"Just one more thing."
- Lt. Columbo
A few words on the Home Depot (HD) quarter...
While EPS beat by $0.01 (aided by some below-the-line items), sales were below expectations and guidance was weak.
U.S. comps +3.8% were respectable in light of general retail conditions -- up from +3.1% in the previous quarter. But they failed to accelerate as quickly as consensus expected, between +4.0% and +4.5%. Same-store sales also slowed compared to the last two to three years.
With the shares up 16%, more than twice the gains in the averages since the second quarter EPS release, the stock was vulnerable to anything except a beat, and suffered.
From a profitability standpoint, the benefit of a number of company initiatives failed to register. In general, most analysts will likely suggest the misses were company-specific.
Comp estimates for the second half are now running about +4.0% to +4.2% (way down from +5.3% to 5.5% previously forecast). This implies about +4.8% fourth quarter comps, which would make full year same-store sales at +3.5%, well below prior guidance of over +4.0% and for long-term guidance of +4.5% to +6.0%. It sounded to me like the exit rate or cadence of comps into the fourth quarter wasn't particularly robust (the company cited promotional events and timing).
I would not be a buyer of Home Depot.

* Another yawner
* The implosion of retail was a clear takeaway from the trading session.
* Strength in selected financials.
* Again, some cyclical weakness after a few weeks of strong action.
* FANG was dull, but Facebook FB continues to be jiggy.
* Technology mixed. (Micron Technology  (MU) a standout on downside)
* Breadth almost all square, and volatility was basically flat.
* A trend-less day characterized by a narrow trading range.
* In terms of individual stocks, Boeing (BA) reversed lower from a higher morning quote for the second day in a row.
I did very little trading today in this snoozer of a session.

I will be leaving in a few minutes before the close to an out of town research trip.
I will be posting in the next few days but my posts will be less frequent and shorter than usual.

RTY (Russell Index) is leading today for the first time in a long time, but it needs to close above 1610 to register a positive divergence - according to one of my tech mavens.

From my pal Roger Lipton:THE US ECONOMY - the best house in the worldwide bad neighborhood.Though the yield curve is no longer inverted, aided by the fact that the FED has pumped almost $300B into short term paper in the last ninety days, there are tangible signs that the US economy is slowing, and is not far from rolling over into recession. The standard punditry, led by Mad Money's Jim Cramer, whose fundamental "rigorous" analysis seems to depend mostly on the stock market's action over the last 24 hours, continues to report that the consumer remains "resilient". Setting aside our anecdotal observations of restaurant traffic and sales trends, which are largely driven these days by $5.00 price points at lunch and three course meals for $10.00 at dinner, overall reported retail sales were up only 0.26% in October, failing to recoup the 0.32% loss in September. Adjusted for inflation, sales volume dipped 0.1% in October after a 0.4% decline in September, flat in the last three months, slowing steadily through 2019 from 2.2% and 1.0% gains in the respective March and June quarters.Going forward, the New York Fed is now predicting Q4 GDP growth at just 0.4%, and the normally bullish Atlanta Fed is now down to 0.3%. Both estimates have been coming down week by week. In the public marketplace, just this morning Kohl's (KSS) and Home Depot (HD) reported disappointing results, lowered guidance for the current quarter, and their stocks are trading down 18% and 5% respectively. It is noteworthy that Kohl's is a discount retailer and Home Depot is dependent on new housing and renovation, both important portions of the consumer related economy.CENTRAL BANKS BUY GOLD IN RECORD AMOUNTSWe've written many times, relative to Central Banks' attitude toward Gold, investors should do as they do, not as they say. They don't like to confirm that gold is the ultimate store of value, as opposed to the fiat/cyber currencies that they produce with the stroke of a computer key, backed only "by the full faith and value, yada, yada". However, the chart below shows vividly that they switched from seller to buyer in 2010 and that continues to this day. They bought 374 tons in the first half of '19, which would annualize to over 750 tons, a record. This represents about 20% of worldwide annual production of 3500 tons. The likelihood, also, is that China's accumulation is substantially understated.

