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DAILY DIARY

Doug Kass

KING of the Lowlands

  • At the day's lows.

"One more thing."

-- Lt. Columbo

The King Digital Entertainment (KING) IPO, the object of my disaffection all week, is now at day's lows ($17.70).

Position: None

Early Exit

  • Thanks for reading my diary this week and enjoy your weekend.

I am outta here early today, unlike Baby Ava Kass who remains a bit late to life's party.

Thanks so much for reading my diary today and all week, I hope that my contributions and all the columns from all the contributors were value-added.

Enjoy your weekend and God bless Uncle Vinnie.

Position: None

Loading Up on Baxter Long

  • At $72.50.

I am backing up the truck in Baxter (BAX) at $72.50 now.

Position: Long BAX

Short Again

  • I am back slightly net short into today's rally.
Position: None

Exposed!

  • I feel naked not being short Tesla (TSLA)!
Position: None

What's Up, Doc?

  • I have a routine medical appointment. Back in an hour or so.
Position: None

Cashin's Comments

  • Here are his musings at midday.

Midday market musings from Sir Arthur Cashin:

As noted earlier, the shelf life of the post-opening spike indicates it is not likely a pit short squeeze.  Lasting through midday, suggests a hefty part may be new money at work.  Might be part of a month-end shuffle or related to new fiscal year in Japan.

Run rate at 12:15 projects to NYSE final volume of 645/715 million shares.

Position: None

10-Year Yield Watch

  • It has increased by 5 basis points.

Solid 5-basis-point increase in the U.S. 10-year note yield today, erasing a lot of the yield drops earlier in the week.

A good thing for bond shorts.

Position: Long TBF; short TLT

Recommended Viewing (Part Deux)

  • Run, don't walk, to watch this interview with Monitise CEO Alastair Lukies.

Here is an interview with Monitise (MONI.L/MONIF) CEO Alastair Lukies.

Position: Long MONI.L and MONIF

Big Bond Short

  • Now in the double digits.

I have a large 10%-plus weighting in my short bond theme now.

Position: Long TBF; short TLT

Boockvar Reviews the Week

  • Here is his summary.

Below is Peter Boockvar's excellent summary of the important macroeconomic events of the past week:

Positives

1)The PCE inflation deflator in February remained benign at up .1% m/o/m both headline and core and .9% and 1.1% y/o/y respectively. Not captured yet was the 7% increase in the CRB index in the month and Miguel Cabrera's new baseball contract with the Tigers where wage inflation is slowly beginning to show its head in some industries EX sports. The Savings Rate ticked up to 4.3% from 4.2% with both income and spending up .3% m/o/m, in line with expectations. Durable goods spending however fell and services were lifted by Obamacare spend.

2)Initial Jobless Claims totaled 311k, 12k less than expected, down from 321k last week and the lowest print since November. This brings the 4 week average to 318k from 327k last week and that is the best since September. Continuing claims dropped to the lowest since December.

3)After falling to 53.3 in February from 56.7 in January, the markit.com services index which claims a high correlation to the ISM index, rose to 55.5 in March. The components however were mixed with no weather to blame. "Service sector activity rebounded in March after a weather torn February, but the survey is clearly flashing some warning lights as to whether the economy has lost some underlying momentum and that growth could slow in the second quarter. Even with the rebound, the two PMI surveys (including manufacturing) are merely consistent with annualized GDP growth of approximately 2.5% in Q1," according to their chief economist.

4)Notwithstanding another rise in mortgage rates, purchase applications rose 2.8%, continuing to rebound after hitting its lowest level since 1995 in February.

5)Q4 GDP (thus old news) was revised to 2.6% from 2.4% but a touch below the estimate of 2.7%. Personal Consumption was revised up well more than expected to 3.3% growth from 2.6% but that just puts it back in line with the first release on Q4. A downward revision to Gross Private Investment led by CRE and intellectual property offset the upward revision to spending. Real final sales ended the quarter up 2.7%, the best since Q1 '12.

6)US Consumer Confidence in March, as measured by the Conference Board, rose to 82.3 from 78.3 and was 5 pts above expectations. It's the best level since January '08 but was driven solely by the Expectations component which rose 7 pts. The Present Situation fell by .6 of pt. Labor market answers softened a touch.

7)Economic confidence in the Euro region in March rose to 102.4 from 101.2, 1 pt above the estimate and is at the best level since July '11. The ECB though likely more focused on the y/o/y decline in Spanish CPI in February ahead of next week's meeting.

8)The manufacturing and services composite for the EU was little changed at 53.2 in March, just off the 53.3 in February which was the best since June '11. The internals though were mixed as France saw its combined index rising back above 50 to the best level since August '11 (measuring direction, not degree) while Germany's figures moderated but remained above 50.

9)German consumer confidence held at the best level since January '07, Italian consumer confidence rose to the highest level since June '11 and French confidence rose 3 pts to the most since July '12.

10)CPI in the UK moderated to 1.7% y/o/y as expected from 1.9% in January. It's the lowest since October '09 and is finally get closer to the y/o/y wage gains that the average worker is earning in the UK.

11)Positive for the BoJ but not so much for the average wage earner/saver, Japan's CPI in February rose 1.5% y/o/y, just shy of the highest since October '08 with a rate ex food up 1.3% and up .8% ex food and energy. This core/core rate (Japan's core just takes out food) is the fastest since April '98.

12)Wage gains hopefully on the cusp of increasing in Japan as the jobs to applicant ratio rose to 1.05 from 1.04 in February, the highest level since August '07 and their unemployment rate ticked down to 3.6% from 3.7%, matching the lowest since 1998.

13)Chinese officials gave permission for companies to issue preferred stock so as to add diversification and another funding source to their capital structure.

Negatives

1)Pending Home Sales in February unexpectedly fell .8% m/o/m vs the estimate of up .2% and it comes off a slightly lower than original base as January was revised to down .2% vs up .1%. The index is at the lowest level since October '11 and down for the 8th straight month. Weather likely only altered the timing of a contract signing as sales fell in the Northeast but rose in the Midwest. Sales were up in the West but down in the South.

2)New home sales in February totaled 440k, 4k less than expected and January was revised down by 13k. To smooth out the winter, the average over the last 6 months is 440k. We can blame the weather only partly as sales fell in the Northeast and slightly in the South but rose in the Midwest and fell in the West to the lowest since October. Overall months' supply rose to 5.2 from 5.0 and the median home price fell 1.2% y/o/y, the first decline since June '12.

3)A 9 week high in the average 30 yr mortgage rate at 4.56% sent refi applications down by 7.7% to the lowest since early January. Not including the holiday influenced late December/early January numbers, it's the weakest since June '09.

4)Headline durable goods orders were up 2.2% m/o/m, almost 3 times as much as the expectations of up .8% but the beat was due to aircraft orders and vehicles/parts. Ex transportation orders were up just .2% vs the estimate of up .3% and the core rate of investment fell 1.3% m/o/m after a downward revision to January to just .8% growth vs the initial read of up 1.7%. The estimate for core cap ex was up .5%.

5)Following a modest increase in the NY manufacturing survey and a more pronounced improvement in Philly, the Richmond region remained negative at -7 in March vs -6 in February.

6)The markit.com measure of US manufacturing in March fell to 55.5 from 57.1 and below the estimate of 56.5. It was though the 2nd best read since January 2013 and markit.com said "reports from survey respondents cited improving economic fundamentals and, to a lesser degree, an on-going catch up effect following weather disruptions earlier in the year."

7)The final March UoM consumer confidence index fell to 80 from 81.6 in February and it's the lowest since November. It's little changed however with the preliminary read of 79.9 but is slightly below the estimate of 80.5. The decline m/o/m was all in the Outlook as Current Conditions rose slightly. One year inflation expectations held at 3.2%, the most since September likely reflecting gasoline prices last seen in September and high winter heating bills.

8)ECB said bank lending fell 2.2% y/o/y in February after a 2.3% drop in January. Also, M3 money supply (their broadest measure) rose 1.3% in February, in line and little changed with last month but with a growth rate still hovering around the lowest levels since 2011.

9)There was a slight moderation in the confidence of German business as the March IFO number fell to 110.7 from 111.3 and a touch below the estimate of 110.9. Current Conditions though did rise to the best level since April '12 but the Outlook was down by 2 pts to a 5 month low likely in response to Russian concerns, the slowdown in China and the strong euro. French business confidence rose by 1 pt but remains in the 2 pt range its been in since September.

10)HSBC preliminary China manufacturing PMI fell to an 8 month low at 48.1 from 48.5 and below the estimate of 48.7. In the press release, HSBC said "weakness is broadly based with domestic demand softening further.

Position: None

Grant on CNBC

  • With Santelli.

Sir Mark Grant will appear with my buddy/pal/friend Rick Santelli on "The Santelli Exchange" now.

Position: None

Goldman on University of Michigan Sentiment Survey

  • Here is the firm's take.

Goldman Sachs on consumer sentiment:

U Mich consumer sentiment was roughly unchanged at 80.0 in the March final print (vs. consensus 80.5), from 79.9 in the preliminary print. According to the release, the March final reading represented an "insignificant" decline from the prior two months. Consumers' assessment of current conditions worsened slightly (-0.4pt to 95.7) while expectations for the future improved slightly (+0.6pt to 70.0). 1-year and 5- to 10-year median inflation expectations were unchanged at 3.2% and 2.9%, respectively, well within the ranges seen in recent years.

Position: None

Bought More Baxter

  • All the way down to $72.85.

I added to Baxter (BAX) all the way down to $72.85.

Not sure why the shares sold off.

Position: Long BAX

Portfolio Moves

  • Here's a glimpse.

I have only two stock shorts left, Starbucks (SBUX) and Berkshire Hathaway (BRK.B). I also have a small position in Direxion Daily Small Cap Bear 3X Shares (TZA).

Today I have added to my ProShares Short 20+ Year Treasury (TBF) long and initiated a Baxter (BAX) buy.

Position: Long TZA, TBF and BAX; short SBUX and BRK.B

Hats Off to Larry

  • Kudlow, that is. 

Hats off to Larry

It may sound cruel

But you laughed at me when you

Said we were through.

You told me lies, now it's

Your turn to CRY CRY CRY-Y

Now that Larry said goodbye to you.

-- Del Shannon, "Hats Off to Larry"

Last night, Jim "El Capitan" Cramer said goodbye to his sidekick Larry Kudlow. Here is the tape of the heartfelt sendoff by Jimmy.

Tonite, on the last "Kudlow Report," we will all say goodbye to my pal/buddy/friend, Sir Larry Kudlow.

In both an "An Open Letter to Sir Larry Kudlow" LINK and in "CNBC and Me," I fully expressed my personal and professional views of Larry.

Need I say/write more?

But perhaps there is one more thing to say as Larry concludes his multiyear skein as the host of "The Kudlow Report."

It seems appropriate to quote Del Shannon:

Hats off to Larry

He broke your heart

Just like you broke mine when you

Said we must part.

He told you lies, now it's

Your turn to CRY CRY CRY-Y

Now that Larry said goodbye to you.

Position: None

Parsing the Data

  • Inflation, etc.

Inflation in February as measured by the PCE deflator, the Fed's preferred gauge more so than CPI, rose +0.1% month over month both headline and core and +0.9% and +1.1% year over year headline and core, respectively. The near-7% increase in the CRB index in February was not at all captured in this figure, as it will take some time to work its way through (mostly food). Also, housing is a much smaller contribution to PCE than CPI and therefore doesn't fully reflect the near-3% gains in rents. PCE has a higher medical care component, which has recently been more benign of late.

The Fed doves will worry about disinflation; the hawks will know it's backward-looking. The labor market as measured by the unemployment rate is tighter than thought, and rates shouldn't be at zero anyway at this stage of the cycle, let alone still conducting QE.

Income and spending both rose +0.3% month over month nominally and +0.2% real, and the savings rate rose to 4.3% from 4.2%. Income growth is a key factor in whether the U.S. economy will accelerate from here, and it's up 3.1% year over year vs. 4.1% in January and compares to the 20-year average of 4.7% growth.

With respect to spending, part of the increase, according to the BEA is related to health care services demanded by Obamacare, where spending was up by $13 billion in February following $20 billion in January. Spending on durable goods fell for a third straight month.

Bottom line: Nothing in this data is market moving today, and bonds didn't budge on the benign inflation data, as it doesn't alter for now the future path that the Fed is expected to take on its exit.

Position: None

Baxter a Best Idea

  • I bought shares at the open.

I paid the opening $73.25 for Baxter (BAX).

The shares go on my Best Ideas list.

Position: Long BAX

Recommended Viewing

  • Run, don't walk, to see Chicago Fed head Charles Evans on Bloomberg TV.

Here is a good interview with Chicago Fed head Charles Evans with Bloomberg Television that warants a watch.

In this interview he says, "I do tend to think inflation's going to pick up and that will be the reason why we ultimately raise rates.... My own take is it's most likely to be in the second half of 2015. If I had my druthers, I'd wait a little bit longer than that."

His other notable points from the interview:

  • Rates to rise 'at least six months' after QE.
  • Rate increase to depend on inflation pickup.
  • Sees zero interest rate ' well into' next year.
  • Inflation too low in U.S., most of the world.
  • Monetary policy not best tool against financial risk.
  • U.S. economy not 'out of woods yet,' risk remains.
Position: None

Buying Baxter

  • I'm picking up shares today after the spin-off announcement.

In an attempt to boost innovation, raise profitability and reward shareholders, Baxter (BAX) has announced that the company is separating into two parts -- one for developing and marketing biopharmaceuticals, and one for medical products. Additional benefits include a greater management focus on the separate franchises, as well as the ability to more effectively commercialize new and existing offerings and the flexibility to pursue respective growth.

The split will come in the form of a tax-free distribution -- of new publicly traded stock in the biopharmaceuticals company -- to Baxter shareholders. The transaction is expected to be completed by midyear 2015.

The share price of Baxter initially climbed to about $76, and it has since traded down a few dollars.

The case for Baxter is straightforward, and it is as follows.

• Value is unlocked as the new biopharma company is valued more closely with its peers.

• The key catalysts for improving the outlook for Baxter's BioScience business are set to come in the third quarter of this year: the data release of BAX 855; an Eloctate launch that may be more gradual than expected; and U.S. approval and launch of HyQvia

Using reasonable metrics -- a price-to-earnings multiple of 16x for medical products and 18x for the new biopharmaceuticals spin-out -- a sum-of-the-parts valuation yields a 12-month share-price objective of $90, or more than 20% above Thursday's closing price.

Baxter is going on my Best Ideas List, and I plan to buy stock today.

I will have more on my Baxter analysis next week.

Position: None

The Gospel According to Peter Boockvar

  • An overview of the day's key economic figures.

In Europe, Economic confidence in the region in March rose to 102.4 from 101.2, 1 pt above the estimate and is at the best level since July '11 reflecting another step closer to recovering from the peripheral credit crisis. This figure peaked at 108.8 in February '11 in the post '08 recession rebound. This improvement in March is in spite of Putin, China and the strong euro and is helping European stocks today. We'll see next week what this means for the ECB [European Central Bank] as Spain today said CPI [consumer price index] fell 0.2% y/o/y, the first decline since '09 and CPI in a few German regions moderated m/o/m. This is also helping stocks and European bonds on hopes for more from the ECB. Deflation is every central banker's worst fear as it hurts the highly indebted but it is good for the saver and wage earner who sees a lower cost of living and many consumers in Europe don't need higher inflation right now. Still also an economic issue is France where consumer spending in February was weak, falling for a 2nd month y/o/y.

Ahead of the April 1st consumption tax increase, Japan's CPI in February rose 1.5% y/o/y, just shy of the highest since October '08 with a rate ex food up 1.3% and up .8% ex food and energy. This core/core rate (Japan's core just takes out food) is the fastest since April '98 so the BoJ [Bank of Japan] is getting what it wants in terms of inflation but not yet in terms of wage growth to offset this. Hopefully that soon changes as the labor market did show signs of further improvement in February as the jobs to applicant ratio rose to 1.05 from 1.04, the highest level since August '07 and their unemployment rate ticked down to 3.6% from 3.7%, matching the lowest since 1998. Until wage gains start to gain traction however, real overall household spending fell 2.5% y/o/y in February, well below the estimate of up .1%. All the data came out pre market and the Nikkei finished up .5% as Japan's Finance Minister said they will spend 40% of a new government spending program by June to offset the tax hike. The BoJ will also likely follow with more QE [quantitative easing].

Copper prices are jumping back above $3 and the Hong Kong China index was up about 1% after the Chinese Premier said they can't ignore "difficulties and risk" with their economy and that they have policies ready to be used to deal with any economic shortfalls. The A shares traded in Shanghai however traded lower.

In the U.S. today and with eyes focused on [Fed chief Janet] Yellen, February PCE [personal consumption expenditures] inflation is reported alongside income and spending. I think the benign estimate of about 1% y/o/y is backward looking in light of the recent strength in commodity prices and more tightness in the labor market than thought reflected by the continued drop in the unemployment rate. Also out is the final March UoM [University of Michigan] confidence read.

Position: None

The Record Shows I Took the Blows

  • And I did it my way.

"Regrets, I've had a few

But then again, too few to mention

I did what I had to do

And saw it through without exemption

I planned each charted course

Each careful step along the byway

And more, much more than this

I did it my way...

Yes, there were times, I'm sure you knew

When I bit off more than I could chew

But through it all, when there was doubt

I ate it up and spit it out

i faced it all and I stood tall

And did it my way."

-- Frank Sinatra, My Way

I have long written that a high batting average is not what's necessary for delivering superior investment returns. 

Letting one's profits run on good investments, and playing defense by stopping out losses, are the principal ingredients to good portfolio management and strategy.

But it is not uncommon for a trend to be so strong as to necessitate market moves -- either short covers or long sales -- that one looks back on and says, "What in the world did I do?"

Such has been the effect of the great Bull Market over the last five years.

The strength of the Bull has "forced" me -- for risk-management purposes -- to cover many shorts for small losses before they become large losses.

As it is written in the investment bible, discipline often trumps conviction.

Recent short covers on which I will ultimately look back in disbelief -- and wish I had never covered -- likely will include covers in MetLife (MET), Lincoln National (LNC), Prudential (PRU), Nationstar Mortgage (NSM), Danaher (DHR), iShares Russell 2000 Index (IWM), PowerShares QQQ (QQQ), Keurig Green Mountain (GMCR), Yahoo! (YHOO), Sears Holding (SHLD), Herbalife (HLF), Amazon (AMZN) and, of course, Tesla (TSLA) (I recently covered my last shares of Tesla at $212).  

Recent long sales -- of inverse ETFs -- on which I will ultimately look back in disbelief and I wish I had never sold likely include ProShares UltraShort Russell2000 (TWM) and Direxion Daily Small Cap Bear 3X Shares (TZA) -- though I still own a modest position.

"I've loved, I've laughed and cried

I've had my fill, my share of losing

And now, as tears subside

I find it all so amusing to think I did all that

And may I say, not in a shy way

Oh, no, oh, no, not me, I did it my way."

Position: Long TZA
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%