Thanks so much for reading my Diary today.

Enjoy the evening.

Be safe.

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• New York Stock Exchange volume was 730 million shares, 69% above its one-month average;
• Nasdaq volume was 6.77 billion shares, 65% above its one-month average;
• VIX Index : 12.34 to + 1.23%

NYSE Highs : 260 Lows : 2

Nasdaq: Highs : 318 Lows : 40

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I shorted Costco (COST) in the after market at $642.17 following the EPS release.

More tomorrow.

Wolf Street howls about a "YOLO" consumer: "Our Drunken Sailors Go Splurging Online, at Auto Dealers, and Massively at Bars & Restaurants (YOLO)"

* At 3:45 p.m.

From Jefferies:

The spread of hedge fund longs vs. shorts is -11.5% over two days. That's the second worst stretch over the last ten years. The only worse period was January 2021, when GME was +353% in two days (long/short spread was -18% over two days). To the extent it's useful, that unwind was brief and the long/short spread rallied 30% over the next month.

Anyhow, given that unwind was largely driven by one stock (whereas this move is more broad-based), I think there is logic to excluding it from the dataset. So I think it's fair to call this the most painful two-day stretch for long/short in a decade.

The first chart shows this with GME unwind excluded. The second shows it included. Lastly, for what it's worth - yesterday was very busy, while today is much quieter. Yesterday's price action felt like humans were unwinding, whereas today feels more systematic.

GME Unwind Excluded

GME Unwind Included

I am on my third research call since lunch.

Back shortly.

At $149, I have reduced Chevron (CVX) from middle to small sized.

Will add back on a correction.

From Peter Boockvar:

No ECB dot plot but they have The Press Leak instead

While the European Central Bank doesn't have an official dot plot, they have their own form of revealing what their individual member expectations are thinking in terms of the future of rate policy and it's unofficially called by me, The Press Leak.

Bloomberg News is reporting that "ECB policymakers are largely united in expecting to cut interest rates later than financial markets currently anticipate, according to officials familiar with their thinking."

Further, "The Governing Council discussions this week featured some irritation about aggressive bets on lower borrowing costs and some members were confounded by the extent of easing priced in by investors, said the people, who asked not to be identified because the deliberations were private." Jay Powell in contrast of course, along with many of his colleagues, have embraced the extent of easing priced in by investors.

The euro is at the high of the response.

Prior to this story, the overnight index swap was pricing in a 39% chance of a rate cut in March and 100% by April. By October, the swaps market is pricing in a 2.60% ECB deposit rate vs the current effective rate of 3.90%.

Intraday Euro Move

Emboldened bulls must ask whether the interest-rate relief of the last month will have a significant impact on the U.S. economy (which is experiencing a pronounced slowdown) and/or on U.S. corporate profits.

Yes, lower rates have lifted financial assets but the real economy's future in 2024 as well as the consensus (+12%) rise in next year's S&P profits remain problematic:

From Art Cashin:

The rally continues but begins to slow a bit as we move quite into overbought territory.

Yesterday's buying was somewhat frenzied and has taken a large portion of stocks to rather extreme levels relative to things like moving averages.

They may begin to pause. Also, some slowing after Lagarde spoke. Some of the brokers I spoke to said she did not sound as bullish as Powell did, but I think that is because the ECB has a single mandate, and it is about inflation rather than employment. So, it is from somewhat different perspectives.

That having been said, money will be shipping toward the market and should cushion any type of corrective pullback. So, I think we are seeing more of a consolidation than anything else.

Another interesting matter is that according to the Wall Street chatter I hear, Janet Yellen's credibility has been greatly enhanced by the Fed move and she was leaning bullish before, talking about things like soft landings in her interview with Sara Eisen on CNBC. At the risk of bumping into her former colleagues at the Fed, she seemed to express views about where rates would go, where value would go and, as I say, the recent Fed decision has apparently enhanced her credibility. We will watch that carefully.

