was better than the estimate of -13. Current Conditions though were little changed at -24.7 vs -25.3 in October. The estimate was -22.3. The ZEW said "There is growing hope that the international economic policy environment will improve in the near future..In the meantime, the chances for a agreement between Great Britain and the EU and thus for a regulated withdrawal of Great Britain have noticeably increased. Punitive tariffs on car imports from the EU to the US are also less likely than the projections a few weeks ago. An agreement in the trade conflict between the US and China is appearing more likely too." The DAX is rallying but the euro and bund yields are little changed. The IFO is more relevant for markets as it surveys actual businesses.

--Bridgewater's hiring practices.--A farming crisis.--Disney plus.

According to Danielle DiMartino Booth, "London, we have a problem:"

• While the rise in Q3 GDP squashes the risk of a near-term recession in Britain, the economic growth rate for the year is the lowest in nine years; as for sectors driving growth, exports have been in the lead in the third quarter while inventories have been a pronounced drag
• Looking ahead, a proxy for fourth-quarter growth is the level of September's aggregate economic activity, which, at -0.1%, indicates no momentum; 11 of the 20 industries kicked off the fourth quarter in the hole, given lost forward motion at the end of the third quarter
• British pound Sterling rose by the most in three weeks on the heels of a potential Brexit resolution; while the U.K. is not facing a technical recession, a further rally in the pound could cripple the services industries, which has followed industrials into a slowdown

Before British punk rock band The Clash topped the U.K. singles charts with its mega-hit, "Should I Stay or Should I Go," it was the 1979 song "London Calling" that stood as its biggest commercial success. The apocalyptic, politically charged scrant (song marries rant) screamed of the "nuclear error" at Three Mile Island and the risks of the River Thames flooding the majority of central Londoners. The Clash's lyrics also voiced desperation at the band's straits, struggling as it was with high debt, no management and tensions with its record label after punk rock's 1977 demise.

Fast forward forty years and that sense of urgency translates to the near-term economic outlook for the U.K. Yesterday's economic reports on Gross Domestic Product (GDP), Industrial Production and International Trade combined to push the Citi Economic Surprise Index for the U.K. into negative territory, to -9.8 from a reading of 4.3 on Friday. The 14.1-point swing was the largest for any day since early July. The best news is market participants haven't been that disappointed in four months in what is arguably a fluid dynamic.

Economic surprises compare outcomes to expectations. Looking at the GDP through the consensus' lens conveyed relief on the surface. Delve beneath the headline and you see the real risk.

Top-line Gross Domestic Product (GDP) rose 0.3% in 2019's third quarter, a slight disappointment vs. market expectations (0.4%), but a full reversal -- and then some -- compared to the second quarter's 0.2% decline. The level of third-quarter GDP pushed above the first quarter, and most importantly, recession risk was quashed; no back-to-back quarterly declines in the registry. All this economic giddiness aside, the 1.0% year-over-year expansion (0.97% unrounded), did mark a nine-year low.

The composition of U.K. economic growth echoed the weak industrials/strong consumer theme that's played out not just in Britain, but in other locales around the world against the backdrop of an escalating trade war.

In the event you've misplaced your playbook, business investment lags and consumer spending leads. Outside the U.K., a large gain in exports was offset by a further drag from inventories, after the first Brexit-deadline stockpiling came to a head in the first quarter.

For you real timers, the U.K. Office for National Statistics produces a monthly GDP report that foreshadows the aforementioned quarterly data. This monthly take adds value via a higher frequency look-through to industries with a prism into near-term momentum. The back-to-back monthly declines in August (-0.2%) and September (-0.1%) segue to a lower jump-off point for the fourth quarter. To illustrate, we utilize one of the tricks of the forecasting trade.

The level of aggregate economic activity in September vis-a-vis the entire third quarter average proxies fourth quarter growth. That calculation is in the red, at -0.1%, meaning there's no momentum for the U.K. economy heading into the fourth quarter. More importantly, a second quarterly contraction could be in the offing after the second quarter's decline. While that's not a set up for a technical recession -- two straight quarterly declines -- it's about as close as it gets.

Critically, this isn't a narrowly based rollover in growth. Eleven of the report's twenty industries lost enough forward motion in the third quarter that they're starting out the fourth quarter in the hole. The ones flashing red now include (in no particular order): natural resources, manufacturing, utilities, construction, wholesale/retail, transport/storage, hotels/restaurants, finance/insurance, administrative support services, education and arts/entertainment/recreation.

Take a gander again at this list and you'll see a widespread representation across cyclical sectors. We offer that this should be the main takeaway from yesterday's deluge of U.K. economic reports.

Taken together, it's no surprise that Bloomberg economists surveyed placed a 40% recession probability for the U.K. sliding into recession for a second straight month in November. This matched similarly dour expectations for Germany earmarking these as the only two developed market countries with the 40% probabilities of developing a case of the 'R'-word.

Yesterday's fundamental weakness emitted in the data would have you thinking the British pound traded down on the day. Intuitive as that is, Sterling rose the most in over three weeks as domestic political risk receded. Nigel Farage proclaimed that his Brexit Party will allow Boris Johnson to secure a parliamentary majority to end the impasse over leaving the European Union. Johnson tweeted that he welcomed Farage's recognition that "another gridlocked hung Parliament is the greatest threat to getting Brexit done."

As the rest of the trading world celebrates, we caution that removing Brexit uncertainty will unleash currency tailwinds at just the time the economy is losing steam. A further rally in the pound couldn't arrive at a worse time as service industries join industrials in the macroeconomic struggle. Is it possible we're the only ones hearing the end of "London Calling" playing in the background?