Thanks for reading my Diary today.

Enjoy the evening.

Be safe.

I am bidding for the following stocks on the long side now: (WMT) and (VZ) . 

I am offering the following stocks on the short side now: (CAT) , (CVNA) , (PTON) , (ARKK) , (PLUG) , homebuilders, (TSLA) and (DIS) .

__________

Long WMT, VZ (large), Short CNVA, PTON, ARKK (large), PLUG, Homebuilders (large), TSLA (large), DIS, CAT

*Inventories are verylow, CRB at a 6 1/2 year high and prices paid are very high!

The January US ISM manufacturing index fell to 58.7 from 60.5. The estimate was 60. New orders slipped to a four month low at 61.1 from 67.5 while backlogs were up a touch at 59.7 vs. 59.1. Inventories were little changed at 50.8 from 51 but took another leg lower at the customer level at 33.1. Supplier deliveries, measuring the supply constraints, rose +0.5 pts to 68.2, the highest since April. Export orders receded to 54.9 from 57.5 and that is a four month low. Imports were higher by +2.2 pts to 56.8. Employment, ahead of Friday's report, rose +0.9 pts to 52.6, above 50 for a second straight month for the first time since mid 2019. Price pressures intensified as prices paid rose another +4.5 pts to 82.1, around a 10 year high. "Aluminum, brass, copper, chemicals, steel, soy and corn products, petroleum based products including plastics, transportation costs, electrical and electronic components, corrugate, wood and lumber products all continued to record price increases." 

As of Friday, the CRB raw industrials index was at the highest level since August 2014. 

Of the 18 industries surveyed, 16 saw growth, the same number seen in December. For the second month, all 18 industries saw higher prices paid. 

The ISM said, "The manufacturing economy continued its recovery in January. Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short term shutdowns to sanitize facilities and difficulties in returning and hiring workers are continuing to cause strains that limit manufacturing growth potential. However, panel sentiment remains optimistic, similar to December levels." We can thank the vaccine for that, along with the continued need to rebuild inventories globally. 

Manufacturing remains a bright spot even with the logistical challenges both with internal operations and with regards to sourcing product. The shift in 2020 to goods spending from services, along with shutdowns, as led to a dearth of inventory that still needs to get rebuilt. As an example, if you're an auto maker, you can't get enough semi chips and have shut assembly lines in response. As seen in the prices paid chart, and from me a million times over the past many months, the manufacturing strength is coming with major price and supply pressures. 

Here is a five year chart on ISM Manufacturing:

Here is a 10 year chart on prices paid:

Here is a 10 year chart on customer inventories:

At $142.45 I have a lot of conviction on my ARK Innovation ETF (ARKK) short (Trade of the Week) - and I am placing it on my Best Ideas List (short).

PJM

ARK funds seem like it has the potential to be like Firsthand Funds run by Kevin Landis in the dot.com bubble. Huge gains for a few years then FH had major collapse and underperformance for 10 years. Cathy Woods eventual TSLA price target market cap of 7 to 15 trillion is not taking into account huge competition from every auto manufacturer and private start-ups going electric with equal to or superior vehicles in the pipeline. TSLA is making great vehicles with so so build quality but in a few years there will be massive competition and not much of a moat around their business.

dougie kass PJM

I was actually going to make that comparison in my column
dougie

tommyPA PJM

Agree on that PJM ... Landis was a rock star, and so was Bill Miller, and so was Paul Cook of Munder Net Net. And the music quickly stopped

So far, the markets appear to be following the pattern we discussed this morning. The diversion to silver among the Reddit crowd has taken some of the umph out of the short squeeze in the stocks. That is particularly true in GameStop which is down significantly and that allows the general market not to fear liquidation for the equivalent of margin calls.

Also, NASDQ is leading because it's got some earnings reports from some of its primary candidates coming this week. Have we broken the back of the short squeeze? Not quite evident yet. If continuing selling in GameStop remains, it would indicate it was broken. So, the collaboration to squeeze the shorts broke down as they diverted their attention to sliver. Where I think they may not be successful at all.

Cross your fingers, even though Mike Wilson indicates he thinks the pullback is here.

Stay safe,

Arthur

Heading out to a business lunch at noon.

Homebuilders continue to roll over a bit.

I sold my large (WMT) long at an average price over $150/share recently. 

My buy target on $WMT (under $140/share) was just hit. 

I just bought small at $139.60 - would be more aggressive but I am quite bearish on the markets.

Ark Innovation (ARKK) short, my Trade of the Week, is now large-sized.

Words from Charles Kindleberger: 

After the action seen in some stocks last week I dusted off my copy of "Manias, Panics, and Crashes" over the weekend written by Charles Kindleberger back in 1978. In the chapter titled "Speculative Manias" he said "The word mania in the chapter title connotes a loss of touch with reality or rationality, even something close to mass hysteria or insanity. It is used continuously in economic history, which is replete with canal manias, railroad manias, joint stock company manias, land manias, and a host of others." I guess we can call the current situation the Reddit mania.

