No trades this afternoon.

If you are wondering why Tesla (TSLA) has gotten schmeissed, here is a possible answer. 

"I am going to write a good Diary on Real Money Pro today... and I am going to help people. Because I am good enough, I am smart enough and doggone it, people like me."

-- Daily Affirmations With Dougie Kass

Today's Affirmations is about some words of reflection. 

I am saddened, amused, disgusted and tempted - all simultaneously - by the other "pandemic" on Twitter (TWTR) . 

Every day I now read a flood of fake-innocent querying tweets like "$xyz stock has a 35% of float short - is it the next $gme" as the tweet writer blatantly attempts to ignite a retail flash mob to jump on the name... one which any idiot would know the tweet writer has his newly long position ready to sell into the pop he/she hopes to generate with their "innocent" sounding tweet. 

If the motive wasn't so transparent, it would be funny but instead it is sad and at the same time disgusting that one of the most widely used applications of the wonderous internet is not to scam as many people as possible anonymously and at incredibly low (like ~ zero) cost. 

How powerful is the pull of this stuff?...Well, each time, I think to myself, "maybe I should take a small position in this p.o.s. just in case this becomes another "witch to be discovered and burned at the stake". 

And I am no beginner in this game...!! 

I suppose old age is when you reach the point where you simply can't participate in the fun anymore because it doesn't look, smell or feel like fun to you. 

I am not a licensed therapist, though.

"I deserve good things. I refuse to beat myself up. I am an attractive person. I am fun to be with."

* She likes it, hey Lindsay!

What's this stuff?

Some currency supposed to be good for you

Did you try it

I am not going to try it.

You try it.

I am not going to try.

Let's get Lindsay, yeah , she won't buy it she hates everything.

She likes it, hey Lindsay!

- My Take on the Life Cereal TV Commercial

Here you go! 

From Evercore: 

This is best explanation I got...which fits with the Tech sell program everyone pointed to.

So basically musk buying doge = not right in head = sell tsla = arkk names get hit

My short book is typically conservative - as it usually includes index shorts and not heavily shorted large cap stocks. 

However, given the degree of speculation/gambling, chronicled today and over the last few weeks - my short book is noticeably more speculative now with a bunch of volatile and high octane gewgaws that hold risk in both directions. 

As a result my daily "VAR" (value at risk) is appreciably higher than at any other point in the last several years. 

In summary, and as mentioned yesterday, I believe that the opportunities on the short side today are greater than at any point in some time.

TechNova

Hey Dougie - Thank you for posting those BitCoin pieces. It always helps to see the other side of the coin. Respectfully however, I think Dr. Doom is missing many salient points and using some false equivalences to make his case. "Gold has a utility as a store of value". Why? Why do we think this? Only because we believe it to be true. Gold is not eadible, not plantable to grow food. It has some industrial use but by in large maintains value only because we say it does based on historical precedence. BTC is gold 1000 years ago. It's shiny, it's new, it's not entirely understood. I don't believe BTC itself was designed to be a transactional commodity (although its sub-denomination in Satoshis could maybe make it so), but what I believe will happen (and is happening now), is that derivative products tied to the value of BTC will be developed. These products will be used for transactional purposes and will live within the blockchain construct. The reason BTC to me will keep rising, is that it has inherited limitations that I view as a positive rather than a negative. The total supply of BTC will erode over time as accounts are lost and spoilage occurs. The value of BTC once settled, will then become the benchmark by which alt coins and alt derivatives will be based on. Will the road be straight up to $1M a coin. NO. And it should not. It will be bumpy, and I expect large moves up, and equally large swings down (up to 40% at a time). But in my view we are at the early innings of a new marketplace that ironically gains most of its power by not be centered in the US. The world has been dying to decouple from the US Dollar. This has finally arrived.

dougie kass TechNova

Thanks Techie.
First, I believe that well thought out theses from anyone should be read and listened to and evaluated.
That is the purpose for presenting Roubini's editorial in the FT. While some disagree I feel his analysis is reasonable and the FT thought so as well, I suppose. Critics I dismiss, therefore because they simply don't want to see both sides - an expression of dogma and unwillingness to hear both sides of an argument as they worship at the Church of What Is Happening Now. Nothing new there!
Second, this is what he wrote on gold:
"Gold has no income but it has industrial uses. It also has utility as a store of value and a hedge against inflation, currency debasement and tail risks." I agree with these two sentences based on centuries of experience vs a couple of years of bitcoin. Third, as to the scarcity of supply you mention there are numerous arguments against this including new crypto currencies and crypto currencies engineered by banks and even the US government. But this is a longer discussion.

