Shorted Coinbase (COIN) on the news of the Wells Notice notice from the Securities and Exchange Commission.

Great day!

Nike (NKE) -$6, et al.

Thanks for reading my Diary today.

Enjoy your evening.

Be safe.

I bought (SCHW) on the close at $56.46.

I have bought back my (SPY) that I sold much higher (earlier in the day) after the close at $392.50 - same applies for (QQQ) at $306.01 (against my short QQQ calls):

Mar 22, 2023 ' 02:55 PM EDT DOUG KASS

SPY, QQQ

I sold more (SPY) at $401.95, and (QQQ) at $314.97..

View Chart »View in New Window »

I just took in my (QQQ) short $306.65 (Trade of the Week) for a large gain.

I am trading too much to show my trades but I have moved back to market neutral on the whoosh lower.

Will reshort on strength.

Here is a chart of the (SPY) intraday over the past 24 hours:

View Chart »View in New Window »

I sold more (SPY) at $401.95, and (QQQ) at $314.97.

From Peter:After the short commentary on the economy, not much different than what was said in February, the Fed added this to their statement, "The US banking system is sound and resilient." I figured that would either be thrown in the statement or said many times in the press conference. And then it was followed by the acknowledgement of the new economic world we're in, "Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain." And they repeated at the same time their focus still on price stability, "The Committee remains highly attentive to inflation risks," the same wording seen for the past many statements. The other tweak but very notable was this, "The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time." I bolded 'may' because the word used at the previous meeting was 'will.' QT continues on. There was magically no dissents as all 11 voters signed up for this rate increase. A bit of dissent is a good thing and this consensus mentality needs to be shaken up. As for their median estimates, there was very little change to GDP and unemployment forecasts. The GDP forecast for this year is up .4%, down one tenth from the December projection, though their unemployment rate forecast actually fell one tenth to 4.5% but which is well above where it is now. They raised their core PCE estimate to 3.6% from 3.5%. I'm not going to bother giving their 2024 estimates because who the heck really knows. Bottom line, I said this morning that this overhyped meeting was most likely going to be a nonevent and it certainly was. That said, the Powell press conference will certainly be a forum for more notable market moves. We'll see how he does the financial stability vs. price stability dance. Either way, the Fed is likely done hiking and the 2 yr yield is down 7 bps from where it was right before the statement hit the tape. The 10 yr yield at 3.54% is exactly where it was, thus some steepening. The fed funds futures yields are down between 10-15 bps too in response with today being the terminal rate and rate cuts to come late summer. The markets can now shift their focus to Q1 earnings in a few weeks and that will be another mine field.

S&P cash is now +20 handles.

I have moved from very small net short to small net short on the post Fed rally.

I sold more (QQQ) at $313.10.

Sold more (SPY) at $399.93.

Low of the day on Nike (NKE) . 

I have been pressing my short bet here.

* Adding to QQQ short - My Trade of the Week

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.

- Bob Farrell's Rules of Investing (Rule #7)

The market is reverting to the narrowness that preceded several recent market tops:

View Chart »View in New Window »

More, that I am in agreement with, from Keith McCullough at Hedgeye: 

I am making (QQQ) ($311.65) short my Trade of the Week!

I am making some changes to my Best Ideas List:

* New Longs: (FITB) $26.95, (USB) $36.92, (BK) $45.01, (PNC) $128.80, (ELAN) $9.40, (CNPOF) $0.1150, (TRSSF) $1.39, (FSK) $18.40 

* New Shorts: (NKE) $124.10, (WGO) $59.67, (MMM) $104.28, (RILY) $31
__________ 

Long USB (M), BK (M), PNC (M), ELAN common (M) and calls (S), CNPOF (S), TRSSF (S), FSK (S).

Short NKE (S), WGO (VS), MMM (S), RILY (S), ELAN calls (S).

Based on my negative market outlook, the continued rate rise - and possible impact on valuations of long dated securities - and the strong relative performance of FAANG, I have significantly reduced my (GOOGL) and (AMZN) longs. 

I would buy back on weakness back to my cost basis.

* I plan to add to this short on strength

Last night I shorted a small position in Nike (NKE) : 

Mar 21, 2023 ' 05:01 PM EDT DOUG KASS

Not So Fast, Nike!

Some initial concerns in the Nike (NKE) release:

* China sales (adjusted for currency) was basically flat (pulled forward from Covid?)

* Gross margins down big (will they continue lower or stabilize)

* Inventories high (year over year)

* Cash positions down by a third to $10.6 billion

Given an expected consumer slowdown and some of the above factors -- I took a small short position ($127.90) on the initial rise in the shares post market.
__________

After listening to the conference call, I plan to add to my short on strength. 

Despite the wonderful franchise and popular suite of product offerings, Nike stands today leveraged to the global consumer. 

With a high priced product - price elasticity could become a problem - and entering a consumer slowdown - it may be the wrong time to own NKE as the valuation, in my view, may not be sustainable given the sales/profit uncertainties at this stage of the economic cycle. 

P.S. - JP Morgan's Matt Boss has a positive spin this morning on Nike ($152 price target): 

Investment Thesis

NKE is the global athletic market leader with diversification across product categories (~60% footwear, ~30% apparel), geographies (~40% North America, ~25% EMEA, ~20% Greater China, ~10% APLA), and distribution (~60% wholesale, ~40% direct). We see NKE's brand momentum across geographies as sustainable and providing insulation to macro volatility and supporting high-single-digit to low-double-digit top-line growth. We view this, combined with continued gross margin expansion (increased full-price selling, favorable DTC mix), driving multi-year mid- to high-teens sustainable EPS growth. We rate Nike Overweight.

Valuation

Our December '23 PT of $152 ($156 prior) is based on a 2x PEG (= 5-year pre-pandemic avg) to Nike's mid-to-high-teens target EPS growth algorithm.

I shorted more (QQQ) at $310.31 just now.

From Peter: What are you most afraid of?
What are you most afraid of? That is the question before the house of the Federal Reserve and the 18 people that oversee the decision making there (19 if Brainard was still there). With rate hike odds as of this writing at 88% of a 25 bps hike according to the fed funds futures we know the market is betting that the Fed is most afraid of inflation and secondarily concerned with the US banking system which Powell will I'm sure tell us how resilient it is at the press conference.
The Fed should do nothing today however. When they hike rates they are trying to discourage and disincentivize households and businesses to borrow by making it more expensive, just as they try to achieve the opposite when they cut. The more they hike, the more it expensive it gets and the less borrowing takes place. While another rate hike will further dissuade the rest of us to borrow, they must now look at the supply side of this equation.
Can they not assume that the credit supply chain has been damaged? It certainly has been which also will mean less borrowing if there are less willing lenders. And it's not just with the banks of any size, it seems that every day I'm reading about some capital markets credit deal that is getting postponed, whether ABS, high yield, etc... due to 'current market conditions.' When was the last time we had an IPO? Thus, we've essentially have had a rate hike or two over the past few weeks.
Now things may calm in coming weeks and what the Fed and Treasury are doing in response to these bailouts (both direct and indirect via the BTFP) could end up being inflationary but that is why there is always another Fed meeting ahead. This doesn't have to be always all or none for monetary policy which it has seemingly been over the past 20+ years whether they are all in on easing or a straight line on tightening until they are done. Showing some flexibility now, again knowing there is always another meeting that they can hike at, would go a long way.
And to the worry that if the Fed doesn't hike today, they must know something we don't and if they are worried, the rest of us should be, well that is why Jay Powell has a press conference so he can explain and give color to his concerns. We're big boys and girls, we can handle the truth from him. The irony of all this with the US banks is that historically it's a recession that drives trouble for the banks. This time it's the banks holding of risk free bonds that could lead to the recession.
That said, commercial real estate is a real problem too and I don't think the Fed appreciates that years of easy money that encouraged so much borrowing in not just CRE but many other things and becomes a toxic situation for those that need to refi in 2023. Make sure to read today's WSJ article titled "Commercial Property Debt Creates More Bank Worries."
It said "Smaller banks hold around $2.3 trillion in commercial real estate debt, including rental apartment mortgages, according to an analysis from data firm Trepp Inc. That is almost 80% of commercial mortgages held by all banks...This will be critical because about $270 billion in commercial mortgages held by banks are set to expire, according to Trepp, the highest figure on record. Most of these loans are held by banks with less than $250 billion in assets." 
Bottom line, this is the most over hyped Fed meeting I can remember and I actually think it could end up being a complete non event, notwithstanding all the drama, because either way, whether they hike 25 bps or not, the Fed for now is done raising rates.
Christine Lagarde, because they have their deposit rate at only 3% with inflation running hotter than in the US, she's even more stuck but because she really believes in the health of the regions banks, she spoke tough again today on inflation. "Bringing inflation back to 2% over the medium term is non-negotiable. We will do so by following a robust strategy that is data-dependent and embeds a readiness to act, but that does not entertain trade-offs around our primary objective."
European bonds are selling off in response. The German 2 yr yield, after jumping by 26 bps yesterday, is up another 7 bps today to 2.69%, though well below the 3.34% it was at two weeks ago. The euro is stronger.
The Bank of England is in a tough place too ahead of their meeting tomorrow because the UK saw today a 10.4% y/o/y CPI print, up from 10.1% in January and 5 tenths above the forecast. The core rate accelerated to 6.2% from 5.8%. They'll likely hike 50 bps tomorrow to 4.5%.
Here are some notable quotes from last night's Nike (NKE) call:
"Our growth this quarter was broad based across our brands, channels and geographies...North America, EMEA and APLA, all delivered double-digit revenue growth. Greater China grew 1% despite a very challenging December following the shift in the country's Covid policies."
"And we're making great progress on inventory, with our inventory dollars down sequentially vs last quarter."
"SG&A grew 15% in Q3 primarily due to wage related expenses, variable Nike direct costs, and increased demand creation expenses." Revenue growth btw was up 14% y/o/y.
"To date, we continue to see uniquely strong consumer demand as our product innovation, brand storytelling, and consumer connections drive distinction and growth in the marketplace. That being said, we are closely monitoring the building pressure on consumer confidence and the uncertainties of the macro environment. We continue to take a cautious approach in planning our business, leading with intentional financial and operational guardrails."
With the average 30 yr mortgage rate dropping to 6.48% (even though Bankrate says it's 6.94% as of yesterday), purchase apps rose 2.2% w/o/w, though still down 36% y/o/y. Refi's rose by 4.9% w/o/w but down 68% y/o/y.

* Moved, unemotionally, to small net short late in the day

As mentioned in yesterday's column, with calculator in hand I am sticking with the notion of an S&P Chop Bucket between 3700-4100 (fair value at about 3900). 

This range, the output of my five scenarios -- listed from very pessimistic to very optimistic -- and attaching probabilities to each -- forms the basis for my evaluation of the intrinsic value of the S&P Index. 

Though this calculus is dynamic -- none of the assumptions in the multiple scenarios have led to a change in my expectation for probably at least four months! 

Specifically, this investment process provides me with a framework to trade the larger indices and the ETFs, (QQQ) and (SPY) . 

Yesterday's move towards and through S&P 4000 (accelerating the negative 3:1 downside risk over upside reward) -- led me to move back to a small net short position by virtue of my short QQQ and short SPY/QQQ calls: 

Mar 21, 2023 ' 03:53 PM EDT DOUG KASS

The Tip of the Q

I have added to a very small (QQQ) short at $310.58. 

and... 

Mar 21, 2023 ' 10:10 AM EDT DOUG KASS

Very Small Net Short

S&P cash has moved +45 handles and I have moved very small net short.

So far so good: 

Mar 21, 2023 ' 07:17 AM EDT DOUG KASS

In the Chop Bucket

*Being an analyst, a contrarian, while trading/investing without emotion and with a calculator in hand

My market view continues to be that a tug of war of factors could keep the S&P 500 Index in a range of 3700-4100. 

The S&P closed Monday at 3950 -- the small boost (+17 handles) in the S&P Index takes that to nearly 3970 this morning (+130) -- a 2:1 negative ratio of the upside to downside (-270). 

When the market trades below an intrinsic value of 3900 -- based on five scenarios that utilize economic, interest rate, inflation, corporate profit, valuation and other variables -- and then attaches a probability from the most pessimistic to most optimistic, it guides me, in part, with my trading and positioning. I apply the same calculus to individual securities based on microeconomic, company specific fundamentals. 

Sentiment indicators tend to accommodate this analysis and strategy -- as when the S&P trades towards the lower end of the range the VIX tends to climb and the S&P Oscillator moves into more negative ground... and vice versa. 

Importantly, this rules-based approach to levels (at the bottom and top of the range) allows me to be dispassionate in the process.

This means when stocks fall and have a bad "look" I have the confidence to buy: 

"When the time comes to buy you won't want to."

-- Wally Deemer 

And when stocks rise and have a great "look" I have the confidence to sell: 

"When the time comes to sell you won't want to."

-- Dougie Kass

From Pete (and I agree):

At 8:23 am:

View Chart »View in New Window »

Upside

- (VORB) +58% (said to be in talks with venture capital investor Matthew Brown to raise $200M term sheet; confirms to initiate an incremental resumption of its operations beginning on Mar 23rd to work on preparations for its next mission)
- (GME) +49% (earnings)
- (ETNB) +47% (Phase 2b ENLIVEN Trial of Pegozafermin in Nonalcoholic Steatohepatitis (NASH) achieved high statistical significance on both primary histology endpoints with weekly (QW) and every-two-week (Q2W) dosing at 24 weeks)
- (AVDL) +20% (US FDA authorizes import tentatively-approved LUMRYZ ahead of anticipated final approval decision)
- (OLLI) +13% (earnings, guidance)
- (PYXS) +12% (earnings, guidance)
- (AMC) +7.7% (meme stock rally in sympathy with GME)
- (CETX) +7.1% (announces Vicon end-to-end security system order valued at $0.8M for next generation zero-carbon prison system in United Kingdom)
- (GBX) +6.0% (reports prelim Q2 metrics, issues guidance)
- (PEPG) +5.8% (presents clinical and nonclinical data at the 2023 Annual Muscular Dystrophy Association Clinical and Scientific Conference)
- (WGO) +5.6% (earnings, guidance)
- (SSYS) +4.8% (Board unanimously rejects unsolicited proposal to be acquired for $18.00/shr from Nano Dimension)
- (HQY) +4.7% (earnings, guidance)
- (ZH) +4.2% (earnings)
- (ATXS) +4.1% (earnings)
- (TZOO) +3.7% (earnings)
- (KRTX) +3.5% (prices 2.48M shares at $161.33/shr in $400M offering)
- (SMTC) +3.4% (B. Riley FBR, Inc. Raised SMTC to Buy from Neutral, price target: $52)
- (DNUT) +2.6% (Truist Raised DNUT to Buy from Hold, price target: $20)

Downside

- (WOOF) -9.4% (earnings, guidance)
- (FRC) -8.1% (continued US banking concerns; hires Lazard to assist with strategic review options)
- (AIR) -5.9% (earnings)
- (BZUN) -5.2% (earnings)
- (NTRA) -3.3% (new publication on Company's melanoma test product)
- (HSY) -1.7% (affirms FY23 guidance ahead of Investor Day)

