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DAILY DIARY

Doug Kass

Happy Trails!

  • Thanks so much for reading my Diary today.

Enjoy the evening!

Position: None

Market on Close

There is $50 million to buy market on close today with less than 15 minutes left in the session.

Position: None

From the Street of Dreams

Pacific Crest put an Outperform and $316 price target on Tesla (TSLA) this afternoon.

Position: None

Adding to Some Favorites

  • I am adding to my Altisource Asset Management (AAMC),  Altisource Portfolio (ASPS) and Oaktree (OAK) longs now.
Position: Long AAMC, ASPS, OAK

There and Back Again

Near the day's lows now.

Position: None

Ocwen in the Green

  • Nice 5% move in Ocwen (OCN) off of the day's lows.

Now green.

Position: Long OCN

Taking off Trading Portions of Energy Longs

  • Keeping the investment positions.

In light of the sharp reversal in the price of oil, I am taking off my trading portion of my energy longs, taken earlier today.

Maintaining XOM, CVX and DVN investment positions, however.

Position: Long DVN, CVX, XOM

Look for Currency Warnings

  • The dollar move will hit earnings.

The strongest dollar in more than five years is likely to threaten the earnings of U.S. companies for a second-straight quarter and into next year.

Just this week, Coca-Cola (KO) said currency movements will cut its pre-tax profit by 5-6% in 2015. Pfizer (PFE) has said it "expects significant negative sales and earnings impacts from foreign exchange" this quarter.

Look for more of this in the weeks ahead.

Position: None

Insane in the Membrane

  • Oil is not stabilizing.

I am not sure what the heck the business media is looking at when they say, as they have often today, the US stock market is rising because of stabilization in the price of oil.

I see oil at its days lows at $54.85 and down by $1.65 a barrel on the day.

If the market was a song today it might be Cypress Hill's "Insane in the Membrane."

Insane in the brain.

Position: None

Moving Back to 10% Net Short

  • Shorted SPY at $205.35 and QQQ at  $103.80, moving back to 10% net short.
Position: Short SPY, QQQ

Added to TWTR Long

  • I added further to my Twitter (TWTR) long today.
Position: Long TWTR

Mo' Cashin

  • More from Sir Arthur Cashin.

Crude pullback followed by stabilizing, reinforces perception that we may be in a bottoming process.  That gives bulls more courage and we make higher highs.

Position: None

Mr. Market Makes It Hard

  • Wild like Woodstock.

"Don't let the past remind us of

What we are not now... "

-- Suite Judy Blue Eyes, CSN 

It was August, 1969 when I first saw Crosby, Stills and Nash. It was something like 3 a.m. on Monday morning that they began. Neil Young joined them later on in the middle of the acoustic set of their performance.

Of course (see above) it was at The Woodstock Music Festival in Bethel, New York.

The group had to be introduced to the crowd of 400,000 as it was only their second live gig!

 "This is the second time we've ever played in front of people, man. We're scared sh*tless."  -- Steven Stills

Three months before their Woodstock appearance they delivered their first album (entitled Crosby, Stills and Nash). Soon thereafter Neil Young joined the group. 

David Crosby and Stephen Stills appeared the day after Woodstock on "The Dick Cavett Show," still wearing their mud-soaked outfits seen in the film "Woodstock" (in which Stephen Stills performed "4+20"). (Joni Mitchell was supposed to attend the festival, but her manager thought the event would be small, so she too appeared on "The Dick Cavett Show," during Woodstock's weekend. She wrote the song "Woodstock" in her hotel room!)

Which gets me back to the words above from "Suite Judy Blue Eyes."

Can I tell it like it is?

What a wild  day.

Wild like Woodstock.

Position: None

Junk Stabilizes

  • Stabilization in the high yield junk bond market.

The SPDR Barclays HIgh Yield Bond ETF (JNK) and the iShares iBoxx High Yield Corporate Bond ETF (HYG) are +1% each today.

Position: None

Trade Updates

  • I'm back down to 5% net short.

I have added to my energy longs (implemented a trading layer on top of my investment long) on the selloff (when they turned red on the day) -- Chevron (CVX), Devon Energy (DVN) and Exxon Mobil (XOM).

I have also initiated a very small long in Altisource Asset Management (AAMC) and have added to Altisource Portfolio Solutions (ASPS) and Ocwen Financial (OCN).

These trades halved my net short exposure back down to 5% net short.

Again, for emphasis, if it wasn't for the time of year I would be substantially raising my net short exposure.

Position: Long CVX, DVN, XOM, AAMC, ASPS and OCN

Midday Musings

  • From Sir Arthur Cashin:

Influence of oil, minimum, so far. Traders guess WTI would need to trade below 55.25 to get attention (Tuesday low was 53.60).

Position: None

Ocwen and Lawsky

  • My views on Ocwen, Lawsky and ASPS.

