If you didn't own The Nifty Seven today you were plain out of luck.

Thanks for reading my Diary.

Enjoy the evening.

Be safe.

badgolfer22 Thomas C

according to cooper and others, an HO (Hindenburg Omen) doesn't 'cause' a crash...nor does a crash happen every time you have one per the one out of 4 stat you use, but every crash HAS been preceded by an HO...according to these folks. maybe another historical indicator that's lost its usage...like sell in may and go away...and thanksgiving being positive. :)

Over the past several days I have taken off my (IVZ) (short Jan $27 calls) for about $0.30.

Upon reflection, I have decided not to buy Twitter (TWTR) now - despite Dorsey's resignation as CEO. 

Another Chief Executive Officer will not change the toxic nature of Twitter nor will the business model and its poor to date monetization efforts change over night. 

I am monitoring the situation, but for now it's a pass for me - despite my success in this name over the years.

I have added to (IVZ) , (MSOS) , (BA) , (GTBIF) , and (VRNOF) just now.

While Twitter is rarely a reliable source, I just wanted to pass this on: 

It is wild how hard it is to break the strength in The Nifty Fifty.

It is all about the flows and disproportionate role of seven stocks on the Indexes:

For anyone involved in cannabis stocks, Brady Cobb offers his views of The Safe Banking Act. 

The interview is at the 19 minute mark.

From Peter Boockvar: 

Before I get to the US data, I want to point out the German November CPI ended up surprising to the upside with a .3% m/o/m and 6% y/o/y gain vs the estimate of down .2% and up 5.5% respectively. At the same time today, German public sector unions secured a 2.8% wage increase for 1.1mm public sector workers in addition to a one time 1300 euro payment. This deal runs for 2 years and thus inflation better be temporary and quickly fall back below 2.8% if these workers are going to see any increase in REAL wages. A 6% increase in inflation might be short term but even if it slows back to 2% inflation at some point, ECB policy is still so far out of line.

In response to this number and the better tone to global markets, including the rise in oil prices, has the 10 yr German inflation breakeven up by 7 bps to 1.70%. It fell by almost 9 bps Friday.

GERMAN CPI y/o/y

Pending home sales in October rose 7.5% m/o/m, well better than the estimate of up 1% and follows a 2.4% drop in September. All 4 regions were higher with the Midwest and South leading the way.

The NAR is saying that they think "fast rising rents and the anticipated increase in mortgage rates" are spurring purchase decisions. Maybe so but the only way to sustain this is if we see a SLOWER pace of home price gains because it is the only way we're going to get more first time buyers who have the greatest affordability issues.

PENDING HOME SALES index

The November Dallas manufacturing index fell to 11.8 from 14.6 and that was below the estimate of 15. I'll do again listing the key internals and compare with the 6 month average because of the month to month volatility. New orders 19.6 vs 18.9, backlogs 17.4 vs 19.6, inventories 3.2 vs -2.7, delivery times 21.7 vs 22.5, prices paid 82.1 vs 78 and 82.1 is a record high, prices received 42.2 vs 43 (long term average is 7.6), employment 28.5 vs 25.3, wages 47.6 vs 45.3 and hours worked 19.6 vs 21.8. Capital spending plans were 10.5 vs 13.6 for the 6 month average.

The overall 6 month outlook bounced back to 28.6 from 15 last month and vs 24.1 for the half yr average. Expectations for both prices and paid and received were higher and 4-5 pts above their 6 month averages. Wage and benefits expectations also rose to about 5 pts above its 6 month average. Capital spending expectations rose too, and is 4 pts above its half yr average.

Here are some comments from various businesses in different industries and I think is a good bottom line. While I expect some of the supply side pain points will ease after the holidays, these comments still point to a 2022 of rising prices and constraints. And if the Deere contract is any indication of the shifting leverage between labor and employer, expect further wage increases of note next year, whether union or not.

