"Just one more thing."

- Lt. Columbo

(GRBK)  executes - nice bottom and top line beats.

Despite a $3.8 billion sell order on the close, stocks bounced a bit off of their lows in the last 10 minutes.

The carnage was broad today -- centered on financials and technology.

Though my Trade of the Week was a bearish one (short (SPY) calls), as the markets fell in the afternoon I was a modest net buyer into today's weakness.

I continue to sanction trading sardines and not eating sardines - in the belief that Buy and Hold Is Dead(for now).

Thanks for reading my Diary today.

Enjoy the evening.

Be safe.

FibroGen (FGEN) is down only small after the EPS release and despite the broad market selloff. 

The company noted in their 10K that there is a subset of patients in both iPf and dmd they have reversed fibrosis. 

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In first iPf phase 2 they measured fibrosis by hectare scan. 35% had stable or decreased fibrosis. (I've seen that in dmd with heart and muscle). 

The second phase 2 in iPf generated an overall decline very similar to this study.

I got longer into this whoosh.

I suspect most of the drop in yields is now behind us now - the decline has been breathtaking in the last week.

Lower yields and higher prices has provided wind to the back of Green Brick's (GRBK) shares in the last few days.

I am taking some off at $23.55.

I am taking in most of my cruise line shorts now - (RCL) and (CCL) are both down by -8% today.

I am selling March (SPY) (monthly) $422 puts at $9.30.

As stated by many, CNN's Fear and Green Index is an imperfect data point.

Nonetheless...

At 12:40 pm:

Breadth

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Biggest Gainers

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According to Peter the rent is still too high, but... 

The Apartment List March 2022 National Rent Report saw an increase in rents of .6% m/o/m in February. Versus last year they are up 17.6%. Luckily though the pace of gains seems to be plateauing as "over the past four months, rents have increased by a total of just .7%." That said, "this month's growth was still faster than the pre pandemic norm for this time of year."

Vacancy rates are ticking up as Apartment List estimates it to be 4.5% after hitting just 3.8% last August but it was at 6% pre Covid. Phoenix and Miami saw the fastest rate increases and 74 of the nation's 100 largest cities saw m/o/m increases. Only the San Francisco area has not seen a return to pre pandemic rent levels. The chart below shows the pre Covid trend if it continued and what ended up being with the help of QE and zero interest rates.

Bottom line, blaming inflation mostly on the pandemic is just not reality as the Fed has massively encouraged the demand for housing, whether from households and/or institutional investors. The cost of housing unfortunately is the biggest ticket item there is for many. Hopefully though, the pain of affordability is reaching its peak but still at very historically high levels relative to income.

The February ISM manufacturing index rose 1 pt m/o/m to 58.6 and that was just above the estimate of 58. New orders got back what it lost in January and a bit more to 61.7. Backlogs jumped 8.6 pts to 65, the highest since August. Supplier Deliveries (the higher it goes the more supply strained and vice versa) rose 1.5 pts to 66.1 to a 3 month high but remains below its peak of 75.6 in October. Inventories were little changed at the manufacturing level at 53.6 but remain very lean at customers with a print of 31.8. It did though bottom right before the holiday's at 25.1 in November. Prices paid fell a touch, by .5 pt to 75.6 and while below its recent peak of over 90 in June, it compares with the 20 yr average of 61.3. Of 18 industries, 17 are paying higher prices. Export orders were up by 3.4 pts to 57.1, the highest in a year while imports were up slightly.

Of the 18 industries surveyed, 16 saw growth vs 14 last month and 15 in December.

The ISM said what we already know, "The US manufacturing sector remains in a demand driven, supply chain constrained environment. The omicron variant remained an impact in February; however, there were signs of relief, with recovery expected in March. A higher than normal quits rate and early retirements continued."

In the comments from some companies in different industries, demand still remains good with obvious challenges with supply.

Food, Beverage & Tobacco:

""Strong demand has continued beyond our traditional seasonality curves. Coupled with the continuing difficulties in procurement of ocean freight, operational planning and managing costs are our biggest challenges."

Machinery:

""We have seen year-over-year revenue growth of about 10 percent due to markets coming back. However, in the automotive area, the microchip shortage is causing slowness in growth."

Computer & Electronic Products:

"Electronic supply chain is still a mess."

Chemical Products:

"Strong sales growth as retail continues to return."

Transportation Equipment:

"Demand for transportation equipment remains strong. Supply of transportation services continues to be a major issue for the supply chain."

Textile Mills:

"We are expecting a year of strong demand, higher prices and continued supply chain challenges."

Electrical Equipment, Appliances & Components:

"Demand continues to be strong, increasing our backlog. Production has been more consistent due to availability of parts, but we are not able to increase builds to cut into the backlog."

Plastics & Rubber Products:

"Business is still strong. Facing logistics and raw material supply chain issues with some products."

Misc Mfr'g:

"Business conditions are good, demand remains strong, and we continue to be challenged to keep up with demand."

Bottom line, this survey was done before the invasion. Trying to figure out the aggregate impact on the supply chain from what is going on now since is so tough because outside of the obvious impacts, we just don't know how long this will last. I was of the belief that the intense supply stresses ahead of the December holidays and before the Chinese Lunar New Year was about to ease up but now I just don't know. On the demand side, everyone is likely now scrambling even more to get what they can in terms of product, whether businesses or consumers because of worries about shortages. That said, the demand for stuff should slow as consumers draw down on savings and reduce spending because things are just getting too expensive.

ISM Mfr'g

Prices Paid

I have covered my Trade of the Week- March (SPY) $438 calls at under $6.15.

I have (again) taken off some of some of my precious metals - in light of the ramp in price this week. 

These are trading sardines to me and not eating sardines.

Trader anxiety may heighten now that sundown spreads across Ukraine. As darkness deepens, concern about new hostilities will rise.

Again, great temptation to embarrass Biden during the State of the Union with some sweeping captures/victories by the Russians. Intensity to the flight to safety has seen the in ten-year yield is borderline stunning. Much better than the VIX in recognizing the true anxiety level out there.

Watch the afternoon carefully and, again, be wary of the rumormongers, but stay alert to actual details. It can be a critical 24 to 48 hours.

Stay safe.

Arthur

I am already short March (SPY) $419 calls in size and long a smaller amount of SPY against it.

I have just added to my SPY long at $429.66 - and I am now delta adjusted long the same amount of SPY as I am short $419 calls.

In other words, it is now a buy/write.

MFrank

FGEN:
1. I consider the SEC subpoena as noise; the fine whenever it comes should not be material altering.
2. Agree with Dougie china sales for Roxa coming along
3. Let's say fgen does get a pathway for Roxa in the US from FDA. Picking a number out of the air let's say stock pops 15% on the announcement from $13.5 to $15.5. Then what? Let's say it's a short term 90-120 day trial. With recruitment, trial, readout & filing with FDA we're likely in Q4 '22 earliest. FDA approval likely a year later so late '23 before revenues.
4. Pam Ph 3 trials readouts not till mid '23
5. Spin off of China Roxa sub not likely until market conditions recover from UK war; who knows?
6. In the meantime they run out of cash and need a significant raise.
It is this last point that's the killer. Time & patience is not on fgen's side. My $0.02 fwiw

Here is my response:

My thought on Roxa is the trial will be longer than that, but if it's dose related and looking at thrombosis only it means they have passed the FDA mace hurdle. Since everyone on the street has washed out Roxa US, a path with a partner (eg. AstraZeneca) or whoever should be favorable. So we had a SEC supoena, horrible market, no analyst support. Normally that's a down 15-20% type day. Stifel has only 25% probability on iPf and zero for pdac and dmd. And Stifel's analyst is the most positive on street. They have to partner Pam, that's the key to get street to give Pam a fair valuation and alleviate the burn.

This morning we sold March (SPY) calls at $9.20 - now trading at $6.45:

Mar 01, 2022 ' 09:46 AM EST DOUG KASS

Trade of the Week - Sell March SPY $438 calls ($9.20)

Given the recent rally from the lows and my ursine market view I would short the market.

My Trade of the Week is to short March (SPY) $438 calls.

I just added at $9.20.

Yesterday I added back to (SLV) and (GLD) : 

Feb 28, 2022 ' 06:30 AM EST DOUG KASS

Gold, Silver Adds

Gold and silver prices have pulled back from Sunday's spike higher.

In premarket trading, I added small to (SLV) and (GLD) at $22.47 and $177.47, respectively.

It's a trading sardine market and not an eating sardine market.

(RCL) and (CCL) continue to get flooded.

I have covered my (QQQ) short at $345.35 just now.

I have covered my (QQQ) $344 puts for a profit.

I am naked short (QQQ) now.

At 10:11 am:

Breadth
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Biggest Movers
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A real good read, with lots of different angles of analysis, by Sarge this morning. 

Run don't walk to read Sarge...

Break in! 

Both Ukrainian and Russian media have confirmed a bombing event at a Russian military airport in Taganrog City (inside Russia) within the last few hours.

After going through the FibroGen  (FGEN) EPS release, there is no change in my view that the company is an interesting speculative biotech idea.

More later.

I shorted more (QQQ) at $345.82 in premarket trading.

Given the recent rally from the lows and my ursine market view I would short the market. 

My Trade of the Week is to short March (SPY) $438 calls. 

I just added at $9.20.

* QQQs have had a daily range of over 1% every day this year!

* Heightened volatility and an inhospitable backdrop for a buy and hold strategy - represent challenges in delivering investment returns these days

* This will change, but for now, we remain in a trading sardine market - not an eating sardine market

"There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, "You don't understand. These are not eating sardines, they are trading sardines."'

- Seth Klarman

A Very Large Spread Between Intraday Highs and Lows (5-day average)

Reflecting, in some measure, the accumulation of an increasing number of uncertainties - economic, monetary/fiscal policy, geopolitical and in market structure - the markets has had no memory from day to day - in a new regime of heightened volatility.

QQQs (the Nasdaq ETF) have had a daily trading range of over 1% EVERY DAY of 2022!

Given my negative market view and based on the notion that volatility will rise - I am more in an opportunistic trading mode than an investing mode at this point in time.

"Well, I ain't always right, but I've never been wrong
Seldom turns out the way it does in a song
Once in a while, you get shown the light
In the strangest of places if you look at it right"

- The Grateful Dead, Scarlet Begonias

A Trading Sardine Market Poses a Threat to Investment Returns

The current state is not a happy state for investors as it is far easier to buy and hold.

The less amount of decisions we make, the more likely we will deliver superior investing returns. By contrast, the more trading decisions we make, the more it is unlikely to deliver alpha.

The bottom line is that I want the market to shake out and move to lower levels before taking on any more meaningful investment positions.

Most should consider sitting on their hands in this period of low conviction, limited evidence of a market trend and the general lack of predictability .

I have written a lot about conviction in the past:

* No Trades Based on Guesses

* From Here On In, No More Taking a "Shot"

* My Conviction Level Is Low

* Not All Investment Views Are Created Equal

I Don't Trust to Nothing

Some folks trust to reason
Others trust to might
I don't trust to nothing
But I know it come out right

Say it once again now
Oh, I hope you understand
When it's done and over
Lord, a man is just a man

- The Grateful Dead, Playing in the Band

As I wrote in yesterday's opener, to some degree, not even Warren and Charlie are buying (and holding).

In Saturday's letter to Berkshire Hathaway shareholders, Warren Buffett wrote, in response to the company's outsized $150 billion of cash: 

"Charlie and I have endured similar cash-heavy positions from time to time in the past. These periods are never pleasant; they are also never permanent."

To me, Warren sounded like a fox that knows his dinner is near.

Traders probably could have used a telegram on Monday to give them a clue as to how the situation between Russia and Ukraine was evolving. It was the dominate force throughout Monday's trading and the result was a pretty sharp whipsaw session, although in a slightly narrower range, narrower in comparison to what we saw last week anyway.

Overnight concerns about a worsening of the Russia/Ukrainian situation had the futures off quite sharply, down over 600 or so points in the Dow. They then trimmed it a little bit and opened much weaker. From mid to late morning things, improved as talks between the Russians and the Ukrainians began on the border near Belarus. Later, when the session adjourned with the no tangible progress, stocks rolled over once again and headed back to what looked to be the day's lows. They tried to circle the wagons and trim those losses, but a little bit later in the afternoon, there were reports about a possible palace coup within the Kremlin.

A great deal was noted about the look on the faces of Putin's top generals during the session he was holding about upgrading the nuclear status. Some interpreted the looks to be of men who were concerned that Putin may be overstepping his bounds, even if trying to do a tactical nuclear. Others interpreted the look to be those of generals who might actually be under Putin's glare on misadvising him into the assumption that a takeover of Ukraine would come swiftly and easily. There was even some contentions that Putin was behaving irrationally, even for autocracy, and that bureaucrat pals might decide to remove him from office either with some kind of unlikely coup or maybe even Al Capone style.

None of those rumors ever gained full creditability, but they were enough to influence the market back and forth. The rumors about Putin being somewhat out of control in the estimation of Western observers was enough to take the markets back down to the low. Then, in the final hour, they had a pretty sharp comeback. That was attributed, I think incorrectly, to various headlines about nations supplying the Ukraine with more equipment, etc. Yesterday was closing day of the month and that, I think, the benefactor was a little bit of a late rally as people rebalanced some of their positions with the end of the month reporting. I think I would investigate that a little further, however, but their only interest at sundown was there was no credible headline that showed up.

Tonight will be the State of the Union message and, ordinarily, the market would speculate on economic initiatives and the like. It seems to be almost universally assumed that President Biden will instead dwell on the Ukraine situation. That would allow him to avoid confronting things like inflation and the like and talk about how he was able to organize the Western allies and aided the Ukrainians to handicap the Russians, but the key point for the market will likely be few if any economic initiatives.

Today is also Mardi Gras, so we will see if the market can develop some celebratory sense. Also, it is the first day of trading for a new month, which has an upward bias on the new money for the new month syndrome. Later in the week, Fed Chair Powell will have to speak in what used to be called the Humphrey Hawkins Semi-Annual Testimony. He will have to look like one of the great Wallendas walking a tight rope, not allowing any early back look from the fight against inflation, while at the same time answering questions about what the Fed will do. You may recall back in 1998-1999, when the Russian ruble collapsed in a similar manner, it took out Long Term Capital Management, causing a near collapse in Wall Street. At that time, the Fed bent over backwards supplying new money. I'm sure those questions will arise as Powell gives his testimony.

On the one hand, are you still going to be fighting inflation and, on the other hand, what are you doing when potentially one of the strongest international uncertainty in two decade is showing up? There is a good chance that today's stock market will be heavily influenced by military developments in Ukraine. Most U.S. TV stations are constantly showing amulti-mile column of Russian tanks and heavy equipment crawling toward Kiev. If Ukrainians had a credible Air Force that would be a picture of multi-mile smoldering rubble and an embarrassment to Putin. As it is, it seems to crawl undisturbed toward the Ukrainian capital.

Today's action could be a little dangerous. Putin clearly has some egg on his face and the temptation to pull off a great military victory today and embarrass Biden on the day of the State of the Union must be vastly tempting. So, expect everyone to pay attention to claims of large surrenders, forces being encircled, possible resignations and even assassinations of government leaders. That would make it an absolutely banner day for the rumormongers. That means you have to be very, very wary. So, it should be almost all military unless there are some disruptive surprises from the sanctions.

Overnight, European markets are quite nervous and jumpy. That is to be expected. The oversold condition is pretty much washed out. Headlines probably will have a very direct effect, but again be wary of rumors. Expect the Russians to double down today. The temptation is great. That could make afternoon trading in New York a little choppy. Not the usual trading patterns, but you have to play the hand you are dealt. This one could be tough.

As we said, keep watching those newstickers.

Keep your seatbelt fastened and try to stay safe and calm.

In the interest in transparency, here is a list of positions I have mentioned in my Diary that I am either long or short. Note: This is not a full list of my portfolio's holdings:

Longs: (MSOS) , (ARKR) , (AYRWF) , (CRLBF) , (ELAN) , (MJ) , (FGEN) , (GRBK) , (GTBIF) , (SLV) , (GLD) , (LYV) , (SPY) , (TRSSF) , (TCNNF) , (VRNOF) . 

Shorts: (MJ) calls, (SPY) calls and puts, (QQQ) puts, (BLI) , (AI) , (CCL) , (RCL) , (CVNA) , (DWAC) , (FXLV) , (DNA) , (QQQ) , (DNUT) , (LSPD) , (HOOD) , (RBLX) , (ROKU) , (SNBR) , (SBUX) .

* There is nothing wrong with being wrong

* There is somethin wrong with unwarranted confidence, and not owning your mistakes

"This is why you want to buy money center banks."

- Brian Belski (yesterday morning on Bloomberg) 

Hubris, his name is Brian Belski.  

His favorite sector? Banks. (-4% yesterday) 

From yesterday: 

Feb 28, 2022 ' 09:00 AM EST DOUG KASS

On Banks

An uber confident bull, BMO's Brian Belski, was on Bloomberg recommending money center banks this morning.

I respectfully disagree. Here is my short thesis.

I sold out of my last long position in the space, (JPM) , late Friday.

Brian is a generalist and appears to be unaware of the interconnectivity in the financial system.

Case in point, Citigroup (C) , which just updated its 10K filing:

• Citi operates both its ICG and GCB businesses in Russia, although the Company is currently pursuing the exit of its GCB business in the country. All of Citi's domestic operations in Russia are conducted through a subsidiary of Citibank, which uses the Russian ruble as its functional currency. Citi's net investment in Russia was approximately $1 billion as of December 31, 2021. The majority of Citi's net investment was hedged for foreign currency depreciation as of December 31, 2021, using forward foreign exchange contracts. Citi's total third-party exposure was approximately $8.2 billion as of December 31, 2021. These assets primarily consisted of corporate and consumer loans, local government debt securities, reverse repurchase agreements, and cash on deposit and placements with the Bank of Russia and other financial institutions. A significant portion of Citi's third-party exposures were funded with domestic deposit liabilities from both ICG and GCB clients. Further, Citi has approximately $1.6 billion of additional exposures to Russian counterparties that are not held on the Russian subsidiary and are not included in the $8.2 billion above.
• The $5.4 billion in Russia credit and other exposures does not include approximately $1.0 billion of cash and placements with the Bank of Russia and other financial institutions and $1.8 billion of reverse repurchase agreements with various counterparties. Citi continues to monitor the current Russia--Ukraine geopolitical situation and economic conditions and will mitigate its exposures and risks as appropriate.

*CHICAGO WHEAT FUTURES RISE BY 50-CENT TRADING LIMIT TO $9.84/BUSH 

*WTI OIL EXTENDS GAINS BY AS MUCH AS 5% TO HIGHEST SINCE 2014

The chart below, from Danielle DiMartino Booth, is so important and a meaningful part of my bearish market view - supply chain dislocations continue, contributing to sustained inflationary pressures:

Today's table illustrates a question asked since June 2021: "When do you expect your supply chain to return to normal?" Zooming in on the retail sector provides a prism into the end of the distribution channel, that closest to consumer inflation.Two things jump off the page. First, no one anticipates a return to normal in the next three months, the first time since polling began last year. Second, the answers in the remaining buckets - two, three and four quarters or more - depict a wide distribution with low conviction. Retailers have delivered a collective, "I don't know" in the second most important U.S. state for consumer spending, flagging lingering price pressures.Due north, vendor performance has yet to normalize, which was apparent in February's Chicago Purchasing Managers' Index (PMI). Lead times for the aggregate of maintenance, repair and operating supplies (orange line) and for production materials (purple line) are far off trend. Applying our favorite normalizer, z-scores -- deviations from the mean adjusted for volatility -- were +4.2 and +4.7, respectively. Readings for both have been at or above +4 since last July, a far cry from April 2021 when both were +2.The persistent supply chain disruption in Chicagoland coincides with our contrarian take that the United States is in an industrial recession. In February, demand ran below supply for the first time since the initial COVID-19 shock locked down the economy in Spring 2020. New orders slowed to a 20-month low as a quarter of firms surveyed saw a decline in new orders, the highest proportion since December 2020. Inventories grew as companies continued "Just in Case" stocking up due to persistent supply chain disruptions. The -4.3 print for the new orders-inventories spread suggests a downdraft for factory activity is in the offing for this midwestern auto manufacturing hub. Slower growth prospects amid a higher cost environment screams stagflation in the industrial heartland. As for the Chicago PMI's own February question, firms were asked what percentage they saw employment costs rising this year. Approximately half expect a 4-6% increase, followed by 28% pricing in a 7-10% increase. Meanwhile, some 11% anticipated a marginal increase of 1-3% and an equal near-6% saw either no increase or an increase of over 10%.The Dallas Fed's Texas Manufacturing Outlook Survey echoed stagflationary signposts. Six-month forward expectations for wages and benefits advanced to a record high net 74.3, while future raw material costs remained at an elevated net 51.1. This contrasted with a company outlook index that was above water at 6.4 but has been below average in five of the last six months ended February. Slowing growth compounded by persistent pricing pressures was hammered home by the seventh straight contraction in future backlogs, a losing streak only rivaled during the Great Recession.Of all the comments that companies anonymously left, we were most troubled by that from the Transportation Equipment Manufacturing sector in the vast state of Texas. To wit, "We fear that things are going to quickly turn bad, and that could be fatal for many companies given all we've been through for going on three years." More disturbing yet was the anecdote that companies are toying with what could quickly devolve into a recession when they're naively stoked in schadenfreude: "It appears that a significant portion of our suppliers are using "supply-chain disruption" as an excuse for failed planning. We understand that there are good and valid reasons for previously unanticipated delays; however, adherence to just-in-time ordering protocol under the current economic circumstances invites problems."The Lone Star State's out is that responses to February's business outlook survey ended February 23rd, the day before Russia's invasion of Ukraine. That will make for a clean March tally which reflects the rising uncertainty tied to spiking geopolitical risks.

"Yesterday all my troubles seemed so far away.Now it looks as though they're here to stay.Oh, I believe in yesterday."
- The Beatles, Yesterday
I expanded my short exposure yesterday -- adding to (SPY) calls (short) and initiating a (QQQ) short:

Feb 28, 2022 ' 09:45 AM EST DOUG KASS

QQQ, SPY

I added to my (QQQ) short at $344 just now.

I sold some more March (SPY) $438 calls at $8 short.

From J.P. Morgan:

SECTOR & THEMES

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Source: Bloomberg; Data as of 2/28/2022

Another warning sing, oil +3/barrel:

* The market (and money) never sleeps

* Time for a retrace of Monday's month-end rally?

"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"

I described the importance that overnight futures trading holds for me in this column a few weeks ago. It is a guidepost to my strategy in the regular trading session:

Futures were all over the place last night.

S&P futures peaked at +30 and bottomed at -39. At 5:50 am ET: -37 handles.

Nasdaq futures topped out at +105 and dropped to -144. At this writing they are at -135.

Hey, let's be careful out there:

The bond market looks panicky this morning:

The yield on the 10-year note is -8 basis points (to 1.765%).

I remain bearish: