I won't be returning to the office today. 

I will discuss the Fed and the markets bright and early tomorrow.

Thanks for reading my diary.

Enjoy the evening.

Be safe. 

President Biden is apparently going to name Lina Kahn, a prominent critic of Big Tech, to the Chairmanship of the Federal Trade Commission. 

I have quoted Kahn liberally in my Diary in the past:

Mar 15, 2021 ' 08:15 AM EDT DOUG KASS

Amazon and Potential Antitrust and Regulatory Actions

* Recent appointees to the FTC - Lina Kahn, in particular - are something, as Amazon investors, we must pay attention to in the coming months

I am long Amazon (AMZN) (large-sized) - but it is important to touch all bases and be objective in our analysis.

I wrote the column below back in 2018 - which heavily quoted Lina Kahn , who was just appointed to the FTC.

Here is my post from over two years ago - I will stay on this issue:

Nov 06, 2018 ' 09:13 AM EST DOUG KASS

Is a Disruptive Amazon a Jobs Killer or a Provider of Low-Cost Products?

* Over the last two decades technology has out sped regulation but the social/economic pendulum is now moving towards (costly) regulation and possible restrictions to (non core) growth

* Amazon's expansionary moves have disrupted numerous industries - that (horizontal and vertical) aggression may soon be slowed down or stopped by regulatory reform (which may finally have bipartisan support)

* I would avoid investing in Amazon (Google and Facebook) - as the optimistic consensus secular profit growth outlooks are now suspect

It's been about a year since I warned that regulation (and the associated costs and risks to elevated earnings expectations) represented an existential threat to Amazon (AMZN) , Facebook (FB) and Alphabet (GOOGL) .

I was early - but now it is a very real and present concern..

As it relates to Amazon, last year I liberally quoted an outspoken lawyer, Lina Kahn who has been of the view that there is core conflict of interest in Amazon's platform. (Their integrated nature makes them directly competitive to the merchants that sell on Amazon). It is a parasitic dynamic that suggests, to her, that rather than (the historical) observation of impact on consumer prices, antitrust should look more closely at the disruptive impact of Amazon as I carefully delineated when I cited Kahn in this article in my Diary:

"Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it. Elements of the firm's structure and conduct pose anticompetitive concerns - yet it has escaped antitrust scrutiny.

This Note argues that the current framework in antitrust - specifically its pegging competition to "consumer welfare," defined as short-term price effects - is unequipped to capture the architecture of market power in the modern economy. We cannot cognize the potential harms to competition posed by Amazon's dominance if we measure competition primarily through price and output. Specifically, current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive. These concerns are heightened in the context of online platforms for two reasons. First, the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational-even as existing doctrine treats it as irrational and therefore implausible. Second, because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control the essential infrastructure on which their rivals depend. This dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors.

This Note maps out facets of Amazon's dominance. Doing so enables us to make sense of its business strategy, illuminates anticompetitive aspects of Amazon's structure and conduct, and underscores deficiencies in current doctrine. The Note closes by considering two potential regimes for addressing Amazon's power: restoring traditional antitrust and competition policy principles or applying common carrier obligations and duties."
- Lina M. Kahn, "Amazon's Antitrust Paradox," Yale Law Journal

At the core of the threat is whether Amazon is perceived as a disruptive jobs killer or as a company that delivers lower prices to the consumer.

U.S. antitrust law is expansive. It is a collection of state and federal laws that are intended to promote fair competition for the benefit of consumers. The main statutes are the Sherman Act (1890), the Clayton Act (1914) and the Federal Trade Commission Act (1914). The acts restrict cartels and prohibit other collusive acts that restrain trade. The acts also restrict mergers and acquisitions that could lessen competition and prohibit the creation of a monopoly and the abuse of monopoly power.

As it relates to Amazon, the Federal Trade Commission and the U.S. Department of Justice have a broad scope and the laws are open to interpretation.