He went on to say "The a priori assumptions of rational markets and consequently the impossibility of destabilizing speculation are difficult to sustain with any extensive reading of economic history. The pages of history are strewn with language, admittedly imprecise and possibly hyperbolic, that allows no other interpretation than occasional irrational markets and destabilizing speculation. Here are some phrases culled from the literature:

manias...insane land speculation...blind passion...financial orgies...frenzies...feverish speculation...epidemic desire to become rich quick...wishful thinking...intoxicated investors...turning a blind eye...people without ears to hear or eyes to see...investors living in a fool's paradise...easy credibility...overconfidence...overspeculation...overtrading...a raging appetite...a craze...a mad rush to expand."

What do periods of manias have in common? "Speculative manias gather speed through expansion of money and credit or perhaps, in some cases, get started because of an initial expansion of money and credit. One can look back at particular manias followed by crashes or panics and see what went wrong. The tulipmania, part of speculative excitement over many objects, was fattened by personal credit. John Law had his Banque Generale, later the Banque Royale; the South Sea Company, the Sword Blade Bank."

"The fact is that money, defined as means of payment in actual use, has been continuously expanded, and existing money has been used ever more efficiently in periods of boom to finance expansion, including speculation." I would recommend to ALL members of the Federal Reserve that they read this book. And, I would remind them that the recessions of 2001-2002 and the financial crisis of 2008-2009 was driven by a decline in asset prices after an unsustainable bubble/mania. Stocks of course fell in the former and home prices with the latter that then led to the recessions. The nonchalant attitude of Jay Powell and others to the financial excesses their policies have created reflects an unfortunate 'blind eye'.

With respect to silver, which I talked about last week, I'll say again there is no speculative short position. In Friday's CFTC data for the week ended Tuesday, the net spec position is long by 54k contracts. There hasn't been a net short position since June 2019. And to those on Reddit, in the futures market for every long there is a short. In this instance the shorts are commericals where many are silver companies that are just hedging their production. I stated I'm bullish on silver but for fundamental reasons instead of speculative ones.

NET SPEC LONG POSITION in SILVER

Moving on. I've talked for months about the spiking transportation costs globally for anything that gets shipped, flown, and trucked. Here's a chart I saw in the FT over the weekend for China-Europe freight rates to visualize. Every single thing that gets manufactured is thus subject to these rising shipping costs that are then passed on to the rest of us. See the comments on price pressures in the PMI's.

Ahead of the US ISM manufacturing index for January today, we saw a bunch of PMI's overseas. China's state sector focused manufacturing PMI fell to 51.3 from 51.9. The estimate was 51.6. Services dropped to 52.4 from 55.7 and less than the forecast of 55. China's private sector weighted manufacturing PMI fell to 51.5 from 53. With prices, "Low stock availability and higher raw material prices drove a further increase in operating expenses. Moreover, the rate of inflation eased only slightly from December's 3 yr high. As part of efforts to protect operating margins, manufacturers raised their selling prices at the steepest rate since June 2018."

Japan's final read was 49.8, up .1 from the initial and little changed from the 50 seen in December. With prices, "Input cost inflation strengthened further in January. The pace of inflation was solid overall and was the strongest since May 2019. Manufacturers often linked a rise in average cost burdens with higher raw material and logistics costs. Concurrently, average output charges rose at a quicker pace in January, as firms sought to partially pass on some of the increases in input costs to clients. Supply chain disruptions continued to build during January with average lead times lengthening to the most marked degree since last June."

Australia's manufacturing PMI was left unrevised at 57.2 vs 55.7 in December. With respect to inflationary pressures, "the restocking of warehouses at a time of constrained supply came at a cost of higher input prices, which rose to the greatest extent recorded in the survey's history. Average selling prices also increased, the rate of inflation gathering pace slightly to register the largest monthly rise since March, as producers sought to pass these higher costs on to customers."

South Korea's manufacturing PMI went to 53.2 from 52.9. On inflation, "Latest data pointed to an acceleration in input cost inflation faced by South Korean manufacturers. Input price pressures intensified in January, and rose at the steepest pace for three years. Manufacturers widely reported sharp rises in the cost of raw materials and logistics. Concurrently, output prices increased at the quickest pace since June 2018 as firms sought to pass higher costs on to clients."

Taiwan's PMI, driven by strength in tech, rose to 60.2 from 59.4. On prices, "Manufacturers signaled the sharpest increase in operating expenses for nearly a decade in January. Survey respondents frequently mentioned that stock shortages and higher transportation costs had driven up input prices. As part of efforts to protect operating margins, companies raised their prices charged at the fastest rate on record."

India's manufacturing PMI was higher at 57.7 from 56.4, Indonesia's PMI rose to 52.2 from 51.3 and the Philippines to 52.5 from 49.2. Vietnam's PMI slipped to 51.3 from 51.7, Malaysia's to 48.9 from 49.1 and Thailand to 49 from 50.8.

