"Just one more thing."

-- Lt. Columbo

Berkshire Hathaway (BRK.A) (BRK.B) has accumulated nearly 150 million shares of Verizon (VZ) according to this afternoon's 13F filing.

The shares are trading +$1.60/share or about +3% in the after hours.

More tomorrow.

Thanks for reading my Diary today. I hope it was helpful to your decision-making process.

Tomorrow I am going to expand on the potentially fragility of TINA as a foundation for the markets going forward.

Enjoy the evening.

Be safe.

Good talk.

dougie kass • 2 hours ago

(ARKK) first day down since my Bar Mitzvah.
Dougie

jesusishere dougie kass • 

Mazel Tov.

Rolf Thrane dougie kass • 

your Bar Mitzvah ? :) were they even trading stocks then? :)

davehat316 dougie kass • 

mazel tov

dougie kass davehat316 • 

maybe first day down since my Bris.
Dougie

With the 10 year US note yield now +9.6 basis points to 1.296%, we are approaching the point where forced selling of equities may be upon us as risk parity products and strategies reduce risk by lowering "VAR".

Is the TINA trade about to die? 

More on this subject tomorrow.

More on Cathie Wood and (ARKK) : 

Mark H @fundmyfund

Replying to @DougKass @jimcramer and 9 others

Heebner, Janus20, etc etc - at some point the inflows become so great her concentration will hurt. Owning 10-15% of X companies. I give it 24 months before reversion to mean hits and hits hard. Even if @CathieDWood has a great mind. Everyone has front run her space picks also 

* If you want to own bitcoin, buy bitcoin and not MicroStrategy!

As mentioned previously in our Comments Section, I am short MicroStrategy (MSTR) : 

dougie kassSteve 9 hours ago

I have expanded my speculative package of shorts to include some of yours Steve - including MSTR, TLRY (on the opening) etc.

This move to sell bonds to acquire additional bitcoins could be among the dumbest capital allocation moves I have seen in a long time. 

Without rendering a verdict on bitcoin, my point simply is that if an investor likes bitcoin, just buy bitcoin. 

There is no reason to buy MSTR to own bitcoin. 

In fact, any bitcoin they own should be valued at a discount to its current price, because you have no control over it. Yet MSTR's stock price has ripped and it means people are valuing the bitcoin at substantially more than what MSTR paid for it. 

This is a good gimmick for them for the time being, but if I were an insider there I would be selling stock hand over fist and I suspect they might be...

The opening rally fades in late morning as the yield on the 10 year gets dangerously close to 1.3%. Traders are anxious that rising commodity prices and the steepening yield curve maybe temporarily ignored by the Fed, which is focused almost solely on unemployment. 

The Bulls will have to regroup and try and bring themselves back together. Stock types are beginning to talk about 1.5% on the 10 year as kind of third rail. I think it's a little too early for that. At any rate the bulls need to regroup to avoid people saying that they were exhausted,finally pulling back after trying to top outall last week and failing.

Also, it is a bit of a vacation week, so volatility increases with absence, keep your eye on the VIX.

Stay safe.

Arthur

(SPY) , (QQQ) , (CVNA) , (PTON) , (TSLA) , (ARKK) , FB , (DIS) , (PLUG) , (AAPL) , Homebuilders, and (TLT) . 

No long sales or long buys.
__________ 

Short SPY (large), QQQ (large), CVNA, PTON, TSLA (large), ARKK (large), FB, DIS, PLUG (small), TLT (large), AAPL, Homebuilder Package (large).

Gold continues to underperform. 

Today the price of gold is down by -$21.50/0z to a bit above $1800/oz.

I just got this personal email from an old friend, The High Tech Strategist's Fred Hickey: 

"I'm told there are some huge hedge funds (trend traders) shorting gold (trying to break certain chart point levels) while long Bitcon, Ethereum, platinum & more. This has nothing to do with fundamentals, so I wouldn't bang my head against the wall trying to make sense of gold's weakness. Gold hit a record high in August, got overbought, entered into a correction and the trend has been down. So these speculative traders keep pushing. Eventually it will get grossly oversold (getting closer), gold owners will be completely demoralized (getting much closer), gold will bottom, reverse, these shorts will cover and the trend will change again (and these traders will go long), likely sending gold to further record highs. Until then, patience & have some cash ready to pounce with once gold becomes clearly oversold."

Thus far it's a gap up Monday with weak breadth, fewer new highs, and an unconfirmed Russell Index. As well, the put/call ratio is at 29%. 

