I want to leave all of you with some final thoughts.
To being with, the Federal Reserve is infantilizing the business cycle and the U.S. stock market.
If perpetual easing is such a good thing (without any adverse ramifications) - as the consensus now seems to believe - why doesn't our central bank just stay in QE forever?
Why shouldn't the Fed take interest rates into negative ground like Europe or in other parts of the world?
Why isn't real GDP much better than +2% in light of the 2018 tax reform bill and near zero interest rates?
The answers to these questions are obvious:
* Rate repression and the stampeding out of volatility creates excesses.
* Negative interest rates guts the banking system.
* The Fed is "pushing on a string."
With a decade of this monetary largesse I am surprised that there is such little discussion of how it takes more and more debt to produce a unit of production in the U.S., or how much growth has been borrowed from the future.
As I recently wrote, what we have learned from history is that we haven't learned from history.
The financial media is inundated with simplistic, silly and too frequently explanations of the market advance - a climb that has been based on multiple expansion and not earnings expansion. Dangerously, the rise has been characterized by narrow leadership (and a handful of stocks responsible for most of it).
At dinner last night a friend of mine said, "I am even making money (in the market) with my mistakes."

As my Grandma Koufax used to say, "When it gets too easy, its too easy."
Enjoy the weekend and thanks for reading my Diary all week.

I am concentrating on breadth in order to gain some insight into a possible reversal.

There are 150 more decliners than advancers as of 3:10 pm.

Regular readers of my Diary know I sometimes post things that replicate the theme of the "Tell Me Something I Don't Know" segment on MSNBC's "Hardball with Chris Matthews."

So ... "Tell me something I don't know, Dougie."

Today Apple (AAPL) hit an all-time high on optimism regarding Chinese iPhone shipments and a 5G-aided upgraded product cycle anticipated next year.
Microsoft (MSFT) also hit a high today.
The combined market capitalization of Apple and Microsoft is now nearly $2.6 trillion - that is $300 billion more than the capitalization of the entire German stock market.

Key aspect "wants to" ...  Iwanted to play shortstop for the New York Yankees:

The gloves come off right here.

Normally I would be shorting this market.

But as I have observed this week there is nothing normal about it.

Out to lunch.

The most important thing said yesterday:

Of all the Fed speak yesterday, it was the comments from the Dallas Fed President Robert Kaplan to Reuters that was most noteworthy I believe and should be paid heed to. Now a voter in 2020, he's the first Fed member that is expressing some concern with the side effects of the epic increase, in terms of rapidity, in the Fed's balance sheet. However termed, it's hard to argue against the belief that the increase has had a dramatic impact on asset prices. He said "I'm going to be wanting to actively explore options that would allow us to restrain from here growth in the Fed's balance sheet. I do think the growth in the balance sheet is having some impact on the financial markets and on the valuation of risk assets...I want to be cognizant of not adding more fuel that could help create further excesses and imbalances."

If these thoughts are shared by others, it will be important for Jay Powell at the FOMC meeting at the end of January to directly address this. When their printing press is a hammer, every single financial plumbing and economic problem looks like a nail and the Fed needs to get away from this. Their actions don't happen in a vacuum and just by saying 'this is not QE' doesn't mean there are not major ripple effects. Expect to hear a lot more about the possibility of a standing repo facility replacing the $60b per month increase in their balance sheet. To this Kaplan said it "might allow us to be more efficient with the overall size of our balance sheet, and it might also change banks' thinking about their need to hold reserves."

I want to also reprint what Boston Fed President Eric Rosengren said last September and who expressed this multiple times last year as he dissented on every single rate cut. "There are risks of tailwinds and costs to monetary policy being too accommodative. Additional accommodation is not needed for an economy where labor markets are already tight - and risks further inflating the prices of riskier assets, and encouraging households and firms to take on what may be too much leverage."

Well, we certainly got higher asset prices after 3 rate cuts and a dramatic increase in the Fed balance sheet but as I've argued many times, when rates are already so low moving them even lower loses its effectiveness in moving the needle on actual economic growth and just creates financial bubbles instead. How have the 3 rate cuts last year done in encouraging business borrowing? Nothing because businesses already have so much debt. Here's a chart of commercial and industrial loans outstanding which stand at the lowest level since June.

C&I LOANS OUTSTANDING

The only economic data of interest overseas was the industrial production figures from France, Spain and Italy. All were slightly better than expected. Growth for the Eurozone in 2020 is only about 1% after a similar pace of gain in 2019.

After years of managing money successfully as a hedge hogger, coupled with a strong sense of history, logic, common sense and an extraordinary work ethic, Jim "El Capitan" Cramer provides strength of analysis and observes the subtleties of the market with a keen eye that educates all of us.
In last night's closing missive, "Let's Unmask This Magical Market Momentum", Jimobserves the differences associated with various types of momentum and how we can separate the wheat from the chaff.
His article this morning is a must read.

* Index funds eclipse the $10 trillion mark.

* Feeling you know what happens next can be harmful.
* Almost 40% of the companies listed are losing money.

