The Bull Market in complacency has reappeared as the markets (again) disassociate from the real economy.
An earnings recession appears increasingly likely
(Always) listen to Warren Buffett

“I didn’t come this far to only come this far, so we’ve still got further to go.”- Tom Brady
“You sure that’s the question you want to ask?”- Bill Belichick

Like the dynastic rule of the New England Patriots football team, Mr. Market continued its assault higher yesterday – making it six weeks of consecutive pass completiions .
Borrowing from Monday’s column, at the core of my market concerns is the diminished outlook for economic and profit growth in 2019-2020…. and there was nothing in the recent high-frequency data or earnings reports that changes this outlook.
Indeed as noted last week, for every

It Now Appears the Trump Tax Cut Is Having Little Impact on Business Fixed Investment and on Domestic GDP
The Tax Cut Has Had A Negative Impact on the U.S. Deficit and on Our National Debt
The Likely Failure of Supply-Side Economics Will Likely Weigh on 2019-20 Economic and Profit Growth and on the 2020 Elections

“The Trump administration’s $1.5 trillion cut tax package appeared to have no major impact on businesses’ capital investment or hiring plans, according to a survey released a year after the biggest overhaul of the U.S. tax code in more than 30 years.
The National Association of Business Economics’ (NABE) quarterly business conditions poll published on Monday found that while some companies reported accelerating investments because of lower corporate taxes, 84 percent of

“Look up and not down; look out and not in; look forward and not back, and lend a hand.” – Edward Everett Hale
Make no mistake about it, the stock market panic and Bear Market of November-December 2018 is serious and profoundly threatens the economic and profit pictures.
As mentioned on Friday, a fragile domestic economy may be undermined by the negative wealth effect of lower equity prices:
“The wealth effect is a theory suggesting that when the value of equity portfolios are on the rise because of accelerating stock prices, individuals feel more comfortable and confident about their wealth, which will cause them to spend more. In 1968, for instance, economists were mystified when a 10 percent tax hike failed to put the brakes on consumer spending. Later, the sustained spending was

“Nowhere to run, baby, nowhere to hideGot nowhere to run to, baby, nowhere to hideIt’s not love I’m running fromIt’s the heartbreak I know will comeCause I know you’re no good for meBut you’ve become a part of meEverywhere I go, your face I seeEvery step I take you take with me…” – Martha Reeves and the Vandellas, Nowhere to Run
For the past year I have concluded that the market was vulnerable to a number of factors and was likely making an important top and likely setting up for a Bear Market:
Global economic growth was becoming more ambiguous and the fragility of worldwide growth would be shortly exposed
An avalanche of debt would serve as a governor to growth
Corporate profit expectations for 2018-20 were too elevated
The pivot to monetary restraint by the Federal Reserve (taking the

“I will eat my hat if this means anything substantive”… as “neither side is fully ready for war, but neither side will budge.” – Michael Every, Rabobank’s Head of Asia financial markets
Xi is the “Wolf of Wall Street”
The weekend agreement may backfire
We may have three months of uncertainty that freezes business decision making – U.S. economic growth may slow and not reaccelerate
An explosive market advance based on this weekend’s U.S./China trade news may provide one of the best shorting opportunities since September, 2018
He said, Xi said
Last night I moved (with futures +48 handles) from a small net long exposure to a small net short exposure
I plan to expand my short book on any further near term market strength
A “pump and dump” scheme is a well known securities fraud that

“Tops are a process, bottoms are an event.” – Wall Street adage
It is remarkable to me how, as Divine Ms. M puts it, “There is nothing like price to change sentiment.”
Some of the same people in the business media who were Bearish last Thursday (well, even Tuesday), are now Bullish based on a Federal Reserve who said (and always has been) data dependent.
It is amazing to me how so many investors mark-to-market their market views on an increasingly short term basis. However, to this analyst, a one day (or even three day advance) doesn’t reestablish a “confirmed uptrend” when the signposts of a more meaningful market topping process are still likely intact.
The question at hand this morning is whether it is wise to follow yesterday’s remarkably strong advance (the second best gain of the

White House Politics:
(When asked what he wanted to give thanks for during a press gaggle Thanksgiving Thursday, Trump responded), “for having a great family and for having made a tremendous difference in this country. I’ve made a tremendous difference in the country. This country is so much stronger now than it was when I took office that you wouldn’t believe it… And I mean, you see, but so much stronger people can’t even believe it. When I see foreign leaders they say we cannot believe the difference in strength between the United States now and the United States two years ago.” – President Trump (Comments on Thanksgiving) 
Policy:
“You only think I guessed wrong! … You fool! You fell victim to one of the classic blunders – the most famous of which is “never get involved in a land war

“Mother, motherThere’s too many of you cryingBrother, brother, brotherThere’s far too many of you dyingYou know we’ve got to find a wayTo bring some lovin’ here today” – Marvin Gaye and Al Cleveland, What’s Going On?
After Renaldo Benson of The Four Tops witnessed police brutality and violence in Berkeley’s People’s Park during a protest held by anti-war activists (hailed as “Bloody Thursday”), he discussed it with songwriter Al Cleveland who wrote “What’s Going On?”:
“‘What is happening here?’ One question led to another. Why are they sending kids so far away from their families overseas? Why are they attacking their own children in the streets?” – Renaldo “Obie” Benson
The Four Tops turned down his request to record the song in the belief that it was “a protest song.” Cleveland next went

“Only when the tide goes out do you discover who’s been swimming naked.” – Warren Buffett
Bear markets and steep corrections reveal the bad actors.
The recent market schmeissing has uncovered these market Fugazzis. I have in the past (and in today’s opening missive) hit these bad actors hard because of the damage they deliver. But, like Warren Buffett, I prefer to criticize by category and not by the individual. We should learn from this reveal in order to better navigate the market’s noise going forward:
* Corporate managements who never met an outlook they didn’t like. In my more than four decades I have interviewed hundreds of managements and observed, in the business media, thousands more. I can not recall one management in my career who had negative observations about his/her

Though we will hear many “after the fact” explanations, I can not (with any confidence or with honesty) explain the magnitude of yesterday’s remarkable market ramp:
Perhaps it is as Albert Camus once said, 
“Stupidity has a knack of getting its way.” 
But, that is probably too glib of me.
Frankly, I just don’t know.
Was it market participants’ poor positioning? (It’s hard to explain such a massive ramp on this factor)
Was it a post election relief and a view that the gridlock would be beneficial (from a policy standpoint)? (To the contrary, I see, as written recently in “Split Decision,” a period of political chaos)
Was it relief that the Mueller investigation will be dulled with the Attorney General’s dismissal? (Not likely as things could now get hotter for the President with the

“As societies grow decadent, the language grows decadent, too. Words are used to disguise, not to illuminate, action: you liberate a city by destroying it, Words are to confuse, so at election time people will solemnly vote against their interests.” – Gore Vidal
* Conventional and consensus wisdom – regarding the election outcome – was confirmed last night
* The end of one man’s rule (Trump), without any restraint, is now over
* Democratic marquee candidates disappointed and the Republicans were rewarded with a larger than expected Senate majority
* The Democratic House win comes with powerful committee ownership – for the first time in two years the Administration will now have a check against their agenda
* Even more volatility and uncertainty lies ahead
* I am now (opportunistically and

My trading activity during the spooky month of October was frenetic and my monthly’s trading (in shares) eclipsed any three month period of trading in the last several years.
By benefiting from the new regime of volatility and by the sharp drop in the indices (I was positioned short during the free fall) – I had my best month in over almost two years.
This morning I want to explain why I was so active (in a trading sense) – what were the conditions that moved me towards this strategy – and why it should not be a permanent condition.
I have long tried to take what Mr. Market gives me – whether its during a clearly defined trend or if we are in a trading range.
I buy stocks I like with a funnel approach (and short them the same way) – as prices go lower and become discounted to “intrinsic

“We believe that free market capitalism is the best path to prosperity!” – The Kudlow Creed
Dear Larry,
You and I go way back – we have been friends for many years.
I deliver this letter to you out of respect and in recognition of that friendship. It is being submitted and is intended to be respectful, courteous, analytical and forward thinking.
This letter is being offered in several parts:
Our strong friendship
Why domestic economic growth is weaker than is apparent and the White House believes
Risks associated with the delivery and substance of the Administration’s current policy towards China 
Suggestions
The Current Trajectory of Domestic Economic Growth is Weaker Than It Appears
* Look bottom up and not top down to decipher U.S. growth trends and risks
All this said, I respectfully

“Tops are a process, bottoms are an event.” –Wall Street adage
Back in July I wrote about the possibility of a market top; that warning “bears” repeating in an updated form and version.
In that column I wrote that tops are a process and bottoms are an event, at least most of the time in the stock market. If you looked at an ice cream cone’s profile, the top is generally rounded and the bottom V-shaped. That is how tops and bottoms often look in the stock market, and I believe the market is forming such a top now.
Consider the following fundamentally based issues and concerns:
* Downside Risk Dwarfs Upside Reward. I base my expected market view on the probabilities associated with five separate (from pessimistic to optimistic) projected outcomes that seize on a forecast of economic and

This morning the futures (S&P and Nasdaq) are, as is the custom, higher.
The markets continue to ignore a number of cautionary signposts/macroeconomic events/concerns and are benefiting from the float shrink of 5-7 years of corporate share buybacks, the dirty water of liquidity (contributed by the world’s central bankers), the heightened role of price momentum based and other (risk parity) quant strategies and the rising popularity of passive, index funds.
Adding significantly to the demand for stocks are central banks (most notably BOJ and the Swiss National Bank) who, through their active equity investing, make them the sovereign equivalent of Fidelity Management as they have become one of the dominant investors of our time.
Moreover, in a backdrop of reduced retail activity (in

“Hello I Mr. Ed.
A horse is a horse, of course, of course, And no one can talk to a horse of course That is, of course, unless the horse is the famous Mr. Ed.
Go right to the source and ask the horse He’ll give you the answer that you’ll endorse. He’s always on a steady course. Talk to Mr. Ed.”  – Theme Song to Mr. Ed
The rapid decline in Tesla’s (TSLA) shares over the last month and the continued fall of two prior market darlings, Intel (INTC) and Micron (MU) , should remind us of the poisoned cocktail of “ Group Stink.”
Should the market fall, as I expect, there will be many more fallen angels.
I wanted, therefore, to reposte a recent column, “A Horse Is A Horse Of Course, Of Course” – which “bears” repeating because of the lesson communicated:
Rising stock prices have a way of changing

“Hello I Mr. Ed.
A horse is a horse, of course, of course, And no one can talk to a horse of course That is, of course, unless the horse is the famous Mr. Ed.
Go right to the source and ask the horse He’ll give you the answer that you’ll endorse. He’s always on a steady course. Talk to Mr. Ed.”  – Theme Song to Mr. Ed
The rapid decline in Tesla’s (TSLA) shares over the last month and the continued fall of two prior market darlings, Intel (INTC) and Micron (MU) , should remind us of the poisoned cocktail of “ Group Stink.”
Should the market fall, as I expect, there will be many more fallen angels.
I wanted, therefore, to reposte a recent column, “A Horse Is A Horse Of Course, Of Course” – which “bears” repeating because of the lesson communicated:
Rising stock prices have a way of changing

Trump’s call on regulators to consider changing how often companies must report earnings is foolish and poorly thought out. 
“Good afternoon and welcome to Hurlingham Park. You join us just as the competitors are running out onto the field on this lovely winter’s afternoon here, with the going firm underfoot and very little sign of rain. Well it certainly looks as though we’re in for a splendid afternoon’s sport in this the 127th Upperclass Twit of the Year Show.
Well the competitors will be off in a moment so let me just identify for you. (camera zooms in on the competitors) Vivian Smith-Smythe-Smith has an O-level in chemo-hygiene. Simon-Zinc-Trumpet-Harris, married to a very attractive table lamp. Nigel Incubator-Jones, his best friend is a tree, and in his spare time he’s a

