Slab City

I'm in Slab City, California (near the Salton Sea).  It's been weeks since I could get onto a computer.  I'm not sure when I can do Internet again, so don't expect comments or replies from me.

Isaac, Jen, and I didn't have much success finding a boat to Hawaii.  Yachts & sailboats rarely go to Hawaii this time of year, and port security for freighters is way too high to even get near a port much less into it to even ask people.  Everybody we talked to was pretty clueless.  It's probably worth trying again in warmer months.

Both Isaac's and Jen's families wanted them home for Christmas, so both families bought them round trip plane tickets back to Illinois.  They want to return to San D after the holidays and, this time, hitch south to Costa Rica (and maybe hookup with our friend Aaron on his farm there).  I don't like San D and didn't want to wait around there, plus I feel the risk of hitching without ID, much less passport, past the border just isn't worth it right now.

So I started walking east, through miles upon miles of mcmansions in Chula Vista (a SD burb).  I thought I'd see if I could make it back to my parents' by Christmas.  But the rains and wind hit, and I hunkered down in a baseball field bathroom "foyer" for 3 days until the rain sort of passed.  The next day I started walking and came to Lower Otay Lake.  I was absolutely overjoyed to finally be out of the city and hit the beautiful countryside.  But it started raining again.  Border patrols were everywhere, and a man and woman stopped to see why in the world I was walking in the middle of nowhere in the rain, 4 miles from the Mexican border.  The woman seemed way too serious, but the man was friendly.  He seemed like a classic, young, idealistic military type.  He said he thought my living without money was "cool".  They told me where a campground was miles up the road, and took off.  Then they screeched a u-y and came back.  The man asked if I wanted a ride to the campsite, and the woman seemed annoyed at him.  He told me there were hot showers there.  There was a shelter there which I stayed in until the rain subsided.  Then I found a tree outside the ground and set up my hammock high in its branches.  And I went into the campsite and took a hot shower.  Thought I was in heaven.  It rained all night and I got kind of wet, but stayed warm.

I walked further until I found a creek and a bridge.  I camped under the bridge.  The sun finally came out so I could dry my bag and wash my clothes.  Border patrols were everywhere, watching my every move.  But they were all super friendly with me.

I decided to hitch up Honey Springs road, more away from the border, than Highway 78,  A man picked me up right away.  I asked him what day it was and was surprised to learn it was Christmas Eve.  He was really kind and took me way out of his way to I-5.  He gave me a burrito, too.  Very few cars were going east on 5.  One man with "Jesus" and a big fish on his TShirt stopped and handed me $10.  I then decided it would be better to hitch the road crossing under I-5, and found out it was highway 78.  It was the road going north to 79, which heads to the Salton Sea.  I had had it in my mind days before to go that way anyway, so this was working out!  I'd heard Slab City was that way, so maybe I could check it out.

Hundreds of cars passed me by.  People have more important things to do on Christmas Eve than practice the teachings of the one who's birth they celebrate.  Finally a couple Jehovah's Witnesses (who don't celebrate Christmas) stopped and gave me a ride, going way out of their way to the town of Julian, but preaching my ear off in the process.  I was told it was going to rain again, and my tarps were leaky, so I hunkered down at an awning at an elementary school.  I found lots of apples in Julian, and lots of good food thrown away at the school.  The sheriff kept watching me, but didn't seem to be bothered I was staying around the school.  It rained crazy that night.  But the sun came out on Chrismas and I started hitching again.  Hundreds of cars passed me by that day until a 70-something man named Fred stopped.  He said he thought I was a Pacific Trail hiker.  He asked me what I did, and seemed extremely irritated that I lived without money.  I actually appreciated finally meeting somebody willing to tell me that to my face.  Hundreds do it anonymously on the Internet, but few to my face.  That's what I like about old people, they often speak their heart.  Anyway, we discussed it and went round and round with my philosophies until he started getting what I was saying and doing.  He then got really friendly and we enjoyed each others' company thoroughly.  He told me about Slab City and Salvation Mountain and Leonard Knight (who created the mountain).  He took me all the way to Brawley.

I dumpstered some food there, and a couple stopped and handed me a delicious Chinese dinner-to-go.  I started walking up hiway 111 toward Slab City.  There were lots of feral date trees, and a fig tree, so I stocked up their fruits.  I found an abandoned warehouse and slept there in my hammock.  The next morning I got a ride right away from a woman named Helen.  She took me to her home town of Nyland.  I started walking to Slab City from there, and a super nice Slab resident named Evergreen gave me a ride in, and introduced me to some folks.  A woman named Karen showed me a place to camp near here little trailer.  We've quickly become good friends.  I've met some good people here so far, and am glad I'm here.  It's nice to rest.  I'm clueless how long I'll be here.  Maybe until the winter passes.  I had no plans to be here, but here I am.  It's a strange, funny place, and it's growing on me.  I met Leonard Knight and his Salvation Mountain, too.  A beautiful spirit he is. 

For days I felt really lost and disconcerted.  But, deep down, this is state of mind I so wanted to experience.  It's a beautiful thing, believe me, to find yourself in a position of being totally lost, discouraged, and full of doubt - ready to throw in the towel on everything; but, then, to take those feelings and sit with them.  Find out where they're coming from.  Hand them over to God, if you want to use that lingo.  Then watch the infinite Peace come.  It's absolutely splendid.  I've been getting into the Baghavad Gita again, and seeing again its shining splendor.  For me, it shines light on Christianity, revealing it's deeper mysteries, rather than diminishes it. 

Closing The Books on 2010

The market finished with another flat day, its 6th in a row, and volume was anemic again. Considering the market was down -6% as late as Aug. 31st, the rally in the latter half of the year was pretty impressive.

Here is a quick wrap-up from Briefing.com:

Stocks were flat for most of the final session of the year, but ran into a flurry of selling in the final minutes. Their performance for 2010 was strong, though.

For most of December the stock market has made only incremental moves. This session was essentially the same as stocks spent the better part of the day hugging the neutral line before a late slip. Though most of the action has appeared to be a listless, sideways drift, today's narrow loss was only the fifth time in December that the S&P 500 actually settled lower.

Such a strong performance helped the benchmark index achieve a monthly gain of almost 7%, a quarterly gain of more than 10, and a near 13% gain for the year. Despite that, the S&P 500 is still at levels that were first seen in early 1999.

Telecom represented this session's strongest sector. It advanced 0.3% today, and 12% for the year. With a near 26% annual gain, consumer discretionary stocks made up the top performing sector of this year, but they ended today down 0.2%. In contrast, defensive-oriented health care and utilities made the most muted moves this year. They settled with annual gains of 0.7% and 0.9%, respectively.

Of the three major equity averages, the Nasdaq Composite closed out 2010 with the biggest gain. It advanced close to 17% this year. However, its performance today was lackluster as large-cap tech issues weighed on it throughout the session. Investors drove the Dow to a 11% gain this year. Caterpillar (CAT 93.66, -0.21) was the best performing blue chip. It ended 2010 64% higher than where it started.

Small caps and mid-cap stocks have had an even stronger year; specifically, the Russell 2000 and the S&P 400 both climbed about 25% this year. But today they fell 0.8% and 0.7%, respectively.

Little attention was paid to the dollar again today. It ended the day down 0.5% against a basket of competing currencies after it had notched a new one-month low earlier in the session. The greenback gained only 1.5% this year, however. Commodities had a quiet start to trade, but closed 2010 in impressive fashion.