Here is this morning's "Marijuana Moment."

* My revised levels

I don't want there to be any ambiguity about the size of my positions or about my buy and short levels as I strive for as much transparency as possible.

"When the time comes to buy, you won't want to."

- Walter Deemer

"When the time comes to sell, you won't want to."

- Walt Deemer

I promised to update my "Levels" at least once a month - the last update was over one month ago.

Here are some of my new individual buy/short levels of stocks that I want to add to or reestablish on weakness and, in the case of shorts, to sell on strength:

BUYS

-- (FB) $185

-- (AMZN) $1750

-- (GOOGL) $1325

-- (PZZA) $58

- (FDX) $153

-- (HIG) $56

-- (GS) $210

-- (TWTR) $32

-- (CGC)* $23

-- (M) $16.50

-- (DDS) $65

- (KSS) $48

-- (VNM) $16

-- (CMCSA) $42

-- (BAC) $31.50

-- (C) $73

-- (JPM) $122.50

-- (WFC) $51.50

-- (PG) $110

-- (GLD) $139

-- (KHC) $31

-- (VXX) $16

-- (GTBIF) * $9

-- (CURLF) * $6.25

-- (CRLBF) * $6

-- (HRVSF) * $2.90

-- (CRON) * $7.50

-- (MJ) * $17


SHORTS

-- (AAPL) $300

-- (BEN) $28

-- (TROW) $120

-- (MU) $54

-- (TLT) $137

-- (SPY) $315

-- (DIS) $140

-- (KKR) $29

-- (BX) $57

-- (NFLX) $315

-- (CAT) $144

-- (FAST) $36

Note: * indicates a speculative issue

__________

Long HIG (small), GLD (small), TWTR (large), FDX (large), M (large), PZZA, BAC, C, WFC, KHC (large), VNM (large), CGC (large), GTBIF, CURLF, CRLBF, HRVSF, CRON.

Short TROW (small), AAPL (small), TLT (small), MU (small), KKR (small), BX (small), NFLX (small), CAT (small), FAST (small), DIS (small), SPY (small).

* In technical terms...
While I reduced my (GLD) to small this week, here is the contrary view from NorthStar:

Here is another:

Here is the 2019 manufacturing data (in units) for the big car companies:
Tesla (TSLA) - 367k
General Motors (GM) - 10 million
Ford (F) - 5.5 million
Fiat Chrysler (FCAU) - 2.2 million
Nevertheless, the market capitalization of Tesla (at $89 billion) is the largest for any auto company, ever!

Note: I would still not short Tesla.

* Same old, same old!

With S&P futures +10 handles in premarket trading and Apple again gapping higher (+$2.15/share), it's
Ground Hog Day.

The Bulls say its the Fed, stupid, as the Bears wait for a "Minsky Moment."

As for me, I am leaving the office (and avoiding scaring at the screens) in an attempt to do primary research in a continued search for new ideas.

Speaking of Apple (AAPL) , which seems to be rising by the Chinese news - it is important to note that it also is rising because of its large role in passive Indices (which are attracting record inflows over the last month or two).

Here are some realistic comments from Credit Suisse on Apple this morning:

Target Price (USD) 275.00

• December China iPhone units (sell-in) rebound; -3.2% y/y (Sept-Dec) since iPhone 11: iPhone shipments in China grew 18.7% y/y in December (per MIIT "non-Android" data), sharply outperforming the 13.7% decline in the overall Smartphone market in China. While we note that monthly sell-in data can be volatile, this strong performance marks a significant improvement from the sizeable drops in October and November, albeit against a relatively easy compare given the challenges in Greater China in C4Q18. However, normalizing for the different launch cadence in 2019 vs. 2018 (by looking at cumulative shipments over Sept-Dec), units are still down 3.2% y/y in China. Factoring in the mix shift toward the lower-priced iPhone 11 (~70% of newly launched units in China in C3Q, per IDC) and its 15% y/y RMB price cut at launch, we estimate China iPhone revenue was down 23% (at CC) in C4Q.
• Our View: We're encouraged by this sharp bounce back in shipments. At ~17% of total iPhone units (per IDC), the 13% unit decline in China in C4Q implied by the MIIT data means modest 1.5% growth ex-China is required to hit our 67.7mn estimate. Our estimated 24% decline in C4Q revenue in China (-23% at CC) means that 2.4% growth ex-China is needed to hit our total iPhone revenue forecast of $50.9bn. Also of note is a significantly improved US/China trade situation since our last update, with potential for 15% tariffs on the majority of Apple's portfolio (iPhone, iPad, and Mac) no longer an overhang, in our view. Our model did not incorporate a tariff impact, as such this does not change our EPS forecasts.
• Valuation: The stock's 86.2% rise in CY19 was driven primarily by multiple expansion; FactSet CY2 EPS was essentially unchanged this year ($13.58 coming into 2019 vs. $13.65 today). We raise our TP to $275, as we now apply 20x to our CY20 EPS (16x previously), to reflect market/comp multiple expansion as well as a better-than-feared iPhone 11 cycle so far. We remain Neutral, as we need greater line-of-sight to upward EPS momentum (particularly Services-led) to justify the stock's increasingly premium multiple (22x CY20 cons. EPS today vs prior peak of 17x since 2010). Risks: Slowing smartphone demand, Apple's ability to monetize Services, regulation, US-China trade tensions.