Peak Housing, Peak Autos, a Pivot in Monetary Policy Spell Peak Global GDP and an Economic Slowdown in late 2018 and in 2019
Watch the Fixed-Income Markets (and the flattening yield curve) That Are Providing the “Tell” that Slower Growth Lies Ahead
The Buzz of Synchronized Global Growth Has Faded
What Makes Equities Even More Vulnerable is that the Leading Component of the Markets, ‘FANG,’ Has Become Diminished and Is Now ‘GA’
Tops Are Processes, and We May Be in That Process Now
“In one corner, U.S. Treasury Secretary Mnuchin in a truly out-of-character gaudy, shiny white satin robe brandishing a big 3%. Opposite the optimist is the old guard Federal Reserve representing nearly 800 of the country’s PhDs. They’ve donned black as night robes with a difficult-to-make-out 2% on the back. In

5-Reasons Why I Doubt Tesla Is Going Private

One of my most important media contacts was Barron’s Alan Abelson.
In time, Alan became a very close friend – I spoke to him nearly every Thursday afternoon for almost two decades. We went to New York Yankee games together and shared a lot professionally and personally.
Some years into our business relationship I sent him a couple of books of fiction that I thought he would enjoy. Very soon thereafter I received a call back from him saying that he doesn’t read fiction anymore because what happens on Wall Street is often much stranger than the best books of fiction.
I Still Bleed Barron’s Blue, and I still remember Alan’s comments about the weird goings on in Wall Street.
And, one of the most bizarre Wall Street events occurred

The Yield Curve Will Likely Invert by November, 2018
Economic growth is less synchronized than the consensus believes
On a trending and rate of change basis the economic data is slowing down
The Fed’s continued pivot to tighter money will likely lead to curve inversion – which will likely stoke fears of recession
“China, Europe and the Emerging Market Economic Data All Signal Slowdown: It’s in the early innings of such a slowdown based on any realtime analysis of the economic data. The rate of change slowdown (on a trending basis) is as clear as day. A rising US Dollar and weakening emerging market economic growth sows the seeds of a possible US dollar funding crisis.” – Kass Diary, Investors are Not Being Compensated For Risk
At economic peaks everything on the surface looks Rosy (except

‘The boldness of asking deep questions may require unforeseen flexibility if we are to accept the answers.’ – Brian Greene
* A pivot in monetary policy, a further rise in the risk free rate of return, policy and profit uncertainty and a softening in soft and hard high frequency economic data are some of the reasons that point to a lower and destabilized stock market
Following The Great Recession of 2007-09 and a near collapse of the world financial system, the US and other developed as well as emerging economies embarked upon a near decade long expansion and global bull market. In large measure the recoveries were abetted by a worldwide coordinated monetary easing which took interest rates to generational lows and provided an unprecedented amount of excess liquidity.
Though US economic

“The sentence should have been: ‘I don’t see any reason why I wouldn’t’ or ‘why it wouldn’t be Russia’. Sort of a double negative…” – President Trump
Emma Gonzalez, the Marjory Stoneman Douglas High School student famously declared “we call B.S.” to the President, lawmakers and gun advocates after the high school shooting in Parkland,  Florida months ago.
Well, I call  B.S.  on the markets (on fundamental and valuation grounds).
Likewise in the corridors of the New York Stock Exchange and on the sets of the business media we are asked to believe in another new paradigm of a “long boom” uninterrupted by the emergence of a number of adverse headwinds (monetary pivot, ambiguous  indicators of global economic growth, the competition from short term interest rates (the three month T bill has

“In reference to a post yesterday on “Investing Like Warren Buffett,” Doug sent us the following article he penned in 2014 on a similar issue.”
“I start almost every column I have ever written about Berkshire Hathaway (BRK.A/BRK.B) with the sincere message that, similar to many investors, I worship at the investment altar of Warren Buffett and Charlie Munger. But that adulation doesn’t preclude me, as an investor, from questioning their and the company’s direction/strategy nor does it inhibit me from being short Berkshire’s stock (which I have been over the last nine months).
Recent earnings reports at Coca-Cola (KO) and IBM (IBM), two large Berkshire Hathaway investments totaling almost $30 billion, suggest that the companies’ moats appear to be vanishing.
Healthier drink choices and the

On Friday, I outlined my multi time-frame outlooks — very short, short and intermediate term — for the S&P Index.
As I noted it is important to emphasize that this exercise is not meant to imply precision of forecast, its just an exercise I use to develop a broader guideline to trading and investing.
In that analysis I thought the very near term (the next five days) would result in a move towards 2750-2775 – the Index peaked at close to 2750 and appeared to have failed Friday afternoon. That failure has continued yesterday morning with S&P futures down by another -13 handles before the open – and, adjusted for this, cash on the S&P Index was approximately 2710 (corresponding to SPY $270.00):
We have subscribers with differing risk profiles, from day traders to long term investors, and

It’s just another manic MondayI wish it was Sunday‘Cause that’s my fun dayMy I don’t have to run dayIt’s just another manic Monday— Bangles, Manic Monday
The Bangles “Manic Monday,” was actually written by Prince, using the pseudonym “Christopher.” Often compared to The Mamas and The Papas, ” Monday, Monday” it was a 1986 release and the group’s first big hit.
The proximate cause for the early morning future’s drop (-17 handles) is the heightened trade tension between China and the rest of the world with the U.S. – something Jim “El Capitan” Cramer and I have been consistently cautioning about.
The leveraged ETFs and quant strategies (e.g., volatility trending and risk parity) and changing market structure may take it from there and could create a turmoil filled and volatility trading

There is no place for dogma and emotion (and sometimes even an intermediate term viewpoint) in developing a strategy to opportunistically trade over short term periods in the 2018 market
The market’s structure (and dominance of passive and quant strategies/products) provides exceptional near term trading moments
Yesterday was another example of the value that can be extracted from premarket and aftermarket trading (I am a ‘pajama trader’ and proud of it!)
Yesterday I started the day with a negative outlook for the markets in my opening missive, “Risk Happens Fast“
Soon thereafter, in response to a -40 handle drop in S&P futures (seemingly induced by more aggressive trade rhetoric out of the White House), I covered my entire (and very large) short (SPY) position – as well as covering all

Risk happens fast – Trump trade policy whacks futures this morning
We remain in a trading sardine market – not an eating sardine market
Hastily crafted policy that conflates politics is dangerous in a flat and networked world
The return of an untethered Orange Swan is market unfriendly … brace yourselves
The Supreme Tweeter will likely “Make Uncertainty and Volatility Great Again” (#MUVGA)

The First Half of 2018
The first half of 2018 has been a tale of two markets. Maybe three markets.
January brought a market fervor – in which global equities rose dramatically, likely in response to the expected stimulative contribution and impact of the Administration’s reduction in statutory tax rates.
As interest rates began to climb in January, bullish investor sentiment crested and the risk

“What should have happened? First, I think it would have helped to have some perspective on Italy. The country’s gotten pretty dysfunctional, with almost no growth whatsoever. There’s also that aforementioned 11% unemployment rate, plus an immigrant population that all parties concede will cost more than the country can currently afford.
At the same time, Europe’s recent history of chaos has provided multiple opportunities to invest here in America, because you can count on some people panicking over the “black swan theory.” Finally, you can be sure that what happens in Italy won’t be related to any individual companies, as all anyone cares about now are the indices. Those trade both here or abroad as if they’re their own beasts these days, unrelated to anything corporate at all like

The Italian crisis is not all negative to our markets
While the global economic cycle will be slightly downgraded, it will be elongated
Lower rates and inflation represent a valuation positive
Lowering Market Risks: Pessimistic Case Reduced (-10%), “Fair Market Value” Increases (+4%) and Upper End of Trading Range Lifted (+2%)
“Welcome to the Hotel CaliforniaSuch a lovely place (such a lovely place)Such a lovely face.Plenty of room at the Hotel CaliforniaAny time of year (any time of year) you can find it here” – Eagles, Hotel California
While the Italian debt crisis exposes investors to the reality of a structurally unsound economic region – which principally grew due to negative interest rates – and will almost certainly serve to slow down Italy’s economy, with collateral damage in