Thanks for reading my Diary today.

I hope my output was value added.

Enjoy the evening.

Be safe.

On cue, SPY (SPY) just modestly penetrated its earlier low and I am getting shorter in exposure.

Baby steps.

This ZeroHedgearticle modifies my

"Is The Option Market's Tail Wagging the Stock Market's Dog?"

The market looks a bit tired today, or it might be me that is tired! 

The S&P tried a few times but met resistance/selling. 

My guess is that there is a reasonable chance that my new shorts will be triggered by the (SPY) breaking the day's low of $463.84.

(LSPD) and (SNBR) have been terrific shorts - covering a bit of each in here.

Starbucks' (SBUX) shares are breaking down... again. 

And that's a good thing - at least for my portfolio.

I will add to my overall net short exposure if (SPY) breaks its daily low of $463.84.

The world's "most bearish hedge fund" has closed.

I tried to get a borrow on Rivian (RIVN) just now for the purpose of putting out some shorts on a scale higher - but no luck on the borrow thus far.

From yesterday: 

Nov 10, 2021 ' 01:50 PM EST DOUG KASS

I Got a Borrow

I am short (RIVN) at $108.77.

Sized small.

In yesterday's "What's Going to Make This Stock Move", I highlighted AT&T (T) . 

Let's not lose site that as Discovery (DISCA) increases in value - so does T because about 1/3 of T proforma will be Discovery.

With my buying over the last two days, (MSOS) is back to being my largest long position.

ViacomCBS (VIAC) (ugh!) falls to second place.

With the bond market closed for Veterans Day, there is little to no movement in the ten-year yield. That leaves stocks without the primary compass they have been using for weeks and, thus, they wander about. Disney remains the primary drag on the Dow and, they look like they probably want to amble sideways for the balance of the day.

Headlines can always surprise, but for now it looks like a somewhat sleepy, semi-holiday.

Stay Safe.

Arthur

Citigroup (C) is getting jiggy... as if a bank stock can get that jiggy! 

After underperforming its comparables it is now beginning to outperform.

I have sold out my (DIS) trading long rental at $161.

Wishin' and hopin' and thinkin' and prayin'

Plannin' and dreamin' each night of his charms

That won't get you into his arms

- Dusty Springfield, Just Wishin' and Hopin' 

Yesterday I highlighted Discovery (DISCA)  - the shares are up by another 3% today - a perennial underperformer whose shares have abruptly turned around and now have an appealing chart:

Nov 10, 2021 ' 12:20 PM EST DOUG KASS

A New Discovery

(DISCA) chart:

It should only happen to ViacomCBS (VIAC) !

* Added to my (SBUX) short.

* Established a (DIS) trading long rental.

* Added to (VIAC) and (T) .

* Buying more (FGEN) .

* Aggressively adding to cannabis names after Representative Mace announced her legislation will be delivered on Monday, well ahead of expectations.

* Added to my (C) long
__________ 

Long DIS. VIAC common and calls, T, FGEN, MSOS, TLRY, MJ, C.

Short SBUX, VIAC puts, T puts, FGEN calls, MSOS calls, TLRY calls, MJ calls, C calls.

I have a research call from 10:30 to noon today.

I have taken a short term long rental in Disney (DIS) at $158.80.

The Treasury market gets some rest today with the MOVE index yesterday closing to match the highest level since April 1st 2020. With inflation front and center, expect this volatility gauge to break out to the upside.

MOVE index

I'm going to say again, the Fed's idea of confronting now 6% inflation is to take their balance sheet higher by another $500b over the next 8 months and still have rates at zero. At least right now they are not credible but we'll see if the reality of the data and/or markets forces their hand to act more aggressively but to the risk of market valuations and eventually the economy. Tough spot but one self imposed.

The dollar is up again with the euro/yen heavy DXY at the highest since July 2020 and I'm guessing reflects faith that the Fed will get back control of inflation via higher rates or the market will do it for them. That's the only way I can explain this dollar move because typically higher inflation is currency negative. Just ask Brazil and Turkey.

Here are some more inflationary anecdotes, not that we needed any more convincing of the new environment we're in. Bloomberg is reporting that Uber is raising base fares in London by 10% so they can find more drivers. A spokesman for the company said "We're making these changes to help provide a better rider experience, by signing up more drivers to meet the growing demand. This small fare increase will help reduce wait times." A 10% increase is now considered 'small' I guess.

Shipping Watch is reporting what the global head of ocean freight at DHL Global Forwarding thinks, "The extraordinary container market will continue throughout 2022 and most likely ease somewhat in 2023...Dominique von Orelli doesn't see the current state of the container market abating anytime soon."

Japan, the land of no inflation, except now, said its October PPI jumped 1.2% in the month, 3 times what was expected and is up 8% y/o/y. Go back to January 1981 the last time that happened. Energy certainly was a big contributor and highlights the mistake Japan made in keeping most of its nuclear fleet closed. The Japanese 10 yr inflation breakeven is at a 3 yr high, albeit still a modest .44%. I still like Japanese stocks.

JAPAN 10 yr INFLATION BREAKEVEN

The UK economy grew by 1.3% q/o/q and 6.6% y/o/y, both 2 tenths less than expected as private consumption and business investment were light relative to expectations. Manufacturing production also missed. We know though all the issues confronting business and this miss was not for lack of demand. There wasn't much of a market response as the pound, gilt yields and inflation breakevens are little changed. The FTSE 100 is up about 1/3 of a percent. I remain bullish on the pound as I expect a BoE rate hike next month and I also remain positive on UK stocks, particularly energy, banks and REITS that all pay good dividends.

The set up to the modest market pullback the past few days was a market that was very overbought as measured by a variety of indicators and a mood that was giddy. Yesterday Investors Intelligence said Bulls rose to 56.5 from 54 while Bears fell to 22.3 from 24.1. I consider any Bull read above 55 as stretched with a read above 60 as extreme. The CNN Fear/Greed index a few days ago closed at 86 Tuesday which is considered Extreme Greed and was 82 yesterday. One month ago it was at 32 which was considered Fear. Today, AAII said Bulls jumped by 6.5 pts to 48, the highest since July. Bears meanwhile fell to 24, down by 2 pts and it sits at the lowest since July. Bottom line, strictly from a contrarian standpoint, short term complacency is clear.

* I have begun to add to my holdings based on the company "right sizing" its operations

FibroGen (FGEN) is a very speculative and development stage biotech company. 

Its main product is Roxadustat which treats anemia associated with chronic kidney disease. FGEN is partnering in its Roxadustat efforts with both Astellas (ALPMF) and AstraZeneca (AZN) . FGEN has some additional product candidates - the most important of which is wholly-owned Pamrevlumab, a monoclonal antibody that inhibits the activity of connective tissue in development of idiopathic pulmonary fibrosis (IPF), locally advanced pancreatic cancer (LAPC) and duchenne muscular dystrophy (DMD). 

The shares have declined from $55/share in February, 2021 and I recently became interested in the company when the FDA rejected a Roxadustat study and the shares plumetted to current levels (of about $12/share).

Here is some additional background on FibroGen from Stifel (they have a $29/share price target): 

FibroGen focuses on the development of two potential first-in-class drug candidates. Roxadustat is an oral HIF-PH inhibitor mimicking natural erythropoiesis for the treatment of anemia associated with chronic kidney disease (CKD). For CKD, roxadustat has been approved for the DD and NDD population in China, recommended for approval in EU, but a US AdCom recommended against approval. We continue to view roxadustat an important alternative to ESAs, which currently has annual sales of approximately $6 billion. But we believe shares will not reflect its value until we have greater clarity on the regulatory process. Pamrevlumab is an anti-CTGF mAb that targets various fibrotic diseases with significant unmet medical need. Positive top-line data from Phase 2 studies for IPF seem compelling and the drug is also being tested in pancreatic cancer and DMD.

FibroGen shareholders await further progress with the FDA on Roxadustat. 

Meanwhile, the company is right sizing its operations and optimizing cash flow for the purpose of continuing to finance and complete ongoing trials in the event that Roxa can only be delivered outside of the U.S. By reducing operating expenses (and headcount), FibroGen can continue to work on a path forward for Roxadustat in the U.S., maximize non U.S. Roxadustat sales - which currently have good momentum - and complete Matterhorn and advance the trials of three applications of Pamrevlumab and embark upon other research and development efforts. 

I have been concerned about cash burn but the above moves - of right sizing the company and preserving cash - is a relief to me and I have begun to add to this name since the quarter was released and the company's actions were revealed.

Third Quarter Results

The company's sales of $157 million easily beat consensus of $130 million. Most of the revenues were a $120 million milestone from Astellas for approval of Roxadustat in Europe. Of a recurring note, FibroGen's sales of Roxa in China - AstraZeneca sees this as a $500 million market opportunity - to partner AZN were strong ($57 million, +155% quarter over quarter). The drug is annualizing at a good pace - second year - of $240 million as market share gains have been steadily rising. Some estimates are that the company's China operations are worth $5/$8 per share alone. 

3Q2021 EPS came in at $0.54/share well above consensus of breakeven. 

At quarter end FGEN had $665 million of cash. There are about 100 million shares outstanding. 

