I hope my contributions were value added.

Enjoy the evening.

Be safe.

I have moved to medium-sized in my Index short position.

* CCAR yields nothing surprising

* Dead money for the balance of the year

I will address why I expect banks to be inferior performers over the next few months tomorrow. 

But, for now, the CCAR results were a snooze - as there was nothing unexpected. 

As mentioned last week, I look for lackluster 2Q2021 reports in the face of declining capital markets activity and disappointing net interest income - and margins.

If you are trading cryptocurrencies this might be the most important article you have ever read.  

Run, do not walk, to read this.

I am pressing my shorts now.

For all the talk about the pullback in lumber and copper prices and the comfort some in the 'transitory' camp are taking in that, the CRB raw industrials index has rallied back to within .3% of its 10 yr high. As said before, many materials within this index don't trade on a futures exchange and thus better reflects actual supply and demand and not the behavior of speculators. And, it doesn't include energy prices where WTI is nearing its highest level in 3 years.

The housing price bubble in the US, with different characteristics than the last one, is not just a US thing. Today, the Nationwide House Price index in the UK for June saw prices rising by 13.4% y/o/y. Easy money is definitely the main factor but there is also a rush before a purchase tax holiday expires. Housing bubbles are also seen in Canada, Australia, New Zealand, and other parts of Europe. As for the US, today's S&P CoreLogic home price index is expected to show a y/o/y price increase of 14.7%. So much for the Fed's all-inclusive monetary policy where lower income people now can't afford housing.

Also in Europe, the Eurozone Economic Confidence index for June rose to 117.9 from 114.5 and that is the highest since May 2000. A further reopening and springtime were all over this as the services component led the way with a 6.6 pt m/o/m gain. Retail too helped with modest gains in manufacturing and construction. Consumer confidence rose to the highest since December 2017. While reflecting a further improvement in the economies of the Euro region, it is not market moving. The euro is down and yields are little changed. European stocks are just trying to get back what they lost yesterday.

The stop and start reopening in Japan was reflected in its labor market data for May where the unemployment rate rose by 2 tenths m/o/m to 3% as the number of employed fell for a 3rd month. The jobs to applicant ratio remained at 1.09. All eyes now are on the Olympics. Also, Japanese retail sales were about as expected for May. The Nikkei fell .8% overnight but there also was a bunch of red throughout the region, particularly in China.

The BoJ did announce that they were shifting its QE schedule to a quarterly announcement from monthly and for Q3 they will buy less bonds than in Q2. The BoJ has a choice from here with it holding about 1/2 of the entire JGB market. Do they just want to own the entire market and kill it for good or will they still let private market players participate? At least with this announcement they are hoping for the latter. The news came after the Japanese markets closed so we'll watch tonight if there is any JGB reaction of note.

With the BoJ news, along with a potential taper from the Fed, eventual one from the ECB, the end of QE in the UK by year end, a trim in Canada and possibly a soon to be on in Australia, we are approaching peak QE, for now. Good riddance, the emergency is over.

*The first time buyer is screwed

The pace of home price increases accelerated further in April to a year over year change of +14.6%. Pre COVID prices were rising about 3%-4%. To quantify, for someone wanting to buy a $300,000 home one year ago had to put down $60,000 (20% for arguments sake). With a +14.6% increase, they now have to add almost another $9,000 more.

There should be no wonder why home buying is slowing down, the first time buyer is getting shut out and renting is picking up steam again. Aggravating all of this is the competition now between the family that wants to buy a home and private equity who wants to rent to them instead. 

Astonishingly, the city of Phoenix saw the fastest home price gains, up by +22.3% year over year, just an astonishing rate of change. Chicago was the laggard with 'only' a +10% year over year home price increase. 

I'll leave it to S&P for the bottom line: "April's performance was truly extraordinary. The 14.6% gain in the National Composite is literally the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data." Price stability it is not, the private equity yield grab is in full force and the first time buyer is getting screwed.

I shorted Tesla (TSLA) and ARK Innovation (ARKK) this morning.

More on the case for shorting Tesla (TSLA) :

* The reopening trade has not worked for the last five weeks

* The steady drop in travel and leisure sector share prices accelerated noticeably on Monday

Back one month ago I took the other side of Jim "El Capitan" Cramer's bullish argument about buying consumer-related and reopening equities in ""The Reopening Is Huge, and the Money Managers Are Clueless".  

Since then, there has been a steady drop and a month long period of share price weakness. 

Yesterday was demonstrably worse with representative stocks like Marriott (MAR) , Hyatt (H) , Hilton (HLT) and the airlines stocks all falling between -3% to -5%. 

Here was my negative thesis expressed in mid-May on the travel and entertainment space: 

* Equities anticipate and discount the future - as stocks are forward and not backwards looking

* Aggressive monetary and fiscal policy has "goosed" the consumer - but stimulative policy is not open ended

* I remain bearish on the markets and, especially, on the travel and leisure time sector

As I did two days ago in resisting Jim "El Capitan" Cramer's view that Chairman Powell's current monetary policy was healthy to our markets -- today I have to respectfully oppose Jim's view on buying consumer-related and reopening equities. In "The Reopening Is Huge, and the Money Managers Are Clueless", Jim concludes that there is a large investment opportunity in travel and leisure stocks (cruises, movie theatres, fragrance companies, gamers, Walmart (WMT) , etc.):

"One thing we know about Wall Street, it is filled with rich people who are often totally out of touch with regular people. We have been getting a series of tremendous numbers from the consumer and they are befuddling the average money manager. That's because they simply don't know how the average consumer really thinks or works.

To these money managers, a trip to Walmart is simply out of the question. It would expose them to all sorts of people who they otherwise would not be exposed to. Wow, what a polite way to do it. But had they been so, they would have seen that there is a level of spending on groceries, apparel, leisure items, often after they received one of millions of vaccines. They did well in hardlines, they did well in seasonal. It's the place that people like to go when they have some money and don't want to break the bank. I wish money managers weren't such snobs; they would know a lot more about the patterns of behavior that can make you money...

But the big story today is a simple acknowledgment that Wall Street analysts are totally out of touch with what the tens of millions of Americans are doing with their stimulus checks and their benefits and the windfall they have from not doing anything in the last 15 months, except work out of their home while fixing it up at the same time. The baton is being passed from the work-at-home and stay-at-home stories to the travel and leisure narrative and it's not too late to invest in the transition, especially given how clueless Wall Street's overpaid analysts wouldn't recognize this move unless they were hit by a rapidly declining in price two-by-four right into the kisser."

I fully appreciate the big desire to get out there and live life again.

Buy clothes for the first time since 2019. Work on the house and definitely travel as U.S. consumers have always been big spenders. But, the U.S. consumer over the past year has been put on financial steroids via the U.S. government where transfer payments MORE than offset the lost wages. So railing on Wall Street for not understanding is like saying that Sammy Sosa and Mark McGuire were really good hitters and they are both going to the Hall of Fame. (Sosa and McGuire are not going to Cooperstown!)

Wall Street is only questioning the sustainability of this as free money is not forever as the checks get spent and aren't refilled and the added unemployment benefits expire in less than four months.

All of this has negative intermediate term ramifications -- it is leading people further into debt and dependency on government. And it's not sustainable. Consumerism is not productive. After the party is over someone has to pay the bills.

Sure the market may go up but it is supported by government borrowing money and sooner or later there will be a price to pay!

The Markets Are a Leading Indicator

"Market wisdom is always 20/20 when viewed in the rear view mirror."

- Warren Buffett

In addition to the above concerns, the market is a leading and not lagging indicator. Arguably, most travel and leisure stocks have already discounted the re-opening and recovery.

Markets realize that modern monetary and modern fiscal policy are not forever.

As well, bull markets are borne out of bad news (March, 2009 and March, 2020) and bear markets are borne out of good news (October, 2007 and February, 2021(?)).

To me, too many -- even some that recognize the stretched valuation and extended metrics -- are trying to squeeze an admittedly limited amount of the juice from the orange.

Already, tech (especially "stay at home") is dreck, former league leading cannabis and gaming stocks are rolling over badly, and cryptocurrency related stocks have been schmeissed. The "average" stock is also rolling over in price and well below 2021 highs as overall market breadth is deteriorating while up days are characterized by very weak volume.

Wrong Footed Monetary Policy

Finally, as mentioned earlier, in "Here's Anti-Cramer's Opposing View on Powell and Inflation" on Monday, I disagreed with Jim's views on what the correct monetary policy should be:

Here on Monday morning, in "Why Powell Is Right to Be Stubborn About Inflation," Jim "El Capitan" Cramer writes about "cycles and what could occur if Chairman Powell decides that inflation isn't transitory and give up the good fight to keep rates low.":

"We marvel at what could have been happened if Powell had listened to the inflationists. That's actually how a cycle occurs. That's why Powell is so stubborn. Because he is right to be so."

It is time for the Anti-Cramer to respectfully respond (and disagree!):

* Monetary policy doesn't have to be all or none. Emergency policy in an expansion with intense price pressures is wholly inappropriate. And by the way, what are the benefits of quantitative easing (QE) other than just juicing asset prices and distorting markets?

* The core foundation of economic growth is low inflation. Without that latter, you'll never get a healthy pace of the former. The Fed even just modestly being less dovish can go a long way in containing inflation expectations.

* How exactly is current monetary policy "helping" the housing market? Instead we're seeing another price bubble that is making it ever more unaffordable to own a home, especially painful for the first-time home buyer and that lower-income constituency the Fed claims they want to help the most.

* How is purposely raising the cost of living, where inflation is a tax, a good thing for lower-income families? Inflation is a regressive tax that widens inequality and the schism between the "haves" and the "have nots."

* Where is the incentive to save in this country when one gets penalized for it by having money in savings account yielding nothing? Not everyone wants to speculate in the stock market in order to get some return on their money.

* Once again, life imitates art! 



Yeah, like Bizarro Superman-Superman's exact opposite, who lives in the backwards Bizarro world. Up is down; down is up."

- Jerry Seinfeld

"The Bizarro Jerry" is the third episode of the eighth season (and 137th episode) of Seinfeld. It was written by David Mandel and directed by Andy Ackerman - and originally aired on October 3, 1996. "Bizarro Jerry" finds Elaine entering a world of virtual reality with a new boyfriend who eerily resembled Jerry except that he was reliable and considerate. Moreover, his friends were physical clones of George and Kramer. 'It's like Superman's opposite,' observed Jerry, pinpointing the bizarro of the title. Meanwhile, Jerry was dating a beautiful young woman whose only flaw (flaws are inevitable on Seinfeld) was having man's hands: meaty paws, whined Jerry, 'like a creature out of Greek mythology.' Kramer drifted incomprehensibly into a corporate job in which he 'finally found structure' and was able to strut about with a briefcase full of Ritz crackers.

Ladies and germs, meet "The Bizarro Fed/Market!"

Consider the strength in the Nasdaq and long duration growth equities since the Fed's theoretical hawkish surprise. 

The hawkish surprise was in fact a dovish surprise. 

I think this is the simplest way to think about it. 

Since the prior FOMC open market committee meeting, we had two inflation readings that were much higher than expectations and through the roof. 

Everyone knows inflation metrics also greatly understate what is going on in the real world. And everyone knows the Fed knows this as well. 

Everyone also knows inflation has little chance of letting up, especially because understated housing prices/rents have to start hitting the numbers (here is an interesting paper from a Fannie Mae economist, and corporations are just starting to put pricing through too. And everyone knows the Fed knows this as well. 

Yet with all of this happening, the Fed produced a mealy-mouth statement about tightening two years in the future, and nothing with regard to tapering over the short term, no firm metrics or definitions, the same BS about transitory, and the same BS about employment when it is the government and Fed that are keeping people out of work. 

So isn't it perfectly reasonable for the market to believe if the Fed isn't doing anything now, they will never do anything, and therefore might as well just go back to piling into theoretical growthy long duration assets and any other piece of speculative garbage with a ticker? 

Simply, regardless of whether or not what the Fed said was a Hawkish surprise to some, in practice it was a Dovish surprise to most when viewed in light of the inflation and other conditions we are seeing in the real world. 

Isn't this the simplest explanation and exactly what the market is telling us? Hawkish was Dovish! 

The market says the Fed has No Cred and No Spine! 

And, Ms. Market meet Kevin, Gene and Feldman!! 

Guys I gotta go.

* I continue to call B.S.

* I am eyeing a short in MSTR on any further strength

Two weeks ago I wrote critically about an apparent falsehood that popular financial maven Suze Orman made up on CNBC and on other high profile media platforms regarding the timeline of her MicroStrategy (MSTR)  - and, implicitly, Bitcoin - purchase and sale. 

Here is her correction to her statement - at the 21 minute, eight second mark.   

I will leave it up to all of you but I don't accept it particularly given the quite specific trade dates and purchase prices, made on a number of occasions, apparently made to "look good" to her viewers and listeners.

Here is what I previously wrote:

Jun 16, 2021 ' 06:30 AM EDT DOUG KASS

Suze Orman, MicroStrategy and Sub Optimal Corporate Strategies

* 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 Orman 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):

The Last Bear Standing

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

MicroStrategy's shares have rallied over the last week and are trading at about $625.

I am eyeing to short the stock for the reasons listed above.

* I am also placing TSLA shares on my Best Ideas List (short)

My analytical critiques of Tesla (TSLA) are well known by now, as I have written tens of thousands of words questioning its future market position and economic prospects. 

From the mid May lows, Tesla's shares have appreciated by about $120 billion, as its shares have risen from under $550 to nearly $700, as EV shares and high growth stocks have pivoted back into favor. 

However: 

* Overall sales are lagging - I expect 2Q2021 deliveries of around 200k as supply is constrained and China is weak - evenly split between Shanghai- and Fremont- produced autos

* Weakness is seen in the important Chinese EV market

* Key executives are leaving and selling all their shares

* There have been multiple investigations regarding product recalls and poor unit quality

* Consumer Reports has downgraded its rating on the product

* The disaster of the Tesla solar roof rollout and lawsuits filed against it, and - previously seen as integral to the auto manufacturer's diversification strategy

* Importantly, an infrastructure bill which benefits competitors by building out charging stations, robbing Tesla of one of its key differential advantages

Remember, China is the engine of global growth -- accounting for about one-third of the annual change in aggregate growth in the world's economies.
Chinese stocks are -10% year to date relative to global equities as markets fear slowing economic growth.
The drop in china's real M1 growth suggests auto sales are peaking and this will adversely impact the U.S. and eurozone's new export orders in 2021's second half:

In the aggregate, economic growth is above the pre-pandemic peak but individual countries are recovering at different speeds:

A trend: