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DAILY DIARY

Doug Kass

It Still Looks Like Scenario No. 2!

The brutal bear market of 2022 continued apace today -- with a sharp rally that failed to hold.

It still looks like Scenario #2:

"Scenario #2 (35% probability?) The S&P rallies from Monday's close of 4410 to 4500-4600 - to the right side of the head and shoulders pattern (below) and then we crack through the 200 day moving average, cracking below 4000"

- Kass Diary, Remaining Flexible in my Short Term View

Here is the market breadth data (flattish to better), heat map and biggest movers:

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Trade them, don't own them... for now.

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Thanks for reading my Diary today - I hope it was helpful.

Enjoy the evening.

Be safe.

Position: None.

Is It Friday Yet?

Just asking...

Phew!

Position: None

Going the Other Way

I sold short some more March (SPY) $422 puts at $11.60 just now.

Position: Short SPY calls and puts

It's a Trading Sardine Market, Not an Eating Sardine Market

* And don't forget it!

The S&P Index (cash) is +74 handles, almost 120 handles up from the day's lows!

I have made the following sales: 

* Sold out my entire (SPY) long ($426.90) and covered half of my SPY puts short.

* Sold most of my (LYV) at $109.

* Sold out half of my (MSFT) at $283.33 and half of my (GS) at $330.11.

* Sold all of my (FDX) at $209.11.

Position: Long MSFT, LYV, GS, Short SPY calls and puts

Making Some Sales

With the S&P Index up by nearly 100 handles and cash +50 handles, I am making some sales in the Indexes.

Position: Long SPY, Short SPY calls and puts

A DeMark Buy Signal?

Midday Musings From Sir Arthur Cashin:

Market mills about waiting on details of President's plan on Russian oil. I am told but have not fully confirmed that Tom DeMark is calling for a near-term bottom today based on the oversold condition. Clearly, the market is heavily oversold. I would have been comfortable with a bottom if we retested the recent intraday low of 4114. So far, we have only gotten down to 4160. Think some short-term cycles will be kicking in possibly if we get a bounce with a very short-term high coming right around the Fed meeting, probably around the 15th or so.

So far, technicals are not resolved. We won't argue with Tom DeMark, but don't feel as strongly as he apparently does.

Watch the headlines and remain safe.

Arthur

Position: None

Net Long Position

For those that count, I am at my highest net long position today than at any time in the last six months.

Position: None

Some 'Possible' Green Market Shoots

* Travel stocks are on fire - (LYV) , (HLT) .

* Autos rebounding - (GM) , (F)

Generally speaking, in this miserable and pressured market, I am emboldened by the large amount of fear and market skepticism.

Position: Long LYV, GM, F

Two Moves

I just covered a portion of my (DWAC) short at $76.68.

I plan to re-up my short on any strength.

Also, I added to (LYV) at $103.10.

Position: Long LYV, Short DWAC

AMD Is Green

(AMD) , a recent buy, green in a sea of red.

Position: Long AMD

The Breadth Isn't Terrible

Market Breadth

View Chart »View in New Window »


Heat Map

View Chart »View in New Window »


Biggest Movers

View Chart »View in New Window »

Position: None

Gold, Silver Soar

Gold and silver are exploding higher - gold +$70 and silver +$1.62.

Position: Long GLD, SLV

The Russell Is Crowing

An interesting divergence has developed over the last few days - as the Russell outperforms the S&P and Nasdaq Indexes.

Position: Long SPY, Short SPY calls and puts

An Observation

In many ways this is the most difficult market to invest in over the last 5-10 years.

Position: None

Today's Buys

In addition to Amazon (AMZN) and Alphabet (GOOGL) , I added to the following longs this morning: 

* (AMD) $100.61,

* (JPM) $127.56.

* (MSFT) $272.84

Position: Long AMZN, GOOGL, AMD, JPM, MSFT

Remember Evergrande? It's Sinking Again

Evergrande (EGRNF) bond prices continue to decline:

YIELD PRICE AXE AXE
TKR CPN MTY CCY BID OFFER MID COD BID SZ ASK SZ
EVERRE 8.25 Mar-22 USD 13.50 15.50 17,211.75 -2.00 0.000 0.000
EVERRE 9.5 Apr-22 USD 12.00 14.00 7993.86 -2.00 0.000 0.000
EVERRE 11.5 Jan-23 USD 12.00 14.00 547.93 -2.00 0.000 0.000
EVERRE 10 Apr-23 USD 12.00 14.00 468.20 -2.00 0.000 0.000
EVERRE 7.5 Jun-23 USD 12.00 14.00 294.14 -2.00 0.000 0.000
EVERRE 12 Jan-24 USD 12.00 14.00 215.39 -2.00 0.000 0.000
EVERRE 9.5 Mar-24 USD 12.00 14.00 220.30 -2.00 0.000 0.000
EVERRE 10.5 Apr-24 USD 12.00 14.00 223.39 -2.00 0.000 0.000
EVERRE 8.75 Jun-25 USD 12.00 14.00 120.25 -2.00 0.000 0.000

Position: None

Fear and Greed Index

See, here.

Position: None

AMZN, GOOGL Adds

I just added to Amazon (AMZN) and Alphabet (GOOGL) at $2708 and $2522, respectively.

Position: Long AMZN, GOOGL

Putin's Days May Be Numbered as Ukraine Will Defeat Russia

Five days ago, in "Putin is Playing Russian Roulette" I made the case that Russia is now an economic leper:

Putin Is Playing Russian Roulette 

Though I am more concerned about the slowing rate of global growth and the persistence of inflation - the two combine to produce "slugflation" - the markets remain fixated on the Russia/Ukraine conflict. 

Increasingly it appears that Putin is playing Russian Roulette with his future and that of the Russian economy. As time progresses, the Russian troops appear less than optimal in their invasion and, as the world recoils and leaves Russia in an economic abyss and ostracized/isolated from the global economy, irreparable damage is occurring as it looks that Putin's gun has no empty chambers! 

The value of Russia's currency (the ruble), the collapse of the country's capital markets and the abandonment of financial interconnectivity with the rest of the world has resulted in a self-inflicted and structural wound that will heal slowly, if at all. 

Russia, stated simply, is now an economic leper. 

As my pal and fellow stooge (my buddy Peter Boockvar makes up the triumvirate and third stooge), (The Credit Strategist's) Mike Lewitt wrote in an email to me last night: 

"From an analytical standpoint, it is important to think about how the Ukraine invasion will change the geopolitical map. Unlike earlier Russian invasions of Georgia (2008) and Crimea (2014), this invasion is different in scale and human horror. It is a larger version of the genocidal war Russia sponsored in Syria a few years ago. The world is not accustomed to seeing war waged in Western cities against Western civilian populations and is reacting not merely with moral outrage but tangible actions designed to inflict real harm on Russia and its supporters.

This brings us to all-important China. While China is staying relatively quiet, it can't be happy with what Russia is doing. I take news stories that China is standing side-by-side with Russia with a grain of salt. China will take a cold-blooded look at the world and do what is in its own interest - period, full stop. And China's ability to triangulate with Russia against the United States is severely compromised by Russian economic distress. China is much better served by an economically stable Russia that can collaborate with it against American interests. Rather than a co-equal partner in an alliance against the United States, however, Russia is turning itself into a needy dependent that will burden China economically, diplomatically and strategically in any anti-American alliance. Rather than accelerate any assault on Taiwan as some suggest, this Ukraine debacle may cause China to reevaluate its plans in view of the new geopolitical landscape. An attack on Taiwan could place China next to Russia in the global isolation ward regardless of China's greater importance to the global economy than Russia. The West is already actively seeking alternative sources for semiconductors and other China-sourced goods. The West has had its fill of fascism in the first two decades of this young century.

The question is no longer whether Putin will take Ukraine. If Putin won't stop his assault, Ukraine is going to fall sooner or later (for the sake of the Ukrainian people, hopefully sooner). The question is what cost he will pay to take Ukraine. He already lost more than he can possibly gain. Putin unleashed chaos that he can't reverse. In one fell swoop, he united a fractured NATO, revived Germany's military spending and potentially its nuclear energy industry, alienated Turkey (which was trying to play both sides of the fence with Russia and the U.S. and whose geopolitical importance can't be exaggerated), and shattered Russia's economy. The longer the war goes on, the worse matters will turn out for Russia.

In the long arc of history, Ukraine is paying the price for what may prove the final collapse of the Russian empire that Putin desperately wants to reassemble. But that empire failed the first time because of precisely the types of destructive and inhumane behavior Putin is now repeating. We may be witnessing the end of Russia as a significant world power. If the country was more than a gas station with nuclear weapons before, it won't be much more than that after this crime against humanity is over. But its actions leave China weaker, not stronger, and America stronger, not weaker, as long as America sees clearly the opportunity presented to step up and lead the world again."

Ukraine

Russia will fail miserably in its invasion of Ukraine. 

Ukraine is likely to become a graveyard for the Russian military and could even end Putin's rein. 

The 40 mile Russian military convoy is slowly being picked apart by the Ukranians. Supplies of equipment, gas and guns are unable to reach the Russians and, as the mud season soon starts, the Russian troops will be easy targets.

Russia is not likely able to control most of Ukraine and as the Russian army is picked off, piece by piece. If Ukraine gets military equipment and planes to attack the Russian army's artillery and tanks, Russia's military failure in Ukraine will accelerate. Meanwhile drones are doing a great job against the Russian troops. 

As the Russian forces are weakened in Ukraine, their quest and appetite for the Balkans and Moldova will fail as his depleted army would get wiped out by NATO forces - and there is simply no appetite for either the Russian people or its Generals in the Army to engage NATO forces at this point and risk the start of WWIII. 

Though Putin fixed up the Gorbachev mess and raised the average Russian's standard of living, already, Russians are questioning the attack on Ukraine - especially with relatives attacking relatives. 

Even though Putin controls the media - Russians are now being decimated by the expansion of sanctions, the collapse of their currency, inflation is going thru the roof, the lack of products available at stores, social media has been closed down and financial transactions have been closed down. Visible public protests are multiplying as the word is getting out as over 10k dead bodies have return from the war and with over 35k wounded. 

And don't underestimate the reality and consequences of the Oligarchs losing much of their wealth. One way or another, Putin could be eliminated. 

Though the timing is unknown, when the markets sniff this all out, it will rally. 

As to the economic/market impact of the Ukraine conflict, that is for another time....

Position: None

Russian Oil

Break in!

Biden bans Russian oil - futures move lower.

Position: None

The Book of Boockvar

Over the past few years you've heard me be bullish (and long) on ag stocks, particularly fertilizers but I'm a seller now after this vertical spike. The fundamentals have rarely been better but when something enters a parabolic phase, it's time to get nervous. Speaking of a parabola, nickel is the notable one now. Yesterday morning when I mentioned nickel it was up 35% on the day, it ended the day up 64% to $48,211 per ton and today it traded above $100,000 and was halted when it came back to $80,000 a ton. Worries about supply from Norilsk Nickel, who also produces palladium, platinum and copper, is the main reason as they produce 5% of the world's supply.

Before the invasion it was at about $23-24k a ton and pre Covid around $14k. According to the Nickel Institute, nickel is "essential in hundreds of thousands of products. Its biggest use is in alloying - particularly with chromium and other metals to produce stainless and heat resisting steels." Nickel is also a key component in electric vehicles, construction and electronics. This is of course now going to dramatically raise the price of building a car and anything else using steel. This all said, as NorNickel is just 5% of the global market, $80,000 a ton is just not sustainable and some shorts must have gotten shredded.

The chaos on the London Metals Exchange has resulted in the exchange to announce that they will allow short sellers to delay delivering on their obligations on their expiring contracts for not just nickel but for tin, zinc, aluminum, cobalt, and lead.

You want to buy a depressed industrial metal that also has monetary investment demand as well as jewelry? Buy silver that is almost 50% below its record high.

Nickel (as of yesterday so not capturing today as I don't have real data on this)

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With respect to those electric vehicles that the world is moving towards, that are now getting even more expensive to build, and governments that are pushing us all to buy them over the next decade we are reminded too by what has happened with the energy transition and the problems of when it is force feed by political mandate rather than market realities. It reminds me of this

With regards to used car prices that we know have skyrocketed, Manheim yesterday said they fell by 2.1% in February from January though still up 37% y/o/y. Hopefully in this sector the law of high prices curing high prices is now about to kick in, but you've heard me argue that we're still going to see reduced used car supply in the coming years (less supply from 3 yr lease expirations and less from rental fleets because of years of subdued new car sales) and for reasons stated above, the cost of new vehicles might only get more expensive.

The February NFIB small business optimism index got less optimistic as it fell to 95.7 from 97.1. That is the lowest since January 2021 just as the jabs started to roll out. Of particular note was the 7 pt drop in Plans to Hire to 19%, the weakest in a year as it's still tough to find people with a 1 pt rise in Positions Not Able to Fill. Off a record high, current compensation fell 5 pts and compensation plans was down by 1 pt. Capital spending plans softened by 2 pts and is also 2 pts below its 6 month average. And the outlook is not looking good either as those that Expect a Better Economy, Expect Better Sales and said it's a Good Time to Expand all fell. Inventory accumulation was down 1 pt. Earnings trends remained firmly negative at -17, though unchanged with January. On pricing Higher Selling Prices rose to a fresh record high going back to 1974, higher by 7 pts to 68%.

It's easy to understand the reduced expectations as "Small business owners reporting inflation as biggest problem reaches highest level since Q3 1981."

NFIB

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Plans to Hire

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Higher Selling Prices

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Taiwan said its February exports jumped 35% y/o/y, more than double the estimate of up 15.7% and led by semi shipments which made up half of all exports by this crucial exporting country. Imports also grew by 35% y/o/y vs the forecast of up 21.4%. Bottom line, users of semi's got more of what they needed in February but with a reduced supply of neon gas, who knows what happens next. Asian markets were mostly red across the board with the TAIEX in particular down by 2% and 7.7% ytd.

Position: None

On Catching Falling Knives and Covering Collapsing Shorts

* Slowly for now... and then all at once?

Monday's action was the worst since I was a six handicap (in golf):

Mar 07, 2022 ' 05:01 PM EST DOUG KASS

It Was Brutal and Broad

Today's market decline was brutal and broad based.

More early tomorrow morning on my strategy.

But, there was some better news this morning and green shoots - in terms of European cooperation, Euro bonds and Chinese concessions. 

Yesterday I covered a bunch of collapsing shorts and began to average in to a bunch of falling knives on the long side.  

Mar 07, 2022 ' 12:00 PM EST DOUG KASS

Some Partial Short Covers

Here are some of my (partial) short covers this morning:

* (DNA) $3.42

* (LSPD) $21.30

* (CVNA) $103.60

* (BLI) $6.04

* (SBUX) $86.76

* (SNBR) $64.45

* (RBLX) $42.25

* (ROKU) $116.01 

And I initiated or added to a number of longs, including but not restricted to (FDX) , (MSFT) , (F) , (GM) , (JPM) , (BAC) , (WFC) , (AMD) , (GOOGL) , (AMZN) - slowly and on a scale: 

Mar 07, 2022 ' 11:30 AM EST DOUG KASS

Being Opportunistic in Banks and Cars

Bank and auto stocks were touted as perfect value plays in the business media over the last six months.

Sweeping the ideas under the carpet, we have not heard much in the last 2-3 weeks.

However, like the bank stocks, the auto stocks have now also moved into my buy levels.

I am long (F) and (GM) at $16.63 and $41.57, respectively.
__________ 

Long F, GM, JPM, BAC, WFC, FDX, MSFT, AMD, AMZN, GOOGL.

Short DNA, LSPD, CVNA, BLI, SBUX, SNBR, RBLX, ROKU.

Position: See above

Citigroup Turned Out to Be a Value Trap

* With investors shifting away from Citigroup, the shares of (WFC) , (BAC) and (JPM) may benefit

* Despite my previous bank stock bearishness, the share prices of WFC, BAC and JPM have moved into my buy levels -- in a relatively brief period of time

With the benefit of hindsight, Citigroup's (C) large relative discount to net tangible book was a value trap.

Many in the business media have used, as a sound byte to support owning Citigroup's shares, the large discount to book value. This is another exercise of superficiality as the bank's book value had a large component of deferred taxes (as an asset), which now may have little or no value given the disposition strategy and asset sale realizations.

Moreover, many, including myself, failed to understand that the company "over earned" in the past with soon-to-be-disposed, low-returning international consumer-based assets that deferred needed outlays for technology - during the Weill, Prince and Pandit eras - required to make the bank more competitive with its peers, non-bank financials and fintech companies.

As a result of the shedding of many of these properties (most noticeably, the bank's operations in Mexico), Citigroup's secular growth prospects and "earnings power" will be far less than many expected.

Citigroup's analyst day was revealing and disturbing.

The bank targeted a longer-term and pathetic return on tangible capital target of only 11-12% (and that is assuming a favorable rate and economic environment which is not assured).

What was importantly missed by myself and others was the magnitude of the technology expenses ($11 billion!) needed to improve efficiency, cybersecurity, risk assessment/technology, automation/processing, digital payments, cloud, data infrastructure, custody, core competency and in order to compete. In addition, the projected transformational and consent order-related costs ($4 billion in 2022, up from $1.6 billion last year) was stunning.

Citigroup is more or less fairly priced today and will undergo a lengthy process of losing institutional sponsorship, imho.

I will have a much more detailed analysis of Citigroup in the next week or so -- but now I have other fish to fry.

Position: Long WFC, BAC, JPM

Tweet of the Day (Part Six)

Position: None

Tweet of the Day (Part Five)

Position: None

Yesterday's Sectors and Themes (Winners and Losers)

Some inside baseball:

View Chart »View in New Window »

Position: None

Tweet of the Day (Part Four)

Position: None

Tweet of the Day (Part Trois)

Position: None

Tweet of the Day (Part Deux)

I have argued for large cash reserves and lower VAR for months:

Position: None

Tweet of the Day

Position: None

Why Futures May Have Rallied This Morning

Stock futures were much lower a few hours ago -- until the EU announced that it is considering joint bond sales to help counter the fallout from Russia's invasion of Ukraine.

Futures immediately moved from deep in the red to slightly positive.

Position: None

More Night Moves: A Quick Look at Overnight Futures

* 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 very weak all last night (trust me, I was up frequently) and this morning -- but have rallied dramatically from the lows in the last few hours. Brent is +$2.87 /barrel to over $126!

S&P futures peaked at +22 and bottomed at -60. At 4: 55 am ET we were at +12.

Nasdaq futures topped out at +60 and dropped to -222. At this writing they were at +25.

Position: Long SPY; Short SPY calls and puts
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-32.96%
Doug KassOXY12/6/23-16.60%
Doug KassCVX12/6/23+9.52%
Doug KassXOM12/6/23+13.70%
Doug KassMSOS11/1/23-22.80%
Doug KassJOE9/19/23-15.13%
Doug KassOXY9/19/23-27.76%
Doug KassELAN3/22/23+32.98%
Doug KassVTV10/20/20+65.61%
Doug KassVBR10/20/20+77.63%