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DAILY DIARY

Doug Kass

Until Tomorrow ...

Thanks for reading my Diary today.
A lot to write about tomorrow!
Enjoy the evening.
Be safe.

Position: None.

BA to the Green?

Boeing (BA) was -$5 at the lows and is now threatening to go into the green.

Position: Long BA, Short BA calls.

IWM

If the Russell Index (IWM) was going to make an upside breakout in early November, it didn't happen because from November 8th it has declined from 245 to 218.50.

Position: None

An Observation

Very quietly, a number of reopening plays are coming well off of their lows - though the S&P is still near its low. 

Such names as (LYV) , (DAL) , (UAL) , (LYV) , (HLT) and (BA) come to mind.

Position: Long BA, Short B calls

No Long Adds Now

A lot of individual stocks have hit my buy levels this week. 

However, until the markets stabilize I do not plan to add to any longs. 

I plan on updating my "Levels" column early tomorrow morning.

Position: None

The Dip

Margin calls between 2:30-3:00 pm might have been responsible for the dip in the averages.

Position: None

Recommended Reading

From my pal, Tim Seymour... Cannabis stocks could get a legislative jolt.

Position: None

Broken Charts

Whatever one's market view is there's one thing that's a certain truth - there's a plethora of broken charts running through a broad swatch of industries now.

Position: None

Two Sales

I have sold my small holdings (long) of Alphabet (GOOGL) and Amazon (AMZN) today.

Position: None

Subscriber Comment of the Day

Canadjuneh

from David Rosenberg today:
"Iron ore is down 60%, lumber is down 50%, steel prices are down 25%, soybeans are down 25%, corn is down 20%, oil is down 20%, base metals are down 12% and Powell decides today is the day to join the consensus inflation bandwagon. Great timing!"

Position: None

Programming Note

I have a doctor's appointment between 1-2 pm today.

Position: None

Buys?

No buys today.

Position: None

From Peter Boockvar

The September S&P CoreLogic home price index rose 19.5% y/o/y after a 19.8% increase in August. Plug that into CPI and you have a 10% y/o/y rate but instead we have imputed rents in CPI which is way understating the current pace of rent increases. Also, the Fed is still buying MBS and will continue to do so into 2022. HOPEFULLY though the mind boggling price increases have seen their best days and price gains will slow from here.

Leading the gains was the 33% price increase in Phoenix, followed by 28% in Tampa and 25% in both Miami and Dallas. At the bottom was the 12% price gain in Chicago, almost 13% in Minneapolis and around 14% for both DC and Cleveland.

While I don't want to downplay Omicron and COVID and its real life impact to both health and business activity, I remain of the belief that the biggest risk to markets and the economy is inflation and the central bank response to it and how they can pull off monetary tightening without tightening financial conditions.

S&P CoreLogic HPI y/o/y


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The Chicago November manufacturing PMI fell to 61.8 from 68.4. The estimate was 67. To smooth out this volatile number, the 3 month average is now 65 vs the 6 month average of 66.9. What was noteworthy was the rise to 59.6 in inventories, the highest since the fall of 2018 as "some firms reported stockpiling to get ahead of further supply chain disruptions and counteract logistical issues." New orders and backlogs fell. Supplier deliveries fell a touch, "however multiple survey respondents reported November deliveries to be the slowest ever." With respect to inflation, prices paid fell to a still very high 93.8, just below the record high "with ongoing higher costs for production materials reported." Employment at 51.6 is around its one year average "as firms struggled to find qualified workers to meet vacancies."

Here were the 2 special questions:

1) "Are you seeing any easing up in the supply chain blockages? The majority (64.9%) said no, whilst 24.3% said somewhat."

2) "Are you managing to pass the higher costs of doing business onto customers? A total of 78.4% of respondents were at least partially managing to pass costs onwards, with 21.6% unable to."

Bottom line, there is nothing in this that we don't already know. I do believe that the intense supply pressures will ease after the holidays but that doesn't mean everything quickly goes back to where we were in 2019. Companies have absorbed sharp increases in their cost structure and if the upward trend in wages continues, those higher cost pressures will only persist and thus price increases will sustain itself into 2022 and 2023 I believe. Either way, as stated many times, monetary policy is still positioned as if there was a global emergency and now face the most extreme price pressures since the 1970's.

CHICAGO PMI

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The November Conference Board's consumer confidence index fell to 109.5 from 111.6 in October. Both the Present Situation and Expectation components were lower m/o/m. One year inflation expectations jumped by 5 tenths to 7.6%, the highest since June 2008 and is the 2nd highest print since this question was first asked in 1987.

The labor market answers is why this index is outperforming the UoM index. Those that said jobs were Plentiful rose 3.2 pts m/o/m to the highest level since this survey began in 1967. Those that said jobs were Hard to Get was little changed at 11.1, just off a multi year low. Employment expectations for more jobs gave back 2.3 pts of last month's 3.1 gain. Those expecting an increase in Income fell .5 pt after rising by 1.5 pts last month.

What was similar to the UoM survey was the sharp drop in spending intentions because of higher prices. Those that plan on buying a car fell to the lowest level since October 2010. Those that plan on buying a home declined to just .1 pt from the lowest since 2015. Expectations in buying a major appliance is at the lowest since May.

The bottom line from the Conference Board was this: "Concerns about rising prices - and, to a lesser degree, the Delta variant - were the primary drivers of the slight decline in confidence."

My bottom line, to repeat, while this measure of consumer confidence has held in much better than the UoM survey because of its higher labor market component, it still remains well below the February 2020 print of 132.6. A higher cost of living relative to wage growth is the main reason.

CONSUMER CONFIDENCE

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JOBS PLENTIFUL

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ONE yr INFLATION EXPECTATIONS

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Position: None

Breadth

Here is the market breadth and heat map as of 11:10 am.



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Position: None

Covering Shorts

I have covered the following shorts this morning - (BLI) , (BX) , (DNUT) , (DWAC) , (FXLV) , (HOOD) , (KKR) , (SNBR) and (W) .

I also covered (LSPD) and (CVNA) shorts just now.

And I have covered my (ARKK) short.

Position: None

Powell's Comments

Hawkish comments by Powell have dramatically impacted the market in a negative way. 

He appears to be giving up on "transitory inflation."

Position: None

Oversold Breadth

The 10 day moving average of NYSE breadth is oversold:

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Position: None

The Book of Boockvar

While the Pfizer CEO said let's wait for the data in coming weeks before speculating, the CEO of Moderna said this in the FT with regards to the change in efficacy of its vaccine, "I think it's going to be a material drop. I just don't know how much because we need to wait for the data. But all the scientists I've talked to...are like, 'This is not going to be good.'" Delta resulted in a drop too so another decline should not be a surprise but the bottom line with the vaccines is to keep us out of the hospital and alive, not to eradicate COVID at least until there is global herd immunity. Emphasis on 'global' which we're obviously far away from. Either way, we're not shutting down again and hopefully most of the world doesn't either and we'll push thru the 3 plus months until new vaccines attack the new variant.

To the economic data, China said its state focused November manufacturing PMI rose to just above 50 at 50.1 from 49.2 in October as power came back on and infrastructure spending picked up again. Price pressures eased but coal and iron ore, key components here, have been all over the place. The non manufacturing component (which includes the under stress residential construction/real estate sector) was little changed at 52.3 from 52.4 but likely the Caixin private sector index will reflect what's really going on. Construction did pick up and Chinese officials are definitely trying to get unfinished projects done. As we take state sector China data with a grain of salt, the Shanghai comp was little changed but the H share index in Hong Kong did selloff by 1.5% but more so in response to the Moderna comments.

Somewhat dated, Japan's unemployment rate fell to 2.7% from 2.8% in October but for the wrong reasons as both the size of the labor force and number of employed fell as did the participation rate. Also, the jobs to applicant ratio fell to 1.15 from 1.16. The Japanese vaccination rate is now up to 77% but the manufacturing sector is dealing with all the supply challenges that the rest of us are. Japanese yields did fall but inflation breakevens were little changed.

The yen is higher as energy prices fall and there is now a tight relationship between the two with Japan importing most of their needs. The dollar is also down against the euro, pound, Swiss franc and Mexican peso and again is not a safe haven today. So maybe the recent rally in the dollar was just an interest rate differential play after all? The US dollar is up against the Canadian and Aussie$ but maybe that's just a commodity trade with oil prices lower.

WTI in white/Yen in orange

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On the heels of the hot German CPI yesterday and followed by the read in France, the Eurozone November CPI rose 4.9% y/o/y, up from 4.1% in October and above the estimate of up 4.5%. The increase from last month was .5% vs the forecast of up .1%. The core rate accelerated to a 2.6% gain vs 2% last month and 3 tenths more than expected. A 27.4% jump in energy prices led the headline gain but non energy industrial goods prices rose 2.4% y/o/y and service prices increased by 2.7% y/o/y. In response, the 5 yr 5 yr euro inflation swap is up by 3 bps to 1.87% and if it wasn't for the Moderna comments, they'd be up a lot more today.

Yes, maybe this is temporary but all this QE and negative rates throughout the region is not a good place to be in even if it slows. It is definitely not a focus of anyone, I will repeat my concern that the European bond market is a tinder box of danger if inflation is not transitory.

EUROZONE Core CPI y/o/y


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5 yr 5 yr Euro Inflation Swap

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Position: None

CBS Studio Center Sold

As part of a previously announced sales process, ViacomCBS (VIAC) announced the sale of the 55 acre CBS Studio Center (Studio City, California) for $1.85 billion this morning.  

The company will enter into a long term lease-back with the new owners.

Position: Long VIAC common and calls, Short VIAC puts

From The Street of Dreams

General Electric's (GE) shares spiked to over $116/share after the announcement of the spin. 

The shares are now trading under $98. 

I have been sour on the General Electric spin:

Nov 10, 2021 ' 11:10 AM EST DOUG KASS

Avoiding GE

This week I warned about the (GE) spin - and I will continue to warn and avoid the shares as I see limited upside.

Position: None

What's Going to Make This Stock Move?

* Here is another version of my newest column idea!

The shares of ViacomCBS (VIAC) , like every other streaming company - Disney (DIS) , Discovery (DISCK) , etc. - has suffered in the markets over the last few months. 

I believe the proximate cause reflects investors fear of a profitless prosperity in streaming - owing to current and prospective large content expenses recently announced by every company in this space - in their recent quarterly release commentary. 

Streaming seems destined to be "owned" by a small group of companies who have the financial resources to dominate market share by delivering a wide array of content. 

I strongly suspect that Shari Redstone, who recently added to her personal VIAC holdings at price levels 10% higher than the current price, clearly recognizes this. 

I continue to be of the view that there is a growing inevitability that she sells out to a company with much stronger financial resources. 

I suspect the likely buyer may come from the ranks of FAANG rather than another media company. 

In the meantime, news of any streaming consolidation could aid this much hated market sector.

Position: Long VIAC common and calls, DISCK, DIS, AMZN, GOOGL, Short DISCK calls

Chart of the Day (Part Deux)

Value has been a trap:

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Position: None

A Legislative Update

For those interested in cannabis equities:

Position: None

A New Regime of Volatility in the Bond and Stock Markets

Both fixed income and equities are now experiencing a new regime of heightened volatility.

We all pay close attention to stock market volatility, but the volatility in bonds has been even more pronounced.

The yield on the 10-Year U.S. Note has had three four standard deviation moves lately -- from 1.70% to 1.40% to 1.70% and, now, back down to 1.43%.

This is extraordinary and even more difficult to navigate both markets and asset classes.

Position: None

Algos, Memories and Moderna

Position: None

The Structural Problems Associated With Shorting...

Today's markets provide an immense challenge to money managers, like myself, who actively sell short.

On one hand, shorting the Indices (as I have had unprofitably done in the past) exposes a short seller to the massive and unrelenting flows going into the broader averages (S&P and Nasdaq) that are dominated by the anointed "Nifty Seven" and to the machines and algos, that too, litter the market landscape these days.

On the other hand, shorting individual stocks exposes a short seller to tail risks associated with the sometimes lunatic trading at wallstreetbets, Robinhood et al, which routinely target stocks for short squeezes. The market is littered with examples of this -- like Digital World Acquisition Corp. (DWAC) (remember when the shares traded at $175) AMC Entertainent  (AMC) , GameStop  (GME) ,Ginkgo Bioworks Holdings  (DNA) , Robinhood  (HOOD) (remember when the shares traded at $80?), etc. -- in which tail risks to shorting are a bonafide investment threat.

I find myself (less) bearish but still not bullish -- and these structural short selling challenges present a quandry for me.

Position: Short HOOD, DWAC

Tweet of the Day (Part Trois)

Position: None

Chart of the Day

10-year yields are now well below Friday's levels:

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Position: None

Tweet of the Day (Part Deux)

As I suggested in yesterday's opening missive:

Position: None

Premarket Adding

I am adding to Boeing (BA) ($194) and Citigroup (C) ($63.65) in premarket trading/panic.

Position: Long BA, C; Short BA calls, C calls

Tweet of the Day

Position: None

More Night Moves

"Workin' on our night moves
Trying to lose the awkward teenage blues

Workin' on our night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."

- Bob Seger, "Night Moves
"

S&P futures were +15 when I went to sleep last night and are now down -60 handles as pandemic fears heighten:

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-33.86%
Doug KassOXY12/6/23-15.46%
Doug KassCVX12/6/23+9.14%
Doug KassXOM12/6/23+11.94%
Doug KassMSOS11/1/23-32.71%
Doug KassJOE9/19/23-17.22%
Doug KassOXY9/19/23-26.77%
Doug KassELAN3/22/23+33.94%
Doug KassVTV10/20/20+62.27%
Doug KassVBR10/20/20+75.46%