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DAILY DIARY

Doug Kass

Many Thanks

A sincere thanks for reading my Diary today and all week.

I hope it helped you in your trading and investing decision making process.

Enjoy the weekend.

Be safe.

Position: None

Tweet of the Week

As my pal Byron Wien says, "Disasters have a way of not happening.": 

Kate's Dad @KASDad

Replying to @DougKass @realmoney

In the beginning of disaster movies, innocents disdain warnings and are slaughtered. Mkts are like that except the timing of risk being actualized tends to be less precise. The ending is known, the timing not so much.

Position: None

More FGEN

I have a relatively modest sized position in FibroGen (FGEN) .

With the shares under $12, I am getting more aggressive in this name.

Here was my write up earlier this week. 

Remember, this is a speculative position - so size accordingly.

Position: Long FGEN, Short FGEN calls

Let's Fall in Love With 'Unusual Options Activity' (Tongue a Bit in Cheek!)

"Let's fall in love
Why shouldn't we fall in love?
Our hearts are made of it
Let's take a chance
Why be afraid of it?

Let's close our eyes and make our own paradise
Little we know of it, still we can try
To make a go of it..."

- Harold Arlen and Ted Koehler,Let's Fall In Love

Guard this information with your life:

I see unusual call activity in (BENE) (November $12.5 calls), (TWLO) (November $300 calls), (KO) (November 12 $57 calls) and (JWN) (November $35 calls).

I see unusual put activity in (ROKU) (November 12 $265 puts).

I do not even have a pony tail.

Position: None

S&P Heat Map

Here is a S&P Index heat map for today.

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Position: Short SPY calls

The Internals Don't Look Like a Gangbusters Rally

Another day.

Another day of uninspiring breadth.

Market Breadth at 1:06 pm

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Position: None

Some Good Afternoon Reads

* Why all the inflation worries?

* Which asset classes perform well during inflation? 

* Tesla (TSLA) had five founders - but why did only one really get rich?

Position: None

A Market That Defies Explanation

Recently a number of technicians confidently heralded a breakout in the Russell Index. 

I have no clue, but today, with the broader averages up by nearly 1%, the Russell Index is down on the day. 

Just another example of a market that, to me, defies explanation.

Position: None

Market Ramp

I can explain today's market ramp but I don't understand it.

EOM.

Position: None

Borrow Rates on Stocks I'm Short

I was asked about borrow rates on Rivian (RIVN) in the Comments Section. 

I thought it would be interesting to make a list of stocks that I am short in which the borrow rate is over 1%: 

* (HOOD) 127%

* (DNA) 66%

* (RIVN) 25%

* (DNUT) 11%

* (DWAC) 9%

* (ARKK) 5%

* (FXLV) 2%

* (W) 1%

Position: Short HOOD, DNA, RIVN, DNUT, DWAC, ARKK, FXLV, W

FXLV

Short FXLV was -27% today.

Position: Short FXLV

Breadth

Market breadth at 11 am:

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Position: None

Inflation Is Here and the Consumer Doesn't Like It

From Peter Boockvar: 

Consumer confidence as measured by the UoM in November fell again and is down to 66.8 from 71.7 in October and below the estimate of 72.5. It's also at the weakest level since November 2011. Blame it on inflation and falling REAL wages as one year inflation expectations rose another tenth to 4.9%, the highest since July 2008 thanks in part to a 10 pt rise in the price of gasoline component. The longer term opinion on inflation remained at 2.9% but that is still one tenth from also matching a 10 yr high. As most people surveyed were either watching cartoons in the 1970's like myself or weren't even born, most just assume any inflation flare up will quickly resolve itself.

Employment expectations were unchanged but positively there was a 1 pt rise in those expecting higher income and a 3 pt drop in those who think they'll see lower income. Evidence of the falling real wage concern though was seen in the percentage of people who think their income will outrun inflation. That fell to a 5 year low.

As to the question, "Is the government doing a good job on inflation and unemployment?", that fell to a 7 yr low.

Because of ever rising prices, spending intentions took another dive. Those that said it's a good time to buy a vehicle fell 10 pts to 49. That is the lowest level by 20 pts on record dating back to 1978. Those that said it's a good time to buy a home declined by 15 pts m/o/m to 62, the least since 1982 when mortgage rates were dramatically higher. As for wanting to buy a major household item (if you can even get one), that fell by 7 pts to the lowest since 1980.

The UoM summed up the report by saying "Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation. One in four consumers cited inflationary reductions in their living standards in November, with lower income and older consumers voicing the greatest impact. Nominal income gains were widely reported but when asked about inflation adjusted gains, half of all families anticipated reduced real incomes next year."

Sorry for using this opportunity as another reason to blame the Federal Reserve and its policies (along with the fiscal largesse over the past 20 months) but stable prices is the ONLY healthy foundation in order to achieve maximum employment and a sustainably growing economy because we are seeing writ large that without the former, the latter looks more and more precarious.

UOM CONSUMER CONFIDENCE



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GOOD TIME TO BUY A VEHICLE



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GOOD TIME TO BUY A HOME


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ONE YR INFLATION EXPECTATIONS

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MEAN PROBABILITY THAT REAL INCOME WILL GROW IN THE NEXT 5 YEARS



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GOVERNMENT DOING A GOOD JOB FIGHTING INFLATION AND UNEMPLOYMENT

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Position: None

AT&T Should Break Itself Up (Further)!  

This morning Johnson & Johnson (JNJ) joined a long and growing list, including a recently announced (GE) disaggregation, of companies that are breaking into parts. 

AT&T (T) is already disaggregating - with the Warner/Discovery deal - and perhaps should go even further. 

It is an ideal break up candidate. 

I continue to add.

Position: Long T, Short T puts

2 Adds

Adding to  (T) and (MJ) .

Position: Long T, MJ, Short T puts, MJ calls

RIVN Moves

I just shorted another oddlot of Rivian (RIVN) at $127.69. (Borrow freed up).

My cost basis is about $118 now.

Home gamers shouldn't try this.

Now, borrows on RIVN have opened up further this morning.

I am adding on a scale higher (just put out some at $131) - my cost basis moves into the low $120s.

Still quite small and inconsequential - but being transparent, and I know the haters want to know as they cheer on for this to be a poor short from the peanut gallery.

Position: Short RIVN

F45 Training Spits The Bit

I will make this quick because I suspect few are short this one... 

(FXLV) reported a bad miss to revenues. Same stores only increased by +6% in the U.S. 

I remain short.

Position: Short FXLV

Shorter

I am getting shorter.

See the opener.

Position: None

Stocks May Soon Pay the Price for Policy Miscues Currently Being Made by Yellen and Powell

* In 2022 the Fed will likely be forced to suddenly slam on the brakes in order to quell inflation

* The casualties will probably be demand destruction, a visible downturn in economic growth and weakness in equities

"Once again, the Fed is misreading inflation dynamics. Policymakers continue to argue that the current inflation cycle is temporary, centered in few products and industries, and will unwind as bottlenecks dissipate. Inflation cycles are not static or linear; they rotate and broaden. The next phase of the inflation cycle will be in consumer services."

- The Carson Report, Another Fed Misread: Inflation Cycles Are Not Static -They Rotate and Broaden

If inflation was measured today in the same way it was measured then - 2021 inflation would be as high as in the 1970s, see here

As a consequence, the Federal Reserve - led by Powell who wants to be reappointed, and abetted by Treasury Secretary Yellen - is allowing inflation to accrete by continuing QE. 

At the same time, fiscal policy is out of control. 

Inflation Now

Using 1980 methodology - not perfect, but in the zone - inflation is close to 15% today. 

Yellen, et. al, are making the bet that when inflation laps the tough comps, inflation will fall. 

By that logic, if inflation was 100% now, and then was 2% next year, she would be right and everything would be fine, except for the fact that we would be broke. 

Further using this logic, anytime inflation is above target, they can always say it is transitory and will come back down. 

But you could say the same thing about deflation, when it is lapped, eventually inflation will return. 

Also, if inflation reports up 16%, then if lapped and was down 8%, they would consider it a disaster, even though the two year average would be well north of what is considered price stability. 

The Adverse Consequences Seem Baked In

Basically it is all a word salad of BS and a policy error - with all its adverse consequences - seem baked in. 

It is my view that based on real interest rates monetary policy is more easy now in November, 2021 than it was in March, 2020.

Another point is that that you never recover the purchasing power. Every dollar holder is out that 6%-plus, measured year-over-year, regardless of what happens next year. 

The reason the price level - always hard to measure - was more or less unchanged over multi-decade spans under the gold standard is the inflationary episodes alternated with deflationary ones. In the absence of deflation, there's no make-good, only varying rates of permanent loss. 

No wonder Bitcoin is having a party! 

Regardless, we do not have apples/apples compares as the methodology for calculating the CPI has changed substantially over time.

1970s inflation was not measured the same way inflation is measured now. As I understand it, the numbers in the CPI series have not been restated going backwards. Thus, we are comparing apples and oranges.

When Yellen, Powell and the others say we are not and won't experience 1970s like inflation, she is being very disingenuous. The numbers were measured differently. 15% then could be close to equivalent to 6% now, the way the calculation has changed. 6% now could be close to 15% then, or even 12% then. It is hard to know, but we are dealing with apples and oranges. The guys that try to adjust the numbers say we are in the same place now as then. If they are off by 3%, it doesn't really matter. The 6% is really 12% as opposed to the 15% they estimate. 12% is still 1970's like inflation. As is 10%, 8%, or even the 6% that just printed.

My eyeballs tell me inflation is running a fair bit hotter than what is being reported now. I think the average person would also think that based on their buying experiences today.

