This news buoyed cannabis stocks late in the day:

I am adding to my Citigroup (C) and Boeing (BA) longs.

Good interview with Mohamed El-Erian.

"Stop Worrying About Return On Capital, Start Worrying About Return Of Capital"

Sounds familiar.

I am bidding slightly under the market to cover some of the following shorts: (DNA) , (LSPD) , (DWAC) and (BLI) .

Here is a some more color on the Morgan Stanley initiation of Elanco Animal Health (ELAN) : 

Overweight, $40 price target (25% upside;2:1 Bull/Bear skew): While execution missteps and competitive challenges constraining topline growth have tested investor patience since its 2018 IPO and transformational Bayer Animal Health acquisition in 2020, tangible drivers in innovation and productivity initiatives should support more consistent +3-4% revenue growth while driving meaningful EBITDA margin expansion (+910 bps) from 2021-2025 with ongoing operation efficiency initiatives and Bayer synergy capture. All in, EPS should double over the next four years, a dynamic we view as significantly underappreciated. At 16.5x2023E EV/EBITDA, ELAN's shares trade at a meaningful discount to its closest competitor Zoetis (27.9x) and its broader animal health products peer group (26.0x). As we await traction in pipeline drivers and execution on operational initiatives, we don't think it will fully close the valuation gap with ZTS. Our $40 price target is based on an EV/EBITDA multiple of 19.5x, more adequately reflecting its large margin ramp and accelerating earnings growth. Risks to our constructive view include greater-than-anticipated competitive headwinds, particularly in companion animal parasiticides (estimated ~30% of sales), SEC investigation overhang, OTC channel dynamics/Seresto, Bayer integration miscues, and potential activist involvement.

Twitter (TWTR) has moved into my buy zone but I won't be buying until I speak to a few analysts and to management.

Stay tuned.

Here is the market breadth at 12:38 pm - it is just terrible:

I have added to (SONO) and (ELAN) longs just now.

The market's resilience continues to astonish me. 

Breadth continues to deteriorate but the major indices are supported by a handful of stocks.

I will be on a research call from 10:30 to 11:30 this morning.

As I mentioned in our Comments Section, I am no longer short JOYY (YY) .

I am also out of my Rivian (RIVN) short now.

Morgan Stanley raises its price target from $51 to $53 and keeps its overweight rating. 

Sonos' (SONO) fiscal 2022 revenue guidance is well above consensus - reflecting a healthy penetration of the addressable market  "which is essentially all developed market Apple (AAPL) households."

Morgan Stanley initiates Elanco Animal Health (ELAN) with an overweight rating and a $40 price target: 

"Though execution missteps and competitive challenges have constrained sales growth and tested investor patience since its 2018 IPO, MS analystsees "tangible drivers in innovation and productivity" at the company that should support more consistent 3%-4% revenue growth and meaningful EBITDA margin expansion from 2021-2025."

Ahead of the initial jobless claims report, a few days ago we saw the Atlanta Fed's wage growth tracker and it showed a 4.1% y/o/y increase in October after rising by 4.2% in September. These are the two highest reads since 2008 and in Q1 this year it averaged 3.4% and in Q2 it was 3.1%. After touching its quickest pace since 2002 at 5.4% from 4.8% in the month prior, the 'job switcher' category moderated to 5.1% growth, but still the 2nd fastest since 2002. This data came a few days after the NFIB survey saw 38 yr highs in the compensation components. The trend is clear with wages and worker leverage.

As I continue to listen to countless conference calls, there is one particular theme that is consistent and that is companies are very determined to recapture any lost margins due to their higher costs (and there has NOT been one company that hasn't talked about inflation for those who think inflation is still narrowly led). Some have been more successful than others in doing that but for the many that haven't, many of which are consumer related businesses, they plan on doing so via more cost costs and price increases.

ATLANTA FED's WAGE GROWTH TRACKER

ATLANTA FED's JOB SWITCHER WAGE TRACKER

By the way, for those that drink coffee, coffee futures today are rising to a 10 yr high. Wheat's up another 1.5% to a 9 yr high. For the CRB food stuff index, it's 6% off its 10 year high but 38% above its 10 yr average. Elsewhere on the commodity front, the CRB raw industrials index is .8% from its record high.

COFFEE per pound

I haven't talked about Turkey in a while but the economic mess that it is continues as President Erdogan continues to believe that lower interest rates is what is needed to control inflation. Yes, it's backwards but that belief pressured AGAIN its central bank to cut interest rates by 100 bps today to 15% and in response the Turkish Lira continues to plummet. Ten years ago it took 1.87 lira to buy a US dollar. Today it takes 10.80 lira to do so, down another 2.2% after the rate cut. Turkey's October CPI saw a 20% y/o/y increase. Unfortunately the next election for Erdogan is not until 2023 (unless an early election is called which is possible) but if he loses, Turkish stocks will be a pound the table buy as will the lira.

TURKISH LIRA

The Bank of Indonesia kept rates unchanged at 3.5% and the Philippines central bank left their overnight deposit rate at 2%. Both were not expected to move and the Indonesian rate is above its inflation rate. The Philippines is seeing inflation running at 4.6% in its last October read. The National Bank of Hungary hiked rates by 70 bps vs the estimate of a 45 bps increase.

With respect to stock market sentiment, Investors Intelligence said the Bulls continue to rise as they went from 56.5 to 57.2. It was 54 two weeks ago. To say again, anything above 55 is stretched and a print above 60 is extreme. Bears fell to 21.4 from 22.3 last week and vs 24.1 in the week prior. The more fickle AAII survey saw Bulls fall by 9.2 pts to 38.8 off the highest level since July. Bears rose 3.2 pts to 27.2 off the lowest level since July. Bottom line, the 'professional' investor is giddy while the individual investor, whose mood is much more volatile week to week, sobered up a bit over the past week from the most optimistic in 4 months.

* No, the real interest rates are not 15%. 

* The Fed has more options.

* What supply chain crisis?

Today FibroGen (FGEN) appears at the Jeffries London Healthcare Conference.

More on gold, here.  

They say that breaking up is hard to do
Now I know
I know that it's true
Don't say that this is the end
Instead of breaking up I wish that we were making up again

- Neil Sedaka, Breaking Up Is Hard To Do

While many embrace the speculative orgy of EV and other stocks, I have been buying two large cap stocks over the last few weeks - Boeing (BA) and Johnson & Johnson (JNJ) . 

In the case of JNJ, "breaking up may not be hard to do," and I view the shares as unduly depressed. 

I am planning to buy more of this conservative holding on any more weakness. 

Credit Suisse highlights JNJ this morning:

Intra-Qtr Trends Point to a Solid Start to Q4 for JNJ's Major U.S. Pharma Franchises; Reiterate Outperform and $200 Target Price

Rating: Maintain Outperform 

Target Price (USD): $200.00

• Analysis ofPrice-Adjusted Scrip Trends for Major U.S. Pharma Franchises Suggests a Solid Start for Q4: Based on our intra-quarter analysis of price-adjusted October scrip trends, JNJ's largest U.S. Pharma franchises appear to be off to a solid start in Q4, up 7.0% Y/Y (ex-Dara), ahead of our 6.0% estimate by ~110 bps. We note that the first month of each quarter is often the slowest, and therefore would not be surprised to see trends improve during the quarter. Based on our price/rebate-adjusted analysis of October data, faster trends in Stelara, Tremfya, Invega Sust/Trinza, Opsumit, Spravato and Xarelto, are partially offset by Imbruvica, Invokana, Prezista and Simponi. Due to light scrip sampling for Darzalex (<1% of the market), we do not include the drug in our first intra-quarter analysis, but expect to include Darzalex in our next analysis, once October sales growth is available. Our analysis covers JNJ's major US pharma franchises, which account for ~80% of total US Pharma sales and have historically served as a helpful indicator of overall US Pharma performance. We do not include certain infused therapeutics (e.g. Remicade) in our analysis due to poor sampling. We reiterate our Outperform rating and $200 target on JNJ.
• US Pharma Tracking at Around $57 mil Above Our Q4 Estimate (+2c to EPS): Based on our analysis of price-adjusted script growth for October, we estimate JNJ's major U.S. Pharma franchises are on track to deliver ~7.0% growth vs. our 6.0% growth estimate. This equates to ~$57 mil of upside to our estimates and 2c of theoretical upside to EPS, by our estimates.
• Recent Pipeline Updates: 1) Janssen announces more than 45 company-sponsored abstracts to be featured at ASH - Data includes CAR-T and Bispecific therapies, DARZALDEX, and DARZALEX FASPRO; 2) Janssen announces new analyses from DISCOVER-1 and DISCOVER-2 phase 3 trials of Tremfya - Janssen announced six new analyses of Phase 3 data from the DISCOVER-1 and DISCOVER-2 clinical trials; 3) Pharmaceutical Business Review Day (November 18, 2021) - JNJ hosts its biennial Pharma Review, which includes a broad update of key pipeline programs, including updates on will Rybrevant, Lazertinib and Nipocalimab, among others.

First time, long time! 

The markets are overbought and, arguably, overvalued. 

I expect a correction. 

The Nasdaq has been "the straw that stirs the market's drink" - and has been immune to any weakness. 

However, the strength in a few stocks that are heavily weighted in the Nasdaq have masked real pain underneath the hood of the market - just look at yesterday's poor market breadth. 

If the market does fall, the Nasdaq, some of those strong stocks like (MSFT) , could play "ketchup" on the downside over the near term. 

And, maybe, the +$24/share gain for Nvidia (NVDA) , after a blow out quarter, could be a sign of an extreme. 

I have shorted (QQQ) in premarket trading at $399.65.

AT&T (T) management spoke yesterday at Morgan Stanley's European Technology, Media and Telecommunication Conference.

Though you wouldn't know it by looking at the share price all the news was upbeat:

Here is the company's press release.

And here is a summary of their presentation:

AT&T CFO issues update; sees Q4 EBITDA exceeding Q3 levels, expects postpaid ARPU levels to stabilize in 2022 (24.66 0.00)

Comments were made at today's Morgan Stanley conference by CFO P. Desroches:

• Desroches addressed the company's renewed momentum in its wireless business. He said that AT&T's go-to-market strategy, which has led to wireless service revenue and EBITDA growth, is sustainable and that the company continues to expect fourth-quarter EBITDA growth to exceed third-quarter levels. Further, the company's simplified plans, improved customer experience and network performance have driven its ability to retain subscribers, which has reduced churn and increased customer lifetime value.
• Desroches said that while amortization accounting for promotions has modestly impacted postpaid phone ARPU levels in 2021, the company expects these to stabilize in 2022, driven by an anticipated recovery in international roaming revenues and continued subscriber adoption of higher-ARPU plans.
• With postpaid phone ARPU stabilizing in 2022, Desroches said that AT&T expects higher wireless service revenues from a growing postpaid subscriber base. He also indicated that AT&T's outlook for 2022 and beyond does not assume a continuation of outsized industry net adds. Should recent trends continue, Desroches believes the company is on solid footing to capitalize on better demand. However, AT&T's focus is on improving its share position profitably with continued market momentum regardless of industry demand levels.
• Desroches also addressed HBO Max and HBO net adds. He said that trends are in line with AT&T's expectations driven by strong additions in international markets. In fact, while it is still early, initial data suggest that in most international markets HBO Max is quickly rising to become a top two direct-to-consumer provider in terms of subscribers and revenues. Given this, Desroches said he feels good about HBO Max's global positioning and remains confident in its longer-term global expansion.
• With regard to its pending WarnerMedia transaction with Discovery, the company continues to expect the transaction to close by mid-2022. While dividend decisions are made at the discretion of the AT&T board of directors, Desroches said that after the transaction closes, AT&T expects an annual dividend payout ratio of 40% to 43% on anticipated free cash flows of $20 billion plus, equating to $8 billion to $9 billion in dividends annually.

From Danielle DiMartino Booth on housing and home affordability:

• New homes under construction rose to 1.451 million in October, eclipsing the 2000s peatilk of 1.426 million circa March 2006; the last time units under construction were higher was the 1970s, though the current boom critically lacks the same underlying population growth rates
• Unsold existing single-family home inventories sit at 2.4-months, a record low with no prior reading below 3 in data back to 1982; meanwhile, the undersupply of new single-family homes in 2020 has given way to prints closer to the long-term average of 6 months in 2021
• A record 28% of new single-family homes for sale are "Not Started" - a massive backlog of unbuilt homes; however, with buying conditions, per University of Michigan, inverted for the first time since the 1980s, demand will be challenged by the high pricing environment

J.P. Morgan upgrades Boeing (BA) from neutral to overweight this morning.

Price target goes from $260 to $275.

Shares have a "fairly defined catalyst path" and the first China MAX certification "is now in view."

"Risk-reward skews favorably," according to the JPM analyst.

Unfortunately this is the state of the investment and media business -- limited accountability and no follow-thru (particularly with regard to failed ideas/views):

ViacomCBS (VIAC) has been a poor investment (and many are frustrated with the name) but I continue to add on weakness.

However, there was some better news on VIAC after the close.

Reposting in the event you left early (!):

Nov 17, 2021 ' 04:49 PM EST DOUG KASS

This VIAC News Is 'Paramount'

ViacomCBS (VIAC) put out this press release after the close:

Paramount+ Reaches New Heights With Best Week Ever

The Streaming Service Adds More Than One Million New Subscribers, Breaks Acquisition and Engagement Record

NEW YORK, Nov. 17, 2021 /PRNewswire/ -- ViacomCBS Inc. (NASDAQ: VIACA, VIAC) today announced that Paramount+ experienced its most successful week ever, adding more than one million new subscribers and setting a new record for total signups since its rebrand. The service also set new records for most hours streamed and highest level of subscriber engagement. The successful week was fueled by the premiere of the family-friendly film CLIFFORD THE BIG RED DOG; the new original scripted drama MAYOR OF KINGSTOWN, from YELLOWSTONE co-creator Taylor Sheridan; live NFL ON CBS local market games; the highly anticipated CBS event ADELE ONE NIGHT ONLY; America's most-watched news program, 60 MINUTES; and Paramount+ originals SEAL TEAM, THE GAME and the second season of THE CHALLENGE: ALL STARS.

Contributing to the service's best week ever, CLIFFORD THE BIG RED DOG, which premiered on the service the same day it hit theaters on Wednesday, Nov. 10, set a new record as the service's most-watched original film. Paramount+ original series MAYOR OF KINGSTOWN, which debuted on Sunday, Nov. 14, was the #1 scripted original drama since the rebrand of Paramount+. In addition, Paramount+, which features live NFL ON CBS local market games, scored its second-most-streamed NFL regular-season week ever, in terms of total minutes streamed and unique viewers.

"This week we ushered in a mix of must-see originals, a blockbuster family film and top-tier sports that appealed to the whole household. This is a content strategy we will continue to lean into as we invest in scaling Paramount+," said Tom Ryan, President and Chief Executive Officer, ViacomCBS Streaming. "The remarkable levels of engagement we are seeing are a testament to the power of great storytelling on the service and the sheer breadth and depth of our content offering."

New episodes of STAR TREK: PRODIGY, THE GAME and the new season of THE CHALLENGE: ALL STARS will continue to debut exclusively on Paramount+ every Thursday, while episodes of MAYOR OF KINGSTOWN will roll out every Sunday. Upcoming originals and exclusives for Paramount+ include season four of STAR TREK: DISCOVERY premiering on Nov. 18; the SOUTH PARK: POST COVID exclusive event on Nov. 25; and new series 1883, the highly anticipated YELLOWSTONE prequel, on Dec. 19.

From my friends from Miller Tabak:

Wednesday, November 17, 2021

Bond Markets Are Yet to Come To Grips With Rate Hikes

Fed Funds futures remain far ahead of the FOMC in placing an initial U.S. rate hike in the summer of 2022 instead of around January 2023. A closer analysis of Treasury yields, which allow us to look further into the future on Fed policy, however, indicates that bond markets are yet to fully incorporate a larger and faster tightening cycle in response to the worsening inflation outlook. Treasury yields still have a long way to rise to catch up with the reality of coming rate hikes.

To identify Treasury markets' expectations, we subtract off term premia from Treasury yields using estimates from New York Fed economists.[1] This eliminates compensation for inflation risk and leaves the part of expectations that reflects expectations of future short-term interest rates. Figure 1 shows these beliefs for different horizons. Currently, the 3-4 year ahead window is a good estimate of the top of the Fed's coming tightening cycle. At 1.7%, it is far below the Fed's own 2.5% estimate and certainly does not account for the significant risk that the Fed may have to go above 3% to curb inflation. The 1-2 year horizon is at 1.2%, implying about four rate hikes by mid-2023. This is about two too few. While bond markets are underestimating the pace of coming rate hikes, they are more mistaken about the ultimate severity of the next monetary policy tightening cycle.

Figure 1: Treasury-Implied Expectations of Future Short-Term Rates



These results suggest that Treasury yields are likely to rise as the Fed moves its rate hikes forward. This is on top of any impact from the Fed's tapering of its asset purchases. Long-term, the expected rate 9-10 years out is 2.4%. This is close to the Fed's own 2.5% estimate of the neutral rate. As long as these figures remain close, the Fed is unlikely to have to go higher than 3.0-3.5% for the Federal Funds rate in order to rein inflation in. Were the 9-10 year ahead forecast to rise well above 2.5%, however, then the Fed might have to go significantly higher, greatly increasing the risk of a major policy error.

At 420 a.m. Rivian (RIVN) was trading -$10 in premarket trading (under $136).

My average cost basis is about $152 (having sold some as high as $177 yesterday).

I am taking in most of my (small-sized) short here.

If the stock remains under pressure I will likely collapse the balance of my position (short common and puts) during the regular trading session.

RIVN is a trading sardine and I plan to re-short the stock on any meaningful strength.

Here was my strategy.