Last night, I did the annual walk back and look ahead interview with Bob Pisani over at the bar at Harry's on Hanover Square and the great man Harry himself was there to share a cocktail or two with us. We got a chance to interview him. Harry is one of the most beloved characters in Wall Street. A guy who as a restaurateur carried a lot of traders and brokers through hard times and for that he gained many friends and a loyal audience. Hopefully, some of that will be in the interview. We will try and get details from Bob as to how you may access the interview. Those in the crowd around the bar thought it quite an interesting interview. Not because I was involved in it, but because it carried a good many areas and, of course, as I said, some conversation from Harry himself about Wall Street and changes in sixty or so years he has been catering to the trading crowd.

So, at any rate, we think the market may begin to pause and catch its breath, but there are no technical signs that a corrective reversal is due. It looks like the bulls can easily remain in control till year end and, as we have been saying for a couple of days, traditionally, the markets take a pause as you go into Christmas itself. Many people forget that the Santa Claus rally, in fact, starts pretty much after Christmas and it is the final five trading days of the year and the beginning in the New Year that new positions are taken.

We will get through some of that and get to that access data.

In the meantime, please stay safe.

Arthur

No trades today.

My good buddy Peter Boockvar, chief investment officer with Bleakley Advisory Group, isn't so sure the Fed has accomplished its inflation-fighting mission even as the stock market throws a "Pivot Party.":

I saw one news outlet refer to what we're seeing in the markets as the Pivot Party and it certainly is. But, when you think about it, this party really started last October when the stock market bottomed just as the Fed was decelerating its pace of rate increases from 75 bps. That party was mostly populated by the big cap tech stocks as we know but now it seems that everyone has showed up, good for those of us who own small and mid-cap stocks, in addition to some of the 493 S&P 500 names.

We do though have to ask ourselves, is this the equivalent of the 2nd half of 2000 as the Fed was shifting to rate cuts, which they commenced in January 2021 and you know what happened to the economy and markets? Is this a replay of the latter part of 2006 and into 2007 where the cuts began in September 2007, the stock market made a new high in October 2007 and then the bottom fell out? Or is this 1994 right before the take off in 1995? I'm not saying it will be the first two but I definitely don't think it's the latter either. Nothing is easy as it seems.

I can't help watching Jay Powell yesterday and remembering the George W. Bush speech on May 1st, 2003 on the aircraft carrier USS Abraham Lincoln with a big sign behind saying "Mission Accomplished." It was of course far from it.

There was no inner Paul Volcker heard yesterday with Powell. There was no reminder of the lessons learned from the 1970s. There was no mention that they want to see a 'sustained' pace of lower inflation before they get comfortable. There was even a different guy than the one who spoke just two weeks ago who tried to push back on market easing expectations. It was seemingly 'Mission Accomplished' and now we just have to figure out when and why we start cutting rates was his message. Will it be the Fed chasing lower the REAL rate and moving solely due to continued moderation in inflation? Will it instead take a notable rise in the unemployment rate? What happens if the huge easing of financial conditions we're currently seeing regenerates quicker economic growth and inflation?

As my former boss Larry Lindsey wrote yesterday sarcastically, "Fifteen years of extremely easy monetary policy, extraordinary measures such as QE, and sustained huge budget deficits have apparently been tamed with nothing more than a little indigestion and certainly no inflation. Perhaps Modern Monetary Theory was right after all."

After believing that we were due for a 10 yr Treasury rally on the October 23rd 5% reversal day, I think the 10 yr note is now a sale.

At least on the wage front, unless the higher rates of productivity seen the past few quarters continues after more than a year of very disappointing readings, 2% sustained inflation will be tough to come by, or if it is seen, profit margins will have to absorb it.

I say this after listening to the earnings conference call yesterday of ABM Industries, a stock we own, which is a company that has about 130,000 employees, so rather large, providing a variety of different outsourced services including janitorial work, the cleaning of airports/airplanes, installing charging stations, fixing HVAC systems, etc... To the question, "I wanted to ask what you're seeing from a labor inflation and pricing perspective, and if you could kind of provide underlying assumptions for '24 guidance with respect to labor cost inflation and the recovery rate there." The answer, "we're thinking it's going to be in the 4% to 5% range...And you know, just as a reminder, we've been successful over the last few years of recovering 75% to 80% of that. So, that's what we're thinking."

The Norges Bank in Norway surprised us with a 25 bps rate hike to 4.50% but it's likely the last one. Governor Bache said "The economy is cooling down, but inflation is still too high. An increase in the policy rate now reduces the risk of inflation remaining high for a long period of time. The policy rate will likely be kept at 4.5% for some time."

This was not repeated by the Swiss National Bank which did nothing as expected with rates still at just 1.75%. "Monetary conditions are adequate and we do not have to hint at any change of monetary policy in the future. Price stability is already ensured given our newest inflation forecast" said Governor Jordan to BN. Another 'Mission Accomplished' declaration.

The Bank of England left its bank rate unchanged at 5.25% also as expected but gilts are selling off and the pound is rallying because Andrew Bailey didn't sound like Jay Powell and the same with 3 members who wanted rate hikes. This also comes after GDP in October seen yesterday fell .3% m/o/m, worse than expected. The BoE statement acknowledged the slowing rate of inflation but "key indicators of UK inflation persistence remain elevated...Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee's remit...the Committee continues to judge that monetary policy is likely to need to be restrictive for an extended period of time." Also, "Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures."

Yes, CPI is trending still to high in the UK as they are suffering from a bad bout of stagflation. Services inflation is running at 6.6% on a 12 month basis.

In Asia, the central banks in Taiwan and the Philippines both kept rates unchanged as expected.

The Pivot Party has everyone excited and that was reflected in the stock market sentiment data. Yesterday, Investors Intelligence saw Bulls stay above 55 at 55.6 vs 55.1 last week. Bears are now below 20 for the first time in a while at 19.4, down from 21.7. Those expecting a Correction are near the lowest since late July. AAII today said Bulls rose 4 pts to 51.3 and that is .1 pts below the highest level since April 2021 around when the meme stock bash was still raging though which peaked in its euphoria a few months before. The Bears sunk by 8.1 pts to just 19.3, the lowest since January 2018 within days after the corporate tax cut was passed. The CNN Fear/Greed index closed at 71 vs 66 one week ago and 46 one month ago is closing in on the 'Extreme Greed' level. That's the highest since early August.

Bottom line, the Bull boat is now standing room only and the Bears have disappeared.

AAII Bears

Upside:
- (ALK) +1% Q4 update
- (CDXS) +12% achieves Gram-scale Synthesis with ECO Synthesis Platform
- (ESPR) +15% US FDA updates LDL-C lowering indication for NEXLETOL
- (MRNA) +7% benefits of Moderna and Merck MRK melanoma vaccine plus Keytruda extend to three years
- (RIVN) +3% AT&T purchase agreement
- (MNMD) +16% et primary endpoint in positive topline results from phase 2b trial
- (SOTK) +6% preannounced
-CARM +14% first In Vivo CAR-M lead candidate nominated under Carisma-Moderna collaboration
- (CLSD) +5% progress in ODYSSEY Phase 2b Trial

Downside:
- (ADBE) -5% reports Q4 results; initial FY24 topline guidance disappoints
- (PBA) -5% acquires ENB assets for $3B
- (ASYS) -27% Q4 Net Rev $27.7M v $32.3M y/y; Anticipates an impairment charge
- (NUE) -2% preannounced
- (APLS) - 13% regulatory review announcement
- (NXTC) -28% pre-clinical updates

Premarket percentage change movers

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For those that believe in the Fed's Dots, I recall:

"Whenever a breakout occurs with a stock moving into virgin territory (it's never traded there before), this is the most bullish situation you can buy. Think about it. There isn't one person who is long and has a loss."

- Stan Weinstein

Note how giddy the technicans are:

Bonus: Here are some valuable links:

* The Magnetic Attraction of All Time Highs

* Three Contrarian ETF Ideas for 2024

* A Clear Path

* Russell Oversold

* The Morning Show

This is a valuable table for momentum-based short-term traders:

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From JPMorgan:

US: Futs are higher, continuing the Fed-induced rally. Bond yields are lower with the bulk of the curve seeing a bull steepening and the 10Y now below 4%. USD sell-off continues amid a global bond market rally. Cmdtys are mixed with Energy leading; $70 again acts as support for WTI. The mkt narrative has shifted forcefully to soft landing which may be supported by upcoming Fedspeak and reflected in the yield curve. Let's see if the SPX can breach 4,800 before year-end. The macro data focus for today/tmrw is Retail Sales, Jobless Claims, and Industrial Production, and Flash PMIs. Given the upside surprise delivered by the Fed, this data may not be market-moving but remain useful for understanding whether the growth without inflation hypothesis remains intact. Feroli increased his 2024 rate cut forecast from 100bps to 125bps and now see the first cut delivered in June rather than July.

and...

NOTE: US Market Intelligence last publication for 2023 is TODAY. Happy Holidays and thank you for reading!

EQUITY AND MACRO NARRATIVE: The Powell Pivot has shifted the market narrative and while yesterday's price action reflected the soft landing approach, it is unclear if we will see long buying to push this narrative forward or if the short covering rally dissipates more quickly. Below is a repost of my view from Monday's Morning Briefing. While I got the cautious tone wrong, the fundamental view driving the longer tactical view appears to be intact. It seems likely that we see the next batch of Fedspeak echoing the newly dovish Powell. If so, let's see if the yield curve sees a sustainable bull steepening, which should increase the breadth of this rally. Further, let's see if today's Retail Sales and tomorrow's Flash PMIs support the growth without inflation narrative.

US MKT INTEL TACTICAL VIEW (from the Dec 11 Morning Briefing) - Cautious this week and then tactically bullish. With few remaining catalysts in the year, I think those will be net positive, but the more dominant factor will be bond yields. Given the loosening of financial conditions amid the recent bond rally, it seems likely that that Fed will attempt to talk yields higher. If successful, we may see Tech sell off with yields higher potentially leading to a consolidation and the end of this short covering induced rally. Further, the SPX has failed at 4,600 previously so it may require another shift in the market narrative to get through 4,600. What leads to that shift? Again, look to yields. While it seems consensus that the Fed has concluded its hiking cycle, we have not seen the bull steepening of the yield curve that typically comes with the end of a hiking cycle. I think you need to see this happen and possibly a disinversion of 2s/10s to get investors more comfortable with adding risk. Thought differently, are we in inning 5 of a business cycle that began last summer (recall 2022H1 saw negative GDP growth) and will continue for another 1-2 years or are we about to see a double dip recession? I think the former. If so, then another component will be improved earnings and forward guidance. Currently, we are seeing earnings revised lower as we are about a month away from 23Q4 earnings season.

· TRADES (not a product of Research) - For longs, consider Tech, Financials, and Cyclicals (JPAMCYCL Index). For hedges, consider a mix of IG and HY Credit, e.g., LQD and HYG. For investors that can use options, consider adding downside protection with Jan/Feb downside protection given low levels of vol.

· KEY RISKS TO OUR VIEW - (i) spike in bond yields; (ii) NFP - a negative print at any time will shift the narrative to a recession negatively impacting stocks; (iii) Retail Sales - two to three consecutive negative prints likely shifts the market to a recession narrative; (iv) negative EPS growth; (v) inflation spike with the most likely driver an exogenous shock via oil prices; and (vi) worse than expected macro data leading to low/no/negative GDP growth, e.g. -0.5% to 0.5% GDP growth.

There will be no Futures column this morning as I have a research breakfast and a Board meeting from 10 a.m. to noon.

Radio silence.

I recently observed that a large buyer appeared to have emerged in Occidental Petroleum (OXY) :

Just Wishin' and Hopin'

Wishin' and hopin' and thinkin' and prayin'
Plannin' and dreamin' each night of his charms
That won't get you into his arms
So if you're lookin' to find love you can share
All you gotta do is hold him, and kiss him and love him
And show him that you care

- Dusty Springfield, Wishin' and Hopin'

A large buyer just came into (OXY) ... just wishing and hoping for The Oracle of Omaha.

His last buy was at around $62/share a few weeks back.

After the close of trading, Berkshire Hathaway (BRK.A) (BRK.B) revealed that it has acquired another 10 million+ shares of Occidental and now owns over 27% of the outstanding shares:

Form 4 for Buffett Warren E filed 12/13/2023 (gcs-web.com)

As I expected, the timing of the purchases indicates that Berkshire was informed and had inside knowledge of the CrownRock acquisition and agreed to the transaction (in advance).

Berkshire recommenced buying this week as soon as legally allowed.

From my friends at Miller Tabak:Wednesday, December 13, 2023The Fed Admits the Obvious, Rate Cuts Are Coming

We expected the FOMC to stop pretending that more rate hikes are on the table. Despite maintaining language about "any additional policy firming," Chairman Powell bluntly admitted that the addition of "any" acknowledged that the Fed knows that it is done hiking. Next month, expect them to remove this language altogether. Chairman Powell surprised us, however, by acknowledging that that the timing of rate cuts was a "discussion for us at our meeting today" and candidly discussing the factors that will affect their timing. Given recent inflation data (more on this later), the Fed will not be able to wait much longer. We are upgrading our expectation for the timing of the first cut from July to May and the amount of 2024 cuts from 75 bps to 100 bps.

We are focusing on three factors that will affect the timing. The first is obviously inflation data, although this will have to be much worse than expected to significantly slow the Fed. The Fed's new 2.4% core-PCE inflation forecast implies a historical Federal Funds rate around 330 bps, 200 bps below the current 525-550 bps band, leaving a large margin of error. The second is the pace of slowing growth. The new Summary of Economic Projections (SEP) is realistic. It matches our own forecast in predicting 1.4% GDP growth in 2024, which likely means around 0.9% in the first half and 1.9% in the second half. For now, this is still a forecast but if it manifests itself in much slower job growth, the Fed could move earlier. Finally, long-term yields remain important. The 10-year yield is, sensibly, at 4.02%. If it rises back to the ballpark of 4.5%, an event we think is unlikely, then the Fed could move by March.

Beyond 2024, we also expect the fed to move faster than suggested by its new SEP. The Fed expects 100 bps of cuts in 2025 to bring rates down to 350-375 bps, but this is inconsistent with its forecast for 2.23 core-PCE inflation in 2025, which we share. We expect the Fed to hit 300-325 bps level by the end of 2025 before creeping down to neutral (more on this below) in 2026.

Other Developments in Macroeconomics:

1. Once rate cuts begin, the next big question is how low the Fed will go? We have written that this question is far more important for long-term yields than what the Fed will do in 2024. We have been writing for months, since it was near 5%, that the 10-year Treasury yield should be under 4%. Our 2.9% neutral rate estimate partly underpins this view. Pre-pandemic, the Fed was consistent that the neutral rate was between 200 and 250 bps. As recently as December 2022, only three of seventeen FOMC members forecast a higher neutral rate. This figure has crept up throughout 2023 so that seven FOMC members now see a higher neutral rate, with two as high as 375 bps. Powell acknowledged the higher uncertainty around neutral citing it as one reason why the Fed slowed its rate hikes earlier this year.

2. The November CPI data are a mixed bag. The overall core-inflation figure of 3.4% (m/m, annualized) is unremarkable. We are enthusiastic, however, because "supercore," (blue in Figure 1) which also removes housing, was just 1.9% annualized. This brings its six-month average to just 1.2%, the figure that has forced the Fed to change its tune. In the short-term, however, the November data will also embolden the remaining hawks on the FOMC. Core service inflation, ex-shelter, jumped to 6.2% annualized (red in Figure 1) and has diverged from overall core inflation in recent months. The Fed watches this component closely out of concern that it predicts upcoming inflation. We disagree. We note that it is only one-quarter of overall CPI. We also note there is no evidence in recent decades that elevated high core-service inflation is a red flag for future inflation.Figure 1: Core-CPI Inflation , ex-shelter (blue), and Core-Services, ex-shelter (red)

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3. A new Civiqs survey helps explain why the general public's sentiment towards inflation has not improved despite better data. It finds that most households equate economic improvement with prices, not inflation, falling back to 2020 levels. It is easy to dismiss this as a basic misunderstanding of how inflation works, the economy recovers when incomes catch up to prices, not when prices fall. It is, however, consistent with the Fed's "average inflation targeting" policy that it still officially on the books. Were this actual policy, the Federal Funds rate would be over 10% to allow the Fed to offset recent high inflation with much lower than 2% inflation in the future. The Fed will need to formally abandon this ill-fated policy before it starts rate cuts.