This is all sort of like nerd stats in baseball. The nerds tell me Jackie Bradley Jr.  is a great baseball player based on contrived statistics about his fielding ability. My eyeballs tell me he sucks. His salary tells me that as well, because the guys making the actual decisions and spending the real money realize the nerd stats are contrived garbage.

Regardless, you never get it back once it happens.

It is not a victory if the CPI only grows about 2% next year. For most people (not Jeff Bezos), they have been permanently impaired by what happened this year. Real weekly earnings are reported as down -1.6% (year over year), reality is probably a fair bit worse.

Also how do you measure the cost of empty shelves?

Finally, this is interesting as well... owner's equivalent rent still has a lot of catching up to do to actual housing inflation (OER only up 2.9% versus housing prices up 20%)! 

Position: None

The Book of Boockvar

* Two year US note yields are +14 bps this week!

My friends at Quill Intelligence included a great quote in their weekly piece yesterday that is perfectly suited to the dilemma the Federal Reserve and current fiscal authorities in Congress face however self imposed, and it comes from Alden Clausen in 1974 who was president and CEO of Bank of America. "We might as well be realistic. No government anywhere is going to step on monetary and fiscal brakes to the degree necessary to fully curb inflation of this order because of the inevitable jolt to the economic system." If he said this today I'm sure he would have added to that last sentence "and the financial markets."

Until they do, it seems that the bond market is going to do it for them. The 2 yr yield is now up 14 bps on the week to .54%, the highest since early March 2020. The 5 yr yield today is rising to the highest since February 2020 at 1.25%, up 20 bps this week with another fresh high in the 5 yr inflation breakeven now at 3.10%, up 21 bps since last Friday.

2 yr YIELD



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5 yr YIELD

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NY Fed president John Williams, an always dove, speaks today at noon. He last spoke at the end of September and said this on inflation, "As the economy gets through these highly unusual dynamics, I expect inflation to come back down to around 2% next year. One reason I expect inflation to moderate is that measures of underlying inflation and longer term inflation expectations have been relatively stable during this period of otherwise volatile inflation readings." We'll see if he still thinks this even though the evidence and data point otherwise.

Nikkei news is reporting that the new Japanese government is putting together a fiscal package that could total more than 40 Trillion yen (about $350b). About 30 Trillion will be fresh spending and "including local government contributions and fiscal investment and loans, the total size is expected to exceed 40 Trillion yen." For comparison, Japan spent 48.4 Trillion yen from a package passed in April 2020. In April 2009 at the trough of the US housing driven recession, they spent 15.4 Trillion. A trillion here, a trillion there and if I had a yen for every fiscal spending package out of Japan over the past 30+ years, I'd have a lot of yen. The Nikkei did rally 1.1% and the 10 yr inflation breakeven is up for the 7th day in the past 8. Nominal yields though are little changed as is the yen.

The only thing of note overseas was the Eurozone industrial production figure for September which fell .2% m/o/m, better than the forecasted drop of .5%. It's still up 5.2% y/o/y and we know full well the factors that are inhibiting the production and shipment of just about everything. The euro is flat but at the lowest since July 2020 vs the US dollar. We know the ECB will lag by a large amount the trimming of their QE relative to the Fed. That said, it is the US that has the very large trade and budget deficits and rates of inflation.

Position: None

Chart of the Day

Nov 11, 2021 ' 03:55 PM EST DOUG KASS

Another 'Tail' in the Stock Market

This ZeroHedgearticle modifies my

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

Continuing my tail wagging the dog theme:

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Position: None

Tweet of the Day (Part Four)

Position: Short TSLA

Tweet of the Day (Part Trois)

Position: None

Tweet of the Day (Part Deux)

Curve Flattening:

Position: None

More Signposts of Slugflation

* Sluggish economic growth and higher inflation lies ahead

Position: None

Tweet of the Day

Position: None

Walkin' in Memphis Like an Egyptian

From Danielle DiMartino Booth on the artificial propping of the housing market:

  • Per CoreLogic, Memphis is the most desirable housing market for investors, with the rest of the top 10 spread across the South and Mountain-West; conversely, the least attractive housing markets for investors, save for two cities in Louisiana, are in the Northeast
  • Pre-pandemic moratorium, Memphis historically had one of the highest eviction rates of any MSA at 6.1%; this suspension of lower-end supply sent rent inflation 19% over the 2014-2020 trend-line, but as evictions resume, new supply should give a reality check to investors
  • The share of employees working from home has now fallen from 35.4% of the workforce in May 2020 to just 11.6% last month; with investors doubling down on their housing market purchases in spite of this, oversupply could soon apply pressure to an overheated market
Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-31.72%
Doug KassOXY12/6/23-14.53%
Doug KassCVX12/6/23+10.81%
Doug KassXOM12/6/23+13.02%
Doug KassMSOS11/1/23-22.80%
Doug KassJOE9/19/23-14.64%
Doug KassOXY9/19/23-25.97%
Doug KassELAN3/22/23+37.02%
Doug KassVTV10/20/20+64.63%
Doug KassVBR10/20/20+77.10%