Market commentators are literally running out of superlatives to describe the stock market.
And so am I.
Thanks for reading my Diary today and enjoy the evening.

Breadth has been holding at about 18-11 for about three hours.

I am seeing multiple large, vanilla institutional buyers in ViacomCBS (VIAC) all day.

My only trade today is adding to my large (SPY) short at $337.13.

Chris

Hi Doug, could you please remind us of what large, medium and small positions means for you (as a % of your portfolio)?

dougie kassChris

It changes and is fine tuned dependent on market volatility and other factors.
For now these are the guidelines:
* Large - 3.5% or more
* Medium - 2% to 3.5%
* Small - 0.5% to 2%
* Tagends under 0.5%

Dougie

* The Fed's forward guidance of low rates for longer will likely slow growth and not add to economic growth

If there is one thing we have learned about Federal Reserve Chairman Jerome Powell in his appearance in front of Congress this week it is that he's learned little about the monetary experiences of both the Fed over the past decade and of the European Central Bank and the Bank of Japan.

He said in front of the Senate today that the Fed will "likely need QE and forward guidance in a downturn."

QE -- quantitative easing -- has proven to not be an economic stimulant, especially with rates already so low. Instead, a friend has referred to it as monetary policy for rich people. And, something I've said in the past, is that forward guidance is bad policy and central bankers have it backwards. They think by telling the world that rates will stay low for a long time that it will engineer animal spirits. It in fact does the exact opposite -- as when households and businesses know that rates will stay low forever, there is no incentive to act now instead of later.

They just act later and thus "forward guidance" slows growth instead.

Jay Powell heads to the Senate today and I hope he gets some better questioning because yesterday's Q&A was a real snoozer. 

Along with the bounce back in stocks, Investors Intelligence saw more Bulls at 52.9% from 47.6% last week and vs 52.8% in the week prior. Bears were little changed at 19.2% vs 19.1% and that actually is the most since last April while most of the Bulls came out of the Correction side which stands at 27.9% vs 33.3% last week. Bottom line, after seeing extreme bull readings in a variety of metrics literally days before the virus outbreak, the pullback in stocks rung some of that optimism out but it's coming back rather quickly. Buy on the dip remains firmly embedded in the mentality of the investor as we know. 

According to the MBA, mortgage applications were mixed as purchases fell for a 2nd week and by 5.8% but the y/o/y gain was still 16% (easy comparison's though after the aftermath of the tough Q4 of 2018). Refi's rose 5% as mortgage rates hold at multi year lows and are higher by 207% y/o/y.

MBA PURCHASE APPS


Following a slew of industrial production misses seen over the past week from some European countries, today's release of the data for the entire region saw a 2.1% m/o/m decline, one tenth more than expected, November was revised down by 2 tenths and the y/o/y decline was 4.1% which matches the worst print since 2009. This figure has declined y/o/y for 14 straight months. And now the global economy has the major disruptions that the virus brings. 

The global stock markets are pricing in the rebound likely to come this spring time while global bonds are more worried about the economic here and now. Oil is bouncing back above $50 (the dividend yields that big oil stocks are paying are pretty compelling I believe so let the ESG people sell as much as they want) and copper is higher for a 2nd day. 

Reflecting the upside down world of the epic bond bubble we are experiencing, the Greek 10 yr bond yield has broken below 1% at .98%. Now I've been a bull on Greek stocks over the past year plus on the positives that President Kyriakos Mitsotakis was expected and is currently bringing to their economy but this move in yields is quite astonishing.

GREEK 10 yr yield

* My speculation about possible government purchases of stock futures may be farfetched.
* But, then again, it may not be!
More (strange) night moves.
Once again, stock futures (without any clear catalyst) began to climb a bit after 3 am (on Wednesday morning). S&P futures at 5:45 am were +11 and Nasdaq futures +45.
What we do know is that European cash markets open at 3 am - perhaps that is the explanation.
But to me, given the repeated strength at that hour, it's almost as if someone is manipulating the futures market...
I have my thoughts! From my Surprise #1 of 15 Surprises for 2020: In the first half of 2020, just as the impeachment hearings percolate, a New York Times investigation uncovers that President Trump directed the purchase of stock futures by the Fed, the Treasury and other parties (over a lengthy period of months) to buoy the U.S. stock markets and with the stated intent (later disclosed in emails) to improve the chances of his reelection. The discovery and publicity associated with stock futures buying policy (which began to be implemented in late summer, 2019) causes an uproar politically (as leaders of both parties are critical) and Congressional hearings are scheduled - sending markets abruptly lower as there was apparently less to the bull market run than meets the eye.

"Too much of a good thing can be wonderful."
- Mae West
Amazon (AMZN) is indicated +$20/share in pre-market trading.
Amazon is the new Tesla (TSLA) .
I continue to look for a narrowing of leadership in a maturing stock market as the leaders enter the "Tesla stock stage" of meaningful outperformance.

