"Just one more thing."

- Lt. Columbo

Viking Therapeutics VKTX delivers the goods...

Viking Therapeutics Presents Results from Phase 2b VOYAGE Study of VK2809 in Biopsy-Confirmed NASH/MASH at the 75th Liver Meeting® 2024 - Nov 19, 2024

This is the output of a secondary drug that the company is testing — but at current prices the results should probably be worth at least a +$5 boost to the shares.

As of 4:42 p.m.:

Closing Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

NASD Advance-Decline Intraday Chart

* Markets dropped on the Russian news and then marched ever higher.

* Again a great market for trading but not eating sardines.

Breadth is flat:

At 3:00 p.m. S&P cash was +13 handles after being down -60 handles (in futures, early in the premarket 4:20 a.m.) and then +30 handles. 

 Here are today's "Things":

* I bought SPY/QQQ common to hedge out my short calls and then covered on strength. 

* I sold Index calls at various times during the runup from the lows.

* Added to following shorts: JPM at $244.95, UBER at $68.98, XLF at $49.82, TSLA at $345.40, INTU at $659.91.

* Took a trading short rental in WMT at $87.25.

* The Buffett Indicator..

An extreme rotation into financial stocks and a more benign regulatory framework (with the new Administration) have catapulted bank stocks to near record 52-week highs and into an "overbought" condition.

With interest rates higher for longer and growing evidence of slowing domestic/global economies (read: "slugflation") the overall equity market seems to be at risk.

Banks, in particular, seem unattractive given the aforementioned (exquisite) price action coupled with where we are in the business and economic cycles.

Again, shorting is not for most — but a JPMorgan Chase JPM short seems to be quite attractive on a risk/reward basis.

It's 1 p.m. and time for MRKT CALL with Guy, Danny and EY from SOFI.

Let's go to the tape (Warner Wolf-style). MRKT Call - Tuesday, November 19th - YouTube

And it's free!

Mortimer Duke: [after Louis and Billy Ray turn the people towards him and the price starts dropping from their short selling] That's not right. How can the price be going down?

Randolph Duke: Something's wrong. Where's Wilson?

Billy Ray Valentine: [On the floor] SELL! SELL! SELL! SELL!

Mortimer Duke: [Sees him and Lewis] What are *they* doing here?

Randolph Duke: They're *selling*, Mortimer!

Mortimer Duke: Why, that's ridiculous!

[Then a look of shock washes over him]

Mortimer Duke: Unless that crop report...

Randolph Duke: [They both look at one another, then start heading to the pit] God help us!

- Trading Places: Sell!

* Even previously bearish Morgan Stanley's (Mike) Wilson is now a market enthusiast - he apparently is not familiar with the movie, "Trading Places." Morgan Stanley sees S&P 500 climbing another 11% — to 6,500 — next year

* But, something's wrong Wilson, sell!

* The bullish cabal, apparently influenced importantly by the strong price momentum of the indexes, have grown more optimistic with higher stock prices.

* By contrast, we believe there are a plethora of developing market headwinds that are being ignored by most market participants.

* From our perch, the market's upside reward is now dwarfed by the downside risk and that there is virtually no "margin of safety" in current share price levels.

* Indeed, given the "paper thin" equity risk premium, it is our view that the S&P 500 Index (using today's prices as a base) will provide substandard to negative returns over the next few years.  

* Short selling opportunities now abound...

* In this morning's market update I take into account the wisdom of Jerry Garcia, Warren Buffett, Charlie Munger, Richard Russell and Rosie (David Rosenberg)

“A bull market tends to bail you out of all your mistakes. Conversely, bear markets make you pay for your mistakes.”

- Richard Russell

"You need to divorce your mind from the crowd. The herd mentality causes all these IQs to become paralyzed."

- Warren Buffett 

The foundation of Seabreeze's ursine market view is based on some of the following concerns: 

* Interest rates will likely be higher for longer. The peak easing this year priced in for year-end 2025 was an expected federal funds rate of about 2.80%. That is now about 3.90%, so the market has taken away 110 bps of rate cuts. Treasury Sec. Janet Yellen has front loaded Treasury issuance in bills, above the recommended level of 15%-20% of total offerings by the Treasury Borrowing Advisory Committee. This, instead of issuing more longer-term coupons when the 10-year yield was back under 4%. 

