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DAILY DIARY

Doug Kass

Signing Off

  • Thanks for reading today.

Color me unimpressed today.

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

And God bless Uncle Vinnie.

Position: None

Market on Close Imbalances

  • How much to sell?

My mavens on the floor of the exchange see about $500 million to sell on the close.

In terms of sectors to sell, consumer staples are at $90 million and materials are $at 70 million.

Johnson & Johnson (JNJ) has $45 million to buy, Citigroup (C) has $27.5 million to buy, and Home Depot (HD) has $25 million to buy. PPG Industries (PPG) has $30 million to sell, and Dow Chemical (DOW) and Merck (MRK) each have $25 million to sell.

Position: None

Home Depot's Drop

  • The shares were up $2.75 in premarket trading and are now down $0.75, for an intraday drop of $3.50 a share from the highs.

In my view, the business media misinterpreted the strength of Home Depot's (HD) earnings before the market opened today.

The shares were up $2.75 in premarket trading and are now down $0.75, for an intraday drop of $3.50 a share from the highs.

I was skeptical in the wee hours.

Position: None

Fairly Long TWM

  • It is fairly sized now.

I have a fair sized ProShares UltraShort Russell2000 (TWM) long again.

Position: Long TWM

Bought More TWM

  • I am getting more aggressive on the dark side.

I bought more ProShares UltraShort Russell2000 (TWM) at $16.02.

I am getting more aggressive on the dark side.

Position: Long TWM

Reentering TWM Long

  • I purchased a small rental at $15.98. 

I expected today's a.m. rally, but I don't trust it!

I am buying back a small long rental in ProShares UltraShort Russell2000 (TWM) at $15.98.

Position: Long TWM

Shorted Apple

  • Engaged.

As discussed earlier, "Maverick" has engaged in the short position in Apple (AAPL).

Position: Short AAPL

Out of the TLT

  • I'm disappointed in the price action.

Houskeeping item: I am no longer in the iShares Barclays 20-Year Plus Treasury ETF (TLT).

I am dissappointed with today's "price action."

Will revisit on any weakness.

Position: None

Cashin's Midday Musings

  • The bounce is mild, given how oversold we were.

Here are the midday musings from Sir Arthur Cashin:

Today's bounce is rather tepid, given how oversold market was and the significant pullback in yields on the ten year.

Push above 1656 in S&P (top of symmetrical down channel) produced no fireworks. Traders thought it should have been at least a mild algo trigger.

Run rate at 12:45 projects above yesterday but not by much.

Position: None

Looking Longingly

  • I am sizing up some of my longs.

In looking at some of my long favs today, Radian (RDN) is recovering all of yesterday's loss, Altisource Residential (RESI) is up small, Monitise (MONI.L) is down small, and Potash (POT) is unchanged.

I am a buyer of Radian under $12.85, Altisource Residential at $18.50, Monitise at under 40 pence (which I dont think will occur!) and Potash at around $29-$29.50.

Position: Long RDN, RESI, MONI.L and POT

IBM Looks Broken

  • I would rather be short IBM than long IBM at current levels.

Paul "The" Price "Is Right" is trying to catch the bottom of IBM (IBM) shares on Columnist Conversation.

As I have recently written, I believe IBM is a value trap with limited growth prospects over the next few years.

I was short the stock and made some money, but as Tim "Not Judy or Phil" Collins correctly wrote to me, the chart looks awful, and I frankly regret having covered the short.

Below is a good chart from "Fast Money's" Steve Cortes on tech, PowerShares QQQ (QQQ) and IBM since the 2009 lows.

IBM vs. QQQ

Source: Steve Cortes

View Chart »View in New Window »

From my fundamental perch, the results at IBM, Cisco (CSCO), Oracle (ORCL), SAP (SAP) and others point to weak global technology capital spending.

Bottom line: I would rather be short IBM than long IBM at current levels.

Position: Short QQQ

My Take on J.C. Penney

  • To me, there is nothing to do in this name.

I have been listening to a lot of optimism in the business media regarding J.C. Penney (JCP) after the company's release of earnings.

I would respectfully disagree with that optimism.

I wouldn't short the stock (owing to the high short interest), but if I owned the stock, I would sell into this morning's ramp

First, there was nothing in the company's forward guidance that was a positive relative to consensus expectations.

More importantly, J.C. Penney's balance sheet remains problematic, and its operating performance stunk up the joint.

J.C. Penney would be bankrupt now were it not for the fact that it borrowed heavily from its banks. Those borrowings have crushed the company's subordinated debt and equity.

It remains unclear if the company will survive.

To me, there is nothing to do in this name.

Position: None

CAT Dealer Stats

  • Here they are.

Before the open, Caterpillar (CAT) disclosed the following past three months dealer statistics.

Position: None

Home Depot Gives Up Gains

  • The shares have given up the enitre gain of $2.75 a share in premarket.

I commented before the market opening that the initial response to Home Depot's (HD) results would likely cool off during the day, as the sales leverage (to the better top line) was dissappointing (margins lower than expected).

In fact, the shares have given up the enitre gain of $2.75 a share in premarket.

I feel very comfortable with my Market Vectors Retail ETF (RTH) short.

The consumer is the Achilles' heel of the U.S. economy.

Position: Short RTH

Retail Is a Crapshoot

  • For every big winner, there is a big loser.

In retail, for every Home Depot (HD, nice quarter!), there is a Dick's Sporting Goods (DKS, big miss!) 

I remain short Market Vectors Retail ETF (RTH), VF Corporation (VFC) and Polo Ralph Lauren (RL).

Position: Short RTH, VFC and RL

A Short Look at Apple

  • The company faces numerous profit challenges.

I now have Apple (AAPL) in my sights on the short side.

I have not pulled the trigger, but I may do so shortly.

To me, the recent price rise is being rationalized by new product offering opportunities and some other ephemeral reasons.

Methinks the shares are higher because of Icahn and the price momentum has fed on itself.

The company faces numerous profit challenges.

Position: None

Radian Is a Gift at Current Prices

  • I will be measurably expanding my long position in this name.

I expect Radian (RDN) to beat consensus numbers over the next few quarters.

Yesterday's weakness was under the bond market's influence.

With the yield on the 10-year U.S. note coming off by 5-7 basis points this morning, I expect Radian will stabilize/rebound.

At current prices, I am treating the shares as a gift and I will be measurably expanding my long position in this name.

Position: Long RDN

Early-Morning Market Look

  • Let's look at the overnight and early-morning price action of the major asset classes.

"Dougie, the P/E ratio is the  percentage of investors wetting their pants as this market keeps dropping."

-- Grandma Koufax, 1967

The rundown:

  • S&P futures up 2.50;
  • Nasdaq futures up 5;
  • Nikkei (down 2.6%, auto stocks were particularly weak in face of weakening currency);
  • China Shanghai (down 0.6%);
  • European markets down (a sea of red);
  • crude down $0.55;
  • gold flat; and
  • the 10-year U.S. note yields 2.82% (down 7 basis points).

Worth mentioning:

  • Bears remain in control (hat tip Barry Ritholtz!).



    August steady market decline has been "death by a thousand cuts."
  • Richmond Fed President Lacker whacked the market on Monday. QE has lost its effectiveness. Duh!
  • Banks stunk up the joint in trading yesterday. Weakness in bank stocks was another cause for market weakness, as the Fed admonished the release of reserves in buoying profit reports and the need for more capital beyond stated regulatory requirements. (Note: I have been cautious on banks, owing to quality of earnings, that the end of the credit quality improvement appears near and weak loan demand). I interpret the Fed's response as pointing toward potential system stress as the tapering begins.
  • A news vacuum, volume low, lack of attendance. The lack of liquidity is an important contributing factor to this month's market weakness.
  • Are we seeing signs of near-term exhaustion to the downside? Yesterday was another weak day for equities and bonds, with stocks for the third consecutive day closing at or near the day's lows. Though the brunt of the very near-term decline could be over, I am not yet willing to play to the upside as I view it as limited.
  • As expressed in yesterday's opener, the intermediate term remains problematic.
  • Yesterday, I added to Radian (RDN) and iShares 20+ Year Treasury Bond ETF (TLT). I suggested that the bond market schmeissing might have overshot fundamentals and that an overnight TLT long rental made sense (so far so good, as the yield slips by 7 basis points overnight!). I have sold half of my TLT at $103.22 in premarket trading this morning.
  • Indian rupee falls to record low, and bond yields hit a five-year high, as Prime Minister rules out 1991-type crisis. (India is also battling food inflation.)
  • J.P. Morgan -- the gang that couldn't shoot straight 
  • The Lindsey Group's Peter Boockvar made two good observations.

    1. Over there, A bounce in most developed market sovereign bonds this morning was not enough to lift equities overseas and some emerging markets continue to get battered. After touching 2.90% intraday yesterday, the US 10 yr yield is backing off to 2.82% as treasuries in the very short term have been getting oversold. In Asia, the Indonesian stock market fell another 3.2% overnight and is now down 11% in the past 4 trading days as the rupiah is lower again and yields are jumping another 10 bps. The Thai baht is at a one yr low vs the US$ with the Thai stock market lower by 2% and the Sensex fell by .3% as the rupee continues its weakness.

    2. Over here, As we await the FOMC minutes tomorrow from the July meeting where data dependency and still low rates for a while will be the likely theme, the Fed is seeing firsthand how many global market rubber bands were stretched to limits on QE and that are now seeing some unwind and this is just on the talk of $10b-$20b of less monthly purchases. I'll say again that there will never be the 'right time' for a central bank to pull back from extraordinary policy in an asset price dependent world but it's a process that must occur sooner rather than later for any hope of economic and market normalization.

In the press:

Possible economic and earnings catalysts that could be market-impactful:

  • Earnings before the open -- BBY, BHP, BKS, DKS, Glencore, HD (it was a "blowout" with a strong top line but weak margins), JCP, MDT, TJX.
  • Earnings after the close -- ADI, INTU, VNET.
  • China Conference Board July Leading Economic Index (out Tuesday night).
  • Bloomberg August China economic survey.
Position: Long RDN and TLT

Questions for 'Squawk Box' Guest Hosts

  • Here are a few queries for today guest hosts on CNBC's 'Squawk Box.'

Both guest hosts on today's episode of CNBC's Squawk Box (including my buddy/friend/pal Morgan Stanley's David Darst) are saying that the bull market can commence when domestic growth accelerates to "escape velocity" of 2%-3% (real GDP). This is the bull case to which many strategists adhere.

But, given that the U.S. economy has already experienced four-years-plus of aggressive ZIRP and QE yet real GDP figures remain sluggish, below is the trend of real GDP over the last three quarters:

  1. fourth quarter 2012 = +0.4%;
  2. first quarter 2013 = +1.0% (revised down from +1.8%); and
  3. second quarter 2013 = +1.7% (probably will be revised down as well).

Assuming that QE is being reduced/tapered, how can we be confident (especially in the face of the weakening jobs market and a pausing housing market) that growth will accelerate to a level that will produce healthy corporate profits (particularly in light of the fact that profit margins are 70% higher than the average level over the last six decades)?

Why does sub-2% real GDP growth warrant a 16x P/E multiple (which is about one multiple higher than in the last five decades), especially given structural heawinds to growth?

Inquiring (and respectful) minds want to know!

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-33.86%
Doug KassOXY12/6/23-15.46%
Doug KassCVX12/6/23+9.14%
Doug KassXOM12/6/23+11.94%
Doug KassMSOS11/1/23-32.71%
Doug KassJOE9/19/23-17.22%
Doug KassOXY9/19/23-26.77%
Doug KassELAN3/22/23+33.94%
Doug KassVTV10/20/20+62.27%
Doug KassVBR10/20/20+75.46%