Broad buying in the space sent the CRB Commodity Index 1.7% higher today. That helped to drive a 17.4% gain for the year. Among the more widely watched commodities, oil futures prices rallied out of the red to a 1.7% gain at $91.35 per barrel. Oil futures prices climbed 15.0% this year. Natural gas prices ended pit trade up 1.6% to $4.41 per MMBtu today, but down 20.7% for the year. As for precious metals, gold prices gained 1.1% to settle at $1421.95 per ounce. Gold futures prices climbed 29.6% this year and set a record high of $1431.10 per ounce in the continuous contract during the process. Silver settled the session with a 1.4% gain at $30.95 per ounce, which helped drive an 83.7% surge for the year. Just yesterday silver prices set a 30-year high of $30.90 per ounce in the continuous contract.

Treasuries put together a strong performance before closing early. The yield on the benchmark 10-year Note moved back below 3.30% for the first time this week.

Though the final trading day of the year marked a convenient time to put the stock market's moves into perspective, there weren't many traders around to read about it. Share volume on the NYSE came in just below 600 million, which is actually up from the past couple of sessions, but still well below the 1 billion shares that had been averaged each session at the beginning of the month. Participation is expected to pick up with the new year, though, since many traders will return from vacations and investors will be more willing to take on new positions in a fresh tax year.

With that, I want to wish everyone a happy, healthy, and prosperous New Year!!

Quote of the Day

"You were born to win, but to be a winner, you must plan to win, prepare to win, and expect to win."
— Zig Ziglar: Motivational author and speaker

Tea Party's O'Donnell Fights Back

Christine O’Donnell, the former Tea Party favorite and GOP Senate nominee from Delaware, is on the hot seat right now for allegedly misusing campaign funds. Is there something to this story? Or is this just another attempt by the left to discredit the whole Tea Party movement?

O’Donnell joined me for an exclusive interview last night to defend herself. Here’s the transcript.

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Stocks In State of Suspended Animation

If you look at the chart of the market for the last several days you can see the extreme narrow movements. Today looks to be the 5th day of that pattern, so far. Of course, now that participants are becoming comfortable with this action, it would not surprise me to see the market take a little more of a hit tomorrow. That just seems to be the way these things go.

Market moving news is again sparse today, and I expect trading volumes to again be anemic. We did get a pending home sales report, which showed an increase of 3.5% for November. But that has done little to boost the market, which is hovering near the flat line on the day.

The dollar is lower again, but it is failing to boost commodities this time. Oil prices are down 1% to $90.15, and gold prices are 0.5% lower near $1406.

Asian markets were mixed overnight; the 10-year yield is higher to 3.40%; and the volatility index is +2.5% higher to 17.71.

Trading comment: I have been commenting for weeks how investor sentiment has become too complacent, and that makes a correction more likely. Lately, I have seen more and more people trotted out on CNBC calling for the same correction in January. We know that when everyone is looking for the same event in the market, it rarely happens. So that makes me a little less confident in my call, only become it is becoming a little crowded.

I still think a correction is coming, but maybe the timing of it will keep people off balance. It could be that the markets rally in the beginning of January, just to suck in more late-to-the-party bulls, and then we get the correction once everyone is off balance. This may sound like a convoluted thesis, but it's very common. Let's see how the beginning of January plays out, and I will update my thesis in real time.

long VIX calls

Stocks Continue To Levitate

Stocks are slightly higher again in early trading, as they continue to levitate around recent levels, while trading volumes remain low. I don't remember the last time I saw the S&P 500 close in such a narrow range for this many days.

This morning's positive tone comes after gains in overseas markets, both in Europe and in Asia. Even China was higher last night, for just the 2nd time in 11 sessions.

The dollar is lower, and commodities are mixed. Oil prices are down a tad near $91.33, while gold is up a bit to $1411.

The 10-year yield was higher, but is now a bit lower to 3.45%; and the volatility index is down 1.6% to 17.23.

There are no economic reports today, and little in the way of market moving news.

Trading comment: With volume this light, I think people are just marking time until year-end. There are some stocks that are breaking out and showing nice action (MOS, ROVI, etc), but they don't have a lot of volume behind them.

I think it is possible we could see a headfake in early January, where the market initially rallies due to new money coming in and getting invested, but then pulling back into a correction as sentiment has just gotten too complacent here and a shakeout seems likely.

long MOS, VIX calls

Will The U.S. Stock Market Follow China's Lead?

The chart below shows the relative performance of the U.S. stock market (pink line) vs. the Chinese stock market (black/red line). As you can see, for the most part, the two markets have moved pretty much in tandem with one another. That is, when the Chinese market began to move lower, the U.S. market would also succumb to weakness.

But if you look at the far right hand of the chart, you will see that this relationship has began to break down recently. To recap, Chinese stocks have been weak recently amid fears that the govt. would have to tighten monetary policy more to cool the economy and deal with creeping inflation. Two days ago the central bank raised rates another 25 basis points to 5.81%. This caused the Shanghai index to lose 1.9% in the following session and another 1.7% last night. The index has now closed just below its 200-day average as well.

So the big question now is, will the U.S. stock market follow suit, and turn lower in the immediate future. Or has this normal relationship began to decouple, and will the U.S. continue to move higher without playing follow the leader to China?

There are certainly plenty of red flags in China, namely the huge property bubble from which it looks like the air is beginning to escape. China's property stock index fell -3.5% last night, and is down -28% ytd. Engineering a soft landing is a difficult task, and China's govt. has less experience in this endeavor than some other more developed nations.

For the record, we have sold all of our direct China exposure (FXI), although we still hold various International funds. I think in the intermediate-term, the two markets can decouple and the U.S. will likely outperform China for awhile. The Chinese govt. has huge incentives to keep their growth engine humming, so I won't rule out returning to their markets longer-term, but right now I see formidable headwinds.

INTRADAY POST TO PREMIUM SITE

Monday Morning Musings

The market is down slightly in early trading, but there is not much in the way of newsflow. Volume will already likely be light this week after the Christmas holiday and before New Years eve on Friday. And with the giant snowstorms in New York, trading may even by lighter than usual.

The big news over the weekend was China's central bank announcing another 25-basis point rate hike, aimed at keeping inflation at bay. China's stock market fell -1.9% after the news. Japan had already closed with a gain, but I suspect most Asian markets will be lower in their first open session following the news.

Also look for retailers to be in focus as they start to leak initial reports of how strong or weak holiday sales were. So far, financials are leading the action in what looks to be like some sector rotation into a group that has lagged for several months.

The dollar is slightly lower today, and most commodities are lower as well. Oil prices are down a bit to $90.70, while gold prices are slightly higher near $1381.

The 10-year yield is higher again to 3.42%; and the volatility index is up nearly 9% to 17.95.

Trading comment: The market seems to be hanging in well on news of a rate hike in China, and Europe lower today as well. I think a lot of people are just trying to hang in there and let the remaining minutes for 2010 tick off the clock before making any big bets or repositioning portfolios for 2011. As such, I expect volume to pick up materially next week. But for now, I think most managers are just protecting their gains.

long VIX

THE BEAR WILL RETURN IN 2011

It's almost impossible to find anyone who is long term bearish on the stock market or economy at this time. In the recent Barrons poll every single analyst expected a rise in stock prices next year and  continued economic expansion.

I think they are all going to be wrong, horribly wrong. I believe next year the stock market will begin the third leg down in the secular bear market. And the global economy will tip over into the next recession that will be much worse than the last one.

