It was a glorious recovery from the day's lows and the after-hours Amazon (AMZN) sales and EPS beat will likely continue the celebration into tomorrow.

I was very patient and my lack of conviction worked to my advantage as I did not short the reversal (despite my numerous concerns).

I close the day in a market neutral mode.

I have to return to my Board meeting.

Thanks for reading and enjoy the evening.

Given numerous concerns, I am anxious to move off of Market Neutral and to short this rally - but, with low conviction, I am giving Mr. Market a wider berth.

I covered a small (FAST) short today for a modest gain.

Apple (AAPL) (a +5% sales grower these days) is the most expensive it's been - based on trailing earnings - compared to any other time in its history.

Speaking of messages, the price of gold is +$12.30/oz today.

Gold's price rise has been relentless over the last few months - somewhat reminding me of the powerful rise in equities until the recent selloff.

So, what is the message of the gold market?

Talk amongst yourselves in the Comments Section.

I will "see" you there shortly.

If there is one data point that economic bulls (e.g., the Administration) should be concerned about is the 1.535% yield on the 10 year U.S. note this afternoon.
That's -5 1/2 basis points on the day.

Starting at 1 pm today and all day tomorrow, I have a two day Board of Directors meeting.
It is a telephonic meeting so I will be posting on a regular basis but with less frequency.
My posts will also be shorter than usual.

* The action (narrowing breadth, etc.) has not been good following the one day reversal higher from recent lows.
* Deep value stocks continue to get whacked.
* Growth stocks (e.g., Facebook FB ) are returning to earth - with violent reaction to disappointments.
* Today we are seeing particularly bad reactions (save Microsoft (MSFT) and Tesla (TSLA) ) to good EPS reports.

With valuations high and hedge funds and households loaded up with stock, I am growing more uncomfortable not being net short.

I should probably buy some defined risk Spyder (SPY) puts but, given my lack of conviction, I will sit tight for now.

But that could change at any time.

Douglas Kass

@DougKass

It is truly amazing, regardless of experience/studies, that "talking heads" comment on any subject near and far - with confidence and uncertainty.
It tells you more about the prognosticators than their prognostications.

badgolfer22

semi's flat on the year now. they lead the spy's and q's remember with a lag.

Tesla's (TSLA) market cap is closing in on $120 billion - that's a larger market capitalization than General Electric (GE) !

At $116 billion, Tesla now has a higher market cap than General Electric.

Fun fact: In 1897, GE and Westinghouse Electric purchased Nikola Tesla's patents for an induction motor that ran on alternating current (AC) for $216,000. AC would become the dominant source of power.

On ViacomCBS (VIAC) , which can't get out of its way over the last two weeks.

There are about 1000 more decliners than advancers today.
Not good.

For those that believe investors are pessimistic:

I am back into a very liquid position - given the uncertainties and my lack of conviction that that's a good thing.

I am back to market neutral.

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."

The price of copper is down for a record 12 days in a row:

I have moved from medium-sized to small-sized in my (CAT) and (DIS) shorts reflecting the recent weakness and changing reward vs. risk.

* Rates are falling and the yield curve is inverting
* I would add back to banks on another 10% decline

As Peter Boockvar remarked, the yield curve has been inverting (the 10 year U.S. note yield is back down to 1.55%) - as I have warned, this is not friendly to financial stocks (I have previously eliminated (GS) and reduced from large to medium my money center bank holdings as they moved close to my year end 2020 price targets):

That 3 month/10 yr Treasury yield is now down to just 1.5 bps vs 18 bps one week ago when many of us never heard of the corona virus. That spread though was 32 bps the week before an agreement in principle was reached between the US and China back in mid December. So some of this narrowing is certainly due to worries about the virus but also on the belief within the Treasury market that a growth inflection higher of note in 2020 is not going to happen. Throw in there too the Fed's large scale asset purchase program and its influence.

3 MONTH/10 YR spread



Bank and financial stocks are beginning to roll over in the face of the above - coupled with diminished C&I loan demand and hefty valuations.

That said, I am planning to stick with my medium-sized positions (for the intermediate- to longer- term) and I would add back on about a further -10% decline.

* The biggest ESG funds are beating the markets.

* Oil prices are down but the performance of oil stocks are worse.

* Spending less time on your iPhone.

* Dinner with the masters of the universe
* And reshorting
Last night I was at a Palm Beach dinner with some of the greatest investment and economic minds in the world.
I am not being hyperbolic - I am representing the dinner accurately (I might be even underestimating their intelligence, perspective, clout and influence).
The dinner guests (from young to old) move markets and have weight on some of the most important political and other decisions to be made in 2020.Chatham Rulesapply so I can't divulge the participants or the specific conversations.
Memo to our subscribers: Based on the health, economic, societal, political and geopolitical uncertainties expressed by these very wise men and women, I want to underscore my market and economic concerns and that, in this unusual backdrop, it is hard to have strong conviction (a theme of mine all week). Sure these masters of the universe could be wrong, we all make mistakes - but I would not bet against them.
I moved back to (small) net short in the last 24 hours (mostly through individual stock shorts like Apple (AAPL) ), but like Bill Murray... I took baby steps."Baby steps means setting small goals, one tiny step at a time."

In pre-market trading I reduced my Apple (AAPL) short ($320) from medium-sized to small-sized.
Will add back on short side on strength.

* An update

Though Netflix (NFLX) made some progress on improving free cash flow, I plan to maintain my short in the name. (I have recently added and made medium-sized)

Here are some of my key points:

* Slowing of the key revenue metrics.

* Still silly valuation - 70x TTM EBITD. This requires 40% or more

forward growth - that ain't happening. (There is severe risk from

higher rates on this valuation).

* Incessantly higher spending.

* Much more competition which should SIGNIFICANTLY increase unit

content production costs.

Perhaps some rationality will begin to enter the market for Netflix's shares following Facebook's FB quarterly report (which demonstrated the potential adverse impact of a rise in costs and business expenses in The Age of Surveillance Capital).

Sentiment, Europe and other data from Peter:

That 3 month/10 yr Treasury yield is now down to just 1.5 bps vs 18 bps one week ago when many of us never heard of the corona virus. That spread though was 32 bps the week before an agreement in principle was reached between the US and China back in mid December. So some of this narrowing is certainly due to worries about the virus but also on the belief within the Treasury market that a growth inflection higher of note in 2020 is not going to happen. Throw in there too the Fed's large scale asset purchase program and its influence.

3 MONTH/10 YR spread

As seen in yesterday's II data when the rate of bullishness cooled off, the same happened within the AAII figures. Bulls fell 13.6 off the highest level since early October 2018 at 45.6 last week. Bears rose 12.1 pts to 36.9 off a 3 week low. Bottom line, as of mid week last week, bullishness got extreme, particularly in the Citi Panic/Euphoria index and it is quite amazing how in past instances when it does, something comes out of the blue to knock things back. While we are living in a financial and economic world where things are different this time, aka negative interest rates, one thing will NEVER change and that is human nature, aka fear and greed.

While old news at this point with what's going on with the spreading virus, Hong Kong said its exports in December rose 3.3% y/o/y, a bit better than the estimate of up 2.7%. That breaks a 13 month losing streak and does follow an easy comparison as exports fell 5.8% y/o/y in December 2018. Exports in particular to China jumped by almost 16%. Imports were lower by 1.9% y/o/y as expected. Bottom line, easier comps and signs of stabilization contributed to the December lift in exports but we know we can throw this data out the window as the economic impact of the virus has taken over. The Hang Seng fell 2.6% overnight.

The Euro area Economic Confidence index for January rose 1.5 pts m/o/m to 102.8 and that was 1 pt better than expected. It still remains well below the cycle peak of 114.6 back in December 2017 but hopefully it's carving out a bottom. Finally the improvement was led by a less worse manufacturing sector and another lift in construction which is getting helped by microscopic interest rates. Consumer confidence on the other hand held at the weakest level since September 2016. Don't look to Europe for much growth this year as expectations are for about a 1% increase in GDP, similar to the pace seen in 2019. The euro is little changed but bond yields are falling along with everyone else's. The Euro STOXX 600 is back to unchanged on the year.

EURO AREA ECONOMIC CONFIDENCE index

While we know the German economy has been hard hit by the manufacturing and trade slowdown, the consumer has hung in as the unemployment rate remained at the lowest level since reunification 30 years ago at 5% in January. The number of unemployed fell by 2k instead of rising by 5k as expected. A spokesperson at the German Labor Agency said "The economy's weak phase continues to leave its mark, but overall the labor market proved itself robust at the start of the year."

As for unemployment for the entire Eurozone, the rate fell to 7.4% in December from 7.5% in November. That is now just one tenth from the pre recession level back in 2007. It is quite amazing that the world has DEFCON 1 monetary policy while unemployment rates are so low.

EUROSTAT UNEMPLOYMENT RATE

We await at 7am est whether the Bank of England will cut rates or not. Their unemployment rate is at the lowest level since 1975. I'm going to be traveling when the news hits (and likely won't be writing on jobless claims and GDP either) but I hope they wait to see how things play out with the Brexit trade negotiations this year. That said, this virus, however temporary with its economic impact, might scare them into cutting. Either way, whether their benchmark rate is .50% or .75%, it will have no impact whatsoever on economic behavior and if anything, the closer they get to zero, the harder it will be to eventually get away from it. Just ask Haruhiko Kuroda and Mario Draghi.

"Tesla's shares rise to $600/share before it poops out. Elon Musk marries Grimes, his pregnant girlfriend. The couple divorces by year-end."--Doug Kass, 15 Surprises for 2020
In response to its quarterly results, Tesla (TSLA) is trading in the premarket at $642/share (a gain of more than $60/share).
See my Surprise above.
The shares started the year at only $418!

I have written quite a lot about the failure of supply-side economics and the inability of the Administration to meet its domestic economic targets since the tax reform package was introduced.
As Danielle DiMartino Booth writes, business fixed investment has flopped, even in the face of such fiscal and monetary largesse -- and corporate profits have been stunningly weak (as financial asset prices have climbed):

• Demand for core capital expenditures has plateaued; for seven months, backlogs have contracted on a year-over-year basis while inventories are still oversupplied and need to be reduced to correct the demand/supply imbalance
• Boeing (BA) may create noise in the outlook but the signal emanating from this behemoth cannot be dismissed; the Coronavirus impact is focused on the short-term hit to global airline operators, but the APAC Airfreight data indicate distress was building prior to the outbreak
• A leading indicator for global capex is semiconductor billings which may begin to exhibit signs of weakness; continued industrial sector weakness in China is apparent in the pre-outbreak trend towards lower international inbound Shanghai airfreight volumes

Has the Coronavirus got you itching to get out of your big, germy metropolitan city? Why not road trip to Maxfield's Pancake House north of Milwaukee, or the Omelet House near Las Vegas, to decide the victor of "Who has the best Kitchen Sink omelet?" Never heard of the any-time-of-day delicacy? (You're not Italian.) Ingredients by definition vary: three eggs (not negotiable) and pretty much whatever leftovers you can scrounge from the fridge. Got Buffalo chicken? Lobster mac 'n' cheese? Or maybe some broccoli rabe or 'scarole and beans? The recipe combinations are endless, and the amalgamations of flavors limitless. Just make sure to bring your open-minded appetite.

The durable goods report has one of those kitchen-sink metrics. Economists know it as "nondefense capital goods shipments ex-aircraft," or the layman trader's translation, "core capex shipments." It commands pride of place as a cyclical indicator given it guides the underlying trend of business equipment investment in GDP. Want to know what's in it? Va bene - the kitchen sink.

The composition of core capital goods includes: nondefense small arms and ordinance; farm machinery and equipment; construction machinery; mining, oil, and gas field machinery; industrial machinery; vending, laundry, and other machinery; photographic equipment; metalworking machinery; turbines and generators; "other" power transmission equipment; pumps and compressors; material handling equipment; "all other" machinery; electronic computers; computer storage devices; "other" computer peripheral equipment; nondefense communications equipment; nondefense search and navigation equipment; electromedical, measuring, and control instruments; electrical equipment; "other" electrical equipment, appliances, and components; heavy duty trucks; railroad rolling stock; ships and boats; office furniture and institutional furniture; medical equipment and supplies. Exhale.

What does the fundamental picture look like for core capex?Demand has plateaued, with new orders and shipments running at 1.0% and 0.0% 12-month rates, respectively, in December of last year, well off the double-digit expansion clocked in late-2017. Backlogs have been in contraction on a year-over-year basis for seven months running, the longest losing streak since the 2015-16 industrial recession. The signal: excess capacity and lack of demand for future labor resources. Supply growth has slowed - inventories are expanding a modest 2.0% over last year - but more rundown of stocks is required to correct the demand/supply imbalance. And that's all before the Coronavirus.

Where does Boeing fit into the capex picture?The mega-manufacturer drives the noise while core capex is the signal.Aircraft is a volatile component of business investment because shipments of these products can be lumpy and ginormous. Worth noting, since 2011, "nondefense capital goods" that includes aircraft is the Bureau of Economic Analysis' official guide for business equipment investment, not the one that excludes aircraft Wall Street drools over.

As per Boeing's (ticker BA) fourth-quarter earnings report, "financial results continue to be significantly impacted by the 737 MAX grounding." Revenue was $17.9 billion in the quarter, down 37% year-over-year. BA's kitchen sink earnings revealed losses of $1.79 per share. Operating cash flow was -$2.2 billion in the quarter, and the company estimates $4 billion in abnormal production costs related to the 737 MAX, primarily in 2020. Despite the tough operating environment, BA's creditor lifeline sums to $14 billion, giving it flexibility to manage the 737 MAX knock-on effects and testament to Boeing's financial strength.

Coronavirus clouds the forward view. In the short-run, global airline operators will shoulder a slowdown in passenger traffic, especially in China. For what it's worth, China makes up a sizable 20% of BA's order book. In a "bear-case" scenario, 2019-nCoV will have a material impact on BA's operations. Knock-ons would extend out multiple quarters, creating longer-term challenges for air travel that could permanently reduce future demand for BA's planes. Barring this manifestation, the effects from the global health scare should be transitory.

Pre-existing conditions in Asia Pacific (APAC) Airfreight volume imply the base case goes beyond passenger traffic.Broughton Capital's proprietary data suggest several distressing signals, all of which pre-date the Coronavirus.

One of Broughton's favorite 'predictor of the predictors,' international inbound Shanghai airfreight volumes, continued to trend lower and remained meaningfully below levels of two years ago, signaling clear weakening of China's industrial sector. Why Shanghai? Because many specialized parts are first flown into China through Shanghai before being assembled into finished products and shipped back out.

Broughton also anticipates pressure on semiconductor billings, a leading indicator for global capex. Incheon airfreight volumes help with tracking semis since it's a key South Korean industry. This development adds credence that Asian economic weakness is not China-centric and was not catalyzed by the Coronavirus.

While Boeing isn't the whole kitchen sink of U.S. core capex, it's still worth monitoring to gauge the health of global industrials. Coronavirus threatens to choke off the supply chain and in doing so, expand excess capacity for airfreight and ensure cuts to future BA aircraft orders.