- NYSE volume 357M shares, 18% below its one-month average;

- NASDAQ volume 5.86B shares, 25% above its one-month average;

- VIX up 1% to 12.11

Market Breadth

% Movers

Nasdaq 100 Heat Map

At 4:18:

"Those people, they can be so touchy.

Those people... listen to yourself

You think dentists are so different than me and you.

They came to this country just like everyone else in search of a dream...

It starts with a few jokes and some slurs (hey Denty)

Next thing you'll say is they should have their own school."

Seinfeld, The Anti Dentite

A good read... here.

I have a 3:30 research call, will be back at about 4:30 pm.

Radio silence.

* Staying flexible and transparent...

Though only a few weeks old, this post from early May outlines why I sold the cannabis gap (higher) on the rescheduling announcement. (Pay special attention to the May column).

And, why... on weakness I may reload:

Only a Few Good Men?

* 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:

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...

Position: None

BY DOUG KASS

MAY 3, 2024 7:15 AM EDT

 "The April CPI report was good news but too soon to tell what path inflation is on..."

Fed's Mester (She is a voter):

- Latest CPI report was welcome but still too high.

- I believe monetary policy is restrictive; Restrictive policy has moderated the labor market and risks that we are too restrictive have gone down.

- Labor markets are becoming better balanced; Rebalancing labor market will put downward pressure on inflation.

- Inflation progress stalled in first three months; We need to gather more evidence on inflation's path to determine if it's sustainably headed to 2%.

- Inflation risks remain tilted to upside; Lack of progress on inflation was not welcome.

- Economy was stronger in Q1 than I expected; No risk in spending additional time gathering data on inflation because economy is strong.

- I do not think about potential rate cut in terms of when; Rate cut depends on progress with inflation.

- Business contacts say they are being more cautious.

* Added to XLF short.

In support of last week's Trade of the Week (XLF), I mentioned that GS was severely overbought.

GS is -$6 off its morning high.

Berkshire BRK.B is now -$3.98 after being +$1.50 in the early going.

And JP Morgan JPM is -$7.35.

XLF is following suit...

There is a divergence of opinion on the rescheduling of cannabis timeline. 

We got the setting - sunshine, fresh air.

We have the team behind us.

So, let's play two!

- Ernie Banks, Chicago Cubs 

Last week's Trade of the Week was XLF (financials).

So, let's play two - it's my Trade of the Week again!.

Jamie Dimon's remarks were not upbeat at the bank's analyst day, imho - and JPM's shares (-$3.70 today) might be rolling over. Its the second largest component (10%) of XLF

As well, I am cautious on Berkshire Hathaway (-$2 today) - the other large component (13%) of XLF:

Berkshire Hathaway, the Financials and the XLF

Yesterday, on CNBC, three of the four Final Trades on "Halftime" were financial stocks (Berkshire (BRK.B) , Bank of America (BAC) and Citigroup (C) ).

That, in and of itself, might be a good reason to consider selling/shorting financials!

But I have more substantive reasons -- as in a backdrop of "slugflation," and given the sharp share price appreciation over the last month and the extended overbought (and RSI readings) financials are likely vulnerable to a tradeable correction today.

Here are the components of (XLF) .

BAC, C and BRK.B account for 25% of XLF with Berkshire at 13% and JP Morgan (JPM) at about 10%.

A decade ago I was the "credentialed bear" at Berkshire Hathaway's Annual Meeting - asking tough questions sitting on the dais with Warren Buffett and Charlie Munger. I had the time of my life. I have written volumes about that experience and, in general, on Berkshire Hathaway since I began writing my Diary so there is no reason to recount my concerns that Berkshire Hathaway is, at best, a GDP grower.

A lot of Berkshire's success over the last two decades has been Warren's ability to move quickly and invest sizeable sums "on the fly." Berkshire's investment in Bank of America - conceived while taking a bath - was a vivid example of this.

But size and competition now represent bonafide challenges for Berkshire to repeat its successes of the past.

* The company's past success and current size will be Berkshire's greatest enemy over the next decade. Berkshire is simply becoming too big for incremental acquisitions/investments to move the corporate needle. With an accumulated $200 billion in cash, Warren basically admitted recently in his Annual Meeting that the ability to employ large sums of capital have been markedly reduced.

* Berkshire now faces competition for deals that it never had before - private equity, private capital, etc.

* Greg Abel, Warren's successor is able, but with Charlie now gone and Warren getting older - the full input of this remarkable twosome will, in the fullness of time, be absent. Investors might consider getting prepared for this.

* The eventual passing of Warren Buffett will not be accompanied by a corporate paradigm shift (i.e., leading to divestitures, spin offs or sales) as some holders may currently hope for. That plan is certainly not in Warren's DNA - nor is it in Greg Abel's.

Berkshire's shares have appreciated mightily over the last several years - in my view, some of that excellent performance was a sizeable and very timely purchase of Apple (AAPL) .

The Apple investment was Berkshire's most successful investment ever. It is not reasonable to expect that another Apple opportunity lies ahead - that was, simply stated, a once in a lifetime investment for Berkshire.

To summarize, despite CNBC's protestations, the fundamental and investing challenges now facing the company may represent risk to its shares over the next few years - which might result in a challenge for Berkshire to achieve growth in sales, profits and intrinsic value relative to the U.S. economy and S&P 500 Index.

Berkshire represents 13% of XLF.

I added to my XLF short on Thursday.

Position: Short XLF (S/M)

BY DOUG KASS

MAY 17, 2024 8:15 AM EDT

I am sticking with this trade of the week for the second week in a row:

Trade of the Week - Shorting XLF $41.94

For the first time in the recent rally the financials seem heavy. Berkshire (BRK.B) and JP Morgan (JPM) - large components - have reversed early gains.

I would note that many technicians and strategists have recently endorsed financials, apparently in response to the strong relative performance.

Given my economic and rate concerns, I am fading that growing consensus now.

Shorting (XLF) might make some sense as a tradeable idea now.

I added to my smallish XLF short at $41.94 this morning.

Short IWM (M)

Six of the 11 S&P Sectors Are Negative:

- NYSE volume 123M shares, 13% below its one-month average

- Nasdaq volume 2.22B shares, 34% above its one-month average

- VIX up 2.25% to 12.26

Breadth

Nasdaq 100 Heat Map

I deliver this for your amusement because equities just don't give a damn about bond prices!

Bond yields are back to near the day's highs, and bond prices near the day's lows:

* The yield on the 2 year Treasury note is +2 bps.

* The yield on the 10 year Treasury note is +3 bps.

* The yield on the long bond is also +3 bps.

This compares to my comments in "Futures":

Interest rates are little changed. The yield on the two-year Treasury is 4.818% (-1 basis point). The yield on the 10-year Treasury is -1 basis point at 4.418%. The long bond yield is flat at 4.561%. Over there gilts (10 year) is +1 basis point.

* Back shorting SPY and QQQ in premarket at $530.32 and $452.87, respectively...

Equities remain oblivious to the notion of interest and inflation rates being "higher for longer"

CRB RAW MATERIALS INDEX 

Source: Peter Boockvar

That said, I would note the early morning gap higher in commodities - especially copper, gold and silver - has now reversed!

Instead, fiscal liquidity and the expectation of an eventual drop in the Fed Funds rate is spurring buying and the revival of FOMO and the animal spirits.

Meanwhile, market structure accentuates and exaggerates the price momentum - putting ever more pressure on the bearish cabal. (See Mike Wilson below!)

Valuations remain elevated in the face of a likely acceleration in inflation, a paper thin equity risk premium, continued political/geopolitical risks and growing investor optimism:

Interestingly, the most stalwart bear, Morgan Stanley's Mike Wilson, has capitulated.

Makes the contrarian in me rejoice.

And makes me say, hmmm...

Upside

-NKGN +36% (SNK01 NK Cell Therapy cleared to start Phase 2 clinical trial in Alzheimer’s Disease)

-OSG +22% (to be acquired for $8.50/shr in cash by Saltchuk Resources; discloses $19.6M termination fee)

-MESA +16% (earnings)

-MYNZ +10% (awarded Poster of Distinction at Digestive Disease Week)

-WIX +7.6% (earnings, guidance)

-CYBR +4.2% (confirms to acquire Venafi for ~$1.54B in cash and stock)

-NEXN +4.0% (earnings, guidance)

-ARQQ +2.8% (earnings)

-MU +2.3% (Morgan Stanley Raised MU to Equal Weight from Underweight, price target: $130)

-COKE +2.0% (initiates tender offer to buyback $2.0B of common stock)

Downside

-CWK -2.4% (Holder files to sell 26.5M shares) 

From Peter:

There is a lot more Fed speak this week and I wonder if any will talk about what is going on with industrial metals and gold/silver in complicating their jobs.

The CRB raw industrials index closed on Friday within pennies of its highest level since July 2023. Copper is now up 12% in the past 11 trading days and silver by 20% while gold is at a fresh record high. Even natural gas has rallied by 37% off its May 1st low and is at the highest level since mid January, though still below its levels seen above $3 last summer and fall.

CRB Raw Industrials Index

Helping to lift natural gas prices has been the continued drop in US rig counts where it stood at 103 as of last week, one rig from matching the lowest since early December. The US crude oil rig count by the way is within one rig of the least amount since last January 2022.

Bottom line, the commodity bull market I believe is alive and well and has more upside and makes the Fed's job that much more difficult for those on the committee who want to find reason to cut interest rates this year. Ag, particularly corn and soybeans, has lagged, though wheat prices are nearing a one yr high, and we like and own some fertilizer stocks as mentioned here before.

Natural Gas Rig Count

I read what I could on China's residential real estate plan to have local governments buy unsold properties, along with other measures to boost consumer demand but this is easier said than done because of the huge amount of unsold apartments. 

The South China Morning Post estimates that there are $3.9 trillion USD worth of unsold apartment units and the funding plan to buy them is only a little more than 1% of that ($41.5b set aside for relending that could total about $70b said the PBOC). Also, just as the local governments are trying to deliver and/or term out their debt, where is the money going to come from for these purchases.

Maybe more important will be what type of demand is created by consumers to buy apartments with the further relaxing of down payment requirements and mortgage rates.

Last week I mentioned that bullish sentiment reappeared but not to the extreme seen in March. I'll add another metric seen over the weekend, the Citi Panic/Euphoria sentiment index and it's back in Euphoria land. Again, always be aware of your investing surroundings if trading short term.

Ahead of Nvidia's NVDA earnings this week, Taiwan said its April export orders rose 10.8% y/o/y, about twice the estimate and helped by electronics. The economy ministry said "high performance computing and accelerating expansion of new applications such as AI, boost solid demand for our semiconductor and servers supply chain...That is expected to boost growth momentum of export orders." Orders from China were up 16.3% y/o/y and from the US by 11.8%.

* And the markets are not even paying attention to the message of "higher for longer"...

8:45 AM: Fed Bank of Atlanta President Bostic (Voter) gives welcome remarks at the 2024 Financial Markets Conference, Fernandina Beach, FL; 9:00AM: Fed Vice Chair Barr (Voter) keynotes The 2024 Financial Markets Conference, Fernandina Beach, FL;

9:00 AM: Fed Board Governor Waller (Voter) gives welcome remarks before the Third Conference on the International Roles of the U.S. Dollar hosted by the Federal Reserve (Text available. No Q&A. Webcast at www.federalreserve.gov or www.youtube.com/federalreserve);

10:30 AM: Fed Vice Chair Jefferson (Voter) speaks on "The U.S. Economy and Housing Price Dynamics" before the Mortgage Bankers Association (MBA) Secondary and Capital Markets Conference;

11:30 AM: Federal Reserve Board of Governors holds a Board Meeting: Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks;

3:00 PM: Fed Bank of Atlanta President Bostic (Voter) is moderator at dinner session before the 2024 Financial Markets Conference hosted by the Federal Reserve Bank of Atlanta, Fernandina Beach, FL (Livestream at https://www.youtube.com/watch?v=NwzEwML9mLk);

7:00 PM: Fed Bank of Atlanta President Bostic (Voter) is the moderator at a dinner session before the 2024 Financial Markets Conference hosted by the Federal Reserve Bank of Atlanta, Fernandina Beach, FL (Livestream at https://www.youtube.com/watch?v=NwzEwML9mLk)

* Morgan Stanley's Mike Wilson capitulates:

* The train continues - with investor optimism and the perception of fiscal/monetary stimulation contributing to an ever higher rise in stock prices -- ignoring signs of a reemergence of inflation and higher for longer.

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

* Stock futures were modestly higher overnight as markets are anxiously awaiting Nvidia's EPS release.

* Bank stocks are rising on the possibility that capital requirements might be reduced.

* Gold, silver and copper break out.

* The S&P Short-Range Oscillator remains deeply overbought - at 5.67%.

* Bond yields are little changed.

* The U.S. dollar is unchanged against the yen.

* Brent is -$0.21.

* Gold is +$28.70 and silver is up $1.03!

* Bitcoin is +$900 (+1.5%).

Would you like to ride in my beautiful balloon

Would you like to ride in my beautiful balloon

We could float among the stars together, you and I

For we can fly, we can fly

Up, up and away

My beautiful, my beautiful balloon

- The Fifth Dimension, Up Up and Away

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 are higher in overnight trading - again in a narrow range. S&P futures peaked at +12 and bottomed at +2. Nasdaq futures peaked at +43 and bottomed at+1. At 6:02 am ET, S&P futures were +6 and Nasdaq futures were +36:

* Commodities are generally higher. Brent crude was -$0.19 to $83.78.

* The S&P Short-Range Oscillator is deeply overbought at 5.67% v. 6.70%.

* The VIX is at 12.17 (+0.18). Given the low vol I am still out of straddles/strangles now.

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

* Interest rates are little changed. The yield on the two-year Treasury is 4.818% (-1 basis point). The yield on the 10-year Treasury is -1 basis point at 4.418%. The long bond yield is flat at 4.561%. Over there gilts (10 year) is +1 basis point:

* Overnight, the inversion of the 2s/10s Treasuries curve is unchanged at -40 basis points.

* Gold is +$29.50 at $2,446. Silver is +$1.06.

* Bitcoin was +1.5% or +$1050 and is $67k.

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:

CNBC Blather 

The Market Doesn't Care But I Do

In My Eyes and In My Ears

Thanks for Reading and Thanks for The Messages

Here were Friday's trades:

* Light day investing/trading

Biden "smokes" Trump on marijuana policy.

"Can you take me higher?" - Creed

Bonus - Here are some great links:

Meme stocks, WalMart and New Highs 

An Historic Move in Utilities 

Copper Hits a New High 

Is This the Magic Upside Breakout? 

A Wall Street Bear turns bullish.