"Just one more thing."
- Lt. Columbo


Source: Bloomberg

Thanks so much for reading my Diary today and all week.
It "feels" like the market rose every day, but this week actually marked a break in the six-week long uptrend -- losing a few tenths of one percent.

I expanded my net short exposure this week.

Enjoy the weekend.

Macy's (M) is up by +5% in today's trading session.

I briefly highlighted the EPS report this morning and I will expand on my analysis next week.

Today's up move makes myTrade of The Week move from a horrible decision to just a bad choice.

Today Boeing's (BA) shares have continued the impressive rally from late October.

The stock is +$5+ on the trading session. I bought every dip since I initially took a small long investment several months ago.

BA is now a reasonably profitable position.

This is a long-term lease and not intended as a short-term rental.

I bought some more Canopy Growth (CGC) at $18.25 (down from $21.55/share yesterday afternoon) -- my first buy since I doubled up midweek under $15/share.

I recently previewed one of my Surprises for 2020:

I anticipate that Twitter ( (TWTR) ) is acquired next year.

Now for a second surprise:

I expect Amazon (AMZN) will acquire Kohl's (KSS) next year. (I purchased KSS this afternoon at $46.79)

Consider:

* Amazon and Kohl's already have a joint venture.
* Amazon's move into private label.
* Kohl's large store network in key markets.
* Kohl's equity capitalization is under $8 billion, its market capitalization about $12.5 billion. (That's change for Amazon!)


Stay tuned.

From Thursday afternoon:

This is taken from a lunch I attended in Palm Beach this week.

Two signed books for the first two people who correctly answer these two questions:

1. Name five of the attendees

2. The second person on the left is wearing a white polo shirt. What does it say on the shirt?

From left to right: Jeff Weniger, WisdomTree Asset Management (our host), Lee Cooperman, Jeff Greene ("The Big Short"), Jack Ablin, Dougie Kass, Tobias Levkovich (Citi's Head Strategist), Jerry "The Chief" Jordan

The second person on the left is Lee Cooperman. His polo shirt reads "My dad was a plumber and I am proud of it."

Congrats to the winners: Billy Bob, SkiSync and Appleseed.

Please email me your physical address so I can send my signed book!

From Neil The Real Deal on Macy's (M) https://realmoney.thestreet.com/dougs-daily-diary?published[value][date]=2019-11-22&author=All#macys-update-20191122

Back in the saddle, finally.

The market's cadence of unspectacular but steady advances continues today.

Breadth differentiated itself today (+800), after days of mediocre to weak advancers/decliners.

I have increased the size of my SPDR S&P 500 exchange-traded fund  (SPY) out position.

Between meetings.

No trades today.

My good pal Peter Boockvar, chief investment officer with Bleakley Advisory Group, writes more on credit, PMIs and Janet Yellen: 

As just a follow up to my comments yesterday on the CCC bucket of high yield where I just mentioned the absolute yield rise, here is a chart of the index option adjusted spread. It is now above the late December/early January spike at over 1000 bps. It certainly remains well below its energy led jump in late 2015 but we need to differentiate this move from that late 2018 move. Then, it was just fears of the economic repercussions of an aggressive Fed as we know stocks sold off too. Fears that were not immediately realized and the Fed 'came to the rescue' again. Now, it can only be actual worries about deteriorating cash flows relative to an excessive debt burden for these credits while stocks, at least the large caps, sing a completely different tune.

CCC spread to Treasuries

For now, the concern about this area of high yield is contained to the CCC area as the B category, right below BB and above CCC, option adjusted spread remains low.

The other index to watch is the S&P/LSTA leveraged loan index, another area with junky credits that are senior secured (but nowadays with little that is junior). As seen, it is just above its early January lows.

Moving on. The November Australia manufacturing and services composite index is now below 50 at 49.5 vs 50 in October. Both components are less than 50. Markit said "Where output decreased, panelists reported challenging economic conditions and relatively weak customer demand."

Japan's combined PMI rose to 49.9 from 49.1 with manufacturing at 48.6 while services got back above 50 at 50.4. Either way, they are around the flat line. They are dealing with the aftermath of the VAT increase and the typhoon which cloudy's the analysis but "we can now deduce from the November PMI data that there is a strong possibility of Japan's economy contracting in the fourth quarter" according to Markit.

An aside, the BoJ has basically ended QE this year as they've basically stopped buy JGB's and stock ETF's. Owning more than 40% of the former and about 80% of the latter I guess is enough nationalization for any one central bank.