JAPAN - three "lost decades" later - with Central Bank intervention Japan's experience since the peak of their GDP growth and stock market in 1989-1990 provides an insight into the power, or lack thereof, of a central bank to stimulate growth. The easy money strategy in Japan has been especially prevalent since prime Minister Shinzo Abe took office seven years ago. Interest rates in Japan have been below zero since 2015, and the Bank of Japan has printed money to buy bonds and equity ETFs to the point where the BoJ balance sheet is now 104% of 2018 GDP, up from 40% at the end of 2012. This compares to 20% and 39% of GDP in the US and Europe respectively. Japan has demonstrated that, while Central Banks may be able to paper over a pending financial collapse, stimulating economic growth is another story. GDP growth in Japan has averaged all of 0.49% from 1980 until 2019, with an all time high of 3.2% in 1990 and a low of -4.8% in Q1'19. Part and parcel of the Japanese situation is that their government debt is about 250% of GDP, much higher than the US situation, which is just above 100%. An optimist could conclude that the US has a long way to go before our Fed balance sheet or government debt becomes a problem. That might be true, and we might also be looking at GDP growth no higher, and perhaps a lot lower, than 1% for the next 20-30 years.

* You would cry too if it happened to you!

"It's my party and I'll cry if I want to
Cry if I want to
Cry if I want to
You would cry too, if it happened to you."
- Leslie Gore,It's My Party

Leslie Gore's 1963 hit was number one on the pop and rhythm and blues chart.

It was also the first hit single by producer Quincy Jones.

Not only was the song a classic but the phrase "you would cry too if it happened to you" has become part of American pop culture's language - a phrase to describe being miserable during an event that is supposed to be a happy occasion.

In 1980, WCBN-FM, the University of Michigan student radio station, played "Its My Party" for 18 hours straight the day Ronald Reagan was elected President.

Divine Ms M made some important observations this morning some of which reminded me of something that my pal "Uncle" Bob Farrell once said:

"Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names."

From Divine:

* Let's start with Monday where the S&P 500 eked out another close that was a point and change higher - yet breadth was a net negative of 400 issues.

That means the McClellan Summation Index - which tells us what the majority of stocks are doing now - needs a net differential of positive 900 advancers minus decliners to halt the current decline. To put that in perspective, Friday's rally only saw positive 720 net issues.

* The number of stocks making new lows expanded yet again. Nasdaq had 133 new lows and the New York Stock Exchange had 77. Again, one day is not a big deal, but that's now five days where Nasdaq, at all time highs, has triple digit readings for the new lows. I grant you this might be because of the end-of-the-year tax loss selling, but I ask you why aren't the new highs expanding on a daily basis?

* On Nov. 4, Nasdaq impressed us with an expansion in new highs to 248. Now there are 169. Nasdaq is up 150 points since then. So what happened to those 80 stocks? And why aren't we picking up more? Are people leaving the party?

* The NYSE had 115 new highs on Monday. On Nov. 4, it had 214. Those 100 stocks must have snuck out the back door when we weren't looking.

* Breadth has been negative for seven of the last 10 trading days, so I suppose we can say the small caps (which have responded to the Oscillator by pulling back) are getting oversold. But what kind of strength does this show?

*We've also discussed the Daily Sentiment Index (DSI) for the S&P, which tagged 90 last Friday and 91 for Nasdaq. Each one of those lost a point on Monday. But the Volatility Index saw its DSI drop to 10. So clearly there is a high level of complacency in the market.

* All I know is that the party is thinning out. Many have gone home. So, either they need to come back to the party to make it more interesting, or we all need to go home get some rest so we can party again later. In the meantime, I am a party pooper.

It's another day of small individual stock price changes.
Today (at around noon), compared to -400 breadth on Monday, there are about 100 more advancers over decliners.
Bonds are well bid and yields are about two basis points lower.
Oil is a schmeissburger (-$1.40/barrel) and gold is flat.
Few trades save some catching a falling knife in Macy's (M) .

Some feel traders are concerned that a Senate vote on Hong Kong could blow up chance of trade deal. Further weakness in crude also hurts.

The Atlanta Fed's GDPNow estimate for 4Q2019 has been increased from +0.3% (last week) to +0.4% today.

An important one:

As I recently wrote, I passed on AT&T  (T) after doing quite a lot of research.

Per Telephone, from Thomas C, MoffettNathanson has downgraded the shares to sell this morning (the shares are -$1 or about 2.5%) :

Thomas C

AT&T -2.5% as Moffett cuts to Sell on weaker fundamentals

• AT&T NYSE is off 2.5% this morning after a cut to Sell at MoffettNathanson.
• Analyst Craig Moffett is pointing to valuation and expects weakening fundamentals are coming back into focus for the company.
• He's set his price target to $30, now implying 22% downside.

* I remain substantially underweighted in retail as the U.S. retail market remains overboxed* I am long the disruptor, Amazon and I find value in Macy's (adding now)
The retail industry continues be disrupted, post haste.
There is still far too much retail space in the U.S. and, as previously mentioned, the next two years will bring on many more bankruptcies and store closures. When stores close, merchandise will be on sale, exacerbating the retail disruption even further.
Though the U.S. consumer should be more stored than the rest of the world (we buy more apparel), not five times more retail space per capita (as we are vs. Europe).
As the disruption and consumer behavior continues to change - the business is continuing to be transferred to online.
Today, 20% of apparel is sold online but 20% of the stores didn't close as online's penetration hit its stride.
The U.S. remains overboxed in retail.
This is a formula for lower sales, profit margins and profits.
And it helps to explain why Amazon (AMZN) is among my largest longs and Macy's (M) is my only retail long.

To state the obvious, the (KSS) and (HD) disappointments are putting a pall under the retail space.

My Trade of the Week, Macy's (M) (which was looking great technically), is being penalized.

I just added at $15.30.

On Thursday M will report - I expect a small loss against $0.27 a year ago.

Boeing (BA) is trading +$4 in pre-market trading:

Thomas C

Vote of confidence for 737 MAX

Day 3 at the Dubai Air Show fared much better for Boeing NYSE, as the world's biggest planemaker received bids for 50 737 MAX jets amid forecasts of a potential December return for the grounded aircraft. Kazakhstan-based Air Astanta said it plans to purchase 30 737 MAX 8s, an undisclosed buyer purchased 10 MAX 10s, while Turkey's Sunexpress ordered 10 MAX 8 jets. Boeing this week will also present to the board of Southwest Airlines NYSE, its largest 737 MAX customer, an overview of its plans to return the grounded 737 MAX to service. BA +0.8% pre-market.

"Most of the world is driven by narrative rather than arithmetic. But over time arithmetic is real and narrative is just that."
- Rick Rule, Sprott U.S. Holdings

Here we go again, S&P stock futures (+8) are climbing Nicely (Nicely Johnson) into the opening bell.

The market's boat has yet to be rocked, Nicely Nicely. Rather, the market's climb has been relentlessly breathtaking.

I have argued in the past that Price Is Not Truth - at least not for the intermediate term.

Yes, in the short run the market is a voting machine and price momentum based strategies can be a most effective trading tool. But, for many of us who have a longer term time frame, the market is a weighing tool (and is "governed" by the funnymentals).

But even in the short term, price momentum and charts may be interrupted. As an example, this morning Home Depot (HD) missed on comps and slashed its sales guidance. Recently highlighted by the "unusual call activity" crowd (where it is quite usual that the call sellers are more informed than the call buyers), Home Depot's shares are down by over -$10/share (the most since 2008). 

As I mentioned in my Diary and in Barron's, it sure feels like there is something unnatural going on - as the buying is so consistent.

It is clear, based on his tweets, that the stock market is President Trump's crowning achievement. If QE on bonds, a deeper market, can be done, why not equities through some controlled computer account which is especially active at the beginning and end of the trading day - as I questioned "tongue in cheek" on Friday in "Is There An Outside Force at Work?"

More logical than a secret buyer is that the largest 100 companies are aggressively buying back their shares - and because of year-end, there are few sellers of stocks (and much fewer shares outstanding) to accommodate the buying. That helps to explain why the new high list is so crappy. And why yesterday's market breadth was wanting.

But, despite the relentless journey higher are we borrowing returns from next year?

