As of 4:22 p.m.:

Today the market took the elevator down.

Thanks for reading my Diary.

Enjoy the evening.

Be safe.

Blackstone Mortgage Trust BXMT is an investment short. It is -12% today:

Blackstone Mortgage reduces dividend to 47c from 62c per share. Katie Keenan, Chief Executive Officer, said, "We believe stockholder return is well served by balancing current return with optimization of book value and long-term earnings potential through our strategic capital allocation decisions. We assess the dividend with the Board each quarter, prudently considering a variety of factors, and our Board has declared a third quarter dividend of 47c per share, which we believe reflects a sustainable level relative to long-term earnings power. With strong liquidity, accelerating repayments, and an emerging investment pipeline, BXMT is well positioned to deploy capital accretively in this environment and continue its forward trajectory through the cycle."In addition, BXMT declared a dividend of 47c per share of class A common stock with respect to the third quarter of 2024. This dividend is payable on October 15, to stockholders of record as of September 30.

Blackstone Mortgage announces $150M share repurchase program. BXMT also announced that its Board of Directors has authorized a share repurchase program for up to $150M of the Company's class A common stock.

Blackstone Mortgage reports Q2 EPS 49c, consensus 48c. Katie Keenan, Chief Executive Officer, said, "We believe stockholder return is well served by balancing current return with optimization of book value and long-term earnings potential through our strategic capital allocation decisions. We assess the dividend with the Board each quarter, prudently considering a variety of factors, and our Board has declared a third quarter dividend of 47c per share, which we believe reflects a sustainable level relative to long-term earnings power. With strong liquidity, accelerating repayments, and an emerging investment pipeline, BXMT is well positioned to deploy capital accretively in this environment and continue its forward trajectory through the cycle."

With S&P cash -90 handles I am taking in all of my index shorts. 

And I am returning to bed.

At 10:46 a.m.:

At 10:30 a.m.:

Breadth

S&P 500 Sector ETFs

Nasdaq 100 Heat Map

As of 8:14 a.m.:

Upside:

-PIRS +78% (announces Definitive Merger Agreement with Palvella Therapeutics and Palvella will become a wholly-owned subsidiary of Pieris)

-HOTH +40% (partners with LTS Therapy Systems to accelerate novel Alzheimer's treatment)

-TLSA +13% (granted FDA Fast Track Designation for intranasal formulation of foralumab for treatment of non-active Secondary Progressive Multiple Sclerosis)

-LUMN +9.4% (Microsoft and Lumen Technologies partner to use the Microsoft Cloud to further drive Lumen's digital transformation)

-MANH +8.4% (earnings, guidance)

-THC +6.7% (earnings, guidance; Board authorizes $1.5B share repurchase program)

-FLEX +4.6% (earnings, guidance)

-T +3.5% (earnings, guidance)

-NFE +3.0% (announces closing of $700M Loan for Second FLNG Unit)

-MTDR +2.9% (earnings, guidance)

-ENPH +2.8% (earnings, guidance)

-VIGL +2.0% (announces Interim Data from Ongoing Phase 1 Clinical Trial Evaluating VG-3927 in Healthy Volunteers Supporting Continued Development in Alzheimer’s Disease)

Downside:

-VSTM -25% (prices ~13.3M shares and warrants at combined price of $3.00/shr)

-SAGE -19% (Sage Therapeutics and Biogen will close the ongoing open label safety study of SAGE-324 in Essential Tremor and do not plan to conduct further clinical development of SAGE-324 after releasing topline results from Phase 2 KINETIC 2 study of SAGE-324)

-LLAP -14% (announces up to $98M of new capital through ATM program)

-WNC -13% (earnings, guidance)

-SFL -11% (prices 8M shares at $12.50/shr)

-GERN -9.1% (Anil Kapur, Executive VP, Corporate Strategy and Chief Commercial Officer, will depart effective Aug 31st)

-TSLA -8.1% (earnings, guidance)

-ALGM -6.0% (launches incremental term loan; files to sell 25M shares)

-DB -5.8% (earnings, guidance)

-VRT -5.4% (earnings, guidance)

-GOOGL -4.0% (earnings)

-V -3.5% (earnings, guidance)

-LII -3.4% (earnings, guidance)

-GD -2.6% (earnings)

As of 8:30 a.m.:

This week I sold out of a multi-year long holding in Green Brick Partners GRBK and I began to short the shares of Toll Brothers TOL and D.R. Horton DHI.

Once again, this is a contrarian call.

Homebuilder stocks have been league leaders.

The bears on homebuilders over the last two years made the mistake of not realizing that the supply of existing homes would decline appreciably as interest (and mortgage) rates climbed — as basically fifteen years of zero interest rates allowed an opening to refinance at unprecedented low mortgage rates. Why upgrade your home, after all, with a 3% mortgage rate to replace it with a somewhat nicer home with a 7% mortgage rate.

The Movie May Now Be in Reverse

With rates slipping now, the lack of home affordability at record high levels, and employment rising — a squeezed consumer (suffering from high stacked or cumulative inflation since 2020) may result in a reversal in home pricing power and a rapid increase in inventory/supply may lie ahead. (See below)

Moreover a consequential drop in equities could also reverse the positive wealth effect that was a tailwind for home purchases (particularly the most expensive homes) over the last four years:

The change in mix was very pronounced in expensive markets that depend more on stock prices than on mortgage rates, where many high-end buyers — including those now riding the AI bubble — pay cash, often with funds either obtained from the sale of stocks, or borrowed against their stocks.

For example, the luxury market in the San Francisco Bay Area. Luxury is over $5 million. According to Compass’ luxury report for the San Francisco Bay Area:

“It is in the most affluent counties where high-tech industry is concentrated – and the centers of what is being described as the “AI boom” – that luxury home sales truly soared in Q2.”

San Francisco County and Santa Clara County (incl. San Jose) “saw year-over-year increases in $5-million+ home sales in Q2 2024 of 54% and 63% respectively.”

“The circle of seven extremely expensive communities circling Stanford University – on either side of the San Mateo/Santa Clara County line – saw a year-over-year Q2 increase of 92% in $10-million+ sales.”

“The most affluent households are typically much more affected by changes in stock markets – and in the Bay Area, by the soaring Nasdaq in particular – than by interest rates: Many of these buyers pay all-cash…. And, of course, many employees of companies such as Nvidia have suddenly become very wealthy indeed.”

To the homebuilder bulls the stocks remain cheap – after all P/E ratios are nearly half that of the S&P Index. But this is always the case for the sector (and for cyclicals in general) – the valuations always appear to look inexpensive (e.g., DHI trades with a price/earnings ratio of only 12x) at the top! (We look to CNBC for the consensus, here a panelist advances the conventional notion that homebuilders are cheap Trade Tracker: Stephanie Link buys more D.R. Horton and Seagate and sells CDW (cnbc.com) because of the conventional view that interest rates will drop!)

As noted in Wolf Street's analysis: Here Comes the Inventory of Vacant Homes: With Buyers on Strike despite Lower Mortgage Rates, Supply Spikes to Highest in 4 Years. Sales Drop Further except at High End | Wolf Street

Mortgage rates have dropped to about 6.8%, down by a full percentage point from October last year, and yet sales of existing homes have plunged, and vacant homes for sale are coming out of the woodwork, the same vacant homes that the industry said didn’t exist, the second and third homes that people had moved out of but didn’t sell when they bought a new home over the past few years in order to ride the price spike all the way to the top. So now it’s time to sell those vacant homes. And supply in June spiked to the highest level in four years.

Sales of existing homes of all types – single-family houses, townhomes, condos, and co-ops – fell 5.4% in June from May on a seasonally adjusted basis, and also by 5.4% year-over-year to an annual rate of 3.89 million homes, the third-lowest sales volume since the depth of the Housing Bust in 2010, behind only October and December 2023, according to the National Association of Realtors (NAR) today.

“We’re seeing a slow shift from a seller’s market to a buyer’s market. Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis,” the NAR said in its report (historic data via YCharts):

Supply spiked to 4.1 months in June at the current rate of sales, the highest since May 2020, and just a hair below the Junes in 2019 (4.3 months), 2018 (4.2 months), and 2017 (4.2 months).

Inventory for sale jumped by 23.4% year-over-year, to 1.32 million homes, according to NAR data. At the same time, sales dropped 5.4% year-over-year. This surge in inventory combined with the drop in sales caused supply to spike by one-third year-over-year, to 4.1 months in June, from 3.1 months in June last year.

And normally, supply remains roughly stable or declines from May to June, but not this June. This June it spiked. There is a game-changer underway (historic data via YCharts):

Price reductions continued to surge. Of the active listings, 37.6% had reduced prices in June, the highest share of reduced prices for any June, except June 2022, in the data from Realtor.com going back to 2016:

Where Kamala Harris stands on cannabis regulation:

Where Kamala Harris Stands On Marijuana As She Prepares To Accept The Democratic Presidential Nomination - Marijuana Moment

This is a valuable resource for momentum-based short-term traders:

From JPMorgan:

US: Futs are lower with Tech dragging the indices lower with earnings the catalyst. TSLA -6.8%, GOOG -2.8%, V -3.1% are all lower post-earnings while TXN +2.7%; Mag7 are mostly lower. The yield curve is steepening with 2Y seeing follow-thru buying following yesterday’s strong auction. USD is stronger and cmdtys are weaker ex-Energy. Today’s macro data focus is on Flash PMIs, New Home Sales/Mtge Applications, and Inventories.

and...

EQUITY AND MACRO NARRATIVE: The macro picture appears to be cracking with regional activity data weaker and the housing market continuing to crumble; it is unclear if that is the driving force behind a strong 2Y auction yesterday. Today is an opportunity to assuage those concerns with Flash PMI data (survey has Mfg at 51.6 vs. 51.6 prior; Srvcs 54.9 vs. 55.3 prior; and Composite 54.2 vs. 54.8 prior). After the bell, GOOG / TSLA / TXN / V were among the major companies that reported earnings where the price action was net negative.

* In the technical land of optimism and confidence....

* Caveat emptor when the consensus is all on the same side of the boat!

“There is a time to go long, a time to go short, and a time to go fishing.”

- Jesse Livermore

https://twitter.com/TimmerFidelity/status/1815795387015274587

https://twitter.com/HostileCharts/status/1815890975828365599

https://twitter.com/allstarcharts/status/1815737500121366665

https://twitter.com/AlfCharts/status/1815756705017561302

https://twitter.com/MichaelNaussCMT/status/1815823732738339189

https://twitter.com/JSpitTrades/status/1815867105385779249

https://twitter.com/callieabost/status/1815796810838950374

https://twitter.com/granthawkridge/status/1815642570250469560

https://twitter.com/MikeZaccardi/status/1815755009356890578

https://twitter.com/Barchart/status/1815624194643706337

https://twitter.com/haumicharts/status/1815918853609906267

Bonus — Here are some great links:

The Stock Market's Response

Mid-Year Call

A History Lesson

The Biggest Winners

The economy is slowing more rapidly than many believe.

From Dr. Copper:

https://twitter.com/Barchart/status/1815624194643706337

And this is one of the reasons I have recently begun to short homebuilders:

Here Comes the Inventory of Vacant Homes: With Buyers on Strike despite Lower Mortgage Rates, Supply Spikes to Highest in 4 Years. Sales Drop Further except at High End | Wolf Street

I am under the weather, as noted yesterday, with a flu.

My posts today will be light.

Thanks for understanding.