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DAILY DIARY

Doug Kass

Icahn's Big Netflix Score

  • Yes, he did unload a lot of Netflix.

"One last thing."

 - Lt. Columbo

As my gnome had heard yesterday, Carl Icahn indeed sold a large amount of Netflix (NFLX) stock!

My gnome had a good nose.  

Position: None

Standing Pat on Altisource

  • I'm sticking with my earnings estimate.

"One last thing."

- Lt. Columbo

On the basis of the earnings report and conference calls this morning, I am not altering my earnings estimates (or importantly cash available for dividends) for Altisource Residential (RESI).

I will have a full review of the qaurter and for the company's 2014-15 outlook early in the morning.

Position: None

Rough Day

  • Thanks for reading my diary today and enjoy your evening.

It has been a lousy day for me in the markets, with my computer systems and now with my telephones!

I am going back on my research call (using my cell phone).

Thanks for reading my diary today and enjoy your evening.

Tonight I can guarantee one thing: I will be spending time on the cold, linoleum floor with a large bottle of tequila.

Position: None

Defense Dominates

  • Consumer staples are today's market leaders.

Defensive consumer staples leading the parade today, including Procter & Gamble (PG), Colgate-Palmolive (CL), Clorox (CLX), PepsiCo (PEP) et al.

Position: None

Not Impressed

  • By Apple -- that is.

Apple's (AAPL) product presentation was unimpressive, imho.

Position: None

Technical Difficulties

  • Again!

A heads up: My computers are back down.

Hopefully, technical support is on the way.

Position: None

Recommended Viewing

  • Three generations of Buffetts.

Run, don't walk, to watch this Bloomberg interview with three generations of Buffetts this morning.

Position: None

Steer Clear of Tesla

  • The share price action has been nothing short of ludicrous.

Colonel Sandurz (George Wyner): Prepare ship for light speed.

Dark Helmet(Rick Moranis): No, no, no. Light speed is too slow!

Colonel Sandurz: Light speed too slow?

Dark Helmet: Yes. We're going to have to go right to...Ludicrous speed.

Colonel Sandurz: Ludicrous speed? Sir, we've never gone that fast before...I don't know if the ship can take it.

Dark Helmet: What's the matter, Colonel Sanders? Chicken?

-- Spaceballs

Ludicrous speed is the rate at which Tesla (TSLA) stock has appreciated over the last two years.

Last weekend I drove a Tesla.

The car is still a novelty, functional only as a second car, and it will be for the foreseeable future.

Yes, it is beautiful, solid, fast and luxurious, but it's still not practical. In fact, the only practical technology for an electric car includes a small generator, preferably diesel, which charges the batteries when they are drained, and which can be refueled anywhere. General Motors (GM) has that tech with the Volt (and the upcoming Caddilac ELR), but neither, unfortunately, have the cachet of the Tesla. (And not even the Cadillac can match the Tesla's performance.) But that is by choice, not because they can't do it.

A Tesla with a small generator (and, consequently, smaller battery packs) would have a legitimate range of 300 miles and would never leave the owner stranded. (Try carrying a "can of batteries" to a Tesla stranded five miles from the nearest charging station.)

As for Elon Musk, although he is certainly a genius, he neither founded the company, named it Tesla, nor designed their first car, the Tesla S roadster (which was little more than a Lotus Esprit converted to electric power).

That was all accomplished by the guy Musk pushed out when he invested in the company.

Bottom line: I would still clear of Tesla's shares, and I have little interest in owning the car.

Position: None

Hanson on Housing

  • The real estate maven analyzes existing-home sales.

Real estate maven Mark Hanson on the existing-home sales release this morning:

Based on this morning's "Sept" Existing Home Sales "closings", next month the YoY volume will go negative for the first time since June 2011 and remain red YoY through summer 2014 at least.  This is the "oh-crap" moment.  One of my top short targets -- RLGY -- sniffs this out already...has been sold on every bounce for months, is down 5% on the day, and down over 20% in the past 3 months.  Note, Sept Existing Sales on a "closings per business day" MoM basis fell the most for any Sept since 2008.

New Home Sales on the other hand have never really rebounded in the same manner as Existing due to the absence of new-era "investors" in this segment.  But still, they stand a good shot at being negative YoY next month as well.

On house prices, both the NAR median and average reported today -- month's contemporary to 6 to 7-month lagging Case-Shiller -- were down more on a MoM basis than any September since 2008.  Moreover, prices are down over 6% from June when it is now obvious house prices peaked for 2013...not a lot yet but a good start to my "parabola retracement" theme.

On actionability of these data and events... long bonds & gold and short consumer discretionary with an emphasis on ancillary housing companies.  However, if house prices in the O.C. drop 10% over the next 6 months, then Nordstrom, for example, will have a rough time in the same manner as HD.

Position: None

Ludicrous Forecast

  • The anointed ones are topping for now.

I am laser focused on Netflix (NFLX), Tesla (TSLA), Priceline (PCLN), Google (GOOG), Amazon (AMZN) and Chipotle Mexican Grill (CMG) for a reversal of fortunes.

Gun to my head, these anointed stocks are topping for now.

Position: Short QQQ

Ford Losing Some Focus

  • And C-Max.

Ford (F) has scheduled two weeks of down time at the factory that assembles its Focus and C-Max models.

This could slow down the climb in Ford's shares.

Position: None

Not Selling These Longs

  • Namely, Altisource Residential, Monitise and Northwest Bancshares.

Despite the recent strength, I haven't sold any Altisource Residential (RESI), Monitise (MONI.L) or Northwest Bancshares (NWBI).

But, frankly, it is all about one's time frame. Traders with a shorter time frame might consider peeling back a bit now, as all three could consolidate gains in the period ahead.

But all three should be held by long-term investors, as I have consistently written.

Position: Long RESI, MONI.L and NWBI

For Apple Heads

  • For your viewing pleasure.

Here is a live stream for today's Apple (AAPL) event.

Position: None

Netflix Is Now Down on the Day

  • The stock looks pooped.

Netflix (NFLX) certainly had an exhaustion rally.

It's now down on the day and down $40 from its intraday high.

Position: None

Nasdaq Running Out of Steam?

  • It looks that way.

Looks like a possible exhaustion move on the Nasdaq today led by Netflix (NFLX).

Position: Short QQQ

McClellan Oscillator Flashes a Sell Signal

  • This indicator warned that stocks were overpriced in July and September.

The NYSE McClellan Oscillator, which warned that stocks were overpriced in July and September, is now flashing a warning sign.

Position: None

Fed Forever

  • Another limp jobs report.

The Fed is stuck in a policy that doesn't work in creating jobs as you cannot print them as the Fed would like. But if only it was easy for the Fed to get out but they can't as seen with the sharp rise in interest rates over the summer on the slight hint of it. Thus, we'll continue to see an ever enlarging balance sheet with no tangible results other than higher asset prices which will then continue the dangerous disconnect between prices and fundamentals. The only thing that alters this dynamic is the bond market as it is the only voice that can take away the tools of the Fed as it prices interest rates on its own accord, not what the Fed wants them to be.

Position: None

Grant's Take on Germany

  • Here is what Mark Grant sees in Germany.

Sir Mark J. Grant on Germany:

The Drop Dead Day has Come and Gone

September 22, 2013 has now passed and the German elections are over. The coalition government is still not formed but what I predicted has taken place which is a new and much harder line from Germany. The days predating the election were filled with nicey-nice comments and no one, in any country, wanted to upset Ms. Merkel and we had four months of a self-imposed European calm. That now has ended.

The recent German comments on the European banking system and just who will take the hits if necessary are an explicit example of the new Germany where the use of German money will only be tolerated as the last resort; the very last resort. The only group not mentioned in the most recent German pronouncements were the depositors and that is still an open question but equity owners, junior and SENIOR debt holders will clearly be tagged before the use of public funds if any bank is found wanting. The Netherlands has also joined in this opinion and there is no democracy here as any country can veto any different kind of legislation pushed forward by the periphery countries or by Mr. Draghi. As a matter of inference the recent letter sent by Mr. Draghi to the European Commission was flat out rejected by Germany where he requested the use of the ESM funds prior to losses forced upon senior creditors.

As is often the case in politics one must read between the lines to understand what is happening and the upcoming bank stress tests to be performed by the ECB are examples in point. The first two European bank stress tests were a joke and if not a joke then a cosmetics commercial. The blush was brought out and applied and then the eye liner was carefully put on and then they used a big fluffy brush for the talcum powder and every blemish was hidden and disguised. The look was declared perfect and all of the shades blended in wondrous harmony.

Then we had Dexia and Bankia and smaller banks in Austria and the Netherlands and finally the entire Spanish banking system and the make-up had turned grimy and blackened while it ran sadly down the face of the Continent. Nothing but a cover-up while the female underneath it all was ghastly and scarred.

Now it has been argued that things are better because yields have come down since the first two bank charades. "Bah Humbug," says the Wizard. What has taken place is the implementation of the new European strategy where every penny that could be found in the national coffers was used to buy bonds of the sovereign and of the national banks. The national banks of the periphery countries loaded up on their sovereign debt while the pension funds followed the same tactic and Real Estate securitizations and bad loans worth pennies on the Dollar were packaged and sold to the ECB and money loaned at face value.  Everything and anything was declared risk-free and money was loaned as if these instruments were codified by the Gold Standard but, as is always the case when the make-up wears thin, the blush smudges drearily as the evening comes to an end.

I have always said, and I still maintain, that you can cover things up and hide reality all that you like but that there is always a last Harrah where someone has to pay the losses. Now with the advent of the new bank stress tests conducted by the ECB and not a German make-up artist, some of the truth may come out and Germany, I am quite sure, has monitored the real health of the banking patients and is preparing for the unmasking which is why the recent statements by them have been made.

Italy, Spain, Cyprus, Greece, Portugal and Ireland will all join the chorus calling for the greater European good. The chorus they will sing will be, "You pay, You pay, Not us, Not us," but the German elections are now over and the melding clay has fomented and turned to cement as foretold. The Draghi put was always conditional and the condition was the political will of the countries in the European Union and the German Finance Minister has made the German position quite clear; crystal clear. Make no mistake in your thinking, if the Germans do not want something to be done then it will not be done and bail-ins will take place long before the use of any taxpayer money now.

What the ECB may reveal is unknown but what is now explicitly known is the reaction of Germany to any and all problems in the banking sector. The use of any pooled funding such as the ESM will only be used as a last, and I would bet, terrible resort with pounds of flesh extracted for its use. With national coffers full of their own debt all across the Southern nations of Europe and a capacity for more support at de minimis levels I expect a spike in sovereign yields in the forthcoming months.

The Piper always gets paid in the end!

Position: None

Greenhaus's Take on Jobs Report

  • BTIG's Dan Greenhaus's provides a detailed analysis of this morning's jobs report.

Below is a strong analysis of this morning's jobs report from BTIG's Dan Greenhaus:

  • Total monthly job creation continues to slow as the economy created a net 148K new jobs in September.
  • However, the previous two months saw job creation revised higher by 9K
  • The unemployment rate fell another tenth to 7.2% as the level of employment rose by 133K jobs and the number of unemployed fell by 61K (unemployed persons have fallen by 522K in the last three months).
  • Interestingly, the number of job leavers is rising suggesting some level of increased confidence in the labor market.
  • Those working part time jobs for economic reasons remained elevated at 7.73 million.
  • As important as the headline data is the earnings data which continues to be weak. Average hourly earnings rose by 0.1%.

Generally speaking, very little changes as a result of today's employment report. We continue to create just enough jobs to lower the unemployment rate even though the number of jobs created each month is unexciting (first chart below) and the rate appears to be slowing. After averaging 207K jobs created in Q1 and 182K in Q2, job creation averaged just 143K in Q3.This is certainly something that the Fed knows about. Further, while the rate of job losses in the public sector has slowed and has possibly ended ¿ govt added 54K jobs in the last two months - this remains one area of weakness that has weighed on overall job growth (second chart below). A reversal would ease some of the downward pressure.

The bottom line for today's report is "more of the same." Wage growth is weak, job creation is relatively weak and, perhaps most worrisome, appears to be slowing. Despite calls for a pickup in growth and job creation that have been in place for several quarters now, we expected the future to look like the recent past. Absent a change in....something, we fail to see why things should look meaningfully different in the near future.

Position: None

Morning Market Look

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

The rundown:

  • S&P futures are up 1;
  • Nasdaq futures are up 4;
  • Nikkei is up 0.13% (Yahoo! Japan and Softbank are positive);
  • China Shanghai is down 0.83% (telecom and consumer services, the press was full of chatter that authorities in Beijing may decide to mildly tighten policy in light of the robust September home price data);
  • European markets are mixed (Reckitt Benckiser is the big standout, rallying 5% after posting a beat/raise);
  • euro is down;
  • crude is down $0.20;
  • gold is down $2; and
  • the 10-year U.S. note yields 2.60% (no change in basis points day over day).

Worth mentioning:

  • A four-day win skein was barely kept intact on Monday, with continued conspicuous strength in the Nasdaq on the heels of Apple (AAPL), Priceline (PCLN) and Netflix's (NFLX) -- Jim "El Capitan" Cramer's "You Buy Netflix for One Reason" is a must-read -- large share price gains).
  • I did little trading yesterday. I covered my trading short rental in Bank of America (BAC) and added small to my Potash (POT) long and SPDR S&P 500 ETF Trust (SPY)
  • With the flattish action in the U.S., Europe and Asia, I haven't done anything thus far in premarket trading.
  • I remain bearish. My fair market value calculation yields a market overvalued by about 5%. (1645 vs. yesterdays closing 1745 level on the S&P).
  • I am agnostic on bonds, expecting the 10-year U.S. note yield to range (narrowly) between 2.50% and 2.85% over the balance of the year. We remain around 2.60% now.
  • In the previous column, I outlined why the upcoming economic data have lost their relevance.
  • It's peak time for earnings reports over the next few days.
  • Could the individual mandate be delayed? White House Press Secretary Carney did not directly say that the individual mandate could be delayed, but he did say that if people could not get access to ObamaCare, they would not be penalized (The Hill).
  • In the coming months, Obama will have the opportunity to remake the Fed and put his stamp on the central bank for years to come. Obama has already named his replacement for Bernanke but still needs to fill as many as four seats on the seven-member board. "There is pressure and will continue to be pressure to have a stronger, much stronger, regulatory and financial stability expertise on the Fed board" (Politico).

In the news:

Some possible economic and earnings catalysts that could be impact the market.

  • September jobs report (8:30 a.m. EDT, 180,000 estimate, 7.3% unemployment rate estimate).
  • Richmond Fed (0 estimate).
  • Leading Economic Indicators (+0.6% estimate).
  • New German parliament holds first meeting.
  • Nokia (NOK) to hold product launch event.
  • Apple to hold iPad event.
  • Analyst meetings -- TJX, YGE.
  • Earnings before the open -- AKS, ARMH, BHP, BKU, BXS, CIT, CNC, COH, DAL, DD, EMC, FCX, FMER, FRX, HOG, ITW, KMB, KPN, LMT, LXK, Novartis, NUS, PII, Reckitt Benckiser, RF, SNV, STT, TRV, UTX, WAT, WHR.
  • Earnings after the close -- ACE, ALTR, AMGN, APOL, BRCM, CREE, IRBT, JNPR, NSC, PNRA, STM, TSS, WCN.
Position: Long POT; short SPY and QQQ

Altisource Residential Beats

  • I will report back later after I have digested the upcoming conference call.

The big beat from Altisource Residential (RESI) included a net realized gain of $1.9 million on mortgage loans.

Conference call this morning, and I will report back after I digest it all.

Position: Long RESI

Quote of the Day

  • It's from Netflix CEO Reed Hastings.

This quote, extracted from Netflix's (NFLX) earnings report (courtesy of Jim "El Capitan" Cramer's well-crafted opening missive, "You Buy Netflix for One Reason"), is from CEO Reed Hastings:

"In calendar year 2003, we were the highest-performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003."

Enough said.

Position: None

And There Was Light

  • In 2014, we'll get our first batch of clean data.

Then God said, "Let there be light"; and there was light.

God saw that the light was good; and God separated the light from the darkness.

-- The Holy Bible, Genesis 1:3-4

Now that the government shutdown is over, economic data will begin to flow from the Washington, D.C., data factory.

Today the government will release the jobs report, which over time has been considered an important series.

The consensus is for a gain of 180,000 compared to August's 169,000 gain.

As the data point came before the government's shutdown, it will largely be dismissed.

In fact, most of all the economic data to be released for the September-Octoberr periods will have little relevance to investors, as the information will be distorted. Even November's releases will be treated skeptically as that month will see an artificial increase in the data following the shutdown's loss of business.

The first clean data will be for the month of December, but that data won't be released until the beginning of 2014.

It is for this reason that I have assumed that tapering will begin in March 2014 -- and only then if the economic data support less easing.

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-26.73%
Doug KassOXY12/6/23-11.26%
Doug KassCVX12/6/23+14.24%
Doug KassXOM12/6/23+18.09%
Doug KassMSOS11/1/23-15.33%
Doug KassJOE9/19/23-10.23%
Doug KassOXY9/19/23-23.14%
Doug KassELAN3/22/23+40.53%
Doug KassVTV10/20/20+68.93%
Doug KassVBR10/20/20+80.53%