While no one at the Treasury will admit it, they were playing the yield curve, didn't want to upset the longer end of the curve with too much supply and instead with the back up in short rates, missed an opportunity to term out U.S. debt. 

Stated simply, the Fed blew it. 

Over the last five decades interest rates (the 10-year Treasury note yields 4.48%) have never been so high, at 3.5-times relative to the S&P dividend yield (1.27%). The S&P equity risk premium (forward earnings yield less the 10-year yield) has turned negative for the first time since 2002. In other words, investors are now paying to take risk rather than being compensated for taking risk:

Here is a longer-term chart of the S&P earnings yield vs. the yield on the 10-year Treasury note:

* Inflation will likely remain sticky. For the first time since April 2023, core producer price index and consumer price index inflation are back above 3%. Even as the Fed thought inflation was heading to its 2% target, it clearly is not. Inflation has leveled off well above the Fed's 2% target, yet the Fed keeps cutting interest rates.

While the Fed still prefers the PCE inflation statistic (mistakenly we believe) and running monetary policy off it, core CPI has risen by +0.3% (month over month) for a third straight month and remains sideways (year over year) still above three percent. Services inflation continues to be where it is coming from, as it always does, while goods prices are about flat:

It is important to note that inflation is rising despite weakness in the price of oil:

Inflation will worsen if the new administration follows through with tariffs (raising import prices) and a tough immigration policy. The first Trump Administration took tariffs from 0.5% to 3%. Currently the President Elect is talking about taking tariffs to at least 15%. This will likely drive import and export prices higher.

* Sluggish global economic growth with persistent inflation means that the era of "slugflation" has likely begun. Indeed, as mentioned previously, for the first time since September 2022, both CPI and PPI inflation are officially back on the rise just as economic growth is decelerating. 

The Liscio Report just updated its state-level tax sales receipt database, which has been an excellent indicator of domestic growth. According to the state tax data, there are recessionary warnings as reflected in that only about 1/3 of the states met their targets in October and just half recorded any year over year growth at all. This data is consistent with The Beige Book which also has struck a recessionary tone. 

* Reduced corporate profit expectations. Last month we noted diminished 3Q2024 S&P expectations (in July +8% EPS growth was forecast, now +4% seems likely). 4Q2024 profit expectations have come off by an additional -2.1% since the start of the quarter and are currently at their lowest point since estimates began (at $62.40/share). Full year 2025 EPS projections are not far behind, falling -1.1% over the same time frame and at the lowest level since March (at $272.30/share).

* Elevated valuations. The Chart below highlights the stretched valuation of the US stock market along almost every traditional valuation metric:

The S&P CAPE Ratio (the cyclically adjusted price-to-earnings ratio) has crossed above 38 for the third time in history and is now higher than 98% of all historical valuations:

Here is a chart which demonstrates how high forward multiples are with an historical perspective:

* Bullish investor sentiment (and positioning):

* Feckless monetary and fiscal policies (leading to ever higher deficits and unprecedented national debt loads). We have covered this issue extensively over the last twelve months.

* Geopolitical risks abound as evidenced by Ukraine's retaliation into Russia and Putin's saber rattling and threatening response. Arguably, should the new Administration become more isolationist those risks will likely multiply.

* Market structure risks. We have also covered this subject extensively.

Bottom Line

Trouble ahead

Trouble behind

And you know that notion

Just crossed my mind

- The Grateful Dead, Casey Jones Grateful Dead - Casey Jones (Winterland 12/31/78)

Four weeks ago in my Diary, I underscored our risk averse strategy by quoting Warren Buffett and Charlie Munger:

Warren Buffett: I would rather be 100x too cautious than 1% too incautious -- and that will continue as long as I'm around.

Charlie Munger: If we had used the leverage that a lot of successful operators did, Berkshire would be a lot bigger-- but we would have been sweating at night.

This month, too, we have widely quoted Buffett - whose cash hoard he manages at Berkshire Hathaway has risen by another $50 billion (to $325 billion) in recent weeks.

