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DAILY DIARY

Doug Kass

Market on Close

  • As of 3:54 p.m. EDT there is $700 million to sell on the close.
Position: None

Today's Trades and Bids (Longs)/Offerings (Short/Sell)

  • Trades and bids.

This morning in premarket trading I shorted the SPDR S&P 500 (SPY) and PowerShares QQQ (QQQ) at $194.55 and $97.17, respectively.

I added to my short in Berkshire Hathaway (BRK.B) at $138.42 and added to Yahoo! (YHOO) on open.

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

Position: Long YHOO, VPV, VGM, VCV, NQU, NQS, NPM, NPI, NMO, NMA, NAD, ETX, BTT and BKN; Short SPY, QQQ, BRK.B

Recommended Reading

"The Value of Schmoozing in Social Media"

Position: None

'Investment Boners' Revisited

  • Let's keep it respectful.

The comments section below is fair game for almost anything -- as long as it is respectful. In keeping with that observation, I want to repeat a recent post, "On Investment Boners."

I will get direct and to the point.

One of the few things I can guarantee subscribers is thoroughness of research.

I am confident that my research into most of my ideas, particularly my Best Ideas list (long and short) is deep and accurate and is not dependent on the assumptions and force feeding by companies' managements. Nor do I regurgitate Wall Street analysts' views and analysis. And, contrary to the notion of some, I dont take my hedghogger friends' views as gospel, regardless of their cerebellum or size of wallet.

Rather, I undergo a complete analysis based on the numerous company stakeholders (customers) and companies' competition, as well paying a lot of attention to financials (balance sheet and income statements).

The process inherent in my fundamental analysis is lengthy and time consumptive. I do most of my work on the weekends and/or before and after trading hours. 

I respect the work of technicians, but technical analysis is not my approach. It's not for me and, with the exception of obvious technical issues (support, resistance, etc.), I shouldn't be looked at as a source. Many trade by charts -- and makes plenty of Benjamins doing so (and, again, I am mindful and respectful of this). But as a trader once said to me, the bottom of the sea contains numerous good charts that tell us where stocks have been, not where stocks are going. 

I have a good sense in judging managements, having interviewed more than 500 over the span of my career. But what I can't guarantee is when an exogenous event hits one of my investment holdings (e.g, the New York state conflict with Ocwen (OCN), nor can I guarantee that a company's management will execute relative to expectations (e.g. Monitise (MONIF)).

These factors are, unfortunately, part of the game.

Position: Long OCN, MONIF

Crude Still Dropping

  • Leaking lower.

The price of crude continues to leak lower, now down by $1.40 a barrel to $81.10.

Position: None

For Apple Heads

  • I'm Tammy Wynette on this one.

From the WSJ, "Apple's Back at Record Highs; Now What?"

In Steven Russolillo's column, Bernstein's Toni Sacconaghi has similar concerns (the last important product upgrade cycle) to me.

Position: Short AAPL

Crude Starting to Drop

  • It's correlated well with stocks.

Crude is starting to drop (now down $0.75 to $81.75 a barrel) and this commodity has correlated well with the stock market.

Position: Short SPY

Cashin's Midday Musings

  • Midday musings from Sir Arthur Cashin.

Stocks ease back a bit as second Canadian incident in days reintroduces risk to markets on fears that these could be the beginning of a series of lone wolf events.

Run rate slows. At 12:30 projects to an NYSE final volume of 710/790 million shares.

Position: None

It Ain't Heavy (Yet) So It Must Have Been a Bottom

  • Where I see the S&P.

"The road is long

With many awindingturn

That leads us to who knows where

Who knows when

But I'm strong

Strong enough to carry him

He ain't heavy, he's my brother."

 -- The Hollies, "He Ain't Heavy He's My Brother"  

As I wrote this week, there are several conflicting market tales that seem to have developed.

On the one hand, the short-term market cycle has likely bottomed and I don't expect last week's downside to be reclaimed this year. 

On the other hand, the S&P index has likely topped for the year. 

To me, the above divergences suggest that, in all likelihood, The Ali Blah Blah Top is in place for the balance of 2014 and we could be entering a continued period of market volatility over the next few months..

Getting more specific (and recognizing the risks inherent with such a precision of forecast), if I was forced to guess, the S&P (now standing at 1940) is at or near the likely high for the next two months and that 1850-1875 (on the S&P) might be the low end of the range.  

Using a longer three-to-four-month horizon, the S&P (after the 120 point rise from last Thursday morning) has an unfavorable reward vs. risk, with a potential high at 2000-2025 and a low of 1800-1850.

I am expanding my shorts (on a scale) into the strength of the last five trading days and I am back into a net short position.

Position: Short SPY

Caterpillar Releases Dealer Stats

  • I'll reshort on further share strength.

In an 8-K filing this morning, Caterpillar (CAT) released its (lousy) retail dealer statistics for the most recent month.

I made a great short in this name (shorting at about $108-$110 and covering in the mid- to high-$90s) and I plan to reshort on any further share strength.