Is everyone in the pool?    

*BAML FMS survey = only reason to be bearish is there is no reason to be bearish = FMS sentiment survey on global growth is at all time high (91% FMS say stronger econ in '21), V shaped recovery finally consensus, cash levels @ 8 yr low (3.8% lowest since Mar '13 before Bernanke taper tantrum), equity/commodity allocations highest since '11, only 13% say its a bubble, Bull/bear indicator @7.7. Record number of investors taking "higher than normal risk". CPI, EPS & yld curve expectations close to record highs. FMS shows high exposure to commodities, EM, industrials, banx relative to past 10 yr + Jan wobble caused investors to top up safety of growth (i.e., tech, HC, US stox). 

* The 10 year US note yield has risen by over 41 basis points in the last two months

* This is good for bank stocks

The market's opening indicates that the reflation trade is back in (full?) bloom. 

The 10 year US note yield has blown through resistance - and is currently yielding 1.264% (up 6 1/2 basis points on the day). 

The next major technical level is about 1.36% - which we hit in July, 2016 and in August, 2019. 

Meanwhile, going out longer on the curve the 30 year bond is yielding +7 basis points to 2.073%. The December, 11 low was 1.66%!. 

The 2/10s curve has continued to steepen - standing at around 115 basis points.

The most rate rise climb started late in the day on Friday when the Bundesbank, the Central Bank of Germany, mentioned TIGHTENING. 

Then Treasury Secretary Yellen told the G-7 that now is "the time to go big."

Neil S

BofA February Fund Manager Survey: Long Tech Most Crowded Trade, Followed By Bitcoin - RTRS

Dougie Kass @DougKass

@tomkeene@FerroTV Higher inflation blows up the entire defense of MMT.

Dougie Kass @DougKass

@tomkeene@jimcramer@SquawkCNBC@FerroTV

I would say that even if you truly believe in MMT (modern monetary theory) it will still end badly. Believing in Santa Claus doesn't help on mornings without solvent on parents and family.

The February NY manufacturing index, the first industrial number to be released, rose to 12.1 from 3.5 and that was twice the estimate. Keep in mind the headline number as well as the internals are very volatile month to month. New orders rose to 10.8 from 6.6 and backlogs finally got back above zero for the first time since March 2020. Inventories is again above zero for the first time also since March 2020. Supply constraints intensified as did inflation pressures. Delivery times rose to 9.1 from 5.5 and that is the highest since April while prices paid jumped to 57.8 from 45.5 and that is the most since May 2011. Yes, a near 10 year high. Prices received rose eight points to 23.4, also the highest since May 2011. Employment rose about one point after falling by three last month. The workweek was higher by almost three points to nine vs. the six month average of 8.0.

Looking out to the next six months, business activity confidence rose +3 points to 34.9 after dropping by -4.4 points last month. The six month average is 35. Positively, capital spending plans for both plant/equipment and technology improved sharply. Expectations for inflation, both prices paid and received jumped as well.

We know strength on the goods side of the U.S. economy has helped to cushion the blow from services and that has come with upside down supply chains that has lengthened delivery times and led to higher inflation at the same time companies have scrambled to restock inventories. Now we have the vaccine getting rolled out and the pressures from everywhere increase further, both on the demand and supply sides.

Here you go!

Reflation Trade & Market Constraints

Summary: Reflation across the board today with 10yr UST yields, commodity prices and stocks higher. The USD is lower after a better than expected German ZEW helped lift the Euro. With inflation expectations rising while 10yr yields are still anchored, investors are refusing to accept a -120bp carry on 10yr bonds as the economy normalizes and tail risk is reduced.

10yr yields continue to move higher, driven by lower COVID mortality statistics, increased vaccinations and estimates of $3-4 trillion in fiscal stimulus. Rising implied real yields are a headwind to more speculative areas of the market, favoring another period of Value outperformance. Clients are asking if everyone is already positioned for a reflation rotation. The still large spread between Value and Growth NTM PEs does not suggest that is the case. Financials and Energy have large Value factor exposure and should continue to outperform.

Earnings estimates have moved significantly higher as inflation expectations have increased. An increase in the 10yr yield that normalizes the spread between UST yields and inflation expectations is unlikely to occur without further upward revisions to EPS estimates. Our fair value analysis, which takes into account future cash returns, earnings growth and the 10yr yield, puts the S&P at ~4100 with a 1.5% 10yr and a 4.5% equity risk premium (low for the post-GFC period but still high longer term). Reflationary exuberance means could put the S&P at 4100 level in the next month. However, the Fed is likely to announce this summer that tapering will start in 2022 and the higher bond yields go the lower the expected return for stocks. Side note, we find it interesting how many people disagree with this argument. Just passing along that thought.

