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DAILY DIARY

Doug Kass

Apple Downgraded

  • "One more thing," (Part Deux) -- Lt. Columbo

After the close Deutsche Bank downgrades Apple to Neutral. In after-hours trading the shares have lost their day's gains.

Position: Short AAPL

Buy to Close

  • "One more thing," -- Lt. Columbo

At  3:45 p.m. there is $375 million to buy on the close.

No biggie.

Nite.

Position: None

Heading for the Holiday

  • Thank you for reading.

I plan to be out of my SPY and QQQ shorts at day's end, as I wont be in the office or writing tomorrow.

Thanks so much for reading my Diary today, I hope it added value.

Enjoy the evening and the weekend.

And God Bless Uncle Vinnie.

Position: None

For Appleheads

  • Kind of close to stalking (ed).

Here is a site that provides the amount of new iPhone 6 inventory at stores around the country.

Position: None

Tell Me Something I Don't Know

  • Yeah, occasionally .... ;) (ed). 

Occasionally, I publish a column that replicates the theme of "The Chris Matthews Show" segment, "Tell Me Something I Don't Know."

So, Dougie, tell me something I don't know!

Here you go: Argentina's Merval stock index is down about 7% today after taking an 8% tumblebeating Wednesday.

Position: None

Today's Trades and Bids/Offerings (Short)

  • Trades and bids.

This was a very, very, busy day.

I took a long rental in SPY and QQQ, closing out the position for a gain.

I then, in the afternoon, reshorted (small) SPY and QQQ after a 20+ handle rally in the S&P futures. (I am going out short SPY and QQQ.)

I added to Bon-Ton (BONT) at $8.27, Monitise (MONIF) at $46.90, Yahoo! (YHOO) at $40.05 and Oaktree (OAK) at $50.00 (longs).

I covered the following shorts: Caterpillar (CAT) at $96.45, GM (GM) at $32.84 and Ford (F) at $14.51.

I added to all fourteen closed-end municipal bond fund longs.

Position: Long MONIF, BONT, OAK YHOO VPV, VGM, VCV, NQU, NQS, NPM, NPI, NMO, NMA, NAD, ETX, BTT and BKN. Short: SPY QQQ

More Shorts

  • Getting to Bermuda length (ed).

Adding to my SPY and QQQ shorts at $194.6 and $97.38.

Position: Short SPY, QQQ

Demonstrating Flexibility

  • Trading the hell out of the market.

After the outsized 20+ handles rally in the S&P futures from the lows of the day, I have taken small shorts back in SPY $194.30 and QQQ at $94.23, respectively.

Staying opportunistic and trading the hell out of the market.

Not for everyone.

Position: Short SPY, QQQ

Spyder Rally

  • Wealth and fame, He's ignored, Action is his reward (ed).

The Spyders have rallied 20 handles from the day's lows!

As I have continually written, this is a trading sardine market, not an eating sardine market. 

Trade opportunistically.

For now....

Take short-term leases and date stocks, but don't fall in love and make long term leases. 

Position: None

Out of Long Rentals

  • Somebody get a sponge (ed).

I am out of all my long rentals and I am very liquid now.

Position: None

Housekeeping Item Part Six

  • I swear the foundation was fine when I purchased it (ed).

I sold one third of my SPY rental at $193.60 for a small gain.

Position: Long SPY

Housekeeping Item Part Cinq

  • Possible mold right at escrow (ed).

I covered the balance of my QQQ short at $96.91 for a good short-term gain in only a few hours.

Position: None

Why Long, Why Short

  • The market will come to its senses (we won't (ed)).

Why I am taking some long rentals and covering some shorts today.

It is my view that the main reason the market has dropped today was the interpretation of Draghi's comments that he is less dovish.

The reason I have taken some long rentals and covered several shorts is that it is also my view that the reaction to his remarks are wrong-footed and not necessarily justified by his statement's "fine tuning."

Draghi didn't specify a target for the ECB's balance sheet. What he did say is that he is trying to "steer" the balance sheel to early 2012 levels.

Draghi still has, as an ojbective, to stimulate bank lending, raise economic growth prospects and bolster inflation and inflationary expectations.

The difference and reaction to "targeting" and "steering" seems to be overdone in global markets.

The markets face numerous challenges, like my dozen peaks, but I believe the market will soon come to its senses with regard to Draghi's statements. They were not materially different than his  previouss remarks.

Position: None

Cashin's Midday Musings

  • Midday Market Musings from Sir Arthur Cashin.

Stocks try to circle the wagons after Europe closes very badly.  Also, the relatively successful test of the S&P 1928 (150 DMA).  The low was 1926.