Japan also reported its October CPI figure and the BoJ got some more inflation. Ex food and energy, the CPI rose .7% y/o/y vs .5% in September, one tenth more than expected and the quickest pace since April 2016. It took a VAT hike to get even this. Now imagine if they actually got to 2% on a sustainable basis. Consumers would revolt and their bond market would blow a gasket. Not to be wished for.

Shifting to Europe, its manufacturing and services PMI for November fell to 50.3 from 50.6. Manufacturing improved slightly, although is still contracting, to 46.6 from 45.9 and vs the estimate of 46.4. Services weakened to 51.5 from 52.2 and below the forecast of 52.4. Markit said "Manufacturing remains in its deepest downturn for 6 years amid ongoing trade woes, and November saw further signs of the weakness spilling over to services, notably via slower employment growth...Business remains concerned by trade wars, Brexit and a general slowdown in demand, with heightened uncertainty about the economic and political outlook driving further risk aversion." The euro is little changed but most bond yields in the region are falling while stocks are slightly higher. Weakness in Europe now is not new so just how long this goes on for is the question.

The situation worsened in the UK as its composite index fell below 50 at 48.5 from exactly 50. Manufacturing slipped further to 48.3 while services are down to 48.6. This would imply a contraction in Q4 GDP but hopefully this is the worst it will get as Q1 should see an end to this Brexit mess. It better happen because Markit said notwithstanding this uncertainty, "the PMI surveys are not only warning that the underlying trend in the economy is deteriorating markedly, but also that the labor market is cooling." The pound is lower on the number and gilt yields are falling.

New ECB President Christine Lagarde gave her first real speech today since becoming the new head. She said nothing really new but did again push responsibility for fresh stimulus to the governments which we expect her to continue to push for as monetary policy is fully exhausted.

Finally, I have to include this quote from Janet Yellen from a piece written by Jeff Cox at CNBC. This comes from a former Fed member who as Governor and Chair presided over and voted for putting rates to zero, keeping them there for 7 years and embarking on multiple rounds of QE. "Some of the most disturbing notes came from people who said, 'I work and I played by the rules and I save for retirement and I have money in the bank, and you know, I'm getting absolutely nothing. Savers are getting penalized. It's true." Certainly the Fed hung savers out to dry and Jay Powell and Co seem intent on doing it again if needed.

* On alternative data giving greater insight.

* Hidden investments are a great expense.

* Favorite causes for philanthropists. 

Although I am on the road at research meetings, I wanted to briefly comment on the Macy's (M) results. (Macy's was our Stock of the Day on Thursday).

Not unexpectedly, Macy's lowered forward guidance.

Same-store sales in the third quarter of 2019 came in at -3.5% (against a consensus of -2%). Comps were adversely impacted by international tourism declines, continued weak trends in second/third tier malls, the late arrival of cold temperatures throughout the nation and the impact of e-commerce disruptions as the retailer made site improvements for the upcoming holiday period.

Macy's was able to improve the company' s cash flow relative to Street expectations -- based on well-controlled SG&A expenditures. The company beat my third-quarter EPS expectations of a loss and recorded a tiny profit.

The company's lowered yearly guidance implies full year 2019E of about $2.70-$2.75/share (vs. previous consensus of approximately $2.80/share). Macy's fourth-quarter guide is now $1.78-$1.98 and is predicated on -2% comps, a degradation of gross margin of -50 basis points, a modest deleveraging of SG&A and $0.15-$0.20 of real estate gains.

The key for 2020 will be whether the company can generate an upside to their sales initiatives, whether they can accelerate cost saves and, of course, the general trends in personal consumption expenditures.

The hard thing is how to value Macy's cash flow and earnings.

If we take out real estate gains from next year's EBITDA and apply a 6.0x multiple, we can come up with a target of $18/share.

A 6.5x multiple produces a $19.50/share target and a 7.0x multiple delivers a $21/share target.

And then there are the real estate values of the company, which are tough to assess.

More next week upon my return.

Danielle DiMartino Booth is more optimistic that depleted inventories will aid manufacturing, but her concerns about the consumer remain:

• The U.S. industrial recession is set for a reprieve; future inventories from New York and Philadelphia regions are flagging a pop back over the breakeven 50 line in coming months for the market's darling leading indicator, ISM new orders
• End demand is what really matters in determining if an industrial resurgence will last; replenished manufacturers will not continue to restock if what they produce doesn't sell
• The strong consumer is in question, with continuing jobless claims rising year-over-year over the last seven weeks; state breadth for initial unemployment claims has been revised up in both September and October -- squarely into our DEFCON2 zone

Did Luca Brasi sleep deeply? All we know is that, in the end, he swam with the fishes. But there was no mention of the large man being committed to the depths assisted by a new pair of cement shoes. (Allaying conflation, concrete is a cement input consisting of sand, gravel and small rocks). Fast-drying cement is understandably attractive to modern-day mobsters with Twitter attention spans. But true pros go all the way to the barrels, entombing their victim inside a barrel filled with concrete ensuring that said "shoes" don't inadvertently slide out of cement-filled buckets, and in doing so, float the victim to the water's surface, rewarding prosecutors with habeas corpus.

Investors felt as if they'd been swathed in a Chicago overcoat following the release of October's disastrous Chicago PMI, which unexpectedly sunk to a four-year low with the damning caveat that the results were in no way influenced by the strike that had waylaid General Motors (GM) . Was there to be any escaping the industrial recession abyss?

By the looks of preliminary data out of the New York and Philadelphia regions, the answer to that question is yes. If we're faithful to the metrics we've used in the past to flag turning points -- as in future inventories (the orange line) -- depleted stockpiles are poised to be replenished. Or, in the words of QI's Dr. Gates, "If you're in the business of making things, you'd best have the supplies to do so on hand." To his cogent observation, future inventories at these two regional Federal Reserve Districts are at a 15-month high. Purchasing managers in these areas have been given their marching orders.

The takeaway: the industrial recession we've been warning would bleed into the service sector looks to be in for a reprieve. Odds are the market's darling leading indicator, ISM new orders (today's blue line), will pop back above the 50 line that separates contraction from expansion in the coming months as manufacturers replenish exhausted supplies. Can you imagine the magnitude of the celebration when the all clear is sounded? Not one, not two, but THREE industrial recessions subverted in the current cycle. Talk about Teflon!

The question is, will it last?

That much more cogent matter keys off of this little thing we call end demand. Replenished manufacturers will not continue to restock if what they produce doesn't sell.

But "the consumer is strong (!)" Well, that is indeed what we're told. But the data suggest otherwise.

We've been faithfully monitoring continuing jobless claims for the last few weeks as they've appeared to turn up for the first time in the current expansion. One Econ 101 glossary refresher and one contextualization are in order. The number of Americans receiving unemployment insurance benefits defines continuing claims; unlike nonfarm payrolls, it's a real-time, un-revisable, hard data point. As for context, the last time this figure was rising (up is bad) outside this cycle's recent turn was December 2009.

With that as preamble, continuing claims have risen over the prior 12 months for seven weeks running. Yes, this is an established trend. And no, it's not good news, nor was it coincidence that the labor market somehow made its way into Wednesday's release of October's FOMC minutes. Fed officials will milk the 50-year low in the unemployment rate meme for as long as they can. But even the sleepy leather-elbowed, sweater-befitted academic Fed staffers have to have flagged this development by now.

And then there's the other issue of initial jobless claims data, which we've depicted in vivid green bars above. As dutiful Feather readers know, every week we grade jobless claims on a state-by-state basis to gauge the strength, or weakness, of the breadth of the job market via the number of states with rising or falling (good) initial jobless claims.

With October's final tally in hand, we're picking up on a theme. When the final revised data are reported, they tend to marginalize our preliminary reads. To that end, September's initially reported data depicted 53% of states with rising jobless claims, a figure that was revised up to 75%. October's initial 'final' suggested 47% of states had rising claims while the final ended up being 55%. We suggest you fade November's 43% read until we have definitive data in hand.

Trust us. Economists will not applaud a resurgent industrial sector if the read on the U.S. consumer continues to deteriorate. To that end, we would add that year-on-year hotel occupancy is set to register its third consecutive month of declines. And auto supplier bankruptcies are piling up, suggesting any manufacturing renaissance will be shallow and short-lived -- see above caveat on "end demand." Our point is Powell's magical printing press will be hard-pressed (we couldn't help ourselves) to save us from collectively sharing Luca Brasi's fate.

I am on the third day of my research trip.
I will back in the early afternoon, so my posts will be shorter and less frequent than usual.

Leading Economic Index: +0.3% over past year -- that's the slowest growth since 2009.

The last five times LEI went from + to - (year over year):

--August, 2006 (recession December, 2007)
--November, 2000 (recession March, 2001)
--January, 1996 (only 1 month negative, no recession)
--October, 1989 (recession July, 1990)
--July, 1981 (recession July, 1981)