As mentioned in my previous column, there are so many crazy things going on these days.

Stocks finished near the day's lows but breadth was exceptional.

After the close, Zoom (ZM) beats and guides higher but the shares are lower. (ZM is on my Best Ideas List (short)).

Maybe the first level thinkers will buy the print but second level thinkers will likely be shorting the name.

I wouldn't want to own a stock like Zoom, which has borrowed sales/profits from the future.

And I don't look at the rear view mirror to make my stock selections.

Thanks for reading my Diary today.

Enjoy the evening.

* And the fact that the financial media doesn't question this speaks volumes of the rare and speculative times we live in!

* My conviction that this ends badly is climbing

Nearly as fast as hedge fund Mudrick Capital purchased 8.5 million shares of (AMC) at $27.12/share - it sold the 8.5 million shares (for a profit). 

In a brief 2-3 hours Mudrick made about $30 million and then cautioned investors (according to a Bloomberg story) that AMC's shares are inflated. 

I once wrote the story about having sent Barron's' Alan Abelson a couple of fictional books as a gift. 

He quickly called me and said that I should stop sending him fictional books as the real stuff that goes on in Wall Street makes fictional reading uninteresting to him.

It feels like a Tuesday in the summer.

Volume low and prices range bound.

After a strong start the Indices turn red.

Break in! 

Dow Jones news release: 

*MUDRICK IS SAID TO SELL ENTIRE AMC STAKE AT PROFIT

*MUDRICK IS SAID TO TELL CLIENTS AMC IS 'MASSIVELY OVERVALUED'

A gem (a corollary is what's the sense in getting rich just to stare at FIN TV all day?):

The key averages all tested the resistance on the opening with the Dow actually eking slightly above. They quickly retreated, however, as the economic data encouraged a move up in the yields on the ten-year.

Traders big fear is that yield might touch 1.65%. They think that could have a bit of a third rail effect. The pullback has nevertheless been somewhat moderate. We have held just slightly above Friday's lows.

To help your memory, those lows were Dow 34520; S&P 4203 and Nasdaq 13747. On any further weakness today, it will be important that they hold above those lows, otherwise we would seem to be beginning to potential build for a reversal.

The game is still on the table. So, the guidelines are Friday's lows with careful attention to what happens when and if the ten-year reaches 1.65%.

Keep your seatbelt fastened and have a good afternoon.

Stay safe.

Arthur

I am placing GameStop (GME) ($238.25) on my Best Ideas List (short). 

Analysis will be coming over the next few days.

Thomas C

Coinbase card can be used with Apple Pay, Google Pay

Coinbase (NASDAQ: (COIN) ) stock gains 2.0% after the company said its Coinbase Card can be used with Apple Pay and Google Pay, and it's inviting select customers off its waitlist to apply for the card.

Adding the card to Apple Pay and Google Pay makes it "even easier to spend crypto at home and on the go," the company said in a post.

The card offers 4% in crypto rewards on customer purchases.

The news comes as mobile phone payments rise steadily in the U.S., up 29% last year.

Bitcoin (BTC-USD) trades up this morning, rising to $37.0K, ethereum (ETH-USD) climbs even more, rising 3.3% in last 24 hours to $2,627.

* Record long lead times, wide scale shortages of materials, rising commodity prices and transportation difficulties form a toxic combination

* Stagflationary signposts galore...

The May ISM manufacturing index rose +0.5 point to 61.2, about as expected. New orders grew by +2.7 points to 67, getting back most of what it lost in April. Backlogs, not surprisingly at this point, rose again and now sits at 70.6, the highest on record dating back to 1993. The problem of course right now is delivering on these backlog orders. Inventories at the manufacturing level rose +4.3 points to 50.8 after losing the same amount last month but inventories at customers remains anemic at 28, a new low. Reflecting the long lead times, Supplier Deliveries rose +3.8 points to 78.8, the highest on record dating back to 1975. Prices paid did recede by -1.6 points but at 88, it can't go much higher as 100 is the upper limit. Export orders rose +0.5 point to 55.4 and imports were up by +1.8 points to 54. Lastly, employment fell by -4.2 points to just above 50 at 50.9. 

Here is what ISM said on labor, "Worker absenteeism, short term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing growth potential." (The underline is mine). 

ISM summed up the month by saying, "The manufacturing economy continued expansion in May. Business Survey Committee panelists reported that their companies and suppliers continue to struggle to meet increasing levels of demand. Record long lead times, wide scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy." In addition to what I included above with respect to the work force. Of the 18 industries surveyed, 16 saw growth. 

My bottom line, there are stagflationary situations reflected all over this report. 

Helped by the oil price rise, along with the internals of this report, has Treasury yields at the high of the day along with inflation breakevens. 

Here are some quotes highlighting the supply side challenges: 

"Supplier performance - deliveries, quality, it's all suffering. Demand is high, and we are struggling to find employees to help us keep up." [Computer & Electronic Products]

"Ongoing component shortages are driving dual sourcing and longer-term supply plans to be implemented." [Transportation Equipment]

"Difficulty finding workers at the factory and warehouse level is not only impacting our production, but suppliers' as well: Spot shortages and delays are common due to an inability to staff lines. Delays at the port continue to strain inventory levels." [Food, Beverage & Tobacco Products]

• "[A] lack of qualified candidates to fill both open office and shop positions is having a negative impact on production throughput. Challenges mounting for meeting delivery dates to customers due to material and services shortages and protracted lead times. This situation does not look to improve until possibly the fourth quarter of 2021 or beyond." [Fabricated Metal Products]

"Labor shortages impacting internal and supplier production. Logistics performance is terrible." [Electrical Equipment, Appliances & Components]

• "Business is good, but labor and raw materials are becoming very problematic, driving increases in costs." [Furniture & Related Products]

"The continued global supply chain tightness and raw material shortages from the Gulf (winter storms) make it less likely that any business can recover this year. Demand is strong, but what good is that if you cannot get the materials needed to produce your finished goods?" [Nonmetallic Mineral Products]

• "Very busy, but still experiencing labor shortages." [Primary Metals]

Here is a 25 year chart on backlogs:

Here is a 25 year chart on customer inventories: 

Here is a 45 year chart on supplier deliveries: 

Here is a 50 year chart on prices paid: 

* I am respectful of the market's momentum, fueled in large measure, by the liquidity delivered by our fiscal and monetary authorities
* And though I have expressed multiple fundamental concerns (in the past and in this missive) I am still not net short.

* But I will be net short... sooner than later"I have come here to chew bubble gum and kick ass... and I am all out of bubble gum."

"I have come here to chew bubble gum and kick ass.. and I am all out of bubble gum."
- "Rowdy" Roddy Piper, They Live (1988) 

Hubris is plentiful in the business of money advice.
Confidence in view (on social media like Twitter, Facebook, redditt, etc. or in the business media) is a seemingly seen as a significant way of garnering viewers, listeners, followers and buyers of all sorts of investment services. After all, who wants to depend on advice from someone who says, "I don't know?""I don't know" doesn't sell.

Nor does admitting investment boners sell - and, on that score, the legions of advice givers that we listen and watch daily are very good, like Johnny Mercer's 1944 song at emphasizing the positives and de emphasizing the negatives!  "You've got to ac-cent-tchu-ate the positive Eliminate the negative Latch on to the affirmative" - Ac-Cent-Tchu-Ate the Positive
I readily admit that I do not have all the answers - indeed, I often have very few of the answers. And, I often use those three words in response to questioning. Remember confidence of view (enough to reflect in portfolio construction) vacillates as levels of conviction are a moving target. Sometimes I am mega short in view and uber short in practice when the market and individual equities comply. At other times, like now, I may be negative in market outlook that is not followed by the implementation of a net short exposure. 
In short, managing money (compared to giving advice, in theory) is more nuanced than many admit.
We (I) analyze companies and, hopefully, produce a analytically learned judgement of value which is weighed against current share prices to determine the upside reward vs. downside risk.
Recognizing that I might be wrong and, as the second quarter and first half is concluded this month, I have nonetheless some strong views of asset classes, markets, sectors and individual equities which I will briefly summarize.
Please recall that I am not yet short - despite these relatively strong views - as I am respectful of Mr. Market, especially as I shortly launch my new investment partnership, Seabreeze Capital Partners LP !
Here you go:
* Stocks and bonds are richly priced. It makes no sense to say, as many do, that equities are inexpensive against an overpriced asset class (fixed income). Most traditional metrics indicate that stocks are at least in the 95th percentile - a non trivial amount of indicators of valuation are in the 99th percentile.
* Cryptocurrencies are vulnerable. As I have written: 

"The problem with fiat currencies, like the U.S. dollar, is that monetary authorities can create an unlimited amount of new dollars or other currencies - making it look, to some, like a Ponzi scheme.

The problem with crypto currencies, like bitcoin and ethereum, is that anyone can make an unlimited number of newcrypto currencies- making it, too, look to some like a Ponzi scheme. Ponzi schemes and scams ae only visible to those that have no sense of history or want to believe in magic.

I believe cryptocurrency is like Tinkerbell's light - its power source is based solidly on enough children believing in it."

* NFTs - neither an art form nor a platform - exemplify the absurdity generated, in part, by liquidity and fairy dust (adopted by lemmings running towards the cliff). 

* The popular and "cool guys," value stocks, are now extended. That (arguably) includes banks, industrials and "opening" stocks. 

* The outlook for growth stocks will depend, importantly, on the future level of inflation and on what level GDP will be sustainable after the initial burst of growth. That debate's results will largely depend on whether the trajectory of the current abnormal GDP growth can moderate to a healthy pace in late 2021/2022 - or will the enormous levels of debt (and its rising servicing load) work (and weigh) as a governer to aggregate growth. (Here is a good synopsis of the debate, excerpted from John Mauldin's Thoughts From The Frontline) 

* The return of Meme stocks ( (BYND) , (GME) , (AMC) ) will likely be short-lived. (I added Beyond Meat and AMC to my Best Ideas short list late last week -- On Friday, GameStop's shares fell by -$46/share and AMC's shares declined by -$13/share from their intraday highs.) I will go one step further, it is my view, that those who are endorsing some of these worthless gewgaws will be made to look foolish and undisciplined in the fullness of time. 

Addendum

This morning Mudrick Capital Management, L.P. announced that is has invested over $230 million in 8.5 million new AMC shares at $27.12/share 

Check out these excerpts (regarding risk factors) from the AMC prospectus:

·"Our market capitalization, as implied by various trading prices, currently reflects valuations that diverge significantly from those seen prior to recent volatility and that are significantly higher than our market capitalization immediately prior to the COVID-19 pandemic, and to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our Class A common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations."

·"To the extent volatility in our Class A common stock is caused, as has widely been reported, by a "short squeeze" in which coordinated trading activity causes a spike in the market price of our Class A common stock as traders with a short position make market purchases to avoid or to mitigate potential losses, investors purchase at inflated prices unrelated to our financial performance or prospects, and may thereafter suffer substantial losses as prices decline once the level of short-covering purchases has abated."

·"If the market price of our Class A common stock declines, you may be unable to resell your shares at or above the price at which you acquired them. We cannot assure you that the equity issuance of our Class A common stock will not fluctuate or decline significantly in the future, in which case you could incur substantial losses."

·"This risk of future dilution must be weighed against the risk that our stockholders fail to approve an increase in our authorized number of shares of Class A common stock. If we are unable to issue equity in the future, this would create substantial risks, which could have an https://www.businesswire.com/news/home/20210601005339/en/AMC-Entertainment-Holdings-Inc.-Raises-230.5-Million-of-New-Equity-From-Mudrick-Capitaladverse effect on the price of our shares of Class A common stock."

·"We will be unable to issue equity to bolster our liquidity and respond to future challenges, including if attendance levels do not return on the timing and to the levels assumed."

As Samuel Clemens (aka Mark Twain) famously said, history rhymes. 

Actually, in this case (of wanton speculation or dot.com redux) it has likely repeated itself! 

Crude oil is the story this morning as it breaks out to the highest level since October 2018. In this whole transitory or not debate on inflation I'll emphatically say that what is permanent is a lower base of oil and gas investment in the coming years/decades. If you are a CEO of an oil and gas company and every single day you are hearing from environmentalists, shareholders that own no more than .02% of your stock, Danish courts, EV producers, etc... there is no way you are notably lifting your oil and gas investments. You will run your business for cash and do your best to shift to wind, solar, biofuels, hydrogen, carbon capture, etc... So, renewables are all well and good for our future but the transition will be expensive. I remain bullish on oil and gas stocks, something I've been since last year pre Pfizer vaccine news.

WTI

Not that we needed another reminder of the current price pressures being experienced but hat tip to Jeff Cox and CNBC for these quotes last week from Costco's earnings call: "Inflationary factors abound" said the CFO, "These include higher labor costs, higher freight costs, higher transportation demand, along with the container shortage and port delays...increased demand in various product categories some shortages, various shortages of everything from chips to oils and chemical supplies by facilities hit by the Gulf freeze and storms and, in some cases, higher commodity prices."

I'll say this about the explosion higher in the use of the Fed's reverse repo facility and how the bizarre a path the Fed's QE has taken. We know the Fed is buying $120b per month of Treasuries and MBS and that comes in their front door in return for cash to the banks that end up back at the Fed in reserves. Out the back door are these same exact securities right back to the banks in return for cash via their RRP facility. We hear again from a bunch of Fed members this week.

After a 6 tenths m/o/m increase in April, the Eurozone CPI rose .3% in May, one tenth more than expected. Off an easy comp, the y/o/y gain was exactly 2% and the core rate was up .9% as forecasted. Higher energy prices definitely drove the top line jump with a .7% m/o/m gain but service prices were up .2% m/o/m as were non energy industrial goods prices. As the figures were about as expected there is little response in inflation expectations but they still stand just off the highest levels since December 2018 as measured by the 5 yr 5 yr euro inflation swap. The ECB next meets one week from Thursday where talk on when to taper their PEPP will be center stage as after all this was meant to be an EMERGENCY program. The euro is also little changed but resource and cyclical stocks are helping European stock markets today.

5 yr 5 yr Euro Inflation Swap

The May Eurozone manufacturing PMI was revised to 63.1 from the 1st print of 62.8. That compares with 62.9 in April. We know this sector has led the recovery in Europe but that is now being joined by services. The UK manufacturing PMI was revised down by .5 pt but to a still good 65.6 and that is up sharply from the 60.9 in April. I'm not going to bother quoting all the comments on inflation as we know them all by now. It's here and again, the only question on inflation is on the length of its existence, not its current presence.

Germany said the number of unemployed in May fell by 15k people, more than the estimate of down 9k. The unemployment rate held at 6%. Just as the US is battling with labor shortages, the same is happening in those countries that had furlough/job subsidization programs.

Shifting to Asia, China said its state sector weighted manufacturing and services composite PMI for May rose to 54.2 from 53.8 with manufacturing up slightly and services down a hair. Price pressures grew further as input prices in manufacturing rose by 6 pts m/o/m and by 3.3 pts for output prices. Within services, both were higher as well. The private sector Caixin manufacturing PMI was also little changed at 52 vs 51.9. Caixin said "Both domestic and overseas demand were strong and supply recovered steadily. The job market remained stable. Manufacturers stayed confident about the business outlook as the gauge for future output expectations was higher than the long term average. Inflation was still a crucial concern as prices continued rising."

I'll add this on inflation from the Caixin press release: "Rapidly rising commodity prices began to disrupt the economy as some enterprises began to hoard goods, while some others suffered raw material shortages. Supply chains were also significantly affected."

We did see m/o/m declines in most other manufacturing PMI's in Asia mostly because of the supply issues. Here they are: South Korea 53.7 vs 54.6, Taiwan 62 vs 62.4, Thailand 47.8 vs 50.7, Malaysia 51.3 vs 53.9, Vietnam 53.1 vs 54.7 and India 50.8 vs 55.5. Japan's was revised to 53 from 52.5 but that is still down from 53.6 in April. Australia's was revised to 60.4 from 59.9 initially and vs 59.7 in April.

On the point that too much demand relative to supply is now slowing things down, this is what Markit said specifically on South Korea, "Ongoing supply chain disruption continued to plague the sector, which resulted in a further intensification of price pressures throughout May. Average cost burdens increased at the 2nd fastest pace on record, which contributed to a survey record rise in output prices." A consequence, "firms also reported a significant slowdown in new business inflows from international clients, as export orders expanded at the softest pace since October 2020." Once one link in the chain gets bogged down, it affects all the other links.