Here are the dealer stats

Position: None

Offering More Radian

  • Doing little, though.

I'm offering some more Radian (RDN) above the market now. Doing little, though.

Position: Long RDN

Don't Buy Auto Hype

  • The outlook is uninspiring at best.

Hayman's Kyle Bass was just interviewed on CNBC.

It seems that the hedge hogger believes that GM's (GM) recalls have masked the company's underlying and improving results and GM's developing a superior product suite of products

I admire his optimism on General Motors, but I continue to expect disappointing profits that will fail to meet consensus expectations.

Peak autos.

I have covered some of my auto shorts on the recent weakness and I might well be extending my welcome on the short side a bit in here, but I plan to hold on to my remaining shorts in Ford (F) and General Motors.

With a likely cutback in the banking industry's subprime lending exposure, a slowing domestic economy, a weakening European economy and a contraction in industry margins as production around the world is increased, the outlook for the sector remains uninspiring, at best.

Position: Short F, GM

Not So Ludicris Forecast

  • "Nobody gets woolly. Women get weary. They don't get woolly. Nobody gets stress.They're wearing a dress." 

The balance of the year will be wild and woolly!

Ideal for traders, not so great for the buy-and-hold crowd.

Position: None

Pressing My Berkshire Short

  • I am pressing my Berkshire (BRK.B) short now.
Position: Short BRK.B

Adding to Yahoo!

  • I added to my Yahoo! (YHOO) long this morning.

Here is the investment case.

Position: Long YHOO

Recommended Reading

  • Dan Loeb's letter to investors and why he is back shorting (hat tip zero hedge).
Position: None

Ocwen Review Monday

  • For now, I wouldn't buy or sell.

I will have a detailed review of Ocwen (OCN) on Monday, but for now I wouldn't add or subtract to the name.

Position: Long OCN

Modestly Net Short

  • Small short sales in SPY and QQQ.

I made small short sales in SPY at $194.55 and QQQ at $97.17 in premarket trading.

Modestly net short.

But liquid.

Position: Short SPY, QQQ

Explaining My Monitise Moves

  • I hope this fully explains my reasoning.

"Everyone that has looked under the hood of this company in terms of its technology --  originally Visa, whether it be MasterCard, whether its Banco Santander -- have wanted to do something with the company. Whether to invest in the company or to use Monitise' s engine to pilot their mobile offerings." -- Lee Cooperman, "Fast Money Halftime

Over the last two days I have sold most of my Monitise (MONIF) shares, principally as a result of the 15% advance (albeit from the lows) after Omega Advisors' Lee Cooperman defended the stock on "Fast Money Halftime" on Monday.

I strive to be transparent in view and in actions in my Diary.

While I believe I have been straightforward in my explanation (and have detailed my MONIF sales throughout the day and at my day's-end summary of trades), continued  remarks in the comments section lead me to think otherwise. So I wanted repeat my rationale and logic for this week's stock sales.

I have consistently viewed Monitise as a potentially important and disruptive player in the mobile payments and banking industries. Given its leading market position, strong partners (IBM (IBM), MasterCard (MA) and others), thoughtful stakeholders (Omega, Legg Mason, etc.)  and prospects for the potential of a rapid trajectory of sales/profits/cash flow, the ingredients for a home-run stock seemed to have been in place.

I have also characterized Monitise as speculative investment and that the stock should be appropriately weighted in portfolios. The company lives in a rapidly-changing and innovative space in which the competitive landscape has the potential for an overnight transformation. Monitise is the back end of the solution in a game-changing industry and there is always the potential that its role will yield less returns than generally expected (in terms of average revenue per customer).

Moreover, the company's market valuation, while not pie in the sky, has always been considerable (the shares closed yesterday with a near $1 billion capitalization), so some of the market's high expectations have been built in.     

Though total subs have gone from about 20 million shares to more than 30 million shares over the last year, Monitise's execution over the last six months has been disappointing (two guidedowns) after the company moved from a licensing to a subscription model. Let's call it two strikes against the company.

Recently, Visa (V) announced its intention to cease its development relationship with Monitise. (Visa accounts for about 6% of Monitise's revenues.) Visa went on to say it is considering the sale of its interest in Monitise. We might call this strike three, though I have underscored that Visa was never going to be a continuing  subscription-based customer and that Monitise is de-emphasizing the job shop part of its business.

Over the course of my investing career, three strikes typically disqualifies a company for my investment and I usually sell and walk away from an investment. Nevertheless, though disappointed in the company's execution (and modestly so regarding the Visa decision), the opportunities facing the company have remained substantive and players in disruptive industries often have speed bumps.

So, I stuck with Monitise and, at times, I purchased (and sold) more. 

The recent IBM partnership emboldened me further, though the market didn't seem materially impressed (as measured by Monitise's share price).

As the share price dropped, abetted by some active and aggressive short sellers, I have been trading around the position. In most of the last two weeks and before Lee Cooperman's Monday appearance, I had steadily been re-accumulating the shares.

That said, my sales this week were not necessarily a memorial or requiem for my investment in Monitise.

They were a tactical move, a direct reaction to the 15%+ rise in Monitise' share price after the recommendation and endorsement Monday coupled with my intention to liquefy my portfolio in an uncertain investment backdrop. (As I wrote previously, I would consider any of my long holdings for sale after an (artificial) 15%+ rise that was not a function of improving fundamentals, but as a result of an endorsement in the media).

The longer-term investment case for Monitise remains intact. But given that run-up, the news vacuum until the first half of 2015, the likelihood of persistent tax selling over the balance of the year coupled with the aforementioned unpredictable stock market conditions, I believe (though I might be wrong) I will be able to replace my sold shares with lower-priced stock in the months ahead.

The following factors form some of the basis of the continuing investment case for Monitise:

  1. The business opportunities in mobile payment and in mobile banking are huge.
  2. Though progress has been uneven, as the company has moved from a licensing to a subscription model, subs have grown to more than 30 million customers from 20 million over the last year.
  3. Monitise has continued to repeat its subscription target of 200 million customers by 2018.
  4. Insiders are eating their own cooking and have bolstered their ownership in Monitise's shares through open-market purchases (and not by option exercises).
  5. Every investor, partner and most banking customers, when looking under Monities's hood, have elected to partner or invest in Monitise. (See Lee Cooperman's quote at the beginning of this column).
  6. Thoughtful institutional investors (like Omega Advisors and others) have reiterated their endorsement of the company.
  7. Monitise continues to make important strides in high-profile banking client wins (most recently Banco Santander). The IBM joint venture is a strong statement of confidence in Monitise and it's product suite. Moreover, if successful, it could presage a takeover.
  8. A large short base could buoy demand for the shares. (Note: Blau has modestly lowered its short position this week.)
  9. The share price is 70% under its 12-month high, in theory rendering the reward vs. risk (if the company executes) even more attractive.

I hope this column sufficiently explains my recent moves to all of our subscribers.

Position: Long MONIF, short IBM

For Apple Heads

Position: Short AAPL

Boockvar Weighs In

  • The Gospel According to Peter Boockvar.

The US stock market is at a key moment as we had the sharp selloff (end of crutch of QE, again), followed by the vicious rally over the past few days that has retraced 61.8% (for all those Fibonacci followers, 1943 in SPX cash) of the market drop from the September 18th peak. It then comes next that is most important as a another roll over from here would be classified as a failed rally and a lower high. With the reverse being a continued rally that would signify the worst is over as we approach a seasonally decent time for stocks. I'm in the former camp as known. We'll see. In terms of sentiment, the Correction camp continues to gain adherents according to II as they rose by 1.6 pts to a fresh 30 yr high of 46.5. Bulls fell 2.5 pts to 35.3, the lowest since June '12 while Bears crept up at a snail's pace to 18.2 from 17.3, only 5 pts from a 27 yr low. It's clear that the broad consensus is that all we're having is a conventional pullback that many want to buy. A bear market is only on a very few minds as many think we need a recession first in order to get one. However, the last two recessions were driven by a drop in asset prices (stocks and then home prices) that came first.

The lowest average 30 yr mortgage rate since May '13 at 4.10% sent refi applications up by 23.3% w/o/w after a 10.6% increase last week. It's at the best pace since November. Unfortunately, purchase applications are not responding as they fell 4.8% w/o/w to a 6 week low and is just a few points from the weakest since February. Multiple years of home price gains rising faster than income growth in addition to tough lending standards continues to make renting more appealing and the cost of money won't change that just yet.

Just as the FOMC minutes a few weeks ago pushed out the likelihood of the first rate hike, today's BoE MPC minutes likely did the same. "While the economy had been growing sufficiently quickly to absorb some of the slack in the economy, there were some signs that the pace of growth was beginning to ease." The pound is lower in response but gilts and the FTSE is little changed.

Addressing the reuters story yesterday, ECB member Coene said "we could extend our interventions to other instruments, such as corporate bonds. There is no concrete proposal on the table for the moment." 'Do something' continues to be the mentality but the ECB (along with others) should be asking does it 'do anything?' Liquidity is still not the problem. With the likely realization that buying sovereign bonds is just too difficult to pull off, it's apparent that the ECB is trying to go all in with its own form of QE with ABS, covered bonds and LTRO's and maybe corporates. Unlike though in the US, European stock markets haven't responded in the same way since June when Draghi stepped up with his initiatives. There is no asset price wealth effect in Europe.

Position: None

No Market Setup Today

  • Thanks, technology.

There will be no market-setup column owing to my computer malfunction.

Position: None

Bear With Me for a Moment

  • Having some technology issues.

I just finished a detailed reiteration of my Monitise (MONI, MONIF) position in order to clarify my view of the shares. But my Word program has frozen, and I am now trying to recreate the column.

So please bear with me and this technology problem.

Position: Long MONIF
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-35.66%
Doug KassOXY12/6/23-16.42%
Doug KassCVX12/6/23+8.55%
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%