I gave it my all this week and I am too pooped to pop!

I am calling it a day.

Thanks for reading my Diary, I hope it was value-added.

Enjoy the evening.

Be safe.

Investment short Xponential Fitness is -12% on a 10% earnings miss.

Here is the earnings call. 

Here is the earnings release. 

No Mercy/No Malice From Scott Galloway... "Enemies." 

Jefferies FX: Quick Thoughts on the USD and JPY.

I just emailed this to CNBC's Scott Wapner:

apple earns 5.4% on short term treasuries (six month) on its cash

apple pe is 30x - which means they earn only 3.3% on buybacks

why is a large buyback highlighted as the key reason for today's gap in the shares?

dak

Positives

1) Initial claims remained low at 208k, 3k below expectations and unchanged with the week before. Continuing claims totaled 1.774mm, 16k under the estimate and also unchanged with the week before.

2) Q1 productivity was about as expected when including the revisions to Q4. Productivity gains were 2.9% y/o/y vs 2.7% in Q4 and 2.3% in Q3. On the unit labor cost side, they rose 1.8% y/o/y vs 2.4% in Q4 and 1.9% in the quarter before.

3) Vehicle sales in April totaled 15.74mm on seasonally adjusted annualized rate (SAAR), a touch above the estimate of 15.70mm. That compares though with 15.91mm in April 2023 and 16.4mm in April 2019.

4) The Apartment List National Rent Report for April showed a .5% m/o/m increase in new lease growth but seasonally rises in the spring as this is the 3rd month of gains. Versus April 2023, new rents are still down .8%. Due to more supply, mostly in the sunbelt, the national vacancy rate is at 6.7%. Rents were up in 83 of 100 cities in April m/o/m, though 43 are up y/o/y.

5) From Live Nation: "So just to make sure we hit hard on the consumer demand, we are seeing no weakness. The things that we look at that give us an indication of how the shows are selling, how the fans are spending when they go to the site, all continue to be very strong...We're consistently seeing the sell-through of the shows are at or above where they were last year and that the overall grosses for the artists are consistently higher. So no issues at all on fan demand relative to last summer."

6) From Booking Holdings: "We continue to see resiliency in global leisure travel demand, including healthy growth for travel on the books that's scheduled to take place during our peak summer travel season."

7) From Marriott: "Once again, we saw RevPAR growth across all three of our customer segments, group, leisure transient and business transient. Group, which comprised 24% of global room nights in the 1st quarter was again the strongest customer segment."

8) From Shake Shack: "And we're showing solid signs of strength so far this year and each month we have improved sales. April got even better as we grew Same-Shack sales by 4.9% with approximately flat traffic and we carried the momentum into fiscal May."

9) From Doordash: Users still benefiting more than corporate profits, "In general, we're not seeing the signs of strain on the consumer, but I think it perhaps has something to do with the segment that we operate in, which is digital and delivery. I do understand that there are some headwinds that certain merchants face when it comes to in-store traffic. But when it comes to all things digital, we're actually not seeing, I think, those same signs of strains. Even, for example, in the US restaurants business the growth is pretty consistent over the last six quarters."

10) From Brinker: After the weather weak January, "We were pleased to see our business immediately bounce back and perform well in February and March and with Chili's beating the industry sales by more than 7% and traffic by nearly 4% for the entire quarter...We do know that we're growing in all income demographics right now. So, when you look at across all income profiles, they're all spending more at Chili's, so we feel really good about that."

11) From Domino's Pizza: "And our growth in the US came through positive order counts across all income cohorts in both our carryout and delivery segments. We saw the largest growth in our lower income cohorts that are undoubtedly benefiting from the renowned value that we're offering."

12) From Amazon: With AWS, "companies have largely completed the lion's share of their cost optimization, and turned their attention to newer initiatives."

13) From Dupont: "Our results for the period exceeded our expectations, driven by better than expected volumes in all segments. Broadly, the first quarter confirmed that we are past the bottom in electronics and on the road to recovery."

14) While it won't work just by itself, the Japanese step in again and try to stem the weakness in the yen. The Governor of the Bank of Korea did so verbally to lift the won.

15) Hong Kong's economy in Q1 grew much more than forecasted with GDP up 2.7% y/o/y, well better than the estimate of .8%. Home sales and tourism helped.

16) Asian manufacturing is trying to find a bottom. PMI's: Taiwan's rose to 50.2 from 49.3, Japan 49.6 vs 48.2, Australia 49.6 vs 47.3, Vietnam was at 50.3 vs 49.9, South Korea at 49.4 vs 49.8, Thailand at 48.6 vs 49.1, Malaysia 49 vs 48.4, Indonesia 52.9 vs 54.2, the Philippines at 52.2 vs 50.9 and India at 58.8 vs 59.1.

17) The China Caixin manufacturing April PMI printed 51.4 from 51.1 in the month before. Caixin said "Underpinning the latest acceleration in manufacturing sector growth was better demand conditions...Additionally, new orders from abroad expanded at the fastest pace for nearly 3 1/2 years. Global market demand improved at the start of the 2nd quarter, according to panelists."

18) GDP growth in the Eurozone in Q1 did rise .3% q/o/q, 2 tenths above the estimate but Q4 was revised down by one tenth to a very slight contraction of .1%. Growth y/o/y was .4%.

Negatives

1) Payrolls in April grew by 175k, below the estimate of 240k and the two prior months were revised down by a total of 22k. A lot of the miss was in the government sector as the private sector added 167k of those 175k jobs vs the forecast of 193k. The household sector added just 25k jobs and combine this with the 87k person rise in the labor force, saw the unemployment rate tick up by one tenth to 3.9%, matching the highest since January 2022. The U6 all in rate also rose by one tenth m/o/m to 7.4%. Mix was a factor here as the 25-54 yr old category added 163k jobs but was more than offset by a drop of 319k for those 55 and older. Those younger than 25 saw jobs rise. 

There was a downtick in hours worked to 34.3 from 34.4. Not including Covid, it is just .1 hr from matching the lowest since 2011. The labor force participation rate held at 62.7%, still below its February 2020 level but did rise one tenth to 83.5% for the key 25-54 age group which is above the 83% print in February 2020. Job leavers as a % of the unemployed fell to 12% from 12.7% and vs 11% in February and well off the peak of 16% a few years ago. Average hourly earnings rose .2% m/o/m vs the estimate of .3% and versus last year, hourly wages were up by 3.9%. Average weekly earnings were up by 3.9% too. 

Lastly of note, there was another rise in those working part time because of 'slack work' (highest since October 2021) and also because they 'can't find full time' work (highest since November 2020). This squares with the reduction we've seen in job openings.

2) Job Openings in March shrunk by 325k jobs m/o/m to 8.488mm. That's the least since February 2021. The hiring rate fell to 3.5% from 3.7% and that matches the lowest since 2014 not including Covid. Also, the quit rate fell one tenth to 2.1%, the lowest since January 2018 not including Covid.

3) The ISM services PMI fell 2 pts m/o/m to under 50 for the first time since December 2022 at 49.4. New orders were down 2.2 pts to 52.2. Backlogs fell 5.5 pts in March and rebounded by 6.3 pts in April to 51.1. Inventories bounced back above 50, up by 8.1 pts m/o/m to 53.7. Highlighting the slowing pace of hirings, employment fell to just 45.9, down 2.6 pts and that is the lowest since December 2023 with just 5 of 18 industries seeing an increase in hiring. 

The weakness in services came with a 5.8 pt rise in prices paid to 59.2, a 3 month high with 14 of 18 sectors paying higher prices. Supplier deliveries remained below 50 (normal supply chains) Overall industry breadth stayed the same with 12 of 18 industries seeing growth. 

The bottom line from ISM, "Survey respondents indicated that overall business is generally slowing, with rates varying by company and industry. Employment challenges continue to be primarily due to difficulties in backfilling positions and/or controlling labor expenses. The majority of respondents indicate that inflation and geopolitical issues remain concerns.”

4) The ISM manufacturing index slipped back below 50 in April at 49.2 vs 50.3 in March and vs the estimate of exactly 50. Of note, prices paid jumped 5.1 pts to 60.9 and that is the highest since June 2022. With respect to breadth, it was similar to March with 9 industries seeing growth and 7 experiencing a contraction (vs 6 in March).

5) With another rise in the average 30 yr mortgage rate, the MBA said that purchase applications fell 1.7% w/o/w and are down 14.5% y/o/y. Refi's declined for a 2nd week (cash outs mostly) by 3.3% w/o/w and are little changed y/o/y.

6) The April Conference Board Consumer confidence index fell to 97 from 103.1, 7 pts below expectations and that is the weakest print since July 2022. The Present Situation fell by 4 pts while the Expectations component was down by almost 8 pts. One yr inflation expectations held at 5.3% for the 3rd month in the past 4. The key culprit in the confidence drop was the softer answers to the labor market questions. 

Those that said jobs were Plentiful fell by 1.5 pts to the lowest level since November. Those that said they are Hard to Get rose by 2.7 pts, the most since November. Also of note, there was a 2.6 pt drop in those expecting 'more jobs' in the coming 6 months, the least since October 2011 and that INCLUDES Covid. Income expectations fell too, by 1.9 pts m/o/m for those expecting an increase. Spending intentions also fell across the board for autos, homes and major appliances.

7) In February, and thus somewhat dated, S&P CoreLogic said its national home price index rose 6.4% y/o/y, giving first time buyers no relief when combined with a mortgage rate around 7%.

8) The US Treasury said in the announcement that they needed to borrow more than expected in Q2, "The borrowing estimate is $41 billion higher than announced in January 2024, largely due to lower cash receipts, partially offset by a higher beginning of quarter cash balance."

9) From Amazon: "We remain focused on making sure we're offering everyday low prices, which we know is even more important to our customers in this uncertain economic environment. As the results show, customers are shopping but remain cautious, trading down on price when they can, and seeking out deals...As part of our guidance considerations, we also continue to keep any eye on consumer spending and macro level trends, especially in Europe, where it appears to be a bit weaker relative to the US."

10) From McDonald's: "As I reflect on the first quarter of the year, it is clear that broad based consumer pressures persist around the world. Consumers continue to be even more discriminating with every dollar that they spend as they face elevated prices in their day-to-day spending, which is putting pressure on the QSR industry."