This can be debated for a long time.
Dougie

I have further added to my Tesla (TSLA) short today. 

Tesla is -$31/share on the day and down by about $60/share from the level achieved right after the Tesla purchase of bitcoin. 

Here is what I wrote this week: 

Feb 08, 2021 ' 10:40 AM EST DOUG KASS

Sorry, This Makes No Sense, Dan

"While many on the Street have discussed the prospects of this move for Tesla, this morning's news formalizes the strategy of Musk and Tesla diving into the deep end of the pool of bitcoin and crypto. From a stock perspective, as we have seen with Microstrategy (and Saylor), this move could put more momentum into shares of Tesla as more investors start to value the company's bitcoin/crypto exposure as part of the overall valuation. Ultimately, investors and other industry watchers will be watching this closely to see if other corporations follow the lead of Tesla on this crypto path or on the other hand does it remain a contained few names that make this strategic jump around bitcoin."
- Dan Ives, Wedbush

As subscriber Thomas C noted (below), Wedbush's Ives thinks the $1.5 billion bitcoin purchase by Tesla (TSLA) can put more momentum into Tesla's shares and will allow investors to start valuing Tesla as a cryptocurrency play.

I just don't understand this rationale. Frankly, its nonsense and not analysis. It has no basis on the numbers.

Let me explain.

Tesla has a market cap close to $900 billion.

Tesla has "invested" only $1.5 billion into bitcoin. This represents one half of Tesla's net cash (gross cash of $19 billion less liabilities against the cash of $16 billion).

If bitcoin triples, Tesla will have made about $3 billion in bitcoin - that represents a de minimum portion of Tesla's overall market capitalization. It's noise - it's a rounding error.

Moreover, the size of Tesla's bitcoin investment/exposure and the historic volatility of the price of bitcoin could serve to muck up and produce large swings in Tesla's quarterly results even before backing out the impact of another "non-auto" factor (of regulatory credits). But perhaps that is Musk's strategy - to obscure operating and auto based results, and lack of profitability.

I am shorting more Tesla on the market's outsized reaction today -- $20 billion increase of market cap on an investment of $1.5 billion in bitcoin.

More nonsense in a nonsensical market driven by liquidity and euphoria.

As I mentioned in the Comments Section this morning, I have expanded my speculative short basket of EV, SPAC, etc., equities. I added a new short in a pot name as well. 

However, very few should implement the strategy for a host of reasons, including risk appetite, discipline required, etc. 

Moreover, borrows are hard from many of the retail trading platforms.

Activist Jana Partners takes a position in TreeHouse Foods (THS) .

On declining short interest:

BillyBob

Re-post from last night:

Short interest as of 1/28/21: dramatic reductions in short interest in the stocks in play over the past 2-3 weeks. Stats are short interest as of 1/28, % change from 1/14, and % float. Also included the link from WSJ to look up stocks of interest.

DDS 2.1M -47.7 16.5
SKT 36.8M -22.0 40.9
GME 61.8M -65.4 42.0 (from 120.1%)
AMC 37.7M -15.6 66.1
M 52.6M -40.7 17.1
BBBY 31.8M -57.6 27.8
SPCE 21.1M -45.3 10.1
FUBO 20.4M -48.0 23.2
MAC 34.3M -56.3 24.5
JWN 20.3M -26.0 18.6

DDS no longer a short squeeze story. Still a going private through buybacks story.
Many of these short interests down 40-60% in just two weeks.
This was a massive short covering, as it appeared in real time.
https://www.wsj.com/market-...