The January Eurozone manufacturing PMI was revised to 54.8 from 54.7 and down a touch from 55.2 in December. "Supply chain delays worsened during the month to a degree only exceeded once, during the global lockdowns early last year, in more than two decades of survey history." In response, "prices paid for inputs increased markedly. January's survey showed that input costs rose to the greatest degree in nearly three years with Germany, the Netherlands and Italy recording the sharpest monthly increases. Whilst firms sought to pass on these higher costs on to clients, the overall rate of inflation was modest and noticeably weaker than input costs." That's a margin squeeze.

The UK manufacturing PMI was revised up to 54.1 from the 1st print of 52.9. The estimate was for no change but that is still down from 57.5 in December. UK manufacturers had success in passing on input price inflation that rose to a 4 yr high as "increased costs were passed on to clients leading to the steepest inflation of selling prices for 28 months." The rise in input costs reflected "raw material shortages, transport delays and market forces."

I have covered my (GME) short at $223 just now.

Macy's (M) traded as high as $22 last week -- I added to my short on the strength. 

Now under $15/share I have just taken off the short of this heavily shorted retailer (88 million shares short vs. 310 million share float).

I reshorted Facebook FB on this morning's advance after having covered for a nice profit in the last few days: 

Jan 29, 2021 ' 11:10 AM EST DOUG KASS

My Facebook Trade

I have covered my large short trading rental in Facebook (FB) for a nice profit (at $258.65) just now.

Sorry that I had not had a chance to write up my reasons after the reasonable good EPS beat.

The implementation of Apple's (AAPL) heightened privacy policies, announced in the conference call following their EPS release, was the proximate cause for my trade - as it had the potential of hurting FB's advertising effort.

Germany's retail sales fall at the greatest pace in 64 years:

* I have shorted the early whoosh higher in the market indices.

Early Sunday evening S&P futures gapped about -40 handles lower. 

By 9 am the S&P futures were about 80 handles higher from Sunday night's lows. 

It is not healthy when stock markets behave like commodity markets. I have aggressively added to my short exposure on the whoosh higher this morning.

Many traders had come in Friday morning hoping that Thursdays trading had marked a kind of transition for the market and, we were moving out of the short squeeze/margin call anxiety that had troubled the market for a few days.

That hope was soon washed away and, many traders felt that part of that may have been the easing of some trading restrictions that had been put in place just 24 hours earlier. Another factor, I think, contributing to the volatility may have been the financial press, where a few prominent folks seemed to be rushing from rumor to rumor and, underscoring concerns about the liquidity and viability of some of the brokerages dealing with the system and/or a couple of comments by a few politicians of a conspiracy to freeze out the public. That contributed also to the unease and uncertainty that was the backdrop to trading.

The selling had some aspects that one usually sees during panicky margin call kinds of selloffs. Technical levels tend to get violated by overshooting of a selloff that is more emotional and less cerebral. We saw that particularly with the Dow, which managed to violate its 50-day moving average. So, we will see if they can begin to regroup.

Again, we noticed adequate, to in some cases, superior earnings were brushed aside as the scramble for liquidity sent stocks even like Apple and others with superior earnings to move lower.

Also, it appeared that even some of the economic indicators had little to no effect on the market as they were self-absorbed in the scramble to raise capital and, the anxiety that we were seeing to some degree, a national margin call as the short squeeze continued.

Again, we will have to wait for some the financial press to begin to calm down. So, that will be the idea of when we return to normalcy, if you would.

The two things to watch continue to be further pressure on the short squeeze candidates, upward pressure, and/or a slowing of the selling in the general market and, the absence of a rush to liquidate and gain some capital.

Over the weekend, a visible change may be occurring. The so-called retail rebellion on Reddit seems to have shifted some of its attention away from GameStop and the like and onto silver and the silver miners, claiming that there is a large short position that can be run in.

My cursory look at the records indicate that traders are probably long rather than short but take that with a grain of salt because I have not been able to verify it. Nonetheless, in a bit of frenzied trading they have managed to move silver up 10% and, some of the silver miners up between 5 and 12%. That will present a very interesting thing to watch if they remain focused on silver and/or other precious metals. It could ease some of the frenzied buying in GameStop, even though the shorts made the mistake of shorting more than the underlining issue of shares.

So, I would say, at this point, watch silver a little further to see if the shift to buying silver and the like causes the short squeeze in GameStop to pause or even to begin to reverse. If we see some weakness in GameStop that may become the assumption.

As it appears to be happening this morning, that will cause a sigh of relief rally in the general market as the national margin call on the short squeeze seems to have been averted.

Let's see how we do with our two new indictors - Silver vs GameStop.

Stay warm and stay safe.

Arthur

* The root cause of today's overvalued market are the world's central bankers - 'they are forever blowing bubbles.'

* It is my view that we are in the biggest bubble in history (in $ terms) - and I am sounding an alarm.

* Bubbles rarely resolve themselves without inflicting a lot of financial damage - this will be no different than the collapse in the last three speculative cycles.