* Inflation left behind? 

* Bitcoin's volatility has not burned investors yet.

* Feeling lousy while investing. 

Peter on rising rates:

As long term interest rates continue higher globally amid mass inoculation optimism, rising inflationary pressures and commodity prices and higher inflation expectations, because of the massive amount of debt outstanding and record high duration levels, the impact can be quantified. Bloomberg recently estimated that on a pile of $35 Trillion of bonds in the Bloomberg Barclays Global Aggregate Treasury Index, for each one percentage point increase in yields, there would be a $3 Trillion mark to market loss of value.

ICE Data last Monday said that the average duration of US corporate bonds stood at 8.3 years vs 6.5 ten years ago and 5.6 twenty years ago. For high yield specifically where the average yield is now below 4%, the average duration is now at 6.7 years according to Barclays vs 6.1 one year ago. Thus, we've never been so sensitive to changes in long term interest rates than we are now.

This as investors continue to pile in because of the search for yield and they are taking on more and more credit risk as well as rate risk in order to find it. In today's front page of the FT, "The riskiest borrowers in corporate America are making up their largest share of junk bond sales since 2007 as yield starved investors hunt for returns and bet on an economic recovery. More than 15 cents of every dollar raised in the US high yield bond market has been sold by groups with ratings of tripe C or below since the start of 2021, a FT analysis of Refinitiv data shows."

Looking at how long rates have risen overseas, the German 30 yr has gone from -.14% three weeks ago to +.14% today. The 10 yr bund yield has risen almost 20 bps to -.36%. The UK 30 yr yield has gone from .83% to 1.21% today while the 10 yr has jumped by 34 bps to .60%. Shifting to the land of the rising sun, the 10 yr JGB yield, still anchored by YCC, is at the highest since November 2018 at .085% vs .05% three weeks ago. The 40 yr yield is at .72%, up slightly from the .70% seen in late January. I hear all the time, 'but rates are still so low and they are going up for the right reasons.' Well, they are still so low but it only takes small changes in rates on a massive debt pile to equal large numbers. And, they are going up partly in good reason, the vaccine and growth hopes but also for not good reason, higher inflation expectations.

The Austrian 100 yr bond issued in 2017 is down 15% over the past three weeks. The coupon is just 2.1%. The 100 yr bond issued in 2020 is lower by 18% over this time frame and has a coupon of only .85%. Only 96 and 99 more years respectively to get your money back at par if this continues.

Another way to look at the rise in yields in the US, regardless of why, the long end of the US Treasury market has essentially hiked rates by almost 75 bps since the yield low in August. At some point if long rates continue to rise and things start to break, we're going to have an epic still cage match between central bankers and markets and we'll see if the former wants to fight the latter in terms of control.

The other thing of note today is the US dollar index which is further breaking back below its 50 day average with the index falling close to 90. The big picture trend remains down, especially with the US government having absolutely no sense of financial prudence at the current level of debts and deficits.

We do get flooded with Fed speak this week and the theme will remain the same, 'we're still focused on the covid fallout, we want higher employment and inflation and we're monitoring markets but don't care about excesses.' We'll see, if asked, what they say about the rise in long rates which implies in part that they are too loose on the short end.

The German ZEW February expectations index on the economy rose to 71.2 from 61.8 and that was above the estimate of 59.5 as investors look past the current selective shutdowns and to the vaccine rollout instead. According to the ZEW, "Consumption and retail trade in particular are expected to recover significantly, accompanied by higher inflation expectations." As for the current situation, it still remains challenged as this component fell to -67.2 from -66.4. The euro is at a 3 1/2 week high vs the dollar.

"He was mastered by the sheer surging of life, the tidal wave of being, the perfect joy of each separate muscle, joint, and sinew in that it was everything that was not death, that it was aglow and rampant, expressing itself in movement, flying exultantly under the stars."

- Jack London, Call of the Wild

Several observations: 

* Few have fully appreciated the full effect of free money and off the charts fiscal stimulus on stock prices.

* Unless you are a believer in Modern Monetary Theory this has to end badly.

* The question is... when does it end? Hint: We should watch inflation, interest rates - check out the rise in the 10 year US note yield this morning! - wages, FED speak, the US dollar, economic growth, etc. for a clue.

* It is generally accepted that the trend of real US growth is about +2% -- most are projecting +6% growth in 2021 -- yet the Fed promises to hold rates near zero for an extended period time.

* Clearly, the focus on the number of unemployed is what is driving policy.

* I read that over $1 trillion of transfer payments in EXCESS of lost wages have been injected into the economy and more is to come:

zerohedge @zerohedge

Cumulatively, the Covid-19 recession has cost US households US$400 billion in income, but they have already received more than US$1 trillion in transfers (even before the late December and forthcoming rounds of stimulus: Morgan Stanley)

Bottom Line

"Bull markets are born in pessimism, grown in skepticism, mature on optimism and die on euphoria."

- Sir John Templeton 

Eleven months ago, with the S&P Index breaching 2200, we were in a Bull Market in fear. 

Today at S&P 3950, skepticism, doubt and fear have left the building. 

I see excesses and froth everywhere - monetary and fiscal policy, credit (spreads), valuations, etc. - and we all live in Cathie Wood's World. 

Though many seem to feel that the old models no longer work, we are likely borrowing from the future as we have not repealed those models despite near zero interest rates. 

The degree of government involvement in the economy should, in the fullness of time, lead to lower multiples and not higher multiples. 

There is so such thing as a free lunch. 

Period. 

If not we would have had infinite (fiscal) spend, zero interest rates and massively aggressive monetary policy for time immemorial. 

Suffice to say, the short side remains difficult as we don't know how crazy this can get, know what you own, keep an eye on the exit and if you are flexible, follow the words of Wayne and Garth ... and party on! 

As to short selling - here is what I wrote last week: 

I continue to view short selling as a protector of wealth and long buying as a generator of wealth - but where I disagree with most is that I now, for the first time in years, see the merits of short selling (given today's speculative conditions) as an offensive tool, with an abundance of short selling opportunities existing today.

"It's easy to grin

When your ship comes in

And you've got the stock market beat.

But the man worthwhile,

Is the man who can smile,

When his shorts are too tight in the seat."

- Judge Smails, Caddyshack

(Moving from Judge Smails) to the Sir John Templeton quote above -- bull markets emerge from adversity and bad news, while bear markets are borne out of prosperity and good news.

So it is with investing methodologies and styles.

To wit, I can't remember when short selling was such a target as today.

And I can't remember - given the market's structural profile (passive domination) and economic/profit uncertainties - when the opportunities to short have been so attractive.

It is my view to be greedy when others are fearful (of the short side) especially with the apparent distortion between current share price levels and my calculation of "fair market value" (which I guestimate/calculate to be 3100-3200 S&P).

Frankly, when hedge hoggers duck for cover, and terminate their short research, for fear of their own safety - the green light to go red is shining as brilliantly as I can recall.

With a great deal of objection from the "peanut gallery", I went all in long in March, 2020 and I can see the case for having a robust short exposure in February, 2021, despite an equal amount of Bronx cheers from those that worship at the altar of price momentum.

Two additional charts lead me to the above conclusion about shorting opportunities expanding.

Just to put frothiness into some perspective -- total call volume skyrocketing along with the market, driven by the Robinhooders et al. as retail investors are stuck home with their government checks. Perhaps (second level thinking) the reopening of the economy will lead to subsiding option volume and retail interest:

Consider this chart as well - speculators' short VIX futures positioning is getting back to the January 20, 2020 highs:

Last week's "Trade of the Week" was Citigroup (C) which rallied a bit during the five trading sessions. 

I am back with the same stock this week as it is growing abundantly clear that bonds are breaking down in price and rising in yield. 

C remains one of my favorite bank stocks. 

Banks now face a virtuous cycle of rising rates, market share gains as non U.S. banks falter, climbing net interest margins and incomes, better credit demand and a likely release of the extraordinary elevated loan loss provisions taken during the spread of Covid-19. 

From Credit Suisse this morning:

Citigroup Inc.

What is C Discounting? One Step Back or Two Steps Forward on the Path to Improved Returns

Rating: Maintain Outperform

Target Price (USD): $78.00

Jane Fraser is set to become CEO of Citigroup on March 1st. She takes the reins of the bank with a much strengthened balance sheet, but returns that lag peers and a consent order. Therein lies investors' frustration and Jane's challenge. A "strategy refresh" is underway; we expect it to lead to investments (transformation efforts and otherwise) and divestitures ("simplification has value") alongside an intense focus on execution as the means to drive returns i.e., ROTE, into the teens, over the medium to longer term. Though management is not expected to detail its plan or financial targets for several months, we expect actions along the way to signal the path. Consider the creation of Citi Global Wealth (CGW) as a starting point... efficiency to be realized by combining operations across the bank, strategic import underscored, and perhaps a redefinition of what's core in consumer banking. Suffice it to say, we expect a fair bit of change and a renewed sense of urgency; that coupled with valuation, balance sheet strength and prospects for economic recovery support our continued recommendation.

• On the path to improved returns... one step back or two steps forward? Our 2022 estimate translates to a ~10% ROTE, lagging best in class peers (Bank of America and JPMorgan are expected to generate 14-16% ROTEs in 2022); the shares lag even more. Trading at a discount to book, with what we believe to be ample confidence in balance sheet strength, Citi's shares would appear to doubt the achievability of that 10% ROTE; the latter tied to concern that the next leg of the Citi story will require increased investment and strategic actions that come with a higher cost-expense and/or earnings dilution, beyond what's embedded in current estimates.
• Herein we evaluate EPS and ROTE sensitivity to divestitures and investment. Our analysis of potential divestitures starts with the Asia Consumer Bank, envisioning that less profitable consumer markets follow the path of the Latin America business under the leadership of Jane Fraser, with Asia's core wealth franchise moved into Citi Global Wealth.
• Our estimates and $78 target price are unchanged.

Excerpted from Barron's:

Party like it's 1999? Not exactly an original observation, with record stock market readings bringing to mind the dot-com bubble at the end of the last century. But one was reminded of the late, great Prince after watching the half-time show of the Super Bowl just past, which paled in comparison to his bravura 2007 performance at the height of his purple reign.

Perhaps what's most like the 1990s is the public's enthusiasm for the stock market, and not just the frenetic trading of volatile, illiquid meme shares touted on Reddit, which recalls the internet message boards of that era. Once more, mutual fund flows have turned into gushers. Global equity funds saw a record inflow of $58 billion in the latest week, according to Bank of America Global Research's parsing of data from EPFR Global. And in a further echo of that era, the inflows were led by record buying of technology funds, totaling some $5.4 billion.

The biggest winners have been the exchange-traded funds from ARK Investment, notably red-hot ARK Innovation (ARKK), which has attracted the most assets this year of any ETF, except the Vanguard S&P 500 (VOO).

That reminds Doug Kass of Seabreeze Partners of the once-hot funds, such as the former Janus Twenty. "In every stock market cycle there is a dominant investor who captures the market's zeitgeist by incorporating and reflecting the ideas and beliefs of the times," he writes in his blog. And that there is no price too high to pay for those concepts, in this case disruptive technologies, most notably Tesla(TSLA), ARKK's largest holding.

To date, the doubters have been left behind, just as they were in 1999. In fact, the Nasdaq Composite went from 4000 in June 1999 to a peak of 5000 in March 2000. A month later, however, it plunged by over one-third, and it wouldn't top its 2000 high until 2014.

I often write that "investment knowledge is always 20/20 when viewed in the rear view mirror."

Case in point is M. Elerian who has not been keen on the market for over a year but now confidentially explains that investors are chasing a rational bubble. 

He does see, however, unintended and adverse consequences. 

He believes we came close to a market accident with GameStop (GME) et al. a few weeks ago - and few recognize this. 

He says to watch rising yields that could risk market disturbances and then feed back into the real economy. 

He also sees potential risk to the speculative crypocurrency markets because many, individuals and corporations, do not know how to mitigate risk - and governments might adopt policy that says "enough is enough":

The same applies for equities:

Danielle DiMartino Booth on the divergence between U of Michigan consumer surveys and the S&P Index:

• The headline of UMich's consumer sentiment survey fell to 76.2 in February's preliminary read, hitting a six-month low; this was below all 52 Bloomberg estimates, and consumer expectations were notably weak, with expected personal finances hitting a seven-year low
• Per the Urban-Brookings Tax Policy Center, about two-thirds of the benefit of the $1.9 trillion stimulus would go to those making below $91,000; however, consumers in UMich's survey viewed national economic prospects less favorably in early February than last month
• Bank of America's Bull & Bear Indicator printed a 7.7 last week against an 8.0 threshold reflecting near record stock valuations; Main Street appears ready for a correction, with stock price outlook in UMich's survey diverging with the annual S&P 500 gain by a record-wide margin

What are the best songs with the word 'stand' in the title? There's a website for that - ranker.com. The sampling we pulled off ranker was a Hall of Fame line-up: "Stand by Me" by Ben E. King, "Stand By Your Man" by Tammy Wynette, "Get Up, Stand Up" by Bob Marley and the Wailers, "Stand" by R.E.M., and "Can't Stand Losing You" by The Police. We're clueless on the melody and lyrics. Even so, the one that jumped out at us was "I Stand Corrected" by Vampire Weekend. Coined by poet, literary critic, translator and playwright John Dryden, England's first poet laureate, the idiom was first seen in the 1668 play The Maiden Queen in the line, "I stand corrected, and myself reprove." Staged by the King's Company at the Theatre Royal, Drury Lane, which escaped the Great Fire of London, it was so popular, King Charles II reportedly called it "his play."

The University of Michigan's (UMich) consumer sentiment survey is most popular in the halls of QI. It has two showings per month - Preliminary and Final, and we always have front-row seats (Yes, we do need to get out more). The data provide an in-depth look into household assessments of personal finances, the economic outlook and buying conditions. And that just scratches the surface.

February's preliminary installment was no success a la Maiden Queen. The decline to 76.2 disappointed all comers, that is, all 52 estimates in Bloomberg's survey. The headline index fell back to a six-month low and continues to draw an uneven W-shaped recovery. Most of the weakness was concentrated in the forward-looking consumer expectations index, with all three of its components declining - expected personal finances to a seven-year low, the twelve-month economic outlook to a two-month low and the five-year economic outlook to a six-month low.

UMich survey director and consumer guru Richard Curtin expanded on the reasons behind American households' discontent: "...The entire loss [was]...among households with incomes below $75,000. Households with incomes in the bottom third reported significant setbacks in their current finances, with fewer of these households mentioning recent income gains than any time since 2014...More surprising was the finding that consumers, despite the expected passage of a massive stimulus bill, viewed prospects for the national economy less favorably in early February than last month."

Two things here. First, the bottom third is not the be-all-end-all for the consumer spending outlook. This cohort earns 10% of U.S. disposable income and accounts for 18% of all spending; it is also more exposed to unemployment risks being down the income stack and will require additional unemployment and/or stimulus benefits to make ends meet.

Second, many households view the Biden administration $1.9 trillion stimulus as one that fills a hole, not one that creates escape velocity. That's the difference between a rescue and a recovery package. Per Bloomberg, "About two-thirds of the benefits would go to households making up to $91,000 a year, according to estimates from the Urban-Brookings Tax Policy Center. About 11% would go to the top 20% of taxpayers - or those making about $164,000 or more." It's difficult to assess the fiscal impact; it's equally likely consumers' perspectives are being augmented by other sources.

One of the most visible gauges for the economy is the stock market. This varsity leading indicator is one of the ten on the U.S. Leading Index's roster. Did we mention how rich the UMich data are which also queries households' one-year forward view on stock prices and divides them into seven probability buckets from 0% to 100%. With so much to choose from, we got creative and generated a Household Bull-Bear Tail Indicator using the two highest probabilities versus the two lowest. To normalize comparisons with the S&P 500, we transformed the series into a year-over-year (YoY) trend, the typical performance metric for equities.

The left chart yielded a robust .71 correlation between the YoY Bull-Bear and the YoY S&P 500. One glance at the far right, however, highlights a significant breakdown in the relationship between household guidance and stocks. Two factors are at work. The Fed's technical support through massive balance sheet expansion has underpinned risk assets with the $3 trillion annualized liquidity injection since last May. Tack on vaccine optimism since November colliding with Blue Wave fiscal stimulus hopes that took off in January.

The left chart's title encapsulates our takeaway: "Main Street Expects a Correction." Since UMich added its stock performance probability question in the early aughts, Wall Street's investor optimism, manifest in the annual gain in the S&P 500, has never diverged to such an extent. Conclusion: Something's gotta give.

To illustrate, we ran a simple one factor regression using the red line to explain the blue line. The output: The purple line in the right chart - projected annual S&P 500 returns. The green bars depict the difference between the purple and light blue series as a Fair Value Indicator. In February 2021, the green bars were never richer.

If U.S. consumers are accurate and the past relationship holds, then the S&P 500 will stand corrected. The assist to this stance comes via QI friend, Bank of America's Michael Hartnett. Last Thursday, his Bull & Bear Indicator printed within spitting distance of a contrarian sell signal - 7.7 versus the 8.0 threshold. We've got one last question for you: Is your portfolio prepared to stand corrected?