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As previously mentioned, I will be out for the rest of the day at meetings.

From Peter Boockvar:

10 yr auction solid

With the last big economic data point out of the way through year end, the 10 yr note auction was solid. The yield of 4.235% was below the when issued pricing of 4.252%. The bid to cover of 2.70 was well above the year average of 2.52. And, direct and indirect bidders took down about 90% of the auction, around the most since August 2023.

Bottom line with some clarity, whether good or not, with the growth and inflation data this month, the buyers came out to play in the longer end of the yield curve. That said, at 4.24%, the off the run 10 yr yield is unchanged in response and is exactly where it was at 8:29am today right before CPI hit the tape. It’s the 2 yr yield that more reacted with it currently sitting at 4.14% vs 4.17% right before the inflation print. The spread between the two is up by 2 bps to 10 bps, a 3 week high. Rate cut odds for next week are now at 95% but with an expected pause in January.

2s/10s yield spread

As mentioned yesterday I have a hectic week ahead of me.

I have a business lunch today and meetings starting at 2:30 p.m. over the balance of the day.

- New York Stock Exchange volume is 3% below its one-month average;

- Nasdaq volume is 4% below its one-month average

Wall Street Journal's Joanna Stern on today's iOS 18.2 release:

 "Is all this enough to make you sprint to the store for a brand-new iPhone? Probably not”(The software update becomes available this afternoon)

Here’s Joanna’s review.

Interesting action (read: weakness) in financials in a sea of green.

As an example, check out the intraday chart of JPM.

rolf

20 minutes ago

My short portfolio is getting murdered by Tesla - keeping it on though. European Auto sales is coughing up blood and so is Asia. They are giving away used Teslas - that cannot be bullish for new car sales. So 1.3 trillion in market cap is based on Rob Taxis? What else? Their numbers last quarter were held up by credits. The Federal Government. I might be coughing up blood for a while on being Short - but I am scaling my short position up as the price gets more loony toons - disciplined short selling. I have learned not to cover Tesla at a loss when the price goes this extended. I have shorted it from zero about 100 times - covered at a loss may 10 times. All those 10 times were is mistake- should have done the opposite. Is it not a mistake now - the 101 Tesla short - not to confuse that with 101 Dalmatians

Short UBER makes a multi month low (-$2.25 to $62.75).

Sticking with it.

Wolf Street howls about General Motors GM cutting its Robotaxi costs out: GM Shuts Down its Misbegotten Robotaxi Money-Pit after Acquiring Cruise in 2016 and then Blowing $10 Billion on It | Wolf Street

Upside:

-CADL +155% (CAN-2409 achieved Primary Endpoint in Phase 3 Prostate Cancer Trial, Showing Significantly Improved Disease-Free Survival)

-PDCO +35% (announces Definitive Agreement to be acquired by Patient Square Capital for $31.35/shr cash or ~$4.1B)

-FEIM +25% (earnings)

-SFIX +22% (earnings, guidance)

-PRPH +16% (secures global private equity backing, nears major Lozenge deal; adds industry expert and plans significant cost-cutting measures)

-SPWH +16% (earnings, guidance)

-MIND +15% (earnings)

-ADCT +12% (announces Positive Initial Data from LOTIS-7 Clinical Trial Evaluating ZYNLONTA in Combination with Bispecific Antibody in Patients with Relapsed/Refractory Diffuse Large B-cell Lymphoma)

-PLAB +11% (earnings, guidance)

-RLAY +11% (announces updated Interim Data for RLY-2608 + Fulvestrant demonstrating continued maturation of clinically meaningful Progression Free Survival)

-SKIL +7.3% (earnings, guidance)

-MDLZ +4.3% (announces $9B share buyback and confirms capital allocation priorities, including brand and capability reinvestment, "bolt-on acquisitions", share repurchase and dividends following reports it had approached HSY for potential takeover talks)

