Thanks for reading my Diary today.

I hope it was useful.
Before I go here is the breadth and heat map as of 3:55 p.m.:

Enjoy the evening.

Be safe.

The unwinding ofThe Great Market Divide, continues apace today.

Ss over Ns.

I have a dentist appointment at 4:15 p.m. today, so I will be leaving right at the close.

Tomorrow morning I have a surgical procedure and will be out from 1030 to noon.

Another good read. 

Covered half of my Digital World Acquisition Corp. (DWAC) short.

Twitter (TWTR) is a name I have invested and traded about 15 times since it went public about eight years ago.

It has been a very successful investment for me during those timeframes.

Owing to my negative view of the company's fundamentals I have stayed away from the company over the last year -- a period in which the shares have dropped in a straight line from $80 (Febuary, 2021) to $46 today. .

Brad Ginesin has a nice update on the company on our site -- and I generally agree with his assessment.

I am revisiting the name now and will come back with my conclusion as to whether I will reload.

In the meantime, read Brad's Real Money column if you have an interest in the name.

Sometimes something happens that smacks you in the face and gets your attention -- serving to underscore the valuation "insanity" in certain market segments.

Well, yesterday, two "value investors" (that I really respect) declared on FIN TV that they were buying Tesla (TSLA) at around $1,165.

Yep, you read me right!

That resonated with me -- and it was my "aha moment" of 2021.

Check this out: Back-to-back closures of a Wells Fargo (WFC) branch and a Starbucks (SBUX) location in the same mall in Boca Raton, Florida (taken over the weekend).

And a Chipotle (CMG) nearby has a sign that it is taking online orders only.

Following the recent fall from grace following the dramatic spike of only two weeks ago,

I am accumulating the following individual cannabis stocks - (AYRWF) , (TRSSF) , (CURLF) , (CRLBF) , (TCNNF) , (VRNOF) and (GTBIF) .

I plan to make VRNOF, GTBIF and AYRWF my largest weightings.

(MSOS) will continue to be my largest investment - and those with a more conservative risk appetite/profile should be investing in the exchange-traded fund (liquidity, tax efficient and diversification) and not in individual names.

I would note that these stocks are not liquid and are on the "pink sheets" (for now!).

Both Discovery (DISCK) and AT&T (T) have a new look over the last few days.
It should only happen to ViacomCBS (VIAC) .

* Paradise lost

Case in point... from five days ago:

Nov 18, 2021 ' 08:04 AM EST DOUG KASS

My Trade of the Week - Shorting QQQ ($399.65)

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.

***

I know several subs laugh at my funneling/averaging into positions (long and short) but in a world driven by machines and algos, it is hard (at least to me) to have precision of entry points.

Breadth at 11 a.m.

If the global economy holds together and short-term interest rates continue to rise, bank stocks have my vote to become a leading large-cap sector.

Bank deposits have exploded in the last two to three years and cash (and other liquid assets) now represent almost one-quarter of total banking industry assets.

Over the last decade, the industry has rationalized its cost basis after spending tens of billions of dollars on technology.

But, most importantly, the banking industry is asset/rate sensitive and the operating leverage on net interest income (margin) -- which has fallen so spectacularly and unprecedently over the last 24 months -- will likely be the source of EPS beats over the next two years.

And a further contribution to better-than-expected EPS beats will be aggressive buyback programs (in an industry which remains substantially over-capitalized).

My October short sale of Disney (DIS) got a lot of pushback.
Crickets, now.
They will only talk about Nvidia (NVDA) and the other winners.
That is the way the game is played these days...

A Good read on this market!

I am expanding my exposure in cannabis by buying individual names.
Appropriate caveat: all the stocks are on the pink sheets.
More to come.

I have added to AdvisorShares Pure US Cannabis ETF (MSOS) , ViacomCBS (VIAC) and FibroGen (FGEN) this morning.

This tweet from Charlie was not particularly clear in "The Great Market Divide" post Monday morning.

* Monday's conspicuous candle reversal in the Nasdaq (especially in semiconductors) may be a bearish short-term market signpost

* I expect that we have reached or are approaching the end of "The Great Divide" and in the extreme market narrowness that has favored "The Nifty Seven"

* Abetted by a sharp rise in short-term interest rates and euphoric buying/extreme sentiment in a handful of mega tech stocks, an important character change in the market may be at hand

* Capital flows out of value and into growth could begin to be reversed, possibly setting the stage for outperformance in value over growth in 2022

* But Bull Markets die hard...