Danielle DiMartino Booth's Deloitte CFO survey is revealing. What it says is more weakness in the domestic economy lies ahead:

• Election-year history is not on the side of a sidelined Fed; there has been only one instance in the last 10 presidential election years of the Fed on hold the whole year through
• A surprise in the U.S. jobs picture would put rate cuts, or hikes, in play; the hawkish risk of persistently higher wage inflation, as outlined in QI's 2020 Outlook, would result in what the market expects the least - 2020 rate hikes
• The latest Deloitte CFO Survey presages rate cut risk with 97% queried seeing a slowdown and a small group saying a downturn has already begun; three-year lows in revenue and capex expectations and nine-year lows in hiring and earnings back the dovish risk

Doctor's Prescription: Eat 20,000 calories a day and gain three pounds every day and you'll be fit as a fiddle. As unreal as that sounds, that's precisely what Yellowstone bears do every autumn to prepare for the cold winter ahead. To dispel a myth, what bears don't do after this Thanksgiving-every-day food fest is hibernate. Rather, they fall into a deep sleep called torpor wherein their heart rate and breathing slows, their body temperature drops, and they do not release bodily waste. While bears can sleep up to 100 days, they can wake easily if threatened by predators or in the case of females, to give birth, after which time they fall right back asleep with junior or junior-ette (!)

Clear across the country in the Eccles Building, Federal Reserve officials are hoping the bears break with their physiology and achieve full blown hibernation straight through November 3rd. History, however, is not on the side of not having to move the fed funds rate. In the past 10 presidential election years, there has been only one instance of the Fed holding pat - 2012 when rates following the financial crisis had hit the zero bound. As Mark Gomez of J.B. Drax Honoré, who ran the history in today's table, put it, "The idea that the Fed won't move because it's an election year is a myth."

The burning question: "What would it take to put rate cuts, or hikes, back in play?" The short answer is it would take a surprise on the jobs front. Nonfarm payroll Fridays such as today are 2020's star of the show.

You may be thinking we're only going to touch on downside risks that demand cuts. Surely rate hikes are out of the question. Jerome Powell said as much: "I think we would need to see a really significant move up in inflation that's persistent before we would even consider raising rates to address inflation concerns."

You know how we feel about that word "persistent." Powell is talking about a good six months of upward pressure on the most powerful force that compels central bankers into tightening mode - wage inflation. As we posited in our 2020 Outlook, today's earnings squeeze means that firms will be faced with slowing productivity in the face of rising labor costs.

But didn't the New York Fed's John Williams just tell us that low interest rates are, "driven by demographic changes, slow productivity growth, and demand for safe assets-all of which are unlikely to reverse any time soon."

Slowing productivity in the face of margin compression forces firms to change their headcount, culling the least productive. But it also makes higher output workers that much more valuable and capable of demanding higher wages.

Take the construction sector. In December, the National Federation of Independent Business cited qualified labor as top business problem for small construction businesses. At 46%, the sector's December reading was double the aggregate 23% reading for small businesses nationwide.

QI's Dr. Gates warns that 2020 could be the year that wage inflation rears its head. "Worker gains abate, while manager pain elevates. At 3.1% over the prior year in November, the decomposition of total average hourly earnings favored the former over the latter."

In October, worker (production/nonsupervisory) hourly earnings accelerated to a cycle high 3.8% year-over-year rate that held at 3.7% in November. Meanwhile, manager (supervisory) hourly earnings decelerated to a five-year low of 0.6% in November.

If this punk productivity trend deepens, Powell might get his persistence.

The just-released Deloitte CFO Survey for 2019's fourth quarter highlights what could force the Fed to cut rates in 2020. Some 97% expect a slowdown, up from 88% in 2019's first quarter while 12% say they believe a downturn has already begun, and 14% say they already see signs of a downturn in their company's operations. Revenue and capex expectations sit at or near three-year lows; hiring and earnings are among their lowest levels in the last nine years.

Tellingly, 77% see the stock market as overvalued. Try telling that to Janet Yellen who over the weekend commented that low rates, "could engender risks to financial stability as investors reach for yield and take on leverage." Did she really say "could?"

Whether it's Vice Chair Richard Clarida, Chicago's Charles Evans or Minneapolis' Neel Kashkari, all maintain that the economy is in great shape but that they would change their minds if the data were to deteriorate.

Our favorite came from Richmond's Thomas Barkin who echoed that the economy was "quite healthy" but tempered that with, "There's always the possibility of a 'heart attack,' or shock, perhaps caused by global risks." Wage trends and CFOs' downbeat outlook suggest that "shock" could jolt bears much closer to home out of their winter torpor.

This is called having no "margin of safety":