I've gone over the 3 year cycle in the dollar index many times. The dip down into the next 3 year cycle low this spring should drive the final leg up in golds massive C-wave. What I haven't talked much about is what happens after the the dollar bottoms.

I actually expect this three year cycle in the dollar to play out almost exactly like it did during the last three year cycle. When the dollar collapses this spring it will not only drive the price of gold to a final C-wave top, it will drive virtually all commodity prices through the roof, the most important being energy and to some extent food.

It was the sudden massive spike in energy that drove the global economy over the edge into recession in late `07 and early `08. The implosion of the credit markets just exacerbated the problem. You can see on the following chart just as soon as Bernanke drove the dollar below long term historical support (80) oil took off on its parabolic move to $147.

What followed was a collapse in economic activity and the beginning of the second leg down in the long term secular bear market for stocks.

This was mirrored by the dollar rallying out of the 3 year cycle low. That rally was driven by the severe, but brief, deflationary pressures released as the global economy and then credit markets collapsed.

We will see the same thing happen again. In his attempt to print prosperity and reflate asset prices Ben is going to spike inflation horribly as the dollar collapses down into the three year cycle low next spring. Just like in `08 that will tip the global economy back into recession and another deflationary period as the dollar rallies out of the three year cycle low.

The stock market will begin the trip down into the next leg of the secular bear market that it's been in since 2000. The global economy will roll over into the next recession. Which I expect to be much worse than the one we just suffered through mainly because it will begin with unemployment already at very high levels.

Contrary to what economists and analyst are telling you, at the dollars three year cycle low next year it will be time to put our bear hats back on, prepare for hard times, and the next leg down in the stock market bear.

I will leave the special Christmas subscription offer, (15 months for the price of 12), up for a few more days. If you want to take advantage of the discounted price click here.

Bullish Sentiment Continues To Grow

The market is only slightly lower in early trading, after finishing higher again yesterday. I can only find a couple of down days this month. And the polls that are coming out with the strategists predictions for 2011 are pretty much universally bullish.

The weekly AAII poll that came out today showed bulls up to 63.3% and bears down to 16.4%. I haven't looked yet, but I'm pretty sure that's the most bullish reading we've seen since the market top in 2007 (I'll have to confirm that).

Asian markets were mixed overnight, as concern continues to linger surrounding the Korean peninsula. Europe was flattish this morning, with the sovereign debt issues there still a factor. There are always red flags on the horizon, the difficult part of the equation is figuring out if and when investors will worry to the extent that they begin to sell because of it.

The dollar is flattish again, and commodities are mixed. Oil is a bit higher to $90.70, while gold prices are trading down to $1375.

The 10-year yield is higher to 3.38%; and the volatility index is 4% higher to 16.10.

Trading comment: I am not doing all that much trading at this juncture, hoping that the market holds up into year-end, and I can look to do a little more trimming and raise a little more cash after 12/31. That would allow me to defer additional capital gains for another year, which is always preferable.

long VIX calls

Will Consumers Start To Fret Over Prices At The Pump?

The market is slightly higher again in early trading. If you have been trying to fade this market lately, you are likely in a world of frustration.

In economic news, existing home sales rose 5.6% in November, above expectations. The homebuilder ETF (XHB) is higher, and the REIT etf (IYR) is higher as well. Also, final Q3 GDP figures came in at 2.6%, which is slightly higher than earlier estimates of 2.5%.

In corporate news, Nike (NKE) and Walgreens (WAG) both reported solid earnings, but the reactions in the stocks are mixed. WAG is nicely higher, while NKE is selling off. I was also surprised to see TIBX selling off in reaction to better than expected earnings.

The dollar is flat so far, and commodities are mixed. Gold prices are off a bit to $1367, while oil prices continue to climb higher to $90.62. I wonder if investors/consumers will start to worry if oil rises to $100. The more important factor is obviously prices at the pump. I heard my parents talking last night about how gas prices in their town just topped $3, so I know it is on people's minds. Something to keep on the radar.

Asian markets were mixed overnight; the 10-year yield is flat near 3.32%; and the volatility index is another 3.7% lower to 15.88.

Trading comment: The persistent bid under the market remains, as stocks have not sold off one bit lately, and the desire to put money to work into year-end is evident. I have taken some partial profits, but for the most part remain invested into year-end. I do think that we have a correction looming on the horizon, so I want to be prepared. The sentiment indicators I follow are back to levels which have almost always preceded a correction in the past.

long TIBX, VIX calls

Commodities Hit New Highs On Dollar Dip

The market is higher again in early trading, as the buyers seem to show up each and every day lately. The S&P 500 surpassed the 1250 level this morning, a level that many investors associate with the "pre-Lehman" levels last seen in September 2008. As such, it is possible that the market could run into a little resistance at these levels.

The euro is getting a small bounce after China said it supports EU and IMF efforts to stem sovereign debt troubles in Europe. The dollar is weaker in turn, which is helping push commodities to fresh 2-year highs. Oil prices are higher to $89.85, and gold is up near $1390, but other commodities from copper prices to cotton futures have hit new all-time highs.

Asian markets also rose overnight amid easing tensions on the Korean peninsula. The 10-year yield is lower to 3.33%, and the volatility index is a bit higher to 16.55.

Among the sector ETFs, financials (+1.16%) are strongest so far, followed by materials (+0.90%). Consumer staples (-0.20%) are the laggards on the day so far.

Trading comment: Sentiment continues to be stretched up here, but it looks like fund managers have an agenda to put money to work before year end. But for anyone who doesn't have those performance pressures, I think a better buying opportunity will come on a pullback that almost always ensues when investor sentiment reaches these types of levels of complacency.

Monday Morning Musings

The market briefly poked its head into higher ground after the open this morning, but has since pulled back a little bit. One of the culprits mentioned has been a spike in the dollar and drop in the euro that occurred after the open.

The spike in the dollar is also weighing on commodities, with oil prices down to $87.79, and gold pulling back slightly to $1376.

Asian markets were lower overnight, but recouped much of their earlier losses after North Korea failed to respond to military actions conducted by S. Korea, as it promised it would.

There is not much else in the way of market moving news this morning on both the corporate front and economic data today.

Trading comment: Volume will probably lighten up as the week wears on, as we near the Christmas holiday. Chatter should also heat up about the potential for a 'Santa Claus rally', which I believe is supposed to start the day after Christmas. Given that the market is already up nicely in the month of December, and investor sentiment is near giddy levels, I would not be surprised if Santa doesn't show up this year for the markets (or maybe he already has).

That said, one can never rule out the potential for fund managers to rush to put more money to work into year-end, which could buoy stocks, but is hard to handicap. At this juncture, I prefer to trim positions and take some profits where I have them, as opposed to making aggressive new bets.

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Reaganomics 2.0 in the Driver’s Seat

On a historic night this past Thursday, a new Tea Party Republican Congress completely transformed U.S. economic policy. Elections matter, and so do their ideas. Smaller government, low taxes, and less spending were key election themes in the Republican landslide. And those themes triumphed this week as a large tax-cut bill finally passed the House and a monstrosity of a spending bill was defeated in the Senate.

In one fell swoop, Obamanomics is out the window. Reaganomics 2.0 is now in the driver’s seat.

Perhaps the most amazing part of the story was the work of Mitch McConnell and John McCain (among others) to kill the 2,000-page, $1.2 trillion omnibus spending bill in the Senate, along with its 6,600 earmarks totaling $8 billion. This budget monster dripped with contempt for voters and taxpayers. But business as usual was overturned.

I had an inkling of this when Sen. McCain told me in a CNBC interview earlier that night that, if need be, he would favor a government shutdown over passage of the spending bill. And now, under a short-term continuing resolution, the whole current-services budget baseline can be lowered by anchoring it to 2008 spending.

Hundreds of billions of dollars can be saved, producing a smaller government that will be, in effect, a tax cut for the private economy. And the symbolism of overturning massive spending only two years after Obama’s debt-laden stimulus package is enormously important.

Of course, the tax deal is far from perfect. But low tax rates will be preserved for personal incomes, capital gains, dividends, and estates. This is pro-growth and pro-capital formation, and it’s a confidence builder, too.

Tax cuts for businesses, which are new to this bill, may prove more effective than most people think. And while the payroll tax cut has only a small labor incentive, it is not nothing.

Yes, there’s too much spending in the tax bill, as some cranky conservatives keep reminding us. However, it’s only about 12 percent of the total $857 billion legislation. Unemployment benefits come to $56 billion, the refundable tax credits are about $44 billion, and the utterly stupid ethanol subsidy is about $5 billion.

Meanwhile, 88 percent of the bill goes to tax cuts — where people get to keep their own money and where there are some significant incentive-effects on the supply-side.

It’s not a panacea. Hopefully broad-based flat-tax reform will materialize in the next few years, along with entitlement reform and deep spending cuts. But it is worth noting that late Thursday night, according to the Washington Post, negotiators removed more than 70 temporary programs from the bill.

For those conservatives who are still complaining, I urge you to reconsider the importance of marginal tax-rate incentives for the economy. Tax-rate increases will depress growth and worsen the budget deficit. There’s no way America’s financial position will improve without economic growth, nurtured by low tax-rate incentives. And if the compromise tax plan had been defeated, the economy would have been held hostage for as much as six months, before the implementation of some kind of new plan to extend the Bush tax cuts through the complicated budget process.

In this sense, the tax-cut compromise does far more good than bad. A new batch of statistics shows recent economic improvement: rising retail sales and industrial production, a jump in the Index of Leading Indicators, and lower jobless claims. The trick here is to nurture the new economic improvement, not snuff it out with higher taxes.

In the new session of Congress — which will feature a true Tea Party GOP conservative majority — new spending-limit policies can fill in the blanks left by the tax deal. But if President Obama has the acumen to see that a pro-growth economic policy is tied to low tax rates, the GOP should take great care not to cede that message and lose the economic-growth high ground.

A great battle will be joined over the spending, taxing, and regulatory mandates of Obamacare, which is probably the biggest job-killer of all. Conservative reformers in the new Congress will force this fight, along with tax, spending, entitlement, and monetary reform. Behind all this, however, the new Tea Party GOP must maintain a message of economic growth and prosperity.

Crankiness is no substitute.

Congress Extends Bush Tax Cuts

The markets are mixed this morning, with the S&P 500 slightly lower despite Congress extending the Bush tax cuts last night. The Nasdaq is up a bit, after both Oracle (ORCL) and Research In Motion (RIMM) reported strong earnings and saw their stocks rally.

The fact that the market isn't up a bit more likely speaks to the fact that we are in overbought territory right now, and sentiment has become a little complacent. The markets are basically flat for the week, which is pretty good as the markets have refused to give back any of their recent gains.

The euro is lower this morning after Moody's cut Ireland's credit rating five notches. Seems like those guys are a little late if they had to jump down five notches. The EU also approved a permanent bailout mechanism for debt-ridden countries that will go into effect in 2013. That seems awfully far off into the future given the speed with which the markets move these days.

The lower euro is boosting the dollar, but commodities are mixed. Oil is higher to $88.35, and gold is also up a tad to $1371.

The 10-year yield is lower to 3.40%, after a big multi-day rally; and the volatility index is falling further to new multi-month lows to 16.42 this morning. The VIX isn't the best leading indicator, but it sure isn't signaling any pickup in volatility in the immediate future.

Trading comment: Although the market has been very stubborn in terms of giving back its gains, the fact that we are overbought and sentiment is still complacent make me not want to chase this market. The leaders that sold off hard earlier this week haven't broken their 50-day averages, and some have come roaring back (APKT, CTSH, etc). I doubt I will make any moves on this options-expiration Friday.

long CTSH, RIMM

Looks Like Things Are Heating Up In Greece

Li Chang - KAM Advisors

The Song Remains The Same

Yesterday morning I commented that stocks were higher, but the pattern had been for them to fade late in the day. True to form, that formula played out again yesterday. Interestingly, stocks are up once again in morning trade, so we will have to see if traders press their bets once again in a bid to knock down stocks into the close.

In economic news, the Philly Fed report came in much better than expected, improving to 24.3 vs. 15 consensus. This has probably helped push bond yields higher again, with the 10-year yield now trading all the way up to 3.56%. That is the highest level since May 13th.

The euro is lower this morning after disappointing bond auctions in Spain, where yields were higher than previous auctions. That has buoyed the dollar, which is also weighing on commodities. Oil prices are down to $88, and gold has fallen back near $1364.

Asian markets were mostly lower overnight, save for India, which rose after it held its benchmark rate unchanged after six increases this year.

And the volatility index remains low near 17.64.

Trading comment: Leading stocks seem to be holding up after Tuesday's selloff, but I still want to watch them to make sure there aren't further breakdowns. Healthcare has been picking up the slack the last few days, so its nice to see the rotation in the market that keeps the major averages from giving back too much.

A Growth Bounce for Treasuries

Rising Treasury bond rates are all the buzz on Wall Street. Over the past six weeks, bond rates have moved up about 100 basis points to more than 3.5 percent.

Will this snuff out economic recovery? No.

In fact, yields are going up precisely because economic growth has quickened and real yields are rising. Some call it the growth trade. Get out of bonds and buy stocks.

A blowout retail number for November arrived this week, with retail sales up five straight months. Manufacturing from the industrial-production report is up five consecutive months. And the production of business equipment (capex) is rising 12.5 percent over the past year.

Fourth-quarter growth could be 3.5 to 4 percent. And that could spill over into the new year, especially with tax cuts coming. The Senate voted overwhelmingly to pass them, and 80 to 100 Democrats will join most Republicans to pass the tax-cut package in the House.

The tax deal isn’t pure, but it is a positive. It adds to confidence and refreshes incentives on personal-income investments. And with 100 percent cash expensing, it even adds incentives to business investment.

I can’t for the life of me understand why any conservatives would want tax rates to jump up, or would want to drain $600 billion or more from the private economy. Some of the goofy spending increases in the package -- which are probably only 5 percent of the total -- can be fixed later. Let Paul Ryan take them out. Or fund them out of the leftovers from the stimulus package, which failed so badly.

I’m glad to see that the NFIB, the Business Roundtable, the Chamber of Commerce, any number of bank economists, FreedomWorks, Americans for Tax Reform, and others agree with me. And I do not understand Mitt Romney’s opposition. He ought to know better.

And speaking of ought to know better, the jump in long-term interest rates on rising economic growth should tell the Fed to stop QE2. Capital gains and low-tax incentives for businesses large and small are real job creators. On the other hand, just printing money would be an inflation-creator over time. In fact, the rise in long-term Treasury rates is telling the Fed that short-term rates are too low and should be higher.

On CNBC's Kudlow Report

Tonight at 7pm ET on CNBC:

MARKETS & ECONOMY

- Rich Karlgaard - Forbes
- Jon Najarian - OptionMonster
- Andy Busch- BMO Capital Markets


DEBIT CARD FEES: IS THE FED OVER-REACHING?

-Brian Gardner, Keefe, Bruyette & Woods
-Peter Navarro, University Of California - Irvine Business Professor

CEO SUMMIT AT THE WHITE HOUSE: PROCESS OR POLITICS? WILL CEOS START HIRING?

- Jimmy Pethokoukis, Reuters Money & Politics
- David Goodfriend, former Clinton WH staffer

GOVERNMENT SPENDING GONE WILD
New Spending Bill Totals $1.1 Trillion

- Rep David Dreier (R-CA)
- Rep. Bill Pascrell (D-NJ)

HOUSING:
FORECLOSURE DATA TO BE RELEASED TOMORROW...WILL RISING INTEREST RATES AND THE FORECLOSURE MORATORUM KILL THE HOUSING SECTOR? ... WHAT DOES ALL THIS MEAN FOR THE HOMEBUYER AND YOUR MORTGAGE?

- Stephen Gandel, Time magazine
- Matt Englett - KEL Attorney

Please join us. The Kudlow Report. 7pm ET. CNBC.

Will Today's Higher Open For Stocks Be Sold Into Once Again

The market is trading higher in early trading, the same pattern for the last few days. But on Monday and Tuesday, those higher opens were sold into and the market gave back most of the gains by the close. We will have to see if that pattern shows up again today or not. Most of the time, when the market opens strong and closes weak it is a sign of selling pressure that soon knocks the market lower, but this has not been the case yet.

In economic news, the CPI for November rose just 0.1%; the NY Empire Manufacturing index rose to 10.6 in November (vs. 3.0 consensus); and the NAHB Housing Index showed a reading of 16 (basically in-line with consensus of 17).

The euro is lower today after Moody's put Spain on review for a possible downgrade. Also, Portugal held a 3-month bill auction that showed weak demand. The lower euro is boosting the dollar, which is in turn weighing on commodities. Oil prices are down near $87.85, while gold prices are lower to $1390.

Asian markets were hit overnight after the Japan's Tankan survey showed a drop in confidence among large manufacturers for the first time in nearly two years.

The 10-year yield is down a little to 3.41% after another big spike higher yesterday. The sharp rise in yields yesterday may have exacerbated the selloff in growth stocks, so that bears watching.

As for the volatility index (VIX), it is still at low levels of 17.52.

Trading comment: Yesterday's sharp selloff in many leading growth stocks could be a warning signal that the complacency I have been writing about lately is coming home to roost, or it could just be another one-day wonder of profit taking. At this point, it's too early to tell. So I will continue to watch the growth leaders to see how they bounce back. If they continue along their uptrends, then the market should be okay. But if they begin to break their 50-day averages, etc, then that would be a signal to get more defensive. As for me, I took some profits yesterday, just to be cautious.

BAD BREADTH

I've noted before that at intermediate turning points we will usually see breadth diverge from price.

The McClellan oscillator is now showing a large negative divergence and has moved back below 0 despite the market making new highs.

On a slightly more serious note we are also starting to see a divergence in the advance/decline line for the first time since the cyclical bull began.

The last time this happened the market was entering the final topping process of the last bull market.

I think that is probably the case here also as I believe we are already in a very large topping pattern.

As you can see on the chart the next four year cycle low is due sometime in 2012. 

Bernanke has massively increased the monetary response in the attempt to halt the secular bear, and we know how the last attempt to control the market turned out (we got the second worst recession since the Great Depression and the second worst bear market in history). I fully expect the next leg down in the secular bear to be even worse that the last one. Not only in the stock market, but also in the economy.

Greenspan already proved that you can't meddle in the markets without eventually causing bad things to happen. Unfortunately Bernanke doesn't seem capable of learning that lesson and has now made the same mistake again only on a much larger scale. I'm confident it will only lead to a much larger collapse in the end.

We will almost certainly dip below the `09 lows at the next 4 year cycle low, probably in nominal terms and certainly in inflation adjusted terms.

Once the impending intermediate degree correction runs it's course we will get what I believe will be the last rally in this cyclical bull market. That rally may or may not make marginal new highs before rolling over into the next leg down in the ongoing secular bear market.

I expect by this time Bernanke's insane monetary policy will have spiked inflation high enough to collapse the economy again and the global stock markets will begin the trip down into another devastating bear market.

In 2012 they won't be calling it a Great Recession they will be labeling it by it's true name; The next Great Depression!

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

MARKETS & ECONOMY...DOES THE BERNANKE FED HAVE THE STORY ALL WRONG?

- Don Luskin, Trend Macro Chief Investment Officer
- Keith McCullough, Hedgeye Risk Management
- David Goldman, former head of Global Fixed Income Research at Bank of America

TAX DEAL UPDATE

CNBC’s chief Washington correspondent John Harwood reports.

THE OBAMA-CEO SUMMIT
President Obama met with Gates & Buffet today and will meet with CEO's/Business Roundtable tomorrow. Is this a new pro-business move or just a game of politics? What can we expect from the "new" Obama economic agenda?

- Robert Reich - former Labor Secretary
- Steve Moore - Wall St. Journal Editorial Board

ECONOMIC GROWTH & INTEREST RATE OUTLOOK
With all the positive economic signs, isn't it time for Gary Shilling to change his forecast?

- Gary Shilling - A. Gary Shilling & Co. President
- Brian Wesbury - First Trust Advisors Chief Economist


RETAIL: ARE WE LOOKING AT A NEW CONSUMER?

- Hitha Prabhakar -Style File Group retail analyst
- Liz Dunn - FBR Capital Markets & Co. Retail Analyst

IS THIS THE END OF OBAMACARE?

- Ben Ferguson - Syndicated Talk Radio Host ICON Radio Network- Memphis
- Mark Levine, Democratic strategist

Please join us. The Kudlow Report. 7pm ET. CNBC.

Are Investors Becoming Too Complacent?

The market is up again this morning, and even though the market has looked tired several times in recent days, we continue to stairstep higher without a breather.

Asian markets were mostly higher overnight. The dollar is up a bit today, while commodities are mixed. Cotton prices were limit up this morning, oil prices are lower near $88.15, and gold prices are up a bit to $1391.

In corporate news, Best Buy (BBY) reported an earnings miss this morning and the stock is getting whacked. The company also lowered guidance for full year 2011. I thought BBY was doing pretty well, judging by how crowded the stores are, but maybe they are experiencing more competition than I thought.

The 10-year yield is higher again to 3.37%. Some people are looking at the sharp rise in bond yields as a potential headwind for stocks. So far this has not been the case, but I suspect they could be right if the pace of the rise in yields continues. As for the volatility index, it is still trading at low levels near 17.58.

Of course, the big event of the day is the Fed decision on rates today. I don't expect to hear much change from the Fed. They will keep rates low, and probably reiterate their recent plans for QE2 ($600 billion in purchases). But there is always the possibility for the market to selloff after their announcement.

Trading comment: Yesterday I commented on the growing complacency among investors. That has continued yesterday and today with the CBOE put/call ratio closing at 0.65 yesterday and opening at 0.47 today. Both of those are low readings, and speak of too much complacency in the options market. I view it as a red flag, but again, the timing of any potential impact is the difficult part. Nonetheless, I want to keep some powder dry to a pullback.

Some market leaders are beginning to rollover a little today, even though it is still early. I am keeping my eye on the likes of: FFIV, CSTR, OPEN, RVBD, PCLN, and NFLX.

long FFIV, OPEN

Respectful and Loving Opposition to Krauthammer

As I wrote in my last column, “Sell Bonds, Buy Stocks,” I continue to favor the tax-cut package. With all respect to Charles Krauthammer — he’s a brilliant guy, at least three-times smarter than I am on most things, and I love him — his recent column mischaracterizes the tax package.

Republicans should distinguish between tax cuts now (or back in 2003) and massive government-spending stimulus in 2009. The current package would refresh and maintain low tax rates, adding to confidence. So many people around the country and in financial markets expected the tax cuts to expire. Now they won’t. This is good.

We can avoid the train-wreck scenario for the economy and the stock market. We can avoid rolling back marginal tax incentives and draining $600 billion or more from the private sector and handing it over to the government.

Roughly 90 percent of this package is tax cuts. Neither Charles nor other conservative critics of the deal even mention the business tax cuts that are new, including 100 percent cash expensing, which will have a positive effect for job creation (though it should be permanent rather than just one year).

The package’s payroll tax cut for one year is really a demand-side rebate. But at least it keeps money in the pockets of the workforce. That’s not nothing. And extending the AMT is very positive. At $150 billion, this too is not nothing.

Like other conservatives, I worry that extended unemployment benefits will keep unemployment higher than necessary. But this could be funded out of the $110 billion of unspent stimulus funds from the 2009 package. And while the extra spending add-ons for ethanol, wind, and solar power, along with other nicks and nacks, come to $5 billion, they also could be taken out of the unspent stimulus and should not be enough to block the package.

I think conservatives have to keep their eye on economic growth. There’s stuff in the deal that I don’t like, but the overall impact is going to be positive.

The GOP should not go back to root-canal deficit obsession. Next year Paul Ryan is going to lead the charge on deep spending cuts. That’s the best way to lower the budget deficit — not tax hikes.

Root canal doesn’t work. Growth has to be essential to deficit reduction.

When I read Charles Krauthammer’s article carefully, what he really seems to be saying is that conservatives should oppose tax cuts because their growth impact (he acknowledges 1 percent better growth) might reelect Obama. I don’t think that’s good economic or political logic. What Republicans should be doing now is promoting growth and better jobs. There’s plenty of credit to go around. And then comes flat-tax reform, spending cuts, and meaningful deficit reduction.

I know this tax-cut package is not a panacea. I’m just saying it’s a good thing, a step in the right direction. And I think it is consistent with Tea Party principles, as per its endorsement by FreedomWorks.

More on this later.

San Diego

I'm in the San Diego area with Isaac and Jen. Computer time and access is rare so this could be the last post for a while.  Jen's cellphone died, too, so texting email is out, too.  This is a quick and scattered post.

Our encounters with friends, new and old, has been absolutely grand.  We spent Thanksgiving with Roy's family. One of the funnest Thanksgivings I've ever had.
Then we spent time with my close friend Grace, as well as our friends Jeromie and Jayme.  We also got to stay over at the house of Grace's boyfriend Eric and his roommates, Paul and Jupiter as well as Eric's daughters.  Paul wowed us with his sitar music, having studied under Ravi Shankar.

From Jen's cellphone.  Our camp beach.
Sun dim like moon through clouds. 
I don't have time to figure out
how to right-side-up these.

Paul took us down to Santa Monica where we walked the coastline trying to check out all the harbors and docks in our attempt to find something to Hawaii. Futile attempts. We found some shopping carts for our packs and walked for 3 days to the southern side of LA. Then we hitched southward, camping on the beach and in random crannies of civilization. And who should pick us up and take us half way to San Diego, way out of her way? A young woman named Apania, Jenna Jameson's personal assistant. Apania was so friendly and funny - had us laughing the whole way. Gave us an inside tour of California's chic spots down the coast. What a foreign world, almost creepy to me. Apania commented on how she serves the rich and is around unbelievable wealth and celebrities constantly, but hasn't enough to pay her own rent. But she said she has a deep bond with Jenna, a priceless friendship.

We camped the beach that night, were told in the morning it was illegal. We tried hitching, then walked. We camped in a crack under a road overlooking the ocean. We tried hitching out of Carlsbad but some cops told us hitch-hiking was illegal, and we'd be cited if we got caught again the next 15 miles. I discussed with one of the cops how unjust the law was, telling him both he and I knew in our hearts such a law has nothing to do with serving and protecting humans, but it had everything to do with economic status. He couldn't officially agree because he has a job he has to do, and has to say what he is paid to say, and that helps me not be angry.  Slaves to mammon cannot do other than what mammon says, otherwise they would not be slaves. I understand, I've had plenty of jobs where I sacrificed my mind for the mind of the institution I worked for. After the cops left, a man named parked at the beach, named Carlos, called us over, asking us what happened. "Fascists." he said, "I'll give you a ride, though I can't go very far." But he ended up giving us another royal tour of the entire coast, all the way to San Diego! "I didn't have anything to do, anyway!" He said.

So we've been walking a lot, with shopping carts again. It's strange, this lifestyle. I go from feeling overly flattered from publicity to going to feeling less than scum from the looks and the treatment of quite a few people. Both the flattery and the ill treatment are based on distorted images in the head, not on reality. Isaac and Jen have discussed how troubled it makes them feel, sometimes, too. My masochist side actually gets off on it all, like it's some big wonderful challenge to maintain noble dignity at the bottom of the heap. I love it in fact, usually.  But we're almost always treated with real respect by the Mexicans here, who now an then astound us with their generosity and friendliness. I've found there isn't much to eat in dumpsters in Mexican neighborhoods. They keep giving us what they don't eat instead of throwing it away.

Then there's the authorities. Most everything is military and high security here. Cops, military all around, continual helicopter surveillance from above. Pretty much everything is illegal when you don't have money. I'm not being facitious by saying that to live freely is to live illegally. You simply cannot live without money and be legal here. I suppose that's true all over the US, but especially here.  But I can also see it from the viewpoint of law enforcement. There are simply too many people here, and it's out of control. Everybody wanted to move to beautiful southern Cali, and everything turned into money and privatization and business and military. Humanity has been almost squeezed out of the picture. You try to rest your bones at a business, the owners shoe you away. You try to rest your bones on "public" land, the cops shoe you away. You walk, you're tresspassing. You hitch-hike, you're an illegal "threat." If you live free, you remind people that something matters besides business, and that might be bad for the economy. But people are "free": "free" to shop, "free" to buy plastic surgery and botox and silicon injections, and look at all the "freedom" of choice at supermarkets and malls! Okay, I'm seeing this place from a different viewpoint than most. But few get to see it from the bottom. So now you get to see it from homeless eyes. I hope it's a bit uncomfortable for you.

We've been sleeping in a park and found an abandoned rowboat on a nearby fenced-off beach. I found some discarded cans of latex paint and used it to patch up the holes. So we might take it into the bay tomorrow and float south. That's probably illegal too. We're still open for a chance to find a magical boat to Hawaii, but not attached to expectations if it doesn't happen.

I'm still learning guitar and feeling good about it.  We have flutes with us, too.

I love Jen and Isaac more than I can say.  They're amazingly still with me though I've led them on a wild goose chase.  We are amazingly compatible.


