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DAILY DIARY

Doug Kass

Worrisome Signs

  • Trading volume is very low, and Oracle bombs.

"One last thing," part deux.

-- Lt. Columbo

Yesterday was second-lowest volume day of the year, today was the third, and Oracle's (ORCL) numbers just bombed.

What, me worry?

Position: None

Kill the Quants

  • Before they kill us.

"One last thing."

-- Lt. Columbo

Kill the quants before they kill us

Position: None

So Long, See You Tomorrow

  • Thanks for reading my diary today.

No real imbalance on the close.

Thanks for reading my diary today.

Enjoy your evening.

And God bless Uncle Vinnie.

Position: None

Biden's Bluster on Crimea

  • He said Russia needs to let Ukraine decide its own future.

"Those that bet instead on aggression and fear-mongering are bound to fail."

-- Joe Biden

Vice President Joe Biden has repeated the Obama administration's position that Russia's annexation of Crimea is illegal. He said Russia needs to let Ukraine decide its own future.

In a related note, Ukraine authorizes the use of force to defend troops in Crimea.

Position: None

Microsoft Short to Best Ideas List

  • Today's price increase is not justified.

As previously mentioned, I dont think the Office for iPad moves the needle for Microsoft (MSFT).

The price increase is not justified today, and I am placing my Microsoft short on my Best Ideas list at $39.60 now.

Position: Short MSFT

Hanson on Housing (Part Deux)

  • This time, the real estate maven discusses demand destruction.

More from real estate maven Mark Hanson on housing's demand destruction (in California):

Feb CA housing market demand destruction highlights by the CA Assoc of Realtors.  Comments in () are mine.  And they hold true not just in CA, but in most regions across the nation that are experiencing similar d.d. trends.

1)  Closed escrows down 13.7% YoY (because the "investor" cohort has lightened up;  metric not consistent with macro economic recovery, historically low rate / high affordability theme)

2)  Supply up 27% YoY (inconsistent with the "lack of supply causing demand destruction" meme)

3)  This is the 7th straight YoY decline (not coincidentally , the YoY declines began right after rates jumped making the "buy to rent, flip and flop bond replacement trade" less appealing)

4)  CAR sites "reduced affordability" for the plunge in demand. (But this is inconsistent if in fact the past two year run up was driven by end-user fundamentals)

5)  CAR notes that the $150/mo rise in YoY mortgage payments due to rise in rates is "substantial".  (This statement is inconsistent with statements they made about a "small $150 rise" last June and in an improving economy)

Bottom line:  Economists and analysts are increasingly finding it difficult to explain and desperately trying to rationalize the notable real estate demand destruction trend without admitting that the past two years of housing market activity was largely driven by stimulus and unconventional demand, not end-user fundamentals.  In doing so, they are talking in circles citing key metrics that contradict their statements.  Of course, this is because instead of admitting that the past two years "is not what a durable recovery is supposed to look like", they went all-in selling the 5 to 10 year dream and are panicked it's ending after 2. This is just another instance of how similar this is to 2007/08...then they relented.

Position: None

Selling More Apple

  • I am making some more sales in Apple now.
Position: Long AAPL

Another Opinion on Office for iPad

  • Here's Barron's' take.

Barron'sreviewsCitigroup's position on the Microsoft (MSFT) Office for iPad impact.

Position: Long C; short MSFT

Office for iPad Won't Drive Growth?

  • Or so I hear Citi is saying.

My feedback on Microsoft (MSFT) is that Citigroup is saying the Office platform for iPad is not a meaningful driver to sales/profit growth.

Position: Short MSFT

Citi Cautious on Microsoft?

  • Rumor has it.

High above the Alps, my gnome is hearing that Citigroup is saying cautious things regarding Microsoft's (MSFT) shares.

If anyone else has heard this, please pass on your comments in our comments section.

Thanks.

Position: Short MSFT

Grant's Tale on China

  • Here is his forceful commentary.

Mark Grant is back with his forceful commentary this afternoon. This time China is his focus:

"Keep your broken arm inside your sleeve."

-- Chinese Proverb

It appears as if the government of China has been following one if its ancient proverbs. They have been hiding their broken economy from their own people and from the rest of the world. They have devised numbers, like the Fed creates money, from drafts of the air. The problem now is that the sleeve has dropped with the hand and the wound is becoming obvious.

Massive bets in their currency against the Dollar have been made often using very complex derivatives strategies according to the Financial Times. Several banks have made the comment that if the CNH drops to below 6.20/Dollar that many of these contracts will begin to implode. Morgan Stanley estimates that $150 billion of these derivatives remain open and the implosion of even a fraction of this amount could cause ruin for some Chinese firms and I would guess cause some major difficulties for the Chinese, American and European banks that wrote them.

This is taking place as China begins to struggle with bond defaults in its shadow banking system. I am amused by this term, which is used with great commonality, because the size of this market is hardly a "shadow" as it is massive enough to cover the entire Great Wall. Just in the next year alone, according to data supplied by Bloomberg, there are $400 billion in bonds coming due. Much of the growth in these loans was based upon the belief that the government of China would never allow them to default. This has proved to be an incorrect presumption as this market now faces its third default with one in solar power, one in Real Estate and one in the coal industry. Just the size alone of the impending defaults could have massive implications for the economy of the entire nation and stop any new lending in its tracks. Even in the local debt market, an official audit at the end of last year showed that local government debts had soared to Rmb17.9tn ($2.9tn), up 70% from 2010. This represents a tenfold amount of new debt given the growth or officially stated growth in the Chinese economy and represents a sizeable amount of risk in my opinion.

Last week Li Keqiang, the Chinese premier, admitted that "isolated cases of default will be unavoidable." Given the obvious understatement given his position I think the situation in China must be closely monitored because between the possible overstatements of growth, the souring of a huge amount of Chinese loans and the weakness in the currency that a storm could be brewing as all three of these issues are quite interrelated.

In one indication of how serious things are becoming the Chinese Central Bank, according to Bloomberg, joined the discussion in the latest default involving Zhejiang Xingrun Real Estate Co. It may be that the local government steps in to shore up the loans as suggested by some analysts but the reality here is that with $400 billion in maturities this year that any backstops may swamp some of the Chinese banks and could cause local government defaults as well.

I recall what took place in Japan many years ago and the havoc that it has caused right up to this day and I remark that China may have wandered off the "Golden Path."

Position: None

Recommended Reading (Part Deux)

  • Run, don't walk, to read American Banker's Mary Wisniewski on 'Four Ways Banks Can Profit by Modernizing Mobile Commerce.'

Here is a good American Banker article on mobile commerce.

Position: None

Rise of the Machines

  • My sell-side trading pals say today's buying is mostly programs.
Position: None

Adding to TZA Long

  • At $14.70.

I am adding to my Direxion Daily Small Cap Bear 3X Shares (TZA) long at $14.70 now.

Position: Long TZA

Goldman Bullish on Mobile Payments Space

  • Moni! Moni!

Goldman Sachswaxes enthusiastically about the mobile payments industry.

Think Monitise (MONI.L), of which I am a buyer at $1.10-$1.15 for MONIF.

Position: Long MONI.L

Shorting Mister Softee

  • The reaction is a little overdone to the upside.

As I mentioned earlier, I had the rumor of Microsoft's (MSFT) late-March launch of its Office platform for Apple's (AAPL) iPad yesterday.

Today's reaction seems extreme, and I have taken a trading short rental in Microsof at $39.55.

Position: Long AAPL; short MSFT

Cashin's Comments

  • Here are his musongs at midday.

Midday market musings from Sir Arthur Cashin:

Putin's comment that Russia's only interest was Crimea turned markets up this morning.  Hope is that if the deal is narrow, there will be no sanctions war (or worse, a shooting war).

Markets in U.S. began to fade after opening, only to re-spike on non-hostile comments from Merkel.  Around 11:40, stocks backed off highs on rumors of an Interfax flash that Russian troops moved on a Ukrainian naval facility in Crimea.  Reports claim shooting and at least one Ukraine solider wounded.

Run rate at noon projects to NYSE final volume of 560/640 million shares.

Position: None

Recommended Reading

  • Run, don't walk, to read Stratfor's summary of the Crimea/Russia/U.S./European situation.

Below is a good summary of the Crimea/Russia/U.S./European situation from Stratfor Global Intelligence:

Russian President Vladimir Putin signed an accession treaty March 18 between Crimea and the Russian Federation, taking a vital next step toward the annexation of Crimea and further raising the stakes in the standoff between Russia and the West over Ukraine

There are still several steps for Russia's annexation of Crimea to become official. The Russian Constitutional Court must verify the treaty, and then both houses of the Russian parliament, the Duma and the Federation Council, must vote on it. Deliberations are currently scheduled for March 21. After the vote, a transitional period would be set for Crimea's integration into Russia's legal, economic and financial systems, including the incorporation of the ruble as Crimea's currency. But it appears probable that formal annexation will take place by the end of the week.

Russia had hinted that it could delay moving on Crimea's annexation if the West showed willingness to compromise on its position regarding the new Ukrainian government. However, the European Union and United States held firm on the legitimacy of the government. They have pushed for Ukraine to be further integrated into EU and Western structures, with Ukraine expected to sign the political sections of the EU association agreement on March 21. The United States and European Union also passed sanctions against certain Russian and Ukrainian political and security officials March 17, and both said stronger sanctions could come later in the week.

The West cannot stop Crimea's annexation through sanctions, as Putin's latest move has shown. Russia had floated proposals on a "contact group" to negotiate over the future structure of the Ukrainian government, but the West and Ukraine rejected this proposal, which Kiev said was akin to an ultimatum. As a result, Russia has made clear that it will move forward with the annexation of Crimea, although Putin did say in his March 18 speech that there are no plans to try to divide Ukraine further.

The West will now push for stronger sanctions against Russia and the further integration of Ukraine into the West, though the potential effectiveness of both objectives remains limited. In the meantime, Russia will focus on discrediting the Ukrainian government, which it still deems illegitimate. Moscow could look for leverage in other places as well, including strengthening ties with Iran or incorporating other breakaway territories such as Moldova's Transdniestria and Georgia's Abkhazia and South Ossetia. There is the potential for a significant escalation between Russia and the West to go far beyond Ukraine.

Position: None

Screwflation Nation

  • A picture is worth a thousand words.

Here is a chart in support of my screwflation thesis

Position: None

Buying TBT

  • At $69.

I am a buyer of ProShares UltraShort 20+ Year Treasury (TBT) at $69 today.

Position: Long TBT

Making Some Cuts

  • Namely, Apple and Citi.

I am cutting back my Apple (AAPL) a bit as channel checks indicate that the quarter is softer than I expected. I maintaining my core investment position, but I have been buying and got too large in the name.

I am also cutting back my Citigroup (C) as that too has become too large and it bounced nicely yesterday. Again, I am maintaining my core investment position.

Position: Long AAPL and C

Amazon Unveils Streaming Set-Top Box

  • Here's the scoop.

Amazon's (AMZN) Apple TV competitor is set to roll out.

Position: Long AAPL

The Muppet Take the Markets

  • Kermit and Miss Piggy share their stock picks on CNBC.

On CNBC now, Kermit the Frog has Tesla (TSLA) long on his Best Ideas list, but Miss Piggy is short the Nasdaq.

Position: Short TSLA and QQQ

Another Win for Monitise

  • Here's the press release.

Some good news of another business win at Monitise (MONI.L) was just announced.

Position: Long MONI.L

The Hits Keep Coming

  • Ukraine update.

According to @Kateryna_KrukBREAKING NEWS, Russians are storming Ukrainian military base in Simferopol right now. Reports of injuries.

Position: None

Mister Softee Trades Well

  • News regarding the late-March launch of Office for iPad is sending shares higher.

Microsoft (MSFT) is trading well off the news that Office for iPad will be introduced in late March. 

I had this rumor yesterday.

Position: Long AAPL

Taking Some Profits on P&G

  • It remains on my Best Ideas list.

Procter & Gamble (PG) has had a nice move to over $80 a share.

While the stock remains on my Best Ideas list, I am letting some go at these levels.

Position: Long PG

Surprising Strength

  • I will stop shorting for now.

Today's market strength is surprising to me.

At 15% net short, which is where I will stop for now.

Position: None

Don't Chase Bon-Ton

  • Regardless of whatever rumors you may have heard.

In response to a number of subscriber emails, I, too, have heard some low-level rumors that Bon-Ton (BONT) could be the target of private equity.

Nevertheless, I would not chase the stock.

I am a $10 buyer.

Private market value approximates $15 a share.

Position: Long BONT

GM Appoints New Vehicle Safety Chief

  • Going forward, the automaker aims to get ahead of any recall issues.

General Motors (GM) is clearly moving to get ahead of any (going forward) recall issues with the appointment of a new vehicle safety chief.

Position: Long GM

Added Again to Index Shorts

  • SPY at $187.10, QQQ at $90 and IWM at $118.55.

I have moved to 15% net short with additional shorts in SPDR S&P 500 ETF (SPY) at $187.10, PowerShares QQQ (QQQ) $90 and iShares Russell 2000 ETF (IWM) $118.55.

Position: Short SPY, QQQ and IWM

Hanson on Housing

  • Here is the real estate mavens take on the latest data.

From real estate maven Mark Hanson:

Today's housing number was driven exclusively by multi-familyat multi-year highs with all-important single-family down YoY both in permits and starts...

Permits

Single-family (1-4 units) down 2.4% MoM and 3.2% YoY at 588k

Multi-family (5 and up) units up 28% YoY at 430k and highest since 2007

Starts

Single-family 1-4 units down 10% YoY at 595k

Multi-family 5 and up units up 1.6% YoY at 312k and highest Feb since 2008

Weather

Based on the starts and permits number in the Northeast and West (both weak but polar opposite weather), it seems weather had a negligible impact especially when considering the strength of the Northeast starts in January compared to February.

Bottom line: These are pretty weak single-family numbers when considering this sector is supposed to be in the midst of a long-term, "durable" recovery with "escape velocity";  how many trillions the Fed has pumped priming this sector's pump;  and the lofty sell-side forecasts of a year ago.

Position: None

How Short?

  • I have moved to 10% net short.
Position: None

Adding to Index Shorts

  • Namely, SPY and QQQ shorts and TZA long. 

I am using the Putin news to up my short exposure now.

I added to my Direxion Daily Small Cap Bear 3X Shares (TZA) long at $15.06 and my SPDR S&P 500 ETF (SPY) short at $186.91 and my PowerShares QQQ (QQQ) short at $89.67.

Position: Long TZA; short SPY and QQQ

The Gospel According to Peter Boockvar

  • Here are his morning musings data parsings.

The gospel according to Peter Boockvar:

Following the bounce yesterday in Europe and in the US on the lowest trading volume (consolidated NYSE) since January 3rd on what can best be explained as a sell the rumor, buy the 'we'll see only softball sanctions' news, most Asian markets were up modestly. Japan responded higher to the weaker yen while China was little changed even though property stocks were weak. In China, property price gains continue to moderate with new apartment price increases in 57 cities m/o/m vs 62 in January and 65 in December. Existing home increases were seen in just 46 cities m/o/m vs 48 last month and 64 in the month prior. Price increases specifically in Beijing and Shanghai moderated to the slowest pace since last summer. Also, a privately held property company went bust when they couldn't pay back $500mm of debt. The bubble continues to deflate in the China property market which is a positive in the long term but comes with major risks in the short time to come. The yuan fell sharply (relatively speaking) again to near a one year low. Copper is little changed at near 3 ½ year lows.

In Germany, signs of concern with Russia (from a natural gas and trade perspective) and the strong euro was reflected in their ZEW investor confidence figure which measures confidence in their economy for the next 6 months. It fell to 46.6 from 55.7, below the estimate of 52, the weakest since August and now 15 pts below the January level. Current conditions however were slightly higher at 51.3 from 50. In Russia, the applause signs are up for Putin as he spoke to Parliament on his plans to annex Crimea. Markets are mixed there with the ruble and Russian bonds lower but stocks are up. Putin clearly doesn't care about the economic consequences of his land grab but his Deputy Economic Minister does who said yesterday "The situation in the economy bears clear signs of a crisis."

In the US today, February CPI, Housing Starts and the TIC data reflecting appetite for US assets are all released as the FOMC begins their two meeting. Hopefully tomorrow they will be able to explain what 'qualitative guidance' means because I still can't figure it out. After another round of tapering, the run rate will have been reduced by $360b annualized and while many in the markets don't care, I do and continue to think a continuation of it remains the biggest headwind for stocks in 2014, more so than Russia, more so than China.

And below is Peter's analysis of this morning's data (I am at a breakfast meeting):

February CPI rose .1% m/o/m both headline and core, in line with expectations with the y/o/y gains running 1.1% and 1.6% respectively. The sharp increase in the CRB index over the past few months has yet to show up in CPI in totality as commodity prices fell .1% m/o/m led by a .5% drop in energy. Utility pricing though was up by .9% after a 2% gain in January reflecting the need for heat this winter and food prices were up by .4% following the recent move up in grain prices. Services inflation remained sticky again, rising another .2% m/o/m and 2.4% y/o/y driven by a .2% gain in OER and Rent of Primary Residence (up 2.8% y/o/y). Vehicle pricing was little changed and apparel prices fell .3% m/o/m for a 2nd straight month. Medical care prices rose by .3% for a 2nd month and are now up 2.3% y/o/y. Bottom line, the inflation stats remain benign which allows the Fed to continue to keep rates at essentially zero and gives them time to methodically continue the taper. That said, I believe the inflation figures have bottomed because we are about to add higher commodity prices (ex industrial metals) to 2%+ services inflation.

Housing Starts in February at 907k annualized were about in line with the forecast and January was revised up by 29k to 909k and compares with 1mm+ in both November and December. Both single family and multifamily starts were also little changed m/o/m as weather of course was an influence on the data. Permits showed a rebound to back above 1mm from 945k last month with all of the improvement in multifamily as single family permits fell to the lowest since January 2013 and likely squares with the recent weakness in the NAHB builder survey where weather, difficulty finding labor and lots and higher material prices were cited as negative factors. The multi family permit figure of 430k is the most since 2008 and that is where the secular improvement in the industry is occurring. Bottom line, its best to be the apartment business right now as long as the first time home buyer remains a non factor in buying a new home relative to their historical buying patterns.

Position: None

Lessons Never Learned

  • A 45-year-old letter from a legendary investor is still relevant today.

"We learn from history that we do not learn from history."

-- Georg Wilhelm Friedrich Hegel 

Back 45 years ago, a successful investment manager wrote what follows in a letter to his limited partners:

The investing environment ... has generally become more negative and frustrating as time has passed: Maybe I am merely suffering from a lack of mental flexibility. (One observer commenting on security analysts over 40 stated: "They know too many things that are no longer true.")

However, it seems to me that: (1) opportunities for investment that are open to the analyst who stresses quantitative factors have virtually disappeared, after rather steadily drying up over the past 20 years; (2) our $100 million of assets further eliminates a large portion of this seemingly barren investment world, since commitments of less than about $3 million cannot have a real impact on our overall performance, and this virtually rules out companies with less than about $100 million of common stock at market value; and (3) a swelling interest in investment performance has created an increasingly short-term-oriented and (in my opinion) more speculative market.

I feel very much like that 38-year-old investment manager, whose views arguably apply to the investment backdrop today.

That investment manager was Warren Buffett, and the paragraphs were extracted from the Buffett Partnership letter to limited partners in May 1969, in which Warren explained his decision to close his investment partnership. ("Therefore, before year-end, I intend to give all limited partners the required formal notice of my intention to retire.")

Warren went on in the letter:

Quite frankly, in spite of any factors set forth on the earlier pages, I would continue to operate the Partnership in 1970, or even 1971, if I had some really first-class ideas. Not because I want to but simply because I would so much rather end with a good year than a poor one. However, I just don't see anything available that gives any reasonable hope of delivering such a good year and I have no desire to grope around, hoping to "get lucky" with other people's money. I am not attuned to this market environment, and I don't want to spoil a decent record by trying to play a game I don't understand just so I can go out a hero.

Yesterday I highlighted my concerns with emerging sectors of market froth/speculation, and I referenced a 1997 Barron's editorial I wrote, "Kids Today." I authored that "Other Voices" contribution to Barron's when I was approximately the same age that the Oracle of Omaha was when he wrote his 1969 letter in which he said, "If I am going to participate publicly, I can't help being competitive. I know I don't want to be totally occupied with outpacing an investment rabbit all my life. The only way to slow down is to stop."

Warren closed his 1969 letter with the following paragraph:

Some of you are going to ask, "What do you plan to do?" I don't have an answer to that question. I do know that when I am 60, I should be attempting to achieve different personal goals that those which had priority at age 20. Therefore, unless I now divorce myself from the activity that has consumed virtually all of my time and energies during the first 18 years of my adult life, I am unlikely to develop activities that will be appropriate to new circumstances in subsequent years.

As we all know, Warren Buffett, it turned out, was just starting his remarkable and unparalleled investment career in 1969. As it is said, "the best was yet to come" with his stewardship of Berkshire Hathaway (BRK.A/BRK.B) in the decades ahead. (That, as news commentator Paul Harvey used to remind us on the radio, is the rest of the story.)

And to this day, as illustrated in my opening missive "'Buffett Being Buffett' Bracket Challenge," Warren has not slowed down, though he will be 84 years young this August.

In closing, Warren's 1969 words and my 1997 editorial are two reminders to us all of how markets might not repeat themselves but they certainly rhyme.

Be forewarned.

Position: Short BRK.B

From the Street of Dreams

  • Tesla's price target is raised at Goldman Sachs.

Goldman SachsraisesTesla's (TSLA) price target from $170 to $200 this morning.

Position: Short TSLA
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%