Thread by @DougKass

Freebie from @realmoney

Mar 23, 2021 | 08:12 AM EDT DOUG KASS
The Market Is a Hard Dog to Keep Under the Porch
* The U.S. stock market remains materially overpriced

* I would use market rallies to reduce equity exposure

* Value is stretched now (financials and energy)

while growth valuations are vulnerable to higher interest rates

* I am looking towards some SPACtacular failures in 2021-23

* Too many are forgetting the lessons of 2020 - that while the vaccine rollout is great news, many times we have seen that the economy is not the markets

* And the markets are not the economy

* In March, 2020 we bought the panic, as the S&P sold at more than a 20% discount to intrinsic value, and we ignored fear

* In March, 2021 we should consider selling the optimism, as the S&P is selling at more than a 20% premium to

intrinsic value, and we should consider ignoring the enthusiasm/speculation

"Early in the morning

All alone at my place

Black coffee, dry toast and egg on my face

It's the very last time I wait up all night

I feel like a fool

And you're providing me right

I give you my love

And I give you my money

You got the feelings of a fence post honey

Cant hold a grudge

I just carry a torch

'Cause you are a hard dog to keep under the porch..."

- Gail Davies, You're A Hard Dog To Keep Under the Porch

I remain negative on the outlook

for equities:

* As noted in my opening missives over the last few months, interest rates and inflation, and inflationary expectations, are moving higher - reducing the value of stocks on a discounted cash flow basis/model.

* Based on historical metrics, valuations are, on

average, in the 95th percentile - or higher.

* The expanding schism between "haves" and "have nots" - and rising wealth and income equality - will have consequential social and economic consequences in the years ahead.

* The exponential rise in supply (of a SPAC-kind)

represents clear and growing risks and the possibility of disequilibrium between the demand and supply for equities. Many SPACs are returning to earth over the recent trading sessions - suggesting that demand for these have been sated. For those that see the $10 redemption price

as a "put" - you better study (deal) history and terms better. I anticipate some SPACtacular failures in 2021-23:

Jim Cramer @jimcramer

there are good SPACs and bad SPACs but if you can really run 4 SPACs at once and have a real job, to me it's preposterous.

When do you sleep?

Jim Cramer @jimcramer

But if you are doing a SPAC you need no SEC approval--which actually is hard to get--and you can make any projections and no one thinks this is a sham. It's heresy to even call it that.

Jim Cramer @jimcramer

I keep hearing who cares, you will get your money back anyway so what's the risk. The risk is that once the SPAC finds its mate maybe the mate is worth far less than we thought. Then the insiders can sell and make a ton of money.

Jim Cramer @jimcramer

Is there any limit to

the number of SPACs people can run? Does it even matter? Is there no shame to those who think they can run 5 SPACs? are there 5 solid targets?

Jim Cramer @jimcramer

I work really hard and hold down two jobs, one with Maven, the outfit that bought TheStreet, and the other with

CNBC. But I am shocked at how SPAC backers can take down 3, 4, 5 SPACs and keep a regular job. That's crazy

* Speculative stocks (gewgaws like (CAN) , (MARA) , (GBTC) , (RIOT) , et al.) are deflating - and continue to have material downside risk.

* Monetary and fiscal policy

has grown ever more undisciplined and dangerous - and will lead to the headwind of a substantial increase in corporate and individual tax rates.

* After the gold rush of the most recent stimulus package, the domestic economy is likely to return to subpar and disappointing growth

.

* At a premium of over 20%, the S&P Index (at about 3900) remains as overvalued relative to my calculus of "fair market value" (around 3100) as at any other time in the last five years .

* The rise in cryptocurrency market capitalizations (bitcoin is now over $1 trillion)

poses a potential threat should that market, itself, be disrupted.

* Where's the beef (?) - with value stocks overextended (e.g., bank and energy stocks) and growth stocks inflated and vulnerable to rising interest rates.

* The evolution of market structure, from active to

passive, raises the risks of disequilibrium and the potential for "flash crashes" and ETF liquidity issues ahead.

* The bull market in complacency is in full bloom - as contrasted to the fear that existed exactly one year ago:

* Too many are forgetting the lessons of 2020 -

that while the vaccine rollout is great news, many times we have seen that the economy is not the markets and the markets are not the economy

Bottom Line

In March, 2020 we bought the panic (as the S&P sold at more than a 20% discount to intrinsic value) and we ignored fear.

In March, 2021 we should consider selling the optimism (as the S&P is selling at more than a 20% premium to intrinsic value) and we should consider ignoring the enthusiasm/speculation.

Like country western singer Gail Davies' dog, the market remains persistent in strength -

and hard to keep under the porch. Shorts have been worn out or eradicated (via (AMC) , (GME) short squeezes).

Nevertheless, I would use abrupt moves higher as an opportunity to dispassionately derisk.

If I was trading/investing I would hold very few longs (Walmart (WMT) ,

Amazon (AMZN) , Twitter (TWTR) , Kraft Heinz (KHC) , gold/silver, etc).

But my short book would be large - Index shorts, Delta Air Lines (DAL) , extended opening trades ( (DIS) ), specs ( (PLUG) , CAN, MARA, GBTC, RIOT), some financials ( (GS) ), over conceptualized disruptors

ARK (ARKK) , Peloton (PTON) , Carvana (CVNA) , Zoom (ZM) , numerous SPACs, even some energy stocks - that have become inflated recently, and others. @jimcramer @tomkeene @SquawkCNBC @CNBCFASTMONEY @ScottWapnerCNBC @lizclaman @riskreversal @convertbond @threadreaderapp unroll