I have been on a Board of Directors call since before noon - it ends in a few minutes - and I have to shortly prepare notes now for a Money Showpresentation at 3:55 pm. 

So I am going to call it a day today as I have to figure out what I will say in my talk - as I don't want to sound like a fool! 

Thanks for reading my Diary and enjoy the evening. 

Be safe.

Before I sign off (shortly) I have to write that rarely have I been as confused about the global stock markets.

New lows in shorts HOOD and FXLV.

123gary

Buying $143.80 Dougie buy price $132

CFRA MAINTAINS BUY OPINION ON SHARES OF WALMART INC.
2:34 pm ET November 16, 2021 (CFRA) Print

WMT posts F3Q (Oct-Q) adj-EPS of $1.45 vs. $1.34, $0.06 above consensus. Sales beat by 4% on stronger-than-expected comparable sales growth (ex-fuel) of 9.9% in the U.S. (17.0% on a 2-year stacked vs. 15.4% in F2Q). Gross margins were down 42 bps to 24.6% due to higher supply chain costs and negative mix. WMT raises FY 22 guidance, now looking for WMT U.S. comp sales (ex-fuel) above 6% (was 5%-6%) and adj-EPS around $6.40 (was $6.20-$6.35).

WMT is navigating the tough supply chain environment well, as inventories are up 11% Y/Y, which should result in a strong holiday season. We expect market share gains to continue since WMT's price gap versus competition typically widens during periods of heightened inflation. We lift our 12-month target by $2 to $169, 25.1x our FY 23 (Jan.) EPS estimate of $6.73 (raised from $6.68; FY 22 raised to $6.46 from $6.44) and a premium to historical averages (22x), as WMT's more diversified and resilient business model should result in stronger, more sustainable earnings growth.

Rivian's (RIVN) market capitalization is now $10 billion greater than that of Citigroup (C) .

I am short RIVN and long C.

I have a Board meeting at 12:45 pm this afternoon. 

At 3:55 pm I am delivering my talk at The Money Show.

From Peter:

The noteworthy line item in the October industrial production figure that beat expectations (in part because of electric utility output keep in mind), was the 11% m/o/m rebound in motor vehicle/parts after a sharp decline in the two months prior. They are still down 3.6% y/o/y but we did hear anecdotal stories of auto companies bringing back plants that were temporarily closed because of chip shortages. The chip situation will get better in the coming years from where it stands now no doubt but it still could be a 2023-2034 event before it's fully back. And even when it fully is, auto companies have already said they are not going to run their business in the same way in terms of loading up dealer lots with inventory. It will be more selective which means they might have more pricing power as a result.

Manufacturing capacity utilization did rebound too to 76.7% from 75.8% in September and 76.4% in August with motor vehicle utilization in particular at 69.8% vs the depressed 62.9% in September and is back to its July level.

Lastly, US manufacturing is still feeling the impact of the terrible US/China tariff battle as it heated up in August 2018 and sent US manufacturing into a recession. As seen in this chart of the manufacturing component of US industrial production, we still haven't recovered that peak prior to the tariff increases.

US Mfr'g within IP

The November NAHB home builder sentiment index rose to 83 from 80 and better than the estimate of no change. That matches the highest since February 2021. The Present Situation rose another 3 pts to 89 but the Future component was unchanged at 84. Prospective Buyers Traffic improved by 3 pts to 68 but is still off its recent peak of 77.

Bottom line, with still little inventory and aggressively high prices, the need for more new homes is obvious, particularly at lower price points. The problem though remains supply (and those high prices I argue impacting demand) and NAHB said "In addition to well publicized concerns over building materials and the national supply chain, labor and building lot access are key constraints for housing supply. Lot availability is at multi decade lows and the construction industry currently has more than 330,000 open positions."

The other thing we have to watch out for with housing when looking out to 2022 is the growing presence of the iBuyer and the Zillow situation brings attention to this. Zillow is trying to sell 18,000 homes where it seems that Pretium is buying 2,000 of them to add to their holdings of 70,000 homes. Will Zillow's presence be offset by others, thus maintaining a higher level of transaction velocity or are sellers going to have to rely more on hiring brokers, which takes time to market homes because iBuyers are going to slow down? If it takes longer to sell a home does that then mean the demand for new homes, along with existing ones, will take more time to develop from here? Are the single family buy to rent/build to rent investors reaching a point, that Zillow certainly did, that paying higher and higher prices has its limits from a return standpoint and that the double digit rent increases needed to achieve a certain IRR is just not sustainable? Things I'm watching.

To highlight the impact of iBuying, I've heard that 20% of transactions in the Phoenix metro area are being done by this investor/flipper constituency.

NAHB Builder Survey

Prospective Buyers Traffic

Rivian's (RIVN) market cap just surpassed Volkswagen.

Buying more (MSOS) at $30.55 and adding to (C) below $68.

Fibrogen (FGEN) presentation, here.

I am still on Home Depot's (HD) conference call. 

HD's quarter was strong with accelerating same store sales as the month developed: 

Global comps

August +3.1%

September +4.5%

October +9.9%

U.S. comps

August +2.2%

September +4.0%

October +9.6% 

There was some modest deceleration in the rate of same store growth thus far in the month of November. 

A fantastic quarter in which the retailer is taking share.

From Peter Boockvar: 

Core retail sales in October rose by 1.6% m/o/m, above the estimate of up .9% partly offset by a 3 tenths downward revision to September to a gain of .5% m/o/m. The headline figure was up 1.7% which compares with a .9% m/o/m increase in headline CPI to illustrate the influence of inflation in retail sales as today's numbers are nominal measures.

Looking under the hood, motor vehicle/parts sales rose 1.8% m/o/m (highly influenced by inflation as new car prices were up 1.4% m/o/m in the CPI report). Building material sales rose 2.8% m/o/m and 6.5% y/o/y. Sales of furniture, electronics, sporting goods, department stores and online retailing all rose. Spending at restaurant and bars was flat m/o/m but still up 29% y/o/y. Clothing sales fell by .7% but after rising by 2.1% in September and are still up 23% y/o/y as kids are back in school and need new clothes.

Bottom line, I'll try my best to separate out what is volume and what is price in today's numbers. Since March, the month when retail sales spiked because of the checks sent out, headline retail sales are up 2.4%. Headline CPI is up by 4.4% since then. Thus, at least from this back of the envelope calculation, REAL retail sales after March is down 2%. Falling REAL wages is also not a help.

Import prices in October rose 1.2% m/o/m and .5% ex petro products with both 2 tenths more than expected. From last year, import prices are up 10.7% and 6.1% respectively. They are higher by 5% if we also take out food. Robust price increases of industrial supplies continues to lead the price moves. As for what we sell overseas, export prices are up by 1.5% m/o/m and 18% y/o/y. At the core, prices were up .3% m/o/m and 7.9% y/o/y.

I mentioned this morning the upward move yesterday in inflation breakevens and today they are jumping again. The 5 yr is up another 5.5 bps to 3.25% and up 13 bps in two days. The 10 yr breakeven is up by 2 bps to 2.77%, one bp from a record high. This is the markets way of saying to the Federal Reserve, 'you are doing nothing to control inflation and if anything, are continuing to feed it by further expanding the balance sheet.' Or a less nice way, 'you have no credibility on controlling inflation right now.

IMPORT PRICES y/o/y

Despite bullishness expressed all morning following the Walmart (WMT) beat I am less optimistic. 

The retailer earned a nickel more than expected ($1.45/share) and comps beat (+9.2% vs. +6.9% estimate) - but gross margins suffered from rising prices and the costs of supply chain dislocations. 

Walmart sees $6.40 for the year compared to the prior estimate of $6.27. 

I would rather be short than long.

Doomberg: The SEC Crackdown of DeFi Is Imminent.

* Back to adcom and FibroGen FGEN, this paper was published in August, 2021 showing that Roxadustat itself does not cause thrombosis, which again, if FDA is fair this time, they will know it wasn't the drug it was the dosage.

* One of the main points of contention in adcom was Roxadusat produced more cases of thrombosis than EPO particularly in first four months. Roxdustat works very quickly, and the fast rise in Hgb is what AstraZeneca (AZN) /FibroGen see which caused this (mind you, thrombosis is normal for dd patients and it's on every label in approved countries, it's a warning not a reason for rejection).

This video is from a China doctor two weeks ago discussing real world use of Roxadustat. In post marketing survey of 20k patients only 84 cases of thrombosis, they just start at lower dose than recommended on label. They don't see it as an issue in China. So what investors are hoping for is that the FDA allows them to do a short dose titration study to clear up the thrombosis issue. 

The sell side is negative on FibroGen. Thomas Neff, the founder and holder of many of the patents, made a brilliant move in approximately 2012, starting a company based in China, for China. It is set up to be spun out and listed. Hillhouse owns 5% of FGEN U.S. with the intention to be lead investor in FGEN China spin. They told them they wanted Pamrevlubab in the China company because they wouldn't invest in a one drug company. Pamrevlubb has now listed to do phase 3 in idiopathic pulmonary fibrosis, duchenne muscular dystrophy and locally advanced pancreatic cancer in China.

There are new regulations that if there is enough of China population in a global phase 3 you can simultaneously apply for listing in China. FibroGen China is a one of a kind. Everyone else is considered a multinational and they don't get the benefits of being a domestic company. 

The Jeffries analyst seems to be turning more positive on the company and recently stated that FibroGen China is worth $5-$8/share. If they went public they would carry a market cap well above $1 billion. So with the $600 million of cash that leaves zero value for Roxadustat now and Pamrevlubab in the U.S. and EU at zero. 

This makes no sense to me and highlights the speculative value in FibroGen. 

FibroGen management is appearing late this afternoon at the Stifel 2021 Virtual Health Conference and on Thursday at Jeffries Annual London Healthcare Conference. 