* And the conditions that have underwritten 2021's market narrowness are even more powerful than in 1974's Nifty Fifty Market

The theme of Monday's opener, The Great Market Divide, was that the growing narrowness in the market's leadership, though aiding appreciation in the broader Indices (e.g., the S&P 500 and the Nasdaq), camouflaged a deterioration and even a bear market in a lot of the market below The Nifty Seven (Facebook FB , Amazon (AMZN) , Apple (AAPL) , Alphabet (GOOGL) , Netflix (NFLX) , Microsoft (MSFT) and Nvidia (NVDA) ).

History is filled with this sort of narrowness, which, when advanced, typically leads to a topping process and, as it did in the end of The Nifty Fifty Era (in 1974), a Bear Market: 

"In the United States, the term Nifty Fifty was an informal designation for fifty popular large-cap stocks on the New York Stock Exchange in the 1960s and 1970s that were widely regarded as solid buy and hold growth stocks, or "Blue-chip" stocks. These fifty stocks are credited by historians with propelling the bull market of the early 1970s, while their subsequent crash and underperformance through the early 1980s are an example of what may occur following a period during which many investors, influenced by a positive market sentiment, ignore fundamental stock valuation metrics. Most have since recovered and are solid performers, although a few are now defunct or otherwise worthless."

-- Wikipedia, The Nifty Fifty

Back in the early 1970s the bank trust departments (J.P. Morgan et al) ruled the investment world. 

Since then, market structure has changed and active investment management (large, plain-vanilla institutional funds and hedge funds) was replaced by the domination of passive investment management (ETFs and quantitative strategies and products). 

Though one can argue that stocks, by historical metrics, are way overvalued and today's narrowness (into less than two handfuls of stocks) is far more dangerous than the 50 stocks of nearly a half-century ago, I don't believe this imbalance automatically will result in a precipitous and immediate drop in the indexes. 

Bull markets die hard and this one is a beauty, powered by historically low interest rates (nominal and in real terms), massive inflows of liquidity (brought on by modern monetary and financial theory) and a new class of asset buyers (wallstreetbets, Robinhood, et al) who believe that in investing, "you only live once -- yolo," and in trading, buying weekly call options with impunity. 

That said, tops are processes and bottoms are events, and I continue to view this as a major, important market top and, possibly, even a cycle end to the unrelenting Bull Market that commenced in March 2020.

My pal Peter Boockvar, chief investment officer with Bleakley Advisory Group, checks out Treasury yields and high-yield ETFs plus economic action overseas: 

The 2 yr yield is up another 4 bps today to .635% and has 'officially' hiked rates by 50 bps this year as it started at .12%. Of course the Fed hasn't done it themselves yet via the fed funds rate but the market has spoken. While the 10 yr yield continues to creep higher too, the 2s/10s spread at 100 bps today matches the most narrow since July. With the 5 yr yield now approaching 1.34% vs .35% at year end 2020, the 5s/30s spread is the most narrow since March 2020.

5s/30s Spread

While it should be no surprise that the rise in rates is taking the air out of a lot of previous high flying stocks with some down 30-75% from their highs (such as Paypal, Twitter, Snap, Chewey, Lyft, Palantir, Zoom, Teledoc, CRISPR, Virgin Galatic, Zillow, Clover, and Chegg to name a few), we've seen in the past few trading days weakness in credit. HYG, the high yield etf, yesterday closed at the lowest level since March 2021. The yield on the Barclays CCC high yield to worst is at 7%, the highest since January 2021 while its spread to treasuries is at the most since March 2021. The Barclays high yield to worst rose to 4.43%, last seen also in March 2021. Things to keep an eye on.

HYG

BARCLAYS CCC HIGH YIELD to WORST

BARCLAYS HIGH YIELD to WORST

European bonds are down across the board, both in sympathy with the US treasury selloff yesterday but also after some less dovish (I'm not going to say more hawkish yet for the ECB) commentary from ECB members. The head of the Bank of France Francois Villeroy yesterday said "From today's perspective, we should end PEPP net purchases in March 2022." Today, Executive Board member Isabel Schnabel said "The risks to inflation are skewed to the upside. It's plausible to assume that inflation is going to drop below our target of 2% in the medium term. However, there could be structural shifts pointing in the other direction, I don't think we can truly tell, on the basis of today's data, what is actually going to happen." A Governing Council member Klass Knot said today that he doesn't think some of the Covid shutdowns "will have an impact on our intention to wind down the pandemic emergency purchase program." While the PEPP will likely end in March 2022 from the perspective of growing its size, they will still be reinvesting. The euro is up a hair after the recent weakness the past few weeks.

The November Eurozone manufacturing and services composite index rose to 55.8 from 54.2 and that was better than the estimate of 53 with most of the gain in services. The caveat though is business optimism about the future fell to the lowest since January. Markit hit on all the themes we are fully aware of: "The manufacturing sector remains hamstrung by supply delays, restricting production growth to one of the lowest rates seen since the 1st lockdowns of 2020. The service sector's improved performance may meanwhile prove frustratingly short lived if new virus fighting restrictions need to be imposed. The travel and recreation sector has already seen growth deteriorate sharply since the summer."

With respect to prices, "With supply delays remaining close to record highs and energy prices spiking higher, upward pressure on prices has meanwhile intensified far above anything previously witnessed by the surveys."

The UK composite index was little changed with manufacturing slightly up but offset by a .5 pt drop in services. Manufacturing continues to deal "with supply shortages and falling exports." The jobs market improved. On pricing, "A record increase in firms' costs will meanwhile further stoke fears that inflation will soon breach 5%, with lingering near record supply delays adding to indications that price pressures may show few signs of abating in the near term." I don't see how the BoE doesn't hike rates in December. The UK 2 yr gilt yield is up 4.6 bps after rising by 4.4 bps yesterday.

The Australian manufacturing and services index from Markit rose to 55 from 52.1 with services adding the most as Covid restrictions were further eased. The problem though remains, "supply chain issues featured strongly...as delivery times lengthened, widespread shortages were reported and price increases continued to be seen." After the US treasury selloff, the Australian 10 yr yield jumped by 7.5 bps to 1.87%, a 3 week high. The Aussie$ though is unchanged as the dollar takes a breather after its recent run.

The Turkish lira is in absolute freefall, down a whopping 11% today vs the US dollar as Erdogan continues to defend his support for lower interest rates in the face of 20% inflation. His economic ignorance will eventually show him the door but that might not happen until the election in 2023 if there is not an early one called.

LIRA

FibroGen (FGEN) appeared in two conferences last week.

To summarize the opportunity in China -- there are currently 700k dialysis patients (this is growing 10% a year).

There are an estimated 120 million Chinese citizens with chronic kidney disease (CKD).

Currently, about two million of those people are in Stage 5 (end stage) without access to dialysis and another 10 million in Stage 3 and 4.

FibroGen's Roxadustat has raised the awareness of treating anemia (and both EPO and Roxa sales are growing rapidly).

In the company's presentations, management said the use of the drug is in the "early innings", patient penetration is in the low teens and FGEN has given guidance for more than $500 million in peak revenues in China.

Secondary biotech equities have gotten schmeissed -- down by 50% from their highs. FGEN trades at $12/share -- down from the mid-$50s (before an adverse FDA decision for Roxadustat use in the U.S).

The shares seem poised to rise given the above and other factors.

I give you, exuberance:

From Danielle DiMartino Booth:

The reacceleration in housing turnover from the spring to the fall likely is more a function of sellers (homeowners) selling than buyers buying. Household home selling conditions hit a record high in August, and have retained high levels, while home buying conditions collapsed over the summer and have shown no signs of recovery. The upshot: the largest inversion of the home buying-selling conditions curve on record (red line).

Late cycle signal? Previous inversions in the buying-selling curve coincided with inversions in the nominal Treasury curve or low points in the flattening impulse (blue line), such as that witnessed in the last economic expansion. Incredibly to the eye, the inflation curve (yellow line) in the Treasury market mimics the inversion in the buying-selling curve. The confluence of these factors suggests the housing market may be more late-cycle than mid-cycle.

Realtors can never declare independence from the housing market. Consider the indicator of lofty earnings for real estate managers and workers an additional guide for the glide path of housing as it transitions from pandemic oscillations to a more fundamentally driven market driven by those stodgy old forces of supply and demand.

• Per the BLS, real estate managers saw paychecks grow at 15% YoY in September, five times the 3% norm and echoing the post-GFC escape of the early 2010s; meanwhile, workers saw 6.5% YoY growth vs. the 3.4% norm, besting the 4.6% YoY print for all nonfarm employees
• Since topping in May at 24% YoY, the NAR's median sales price index cooled to a 13% print in October; similarly, the MBA's average home purchase loan size hit 28% YoY in April before falling to 10% YoY in November, signaling that price appreciation has peaked
• Existing home sales rose to a 6.34 million SAAR in October, beating all but 6 of 57 guesses in Bloomberg's survey; the acceleration in sales aligns with a record sellers' market as well as an inversion in the 5s30s curve, suggesting housing may be more late-cycle than mid-cycle

Was it as simple as demand being sated, as Jim discussed below?

Respectfully, I think it is a lot more complicated and I am not in Jim's camp on this reason: