Were going to see fits and starts trying to get through 20,000 when we eventually do we will pull back and try to make another assault and see if that holds, judge. I think the same pattern that weve seen playing out until now is going to continue to play out. And that is, buying dips, any significant dip, even fridays dip. If you buy the dip you get a chance to take profits quickly. The vix is still below 12 but they have been buying a ton of vix calls. Upside calls, in february though, at about this whats going to happen on friday, guys, but about where is the vix today . 1170. 1170 well call it. Lets call it 12. In february as you say, this is trade that weve just sort of gotten our eyes on. Investor have purchased 250,000 vix call options with the strike price of 21. Yep. So theyre looking at a double on the vix. They bout another 150,000 of those on friday last week. That it dont need it to double. As the vix was coming down. Right. But you get the point were trying to make. Its big protection by multiple parties, most probably. Theres one person that comes in virtually every month and buys a onemonth out vix call thats right around 50 cents. Its a hedge against an existing portfolio. Not a bet on the downside. Now, this is some of the biggest activity weve seen, judge, so im not saying its just that one party. This could be multiple volatility book guys that are hedging, could be goldman, could be deutsche, could be a whole bunch of folks hedge for what could happen. Again, its not about what happens on friday because theyre buying these way out. Do we think people have been simply too complacent about what lies ahead . Tony dwyer, youre looking for a 3 to 7 correction. We downgraded in mid december because all the enthusiasm when we upgraded before the election it wasnt base and donald trump. I wish i was that smart to know that was going to happen. It was based on fell rating market activity. It has continued to accelerate globally. When everyone is enthusiastic, when you have 60 bullish, the correlation of the individual stocks in the s p itself in a cycle low near 2007 levels, history shows you will have a correction. The biggest point i could make, scott, is you never ever ever, everer ever ever ever want to not buy a correction like that even if it gets worse when youre not in a recession or inverted yield curve environment. Look, you know, buying protection of the vix. Equities are the only asset class that is holding up there. If you take a look at i should say that were talking about if you take a look at all the other Asset Classes its been the safety trade. You take a look at the ten year, the yield has gone down 2. 3. Right . You look at gold at the rally, silver, we had the rally, copper starting to sell off. The rest of the assets have really gone safety trade and theyre very skit tish about equity markets. The buyers which side of the trade is right . I going to say that that there are some concerns that have been bubbling about there. Trump cant possibly execute in a timely fashion on everything hes gone after. In addition, protectionism keeps getting more and more prominent. So you cant pick on merkel, you cant pick on china, you cant pick on, you know, bmw, you cant pick on everybody without it being a concern. Thats number one. Number two, you cant go after the gop. Not that he went after them but talk about the border tax. I wouldnt call it a Fragile Alliance but the numbers arent very strong in the center. We point out last week. With rand abstaining 5148. Theres some reason to be concerned and with the ek cutity valuations where they are, that, you know, maybe just want to pause little bit. Youre going to earnings. Earnings should be good. History hasnt been all that kind to a new administration either within the first month of taking office. Rich peterson sends me something here. Sure. It is what it is. Ronald reagan, eisenhower. George w. Bush, 4. 7 . You can easily do it but its always a credit reagan, the recession came in the first year of ray again. Eisenhower, theres been comparisons made to that. The key is you had an inverted yield curve and shutting down a credit in the years before that they took office. Thats why you had that recession driven bear market for both in their first year. Im saying, in the first month. Bush, obama both lower by more than 4 within the first month. I also think a lot of the reason why the market rallied off the bottom, clearly positive Economic Trends that were reflecting more positively. Nigsz to that you aed a lot of optimism about a tax and infrastructure deal getting done. And i think what you saw yesterday marl particularly fro the wall street journal article released is that its going to be a lot harder to get a tax plan done as quickly as the administration would like. Theres a pretty big disagreement among border instability between the house. The house wants any deal to be done, revenue neutral. Trump is saying he doesnt never loved the idea of border adjustability. So i think that the time frame is probably pushed back to the fall where the market was hoping it was going to be in april or may or at least before the august recess. That probably pushes the timetable for any implementation into next year. And so i think that between infrastructure not even being discussed, taxes being pushed out, i think both of them are probably putting a little bit of a hold on market moving higher from here. And then youre getting negative signs from the rest of the market. Youve got confirmation hearings that still have to happen with important cabinet members, too. We talked at the end of december about the strategy in december being not to make decisions until the month was over. That was what was important. I said last week i thought the market was going to accelerate above 20,000 until the inauguration. You like to make mistakes earlier in the year and be over and done with it. Thats my mistake of the year. Steven talks about 230 and a tenyear. What does that mean . Money is still sloshing around globally and has a place to go. Josh did a great job talking about if youre not in the u. S. Im going to be in europe, im going to be somewhere else. I talked about taxable fixed snk. Those are the places that are going to see flows of capital coming because were still in a little bit of search for yield environment. If you look at flows and ill tell you on a mutual fund side, i am amazed that we have not seen a stark inflows to mutual funds on the equity side that you normally see in january. Its negative. Youve seen a slight outflow. Unique situation. Maybe part of that has to do that we had a great run since the election and people are skittish. No. Thats no, and its not. Its the environment of where yields are right now and what the expectation is for the investor and what tear going to get. Were still not in that gogo environment, scott. Josh . Yeah, well, so they are reporting we have the sentiment data and the newsletters are bullish. They always get bullish after the market runs. Thats their function in life the is to chase what happened. They ride it over the weekend. If you had a good close friday theyre constructive again. That will change on a dime. Look at what people are doing, not what theyre saying. The ici data says the week of january 6th was a net out flow of minus 2 billion from u. S. Stock funds and u. S. Stock etfs. Show me the yeuphoria. It doesnt exist. Utilities at the highest levels since the election. And now youve got some of that internal strength that we were seeing in the russell 2,000 and in some various areas that have been left behind. Starting to fade a bit. I submit though that this is not necessarily negative. Again, you dont want to see a market just go straight up six, seven, eight weeks and then crash. Its much healthier to see money move around, see a little bit of rotation, and, look, we dont know whats going to go on. Money trying to make up its mind. Look, weve talked almost every day about the financials rally that we saw since the election. Kbw coming out today saying cut jpmorgan. They downgraded to market perform. Catalysts are becoming harder to find. Is that more of a reality for what the banks are going to be . Facing . The analyst has done a solid job at being or keeping jpmorgan in an out perform. I think he was low 70s. Hes had it all the way up. Congratulations to him. I think he shaves it by maybe 1 here, takes to it market perform. The average price target on jpmorgan is somewhere around 91. That was a great quarter that jpmorgan put. That was a great quarter. I own jpmorgan. Jim cramer called it arguably the greatest quarter ever put in by a bank, ever. Down 2 today. If you want to scare yourself out of the position, fine. Theres other things you can do around it. Jpmorgan looking forward into 2017. Thats the least of your problems potentially. Its almost like they make a Bigger Picture call with, too, with this. Im quoting from the note, should tax reform or broad scale deregulation become more like it. Bigger issue there as well. Dont forget one of the proposals in the tax plan is the inability to deduct interest. So if you canned deduct interest and youre a bank theres less borrowers. We need to see how it fleshes out. In terms of the bank, this is a sell on the news. Morgan stanley came without with a very good quarter and look at this stock. That stock is down dramatically. If youre a longterm holder of the banks i dont think this is where you want to sell them. You want to buy them . I think you will get a better opportunity as well as ten year staying at 2. 3 at w. The about that it goes lower. This is not the point of entry. Just be patient. You will get a better point of entry. I agree with the point on Interest Deductibility. With Interest Deductibility theyre have a carve out for the banks. It will hurt with issuance for maybe new lending. It might hurt their stream of business but its actually got to hurt the banks. So if youre a borrower, right, and if youre a private equity we know how that works out. Bridge loans, and others. 100 . I think just really quickly, though, with the ten year, i meerning right now positioning is at record shorts with the ten year. Its going to be hard for the ten year to sell off significantly further from here. Agree. I think because of that if you continue to see the bonds continue to rally a little bit further from here, you are going to see the banks come under pressure. Scott, the financials kind of highlight our current opinion. Corrections are only natural, normal, and healthy until you get them. And then all of a sudden if youre already very offensively positioned and levered long and it starts to go down 3 or 4 i get the calls. People start to get nervous and they start to sell. They do the opposite of what history suggests you do in a positive fundamental economic backdrop. You want to buy weakness. Unless youre in a credit driven recession or bear market you want to buy weakness, not sell it. You have to be neutrally better. I do you one better. If you want to follow that advice as tony would tell you its much harder to dothan to say. But if you set your perimeters in sned a vank ed advance and m. The next time the market wants to vomit them up because of the French Election or whatever the boogeyman is, maybe its, for me, its google, which im in. I wish i were bigger. Its jpmorgan, which im not in yet. Thank you today for whoever was was it kbw . Yeah. Appreciate it, brother. You make this list. And then you put in buy stop limits and you put them in at levels where you say, all right, maybe this is unrealistic but i dont care. Im saying yes to the dress right now. Now, absolutely dovetail that. How do i get held accountable as a talking head on tv when i make a statement to the public. Youre above the law. Never. I have to make the statement before it happens. Because i promise you i will from scared when the markets down 5 on a perceived fundamental change. If you are not convinced that its going to happen before its happened and position yourself that way these are behavioral nudges that can limit the pain. Just like mike tyson said. Everybody has a plan until they get hit in the face. And when you get smacked in the face you have to. Its great. I gave you the plan. It is a great plan. But it works until you get smacked in the face. When we see a 2 selloff, judge, then well see whos got the stones to step up and buy. I know i will. And i know many of them around the table will. But its a question that needs to be answered because everybody just assumes that it will happen. Wait a minute. If youre making a plan in the heat of the moment you will fail. I agree with you. 100 right. Look, we did it live on the air. We bought in january and february we bought facebook, we bought apple. Netflix. We said this is a joke. I did it again in november with facebook when they took it down to 114. Down in the market, yeah. Im just saying before the election, nine days in a row. Mention about talking heads on tv and accountability and so forth and im just saying not that tony is one, im saying that we all have plans. And its a question of can you stick to that plan when the crap hits the fan. Thats what separates us. Put the orders in there and forget it when you get hit. Dwyer, youre looking for this correction. And you say you should buy any dip. And yet youre only looking for 3 upside in stocks for 2017. Im very conservative which ive said publicly. Can i in other words, our target, 130 on earnings, which is a little bit below the street. Multiple is 18 times. I think its trending higher than that. You know, im not going to go up to a new move. Ive said publicly im conservative. Im not going to upgrade it right before i think youre going to correct. Are you conservative or concerned . Im conservative on the intermediate term im concerned near term. No question about it. Heres the answer of what i would do instead of just talking into the camera. If i was a hedge fund or aggressive trader i would lower my exposure. I would just be not i would lower my net, lower my gross. If i were a long only mutual fund which we also service i would neutralize significant offensive overweights. As i said in my note back in december i would lower my financial exposure, lower my steep cyclical exposure, i would go neutral. It is a time to not get hurt by a pullback. You cannot get offensive if youre already offensive. If youre 3 upside and 4 downside you should be in cabo nursing a margarita. I just got back from the bahamas which is why im relaxed. What we talked about is buying names like adoeb dobe, names like smucker, fundamentally their strong but in 2017 they got caught up in a moment of we dont want to own defensives and we want to go back to cyclical names. Were also 15 minutes in the show and not talking about the thing that everyone was so worried about, rising u. S. Dollar. We got confidence over the weekend from president elect trump, his feeling that the u. S. Dollar. Weve got people in his administration talking about the dollar. And you know what, year to date the dollar is down 1. 7 . If the dollar falls further, does that gain your concern for a correction . That is the most nonconsensus call ive had for the last two months, three months, is that the dollar is going to weaken and s p operating profit people are making that call a little more in the last few days. You made that didnt you have that call . I think the dollar is going to weaken but you think it really matters whether its going to weaken again. If youre talking about the g10, probably going to weaken. Em, probably not going to weaken. The reason why is i think em has its own problem structurally that have been a little bit abated by some of the strength in china but i think that thats starting to rollover. Omura said the money moon is over. Against the g10 you allow the s p to play catchup versus the russell, the russell weakens because that was a big trade there. I want to throw a couple things out there because tony has put forth a point of view that some of you clearly have issue with. Sector by sector. Financials. Tony says he may be reduce exposure financials. I dont hear anybody saying that on the desk. No, i 100 think that because of the yield curve i think is flattening and because i think rates are rallying from where we are and a lot has been priced in i think you should be underweights in financials. I want to buy them, to be clear. Ill buy them when they weaken. I hear you. But i dont hear anybody else thinking that categorize them. Lighten your exposure. Tony and i talked about that before, i dont categorize financial, okay, its binary. Either i like josh or i dont. I bone bb t he likes parts of me. Bb t and do you not want to be in visa and mastercard if theres trillions in tax cuts . Of course you want to be in those names. Are they financials . Yes. Binks that rely on a yield curve . No. I agree with joe. Its very difficult to keep these. These stocks are up. Theyve out performed the market significantly since the election. Up significantly. A lot has been priced in already. Many of them did nothing though for years and years prior. Yes. 100 . We think we can take a threemonth time frame and extrapolate it or say, all right, over 36 months have banks out performed . Have they done anything . Probably not. Offshore account not paying taxes, i would have sold my financials. Okay . If i have to pay taxes, im selling them. They over bought but theyve run the course right now with the yield curve flattening. Because they traded up on a steepening yield curve. Because thats how they make money at the spread. Anticipated. And what they anticipate they were going to make. Like we said last week, judge. In the jpmorgan aerpings bought the weeklies, stock rally. Went through 892349 premarket on friday. I think opened just over 88 in the regular market and was quickly sold. Youve got to Pay Attention to that because people were saying, your hands were open like this towards you, sold at 88 bucks a share, at 87, 86, now its 84. I think it probably glets to 82 on this move. Maybe it gets to 80. I dont know. I have longterm call spreads. Im out of all of my trades from last week and jpmorgan but im still in long term calls. Josh mentions visa. You need to know the Corporate Tax rates for the financial institutions. Visa, 38 . Thats not going up. Its coming down. Charl charlie schalb, upper 30s. You have to know the tax rates because relative they are harder than the other sectors. I think stock picking makes sense in this Financial Sector but if you do aggression looking at the xlf versus the yield curve or yields since the election its very highly correlate with one another. Totally agree. If you have a view that yields are the curve is flatten or yields will rally further tr here when you have to be underwaunde underweight financials. When you look at the correlations to the market, you know, weve talked this entire cycle about how high, historically high individual stock and as set class correlations have been. It is now the lowest level since early 2007. That led to a correction and then a real ramp which is what our call is. But correlations are very, very stock picking is already taken over. Arou that means that theres