11) From Starbucks: "Our performance this quarter was disappointing and did not meet our expectations...Headwinds discussed last quarter have continued. In a number of key markets, we continue to feel the impact of a more cautious consumer, particularly with our more occasional customer. And a deteriorating economic outlook has weighed on customer traffic, an impact felt broadly across the industry."

12) From Stanley Black & Decker: "Looking forward in 2024, we expect mixed demand trends to persist across our businesses."

13) From Arrow Electronics: "As we take a closer look at global components, the cyclical nature of this business is a reality, and we're navigating through a prolonged correction as customers restock surplus inventory levels, which accumulated in response to the severe shortages that marked the industry supply chain disruptions of the pandemic era. We continue to witness the knock-on impact to the demand environment, with softness across many of the markets we serve."

14) From CDW: "Market conditions remained challenging, and first quarter results came in below our expectations...In the 1st quarter, customers demonstrated caution and concern given heightened macro uncertainty weighing on capital investment decisions. At the same time, the complexity of the tech landscape continued to ratchet up, particularly given the additional layer of AI and changes in the IT market landscape...This lengthened decision making as customers deliberated on both how to navigate technology roadmaps and when to spend on infrastructure in a challenging economic environment. While activity was reflected in a solid pipeline, with deals being pushed out, our sales and gross profit lagged. Results were also impacted by the federal budget stalemate, which led to a pause in our federal channel."

15) From Gartner: "In Q1, our clients experienced more challenging macroeconomic conditions, which led to a tougher selling environment."

16) From On Semi: "Inventory digestion persisted across the automotive and industrial markets with stabilization in the traditional part of our industrial business. We remain cautious about the 2nd half outlook, but we expect customer inventory levels to normalize and the market to stabilize."

17) From Etsy: "overall, we see this as a tale of broad weakness in the types of merchandise we sell."

18) From eBAY: "we continue to navigate through a tough environment for discretionary e-commerce, particularly in the UK and Germany, two of our largest markets." Exactly what Etsy said. They said the "US is in better shape" compared to Europe. They said "the macro environment remains challenging and dynamic" when laying out their financial guidance.

19) From SoFi: "As we shared last quarter, we've taken a more conservative approach toward originations, given our concerns around rate uncertainty and the broader macro climate.

20) From Mohawk: "Across our regions, market conditions remain similar to the prior quarter with significant pricing and mix pressures due to industry competition for volume. Though slowing, the commercial channel continues to outperform residential. Residential remodeling remains soft due to the low housing sales and the impact of inflation on discretionary spending. Retailers have reported that consumers are reluctant to initiate higher-ticket projects with flooring facing greater pressure since most replacements can be readily deferred."

21) The Eurozone remains a laggard with its final manufacturing PMI at 45.7 vs 46.1 in March with particular weakness in Germany and France. The UK final was 49.1 vs 50.3 in March and vs 47.5 in February.

22) Eurozone headline CPI in April rose 2.4% y/o/y as expected and the same pace seen in March. The core rate was higher by 2.7% vs 2.9% last month but one tenth above the estimate. Services inflation in particular was higher by 3.7% y/o/y vs 4% in the 5 months prior. Non-energy industrial goods prices were up by .9% y/o/y vs 1.1% in March and continues to slow and as seen in the US.

23) Germany's unemployment rate held at 5.9% in April but the number of unemployed did rise by 10k which was above the estimate of 8k and March was revised up by 2k to 6k. They also reported March retail sales that were about as expected when including the revisions.

24) The Bank of England reminded us all that QE was not free. Their latest expectation for losses for the UK taxpayer is now 85 billion pounds, up from 80 billion expected last quarter.

25) South Korea said its exports grew by 13.8% y/o/y, just below the estimate of up 15%. With companies such as Samsung and SK Hynix, along with a big auto business, this is important to watch. Exports to China rose 10% y/o/y and to the US by 24% y/o/y. Product wise, semi exports were up by 56% y/o/y and by 10.3% in autos.

26) In April, exports from Vietnam rose 10.6% y/o/y, though below the estimate of 14%. Food, chemicals and crude oil led the way but the exports of electronics/computers also were strong, up 33% y/o/y.

27) China's state sector focused April manufacturing PMI fell slightly to just above 50 at 50.4 from 50.8 in March. The estimate was 50.3. Non-manufacturing is doing better but that component weakened to 51.2 from 53 and below the estimate of 52.3.

New long,  (VVV) , is getting jiggy.

* At 10:40 am:

- NYSE volume 155M shares, 17% above its one-month average

- Nasdaq volume 1.53B shares, 11% above its one-month average

- VIX: down 4.77% to 13.98

Breadth

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 "175K on April Nonfarm payrolls is a very solid report. More jobs reports like today, more comfort I will have "

- Have to step back and assess the 'inflation bump' we hit at the start of this year

- The more jobs reports we see that resemble pre-Covid reports, the more confidence there is that the economy is not overheating

- Do not like to commit to policy even to the next meeting

- Fed has to get comfort that recent inflation is not a sign of reacceleration

- What happened in the jobs market this year has to be 're-normed' based on estimates of higher immigration, and we are still trying to analyse that

- Monetary policy is restrictive; "Real" Fed funds rate is as high as it's been in decades

- Still has to get more comfort on whether the Fed is still on the path to lower inflation

- When the business cycle turns "It's not subtle" with credit deteriorating, unemployment rising. We've not seen that yet

Fed’s Bowman:

"Still see a number of upside risks to inflation. Still expect inflation to fall with rates held steady - Data suggests lower inflation in late 2023 was temporary." 

- Reiterates willing to hike if inflation stalls or reverses

- Risk strong that consumer demand, more immigration and tight labor market could lead to persistently high core services inflation

Financials lagging ( (JPM)  -$2). I have added to XLF short.

From Peter:

Payrolls in April grew by 175k, below the estimate of 240k and the two prior months were revised down by a total of 22k. Most of the miss was in the government sector as the private sector added 167k of those 175k jobs vs the forecast of 193k.

The household sector added just 25k jobs and combine this with the 87k person rise in the labor force, saw the unemployment rate tick up by one tenth to 3.9%, matching the highest since January 2022. The U6 all in rate also rose by one tenth m/o/m to 7.4%. Mix was a factor here as the 25-54 yr old category added 163k jobs but was more than offset by a drop of 319k for those 55 and older. Those younger than 25 saw jobs rise.

Pointing to moderation in new work was the downtick in hours worked to 34.3 from 34.4. Not including Covid, it is just .1 hr from matching the lowest since 2011. The labor force participation rate held at 62.7%, still below its February 2020 level but did rise one tenth to 83.5% for the key 25-54 age group which is above the 83% print in February 2020. Job leavers as a % of the unemployed fell to 12% from 12.7% and vs 11% in February and well off the peak of 16% a few years ago when quitting was much more common.

Average hourly earnings rose .2% m/o/m vs the estimate of .3% and understand that the rise in immigration and the lower wage jobs that many of them take does flow thru this data point. Versus last year, hourly wages were up by 3.9%. I can't quantify the California mandated wage increase into this national number. For leisure/hospitality specifically, with these offsetting factors, wages were up just .1% m/o/m and the main factor in the headline wage miss relative to expectations. Average weekly earnings were also up 3.9% y/o/y.

The birth/death model added 363k vs 378k in April 2023 and 281k in April 2019 so we can argue that job growth is getting overstated from this plug in.

Job wise, most came from the services sector driven by private education/health which added 95k, more than half of all private sector job gains. Trade/transport added 52k, of which 20k came from retail. Jobs were lost in temp and continues a string of declines. 

Job losses were also seen in 'information', which includes tech, telecom, media and in professional/business services. The government saw a notable slowdown in hiring of 8k vs 72k in the month before. On the goods side, manufacturing added 8k after losing 4k last month. Construction added 9k after a 40k person jump in March.

Lastly of note, there was another rise in those working part time because of 'slack work' (highest since October 2021) and also because they 'can't find full time' work (highest since November 2020). This squares with the reduction we've seen in job openings.

Smoothing out the monthly volatility, and I'm just going to focus on the private sector here, puts the 3 month average at 197k vs the 6 month average at 192k and the 12 month average at 182k.

Bottom line, we saw the smallest private sector job gain since last November, a downtick in hours worked, and multi year highs in 'slack work' and 'can't find full time' work for those working part time. 

Just maybe the BLS data is about to be more consistent with the jobs data we're getting in a lot of other metrics, like in the ISM/S&P Global diffusions indexes and what we heard this week from the Conference Board in their consumer confidence index that point to a slowdown in hiring. Initial jobless claims though still reflect very modest firing's.

The market response was of course swift. The 10 yr yield went from 4.55% just before to 4.45% before settling in at 4.50% as of this writing. The 2 yr yield traded down to 4.72% from 4.85% but now is at 4.77%. Inflation breakevens are down 1-2 bps.

With respect to rate cut odds, they are just at 12% for June and 32% for July but gained ground for the back end of the year with 47 bps of cuts now priced in by December vs 37 bps yesterday. Powell did tell us on Wednesday, that he is now focusing more on the employment side of their mandate.

Concerns over China iPhone weakness overdone, says Wells Fargo Wells Fargo tells investors in a research note that concerns over China iPhone weakness are overdone, and Apple's better than expected Q2 results and Q3 guidance are viewed as a positive clearing event. The firm made no change to its Overweight rating and $225 price target. Positive catalysts include upcoming AI announcements, China iPhone growth, and services up 14% year over year, Wells says.

Citi opens 'positive catalyst watch' on Apple into developer conference Citi opened a "90-day positive catalyst watch" on shares of Apple into the WWDC24 developer conference on June 10. Apple CEO Tim Cook sounded bullish on artificial intelligence on last night's earnings call, the analyst tells investors in a research note. The firm expects Apple to unveil multiple AI developer tools to enhance interactivity and productivity across its devices and operating system with features like customized Siri find and search with context. Citi also views Apple's fiscal Q2 report as 'better than feared." iPhone sales were "surprisingly resilient" with total sales down 10%year-over-year or flat adjusting for pent up demand impact from last year, contends the firm. It keeps a Buy rating on Apple with a $210 price target.

Apple price target raised to $216 from $210 at Morgan Stanley Morgan Stanley analyst Erik Woodring raised the firm's price target on Apple to $216 from $210 and keeps an Overweight rating on the shares. In addition to reaching an all-time Services revenue and gross margin record and authorizing its largest incremental buyback in history, Apple guided to an above-Street June quarter view, which alleviated concerns about China iPhone, the analyst tells investors in a post-earnings note. With Apple also having hinted at Gen AI announcements to come in weeks, the firm says "it's hard not to be more bullish after that.”

Apple price target raised to $230 from $225 at BofA BofA raised the firm's price target on Apple to $230 from $225 and keeps a Buy rating on the shares. The firm sees the thesis for its Buy rating playing out with a strong multi-year iPhone upgrade cycle coming driven by GenAI, Services growth reaccelerating, continued strong capital returns, upside to gross margins and incentive for institutional clients to increase positions in anticipation of AI features, adding that "our conviction around each of these is stronger post the earnings call.”

Apple 'should work higher from here,' says Evercore ISI Evercore ISI analyst Amit Daryanani says Apple reported better than expected numbers and "crucially their commentary was much better than buyside fears," so the firm contends that the stock "should work higher from here." For the June-end quarter, Apple expects to see modest revenue growth year-over-year with services and iPads growing double digits, which implies that iPhones should be flat to decline modestly in the quarter, the analyst noted. With June-quarter guidance behind it, the firm thinks a set of positive catalysts should help drive the stock higher into WWDC, where Apple will give details around its AI strategy across both hardware and services, says Evercore, which thinks "Apple can deliver AI upside without the AI capex we see elsewhere." The firm maintains an Outperform rating and $220 price target on Apple, which it calls a "Top Pick.”

Apple price target raised to $225 from $210 at JPMorgan JPMorgan raised the firm's price target on Apple to $225 from $210 and keeps an Overweight rating on the shares following the fiscal Q2 report. The confluence of "better-than-feared" results and guidance for stronger than expected revenue growth in Q3 are setting up a "strong launch pad" for the company in relation to results in fiscal 2024 as focus turns to the impending artificial intelligence smartphone upgrade cycle in the coming years, the analyst tells investors in a research note. The firm says Apple's results and guide are comprised of "resilient" iPhone revenues on a year-over- year basis, contrary to the negative data points in all third-party estimates through the quarter.

Apple is one of Buffett's best, but riskiest investments, Apple is one of Warren Buffett's greatest investments, but is also one of his riskiest, Gregory Zuckerman of The Wall Street Journal reports. In 2016, Buffett began having Berkshire Hathaway (BRK.A;BRK.B) buy up shares of Apple and by the end of Q3 in 2018, Berkshire's Apple stake represented about a quarter of its entire investment portfolio. This decision has paid off, but, with Apple running into problems and the stock down 10% this year, holding shares in the stock is becoming riskier. 

rolf

Apple - 110 bill stock buy back is like a 4% dividend that paid back to shareholders. No biggie in my view

What it tells you is they cannot invest the cash productively within Apple

What I do not get is why prominent investors are buying it - it's not cheap, declining revenues, China headwinds, no new products other than yet another iPhone (AI of course) and expanding profits through pricing. There are better stocks to own. This stock was trading at a 13 PE a decade ago - it could go back down there. Who knows?

 Dougie Kass

Importantly, an Apple buyback is no longer accretive against investing in risk free short-dated Treasury Bills (5.4%).

If company PE is 25x, that is only a 4% ROI!

Added to following shorts:

* AAPL $186.02

* SPY $510.61

* QQQ $433.62

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Upside

- (ARDX)  +19% (earnings, guidance)
- (AXTI)  +15% (earnings)
- (OSPN)  +15% (earnings, guidance)
- (TNDM)  +15% (earnings, guidance)
- (AMGN)  +14% (earnings, guidance)
- (PCTY)  +14% (earnings, guidance)
- (OPEN)  +9.4% (earnings, guidance)
- (UDMY)  +9.2% (earnings, guidance; expands share buyback program)
- (SQ)  +7.2% (earnings, guidance)
- (IBRX)  +6.7% (ImmunityBio, Serum Institute of India agree on an Exclusive Arrangement for Global Supply of Bacillus Calmette-Guerin (BCG) Across All Cancer Types)
- (TWST)  +6.2% (earnings, guidance)
- (AAPL)  +6.1% (earnings, guidance)
- (MTZ)  +5.8% (earnings, guidance)
- (FIVN)  +5.0% (earnings, guidance)
- (WSC)  +4.9% (earnings, guidance)
- (DVA)  +4.7% (earnings, guidance)
- (AXL)  +4.5% (earnings, guidance)
- (MSI)  +4.4% (earnings, guidance)
- (MELI)  +4.3% (earnings)
- (TRMB)  +3.4% (earnings, guidance)

Downside

- (SPT)  -29% (earnings, guidance)
- (STEM)  -20% (earnings, guidance)
- (LLAP)  -19% (strategic review is ongoing)
- (MRIN)  -18% (earnings, guidance)
-NET -13% (earnings, guidance)
- (BBAI)  -12% (earnings, guidance)
- (CRDF)  -12% (earnings)
- (EXPE)  -12% (earnings)
- (CTOS)  -11% (earnings, guidance)
- (VIAV)  -8.6% (earnings, guidance)
- (FTNT)  -8.5% (earnings, guidance)
- (KURA)  -7.7% (earnings)
- (VREX)  -7.5% (earnings, guidance)
- (SLNO)  -5.6% (prices 3M shares at $46/share)
- (RARE)  -5.1% (earnings, guidance)
- (TPIC)  -5.0% (earnings, guidance)
- (IR)  -3.4% (earnings, guidance) 

From Peter:

For newer readers, my first contrarian investment idea entering 2024 was to get long the Hang Seng index and stocks in it. Valuations were ridiculously cheap, the sentiment was god awful and the daily China bashing was as loud as can be. If you didn't see, yesterday it finally exceeded the performance of the S&P 500 year to date after starting January down 10%. It's also rallied for 9 straight days and higher by 8.4% year to date not including generous dividends.

We remain bullish and long stocks catering to not just the Chinese consumer but the Asian consumer generally, like Trip.com and AIA Group, along with Macau casino stocks, which have definitely lagged, and others along with some ETFs there and in other countries in the Asian region.

I will repeat my belief that the growing middle class in Asia is the most exciting economic growth story when looking out over the next 10 years. We get so US centric here but forget that half the world's population lives in Asia. Even in China, the size of their middle class will go from an estimated 400 million people to 800 million over the next 5-10 years. Rising wealth in India, Indonesia, Vietnam, Thailand, Singapore etc... are not to be ignored from an investing standpoint.

Before I get to the earnings calls, we saw the BoJ intervene again a few days ago, last week the Bank Indonesia hiked rates to defend the rupiah and today the Bank of Korea Governor said they might put off rate cuts in order to defend the Korean Won. "Whether the rate cut timing will be pushed back, how much it will be pushed if it is, or if it will even come will be the question that needs to be reviewed. I wouldn't call it starting from scratch. But the situation has changed since April." The Won is higher by 1% vs the US dollar in response.

More mixed commentary from earnings calls on the economy.

From Apple:

"As we push innovation forward, we continue to manage thoughtfully and deliberately through an uneven macroeconomic environment."

From Live Nation, a stock we own and in a business that continues to rock n' roll, pun intended:

"So just to make sure we hit hard on the consumer demand, we are seeing no weakness. The things that we look at that give us an indication of how the shows are selling, how the fans are spending when they go to the site, all continue to be very strong...We're consistently seeing the sell-through of the shows are at or above where they were last year and that the overall grosses for the artists are consistently higher. So no issues at all on fan demand relative to last summer."

From Booking Holdings, benefiting from leisure/travel:

"We continue to see resiliency in global leisure travel demand, including healthy growth for travel on the books that's scheduled to take place during our peak summer travel season, although a high percentage of these bookings are cancelable and what is on the books today represents a modest percentage of the expected total summer bookings."

They did mention "the increased impact from the geopolitical situation in the Middle East."

By region on room in night growth, "Asia was up mid-teens, Europe and the rest of the world were up high single digits, and US was up low single digits."

From Stanley Black & Decker:

After talking about their gross margin momentum, they said "This is particularly notable considering a significantly worse negative macro-environment, and corresponding revenue performance in 2023 and '24 vs our initial expectations at the outset of our transformation in mid 2022."

"Looking forward in 2024, we expect mixed demand trends to persist across our businesses." Their hand tool revenue fell 7% y/o/y "pressured by lower DIY demand." As for their outdoor product line, revenue grew by 2%, "driven by a strong demand for handheld cordless outdoor power equipment and incremental retail product listings" but also said "the outdoor market remains soft vs 2019 volume levels."

Also, "The independent dealer channel continues to work through significant on-hand inventory, which pressured shipments in the quarter. We are monitoring POS trends in this channel and currently expect that they can clear their inventory during the 2024 season to set up a stronger 2025." In the manufacturing sector, we're all watching for when that inventory restock begins.

From Vulcan Materials, another aggregates producer, on its end markets:

"Momentum in single family continues to accelerate across our footprint and points to growth in 2024. However, we continue to expect weaker multi-family residential construction to largely offset the single family improvement this year. Overall, affordability and elevated interest rates remains a challenge, but the underlying fundamentals of population growth and low inventories in Vulcan markets support the recovery in residential construction."

"As expected, continued moderation in warehouse starts will be the biggest headwind to private and non-residential demand this year."

"We continue to see and capitalize on opportunities in the manufacturing category." I'm sure they are benefiting from the government encouraged manufacturing facility construction.

And infrastructure spend too, "with over 2/3rds of federal highway spending allocated to Vulcan states."

Similar to CDW, Arrow Electronics is also a good tell on tech spend as they are a major distributor of electronic components and computer products to over 200,000 customers.

"In the 1st quarter, we continued to execute well in a challenging market environment, as we worked through the inventory correction that has impacted the global technology supply chain over the past few quarters."

"As we take a closer look at global components, the cyclical nature of this business is a reality, and we're navigating through a prolonged correction as customers restock surplus inventory levels, which accumulated in response to the severe shortages that marked the industry supply chain disruptions of the pandemic era. We continue to witness the knock-on impact to the demand environment, with softness across many of the markets we serve."

"While we still see relative strength in pockets, the broader industrial market, a meaningful portion of our overall mix remains in decline. Having said that, our customer base is stable."

Lastly, as we await when inventory restocking will begin, not yet, "Broad based market data suggests customer inventory levels at OEMs and EMS providers are declining both sequentially and y/o/y, a necessary step in the right direction."

Shifting to the consumer, it seems like price mostly drove comp sales gains at Shake Shack:

"And we're showing solid signs of strength so far this year and each month we have improved sales. April got even better as we grew Same-Shack sales by 4.9% with approximately flat traffic and we carried the momentum into fiscal May." They said pricing was up "mid single digits."

On maintaining flat traffic when their peers are seeing some declines, "we've continued to employ more and more marketing...and guest experience strategies that have really ticked up."

Further on pricing, "To address food and wage inflationary pressures, which were in particular in California with the move to $20 per hour in minimum wage, we took the following steps. In January, we raised the menu price on our own delivery by 5% and maintained the 15% premium on 3rd party channels as compared to our own delivery. In mid-March, we raised menu prices by about 3% in total. However, this was comprised of about 7% menu price in California to address the wage pressures, and about 2% to 2.5% price in all other regions."

Luckily that might be it though on the pricing initiatives as "We have no current plans to further increase price this year."

Turning to Wayfair, after a weather troubled January, "we saw the category show signs of improvement in late February and March." Total revenue fell 2% y/o/y in Q1. They are also taking market share in a category that "remains weak."

They got this feedback from many of their suppliers, "Inventory levels have been in a very healthy place for a few quarters now and our suppliers are largely past the period of elevated input costs and transportation prices that they faced in late 2022."

The big picture, long term, glass half full case for home furnishings in a challenged marketplace currently:

"We know there is a lot of attention around when we will finally see some stability in spending on home furnishings. And while the timing of the inflection point is inherently uncertain, it's important to remember that this is a category where consumers have now structurally underspent compared to typical patters prior to the pandemic. We know that eventually the need reverts as life goes on. People get married, they have kids, kids move out, the need for home furnishings never goes away and over time, the category will rebound and return to its typical pattern of growth."

The S&P Short Range Oscillator moved further into overbought last night - at 3.89% from 2.34%.

There will be no "Futures" column today as I have two research calls before 8 am.

* More cannabis talk

* I am tough on dogmatic cannabis Perma Bulls who have experienced a decline in MSOS from $40 to $9 and still think they are right on the sector's outlook!

* There is little critical analysis and/or objectivity in their analysis of cannabis stocks...

"The definition of insanity is doing the same thing over and over and expecting different results."

- Albert Einstein

There is little critical analysis and/or objectivity in the analysis of cannabis stocks.

In the main, Perma Bulls, sell side analysts and "paid advisors" deliver the same (too optimistic) pablum week after week. - undaunted by their very wrong-footed evaluation of short- and intermediate- term industry fundamentals.

They are their own worst enemies and, often can't seem or don't want to handle the truth or an alternative view. 

It is as if, deaf to their analytical and market shortcomings, the weakness in cannabis stocks are other people's "faults" - Washington, D.C. politicians (especially of a Senator Schumer-kind), naysayers/perma bears,lobby groups (SAM), and those simply opposed to weed use, etc.

Routine daily podcasts and recaps - by those blinded by their biased views - have become narrow and repetitive conversations of an insular (and bullish) cannabis community blinded by not only their lack of objectivity but also, as noted, by redundancy of view and the absence of critical analysis of uninspiring industry fundamentals and overrated longer term prospects.

The same observation applies to cannabis industry conventions and meetings - which I will no longer attend. Again, too much of a "love fest" and too little room for a serious exploration of the industry's challenges and headwinds.

Any critical analysis countered on Twitter or any other platform of social media is met with resistance (and "blocking") by a group of talking heads with no sense of ownership or, seemingly, conscience - as they have led retail lemmings off the cliff (as MSOS has dropped from $40 to $9).

See Albert Einstein's quote above!

Mid-week I offered some bonafide reasons why the upside, for now, is limited and why I took advantage of the swift rise to take profits:

BY DOUG KASS MAY 1, 2024 11:14 AM EDT

Why I Sold All of My Cannabis Holdings on Yesterday's Sharp Climb Higher

• Schedule III does not necessarily resolve uplisting issues.
• Schedule III does not resolve institutional ownership and custody issues.
• So, a further rally in cannabis stocks will be dependent on follow thru of interest by retail investors (who have been consistently burned by purchasing strength over the last 3-5 years).
• An excise tax may be instituted to offset the loss of tax revenues from the elimination of 280e.
• The notice/review/lawsuits issues during the estimated six month comment period could get contentious.
• If Schedule III is not finalized before year end there could be renewed concerns that a new Administration will try to turn back the decision.
• Some portion of the benefit of elimination of 280e may inure to the benefit of consumer (in terms of lower weed prices).
• The total addressable market for cannabis is materially less than consensus expectations.
• State silos create diseconomies of scale.
• State dispensary limitations in popular/large states is a headwind to consumer branding and market penetration opportunities.
• Accounting standards for the cannabis sector are aggressive/weak.
• Managements are still not ready for prime time players.- arguably, their operating and forecasting skills are not yet keenly developed.
• Accumulated debt and non payment of taxes represent a heavy load for companies not delivering returns anywhere near their cost of capital.

Position: None

BY DOUG KASS

MAY 1, 2024 10:15 AM EDT

Here is more support of one of my arguments, among other reasons, that the notice period over the remainder of 2024 will be contentious and could be drawn out:

Washington Journal on X: "THURS| Kevin Sabet (@KevinSabet) of the anti-legalization group Smart Approaches to Marijuana and Paul Armentano from the National Organization for the Reform of Marijuana Law (@NORML) discuss DEA plans to reclassify marijuana as a lower-risk drug. Watch live at 8:00am ET! https://t.co/5PEpoIPxpR" / X (twitter.com)

Marijuana Legalization Opponents Raise Money For Potential Lawsuit Against Federal Rescheduling Move - Marijuana Moment

Bottom Line

I always speak my mind and I don't suffer fools who don't have investment process or whose analysis I believe to be miles long but only inches deep.

I try to anchor my views based on objective analysis and not hope or dogma.

Sometimes I fail in my own analysis but I try to be detailed and objective - to examine not only the positives but the negatives.

That said, I fully plan to return to cannabis equities at a point in which more objectivity (and lower share prices) return to the space and, more importantly, when the upside reward v downside risk warrants such a return.

As I noted in a column earlier this week, cannabis equities (in theory) have the same "open-ended" upside potential of some of the past, important market leaders (and "game changers"):

The Lesson From the 'Game Changers'

They are: Nvidia (NVDA) , Tesla (TSLA) , Lilly (LLY) , and Novo Nordisk (NVO) .

* The perception of near open-ended market opportunities invokes speculation/animal spirits that typically produce much higher stock prices.

* "Game changers" are different than "core compounders" — the former, at a moment in time, are seen to having the sky as the limit whereas the latter have durable, deep and long-lasting competitive moats.

Nvidia (in AI (artificial intelligence)), Tesla (electric vehicles) and Novo Nordisk/Eli Lilly (in GLP-1 drugs) are recent examples of equities that are perceived to be facing "open ended" end-market opportunities — and outsized sales/profits growth — for the foreseeable future.

These stocks are seen to face such promising relative and absolute profit growth that determining terminal price earnings multiples are difficult. And, more often than not, the exceptional growth prospects are accorded a high valuation that, arguably and inevitably, results in so much speculation that historic stock prices and multiples are thrown out the window and animal spirits propel the stocks to almost geometric expansion.

By means of background, I tend to be a value investor. But, at the same time, I realize how one can generate excess returns ("alpha") by committing a portion of my portfolio to more speculative issues with an "open ended" flavor.

Some of my recent buys in biotech, cannabis and on-line gaming have similar characteristics to some of the past winners and game changers named above — in that the upside has that "open ended" character and feeling to them:

* Biotech - Long runway for GLP-1 drugs (Viking Therapeutics (VKTX) )

* Cannabis - New states lead to rising market demand (Florida), rescheduling means elimination of 280-e taxation/, SAFR means uplifting/resolution of custody issues/institutional buying (MSO, Curaleaf (CURLF) , Terrascend (TSNDF), Green Thumb (GTBIF) and Trulieve (TCNNF) )

* On-Line Gaming - Vast market share and penetration opportunities (DraftKings (DKNG) )

BY DOUG KASS APR 30, 2024 10:00 AM EDT

As always, stay tuned...

As noted yesterday I have taken off nearly all of my Viking Therapeutics  (VKTX)  long in light of the sharp rise from $61 to $80.

Besides the rapid climb in the share price, what was also giving me pause was Pfizer's  (PFE)  conference call in which the company indicated that their merger strategy seemed to be on hold. As well, competing GLP-1 drugs (Amgen, etc) pose a competitive threat to LLY, Novo Nordisk and Viking.

From yesterday:

A Viking No More

With sales in the last two days I am down to tag ends long Viking Therapeutics (VKTX) .

I plan to buy back on weakness — if it develops.

The shares' price rise has been outstanding.

Position: Long VKTX (S), Short VKTX calls (S)

BY DOUG KASS

MAY 2, 2024 6:27 AM EDT

"Earnings don't move the overall market; it's the Federal Reserve Board... focus on the central banks, and focus on the movement of liquidity... most people in the market are looking for earnings and conventional measures. It's liquidity that moves markets."

- Stan Druckenmiller

Bonus - Here are some great links:

China Climbs Out of the Bottom   

Jazzy Jeff Hirsch on Election Year Markets

How To Find The Trade    

"An Apple A Day"

* Boldface for emphasis...

Back In on Index Shorts

After the close (6:05 p.m.) I'm re-establishing Index shorts (and working on a scale higher):

* (SPY) $507.12

* (QQQ) $429.91

I am going out on the limb and say after a modest jump at the opening (Spoos +16 handles and Nasdaq futures +84 handles ) we close down tomorrow.

MAY 2, 2024 6:23 PM EDT

BY DOUG KASS

Last night I moved from tagends short to medium sized short AAPL - cost basis was $183.65 in the after hours:

Worrisome:

Delinquencies of Floating-Rate Office CMBS Loans.

The Fed Balance Sheet QT.

At 432 am:

Added to very small Index shorts:

* SPY $506.63

* QQQ $429.80