My skin is hardened after all these decades.

At this point, little impacts me from the standpoint of ad hominem attacks or non rigorous criticism or both.

The haters on social media platforms like Twitter are pathetic, and, while I actually feel badly for their plight, I aggressively and routinely block and report them, leaving them and their words in the purgatory of their isolation.

It's easy to reside in the cheap seats of anonymity -- especially by the many that have never been on the playing field.

But, frankly, it is amazing how much grief I have taken on the banks in 2020. Not surprisingly, not one of the self-confident bears who literally (incessantly) ridiculed me for buying the banks/financials (I have copies of their tweets) have said a word on Twitter or elsewhere in recognition that they were wrong in spirit and in fact.

Crickets.

This tells me more about the critics than their criticism.

If I ever behave like they did, please call me out in our Comments Section -- for I would deserve it.

Thanks for reading my Diary today and enjoy the evening.

Be safe.

Added to my Tesla (TSLA) short at $558.

Today's cost basis is about $552.

Still small sized.

I will continue to scale on strength with an objective of getting large sized.

* Model X suspension recalls, a crappy infotainment system, how to steal a Tesla (on the cheap) and more

 Here you go...

I have moved from small-sized to tag-ends in my value exchange-traded funds  (VTV) and (VBR) .

I just paid $18.07 for more (VXX) .

I have recently pointed out that the price-to-sales ratio of the S&P 500 is at an all-time high of 2.71x, while other measures such as the Shiller's Cyclically Adjusted PE Ratio, Tobin's Q Ratio, and the Market Capitalization-to-GDP Ratio are also at or near all-time highs. 

High valuations can obviously persist for long periods of time but that doesn't render them attractive entry or hold points.

Update - 1:40 p.m.

The bulls take successful charge. The indices achieved their upside targets but, more importantly, at 1:30, they seemed to be holding. And, that is impressive. Some feared that they would touch and repel.

This clearly is aided and abated by the idea of a an orderly transfer of power and, the assumption that the Democrats, and particularly, the progressive side of the Democrats will not have complete control. So partial gridlock and, the market is enjoying it greatly.

Stay tuned.

Arthur

From my pal Mike Lewitt's most recent The Credit Strategist - on Tesla (TSLA) :

The situation is just as severe in equity markets and can best be illustrated with reference to one of the most egregiously overvalued stocks in history, Tesla, Inc. (TSLA).

As this is written on November 24th, TSLA is trading at a $485 billion market capitalization (larger than those of Toyota, Volkswagen, GM and Ford combined) despite remaining unprofitable in its auto manufacturing business and only modestly profitable when taking into account its sales of tax credits. It is also facing - for the first time - massive competition from GM, Volkswagen and other competitors investing tens of billions of dollars in electric vehicles, multiples of Tesla's commitments. TSLA's valuation cannot be explained simply by investors' enthusiasm for electric vehicles or belief in Elon Musk. Rather, a significant part of the valuation is attributable to the phenomenon whereby capital is allocated not to individual companies but to thousands of index funds and ETFs that in turn are required to buy individual stocks based on their market weightings or other passive criteria.

The ~$100/share lift in TSLA stock (20+% of its market cap) in the days immediately after the announcement that the stock would be added to the S&P 500 in December illustrates this. TSLA's inclusion in the index will require the trillions of dollars of capital indexed to the S&P 500 to buy large amounts of TSLA stock to maintain the proper weighting of the stock. The best estimates I have seen are that it will lead to buying of about $60 billion of stock. Because the stock is one of the largest components of the S&P 500, its weighting in the index requires passive products to buy the stock without reference to the company's financial performance. TSLA doesn't have to do anything - the market is effectively allocating capital to it on a daily basis. Or put another way, the S&P 500 index committee just raised the company billions of dollars of new capital. If it wants to raise additional equity capital, TSLA just has to snap its fingers and all of these built-in passive buyers have to buy it.

Every time an institution or individual investor buys one of hundreds (or thousands?) of ETFs and index funds that own TSLA, they are indirectly buying TSLA shares. And TSLA is already included in many of these passive products. Unlike other automakers, it qualifies for ESG and technology products, driving even more capital its way than its competitors regardless of fundamentals or financial performance. With this kind of market structure in place, the only way the stock can decline is if there is a radical shift in sentiment surrounding the stock, the company reports truly horrific results, or the overall market declines. TSLA's stock - and this effectively applies to every stock with a significant weighting in these passive investment vehicles - is only marginally dependent on how it business performs.

This means that it is extremely difficult to make money shorting TSLA except on a short-term trading basis which is best limited to professional investors. And the passive investing phenomena described above illustrates why bears are basically extinct and hedge funds and other investors are more exposed to stocks on both a gross and net basis than ever before. If you are hell-bent on shorting one of the FAANGS or other large tech stocks, you aren't betting on what happens to the company so much as betting on what happens to the market because these stocks' performance is driven primarily by capital flows rather than company fundamentals. You can be perfectly correct that the company is unprofitable or that its valuation is too high (even egregiously so as in the case of TSLA), but little of that matters in today's market. At best, you may be able to make money shorting stock for a very short-term trade, but that's about it. These stocks do react to bad news, but those moves are quickly overtaken by flows of money into them from passive vehicles. This is why they continue to rise on a flood of liquidity that became a tsunami earlier this year courtesy of the Fed. That is why TSLA rose eight-fold since March despite little fundamental improvement in its business (reported "profitability" is a sham that only fools the financially illiterate financial press). This also means that all discussion about TSLA's financial performance is meaningless with respect to the stock. The company is clearly not worth a fraction of its market cap based on fundamentals. It remains unprofitable (only generating profits from selling tax credits), its financial reporting is highly suspect, it violates all types of securities and consumer safety laws with impunity, and faces competitors with deeper pockets and superior engineering and technological capabilities. Its importance is that it triggered a truly important revolution in automobile technology for which Elon Musk deserves a great deal of credit whether you like him or not (you all know my feelings) and illustrates how today's equity markets function (or malfunction).

TSLA represents just the most extreme example of the phenomenon created by the combination of the two forces that dominate financial markets today: Fed policy and passive investing. We've long known about the "Fed put" but now we have an additional "Passive put." While the "Fed put" is entirely macro in nature, the "Passive put" is somewhat micro in nature by influencing not just liquidity flows but individual securities selection. This has serious negative long term consequences for capital formation. It applies equally to all the FAANGs as well as to many other stocks whose valuations are inflated by indexing. From a market standpoint, it is difficult to emphasize just how radical a break with the past this is. It may represent an even more radical change in markets than the derivatives revolution that nearly destroyed the financial world twelve years ago. At least derivatives function with respect to the value of an underlying reference security. Passive vehicles function with respect to nothing other than indexes that have no inherent value other than themselves.

We are back to extreme greed. 

* The data mattas and so does "second level thinking"

* The home price rise is sowing the seeds of underperformance and a housing downturn

* Housing affordability is being stretched, first time buyers are being priced out, and the homebuilding stocks could fall before industry statistics weaken

I remain short homebuilders - the stocks are conspicuously weak in a sea of green today.

S&P CoreLogic said its September 20 city index showed a +6.6% year over year home price increase. Double digit gains in Phoenix and Seattle led the way, while Chicago, NY and SF showed the slowest rate of gains but still multiples of the level of CPI at 4%-6%. While the Federal Reserve continues to look for inflation, look no further. This is great for the seller and for those looking to do cash out refi's and while the lowest mortgage rates on record is a cushion for the buyer, that cushion is no more. And we're again facing a situation where the first time buyer is getting priced out of the market and that puts even more pressure on home builders to deliver lower cost homes. 

Here is a 20 year chart on the 20 CITY Home Price Index:

Here is a 15 year chart on year over year home price gains: 

The Conference Board's consumer confidence index for November fell to 96.1 from 100.9 and that was below the estimate of 98. The components though were mixed as the Present Situation fell only by -0.3 points while the Expectations component was down by almost -10 points. For perspective, consumer confidence was 132.6 in February and bottomed at 85.7 in April. One year inflation expectations rose one tenth to 5.7%. Perspective here, it averaged 4.9% over the past five years and 5.2% over the past 10. 

While the current expectations for employment was little changed, it softened notably for the six months hence. To this, those that see 'more jobs' fell to the lowest since March. Income expectations though were little changed. 

With business expectations, those that said it's 'Normal' continued to improve. 

Spending intentions improved month over month but were mixed relative to the month prior. For example, those that plan to buy a vehicle rose 2 points but after falling by -2.2 pts in October. Those that plan on buying a major appliance rose +0.6 pts but after dropping by - 6.2 points last month. Those that want to buy a home rose +1.1 points to 7.1 and is just under the high this year of 7.7 seen in July. 

The decline in the Expectations component is likely in response to the Covid spread and a tough few months ahead. We know things get better in the spring of 2021 but confidence is not yet looking that far ahead. 

Here is a 10 year chart on consumer confidence: 

After the month over month declines see in the NY and Philly November manufacturing indices, the Richmond Fed said its regional survey saw a decline of -14 points to 15. The estimate was for a drop to 20. Shipments, new orders, backlogs, employment, the workweek and capital spending plans all fell month over month. This is all even though finished goods inventories fell further below zero. Wages were flat but off the highest level since February. Prices paid rose to the highest level since February while those received rose to a three month high. 

The six month outlook was more mixed with gains in new orders, backlogs and employment. Spending plans were mixed and expectations for prices paid and received grew further. Wage expectations fell. 

Manufacturing is still in expansion mode but there was some moderation seen in November likely in response to the recent Covid news. 

Here is a five year chart on Richmond Manufacturing: 

* More on my Tesla short...

The positive impact of an S&P inclusion is blurring the reality of multiple negative fundamentals that are emerging at Tesla (TSLA) - that investors are ignoring: 

* Tesla has been blessed by little need to advertise. But with competition heating up, and without a model refresh, margins will be adversely impacted by the need to raise advertising expenses considerably. This article explains how sizeable General Motors' (GM) advertising budget is today. I would not be surprised that a year from now, Tesla will be spending 2%-3% on advertising - something none of the EPS models have built in.

* Meanwhile Tesla product prices are being cut around the world.

* With advertising costs rising and car prices declining -- Tesla's margins are headed lower.

* Competition is heating up.

* Finally, product quality has deteriorated. There have been large product recalls, the Model Y in China has serious product issues and Consumer Reports is no longer recommending the Tesla products.

Peter on the U.S. dollar and business confidence: 

After a Fed career of encouraging government, businesses, and households to borrow, borrow, borrow via easy money/QE, Janet Yellen now gets to eat her own cooking. I see this as nothing but US dollar negative.

With further dollar weakness and now a vaccine, I see no reason why the CRB commodity index can't get back to the 180+ area, especially now that oil prices are beginning to participate.

CRB

Germany's November IFO business confidence index fell to 90.7 from 92.5 but that was slightly above the estimate of 90.2. Most of the drop was in the Expectations component as Current Conditions were down only a touch. As they always do so succinctly the IFO said "Business uncertainty has risen. The 2nd wave of coronavirus has interrupted Germany's economic recovery." The euro is higher as are most other currencies. The DXY started yesterday weak, went positive and today is right back down again.

French business confidence also for November fell sharply to 79 from 90 and that was 5 pts less than expected. Not surprisingly in light of the new Covid restrictions that most of the weakness was in the services and retail trade sectors. Manufacturing fell but just by 2 pts while Employment was lower by 6 pts. Again, markets are looking past the confidence drops knowing that it's temporary ahead of the 2021 vaccine rollout.

With the selective restrictions in November in the UK (which will not be extended past December 2nd), the estimate for the CBI retail sales index was for a drop of 12 pts but instead it fell only 2 pts to -25. CBI said "This month's survey gives hope that the economic impact of the Autumn lockdowns should not be as severe as in the Spring. Both consumers and firms are adapting as best they can, borne out in this month's strong online sales." The pound is up for the 7th day in the past 8 at $1.335.

After a run of improvement, Hong Kong's October trade data missed expectations. Exports fell 1.1% y/o/y instead of rising by 9% as forecasted. Exports to China fell by 1.4%, to the US by 3.9% but rose 3.3% to Germany. Imports were up by just .6% y/o/y vs the forecast of up 3.6%. The Census and Statistics Department said "While the mainland economy is expected to post further strong growth, the deterioration of the Covid-19 situation in a number of advanced economies will likely slow their recoveries and may hinder the revival of Hong Kong's exports." Notwithstanding the data miss, the Hang Seng was up by .4% as investors look past the current state of things and towards the vaccine instead.

* Weighting the short position appropriately given the cult-like popularity of the company and the volatility of the shares

* The sharp share price rise in Tesla ahead of the S&P inclusion is the short catalyst I have been waiting for

Tesla's (TSLA) shares are up by another +5% in pre-market trading. 

I have begun to short the shares at $545/share. 

As noted in my my short thesis on Tesla from late August - on every metric Tesla is overvalued. I would argue materially so: 

Aug 25, 2020 ' 08:10 AM EDT DOUG KASS

Trade of the Week (and Investment Short) - Short Tesla ($2014)

* I have assiduously avoided shorting Tesla for years.
* No more...

Telsa's (TSLA) shares have climbed from $350/share on March 19, 2020 to over $2,000 today.

It can now be argued that Tesla's shares represent not only a good short term short but, at current prices, the stock may represent the largest single bubble - as measured by market capitalization of nearly $400 billion - in history.

Here are the major points to my short investment thesis:

* Tesla has a shallow moat - the manufacturer has nothing that is proprietary in terms of electric car technology. Tesla's competitors (in the U.S., Europe and in China) have a century of experience consistently manufacturing and distributing high-quality automobiles which subsidized ongoing operating losses from their electric car endeavors.

* Polestar, Audi, Volkswagen (VLKAF) and others have highly rated EV offerings that are now or will be shortly offered.

* Adjusted for the sale of emission credits, Tesla has never been profitable in its 17 years of existence (despite having no competition and no need for advertising). In July, Tesla reported second quarter net income of $104 million, which included $428 million of pure profit emission credit sales, a revenue stream that will be drastically reduced later this year and which Tesla openly admits will disappear completely some time in 2021 (when other manufacturers have enough EVs of their own). Excluding that, Tesla lost $324 million and that's before the accounting of a questionably low warranty reserve. The worrisome and accounting, recently pointed out by @WallStCynic, "depreciation and amortization was down (!) year over year despite a new factory coming on line. SG&A and research and development was also down year over year." While sales are shrinking, the accounts receivable line is growing (remember this is a company that demands pre-payment before delivery.

* Tesla, at best, undertakes aggressive accounting. There are multiple lawsuits regarding the purchase of Solar City (which arguably bailed out the finances of Elon Musk and his family).

* Management turmoil at Tesla has intensified over the last 1-2 years.

* Tesla's quarterly sales have actually dropped since the end of 2018. The only reason Tesla's sales are being maintained is because of massive price cutting - and this is BEFORE the onslaught of competition that is on Tesla's door step.

* Tesla's second quarter revenues were buoyed by price cuts and sales into China (where EV competition is just beginning to start) while the rest of world sales were -30%. (For perspective General Motors (GM) sold over 710k units in China compared to only 30k for Tesla). Current sales are so weak that Tesla is aggressively advertising a price drop for the Model Y. The company's market share in the competitive European EV market has fallen from about 30% to single digits.

* The market is not static. Analysts and market participants fail to consider how much of Tesla's share of the EV market will be taken by the new models introduced by nearly every auto manufacturer, who's announced spending plans will dwarf Tesla's anticipated outlays. From Mark Spiegel: "Noted competition will include the Audi Q4 e-tron and Q4 e-tron Sportback, BMW iX3 (in Europe & China), Mercedes EQB, Volvo XC40, Volkswagen ID.4 and Nissan Ariya, while less expensive and available now are the excellent all-electric Hyundai Kona and Kia Niro, extremely well reviewed small crossovers with an EPA range of 258 miles for the Hyundai and 238 miles for the Kia, at prices of under $30,000 inclusive of the $7500 U.S. tax credit. Meanwhile, the Model 3 now has terrific direct "sedan competition" from Volvo's beautiful new Polestar 2 and the premium version of Volkswagen's ID.3, and next year from the BMW i4."

* The mere presence of all the competition will clearly lead to margin compression. As previously mentioned, Tesla is already cutting prices of its existing models.

* Bullish analysts base their future stock price evaluations on unsupported assumptions of what share Tesla will take of the global automobile market. They further assume that the margins that existed over the last two years - a period in which Tesla has faced little or no competition, will be maintained in the future.

* Tesla faces numerous lawsuits, including a May lawsuit accusing the company of selling units that were a fire hazzard and a potentially significant and well publicized sudden acceleration class lawsuit delivered in July. Range claim issues have also recently arisen.

* Tesla no longer has a stock split as a catalyst as the company already announced a 5-1 stock split for shareholders of record on August 21.

Bottom Line

I have assiduously avoided shorting Tesla over the years, in part because of the high short interest, which has subsequently contracted to more "reasonable' levels.

I have followed Tesla for over a decade and I could add materially to the bearish case that I have summarized this morning.

That position has now changed.

Faced with an onslaught of competition, Tesla's market cap is now nearly 4x that of Ford (F) , General Motors and Fiat Chrysler (FCAU) combined - despite selling only about 400k cars/year, compared to the "big three's" sales of 17 million units.

There is little question that Tesla's shares have been buoyed by its S&P inclusion. In addition, the stock is benefitting from an EV bubble. This combination has been tasty for Tesla longs and a horror show for Tesla shorts. 

Again, as seen above, on every metric, Tesla's shares are considerably overvalued. 

But, as we move closer to the early December S&P inclusion, the opportunity for shorting the shares might surface as a catalyst.

In a recent interview, S&P said about $51 billion of Tesla stock needs to be purchased by Indexers. 

Goldman Sachs opined that it would take another $8 billion for the "benchmarkers," so call it approximately $60 billion in total. 

At $550/share that represents about 110 million shares "to buy". However, we must assume that some flippers have been buying it for weeks in anticipation of this. 

Meanwhile, since the announcement nearly 300 million shares have traded. 

Frankly, its hard to separate how much of Tesla's recent move is "S&P inclusion" compared to the impact of the EV bubble which by market capitalization may be the largest bubble in history - See (NIO)  , (XPEV),  (NKLA)  , and all the EV SPACs values at $3 billion to $5 billion. 

I believe a Tesla shorting opportunity - perhaps of some consequence - is now upon us.

* Apple is my largest individual short

I recently initiated a short position in Apple (AAPL)  . I added to the short yesterday and back late last week.  

Oct 29, 2020 ' 04:48 PM EDT DOUG KASS

I Expect Apple Shares to Sell Off Further

* This recent short was my "Trade of the Week" (short) on Monday

* I continue to see a pivot from growth to value

Apple (AAPL) had a slight beat to expectations, though not as strong relative to consensus that Google (GOOGL) and Amazon (AMZN) achieved.

Significantly, iPhone shipments were weak relative to Wall Street projections (something I warned about on Monday in my Diary - see below) .

Apple (short) is my "Trade of the Week" this week. Here was my summary from three days ago:

* For the second time in two months I am selecting Apple (short) as my "Trade of the Week"
* Besides my iPhone concerns, an AAPL short is part of my pivot thesis from growth to value
* I view Apple as both a trading and investing short

The company is not providing guidance -- as expected.

Apple's shares are trading -$5.30 to under $110/share.

When I aggregate the big tech EPS results (and guidance) late today, my vision of a pivot from growth to value is getting stronger.

As mentioned above, our channel checks have been indicating some weakening in the iPhone channel. 

Yesterday afternoon, Credit Suisse noted that wait times for the iPhone Pro and Pro Max had shortened by two weeks in the U.S. and by one week in Japan: 

We'd highlight that while wait times are a rough proxy for initial demand, the metric is only one of many variables impacting iPhone sell-through; the availability of supply is a key unknown, particularly for different color/memory options. This year's release is 1-2 months later than normal and staggered over Oct/Nov vs. last year's all-at-once Sept release which could also skew the y/y comparison. In terms of methodology, we're measuring shipping lead times for iPhones purchased directly through Apple's website in several major markets around the world. Note that our data does not capture demand/inventory through Apple's physical retail stores nor their vast distribution channel including carriers and retailers. We plan to refresh this analysis regularly until all newly-launched models reach supply/demand balance; last year, it took ~6 weeks to approach equilibrium (90% <1wk).

dougie 

Take note of my opener this morning, now up.
I endeavor to be transparent in my market strategy.
I tend to follow a script - based on hard hitting analysis and logic of argument.
A is followed by B and B is followed by C.
But sometimes (actually often!) scripts don't fall in place.
Flexibility is an important factor in managing money.
Facts change and so do expectations relative to reality.
In the opener today I try to explain how I have reacted to some changing news relative to my expectation.
I hope it is understandable.
I remain bearish and will reposition back short... but I will let Mr Market give me some cues.
Dougie

* I declared an audible and covered all my Index shorts after the close on Monday evening

* I have often written about being flexible and opportunistic - I view last night's move as fulfilling my task of being flexible, and admitting that my short term crystal ball may have been wrong

* I am back to medium-sized in net long exposure

* Look for banks and other value to lead the market over the balance of the year

"When thefacts change, I change my mind. What do you do, sir?"
- John Maynard Keynes

While I remain intermediate term bearish I called an audible and, surprising to some - based on my DMs and emails - I covered all of my Index shorts after 6 pm last night. Here was my post:

Nov 23, 2020 ' 06:37 PM EST DOUG KASS

Covered My Index Shorts In After Hours Trading

With the General Services Administration beginning the presidential transition process and Michigan certifying the election results (giving Biden the win) -- stock futures have begun to rise.

I have covered all of my (SPY) and (QQQ) shorts in the aftermarket, and I have moved back to a medium sized net long exposure.

I will reestablish my shorts soon, but I have a sense that we could get some short lived euphoria over the near term (next few days in this holiday-shortened week) based on the clarity of an orderly transition of power.

There were several influences that made me make the decision. Among those include: 

* The strong relative and absolute performance of financial stocks - with many breaking out of their trading ranges. Given the pre-market bank stock strength, it appears that a definitive breakout lies ahead. I have always thought that, as goes the financials, so goes the market. Reflecting on those breakouts after the close was an important determinant of my move to cover my Index shorts last night.

* The continued weakness in growth stocks defined and provided an exclamation point to the pivot from growth to value that has been taking place since early September. Given seasonality and the decline to more reasonable values, I suspect that the weakness in stocks like Amazon (AMZN) will moderate in the near term - allowing some growth stocks to "ketchup" after multiple weeks of underperformance.

* Seasonality is clearly countering some of my deeply rooted fundamental concerns. While my concerns have not changed, some seasonal strength could ameliorate the weakening fundamental backdrop over the next few weeks.

* The Biden cabinet choices, especially for Secretary of the Treasury, may be seen as market and business friendly and comforting to many investors. For example, the choice of a steady Janet Yellen in particular, who has dealt with crises in the past, should assuage concerns regarding possible cabinet candidates to the Left of the Democratic party. Moreover, the balanced nature of the other proposed appointees so far announced will be welcomed.

* The apparent acceptance of an election defeat by President Trump - allowing the GSA to proceed with the funding of the transition - when coupled with the more definitive Michigan recount results, suggests the election will no longer be litigated by the incumbent. Another market positive.

* I had expected the markets to weaken over the last week and, if you recall, I initiated a large (SPY) and (QQQ) put position, an aggressive move for me, in preparation for a decline. Instead the market bent but did not break - indicating good resilience to short lived declines. My first step was to reduce from large-sized to medium-sized my SPY and QQQ short (I did that last Thursday morning in pre-market trading.) Then, later in the morning, I sold my November Index puts, for a loss. In the afternoon I eliminated my December expiring SPY and QQQ puts. These collective moves (below) took me down to medium-sized net short in exposure: 

Nov 19, 2020 ' 02:50 PM EST DOUG KASS

Put Moves

Nice rally off of the lows and I am pleased I cut back my (SPY) and (QQQ) shorts in the pre-market and reduced my put position by eliminating the Novembers.

I have sold my December SPY and QQQ puts as well this afternoon - leaving me with no puts left.

I plan to reshort the Indices and move to large-sized on the next move higher - maybe $358-$360 on SPY, and $292.50-$294 on QQQ.

For now I will stay away from the puts as a regular diet of options is not my approach.

This morning (at 7:15 am) S&P futures were +26 handles and Nasdaq futures were up by only 37 handles. Yesterday I voiced some concern about value taking an even greater lead over growth over the next few weeks. But now it appears that an extension of the pivot from growth to value seems likely to continue. 

This gap higher has taken both the SPY and QQQ back into the shorting zones I mentioned in the post above ($358-$360 on SPY and $292.50-$294 on QQQ). But I will not likely be in a rush to immediately reshort the Indices, perhaps giving the market advance a wider berth. I will let the composition of the market action  - breadth, leadership, etc. - be my short term guide now. 

In terms of construction, my portfolio now consists of about 10 large long holdings, the majority of which are banks/financials, Amazon (AMZN) /Alphabet (GOOGL) , and three packaged food stocks, and a number of smaller/tag end longs that I have recently reduced (GS, MS, DIS, GM, etc.) as they have materially reached my price objectives and while having momentum, and have unfavorable upside/downside. I am also short several individual names like Hyatt (H) , Hilton (HLT) and Apple (AAPL) (added to on Monday), anda package of homebuilder stocks. My only "Index" short is long volatility and short (VXX) which I am currently planning to hold as a hedge. I am still long (small) (VTV) and (VBR) .

Bottom Line

Last night's move to cover the balance of my SPY and QQQ shorts was a hard one because I remain bearish on the market's outlook for 2021. 

Nevertheless, some of the externalities that impact the markets as well as the internal dynamics of the market seem to be moving in a direction that may not result in the near term weakness I had previously expected. 

Moreover, it is fairly clear that value - banks, etc. - could continue to lap growth over the balance of the year. 

While I do not think there is much upside in the November-December timeframe, it is now less clear to me that a combination of factors could negate the market decline that I thought would shortly begin. 

That said, I do plan to expand my shorts and move back into a net short exposure, but I will let Mr. Market direct me rather than anticipate such a move lower. 

I start the day in a medium-sized net long exposure with a lot of cash. 
__________ 

Long VXX (large), AMZN (large), GOOGL (large), GS (small), MS (small), DIS (small), GM (small), BAC (large), C (large), WFC (large), JPM (large), XLF (large), KHC (large), SJM (large), THS (large), LONG VTV (small), VBR (small).

Short H, HYT, AAPL (large), Homebuilders basket.  

Danielle DiMartino Booth points out the weakness in EU PMI (something I highlighted in a chart yesterday - "down goes Frazier") portends poorly for the U.S. data:

• In the three weeks since their October 27th high, net speculative short positions in Treasury bonds have fallen only marginally, per Chicago Board of Trade data; with the Fed signaling a three-year rate hold, yield curve guidance is being driven by prospects for long-term yields
• In the aftermath of the election and multiple vaccine announcement, IHS Markit's November U.S. Composite PMI fired on all cylinders; across-the-board positive momentum led to the highest signal on Markit's U.S. Employment Index since the metric's 2009 inception
• Euro Area Composite Employment, sans France and Germany, remained in contraction for a ninth straight month in November; since Europe's pandemic curve leads the U.S. by six weeks, the current flood of U.S. labor optimism means higher vulnerability to cooling down

They called him "Chubby" because of his heavy build. But he was born Ernest Evans on October 3, 1941 in Spring Gulley, South Carolina. The son of a tobacco farmer, after moving with his family to Philadelphia, Evans sold ice and shined shoes to help out. His nickname wouldn't come along until he was a teen working at Tony Anastazi's Produce Store. Luckily, Chubby's imagination had long since set him free from the mundane, naturally inclined as he was at imitating Fats Domino, Jerry Lee Lewis and Elvis Presley. His church and street performances with his singing group, The Quantrells, grabbed the attention of local music executives and in 1959, he signed with Cameo-Parkway Records. Encouraged to remake Hank Ballard's "The Twist," Chubby's version and its contagious dance routine featured on Dick Clark's American Bandstand rocketed to No. 1 on Billboard in September 1960. Soon thereafter, Dick Clark's wife gifted him his full stage name - Chubby Checker. In 1962, "The Twist" achieved acclaim by retaking the No. 1 spot for a second time.

