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DAILY DIARY

Doug Kass

We Almost Did It

  • We closed down about half of 1%.

Well, we almost got Ludacris today -- down about one half of 1%.

Thanks so much for reading my Diary, and enjoy your evenng.

Position: None

The Latest on J.C. Penney

  • Shares are ripping higher based on a report that August comps are trending positive.

J.C. Penney (JCP) is ripping on a New York Post report that August comps are trending positive.

I have no clue if this is accurate nor do I have a dog in this hunt.

Position: None

Market on Close Imbalances

  • How much to buy?

My mavens on the floor of the exchange see $75 million to buy at the close.

In terms of sectors to buy, health care is at $115 million to buy. Sectors to sell include energy at $70 million.

Individual equities to buy are Johnson & Johnson (JNJ) at $110 million and Visa (V) at $15 million. And stocks to sell include General Electric (GE) at $15 million, Salesforce (CRM) at $12.5 million and Newmont Mining (NEM) at $12 million.

Position: None

London Whale Ruling

  • Once again, the soldiers are indicted but not the generals.

This whole SEC ruling against JPMorgan Chase (JPM) regarding the London Whale case really ticks me off.

Once again, the soldiers are indicted but not the generals.

That reminds me of something Grandma Koufax once said, "Dougie, the rich get richer and the poor go to prison."

Position: None

My Gift to Icahn

  • It will be 'The Bear Case for Apple.'

When I walk my dachshunds on Georgica Beach in East Hampton and pass Carl Icahn's house and bump into him during the early evening hours this weekend, I will have a long talk with him and hand him a copy of "The Bear Case for Apple" from back in late September 2012.

Yes, I am serious.

Position: Short AAPL

Bullard Remains Dovish

  • Bullard is still dovish, aiding the market's late recovery. 
Position: None

Staying Short Apple

  • I plan to keep a portion of the short overnight.

I got my cost basis on my Apple (AAPL) short up to $500.80.

I plan to keep a portion of the short overnight.

Position: Short AAPL

Retail Breaks Down

  • Finally!

Nice breakdown in Market Vectors Retail ETF (RTH) today -- it's finally below my short cost basis.

Position: Short RTH

The Full Monty?

  • Rumor has it that Monitise is applying for a full London Stock Exchange listing shortly.

Based on conversations I have had, I believe that Monitise (MONI.L) is likely applying for a full London Stock Exchange listing shortly.

If this is the proximate cause of the share price rip this week, I would expect some profit-taking in the days ahead.

I am not selling, however.

Position: Long MONI.L

Lockhart's Comments

  • He sounds a bit more hawkish.

I only have a few of his comments, but Lockhart sounds a bit more hawkish than he has in the past.

Position: None

Monitise Jumps

  • We'll soon learn why.

Monitise (MONI.L), my favorite speculation in the mobile payments space, traded as high as 47.75 pence today (a gain of nearly 15%). It closed at 45.75).

In response to a bunch of subscriber emails, I dont know why.

My guess is that we shall soon find out though! 

Position: Long MONI.L

Midday Musings

  • From from Sir Arthur Cashin.

"The two-week string of u-shaped and v-shaped mornings seems to be struggling a bit even with no immediate threat from bond yields.

Bullard speaks after 3:00 and can't be happy with this morning's non-inflationary inflation data. He may talk of pushing back tapering.

Bullish traders talking up divergences such as Russell not as weak as Dow and less weak breadth on Nasdaq.

Run rate at 1:00 projects final NYSE volume of 590/670 million."

Position: None

Housing-Related Names Suffer

  • Homebuilders and home-improvement retailer names are declining.

I have argued that a pause in housing would wreak havoc with homebuilders and remodeling-related names.

Look at the charts of iShares U.S. Home Construction ETF (ITB) and Home Depot (HD; I should have stayed short this name).

Position: None

Omega's Sliver of Apple Pie

  •  Omega's buy represented under 0.20% of its assets.

CNBC is reporting that Omega Advisors has revealed in its 13F filing that the hedge fund has purchased a new position in Apple (AAPL).

It is fueling, in part, today's rise.

What CNBC is not reporting is that Omega purchased only 31,000 shares of Apple, or only $15 million, against an asset base at Omega of approximately $8 billion. In other words, Omega's buy represented under 0.20% of its assets.

From my perch, Omega's small Apple holding is utterly meaningless.

My average cost of today's short in Apple is $499.40.

Position: Short AAPL

Hanson on Housing

  • The real estate maven updates his view.

Existing & New Home Sales on deck next week.  Exuberance and excitement then confusion and uncertainty to follow.  "Two-day window".

Summary:"July" doesn't mean July for both "Existing" & "New" sales.  Because of the timing of the rate "surge" catalyst, the calendar and distinction in reporting methodologies are extremely important to be aware of.  Especially, beginning this month when one lagging dataset will come in particularly strong and the other -- more real-time dataset -- will print unexpectedly weak.

This "two-day window" in between the contradictory data releases is actionable.  Then, next month -- as all housing data are 'mostly' reflecting the "surge" -- the hangover begins in earnest.

However, between now and 10:05am on the 23rd there will be sufficiently strong local and regional backward looking macro data to keep the bulls adequately bulled-up and names on which we are most negative from losing their lunch. Then again, if broad market weakness between now and then weigh particularly heavily on the most popular (most at-risk) housing and related names then the strong data on the 21st should be very welcome surprise.  But that giddy feeling will only last "two days".

Bottom line:  If you are negative or wanting to get negative housing and related sectors be cautious ahead of the July 21st release of "Existing Home Sales", which is extremely backward looking and will print strong. However, "two-days" later the "New Sales" data -- much more real-time" -- will confirm that the unprecedented mortgage rate "surge" was in fact a "catalyst" that changed the complexion of the macro housing market in the same manner that the loss of the 2010 Homebuyer Tax Credit stimulus did.

Existing and New Home Sales Timing:

1)  "July" Existing Sales (2 to 3 mo backward looking) released August 21st = Strong:"July" Existing sales and pricing are so backward looking they have little to do with the month of July.  These data are simply "escrow closings" that reflect purchase/pricing decisions (i.e, Pendings) from May and June when rates mostly ranged from "historic lows" to "rising".  This is the period in which the "panic-buyer/rate-chasers" came out and pulled forward a lot of demand. As such, this release will be stronger than expected.  This is the June 2010 Homebuyer Tax Credit sunset "rush to close" all over again.

Next month, the "August" Existing Sales data will reflect June/July purchase/pricing decisions and print substantially weaker, as the "surge" was being captured to a greater degree.

In two months, the "September" data will reflect Aug/Sept purchase/pricing decisions and print down sharply. This month there is a good shot sales print lower YoY.

Bottom Line:  Between now and the release of New Home Sales on the 23rd (discussed next) there will be sufficiently strong backward looking macro housing data coming out to keep the bulls, bulled up.   Then, on July 23 -- only 2 days following the Existing Sales happy party -- the shock comes.

2)  "July" New Sales (July data) released July 23rd = Miss/more revisions lowerThe "New" sales data are two months ahead of the previously discussed Existing Sales despite them both being called "July".  "July" New Home Sales are totally different than Existing released "2-days" earlier because New Sales are counted at the "contract" stage, not the "closing" stage.  This means the "July" New Home Sales are really from July...after rates have surged.  In fact, last month ("June" New Sales) we saw a surge in "sales", which was in large part was "panic-buyer/rate-chasers.  We also saw record lower revisions back 3 full months so large they would have caused consensus misses if they were actually reported properly in previous months.

Bottom Line:  "July" New Home Sales released on the 23rd -- only "2-days" after the 'strong' "July" Existing Sales report -- will print in sharp contrast.  And because next month the Existing Sales will begin to reflect the rate "surge", I can see very little positive for housing for several months out save a tumble in mortgage rates back below 4%.

In other words, after the Existing Sales on the 21st and before the New Sales 23rd, the risk/reward of being negative the housing and related names -- if prices hold up until then -- has never been better all year if in fact data/earnings drive the names.

3)  "Panic Buyer/Rate Chaser" Phenomenon..."no net new demand":In the past when rates have "risen" slowly over long periods of time, potential buyers/sellers had lots of time to think and act accordingly. This time around they had only 'weeks'. On the "rising' rates from May to mid-June "panic-buyer rate-chasers" did jump in the market, no doubt. This May/June rush, in large part, is why the "July" Existing Sales will be strong next week. Well, this and the fact there were 15% more days in which to close escrows MoM. But in the back half of June rates were "blown out" and buyers "blown-up" mostly stomping out the "panic-buyer rate-chaser" phenomenon.  In short, this time around "panic-buyer/rate chasers" had only 6 weeks to act vs 6 to 16 months during previous periods of "rising" rates.

This 6-week panic-buyer/rate chaser stage didn't create any net "new" demand, rather pulled a ton of demand forwardensuring weak Existing sales reported in the coming months. The "panic-buyer/rate chaser" phenomenon I describe was in full effect last month with the more real-time reported New Home Sales...a surge in sales in June and revisions lower for the previous 3 months.  It was perfect actually.  And once again, this is virtually identical to what happened on the expiration of the "2010 Homebuyer Tax Credit".

4)  Risks to timing laid out above:  That the 15% more days in the month of July MoM and one more day YoY are not fully weighed by the NAR and CB "seasonal adjustments".  And that the market is sufficient tired of housing and our favorite named on which to be negative do not hold up well through next Friday.

Position: None

Recommended Viewing

  • Run, don't walk, to watch my appearance on 'Futures Now.'

Here is the tape of my appearance on CNBC.com's "Futures Now" yeseterday with Princess Jackie DeAngelis and the gang!

Position: None

On the Monitise (Part Deux)

  • Shares are now up by 10% on the London Exchange.

Monitise (MONI.L) is now trading at 45 pence, up by 10%.

In response to numerous emails, I wouldn't sell this position.

Position: Long MONI.L

Grant's Take on the Coming Flood

  • He is building an ark.

Southwest Securities' Mark J. Grant is building an ark this morning: 

Diseased nature oftentimes breaks forth in strange eruptions."

-- William Shakespeare

It is an odd affair these days made odder by the political desires of those that control the switches. I speak only for myself and not anyone else when I tell you that my senses are heightened by the behavior of the governments across the planet these days. Before I was a skeptic. Now I am a non-believer.

"No hard feelings about that time in the Crucible when you mixed my salts and I was nearly blind for a day. No. No, really, drink up!"

-- Patrick Rothfuss, The Name of the Wind

The worst offender is China, followed by Europe and then it would be the United States in last position. Made up numbers, fantasy figures, smoothed out data are all the bread and butter of each region. Every third headline in the last twenty-four hours is that "Europe is out of recession, France is out of recession, Germany is out of recession, France and Germany are out of recession, Germany and France are out of recession" as the public relations army of Europe is in full tilt. Watch carefully because after the German elections there will be one coercive correction after another that will be buried in the small print.

"The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds."

-- John Maynard Keynes

It is the central banks that are running the world, it is the governments that are distorting events and we are left, like homeless children, to accept the succor that is provided. Because there is no choice I am stuck eating their food but I do not accept the fantasy on the package naming the ingredients. It is a collective attempt to Bamboozle!

It was on May 22 when the great and powerful Fed Chairman suggested tapering that I responded within five minutes, "Take money off the table." If you did not follow my advice and you left everything alone then you have lost 9.00% of your money or 9.00% of the value of your portfolio if you were invested in long Treasuries. Nine percent.

Poof!

Now where are we now? We have Hindenburg Omens flashing in clusters, very low volume in equities, yields for long bonds that have spiked as prices have been quashed, spreads that have widened, my "Drop Dead Day," the German elections a month away, leverage in the stock market at all-time highs, corporate earnings flat to down and a barrage of data out of China and Europe that I do not trust or believe. This is not God's country. Open your eyes; this is the Devil's playground.

Now there was a time before the Great Flood came when Noah built his Ark. First he built the boat and then he gathered all of the animals upon it so the story goes. One may only imagine the number of people that made fun of him and laughed at his endeavors. However, in the end, as we all know now, Noah had the last laugh.

Today you can make a choice. I am building my Ark. I rest upon the bedrock of "Preservation of Capital. Laugh all that you like. We will see just who floats in the end.

Position: None

Apple Again

  • CNBC is counting down to $500.

CNBC does another countdown on Apple's (AAPL) stock (this time at $500).

I have read this story before!

Position: Short AAPL

Serious About Shorting

  • I added to my QQQ short and my TWM long.

As promised, I am getting more serious on the short side.

I added to my PowerShares QQQ (QQQ) short at $77.05 and my ProShares UltraShort Russell2000 (TWM) long at $15.37.

Position: Long TWM, short QQQ

Early-Morning Market Look

  • Let's take a peek at overnight and early-morning market movements in the major asset classes.

The rundown:

  • S&P futures down 3;
  • Nasdaq futures flat;
  • Nikkei up 1.3%;
  • China Shanghai down 0.3%;
  • European markets mixed (despite better GDP news below, a potentially negative sign);
  • euro down;
  • crude down $0.75;
  • gold up $4; and
  • the 10-year U.S. note yields 2.70% (unchanged day over day).

Worth mentioning:

  • I am growing more pessimistic on the U.S. stock market, and I now plan to expand my short book more aggressively.
  • Yesterday, non-voting Atlanta Fed President's "kick save" and dovish rhetoric turned an early-morning swoon into a recovery later in the day. But even with the Icahn/Apple (AAPL) news, stocks petered out late in the day. A negative sign, from my perch.
  • Yesterday's opening missive, "The Top 10 Reasons Why the Market May Have Peaked for the Year," outlines my logic. The rationale includes fundamental (weaker growth), technical/sentiment (divergences are emerging) and valuation (stretched and at the high end of the expected yearly range) concerns.
  • I wrote three separate posts, two in my diary and one in Columnist Conversation, on Apple, and my interpretation that the market's giddy response, though specific to Apple, is a reflection of general market overconfidence. This typically occurs at or near market tops, and I think this is the case now. Icahn says the trade is a "no brainer." Carl Icahn likely knows no more or less than you or I regarding the company's future. I have taken a short rental in Apple at $496-plus in premarket trading this morning.
  • More on Apple from Bill King of The King Report --

    Carl wants Apple to lever up. Contrary to conventional Street wisdom, they DO ring a bell near the top. In fact, multiple bells are rung. The best predictor of a stock's price movement is when your behavior moves the stock. The pools and operators that drove stocks in 1929 are now present in a different guise. And just like in 1929, 1987 and 1999, the regulators are asleep, inept or indifferent. Why didn't Carl buy Apple at $50, $75, $100, $200, $300 or $400? There was mucho value back then. Yep, anyone that's been around the block more than once knows what Carl is doing. How to play Apple in coming weeks? Play it as cheap as possible (calls, call spreads, etc.) until Apple reacts. If Apple levers up, wait until after the buyback and then look out below! Bloomberg TV: Apple's 2Q tablet market share fell to 32% from 60% one year ago Apple's iPhone Market Share Slips Again despite Good Quarter IDC's statistics show that Apple increased their shipments year over year by 5.2 million units yet lost 3.5 percentage points in market share during that same time. In contrast, Samsung increased their shipments by 22 million units and gained close to 2 percentage points during that same time. LG grew 109% while Lenovo gained an impressive 131% during the quarter which put additional pressure on Apple.... 
  • Tuesday's retail sales report included month-over-month drops in building materials, appliances and home furnishings. This likely presages the pause in housing that I have been forecasting. Moreover, the slightly weaker core retail sales report could be a reflection of a weakening trend of personal consumption expenditures ahead, importantly influenced by the evaporation of mortgage refinancing. Individual company retail comps seem to confirm this conclusion. (Note: Smaller-ticket purchases are falling, and more durable, higher-ticket goods are stable; these are being financed. This also could foreshadow weaker retail sales in the back to school season.
  • The housing pause approaches, as mortgage applications continue to be impacted by the near-two-year high in mortgage rates. The MBA reported that refi's were lower by 4.4% week over week, down for the thirteenth week in the past 14 to the lowest since April 2011. It's down 59% in this stretch. Purchases also fell, down 5.4%, to a six-month low. At least on the purchase side, this moderation in applications comes as first-time home buyers have already been running at just 30% of home buying vs. the historical trend of 40%, with all cash buyers (thus not needing mortgages) having been the large influence on the market. 
  • EU GDP was slightly better than anticipated. There was a modest upside surprise from the preliminary eurozone second-quarter 2013 GDP at +0.3% vs. consensus of +0.2%. Germany's and France's data were the proximate cause (German GDP +0.7%, a tick better than expectations and French GDP +0.5%, two ticks above consensus). Of the 17 countries, five still remain in recession (including Spain and Italy). With Europe exiting recession, this is a modest positive for global growth but not that meaningful -- growth is still moribund, and apparently, the mixed performance of European bourses confirms this today. Though many (first-level thinkers) are doing cartwheels and are heralding the data as a major turning point regarding Europe's growth trajectory (exiting recession), the uncertainty to ponder is how does the ECB respond to slightly better growth. Does it maintain an easy monetary policy or does it break off from its friendly interest rate guidance? My view is that the ECB is on hold but any further improvement in the status of European economic growth will result in a less-friendly central bank. In other words, second-level thinkers, market participants will have to digest not only a Fed that is tapering but also a less-friendly ECB. Market headwinds all.
  • Great rotation from bonds into stocks? I have argued that demographics and continued risk-aversion would result in a rotation back into bonds (and not stocks) as real interest rates rise. Today The Wall Street Journalchimes in on the subject.
  • Will Jackson Hole be one big yawner? I think so!

In the press:

Economic and earnings catalysts that might impact the markets:

  • Minutes from the Bank of England meeting (4:30 a.m. EDT, out already).
  • French second-quarter GDP (1:30 a.m. EDT, out already, see above commentary).
  • German second-quarter GDP (2:00 a.m. EDT, out already, see above commentary).
  • Eurozone second-quarter GDP (5:00 a.m. EDT, out already, see above commentary).
  • U.S. PPI for July (8:30 a.m. EDT, +0.3% estimate, core +0.2% estimate).
  • New York Fed report on household debt and credit.
  • Fed may announce plans to appeal recent debt card ruling.
  • Fed's Bullard speaks (1:20 p.m. EDT and 3:15 p.m. EDT).
  • Second-quarter 2013 13F filings expected to cross (Aug. 14, near the bell).
  • JPMorgan Auto Conference (Aug. 13-Aug. 14, NYC).
  • Oppenheimer Tech, Internet, Comm Conference (Aug. 13-Aug. 14, Boston).
  • Jefferies Global Industrials Conference Aug. 12-Aug. 15.
  • Earnings before the open -- AIT, DE, M, SolarWorld, TW.
  • Earnings after the close -- A, CSCO, NTAP, NTES, RENN.
Position: Short SPY, QQQ and AAPL

Macy's Misses

  • And I remain negative on retail.

I remain negative on retail/consumer based on:

  • the lowest savings rate in over five years;
  • real incomes continue to stagnate -- in the latest jobs report, average hourly earnings were down;
  • the costs of the necessities of life (shelter, insurance, food, etc.) are expanding far stronger than the BLS suggests in its inflation data;
  • a still-weak jobs market suffers from structural disequilibirum (globalization, a mismatch in skills/need, corporations using temporary help as a more permanent strategy, etc.); and
  • an uncertain global economic outlook. 

ReadMacy's' (M) release carefully. Aside from a quarterly miss and an annual downgrade of earnings, "second-quarter sales performance was softer than anticipated, and we are disappointed with the results." Comes in the context of the retail indices near record highs.

Importantlty, the trend in comps during the quarter deteriorated, with up 1% in the first month, flat in the second and down 1% in the quarter's last month.

Position: Short RTH

Fading Icahn

  • I have reentered a trading short rental in Apple at $496.10 in premarket trading this morning.

For the reasons mentioned in my two posts on my diary late yesterday and in Columnist Conversation, I have reentered a trading short rental in Apple (AAPL) at $496.10 in premarket trading this morning.

Position: Short AAPL

On the Monitise

  • Monitise breaks out to a new high on the London Exchange.

A heads up: In London trading, Monitise (MONI.L) breaks out to a new high at 44 pence (up 6% today).

Position: Long MONI.L
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%