Yesterday I focused on the slowing U.S. sales metric - and relayed that the price to sales ratio (which can't be manipulated like non GAAP earnings) is at an all-time high: With the rally to new highs in the S&P 500, the price to sales ratio in this index is now exactly where it was in early 2000. It's only one valuation metric which takes out the games (GAAP v. Non GAAP) that are played with earnings. It also means nothing for stock market performance in the short term and thus is just a perspective check more than anything. Below is the chart of the Price to Sales ratio of the S&P 500 Index.

This morning Danielle DiMartino Booth notes that FactSet has reported that revenue growth slowed to +3.1% in the third quarter, the slowest pace since the 2016's third quarter. Top line revenues are expected to slow further in the fourth quarter (to +2.5%). And so are the consensus earnings estimates for the final quarter in 2019 expected to move lower. Meanwhile, profit margins are being threatened by rising labor costs.
Consensus estimates for 2020 S&P earnings growth is for a gain of +10% to +11% (year over year). I don't see how achieving those forecasts is possible given current sales trends - which means any meaningful rise in the S&P Index is dependent upon continued revaluation higher in price earnings ratios. That valuation reset seems doubtful to me and forms one of the core reasons I am bearish for the markets.
The market is a voting machine in the short run but it is a weighing machine in the long run. For now the voters have consistent and relentless price momentum on their side - and to many that is all that counts:

• As the third-quarter earnings season comes to a close with a -2.3% showing on EPS, analysts are more bearish going into the fourth quarter; the weakness looks to spread to six sectors vs. five in the third quarter indicating the industrial slowdown has spread to services
• Third quarter revenue growth has slowed to levels not seen since 2016's third quarter while expectations are that the year's final three months slow further; as with earnings, the quarter-on-quarter weakness is expected to broaden to health care and consumer discretionary
• In the short-run, companies will likely endeavor to cut costs, including labor, to draw a line under earnings as revenues deteriorate; given revenues are a demand proxy, a concurrent slowing in GDP is also foreseeable

Rabbit Fire was a 1951 Looney Tunes cartoon starring Bugs Bunny, Daffy Duck and Elmer Fudd. The Warner Bros. short was the first to feature the classic feud between Bugs and Daffy. In it, Daffy lures Elmer to Bugs' burrow, calls down to him, then watches as Elmer shoots at the emerged Bugs, parting his ears. As Elmer aims again, Bugs informs him that it's not rabbit season, but rather duck season. Daffy storms in irate and attempts to convince Elmer that Bugs is lying. Their conversation breaks down into Bugs engaging Daffy in the verbal play illustrated in today's title. Of course, Daffy fumbles into saying "duck season" and Elmer fires away.

Whether you are a fan of Bugs or Daffy, there's another season in the financial market world that's about to come to a close - earnings season. Ninety-two percent of S&P 500 companies have reported third-quarter earnings results. Last Friday, FactSet reported that earnings per share (EPS) had declined 2.3% versus a year ago. Industry performance was mixed with five sectors - Energy, Materials, Information Technology, Financials and Consumer Discretionary - reporting year-over-year declines and the other six - Utilities, Health Care, Real Estate, Consumer Staples, Industrials and Communication Services - posting year-over-year gains.

Analysts' fourth-quarter guidance is more bearish for earnings compared to the third quarter. It's anticipated that six sectors will decline including Energy, Materials, Industrials, Information Technology, Consumer Discretionary and Consumer Staples. This widened breadth carries a broader cyclical narrative beyond the sectors more closely affected by trade war; it bleeds into the entire consumer space. Implicit are hints of contagion from manufacturing to services that introduce broader labor market risks. And you thought recession risk was a thing of the past just because the yield curve un-inverted.

Cue Bugs and Daffy for an encore with a twist: "Earnings season! Revenue season! Earnings season! Revenue season!" The bottom line (earnings) gets all the attention each quarter. But the top line (revenue) should never be overlooked. For cycle chasers and equity strategists alike, revenue growth is the heartbeat of U.S. economic activity. It proxies Gross Domestic Product (GDP).

FactSet reported that revenue growth slowed to 3.1% in the third quarter, the slowest pace since the 2016's third quarter. Despite the slowing, the breadth of gains revealed eight sectors expanded with only the remaining soft spots of Energy, Materials and Industrials contracting. Analysts projected a further deceleration in revenues to 2.5% with the same three sectors posting another retrenchment in the fourth quarter. Does this mean that top-line headwinds are, and will be contained to the sectors most exposed to the global growth slowdown and will therefore not spread across the economy to more consumer and service-oriented sectors?