The troubling factors and conditions included in today's commentary suggest to us that the market's upside reward is dwarfed by downside risk.

Thus far in 2024 our fears have not been well realized as the equity market has advanced meaningfully. Though we have managed to deliver a positive investment return this year - while being net short (!) - we have, thus far, failed to capture the opportunity set in equities. (We give ourselves a "D" grade for market outlook (and positioning) and an "A" grade for risk control).

Nonetheless, we feel more strongly that we will be correct in view and continue to embrace a cautious and defensive strategy based on the expectations that stocks will fall to more attractive levels to buy in the next few months.

To be direct, "group stink" (a term we use for the consensus) has a foul odor these days.

Investment data is available more conveniently and faster today, but the behavior of investors is often no more intelligent than in the past. How people react will not change. Their psychological makeup stays constant. In managing money through multiple market cycles, an investment manager should often divorce his mind from the crowd.

The herd mentality and the dominance of passive products and strategies that worship at the altar of price momentum sometimes causes market participants' IQs to become paralyzed. Arguably, this is one of those times.

Given the rising risks and nosebleed valuations, we don't think investors in the last few months are acting very intelligently.

In markets, smart doesn't always equal rational and can produce some unexpected and unwelcomed outcomes:

Long Term Capital Management had hundreds of millions of dollars of their own money and had all that experience. The list included Nobel Prize winners. They probably had the highest IQ of any 100 people working in the country - yet the place still blew up. It went to zero in a matter of days. How can people who are rich and no longer need money do such foolish things?

- Warren Buffett

We are of the strong belief that to be a successful investor over several market cycles, you must divorce yourself from the fears and greed of the people around you, although, at times, it is almost impossible.

It remains our view that the U.S. stock market is overvalued against interest rates, earnings, cash flow and sales -- and most other metrics that have stood the test of time.

As reflected in the vanishing equity risk premium, fear and doubt has left Wall Street.

Slugflation may lie ahead as the labor market weakens and, for the first time in over two years, both consumer price index and producer price index inflation are back rising -- at a time in which price earnings multiples are, on average, in the 95%-tile and interest rates are resuming their rise (the yield on the 10-year Treasury now stands at near 4.50%).

Again, we take our cue from Buffett:

Be fearful when others are greedy.

From Peter Boockvar:

Housing starts, multi family permits near 6 yr low

October housing starts totaling 1.311mm were light relative to expectations of 1.334mm and compares with 1.353mm in September. With this data point it’s always important to separate out the two components of single family and multi family.

Single family starts dropped by 72k m/o/m to 970k which is around where the 6 month average is of 976k vs the 1.023mm 12 month average. This is below the 2021 levels when starts were consistently above 1mm, averaging 1.13mm just as we need more supply right now. Permits for single family construction was little changed at 968k vs 963k last month and vs 967k in the month before.

Multi family starts were 341k, up 30k m/o/m but after falling by 62k in September. This was between 500-600k in 2022 when all the 2021 green lit, easy money projects first were drawn up. Permits fell to 448k from 462k and that is just a few thousand from the lowest since 2018 not including Covid.

Bottom line, as public market participants, we really only hear about the trends for the publicly traded builders that are doing pretty well. What we don’t hear about are the more sluggish trends for smaller builders who don’t have the ability to discount. With regards to multi family, there will be a huge drop off in starts in 2025 which will right size the supply/demand imbalance this year as a record amount of units, mostly in sunbelt states, gets absorbed. So, we enjoy the rent growth slowdown, again mostly in sunbelt states, while it lasts because it will reverse in the back half of next year, and into 2026.

Single Family Starts

Single Family Permits

Multi Family Permits

From Peter Boockvar:

Only good to hear the word 'nuclear' when it comes to energy/Foreign treasury buying/Earnings

We certainly only want to hear the word 'nuclear' when it comes to providing clean base load power 24 hours a day, 7 days a week, and which we are still long of in uranium, not when it comes out of Vladimir Putin's mouth. Treasuries are rallying in response and at least this could be one geopolitical disaster, god forbid, that would help the US government sell its debt.

As we debate the impact of ever rising US debts and deficits and the associated Treasury supply that comes with it, the monthly Treasury International Capital flow data, while somewhat dated when released, becomes an important number to thumb through. In September, obviously pre-election, foreigners bought a net $77b of US notes and bonds but the breakdown of the buyers is key to differentiate. 'Official' central banks continue to sell and for a 5th straight month led by Japan, China and Hong Kong. The offset was from private foreign buyers but even here could very well be mostly hedge funds and other short term focused buyers, especially ahead of the election. Euroclear, who facilitates cross border transactions, is based in Belgium and Belgium is the domicile of the largest foreign buyer in September. Who knows who is buying via there. Also, buyers via the UK and Luxembourg bought a combined $36b worth and could be anyone using banks there. The other huge buyer all year has been the Cayman Islands, certainly not the government but likely hedge funds putting on basis trades. In September though their buying cooled down after buying a combined $100b in the two prior months.

Bottom line, foreigners are technically still buying US Treasuries but both their % ownership of the total amount being issued continues to shrink and the bulk of the buying are financial institutions, not the official government/central bank foreign sector.

Cass Freight's October transportation report was released yesterday and shipments m/o/m were about unchanged but down 2.4% y/o/y. They said, "In a sign that private fleet growth continues to affect for-hire demand, the ongoing softness in shipments comes as Class 8 tractor sales rebounded from supply constraints in Q2. Although goods demand growth is driving broad freight volume growth, as can be seen in intermodal, imports, and freight GDP, it is still not reaching the for-hire market."

We also have the dynamic of many want to get ahead of any tariffs and shipments taking place ahead of the holidays on top of an overall manufacturing recession where less stuff is getting made and shipped. As for freight rates, the implied gain in their data was .4% m/o/m after a 4.2% rise in September but still down 3.6% y/o/y because of excess capacity. That excess though is getting whittled down.

Anecdotally, yesterday Old Dominion Freight announced a 4.9% "general rate increase" effective December 2nd. They said, "The general rate increase is based on the Company's economic forecast and expectations for the operating environment. We must continue enhancing our high quality service network and systems to meet and exceed our customers' expectations and deliver on our promises."

And why such a notable rate increase? "This GRI will affect our class tariffs and is intended to partially offset the rising costs of real estate, new equipment, technology investments, and competitive employee wage and benefit packages."

Combine this with container shipping rates that are up sharply this year, though well off the peak highs. And air cargo rates have risen double digits. I'll argue again, we are just not going back to the 2% ish inflation level and staying there. We are in a new time period of inflation volatility.

From Walmart's press release:

At Walmart US where comps rose 5.3% ex fuel, "Sales reflect broad based strength across merchandise categories and physical and digital channels...Strong transaction counts and unit volumes; share gains primarily from upper income households."

At Sam's Club, "Strong sales growth across club and digital channels, led by food and health & wellness categories...Comp growth primarily driven by transaction counts and unit volumes...Share gains in grocery and general merchandise categories, including apparel and consumer electronics."

Lowe's reported a drop in comps but a bit less so than expected and said "Our results this quarter were modestly better than expected, even excluding storm related activity, driven by high-single digit positive comps in Pro, strong online sales and smaller ticket outdoor DIY projects."

From Viking Holdings, benefiting from boomer cruises:

"We have already sold 70% of the capacity PCDs (Passenger Cruise Days) for our Core Products for 2025, with both volume and rates exceeding those for the 2024 season at the same point in time."

With S&P cash rallying and now only -23 handles, I am selling short more index calls.

STAFF

Just Now

I have sold out my common in SPY $585.62 and QQQ $498.80 for a profit (purchased at 420 AM!) and now short calls in the Indexes naked.

Dougie Kass

STAFF

I am short INTU (in light of Trump's view of the IRS) and I shorted WMT at $87.23 on the EPS beat (as I believe tariffs are a threat to the company going forward)

Viking to present data from Phase 2b VOYAGE study in late breaker presentation Viking Therapeutics announced that results from the company's Phase 2b clinical trial of VK2809, the company's novel liver-selective thyroid hormone receptor beta agonist, in patients with biopsy-confirmed non-alcoholic steatohepatitis, or NASH, also referred to as metabolic dysfunction associated steatohepatitis, of MASH, will be highlighted in an oral late breaker presentation at the annual meeting of the American Association for the Study of Liver Disease, or AASLD, on Tuesday, November 19, at 11:00-11:10 a.m. Pacific Time.

Chart from 8:28 a.m. ET:

From JPMorgan:

US: Futures are mixed with RTY lagging. Among Mag 7, TSLA is -1.5% while NVDA added +0.8% pre-market. Bond yields are lower and USD is higher; 2-, 5-, 10-year yields are 6bp, 6bp, 5bp lower. Commodities are mixed: Oil is lower, Base Metals are mixed with Copper and Iron Ore higher, and Precious Metals are higher. Today, the key focus will be LOW and WMT earnings pre-market. On macro data, we will receive Housing Starts and Building Permits.

and...

EQUITY AND MACRO NARRATIVE: Yesterday, stocks closed higher with low volumes ahead of major earnings catalysts this week (WMT, LOW, TGT and NVDA). In addition, housing data (NAHB Housing Market Index) surprised to the upside despite the rising mortgage rates over the past two months. Today, the key focus will be LOW and WMT earnings pre-market, as well as Housing Starts/Building Permits at 8.30am ET. The balance of this notes include: (i) new JPM Econ 2025 outlook; (ii) Consumer Earnings Preview; (iii) a repost of Roadmap to YE.

Upside:

-SMCI +29% (announces appointment of BDO USA as Independent Auditor and Filing of Compliance Plan with Nasdaq)

-SYM +28% (earnings, guidance)

-ACRS +23% (multiple broker upgrades following Biosion license agreement)

-BKKT +16% (reportedly DJT in advanced talks to buy crypto trading venue Bakkt)

-ALZN +10% (announces full data set from nonclinical study: Comparing Brain and Plasma Lithium Exposures between AL001 and Lithium Carbonate in Alzheimer’s Transgenic Mice)

-AS +9.6% (earnings, guidance)

-APLS +7.3% (guidance)

-AI +6.1% (C3 AI and Microsoft forge strategic alliance to accelerate enterprise AI adoption)

-DNMR +4.9% (earnings, guidance)

-BERY +4.7% (Amcor and Berry to combine in an all-stock transaction valuing Berry at $73.59/shr; earnings, guidance)

-WMT +3.7% (earnings, guidance)

-MSTR +3.3% (fiules to sell private offering of $1.75B of Convertible Senior Notes)

-OPRA +3.2% (partners with Spotify to put your favorite music inside the browser)

-CRDF +2.7% (announces new patent with claims for use of Onvansertib in treating KRAS mutated mCRC)

-INDI +2.7% (extends automotive photonics leadership with advanced optical component integration capabilities)

Downside:

-GRFS -11% (Mason Capital reiterates corporate governance shortcomings and mismanagement of Grifols under current Board; Brookfield confirms it is considering €10.5/shr offer for Grifols)

-INCY -11% (to pause enrollment in the ongoing Phase 2 study of MRGPRX2 (INCB000262) in chronic spontaneous urticaria (CSU))

-DJT -7.3% (reportedly DJT in advanced talks to buy crypto trading venue Bakkt)

-LEU -5.2% (Russian low enriched uranium trade partner TENEX has export license to US suspended, effective Dec. 31st)

-AVAV -4.4% (to acquire BlueHalo in $4.1B all-stock deal to create more diversified global leader in all-domain defense technologies)

-BABA -2.0% (provides initial price guidance on $5B dual-currency bond)

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

* Here is his technical and fundamental rationale:

Following my latest Tales From Nvidia , the brilliant MIT-trained Abe from Brooklyn chimed in: 

Dougie,

Just wanted to let you know that I have today, established a short position in NVDA. My reasons fall into two categories:

* TECHNICAL- which for me determines whether I see signs that the market has begun to trade in the direction i think the fundamentals should be moving the stock

* FUNDAMENTALS - you know what those are

In the FUNDAMENTALS, I am not really sure we are there in terms of what we already know but we are on our way almost certainly. At this point in the life of stuff like NVDA, THE most important thing keeping the stock aloft at valuations that by most metrics are bizarre is the quarterly revenue growth rate. Anyone who is in the stock and isn't concerned about the shockingly often use of the word "estimates" in NVDA's quarterly reports and maybe more importantly in its audited, cover-your-ass legalese Qs and Ks, could only have been a middle offensive lineman or rugby player in college and indifferent to brain-ending injury. More important...eventually...if not now, are the various book cooking choices in their reporting that overstate free cash flow and move some of the size of assets needed to do their business off the balance sheet - people need to take a close look at the inventories and their commitments for materials. Finally, the interplay between their use of options to compensate and the bump to FISB earnings they are able to report is grossly overstating earnings and cash flows. Reported increasing problems in delivering "better", "faster" more unique results are being widely noted. Something is going wrong in the sizing up of the LLMs and call me crazy but if i were in charge of expanding at enormous cost and suddenly the benefits of sizing up are challenged, I just might "pause"...and if there is one thing that the stock cannot stand, it's a pause in revenue growth due to customers pausing their delivery demands.

Of course, there are some chip analyst and chip investor pros who know all this and are likely converting this latter angst into decisions about the stock and I think that is starting to show up now in the TECHNICALS

TECHNICALS. First thing to note here is the time of year we are at. This is the time oy year that funds concern themselves with two things. First, they need to show that their year end holdings include all the year's biggest winners. Everyone will want that list to include NVDA and it doesn't take a market genius to know that NO ONE has waited until now to first begin buying the stock. The second thing that funds need to do at this time of year is make moves to minimize taxes...in this case, with only a small handful of stock accounting for so much of the gains in the broad market and so many stocks down on the year, for many managers, the tax move involving NVDA will be to realize some gains this year (read=SELLING) against losses elsewhere to front end the PV of those moves.

Then after Dec 31, there will be strategic position reductions of NVDA positions that have grown to outlandish proportions just some issues are turning up. These include as you know, reports that further advances in results from the use of the chips are not as expected, trouble getting the next gen chips into production, increasing difficulty for their customers in ensuring access to sufficient power - most of the big easy blocs of power have already been committed and adding lots of small nukes to the sources may not be accomplished as easily as AI people would like given local resistance to nukes of any size and the unknown of excess orders on their books from customers covering their asses but who can cancel if things slow down on their end. I think all of that is happening based on very public reports so no rocket science needed there.

TECHNICALS - I think I am seeing some these issues creeping into the stock's performance. Daily volume since late October is a fraction of levels in October and volume has been declining since May. Professional trading best tracked by looking at opening price to closing price action has been mostly negative since late october on a daily basis and on a weekly basis, while still positive, has turned sharply down since the stock was added to the DOW. It now takes more volume to move the stock up than to move it down even as volume is falling as the stock moved to recent high levels.

I think based on all this alone, a short position here is not unmanageable in terms of risk and could pay off even without a slowdown in reported sales gains. But any rumors about Q4 sales could really start it down. When the Gods Fall, the descent is often spectacular. I think a 25-30% decline is clearly possible even before q4 numbers become an issue.

Full disclosure; I am short - very short with wider than average stops in the market.

abe

PS...if you believe in such things, the stock price has formed an ending wedge (whether you look at weekly or monthly charts) that would call for a selloff resolution. There are important averages clustered in the 100-111 range but THE most important one is down at ~76 which also happens to coincide with a 50% retracement...not an impossible pullback even for a stock in a continuing bull run.

The S&P Short Range Oscillator slipped from 1.98% to 1.6%, but is still modestly overbought.

Bonus — Here are some great links:

Election Rally Hangover

Digital Payments Are Paying Off 

NVIDIA'S Earnings and the Cabinet Island 

The New Growth Playbook

Maybe, Maybe Not

And could mark a top or topping process...

Russia's Putin has said that any attack on Russia aided by other forces will be seen as a redline and as an attack by the entire coalition.

Resultingly, S&P futures are -38 handles I have purchased SPY and QQQ longs to offset yesterday's short Index calls — to lock in a profit.