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DAILY DIARY

Doug Kass

Will J.C. Penney Become a Penny Stock?

  • The CEO's departure sparks a $2 move.

"One last thing."

 - Lt. Columbo

The $2-plus move in J.C. Penney's (JCP) shares after the departure of Ron Johnson is symptomatic of this nutty market, where investors buy (and buy) often without any real justification . 

J.C. Penney is cooked and might not be salvageable, yet the shares erupted higher in response to the management change.

New management and a possible change of retailing direction (in an important part of the selling season) signals more strategy indigestion, a possible cash crunch and, in all likelihood, a lower share price.

There is no white knight -- in terms of a manager or leveraged buyout outfit -- that can turn this company around or relieve investors from more pain over the near term.

Position: No positions

The Advance Continues to Narrow

  • I continue to expect a failure and a resumption of a correction, just when everyone least expects it.

It was another "kick save" late in the day.

It's important to emphasize here that Monday's volume was at the third lightest of the year.

The tree has been shaken in the last few weeks, and the market has bounced back -- but there are plenty of divergences and a narrowing of the advance.

I continue to expect a failure and a resumption of a correction in the period ahead, just at a time when nearly no one anticipates a decline.

We will see.

Thanks for reading my Diary and enjoy your evening.

Position: None

Earnings Reports That May Actually Matter

  • Alcoa is irrelevant, but these reports are likely to move markets.

From my perch, postclose earnings from Alcoa (AA), at $9 billion in market capitalization, are entirely irrelevant.

However, here is a schedule of companies reporting this week whose quarters are likely to be market-moving.

Important Earnings Reports Over the Next Week

Source: Bloomberg

View Chart »

Position: None

Market on Close Imbalances

  • How much to buy?

My mavens on the floor of the New York Stock Exchange see $465 million to buy on the close.

In terms of sectors, most of the buying is in financials at $165 million, with $145 million in consumer staples.

The telecommunications service area has $25 million to sell.

The largest individual buys are in Coca-Cola (KO) at $90 million, Wells-Fargo (WFC) at $50 million and Citigroup (C) at $45 million.

Sales are in Johnson & Johnson (JNJ) at $40 million, in Verizon (VZ) at $35 million and in Marathon Petroleum (MPC) at $17.5 million.

Position: None

Warning Sign

  • Strength in defensive stocks usually presages broader market weakness.

The consumer staples sector is approaching meaningful overvaluation, imho.

Strength in defensive stocks usually presages broader market weakness.

A market downturn remains my baseline expectation in the weeks ahead.

Position: None

Adding to SPY Short (Part Deux)

  • I am shorting even more shares at $155.70.

I am adding more to my SPDR S&P 500 ETF Trust (SPY) short at $155.70 now.

Position: Short SPY

Adding to SPY Short

  • I am shorting more shares at $155.51.

I am adding to my SPDR S&P 500 ETF Trust (SPY) short at $155.51 now.

Position: Short SPY

R.I.P., Annette Funicello

  • Only the good die young.

Rest in peace, Annette Funicello.

Hey there! Hi there! Ho there! You're as welcome as can be

M-I-C-K-E-Y M-O-U-S-E!

And speaking of Mickey Mouse, I remain long Disney (DIS, bought at $16.30 near the generational bottom in March 2009).

Only the good die young.

Position: Long DIS

Altisource Portfolio Solutions Gains Altitude

  • The shares just topped their 20-day.

Altisource Portfolio Solutions (ASPS) just breached its 20-day moving average to the upside.

Altisource Portfolio Solutions (ASPS)

Source: Bloomberg

View Chart »View in New Window »

Position: Long ASPS

Cause for Concern?

  • This chart should make the bullish cabal worried.

The year-to-date chart below of the price of the S&P 500 (yellow) against China's stock market (red) and Citigroup (C, blue) -- should make the bullish cabal worried.

Position: Short SPY

Barclays Bullish on AmEx

  • The firm raised its target from $68 to $75 and reiterated its Outperform rating on AmEx.

Barclays disagrees with me on American Express (AXP) today.

The firm raised its target from $68 to $75 and reiterated its Outperform rating on AmEx despite higher charge-offs and slower spending growth relative to fourth quarter 2012.

I continue, by contrast, to see the competitive landscape changing for the worse, as institutions like JPMorgan Chase (JPM, Sapphire card) make inroads on AmEx's market share.

Position: Short AXP

Portfolio Moves

  • So far.

Thus far today, I added small to my Fortinet (FTNT) long and my iShares Russell 2000 Index Fund (IWM) and SPDR S&P 500 ETF Trust (SPY) shorts.

Also, I am bidding for more Ford (F), General Motors (GM) and Qlik Technologies (QLIK).

Position: Long FTNT, F, GM and QLIK; Short IWM and SPY

Europe Closes Flattish

  • More news from over there.

European stocks ended the day relatively flat, with the CAC and DAX up slightly while the IBEX and MIB were down a bit.

A low light was continued weakness in European bank stocks, which traded down to November levels.

That said, credit default swap spreads tightened modestly.

Finally, as I mentioned previously, Portugal's stock market closed down by 1%, reflecting a constitutional court decision related to austerity plans. Portuguese bonds were mixed, with the two-year down in yield and the 10-year up in yield.

Position: None

Driving It Home

  • I remain a buyer of GM and Ford.

Late last week, I added to General Motors (GM) and Ford (F).

Though the weakening Japanese yen will be a headwind to the domestic auto manufacturers, it is generally recognized and discounted in current valuations.

I remain a buyer of both now at these levels.

Position: Long GM and F

Altisource Estimates Lowered

  • Most holders and potential buyers now know that Wall Street is too high for this year and too low for next year.

Estimates have begun to come down for Altisource Portfolio Solutions (ASPS).

I am at $5.15 a share in 2013 and $9.05 a share in 2014 compared to the Street's  $6.71 and $8.39, respectively.

I added to my long on Friday -- the shares had a nice move on that day -- and my sense is that most holders and potential buyers now know that Wall Street is too high for this year and too low for next year.

If I am correct, the shares could move higher over the next few months.

Position: Long ASPS

Over There

  • Specifically, Portugal.

A story that is not getting much circulation this morning but that is important relates to the Portuguese bailout program.

Bottom line: Portugal courts are disallowing cutting public sector wages, which could create problems with the country's bailout (in order to meet deficit targets) and ability to issue sovereign debt.

Portuguese bond yields were down earlier in the day, but that has now reversed along with a modest selloff in Portuguese stocks.

Position: None

Breadth Check

  • It stinks!

Here is the breadth at 10:35 a.m. EDT:

  • S&P 500 -- 156 advancers to 336 decliners
  • NYSE -- 692 advancers to 1,116 decliners
  • Nasdaq -- 798 advancers to 1,223 decliners
  • Russell 2000 -- 726 advancers to 1,121 decliners

Volume continues anemic. On the S&P volume is 7% lower than the past 10-day average, 15% lower than the past 30-day average and 26% lower than Friday's volume for this time of day.

Position: Short SPY and IWM

A Bull Market In Complacency

  • Illustrated.

Here you go.

Position: None

Tech Specs Get Some Respect

  • Qlik and Fortinet receive some positive attention from the analysts on Wall Street.

Late last week I mentioned two speculative tech stocks on which I have initiated buys: Qlik Technologies (QLIK) and Fortinet (FTNT).

On Qlik, Pacific Crest Securities is citing, "[C]hecks have been relatively solid ... good pipeline ... upside to $30/share." JPMorgan is also upbeat on the company, saying "Qlik will likely meet expectations for the March quarter, given broad-based business momentum and low expectations." In addition the company just put out its EPS date, so I suspect it will meet/beat. Here is an interview from early March with the CEO of Qlik and Morgan Stanley's analysts that supports the meet/beat notion.

On Fortinet, positive checks from Pacific Crest and RBC.

Position: Long QLIK and FTNT

One Shining Moment

  • Apply some of Coach Jim Valvano's life principles to your investing.

"If you laugh, you think and you cry, that's a full day. That's a heck of a day. You do that seven days a week, you're going to have something special."

-- Jim Valvano, coach of the 1983 North Carolina State basketball team

Tonight the Michigan Wolverines face the Louisville Cardinals in the NCAA men's basketball tournament final in Atlanta.

March Madness is my favorite sporting event of the year. I have the most precious memories traveling with my youngest son to semifinal weekends and to Monday's finals. Our trips to the NCAA tournament have, in part, defined my relationship with him.

But this morning, my thoughts are on another game and that speech. Both can provide us with important life and investing lessons.

"We were such underdogs that even my mother took the Houston Cougars and gave the points."

-- Jim Valvano

That game took place 34 years ago tomorrow in 1983. In that game (the NCAA finals), a seemingly outmanned N.C. State Wolfpack (Sir Denny Gartman's team and alma mater!) faced the Houston Cougars who were led by two future NBA Hall of Famers in Hakeem "the Dream" Olajuwon and Clyde "the Glide" Drexler. Houston finished the regular season as the top team in the country and were collectively known as "Phi Slama Jama," so named for the fast-paced showmanship of their game. Going into the championship game, Olajuwon boldly predicted "the team with the most dunks will win."

Though only a No. 6 seed in their regional bracket, N.C. State Wolfpack was hardly a team of nobodies at No. 16 in the nation. It took an impressive late-season streak just to get them to that ranking, however, and nobody thought they had a chance against Houston (which had won 26 games going into the game against N.C. State). So it was quite a shock to see Lorenzo Charles dunk the winning two points in the last second of the game, and I will never forget Wolfpack coach Jim Valvano running around like a chicken with its head cut off.

And, oh, that speech (at the 1993 ESPY Awards) that Jim Valvano gave just eight weeks before he died of cancer. I still cry every time it is repeated on ESPN, as it is being broadcast now, on Sunday morning, as I write this missive.

James Thomas Anthony Valvano was the mischievous middle son born to Rocco and Angela. When he was 17 years old he wrote down on an index card his professional aspirations. He would play basketball in high school (he did at Seaford High School in Long Island) and college (he did at Rutgers), become an assistant basketball coach (he did at Connecticut) then a head coach (his first head coach position was at Johns Hopkins, then at Bucknell and Iona), achieve victory in Madison Square Garden (he did while at Rutgers) and finally cut down the nets after winning a National Championship (he did with N.C. State).

Some elements of Valvano's life lessons can be adopted into our investing strategy.

"No matter what business you're in, you can't run in place, or someone will pass you by. It doesn't matter how many games you've won.... How do you go from where you are to where you want to be? I think you have to have an enthusiasm for life. You have to have a dream, a goal, and you have to be willing to work for it."

-- Jim Valvano

The investment mosaic is a complicated one, and no one rule always works. How-to books may sell copies and make money for the authors, but they don't usually make the readers much money. There is no substitute for hard work in delivering superior investment returns. There are 86,400 seconds in a day, it's up to you to decide what to do with them. As I have repeatedly written, there is no secret sauce, magical elixir or special stock chart that provides clarity to our investment decisions -- rather it is a byproduct of hard-hitting research.

"Be a dreamer. If you don't know how to dream, you're dead."

-- Jim Valvano

A variant view and second-level thinking are necessary reagents to good investment returns. In The Most Important Thing: Uncommon Sense for the Thoughtful Investor, author Howard Marks addresses these two subjects.

In investing you must find an edge (or, as Michael Steinhardt calls it, a variant or differentiated view) by often thinking of factors/ideas that others haven't thought. Importantly, you must also avoid being too early -- especially if your investor base has a different time frame than yours.

Second-level thinking trumps first-level thinking in delivering returns. As Howard puts it, First-level thinking says, "It's a good company: let's buy the stock." Second-level thinking says, "It's a good company, but everyone thinks it's a great company and it's not. So the stock's overrated and overpriced: let's sell." First-level thinking says, "The outlook calls for low growth and rising inflation. Let's dump our stocks." Second-level thinking says, "The outlook stinks, but everyone else is selling in panic. Buy!"

"I asked a ref if he could give me a technical foul for thinking bad things about him. He said, 'Of course not.' I said, 'Well, I think you stink.' And he gave me a technical. You can't trust 'em."

-- Jim Valvano

I am often asked by investors (and others) why I don't usually listen to company executives or the guidance of their investors relations departments. To me, it is preferable to speak to people in the supply chain or to company competitors, for (to paraphrase Warren Buffett) managements often lie like Ministers of Finance on the eve of devaluation.

"My father gave me the greatest gift anyone could give another person, he believed in me. "

-- Jim Valvano

You gotta believe in yourself.

Lehigh's basketball team believed it could beat Duke last year, and, in this year's tournament, No. 14 seeded Harvard upset No. 3 seeded New Mexico.

You gotta know yourself, too.  Wall Street is not a great place to "find yourself." (There is a reason why there is a cemetery on one side and a church on the other side of the New York Stock Exchange building.) Psychology can be important; it often trumps cause-and-effect relationships that have been in place historically. Above all, have confidence in your own analysis (as long as it is thorough), even if your view is at variance with the consensus.

And of course, Coach Valvano's most recognized quote: "Don't give up, don't ever give up."

Learn to survive under adverse market conditions by avoiding large losses, and learn how to prosper during good times. Generally speaking, by maintaining discipline and stopping out your losses, you can live another day in your investing life. It is not batting averages or on-base percentages that count in this game; it is how you control the risk in your portfolio. As an example, short positions can be hedged by owning cheap out-of-the-money calls, and long positions can be hedged by owning cheap out-of-the-money puts -- especially in a low-volatility setting.

Laugh, think and cry -- I always do this time of the year, as I will tonight watching the NCAA tournament finals. (I like Michigan in the upset; they are 4-point underdogs). But it's especially true this year after overcoming my own confrontation with cancer -- it's been a shining moment for me.

You, too, can have many shining investment moments -- here is the one from last year -- by applying some of Coach Valvano's life principles to your investing.

The V Foundation for Cancer Research (created in 1993 by Jim Valvano) has contributed over $100 million to cancer research. If you would like to contribute, here is the website.

Position: None

Largest Longs and Shorts

  • Here's a look.

Largest individual equity long: Apple (AAPL).

Largest ETF long ProShares UltraShort 20+ Year Treasury (TBT).

Largest indidvidual equity short American Express (AXP).

Largest ETF short: SPDR S&P 500 ETF Trust (SPY).

Position: Long AAPL and TBT; short AXP and SPY

From the Street of Dreams

  • Here's what the analysts are up to this morning.

Macquarie raises Radian Group (RDN) to Outperform.

Johnson & Johnson (JNJ) was downgraded to Neutral from Overweight at JPMorgan.

Position: None

Economic Calendar

  • Here it is (for Tuesday-Thursday).

There are no economic numbers today, but below are the expectations and schedule for Tuesday to Thursday.

Economic Calendar

Source: Bloomberg

View Chart »View in New Window »

Position: None

Early-Morning Market Look

  • Let's start by taking a peek at the overnight and morning markets.

There is a kind of a hush overnight:

  • S&P futuress up 4;
  • European markets up;
  • euro up;
  • crude up 0.65;
  • gold flat; and
  • the 10-year U.S. note yields 1.72%.
Position: Short SPY
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-32.96%
Doug KassOXY12/6/23-16.60%
Doug KassCVX12/6/23+9.52%
Doug KassXOM12/6/23+13.70%
Doug KassMSOS11/1/23-22.80%
Doug KassJOE9/19/23-15.13%
Doug KassOXY9/19/23-27.76%
Doug KassELAN3/22/23+32.98%
Doug KassVTV10/20/20+65.61%
Doug KassVBR10/20/20+77.63%