The January CPI rose +0.3% headline and was flat at the core level. The headline figure was as expected while the core rate was below the estimate of up +0.2%. Versus last year the headline gain is +1.4%, the same pace as in December. The core rate is higher also by +1.4% vs. +1.6% in the month prior. 

The rise in goods prices is being offset by the slowdown in service price increases. Core goods prices rose +0.1% month over month and are up +1.7% year over year, matching the quickest gain since April 2012. Services prices ex energy were flat month over month and up +1.6% year over year, about half the pace seen pre pandemic. Rents, both Primary and the OER calculation saw +0.1% month over month gains with the former still up +2.1% year over year, and the latter by +2%. This is the key reason for the service price moderation. After four months of declines, medical care costs rose +0.4% month over month and +1.9% year over year. Medical care services in particular saw a +0.5% month over month and +2.9% year over year increases. Airfares, thanks to Covid, fell another -3.2% month over month after a -2.5% drop in December. They are down -21.3% year over year. Car insurance rebounded sharply month  over month but is still down -3.7% year over year. Once people start flying and driving again in earnest in coming months with the vaccine, this will reverse.

Energy prices jumped +3.5% month over month after a +2.6% rise in the month prior but because of pre pandemic comparisons they fell -3.6% year over year. Food prices rose +0.1% month over month after a +0.3% rise in the month prior. They are higher by +3.8% year over year. Deeper within goods, used car prices moderated again m/o/m but are still up +10% year over year, while new vehicle prices fell -0.5% month over month and up by +1.4% year over year. These new vehicle prices don't yet reflect the lack of inventory spurred on by the current chip shortage. Apparel prices rose +2.2% month over month after a +0.9% increase in the month prior but are down -2.5% year over year. This should inflect higher when more get vaccinated and people get out of their PJ's. 

A slowdown in rent gains and Covid related influences on parts of the service sector such airfares, lodging, and car insurance offset the building price pressures on the goods side. With respect to rent, the slowdown of note is really only happening in the big cities of NY, SF and Boston where, according to RealPage, rents are down -16%, -22% and -9%, respectively. But, of the 150 large metro areas they study, rent gains were seen in 119 markets including Phoenix, Memphis, Detroit and Cleveland. Once the vaccine gets more traction and people start heading back to the big cities, considering the sharp increases in home prices, expect rent growth to inflect higher again. Airfares should jump sharply come late spring/summer as well as for hotel rooms and out of home eating. Thus, if goods price increases sustain themselves in the coming months as supply issues are not quickly fixed, the vaccine will spur an increase in service prices and we'll be getting +0.3% and +0.3% month over month CPI gains I believe soon. Base effects alone will be juicing it in the coming months but I'm talking after that.  

That said, at least for today, the Covid related impact on service pricing in certain key areas is offsetting the price increases of note we're seeing in goods. The 10 year yield is down 3 bps at 1.14% from where it stood just before the release and the 30 year at 1.93% is down also by 3 bps. The five year inflation breakeven is down by almost 4 bps to 2.30% and the 10 year is lower by 2 bps to 2.18%. The dollar index is lower and is breaking below its 50 day moving average. 

Here is a 10 year chart of core goods prices (year over year): 

Here is a 10 year chart on core services: 

Here is a one year chart on the DXY:

surely you can't be serious @sum18

Replying to @DougKass @realmoney and 7 others

Q: What's the utility of bitcoin? A: BTC is a taxation tool, a wealth redistribution scheme, and a novel money supply mechanism. Q: What supports BTC value? A: BTC price is directly proportional to the hype of it's narrative. Buy BTC! "Hype makes the world go round" - Warhol

Peter writes, "tell us how you really feel": 

There is sometimes this refreshing ability of former central bankers in speaking their true mind when they are no longer involved where when in the institution they instead mostly drink the Kool Aid of standard central bank mantra believing they could do no wrong and there are no unintended consequences of note of their policies. Former NY Fed President Bill Dudley has an opinion piece on Bloomberg today titled "Four More Reasons to Worry About US Inflation." In a recent piece he gave five reasons "to be worried about the risk of an unpleasant surprise, in which inflation returns faster than people expect. I'm now seeing four more."