Looking for any signs of easing constraints though, here was one particular quote (and was only one), before the other quotes below, from someone in Transportation Equipment Mfr'g, "I do get a feeling from my suppliers that the supply chain is slowly getting better. In no way is it good, but I can at least get an approximate time frame of deliveries, which they would not give us earlier this year. They are always late, but at least they have a plan." Others don't point in that direction however.

Chemical Mfr'g:

"Higher-than-historical raw materials costs, continued supply-chain shortages, and the continued war on talent with limited labor availability have impacted near-term to 12-month business forecasts negatively."

"Based on current data and information from suppliers, we have started to plan for much higher materials and logistics costs in the upcoming months."

Nonmetallic Mineral Product Mfr'g:

"Supply-chain issues and price increases for all materials continue to be a serious problem. We are not able to pass on pricing increases because our contracts are fixed-price."

"Importing continues to be a nightmare. Lead times from overseas are at a historical high due to slow shipping. Import freight costs are at a historical high. Container fees due to the storage of full containers are at a historical high. The cost of prepaid inbound inventory is at a historical high (which hurts cash flow and increases costs due to higher interest payments)."

Primary Metal Mfr'g:

"Business is good but it's continuing to be taxing to our energy and ability to chip away at our backlog. Prices and availability of materials continue to be an issue.

"Labor shortages continue to be a problem."

Machinery Mfr'g:

"The vaccine mandate makes our employee outlook grim. We have many employees who are not willing (or not able) to be vaccinated and do not want to drive 30 minutes out of town for a weekly test. We are already having a difficult time finding people who want to work; now it is that much more difficult."

"We are implementing price increases across the board, and we have not had much pushback from customers as they are apparently expecting them to increase."

Computer and Electronic Mfr'g:

"We are adjusting to the new realities of increased costs and increased delivery times and potential shortages. In our industry, there are several new entrants and new partnerships that are changing our industry."

"We have continually had to push out lead times due to longer lead times of parts used."

Transportation Equipment Mfr'g:

"Managing cash flow is becoming more challenging as we experience a recovery of our business while seeing significant increases in raw materials, tooling and outside processes. Compounding this challenge are customers extending payment terms. As an SME [small- to medium-sized enterprise], we have been unsuccessful countering the large customers' extension in payments. The rate and scale of increasing costs and the delay of cash receipts have created a major risk for our company. For the first time in 40 years, our company is in jeopardy."

"Inflation, the supply chain, the COVID-19 vaccine mandate and its impact on personnel, and energy prices are issues affecting our business."

Food Mfr'g:

"Ingredient costs are increasing-in some cases doubling. Pallet costs have nearly doubled. Lead times for scheduled deliveries are more uncertain. Ocean freight has quadrupled in price. Add in the fragility and lack of integrity and general distrust this administration has created, it is an unstable environment."

Misc Mfr'g:

"Continued disrupted raw material availability, increasing raw material costs (our raw materials are copper, brass, steel, stainless steel and aluminum), metal mills changing terms and continuous fabrication price increases, lack of available human resources, and cost increases across the board for literally all supplies/services have caused major disruption to our ability to manufacture product timely. In first quarter 2022, we will charge customers the price in effect at time of production (PIE) for the first time in our 40-year history. We are forced to do this because of instability in metals markets, both material availability and price."

DALLAS MFR'g

The market has quickly returned back to The Nifty Seven - with little interest in any security away from the anointed few.

My only buy today has been a small one in (VRNOF) at $10.97.

Here are the market breadth and heat maps as of 10:15 am.

So we now certainly wait to see how effective the current vaccines are to omicron and to what extent there is degradation in their efficacy. I'm scheduled to go to Israel in three weeks but now that trip is completely up in the air.

To spin the positive here, we've come a long way over the past 20 months in developing incredible vaccines and anti viral drugs and learning to live with something that seemingly will be following us around for a few years to come. I've said this for a while and particularly with Delta that we have no choice but to power thru with all the safety measures (all included) we've balanced since first socializing outside again last spring/summer after the initial lockdowns. And lastly, hopefully another widely spread variant will help speed up the vaccination process, even for those that didn't initially want it. The supply of vaccine is not the issue anymore in some key countries, particularly in Africa and seems to be a delivery one in the arm instead.

With respect to the Fed, of course everyone's market attention then turns to 'what will the Fed do now?' We just can't live without them unfortunately it's apparent, again.

Assuming the vaccines still maintain a high level of effectiveness (remember that the flu shot is only 50% efficacious), the Fed should continue on with the taper, even at the faster pace hinted at as it will only be the fed funds rate that will be the right tool needed in dealing with inflation or at least give them the flexibility to do so as it is the only thing that can directly target the demand side. That's what they should do. What they will do is go slow as they always do when attempting to take away the punch bowl. We can only hope that omicron won't result in more supply chain problems.

Buy the dip in commodity related areas like energy, ag and the precious metals. I also would be buying travel/leisure stocks as if there is a mega trend that keeps bouncing back in the face of COVID, it is the desire to see the world, friends and be social.

The US dollar was not the safe haven on Friday but the selloff comes in the context of a great run and a move that got overbought. Whether it's now just an interest rate differential play and nothing more we'll have to see but if that becomes the case, that would be quite the change.

With Vietnam factories back open (for now at least), exports jumped 18.5% in November y/o/y and that was well better than the estimate of up 7%. Exports of machinery/equipment, textile/clothes and computer/electronics led the way. Imports were higher by almost 21% vs the forecast of up 8%. While Vietnam made a mistake in taking such a drastic approach to COVID by fully shutting down manufacturing over the past few months, I think they got the wake up call after many businesses threatened to leave if they didn't reverse themselves. Vietnam's manufacturing importance will only grow further in coming years. I own Vietnam stocks via an ETF. The Ho Chi Minh stock market is up 35% year to date.

While the ECB still has interest rate policy below zero, Italy said its PPI skyrocketed by 9.4% m/o/m in October. Yes, m/o/m. It was up by 25.3% y/o/y. The Italian 10 yr inflation breakeven is up almost 3 bps to 1.54% but that is off the October high of 1.86%. It did start the year though at .85%.

ITALY PPI y/o/y

The November CPI in Spain rose .3% m/o/m after a jump of 1.6% in October. Prices are up 5.6% y/o/y with both as expected. Germany reported its regional consumer price indices and at 8am est we'll see the national number likely down by .2% m/o/m but higher by 5.5% y/o/y.

As there are few places that has as bad a history lesson with inflation than Germany, ECB member Isabel Schnabel today was on German tv trying to soothe concerns. She said "I can very well understand that many people have worries." But, she is predicting 2% inflation next year. "If we thought inflation would permanently settle above 2%, we would definitely react. However, at the moment, we see no indications of this" she said. We'll see. While I talk about how the Fed is helping the US Treasury finance the US government, it is even more extreme in Europe where government finances are just about solely dependent on ECB and bank buying. So responding to inflation is easier said than done.

The November Economic Confidence index out of the European Commission saw a dip to 117.5 from 118.6 but that was in line with the consensus and as seen in the chart below, remains high. A drop in consumer confidence was the main reason for the m/o/m decline due to COVID worries as manufacturing was little changed and services, retail and construction were all higher. The challenge overall remains inflation. "Selling price expectations in all surveyed business sectors (i.e. industry, services, retail trade and construction) shot up further, reaching new all time highs. Consumer price expectations remained broadly stable" said the EC.

