It's almost as if "someone" puts in a huge futures order on any dip...
* Bonds were a feature, rising strongly (as yields fell by 4 basis points). The 10-year U.S. note yield closed at 1.735%. A multi-month low in yields normally doesn't jive with the S&P's relentless advance, but there is nothing normal in trading these days.
* Oil got schmeissed, dropping by $1.15/barrel.
* Gold +$5.70/oz.
* Banks faltered in the morning but came back to nearly flat on the day.
* Semis gave up the early gap higher.
* Tech and retail showed mixed results.
* Boeing (BA) and Apple (AAPL) helped the market's comeback.
* Caterpillar (CAT) came back well from a long morning goodbye.
* Comcast (CMCSA) and Viacom (VIAC) got hit. I added to VIAC. 
I covered half of my short (SPY) position (moving to small-sized). I am planning to replace some of those proceeds with more SPY puts (defined risk). But I had bids below the market and pulled them as the market rallied. I will certainly reconsider buying Friday morning subject to overnight news.
I am glad tomorrow is Friday.
For now, it's time for some margaritas.
Long VIAC (large), GLD (small), XLE, BAC, C, WFC; Short CAT, JPM (large), SPY (small) MU (small), AAPL

Here are the latest Predictit U.S. Elections Odds.

* Again!
Market breadth is now flat.
Bond prices still strong and yields still weak.
Ground Hog Day.

As I suggested yesterday, I have taken down my (SPY) short from medium-sized to small-sized this morning.
I am now substituting the covered Spyders with defined risk and in the money Spyder puts that expire in the next two weeks.

I am heading off to a business lunch meeting - back at around 1:30 pm.

Watch bonds - as they are not modifying the equity market's recent rise.
The yield on the 10 year is down to 1.72% (-5 bps on the day) - that's a multi-month low as I mentioned on Wednesday.
I have pressed my JP Morgan (JPM) short hedge against my bank holdings (which seem vulnerable after the sharp share price rise).
I am buying more ViacomCBS (VIAC) and Kohl's (KSS) .

Caterpillar is down another -$2 after being more than -$3 lower yesterday.
I remain short the name.
Crickets from bulls.

Surprise #7 General Electric's (GE) shares climb to $20/share as the company's makeover succeeds faster than expected. (Stan Druckenmiller reports that he made $200 million personally on his investment in GE and commits his $0.2 billion personal gain to expanding the reach of Harlem's Children Zone - Stan is Board Chairman of HCZ).

- 15 Surprises for 2020
Morgan Stanley upgrades General Electric (GE) this morning.

Again for emphasis.
Under normal circumstances - with stock prices elevated, the breakout of a potentially significant virus, the slowing in profits and the growing political and geopolitical risks - I would be "all in" short now.
But we do not live in a world of normalcy (of an investment-kind) - with liquidity as an almost singular market catalyst.
That said, I am very liquid and plan to further expand my growing (SPY) put position - which provides gamma (more short exposure in a market decline) and involves defined risk.

Peter on investor sentiment and more virus info:

Here is another market sentiment gauge that has reached extreme levels, the AAII measure of individual investors. Bulls rose 3.8 pts to 45.6 and that happens to be the most since October 4th, 2018 and February 2018 before then. Bears fell 2.7 pts to 24.8, 4 pts off the lowest since April 2019. Bottom line, the bull boat is standing room only.

AAII BULLS

AAII BEARS

After a one day respite, Asian stock markets fell sharply again on the corona virus fears and its economic impact. The Shanghai comp fell 2.8% to the lowest level since two days before Christmas and 3.7% below its January 15th US/China trade deal signing close. The H share index closed down 2% and gave back its year to date gains. Copper now is at the lowest level since early December. Oil too, falling almost another 2% and the US 10 yr yield is down to 1.75%, also the lowest since early December. These are not signs of an expected acceleration in global trade now that the US and China have a signed trade deal as virus fears now dominate. Soybeans you ask which the Chinese have promised to ramp up its purchases? They are down .5% today to a 6 week low.

Japan's exports in December fell 6.3% y/o/y, more than the forecast of a 4.3% decline. This is the 13th straight month that is down y/o/y. There was a green shoot and that was a pick up in semi equipment shipments, mostly to China as they build out further their semi industry in order to be less reliant on US suppliers. As for other semi supplies, China is buying as much as they can from everyone, particularly US suppliers, ahead of any further restrictions, particularly on Huawei. Weakness was seen in auto exports as they fell by 12% y/o/y and auto parts were down by 11%. Imports also were weaker than expected y/o/y. On the data and also the general virus driven weakness, the 10 yr JGB yield fell 2 bps to back below zero. The Nikkei was down by 1%.

We will hear from Christine Lagarde at 8:30am est in her 2nd press conference as head of the ECB. I'm most interested in hearing whether they plan on altering their inflation goal from something around 2% to maybe a range like 1-2%. If they do, it would imply acceptance of the current inflation rate and I'd be selling European bonds because they wouldn't be able to substantiate current monetary policy. For now though this is unlikely but even some in Japan are realizing the elusiveness of a 2% inflation rate, thus why have it as a goal. And why would a central banker think they can hit a target with monetary policy like shooting an asteroid in a video game? Because their econometric models told them they can.   

Arcade Game: Asteroids (1979 Atari)

A side-scrolling space shooting game that easily define the genre for many arcade games over the years. Real-World physics were introduced in video games for the first time in history. Not only you shoot asteroids but also UFOs or flying saucers whenever they show up. The game was originally called cosmos influenced by Space Wars.. Some clones ...see here.   

* Big Tech is eating up the market.
* Climate control may take down the markets.

* The new bond market kings.

For those that are into the oil and gas exploration and production space, this Credit Suisse research report provides a good summary:

Oil & Gas E&P Quarterly Preview   Energy/Sector Review
Guide to Navigating 4Q Results and 2020 Outlooks

Positive/negative 4Q19 results and 2020 messaging. Our 4Q CFPS estimates for our E&P coverage are overall near consensus, though we expect the focus of this results season to be more on the forward outlook rather than quarterly beats/misses. Relative to consensus, we see the most positive combo of 4Q19 results and 2020 messaging for CXO, DVN, NBL, PXD & SM and are most cautious on COG, MGY, MUR, QEP & SWN.

• Primary focus will be 2020 capex/production/free cash flow outlooks. Despite higher crude prices since coming out of 3Q19 results season (2020 WTI futures strip is ~$57/Bbl), we overwhelmingly expect US E&Ps to stick to similar messaging on 2020 outlooks: budgets will continue to be based on a ~$50-$55/Bbl WTI oil price assumption with incremental free cash flow from higher prices allocated towards the balance sheet, debt reduction, and/or higher dividends/share repurchases. Overall, we forecast 2020 US E&P budgets will be down ~11% YoY (roughly in line with consensus) but note this implies a 12% increase in rig count/well completions vs. 4Q19 which marked the low-point for quarterly spending last year. Notably, at current strip prices, our forecasts imply 2020 cash flow should exceed capex by ~20% (vs. historical average outspend of ~15%).
• Other themes we expect will dominate this earnings season: 1)1Q20 oil production guidance and implications on FY20 volumes for individual E&Ps (helps highlight which E&Ps have guided too conservatively or aggressively for FY20) as well as total US output (key debate remains around how much US oil production grows this year); 2) discussions around the recent rally in high-yield energy credit markets which has opened the window for E&Ps (particularly SMID-caps) to refinance near-to-medium maturities and thus is helping to address a key risk for those facing looming debt maturities albeit at very high interest costs; and 3) expect nearly every gas-weighted E&P in our coverage to go into maintenance mode or significantly dial back spending and volume growth this year in order to live within cash flow with an increasing investor focus on what this slowdown implies from a US macro/pricing standpoint as the spot Henry Hub price currently sits at a historically low level (<$2.00/MMBtu).

E&P FCF yields are improving, but need >$60/Bbl WTI to become compelling vs. the broader market. While the E&P sector has been deeply out of favor for the last several years, we see scope for sentiment to improve in 2H20 and into 2021 as US E&Ps remain steadfast in restraining/reducing capex in an improving oil market which should help support oil prices into 2021 and drive FCF yields to levels that can no longer be ignored by generalist investors (at >$60/Bbl WTI, FCF yields start to become quite attractive vs. the market with some E&Ps offering yields well over 10%). That said, US E&Ps still need to prove to a skeptical investment audience that their newfound capital discipline is a durable strategy shift that will enable sustainable FCF yields at above-market averages. Top picks are FANG, DVN, NBL, PE, PXD, and VNOM. We have Underperform ratings on CHK, GPOR, SWN, WLL, and XOG. We're also upgrading XEC to Outperform (link to note), downgrading XOG to Underperform, and downgrading CPE and MGY to Neutral.

This is an important read (you need a NY Times subscription to read it): --Is China Setting Itself Up For a New Epidemic?

Here is a vivid example of a terrible capital allocation strategy:

For those that are (too) bullish on the consumer:

Danielle DiMartino Booth focuses on Japan this morning:

• The Bank of Japan's perpetual easing has failed to achieve its 2% inflation target; the trade war has made the yen a safe-haven, leading to 18 straight year-over-year monthly gains from July 2018 to December 2019
• The heat is off on the yen carry trade as phase one of the trade deal percolates through the global psyche; yen depreciation is likely to continue as long as the dream of the global reflation trade remains intact
• Based upon the tax-hike fallout and the typhoon aftermath, Japan GDP likely contracted in the fourth quarter; rate traders expect a continued dovish stance with a half-rate cut priced in through December turbo-charged by fiscal stimulus

Between a rock and a hard place. Between the devil and the deep blue sea. Between the hammer and the anvil. All of these maxims describe being faced with an unpleasant choice. The origin of the first has its roots in ancient Greek mythology. In Homer's Odyssey, Odysseus must pass between Charybdis, a treacherous whirlpool, and Scylla, a horrid man-eating, cliff-dwelling monster. The modern-day Homer (as in "Simpson") adapted this dilemma in a big screen 2007 animated comedy that bears his name, swinging on a wrecking ball between a giant rock and a saloon with the signage "Hard Place." A great laugh. But, nevertheless, a tough predicament.

Monetary policymakers who don't meet their inflation goals also are in a bind. If you're beholden to an inflation target (know any central banker without one?), it's no challenge to read the tea leaves if your country's inflation rate is running below target. The script: Wax dovish and talk down rates. In the case of central banks that have had rates on hold for a while (or eternity, take your pick), you also evade any discussion about raising rates.

The aim is to avoid any unwanted appreciation of your currency. Such an outcome imports deflation and works against you. What you really want is foreign exchange depreciation which -- key word: theoretical -- helps reach your goal of higher inflation.

If you're the Bank of Japan (BoJ), you've been in a perpetual state of "easing" - Quantitative and Qualitative Monetary Easing (QQE) with a side of Yield Curve Control (YCC). Inflation has refused to come in line with its 2% target for approximately ever. Even as policymakers upped growth projections stemming from fiscal stimulus measures, just this week BoJ Governor Kuroda was forced to repudiate growing expectations that negative interest rate policy (NIRP) would go the way of the Swedes, eradicated to the trash heap of failed policy.

The BoJ also faces the inconvenient truth that its currency is a safe haven. When storm clouds gather, the Japanese yen appreciates; when they clear, it depreciates as positions are unwound. From March 2018 to December 2019, the rush into the yen was driven by the trade war, global fund managers' top tail risk. Not coincidentally, the trade-weighted Japanese yen posted 18 straight year-over-year monthly gains from July 2018 to December 2019. For an interminable year and a half, the currency market worked against Kuroda.

As we've been told, the phase one trade deal has been signed between the U.S. president and not that of China's. Nonetheless, the message is that 2020 is a new year for the yen. The safe-haven bid is fading, and the parting clouds may allow for yen depreciation. "Trade war" has been displaced by the "Outcome of 2020 U.S. Presidential election" as the top tail risk. President Sanders, anyone?

Investors' biggest concern is now a calendric risk ten months into the future? That an eternity in financial markets! It's akin to saying participants see no near-term risks. German manufacturing data be damned, the global reflation trade is intact, and more yen depreciation is in the pipeline (saving a financial market event of any magnitude).

No wonder Kuroda talked down normalization chatter. This is the yen's moment... to stop shining. But he'll take what he can get given he's 150 basis points in the hole; CPI ex-fresh food was running at an 0.5% rate in November. Kuroda needs as much wind at the back of his target inflation as he can get.

If nothing else, the veteran central banker's jawboning has enjoyed a modicum of success. Bloomberg's revamped World Interest Rate Probability function (WIRP for those of you playing at home) based on the Overnight Indexed Swap (OIS) market now illustrates the number of hikes or cuts over the course of 2020. Rates traders have every BoJ meeting leaning dovish, factoring partial cuts and, by December, a half-rate cut.

We venture that any little thing could up the odds. It's likely that Japan's GDP contracted in the fourth quarter, fallout from the consumption tax hike and the temporary hit from a strong typhoon. Abe's fiscal stimulus couldn't have come at a better time to put a floor under an economy where this bloodletting took place in the month of November:

• Household Spending contracted 2.0% year-over-year
• Real Cash Earnings declined 0.9% over the prior 12 months
• Industrial Production plummeted 8.2% versus a year ago
• Exports sank by -7.9% and Imports by -15.7% leaving total trade flows in a severe slump

We're watching PMIs for direction. Tune in tonight for Japan's January PMI to gauge how C-suite occupants in the Land of the Rising Sun see the economy starting the year. Upside surprise affords Kuroda with the luxury of avoiding both the "rock" and the "hard place."