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DAILY DIARY

Doug Kass

I'm Outta Here

  • Thanks to everyone for reading my Diary today -- I hope it had value.

I am outta here to finish up the analysis of a potential new long idea. Enjoy the evening.

And a special prayer for Uncle Vinnie would be appreciated by his family.

Position: None

Closed-End Munis Gain

  • Despite limited movement in interest rates.

Gains have accelerated a bit in closed-end municipal bond funds despite limited movement in interest rates.

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

Today's Trades and Bids/Offerings (Short)

  • Trades and bids.

I shorted SPDR S&P 500 (SPY) and PowerShares QQQ (QQQ) in premarket trading and added into the early morning ramp. I covered all my index shorts when the S&P 500 futures dropped by 15 handles from the highs and the Nasdaq futures also retreated.

I added to the following longs today: Yahoo! (YHOO), Monitise (MONI.L/MONIF), Potash (POT) and ProShares Short 20+ Year Treasury (TBF).

I shorted JPMorgan Chase (JPM) against my Citigroup (C) long.

I was bidding for all 14 closed-end municipal bond fund longs, but my bids were not hit.

Position: Long C, MONIF, POT, TBF, YHOO, VPV, VGM, VCV, NQU, NQS, NPM, NPI, NMO, NMA, NAD, ETX, BTT and BKN; Short JPM

The Dollar and Stocks

  • Revisiting "The Buck Stops Here" and the "Dollar Myth."

CNBC's Brian Sullivan just completed a great segment of the relationship between the U.S. Dollar and the U.S Stock Market.

Here is an article I wrote on the subject back in February, 2013, "The Buck Stops Here": 

Last weekHedgeye'slynx-eyed Keith McCulloughopinedonCNBC's"The Kudlow Report" that a strong U.S. dollar is a bullish catalyst for U.S. stocks. His comments piqued my interest in reviewing my analysis from last year on whether a strong U.S. dollar is bullish for U.S. stocks.

The results below, with help from Seabreeze Partners' analysts Nick Pollari and Kelley Hopkins, are enlightening.

Bottom line: A rising U.S. dollar is not necessarily stock-market-friendly.

Utilizing monthly return data of theFed'sTrade-Weighted Real Broad Dollar Indexand theS&P 500from 1990 to 2012 we have determined that, statistically speaking, an appreciating US Dollar actually leads to reduced stock returns.

Note that we have used the trade-weighted dollar index (TWD) instead of the traditional U.S. dollar index (DXY) due to the heavy skew towards the euro in the DXY. Utilizing data from the DXY, however, will result in the same conclusion.

The data set has been broken into two time periods to provide insight into both the long term and the shorter term -- from January 1990 to December 2012 and from January 2010 to December 2012.

1990 to 2012; monthly return data; 276 observations:

  • The TWD and the S&P 500 have an R-squared of 0.0766 over this time period.
  • The TWD has a coefficient of -0.995, which implies that an appreciating dollar index reduces the return on the S&P 500 by 0.995% for every 1% increase in the TWD.
  • Utilizing the T-Statistic of the TWD, at the 95% confidence level, we have concluded that the coefficient is statistically significant.
  • Utilizing the F-Statistic of the model, at the 95% confidence level, we have concluded that the model in its entirety is statistically significant.

2010 to 2012; monthly return data; 36 observations:

  • The TWD and the S&P 500 have an R-squared of 0.225 over this time period.
  • The TWD has a coefficient of -1.814, which implies that an appreciating dollar index reduces the return on the S&P 500 by 1.814% for every 1% increase in the TWD.
  • Utilizing the T-Statistic of the TWD, at the 95% confidence level, we have concluded that the coefficient is statistically significant.
  • Utilizing the F-Statistic of the model, at the 95% confidence level, we have concluded that the model in its entirety is statistically significant.

Over time, we can visually decipher the relationship between the TWD and the S&P 500.

From 1990 through 1994 the S&P 500 moved independently of the TWD. Only during the time period of 1995 through 2001 can a positive correlation between these two indices be seen.

As the U.S. economy experienced a recession in the early 2000s, the Fed began cutting the federal funds rate. The Fed cut this rate from over 6% at the end of 2000 to the unprecedented level of 1% over time. As this stimulus worked its way through the economy, we began to see the S&P 500 appreciate, culminating in a new era that began in 2003.

Following 2003, we can see a very clear inverse relationship between the S&P 500 and the TWD, and this relationship holds until this day

And here is another column, "Debunking the U.S. Dollar Myth," that I published in January, 2012:

Recently, a number of market observers (most notably Hedgeyes's lynx-eyed "Keithy" Keith McCullough and "The Kudlow Report's" Larry Kudlow) have opined that the health of U.S. equities is dependent on a strong U.S. dollar.

Based upon history, however, the notion that a strong U.S. dollar is a prerequisite for a strong U.S. stock market is a myth.

With the help of Ron Griess's invaluable The Chart Store, we have compiled the historical relationship between the U.S. dollar and the S&P 500.

Let's go to the charts.

S&P 500 vs. Euro

Source: The Chart Store

View Chart »

S&P 500 vs. U.S. Dollar Index

Source: The Chart Store

View Chart »

The R-squared, or coefficient of determination, is the most frequently used equation to determine correlation. The R-squared ranges from 0.0 (no correlation) to 1.0 (perfect correlation).

As one can see in the calculations below, other than in short windows, there is almost no correlation between the U.S. dollar and the S&P 500.

R-squared for S&P 500 vs. euro chart:

  • From 1999 = 0.003, with 3,289 observations
  • From 2006 = 0.024, with 1,530 observations
  • From 2009 = 0.051, with 775 observations

R-squared for S&P 500 vs. U.S. Dollar Index chart:

  • From 1999 = 0.005, with 3,289 observations
  • From 2006 = 0.024, with 1,530 observations
  • From 2009= 0.424, with 775 observations

Note: The U.S. Dollar Indexis computed using a trade-weighted geometric average of six currencies. (The six currencies and their trade weights are: euro = 57.6%, Japanese yen = 13.6%, British pound = 11.9%, Canadian dollar = 9.1%, Swedish krona = 4.2% and Swiss franc = 3.6%.)

Position: None

The Case for a Dovish Fed

  • In one chart.

The chart below shows that inflationary expectations have dropped by more than 20 basis points over the last two weeks and now sit at their lowest level since 2011.

Position: None

Mo' Cashin

  • More from Sir Arthur Cashin.

On the post-noon pullback, Russell holds well above the mornings lows.

That seems to spark a bit of short covering helping other indices.  Also helping is the upward reversal in oil.

Position: None

Tell Me Something I Don't Know

  • A big buy program.

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!

I just saw a buy program of about $2 billion (dominated by energy, financials and technology) that buoyed the markets when it hit.

Position: None

Fed's Labor Market Conditions Index

  • From JPMorgan.

Fed's LMCI http://goo.gl/4QFJn9, etc) but not are changing the overall macro narrative a whole lot (the LMCI was pretty inconclusive and doesn't go a long way to resolving the UR/adds vs. inflation/wage debate that has grown louder in the last week).

Position: None

A Market Without Memory From Day to Day

  • Farewell retail? 

One of the byproducts of the recent volatility could be the alienation of the retail investor.

Position: None

Cashin's Midday Musings

  • Midday musings from Sir Arthur Cashin.

The Russell failed to make a higher high than Friday and almost instantly reversed into negative territory, taking out the 1100 level.  The problem for the Russell is that the Friday/Monday rally failed to push above a downtrend line that has restrained it several times.  Let's see if the bears seize full control.

Run rate at 12:15 projects to an NYSE final volume of 700/780 million shares.

Position: None

Short the Rips, Buy the Dips

  • Back to market neutral.

