Silver Lake files a shelf registration to sell 24 million shares of Twitter (TWTR) .

"Just one more thing."
- Lt. Columbo
I dispassionately and aggressively shorted SPY (SPY) near and after the close (up to $304.05) as the machines and algos went "wild."

There was a large $3.2 billion market on close buy program today.
Thanks for reading my Diary and enjoy the evening.

Scaled up to over $302 on (SPY) short - back to large-sized.

Reshorted (QQQ) $229.40 - replacing my covers this morning at lower prices.

I am reshorting (SPY) at $301.70 now.

I plan to add on a scale higher.

* This investment has been a very bad experience
* Today I have sold Goldman Sachs, Twitter and ViacomCBS - as I reduce my investment long holdings after the sizable market advance from the March lows

I have sold my entire ViacomCBS (VIAC) long this afternoon at about $22.15 (for a loss).

VIAC missed on its last quarterly EPS report before the spread of Covid-19 and I should have pulled the chord then.

The shares fell from about $32 all the way down to $10.50 after the virus' disruptive impact on the domestic economy and on key portions of ViacomCBS business segments.

At that point (with the shares at the lows) I felt like vomiting in my mouth - an unpleasant exercise.

In a very undisciplined way, I averaged all the way down (I literally purchased shares under $11/share) - even as the "shelter at home" continued to erode the company's share value.

Less than two weeks ago the shares were under $16/share - and have risen close to +40% since.

As a result of the share price rise, my aggregate loss was relatively small. (In several accounts, I actually had a gain.)

Nevertheless it was a distasteful experience that I would preferred to have missed!

Though the company intelligently addressed some liquidity concerns over the last month, it is very difficult for me to currently construct a spread sheet on the company given the numerous uncertainties facing ViacomCBS. As a result, I have only a limited sense of what the company's intrinsic value is.

Based on this limited understanding of the company's fundamentals, the shares may still be "worth" a slight premium to the current $22 share price (perhaps in the $23-$25 range) - but probably not too much more and not enough to merit holding on a reward vs. risk basis.

Honestly, I am sorry to have put everyone through this one - and I have taken it off my sheets (to look at no more!).

* I have sold the balance of my Twitter holdings
I continue to whittle down my long book after the "rip your face rally" over the last two months.
Towards that end I earlier sold my entire Goldman Sachs (GS) position.
Yesterday I halved my Twitter (TWTR) holdings (after a run from $20 to $34) and I have just sold the balance of my Twitter for a sizable gain.
As mentioned earlier, Twitter is in the vortex of a possible continued pivot from growth to value.
Though still a unique and valuable asset, I have an inkling that the fact checking based fight between President Trump and the company has just started.
If the conflict becomes really bad, it might be sub optimal for the shares and render a M&A event as more unlikely, especially in the face of a plethora of economic uncertainties (advertising, etc.) over the balance of the year, the proximity to the November election, and the growing lack of political appetite or acceptance of a potential deal (from both Republicans and Democrats).
What could also be a considerable headwind for the shares (and fundamentals) would be if the national polls begin to favor Biden over Trump - which I believe is a distinct possibility. In the extreme, a Biden victory could reverse the company's recently improving usage metric growth, given how important Trump's tweets are for the franchise.
I would be a $27 buyer on weakness.

Goldman Sachs (GS) traded as low as $130/share on March 19, 2020. (I have been a constant and aggressive buyer on weakness throughout the last few months.)

The shares are +$10, after being +$13 yesterday - trading back to over $206 this afternoon.

I have just eliminated my entire Goldman Sachs long investment for a very large gain.

The upside reward, relative to the downside risk, is no longer as compelling as it has been.

That said, I plan to buy weakness.
I do not currently plan to sell any of my pure bank stocks.

While I haven't been in the office most of the morning I did some remote control trades:

* I reduced my (QQQ) short hedge from very large back down to medium on the "whoosh" lower.
* I reduced my (SPY) short hedge from very large back down to medium, as well.
* I reduced Twitter (TWTR) from medium-sized to between small and medium. (TWTR is caught in the vortex of the possible continued pivot from growth to value).

I plan to reshort SPY and QQQ on strength.

"Those nerds are a threat to our way of life."
- Stan Gable (Alpha Betas' fraternity star quarterback) 

Revenge of the Nerds was a movie released in 1984 that chronicles a group of nerds (led by best friends and computer science majors, Lewis Skolnick and Gilbert Lowe) at the fictional Adams College who try to stop harassment by the jock fraternity, the Alpha Betas in addition to the sister sorority, Pi Delta Pi.

In the end of the movie, the nerd gets the girl (Betty)!

As I discussed throughout Tuesday's trading day, a profound move in value stocks erupted - overwhelming the lackluster performance from the growthy tech stocks ( (MSFT) and FAANG):

* I am Pivoting From Growth to Value
* A View of Financials and Tech
* This Is the Time
* A Timely Riposte
* The Pivot? 

Whether or not this pivot is real will be an important factor in delivering superior investment performance and excess returns over the balance of the year.

My position has been taken and is manifested in my portfolio's structure (that is heavily weighed toward value and away from short growth) -- I believe in the revenge of the nerds... or, what some might say, the turds.

Europe driving the bus today...

Today it's the Europeans that are driving the equity rally. We haven't said that in a while. In the works for weeks, a 750b euro borrowing binge by the European Commission will then get parceled out in grants (500b euros) and loans (250b euros) to individual states. Italy will get about 82b, Spain around 77b, France 39b to name a few. I'm not sure if any strings are attached as to how the EU countries can spend this money. As we can call this a massive increase in EU debt, the Germans have essentially agreed to finally a joint and several liability obligation within the entire EU, something they've tried to avoid directly for a while. 

In response the euro is quietly back to $1.10 vs the US dollar which is the highest since late March. I'll say this about the euro, for all the negative yielding securities, QE, sclerotic economies, political uncertainty and down trodden banking system, the euro has been trading in a $1.05-$1.15 range for about 5 years now outside of a jump to $1.25 in early 2018. That resilience might say more about the dollar than the euro and all of the dollar flaws as the largest debtor nation in the world. 

While European and US equities are excited about the European stimulus, bond yields are little changed, copper is flat and oil prices are lower. 

The currency the dollar continues to rally against is the yuan as the offshore spot rate is at the lowest level since September 2019 due to the growing worries about Hong Kong and expectations for sanctions. The Hong Kong dollar is little changed at the higher end of the band due to higher HIBOR rates relative to LIBOR. This said capital flight is obviously now a concern. 

We finally have a 50 handle in Bulls according to Investors Intelligence. They rose to 50.5 from 49 and that is the 8th week in the past 9 seeing an increase. The mid February high for context was 54.7 before things changed. Bears fell for the 9th straight week and stand at 23.8 from 24.1 last week. II said this is the longest Bear losing streak since 1998. The spread between the two at 26.7 is the widest since February 26th. Bottom line, while not extreme, sentiment is getting extended and we can combine this with the Citi Panic/Euphoria index where 'Euphoria' is extreme. We'll see tomorrow's AAII read of the mood of individual investors and that has certainly been more muted, likely as they respond more to the economy than the direction of the stock market.

Purchase applications to buy a home continue higher according to the MBA. They rose 8.6% w/o/w and are now up 8.7% y/o/y with mortgage rates still sitting around record lows. This follows the upside surprise in April new homes seen yesterday. Notwithstanding the spike in unemployment, some are intent on taking advantage of low rates and owning a home, maybe instead of an apartment in an urban setting. Refi's were unchanged w/o/w but still up 176% y/o/y. The mortgage market problems due to rising forbearance has more impacted refi's as new home buyers are highly likely to not immediately request forbearance. 

After an improvement seen on Monday in the German IFO business confidence index for May, the French business confidence index improved as well off a very depressed level that was a 40+ yr low. It rose to 59 from 53. Most of the gain came from the services sector as more things reopen, although this component at 51 is still half the level of February. The manufacturing component rose 2 pts and retail and employment also rose slightly. The CAC is up 1.7%. 

FRENCH BUSINESS CONFIDENCE

From Knowledge@Wharton The Politics of Pandemics.

* My speculation about possible government purchases of stock futures may be farfetched.
* But, then again, it may not be!

Back in early February I asked, in a column, "What's With Futures at 3 am Every Morning?":

More (strange) night moves.

Once again, stock futures (without any clear catalyst) began to climb a bit after 3 am (on Wednesday morning). S&P futures at 5:45 am were +11 and Nasdaq futures +45.

What we do know is that European cash markets open at 3 am - perhaps that is the explanation.

But to me, given the repeated strength at that hour, it's almost as if someone is manipulating the futures market...

I have my thoughts!

From my Surprise #1 of 15 Surprises for 2020:

In the first half of 2020, just as the impeachment hearings percolate, a New York Times investigation uncovers that President Trump directed the purchase of stock futures by the Fed, the Treasury and other parties (over a lengthy period of months) to buoy the U.S. stock markets and with the stated intent (later disclosed in emails) to improve the chances of his reelection. The discovery and publicity associated with stock futures buying policy (which began to be implemented in late summer, 2019) causes an uproar politically (as leaders of both parties are critical) and Congressional hearings are scheduled - sending markets abruptly lower as there was apparently less to the bull market run than meets the eye.


It happened again last night... at 3 am!

S&P futures at 6 am were +38 handles.

* How MedMen went up in smoke.

* Creative destruction.

* The case for letting the restaurant industry die.

From Jonathan Golub at Credit Suisse - "2Q EPS: Small Cap Wipe Out":

Small Cap EPS Expected to Decline 95% in 2Q

2Q is expected to be the worst of the current crisis for both economics and profits, with consensus expectations for a -95% contraction in Russell 2000 EPS (-42% for the S&P 500). Put differently, Small Caps are expected to have almost all of their profits wiped out.

Small Cap Results to Lag Most in Health Care and TECH+

35% of Small Caps are expected to lose money in 2Q, versus just 15% for Large. EPS growth is expected to lag Large Caps across all major groups with the greatest differences in Health Care (51% vs. 12% losing money) and TECH+ (36% vs. 7%). 

Danielle DiMartino Booth sees a sclerosis in economic growth and some permanent scars:

• While the decline in consumer confidence was arrested in May, with households expressing optimism in a hoped-for rush of job recreation, uncertainty persists; the potential for a second virus wave (which would harken further layoffs) has fostered a sense of unease
• Employees are expressing pessimism about income potential 12 months out; the spike in inflation expectations opens the door for stagflation as consumers' income declines in the face of rising prices which will act as a governor on future growth
• As hope abounds, markets continue to price in a V-shape recovery; recent surveys show that half of Americans remain concerned about their health which combines with liquidations in retail and restaurants suggesting sclerotic growth for years to come

Befittingly parallel to the process of grieving on the part of more than 100,000 American families, U.S. consumers have made their way through multiple stages of consumption. As March set in and with it that first rush of fear, mad dashes ensued to procure masks, cleaning products and hand sanitizers. The second binge involved pulp but not of a fictional sort. Call it the Great Toilet Paper Grab of 2020. The third and fourth surges brought comfort into the homes into which we were sheltering - think yeast with which to bake and spiral hams reminiscent of holiday meals.

By mid-April, the fifth stage of practicality had set in. DIY was rendered new meaning as shaggy manes were self-groomed and graying roots painted away. Hair clippers and henna dye prices spiked. One month on, consumers' grays are showing anew albeit not of the fine strand variety. We refer to yesterday's May Conference Board Consumer Confidence survey which was anything but a black-and-white report.

About a month ago, we highlighted the glaring disconnect between hope and reality in April's Confidence report. That same disparity was again on display in May with surveyors echoing our uneasiness despite the decline in Confidence halting, for one month, at least: "...the uneven path to recovery and potential second wave are likely to keep a cloud of uncertainty hanging over consumers' heads."

Had the fine folks at the Conference Board foreseen the crowds of people partying without masks with no distance betwixt themselves in crowded pools and water parks over Memorial Day weekend? With the sole exception of Washington D.C. (are the politicos anti-socially distancing?) with a score of 'C," every state in the nation scores a "D" or an "F" on Unacast's now ubiquitous social distancing map.

The lull in the weekend data notwithstanding, the spread of COVID-19 is not abating. As we will cover in greater depth in today's Weekly Quill, regardless of its path, the virus has ceased to resonate. Summer has arrived and freedom is ringing loud and clear.

No doubt, the pure act of reopening brings with it an optimism and hope that things will get back to normal. In economic nomenclature, that's called a "recovery." Two illustrated metrics from yesterday's survey correspond to past levels consistent with economic recoveries coming out of recession. They comprise the "Labor Curve."

In both April and May, Jobs Hard to Get (in yellow), which measures current employment conditions and is an excellent guide for the official unemployment rate, has risen above Fewer Jobs (in red), or future employment expectations. This acknowledges the sharp rise in joblessness and builds in the forward narrative that this is a temporary state of being. The un-inversion of the Labor Curve is a staple of past periods immediately following recessions, like those illustrated above in 1991, 2002 and 2009.

What differentiates the current episode from anything in history is the order of things. Day One at the Federal Reserve you are taught one lesson: Unemployment is the most lagging of economic indicators. Today, in an upending of history, labor losses have swiftly taken the lead and on a massive scale. Typical cycles see unemployment rise through recession and peak in recovery. The temporary shutdown nature of the shutdown has turned households' perspectives on their heads with peak unemployment happening first, not last.

Here's where those grays come in. Six-month income expectations posted a second straight negative reading. The only comparable is the Great Recession's deflationary impulses. Income expectations gauge the reality of consumers' assessments of their future earnings capacity. As of May, more believed they will earn less in the future. This is not a bullish development for the sustainability of consumer spending after the initial technical bounce of reopening fades. Something more permanent is afoot.

Now contrast deflationary income expectations (in green) against a backdrop of rising inflation expectations (in blue). The result? A stagflationary combination. We agree with Conference Board's assessment that this, "could lead to a sense of diminished purchasing power and curtail spending."

More news on the permanence front hit yesterday with the headline that restaurant chain TGI Friday's would close 20% of its 386 locations. The pandemic has induced a structural change in Americans' eating-out and shopping-out habits that will take a generation to repair in the commercial real estate space.

According to a May 20 Datassential report, more than half of the country remains anxious, feeling very concerned about their own personal health. CEO Ray Blanchette's words on companies' reaction function was black and white: "Some will close forever, without a doubt. Right now, it's all triage and it's all about cash: How are you going to make it through and keep the company solvent?"

Absent a consensus of confidence, reopening will have no gray area. It's a steamroller that's created the right side of a 'V' shape. The hope is that future economic data validate the rally in risky assets. The reality of the Coronacrisis will take much longer to play out and leave permanent scars that necessitate healing for some and mourning for others, all of whom have QI's deepest condolences.

Though I rarely agree with him (and I don't in this case), from my friend Brian Wesbury:

Miscalculating Risk: Confusing Scary With Dangerous

The coronavirus kills, everyone knows it. But this isn't the first deadly virus the world has seen, so what happened? Why did we react the way we did? One answer is that this is the first social media pandemic. News and narratives travel in real-time right into our hands.

This spreads fear in a way we have never experienced. Drastic and historically unprecedented lockdowns of the economy happened and seemed to be accepted with little question.

We think the world is confusing "scary" with "dangerous." They are not the same thing. It seems many have accepted as fact that coronavirus is one of the scariest things the human race has ever dealt with. But is it the most dangerous? Or even close?

There are four ways to categorize any given reality. It can be scary but not dangerous, scary and dangerous, dangerous but not scary, or not dangerous and not scary.

Clearly, COVID-19 ranks high on the scary scale. A Google news search on the virus brings up over 1.5 billion news results. To date, the virus has tragically killed nearly 100,000 people in the United States, and more lives will be lost. But on a scale of harmless to extremely dangerous, it would still fall into the category of slightly to mildly dangerous for most people, excluding the elderly and those with preexisting medical conditions.

In comparison, many have no idea that heart disease is the leading cause of death in the United States, killing around 650,000 people every year, 54,000 per month, or approximately 200,000 people between February and mid-May of this year. This qualifies as extremely dangerous. But most people are not very frightened of it. A Google news search for heart disease brings up around 100 million results, under one-fifteenth the results of the COVID-19 search.

It's critical to be able to distinguish between fear and danger. Fear is an emotion, it's the risk that we perceive. As an emotion, it is often blind to the facts. For example, the chances of dying from a shark attack are minuscule, but the thought still crosses most people's minds when they play in the ocean. Danger is measurable, and in the case of sharks, the danger is low, even if fear is sometimes high.

Imagine if an insurance actuary was so scared of something that she graded it 1,000 times riskier than the data showed. This might be a career-ending mistake. This is exactly what people have done regarding COVID-19: making decisions on fear and not data.

According to CDC data, 81% of deaths from COVID-19 in the United States are people over 65 years old, most with preexisting conditions. If you add in 55-64-year-olds that number jumps to 93%. For those below age 55, preexisting conditions play a significant role, but the death rate is currently around 0.0022%, or one death per 45,000 people in this age range. Below 25 years old the fatality rate of COVID-19 is 0.00008%, or roughly one in 1.25 million, and yet we have shut down all schools and day-care centers, some never to open again! This makes it harder for mothers and fathers to remain employed.

All life is precious. No death should be ignored, but we have allowed our fear to move resources away from areas that are more dangerous, but less scary, to areas that are scary, but less dangerous. And herein lies the biggest problem.

Hospitals and doctors' offices have had to be much more selective in the people they are seeing, leaving beds open for COVID-19 patients and cutting out elective surgeries. According to Komodo, in the weeks following the first shelter-in-place orders, cervical cancer screenings were down 68%, cholesterol panels were down 67%, and the blood sugar tests to detect diabetes were off 65% nationally.

It doesn't stop there. The U.N. estimates that infant mortality rates could rise by hundreds of thousands in 2020 because of the global recession and diverted health care resources. Add in opioid addiction, alcoholism, domestic violence and other detrimental reactions from job loss and despair. It's tragic.

The benefits gained through this fear-based shutdown (if there really are any) have massively increased dangers in the both the short term and the long term. Every day that businesses are shuttered, and people remain unemployed or underemployed, the economic wounds grow more deadly. The loss of wealth is immense, and this will undermine the ability of nations around the world to deal with true dangers for decades to come, maybe forever. We have altered the course of economic growth.

Shutting down the private sector (which is where all wealth is created) is truly dangerous even though many of our leaders suggest we shouldn't be scared of it. Another round of stimulus is not what we need. Like a Band-Aid on a massive laceration, it may stop a tiny bit of the bleeding, but the wound continues to worsen, feeding greater and more elaborate intervention. Moreover, we are putting huge financial burdens on future generations because we are scared about something that the data reveal as far less dangerous than many other things in life.

A shutdown may slow the spread of a virus, but it can't stop it. A vaccine may cure us. But in the meantime, we have entered a new era, one in which fear trumps danger and near-term risk creates long-term problems. It appears many people have come to this realization as the data builds. Hopefully, this will go down in history as a mistake that we will never repeat.

Bank stocks look poised and are well bid in premarket trading. (JPM) is indicated +$3 on top of yesterday's +$7 gain. (It is my Trade of the Week). (GS) looks like it might open above $200/share!