-APRE +3.9% (announces Twice Daily (BID) Dosing of Patients in ABOYA-119 Clinical Trial of ATRN-119 to Potentially Optimize Clinical Outcomes and Strengthen Clinical Path Forward)

-DAKT +2.9% (comments on Alta Fox: Made counter-proposal to Alta Fox that reflects market value for Alta Fox's convertible note)

-ICUI +2.9% (Jefferies Raised ICUI to Buy from Hold, price target: $200)

Downside:

-QTTB -64% (SIGNAL-AD Phase 2a clinical trial in atopic dermatitis did not meet primary endpoint in Part B)

-IBRX -30% (prices 33.3M shares at $3.00/shr in ~$100M public offering)

-SPRB -23% (Cahmelia-204 study of 200mg once-daily (qd) tildacerfont in adult congenital adrenal hyperplasia (cah) did Not achieve primary endpoint of glucocorticoid (gc) reduction; Evaluation of Strategic Opportunities and Cost-Reduction Activities Underway and plan to present findings at upcoming conferences in 2025)

-SLRN -17% (Phase 2b/3 study of Izokibep for treatment of Uveitis did not meet primary endpoint; secondary endpoints and did not achieve statistical significance; CFO Gil M. Labrucherie to resign, effective Jan 2nd, 2025)

-PLAY -13% (earnings; CEO resigns)

-M -10% (earnings, guidance; discloses plan for remediation of the material weakness as the Company evaluates and enhances its internal control over financial reporting; could take additional measures to modify, or add to, the remediation measures)

-TOVX -7.0% (files secondary offer of 7.7M shares)

-RCKT -6.1% (priced upsized 13.2M share offering at $12.50)

-JOBY -6.0% (files to sell $300M through equity distribution agreement)

-HIMS -5.5% (Lilly will offer Zepbound vials on rival site)

-HSY -5.2% (MDLZ announces $9B buyback and confirms capital allocation priorities, including brand and capability reinvestment, "bolt-on acquisitions", share repurchase and dividends following reports it had approached HSY for potential takeover talks)

-SIGA -3.4% (NIH confirms TPOXX (tecovirimat) did not improve Mpox resolution or pain)

-MTCH -2.2% (initiates dividend, announces share buyback ahead of Investor Day; cuts Q4 rev guidance for Tinder)

-FAST -2.1% (multiple broker downgrades)

-DUOL -1.8% (Tier1 firm Cuts DUOL to Neutral from Buy, price target: $375 from $355)

From my dear pal George Noble:

Charts from 8:14 a.m. ET.

Sold more (long): SPY $605.04 and QQQ $523.45.

Chart from 8:30 a.m. ET:

I sold some (long) SPY $604.42 and QQQ $522.56 into the post CPI rally.

From Peter Boockvar:

Inflation is in the eye of the stat you use/Earnings comments/China teases weaker yuan

For my longer term readers, I'm sorry to have to rehash again the difference between how CPI (ahead of the updated figure today) and PCE are calculated but I think it is very important as it directly influences monetary policy and also in light of the tragic murder of the UNH executive where we guess/assume there was denial of coverage involved.

The Fed we know has told us that PCE is their inflation guiding light and the reason they give is mostly due to the substitution affect where if beef gets too expensive, people switch to chicken. Ok, fine. But, the real problem with PCE and why it consistently runs below CPI anywhere from 50-100 bps is because healthcare is its biggest component, running at 21% vs CPI which only has it at 9% and housing which CPI overweight's to the tune of 32% while it is only about half that in PCE.

The problem with the PCE's biggest component is that most of it is calculating medical care costs that are paid through employer provided health insurance (hence the UNH reference) and through Medicare and Medicaid. Firstly, this is NOT measuring what consumers are coming out of pocket with on healthcare which is what CPI is calculating instead. Secondly, if you think that these entities are reimbursing healthcare providers at market rates, I'm wrong but they are not and reimbursements run below the true costs of providing healthcare services, sometimes well below. So, the biggest component of PCE is not even measuring out of pocket consumer expenses and is notably understating its realistic cost anyway.

With housing, PCE is way understating what is the biggest cost for most consumers. And I've seen many studies that at least for renters, about 1/3 of their income goes to rent, which CPI is capturing. For homeowners, their equivalent cost is property taxes, which CPI doesn't include, but usually runs 3-5% higher each year. Property taxes, depending on where one lives, is definitely a much lower cost as a % of one's income.

So, we have a Federal Reserve that is not only trying to figure out what they want the REAL rate, aka neutral rate, to be, but they are also referencing what I believe is a flawed inflation stat that results in the fed funds rate to be below where it should, right now by 50 bps (the spread between core CPI and core PCE). If the Fed was using the CPI instead, the REAL rate of about 125 bps currently is well below the historical level of about 200 bps pre GFC vs 175 bps up against PCE.

From this piece from Morningstar a few months ago is this pie chart on the differences. https://www.morningstar.com/markets/whats-difference-between-cpi-pce:

Casey's General Store, the Midwest convenience store operator, is always a good tell on the consumer and this from their earnings call yesterday:

"Inside same store sales were up 4% for the 2nd quarter...Same store prepared food and dispensed beverage led the way...Hot sandwiches continued their strong performance...and cold dispensed beverages also performed well." They are also doing big business in energy drinks, alcohol and nicotine alternatives to cigarettes.

On the consumer, "directionally the consumers hanging in there about the same as what we would have talked about last quarter. We're still seeing a little bit of softness on that lower income consumer. But again, we don't have a disproportionate exposure to that consumer for the balance of the consumers, which are about three quarters of them. They're continuing to shop, they're continuing to visit the store at the same frequency, continuing to buy as normal."

From Ollie's Bargain Outlet's:

"In the quarter, we saw strong demand for everyday consumables such as cleaning supplies, food and candy."

"Outside of consumables, we also saw strong demand for certain discretionary related categories such as furniture and outdoor living. We believe the warm weather in October along with the late timing of Thanksgiving, impacted our sales of seasonal goods in the third quarter. As the weather normalized and we approached Thanksgiving holiday, we saw accelerating trends in our seasonal categories. We were pleased with our Black Friday weekend sales and the current momentum in our business. Now more than ever, consumers want value and suppliers need bigger partners."

"Our value proposition is selling quality brand name products that people need and want for their everyday lives at prices typically 20% to 70% below the fancy stores."

They are also benefiting from the bankruptcy of Big Lots and 99 Cents Only Stores, their two main competitors.

From AutoZone:

"While the macro environment has led customers to be cautious with their spending, we remain confident that we will continue to gain share over time in both domestic DIY and commercial."

"Our discretionary merchandise categories continue to be a drag on our domestic DIY sales, similar to the last several quarters...Our belief is that sales will continue to be pressured until the customer gets some economic relief and consumer confidence improves." They saw a 1.8% drop in DIY transaction counts, a slight improvement from the drop of 2% in the previous quarter.

From Dave & Buster's, whose stock is down sharply because its CEO resigned:

"I'd say that macro environment just continues to be that headwind...particularly that low end consumer is really where we're feeling that decline to the extent that their spend is down twice as much as the other income quartiles. So, we're continuing to see that pressure on the consumer...So I think it's just a little bit more of the same from a macro perspective from Q2 heading into Q3."

From Academy Sports & Outdoors:

"In the third quarter, we continued to see a broad based consumer backdrop that was characterized by episodic shopping demonstrated by consumers waiting until major events such as back-to-school or holiday while pulling back spending during the lulls in the calendar."

"Customers also continue to gravitate towards the value offerings in our assortment, which was reflected in the strength we saw during the promotional back-to-school season."

"At this point, we're past the traditional kickoff to the holiday season, and we're pleased with our Thanksgiving weekend results where we had the largest day in the company's history on Black Friday."

From Toll Brothers:

"While we recognize that affordability is a broad market issue, our more affluent buyer is less impacted by it. In our 4th quarter approximately 28% of our buyers paid all cash consistent with the trend over recent quarters and significantly above our long term average of approximately 20%. The loan to value ratio for our buyers who took a mortgage in the 4th quarter remained at approximately 69%. So for the 72% of our buyers who took a mortgage, on average they put down 31%."

On their discounting, "when the market softened a bit in September and October in response to the spike in mortgage rates and the uncertainty leading up to the election, we modesty lowered net price through incentive increases by an average of $12,000. As a result, our incentives in the 4th quarter were approximately 6.7% of the average sales price, slightly above our recent averages of between 5% and 6%. This small increase was primarily on finished spec homes, many of which are expected to be delivered in our first quarter. With the market improving, we have recently begun to decrease incentives, and we are optimistic that we will be able to further reduce incentives and also increase base prices with the start of the spring season in January."

Mortgage apps for the week ended 12/6 rose 5.4% w/o/w but all driven by a 27% jump in refi's even though mortgage rates were little changed. Purchases instead fell by 4.1% w/o/w after the rise in the prior weeks. Outside of the affluent that Toll talked about, many interested buyers are very mortgage rate sensitive.

It is not just Trump that loves tariffs, Biden just announced tariffs a 50% tariff on Chinese solar wafers and polysilicon, twice the previous rate. The tariff on tungsten products is now 25%. They will take effect on January 1st. Tariffs are a bipartisan economic weapon it appears.

With respect to the yuan by the way, there is a Reuters story said "Chinese authorities are considering a weaker yuan as Trump trade risks loom, sources say." So, with a stronger US dollar induced by tariffs, how are we going to square that with the desire to reshore production to the US?

Ahead of the BoJ meeting next week, November PPI for Japan rose .3% m/o/m and 3.7% y/o/y, above expectations. While the BoJ has every reason to raise rates, a Bloomberg story said this today, "Bank of Japan officials see little cost to waiting before raising interest rates while still being open to a hike next week depending on data and market developments, according to people familiar with the matter." With a benchmark rate of just .25%, this remains a committee that is afraid of its own monetary shadow.

* A very worthwhile read...

On Monday I recommended reading Dave Rosenberg's Lament of a Bear — but it was behind the paywall and only available to his subscribers.

After I made the request, Rosie was nice enough to take it outside the paywall and provide access to our subscribers this morning:

Here is the shareable link for the sequel:

https://app.rosenbergresearch.com/dashboard/publication-details/08dd1870-beaa-4218-889a-d5066b312d21?bucketId=08dcb188-f40e-40bf-8e74-af88ab237f7c&featureIds=2290f675-fc5d-452e-aca0-acd6455fa76c&publiclyAvailable=true

And here is the link to the original: 

https://app.rosenbergresearch.com/dashboard/publication-details/08dd1548-599a-442a-8448-24e8630bc36b?bucketId=08dcb188-f40e-40bf-8e74-af88ab237f7c&featureIds=2290f675-fc5d-452e-aca0-acd6455fa76c&publiclyAvailable=true

From Monday:

Read Rosie

If you can get access to Rosie's latest piece (Rosie hasn't given me permission to reproduce his Lament of a Bear — The Sequel) it is really a good read.

Rosie makes some of the points — some of which we share (particularly the paper-thin equity risk premium).

I will have more on my general market view early tomorrow morning!

Position: None

By Doug Kass Dec 9, 2024 4:32 PM EST

GOP Leaders Blocked Schumer's Push To Include Marijuana Banking Reform In Government Funding Bill, Senate Source Says - Marijuana Moment

Bonus — Here are some great links:

Today's Number Is 6

Trading Trends 

Argentina ET

The S&P Short Range Oscillator moved to -0.8% vs. 1.19%.

Doomberg on the chip war.