Chubby Checker's popular tune did not fall on deaf ears in the halls of the Eccles Building. In 1961, with the country still recovering from the post Korean War recession, the Federal Reserve launched Operation Twist, as it was dubbed by the media - a new policy aimed at strengthening the U.S. dollar and stimulating inflows of cash into the economy. The "twist" was no misnomer - the Fed flattened the yield curve by selling short-term debt in the markets and using the proceeds from the sales to purchase long-term government bonds.

You may recall Operation Twist made its own comeback exactly 50 years on, sandwiched as it was between Quantitative Easing (QE) 2 and QE3. The plan entailed selling bonds with maturities of three years or less and purchasing $400 billion of bonds with maturities of 6 to 30 years, thereby extending the average maturity of the Fed's holdings.

It would seem another twist installment is rising on the probability scale. Last week's announcement that the U.S. Treasury was clawing back unused funds for a number of liquidity programs lightened the Fed's toolbox.

Investors, for their part, have backed the truck up for rising yields. According to Commitment of Traders' data from the Chicago Board of Trade, net speculative short positions in U.S. Treasury bond futures rose to a record high in the week ended October 27 (yellow line); in the three weeks that followed, they've since fallen back marginally. Bank of America's November Global Fund Manager Survey, which collected responses over the same time frame, revealed steeper yield curve expectations at an all-time high. With the Fed signaling a three-year hold in the fed funds rate, yield curve guidance is being driven solely by prospects for yields at the long end of the curve.

Presumed higher inflation expectations are no longer being driven by prospects for fiscal stimulus but rather strengthening economic momentum. That brings us to another vaccine Monday in the rearview mirror. Yesterday it was AstraZeneca. Last week, it was Moderna. Two Mondays ago, it was Pfizer. Such news breeds hope for a broader economic recovery, which emboldens the steeper yield curve camp.

The succession is like so: A successful vaccine rollout lights a fire under transportation as pent-up demand for leisure and business travel is unleashed. Oil prices come unhinged in the process which manifests in rising inflation breakevens. Higher oil prices, in turn, translate to a down-in-quality rotation into energy-intensive asset classes like U.S. high yield credit and emerging markets.

If only it was that convenient. No doubt, IHS Markit's Flash U.S. Composite Purchasing Managers' Index (PMI) for November made it look easy yesterday with vaccine and election euphoria undertones.

Before we go on, in a pre-pandemic world at QI, we looked at manufacturing PMIs instead of services PMIs because the former tends to lead latter. However, the C19 shock twists the typical cyclical shock around such that focusing on the composite - both manufacturing and services - is required.

With that, the U.S. Composite PMI fired on all cylinders: stronger demand, higher costs and wages, significant supply chain delays, higher prices and a further jump in expectations for future output (i.e., top-line revenues). Across-the-board positive momentum led to the strongest U.S. employment signal since the survey's 2009 inception (orange line) - the perfect picture of optimism.

Given Europe is ahead of the U.S. by roughly six weeks, we contrasted American labor optimism with European labor pessimism (purple line). Persistent contraction in the Euro Area composite employment index outside of core countries Germany and France continued for the ninth straight month. Double dip Eurozone recession risks are high as COVID-19 lockdowns drag on service activity anew.

With the seven-day average COVID-19 fatality rate in the U.S. north of 1,500, many U.S. communities have begun to shut themselves down. The U.S. Composite PMI is "priced to perfection." Translation: an overabundance of labor optimism means higher vulnerability to cooling down, or worse outright pessimism.

Though the euphoric masses tend to turn a blind eye, the layoff parade continues. In a nod to yesterday's sports Feather, Major League Soccer (MLS) announced it was reducing staff by 20%. And Caleres plans to close its 133 Naturalizer women's shoe stores. Dating back to 1927, the brand will pivot to a purely digital model. In the short term, the virus threatens to launch a twisted reprisal of its own.