The company's has embarked upon a strategy of reducing operating expenses and cash burn by about $100 million annually after the FDA rejection of Roxadustat a few months ago and in an attempt to give room for research and trials of Pamrevlumab, for IPF, LAPC, DMD, and other drugs. Head count has been reduced. This will result in year end 2021 cash of about $600 million, or $6/share - much better than initially anticipated and planned. 2022's cash burn should be about $140 million, resulting in about $5/share in cash in 13 months. 

The Path Forward

The path forward still remains uncertain. 

FibroGen is trying to tackle the U.S. situation and plans to meet with the FDA to discuss the next steps on Roxadustat with partner AZN. The company said a GPK/PD study alone is not sufficient and that it will need some form of a titration - lower starting dose - in a new study. In the call FGEN said it could get enrollments for the new study up reasonably quickly given the large pool of available patients. 

FGEN is expected to lose about $2.50/share and $1.80/share in 2021 an 2022, respectively on between $260-$290 million annual sales. Profitability, depending upon the success of benchmarks/trials, could be achieved as early as 2024. The company's market cap is about $1.1 billion. 

Stifel is the axe on the stock. 

Assuming all goes perfectly for the company, Stifel believes that FGEN can earn over $1.00 share in 2024 and over $8.00/share by 2030! 

These assumptions include: 

* 2023-24 U.S. approval of Roxadustat (anemia w/CKD)

* Continued steady growth of China profit sharing and EU and Japan royalties of Roxadustat

* 2024 U.S. and non U.S. sales for Pamrevlumab IPF and Pamrevlumab LAPC 

Potential Upcoming Catalysts

Development stage biotech companies require a lot of patience and this is not a trade. 

Here is what to look for as to future potential catalysts: 

* Second half 2022 readouts of Roxadustat (Phase III, myelodysplastic syndrome - Matterhorn) and Pavrelumab (Phase III, pancreatic cancer - Lapis).

* First half 2023 readouts of Pamrevlumab (Phase III, non ambulatory DMD - Lelantos).

* Mid 2023 readouts of Pamrevlumab (Phase III, idiopathic pulmonary fibrosis - Zephrus). 

Given the above, coupled with my risk profile, I have a small position in this name - but the renewed focus on reducing cash burn has emboldened me to begin adding to my holdings.

From Danielle DiMartino Booth:

• Both the MoM and YoY changes in the CPI and core CPI exceeded every estimate by economists in Bloomberg's survey; the surprise generated an up-shift in the U.S. Treasury curve, with the greatest bulging seen at the 5-yr point as the 5s30s curve flattened < 70 bps
• In the last five months, six-month annualized core CPI has run between 5.9% and 6.8%, not seen since the early 1980s; with this shorter-run trend running hotter than the YoY pulse, core CPI inflation forecasts are likely to be revised upward from the current 4.6% annual rate
• QI's Household Budget Inflation Gauge rose to a 6.4% YoY rate in October, the highest since the Great Recession; while wages for non-manager workers has risen from April's 1.1% to 5.8% YoY in October, the HBIG has outpaced wage gains in five of the last seven months

From my friends at Miller Tabak:

Wednesday, November 10, 2021

The unexpected jump in core-CPI inflation from 2.9% (m/m, annualized) in September to 7.2% in October cannot be sugar-coated. A deeper look at the data suggests that it is even worse than it looks and that it is a sign of a deepening, widespread inflation. We have written that we see underlying inflation at about 4%. We are becoming worried that this may be too low, and that the reality is closer to 5%.

Figure 1: Inflation Data Go From Bad to Worse



The first aggravating factor is that the October CPI data cannot be explained away as coming from just a few sectors (the fading "cars and travel" story). Trimmed mean CPI, which averages the middle 84% of price changes was 8.9% in October, the highest since 1982. The median price change was 7.1% annualized. Sectors with low levels of inflation are now the exception, not the norm. Second, Tuesday's PPI (producer inflation) data showed a reversal of its five-month decline by rising from 6.5% to 7.4%. Producer inflation often leads consumer inflation and the former has been at or above 6.5% every month in 2021. The core-PPI numbers are admittedly better at 3.8% in October, but these are still high enough the suggest that upcoming consumer inflation data is likely to remain elevated. Finally, inflationary expectations have jumped up in response with the 5-year break-even rate rising from 3.00% yesterday (already up significantly over the past week) to 3.10%.

Higher expected inflation is the main way that a temporary rise in prices can transition into a persistent inflation. The stakes for the December FOMC meeting have risen substantially. The new Summary of Economic Projections must move interest rate hikes up enough to show that the Fed is responsive to the new inflation data without moving so fast as to spook markets. It may now only take a moderate further increase in inflationary expectations (we quantify this below) or reduction in unemployment to start the discussion of rate hikes immediately.