Price has a way of changing sentiment (h/t The Divine Ms. M.) and, in watching the business media, many (who were absent on Tuesday) are miraculously bullish (likely in response to today's strong spike).

Me, I am sticking with my calculus (the market is overvalued) and I am sticking with the strategy of trading sardines and not eating sardines -- for now. (Note: It was a good day for the opportunistic trading).

I aggressively shorted late in the day and ended the regular trading session with sizeable cash reserves.

Some cautionary signposts I wanted to bring up:

* (SPY) ended $2 off the day's high (S&P cash was 21 handles from the high)

* (QQQ) ended $1.40 off the day's high.

* Banks, after the initial burst, are mediocre and off highs.

* Snowflake (SNOW) (a growth proxy), was yikes: -29% on slowing revenue growth 

* Several important stocks were lackluster - FB , (NFLX) , (NVDA) , (GOOGL) , (AMZN) , (CRM) , (PYPL)

* (ARKK) (proxy for disruption!) down.

* Good breadth but not consistent with the advance in the S&P Index:

* 10-year yield up by nearly 20 basis points - competition to equities.

Bottom Line

It looked like a Bear Market rally.

Yell and roar and sell some more - I did.

Thanks for reading my Diary today.

Enjoy the evening.

Be safe.

Near the close I am more aggressively shorting - (QQQ) and (IWM) .

Shorted small (IWM) at $204.25.

I took some more (SPY) off at $438.70. 

Mar 02, 2022 ' 12:00 PM EST DOUG KASS

A Trading Sardine Market

The magnitude of the move is resulting in sales now.

The largest move was to take off most of my (SPY) long purchased this morning under $432 at $437.60.

I don't like trading this actively, but its a trading sardine market.

* Wolf Street. 

* Putin's miscalculation in Ukraine.

* He marketed Beanie Babies but he doesn't get NFTs.

On the current market leg higher I am scaling out of half of my (GM) and (F) at $46.40 and $18.19, respectively - for a profit.

I pressed more (QQQ) s at $437.88.

* Consumer spending was generally weaker than in the prior report. 

* Manufacturing activity continued to grow at a modest pace. 

* Reports from banking contacts indicated some weakening of financial conditions, although loan demand was generally unchanged. 

* Demand for residential real estate was generally strong, although many Districts reported no change in home sales due to seasonal trends and low inventories. 

* Among reporting Districts, the overall economic outlook over the next six months remained stable and generally optimistic, although reports highlighted an elevated degree of uncertainty.

I pressed my (QQQ) short at $347.16.

The average cost of my (QQQ) short rental is $346.67.

Cantor Fitzgerald on Green Thumb, which confirms my expectation of an eroding fundamental view - rising competition, sales weakness and margin degradation - expressed this morning, placing the near term stock performance very dependent on the perception of federal cannabis legislation:

View Chart »View in New Window »

Out of (GS) (cost $329.75) at $335.10 and (MS) (cost $87.95) at $89.05.

I am sticking with the rest of my buys.

I am out of (MSFT) (cost $295.10) at $299.10 and (AMD) (cost $114.88) at $117.30.

I shorted small (QQQ) at $345.80.

The magnitude of the move is resulting in sales now. 

The largest move was to take off most of my (SPY) long purchased this morning under $432 at $437.60.

I don't like trading this actively, but its a trading sardine market.

One thing that could sustain the market's advance is positioning - as in my view there are a lot of poorly positioned shorts now for some very good reasons!

Power back on.

Amazingly strong market.

Nothing but buys today.

My office was without power from 8 pm to 4 am this morning.

We just lost the power again.

... only 25 bps in next meeting.

Bullish.

Buying (AMD) , (GS) , (MS) and (JPM) .

Long (MSFT) , again.

Long (GM) and (F) on the opening.

As we don't know what news we're going to wake up to in Ukraine, the market tone now can be summed up by watching the prices of oil, wheat and European natural gas. This morning brent crude is up another 5% to over $110, wheat did trade $10.53 but has since backed off to about $10 per bushel and European natural gas TTF price is spiking by 26% after a 28% jump yesterday. This said, no one wants to buy Russia energy or ag anymore and are trying to find alternatives so while there are no sanctions on Russian energy and ag, the private sector has essentially slapped it on Russia themselves.

Separately, as we see whether Russia will default on its sovereign obligations, both dollar denominated and ruble based, because they have lost access to most of their FX reserves, the FT yesterday reported that "Foreign investors held $20b of Russia's dollar debt and ruble denominated sovereign bonds worth $41b at the end of 2021, according to data from the Russian central bank. Holdings of Russian equities amounted to $86b, Moscow Exchange data show."

Brent Crude

Wheat

Dutch TTF Natural Gas

So what will Jay Powell say today in front of the House Financial Services Committee? Will he stick to his newly found commitment to deal with inflation or is he going to get cold feet because of the Russian invasion? What's amazing about the 25 bps or 50 bps rate hike debate in a few weeks, all we're talking about is whether the fed funds rate will go to .375% (middle of the range) or to .625% in one shot. This is splitting hairs when inflation is at 7.5% but it's amazing the level of debate it has brought. I think what Powell will do today is to commit to the end of QE and a 25 bps hike at the March meeting. He'll say they will hike again in May and further discuss the beginning of QT and play it by ear from there. He doesn't need to commit to anything else right now. He'll throw out the 'data dependent' line and 'we're monitoring the Ukranian situation closely' all at the same time trying to talk tough about reigning in inflation because right now, he is the next Arthur Burns.

Two Bank of England members are not letting the Ukranian war impact their rate hiking decision and if anything, the growing inflation pressures want them to act quicker. Michael Saunders today said "Prompt tightening now could help limit the total scale of tightening that will be needed...My preference is to move quite quickly towards a more neutral stance in order to prevent the recent trend of higher inflation expectations and rising pay growth from becoming more firmly embedded." Catherine Mann late yesterday said "When we think about the policy strategy it is very much a front load to offset or counter inflationary expectations." After falling by 39 bps over the past 2 days, the 2 yr gilt yield is rebounding by 16 bps on the comments. The pound though is little changed but bank stocks are bouncing after the weakness seen over the past 2 days. Barclays is up 1.8%, Lloyds by .5%. Yields are also higher in the rest of Europe after the sharp drop this week.

The February Logistics Managers' Index (LMI) was released yesterday and it points to why economic growth will slow further in coming quarters but maybe on the other hand, last longer than it would relative to pre covid trends. Remember it was a 500 bps contribution to the 7% Q4 GDP from inventories. LMI said the February index was 75.2, "the 2nd highest in the history of the index, up 3.3 pts from January's reading of 71.9. This is now 13 consecutive months over 70, which we would classify as significant expansion, with no obvious signs of a slowdown on the horizon. Like January, this month's growth is driven by rapid growth in inventory levels, which are up 9.1 pts to 80.2, crossing the 80 threshold for the 1st time and shattering the previous record of 72.6. This is a complete 180 from the Fall of 202, when firms struggled to build up inventories. Now it seems that a combination of over ordering to avoid shortages, late arriving goods due to supply chain congestion, and a softening of consumer spending has created a logjam, Inventory Levels are a full 21.4 pts higher than they were in November...There is a possibility that this surge in inventories will result in some price markdowns for durable goods. However, it seems unlikely that this will lead to a meaningful break in the inflation we have observed across supply chains, as Warehousing and Transportation Prices remain high due to the continued mismatch in demand and available capacity." The bold is mine.

I've said for a while that Just in Time inventory management is dead and is another reason why goods inflation is not going back to pre Covid trends for a while. To this, LMI said in today's release "Beyond the drop in sales and shipping delays, it is possible that recent supply chain challenges may have taught manufacturers, suppliers, retailers and customers that holding inventory provides an important element of resilience and are not as lean as they once were." This also means that the inventory rebuild can last longer than it would otherwise.

From LMI

The MBA said mortgage apps were little changed after falling sharply over the past 3 weeks because of the jump in mortgage rates. Measured before the plunge in rates over the past few days, as of last week the average 30 yr mortgage rate hit 4.15%. Purchases fell 1.8% w/o/w and are now down 9% y/o/y. Refi's were higher by .5% after last week's 16% fall and are lower by 56% y/o/y. We know we've reached an affordability pain point with sharply higher home prices and now a 4 handle on mortgage rates.

Creating more headaches for the ECB and the European citizenry, February CPI rose 5.8% y/o/y, 2 tenths more than expected and up from 5.1% in January. The core rate accelerated to a 2.7% pace from 2.3% and that was one tenth more than forecasted. Energy prices led the headline rise with a 32% y/o/y spike. But even non energy industrial goods prices are picking up with a 3% rise. Service prices grew by 2.5% y/o/y. In response, the 5 yr 5 yr euro inflation swap is back over 2% with a 5 bps increase. The ECB needs to get out of NIRP asap.

Core CPI in the Eurozone

Germany said the number of unemployed fell by 33k in February, more than the estimate of down 22.5k. The end of Covid restrictions and still high demand for the goods they produce are helping their economy but the sharp rise in energy prices are a major problem for them as they stupidly shut down all their nuclear plants. The Bundesbank today said they are forecasting inflation this year to average 5%. Why they agreed with the decision of Mario Draghi to implement NIRP and for as long as he did is beyond me.

South Korea's February manufacturing PMI rose 1 pt m/o/m to 53.8. India's was higher by .9 pts to 54.9. South Korea is a major cog in the global supply chain wheel and India's growth is needed to offset slowing in China. On the South Korea PMI, Markit saw a "solid expansion in operating conditions" but with this caveat, "The latest data provided an indication that supply chain disruption continued to hold back activity. The impact of shortages has been clear in rising raw material prices, which is now feeding into prices charged for manufactured goods. In an effort to protect margins, firms passed higher costs on to clients, with factory gate charges rising at the sharpest pace in the survey history." The Kospi has not been immune from the global equity selloff notwithstanding its cheap valuation as its lower by 9.2% ytd.

As expected, Citigroup's (C) analysis is no Bueno. 

"Our mix is somewhat disadvantaged and that needs to change."

- Citibank CEO 

Some bullet points: 

* Guides FY22 Rev 'low-single digits' growth

* Sees Q1 total Rev decline mid-single digits ex-divestitures - investor slides

* Guides FY22 total expense growth 5%-6% ex-divestiture impacts

* Near-term expenses will continue to increase

* Guides Q1 10%-12% expense growth ex-divestiture impacts

* Guides Q1 capital return dividends of $1B, share repurchases in-line with prior guidance

* Priority of returning capital while building to 12% CET1

* Revenue expected to grow at 4%-5% CAGR in the medium-term

* Expects returns (RoTCE) of 11%-12% in the medium-term

* Expects 2022 Rev growth across both NII and NIR- Anticipates U.S. personal banking medium-term CAGR Rev growth in high-single digits

* The averages are lying to investors - we have been in a profound and significant Bear Market since last summer as numerous individual securities have cratered

* I continue bearish and I am of the view that we are in a trading sardine market and not an eating sardine market

* The under the surface schemissing of stocks could mean that investors should be alert to emerging opportunities in a number of individual equities that have already been taken to the woodshed

"Slowly I turn, inch by inch, step by step..."

- Abbott and Costello, Slowly I Turned (The Niagara Falls Sketch from the movie Gents Without Cents) 

Since early summer, 2021, an increased number of equities have become unglued from the averages. What some are beginning to realize is that we have been in a Bear Market for many stocks for months - so individual equity opportunities may be developing, suggesting that some of the more bearish market views might be tempered:

Source: Lawrence McDonald (The Bear Trap)

From one sector to another, a systematic Bear Market has engulfed the U.S. Stock Market - even though the senior indexes are down only modestly. 

* Stay at home stocks, embraced 18 months ago (e.g., Peloton (PTON) , Zoom Video (ZM) ) are down by 50% to 75%.

* Meta Platforms' FB dramatic decline of -46% (from $350 to $200) is a world leader to the downside - in capitalization terms

* A number of 2021 IPOs are trading lower than their offering prices. The Renaissance IPO ETF  (IPO) , which tracks initial public offerings, is -45%.

* SPACs - a flawed concept that inures to the benefit of sponsors and not to investors - which had inexplicable share price appreciation at the get go  have been uniformly decimated.

* The promise of EV startups - either thru SPAC mergers or issued independently as IPOs - has evaporated with darlings like Rivian (RIVN) and Lucid (LCID) losing more than 2/3rds of its value.

* Conceptual real estate plays, shot to the moon in price and and have been obliterated in their return to earth - Compass (COMP), Zillow (Z) , Redfin (RDFN) and OpenDoor (OPNDF) are, on average, -70%.

* Other concept stocks, like Avis (CAR) ($545 to $185) have collapsed.

* Gewgaws have been left like orphans - many are -50% or more.

* And then there is (ARKK) ($160 to $65). 

It is probable that most/all of the aforementioned sectors and stocks will never return to anywhere near their 2021 share price peaks. 

Though I remain bearish on the gewgaws, some recovery in a number of the stocks mentioned is likely. 

Though the averages are still being propped up by Microsoft (MSFT) and Apple (AAPL) - the great unwind, described above, in a number of equities is eye catching as so many stocks have declined inch by inch, step by step.

To give you an example of how active I am in premarket, and after hours, trading - I have already made 40 trades.

Trade with EU: Russia is a top three supplier in energy (O&G), base metals (Nim Cu, Ali), fertilizers and steel.

Share of Russia in imports to the EU of several commodities:

Two months ago I cautioned that consensus estimates for the current quarter and upcoming fiscal year for cannabis stocks were too high. 

As the EPS results begin to roll in - we are receiving more solid confirmation of my concerns regarding lower than consensus profits and profit margins. 

(GTBIF) reported yesterday and the release should continue to raise margin worries. I expect the sell-side to lower price targets at GTBIF and others today. 

Cannabis stocks remain very attractive longer term investments but, with fundamentals (as expected) weaker, the importance of legislation is heightened. 

With regard to legislation, a politicized Congress coupled with Ukraine, and economic/inflation issues, on their collective political plates - means that we must be patient as ambitious expectations of meaningful legislative initiatives are likely pushed out further. 

Here is my report from January:

Jan 04, 2022 ' 08:30 AM EST DOUG KASS

Cannabis Estimates

Based on my recent research, the 4Q2021 and FY2022 consensus estimates for most cannabis companies are a bit too high.

Until recently the analytical community, with some exceptions, have been late to report this, imho, but if my research is correct we should begin to read this sort of commentary in the next 1-2 weeks. By contrast, some cannabis companies have already begun to reveal the somewhat worsening - relative to consensus expectations - in demand/supply in their recent communiques with investors.

The positive is that the stocks are on their butts and the low share prices seem to have mostly discounted some state level cannabis market weakness.

To be realistic, a recently more than expected competitive, and less profitable, market in states like California - widely recognized already - but also in Florida, Massachusetts and Pennsylvania means that cannabis stocks will need legislative advances, which I feel are coming in the short term, to drive positive investor sentiment in the group.

If I am wrong about the more positive decriminalization/legalization initiatives in January and February - the slightly weakening fundamentals could raise some TAM (total addressable market) concerns.

This morning we have begun to see some realism from the sell-side, and we are bound to see more in the days ahead. Here, from Cantor:

View Chart »View in New Window »

I have repurchased back my (SPY) long at about $431.92... that's down about $1.70/share from the high of a few minutes ago. 

I am now, on a delta adjusted basis, even up with my long SPY/short SPY $419 calls position.

Real good chart from The House of Morgan:

Frankly I am less concerned about the investment ramification of the Ukraine conflict than the price of wheat and oil this morning. 

Wheat is +8% ($1059) and Brent crude is +4% (over $110/barrel) in the early going. 

Slugflation lies ahead.

From my pal Jonathan (at Bloomberg) - similar to the concerns I have recently expressed:

The market (and money) never sleeps

"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 +35 and bottomed at -26. At 4:50 am ET we were at +34

Nasdaq futures topped out at +117 and dropped to -101. At this writing they were at +101.

I added to my (SPY) long very early in the morning at $429.99.

I am selling the (SPY) position I purchased in premarket (at $429.98) at $433 now - for a quick gain.

And I am eliminating the balance of my SPY long at these prices.

As a result the only SPY position I have on my books is a strangle (short SPY calls and puts).