The new concerns, 1)"this recovery should be faster than the last" as he said "Slumps brought on by pandemics tend to end faster than those brought on by financial crisis." 2)"Many households have resources to spend" in part helped by all the government transfer payments. 3)"Companies have money. Financial conditions are extraordinarily accommodative. The US stock market is reaching new heights and bond yields remain usually low, giving enterprises ample opportunity to raise funds for expansion." 4)"People are starting to expect more inflation. Prices in the market for Treasury securities suggest that investors currently expect the Fed's preferred inflation measure to average about 2% over the next 10 years. That's up about half a percentage point from November. This matters, because inflation expectations tend to be an important determinant of actual inflation outcomes."

His bottom line:

"All this suggest that the Fed, despite its desire to be accommodative and boost employment, might have to pull back on stimulus sooner and with greater force than anticipated to keep inflation in check. Such a move would be a significant surprise, given that in the Fed's most recent Summary of Economic Projections, the median projection foresees no rate hikes through 2023. This, in turn, would further increase the chances of a volatile market reaction, along the lines of the taper tantrum that the US experienced in 2013."

It certainly would.

China's January consumer price index unexpectedly fell by .3% y/o/y although still rose 1% m/o/m. Both consumer goods prices and the cost of services fell y/o/y. Food prices rose 1.6% y/o/y. The core rate was lower by .3% y/o/y. A new round of travel restrictions likely were an influence as many are staying home for the Lunar New Year holiday as they were encouraged not to travel. Also, there are major base effects here as one year ago CPI spiked 5.4% y/o/y. The PPI was higher by .3% y/o/y as forecasted. That's the first increase in a year and comes with the rise in commodity prices and transportation costs and is likely the beginning of a stretch of gains. The Chinese 10 yr yield was up 1 bp in response to the data, obviously looking past the CPI figure. At 3.24% it is the highest in about two months. Chinese stocks, both A and H were higher as the holiday is about to begin.

On the broad discussion on inflation ahead of the CPI report in the US today, we've heard from various central bankers that say they will look past any rise in the coming months. Transitory is their belief, particularly because of base effects in the next few months. It will be only after this influence will they be tested if the inflation increase is realized not to be transitory. The head of the Swedish Riksbank today, after keeping rates at zero as expected, said "no major problem if inflation overshoots for some time." He might not think there will be a problem but the long end of the curve might think otherwise.

As stated here, the rise in yields and inflation expectations is not just a US thing. The Japanese 10 yr JGB yield rose another 1 bp to .08%, matching the highest since November 2018. Yes, more than a 2 yr high in this still microscopic yield.

10 yr JGB yield

The MBA said mortgage applications fell w/o/w with both purchases and refi's lower. Purchases fell by 4.7% and are now at the lowest level in 5 weeks though remain up 17.5% y/o/y. Refi's dropped by 4.2% w/o/w but after an 11.4% rise last week. They are higher by almost 46% y/o/y. I think housing in 2021 will be a trade off between ever rising prices on one hand and low rates, the desire for space and the Millennial demographic influence on the other hand.

From today's Financial Times:

Opinion Bitcoin Nouriel Roubini: Bitcoin is not a hedge against tail risk 

Elon Musk may be buying it, but that doesn't mean everyone else should follow suit

Claims that bitcoin is the new "digital gold" are feeding a new bubble in it and other cryptocurrencies. The last one in 2017-18 saw bitcoin go from $1,000 to $20,000 and then fall back to $3,000 by the end of 2018.

Since the fundamental value of bitcoin is zero and would be negative if a proper carbon tax was applied to its massive polluting energy-hogging production, I predict that the current bubble will eventually end in another bust.

Referring to bitcoin or other crypto as "currencies" is a misnomer. They are not a unit of account: virtually nothing is priced in them. They are not a scalable means of payment: with bitcoin you can do five transactions per second while the Visa network does 24,000.

Bitcoins are barely used by legitimate companies as payment for goods and services, although Tesla said it planned to start accepting them. Crypto is not a stable store of value: even some crypto conferences refuse to accept them as payment for attendance fees.

