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DAILY DIARY

Doug Kass

What, Me (And Larry) Worry?

Thanks for reading my Diary today.

Enjoy the evening.

I am bound for many margaritas!

Be safe.

Position: None

C Bidding

I am back bidding for more Citigroup (C) .

Position: Long C, Short C calls

Perplexing!

According to the October New York Fed's Survey of Consumer Expectations just out, one year inflation expectations rose another four tenths to 5.7%, another high in this eight year survey. Higher expectations for the prices of gasoline, college education, food and rent led the way. Inflation expectations looking out three years was unchanged at 4.2% after three straight months of increases. 

We also saw a survey high in earnings expectations of 3%, up one tenth month over month. And, for one's household finances, income growth expectations rose three tenths to 3.3%, also a survey high. 

Chicago Fed president and the always dovish Charlie Evans needs to see what his colleagues here at the NY Fed said because Evans in his comments today also said: 

"If you look at surveys of households or measures derived from financial markets, longer run inflation expectations appear either roughly in line or even a bit below the FOMC's 2% average inflation goal."

I'm not quite sure what he's looking at!

Position: None

Programming Note

I have a routine medical appointment and will be back before the close.

Position: None

A Heads Up

If you are trading/investing in Penn National Gaming (PENN) , I am told there is a New York Post article suggesting that Bar Stool Group cannot compete for gambling in New York.

Position: None

Gold Rising

Gold continues its very quiet but steady rise in price.

Position: Long GLD common and calls

Macquarie on Discovery

From Macquarie, which upgraded DISCK to Outperform: 

"We are upgrading DISCA shares from Neutral to Outperform, raising estimates following Q3 results given a good advertising backdrop, and based on growth at Discovery+ and anticipation of a value-creating WarnerMedia merger in mid-2022. Thesis: Discovery+ growth, Warner merger, and cheap valuation Discovery+ subscriber growth and engagement continues to rise, with total DTC subs now surpassing 20m, and with low levels of churn and strong retention. Discovery has made progress on its international D+ rollout in 2021: Discovery has been working to align its technology platform to support further growth including a likely ad-supported offering as well as co-marketing with HBO Max, and distribution arrangements with local pay TV and telco operators. This could lead to nearly 100m combined Discovery+/HBO subs in '21, and 200m by 2026. ARPU on Discovery+ Ad Lite in the US is more than double that of the ad-free service due to the value of targeted ad placements, and we believe should attract more users in many international markets; Discovery also has an inherent advantage with its brand recognition in many countries from its well-distributed pay TV networks."

Position: Long DISCK, Short DISCK Calls

Minding Mr. Market

The rally in the pull forward group of stocks seems decisively over and the recent deterioration in the share prices of this group of stocks may continue. 

I was terribly early on this concept - I covered some of my favorites pull forward stocks like Zoom (ZM) and Peloton (PTON) WAY TOO EARLY. I had sizeable shorts for the right reasons... 

But there are a number of other pull forward stocks like Home Depot (HD)  , which I am no longer short, Facebook FB , Carvana (CVNA) , Netflix (NFLX) , the online gaming companies ( (DKNG) and (PENN) ), and many others that are unlikely to continue to support this amazing bull market. 

Moreover, the big ramp in the opening stocks could soon exhaust itself especially after five consecutive weeks of advances in the broader averages. 

I am expanding my short exposure, in general.

Position: Long SPY, Short NFLX, CVNA, SPY calls

Tweet of the Day (Part Deux)

I find the market advance in front of this as remarkable:

Position: None

As Promised...

I'm back short Starbucks (SBUX) at $115.65.

Position: Short SBUX

Some Good Morning Reads

* Americans are flush with cash but they think the economy is awful.

* Is Bitcoin too big to fail? 

* The three levels of FOMO.

Position: None

Legalizing Cannabis

I tend to agree with this research blurb from Cowen:

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I lightened up from an excessively large (MSOS) long, which has moved from $25.75 to over $31.00 in less than two trading days, with the sale of some out of the money December calls (short).

Position: Long MSOS

Tesla Moves

I took in (covered) my November (TSLA) $1160 puts at about $23 for a gain.

I also took in some more of my Tesla short.

Quite small in the name now - but plan to reshort any further rallies in the name.

Position: Short SPY

Banks Trading Better

I have been steadily accumulating Citigroup (C) over the last week.

Position: Long C, Short C calls

From The Street of Dreams

Discovery (DISCK) was upgraded at Macquarie from Neutral to Outperform.

Position: Long DISCK, Short DISCK calls

The Book of Boockvar

Peter explains why interest rates have fallen:


I got a lot of questions on Friday and many seem to be wondering why long rates fell in the face of a good payrolls report and continued evidence of a tight labor market and accelerating wage growth. I'm going to reprint here what I wrote on July 8th, three weeks after Jay Powell said they are finally talking about tapering.

"It was June 16th the day Jay Powell admitted that taper talk was finally upon us. The 2s/10s spread was 133 bps vs 105 today (and it still is on November 8th). QE1 began in March 2009 when the spread was about 200 bps and then widened to almost 280 bps by Q1 2011. QE1 ended on March 31st 2010 and the 2s/10s spread was 281 bps that day only to narrow to 232 bps three months later. QE2 was hinted at Jackson Hole in August 2010 when the spread was 196 bps and widened to 289 bps by February with actual implementation in November 2010. On the day it ended on June 30th 2010 the spread was 270 bps only to narrow to 167 bps over the following three months. The spread was 150 bps when Q3 was initiated in September 2012 and widened a few months later. By the end of QE Infinity in 2013 the spread widened to 259 bps. Tapering began in December 2013 and ended in October 2014 and the spread narrowed to 183 bps by that time. QE4 of course started in March 2020 and the spread was just 11 bps and got as wide as 158 bps in March 2021.

Are you seeing a pattern here? It's pretty obvious. The yield curve STEEPENS when QE is on and NARROWS when it gets turned off because of the expansionary and contractionary expectations of easing and tightening. What we are seeing right now in the US yield curve is pretty much an exact replay with the Fed about to taper in coming months."

I don't want to discount though the rally in European bonds beginning Thursday as a positioning influence too after the BoE got cold feet on a rate rise and the ECB keeps pushing back against the market on eventual rate rises. But, I think the above is the bigger picture factor as monetary tightening always ends up with some accident and this time the tightening is global.

To the pushback from the ECB over tightening, chief economist Philip Lane who is one of the most dovish central bankers I've heard over the years, said today "If we look at the situation over the medium term, the inflation rate is still too low, below our 2% target. This period of inflation is very unusual and temporary, and not a sign of a chronic situation. The situation we are in now is very different from the 1970's and 1980's." He then went on to say "We will look out for unsustainable patterns that might lead to pressures that are undesirable from an inflation perspective. But let me emphasize: we don't see this right now. It's more of a risk factor that we need to take a look at."

What makes what Philip Lane is saying so uncredible is that PPI in September in the Eurozone was up 16% y/o/y and 2.7% in the month alone. This is absolutely 1970's levels of inflation, although the factors are different, at the wholesale stage. Him looking at just the CPI and taking comfort is clearly someone not looking at the whole inflation picture. Either way, markets are ignoring his opinion anyway today as we're seeing a jump in inflation breakevens for the euro inflation swap and the German breakeven.

Used car prices have been one of the very visible poster children for the current inflation run we're seeing. Those who never saw overall inflation coming used it as an example of only a few prices rising that would peter out. Jay Powell did as well most of this year. Not only is inflation now widespread, used car prices keep going higher. Friday Manheim's wholesale used car price index rose 9.2% m/o/m in October seasonally adjusted and are up 38% y/o/y. They also said, "This October was the first October in the history of the Manheim Index data, which dates to 1997, to see a non-seasonally adjusted price increase in October. The non-adjusted price increase in October was 5.4%." We know the reasons why so no need to repeat them here but just highlights again how persistent and I argue AGAIN, the sustainability of the inflation we are currently experiencing.

Before we saw last Friday's payroll report, the NFIB released its jobs components of its monthly optimism survey for October. Plans to Hire was unchanged at 26% while Positions Not Able to Fill fell 2 pts off a record high. Current Compensation and Compensation Plans both rose 2 pts m/o/m to record highs dating back to 1984 when the questions were first asked. The NFIB said "Small business owners continue to make business and hiring adjustments to help manage the busy holiday season. The staffing shortage has not eased up for small businesses and many are passing those costs on to their customers." The bold is mine.

COMPENSATION

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COMPENSATION PLANS

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It's a Fed speak week with a variety of members giving us their thoughts this week. As we know they will not double tighten by tapering and raising rates, I do think they continue to say they will prioritize getting thru the end of QE first. When I'm asked when I think they'll hike rates, I only say when QE ends. If it ends.

China said its exports rose 27.1% y/o/y in October, better than the estimate of up 22.8%. There is an enormous amount of global demand for the things China has to make but we know getting enough shipped out and arrived on time is a different story. Leading the way were shipments of household appliances, lightings, clothing, plastics, furniture and electrical products. Imports were higher by almost 21%, though that was less than the forecasted increase of 26.2%. There was a drop in the imports of commodities y/o/y except for natural gas which rose by 22% and coal by 1.9%. This data point is not a market mover typically and Chinese stocks are mixed. The 10 yr Chinese yield is little changed as is the offshore yuan vs the dollar. Copper is little changed too.

Of note with Chinese stocks this morning are the education stocks that were pummeled months ago and are ripping higher today as DJ is reporting that the Chinese government is going to give out licenses to companies to allow them to do after school tutoring.

Position: None

Tweet of the Day

Position: None

Tesla Talk

I covered one third of my Tesla (TSLA) short in premarket under $1140 this morning. 

First Time, Long Time

I started my Tesla short recently at around $1170 and I have been steadily expanding my short holdings (here and here). 

And I don't know if this is true, but my Gnome had heard rumors, high above the Alps, of a Tesla offering. 

Then this weekend, Elon Musk dropped this bomb


Which really wasn't a bomb - in reality the sale is being made out of necessity in order to satisfy a tax bill). 

In my view, Musk's decision whether to pay taxes by selling shares  - to be determined by a Twitter poll - is likely to place much more pressure on the institution of a Billionaires Income Tax - as he seems to be trivializing and/or scoffing at the possible tax's enactment. 

These are crazy times.

Position: Short TSLA

Is The Option Market's Tail Wagging the Stock Market's Dog?

* Market structure has become a dysfunctional mess and some individual share prices (e.g., Tesla) have become a derivative of the options market and flows into calls

* Gamma is "weaponizing" and squeezing the Bull Market advance by spurring a large amount of buying and re-allocation from speculators and systematic "vol target/risk control" managers

Few address the role of options (and gamma) on trading - and its impact on equities. 

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Nomura estimates that 'Vol Control" types have purchased nearly $60 billion of equities over the last month while CTA trend types have bought an additional $50 billion in stocks over the last four weeks. 

The Options Casino Has Gone Wild

Call buying, mostly in weeklies, are also buoying individual stocks. Tesla (TSLA) is the most notable example - but I now see it elsewhere, its entering trading in Nvidia (NVDA) :

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Source: Nomura

Notable "crashes up" and exponential moves in Tesla (185k TSLA January 2024 options traded on Wednesday!) and other large cap tech stocks are, in large measure a function of buying of highly convex, short-dated, out of the money calls. The important (and heavily weighted) role of large cap tech is readily seen in the relentless advance of the major exchange traded funds and has had a spillover impact on the Nasdaq, in particular and on implied volatility in general:



 From Nomura: 

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  • Perhaps as a sidenote-but a very important one from the twittersphere, where folks sent me some screenshots of the brilliant @SqueezeMetrics kicking-off a fascinating convo regarding the natures of aforementioned and unprecedented "weaponized Gamma" flows in TSLA options-where the story is no longer purely just about retail day trader lotto tickets trying to create a squeeze off the back of the hedges from Dealers, who are short said Call Wing / right-tails and needing to cover themselves for an extreme outcome

    The theory from @Squeezemetrics was now about the waaaay deep OTM TSLA Call flows which have been trading (strikes at 2000, 2100, 2200 etc) is that there is an additional thesis at play now: where these extreme "right tail" Calls do not just act as a hedge against a calamitous "Gamma spiral" already in motion in-and-of-itself...but one of such magnitude where a self-reinforcing panic grab for convexity to the upside (in TSLA "Call Wing" most obviously, but also QQQ Calls, ARKK Calls, anything where it has a large weighting) then could actually then create a disaster-event for PASSIVE investing on account of index weight construction / rebalancing, as the TSLA (or NVDA) weighting explodes across the Delta One space and "breaks" investors stuck in products who cannot participate in convex, violent, crash-y moves to this impossible "broken market" extent-maybe a more strategic, philosphical question for now, but a fascinating-one nonetheless
  • All of this said and back to tactical thoughts...looking back at TSLA's Call options, the mega OI on the $1200 and $1300 lines are in-play today, due to of course how many of said Calls were for Friday's expiration, so there is mechanically going to be Delta to unwind (long TSLA shares as hedge for short Calls) which should most likely pause the melt-up for at least today, in the absence of freshly motivated upside lotta ticket "Gamma Squeeze" attempts...and lord knows if we were to somehow see TSLA spot drop below $1200, we could then just as easily see dynamics reverse and contribute to an acceleration lower
Position: None

To What Are Employers Surrendering If Not Reduced Demand?

From Danielle DiMartino Booth: 

At 28.3%, those who have been unemployed for fewer than five weeks are now at a post-pandemic high; meanwhile, 31.6% of the unemployed have been out of work for more than 27 weeks, a 13-month low but still well above the 19.3% registered in February 2020

  • After hitting a high of 41.7, the manufacturing worker workweek has fallen to 41.3, the lowest since December 2020; in leisure and hospitality, the workweek peaked at 25.3 hours in April with the last round of stimulus checks, before falling slipping back to 25.0
  • Per Burning Glass, job openings in manufacturing are at -9.5% in the week ended October 29 vs. January 2020, the first negative read since last November; at -10.5%, leisure & hospitality openings have contracted for the last two weeks to their worst showing since January
Position: None

SPY Move

I added back to my (SPY) short in premarket at $468.85.

Position: Long SPY, Short SPY calls

7 Chart Sunday  

From Charlie!, here

Position: None

Tweet of the Month

Crazy times... from Elon Musk:

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-35.69%
Doug KassOXY12/6/23-14.96%
Doug KassCVX12/6/23+10.20%
Doug KassXOM12/6/23+12.04%
Doug KassMSOS11/1/23-28.97%
Doug KassJOE9/19/23-16.61%
Doug KassOXY9/19/23-26.35%
Doug KassELAN3/22/23+33.30%
Doug KassVTV10/20/20+63.03%
Doug KassVBR10/20/20+76.55%