As Danielle DiMartino Booth observes the least creditworthy are at risk:

• As malls continue to fail, not only retailers but restaurants around and inside malls are being pressured from changing lifestyles; the December JOLTS report showed job openings in accommodation and food service industry fell 13.3%, a nine-year low
• Many restaurant workers occupy the bottom 20% of income earners and devote an increased portion of their paychecks to inflated rent and healthcare; those two costs exceed 55% of income leaving precious little to cover necessities compared to the remaining 80% of income earners
• As per fresh NY Fed data, one in five new auto loans originated with FICO scores below 620 sported a delinquency rate of 4.94% in 2019's fourth quarter; new seriously delinquent auto loans for last quarter are at levels not seen since prior to 2007-2009 recession

Roald Dahl was a spy, an ace fighter pilot, a chocolate historian and a medical inventor. While debatable, he remains for many, the world's best storyteller. His literary energy burst onto the scene in the 1960s with such works as James and the Giant Peach and Charlie and the Chocolate Factory. But he wasn't limited to books. Roald also wrote screenplays for the James Bond hit You Only Live Twice and the children's classic Chitty Chitty Bang Bang. Fantastic Mr. Fox was published in 1970, the year before the film Willy Wonka and the Chocolate Factory was released.

We fancy ourselves storytellers. And part of the creative process is weaving themes together into a larger tale. One QI narrative that's emerged is bifurcation. We began to tell the story in the last Feather of 2019.

One of QI's 2020 New Year's Evolutions was dubbed The Decoupling: "As companies search for additional productivity gains through the higher skilled who work for premium wages, they will reduce headcount of their less skilled counterparts resulting in rising wage inflation concurrent with a continuation of increasing jobless claims." But something was missing. What industry could be exposed to this risk?

To answer that, rewind to this past Monday's Feather. Retail vulnerability was in focus throughout the commentary, and we highlighted how retail salespersons are at risk as the largest occupation in America. But do you remember the second largest occupation? Restaurant workers.

Monday also marked the announcement that Simon Property Group, the biggest U.S. mall company, agreed to buy Taubman Centers, a real estate investment trust that owns, manages and leases regional, super-regional and outlet shopping centers in the U.S. and Asia. Consolidation in mall space puts at the risk the viability of the eating and drinking establishments that dot much of today's retail space that's at risk of obsolescence. The trend towards online shopping over brick-and-mortar means fewer customers to eat out at the restaurants in and around malls. Note we also increasingly have our vittles delivered to our front doors as well.

Restaurant managers will be left with little choice - cutting worker hours will be followed by trimming headcount. A total of 3,676,180 combined food preparation and serving workers are at risk. Of course not all of them will get a pay cut or receive pink slips. But the trend in labor demand for the accommodation and food service industry from yesterday's JOLTS report is a stark reminder of what's to come: job openings in the sector fell in December at a -13.3% year-over-year rate, close to the weakest performance in nine years.

The National Restaurant Association notes that "restaurants are the top employers of teenagers in the economy - one in three employed teens work in the restaurant industry." Everything up to this point of our story should have you asking: "Will the 50-year low of 12.0% for the U.S. teen unemployment rate for 16- to 19-year-olds reached in November 2019 mark the trough of the economic cycle?" Hold that thought...

A restaurant worker's' weekly paycheck of $333.40 translates to $17,336.80 in annual pay, placing them in the bottom 20% of the income distribution. Other characteristics of the bottom 20% include a 59% share of renters, the only quintile with more renters than homeowners. And this cohort owns at most one vehicle. For those restaurant workers who work near the dying malls of America, having "wheels" is a must.

That brings us to the chart du jour. The bottom 20% also has earmarked a huge portion of their household budgets to pay for rent and health care. The lowest quintile pledges 56% of their take-home pay for these necessities, leaving little in the balance to cover staples and discretionary items vis-à-vis the other 80% of the income distribution.

It is the lowest income earners who tend to have the lowest credit scores. The yellow shaded area above illustrates how this group accounts for one in every five new auto loan originations. Subprime auto lending remains "alive," but whether it's "well" keys off the evolving story for restaurant workers' job security.

Yesterday's New York Fed Household Debt and Credit Report revealed the total delinquency rate for auto loans at 4.94% in 2019's fourth quarter, levels that rivaled the aftermath of the Great Recession. Moreover, new seriously delinquent auto loans were running at a 2.36% rate in 2019's fourth quarter, nearly on par with levels that immediately preceded the 2007-09 recession.

We fear the ending to this story will not be tied up with a bow like Roald Dahl's classics. The WHO warned that 43,000-plus known cases of coronavirus may be the "tip of the iceberg." Today's main takeaway: health scare on our shores means banks exposed to the least creditworthy auto borrowers are most at risk.

The "inners" of the market:

The disconnect between the real global economy and financial asset prices continues:

I will be out most of the morning at a conference and some follow-up related business meetings.

My posts will be less frequent and shorter.