Skip to main content

DAILY DIARY

Doug Kass

Signing Off

  • Thanks to all for reading my Diary.

Enjoy your evening.

Position: None

TLT Breaks Below Support

  • The iShares 20+ Year Treasury Bond ETF (TLT) is breaking below support now.
Position: Short TLT

Today's Buys

  • GM and Baxter.

My only long purchases today were General Motors (GM) and Baxter (BAX).

I just missed adding to Bon-Ton Stores (BONT).

Position: Long GM, BAX and BONT

Kill the Quants

  • Before they kill us.

It seems to me the best way to explain high-frequency trading is that it is a business model that has nothing to do with investing or brokering but rather it has to do with professional scalping or skimming.

The high-frequency-trading community accomplishes this by having a time advantage and a knowledge of orders beyond that known by other participants in the general market.

By definition, that is wrong -- at least to me.

The very fact that a firm planning to go public has had but one day of losses in over 1,000 trading days speaks volumes that it is crooked.

So, kill the quants before they kill us.

Position: None

Holding Back on Ludicrous Forecast

  • I am enjoying the debate on high-frequency trading so much on CNBC right now.

I was just about to make a ludicrous forecast, but I am going to hold back because I am enjoying the debate on high-frequency trading so much on CNBC right now.

What is your fantasy?

Position: None

Smart Move by Sandberg?

  • Facebook COO Sheryl Sandberg has sold half her Facebook shares.

Facebook's (FB) Sheryl Sandberg derisks by selling half her shares.

Might be smart.

Position: None

Freaky Deaky

  • And I added to my SPY short.

I added to my SPDR S&P 500 ETF (SPY) short at $187.72.

Position: Short SPY

Dead-Cat Bounce?

  • But I have been wrong before.

Baxter (BAX) made a nice move off its lows, where I was lucky to buy some.

General Motors (GM) is still an underperformer, however.

My largest short is now PowerShares QQQ (QQQ), as it seems to me the high-octane stocks are having a dead-cat bounce.

But I have been wrong before.

Position: Long BAX and GM; short QQQ

Letting My Freak Flag Fly

  • Via adding to QQQ, IWM shorts.

I am letting my freak flag fly, and I am adding to my PowerShares QQQ (QQQ) short at $88.80 and to my iShares Russell 2000 ETF (IWM) short at $117.17.

Position: Short QQQ and IWM

Cashin's Comments

  • Here are his musings at midday.

Midday musings from Sir Arthur Cashin:

Nasdaq outperforms both Dow and S&P.  New money for a new month appears to be returning to old favorites recently out of favor ¿ e.g. biotechs, et. al.

Bulls try to circle wagons at the +30 to +50 range.  As noted in Comments, first day of month has history of upside bias but last four ran countertrend. April historically is best month for the bulls.

Run rate at 12:30 projects to an NYSE final of 670-750 million shares.

Position: None

The Pause in Housing Will Likely Continue

  • Consumers' income growth is simply not anywhere near the home price inflation of the last two years.

I have been warning (and so has Mark Hanson) that the cessation of buying by new-era institutional investors (hedge funds, private equity, pension plans, companies such as Altisource Residential (RESI), etc.) will have an adverse impact on housing activity this spring selling season and possibly later. As well this buying has hurt affordability by buoying home prices -- consumers' income growth is simply not anywhere near the home price inflation of the last two years.

Here is a Los Angeles Times column on the subject.

And below are some comments from Michael Krieger's Liberty Blitzkrieg blog on the same:

I've chronicled the saga of "buy-to-rent" for well over a year now. From some of its most exuberant phases to its now epic retreat (investment firm property purchases are now down 70% year-to-date).

It seems as if the pullback of private equity and hedge funds from this asset class is even more brutal in certain regions, with Blackstone now reporting its purchases in California down a staggering 90% this year.

Not to worry, I'm quite certain unemployed and deeply indebted recent college graduates will soon pick up the slack due to the anticipated resurgence of subprime lending.

From the LA Times:

This time last year, investment firms raced to buy dozens of single-family homes in neighborhoods from Fontana to South Los Angeles to lease them out, transforming the mom-and-pop rental business into a Wall Street juggernaut.

But now the firms themselves have all but stopped buying in Southern California, the latest evidence that home prices have hit a ceiling. The professional investors no longer see bargains here.

The real estate arm of Blackstone Group, the largest buyer, has cut its California purchases 90% over the last year, a spokesman said. Santa Monica company Colony Capital reports a similar retreat. Oaktree Capital of Los Angeles, meanwhile, is looking to cash out by selling its portfolio of more than 500 homes, many of them in Southern California.

But prices have since been flat in Southern California. Many families are taking a pass on the more expensive homes. And the math doesn't work on Wall Street either.

"Prices have gotten to the stage where we cannot buy a house, renovate it, rent it and still make a reasonable return," said Peter Rose, a spokesman for Blackstone, which owns roughly 41,000 rental houses nationwide. "There was a moment in time where it made sense."

On Wednesday, some of the bigger players launched a trade group, the National Rental Home Council, to advocate for their interests in Washington.

Yep, just what we need.

"People want to live here, whether they buy or rent," said Gary Beasley, chief executive of Oakland company Starwood Waypoint Residential Trust.

"Most of the low fruit has been harvested, but there's still plenty of fruit in the tree," Beasley said. "And we've got fruit pickers."

Seriously, where do they find these people...

Position: None

Recommended Reading

  • Run, don't walk, to read Jim Cramer's 'A World Turned Upside Down.'

I enjoyed Jim "El Capitan" Cramer's "A World Turned Upside Down," and so should all of you!

Position: None

Make Mine a Double

  • My Baxter position, that is.

I just doubled up on Baxter (BAX).

Position: Long BAX

Goldman Sachs Parses the Data

  • Here is the firm's take.

Goldman Sachs leaves its first-quarter 2014 real GDP tracking number unchanged at +1.5%.

Below is the firm's interpretation of today's economic releases:

ISM manufacturing 53.7 for March vs. GS 53.0, median forecast 54.0

Markit PMI (final) 55.5 for March vs. median forecast 56.0

Construction spending +0.1% for February vs. GS -0.1%, median forecast Flat

MAIN POINTS:

1. The ISM manufacturing index rose a bit less than expected to 53.7 in March (vs. consensus 54.0), from 53.2 in February. The underlying details of the report were roughly in line with the headline, with production posting a large gain (+7.7pt to 55.9), new orders rising slightly (+0.6pt to 55.1), and employment falling a bit (-1.2pt to 51.1). Inventories were unchanged at 52.5. The supplier deliveries component returned to its recent trend (dropping 4.5 to 54.0) after a jump last month indicated slower delivery times probably due to weather disruptions. Respondent commentary on the impact of weather conditions was mixed, with some comments pointing to continuing concerns and others noting the beginning of a bounce-back.

2. The final Markit PMI for March stood at 55.5 (vs. consensus 56.0). Both the headline and the composition of the final March estimate were little changed from the preliminary read. Relative to February, new orders (-1.5pt to 58.1), output (-0.3pt to 57.5), and employment (-0.1pt to 53.9) all fell a bit but remain in expansionary territory.

3. Total construction spending edged up 0.1% in February (vs. consensus Flat). Residential spending fell 0.7%, reflecting the lagged impact of weaker housing starts in recent months. Nonresidential spending rose 0.6%, led by gains in private spending on communications structures (+6.4%) and power (+4.4%). (The communications category includes spending on telecom infrastructure.) Growth in January construction spending was revised down three-tenths to -0.2%, although December was revised up five-tenths to +2.0%.

4. We left our Q1 GDP tracking estimate unchanged at 1.5%.

Position: None

Bidding for More GM

  • My price is $34.75.

I am bidding $34.75 for more General Motors (GM) now.

Position: Long GM

Boockvar Parses the Data

  • Namely, March ISM manufacturing.

From The Lindsey Group's Peter Boockvar:

The March ISM manufacturing index, coming off the weather excused average of 52.3 in the two prior months compared with the average of 56.2 in the last 6 months of 2013, was 53.7 vs the estimate of 54.0. This is not much of a rebound but the components were mixed. New orders were up by .6 of pt at 55.1 but is still 3 pts below the 6 month average. Backlogs did show strength, rising 5.5 pts to the best level since April '11 and could reflect the weather bounce back. Production also rebounded as also likely in response to a clear up in the supply chain. Employment fell 1.2 pts to 51.1, barely above 50 and the weakest since June. Inventories at the manufacturer level was unchanged but fell to a very low 42 at the customer level (a good backdrop for some refilling). Export orders rose 2 pts to 55.5 and is back to its 6 month average of 55.8. Prices Paid was down 1 pt, just off a one year high.

Of the 18 industries surveyed, 14 did show growth and the ISM said "several comments from the panel reflect favorable demand and good business conditions, with some lingering concerns about the particularly adverse weather conditions across the country."

Bottom line, some normality in the economy was reflected in the data but the headline figure is still 1 pt below its 6 month average. I'm not sure if the further push higher in the S&P's is because they liked the internals of the data or are more focused on the mediocre headline figure and weak employment component that could keep the Fed ever more dovish. Either way, watch the bond market and yields are moving higher, particularly on the long end today.

Position: None

Shorting SPY

  • At $188.05.

First time, long time: I am back shorting SPDR S&P 500 ETF (SPY) at $188.05 now.

Position: Short SPY

GM Shakes Off Latest Recall

  • A positive sign that this is being discounted.

General Motors (GM) is trading better despite the additional recall.

A positive sign that this is being discounted.

Position: Long GM

Growing Shorter

  • I am back to 10% net short now.
Position: None

How Short?

  • I am now 5% net short.
Position: None

From the Street of Dreams

  • Potash receives a downgrade at Cantor Fitzgerald.

Cantor Fitzgerald downgrades Potash (POT) from Buy to Hold.

Position: Long POT

Shorting Bonds Is a Favorite Trade

  • We will find out by year-end whether the addiction to low interest rates will have adverse withdrawal implications.

I continue to view short bonds as one of the best investment/trade positions extant.

And I continue to view a rise in yields as valuation-deflating and economically depreciating.

We will find out by year-end whether or not the addiction to low interest rates will have adverse drug withdrawal implications.

Position: Long TBF; short TLT

Added to IWM, QQQ Shorts

  • I am prepared to further press my shorts at the right time.

I start the day only modestly net short.

As I mentioned yesterday, the question is only (to me) when I add short exposure, not if I add exposure on the short side.

I have added to my iShares Russell 2000 ETF (IWM) short at $116.54 and PowerShares QQQ (QQQ) short at $87.90 in premarket trading, so I guess that answers some of the question.

Position: Short IWM and QQQ

10-Year Yield Watch

  • The yield on the 10-year U.S. note is up about 3 basis points this morning.
Position: Long TBF; short TLT

The Gospel According to Peter Boockvar

  • Here is his morning commentary.

The gospel according to Peter Boockvar:

The global economic data released today is dominated by the manufacturing sector. China said its main PMI was little changed at 50.3 in March vs 50.2 in February and 50.5 in January. The HSBC private sector focused figure fell to a 1 ½ yr low at 48. This continues a run of sluggish data that brings many to think that another round of stimulus will be released. Copper, a great China proxy, is little changed on the news remaining above $3 on the policy hopes. The manufacturing PMI in South Korea rose back above 50 at 50.4 from 49.8 last month but fell m/o/m in Taiwan, Indonesia and India. In Japan, the overall Q1 Tankan report was very mixed. The large manufacturer index rose 1 pt to 17, the best since Q4 '07 but below the estimate of 19 and the Outlook fell 6 pts to the weakest since Q1 '13. The small business index rose 3 pts but the Outlook fell by 5 pts. The services component for both large and small companies rose but also the Outlook fell. The Japanese economy is at a major inflection point as certainly Abe and the BoJ has lit a needed fire underneath it but the headwinds of higher taxes, expensive import costs, higher inflation and sluggish wage growth provide a real test in coming months that will also test the BoJ.

In Europe, the ECB faces quite a quandary on Thursday with those that love higher inflation calling for more easing but the reality is that the cost of money is not the wall holding back the region's economy. Germany certainly doesn't need lower rates and in fact they need higher ones after they reported the 4th month in a row of a decline in the number of unemployed and an unemployment rate that fell to the lowest since the East-West Germany merger in the early 1990's at 6.7%. The EU manufacturing index was kept unchanged at 53 vs 53.2 in February. Italy, Spain and France saw gains while Germany's fell. UK manufacturing eased to the lowest since July but is still elevated at 55.3. Lastly, the EU unemployment rate was 11.9% in February and the previous months were revised down to 11.9% from 12%. With these stats still pointing to a slowly improving economy for Europe, the euro is slightly higher and still remaining very sticky just below the 1.40 level.

In the US, the ISM manufacturing index is expected to be up slightly to 54 from 53.2 and also of note we see March vehicle sales where if some snow and cold kept you inside in February, the weather cleared in March. With respect to Yellen's comments yesterday which just reinforced her uber dovish status that we all know she has, the 2 yr yield is still 8 bps above the March 18th close, the day before the last FOMC meeting, the 5 yr yield is almost 20 bps above that Tuesday close and the 10 yr is 7 bps higher. Bottom line, watch the bond market for where it believes rates are going in the coming year at this point, not so much the Fed speak because it will be quite likely that the Fed will shift policy only after the market already has.

Position: None

Here We Go Again

  • I received a flyer in the mail from Merrill Lynch advertising its jumbo mortgages.

In yesterday's opening missive I mused that history may not repeat itself but it sure does rhyme.

Case in point, this flyer I received in a mail from Merrill Lynch Wealth Management, an advertisement for jumbo mortgages from Merrill Lynch Home Loans.

Not to worry, though, as I am sure the underwriting diligence has improved. 

Position: None

Bad News Is Good News in Japan

  • Weak economic data are a plus because they will push Bank of Japan to ease more aggressively.

I continue to bring up important macroeconomic developments (and their interpretation) because there will come a point -- I guarantee you all -- at which natural price discovery in both bonds and stocks will replace the liquidity-driven market that has ignored fundamentals.

The Tankan large company manufacturing survey rose from 16 to 17, its highest level since 2008, but came in short of expectations of 19. The large firm non-manufacturing index rose to 24 from 20, in line with expectations. The outlook indices came in much weaker than prior and consensus for both manufacturing and non-manufacturing for large firms, while the outlook from small firms was both weaker than expected and in negative territory for both manufacturing and non-manufacturing. The employment index showed more companies noting current level of employment as being "insufficient" since December, which should be viewed favorably by Japanese government in stimulating eventual wage gains.

This report was the last one we'll see before the consumption tax increase goes into effect today. The weakness in the outlook survey was largely expected with the big question being if the numbers would be weak enough to warrant a "bad news is good news" response from the market as the Bank of Japan would be compelled to act prior to getting post-tax-hike data. The market isn't having too big of a reaction to the data right now (relative to the volatility we've seen), as the Nikkei is currently down by about -0.25% while Japanese yen is down only a small amount (vs. the U.S. dollar).

One of the more important data points from this survey won't be released until today, which is the new "inflation outlook for enterprises" survey. It is the only survey that captures corporate long-term inflation expectations in a quantitative manner and thus will likely be an important gauge for the Abe government and for the Bank of Japan

Bottom line is that the lack of a large Nikkei/Topix/yen response to the disappointing Tankan data leads one to the conclusion that weak economic data are a plus because they will push Bank of Japan to ease more aggressively.

For much of 2012-2013, bad economic news was good market news in the U.S; it is now the case in Japan -- at least for now.

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-32.45%
Doug KassOXY12/6/23-14.21%
Doug KassCVX12/6/23+11.69%
Doug KassXOM12/6/23+14.41%
Doug KassMSOS11/1/23-22.80%
Doug KassJOE9/19/23-13.32%
Doug KassOXY9/19/23-25.70%
Doug KassELAN3/22/23+30.32%
Doug KassVTV10/20/20+66.37%
Doug KassVBR10/20/20+79.06%