The volatile price moves can wipe out any profit margin of a merchant within a matter of hours. They aren't even denominated in a consistent way that allows users to compare relative prices of goods. This reliance on different tokens is effectively a return to barter.

The Flintstones had a more sophisticated monetary system based on a benchmark: the cartoon cavemen used shells. Even referring to crypto as assets is a misnomer. Most assets have a stream of income (stocks, bonds, commercial real estate) or a use (housing) or some other utility (fiat currency provides liquidity and can be used for payments). Gold has no income but it has industrial uses. It also has utility as a store of value and a hedge against inflation, currency debasement and tail risks. Crypto has no income, no utility, no payment or other services. It isn't even anonymous because the underlying blockchain technology makes it easy to trace payments. It is only a play on a speculative asset bubble, worse than tulip-mania as flowers had and still have utility.

Its store of value against tail risks is unproven. And worse: some cryptos, dubbed "shitcoins", are financial scams in the first place or debased daily by their sponsor. Bitcoin's price is highly volatile, and claims of misbehaviour, including pump and dump, spoofing, wash trading and front-running by exchanges, are widespread. Stablecoins claim to be superior. But New York authorities are already investigating whether one, Tether, is being used to manipulate the price of bitcoin. Vitalik Buterin, a cofounder of the cryptocurrency Ethereum, argues that no crypto can be at the same time scalable, safe and decentralised. Traditional financial systems are scalable and safe: if your credit card or bank account is hacked or stolen, you are made whole. But they are centralised because participants and assets are verified by trusted institutions.

Right now, crypto is neither scalable or safe. If your private key is stolen or lost, the assets are gone for good. It isn't even decentralised. Oligopolistic miners control most bitcoin mining. Many are out of reach of western law enforcement in places such as China, Russia and Belarus, creating a national security nightmare. About 99 per cent of bitcoin trading occurs on centralised exchanges, which may be hackable. Furthermore, the original programmers retain outsized control over their creations. In some cases they act as police, prosecutors and judges, and reverse transactions that are supposed to be immutable.

Nor is crypto equitable: a small number of "whales" control much of bitcoin's value. This undermines claims that crypto will decentralise finance, provide banking services to the unbanked, or make the poor rich. Blockchain claims to enable cheap money transfers to refugees, but crypto is much more likely to provide cover for scam artists, conmen, tax evaders, criminals, terrorists and human traffickers.

Our world is beset by financial crises, geopolitical risks and very loose monetary policy. There is growing demand for safe haven assets that are a hedge against inflation, currency depreciation and debasement and tail risks. Gold, inflation-indexed bonds, commodities, real estate and even equities are all reasonable candidates.

Risky, volatile bitcoin doesn't belong in the portfolios of serious institutional investors. Many of its retail backers are suckers being manipulated by an army of self-serving insiders and snake oil salesmen. Tesla's Elon Musk and MicroStrategy's Michael Saylor may be betting the house on bitcoin. That doesn't mean you should.

After Tesla's (TSLA) purchase of $1.5 billion of bitcoin the story making the rounds was that many corporate treasurers will move sizeable amounts of their cash hoards into bitcoin. That development, in turn, would levitate the price of bitcoin further.

However, bitcoin remains a speculative, reserve asset class, and perhaps as a reaction to the Fed's insanely reckless policies, and one that is not yet a reliable currency for trade given its volatility.

An asset which is so volatile is not a prime candidate for trade currency nor is it a dependable cash equivalent.

Corporate Treasurers are unlikely to readily "invest" their cash in bitcoin owing to the volatility and its rapidly changing value and impact on a company's quarterly results and balance sheet. For companies, cash is typically used for short term liquidity. So, buying bitcoin becomes a different mandate and, for sure, is not a cash equivalent with respect to the purpose of a balance sheet or as seen as a "rainy day fund."

Bitcoin has tripled in the last few months and is up ten fold in the last year. So, if I paid $1 million in bitcoin for a piece of real estate 12 months ago, I have given up nearly $10 million based on the appreciation of bitcoin. The seller, if he didn't sell his bitcoin, is $10 million richer!

As I said before, extreme volatility doesn't equate to a suitable currency for trade.

Recently, the speculative cryptocurrency equities and their share prices (e.g. (MSTR) , (RIOT) , etc.) are moving disproportionately from the gains in the value of bitcoin and more from the "promise" of broader adoption of crypt currencies.

I do not see that happening on the scale the market expects given the asset class' volatility.

This all started with the Federal Reserve in 2000:

* The everything bubble is broadening out to numerous sectors now

* While the noise of the "playas" scoffing at those that are not trading "bubbles" is growing louder

"It's not love I'm runnin' from,
Just the heartbreak I know will come
Cause I know you're no good for me (You're no good)
But you've become a part of me"

- Martha Reeves and The Vandellas, No Place To Hide

With all the bubble pathologies now in place - having previously outlined my views towards the bubbles' inflation in my Diary - I am getting more serious in structuring my portfolio to benefit from a burst in many of the existing bubbles - and not just in the overall market. 

To date, I have been adding to my Index shorts  - an appropriate way to avoid leaning directly into the bubble, but in getting some conservative short "exposure". But, until recently, I have not really shorted possible bubble stocks or asset classes with the exception of GameStop (GME) and small positions in a few others. 

Until now. 

I am now putting together a basket of tertiary SPACs, crypto currency, EV companies, pot stocks, etc. -- whose shares are materially overvalued relative to their intrinsic values. As always, I start small as I have learned that bubbles, particularly in the terminal stage, can be mind boggling. 

Given the wide difference I see in share prices and "fair values", I view this package as an investment short and not as a trading short - to be added to on further bubblicious advances. 

The "everything bubble" is so broad now that the "everything bust" may come sooner than many expect. 

And, our increasingly interconnected economies and markets means that systemic market risks are multiplying, and, in all likelihood - like dominoes - when one bubble bursts the others will soon fall. 

To those that continue to profit from the bubbling, I admire your trading prowess. But it is not my game to trade a stock because I am confident that someone else will pay more when "I know" that the share price is a multiple to what I consider "fair market value" to be. 

More to come.

"In doing the research on bubbles for the pack, it was noticeable that there were more potential examples of bubbles over the last 50 years than any other period in history. This could be that more data is available now but my view has long been that it's also a product of the fiat money system we've been in since 1971. I discussed this at length in my 2017 long-term study "The Next Financial Crisis" where I suggested that the fiat money era was much more prone to an endless cycle of boom and busts than systems where money was fixed to precious metals like gold. I still firmly believe this and continue to think we're in a boom, bust, boom, bust (repeat to fade) global asset price era. For now we're certainly in the liquidity fueled boom part!"

- Jim Reid, Deutsche Bank 

Reid's chart shows the trough to peak move in percentage terms with a few years of the peak for the biggest bubbles in history. 

Bitcoin has exceeded many of the world's greatest bubbles and is now a bit less than one half peak tulip bubble and more than one half peak Mississippi bubble:

Danielle DiMartino Booth on small businesses' gutting:

• The NFIB's Small Business Optimism Index fell to 95.0 in January, missing almost every Bloomberg estimate; to start the new year, owner confidence stands three points below the long-run average and closer to the post-COVID low of 90.9 reached in April 2020
• Just 8% of small business owners saw January as a good time to expand, which normalizes to a -1.07 z-score; echoing this cautiousness, small firm demand for commercial & industrial loans continues to contract through Q1, per the Fed's Senior Loan Officer Opinion Survey
• With nonfarm payrolls still 10 million in the hole, the labor force has not been challenged like this in generations; as small businesses remain squeezed with higher spreads and tighter lending standards, the commercial bank loan-to-deposit ratio also hit a record low last month

Before the advent of exhaustive online libraries - "Alexa, play 'ABBA's 'Take a Chance on Me'" - music genres evolved over generations. The curators of yesteryear were Broadway and Hollywood, which gave old music new life. The 1970s Swedish pop group ABBA is archetypical. In October 2001, Mamma Mia!, the jukebox musical written by British playwright Catherine Johnson hit Broadway theaters for a 14-year run through September 2015. Based on the songs of ABBA composed by Benny Andersson and Björn Ulvaeus, former members of the band, it was a blast to partake in theaters. One of QI's favorite scenes from 2008's film adaptation is the wedding reception where Julie Walters serenades, flaunts, woos and chases Stellan Skarsgård to the tune of 'Take a Chance on Me.' Rumor has it the entire cast was three sheets to the wind when they filmed that scene. No wonder everyone looked so happy!