ECONOMIC CONFIDENCE in the EUROZONE

A Recap From Ben Marsh at BTIG: 

* Put/Call ratio matches second highest of past year and level seen at the mid-May and mid-July lows

* 7 day Nasdaq comp advance-decline index average; only lower at the March 2020 crash and Dec 2018 lows past decade. NAZ comp breadth is FLUSHED

* Month-end supply and a big MSCI rebalance Tuesday

* Positioning Cleanse: This past Friday was a low liquidity day, with many traders away from their desks for the Thanksgiving holiday. With the stretched positioning, and then the bad COVID headline, we were vulnerable to a selloff. It was made worse by the gamma positioning of the dealers which was basically even at the open (the SPX was short $450MM of gamma, while SPY was long $444MM). This meant that as we declined, it started to quickly dig into the negative gamma portion, where dealers would need to sell more as prices fell.

Jack Dorsey has announced he is stepping down as CEO of Twitter (TWTR) . 

In my view this is a big plus.

* While I am not bullish, I am less bearish

* On a (tactical) trading and even on an investing basis, markets may have overreacted to the Omicron news on Friday

* I covered a bunch of shorts on Friday

* It might be time to consider being a bit more greedy when others are fearful as many stocks - away from "The Nifty Seven" - have fallen dramatically and may represent both shorter and longer term value

* Look at the fall in stocks like Disney and Boeing, as examples - price is what you pay but value may be what you get!

* My base expectation is that Omicron will likely be very transmissible but less virulent than COVID - and, like before, that our medical and scientific communities will quickly deliver a vaccine

* Importantly, Omicron, like COVID-19 before it, might give the Fed and other central bankers cover to move more slowly in its tapering interest rate hikes - bolstering financial conditions and liquidity... which is the straw that stirs the market's drink.

The only certainty is the lack of certainty. 

We live in a complex and interconnected world. 

We live in a world of probabilities, not in a world of precision or single point price targets. 

We live in a world, as said previously, with a wide range of economic and market outcomes. 

It is for these reasons that I have been critical of a number of media commentators who routinely ask their guests questions like "where will the S&P Index be at the end of 2021" and critical of those commentators that confidently answer their question! 

The markets were minding their own businesses, fighting off another intraday decline and ended last Wednesday night within one percent of an all-time high. It seemed that nothing could slow down the train of liquidity that has led to a fantastic rise in the averages this year. 

Then, late Thursday, when the markets were closed for Thanksgiving, a new variant was disclosed and the market collapsed in the holiday- shortened Friday session. 

How one played the swift market decline - I closed out my Index futures and a lot of my shorts - is really not the initial point of this missive - rather, its the uniqueness, interconnected and complicated nature of the times, and its impact on our investing, that has made me risk averse over the past number of months. 

For several years - despite being bullish in November, 2018 and April, 2020 when stocks sold at a discount to my "fair market value" calculus - I have emphasized that there are numerous outcomes that could adversely impact the markets and the global economy - and I have suggested that this set of affairs warrants a larger than expected cash reserve to take advantage of untoward developments. 

Such was the case on Friday - as the Omicron news underscores this notion of uncertainty which forms the foundation of my case for holding above average cash reserves. 

While the averages are still only about a 3% discount to the all-time high and I continue to believe that inflation and supply dislocations will be sustained at higher levels and disorder than the consensus expects, many stocks are down considerably and have fallen to attractive prices. 

As you can see in my Diary posts, I aggressively added to some of those longs on Friday and covered a number of shorts. 

As to the new variant, Omicron - there is a range of outcomes from the unimaginable to the benign. 

My guess, and baseline expectation, is that, at least governed by the facts today, the new variant, while quite infectious, may have only a mild impact on those that are affected. As a society we have learned to live with COVID . Moreover, the medical and scientific communities have been well tested over the last two years - an effective vaccine is likely on the way. Already Moderna (MRNA) , Pfizer (PFE) and others have suggested that a vaccine could be delivered at the turn of the New Year. (This simple notion - of faith in the medical/scientific communities - was an important feature in why I turned positive on equities in March, 2020, during the "teeth" of the pandemic fears.) 

Importantly, Omicron could provide "cover" for the Federal Reserve, resulting in slower economic growth, coincident with some country shutdowns, a fall in commodities prices - the price of crude oil was -13%, or $10/barrel on Friday alone!, a delay in the consensus rise interest rates - on Friday the 10 year US note yield dropped by 16 basis points to 1.48%, and a likely setback in the timing of the Fed's anticipated tightening next year. 

This means that a generational low in real interest rates - the real 10 year yield of -4.7% today is the lowest ever seen - which has supported equity prices, and may be a continuing condition and prop:

As we learned again, on Friday - having greater than normal cash reserves remains a reasonable strategy in a setting in which a wide range of possible outcomes remain likely. 

What I Am Buying

As noted in my Diary, I covered a number of shorts on Friday, beefed up my longs and I initiated some new purchases: 

* Purchased (DIS) at $146.

* Covered my (SPY) short at $461.20 (Bought some SPY for a rental at $460.85 and sold out at a profit.)

* Added to (BA) ($196.70), (C) ($64.50), (JPM) ($161), (VIAC) ($32.68), (MSOS) ($27.85), (IVZ) ($23.40), (T) ($24.18) and (TLRY) ($10.37).

* Covered all of my (NVDA) under $320.

* I added to (VRNOF) and (GTBIF) on weakness.

* On the whoosh lower, I covered my (HD) short for a loss, and reduced my (KKR) and (BX) shorts.

* I added to my Citigroup (C) and JPMorgan Chase (JPM) holdings in the premarket at $64.75 and $161.02, respectively.

Compelling intermediate term opportunities are cropping up away from The Nifty Seven.

Some of Friday's purchases included: 

* Citigroup: Trading at $65 - down from $80 in May, 2021 - the price decline benefits this bank with excess capital and an aggressive and accretive corporate buyback program.

* Boeing: Down $32 in the last few trading sessions - Boeing and Airbus are the only games in town.

* Cannabis: A decision on Safe Banking legislation occurs this week. Cannabis stocks are heated and trading at very attractive EBITDA multiples, compared to the superior secular growth prospects.

* ViacomCBS: Insiders bought 10% higher two weeks ago. A valuable entertainment franchise selling at a fraction of private market value.

* AT&T: Incompetent management that is finally rationalizing its business (re: the Discovery/Warner deal). Well above average yield which reflects investors' negativity to the name. Vulnerable to an activist investor.

* Disney: Down from $180 to $145. I have reversed my negative position (on price) in this name. Note: The same bulls that criticized my negative position on Disney and who were buying $35/share higher, are now backing off! That I don't get. 

Bottom Line

I believe the markets, in general, and some stocks, in particular, may have overreacted to the Omicron news on Friday. 

The "B" side of the new variant is that liquidity may flow longer than expected and that financial conditions may not tighten as soon as feared. 

Though I plan to maintain larger than normal cash reserves, it is my view that a growing list of equities now possess a more attractive upside reward vs. downside risk on both a shorter and longer term basis.
__________ 

Long C, BA, cannabis indices and common, VIAC common and calls, VIACP, T, DISCK, DIS, JPM, MSOS, IVZ, TLRY, VRNOF, GTBIF.

Short C calls, BA calls, VIAC puts, T puts, MSOS calls, IVZ calls, KKR, BX.

From Charlie, here.

Real disposable income is falling to below trendline: 

1. Retail foot traffic was down 28% from 2019 levels this Black Friday, with six in ten shoppers starting their holiday shopping before Thanksgiving this year; meanwhile, online shopping fell to $8.9 billion from 2020's $9 billion, per Adobe Analytics, the first decline on record
2. While Adobe predicts Cyber Monday sales of $11.3 billion, the National Retail Foundation expects holiday sales to rise 8.5-10.5% YoY; with just 21% of upper income earners facing sticker shock vs. 32% of lower income earners, the wealthy should drive holiday spending
3. Real disposal personal income per capita has now fallen below trend, per the BEA, round-tripping to November 2020 levels; instead of inflation falling in the lead-out of a recession, stimulus helped to accelerate price increases while preventing wages from keeping pace