Let's reserve judgement on that. Instead, look at the trend in revenues from the third to fourth quarters. As the inset table above illustrates, the tamping down in demand will be relatively broad-based. The Consumer Discretionary sector is especially prominent.

To see if the storyline holds beyond equity analysts' models, we recruited three other macro sources in today's chart to gauge preliminary top-line guidance for the fourth quarter. Composite indexes that weighted manufacturing and services by their respective industry shares in GDP were utilized for credit managers (NACM), purchasing managers (ISM) and C-suite executives (IHS Markit).

In all three cases, a downshift has been in place for multiple quarters and the fourth quarter looks either close to or weaker than the third quarter. What's important to note about a broadening slowdown in revenue is that over the short run, more companies could face cost cutting decisions, as opposed to the luxury of cost expansion choices.

Central banks are doing their darnedest to stave off the global slowdown with stimulus injections. Ascertaining clarity on the revenue outlook here at home will be a challenge as we head into an election year. Capex budgets are apt to be hamstrung by tight-fisted management so long as concerns about the top line refuse to fade. And that applies whether you're in a red state or a blue state or you're a rabbit or a duck.

Retail, the end of the road and other stuff from Peter Boockvar:

As you know I've argued that the BoJ and ECB are at the end of their road in terms of monetary activism. An article today from Bloomberg News said "An unprecedented level of concern about damaging side effects of Japan's multi decade experiment with ultra low interest rates has gripped policy makers, regulators and legislators. The key takeaway: fiscal policy is set for a more prominent part during the next economic downturn." Now, the Japanese have also experienced 25+ years of Keynesian fiscal spending building a lot of nice roads and bridges that were just steroid shots into an economy that always wore off so the complexion of the fiscal policy will be most important.

The Home Depot (HD) conference call is at 9am est that I'll be listening to. There was no mention in the press release about any slippage in consumer spending and instead they said "sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic investments." Maybe so but in the October retail sales data on Friday, the sales of 'building materials' fell for the 2nd straight month and were down .2% y/o/y.

Kohl's lowered guidance and the stock is down pre market but they did say in its release "The quarter started off positive in August with another successful back to school season and ended strong in October."

Again, we are realizing that when it comes to financing the exploding size of US debts and deficits, it's all on us. Foreigners are not only not helping, they continue to be outright sellers of US Treasuries. In September, foreigners were net sellers of $34.3b of US notes and bonds after selling $30.5b in August. This brings the year to date level of selling to $82b. Back in 2011 and 2012 foreigners were net buyers of $400b+ in each years. China and Japan, our two biggest foreign holders, continued to be sellers. Don't worry though, the Federal Reserve is back to monetizing US debt by a total of $60b per month in T-bills.

I forgot to mention yesterday the trade data out of Singapore in October, a great proxy for economic activity in Asia. Its non oil exports fell by 12.3% y/o/y, more than the estimate of down 10%. It's a decline for the 9th month in the past 10. Exports specifically to China fell by 5.5%. It's economy shrunk by 2.7% in Q2 and Q3 out this week is expected to be up by .1%.

In the UK, the CBI industrial orders figure for November improved to -26 from -37 and that was 4 pts more than expected. Call it less bad as it comes off the lowest since 2010. CBI said "While the thick fog of uncertainty from a no deal Brexit has lifted somewhat, the manufacturing sector remains under pressure from weak global trade and a subdued domestic economy. Order books remain below average, and output volumes continue to fall. When taking into account the deteriorating outlook for manufacturing globally, it's clear that the outlook for the sector remains precarious." Brexit resolution will of course be a huge lift of pressure off the backs of UK businesses but they are still going to need help from rest of the world in terms of improving global trade and UK exporters. The number is rarely market moving and the pound is down slightly as are gilt yields. The FTSE 250 though is up .9%.

CBI industrial orders index

--More investing lessons. --Soft Bank softens.--Remember the pension problem? It's worsening.

The case to own Vietnam (VNM) :