* When it's time to sell you won't want to

* Moved to small net short late Tuesday

* On Monday we got Ludacris - today, a nod to magnified market - bond and equity - volatility:

But I'd rather have a bottle in front of me
Than have to have a frontal lobotomy
I might be drunk, but at least I'm not insane

Jimmy let his troubles drive him crazy
He never tried to drown it in a drink
I know that drinking makes my thinking hazy
But at least I still have brains enough to think

- Dr. Randy Hanzlick, I Would Rather Have a Bottle In Front of Me Than A Frontal Lobotomy 

* From trouble ahead, trouble behind to a market that just won't like be much fun (since I quit drinkin') to You Can't Roller Skate With a Buffalo Herd (meaning it's a tough market to navigate these days). And soon thereafter the market was down 4%-6% from the early February highs - and The Law Won! Wednesday I moved to Long Island's Billy Joel so I can finally find what I am looking for. Thursday was no futures column - lyrics silent! Today, the swoon (and SIVB) took the markets by surprise - in this not so magic moment... To Tuesday's optimism, I saw the market's party lights. Wednesday, with Credit Suisse concerns (and a hat tip to Yogi Berra), it felt like deja vu all over again. On Monday we got Ludacris... time to make money, money maker? Today, dealing with the extreme volatility I am reminded of that great song, "I Would Rather Have A Bottle In Front of Me Than A Frontal Lobotomy."

* We remain in The Chop Bucket - but the two day rally has taken us back to the upper end of the anticipated price range. Adjusting for the small drop in stock futures (at 5:50 a.m.), the S&P sits at 4000. According to my calculus, there is an equal distribution of upside +100 handles and - 300 handles to the downside.

* In this market I am trading more actively these days. I have been emphasizing pairs trades, straddles and strangles.

* The intermediate term outlook for stocks remains difficult in light of the competition and a "sea change" and new regime of (still) higher interest rates.

* The S&P Oscillator grew less oversold on Tuesday - dropping from -7.39% to -4.36%.

* Monday and Tuesday's equity market rally occurred while interest rates have risen - a negative (as short dated, non volatile Treasuries provide keen competition to equities). Moreover, as noted yesterday, the widening gap between the S&P dividend yield and Treasury bills is getting quite extended: 

Mar 21, 2023 ' 02:45 PM EDT DOUG KASS

Another Way of Looking at the Market's Over Valuation

Today the S&P dividend yield is 1.68% compared to the yield on a six month Treasury bill at 4.93% and a one year Treasury bill of 4.63%:

S&P Dividend Yield

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The differential between the S&P dividend yield and short duration Treasuries is as wide as its been in several decades.

From an historical standpoint the lowest dividend yield was 1.11% (August, 2000) and the highest dividend yield was 13.84% (June, 1932).

The mean S&P dividend yield, over the last century was 4.27%.

"You are never as smart as u think you are when you are making money or as dumb as u think when losing."

-- Unknown

"The stock market will do whatever it has to do to embarrass the greatest people to the greatest extent possible."

-- Wally Deemer

"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"

This daily Futures feature is like inside baseball. I try to show you and write about what I believe thoughtful hedge fund managers are looking at when they awake -- let's call it our normal routine -- setting the stage for their strategy for the day. The market is a complicated mosaic and the more info you have, the better trader and investor you will be!

The market (and money) never sleeps -- and neither do I, it appears! I have previously described the importance that overnight futures trading holds for me here. It is a guidepost to my strategy in the regular trading session. Moreover, the overnight/early morning futures hold opportunities as they are (1) inefficient, though liquid, and (2) it seems fear and greed are often exaggerated outside the regular trading session. I frequently try to capture those efficiencies by trading actively both in the pre- and after-market sessions.

Here are some brief observations I wanted to highlight and a summary of overnight price movements in various asset classes:

*Tuesday's close (S&P 4002) is back towards the upper end of The Chop Bucket of 3700-4100 for the S&P 500. S&P cash adjusted for the modest drop in futures is 4000, providing a 3-1 negative risk vs. reward.

* Stock futures were in a narrow range last night. S&P futures had peaked at +7 and bottomed at -12. Nasdaq futures peaked at +24 and bottomed at -21. At 6:32 am ET, S&P futures were -4 and Nasdaq futures were -27:

* The S&P Short-Range Oscillator has been a great trading gauge/resource. When it gets oversold, as it did late last week, I buy. When it moved to less oversold (over 0) and overbought, there is typically a market headwind. The Short-Range Oscillator closed Tuesday at a lesser oversold -4.36% compared to Monday's -7.36%.

* I have also kept a bead on volatility. In recent days, reflecting the bank crisis, the VIX has climbed from the high teens to the mid twenties. This morning, the VIX moved a bit higher to 21.71 (+0.32). As volatility declined recently, I took off a lot of my straddles and strangles for a profit. I plan to get back into some straddles with the boost in volatility - but I have done nothing yet.

* The U.S. dollar is stronger against the yen and weaker vs. the euro and sterling this morning:

* I have been continually writing that bonds should be at center stage to equity weightings - it's all about the rates. Ten days ago I sold a lot of my Treasuries in light of the downward move in rates. I have bought back about half of my Treasuries on the runup in rates in the last few days.

* The Two-Year Treasury yield is flat at 3.76% and the 10-Year is -1 bp to 3.598%. Over there, the yield on the 10-Year U.K. Gilt bond is +10 bps (hot European inflation data)

* The 10s/2s Treasuries curve has been making dramatic daily moves. The curve is now at -48 bps.

* The recent stability of financial stocks has resulted in a move up in interest rates over the last week. I repurchased Treasuries.

* Commodities - where there are no zero days to expiration options! - continue lower.

Brent oil is -$0.38 to $74.95... I am still avoiding energy stocks, but getting interested for the first time in a while on price. The notion, expressed in business media, that energy stocks are well positioned even with lower oil prices was fanciful as I have been writing in my Diary:

* Gold has continued its big run. Up +$5 today.

Here is a synopsis of some of my columns I believe were important, or in the event you were out for the day and did not read my Diary. The principal intent is to review the logic of my market moves and other factors:

Three Stocks and The Banks

Not So Fast Nike

A Short Run: Nike

Another Knock on Wood

Another Way of Looking at the Market's Overvaluaton

Back in Favor

And here are Tuesday's trades: 

* Added to Treasuries (aggressively)

* Shorted (QQQ) and sold (SPY) and QQQ calls short

* New short, Nike (NKE) .

Knowledge@Wharton on The Banking Crisis' Impact on Real Estate Lending.

Love it!

Danielle DiMartino invokes "Clueless":




"I remembered reading Emma in college and being struck at how much it reminded me of old TV shows like Gidget. There's something so basic about it. I knew [Clueless] would be set in Beverly Hills because it's a hyper-pastel fantasy place."

- Amy Heckerling

Clueless originated as a television pilot. Writer/director Amy Heckerling recalls: "Twentieth Century Fox said they wanted a show about teenagers - but not the nerds. They wanted it to be about the cool kids. The most successful character in anything I'd ever done was Jeff Spicoli in Fast Times. People think that's because he was stoned and a surfer. But that's not it. It's because he was positive. So, I thought, 'I'm going to write a character who's positive and happy.' And that was Cher." Channeling the positivity of Jane Austen's character Emma, Heckerling's original screenplay was titled "No Worries." Producer Scott Rudin's stamp of approval set off a bidding war between film studios. The 1995 movie bested its $12 million budget five times over at the box office.

As much as we'd like to be glued to banking headlines, we can't ignore the economic calendar. It's one thing to have a recession. It's another to have a financial crisis. It's another altogether to have a debt ceiling standoff. It's unthinkable to have all three at once. But that's where we find ourselves on this Wednesday Fed Day, with one Jerome Powell as existential as they come wishing like mad his time at the podium comes and goes without him blowing up what's left of the world.

As for our bread and butter, tracking the U.S. consumer, who is 70% of the world's largest economy, a short text exchange last Friday between Danielle and QI's Dr. Gates inspired today's Feather. Danielle's query to the mishmash of mixed messages in the UMich data: "Biggest UMich takeaway?" Gates' response: "Clueless consumers. Holy Grail fell to 35%." That 'most telling' of all economic indicators Gates references is UMich's Higher Unemployment Expectations, a leading indicator of the public's awareness of the U.S. labor cycle. With banking turbulence morphing into funding concerns and lending conditions clamping down, fallout from a credit crunch run should raise, not lower, recession risk. Consumers anticipating lower, not higher, unemployment makes no sense...unless they are clueless to the risks.

There is some truth to this notion, given the relationship between the Holy Grail and the MOVE index of implied volatility in one-month Treasury options. The average person on the street likely could not pick the MOVE out of a lineup. That doesn't mean that the implications of it hitting Great Financial Crisis (GFC) highs last week, rivaling the other two peaks since the index's 1988 inception, can be dismissed out of hand. The GFC and Long Term Capital Management's implosion both flagged systemic risk.

While the MOVE closed down an eye-watering 11% yesterday, which preceded the Credit Suisse-like announcement that a First Republic rescue would likely require U.S. government backing, which sent the bank's stock deep into the red in after-hours trading. The violent moves in the MOVE (light blue line) equate to expectations for higher unemployment being north of 50% (dashed gray line). Despite the multiplying layoff headlines, the 35% print through March's first half sits on top of its long-run average of 33% (lilac line).

It would seem U.S. households are not completely clueless. When asked about the economic outlook 1 and 5 years out, there was less sanguinity. The long-run average of the 1-year/5-year spread is about 9; that's what it's been 70% of the time since the series' 1978 inception. March's -13 is clearly outside that norm, as is the fact that the spread has been negative for 16 months running (green line). That persistence was only clocked in the GFC beginning in November 2008 in the aftermath of THE credit event (i.e., Lehman) that punctuated the last massive upheaval in the U.S. economy and global financial system. Because the spread stayed inverted for another 10 months through September 2009, we'll be lucky to see chipper households until next year.

We also view the consumer 1-year/5-year as a timelier guide vis-à-vis the U.S. Leading Index. In the current cycle, the 1-year/5-year inverted in December 2021. While the Leading Index posted its first monthly decline just one month later, it wasn't until last April that stubborn losses manifested (yellow line). Quirkily enough, the 1-year/5-year also predicted the path of bank stocks (i.e., the KBW Bank Index, red line). The spread's April/June 2021 double-top preceded that of the KBW's October 2021 peak; the index is since off by -40%.

As for how in tune households are to the stock market, QI's Household Bull-Bear Tail Indicator extracts UMich year-ahead views on stocks knowing these aren't total return expectations, but rather gauges of conviction. Our Bull-Bear Tail Indicator pits the two highest probabilities (75% to 99% and 100%) against the two lowest (0% and 1% to 24%). In March, the Bear Tail (29%) came in above the Bull Tail (23%) yielding a seventh straight negative reading for the Bull-Bear Tail Indicator (-6% in March). The comparable year-over-year performance in the S&P 500 was -12.8%. Normalizing with z-scores, the Bull-Bear Tail scored a -1.22 while the S&P 500 decline was a similar -1.24.

Translation: Households believe stocks are fairly valued at current levels. Translation of Translation: Households don't want stocks to fall further.

Capital One credit default swaps are surging:

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Barclays keeps "underweight" on 3M  (MMM) and lowers its price target to $105.

From my pal and former co-worker at Putnam Management, Wally: