Thanks for reading my Diary this week.

It was a tough week for deep value investments, but the world's fair for FAANG plus M (Microsoft (MSFT) ).

Enjoy the weekend.

Be safe.

Professor Scott Galloway's weekly No Mercy, No Malice, "Inflated."

The recent decline in VanEck Vectors Oil Services ETF (OIH) has been breath taking.

Break in! 

This is not being said by a Fed president that doesn't vote, this is coming from Fed Vice Chair Richard Clarida! 

DJ: *Fed's Clarida: May Be Appropriate to Debate Faster Taper at December FOMC

Although, *Clarida: Not Calling for Change in Pace of Fed Taper Process

Market breadth at 12:15 pm

I have covered my Starbucks (SBUX) short at $110.62 - for a small gain.

I have added to Boeing (BA) at $217.28.

I am long small JP Morgan  (JPM) under $160 as telegraphed.

I have a research meeting between 10 and 11 am this morning. 

Radio silence during that period.

The fear of lockdowns in Austria and Germany is impacting interest rates (lower) and, in turn, bank stocks over the last week or so. 

I would be using this weakness to accumulate bank stocks. 

I own Citigroup (C) and I plan to be a scale buyer of JP Morgan (JPM) at under $160/share.

From Jeffries on FGEN:

Mgmt is working w/ AZN to get roxadustat to the US mkt possibly w/ another Phase III. Co will follow up w/ the FDA very soon to address the CRL after the AdCom voted against the approval of roxadustat in July due to CV safety concerns. Mgmt is partnering with AZN on a new Phase III proposal which may include titration dosing to support better safety and potentially some clinical outcomes, but should not take long to execute and we think the next update could be a few months away. FGEN will continue to invest in the US Phase III study but the expenses will be reimbursed fully by AZN.

China sales strong but underappreciated, Europe launch still early. Roxadustat saw strong sales ($57.8M in Q3) and growth (155% YoY) in China and has gained ~30% mkt share w/ upside room for patient share (now at high teens). FGEN is finalizing NRDL negotiation, and we should see the results by YE. We are lukewarm on how they will create value given Street views this just as a royalty play mostly off China, and would rather see FGEN monetize the China asset w/ AZN which is underappreciated by the Street. Mgmt has stated - they are considering all scenarios to maximize value and we think a spin-off could be possible.

As for Europe, FGEN has launched roxa w/ its European partner Astellas in four countries so far (Germany, UK, the Netherlands, and Austria) but reimbursement is country by country and so are pricing dynamics. The good thing is we should see first early revs in Q4 which are booked at the time FGEN ships the drugs to Astellas.

FGEN is excited about pamrevlumab - a wholly-owned, Phase III CTGF inhibitor in three important indications:

IPF: Recall pam is now one of the only assets we are aware of in Phase III for IPF and Phase II data look good. Topline data is expected to read out mid 2023.
LAPC: Co will seek accelerated approval on positive interim data (H2:22) on EFS (composite of resection failure, disease progress, or death) and full OS data is expected to read out in H1:24. We have confidence in a positive interim readout as resection failure can drive event rates and boost effect size (recall pts are unresectable at baseline).
DMD: Topline data is expected to read out Q1:23.
We see significant potential upside for pam in 2023 despite low Street expectations.

FGEN remains interested in in-licensing new programs to ensure they have something new in the clinic by 2023... Recall Co still has options to license in two more pre-clinical mAbs from HiFiBiO but the new program can also be internal. We acknowledge FGEN is still in the early stages of selecting assets and it will take time for the Co to execute.

The full COVID lockdown just announced in Austria for up to 20 days, a partial lockdown in the Netherlands, and debates about the possibility of a similar reaction in Germany has the euro weakening again to just below $1.13 and its sending bond yields lower across the region. US Treasuries are rallying in response and the dollar continues its rally against most currencies. The now textbook trade of selling the reopening stocks is also going on with airlines and hotel stocks in particular lower and work from home stocks rallying like Zoom and other tech. I get the kneejerk response but this COVID flare up will flame out just as all the other ones have.

Thanks to my friend Helene Meisler for pointing this out. On the day the NASDAQ hit another record high yesterday, there were 425 stocks in this index hitting 52 week lows. That is the most since the spike in March 2020. That's quite a divergence.

NASDAQ New 52 Week Lows

It's stating the obvious to say that the pick for next chair is highly political but it's becoming clear what the fundamental basis would be if Brainard was chosen instead of Powell. As they both have a VERY similar track record on monetary policy as big time doves and Brainard can easily satisfy the bank regulatory concerns that Elizabeth Warren as by taking the job of Vice Chair of Supervision, could it be a climate thing? I say this because two liberal Democrats, Jeff Merkley and Sheldon Whitehouse sent a letter saying "President Biden must appoint a Fed chair who will ensure the Fed is fulfilling its mandate to safeguard our financial system and shares the Administration's view that fighting climate change is the responsibility of every policymaker. That person is not Jerome Powell." If only a direct line can be drawn between manipulating interest rates and the temperature change we'll see in the next 100 years but I'm all ears if there is one.

My bottom line is this, Powell and Brainard are both uber doves but shifting the Federal Reserve further to being the Ministry of Social Justice would not be a good thing as it would lead to unstable prices and non-maximum employment.

While he does not vote in 2022, Atlanta Fed president Bostic said yesterday in an interview that based on his current projections for next year, "the number of jobs that we have in the economy will be pretty much where we were pre-pandemic. And at that point, I think it's appropriate for us to try to normalize our interest rate policy." I believe Bostic would have been a good candidate for Fed Chair.

The ECB is no longer committed to stable prices we were reminded again from Christine Lagarde and instead continues to bet on hope. While acknowledging that "higher inflation squeezes people's real incomes, especially those at the bottom of the income distribution...We must not rush into a premature tightening when faced with passing or supply driven inflation shocks. At a time when purchasing power is already being squeezed by higher energy and fuel bills, an undue tightening would represent an unwarranted headwind for the recovery." So the inflation that is hurting consumers won't be dealt with via tightening because that would further slow growth. Then why calibrate monetary policy for the past 10 years with the goal of raising inflation? This continued line of 'patient' thinking is also why the Euro keeps falling. Remember that rates have been negative since 2014. Now that's patience I guess.

Meanwhile in Germany where they don't like the current ECB stance, October PPI rose 3.8% m/o/m, DOUBLE the estimate and is up 18.4% y/o/y. This is not the 1970's, it's worse.

GERMANY PPI

Japan said its October CPI fell .7% y/o/y ex food and energy as expected and again it's because of a sharp drop in mobile phone fees. Those fees are down 54% y/o/y. If you take this out, CPI ex food would be around 1.5%. Energy prices rose 11% y/o/y. The 10 yr inflation breakeven in Japan was unchanged but the 5 yr did fall by almost 4 bps.

* Err... more long!

Late yesterday it was announced that Germany's Chancellor-in-waiting Olaf Scholz and his center/left Social Democrats were in talks with the environmentalist, pro-spending Greens and the libertarian, business-friendly Free Democrats to build a three way coalition for the purpose of legalizing recreational marijuana. 

I am not sure why Germany's decision to legalize the use of recreational marijuana got very little news coverage yesterday afternoon. (Here  and here)  

That said, I expanded my (MSOS) long in Thursday's weakness.

"Inflation is really cutting into consumer budgets. Consumer spending intentions for vehicles and appliances are now the worst in over 40 years. Let's not pretend that won't weigh on real holiday spending, adjusted for inflation."

- Economic Cycle Research Institute

From Danielle DiMartino Booth: 

• Per Bank of America, the percentage change in inflation-adjusted grocery spending on a 2-year basis slipped further into contraction in October; while food inflation appears to be leveling off at high levels, per the CRB, higher prices are driving nominal gains in card spend
• On an inflation-adjusted basis, growth in goods spending reached a massive 40% last spring, while a third stimulus check helped boost services spending 20%; against the current pricing backdrop, UMich Real Household Income Expectations in 1-2 years are now at 5-year lows
• The aggregate of Current Inventories from the NY, PHL, and KC Fed's manufacturing surveys, as a z-score, is just below a 20-year high; meanwhile, Current Prices Paid continue to push upward as demand pulled forward exacerbates ongoing supply chain challenges

As we close out the week:

* Covid fears rise in Europe. 

* Divergences multiply as market breadth narrows (stinking up the joint) and as the list of new lows expand.

* Market optimism, hubris/glibness (on the part of "commentators") and the mocking of shorts (and the gloom crew) expand with higher stock prices.

* Inflationary and supply chain pressures show no signs of abating.

* Valuations, at least by historic metrics, are at record highs.

* Investors "reach" as FOMO percolates (S&P futures were +22.75 handles when I rose this morning at 3:15 ET and are down at this writing).

* I can't sleep very well.

Did anyone notice that there is little very discussion of Cathie Wood's portfolio moves these days?

I remain short two of her largest positions - Tesla (TSLA) (she sold more Thursday) and Roku (ROKU) .

Kyle Bass, chief investment officer of Hayman Capital Management.Check him out here.

"Workin' on our night moves
Trying to lose the awkward teenage blues
Workin' on our night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."

- Bob Seger, "Night Moves"

When I started working this morning at 3:15 a.m. ET, S&P futures were +22 handles.

Here at 5:50 a.m. ET, they are down a bit.