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As BFF Johnny The Greek reminded me (in The Comments Section) I was a day early (!):

A Ludacris Forecast

Currently S&P cash is +22 handles.

As you all know I occasionally make a Ludacris Forecast that equities - after being elevated - may reverse on a daily basis.

Usually I look very stupid in doing so - and I probably will again today!

Nonetheless, given the oversold and the emotional buying of equities over the last seven weeks, we could be close to a sharp reversal today.

Ludacris!

BY DOUG KASSDEC 19, 2023 11:38 AM EST

• New York Stock Exchange volume hits 450 million shares, 3% below its one-month average;
• Nasdaq volume hit 5.04 billion shares, 15% above its one-month average;
• NYSE Highs : 39 Lows : 11
• Nasdaq: Highs : 59 Lows : 68

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Private equity leading lower: 

My Private Equity Shorts

I have added to my private equity shorts - (APO) , (BX) and (KKR) .

Position: Short APO (S), BX (S), KKR (S)

BY DOUG KASSDEC 20, 2023 2:18 PM EST

At 2:30 pm:

* Intraday

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I have added to my private equity shorts - (APO) , (BX) and (KKR) .

I have moved to tagends in Nike (NKE) at $123.23.

I am also reducing St. Joe JOE at $59.63.

Crude oil has more moves than a shortstop batting .110 today. 

Was down, then up and now down...

Bill Gates' forecasts for 2024.

We are in rarified air with the Fear and Greed Index and RSI - as previously noted this week: 

The RSI Is Elevated

* What does spell for the future?

As well, the S&P Short Range Oscillator has risen from 4.51% to a deeply overbought 7.04% in one day. 

On top of this Investors Intelligence bulls rose to 56.9 from 55.6 and bears are down to just 18.1 from 19.4. We are nearing a 40 point spread between bulls and bears which is extreme.

From Peter:

The December Conference Board's consumer confidence index jumped to 110.7 from 101 and that was well above the estimate of 104.5. Both the Present Situation and Expectations components contributed to the gain and it's the best print since July when we saw 114.0. One yr inflation expectations were little changed at 5.6% vs 5.7% but that is the lowest since October 2020 and compares with 4.5% in February 2020. 

The answers to the job questions did improve with a rise in those that see jobs as Plentiful and a drop in those who think jobs are Hard to Get. Expectations for 'more jobs' also rose. Income expectations were up too.

Spending intentions rose for all the main categories of autos, homes and major appliances.

The Conference Board said most of the confidence gains took place in the 35-54 yr old cohort and with income levels of $125,000 and above. Lower inflation expectations, possible Fed rate cuts and higher stock prices are driving this. With stocks, "consumers' outlook for stock prices rose to levels of optimism last seen in mid 2021." That said, others are dealing with the cumulative rise in inflation of about 20% over the past three years and "December's write-in responses revealed the top issue affecting consumers remains rising prices in general, while politics, interest rates, and global conflicts all saw downticks as top concerns."

Also, "when asked to assess their current family financial conditions the proportion reporting 'good' ticked down while those saying 'bad' rose slightly. This suggests consumers' view of their current finances may paint a more tempered picture than the perception that overall conditions are better than a month ago."

Bottom line, at 110.7 and while a definite improvement, consumer confidence compares to the 132.6 level in February 2020 over worries about the damage done to the standard of living of many over the past few years. Slowing inflation, lower interest rates, and higher stock prices are all well and good for a certain portion of the population while others have more challenges dealing with the notable rise in the cost of living.

Consumer Confidence

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One yr Inflation Expectations

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Expectations for Stock Prices

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Existing home sales for November, old news to an extent as it measures closings where contracts were likely signed in late summer when mortgage rates really took off to the upside, totaled 3.82mm vs 3.79mm in October (which was the lowest since August 2010) and 3.95mm in September.

The y/o/y median home price gain was 4% and months' supply was 3.5 vs 3.6 in October and 3.4 in September. The first time buyer did make up 31% of purchases which is an improvement from 28% in October.

Homes are sitting for longer, 25 days on average vs 23 in October, 21 in September and was just 18 in June.

Bottom line, because of the recent drop in mortgage rates, this data point is certainly dated and hopefully we see an uptick in sales since. That said, home price increases continue, are up about 40% over the past four years and thus mitigates the benefit of a lower mortgage rate where mortgage rates are just back to where they were in July.

Existing Home Sales

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Median Home Price

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From "Meet" Bret Jensen:

The CRE debacle 'du jour' dept.

The 41-story EY Plaza in downtown LA entered special servicing this week. The current value of the property is put at $210 million by Trepp, down from $446 million just three years ago. The property has some $275 million in commercial mortgage-backed securities against it as well as a $30 million mezzanine loan. This means the owner's once considerable equity in the building is kaput and the lenders are still going to take considerable haircuts.

My pal Richard Bernstein responds to my opening missive: 

• Is cash attractive? Of course it is. That's why the Fed tightens in the first place... to make cash attractive and disintermediate a broad range of capital and financial investments across the economy. That's how monetary policy has always worked.
• Our friend Michael Hartnett at Merrill has pointed out that cash allocations among ML private clients is almost exactly average. People forget to scale cash levels versus asset levels and wealth.
• That there is still massive speculation in the economy (Bitcoin is a prime example) suggests there is still too much liquidity. Cash rates may not be high enough yet to force a more efficient allocation of capital within the economy and misallocations of capital are inherently inflationary because the economy allocates capital to things not needed (Bitcoin, Jeff Bezos going on a space vacation) and not to things that are needed (rebuilding the American capital stock as globalization contracts).

* What does spell for the future?

From Peter: 

I will first comment on the 'cash on the sidelines' debate that I keep hearing about and have for many years and the belief on the part of some that it's this pot of dry powder to 'come into the stock market.' There is ALWAYS cash on the sidelines as for every dollar that comes off the sidelines to buy a share of stock there is a dollar that comes back on the sidelines from the seller with the proceeds. The only time there is technically fresh money is when there is an IPO or equity secondary as new shares are created.

I mentioned yesterday that Friday saw the biggest ETF inflows into SPY since its 1993 inception and here is a chart to visualize. The $20.8b Friday inflow was followed by another $10.2b on Monday. It finally cooled down yesterday.

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Here is an updated chart on the Goldman Sachs Financial Conditions index, holding at the easiest since August 2022. Quite the flip from the end of October.

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Let's get to FedEx, a stock we own, as there are not many better proxies on global trade for both households and businesses. Strong cost control and its DRIVE initiatives only partly offset the revenue miss, which coincides with the global manufacturing recession we are still currently experiencing.

"Our 2nd quarter performance reflects clear signs of progress in our transformation in what remains a difficult demand environment."

"Looking at the US, market conditions remained soft, with Q2 demand lower than we anticipated. The industry has now experienced 10 consecutive quarters of decline in US domestic average daily volume. Additionally, international market pressure continued."

"Overall, this year's peak season has been relatively similar to last year and it's in line with our expectations...Overall, the market is competitive but rational."

"As far as inventory is concerned, we believe that the inventory destocking phase is over. But, the restocking phase is yet to begin in earnest. So, for the rest of the fiscal year, we are not assuming any kind of improvement in these trends." I bolded it for emphasis as this is the big focus now on what turns manufacturing back up again and when.

As for the delays of product that are now going to take place because of all the ships being diverted from the Red Sea, there were no comments from FedEx but Kuehne + Nagel, the big Swiss shipper, said that there are about 100 ships currently being diverted to go around the Cape of Good Hope, according to BN.

This is what Accenture said in its earnings call and saying their results were "against the macro backdrop that continues to be challenging."

"As expected, we continued to see lower discretionary spend, which particularly impacts our consulting type of work as well as slower decision-making and our CMT (communications and media consulting) industry group continues to be challenged."

In North America specifically, "revenue declined 1% local currency. Growth was led by public service, offset by declines in communications and media, software and platforms, and banking and capital markets."

Overall, "The pace of spending continues to be impacted by the macro environment. Our business in the UK in particular in Q1 saw even greater challenges than we expected last quarter." Big picture though, "The fundamentals of our industry remain unchanged." My bold.

General Mills in their earnings released cited "slower than expected volume recovery in the 2nd quarter...While many factors have evolved in line with our expectations - including moderating levels of input cost inflation and price/mix, as well as return toward price elasticities - we're seeing consumers continue to display stronger than anticipated value seeking behaviors across our key markets, and this dynamic is delaying volume recovery in our categories." My bold.

Just listening to so many earnings calls over the past few months, 'a challenging macro environment' was mentioned on almost everyone.

The October Treasury International Capital flows data came out last night and foreigners shrunk their holdings of US Treasuries by $39.1b to $7.565 trillion. That is no higher than where it stood in July 2021 when US marketable Treasury debt was $4.3 trillion less, thus we keep seeing a shrinking percentage of US Treasuries being bought and held by foreigners. Most of the selling in October came from Belgium which is where Euroclear is based so it's unclear who that mostly was. The UK led the buying but many foreign countries use UK banks to transact so we don't know who that was too. The Japanese increased its holdings by almost $12b after reducing it by $29b in the month before. China's holdings shrunk again, by $8.5b to the lowest level since 2009 at $770b.

Foreign Holdings of US Treasuries

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China Treasury Holdings

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The November US Architecture Billings Index rose 1 pt from October but remains well below 50 at 45.3. Commercial/Industrial rose 2 pts to 45.7, Institutional fell by 2.5 pts to 46.6, Mixed Practice was down by 1.3 pts to 42.7 while multifamily residential ticked up by 2 pts off its depressed level of 40.1 in October. The AIA said "This marks the 7th month in 2023 with a decline in billings. Over the past three months, this pace of decline has accelerated, with firms in all specializations and in all regions of the country reporting weakening business conditions. However, with signs that credit conditions are beginning to ease, firms are reporting an uptick in inquiries for future projects."

As the average 30 yr mortgage rate is now below 7% at 6.83% according to today's MBA data, mortgage apps fell a touch after the jump seen over the prior four weeks. Purchases fell .6% w/o/w after a 3.5% rise while refi's were down by 1.8% after double digit jumps in the two prior weeks.

The UK got good inflation news as CPI growth rates decelerated in November. Headline CPI rose 3.9% y/o/y, down from 4.6% in October and 4 tenths below expectations. The core rate was higher by 5.1%, lower by 6 tenths m/o/m and 5 tenths less than expected. Wholesale prices were down but around as forecasted. Gilt yields are dropping in response and the 10 yr inflation breakeven is lower by 1 bp to 3.52%. The pound is down too and that is helping the FTSE 100.

Consumer confidence in Germany rose 2.5 pts m/o/m but still negative at -25.1. GFK said "It remains to be seen whether the current increase represents the start of a sustained recovery in consumer sentiment. Consumers still have major worries. Geopolitical crises and wars, sharply rising food prices and discussions around national budget for 2024 continue to cause uncertainty. As a result, the level of consumer sentiment is currently still very low." For perspective, this figure stood at +9.1 in February 2020.

Reflecting the still challenging global trade environment, highlighted of course by FedEx, Japan said its November exports fell by .2% y/o/y vs the estimate of up 1.4%. Imports fell 11.9% y/o/y, more than the forecast of an 8.6% drop

Oil continues to catch a bid - good for energy equites but not so much for inflation and the Indexes.

Added to (SPY) and (QQQ) shorts at $474.30 and $408.58, respectively.

Upside

- (TCON) +30% (provides positive update on ongoing ENVASARC pivotal phase 2 trial)
- (LGVN) +24% (announces additional positive clinical data and imaging biomarker results from the CLEAR MIND Phase 2a Trial of Lomecel-B in the treatment of Mild Alzheimer's Disease)
- (HYLN) +16% (announces $20M stock repurchase program)
- (BCTX) +15% (reports unprecedented preliminary survival and clinical benefit in Antibody-Drug Conjugate (ADC) Refractory Patient Subset)
-SHIM +15% (earnings)
- (DARE) +14% (announces positive topline pharmacokinetic and exploratory efficacy results from the DARE-PDM1 Phase 1 Clinical Study)
- (RDHL) +14% (RedHill and U.S. Army announce Opaganib and RHB-107 combinations with Remdesivir show distinct synergistic effect against Ebola)
- (CANF) +12% (reported new data on Namodenoson's anti-obesity mechanism of action)
- (PTN) +9.5% (completes sale of Vyleesi to Cosette Pharmaceuticals)
- (TTC) +9.3% (earnings, guidance)
- (CCO) +7.7% (appoints David Sailer as CFO, effective Mar 1st, 2024)
- (OCC) +7.5% (earnings)
-LIPO +5.3% (US FDA's feedback from recent Type C meeting for LP-10 provides clear path forward into 2024)
- (MGNX) +4.6% (CitiGroup Raised MGNX to Buy from Neutral, price target: $13)
- (ASYS) +4.1% (CEO Daigle bought 66K shares at $3.90-$3.96 this week)
- (FULT) +2.1% (announces increased common stock dividend 6.3% to $0.17 from $0.16 (indicated yield 4.12%), preferred stock dividend, and $125M repurchase program)
- (PARA) +1.9% (Wells Fargo Raised PARA to Equal Weight from Underweight, price target: $18)

Downside

- (BLUE) -45% (prices 83.3M shares at $1.50/share; awaiting US FDA decision on lovo-cel for patients with sickle cell disease ages 12 and older who have a history of vaso-occlusive events)
- (KULR) -31% (prices 4.5M share public offering of common stock at $0.20/shr)
- (FDX) -11% (earnings, guidance)
- (SCS) -9.0% (earnings, guidance)
- (ASPN) -7.8% (files to sell 6.06M shares at $12.38/shr in $75M registered direct offering)
- (WGO) -6.2% (earnings)
- (ACRS) -5.4% (ATI-1777 Phase 2b Trial Topline Data anticipated in January 2024; announces -46% reduction in workforce)
- (GH) -5.4% (announces Mar 28th, 2024 tentative date of FDA Advisory Panel Review of Shield Blood Test)
- (GIS) -4.0% (earnings, guidance)
- (CNK) -3.5% (Wells Fargo Cuts CNK to Underweight from Equal Weight, price target: $13)
- (UPS) -2.9% (lower in sympathy with FDX)

At 9 am:

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* Everyone is entitled to his own opinion but not his own facts

* Facts are stubborn things, and whatever may be the wishes of the bulls they cannot alter the state of those facts that retail money market funds are a lot less than commonly discussed and massive migration into equities rarely occurs

* Moreover, and importantly, retail money market funds as a percentage of total stock market capitalization is at a multi-decade low!

* Finally, most of the retail savings in money market funds are associated with wealthy Americans

* That said, and as noted by Bob Farrell, the public typically buys most at the top and the least at the bottom

"I've already made my mind up, don't confuse me with the facts."

- Plato

The "old" argument that money on the sidelines will provide meaningful support of the next Bull Market leg has been bandied about in the business media by "talking heads" and investment strategists over the last few weeks. 

"You mention cash on the sidelines, which is something we have heard many times with people on this network...."

- Melissa Lee, CNBC (July, 2023)

The argument is bogus and inaccurate -- and I call BS to it. 

I conclude that although there is likely to be some benefit of excess savings in retail money market funds migrating into stocks - it will not be anywhere near enough to fuel a new Bull Market leg higher. 

As well, such a migration rarely ever comes to fruition but it serves as a non rigorous crutch and a rationale to support the recent reset higher in stock valuations. Frankly, it is always an argument made in extended "up" moves in markets. (As an example, here is a August 2021 interview (over two years ago!) with Jim Cramer in which he expects money on the sidelines to fuel the markets. Jim Cramer says cash moving off the sidelines can help keep stock rally alive. 

More importantly the data - the amount of money in retail money market accounts are vastly overstated (commonly said to total $6 trillion, but really only $2.2 trillion) - and, as such, is non supportive of the argument of sideline cash as a catalyst. 

Let's now go to the facts and data: 

Retail Money Market Accounts Total Only $2.2 Trillion (Not $6.1 Trillion)

The most important chart: 

Money Market Fund Assets

Washington, DC; December 14, 2023-Total money market fund assets decreased by $11.55 billion to $5.89 trillion for the week ended Wednesday, December 13, the Investment Company Institute reported today. Among taxable money market funds, government funds2 decreased by $11.36 billion and prime funds increased by $1.38 billion. Tax-exempt money market funds decreased by $1.56 billion.

Assets of Money Market Funds
Billions of Dollars

* Change in money market fund assets is primarily driven by flows and can be used as a proxy for net new cash flows.

Note: Components may not add to the total or compute to the $ change due to rounding.

Retail: Assets of retail money market funds increased by $2.92 billion to $2.27 trillion. Among retail funds, government money market fund assets increased by $651 million to $1.47 trillion, prime money market fund assets increased by $3.45 billion to $682.38 billion, and tax-exempt fund assets decreased by $1.18 billion to $110.09 billion.

Institutional: Assets of institutional money market funds decreased by $14.47 billion to $3.62 trillion. Among institutional funds, government money market fund assets decreased by $12.01 billion to $3.34 trillion, prime money market fund assets decreased by $2.07 billion to $265.21 billion, and tax-exempt fund assets decreased by $381 million to $10.41 billion.

ICI reports money market fund assets to the Federal Reserve each week. Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website. 

As seen in the above table, retail money market assets total only about $2.25 trillion - not the "$6 trillion" mentioned by the many. 

The "other" monies in money market funds are institutional in nature - and I don't think this money is "hot" money that will move into a climbing stock market. 

Retail Money Market Funds Are at a Multi-Decade Low Relative to Total Stock Market Capitalization

To calculate retail money market funds' possible impact we can't simply look at the absolute amount of monies in money market accounts. 

Rather, we must take total retail money market funds as a percent of stock market capitalization: TODAY IT IS AT A MULTI-DECADE LOW!

Retail Money Market Accounts Rarely Change Over Time

If you look at history the level of retail money market funds rarely changes: 

- The History of Retail Money Market Funds

- The History of Total Money Market Funds 

- The History of Money Market Funds (Excel Spread Sheet)

Furthermore, a lot has been made of the near $600 billion rise in retail money market accounts over the last twelve months. However, as noted in Peter Boockvar's chart, below, the rise in retail money market funds over the past year pretty much mimics the drop in bank deposits in terms of dollars.

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Source: Peter Boockvar

Speaking of my pal Peter, here is what he wrote this morning on the subject of cash on the sidelines: 

I will first comment on the 'cash on the sidelines' debate that I keep hearing about and have for many years and the belief on the part of some that it's this pot of dry powder to 'come into the stock market.' There is ALWAYS cash on the sidelines as for every dollar that comes off the sidelines to buy a share of stock there is a dollar that comes back on the sidelines from the seller with the proceeds. The only time there is technically fresh money is when there is an IPO or equity secondary as new shares are created.

I mentioned yesterday that Friday saw the biggest ETF inflows into SPY since its 1993 inception and here is a chart to visualize. The $20.8b Friday inflow was followed by another $10.2b on Monday. It finally cooled down yesterday.

Yields on Money Market Instruments and Short Dated Treasuries Remain Near 5%

* With a high, risk-free equity-like return (with no volatility) available in money market accounts, the incentive to move large amounts of retail and institutional into equities is relatively low

"The public buys the most at the top and the least at the bottom."

- Bob Farrell, Market Rule #5

Not only are money market accounts still earning near 5%, but consider the following returns on short-dated Treasuries: 

* 3-month Treasury bill yields 5.425%

* 6-month Treasury bill yields 5.346%

* 1-year Treasury bill yields 4.973%

* 2-year Treasury note yields 4.384% 

Though I expect some migration (as seen recently below), a massive migration out of money market accounts and into equities seems unlikely given the alternatives above:

And, as Bob Farrell cites above, the public buys the most at the top.

I expect nothing different in this cycle. 

Bottom Line

The size of retail money market funds balances has been greatly exaggerated by nearly a factor of 3x. 

In marked opposition to the bullish musings about cash on the side lines, the amount of retail money market funds measured against total stock market capitalization is at a multi-decade low! 

As Peter Boockvar observed this morning: 1-1=0. (There is ALWAYS cash on the sidelines as for every dollar that comes off the sidelines to buy a share of stock there is a dollar that comes back on the sidelines from the seller with the proceeds).

In reaching for an argument to extend the recent bull move, "talking heads" are making an argument that does not conform to the facts, analysis, history or common sense.

A wise observation by Liz Ann:

Break in! 

Investment short Winnebago (WGO) -$4 in premarket trading on bottom line miss.

There will be no Futures column this morning as I am currently at a breakfast research meeting.

FedEX (FDX) recession warning: 

"U.S. package volume was down 3.5% in the November quarter, on a down 15.1% year-ago comp. In other words, the two-year volume trend is deeply negative, and worse than last quarter. So much for improving box demand..."

Bonus Links

*Small Caps

* Nvidia?

* Whither Bonds?

* Walter Bloomberg 

US Cannabis Rescheduling May Happen Close to 2024 Election

The key catalyst for cannabis stocks will be the Drug Enforcement Agency rescheduling cannabis in the U.S. to a less dangerous drug, a Biden administration effort that CIBC analysts John Zamparo and Nishant Rathi say seems likely to happen in 2024. The rescheduling could happen at any time next year but, perhaps cynically, the analysts say in a note that they expect it to unfold closer to the 2024 U.S. presidential election and for there to be ongoing volatility in cannabis until that time. The analysts are simultaneously skeptical that any reform in the U.S. will come from the legislature next year.

Wolf Street howls some more about U.S. Debt.