"Just one more thing"

- Lt. Columbo

After the close, Boot Barn  (BOOT)  (a new short), guided lower. The shares are trading -$10 after the close!

From Peter:

Rather than wait until tomorrow morning to bring it up, I’ll do it now just in case you haven’t noticed. 

The price of copper is rallying to a record high today nearing $5 per pound and copper just so happens to be the most important industrial metal in the world, especially in the push to this new electrification/renewable world we’re investing so much money in.

I include the price of copper and two key charts highlighting the importance of it from a recent Sprott white paper.

Copper

I am heading out for another (4 pm) meeting.

Thanks for reading my Diary.

Enjoy the evening.

Be safe.

Since I have been in meetings we have had a spirited rally.

Looks like Mr. Market has a mission to make a new high.

phogan

Dougie, regarding your reposting of your article about the consumer rolling over: I agree pretty much 100% with every point you cited. However, having just returned from 2 weeks in Paris and other areas of France and finishing in London, I was stunned with the number of tourists in all of them. Cafe's, bars and restaurants just brimming with people, the Louvre absolutely packed and I could go on and on. Again, I agree with each and every point in your article but my anecdotal travel data says maybe not quite as much to the degree we think. Struggling to reconcile the two.

thx phogy

1. I will be in Paris in August
2. Higher income consumers, as noted in my post, are prospering (the middle/lower class are not)
3. Strong US $ helping tourism?
4. The Hamptons will be crowded this year!

Stepping into two research calls at 1:30 pm and 2:15 pm.

Radio silence.

I purchased puts, in the money for June 2024, on  (XLU)  - moving the position to large-sized.

SunPower  (SPWR) :

This was published only yesterday but I am repeating it for emphasis - as it is among the more important columns I have written in the last 1-2 months:

The Consumer Is About to Roll Over

Just when the consensus appears to be giving up on the notion of a consumer-led domestic economic downturn it is time to revive those concerns.

There are several factors that are contributing to my expectation of a downturn in personal consumption expenditures:

* The cumulative pandemic-era of excess savings has been depleted:

* The shocking impact of "stacked inflation" since 2020 is beginning to be felt by the consumer - witness disappointing results at Nike (NKE) , McDonald's (MCD) , Starbucks (SBUX) , Xponential Fitness (XPOF) , Disney (DIS) and other recently reporting companies.

* As detailed below, there are numerous reasons why interest rates will likely remain higher for longer.

* Shrinkflation is here to stay as consumers get less for more:

* The inflationary impact of lagging expenses - like property, health and auto premiums - are only now beginning to be felt. Last week's data indicated that inflationary expectations are RISING.

* Deglobalization, continued service inflation and other factors will insure the sustenance of relatively high consumer prices and limit the extent of possible monetary ease.

* Fiscal policy - whether in the hands of Biden or Trump - will be constrained in the years ahead. There is not nearly as much scope for fiscal expansion as either had at the start of their respective presidencies.

* The specter of higher individual tax rates lies ahead in order to finance the burgeoning US deficit and out of control US debt.

* Mortgage rates are climbing and home affordability is worsening:

* Consumer spending is increasingly skewed towards the wealthy - just look at consumers' recent trade down from beef to chicken(!) and to cheaper private label products:

I am short a number of consumer equities, I plan to short more.

Wolf Street howls about a hot PPI.

Late in the morning I added to following shorts: private equity,  (BOWL) ,  (POOL)  and  (BOOT) .

Affirm Holdings  (AFRM)  at $33.44.

More in the next few days...

I agree:

From Stephen "Sarge" Guilfoyle:

I will go to my grave saying that market structure was far fairer and more equitable when you had a whole bunch of guys from Queens, Brooklyn and Staten Island wearing colored jackets beating the snot out of each other at a centralized point of sale in a two way, ongoing, open-outcry auction than this disgrace before us that simply forces algorithms to chase each other. No commissions? Yeah, you get what you pay for. 

I've moved to large-sized in Utilities Select Sector SPDR Fund  (XLU)  short.

For those that are involved, here are the components of XLU:

- NYSE volume 190M shares, 39% above its one-month average

- Nasdaq volume 1.94B shares, 42% above its one-month average

Breadth

Nasdaq 100 Heat Map

The markets are beginning to display the random volatility of meme stocks.

Market structure, a little discussed factor, remains an existential risk to investors.

Tread carefully.

Added to Financial Select Sector SPDR Fund  (XLF)  short at $41.83.

With S&P cash +2 handles, I am adding to my small short position in SPY and QQQ calls now.

Adding to the Utilities Select Sector SPDR Fund  (XLU)  short now. ($71.65)

From Peter:

PPI was about as expected when we include the downward revisions to March. So, the headline print of .5% m/o/m follows a one tenth drop in March. The same was seen with the core rate. The market first responded to the April data with a selloff but then recalibrated when the revisions were seen.

Versus last year, headline PPI was higher by 2.2% and by 2.4% ex food and energy. Food prices fell .7% m/o/m but up .5% y/o/y. Energy prices were up by 2% m/o/m, driven by gasoline prices and 1% y/o/y. Core goods prices rose .3% m/o/m and by 1.6% y/o/y and I believe are bottoming out. The BLS said the core goods price rise was driven by nonferrous metals and electric power.

On the service side, prices were up by .6% m/o/m and 2.7% y/o/y and ‘portfolio management’ again was a leading factor. Also higher were prices for the wholesaling of machinery and equipment and auto retail, along with truck transportation of freight (up .5% m/o/m but still down 1% y/o/y) and rail prices up by .9% m/o/m and 1.8% y/o/y. On the downside, airline passenger services fell almost 4%.

As for inflation in the pipeline, processed products ex food and energy saw prices rise .4% m/o/m after falling by 3 tenths last month while unprocessed prices jumped 1% but after little change in March and declines in January and February.

Bottom line, the date was as expected after the initial alarm at the April figures and why markets are around where they were just before the release. All eyes of course on tomorrow’s CPI anyway. Implied inflation breakevens are down about 1 bp across the curve.

PPI y/o/y

Core PPI y/o/y

Upside

-AMC +106% (meme stock momentum; discloses on May 13th it completed its previously disclosed $250M “at-the-market” equity offering launched on March 28, 2024)
-GME +105% (meme stock momentum)
-SPWR +61% (strength in renewables)
-SYRA +34% (to subcontract for LUKE on a Defense Health Agency contract valued at $43B)
-KOSS +31% (meme stock momentum)
-PLUG +29% (receives $1.66B conditional commitment loan guarantee from Department of Energy for Green Hydrogen Development Pipeline)
-BB +20% (meme stock momentum)
-PSFE +14% (earnings, guidance)
-HROW +13% (earnings, guidance)
-ONON +10% (earnings, guidance)
-PLRX +6.1% (announces Positive Topline Data from a Phase 2a Collagen PET Imaging Clinical Trial of Bexotegrast in Patients with Idiopathic Pulmonary Fibrosis)
-PTCT +5.0% (announces FDA acceptance and Priority Review of BLA for Upstaza)
-CALT +4.9% (Everest Medicines starts commercial launch of Nefecon in China)
-VYGR +4.0% (earnings)
-IGT +3.7% (earnings, guidance)
-AGYS +2.9% (earnings, guidance)
-INFN +2.0% (earnings)

Downside

-AUGX -40% (earnings, guidance)
-LLAP -9.5% (earnings; review of strategic alternatives still ongoing)
-DVAX -8.3% (sBLA for Four-Dose HEPLISAV-B Regimen for adults on Hemodialysis in US did not provide sufficient data to support the full evaluation of effectiveness or safety of a four-dose regimen of HEPLISAV-B)
-MBIN -7.7% (prices 2.4M shares at $43/share)
-STNE -6.3% (earnings, guidance)
-TMC -5.3% (earnings)
-GNPX -4.6% (doses first patient in Acclaim-3 clinical study of Reqorsa Immunogene Therapy in combination with Tecentriq to treat Small Cell Lung Cancer)
-BABA -4.5% (earnings, color)
-DARE -3.2% (earnings)
-BTM -2.0% (earnings, guidance) 

I moved to medium-sized Home Depot  (HD)  short on strength.

From Peter:

Got to get those tariffs in just a few months before some key states need to be won in November and yes, I beat up both sides over tariffs. By the way, with respect to steel in particular, the US relies on China for only about 2% of its steel imports so dumping of steel is not the issue here. Also, putting tariffs on all the key EV related stuff will just put cheaper EV's further out of reach for lower income consumers and continue to put a bid under inflation.

Anyway, the April NFIB small business optimism index rose 1.2 pts m/o/m to 89.7 and which compares with 89.4 in February and 89.9 in January. So, we continue to bounce along the bottom. For reference, the 50 yr average is 98.

Plans to Hire rose 1 pt to 12% after falling to the lowest since 2016 in March, not including Covid. This has been one key anecdote pointing to the slowing demand for workers on the part of small business. Job openings did rise though by 3 pts but just to about the 6 month average and off the smallest amount since January 2021. Compensation plans were unchanged m/o/m. Plans to increase inventories rose 1 pt but still is negative at -7% while capital spending plans were up by 2 pts but back to its 6 month average.

Those that Expect a Better Economy fell 1 pt and remains deeply negative at -37%. After dropping by 8 pts in March, those that Expect Higher Sales got back most of that, rising 6 pts to -12%. There was no change in those saying it's a Good Time to Expand at 4%. For perspective it was at 3% in April 2020, during the heart of the shutdowns.

Higher Selling Prices fell 3 pts after rebounding by 7 last month. Positively for the moderating inflation story, "A net 26% (seasonally adjusted) of owners plan price hikes in April, down 7 pts and the lowest reading since April of last year." The earnings outlook was up 2 pts but still well under zero at -27%. Finally, and of note, credit conditions tightened to the most in 5 months. The average rate on any loan was 9.3% vs 9.8% in March and 8.7% in February.

The bottom line from the NFIB, "Cost pressures remain the top issue for small business owners, including historically high levels of owners raising compensation to keep and attract employees. Overall, small business owners remain historically very pessimistic as they continue to navigate these challenges. Owners are dealing with a rising level of uncertainty but will continue to to what they do best - serve their customers."

The NFIB 'Business Uncertainty Index' did rise to the highest since September. Not surprisingly as small businesses are least capable of dealing with many of the major issues businesses face like managing material cost pressures, labor, taxes, higher cost of capital and the ever growing regulatory state.

NFIB

Plans to Hire

Good Time to Expand

In yesterday's NY Fed's Consumer Expectations survey the one yr inflation guess rose to 3.3% from 3% and that is the highest since November. The 3 yr slipped by one tenth to 2.8% while the 5 yr rose to 2.8%, up 2 tenths. Driving the one yr forecast was higher expectations for home prices but also for gasoline and food, along with medical care, college costs and rents, basically all the most important, non discretionary items for people.

There was a slight drop in income expectations and expectations for employment. While there was a drop in those expecting to lose their job, "The mean perceived probability of finding a job if one's current job was lost declined for the 4th consecutive month to 50.9% from 51.2% in March. This is the lowest reading of the series since April 2021."

On the spending side, there was a .2 percentage point rise to 5.2% for expectations of an increase. "The increase was most pronounced for respondents with some college education." Credit access expectations rose a touch.

Finally of note, "Perceptions about households' current financial situations deteriorated with fewer respondents reporting being better off and more respondents reporting being worse off than a year ago. Year-ahead expectations also deteriorated marginally with a smaller share of respondents expecting to be better off a year from now."

My bottom line, we have a tale of two US consumers as one has become VERY price conscious and prioritizing their spend and another that is less so and still spending on discretionary experiences and stuff.

This is what Home Depot said in its earnings press release:

"And while the quarter was impacted by a delayed start to spring and continued softness in certain larger discretionary projects, we feel great about our store readiness..." We'll hear more in the earnings call.

In Europe, the German ZEW measuring expectations of the German economy rose to 47.1 from 42.9 and the Current Situation was less bad at -72.3 from -79.2. The ZEW said "Signs of an economic recovery are growing, bolstered by better assessments of the overall eurozone and of China as a key export market. The increased optimism is reflected in particular in the sharp rise in expectations for domestic consumption, followed by the construction and machinery sectors." 

The Germany economy has been in a slight recession but just maybe a bottom is being formed here with some green shoots. If an eventual recovery in manufacturing takes place, if, and China's economy stabilizes, German will certainly be a key beneficiary of that. Nothing market moving about the ZEW though as the IFO is more relevant. The DAX is flattish as is the euro and bund yields.

The UK labor market softened in Q1 with their unemployment rate rising by one tenth to 4.3%, which matches the highest since September 2021. The number of employed fell by 178k, though that wasn't as much as the expectations for a drop of 220k. Wage growth though remained good, rising by 6% y/o/y ex bonuses, the same pace seen in the month prior.

The market is hoping this leads to a BoE rate cut and the 2 yr gilt yield is down by 2 bps to 4.31%. Odds of a June rate cut stand at about 50% and the pound is down too but only very slightly. We remain bullish on the UK market and some individual stocks within it, particularly in energy as they are cheap.

UK Unemployment Rate

Finally, I mentioned yesterday another rise in JGB yields in Japan and that continued overnight. The 10 yr yield is now just 1 bp from the highest since 2012. The 40 yr yield jumped almost 4 bps to 2.42%, the highest since 2011. I continue to believe that this is something very important to watch and has implications for global bond yields. The yen though remains weak surprisingly in the face of this.

We remain bullish and long Japanese stocks and just added Seven & I, the owner of 7-11 stores.

10 yr JGB Yield

40 yr JGB Yield

9:10 AM: Fed Governor Cook (Voter) speaks on growth and change at community development financial institutions at "Expanding Access to Capital for CDFIs," hosted by the Federal Reserve Bank of New York (Text expected. No Q&A. Webcast: Reporters must register in advance.

10:00 AM: Fed Chairman Powell participates in moderated discussion with De Nederlandsche Bank (DNB) President Klaas Knot at the annual general meeting of the Foreign Bankers’ Association (Webcast here. No text. Q&A from moderator expected)

8:15 PM: Fed Bank of Kansas City President Schmid (Non-Voter) speaks at Agricultural Economic Summit, hosted by Kansas City Fed, Omaha, NE (Embargoed text expected one hour before speech. Audience Q&A expected. No media Q&A)

* Markets took a breather on Monday after several weeks of strength.

* Volume remains low.

* My continued view is that equities are not compensating investors for risks and are expensive against interest rates and rising inflation.

* "Slugflation" is my baseline expectation:

* Stock futures were flat

* The S&P Short-Range Oscillator remains overbought - at 5.06% v. 5.84%

* Bond yields were flattish this morning

* The U.S. dollar continues stronger against the yen

* Keeping the unchanged theme going - Brent is flat

* Gold is +$10.30 and silver is +$0.24

* Bitcoin is -$1,300 (-2%)

* In celebration of the birth of Julie and Andrew's daughter, Ruby Maya:

Don't question why she needs to be so free
She'll tell you it's the only way to be
She just can't be chained
To a life where nothing's gained
And nothing's lost, at such a cost

- Rolling Stones, Ruby Tuesday 

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 very range bond overnight. S&P futures peaked at +2 and bottomed at -4. Nasdaq futures peaked at +16 and bottomed at -31. At 5:49 am ET, S&P futures were +1 and Nasdaq futures were -3:

* Commodities are mixed. Brent crude was flat to $83.28

* The S&P Short-Range Oscillator remains overbought last night at 5.06% v. 5.84%

* The VIX is at 13.78 (+0.18). Given the low vol I am out of straddles/strangles now

* The US dollar is modestly higher against the yen and unchanged v. euro and pound:

* Interest rates show little change. The yield on the two-year Treasury is 4.84% (-1 basis point). The yield on the 10-year Treasury is also -1 basis point at 4.48%. The long bond yield is flat at 4.62%:

* Overnight, the inversion of the 2s/10s Treasuries curve was flat at -34 basis points.

* Gold is +$7.50 at $2,351. Silver is +$0.24 cents:

* Bitcoin was -1% or -$1,400 and is $61.7k.

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:

The Consumer is About to Roll Over 

Trade of the Week - Shorting XLF

Returns of the Meme-Craziness is Three Fold!

A Smooth Rescheduling of Cannabis Seems Unlikely

Slugflation Lies Ahead

Disney is Now The House of Bear, Not The House of Mouse

Signpost of Exhaustion and Technical Weakness (COST)

Here were yesterday's trades:

* Shorted  (XLU)

* Added to SPY and QQQ call shorts

* Added to  (XLF)  short

When the crap (like cream) floats to the top of performance, the end may be nigh:

"The whole world is simply nothing more than a flow chart for capital"

- Paul Tudor Jones

Bonus - Here are some great links:

Stonks!

Shorts Surge

How to Play The Meme Game

Weak May?

Know Your Market History

I shorted (very small) Home Depot  (HD)  after the EPS release ($342).

This is the fifth quarter of weaker numbers and guidance. (Sorry, CNBC bulls....)

The second half recovery that is generally expected for the company is not likely to develop.

I expect EPS estimates to come down.

* Or the end of the beginning?

* Market mental illness is back...

* And so is Davey Day Trader

Of course Davey Day Trader is back into the game:

Lord, help us all.

* In case you missed it...

BY DOUG KASS MAY 13, 2024 6:59 PM EDT

New Short Position

I neglected to mention that I took a starter position (short)  (XLU)  at $71.35.