Right about now, American small businesses are wishing they were tipsy and in movieland's alternate universe. Falling to 95.0, January's National Federation of Independent Business (NFIB) Small Business Optimism index disappointed almost every Bloomberg estimate. Small Business We'd prefer to not report that Small Business Optimism is drawing a W-shaped recovery. The latest reading is a further fall from the September/October bounce to 104.0, a level a smidge shy of February's pre-pandemic 104.5. At the start of 2021, owner confidence stands three points below the long-run average and closer to the post-COVID low of 90.9 hit in April 2020.

Behind the decline were weakening expectations about the economy, revenues and profits. NFIB Chief Economist and QI dear friend Bill Dunkelberg noted, "As Congress debates another stimulus package, small employers welcome any additional relief that will provide a powerful fiscal boost as their expectations for the future are uncertain. The COVID-19 pandemic continues to dictate how small businesses operate and owners are worried about future business conditions and sales."

Over the last year, two of the index's ten components with the highest correlations to the headline were real sales expectations (.92) and capital expenditure plans (.91). Contractions catalyzed by shocks such as C19 generate great uncertainty with regard to top-line revenues, something no small owner can control. This inability to anticipate probable outcomes, in turn, shelves expansion plans.

Small business owners are also part of a tight knit community, one they know firsthand is still suffering COVID-19 casualties. In the last week, Seattle lost Everyday Records, a mainstay in the Capitol Hill neighborhood for the past 18 years. After a decade serving up Tex-Mex fare in Cedar Rapids, La Cantina Bar N Grill is closing its kitchen for good. Since 2001, the Draught Horse Pub & Grill has been a Temple University watering hole. It will close as will Lee's Hoagie House, across the street.

With this anecdata a constant backdrop, it should come as no surprise that last month, only 8% of small business owners said it was a good time to expand. This level of cautiousness has coincided with every recession since the inception of the NFIB survey in 1973. Want our favorite normalizer for good measure? The z-score (deviation from the mean adjusted for volatility) was a -1.07 in January.

Why won't small businesses take a chance on expanding?

1. Waiting for the next mega-stimulus from tag team Biden and Yellen with a side of the perma-Powell assist.
2. Concerns about higher regulations under the new administration.
3. A roll back of Trump's corporate friendly tax cuts.
4. Rising taxes to pay for wartime fiscal largesse, none of which is productive in its conception
5. All of the above

Insights begin to manifest in the righthand chart. If you used the year-over-year (YoY) trend in the NFIB Good Time to Expand index (purple line) as a guide for annual performance in the bellwether small cap Russell 2000 index (orange line), you would have been offsides in the three months ended January. Wall Street is putting more weight on vaccines to bolster small stock returns and likely looking through the current wave of case counts and virus variants.

Main Street, meanwhile, is dealing with the reality of things, the sum of which is not generating sufficient animal spirits to achieve escape velocity. The green bars depict all you need to see. Per the Fed's Senior Loan Officer Opinion Survey - small firm demand for commercial and industrial loans continued to contract through the first quarter of 2021. Owners are not taking any chances by levering up.

Bankers are fully aware of the lingering uncertainty. Nonfarm payrolls remain 10 million in the hole, and nearly 18 million people were collecting some form of unemployment insurance as of the week ended January 16. The labor force has not faced challenges like this in postwar America. To that end, the commercial bank loan-to-deposit ratio (red line, left chart) fell to a record low in January. Lenders equate the unemployment picture with the creditworthiness of the economy - they continue to squeeze small businesses with tight standards (yellow line) and higher spreads (blue line).

The jobs and jobless numbers clearly show it will be harder for many to pay their bills should we reach a fiscal cliff and loan forgiveness programs run out. As for Mama Mia's BOWtique, the Erie, Pennsylvania children's store closing next month, it won't have the Money, Money, Money to wait it out.