* Too many traders speculating today are throwing "Hail Marys" in their parents' basement - thinking that they will become the next Tom Brady.

* 'We have met the enemy and he is us.'

* I remain negative on the market outlook and I am in a large net short exposure.

* I have been in a 'short the rip but the dip' phase - but I am now in a 'short the rip and hold the short phase'.

"If there is one common theme to the vast range of the world's financial crises, it is that excessive debt accumulation, whether by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom."

- Carmen Reinhart

As I wrote last Thursday, Greed Breaks Things:

"A grotesque level of speculation has taken us to where we are now.

With a good perspective on history, we can have a better understanding of the past and present -- and thus a clear vision of the future.

Like previous speculative cycles this is about greed and trying to make money. Attempts to make trading in (AMC) or (GME) seem like an ideological notion and high minded intentions (of small investor empowerment), are fanciful to me and begs the point I have been making - that misshapened levels of speculation usually occur in the later stage of a Bull Market and, more often than not, presage a Bear Market.

Speculation, as noted yesterday, is the outgrowth of undisciplined monetary policy. But I will leave this for another time.

I have been consistent in view - and, regardless of view, we should be able to conduct this debate respectfully, as I have constantly tried to do.

Here are a series of forcefully argued columns I have written and an interview I recently participated in, just over the last few days, in which I have consistently warned about accelerated speculation having a "bearing" (and likely adverse impact) on the broader markets:

* Don't Know Much About History, Don't Know Much Biology

* Minding Mr. Market and the Continuing Speculative Mania

* John Mauldin's Thoughts From the Front Line

* My Bloomberg Interview

* A Cash Grab Like We Have Never Seen Before on Wall Street

* Sell Stocks Now

* Being the Contrarian Kid

* Investors are Behaving Like Frogs in Boiling Water "

In Friday's "My Trading Strategy In the Age of Robinhood",  I outlined my strategy of shorting the rips and the buying in the dips. I further suggested that we looked like we were approaching "Peak Speculation":

"GME joins the parthenon of speculation previously reserved for Resorts International, Piggly Wiggly and Volkswagen."

It is increasingly my view that the final stage of the grotesque market speculation is now coming to an end - and that while I will continue to short the rips, I may no longer be buying the dips.

The History of Market Speculation

The current chapter follows three other noteworthy and epic installments - each of those sagas presaged material Bear Markets:

* The Nifty Fifty

* The Dot.com Bubble

* The Proliferation of Credit Derivatives (aka Financial Weapons of Mass Destruction) 

All previous periods and today's adventure have had three things in common - they were influenced by positive market sentiment, traders/investors ignored fundamental stock valuation metrics, and most underestimated the consequence of the damage that was about to be inflicted by the bubbles.

Moreover, in all of the previous periods debt was plentiful, debt was cheap and there was a new buyer of an asset class (bank trust departments during the Nifty Fifty, day traders during the Dot.com Bubble, and house flippers during the proliferation of Credit Derivatives).

I was a "yute' during the Nifty Fifty era so I was uninvolved. But I was a conspicuous naysayer (CNBC, Barron's, Wall Street Journal and on the pages of my RMP Diary) and skeptic of the dot.com and market booms/bubbles that ended in 2000 and in late 2007.

I am once again sounding the alarm.

The Most Recent Chapter of Market Speculation

"I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high, nearly reach the sky,
Then like my dreams they fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air."

- John Kellette,I'm Forever Blowing Bubbles

In the most recent chapter, a large number of Robinhooders, Reddit (whose credo is "Dive Into Anything") and the subReddit community WallStreetBets (WSB, here), and other speculators/gamblers are throwing Hail Marys in their parents' basements - in the belief that they will be the next Tom Brady.

My friend (and fellow "stooge" along with our third "stooge", Peter Boockvar), the inestimable Mike Lewitt (the cook and bottle washer of the outstanding The Credit Strategist commentary) wrote the following over the weekend:

"Central banks' deconstruction of markets entered its latest phase with the current attack on the most heavily shorted stocks by retail investors. Rather than merely drown the economy in debt, the Fed destroyed price discovery in stocks and bonds and unleashed a speculative frenzy that rendered the stock market virtually untradeable. The most recent phase of this phenomena began a couple of years ago with Tesla Inc. (TSLA) stock, which continues to trade at a valuation that is totally unjustifiable on any rational basis (as was further demonstrated by its most recent lack-of-earnings release - more on that below). All of the day traders currently piling into Gamestock Inc. (GME) and other heavily shorted stocks are surely aware of the TSLA example, which taught them not only that valuation doesn't matter but that earnings, honest financial reporting, producing safe vehicles, and truth-telling don't matter either. All of these overvalued stocks will eventually collapse and hurt investors who are ignoring obvious warning signs about these companies.

None of this happens in a vacuum. It happens in a world created by central bankers who, as the incomparable Albert Edwards writes, "should be embarrassed that the equity market has turned into this...This farce is of the Fed's creation - which should hang its head in shame."2 But this was apparent long before some hedge funds left themselves vulnerable to the Reddit mob. These funds are supposed to employ stop-losses and other hedges to avoid catastrophic losses inflicted by amateurs (and to be absolutely clear, Reddit traders are rank amateurs regardless of what Chamath Palihapitiya and others claim). 3 Hedges are insurance against exogenous events; failure to employ them is inexcusable. The one unforgivable sin on the part of a fund manager is to suffer catastrophic losses. Even if he is somehow able to recover from them (for which he deserves great praise), they should never happen. That Wall Street has always been a casino should not be news to anyone. And just because the action moved from the Blackjack tables to the nickel slots doesn't mean managers can let their guard down because losses can be enormously magnified by leverage in all its forms."

The Federal Reserve and the central bankers around the world are at the root cause of today's speculation. They are the bartenders who have continued to serve drinks to their inebriated customers who are too drunk to stand, let alone drive hard. To make matters worse, they are now buying the customers their drinks! 

"Central banks' deconstruction of markets entered its latest phase with the current attack on the most heavily shorted stocks by retail investors. Rather than merely drown the economy in debt, the Fed destroyed price discovery in stocks and bonds and unleashed a speculative frenzy that rendered the stock market virtually untradeable."

GameStop May Stop The Game

"Second verse, same as the first..."

- Herman's Hermits, I'm Henry The Eighth (I Am)

While the Fed fiddles (and buoys liquidity in an unprecedented manner) and our regulatory authorities twiddle their thumbs, the gewgaw du jour, a money-losing computer game retailer (GameStop) is being openly manipulated by day traders. This follows the speculative activity in SPACs and the front running of short dated call options in stocks like Tesla (TSLA) and others - first by Softbank and then by the host of gamblers that reside on Robinhood and elsewhere. 

However, when Wall Street related news catches the world's attention - as it has with GameStop (GME) - the cycle is typically in its terminal stage: 

* The surge in GameStop's shares was highlighted twice on Saturday Night Live - on the cold opener, "What Still Works?" and on "Weekend Update". 

*GameStop's price move and the short selling losses that it has contributed to were highlighted on MSNBC, CNN, ABC News, NBC News and CNN over the weekend. 

*Angry GameStop holders have threatened the family of both Andrew Left (Citron Research) and Steve Cohen (Point 72). Previously Elon Musk has threatened Tesla short sellers. 

The devastation that GameStop has wrecked can not be understated. 

Overall hedge fund losses caused by operationally and financially troubled GameStop have been estimated at nearly $20 billion! This is a multiple of the $4.6 billion of losses from the Long Term Capital hedge fund crisis  - an event which brought our capital markets to its knees. 

Losses in GameStop and other heavily shorted stocks caused a -53% ($7 billion) loss during the month of January in one hedge fund, Melvin Capital - which needed to be rescued by Point 72 and Citadel.  

Robinhood has been forced to raise over $1 billion of capital, faces the potential for future sizeable losses, and is likely to cancel its planned IPO.  

Bottom Line

"We should be embarrassed that the equity market has turned into this...This farce is of the Fed's creation - which should hang its head in shame."

- Albert Edwards 

Over the last few months I had adopted a short the rip, buy the dip strategy. 

No longer. 

Now I am in a short the rip and hold the short mode. 

Let me end today's opening missive with some more pearls from Mike Lewitt: 

"Finally, SPACs are home to some of the most egregious valuations in the market today. Mr. Palihapitiya's first SPAC merged with Richard Branson's Virgin Galactic spaceflight company to take it public in 2019. Virgin Galactic Holdings Inc. (SPCE), a company with all of $238,000 (no, we are not missing any zeroes) of revenues in the first nine months of 2020, is now trading with a market value of $11 billion and Mr. Palihapitiya's shares and warrants are worth roughly $1 billion (though he reportedly sold some stock because - as he keeps telling everyone - he is fighting for the little guy!). DraftKings Inc (DKNG), the money-losing sports betting company that generated $292 million of revenue over the first nine months of 2020, merged with a SPAC in April 2020 and now sports a $21 billion market cap. Nikola Corp. (NKLA), an obvious fraud that almost duped General Motors into a deal, still somehow carries an $8.3 billion market cap. Reports that WeDontWork is trying to merge into a SPAC may put the perfect punctuation mark on this scam - a company whose business plan still doesn't make any sense after Covid19 (buy long to rent short) using a structure that will deliver an unearned 20% promote to its owners at a purported $10 billion valuation. These are just some of the more egregious examples in a market that makes the 2000 Internet Bubble look like the Age of Enlightenment."

We have met the enemy and he is us. 

I remain in a large net short exposure. 

* I am bullish on the price of silver and gold, and I have large holdings in both

* This morning silver was +$2.80/0z (or +10.4%) to $29.73oz!

* In my "15 Surprises for 2021" I predicted that silver would outshine both gold and bitcoin - rising to over $50/0z

"Surprise #7 A Decline in the U.S. Dollar Spurs an Advance In Gold (to $3,000/oz) and a Ramp of +50% in Bitcoin (to $40,000) - But Silver Is The Big Winner As It Doubles to Over $50/oz - Over easy policy, excessive liquidity, higher inflation and a rapid rollout in the Covid-19 vaccine powers the prices of cryptocurrencies and precious metals higher. Silver, however, is the league leader as the rapidly rising demand for silver in industrial applications creates a supply crunch late in the year. Another challenge on the supply side for silver is that more than half of mined silver supply is a by-product of zinc, lead and copper mining, making it tough for miners to meet the surging excess proportional demand for silver. Precious metals and crypto currency prices peak in the third quarter."

- 15 Surprises for 2021

I am bullish on the outlook for silver and gold - and recently moved to large long in both GLD and SLV. 

Here is what I wrote 10 days ago: 

Jan 20, 2021 ' 08:20 AM EST DOUG KASS

Trade of the Week - Buy Gold

* The bitcoinization of precious metals may be a real possibility in 2021

* But a subscriber reminded us yesterday in the Comments Section... You can't touch bitcoin!

Surprise #7 A Decline in the U.S. Dollar Spurs an Advance in Gold (to $3,000/oz) and a Ramp of +50% in Bitcoin (to $40,000) - But Silver Is the Big Winner as It Doubles to Over $50/oz - Over easy policy, excessive liquidity, higher inflation and a rapid rollout in the Covid-19 vaccine powers the prices of cryptocurrencies and precious metals higher. Silver, however, is the league leader as the rapidly rising demand for silver in industrial applications creates a supply crunch late in the year. Another challenge on the supply side for silver is that more than half of mined silver supply is a by-product of zinc, lead and copper mining, making it tough for miners to meet the surging excess proportional demand for silver. Precious metals and crypto currency prices peak in the third quarter.

- Kass Diary, 15 Surprises for 2021

"It feels good when you know you're down
A super dope homeboy from the Oaktown
And I'm known as such
And this is a beat, uh, you can't touch...

Hold on
Pump a little bit and let 'em know it's going on
Like that, like that
Cold on a mission, so fall on back
Let 'em know that you're too much

And this is a beat, uh, they can't touch"

- MC Hammer, You Can't Touch This

It is abundantly clear that the Fed is hell bent on supplying endless liquidity and our politicians are hell bent on supplying endless programs aimed at getting Americans thru the Covid crisis:

Gold Telegraph

@GoldTelegraph_$27,678,274,970,427.93 (-) #NationalDebt How will it be paid back? Inflation.

Bitcoin has already rallied above my $40,000 Surprise (see above) and I expect that precious metals will play "ketchup" to the rise in cyrptocurrency prices over the near term.

I am large long Gold (see "I Like Gold More Than Ever") - having added in the recent weakness - and I recently initiated a position in silver.

Rising real - inflation adjusted - and absolute interest rates have beaten down gold over the last few weeks. But while I expect interest rates to rise over the near term, I expect inflation to rise more rapidly, serving to reduce real interest rates.

This morning the price of gold was +$16/oz higher ( (GLD) was indicated +$1.40/share in pre-market trading) and silver has advanced by +$0.23/oz this morning.

From "About Bitcoin" - a column I wrote in early January:

About Bitcoin

Over the weekend I began to write a column for this week about cryptocurrencies.

For a variety of reasons I have decided not to swim in the bitcoin pool. And for a variety of reasons I can't value bitcoin.

I will not be buying or shorting bitcoin.

I decided against a writeup. Nevertheless, here are some of my notes from Saturday that I wanted to share:

1. Bitcoin is now trading at $32,000 and several standard deviations

away from its moving average on the upside. Cap is now $530 plus

billion.

2. As in "The Big Short" there are several "behind the lines" plays.

One I discovered is BITW, a closed end crypto fund. 85% or so of

assets are BTC. It trades at a 150% premium to NAV. Cap is $500mm.

In years working in the closed end fund sector, I never saw a premium

close to this.

3. There is no objective criteria to value BTC. The similarity to tulips and other manias is notable.

4. God forbid there is any leverage at work here.

5. Most of this is well off conventional radar. A young relative of mine turned some of his BTC gains into a car. Eventually, at best, we will get some inflation because the wealth being created is spendable and a lot will evade the tax collector. I doubt my nephew's wealth change is caught in the GDP accounts. It seems reasonable to assume the drug cartels have found a way to get involved. BTC activity could be more lucrative than drugs.

I have no idea what will happen but I doubt any of it is good.

You Can't Touch It!

Mikey (badgolfer22) put it this way, and clearly, in our Comments Section yesterday - you can't touch it (bitcoin):

badgolfer22

I see you folks are finally getting around to discussing that article I put out first thing this morning on bitcoin and tether.

here's my issue. I made some good money trading GBTC last year. I sold waaaay too early which seems to always be my modus operandi. Every article I read on crypto ...and I also tried to read one on Ethereum yesterday... makes me more confused as ever about what just the hell this stuff is. I bought bitcoin solely because others started paying attention...major , smart investors...and because it's supposedly a finite asset--'supposedly' limited to 21 million of them.

