*7 of 11 sectors closed down...

* ABNB and ARM are suboptimal

- NYSE volume 439M shares, 1% above its one-month average

- NASDAQ volume 3.62B shares, 9% below its one-month average

Breadth

Biggest Movers

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Nasdaq 100 Heat Map

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Wolf Street howls about the -40% plunge (today) in DoubleVerify shares.

This is a stock I was short of last year:

Housekeeping Item

I have covered my (DV) short at $35.87.

Position: None

BY DOUG KASS AUG 1, 2023 11:25 AM EDT

Dumb move! 

Paring back Green Brick Partners  (GRBK)  further ($56).

In this video, "The Big Short", Michael Burry describes the complexity of credit default swaps:

I bring this up as an illustration that often the hardest and most complex transactions are, in and of themselves, a challenge. But the profitability in overcoming the challenge may be worth it.

Back in the day, AMCC was an example ($33 to $1100!) and, hopefully, Ligado bonds will be the next one!

Tomorrow I will update my Market Outlook.

As I have written, I am often wrong and always in doubt.

That said, the only thing I feel very strongly about is that we are likely in a new regime of heightened volatility - great for opportunistic traders, but no so great for the buy and hold crowd.

I have covered my very small (VS) short of SPY and QQQ ("common") - and replaced/exchanged with short calls with a premium.

Randy

CFRA, an independent research provider, Reiterates Hold Rating On Shares Of Valvoline Inc.

• We keep our 12-month price target at $40 on a forward P/E of 21x our FY 2025 EPS estimate, above the five-year average on forecasted sales/margin expansion, but in line with the one-year average. We lift our FY 2024 EPS estimate by $0.03 to $1.57 and FY 2025's by $0.02 to $1.92. FQ2 sales increased 13% Y/Y driven by system-wide same-store sales growth of 7.7%. In FQ2, VVV added 38 stores - 24 company-operated stores and 14 franchised. Operating margin increased 190 bps Y/Y on lower SG&A and lower supply chain costs/store expenses. VVV posted FQ2 EPS of $0.37, beating consensus by $0.02. 
• We reiterate our view that VVV is well positioned for growth, driven by store additions and customer and service expansions, but we think shares are trading close to fair value. We note VVV repurchased $40 million worth of shares in FQ2, completing the $1.6 billion share repurchase authorization.

* Products matter!

* Losing focus matters!!

"I am going to write a good Diary on Real Money Pro today... and I am going to help people. Because I am good enough, I am smart enough and doggone it, people like me."

-- Daily Affirmations with Dougie Kass

Today's Daily Affirmations is about "talking heads."

The market's talking heads we see daily on FIN TV appear not to do a lot of leg work when they prop up individual equity names.

Their observations are generally superficial - miles long but only inches deep - unsupported by hard-hitting analysis.

Rather, they seem to gaze into the rear view mirror... until it is too late.

Two cases in point:

* Starbucks  (SBUX)  has been a train wreck post Covid and rather than pump the name because that is what they do, one should have looked at expensive products, dated items (for instance bakery items same today as they have been the last decade and frankly not that good), poor service in stores that frankly are not as clean as they used to be.

* Uber  (UBER) , the service is not anything like what I remember. In fact the last several times I used the service I was happy just to get out of the car after fearing that my driver was not qualified to drive me anywhere, I loathe Uber as a service.

These are only two examples, but if I were an investor in either of these I would have run for the hills. The product does matter in my opinion on developing an investment thesis.

I believe if one does a deep dive into the quality of the services a company offers it would go a long way in determining the prospective outlook for profitability - and, in turn, the share price.

An analyst/portfolio manager must do more than look at historical financials and overall market trends. The business model always has to be evaluated and a determination must be made: is the management and business going in the correct positive direction. Seems simple but not what I read or hear. 

I am not a licensed therapist, though.

"I deserve good things. I refuse to beat myself up. I am an attractive person. I am fun to be with."

- NYSE volume 142M shares, 4% above its one-month average

- Nasdaq volume 1.31B shares, 6% below its one-month average

- VIX: down 0.23% to 13.20

Breadth

Nasdaq 100 Heat Map

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S&P 500 Sectors

The latest commentary from Oaktree's Howard Marks.

With S&P cash reversing from the lows and only -2 handles lower on the day, I am shorting more June in the money calls on SPY, QQQ.

This morning Spruce Point Capital has issued a sell recommendation on one of my shorts,  (BOOT) .

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Upside

-INOD +23% (earnings)
-MYGN +18% (earnings, guidance)
-CRUS +13% (earnings, guidance)
-GMED +12% (earnings, guidance)
-ODD +12% (earnings, guidance)
-RNG +12% (earnings, guidance)
-LPX +11% (earnings, guidance)
-RDDT +11% (earnings, guidance)
-OLO +9.0% (earnings, guidance)
-BROS +7.9% (earnings, guidance)
-CFLT +7.8% (earnings, guidance)
-PERI +7.7% (earnings, guidance)
-KD +7.1% (earnings, guidance)
-TTOO +7.1% (considering amending, restating Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock to remove beneficial ownership blocker)
-PUBM +6.9% (earnings, guidance)
-CRVS +6.6% (insider purchase ~$1M worth of common shares, including CEO Miller)
-VCYT +6.5% (earnings, guidance)
-AGL +5.4% (earnings, guidance)
-TOST +5.4% (earnings, guidance)
-ADPT +5.1% (earnings, guidance)
-ABOS +4.8% (first patient dosed in ALTITUDE-AD Phase II clinical trial of Sabirnetug (ACU193) in early Alzheimer's disease)
-KIND +4.4% (earnings)
-CRCT +4.2% (earnings; declares $0.40/shr special dividend)
-LYFT +4.2% (earnings, guidance)
-MQ +4.0% (earnings)
-GPRO +2.2% (earnings)
-ELAN +2.1% (earnings, guidance)
-POWI +2.1% (earnings, guidance)

Downside

-TMCI -59% (earnings, guidance)

-DV -39% (earnings, guidance)

-ZI -22% (earnings, guidance)
-INSP -21% (earnings, guidance)
-SHOP -18% (earnings, guidance)
-GO -16% (earnings, guidance)
-AMRK -15% (earnings)
-LZ -15% (earnings, guidance)
-FLYW -14% (earnings, guidance)
-SHEL -14% (said to sell Singapore oil assets to Glencore-Indonesia JV)
-ALAB -9.5% (earnings, guidance)
-OPK -9.2% (earnings)
-GPMT -8.9% (earnings)
-SMLR -7.6% (earnings)
-TWLO -7.6% (earnings, guidance)
-AQST -7.4% (earnings, guidance)
-UBER -7.3% (earnings, guidance)
-RIVN -7.0% (earnings, guidance)
-LL -6.2% (earnings, guidance)
-CPNG -6.1% (earnings)
-MTCH -5.7% (earnings, guidance)
-RVLV -5.5% (earnings, guidance)
-CURI -4.9% (earnings, guidance)
-CMP -4.6% (earnings, guidance)
-ATEC -4.3% (earnings, guidance)
-RRR -4.3% (earnings)
-RIGL -4.2% (earnings)
-OCUL -4.1% (earnings)
-MSGM -4.0% (earnings)
-SNAP -4.0% (files to sell $650M of convertible senior notes due 2030 in private offering)
-TSLA -3.7% (reportedly as a part of Tesla Autopilot probe, US prosecutors examine if Tesla committed securities or wire fraud by misleading investors and consumers about its EVs’ self-driving capabilities)
-DLR -2.9% (prices 10.5M share offering)
-INTC -2.2% (reportedly US will revoke licenses for supply of chips to China's Huawei; adjusts Q2 guidance)
-QCOM -2.1% (reportedly US will revoke licenses for supply of chips to China's Huawei) 

Upstart now trades at $21/share:

This should weigh on the shares of Amazon and its peers:

Valvoline beats by $0.02, reports revs in-line; guides FY24 EPS in-line, revs in-line (44.21)

• Reports Q2 (Mar) earnings of $0.37 per share, excluding non-recurring items, $0.02 better than the FactSet Consensus of $0.35; revenues rose 12.8% year/year to $388.7 mln vs the $391.25 mln FactSet Consensus.

• The second quarter saw growth of 7.7% in system-wide same-store sales.

• Co issues in-line guidance for FY24, sees EPS of $1.45-1.65, excluding non-recurring items, vs. $1.60 FactSet Consensus and prior guidance of $1.40-1.65; sees FY24 revs of $1.60-1.65 bln vs. $1.63 bln FactSet Consensus and prior guidance of $1.60-1.70 bln.

• Expects system-wide same-store sales growth of 6-8% vs prior guidance of 6-9%.

• The Company plans to report a material weakness related to the implementation of a new enterprise resource planning system that took place on January 1, 2024, and its related impact on information technology general controls. Notwithstanding the material weakness, the Company believes there are no material inaccuracies or omissions of material fact in the reported results, and to the best of the Company's knowledge, the condensed consolidated financial statements fairly present in all material aspects the financial condition, results of operations and cash flows in conformity with GAAP. Management developed a plan to further remediate the material weakness and has already begun these efforts. The Company expects the material weakness will be remediated by the end of fiscal 2024.

Elanco Animal Health beats by $0.08, beats on revs; guides Q2 EPS in-line, revs in-line; guides FY24 EPS in-line, revs in-line (13.52)

• Reports Q1 (Mar) earnings of $0.34 per share, excluding non-recurring items, $0.08 better than the FactSet Consensus of $0.26; revenues fell 4.1% year/year to $1.21 bln vs the $1.18 bln FactSet Consensus.
• Co issues in-line guidance for Q2, sees EPS of $0.23-0.26, excluding non-recurring items, vs. $0.24 FactSet Consensus; sees Q2 revs of $1.145-1.170 bln vs. $1.15 bln FactSet Consensus.
• Co issues in-line guidance for FY24, sees EPS of $0.88-0.96, excluding non-recurring items, vs. $0.92 FactSet Consensus and prior guidance of $0.87-0.95; sees FY24 revs of $4.460-4.515 bln vs. $4.5 bln FactSet Consensus and prior guidance of $4.45-4.54 bln.

• Adjusted EBITDA of $960 to $1,000 million vs prior guidance of $960 to $1,010 million

11:00 AM: Fed Vice Chair Jefferson (Voter) participates in virtual moderated discussion before the "Exploring Careers in Economics" event hosted by the Federal Reserve, Washington, DC (Q&A from moderator. No text. Livestream at www.federalreserve.gov);

11:45 AM: Fed Bank of Boston President Collins (Non-Voter) speaks before students and faculty and participates in a fireside discussion before the Massachusetts Institute of Technology (MIT) Sloan School of Management's Challenges and Opportunities class, Cambridge, MA (Q&A with MIT community. No media availability. Embargoed text expected. Livestream available)

1:30 PM: Fed Governor Cook (Voter) will discuss the Fed’s latest semi-annual Financial Stability Report at an event hosted by the Hutchins Center on Fiscal and Monetary Policy, Washington, DC

They should stop talking!

From Druck, here and here.

From Peter:

We know full well the difficulties those are having in commercial real estate if one has low cost debt coming due this year, regardless of asset class and what is going on in office. Regardless though of one's balance sheet, the value of CRE has fallen everywhere with cap rates higher, except if you are Blackstone REIT, their private real estate fund that continues to show amazing but puzzling resiliency in terms of their valuation marks, especially relative to its publicly traded peers. 

In these pages over the past couple of years and my talks with them directly have questioned how this major fund of real estate holdings has been able to buck the trend. Well, that scrutiny has finally reached the writings of Bethany McLean. I recommend the read if you're following CRE and/or Blackstone's stock.

It's not having an impact on the yen today, which is actually lower, but the words of BoJ Governor Kazuo Ueda is stepping up the verbal rhetoric about its weakness and he's finally realizing only his actions with respect to interest rates will sustainably matter in strengthening it. He said today in parliament, "Foreign exchange rates make a significant impact on the economy and inflation. Depending on those moves, a monetary policy response might be needed."

The Minister of Finance Shunichi Suzuki also spoke and highlighted why a weak yen is not a good thing for the Japanese citizenry. He said, "While the weak yen has pluses and minuses, right now I have strong concerns about the minus side with the upward pressure on import prices...Since Japan relies on overseas markets for food and energy, and a large portion of its transactions are denominated in dollars, a weaker yen could raise prices of imported goods."

Front running a likely interest rate cut from the ECB in June, the Swedish Riksbank cut its overnight rate by 25 bps to 3.75% as expected and said "If the outlook for inflation stays the same, the policy rate can be cut two more times during the 2nd half of the year." Their reasoning? "Inflation is approaching the target while economic activity is weak." 

But, they also said "The risks that may cause inflation in Sweden to rise again are primarily linked to the strong US economy, the geopolitical tension and the krona exchange rate. The adjustment of monetary policy going forward should therefore be characterized by caution, with gradual cuts to the policy rate." On the possibility for more cuts, the Swedish Krona is weaker vs the US dollar but the 2 yr yield, after falling in the prior few days, is little changed.

It's clear that at least a few central banks in Europe are not waiting around for inflation to remain sustainably lower and are instead trying to catch the falling inflation knife directionally and hoping they don't get cut.

Moving to freight and the transportation of it, the April Logistics Manager's Index fell to 52.9 from 58.3 in March, which was the best read in a year and a half. 

LMI said, "While this still indicates growth in the logistics industry, this breaks what had been four consecutive months of increasing rates of expansion and is the slowest rate of growth observed so far in 2024. The slowed pace of growth is driven by a significant decrease in the expansion of inventory levels. This has cascading effects across the supply chain, as lower levels of inventory led to a loosening of both warehousing and transportation capacity, slower expansion for warehousing utilization and most importantly, transportation prices moving back into contraction."

They did dig deeper though and said the 2nd half of the month was better than the first. And with transportation prices, they jumped 27.3 pts and back into expansion over the last few weeks of April. 

They said, "This may be reflective of seasonal restocking of summer items, or increased hopes that interest rates could come down in late summer after reading the tea leaves of the most recent Federal Reserve meeting. Whatever the cause, it is clear that the logistics industry was much stronger in the 2nd half of April. It will be interesting to see if that trend continues into May, or if there were other forces at work causing some type of aberration."

 As stated here many times, we wonder when the inventory destocking is fully done which could set the stage for some restocking, obviously dependent on end demand.

Shifting to some earnings calls

To the transportation comments above, Expeditors International, the freight brokerage servicer mostly focused on air and ocean freight and not truck, said, "While we are no longer experiencing anything like the widespread supply chain chaos of the pandemic, our industry remains volatile due to global conflicts, stubborn inflation, fragile economies, and uncertain demand. At the same time and despite those conditions, both air and ocean carrier capacity continue to grow, further pressuring rates that have already come down significantly from their peaks."

From Disney, and I'll just focus on the parks business in terms of gleaning some macro, and a stock we own:

"At Disneyland, despite growing attendance and per-capita spend, results declined y/o/y due to cost inflation, including from higher labor expenses."

"As it relates to demand, while consumers continue to travel in record numbers and we are still seeing healthy demand, we are seeing some evidence of a global moderation from peak post-Covid travel."

From Iger on this, "in terms of attendance, what we're basically communicating is relative to the post Covid highs, things are tending to normalize...I certainly feel like the Parks business is still doing very, very well. Obviously, we've got the best in the business in terms of product. And people still have a strong desire to basically go on vacation and come to see us."

From Wynn Resorts:

Wynn Las Vegas had a record cash flow quarter as "most of the action in the quarter was concentrated in February as the combination of Super Bowl and Chinese New Year drove" it. Their Macau EBITDAR in the quarter exceeded its 2019 exit rate.

If you're a New Yorker, they are trying to get a license to build a full scale Wynn integrated resort in Hudson Yards.

Sticking to the travel theme, from Simon Property's call on Monday:

"Our tourist oriented properties outperformed the portfolio average in the quarter with a 6% increase in sales...domestic tourism continues to excel, and I think people, at the end of the day as part of when they go on holiday, they love shopping as part of that experience, dining, shopping, being with their families."

Also, "we feel like the malls made a big comeback, physical stores are where it's happening, we're seeing a resurgence and reinvigoration of that whole product."

But, "the lower income consumer has been under pressure now for quite some time. We're very focused on that. Obviously inflation has taken its toll and even though inflation is moderating, the prices that the lower income consumers are dealing with are quite daunting. So we'll continue to see volatility in that area we anticipate.

"We're hoping that their cost of living moderates and to some extent their wages go up or their cost of living goes down, so we can see more discretionary income there. The higher income consumer continues to spend and visits our properties and it's good. And as a good example of that is our traffic for the first quarter, I think was up around 2% for the year."

Overseas, Taiwan said its April exports rose 4.3% y/o/y but less than half the estimate of up 9.9%. The mix was interesting too as exports to the US spiked by 82% y/o/y driven by tech, communication and other electronic products but fell 1% to China. For all the concerns of China's encroachment on Taiwan, the TAIEX is up 15.5% year to date.

German industrial production in March fell .4% m/o/m but as expected when including the revision to February. They are down 3.3% y/o/y and hasn't risen y/o/y since May 2023 for reasons we all know.

* Markets took a breather after days of strength

* Volumes remained low in this four day rally - a divergence or warning signpost?

* IMHO Equities are not compensating investors for risks and are expensive against interest rates and rising inflation:

* The S&P Short-Range Oscillator is still in overbought - at 3.83%

* Bond yields are +2 bps

* The U.S. dollar is much stronger against the yen:

* Oil is getting smoked after a good run... Brent is -$1.33

* Gold is -$3.70 and silver is -$0.19

* Bitcoin is -$900 (-2%)

* I had an early start this morning:

My life seems unreal, my crime an illusion
A scene badly written in which I must play
Yet, I know as I gaze at my young love beside me
The morning is just a few hours away

- Simon & Garfunkel, Wednesday Morning 3 AM

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 hold 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 brief observations I wanted to highlight and provide a summary of overnight price movements in various asset classes:

* Stock futures were flat overnight - within a very narrow range. S&P futures peaked at +4 and bottomed at -5. Nasdaq futures peaked at +17 and bottomed at -15. At 5:41 a.m. ET, S&P futures were -1 and Nasdaq futures were -3.

* Commodities are broadly lower. Brent crude was -$1.35 to $81.11. (I am down to tagends of  (XOM)  and  (CVX) .)

* The S&P Short-Range Oscillator remains in overbought last night at 3.83% v 4.81%.

* The VIX is at 13.20 (-0.03). Given the low vol I am out of straddles/strangles now.

* The US dollar is very strong against the yen, euro and pound.

* Interest rates are 1-2 bps higher. The yield on the two-year Treasury is 4.84% (+1 basis point). The yield on the 10-year Treasury is +2 basis points at 4.48%. The long bond yield is also +2 basis points at 4.63%.

* Overnight, the inversion of the 2s/10s Treasuries curve is up to -35 basis points.

* Gold is -$5 at $2,319. Silver is -12 cents.

* Bitcoin is -1% or -$700 and is $62.2k.

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

A Developing Divergence? 

More MPW Madness

Someone is Getting Very High

My Reaction to Disney's Earnings

Palantir, Another Lesson Learned (When Executives Blame Short Sellers)

Druck Being Druck

Sir Seth Klarman

An Oldie But Goodie

Sorry Steve, Colored Me Concerned

Must Watch, A Penney For Your Thoughts

Here were yesterday's trades:

* Covered my  (HOOD) short

* Added to  (PGC)  and  (VVV)

"No comment" on marijuana rescheduling proposal.

Danielle is a sage observer:

An open letter to Western politicians on Russia.

There are no problems in the commercial real estate market:

"One of the very nice things about investing in the stock market is that you learn about all different aspects of the economy. It's your window into a very large world."

- Ron Chernow

Bonus - Here are some great links:

The Bull Market is Alive and Well 

New Highs Expected This Summer 

Stocks May Struggle (Jazzy Jeff Hirsch)

Cannabis reality sets in:

Investment wisdom is always 20/20 when viewed in the rear view mirror.

Do not watch Fin TV to be ahead of the news:

Respectfully, I couldn't disagree more:

How about the rapid escalation in ticket prices, Rich?

Short DIS (S)