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DAILY DIARY

Doug Kass

Off to a Meeting

  • See you tomorrow.

I am heading out early to a business meeting.

Thanks for reading my diary and enjoy your evening.

And God bless Uncle Vinnie.

Position: None

The Haines Bottom

  • Here is Mark Haines rally call in March 2009.

I mentioned my generational bottom call this morning.

Here is Mark Haines rally call in March 2009.

Position: None

Added to Apple Long

  • I bought more shares at $530.

I added further to my Apple (AAPL) long at about $530.

Position: Long AAPL

Adding to SPY Short

  • At $188.23.

On the rally from the lows, I am adding to my SPDR S&P 500 ETF (SPY) short at $188.23.

Position: Short SPY

Reunited

  • And it feels so good.

I am glad I am back shortGreen Mountain Coffee Roasters (GMCR).

I feel naked without the short, to be frank.

Position: Short GMCR

Nasdaq Futures

  • A ludicrous forecast?

Nasdaq futures down on the day. See my earlier "ludicrous forecast."

Inconceivable!

Position: None

Biotechs Continue to Underperform

  • The league-leading sector is lagging.

I recently wrote about the developing underperformance of the league-leading biotechs.

That relative weakness has continued this week.

Position: None

Recommended Reading

  • Run, don't walk, to read Alice Truong's 'Sorry Banks, Millennials Hate You' in Fast Company.  

Regarding my reference to Monitise (MONI.L) in the previous post, here is an interesting article in Fast Company that highlights that banking is the most likely industry to be disrupted.

Position: Long MONI.L

Favorite Stocks

  • Long and short.

Favorite stock investment long: Monitise (MONI.L)

Favorite stock investment short: Tesla (TSLA).

Position: Long MONI.L; short TSLA

Favorite ETFs

  • Long and short.

Favorite ETF long: Direxion Daily Small Cap Bear 3X Shares (TZA).

Favorite ETF short: PowerShares QQQ (QQQ).

Position: Long TZA; short QQQ

Active Call Trading in Potash

  • Hat tip to Jon Najarian.

"Fast Money Halftime Report's" Dr. Jon Najarian just pointed out that the Potash (POT) April $37 calls have traded over 15,000 contracts today.

Good heads up and eyes, Dr. Jon!

Position: Long POT

Cashin's Comments

  • Here are his musings at midday.

Midday musings from Sir Arthur Cashin:

The rally is broad, hinting sideline money being deployed.

Rumormongers are out and about on naval initiatives.  Claim that U.S. sends destroyer to Black Sea and that Russians purposely sank one of their own hulks to narrow a channel.  That brought a mild reaction in gold but not a twitch in stocks.

Nevertheless, newstickers must be constantly monitored along with yield on the ten year.

Run rate at 12:30 projects to an NYSE final volume of 640/720 million shares.

Position: None

How Short?

  • I am currently at 15% net short.
Position: None

GDP Map

  • A picture is worth a thousand words.

I am not sure if the map below is accurate, but if it is correct, it is amazing how only a handful of cities contribute so much to U.S. GDP.

Position: None

Potash Rebounds

  • From goat to hero in a week.

Potash (POT) turns from goat to hero in a week.

Position: Long POT

Hanson on Housing

  • Here is the real estate maven's amusing morning commentary.

Some amusing commentary from real estate maven Mark Hanson this morning:

Just like in 2007/2008 and again following the sunset of the 09/10 tax credit,  the rationalizing of the present stimulus-preceded demand destruction -- by pundits in a desperate search for reasons, which fit within their flawed perception that the past two years of increased housing market activity was durable and fundamentally-driven and not mostly stimulus-driven -- is becoming extreme.

My favorite, however, remains the "lack of supply" chant that commonly accompanies data showing supply surging, especially in most legacy years bubble, turned epic crash, turned Fed-driven new-era 'investor' buy-to-flip, flop, flap and rent havens (Sacramento CA supply up 96% and demand down 30% YoY for example).  

The following headline is a good example of extreme rationalization and certainly more creative than "the weather" excuse:

Mar 5, 2014, 4:57pm PST Updated: Mar 5, 2014, 5:19pm PST

Seahawks' Super Bowl run hurt home sales

  • The number of home sales in the metropolitan Puget Sound region dropped by 8 percent last month from February 2013, and some residential real estate experts say the fan frenzy surrounding the Seattle Seahawks was partly to blame.

As a rule of thumb, as housing market headlines grow ever-larger in word count it generally means it's becoming harder to rationalize what's occurring (the Superbowl headline above is a clever exception).  The most powerful bullish head ever is short and sweet..."Home Sales Surge 20%". That will attract eyeballs.

On the contrary, in recent months headlines such as this have become increasingly common.

"Real Estate sales slump as higher rates, higher prices, lack of supply, and freakishly poor weather prevents families from attending open house events"

Position: None

Goldman on Factory Orders

  • Here is the firm's take.

Goldman Sachs' take on factory orders (note: we are five years into a "recovery" and an exteneded period of quantitative easing, yet first-quarter 2014 real GDP growth is forecast to be only +1.7%):

1. Factory orders declined 0.7% in January (vs. consensus -0.5%), and were revised down five-tenths in December to -2.0%. Relative to the information contained in the previously-released January durable goods report, core capital goods orders in January were revised down two-tenths to +1.5%, and core capital goods shipments were revised down two-tenths to -1.0%, although there were roughly offsetting upward revisions to December in both series. Total manufacturing inventories rose 0.2% on the month, reflecting a 0.3% gain in durable goods inventories and flat non-durable goods inventories.

2. We left our Q1 GDP tracking estimate unchanged at 1.7%.

Position: None

Closed-End Muni Fund Game Plan

  • Depending on your risk profile, it might be time to reap the rewards of this investment.

Repeating for emphasis: I had posited that closed-end municipal bond funds would be among the best asset classes in 2014.

I still believe that to be the case.

But with the group up 11% (with dividends) year-to-date, the 15% gain that I expected for all of 2014 materially has been reached.

I would be long ProShares UltraShort 20+ Year Treasury (TBT) against the investment theme, or if you are not comfortable being short bonds, I would begin to reap the rewards of this investment.

I remain long 14 separate closed-end municipal bond funds.

Position: Long BTT, BKN, ETX, VCV, VPV, VGM, NAD, NMA, NMO, NRK, NPI, NPM, NQU, NQS and TBT

Lights Out?

  • Whither bears?

Will the last short seller turn off the QE lights?

Position: None

How I Shorted Tesla and Survived

  • The shares have risen by 20% since my short, but the sum total of my loss has been negligible.

The purpose of this column is to explain my risk profile and how my approach to shorting stocks keeps me in the game, even when I am terribly wrong on a stock.

Today's lesson employs Tesla (TSLA).

Tesla's shares have risen dramatically over the past 12 months.

Its year-to-date advance has also been breathtaking.

In several posts, I outlined why I was shorting Tesla this year.

In shorting Tesla, I recognized that I went directly against my short selling tenets that preclude me from shorting a stock on valuation and when short interest is high relative to float and to average daily trading volume, but sometimes you just have to make an exception if a situation is viewed opportunistically.

To summarize, I began to short Tesla at around $205 when the stock rose on a combination of modestly better-than-expected earnings and rumors that Apple (AAPL) had discussions with Tesla. The latter point was plain foolish to me and provided a price gap that I felt delivered a reasonable short entry point.

I shorted more Tesla on a gap up to $220 soon after and covered some stock on a dip back to $207.

But the first several shorts were small, as I almost always average in, especially when dealing with a high-octane stock such as Tesla.

The share price continued to rise to $240 where I got more serious in shorting the shares.

As the share price rose to over $260, I continued to average into the short.

At around $251 I covered some of my high-priced shorts, and at $236 I covered the majority of the balance of my short.

I recently added (small) again at around $256.

The sum total of my loss in the short of Tesla has been negligible, literally a rounding error in the scheme of my overall investing activity.

The lesson: Recognizing the mania and the stock's volatility, I started slow (and small), expanded the short modestly on strength, traded around the position often and sized the position properly.

Postscript: From the Street of Dreams -- Brother Bank of America/Mother Merrill Lynch raised its price target in Tesla today from $65 to $75!

Position: Long AAPL; short TSLA

Conspicuously Weak Retail Earnings

  • Costco, Children's Place and Staples all missed the mark.

Costco (COST), Children's Place (PLCE) and Staples (SPLS) are conspicuous earnings misses today.

So we are likely to be up, up and away this morning!

I am adding to shorts despite Mr. Market's persistent climb.

Position: None

Recommended Reading

  • Run, don't walk, to read Jim Cramer's 'Folly of the Righteous (Part One).'

Jim "El Capitan" Cramer has written some of his best columns in years recently.

Today's,"Folly of the Righteous (Part One)" is another good example.

Great read.

Position: None

Parsing the Data

  • Namely, jobless claims and ECB.

Initial jobless claims fell to 323,000 from 349,000 last week, below the estimate of 336,000, and it brings the four-week average to 337,000 from 339,000. While today's claims figure is the lowest since late-November, it just offsets last week's highest print since mid-December. The four-week average of 337,000 compares with the one-year average of about 340,000, thus evidence of little change in the trend but still an improvement compared with the average seen in 2012 of 375,000. We'll see tomorrow how this translates into payroll gains, but we know anything soft will just be given a hall pass.

In line with the downward revision to fourth-quarter GDP last week, productivity for fourth quarter was revised to a gain of 1.8% from the initial figure of 3.2%, and that was less than the estimate of 2.2%. This brings unit labor costs lower by 0.1% vs. down 1.6% initially and vs. the estimate of down 0.5%. Productivity over the past four years has averaged just 1.35%, well below the 20-year average of 2.1% and points to why the recovery has been sluggish compared with previous recoveries.

As I expected, Draghi is repeating that rates will stay low for a very long time but didn't announce any new policy initiatives but again left the door open for them "if needed." In fact, he actually slightly raised the ECB growth target for 2014 to 1.2% growth from 1.1%. He showed no concern with deflation and believes the inflation risks "continue to be broadly balanced." With both the benchmark rate and deposit rate at essentially at zero already, unconventional policy means is all he's got left. One being an attempt to facilitate more lending to small and medium-sized businesses, but that has been an ongoing discussion on how best to proceed. On the lack of any new steps, the euro is rallying further to the highs of the day and is back to 1.38 vs. the U.S. dollar, just shy of the highest level since November 2011.

Position: None

Growing Shorter

  • I expanded my index shorts.

I am moving further on the short side despite the market's continued and remarkable momentum.

I shorted more SPDR S&P 500 ETF (SPY) at $188.20 and PowerShares QQQ (QQQ) at $91.25 in premarket trading.

Position: Short SPY and QQQ

Grant's Take on the Crimean Crisis

  • A little history.

A history lesson from Sir Mark J. Grant this morning:

"Have you noticed that Putin bears a strong resemblance to Hannibal Lector? There is a reason why I know the show isn't over yet. There hasn't been any mention of fava beans."

-- Mr. Trooper, one of the three Sages

The markets got hammered with the announcement of the problems in Crimea. Then the markets rallied with the equity market, as measured by the Dow Jones, pushing the prices higher than when the problems in the Ukraine first came into focus. Many, obviously, think that the rollercoaster ride is over. "Move along, nothing more to be seen here." However this is not my viewpoint. I have wandered across the street and I am sitting on the stoop because I think there will be more fun and games before we are done with this chapter of Putin's playbook.

"You know this isn't over yet. There is no doubt that Putin has read the super villain's handbook. Consequently you also know that there is more to come because Putin has not twirled his mustache yet and gloated."

-- Ms. Princess, the oldest of the three Sages

I have pointed out the history lesson in a prior commentary and Putin's use of the Nazi's tactics prior to World War II. This morning the Crimean Parliament voted to have Crimea join the Russian Federation. I am sure that Mr. Putin spread around all kinds of money to obtain this result. The good news for Crimea is that they have a new batch of oligarchs this morning. 

Crimea wants to have a referendum on this March 16. I await the proposed referendum in Crimea, which Kiev has called illegal, where we will probably see Russia throwing all kinds of money around once again to obtain votes. If the people of Crimea actually vote to secede then I expect the Ukraine will call it illegal and not give them what they desire. Then I would guess that, under the banner of protecting Russian nationalists and speakers, that Russia might try to forcefully take over Crimea to "protect the citizens." The men in black, in vehicles with Russian license plates who are not really Russians we are told, would be back on the rollercoaster ride then and so I sit and wait because I do not wish to miss the next act of this really big show. 

There is talk this morning that the Ukraine might "lease" the Crimea to Russia. Not even an outright buy like Alaska or the Louisiana Purchase but some form of lease. Maybe this is driven by the world's low interest rates or maybe the Russian interest payments would match the debt payment schedule for the Ukrainian bonds which would be quite convenient for the institutions that hold them which may be the reason why the idea has been floated. Such clever bankers.

"You know it is really quite interesting to watch Europe and the United States as they listen to Putin's nonsense. It is like having a Biblical experience. You have two nudists taking dietary advice from a talking snake."

-- Ms. Lalique, the youngest of the three Sages

I would like to point out, to my friends in the Press, that an opportunity exists this morning. The Russia Today anchor has resigned. Ok, ok your paycheck might be in Rubles but still.

The European Union is meeting now to decide on sanctions for Russia. Many leaders have made quite strong statements about this issue. I can only shake my head in wonder. The Germans are calling for refusing to ship bratwurst for one week. France wants to exclude any shipments of Mouton Rothschild for ten days while Greece is considering shutting down the Mykonos hotel discounts for seventy-two hours. Man, these Europeans are tough.

"They all look like game show hosts to me..."

-- Sting

Position: None

10-Year Yield Watch

  • Up 2 basis points.

Yields continue to rise this morning, with the yield on the 10-year U.S. note up 2 basis points.

And the ProShares UltraShort 20+ Year Treasury (TBT) climbs as well, as it embarks on a multiyear expansion (imho).

Position: Long TBT

A Challenging Jobs Outlook

  • Hiring plans remained very subdued in February at 11,054.

Challenger job cuts for February came in at 41,835, a 7.3% improvement from January and a 24% improvement on a year-over-year basis. This is the lowest reading for the month of February since 2000. Year-to-date we are running 9.2% below 2013 in terms of number of job cuts and are on pace for the strongest first quarter on this metric since 1995.

From an industry perspective, the financial industry continues to have the highest cuts while the number of cuts in retail fell in February after a very elevated January. On the other side, hiring plans remained very subdued in February at 11,054. To put that in perspective, hiring plans for February of 2013 were 92,372.

While this isn't exactly the most looked at report, it seems to be confirming recent data pointing to a job market that appears to be relatively stable but yet to show signs of the beginnings breakout growth. 

Position: None

The Gospel According to Peter Boockvar

  • Here are his early-morning musings.

The Lindsey Group's Peter Boockvar writes about BOE, ECB, the Fed and data over there:

After the BoE decided to leave policy unchanged as expected, the ECB chose to do the same. The euro is at the high of the morning as there was a minority who thought maybe we'd see another cut. With a benchmark rate at just 25 bps and a deposit rate at zero, there is not much left for them to do outside of unconventional QE type action. The data has been slowly improving in Europe anyway and the last inflation read was stable, albeit below their target rate. Draghi will speak at 8:30am.

The two lone Federal Reserve hawks that vote this year have laid out on the table again their concerns with QE and their desire to get out of this program sooner rather than later. In a speech in Mexico Richard Fisher said, "margin debt is pushing up against all time records. And, in the bond market, narrow spreads between corporate and Treasury debt reflect lower risk premia on top of already abnormally low nominal yields." "With its massive asset purchases, the Fed is distorting financial markets and creating incentives for managers and market players to take increasing risk, some of which may result in tears. I fear that we are feeding imbalances similar to those that played a role in the run up to the financial crisis." And finally, "There are increasing signs that QE has overstayed its welcome: Market distortions and acting on bad incentives are becoming more pervasive." That said by Fisher, he's in the minority at the Fed, joined by only Plosser in wanting to quicken the pace of tapering and being more vocal on the negative effect of QE. Plosser said this on CNBC early this morning, "I am very worried about the potential for unintended consequences of all this action. So I think our exit from this massive amount of asset purchases is going to be very challenging. We don't know whether it's going to go smoothly. If you don't have plan B, you don't have a plan." On the economy, Plosser is sticking to his forecast for now although he admits the "data has been very noisy" because of the bad weather. Dudley will speak at 8:30am.

Due in part to some short term jobs programs, France reported a 41k drop in the number of unemployed for Q4, well more than expectations of a drop of 10k and the prior quarter was revised to a drop of 16k vs the initial figure of a rise of 31k. Most of the improvement was in the 15-24 yr old category. The overall unemployment rate fell to 10.2% from 10.3%. In response, the CAC is back in the green for the week. German factory orders in January rose 1.2% m/o/m, a bit better than the estimate of up .9% and December was revised up. The DAX is also higher but to just flat on the week. I'm highlighting the week's performances in these European indices in light of all the drama in the Crimea and in contrast to the robust week in the US seen so far. The Russian Micex is down by 3%+ and the ruble is lower after the Parliament of Crimea voted to become part of Russia and a referendum on this possibility will be held in two weeks. There is an EU meeting on Russia today.

Position: None

ECB Also Stands Pat

  • As expected.

Break in: As expected, the ECB keeps rates unchanged.

Position: None

A Forgiving Market

  • Case in point, yesterday's economic data.

Unlike the unforgiving market of February 2009 (five years ago), today's market is forgiving (particularly in response to continued subpar domestic economic growth).

Case in point, yesterday's economic data:

  • The February ADP employment indicated that private payrolls increased by 139,000 compared to expectations of 160,000. Importantly, January was revised to 127,000 from 175,000. These are the weakest consecutive monthly readings since August and September of 2012.
  • The ISM non-manufacturing activity index (accounting for about 80% of U.S. economic activity) declined to 51.6 from 54 (the consensus forecast was 53.5). This print was a four-year low. Significatntly, employment collapsed to a recessionary 47.5 from 56.4.
  • Reflecting the above data, (Friday's) February nonfarm payroll forecasts have moved from 150,000 to about 125,000.
  • Hovnanian's (HOV) California net orders (down 43.4%) gave an outlook that the expected spring recovery in the U.S. housing market might disappoint the bullish conesnsus.
Position: None

Bank of England Stands Pat

  • No surprise.

Break in: Bank of England leaves interest rate unchanged at 0.5%.

No surprise.

Position: None

All Eyes on ECB

  • It is generally expected that Draghi will suspend SMP sterilizations.

In the next hour, the focus for investors will be on the ECB meeting. (Press release is at 7:45 a.m. EST, and the press conference is at 8:30 a.m. EST.)

It is generally expected that Draghi will suspend SMP sterilizations.

No biggie, if so.

Position: None

The Generational Bottom

  • Five years ago.

This week, five years ago, I made a call on "The Kudlow Report" that the U.S. stock market was in the process of making a generational bottom.

Over the next few days, I will be addressing the differences in the economy and markets between March 2014 and March 2009.

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-35.66%
Doug KassOXY12/6/23-16.42%
Doug KassCVX12/6/23+8.55%
Doug KassXOM12/6/23+10.96%
Doug KassMSOS11/1/23-29.53%
Doug KassJOE9/19/23-18.03%
Doug KassOXY9/19/23-27.61%
Doug KassELAN3/22/23+28.72%
Doug KassVTV10/20/20+62.60%
Doug KassVBR10/20/20+74.40%