Other than that, the whole thing to me seems shady. The whole market place in which it trades, the whales, the networks, the secrecy, no backstop yet by a major financial institution via custody...and on and on and on.

I think when it comes right down to it, when you own a bitcoin, you own a math equation. period.

As the fiat currencies of the world implode, I'll have my gold coins and silver coins and pplt and gold stocks. Maybe I could make more money holding bitcoin but it sure seems risky to me to be an 'investor'.

I don't have custody issues with my coins. I don't have hacker issues or Lagarde looking to legislate them out of existence. or the other issues that seems to make bitcoin so hard to understand. I'll trade it from time to time but the whole thing seems like dark matter to me. We know it's there... I just can't see it or touch it.

While I continue to have substantive issues with regard to bitcoin -- the possibility of new crypto private and public alternatives, the lack of regulation, its infancy, and lack of centuries of empirical price data, etc. -- its limited supply and increased institutional acceptance, as strange as it might be to me, could continue, raising the price of bitcoin and providing a "draft" to higher precious metals prices. But I continue to wade in the pool of precious metals - where there is literally thousands of years of price performance and value accumulated.

Hammer Time!
__________

Danielle DiMartino chips in on the outlook for the price of silver this morning:

Hi-Ho Silver, Away!

• Per the Commodity Futures Trading Commission, there is currently a net long position of 54,500 contracts in silver among speculative traders; though #silversqueeze is trending and silver futures prices are up 13%, this is totally different from the $GME position being exploited
• Moderators of r/WallStreetBets have cracked down on posts about silver, seeing them as a trap to divert capital; however, with major bullion dealers halting orders over the weekend due to demand, silver volatility and spot price spikes have upside in the immediate term
• The recent VIX bump has distracted from quiescent volatility in bond and credit markets; against the current backdrop of Redditors, weakness in China's published economic data, and a looming fiscal cliff, cross-asset volatilities have picked up from their pandemic lows

Not only was George Washington Trendle bestowed one heck of a name, he had a vision that entertained the world for a generation. In the early 1930s, the co-owner of Detroit's WXYZ radio station foresaw the embodiment of a hybrid of film hero Zorro, Robin Hood and the Texas Rangers. Per the Smithsonian, the backstory is as such: "A Texas Ranger unit on patrol is ambushed by the notorious Butch Cavendish gang. The lone survivor, John Reid, is nursed back to health by a passing Indian (who, remarkably enough, had known Reid as a child). To hide his identity while he pursues Cavendish, Reid dons a mask cut from his dead brother's vest. Thus concealed, he sets out to bring the gang to justice, and after them, a host of other rogues and desperadoes who prey on honest, simple folk. After a roundup, the selfless, anonymous Lone Ranger leaves behind a single silver bullet, a reminder of his steadfast vigilance against evil."

Like clockwork, a bystander would ask, "Who was that masked man?" Straight from the narrator's mouth, those of us who recall the small screen adaptation know, would follow "A fiery horse with a speed of light, a cloud of dust, and a hearty 'Hi-Yo, Silver!'. . . The Lone Ranger!" Over the weekend, Reddit-Raiders adopted as a mantra an amalgamation of Scottish singer and songwriter Jim Diamond's 1945 hit "Hi Ho Silver" and added the Lone Ranger's "Away!" to the hashtag identifying their latest target - #silversqueeze.

The first words that came to mind when the hashtag sprung to life late last week was "This is too good to be true." Long silver sits atop QI's 2021 recommended list. The gold/silver ratio alone has been screaming for a technical bounce. And what's not to like about a 13%, five-day pop in the white metal?

Still, the Commodity Futures Trading Commission website revealed that as of Friday, there was a net long position of 54.5 thousand contracts in silver among "non-commercial," a.k.a. speculative, traders, not exactly the critical ingredients for a short squeeze.

Nary you mind. Because of its 23% short interest, the frenzied crowds say they've commandeered the miner, ticker 'AG,' First Majestic Silver Corporation. And then there's ticker 'SLV,' the iShares Silver Trust ETF, which has short interest of 12%. Call it the sister to $USO, the oil ETF. In theory, if enough pile into $SLV, the fund will be forced to purchase actual silver in the spot market.

Indeed, many major bullion dealers were forced to stop taking orders over the weekend due to unprecedented demand for physical silver. Some posted they would re-open for orders at 6 pm EST Sunday evening while dealer JM Bullion posted the following on its website: "Due to increased order volume, we are currently experiencing shipping delays of 5-10 days from cleared payments." Today's righthand chart leaves little doubt that the runup in silver volatility (light blue line) and the  futures price (orange line) of silver have upside in the immediate term.

What's intriguing is that upon closer examination, moderators of message board Wall Street Bets wanted nothing to do with any silver squeeze. A vast majority of the posts pumping silver were deleted. Those that remained explained that silver is a massive, decentralized market, the opposite of a single stock that's been beaten down. More to the point, as one participant warned, "It's a trap to divert eyeballs and capital away from $GME."

If that comment set off an alarm, consider the following two posts to my Twitter feed:

@StuartKeir2
This is a revolution. Amplified by modern communication. It is a lead up to a crisis. 2 whole generations have essentially been dispossessed and they are revolting. Pretty normal in the historical context

@NeverBe25867346
The first through the gate usually die. From a military perspective it's a known aspect of being on point

This narrative is as widespread as it is alarming, all the way to taking pride in sustaining losses given the heroic place history provides the frontline infantry in times of war. Cursory digging also revealed that the identity of the crowd has not changed; it's shifted from rage at the Capitol to rage at the hedge fund community. In this social media whipped day and age, such is the anti-establishment movement that it must have an outlet and platform at all times.

The difference is the crowd's outlet of choice reverberates inside the financial system. For now, the high visibility of the VIX index (red line), and to a lesser extent that of Emerging Markets volatility (yellow line), distract from the quiescent volatility in the bond and credit markets as reflected in the MOVE index (purple line) and those of Investment Grade (green line) and High Yield (blue line).

That said, today's inset chart does show that the more nefarious sources of volatility have picked up from their post-pandemic lows. As much as he feigned cluelessness last Wednesday, Federal Reserve Chair Jerome Powell had the same exact chart in hand when futures opened Sunday evening at 6 pm EST. He was also aware that Chinese officials allowed slowing in the world's second largest economy to be reported, an admission their economy is appreciably weaker. With macroeconomic slowing, financial markets under siege and yet another fiscal cliff over the horizon, we'll happily delight in today's silver lining.

* I am shorting ARKK in the pre- market above $140/share

* Will Cathie Woods and holders of ARKK need an ark if my concerns regarding speculation are realized?

* Sic transit gloria

For those that are looking for a relatively conservative and diversified way to short a basket of what I believe are some of the most overpriced gewgaws extant - the ETF (ARKK) (ARK Innovation ETF) might be appealing to you. 

Led by a near 11% holding in Tesla (TSLA) , here are ARKK's Top 10 Holdings. 

Besides an 11% holding in Tesla, some of ARKK's portfolio of top 10 names includes a 7% holding in Roku (ROKU) (27x sales), Square (SQ) (320x PE), Twilio (TWLO) (40x sales and Shopify (SHOP) (700x PE), etc.

ARKK is probably the largest actively traded ETF and is managed by superstar Cathie Woods - who recently predicted that TSLA would trade at $7,000 by 2024 and ultimately hit $15,000/share. In other words, Ms. Woods believes Tesla is worth between $7-$15 trillion. 

I probably could stop here but I won't! 

From Mike Lewitt's The Credit Strategist on Woods' view and comments on Tesla: 

"In normal times this would be crazy talk. Actually, in any age this should be considered the utterings of a shaman. But today it just blends into all the other crazy talk and people just nod their heads like a bunch of bobble heads and let it pass."

Money has poured into this ETF - causing more and more of the underlying stocks to be purchased by ARKK. In fact, ARKK doubled in size in 3Q2020 to nearly $9 billion. 

As I discuss in my opening missive (coming up) I believe we are now experiencing "Peak Speculation" and shorting ARKK (a proxy for speculation) is a call that the sizeable inflows of the last few years will become outflows in the year ahead. 

I am shorting ARKK - the hippest ETF extant - in the pre-market above $140/share. 

Sic transit gloria. 

Fame is a fleeting thing.

* VZ is a conservative holding with a secure dividend

Though Verizon's (VZ) shares have recently declined, I thought the company's 4Q was solid, slightly beating expectations while providing an above consensus forecast for the next 12 months, even in the face of Covid-19s impact on roaming revenues and other factors. 

VZ reported $1.21 compared to consensus of $1.17. 

The likely variable that took down the stock was weaker than expected wireless postpaid phone net adds (-20%). I expect this trend to continue but churn should continue to hold together. 

The company's ARPU strategy seems to be working. 

Wireless service revenue growth is seen accelerating modestly (+2.2% to greater than +3%) as comps are easy throughout the year. Equipment revenue was -5% (year over year). Consumer revenue was several hundred million dollars ahead of consensus and EBITDA ($9.95 billion) was $50 million better than street forecasts. 

Shareholders await C-Band auction results later this month - as well as potential tax hikes. 

Capital spending guidance ($18 billion) was slightly below consensus expectations. 

VZ ended the year with $22 billion of cash - acceptable given the projected auction spend. 

With strengthening of wireless revenue growth and some upside to street estimates, I expect the company to be able to balance subs and profits in a very aggressive promotional environment. 

Investors won't get rich with Verizon but my 12 month target is $60-$62 - with the safe dividend providing a reasonable return for this conservative holding.

From Q: