Got some things to talk about besides the rising tide:
* The long, strange trip continues...
* Ain't no time to hate, barely time to wait

It's the same story the crow told me; it's the only one he knows
Like the morning sun you come and like the wind you go
Ain't no time to hate, barely time to wait
Woah-oh, what I want to know, where does the time go?
- Grateful Dead, Uncle John's Band

Another day, another week, another month, another year.
By the by, "Uncle John's Band" was included in the great Workingman's Dead album in 1970. The lyrics allude to various folk, mountain and bluegrass tunes known to be in the band members' repertoire. The song's close harmony singing was inspired by one of my favorite groups, Crosby Stills & Nash.

Some say Uncle John was a biblical reference to John the Baptist, who baptized Jesus in a river.

The use of the word "goddamn" angered President Nixon at the time and drew in mainstream popularity to the group and became a badge of honor.

Of course I mention the song in my closing column because it elicits a warning:


As always, a sincere thanks for reading my Diary.

Enjoy the evening.

Well the first days are the hardest days, don't you worry any more

'Cause when life looks like easy street, there is danger at your door
Think this through with me, let me know your mind
Woah-oh, what I want to know, is are you kind?

Thus far it is not exactly a "Down Goes Frazier" moment - but today's trading session showed some weakness - particularly as measured from the day's highs.

With less than 40 minutes to go the S&P, which was +23 handles this morning, is now flat. And the Nasdaq is down on the day (led by profit taking in Microsoft  (MSFT) and a marked drop off from Alphabet (GOOGL) and Amazon (AMZN) from the day's highs).

While market breadth is still almost 2-1 positive - that metric is far worse than in the morning.

Well, it would be a good birthday present!
That said, Amazon (AMZN) has quickly given back more than half of its $40/share gain, and Microsoft (MSFT) has been lower most of the day - etc., etc.
Breadth was 4-1 positive and is now only 2-1 positive.
I am positioned for a market selloff.

While I am respectful of the market's price momentum, and mindful that momentum is a powerful force, there comes a point where my calculus determines that the market's downside risk dramatically eclipses the upside reward.
We are now at that point - perhaps we are even beyond it!
So, despite my absence of conviction, owing to the sheer strength of the Indices, I have moved back up to between a medium-sized and large-sized net short position on today's market ramp (that followed yesterday's market ramp which followed the previous climb!) - choosing my expanded Spyder (SPY) short as a means towards that end.

Break in!

This is not ending so quickly.

*AMERICAN AIR (AAL) : DFW/HONG KONG FLIGHTS SUSPENDED THRU APRIL 23

*AAL: DFW/LAX AND MAINLAND CHINA FLIGHTS SUSPENDED THRU APRIL 24

* 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) $2100

-- (GOOGL) $1475

-- (PZZA) $60

-- (FDX) $155

-- (HIG) $56

-- (GS) $225

-- (TWTR) $33.50

-- (M) $16.50

-- (DDS) $62.50

--  (KSS) $45.50

-- (VNM) $16

-- (CMCSA) $42

-- (BAC) $31.50

-- (C) $73

-- (JPM) $122.50

-- (WFC) $50

-- (PG) $112.50

-- (GLD) $142

-- (KHC) $28.50

-- (XLE) $53

--  (VIAC) $36


SHORTS

-- (AAPL) $310

-- (BEN) $28

-- (TROW) $120

-- (MU) $54

-- (TLT) $137

-- (DIS) $140

-- (KKR) $32

-- (BX) $62

-- (NFLX) $345

-- (CAT) $141

__________

Long AMZN, GOOGL, PZZA (small), FDX (large), HIG (small), TWTR (small), M, KSS, VNM (large), BAC, C, WFC, KHC, XLE, VIAC (large).

Short AAPL (large), TROW (small), KKR (small), BX (small), NFLX (small), CAT (small), TLT.

FedEx (FDX) continues its multi-day roll.
Not selling a share.

Delivered without comment:

The late morning pullback was very Dow centric.  Traders feel the CDC undercut things by suggesting that virus cases may be being under-counted. That sparked credibility questions on Chinese counting.

Then the negative news from Boeing tipped things over and took the Dow into negative territory.

Trying to stabilize now.

* Where has the time gone?

"What do you want me to do
To do for you to see you through?
For this is all a dream we dreamed
One afternoon long ago."
- Grateful Dead, Box of Rain

On my birthday I have so many thoughts.

But, most significantly, where did the time go?

It seem just yesterday (in 1961) at Camp Chipinaw in Swan Lake, New York ...




"And it's just a box of rain
I don't know who put it there
Believe it if you need it
Or leave it if you dare
And it's just a box of rain
Or a ribbon for your hair
Such a long long time to be gone
And a short time to be (t)here."

In Jay Powell's prepared testimony, there was nothing unexpected. On the virus, "we are closely monitoring the emergence of the cornovirus, which could lead to disruptions in China that spill over to the rest of the global economy." What he should watch too is the US stock market that could care less about the coronavirus.

With respect to their balance sheet, "As our bill purchases continue to build reserves toward levels that maintain ample conditions, we intend to gradually transition away from the active use of repo operations. We intend to slow our purchases to a pace that will allow our balance sheet to grow in line with trend demand for our liabilities." So the Fed wants a minimum level of reserves totaling $1.5 Trillion. For perspective, the amount of commercial and industrial loans outstanding are $2.35 Trillion. Thus, at least $1.5 Trillion is a lot of money the Fed wants land locked at the Fed.

As measured by the JOLTS data, the demand for labor in December continued to shrink. The total number of job openings totaled 6.42mm, down from 6.8mm and below the estimate of 6.93mm. That is the least since December 2017. The number of hirings rose by a modest 80k and the number of quitters fell by 80k.

With respect to sectors, the demand for manufacturing workers fell for the 4th straight month, correlating with the slowdown in manufacturing. The demand for construction workers rose slightly but after a sharp drop in November. Demand for retail trade and transportation workers continued to fall as they did for financial activities, and professional/business services. They also fell for 'accommodations' , and the areas of hiring strength, education and health/social assistance.

Bottom line, while we hear a lot about the difficulty in finding qualified employees in a tight labor market, it's clear here that with a 2% type GDP economy rather than something near 3% has resulted in a lesser demand for labor.

JOB OPENINGS

From Pete:

Outside of the now well embedded momentum in mega cap stocks (SPX up 3.8% vs equal weight index up 1.1%), I do believe people are hanging their hat on the slowing pace of new virus infections according to that Johns Hopkins page. But, it is not clear whether this is due to all the quarantine steps being taken or because there aren't enough test kits to go around. We are at least getting today a bounce in oil by almost 2% and copper by 1.3% while the US 10 yr yield is up by 2 bps but remaining still below 1.60%.

Under Armour is another company quantifying the impact of the disrupted supply chains in China in today's earnings release. "The company's initial 2020 outlook currently includes an estimated negative impact of the coronavirus outbreak in China approximately $50 to $60mm in sales related to the first quarter of 2020. Given the significant level of uncertainty with this dynamic and evolving situation, full year results could be further materially impacted."

While the stock market assumes no impact from the virus as we continue to chug higher, expect much more of this kind of talk as companies figure out the full effect. For many companies, these sales will not be made up. For perspective, with the SPX trading at 19x 2020 earnings, that assumes earnings growth of about 8%.

We shift to Jay Powell today where the bond market is pricing in a 100% chance of another cut by September and smaller odds of another thereafter. While this possibility gets many giddy on risk assets, I'll argue that we don't want another rate cut from here. We've been given the 'insurance cuts' so any cuts from here is to address a deeper economic slowdown where current historic valuations on some metrics would have a tougher time absorbing a further slowdown in earnings and cash flow growth. Either way, as seen around the world, we've reached the point where monetary stimulus on actual economic activity has become impotent and the Fed is at the point where their policy changes will be no different in its impact.

The NFIB small business optimism index for January rose to 104.3 from 102.7. Those that Plan to Hire was unchanged as it did get tougher to fill positions and current compensation plans jumped 7 pts to just below a record high. Compensation plans in the future were unchanged. Capital spending plans saw no change from December and there was a 1 pt increase in those planning on increasing inventory levels. Those that Expect a Better Economy did slip by 2 pts but those that Expect Higher Sales did jump by 7 pts. I can't reconcile those two so don't ask. Those that said it's a Good Time to Expand rose 3 pts but after falling by 4 pts last month. From the lowest level since last February, the profit outlook did improve by 5 pts but still remained below its 2018 peak. Finally, those that plan Higher Selling Prices rose 1 pt to the highest since last July and has risen 7 pts over the past 4 months. The Fed will like that while the rest of us won't.

The NFIB remains optimistic that lower corporate tax rates and reduced regulatory pressure will continue to have a positive impact on small business sentiment. "Small business owners are confidently filling open positions, raising wages, and investing in their business." They did mention that "The biggest risk appears to be potential global implications of the Wuhan coronavirus" but I don't think small business had any really way in January of quantifying yet the impact.

Bottom line, small business confidence remains in the range its seen over the past two years at near the best levels of this cycle where the peak in this data point was in November 2018.

NFIB SMALL BUSINESS OPTIMISM index

Shifting overseas, the UK economy saw no growth in Q4 from Q3 as expected but GDP was still up 1.1% y/o/y as a rise in government spending helped to offset little growth in consumer spending and a sharp decline in capital investment. As we didn't see a contraction, the pound is higher as are gilt yields. Either way, the hope is that the late December election of Boris Johnson and the positive shift in sentiment that followed will lead to a better economy in 2020. Of course though much will depend on how the trade talks go with the EU.

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."

As to the increased role of mega cap stocks...
The equal weight SPX is up +1.1% year to date. The market cap SPX is up +3.8%.

With the market extended, Apple (AAPL) (short) is my 'Trade of the Week'.
Here is some of my rationale for possible short term weakness:
* Apple's appreciation over the last year has been primarily a valuation reset as operating profits have made little progress.
* I would not be surprised if Berkshire Hathaway (BRK.A) (BRK.B) has sold some Apple stock. If accurate, the announcement could pressure the shares.
* The +100%+ rise in the share price has resulted in a less positive marginal (and accretive) impact of the company's share buyback.
* Apple's ascent has been positively impacted by fund flows into ETFs - any reduced level of inflows will hurt Apple's shares. And, if the market reverses, so will the inflows (and Apple's shares) as the company may become an ATM for some investors.
* The Chinese coronavirus situation (demand and supply chain) remains an unknown - despite the recent bullish interpretation of the virus' impact.

harleyjokin

These Marijuana Companies Could Burn Through Cash in Months -- Barrons.com
DOW JONES & COMPANY, INC. 7:59 AM ET 2/11/2020

Symbol Last Price Change
CGC 19.05down 0 (0%)
ACB 1.56down 0 (0%)
TLRY 16.01down 0 (0%)
MMNFF 0.3727down 0 (0%)
QUOTES AS OF 06:30:00 PM ET 02/10/2020

Some of the biggest cannabis companies in the U.S. and Canada could burn through their cash balances in a matter of months unless they're able to raise funds or cut spending, according to research from the boutique investment banking firm Ello Capital.

As pot stocks plunged over the past year, big spenders like Canopy Growth(CGC) , Aurora Cannabis(ACB) and Tilray(TLRY) have found that capital markets have yanked the welcome mat and forced the pot producers to cut costs. " The cannabis industry is currently entering a new period where companies are focusing on corporate governance and operational efficiency," says Ello chief executive Hershel Gerson.

Few analysts foresaw the industry's cash crunch. Some thought that Aurora Cannabis(ACB) was even on the road to positive cash flow in 2019. But Aurora stock has fallen nearly 80% from one year ago and last week it announced drastic economies. The ETFMG Alternative Harvest ETF (MJ), an exchange-traded fund with exposure to the pot business, has shed half its value in the past 52 weeks. In 2018 and 2019 cover stories, Barron's wrote that Canadian and U.S. pot stocks looked overpriced.

Using the latest-reported financials of 20 pot producers, Ello's Gerson estimates that companies like Aurora and Tilray(TLRY) had less than 6 months of cash based on their capital spending and negative operating cash flows. Gerson's firm helps cannabis companies raise capital, but isn't engaged with any of the 20 public companies in his liquidity analysis and says that his firm has no trading positions in their stocks.

Gerson is more optimistic on some of the industry players. "We're still bullish on the industry and think there are some great operations out there," he says. "We feel positive about the industry's long term fundamentals."

Cannabis companies have scrambled to raise cash in recent months through stock placements or by selling and leasing back their properties. Last week, Aurora told investors that it has raised money through "at-the-market" stock sales and bank loans. To save money, it is cutting capital spending and its headquarters payroll, starting with the retirement of founder and chief executive Terry Booth.

An Aurora representative pointed to that financial update, when queried by Barron's. Aurora told investors last week that it promised bankers that it will to turn cash flow positive by the September 2020 quarter.

"Nobody knows when that's going to happen," says Gerson, talking about Aurora's spending cuts. He figures that Aurora's latest adjustments left it with about $117 million in cash and a monthly burn rate of around $50 million. That's 2.3 months of liquidity, Gerson says.

The analysts at Ello aren't the only ones worried about Aurora's balance sheet. On Monday, Gordon Johnson of GLJ Research issued his own analysis of Aurora's staying power and concluded that it will burn through its liquidity in just over 7 months. Johnson rates Aurora a Sell.

I am stepping up my short exposure on the opening.

Shorted (SPY) at $336.15, and more Apple (AAPL) at $323.50.

"The world's a nicer place in my beautiful balloonIt wears a nicer face in my beautiful balloonWe can sing a song and sail along the silver skyFor we can fly we can flyUp, up and awayMy beautiful, my beautiful balloon."
- Fifth Dimension, Up, Up and Away My Beautiful Balloon
In the last few days I have come to the view that:
* The market's advance is maturing and numerous divergences are emerging.
* A dramatic and conspicuous rise in a select group of stocks (Microsoft (MSFT) , Amazon (AMZN) and Alphabet (GOOGL) ) can coexist with a maturing and aging stock market rise.
* An important lesson learned from The Chief is not to be shy about heavily weighting a small group of stocks.
* Speculative moves can be rewarding.
* As Mae West once said, "too much of a good thing can be wonderful."
The technical divergences are mounting - as Helene writes this morning:"And you can understand that. I mean, breadth was terrible during Monday's trading session. The S&P 500 was up 24 points and net breadth was positive 500. Net volume (up minus down volume) was basically flat. So buying power equaled selling power on a day the S&P was up 24 points. The cumulative advance/decline line did not make a higher high... So I know everyone is now on board the Tech Train and how the Fab Five will keep on going forever and a day, but that trade is feeling a bit one-sided right now. I can still see getting more ups and downs. Notice we haven't had a quiet move in the market in weeks. "
- Divine Ms M,In This Market Where Do We Draw The Line?

Here is a good visual of the outperformance of the small cadre of mega cap stocks:

Bottom Line

Unlike the New York or Boston marathons where there is only one winner, in the market's marathon there is typically a handful of winners.
I can see the market's finish line and Microsoft, Amazon and Google appears to have lapped the field.

* The fundamentals of the cannabis sector have continued to deteriorate
* 2020 will likely feature industry restructurings, defaults and bankruptcies
* I would not be bottom fishing in the space

Several weeks ago I sold off all of my cannabis holdings after they rallied in the early portion of January, 2020 as tax selling abated.

At the same time, the key variables (fundamental imbalance between supply and demand for cannabis, continued legislative and regulatory uncertainty and the slow timeline of health applications) had not improved or turned around.

Indeed the opposite has occurred and the financial and operating backdrop for cannabis industry players have continued to deteriorate.

For many companies this spells restructurings, defaults and bankruptcies.

Here is what I wrote in January: 

In the next week I hope to update my fundamental view and share price outlook on the cannabis space.

I had expected the stocks to bounce in January, after the tax selling period of late 2019 abated.

To some degree, we have seen a recovery in a number of the stocks. Most noticeably, (CGC) 's has risen from under $14 to over $25. One of my speculative holdings, (HRVSF) has increased from $2.20 to over $3.50 (a gain of almost +60%).

The industry continues to face a number of supply/demand and other challenges over the near term but has plenty of opportunities over the intermediate term.

I have given the space a full three weeks of January ("effect") trading and I want to continue to reduce my portfolio's aggregate gross and net exposures.

While I still regard the cannabis space as having an excellent longer term upside reward vs. downside risk, the transition to fundamental improvement, supply/demand balance and a return to profitability are likely to take longer than I initially expected. (In terms of time frame I suspect we will have to wait to 2021 to see the stocks begin a consistent and meaningful move higher).

Bottom Line

Cannabis stocks are moving back towards 52 week lows.

2020 will be an ugly year for cannabis industry fundamentals - with no improvement expected.

Be clear headed and avoid the shares.

Don't get chai.

Ten year US note total return since 1928:

I don't see how lower rates will really help bring tourists back to Singapore https://t.co/vMBKujQuDW or pay the bills at coffee shops and lunch spots in abandoned Chinese cities. https://t.co/K5HQ2cuL4Z

— Lisa Abramowicz (@lisaabramowicz1) February 11, 2020