The S&P 500 futures are now down by 8 handles, and the Nasdaq futures are 18 handles lower, making for a 40-handle reversal from this morning's highs. I am taking in this morning's SPDR S&P 500 (SPY) and PowerShares QQQ (QQQ) shorts for a nice -- and opportunistic -- trading profits in the market that has no memory from day to day.

I am back to market-neutral, and out of all my index shorts.

Position: None

Market Slides

  • Those classical divergences are what prompted my shorts.

The market is at the day's lows now -- a marked reversal from early strength.

The key to my additional short position was the persistent underperformance of the Russell 2000 Index -- while the S&P 500 and, to a greater degree, the Nasdaq were rallying (the latter by 20 handles).

These are classical divergences, and typically a negative "market tell."

Position: None

Mid-Morning Musings

  • From Sir Arthur Cashin.

Opening rally stalled just under the initial S&P resistance band mentioned in Comments: 1978/1982 (high 1977.54).

Key will be how they react if we dip back below 1964.

Position: Short SPY

Munis Are Up

  • Most of mine are gaining ground.

Most of my 14 closed-end municipal bond funds are up by about 0.5% each today.

Here is the case I made for the asset class last December.

I added across the board last week (see "Market Setup" post below).

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

Bon-Ton Should Have Improved

  • Though it can't answer questions on the September quarter just yet.

Regulation FD precludes Bon-Ton (BONT) from responding to questions about the just-completed quarter.

Business should have improved thanks to improvement in the jobs market, the milder weather in the northern sections of the U.S. and lower gas prices.

After shaving off some stock at $11 or better a while ago, I added at $9-ish a few weeks ago and last week at around $8.30.

Position: Long BONT

Ratcheting Up Shorts

  • Up further.

I pressed my shorts -- and am raising my net short exposure to 15%.

Position: None

Hedging Citi

  • With a bet against JPMorgan.

I am maintaining Citigroup (C) on my Best Ideas List, but I am hedging the position with a JPMorgan Chase (JPM) short position at $60.40. (JPMorgan's shares were up $1.50 on Friday.)

Position: Long C, short JPM.

How to Play a Trendless Market

  • And one with no memory from day to day.

Remember the consequences of a market without memory for day to day.

Sell or short the rips, and buy the dips.

Focus on opportunistic trading rather than committing to too many long-term investments.

Judge reward-to-risk ratio in every incremental purchase -- and make sure there is a margin of safety in your calculation! 

Position: None

Picked Up More Potash

  • As the stock traded under my downside risk level.

This morning Potash (POT) traded below $32.80, my downside risk level, and I added despite the Agrium (AGU) guide-down. (See my recent analysis here.)

Position: Long POT

Building on Monitise and Yahoo!

  • Adding to both.

I added to Monitise (MONI, MONIF) -- for the sixth day in a row -- and to Yahoo! (YHOO) this morning.

Position: Long MONIF, YHOO

More Short Exposure

  • Been adding throughout the morning.

I am now back up to 10% net short in my account.

Thurs far, I shorted on a scale over the course of morning.

Position: Short SPY, QQQ

Do Not Ignore This

  • Troubling action in the Russell.

The Russell 2000 Index continues to suck wind.

I would not ignore this divergence.

Position: None

S&P Up 50

  • From Thursday's lows

S&P 500 futures are now approximately 50 handles higher from Thursday morning's lows.

Position: Short SPY

Don't Chase

  • UBS' technical team wouldn't chase the market rally (and I agree).

On the back of our cyclical model we have been looking for a bound into a minor top later last week and with the SPX future having reached overbought territory we think the SPX future is in fact on the way into this rebound top. In this context we do not see the Friday reversal as a significant reversal and/or as the basis for another bigger rally. On the contrary, our daily trend work is in intact short mode. We haven't seen any spikes in our sentiment work and the internal sector structure is unchanged negative where last week we got new breakouts in defensive sectors, whereas in cyclical themes we saw increasing technical damage. Consequently, with the SPX future being overbought and reaching resistance at 1970 (50% retracement of previous decline) to 1982 we think the Thursday/Friday rebound is moving into a top early this week, which means a) we would not chase the market on the upside and b) we expect a new down leg starting at the latest tomorrow into later this week and into next week. Again, from a cyclical perspective we continue to see the SPX heading into a mid/later October low and on the back of this time projection it is also too early to anticipate a more significant tactical bottom-

Position: None

So Much for Yahoo! and Snapchat

  •  The number is very small

Late last week it was announced that Yahoo! (YHOO) is taking an investment in Snapchat. As it turns out that investment was only about $20 million.

This will not impact the market.

I recently analyzed of Yahoo! and added the stock to my Best Ideas list.

Position: Long YHOO

Adding to Shorts

  • Adding to SPY and QQQ shorts.

I have added to my SPY short at $197.40 and to my QQQ short at $98.48 in premarket trading.

Position: Short SPY, QQQ

Changes at the Mighty OAK

  • Important management changes.

Some important and positive management changes at The Mighty Oak (Oaktree (OAK)) was just announced.

I added to my OAK long last week.

Position: Long OAK

Last Week's Rally

  • Parsing the "quality" of last week's rally.

Here are some skeptical technical observations on last week's price action.

Friday's rally came on volume that 15% below Wednesday's big decline. Breadth was quite good for the S&P 500 (at 6.7-1 positive), but it was still below the two recent 9-1 negative readings we have seen.

Also, the NYSE stocks-only breadth was on 2.4-1 positive and only 2.2-1 positive for the Russell 2000 (which underperformed yet again on Friday). When you combine this with the fact that the S&P, RUT, HYG, EEM, HGX, etc., have all retraced only a tiny portion of their September selloffs and the fact extended declines always have sharp rallies within them, it tells me we should remain skeptical of last week's rally.

Position: None

More Wise Words

  • And another knight at the Round Table.

I pay a lot of attention to Raymond James' Sir Jeff Saut. He is sober and objective.

Here is a summary of his commentary this morning.

The call for this week: A lot of folks think last week's action represents a meaningful low in the equity markets. While I would like to believe that, all we did was rally back from a deeply oversold condition into the 1965 - 1970 level on the S&P 500 (SPX/1967.90) that since July I have deemed as a key "attractor/repeller" level for the SPX. How we pivot off this area in the week ahead will go a long way in determining the near-term direction of the equity markets. Notably, the SPX held its 126-day moving average (DMA) and looks poised to test its 50-DMA at 1974.76 on the better news this morning out of Hong Kong, where the students seem to have returned to school. As for Friday's much heralded employment report, it occurred because a record 92.6 million people are not in the labor force. Meanwhile, the participation rate fell to nearly a 40-year low (62.7%).

Position: None

Goldman on the Economy

Here is a good regional economic summary by Goldman Sachs.  

Bottom-line: Europe and Japan are struggling, the U.S. is doing just fine and Asia is somewhere in between in search of a new leader.

  • Europe. On Friday, Andrew Benito and team cut our Euro area GDP growth forecast to a scant 0.7% in 2014 and only 1.0% in 2015 as the data continues to come in weaker than expected (see: "European Views: Forecast update: Incorporating downside news to activity and inflation"). Even with these recent cuts, we still see downside risk to our forecasts. USA. Growth remains on the same 3%+ pace we have seen since March writes Jan Hatzius in this weekend's "US Views: Not So Fast." And unique to the USA, the debate remains focused not on the direction of growth but rather the direction of rates as the Fed ponders entering an explicitly tightening regime after many years of accommodation. We continue to forecast the first rate hike for 3Q15 - and not sooner as some are calling for post the strong Friday Payrolls report. Among other issues, we believe the combination of ultra-low rates today and weak growth almost everywhere else in the world will guide the Fed to a more cautious tightening path. Asia. Andrew Tilton highlights the potential for India, Indonesia, and the Philippines to all soon grow faster than China in "Asia Views: Looking for drivers of growth." Near-term, China remains the growth driver given its sheer size. But China's growth trajectory has slowed and this year's starts and stops tied to fiscal and monetary stimulus suggest that a sustained growth acceleration from here may be problematic. Looking ahead, India has the potential to take a growth leadership role in the region although admittedly it has many hurdles of its own to scale. Japan. This week is a big one in Japan with the BoJ holding meetings today and tomorrow as Naohiko Baba discusses in "Japan Focus of the Week." And with economic indicators coming in particularly poorly, we expect the government will likely provisionally acknowledge a "recession."
Position: None

Reluctant to Revisit

  • Not sure I want back into the iShares China Large-Cap (FXI).

We made nearly a 25% return in only a few months when I put FXI on our Best Ideas list earlier in the year.

I sold out FXI at around $42.50 and I am still reluctant to return to the trade based on the ongoing reductions in expected economic growth in the region as exhibited by this updated chart on forecasted real GDP.

Position: None

Grant and Boockvar

  • Sir Mark J. Grant's morning commentary.

"Fast is fine, but accuracy is everything." - Wyatt Earp

I have been critical, often enough, about the way Europe deals with its data. GDP including revenues from drugs and prostitution, debt to GDP ratio where losses are added up as investments and the $40 billion loan to the Spanish banks which was guaranteed by Spain but is not counted anywhere in the liabilities of the nation.

Foolish stuff!

Data is inaccurate as the numbers are falsified or falsified by the methodology used for counting them. In either case what we are handed is garbage which may be tossed about by some government as real and thrown relentlessly around in the Press in the hope that we believe it but it is only the foolish or those that fly over the cuckoo's nest who thinks that the Easter Bunny is a participant in the Great Game.

In America I wish I could say that we were better. We might be a little better than Europe but when I look at our CPI number, a deception by methodology, or when I am told that America's unemployment rate is now 5.9% I am not sure that we are too much better. The unemployment statistic, I admit, is what really aggravates me.

The methodology in unemployment is contrived by who the government says has left the workforce. Where did these people go? Are they in Mexico on holiday, in Mykonos on the beach for the summer, an early fall cruise to Alaska; where are these people? 

According to the government's Household Survey, 232,000 people found jobs last month, while people that have left the labor force, rose to a new record high, increasing by 315,000 to 92.6 million. The workforce participation rate was 66.1% in January, 2004. In October, 2008, the rate was 66%. By December of that year, it had slipped to 65.8%. As of September 2014, it stood at just 62.7% by far, the lowest it has been in at least 10 years. The source for these numbers is the Bureau of Labor Statistics and the figures are current as of October 3.

I may have uncovered where these people have gone though.

Figures from the Census Bureau indicate that, as of the end of 2012, a mind-blowing 35.4% of Americans were receiving welfare. It may interest you to know that this number has not been released by the Department of Health and Human Services in the last several years.

Computer glitch I am sure.

Yet the Administration keeps telling us how much better off American are these days. The New York Times reports that President Obama stated that the U.S. economy is now better off "by almost every economic measure."

"Ask him what measuring stick he is using. Find out the name of the company that makes them. Sell this stock short as soon the market opens."

                   -The Wizard



A Couple of Things that could Rattle the Cage

France

According to the Wall Street Journal this morning the EU is about to reject France's new budget. They also say the same thing is likely to happen with the new Italian budget.  With the recent rise in French nationalism and the political troubles of Mr. Hollande this could not come at a more inconvenient time for France or the European Union. It well may be a good old western showdown.

"Hey, Dude! How do ya like them apples?"

               -Rio Bravo

France could reject the European demands of course and then face sanctions amounting to 0.20% of their GDP. France also could refuse to pay them but then the word, "Union" may have to be redefined for Europe. You see, in this situation, it is not that France is going to try and then fail but they have publicly announced that they are not going to follow the guidelines because it is not in the best interests of France.

Flout the rules baby and shove them up your German..well..er...ah...um..ahem!

The American Dollar

The rise in the American Dollar will have consequences.  It is my opinion that the coming quarters for the American GDP and our entire economy are not going to be quite so rosy. American goods and services are not going to be as attractive to either the Europeans or the Asians given the Dollar's rise against most of the world's currencies. Also other sectors of our economy, such as our Real Estate market, are losing their luster as the Dollar heads higher. Economic models that do not reflect this are going to be wrong, in my view, and perhaps seriously wrong in their projections.

"We look at the taciturn, inscrutable universe and cry, 'Speak to me!'

We can't stop reading. Compulsively we find ourselves reading significance into dreams (we construct a science upon it); into tea-leaves and the fall of cards. We look up at the shifting vapors in the sky, and see faces, lost cities, defeated armies. Isolated in the dark, with nothing to hear and no surfaces to touch, we hallucinate reading-matter. Our craving becomes generalized ¿ for the meaning of life.

If we lived alone in a featureless desert we should learn to place the individual grains of sand in a moral or aesthetic hierarchy. We should long to find the greatest grain of sand in the world, and even (in order to find a fixed point of orientation in time as well as in space) the all-time greatest grain of sand; the grain of sand whose discovery changed our whole understanding of grains of sand forever."

               -Michael Frayn, Constructions

  • And Peter Boockvar's pearls of wisdom.

The Sentix investor confidence survey, a measure of German investors view of the euro zone economy, fell further in October to -13.7 vs -9.8, the weakest since May '13. Both the Current Situation and Expectations components turned more negative and Sentix said these indices "point currently to a recession in the euro area." This index was +14 back in April. Also in Europe, German factory orders in August fell by 5.7% m/o/m, the biggest drop since 2009 (after a gain of 4.9% in July) and about twice the expectations of a fall of 2.8%. Lastly in Europe, the Markit.com eurozone retail PMI fell to 44.8 from 45.8, thus well below 50 and it's the weakest in 17 months. Declines were led by Germany and France where France's PMI in particular fell to 41.8 from 45.5.

In response to the economic malaise that France is experiencing, more of a taste of capitalism is their only economic hope and the French PM Valls realizes this as he's sounding like a supply sider this morning. Speaking in London today he said "My government is pro business." He wants stores open on Sundays, he said "there are too many taxes in France" and he wants to cut them for both households and companies, they will cut public spending and he also said the 75% income tax on high earners will end next year. Bottom line, he said "France has been living beyond its means for too long" and he "wants to restore competitiveness of French business." As France is the 2nd biggest economy in Europe and the 5th biggest in the world, let's hope these initiatives get done.

Talks in Hong Kong have begun and the hopes for a deal sent the Hang Seng index up 1.1% and the China H shares higher by .6%. With the protests in Hong Kong interrupting business and the negative optics for Beijing apparent, we have to give the benefit of the doubt to a deal that both sides are satisfied with. The Hong Kong dollar also bounced.

Brazil should have a big rally today as the pro business candidate Aecio Neves had a much better election outcome than anyone expected. Rouseff got 42% of the vote with Neves not too far behind with 34%. Marina Silva disappointed with just 21%. The Rouseff/Neves faceoff will take place on October 26th. 

Position: None

This Morning's Market Setup

  • Where it began.

Greece is collapsing, the Iranians are getting aggressive and Rome is in disarray. Welcome back to 430 B.C. -- John Cleese 

The rundown:

  • U.S. futures are higher. (S&P 500 futures are +7 and Nasdaq futures are +15 handles as stocks continue to move off of Friday's momentum.)
  • Europe is trending higher, even though Germany reported weak factory orders.
  • China is up 1.09%. Stocks extended their gains due to dwindling protest crowds and better-than-feared Macau sales numbers. The advance was broad consumer discretionary, technology and industrials outperformed, while telecoms underperformed. Sands China and Galaxy Entertainment both surged after Macau sales for September came in better than expected (Sands China jumped more than 7% and was the top Hang Seng stock). Tencent, Hutchison Whampoa, Hong Kong Exchanges, Henderson Land, and Wharf Holdings all outperformed. On the downside, telecoms stocks were weak (China Mobile and China Unicom both closed in the red). 
  • Japan is up 1.16%. Stocks finished higher on the back of the positive U.S. close on Friday. The yen slumped 1.25% Friday and is rallying back small so far Monday (by  0.25%). 
  • Quiet on the news front. There was some speculation that Abe might dial back the second phase of the consumption tax hike. The BOJ decision due out Tuesday  morning isn't expected to bring any policy changes, although Kuroda's tone during the press conference will be key, given that data out of Japan have undershot forecasts of late and many are starting to question the 2% inflation goal. Every major sub group rose, with healthcare, tech, materials, discretionary and industrials all outperforming. NEC, Mitsumi Electric, Hitachi Zosen, Chugai Pharma, NTN, Heiwa Real Estate, Japan Tobacco, and Advantest were leaders while Inpex, Casio, Sumitomo, Nippon Electric Glass and Nikon lagged. 
  • Foreign exchange action reversing a bit from recent trends, with the U.S. dollar down 0.39% and the euro up 0.39%. As I mentioned recently, look for some multinationals to disappoint in 3Q in the face of exchange headwinds and weakening exports and this
  • Gold is flat, at a four-year low (and, as I suggested, had a mission to break  $1,200). I weighed in negatively on gold more than a month ago. Crude is up $0.44. Copper is up 0.87%.
  • The yield on the 10-year is flat at 2.434%. Sovereign debt yields are mixed to lower.

Strength in the S&P index is carrying over around the global markets today.

News is quiet:Hong Kong's riots have cooled off.

  • Ukraine/Russia quiet.
  • Favorable Brazilian election results.
  • Weak August Germany factory orders. 
  • September Macau numbers better than expected.
  • Merger Monday: Beckton Dickinson (BDX) to acquire Cullen/Frost (CFR) for more than $12 billion.
  • Hewlett-Packard (HPQ) to split up into two companies.

Over here, the Fed's Esther George speaks at 8:30 p.m. ET and The Container Store (TCS) reports earnings after the close. No major economic data are scheduled for release.

The next big macro event will be the Fed minutes on Wednesday. 

1975-1980 looks like some resistance in futures. 

Last week, I played the early part of the week's drop well and took off all my index shorts on a series of lower lows. I covered many of my individual shorts (including GM (GM), Ford (F) and Caterpillar (CAT)). Early Thursday I took a long rental in SPY, but sold out far too early Thursday afternoon.

Friday morning I took a small short in QQQ and SPY and I didn't add on the continued market ramp throughout Friday's session. I purchased Monitise (MONIF) shares every day of the week as the share price continued its schmeissing (stable this morning). I also added to Bon-Ton (BONT), Yahoo! (YHOO) and Oaktree (OAK) longs during the bouts of weakness last week (as well as Friday) and to all 14 of my closed-end municipal bond funds (still my favorite asset class for 2014-15.)

I added to my bond short, based on my expectation of a higher short- and intermediate-term 10-year yield. (My first target over the next few months is 2.75%).

I ended Friday slightly net long, but plan to rebuild my short hedges in short order, reflecting a cautious market view.

Indeed, I shorted SPY at $197.10 and QQQ at $98.38 in premarket trading this morning, bringing me back to net short (small).

Position: Long TBF, BONT, YHOO, OAK, all 14 closed-end funds and short QQQ, SPY (very small)
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-31.72%
Doug KassOXY12/6/23-14.91%
Doug KassCVX12/6/23+10.81%
Doug KassXOM12/6/23+13.02%
Doug KassMSOS11/1/23-22.80%
Doug KassJOE9/19/23-14.64%
Doug KassOXY9/19/23-26.30%
Doug KassELAN3/22/23+37.02%
Doug KassVTV10/20/20+64.63%
Doug KassVBR10/20/20+77.10%