"Price is what you pay, value is what you get."

- Warren Buffett

Avoid "Group Stink" and "first level thinking":

Break in!

It doesn't look like there will be a large sell imbalance.

Thanks for reading my Diary today -- I think there was a lot of data in it.

I hope it was helpful.

Enjoy the evening.

Be safe.

I have been adding on a scale to my (SPY) short this afternoon.

With an hour to go:

* Breadth is only 3-1 negative today - fairly stable throughout the afternoon.

* Ns over Ss.

* Energy, banks, cyclicals and hotel stocks leading to the downside.

* Apple (AAPL) is a leading stock to the upside.

* Bonds, oil and gold relatively flat. 

Let's see if the asset alligators hit the market with a large sell on close order...

__________ 

Long XLF (large), GLD (small/medium)

Short QQQ (large), SPY (small), AAPL, TLT (large)

From technical analyst Susan Berge: 

"One of my Dad's sayings was, "The three qualities required to be successful in this business are: 1) patience, 2) patience and 3) patience."

This is particularly true for major top formations.

As discussed in the 11/16 Report, 10 months elapsed from the market reaching the area of a major top in 1976 to the onset of a major bear market; 3 months elapsed after the final closing highs before the bear market got underway in earnest in early 1977. In 2000, the DJIA made its final high in January, but the bear market did not get underway in earnest until the last test of that high in May of 2001, 16 months after the final high.

As we have noted in the past, it is harder to kill a bull market than a bear market. Bull markets can last for many years; bear markets rarely last more than 1-2 years. When a bull market has been going on for 11+ years, as this one has, a major top would come as no surprise. However, it takes some doing before a major uptrend is impaired enough to lead to a major bear market. One of the factors postponing the onset of a significant decline in stock prices is the number of stocks making new highs, and more importantly, the very low number of stocks making new lows. For 12 days in a row, the number of stocks making new lows has been in single digits; last week saw 3 days where the new low list was 1. Usually, the number of stocks making new lows rises for at least several weeks before a significant top. Ten-day new highs have made a new high for the move from the March lows, but are lower now than at the previous top in February. The judgment that upside potential is limited does not automatically mean the market now has to go down.

One of the many things that happens prior to a significant top is that upward momentum has to slow before the market reverses to the downside. The gap between the DJIA and various moving averages is one way to measure momentum. The gap between the DJIA and its 20day moving average peaked at 6.3% at the 29950.44 close on 11/16; at last Wednesday's new high it was 4.9%. The gap between the DJIA and its 60day moving average was 6.7% on 11/16 and 6.6% at Wednesday's new high. The lower high in the 20day gap shows a loss of upward momentum. The 60day gap is too close to its high for comfort and could easily be cancelled by further strength. As a result, this indicator, which comprises both the 20day and 60day gaps cannot be ranked bearish yet.

There are several indicators like this where one part is showing negative divergence while the other is not.

The market appears to be heading in the direction of forming a major top. It is not inevitable. Unless and until the evidence is compelling and there are enough solid bearish indicators to confirm that the market has reached the area of a major top, the NYSE PTI cannot go bearish. It does not depend on the averages, the DJIA or the S&P 500 or the NYSE Composite Index. It depends on what underlying technical indicators do in relation to the DJIA. It is possible that even if the NYSE PTI goes fully bearish before year-end, the market may not start down in any meaningful way until early next year. It is not premature to get somewhat defensive in coming weeks based on recent fully bearish readings in the NYSE ITI and NASDAQ PTI. It is premature to expect the imminent onset of a major bear market."

* Beware of asset alligators (and allocators)!

Thinking out loud... 

Given the radical outperformance of equities vs. bonds in the month of November - I would not be surprised to see a large reallocation out of stocks and into fixed income at the close of trading today.

I have often mentioned Buffett's most important valuation indicator:

Steve

Here is a piece I sent out this weekend to my readers

The Buffett Indicator is the ratio of the total US stock market capitalization to the Gross Domestic Product of the US. During a December 2001 Interview Warren Buffett talked about his favorite macro valuation of the stock market. "If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200%-as it did in 1999 and a part of 2000 you are playing with fire" Warren Buffett,

The most used metric to find the total US stock market capitalization is the Wilshire 5000. The Current ratio is 1.73. You could also say the Market Capitalization is 173% more than the GDP. This Buffett Indicator percentage is well above the 70-80% Buffett talked about in his 2001 interview. If we plot the percentage of total market value to GDP with standard deviations this is what we get.

As of November 19, 2020, the Buffett Indicator as: Aggregate US Market Value: $44.0 trillion, Current (Estimated) GDP: $21.4 trillion, leaving the Buffett Indicator at 205% currently 69% higher than the historical average, suggesting that the market is Extremely Overvalued. It has not been around this level since the Internet Dot.com Bubble of the early 2000's. The historical chart of this indicator is shown below.

You can see from the Buffett Indicator chart above that we are flirting with valuations in excess of the Dot.com bubble regarding the overall valuation of the market compared to our GDP. From the top of the internet bubble in 2000 to 2008 there was a net 14% loss in returns for the SPX-500. From the bottom of the Financial crisis of 2009 to 2019 there was a net 167% gain in the market. It looks to me that this is a good gauge, or indicator, for stock returns.

During this past months we are seeing an huge new wave of entry into the stock market by retail investors at an unprecedented rate (like Robinhood-players) on the coattails of zero commission per trade platforms. And having stimulus money pumped to college kids with no (responsibility) or sports due to lock-downs to bet on does not help anything. More money is being pumped in at overvalued multiples and into highly speculative stocks lifted by those of the likes of Barstool Founder Dave Portnoy's. Not only are retail investors pumping money into very overvalued stocks, but institutional investors are pouring money into Index Funds at a record pace as well seeking to be diversified without having to pick stocks. Unfortunately, when you buy an index fund you are buying stocks that are already overvalued.

The CNN Fear & Greed Index stands at 88 - extremely greedy.

That's at the polar opposite of the March lows. 

As I have noted, buying stocks at 99th percentile of (2.8x sales, market cap to GDP, etc.) is not likely a recipe for superior returns. 

More on this in my next post at 1:30 pm.

* I am at odds with the Tesla Bulls... 

I find much of the criticism regarding a Tesla (TSLA) short is from observers who know a lot about the share price but know nothing or little about value. 

Here is more from Whitney - of a fundamental bent:

After its extraordinary run over the past year, Tesla (TSLA) now has a market capitalization of $549 billion, making it the sixth most valuable company in the U.S., trailing only tech giants Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Facebook (FB).

For any company to warrant such a high valuation, it must be extremely profitable or extremely rapidly growing - ideally both.

Tesla certainly fails the first test, as it's barely profitable - and not from making cars, but rather selling zero-emission vehicle and other regulatory credits.

But at least it's growing super fast, right?

Well, let's look at the data for the Model 3, which accounts for the vast majority of the cars Tesla sells. This table (provided to me by a friend) shows unit sales, broken down by region, from January 2019 through October of this year, the latest period available (note that U.S. data is hard to get, so it's lumped in with the rest of world (ROW)):

Here is a chart of this data:

At first glance, the numbers look decent: Tesla sold 19% more Model 3s in the first 10 months of this year relative to the same period last year.

But when you break down sales by the three regions, we can see that sales are in sharp decline in the more mature markets (U.S./ROW and Europe), offset by China sales as the new Giga Shanghai factory came on line.

Let's first look at the U.S./ROW (the U.S. accounts for almost all of this):

Here is the chart:

As you can see, total sales are down 8 of the 10 months this year, for a total of -16%.

In Europe, it's almost as bad:

Europe chart:

Sales are down seven of nine months, for a total of -14%.

The only growth area is China, which isn't surprising given that Tesla was starting from zero:

China chart:

In conclusion, Tesla has become one of the most valuable companies in the world due almost entirely to its growth story - yet, upon close examination, sales of Tesla's primary car, the Model 3, are actually in double-digit decline everywhere in the world except for China (where it faces competition from literally hundreds of local companies).

Investors beware!