N.Y. State Department of Financial Services Head Ben Lawsky continues to look for big elephants to hunt.

This past few months and today the target is bitcoin. Hopefully, he will "get bored" of his pursuit of Ocwen Financial (OCN) and a settlement can be reached!

I continue to view a late December, late January timeframe for a settlement. The key issue will not be the fine (which I estimate at around $200 million), but rather the restrictions on growth that no doubt will accompany the settlement.

My guess -- since neither the company nor the DFS is speaking to the issue publicly -- is that Ocwen will agree to more monitors (raising expenses somewhat further) and will be restricted from making external servicing acquisitions for a relatively short period of time (hopefully less than six to nine months).

The shares of the Ocwen complex are down today on some perceived new "news," which is really old news and not relevant, in my view.

Yesterday, I reestablished my Altisource Portfolio Solutions (ASPS) long. (The key to the settlement as it relates to ASPS is whether the services it provides to OCN will be disrupted and forced to be reduced. My baseline case is this will not be the enforcement action).

Over the intermediate term (to answer a subscriber's question) ASPS is preferred as it is more "growthy" than Ocwen -- as ASPS is rapidly building out its third-party capabilities. Also, the company is not capital intensive, so it can embark on an active repurchase program.

Ocwen, by contrast, becomes more of a cost save and run off story if growth restrictions are included in the eventual settlement with the N.Y. State DFS.

I continue to add to both ASPS and OCN. And I am now bidding for an old fav, Altisource Asset Management (AAMC) now -- after the share price drop to $450 from $1200 in the last few months.

Position: Long ASPS, OCN and AAMC

Angry Cat?

  • Is the price of oil forming the classic "Angry Cat" pattern on the charts?
Position: None

Cashin in the Morning

  • Mid-morning musings from Sir Arthur Cashin.

Oil gives up earlier gains.  If selling becomes more pronounced, it could pull bids from equity rally.

Period from 12/15 to year-end has strong seasonal bullish bias.  Run rate slowing as European close nears.

Position: None

Calling an Audible

  • Adding to ETF short hedges.

Crude drop is accelerating (now about $0.95) and with it I call an audible and am adding to my ETF short hedges.

Position: None

Reducing Bond Short Again

  • Hoping to reload later.

I obviously didn't expect yields to rise by almost 25 basis points and the 10-year note since Friday, but they have almost accomplished that feat.

Now close to my near-term objective of 2.25%, I am further reducing my bond short in the hope that I can reload at better prices.

Position: Long TBF

Crude Down

  • Crude down by $0.40 a barrel now.

CVX, XOM and DVN are moving lower and have reversed by $2-$3 from the openings, as I warned.

The broader equity market may follow.

Position: Long CVX, XOM, DVN

Bette Davis Said It Best

  • Fasten your seabelts. It's going to be a bumpy next two weeks.
Position: None

Taking Some More off Bond Short

  • Getting nearer to my target.

With the 10-year note yield rising to 2.225%, I am taking some more of my bond short position off as my near-term objective was 2.25%.

I have moved from 16% to under 5% in my bond short.

I believe I will have a better entry point in the weeks ahead, particularly given the weakening economic data points.

I remain of the view that yields go higher in 2015.

Position: Long TBF

I'd Normally Be More Aggressive

  • But seasonality is a factor.

With growth clearly slowing around the world (see today's domestic data) and stocks ripping higher, I would normally be aggressively shorting the market.

But what's keeping me at around only 10% is typical seasonality (year-end strength).

Position: None

Energy Comes Off

  • We may have seen the highs of the day.

As expected, the energy stocks have come off hard since the gap opening.

Crude oil has just turned negative on the day after being much higher.

Gun to my head, I would guess that we have seen the markets highs for the day.

Position: Long XOM, CVX, DVN

Selling Some Citi

  • But maintaining my investment long.

Citigroup (C) is now trading $2.50 above where I added earlier this week. I am selling that stock incrementally purchased, but maintaining my investment long.

Position: Long C

Boockvar on the Data

  • Peter Boockvar parses the data.

After reporting a further moderation in its manufacturing index a few days ago, the Markit's measure of Services moderated as well. Their December index fell to 53.6, the weakest since February and down from 56.2 in November, 57.1 in October and vs the peak of 2014 of 61 in June. New orders fell to a 9 month low, backlogs were at a 5 month low and employment dropped to an 8 month low ("some firms noted that softer new business gains had led to more cautious hiring policies at their units"). Markit summed up this report by saying "a sharp slowing in service sector activity alongside a similar easing in the manufacturing sector takes the overall rate of economic expansion down to the weakest since October '13. The extent of the slowdown suggests that economic growth in Q4 could come in below 2%...The slowdown is linked to weaker growth of new business as customers becoming increasingly worried about the economic outlook both at home and abroad, with the prospect of higher interest rates cooling demand alongside rising global geopolitical concerns." Bottom line, as Markit's indices are relatively new, not many pay attention but in the context of the robust consensus of the US economy, especially compared to everyone else, we can't ignore what Markit is saying. In today's services figure, Markit asks questions of over 400 companies and combined with its manufacturing participants, questions over 1000 companies.

After the unexpected contraction in the December NY manufacturing index and following the 20 point spike in November for Philly to 40.8, the December Philly index fell back to 24.5, 1.5 pts below the estimate. As November was clearly a complete outlier, all the components fell sharply m/o/m. New orders fell 20 pts to 15.7 which is back below the 6 month average of 22.2, employment dropped by 15 pts to 7.2 vs the 6 month average of 14.0, and backlogs were down by 5.5 pts to just 1.5 vs the 6 month average of 5.0. Inventories were little changed and shipments fell by half to 16.1 vs the 6 month average of 22.8. Also of note, the 6 month Business Activity outlook fell to 51.9, the lowest since May from 57.7 in November. Bottom line, while the headline figure is still at a good level (headline though is not a sum of its parts), all the major components are below their 6 month averages (to smooth out the November outlier) and after the contraction in NY and if followed by other regional surveys, the Markit measure of manufacturing moderation may not be that far off.

Position: None

Historical Data

  • Here are some good historical data from my friends at BTIG.

A little historical perspective on premarket moves of this magnitude:

Following the bottoming out process that occurred following the US debt downgrade in early Oct 2011, there have been 10 occasions when SPY has opened higher by at  150 bps ¿ during 8 of those 10 occurrences, SPY continued to gain through the day, closing above the open on 8 of those days (3 of the 8 between 50 and 100 bps and 3 above 100 bps)

Position: None

Scaling Into Index Shorts

  • Baby steps.

I have been scaling into some more index shorts (baby steps) and I have moved my net short exposure back to a little over 10%.

I shortesd SPY on a scale up to $204.65 and QQQ up to $103.40.

Position: Short SPY, QQQ

Reducing Short Bond Position

  • It's tactical.

I am reducing my short bond position from 16% to between 5% and 10% based on the very quick rise in the yield on the 10-year note to 2.21% from 2.03%.

This is a tactical trading move.

As I mentioned yesterday and on Friday, my one-month upside yield target was 2.25%  and we have, in a few trading days, moved towards that level now.

I covered my TLT short and sold my TBT (remember this one is levered and has option decay, so it's only a trade for a few days).

I covered TLT at $124.70 and sold TBT at $47.72.

Position: Long TBF

If I Were a Trader

  • But then again, no.

If I was a trader with a short timeframe, I would sell off my energy holdings into today's rise.

But I am an investor in these names with a longer timeframe and I am maintaining my longs in Exxon (XOM), Chevron (CVX) and Devon (DVN).

Position: Long XOM, CVX, DVN

Looking to Short

  • I am looking to re-establish my shorts in Berkshire (BRK.B) and Apple (AAPL) in the days ahead.
Position: None

Jobless Claims Down

  • Data are uneventful, but there's some aspects of encouragement.

Initial jobless claims fell by 6,000 to 289,000, which was also 6,000 less than expected. The 4-week average was 299,000 from 300,000.Last week there was a  strange jump in continuing claims, but luckily, after rising 148,000 in last week's release, it fell back by 147,000 in today's report.

Bottom line, today's data were uneventful, but encouraging that claims remain below 300,000 and continue to point to a subdued level of firings.

The data should be supportive of my short bond position

Position: Long TBT, TBF, short TLT

Boockvar Weighs In

  • The Gospel According to Peter Boockvar.

Markets are always so interesting in how they interpret not only data but the words of our central bankers. In the context of a very oversold market, equities responded to the "patient" word in the FOMC statement and the comment from Yellen that rates likely won't rise at the next 'couple' (2) meetings. The US treasury market and the US$ grasped more on to the greater attention to the improving labor market and the look thru on current headline inflation trends. The 2 yr note yield is up 7 bps in just the past two days to just shy of the highest since 2011 at .62% and the 1 yr bill is at the highest since April 2011 and has essentially doubled in yield over the past month. And, the US$ ripped higher yesterday. In terms of figuring out where the economic goal posts are that will trigger a Fed move, I don't think any of us know anymore and therefore the Fed has essentially taken them off the field. The US labor market has generated monthly job gains on average of 241k in 2014 vs 194k in 2013 and the unemployment rate since January '13 has fallen from 7.9% to 5.8% and the Fed remains deathly afraid of raising rates even by 25 bps off zero. This is not prudence on their part, it is instead dangerous.

The Swiss National Bank lowered its deposit rate to negative 25 bps as it preps for more easing by the ECB at the same time the SNB is trying to hold the 1.20 FX cross with the euro. The SNB is also saying the "worsening of crisis in Russia was major contributory factor." That's a nice excuse but it's the currency war with the ECB that is the main reason and the Swiss franc is lower and the Swiss stock market is up 2% in response. The SNB, once the bastion of hard money, strong currency policy, is now just another chronic massive money printer.

The Germany IFO business confidence figure in December was up a touch to 105.5 from 104.7 and that was right in line with expectations and led by the Outlook component. This compares with the average year to date of 108 and the IFO said this, "dropping oil prices and a falling euro exchange rate are seasonal gifts to the German economy."

While the UK imports a lot of goods and services from the US, they may have just discovered their greatest find, Black Friday. While they of course don't celebrate Thanksgiving, the introduction of Black Friday the same day we have it resulted in a 1.7% m/o/m increase in retail sales ex auto fuel which was well above the estimate of up .3%.

The ruble is up slightly after yesterday's bounce on the heels of the central bank rate spike. Putin today is ranting and blaming western forces for many of his ills. He attributed 25-30% of Russia's economic problems to the sanctions with the decline in energy prices filling in a large part of the difference. He's also not interested in wasting FX reserves to support the ruble.

Home prices in China continued to weaken as they fell .6% m/o/m in November after dropping .8% in October. On a y/o/y basis prices for new apartments fell in 68 of 70 cities surveyed vs 67 in October and 1 in June. A similar trend was seen for existing apartments. China is letting the air out but trying to do so in a most controlled fashion by easing credit restrictions in multiple ways.

Position: None

A Look at 6 Russian Risks

  • Let's dive deeper into the issue.

The consensus view is that lower oil prices will buoy global growth, moderate and contain the rate of inflation, reduce interest rates and permit central bankers to stay lower for longer.

As we approach the end of the week, I wanted to do a deeper dive and be more specific in assessing the risks associated with the Russian problem and the possibility of a loan default.

As I see it here are at least six identifiable risks.

  1. Russia defaults: This is not a high probability event as, according to students of that country, Russia has $210 billion in public sector debt. This represents only about 1/10 of Russia's GDP and compares with more than $400 billion in foreign exchange reserves (though how much of this is liquid is being debated).
  2. Russia's economic contraction adversely impacts an already moribund EU economy. In turn, this cripples global GDP: Direct trade between Russia and Europe is relatively small because Russia is not integrated into that region of the world. More risky is an economic slowdown in other energy-dependent emerging markets (some of whom might face capital outflows as oil prices descend). Such a contagion must be closely monitored.
  3. Risks associated with Russian corporate debt and bank loans (particularly to Europe): This risk is a serious one as a levered and already-challenged European bank problem could erupt into a systemic problem and could spread to our economy and financial institutions. For now, according to the sell side, a potential Russian bank situation has been contained as bank loan exposure in Europe to Russia represents about 3-4% of their capital bases and only about 1% of total EU GDP.
  4. Geopolitical risk: This is the big unknown as no one knows what a scared mouse (Putin) might do when faced with a bunch of cats.
  5. The Russian Ruble is overvalued: As expressed yesterday morning, capital outflows and a run of the banks is a big risk as the recent rise in interest rates from 10.5% to 17% has failed to halt a capital exodus and to stabilize the country's currency. Capital controls may be next, but controls rarely have anything but a temporary impact.
  6. Owners of emerging market debt and equity sell their liquid assets: This sort of domino impact must be watched closely because those markets (both debt and equity) tend to be limited liquidity.

I continue to be of the view  that the drop in the price of oil may have a more ambiguous net impact on economic growth (relative to consensus).

Stay tuned.

Position: None

Liking My Bond Position

  • 10-year at 2.18%.

Despite some pushback and debate from some subscribers in our short bond debate, I am liking this position into the New Year.

The yield on the 10-year U.S. note has risen to 2.18% this morning from 2.03% late last week.

Position: Long TBT, TBF, short TLT

Tweet of the Day

Position: None

The Market Is Wild

  • Added small to my net shorts.

The market is wild and futures have climbed dramatically overnight.

As of late last week, I expected a seasonal period and year-end rally, but I did not expect a rally of the magnitude that we have seen in the last 24 hours. 

As I wrote late in the day on Monday, the rip since Friday has taken away or borrowed from my expectations of year-end strength.

With futures ramping I have added small to my net shorts in SPY ($204.44) and QQQ  ($103.15). in premarket trading.

I start the day about 9% net short, without adding back my 16% short bond position.

Next up (in this morning's opening missive), a deeper dive into the Russian crisis.

Position: Long TBT, TBF, short TLT, SPY, QQQ

The Question of the Day

  •  Which is it?

Question for Janet Yellen: If you say deflation in oil prices is good (and a net positive) for the U.S. economy, why is inflation ( and a general rise in prices) also good for the economy?

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%