Accept disgrace willingly.
Accept misfortune as the human condition.
What do you mean by "Accept disgrace willingly?"
Accept being unimportant.
Do not be concerned with loss or gain. . . .
Surrender yourself humbly;
Then you can be trusted to care for all things.
Love the world as your own self,
Then you can truly care for all things.
(Tao Te Ching 13)


He who takes upon himself the humiliation of the people
Is fit to rule them.
He who takes upon himself the country's disasters d
Deserves to be King of the Universe.
(Tao Te Ching 78)

Monday Morning Musings: Sentiment Concerns

The market is higher again in early trade, after Asian markets were up nicely overnight. China soared +2.9% after failing to hike its benchmark rate over the weekend as many had expected. They said they would maintain a strong growth policy despite rising inflation.

The dollar is lower this morning, which has been boosting stocks lately, and is also helping commodities. Oil prices are nearing $90 (currently $89.17), and gold prices are back to $1391.

The 10-year Treasury is up to 3.35%, its highest level since June. And the volatility index (VIX) is down to 16.80, which is its lowest level since April. As you recall, April wasn't the best time to enter the market.

Among the sector ETFs, energy (+1.35%) and materials (+1.07%) are leading the early action, while consumer staples (+0.07%) are lagging.

Trading comment: The ISEE call/put ratio closed at 230 on Friday, after hitting 208 on Thursday. From my limited work, 230 looks like a record close, and it is very rare to find 2 readings above 200. This is just another example of investor sentiment becoming too complacent at this juncture. The Rydex nova/ursa ratio is also rising to levels not seen since April.

We know from past instances of sentiment getting this complacent that it is just a matter of time before the market experiences some sort of correction. So it pays to be on your toes. It could happen tomorrow, or it might not happen until January. But the longer sentiment stays this complacent, the more likely it is that we will get another market correction. Something to factor into the equation and have a game plan for.

Rising Consumer Sentiment Buoys Market

The market is slightly higher again in early trade, despite the numerous calls for a pullback in this area. The University of Michigan consumer sentiment report helped this morning, when it came in at 74.2, it's highest level since June.

The dollar is a bit higher today, which is weighing on commodity prices. Oil is hovering near $88.25, while gold has pulled back to $1375.

Asian markets were mixed overnight, with China higher after reporting strong export growth figures (+34.9%). China's central bank announced that it raised the reserve requirement ratio for banks by another 50 basis points, as it looks to try to reign in inflation.

Last night, F5 Netorks (FFIV) and Netflix (NFLX) were both added to the S&P 500, so index fund managers are buying those stocks and both are higher today.

Among the sector ETFs, healthcare (+0.55%) is leading so far, while materials (+0.03%) are lagging. But all 10 sectors are positive.

The 10-year yield is up a bit today to 3.25%; and the VIX index is still at the low levels of 17.35.

Trading comment: The growth leaders continue to hold up well, and break further into new high territory. Coinstar (CSTR) looks poised to move higher; Valeant Pharma (VRX) looks to be completing a short cup-and-handle breakout; Sandisk (SNDK) is surging higher so far; and the list goes on.

Bullish sentiment continues to climb, which as I mentioned yesterday is a yellow flag. And while it will likely matter at some point, I am mindful of the fact that sentiment is a secondary market indicator, while price and volume action are your primary indicators. The trend is your friend.

long CSTR, FFIV, SNDK, VRX

4 DAY RULE

If the market can end the day with a gain we will get a 4 day rule possible trend change signal.

The four day rule says; After a long intermediate rally look for the first down day to signal an intermediate trend change after the market rallies 4 or more days in a row.

The four day rule is a sign of extreme sentiment. I would caution that it only works after a long intermediate rally lasting multiple months. We have those conditions right now. We have also reached extreme bullish sentiment levels. The kind of levels where we are in jeopardy of running out of buyers.

Add to that the fact that the intermediate cycle is now going on it's 23rd week and we got a large selling on strength day a couple of weeks ago (a sign institutional smart money is exiting in front of a large correction.) and we can probably expect any further gains to be given back and then some when the market moves down into the intermediate degree correction.

Now is not the time to press the long side in either stocks or gold.

That doesn't mean one should short. Shorting bull markets is a tough trade. You have to time the exit perfectly and survive the violent fakeout rallies to make money. Not to mention you will invariably miss time the entry several times. All in all you will probably be better off just going on vacation for the next 5-6 weeks.

Stocks Refuse To Go Down Easily

The early tone of trading is generally positive this morning, as the market is up slightly. Newsflow has been generally light, although this morning's jobless claims numbers were better than expected.

Asian markets were mostly higher overnight, while Europe is up this morning. England's central bank held rates steady at 0.50% and maintained the size of its asset purchase program at 200 billion pounds. Ireland had its debt rating cut by Fitch to BBB+.

The dollar is roughly flat so far, while gold is bouncing back to $1391 and oil is near flat at $88.45.

The 10-yr yield had a huge 2-day rally up to 3.33%, but today is pulling back to 3.22%. The volatility index continues to hover at low levels around 17.60.

Trading comment: The equity put/call ratio has been very low the last 3 days, which often raises a red flag for the market. I sold some things yesterday, and I know a lot of people who are watching this and expected the market to selloff because of it. I am not so sure of the timing. I still feel that this month dips will be quickly bought into year end. But if we get a real sharp selloff, it is possible that it could shake the confidence of the dip buyers.

That said, I do think that the rising complacency shown in these put/call ratios will lead to a selloff at some point. Maybe it will be a January event. With volatility levels as low as they are now, one can certainly buy protection in the options market cheaply. Just food for thought. But in case you are wondering, I am not abandoning my call to stick with the growth leaders of this market.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:


10-YEAR TREASURY SOARS TO SIX MONTH HIGH…GOLD SILVER DOWN SHARPLY
- CNBC’s Rick Santelli reports.



THE MARKETS & ECONOMY

- Howard Lutnick, Cantor Fitzgerald Chairman & CEO; BGC Partners Chairman & CEO
- Todd Schoenberger, Managing Director; LandColt Trading, LLC
- Joe Battipaglia, Stifel Nicolaus Market Strategist

CEOs ROADMAP FOR GROWTH
- CNBC's Eamon Javers reports.

ONE-ON-ONE WITH HOWARD LUTNICK
- Howard Lutnick, Cantor Fitzgerald Chairman & CEO; BGC Partners Chairman & CEO

SHOULD THERE BE MORE DEFICIT OFFSETS TO $1T STIMULUS PACKAGE?

- Chris Chocola, Club for Growth President
- James Glassman, George W. Bush Institute Executive Director; Kiplinger's Personal Finance Columnist

OBAMA & STATE OF THE DEMS ON TAXES, SPENDING & JOBS
- Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy

Please join us. The Kudlow Report. 7pm ET. CNBC.

Quick Look: Bond Yields Continue To Rise

The market is struggling near the flat line so far this morning, after somewhat disappointing action yesterday. Remember that the market opened strong yesterday on the news of the Bush tax cut extensions, but it would up giving back those gains by the end of the day.

Investor sentiment has become a bit complacent in recent weeks, so it may be that a little shakeout is in order between now and year end.

Asian markets were mostly lower overnight, and Europe lower this morning. The dollar is up for a third straight session, which is weighing on commodities. Gold prices are down more than 2% to $1376, and oil is also down near $87.75.

The big move is in the 10-yr yield, which has been spiking higher the last 2 days. Yields are up another 11 basis points today up to 3.28%. As for the VIX, it has not risen yet, and is still at low levels near 17.77.

Trading comment: The market action yesterday sometime speaks of a market that is a little tired. It would not surprise me to see the market rest here a bit. Then again, given that we are close to year end and performance anxiety is a factor, one cannot rule out the same action playing out where we see a 1-2 day pullback and then continued stairstep higher action.

White House Extends Bush Tax Cuts

The market is rallying on the news that the White House has extended the Bush tax cuts and also extended unemployment benefits. I don't think that anyone thought it might not happen, given how late in the year it is. But the Administration also added a payroll tax deduction and some better treatment for business investments.

That has helped the S&P 500 gap to a new high for the year this morning, and all 10 economic sectors are higher so far. Industrials and technology are leading the action, while defensive utilities and healthcare are lagging.

The flight-to-safety trade that we have seen recently is being unwound today. The dollar is lower, gold is trading down, and Treasuries are being sold in favor of equities. The lower dollar is also helping boost most commodities.

The selloff in Treasuries has pushed yields on the 10-yr Note to a new multi-month high of 3.09%. While that may seem high relative to recent levels, remember that it was just back in April of this year that the 10-yr was at 4.0%. So I could see us trading back toward those levels if economic data continues to improve.

As for the volatility index (VIX), it is hitting fresh lows again at 17.57.

Trading comment: No change to my recent comments and outlook in terms of the market. Leading growth stocks continue to move higher, and the question is really whether sectors that have been lagging will play catch-up at all? I am not playing it that way, but I am watching things like financials to see if they can get moving. If financials start to move higher, this market could really get cooking. As it stands right now, the S&P 500 is up 10% on the year.

It's also nice to see Google (GOOG) quickly recapturing its 50-day average today.

long GOOG

SIGNS ARE STARTING TO FALL INTO PLACE

If gold closes positive today it will be moving higher at a 76% clip.

Today will mark the 14th day of the current daily cycle. We will soon enter the timing band for the next cycle low. The dollar is now deep into the timing band for a cycle low and could bottom sometime this week.

Sentiment is starting to get frothy. Traders are starting to find reasons for why gold and silver will just continue higher indefinitely. (JPM short squeeze)

All signs that an intermediate top is approaching. Trust me we will get a profit taking event. They come like clockwork about every 20-25 weeks.

I went over in the weekend report what to look for to spot a potential top.

Stay on your toes here folks!

Monday Morning Musings

The market opened under a bit of selling pressure this morning, but has so far stabilized just under the flat line. The market had a very strong week last week, and the S&P just needs to close above 1225 (currently 1223) to close at a new 52-week high.

There is not much in the way of economic news this morning. The big news was comments by Bernanke over the weekend on 60 Minutes about the Fed's ability to provide further stimulus to the economy if needed. I watched the interview, and didn't think his comments were surprising.

In Europe, Hungary had its debt downgraded, and that is causing weakness in the euro and boosting the dollar. Commodities are stable, with oil flat near $89 and gold nearing new highs at $1415.

Asian markets were mixed overnight; the 10-year yield is lower to 2.95%; and the volatility index (VIX) is up slightly to 18.18, after hitting fresh 7-month lows last week.

Among etfs, materials and technology are the strongest so far, while healthcare and industrials are lagging. The big tech companies like Google (GOOG) and Apple (AAPL) are leading the action this morning.

Trading comment: Last week's action in the market was very positive, and it feels like the market will continue to stair-step higher into year-end. Goldman Sachs (GS) raised its forecast for next year, calling for the market to rise to 1450 on strong earnings, an improving economy, and steady, low interest rates.

Not surprisingly, the Nasdaq closed at a new high for the year on Friday, and that continues to be the neighborhood to troll for stocks leading the market.

long AAPL, GOOG

ALOHA

Not exactly a margarita but at least there isn't any snow. (I'll be working on the margarita's tonight)

Shock Therapy for Jobs

Unemployment jumped to 9.8 percent in a very disappointing November jobs report. Nonfarm payrolls increased by only 39,000 and private jobs expanded by just 50,000. This is way below what the economy needs. Most discouraging, the smaller-business household employment number fell for the second time in a row, down 173,000 in November after a 330,000 drop in October. This is the nineteenth straight month with unemployment above 9 percent.

Now, after the severe financial panic of two years ago, it seems clear that too many tax and regulatory obstacles are blocking satisfactory job creation. And it also seems clear that a number of fresh new incentives will be necessary to spur the kind of prosperity that Americans desire. Following the deep recession, we need shock-therapy, pro-growth, tax-cut and deregulatory incentives.

Post-election, is the Washington war on business really over? Has the war on successful earners and investors truly ended? Is the class war against capital still being waged by the White House?
Will Obama bring senior business people into his inner circle? Are we going to get pro-growth tax reform for individuals and corporations? Are we truly going to limit government spending in order to reduce the onerous budget deficit? Is King Dollar currency stability on the table?

These are all key questions for the economy’s future and the murky unemployment outlook.

Perhaps the only saving grace from the poor jobs report is that it will spur a quick resolution to extend all the Bush tax cuts.

Democrats keep shilly-shallying with all these silly class-warfare amendments, like a $250,000 limit, or a $1 million limit. This has everything to do with left-wing redistributionist social policy and nothing to do with economic growth. The fact is, passing the bill to freeze the tax rates will help business confidence. Why don’t Democrats understand this?

But there’s more.

Large and small companies remain worried about the high regulatory and tax costs of Obamacare, which is the number-one jobs-stopper. How expensive will it be over the next five to ten years for the new hire? Companies also have to deal with a crazy quilt of new financial regulations that may block access to new bank loans when private credit demand kicks up.

But the Bush tax cuts will not do the job alone. Full-fledged flat-tax reform — of the sort embodied in the best of the Bowles-Simpson fiscal recommendations — will be necessary for full-fledged economic recovery.

Lowering the top personal and corporate tax rates will increase after-tax returns for work and investment. That’s the kind of strong new incentive that will be necessary to ignite rapid economic growth in the post-meltdown period. Broaden the tax base and lower marginal rates across-the-board.

And full-throated spending reduction will be necessary to drive deficits lower, and reduce the threat that future taxes may have to go up if the bond vigilantes come after the U.S. Treasury market the way they have attacked various countries in Europe.

Meanwhile, the Fed can produce money, but we are learning again that it cannot produce jobs. It also can produce inflation and a devalued dollar.

In other words, the basic building blocks for growth must be restored: limited government, lower tax rates, and a steady currency.

However, all is not doom and gloom on the economy. There is some optimism. In fact, there’s a mystery to Friday’s jobs report, since it just doesn’t tally with all the other good economic news.

Retail sales are up four straight months, and chain-store sales for the early holidays surprised on the upside. Manufacturing reports have been solid. Even for November, the Institute for Supply Management’s surveys for manufacturing and services were solid. The ISMs are basically real-time economic indicators. And oddly enough, the employment component of each looks fairly strong.

Meanwhile, core business investment is rising at a double-digit pace. Profits are at a record high. Commodity indexes are rising at a better than 10 percent rate, year-on-year. The M2 money supply is growing around 8 percent annually. Business loans from commercial banks are finally bottoming. The Treasury yield curve is positively sloped. Oil prices, closing in on $90 a barrel, are too strong. And the stock market’s strong run continues.

In sum, the economy is actually rising at a roughly 3 percent rate. But economic growth should be double that.

There is so much work to be done by the new Republicans in Washington. Let’s hope the Tea Party message is alive and well in the GOP. Smaller government, lower tax rates, deregulation, and free-market economic freedom. We need it now more than ever.