P.S. - Ah, but what about the new Model Y, you might ask? It's only been on sale in North America since June. Here are its unit sales:

June: 7,500

July: 7,540

August: 8,052

September: 12,685

October: 10,602

* I remain short homebuilders

The November Chicago manufacturing index fell to 58.2 from 61.1 and that was a touch less than the estimate of 59. New orders fell five points to the least since August, down month over month for the first time since May. Backlogs though rose almost one point, the third month in a row above 50. Inventories fell two points to a three month low. Employment remained below 50 but rose +0.8 points after the drop in October. Price pressures were clearly evident as "Prices at the factory gate surged 9.8 pts in November, hitting the highest level in over two years." 

One of the special questions asked, "Does the outcome of the general election have any effect on your forecast? The majority, at 73.2%, noted that the election results do not influence their forecasts. On the other hand, 12.5% see their forecasts increase, while 14.3% reported a decrease."

Chicago joins NY, Philly, KC, Richmond and Dallas (see below) in seeing month over month moderation in manufacturing as much of the inventory build over the past few months is getting satiated, and also likely in response to the spike in Covid counts and the tough few months we have ahead before mass inoculation. 

Here is a six year chart on Chicago Manufacturing: 

The November Dallas manufacturing index fell to 12 from 19.8 and that was 2.3 points below the estimate. Production, new orders and capacity utilization all fell but backlogs, employment and capital spending plans rose. Inventories rose 2.9 points but after falling by 12 in the month prior. Prices paid rose to the highest level since October 2018 but those received fell slightly. Wages fell but jumped seven points in the six month outlook. 

The six month outlook for business, notwithstanding the vaccine news, fell to 25.8 from 28.4 in October and 28 in September. 

Here is a six year chart on the Dallas Manufacturing Index: 

The October Pending Home Sales index fell -1.1% month over month, below the estimate of a gain of +1% and follows a -2% drop in September. Versus last year though sales are still strong with an almost +20% rise. Almost all of the month over month drop came from the Northeast which saw sales fall by -5.9% month over month while the other regions were little changed. In the month prior, the Northeast was the only to see a gain while the other three regions fell. 

I've argued that there are limits to 5%-6% annual home price gains and the NAR said, "The housing market is still hot, but we may be starting to see rising home prices hurting affordability." With low inventory and historically low mortgage rates, that "has pushed home prices to levels that are making it difficult to save for a down payment, particularly among first time buyers, who don't have the luxury of using housing equity from a sale to use as a down payment." I hope the Fed thinks about this as they debate whether to extend the maturities of their current QE5 program. We have home price inflation that is running well above most everything else and once it filters into Owners' Equivalent Rent, CPI will continue to move higher. They claim to want to help those that most need it but they are AGAIN making homeownership more expensive for lower income families that want to own a home. 

Here is a 20 year chart on the pending home sales index: 

After buying on a scale, and with (VXX) back at $18 - I have a profit on last week's "Trade of the Week".

Albeit a small one! 

"Shares of Tesla (TSLA) surged to an all-time high on Friday, closing at $585.76 - giving the electric-vehicle maker a market cap of $555 billion.

For the first time, it's now valued higher than Berkshire Hathaway (BRK-B), which "only" has a market cap of $543 billion.

This is despite Berkshire generating $27 billion in free cash flow (operating cash flow less capital expenditures) over the past 12 months versus $1.8 billion for Tesla.

Exactly a year ago, Berkshire's $540 billion market cap was nine times Tesla's $61 billion.

If you had asked me for odds on Tesla surpassing Berkshire within a year, I would have said 1,000 to 1.

It's a good lesson on how literally anything is possible in the stock markets - and why shorting is so dangerous...

I continue to like Berkshire's stock a lot more than Tesla's - but I also continue to think that Tesla is a bad short."

P.S. - I respectfully disagree with my long term pal, Whitney. I believe Tesla is an exceptional short (and its myTrade of the Week). 

* Google joins an expanding list of long holdings that have gone from large-sized to small-sized

On Friday I reduced my Alphabet (GOOGL) holdings from large-sized to medium-sized:

Nov 27, 2020 ' 10:40 AM EST DOUG KASS

Reducing Long Exposure Through Individual Short Sales and a Reduction in the Size of My Google Investment

Given my earlier view expressed about the market's oversold and overvalued condition in my opening missive - I am reducing my overall net exposure through some additional individual shorts (Tesla (TSLA) and Apple (AAPL) ) and now via a reduction in my Alphabet (GOOGL) long investment.

As posted in my Diary, I have been a consistent buyer on Google on all dips over the last few months.

Given the price rise and the diminished upside vs. downside, I am taking the position today from large-sized to medium-sized at $1790.

The shares traded at $1400 two months ago!

Google was added to my Best Ideas List on December 26, 2018 at $1001.

This morning I have moved down to small-sized and will stay there unless a market correction affords me an opportunity to buy at much lower prices.

This move is consistent with large to small-sized reductions - in Disney (DIS) , Walmart (WMT) , Goldman Sachs (GS) , Morgan Stanley (MS) , Papa John's (PZZA) , and others, recently. 

P.S. - I anticipate holding on to my other "growthy" investment, Amazon (AMZN) . I have no current plans to reduce it in size.

I have moved to medium-sized (SPY) short and medium-sized in net short exposure now.

My (QQQ) cost basis is $299.50, and my (SPY) cost basis is $362.10.

I initiated a small (QQQ) short (Trade of the Week).

* You "knew" this was coming!

Moved to large-sized in (QQQ) short, initiated a small (SPY) short, and moved to large (TSLA) short. 

I am now small-sized net short.

(Wednesday's comments appear at the end.)

Markets ended last week in a somewhat overbought condition. Sentiment indices are at an eye-popping level. Bullishness far outweighing bearishness, which usually is an ongoing signal of overbought. I think it was so in this case.

Meanwhile, over the weekend, reports that the Trump Administration may put several key Chinese manufactures on a watch or don't trade list weighed down on the chip makers involved and pulled the Hong Kong market down with some significance.

That led to weakness in U.S. futures but, as dawn hit New York this morning, more upbeat news on the vaccine test by Moderna have cut the losses and, we are beginning to see bids appearing. We will wait to see if the futures can build on that.

In a note he put out this morning, Bob Pisani cautions that the success of the November "vaccine rally" may take away from the traditional Santa Claus year-end.

Here is a bit of what Bob wrote:

A big year-end rally? Don't get too excited yet.

December is traditionally an up month: Since 1945, the S&P 500 rose nearly 1.5% in all Decembers and advanced in price 73% of the time, according to Sam Stovall at CFRA Research.

But hopes for the usual "Santa Claus rally" may have to be tempered a bit this year.

For one, there is the powerful November rally.

The S&P 500 in November is closing up 11.2%, the fourth biggest gain of all time but only the second biggest gain this year, after April, with a gain of 12.7%.

However, a powerful November rally like the one we have just had often causes problems with the usual year-end "Santa Claus rally," according to Stovall.

History "suggests that this November's surge may end up 'stealing from Santa,'" he wrote in a recent note to clients. Whenever the S&P 500 was up by 5%+ in November, the market posted a sub-par average rise and frequency of gain in December."

There is more to come on the vaccine. We will see if Bob is on to something in coming days.

Another factor affecting this morning's markets is some disappointment in the looming OPEC meeting. It is thought they will be unable to get together in restraining production. That appears to be outweighing the geo-politic concerns that moved oil up earlier in the month.

Overall, it looks like we might be in for another consolidation day. So, lets end the month quietly and see where we go from here.

Stay safe.

Arthur

__________

The stock market rally kicked back into high gear and, the various averages all attained the high projections that we stated in yesterday's comments, although it is noteworthy that the S&P just kind of peeked over the top, while the others did it with a near vengeance. As you will recall, the rally began with the hopes about the vaccine three weeks ago and has built on it since. But yesterday was a further celebration of the apparent orderly transfer of power that seems to have moved to center stage. Additionally, Biden's picks, so far, are middle of road and, that is reassuring people who were worried about the potential for initiatives on taxes and a variety of other things. The fascination also remains hostages to what happens to the Senate and, we won't know that till the Georgia runoffs.

The tone of the market's rally yesterday was clearly part of the back to normal game. Not only back to normal economically and health-wise, but back to "normal" politically as most of the Biden nominees so far have served in government and most were attached to the Obama Administration.

The market euphoria is at a very high level. With the three-week rally in a nearly euphoric mode, it is tempting to say - step back and take profits. And, while the market may face some consolidation, not sure it is quite time to blow the whistle and head for the hills.

As the smart folks over at DataTrek point out, selling successive rallies is not always practical, witness Tesla. We will nonetheless assume that we are going to go into consolidation for at least a day or two.

There are also signs of second thinking beginning to show up, even in the political euphoria. Some are speculating that the recent rise in oil prices may be the assumption that the new President will be tested in the Middle East rather quickly and, that could begin to put stains on the international oil lines.

We haven't quite gone parabolic yet and, as you will note from yesterday's comments, the history of Thanksgiving week has become somewhat muddled and muted. So, we will not look for a big projection here. We are kind of muddling our way into Turkey Day. Let's see what happens.

Stay safe.

Arthur

* Tesla and QQQ were trading higher in pre-market trading

Recently the Nasdaq has resumed its advance with gusto - as growthy names have done quite well of late. 

Indeed, the Nasdaq is now sufficiently overbought to consider a short sale - particularly with my market concerns:



In general many most market indicators are at extremes and I can make the case for a short term drop in the OTC market which tends to be more more beta than the other market indices.

(See Divine Ms M It's More Than a felling, It's Sentiment) 

For those that can accept greater risk and understand the importance of properly weighting such a short, a speculative Tesla short - up for four consecutive trading days into today - has also become more compelling from a risk/reward standpoint. (Note: We are still about three weeks from S&P inclusion, but I suspect some portion of the pre buying may have been completed by now.)

A combination trade, shorting (QQQ) and (TSLA) , is an interesting proposition to me now.

Morgan Stanley (MS) raised Wells Fargo (WFC) price target to $40 this morning.

* I didn't have my pajamas on last night!
* Market risks are being underestimated and market volatility is being underpriced. 

"Workin' on our night moves
Trying to lose the awkward teenage blues
Workin' on our night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."
- Bob Seger, "Night Moves"

S&P futures bottomed at -35 handles at about 2 am and were down by only -14 handles.

I remain bearish on equities - though I am maintaining a medium-sized net long exposure, given my perception of a favorable reward to the upside vs. risk to the downside of my individual holdings.

As I wrote on Friday morning in "The Market Is Now Overbought and Statistically Overvalued":

"The market is overbought and statistically overvalued after experiencing the third best month (in November), in percentage terms, in history.

Speculation is now running amok (EV, SPACs, etc.) and sentiment is at an extreme - whether seen by the CNN Fear and Greed Index sentiment studies, or, as I have noted, high gross and net hedge fund exposure as well as other data. This is in marked contrast to September/October when many were fearful of the election and its consequence on equities.

Stocks are now about 20% above my calculus of "fair market value" - that discrepancy has been a good tell for me of market vulnerability in the past.

Bit Coin Redux?

Consider the abrupt $3,000 decline in the price of bitcoin that abruptly took place in the last 36 hours - it could come anytime to equities.

The Biden Bump

In early October, I wrote about the positive near term market impact of a Biden Bump - a non consensus view that many, especially Republicans(!), disagreed with.

At its core was my forecast of an expectedly clear Biden victory (my Surprise List's electoral college forecast almost exactly predicted Biden's electoral college votes) which would result in a non litigated election. I based this on the betting shops and polls - which some dismissed because of the predictive errors of 2016.

I also, at the time, underscored that I was confident in the health and scientific communities' ability to discover therapeutics and vaccines to squash Covid-10.

In addition, while many thought the market's health would be conditioned on a 2020 stimulus bill I never thought a bill was in the offing - but, rather a Democratic led stimulus package was likely in early February. Again, I though this as a positive as I believed the markets would "see through" the failure of a package this year.

Seasonality and poor (defensive) market positioning were also conditions I mentioned contributing to a fourth quarter Biden Bump.

I noted, at the time, that value stocks were cheap relative to growth - stretched to an unprecedented differential. I posited that a "ketchup" trade in value stocks could also abet a market advance.

As the market's advance gained speed in the last two months, many of the positive conditions that I highlighted a while ago have reversed. Positioning is no longer defensive, the election outcome is now certain and, in recent weeks, the market advance has accelerated coincident with a Biden victory. Several vaccines, with fantastic results, have been announced and will enter the market in early 2021.

A weak market and investors' uncertainty/fear have been replaced with all-time Index highs and investor ebullience, and even greed."

Tactics

While I am currently medium-sized in net long exposure this will not be a permanent condition by any means.

I plan to move back to net short in exposure but I am giving this advance wider berth given seasonals and the dominant role of passive products and strategies that tend to exacerbate the market's direction to the sort of extremes we saw in March, 2020 - to the downside - and, now, arguably, in November, 2020 - to the upside. In other words, "buyers live higher and sellers live lower."

Given the structural headwinds to economic and profit growth (manifested in a mountain of global debt - to be discussed later this week), the current degree of optimism/greed and the stretched traditional multiples of market cap to sales, GDP, EPS, etc., seems to have produced unattractive stock levels to deliver good investment performance over the intermediate term.

My pal Peter says to be aware of one's surroundings: 

Add the Citi Panic/Euphoria index to the list of sentiment gauges that are at a bullish extreme. The weekend's reading rose to 1.10 from .87 and that is back to the August high when it printed 1.13. Anything above .41 is considered 'Euphoria' so we are now almost triple that. The CNN Fear/Greed index closed Friday at 91 out of 100. AAII clocked in with Bulls at 47.3, the 2nd highest since February 2018. Bears were 27.5, the 2nd lowest since February 2020. We know II saw Bulls almost at 65 and Bears near 17. Bottom line, when trading short term it is always important to be aware of one's market surroundings and the Bull boat right now is standing room only.

The US dollar is further breaking down, now approaching 91.5 with the DXY, a level last seen in April 2018. Any move below 88.6 would put it at the lowest level since December 2014. The REAL 5 yr yield is at the lowest in 2 1/2 months and when you combine the two gold and silver should be much higher but instead are continuing its correction on the mistaken belief that they are a safety trade. Half the demand for silver is industrial and look at what copper is doing, it is trading at the highest level since late December 2013. Looking at the 14 day Relative Strength Index has gold the most oversold since August 2018.

COPPER

China reported its November state sector weighted PMI data and both manufacturing and services rose m/o/m and were slightly above the estimate. With manufacturing, the PMI rose to 52.1 from 51.4 in October and vs 51.5 in the month prior. Export orders continued to improve as did overall business activity expectations. The services index rose to 56.4 from 56.2 but the expectations component did moderate by 1.7 pts. Notwithstanding the better data, Asian markets were red across the board with the Shanghai comp in particular down by .5% and the H share index lower by 2.3%. The yuan though is higher, along with most currencies today vs the dollar.

This comes ahead of the Chicago and Dallas regional manufacturing survey's today and the national ISM tomorrow.

Both Japan and South Korea reported better than forecasted October industrial production figures. I still believe that Asian markets will be the investing place to be in the years to come. And, if there is any sustainable shift to value, European markets should benefit.

Danielle DiMartino Booth makes the case that volatility is playing possum, and that's something I agree with:

• Bitcoin has morphed into the hottest asset class for big institutional investors, exemplified by Guggenheim's market-leading up-to-half trillion commitment; broader adoption has sent the currency back over $18,000, and it now sits within 7% of its December 2017 high of $19,511
• November is set to be the best month in history for global stocks, with the current market cap of $98.7 trillion equating to 112% of global GDP; narrowing in on the S&P 500, its forward price-to-earnings ratio is now 21.7 times, 2.4 standard deviations above the five-year average
• Bond yields remain low, but the VIX is currently on a 195-day streak north of 20, a trend last seen in 2009; though there is optimism that the VIX is headed lower, in six of the last eight periods that the VIX cleared 20 for at least 100 sessions, the S&P 500 has subsequently fallen

You would think possums would have a monopoly on casting decisions to which they own naming rights. Alas, not only are the rights not exclusive, the act is contrived. As scientists explain, acute fright triggers "thanatosis," an involuntary catatonic state of tonic immobility the body enters in response to fear. Distrustful foxes and owls can test all they like. But they'll get no response. In thanatosis, it's not just appearances, though the limp body, appearance of cessated breathing, discharged bowels and drool greatly aid in the credibility department. But no pain is felt, nary a reflex triggered. Call it advanced evolution as carnivorous hunters are naturally disinclined to consume the deceased, lest it be diseased, don't you know. While other insects and snakes are equally gifted in the hide-saving tactic, QI is especially inclined to the original marsupial given its adaptiveness in other another realm - it's naturally immune to pit viper venom.

Many investors today wish they could play dead, survive the deadly venomous bite they sense is lurking in the shadows and wake after it's all over, none the worse for the wear. Markets have never sent out such a toxic combination of mixed messages. Part of the challenge comes down to faith, a characteristic that commands no harbor in portfolio management.

Headed into 2021, bullish investors are positioning themselves based on China leading the global growth recovery, which itself is more secure than it has been in the past 11 months given vaccines' prospects. As we've written extensively, thus far, China's recovery is predicated on stimulus spending directed at infrastructure and its factory sector; consumer spending will be a net drag on 2020 growth. Upon this narrow foundation, the global consumer is poised to unleash pent-up demand once vaccine uptake is widespread enough to begin to play catch-up on foregone shopping and travel.

In the immediate term, today's factory data out of China should validate that the importing machine remains in overdrive. Perhaps officials there will see fit to sell more government bonds in celebration. A November 18 euro offering drew about €18 billion in orders for €4 billion of bonds. The yield on the five-year tranche was priced 0.3 percentage points above the benchmark mid-swap rate of -0.45%. Investors walked away with an effective yield of -0.15%, multiples of the comparable German Bund yield of -0.74% the day China priced the issue.

Negative yielding debt is not near as racy as copper and other industrial metals, which are seen more lucrative pure plays on the China miracle. On Friday, copper closed at a seven-year high in London. Emerging markets (EM) also play into the "Goldilocks global recovery" theme. EM bonds have wiped clean their year-to-date losses while MSCI's currency index looks to turn in its best monthly performance since January 2019.

Bitcoin (green line) deserves its own mention. Up 250% off its March lows before a minor setback, the cryptocurrency that theoretically refutes central bank largesse has morphed into the hottest asset class among big institutional investors. Over the weekend, Guggenheim Partners joined investing legends Paul Tudor Jones and Stan Druckenmiller in taking the Bitcoin plunge. The up-to-half-trillion commitment in Guggenheim's Macro Opportunities Fund compares to the next largest investment of $200 million. The news of broader yet adoption sent bitcoin back above $18,000, within roughly 7% of its December 19, 2017 high of $19,511.

But it's the stock market that's shone the brightest of late. EM stocks are tracking their best month since March 2016. But that's nothing compared to global stocks, which are poised to turn in their best month on record, as in - in the history of mankind with valuations near a 20-year high. Global stock market capitalization of $100 trillion is a hair away from the current $98.7 trillion which equates to 112% of global GDP. The number of funds trading one sigma above their long-term valuations is unprecedented.

Zeroing in on the coveted and highly concentrated S&P 500, at 21.7-times, its forward price-to-earnings ratio is 2.4 standard deviations above the five-year average. If you prefer, price-to-sales hit 2.7 times in November, the highest in at least 30 years. And then there's the earnings yield, earnings per share divided by the stock price, or the reciprocal of the P/E ratio. (If Stock ticker $XYZ is trading at $10 on 50-cents eps, it's P/E is 20-times and its earnings yield is 5% [50 cents/$10].) At the moment, the S&P 500's earnings yield (purple line) of 3.5046 is on par with that last seen in 2000.

The losers are well known - the dollar and gold. Safe havens are wasted real estate when nothing can go wrong. And yet, bonds remain wary, with yields on both 10-year and 30-year Treasuries lower than the start of November. The only validation of stubbornly low yields is the VIX (orange line). The current 195-day stretch north of 20 was last seen in 2009, a much different time in market history. Though optimism is running high that the VIX is headed lower, as pointed out by the Wall Street Journal, in six of the last eight periods the VIX held above 20 for 100 or more sessions, the S&P has subsequently fallen. Volatility may just be playing possum.