There are basically two schools of interpretation of the antitrust laws:

* A free markets interpretation (The Chicago School of Economics), which has been influenced by Judge Robert Bork's writings on antitrust law since 1970. This theory focuses on what is best for the consumer rather than a company's practices. It argues that antitrust law solely should focus on the price/cost benefits to consumers and have no other purpose:

"In short, the financial demise of a competitor is not the same as getting rid of competition. The courts have long paid lip service to the distinction that economists make between competition - a set of economic conditions - and existing competitors, though it is hard to see how much difference that has made in judicial decisions. Too often, it seems, if you have hurt competitors, then you have hurt competition, as far as the judges are concerned."
-Thomas Sowell

* By contrast, there is a broad range of theory that maintains the role of antitrust laws should weigh on the control of economic power for the public interest. The Supreme Court has called the Sherman Antitrust Act a "charter of freedom" designed to protect free enterprise in America. This view of the statutory purpose, originally supported by Justice Brandeis and reinforced by Justice Douglas, was that the goal of antitrust law not only was to protect consumers, but at least as importantly to prohibit the use of power to control the marketplace:

"We have here the problem of 'bigness.' Its lesson should by now have been burned into our memory by Brandeis. The Curse of Bigness shows how size can become a menace--both industrial and social. It can be an industrial menace because it creates gross inequalities against existing or putative competitors. It can be a social menace...In final analysis, size in steel is the measure of the power of a handful of men over our economy...The philosophy of the Sherman Act is that it should not exist...Industrial power should be decentralized. It should be scattered into many hands so that the fortunes of the people will not be dependent on the whim or caprice, the political prejudices, the emotional stability of a few self-appointed men...That is the philosophy and the command of the Sherman Act. It is founded on a theory of hostility to the concentration in private hands of power so great that only a government of the people should have it."
-Dissenting opinion of Justice William O. Douglas (in United States vs. Columbia Steel)

Finally, a Bipartisan Agreement?

Regardless of one's views of antitrust, the Chicago School/Bork interpretation is a plus for Amazon while the Brandeis/Douglas position is potentially a big negative. Consequently, we should consider the political environment and its possible adverse impact on Amazon.

Last year my understanding was that certain Democrats in the Senate have instituted the very recent and preliminary investigation of Amazon's possible adverse impact on competition. I believe I was correct but up until recently it hadn't gone far.

In the Trump administration we also have a foe against Jeff Bezos, who not only runs Amazon but happens to own an editorially unfriendly (to President Trump) newspaper, The Washington Post.

The president is no fan of Jeff Bezos and Amazon, as seen in these tweets from several years ago:

Donald J. Trump

¿@realDonaldTrump

Information is being illegally given to the failing @nytimes & @washingtonpost by the intelligence community (NSA and FBI?). Just like Russia

7:19 AM - Feb 15, 2017

74.7K

46.8K people are talking about this

Twitter Ads info and privacy

Donald J. Trump

¿@realDonaldTrump

The @washingtonpost loses money (a deduction) and gives owner @JeffBezos power to screw public on low taxation of @Amazon! Big tax shelter

10:18 AM - Dec 7, 2015

2,342

1,800 people are talking about this

Twitter Ads info and privacy

Bottom Line

Costly primary regulatory actions (data portability, etc.) against Amazon, Facebook and Alphabet seem now to be one of the few issues that now has bipartisan agreement.

This pendulum shift will likely result in an enormous shift higher in costs and an attendant reduction in profitability.

Though Amazon's sales growth and business successes have been extraordinary -- as reflected in a still elevated share price -- the company, in particular, now faces a potential existential threat from politicians (on both sides of the pew) and from regulatory bodies.

Given Amazon's disruptive influence over numerous industries and the associated loss of jobs in what is still a fragile domestic economic recovery, political and regulatory opposition to further company expansion plans finally may be something with which everyone in Washington agrees!

There will likely be some opportunities to trade FANG (on the long side) but I would avoid investing in Amazon, Facebook and Alphabet.

Retirement Media

Doug, it seems to me there is way too much attention you pay to Bitcoin, especially since you don't believe in it and will not be buying or trading it. I agree too and have no interest of getting a blow by blow updates of who says what about Bitcoin or how much it is up or down in a day. I have to skim over the volumes of posts about Bitcoin because I have no interest. It seems you don't either so I think your service would be more valuable at least to me not to dwell on Bitcoin.

dougie kass Retirement Media

Ok but I don't share your view that I dwell on it in light of the market's favorable view and expanding adoption of the digital currency. If its a "quasi" ponzi scheme as I suggest it could be, disruption in Bitcoin prices will have broader market consequences.
dougie

* Housing slows as affordability threatens

* As the U.S. exports inflation

May housing starts totaled 1.572 million, under the estimate of 1.63 million, and April was revised down to 1.517 million from the first print of 1.569 million. Single family starts were 1.098 million of this, below the six month average of 1.155 million. Multi family starts were up a touch m/o/m to 474k vs. the six month average of 435k. Permits also came in less than expected with single family permits falling to 1.13 million, the lowest since September 2020. Multi family permits fell by -34k month over month after rising by 24k in the month prior. 

We know procuring materials and enough labor has hindered construction and that is now being reflected in the category of 'Permits Not Started' which for single family rose to a new high. 

We need more lower cost homes to ease the intense upward price pressures but we know how difficult it is right now to deliver enough of them. More than 10 years of underinvestment because of the Fed induced housing boom and bust means we need a lot more homes. 

As for rent growth, the biggest component of CPI, Zillow today said that rents rose +2.3% in May from April which rose +1.3% month over month from March which is similar to the Apartment List data. They said that was the "largest monthly appreciation since 2015." As for the top eight largest U.S. metros, Boise, Phoenix, Spokane, Las Vegas, Riverside, Stockton, Fresno, and Albuquerque, saw "increases higher than 15%."

Again, service inflation is ALWAYS permanent and thus NEVER transitory. By the way, in the May CPI BLS report, they said rents rose +0.2% in May month over month. 

Who is right? 

Adding to the heated inflation stats was the May import and export price data. Import prices rose +1.1% month over month headline, three tenths more than expected and ex petro were up by +0.9% month over month, almost double the estimate of up +0.5% and it is the biggest one month gain since 2008. Versus last year, import prices are up by +11.3% and by +6.3% ex petro. Higher industrial supply prices led the way with more finished goods prices more muted. Import prices from two of our largest trading partners rose smartly, especially from Canada. Canadian import prices jumped +4.5% month over month after a +1.8% increase in April, a +4.6% rise in March, +3.8% in February and a +5.4% gain in January. They are up +55% year over year. 

From China, import prices were up by +0.5% month over month and by +2.7% year over year. And if you are overseas buying U.S. products, export prices jumped +2.2% month over month after a +1.1% rise in the month prior. So the U.S. is also now exporting its inflation globally. 

This is just more evidence of the intense inflationary pressures being felt worldwide. 

Transitory or not, it is the current reality.

I have found this material a helpful guide in understanding and untangling intraday moves in the equity markets - but it takes some time going thru it! 

From Charlie McElliogott at Nomura. 

• FOMC day, and honestly, this does not feel like much of an event, as Chair Powell will do more of the standard "both sides of mouth" messaging-so for now, seems like instead of "pre-FOMC drift," it's really just about the "long gamma" in both Eq and Rates keeping us very clingy with a lot of "unch" levels from yday (SPX Ju 16th ATM straddles went out offered at 60bps...LOLOL the joke's on us)

• On one hand for JayPow, "transitory" inflation and weaker-than-expected Labor indicate that the Committee remains far from "substantial further progress" and thus, it is still too early to actually "move now" on reducing Fed asset purchases-yet at the same time, acknowledging that the "good trajectory" of the recovery (particularly with inflation data) means that it is nearing-time to begin "talking about talking" about tapering in upcoming meetings, which will almost certainly coincide with the 2023 median SEP dot supporting one hike, up from zero in March

• In the meantime, clients are back to trading a more balanced "peak CPI" and "goldilocks 2.0" worldview (note BAML FMS showing that 72% of fund mgrs now calling inflation "transitory"-so that whole Fed Jedi mind trick is working), and instead are moving into carry / roll / short vol -trades, with murky conviction on directional "reflation" from here after many bled performance on said trades over the past few months

• Rates has seen better RM receiving of late in a notable (albeit low volume) shift, all despite folks still having some hedges on for "inflation overshoot" tails in future; the fact is, even with much cleaner positioning after the crowded "Hawkish Fed / Reflation" narrative stop-out of the past few weeks, a lot of real$ and asset mgrs remains so underweight Duration, and into rallies, act as a source of synthetic "negative convexity" as a forced buyer into strength

• This "grossing-out of reflation" is a dynamic within Equities as well, where have seen "Duration-proxy" secular-growth Nasdaq outperforming economically-sensitive Russell by 300bps QTD, while on a shorter MTD horizon, "Cyclical Value" has stalled now -1.0% and "Defensive Value" now -2.2%

• The HUGE thing right now in Eq Vol space is the qtrly options "quad witch" expiration this week-it is a monster, and a massive portion of the Delta- and Gamma- is set to come off, which means the trade into and out of Op-Ex could see much wider range of market movement, as the dealer hedging buffers shrink in significant fashion against a lot of "long Delta" flow to de-risk

• The market is really "long" through Equities index / ETF options(popularity of "cheap beta replacement" pitches around Street past few months), with SPX net $Delta now 82th %ile (was 90%ile into yday) & QQQ net $Delta 95%ile after touching 99%ile two days ago (last two times this happened in QQQ were april 8 and feb 12, both saw bad fwd 1m returns for nasdaq)...so a lot of potential de-risking flow out there

• SPX Gamma set to run-off with expiration now ~40%, Delta drops 54%

• QQQ Gamma drop-off is 53%, with QQQ Delta running-off now ~50%

Source: Nomura

• As always, with Equities index dealer "long Gamma" of this magnitude coming-off (so many options expiring), that risks losing the current mkt insulation (buying dips, selling strength), and instead, any idiosyncratic / macro move lower in "spot" Eq index then could see dealers in "short Gamma" territory, where their hedging flows then risk turning into an accelerant (selling weakness, buying strength)

• SPX index downside Put Skew remains bulletproof (1m @ 97%ile, 3m @ 98%ile, 6m @ 100%ile!), although worth noting that for the first time in a looooong time, we saw flow spending prem in short-dated OTM SPX calls (like spotting a unicorn), while in Nasdaq / QQQ, we saw Call Skew move higher yesterday despite index down(people increasingly bullish on Nasdaq into goldilocks data an +++ UST seasonality across summer-but a lot of Delta rolling-off with some vwap-type NQ selling standing-out in our futures trade imbalance yday)

• VVIX / vol-of-vol remains "wound tight" and ticked back higher through 120 yday, which continues to predominately be a function of demand for downside tails in index and with VIX Call Skew very high (3m VIX upside Call Skew at 99.6%ile, yikes)-as things stay "nervous"

• All of this said, we have continued to see investor willingness to further resupply Vega- / Gamma- this week in Eq index out past today's purported "event risk," with the nearly daily "gamma hammer" flows that sell 1m strangles on SPX pushing onward-which simply means that it is going to take something substantial to break us from the rVol coma (5 day SPX realized vol at 4.4..."ooof")

• And with rVol defenestration, Vol Control strategies have done the heavy lifting for index and added an incredible +$78.8B of exposure over the past 3m / +$47.6B over the 1m / +$35.8B over 2w / +$23.8B over the 1w despite the undulating thematic tumult (inflation spike / reflation on-then-off into goldilocks data = value vs growth trend reversal)

Source: Nomura

• Nonetheless as highlighted last week, with the potential for a wider daily trading range post expiration, it will not take much to see large mechanical deleveraging / selling in coming weeks ahead on any resumption of ~ 1% daily moves, which in-light of the Op-Ex "run-offs" is an actual potential for the first-time in quite awhile

Financials are conspicuously weak this morning.

I highlighted concerns again earlier. 

Citigroup (C) , the object of my disaffection, is -$3/share in the early going. (GS)  is down another three beaners.

Thomas C

Coinbase gets new Buy rating at Canaccord on cryptocurrency growth

Canaccord initiates coverage of Coinbase Global NASDAQ with a Buy rating due to its long-term prospects in cryptocurrencies and the emergence of blockchain clouds/decentralized finance.

The firm is also "positive about COIN's ability to grow its user base at impressive rates and what this means for monetization beyond crypto."

Sets price target at $285; implies upside potential of ~23% from Tuesday's close.

Canaccord's Buy rating compares with the average Wall Street rating of Bullish (6 Very Bullish, 3 Bullish, 4 Neutral, 1 Bearish).

Last week, Raymond James gave COIN an Underperform rating, partly because it lacks a moat.

"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 the Fed's cowardice.

You would think that there is hardly a more appropriate and less risky time to announce a prospective cut back in monetary stimulus - with bonds at a peak in price, huge job openings, sharply rising inflation, and with COVID-19 receding.

"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."

Knowledge@Wharton The Opportunities and Dangers of Decentralized Finance.

dougie kass

Speaking of the financial media...

I would love to see the following experiments conducted on FIN TV:

* Don't give the panelists the questions in advance. And then ask them to answer the questions. It would be revealing.
* Make "talking heads" disclose what their share size position is in stocks they own. It would be revealing (and embarrassing).
* Memorialize investment recommendations and publish the results. It would also be revealing (and embarrassing).

Dougie

Note: Check out Danielle's comments on the housing market (which mirror mine): 

I'll be brief on the Fed until this afternoon. I want to hear what their updated definition of 'substantial progress' is in terms of achieving their goals. So, what does 'maximum employment' mean in the context of a record 9.3mm job openings? And what does 'price stability' mean to them because the last thing we have right now is stable prices. By the way, last week saw the easiest financial conditions on record according to the Goldman Sachs survey. What would also be nice, but we won't get it, is an explanation from Jay Powell of the direct and empirical benefit of QE to the economy. I don't believe there is any and remains just a tool of the US Treasury to finance its deficits and a psychological boost to asset prices.

This was a great quote yesterday from my friend Danielle DiMartino Booth at Quill Intelligence when she said this about the Fed and its policy impact on housing. "The lesson: You can 'break' the housing market with too much tightening AND too much easing, which seems odd to even write." The MBA today said that purchase apps rose 1.6% w/o/w but are down now by 17% y/o/y. We certainly know full well what is going on in the US housing market. Refi's rebounded by 5.5% after 3 straight months of declines that saw a one yr low but they are also down by 22% y/o/y. The average 30 yr mortgage rate fell by 4 bps to 3.11% coincident with the drop in the 10 yr Treasury yield.

China reported some key May data and while it reflected the easy comps, the rate of gain moderated from April and the numbers were slightly below expectations. Retail sales increased by 12.4% y/o/y vs the estimate of up 14% and down from a gain of 17.7% in April. Industrial production grew by 8.8% vs 9.8% last month and 4 tenths less than the forecast. Both property investment and fixed asset investments year to date rose double digits y/o/y but also a touch less than expected. While the Chinese economy has exceeded its pre pandemic size, consumer spending has lagged relative to the industrial and fixed investment components. The hope is that personal spending continues to catch up. A spokesperson for the National Bureau of Statistics said "As the economy gradually recovers, economic growth is gradually returning to the normal state of being driven by domestic consumption." I argue again that the Chinese consumer will be the most important global economic driver in the coming decade just as the US consumer was in the past few. The economic miss relative to what was anticipated did drive lower Chinese stocks with both A and H shares down about 1%. Copper prices are unchanged but have of late come off the boil after a hitting a 10 yr high last month. The yuan is up a touch vs the dollar and remains at 3 yr highs.

Japan reported robust trade data in May but again on easy comps and helped by the world's desperate need for autos. Exports were up by 50% y/o/y about as forecasted and after a 38% rise in April. Exports to the US were up by 88% and by 70% to the EU. To China, by almost 24%. I'm sure the weakness in the yen over the last few months also helped to goose exports. Imports were higher by 28% vs the estimate of up 26.6%. They also said April machinery orders rose less than expected but this data point is always so volatile and a bit dated when released. Let's all hope that Japan pulls off the Olympics smoothly. Today they announced that their current COVID emergency restrictions will end on June 20th. The Nikkei was down by .50% but JGB yields were little changed.

The UK reported higher than expected inflation stats. Headline CPI rose 2.1% y/o/y in May, 3 tenths more than expected and up from 1.5% in April. The core rate was 5 tenths higher than forecasted with a 2% increase vs 1.3% in the month prior. Easy comps yes but the UK is feeling the same inflation pressures we all are. PPI input prices jumped 1.1% on the month following the 1.2% increase in April as supply problems, higher commodity prices and expensive shipping costs are global. Margins were squeezed as output charges rose 'just' .5% m/o/m. While UK inflation breakevens are actually falling today, they still stand just off the highest level since 2008 with the 10 yr at 3.55% which compares with a benchmark rate of .10% and a 10 yr gilt yield of .75%. The pound is higher while the FTSE 100 is up slightly.

* Yesterday afternoon C chimed in on some weakening trends

* I expect some modest EPS reductions for 2022 from the Street today

* I would be a buyer of C at $68/share

Yesterday I warned, after a doubling in share prices, about the banks, and I shorted (MS) and (GS) : 

Jun 14, 2021 ' 12:55 PM EDT DOUG KASS

Sell Banks

* This leading market sector (late 2020/first half 2021) is now vulnerable to an earnings disappointment

* Both trading volume and net interest margins and income will likely miss previously forecasted levels

Comments this morning by JPMorgan's (JPM) Jamie Dimon on slumping trading volume (-38% year over year and worse than expectations) is contributing to the decline in bank stocks.

Moreover, net interest margin forecasts that JPM and other large money center banks have previously made will also likely prove to be too optimistic owing to the recent and unexpected interest rate drop. Indeed, Dimon just reduced the bank's forecasted net interest income projection (down from $55 billion) to $52.5 billion.

During a presentation at a conference yesterday afternoon, Citigroup's (C) CFO Mark Mason echoed Jamie Dimon's earlier comments. 

Mason cited weaker than expected North America Consumer Banking revenue trends and weakness in FICC. By contrast, and on the plus side, investment banking was being supported by strong M&A activity, credit quality - not surprisingly - was ++. 

Mason also warned that expenses and investment spending are both above the bank's previous projections. 

Citigroup's 1-2 year outlook will be influenced by economic and credit trends, the level and the shape of the yield curve, capital markets activity, credit demand and the benefits from cost initiatives in place. 

Putting these trends together suggests $8.10/share is a reasonable expectation for 2021 and a modestly lower year over year EPS picture for next year of $7.80-$8.00.

I would be a buyer of C at $68/share or lower.  

My 12 month price target is $78-$80/share. This target equates to 0.88x year end 2021 book value and to a slight premium (1.05x) to year-end 2021 tangible book value.

* Not to the moon, Alice!

* Steer clear of MicroStrategy and be skeptical of what "talking heads" are selling

I can attribute whatever success I have had to not taking things on face value. 

Rather, my hopefully differentiated contribution, is to dig down and analyze and often question or reject consensus "Group Stink" or whatever others are trying to sell to me. 

Yesterday I observed that something did not add up in a CNBC interview with popular financial host Suze Orman: 

Jun 15, 2021 ' 12:25 PM EDT DOUG KASS

Suze Orman... Something Doesn't Add Up!

Yesterday on CNBC, popular financial host Suze Orman said she purchased Bitcoin through an initial investment in MicroStrategy (MSTR) made on June 5, 2020 at about $125/share.

The problem with that statement was that MSTR had not yet disclosed its holdings in Bitcoin at that time. They may not have even held bitcoin at that time!

MSTR revealed the purchase of ($250 million of) Bitcoins for the first time on August 11, 2020 - more than two months after Orman said she "played" MSTR because of its Bitcoin exposure in June, 2020. At that time, in August, 2020 it was one of the largest cryptocurrency acquisitions ever made by a public company. See here.

An explanation of this situation should be made by her or by CNBC - post haste!

Suze Ormon is much loved and seems like a very nice and effusive person who delivers generally sound financial advice -- but her readily accepted comments yesterday were not readily accepted by this observer! 

Some suggested that she misspoke - but she was far too precise in the details of her purchase ("buying MSTR on June 5, 2020 at $125/share"). To me, she was just eager to trumpet a near 10-bagger (claiming she had sold MicroStrategy  (MSTR) at over $1,000/share where the stock traded only briefly). 

Many retail investors listen to Orman and take her at face value. 

From my perch her endorsement of MicroStrategy was not well advised nor likely knowledgeable - yet another example of a "talking head" answering questions about a subject (or in this case a company, MSTR, and an asset class, Bitcoin) of which she has done little research. 

In fact, MicroStrategy's accumulation of Bitcoin may be among the most reckless corporate strategies I have ever seen. Borrowing money to buy Bitcoin is as reckless, or more, than borrowing short term to lend long term or entering into long term leases to rent space to short term lessees (as WeWork infamously did). At least fund Bitcoin - which is backed by nothing but "adoption" by other people - with equity. 

If someone wants to run a currency hedge fund then that person should do so - but MSTR CEO Michael Saylor is running a public company that is supposed to do something else - just because he is disclosing what he is doing doesn't make it wise or right. 

Of course shareholders are free to run the other way but in this world retail investors are embracing it and sending MSTR "to the moon."

There was a very good reason why Ralph Kramden drove a bus and was poor his whole life - he was a loveable dummy. Can you imagine the The Honeymooners scripts written in the age of Bitcoin and GameStop (GME) ? 

The bottom line is that MicroStrategy's Saylor is engaging in the most speculative type of unsecured investing with no margin for error.

For more history of MicroStrategy's transformation, and risks associated with its strategy, read this tweet from @TheLastBearStanding and weep (and stay away from MSTR shares):

TheLastBearStanding
1. Another $MSTR thread because its too amazing not to - this time from the beginning
2. $MSTR is a no-growth software business that generally makes decent cash flow. The company had been totally unlevered as accumulated significant cash balances. Historically, the market implied asset value of the business has been $0.7 - $1.5bn, on average ~15x EBITDA
3. Having built up over $600M cash balance by mid-2020, $MSTR decides to invest $250M in BTC at $11k and offer a $250M tender offer on its common with a cap price of $140/sh. $MSTR runs to $140 in a day, capping the tender offer at ~$60m shares
4. $MSTR uses the remaining $175 left from the tender to buy MORE bitcoin at $10k
5. By December, BTC has started to run, and so they issue a $650M unsecured convert with a 0.75% coupon to buy even more BTC. HF's see the convert as well capitalized by the core business, with BTC/MSTR participation on the upside. BTC rockets, $MSTR rockets, the coverts rocket.
6. February: FOMO kicks in and with $MSTR over $1000/sh, they issue $1050M more converts to buy even more BTC. At this point, they have put $1.7bn of senior capital in front of the common, but BTC gains + software asset value show good coverage of the converts
7. By May, with BTC crashing off its highs, and $1.7bn of unsecured debt, no one is willing to provide unsecured debt for $MSTR to gamble on Bitcoin, so $MSTR carves out its software business and maxes out its leverage on underlying business at ~ 7x EV/EBITDA
8. This secured debt is basically a max-leverage HY LBO style loan (naturally its Jeffries leading the deal). So after taking out $1.7bn of unsecured, Saylor puts max secured leverage on his company to buy even more BTC
9. Now that Secured and Unsecured leverage are totally tapped out, the only way to get more capital to dollar average down on BTC is through straight equity offering
10. Since $MSTR common trades at a huge premium to intrinsic value, Saylor takes my recommendation last week and sells $1bn of overpriced equity to go even longer BTC. Basically shorting $MSTR and long BTC. Keep in mind $1bn of equity at $500/sh represents ~20% dilution
11. They will continue to issue equity so long as $MSTR common is overvalued, as its is an arbitrage opportunity to average down on his BTC cost. This only ends when the premium on $MSTR common equity collapses.
12. The converts are getting squeezed from both ends - dilution to their equity upside and huge impairment of their collateral with secured debt priming them. And $MSTR fair value is below their conversion price. $MSTR common is too stupid to realize how over valued it is
13. Meanwhile, with the $1.5bn of new BTC purchases from the secured debt and equity offering $MSTR will have accumulated approximately an entire days worth of actual BTC volume on the blockchain - if prices drop that liquidation will be very ugly
14. The parallels to Archegos are obvious - the providers of each tranche of the $3.2b in new capital made sense in isolation, but did not account for the fact that many others willing would provide even more leverage for BTC effectively creating huge exposure for all of them
15. The only part of the capital stack that is safe is the senior secured on the underlying software business. The rest is a ticking time bomb unless BTC rallies hard

* Jim has correctly observed and has tweeted that ARK Invest bought a ton of DKNG stock yesterday

* But ARK's DKNG buys have been sub optimal in the past

* ARKK continues to leak

Respectfully, it is my view that Jim "El Capitan" Cramer is on two of the wrong horses (ARK Invest's (ARKK) Cathie Wood and DraftKings (DKNG) ). 

DraftKings shares fell by $2.55/share to $48.50 yesterday in response to a negative research report from Hindenburg Research. 

Yes, Jim, Cathie Wood bought a ton of DKNG stock. 

But, as chronicled in my Diary, she also bought a ton on May 5, April 22, and April 21, and at many other dates and at much higher prices.