I have been adding to this speculative biotech holding. I have weighted it appropriately given my conservative risk profile.

Yesterday saw another sharp rise in inflation expectations as measured by the TIPS breakevens. The 5 yr jumped 7 bps to a fresh high of 3.19%. For perspective, since 2002 when this maturity was introduced, it has averaged 1.85%. The 10 yr was up by 4 bps to 2.75% and that is just 3 bps from a record dating back to its beginning in 1998. It has averaged 1.99% since then. I do want to emphasize that every time I mention these stats is not to imply it is likely that these will be the inflation figures we will likely see in the coming years. It is just a snapshot of how market participants feel today about what is to come, aka inflation expectations.

5 yr INFLATION BREAKEVEN

10 yr INFLATION BREAKEVEN

European natural gas prices are jumping by 8% after a 9% rise yesterday and back to 3 week highs after the German government dragged their feet in approving Nord Stream 2 by temporarily suspending the process. The German 10 yr inflation breakeven is up 5 bps this week to also a 3 week high.

DUTCH NAT GAS

The Cass Freight Shipments index rose .8% y/o/y in October after a .6% increase in September. They said "Freight volumes remain capacity constrained, as shown by declining rail volumes and the ongoing backlog of containerships at anchor waiting to unload, but the 2.9% m/o/m improvement shows a modest rebound as restocking demand remained elevated. A pickup in automotive volumes likely also helped, as October rail car loadings in the motor vehicle category rose about 15% m/o/m."

Also of note, Cass Freight infers what freight rates are by dividing its expenditures index by shipments. "The freight rates embedded in the two components of the Cass Freight Index were 36% higher y/o/y in October, accelerated from the 31% y/o/y increase in September, partly on easier comparison." From September, prices were up 1.6%. They said "Chassis production improved this month but remains far from what is needed to address rail network congestion, so West Coast imports continue onto truckload, considerably raising the length of haul in the largest freight market." They said these "excess miles" are part of the 36% price rise but also "includes higher fuel surcharges, sharper increases in air cargo rates, and mix shifts between modes, with a smaller proportion of low cost intermodal and rail, and a larger proportion of relatively higher cost air and refrigerated truckload." For the full year 2021, Cass said "if normal seasonality were to play out, this index would be up about 20% from 2020."

Hopefully of course many of the transportation stresses this year begin to smooth out in 2022 but keep in mind that companies that have experienced the cost shock will take the next few years in trying to recapture that lost profit margin. So just because transportation prices peak out, or even fall, as long as they remain well above where they were pre COVID, companies will continue to use this as a reason to take more price, aka, raise them.

As the Bank of England hems and haws on whether to hike interest rates, the UK September jobs figure revealed a gain of 247k in employment, well more than the estimate of 190k and the unemployment rate fell to 4.3% from 4.5% in the month prior and vs the forecast of 4.4%. The ONS said 160k jobs were created in October. September marked the end of the furlough scheme so this is a big deal and likely clinches a December rate hike. Wages ex bonuses rose 4.9% y/o/y thru September, about as expected and also reflecting a shortage of workers. The more timely jobless claims figure fell another 14.9k after a drop of 86k in September which was revised lower by a sharp 34k. After rising by 4 bps yesterday, the UK 2 yr yield is down 1 bp today. The pound is rallying as the BoE is running out of excuses not to hike but what we've learned from many central bankers is that even when they start to tighten, the process will be glacial.

* The quit rate is at an all-time high.
* Inflation buoys small-cap stocks.
* A new mineral discovery.

FromMarijuana Moment. 

* A great report
* But hold off the applause

Yesterday I wrote:

This morning Home Depot reported a good beat (in comps/sales/profits). Here is the release. 

- Home Depot (HD)  reports before the opening tomorrow.

I currently have no dog in the hunt but I think they will release a reasonably good sized beat - but could warn about availability of product going into year-end.

I would caution to never invest by looking at the rear-view mirror.

The market was quick to take the shares of Home Depot higher in premarket trading, but it might be premature as we await the 9 a.m. conference call which could touch on the issue of continued supply dislocations possibly halting the normal distribution of product (going forward) during the all-important holiday season, as I suggested in my post yesterday (above).

Lisa and me.

From Danielle DiMartino Booth:

More signs of likely sustained supply-chain dislocations:

• Cass freight shipping costs saw a 36.2% YoY gain in October, the largest on record, as supply chain disruptions persist; though logistics costs have surged, shipment volume has calmed thus far in Q4 to a 0.8% YoY advance vs. the 29.9% and 9.1% gains of Q2 and Q3
• The American Trucking Association estimates that the trucker shortage will exceed 80,000 drivers by year end 2021; pandemic scarring has also exacerbated the issue, with more than 3,000 trucking companies shuttering last year, per Broughton Capital, up from 1,110 in 2019
• September's JOLTS saw 589,000 job openings in transportation, more than twice December 2020's 277,000; this pushed openings to 8% of total sector employment, all while paychecks for long-distance freight trucking rose a record 11.9% YoY vs. the 2.5% long-term average