Twitterverse alive with geo-political rumors from North Korea to Baghdad but none seems to take hold in market.

Morning selling brought volume but things slow as Europe closes, hinting some U.S. selling was European based.  Run rate at 12:15 projects to an NYSE final volume of 790/870 million shares.

Position: None

Housekeeping Item Part Quatre

  • OK, maybe we'll have to fumigate (ed).

I sold half of my QQQ at $96.50.

Letting the rest ride.

Position: Long QQQ

Housekeeping Item Part Trois

  • OK, this house is clean, sorta (ed).

Houskeeping item.

I am covering my Caterpillar (CAT) at $96.50 short for a substantial gain of nearly $14 a share. 

Position: None

Also out of QID

  • I am also taking off the ProShares UltraShort QQQ (QID) of Best Ideas list (at last sale).
Position: None

Housekeeping Item Part Deux

  • White glove test (ed).

I am covering my GM (GM) and Ford (F) shorts for a gain.

I am still a believer in Peak Autos and I suspect I will get a better chance to reshort the autos in a rally.

Position: None

Housekeeping Item

  • Where's the vacuum? (ed).

I am taking the QQQ short off of my Best Ideas list ($96.10).

Position: None

Going Long QQQ

  • Kinda small (ed).

I took a small QQQ long rental at $96.11 just now.

My average price on my SPY long rental is $193.40 now.

Position: Long SPY, QQQ

Adding Long

  • I am adding to Yahoo! (YHOO) and Oaktree (OAK) now.
Position: Long YHOO, OAK

Adding to My Muni Positions

  • Across the board in ... you know the drill (ed).

I am adding across the board to my closed-end municipal bond funds today.

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

SPYeinfeld

  • Yadda, yadda, yadda (ed).

I added to my SPY rental at $193.35 just now.

Position: Long SPY

Long Rental in the SPY

  • The market is near-term oversold.

I have taken a long rental in SPDR S&P 500 (SPY) -- at an average cost of about $194.25.

Position: Long SPY

Good Stats on the Russell

  • From Nautilus Research.

Here are some good statistics from Nautilus Research as a follow-up to my article on the Russell 2000 Index.

Half Way to Bear Market:

  • Russell 2000 declines 10% from multiyear high
  • First days of October down > 1%

Small-Caps Decline 10% From Multiyear Highs

Source: Nautilus Research

View Chart »View in New Window »

    Position: None

    The Seven Deadly Sins

    • Bedazzled (Original) is a great movie.

    This morning I was reminded by a pal and mentor of mine of the sin of hubris and the importance of humility. 

    Last week, Barron's Gene Epstein asked me to produce a list of my sins, the sins of policy makers, the sins of investors and the sins of forecasters intended to be used in his annual Atonement Column, the week before the Jewish holiday of Yom Kippur (which occurs this weekend).

    What follows is what I forwarded to Gene.

    The Seven deadly sins have been used since early Christian times to educate and instruct Christians concerning fallen humanity's tendency to sin.

    Wrath, greed, sloth, pride, lust, envy and gluttony.

    In the markets (and in investing), in our economic forecasts and in public policy (in particular!) we have our own set of sins. I have come up with those seven deadly sins ¿ some venial, some mortal!

    Here they are :

    Sins of Policy Makers ¿

    (Sin #1)    The failure of our public servants to cooperate for the greater good. This placed almost all the burden on our monetary authorities who simply don't have all the tools to catalyze a balanced, self sustaining and inclusive economic prosperity.   Rather, QE and ZIRP have produced an "exclusive prosperity" that has benefited  the rich and that has disadvantaged the savings class.   Both Democrats and Republicans have failed to introduce legislation that would accelerate domestic economic growth ¿ in doing so they have abandoned the middle class.  They have failed to promote legislation that would accelerate our energy independence. Finally, dysfunction in Washington DC has limited fiscal reform ¿ entitlement and tax reform have been ignored.

    (Sin #2)     In Europe the ECB has moved far too slowly in easing policy.  The sin of Germany, in particular, has been to press for fiscal austerity as oppossed to fiscal stimulus. This  has derailed regional economic growth and could hasten the arrival of deflation.

    (Sin #3)    Global policy makers have contributed in leaving us with an over indebted world growing below trend. The weight of all the private and public sector debt created over the past five years will divert capital from growth in the future to service that debt. We are on unsustainable course in an increasingly fragile global financial system.

    Sins of Investors ¿

    (Sin #4)  The failure to remember the adverse consequences of leverage. This is evidenced today in the proliferation of subprime automobile lending, a rising volume of student loans,  with the renewed popularity of covenant lite debt issuance and in near record margin debt. 

    Sins of Forecasters ¿

    (Sin #5)   The consensus view at the beginning of the year was that bonds should be short (interest rates would rise), long the Nikkei and short emerging equity markets. None of these forecasts were accurate and none of these trades were successful.

    My Sins ¿

    (Sin #6)   Like some, I expected corporate profit margins to begin to mean revert this year.   This has not yet occurred. 

    (Sin #7)   I expected that the sharp rise in valuations (in 2013 the S&P Index was +31% even though repoted EPS was only +7%) would be reversed in 2014. I underestimated the role of liquidity and the "animal spirits" on the demand for stocks, corporate buy backs and m&a activity. This too has been... sinful.

    Position: None

    Prying Into the Lagging Russell

    • What does this mounting underperformance mean for the rest of the market?

    "We never worry about the big things, just the small things."

    -- Travis Barker

    Harmony makes small things grow, whereas lack of it makes great things decay. So it is with stocks, as it is in life.

    Stephanie "Hyper" Link, co-portfolio manager of Action Alerts PLUS, has asked me to address the growing disparity between the small-cap Russell 2000 Index -- and its steep correction from the July highs -- vs. the less extreme dip in the large-cap S&P 500 and Nasdaq indices. Specifically, does the Russell's bear-market move augur for a catch-up in the other indices, or is there no message of consequence?

    Unfortunately a confident and certain answer to Steph's question is impossible, but we can make a judgment, give an assessment of the influence of this trend, and offer ideas as to other possible (fundamental) influences.

    To begin with, the narrowing market leadership -- as manifested in a contraction in the number of stocks at new highs, and eroding breadth, and the Russell's leading downturn -- have been themes of mine since the beginning of August. We can also add the schmeissing of the high-yield market (which typically presages broader equity weakness), and the increased role of momentum-based pricing strategies, to my principal technical reasons to be cautious on the markets in the last half of 2014. 

    Research boutique GaveKal Capital recently added to the narrowing market argument by pointing out that, as of a week ago, the MSCI World Index was up about 2.5%. The top 100 contributors have contributed 4% of gains to that total, while the bottom 1,515 contributors have pulled it down by 1.4%. Moreover, only 54% of stocks have even advanced this year. That is the lowest number since 2011, a year when the stock market was off by nearly 20% at its trough. These data points are a mirror image of observations in years of strong market advances (2009, 2010, 2012, 2013), and they suggest a significant amount of weakness under the surface of headline index prices.

    Furthermore, a narrowing in all the markets is vividly expressed in the following chart -- which, as I've previously pointed out, led to a difficult market in September and should continue to do so in October:

    Back to the Weakening Russell 2000

    The small-cap Russell index has meaningfully underperformed the indices of larger stocks, and has returned to its year-ago levels. The index is now down 10% from its July highs, and has declined more than 6% year to date. All other major equity indices are down from the Russell's July peak, and they broke various key technical levels on Wednesday: The S&P, the Dow Jones Industrial Average and the Dow Jones Transportation Average are all below their respective 100-day moving averages, while the Nasdaq has broken well below its 50-day moving average.

    This spread in small-cap underperformance is unusual but not unique. Consistent with the message of narrow breadth, the average stock in the S&P is more than 7% off its high.

    In other words, all of the above has made for a difficult stock picking environment, and will likely persist in doing so.

    Investors should be concerned about the narrowing breadth in the market, and in the underperformance of the Russell 2000, as negative divergences of this sort are never healthy indicators for the market. 

    On the other hand, there are some factors that might explain the divergence in performances between large- and small-caps:

    • The large outperformance of small-caps last year started with an extended valuation of the Russell vis-à-vis the large-cap S&P Index.

    • Components of the Russell have experienced downward revisions in their earnings-per-share estimates this year, on average, as opposed to the net upward revision seen for S&P components.

    • The 2014 end of quantitative easting by the Federal Reserve, and the likely Fed tightening in 2015, stand to impact small firms more than it will large firms.

    Bottom Line

    "Notice the small things. The rewards are inversely proportional."

    -- Liz Vassey 

    To me the message of the Russell Index, and of other emerging technical divergences, is that we are in a narrowing and more challenging stock pickers' market.

    Two months ago the emergence of the Russell's underperformance was a warning signpost for investors and traders. 

    Looking forward, at best this will act as a headwind for the S&P and Nasdaq indices. Also, unlike what happened with last year's large gains in valuations and price-to-earnings multiples, a market advance in 2014 and 2015 will have likely been limited to the pace of improvement in overall corporate profit levels.

    While the divergences are important, and while they have already contributed to the drop in the overall market, recently there has been no way to predict the Russell's influence on the course of the broader market.

    Technicals give us messages and signals -- though, as I wrote, we should have already been concerned months ago. But, to me, fundamentals dictate the more significant and enduring trends.

    So, for the next few months, markets will likely be more dependent on the data than they will on the technical divergences we have already observed.

    The fundamental issues that could contribute to forward market stability include the following:

    • The European Central Bank (ECB) must move to thwart a loss in economic momentum in Europe.

    • The Fed can't get more hawkish than what the so-called "dot plot" already suggests.

    • The U.S. jobs market needs to be in a range of acceptable growth, and wages must begin to improve.

    • Real gross domestic product (GDP) growth in the U.S. must be maintained above 2.5%.

    • The fractured high-yield market will stabilize.

    • Any interest-rate rise on U.S. Treasuries should be contained.

    • Evidence of China's economic stability must surface.

    • The U.S. earnings season must be in line with or slightly better than the consensus analyst estimate.

    Position: None

    12 New Peaks to Consider

    • A full dozen.
    1. Peak Autos
    2. Peak Housing
    3. Peak Hiring
    4. Peak Stock Market
    5. Peak Quantitative Easing
    6. Peak Complacency
    7. Peak Margin Debt
    8. Peak High Yield Issuance
    9. Peak Mergers and Acquisitions
    10. Peak Share Buybacks
    11. Peak Initial Public Offerings
    12. Peak Profit Margin
    Position: None

    Peak Auto

    • Viewing El Capitan

    On CNBC Jim "El Capitan" Cramer wonders whether the "Peak Auto" view stands up to Warren Buffett's purchase of a large chain of auto dealers today.

    To me, the Oracle is a "forever guy" and is not making this purchase based on an outlook of the next five years for the car industry -- but the seller might be!

    Position: None

    GoPro OhNo?

    • Trouble

    This news should pressure GoPro's (GPRO) shares today.

    Unfortunately, I sold out my GPRO puts yesterday, as posted.

    Position: None

    Boockvar Weighs In

    • The Gospel According to Peter Boockvar.

    Initial Jobless Claims fell to 287k from 295k last week (revised from 293k) which was below the estimate of 297k. This brings the 4 week average to 295k from 299k, the 2nd lowest level since 2006. Continuing Claims fell by 45k to also the lowest level since 2006. Bottom line, the pace of firing's continues to settle in at the lowest levels seen in the two previous expansions in the late 1990's and mid 2000's. Tomorrow we'll get a measure of the pace of hiring's which will likely be above 200k with a 6.1% unemployment rate which will reflect a labor market that is not seeing the supply that the Fed thinks exists while the demand for labor remains good, not great. To repeat a key line in yesterday's ISM report, companies were "noting some labor shortages."

    Mario Draghi said the ECB will start buying covered bonds in mid October and ABS at some point this quarter. The details of the ABS program will come in a press release at 9:30am est time. Today we get doting of the I's and crossing of the T's on policy that has been previously announced. The euro remains up on the day.

    Position: None

    Reversal of (Klaus) Futures

    • Break in!

    The reversal of early-morning futures strength (just now) seems to be a function that Draghi is calling for two years of ABS purchases (instead of one).

    This is perceived as lowering the chance of an outright QE announcement.

    Position: None

    Bonds

    • Outside consensus as well?

    Over the last day I have more aggressively and opportunistically added to my short bond position.

    I have expected that the 10-year note would range (in yield) from 2.40% to 2.75% over the balance of the year.

    Yesterday, the yield slightly undercut 2.40%, dropping by nearly 10 basis points on the day. (I accelerated my ProShares Shorts 20+ Treasury (TBF) purchases very late in the day after my today's trade was published).

    I am certain that a large portion of the drop in yield had nothing to do with domestic economic growth. Ebola fears and a stock market schmeissing were important influences.

    What has particularly encouraged me is the recent drop in commodity prices (particularly of an oil kind) which will act as a tax cut to the consumer.

    Just as my year-end 2013 forecast that interest rates would DROP in 2014 was an outside of consensus view, I suppose my view that rates will rise is one as well! 

    Position: Long TBF

    No Market Setup Today

    • A little busy this morning.

    There will be no Market Setup column this morning, as I am working on a column at the request of Action Alerts PLUS co-portfolio manager Stephanie "Hyper" Link!

    Position: None

    Tweet of the Day

    • From Elon Musk.
    Position: None
    Doug Kass - Watchlist (Longs)
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    Doug KassOXY12/6/23-16.42%
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    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%