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DAILY DIARY

Doug Kass

Over and Out

I am exhausted -- two board meetings, two research calls, trading/investing -- so I'm calling it a day.

I need a margarita.

Enjoy the evening.


Be safe.


See you very early in the morning.

Position: None.

Russia Default?

Moody's downgraded 18 Russian Sub-Sovereign ratings to Ca; outlook negative.

Next step, as mentioned, is for a Russian debt default

Position: None.

Will Return

I am back early from my two board meetings -- so I am just digesting the market action.

Will be back!

Position: None.

Subscriber Comment of the Day

From Gary 'Us Bonds':

123gary

10:48 EST FedEx mention by CNBC's Faber flagged by Gordon Haskett's Bilson
MAR 10, 2022 ' 10:48 EDT

Gordon Haskett's head of event-driven research, Don Bilson, said he suspects "there is a little bird" in the ear of CNBC's David Faber telling him something is going on at FedEx after the reporter mentioned yesterday morning on air that he would "keep an eye on FDX for any number of reasons." Bilson admits he "had sort of given up hope on the idea" that an activist investor would look to do something at FedEx while Fred Smith was still chairman and CEO, but he told investors in a note published earlier this morning that "Faber's mention yesterday has us thinking it's time to revisit that thought." He contends it would make sense that "anyone leaning" on FedEx "would want to see it extract value from FedEx Freight," Bilson added.

Position: Long FDX common and calls

Some Good Afternoon Reads

* Europe is on a mission to reduce dependency on Russian oil. 

* Chinese investors are pulling away from Russian equities. 

* What's wrong with the Russian military?

Position: None

Bond Auction

A market friendly 30 year bond auction leading to a rally in (TLT) .

Position: Long TLT

More From Sir Arthur

Chinese stocks see a wave of selling. It appears to come at the same time that selling in the key indexes slows down. That may be the proceeds being reinvested in the U.S. rather than being parked in cash. Not positive, but certainly looks like it.

Stay Safe.

Arthur

Position: None

I Bought Back FedEx

I can't help but look at the good price action in a sea of red and think back to my old Surprise (back a few years) that FedEx (FDX) could be acquired by Berkshire Hathaway (BRK.A) (BRK.B) .  

The price and the franchise are exactly in conformance with what appeals to Warren Buffett... and The Oracle has the cash. 

Stay tuned.

Position: Long FDX

Late Morning Update From Sir Arthur Cashin

Bulls are on defense again, trying to circle the wagons to hold S&P 4200. If they break, next support could be 4160 then 4140 and, of course, the ultimate intraday low of the recent big selloff was 4114.

Not a lot of brand new news out of Ukraine, but lacking NATO aid, they seem to be slipping as the sheer weight of Russian armor seems to take a toll.

So, keep your eye on the newsticker and keep your eye on the 4200 level.

Keep your seatbelt fastened and try to stay safe.

Arthur

Position: None

I Just Took Half of My Strangle Off

I have covered my March (SPY) $419 calls at $8.58.

Position: Short SPY puts

The Next Shoe to Drop Will Likely Be a Russian Debt Default

I set this event up in this recent column:

Mar 08, 2022 ' 08:30 AM EST DOUG KASS

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

Not Liking This Action

Though the tape, and I, can change in a nanosecond - I don't like this action.

As mentioned in my opener, yesterday felt like a short covering/FOMO combination - not something that sustains itself or morphs into a new Bull Market leg.

Position: None

Programming Note

I have a corporate Board meeting between 2-5 pm this afternoon.

At the same time I have a Board of Governors meeting for my golf club between 3-5:30 pm - virtually at the same time.

How I am going to accomplish this, I don't know!

A heads up.

Position: None

Naked... Longs

To make it clear I have sold (F) , (GM) , (BAC) , (JPM) , (WFC) , (GS) and (FDX) .

Note: Yesterday I sold out my tech trading long rentals near the close of trading and on the ramp - that includes (PYPL) , (AMD)  and (MSFT) .

Position: None

Long Rentals Sold

I sold the balance of my long rentals into this rally from the lows - that includes banks and cars.

Position: None

Trading Not Eating

I just sold my (SPY) long rental at $425.

Position: Short SPY calls and puts

Boockvar on the Data

From Peter: 

February CPI was as expected with an .8% and .5% m/o/m increase in headline and core. Versus last year, prices are up 7.9% headline and 6.4% ex food and energy. This of course is pre invasion data.

Services inflation ex energy rose .5% m/o/m and 4.4% y/o/y while rents are still being badly undercounted. If you combine rental increases on new leases with gains on rent rollovers, they are rising at about 10% y/o/y in the real world. In the BLS world, they said Owners' Equivalent Rent was up .4% m/o/m and just 4.3% y/o/y. Rent of Primary Residence according to the BLS was up by .6% m/o/m (picking up the pace after it was up .5% last month and .4% in the month before) and by 4.2% y/o/y.

If rent was accurately calculated, headline inflation would be above 10%. Medical care prices grew by .2% m/o/m after a .7% jump last month. They are higher by 2.4% from last year. With more people owning used cars and a lack of parts and workers, the cost of 'motor vehicle maintenance' was up 1.7% in the month alone and higher by 6.3% y/o/y. Auto insurance costs were up by 1.2% m/o/m and 4.3% y/o/y. With omicron flaming out, airline prices jumped 5.2% m/o/m and almost 13% y/o/y.

On the goods side, core goods prices rose .4% m/o/m and by 12.3% y/o/y. That's the most since 1975. Used car prices did slip .2% m/o/m but only after rising by 1.5% in January and 3.3% in December. They are up by 41.2% y/o/y and it's likely that sticker shock is on the cusp of leading to less sales and eventually lower prices but still well above where they stood pre covid. New car prices were up by .3% m/o/m and 12.4% y/o/y.

This of course before the newly found jump in the cost of steel, aluminum, nickel and palladium to name a few inputs. Sorry if you're in the market for things for the house. While furniture and bedding prices were little changed m/o/m, that is after spiking by 2.4% last month and 2% in the month before. Versus last year, prices here are higher by 17.1%. You want a washer and dryer? The price was up 3% in February from January and by 11.5% y/o/y. You want to buy some new clothes for you and the family? Apparel prices are up .7% m/o/m and 6.6% y/o/y.

Bottom line, inflation bites, especially when wage growth is at best just keeping up and for most not doing so. This said, the comparisons versus last year start to get more difficult as the February 2021 print was 1.7% and picks up to 2.6% in March and 4.2% in April and thus the rate of change should start to moderate but only by so much. Pre invasion I was of the belief that the intense supply pressures was on the cusp of easing but now it's obviously quite uncertain.

On the demand side though, we can easily argue that consumers are now tightening their belts and that will eventually lead to a softening of prices but mostly on the goods side as sticker shock kicks in. Either way, the Fed is stuck in a bad spot as we know. They are now going to be tightening into a slowing economy. What is a growing possibility too is that they might be tightening into an actual contraction in GDP in coming quarters as consumer pull in the reigns and the world absorbs the post invasion price shocks on top of already high inflation. Europe for sure is very likely headed for recession soon.

Headline CPI

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Core CPI

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CPI Services Inflation ex energy y/o/y

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Core Goods Prices y/o/y

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Initial claims totaled 227k, 10k more than expected and up from 216k last week. The 4 week average basically unchanged at 231k. Continuing claims, delayed by a week, was 1.49mm, about 40k more than expected but still below where it was pre Covid. Bottom line, we'll of course see what happens from here in terms of hiring intentions and the heightened worries that the world now finds itself in but for now the pace of firing's still remains modest as the demand for labor still exceeds the supply.

Separately, European bonds are getting hit as the ECB reiterated that their PEPP is ending this month and they picked up the pace in tapering its standard Asset Purchase Program which would quicken their ability to hike rates if needed. The Italian 2 yr yield is jumping by 19 bps to .18%, a 3 week high. Their 10 yr yield is up by 22 bps to 1.90%. Because they have the biggest debt load in the region on an absolute level, it is the one to watch. The debt of Greece, where its ratio is higher relative to GDP than in Italy, is mostly termed out far into the future.

Intraday move up in Italian 2 yr yield

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Position: None

SPY and TLT

I have added to (SPY) at $422 and I have also shorted more March SPY $422 calls at $8.15.

I bought more (TLT) at $134.69.

Position: Long SPY, TLT, Short SPY calls and puts

The Book of Boockvar

On October 20th, 2020 I wrote, "I'll argue that commodity stocks outperform FAANGM over the next two years after a decade of dramatic underperformance." I followed this up the next day and said "For all the disgust with energy stocks, I'm bullish for the next two years as supply cuts work along with a vaccine and recovery boosting the demand side. With respect to the supply side, the crude oil rig count is at 200. It was 683 in mid March. It was 1609 in October 2014. For natural gas, the rig count stands at 74 vs 133 one year ago. It was 967 ten years ago. Who first said low prices are the cure for low prices? I'm not sure."

That crude oil rig count by the way as of last week is now up to 519 and 130 for natural gas. I followed this up on November 2nd 2020 on energy, one week before the Pfizer vaccine news where they said the efficacy rate was above 90% and the world changed for the better, "I believe that the supply cuts that have taken place is the set up for when eventually demand recovers. I've said bonds are a major sale on a vaccine. Well, crude oil and the energy stocks will be a major buy upon one."

I of course didn't know what Pfizer was going to say the week after but the value was there. I bring this all up today because I'm much more suspect now on commodity prices. I'm becoming more concerned with demand destruction because of the velocity of this rally and the spook it gives to consumer psyche and its wallet. Also, even if the war ends today, hopefully, the sanctions will remain in place for years. Thus, while the fundamentals can easily call for much higher prices from here, the risk reward is just not the same.

This said, I do believe that we could be in a scenario that for a few more years prices stay high but not necessarily move much higher. I still remain bullish on uranium and precious metals and believe ag prices continue higher (not necessarily the fertilizer stocks though because farmers might cut back on spending on them, thus leading to ever higher crop prices). Copper's long term prospects are bright and we have supply deficits ahead. I'm just not really sure anymore on crude oil and the stocks in the space from here. I prefer the pure play natural gas stocks instead.

NYSE FANG+ Index in white, CRB Index in orange


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In the conference call Tuesday night from ABM Industries, a stock we own for clients, they had an interesting opinion on the state of the labor market. For those not familiar with them, ABM offers outsourced services for everything from janitorial services for buildings, hospitals, schools, malls, catering, etc...and facilities management for a variety of other things. It is a VERY labor intensive business and they have more than 140,000 employees, 2/3 of which are in a collective bargaining agreement.

Here is what the CEO said on the call for the 1/3 that are not, "July 2021 marked the point where we had the highest number of job openings. Since then, we've been trending down, and since then, the number of job applications is up 14% and the number of applications per open job is up 25%. We believe that the number of people coming back to the workforce will only increase as inflation continues to take a toll and forces people back into the market." The bold is mine.

While a 50% cut in mobile phone fees has kept a lid on the CPI in Japan, today they reported that PPI rose 9.3% y/o/y and .8% m/o/m. Both were above expectations and this also comes off a higher base as the prior month was revised up. Inflation is for sure global and post invasion even more so. That 9.3% headline gain is the most since survey data was first collected in 1981 and certainly higher energy prices led the way and a weaker yen exaggerated it.

Volkswagen's CEO in today's FT is chiming in on the current stressed situation in Europe and said 'the fallout of a lengthy war between Ukraine and Russia risks being "very much worse" for Europe's economy than the impact caused by the Covid-19 pandemic." He went on to say that 'disruption to global supply chains may worsen, which "could lead to huge price increases, scarcity of energy, and inflation."

We'll see what Christine Lagarde, president of the ECB says all about this at 8:30am est. She and her colleagues also badly miscalculated on inflation over the past year plus as they had their chips on 'transitory.'

Lastly on stock market sentiment. Yesterday II said Bulls rose 2.3 pts to 32.2 w/o/w but Bears rose too to 35.6 from 34.5 and thus remain above the Bulls. Go back to March 2020 the last time this occurred. Today the AAII survey saw Bulls fall 6.4 pts after rising by 7 last week. They stand at 24. Bears were up by 4.4 to 45.8 but dropped by 12.3 pts last week. The CNN Fear/Greed index closed yesterday at 17. I saw it get as low as 13 on Tuesday and both are in the 'Extreme Fear' part of the gauge. Bottom line, the dour mood is a good set up for a continued market rally and if we don't get it with this backdrop, it would just reinforce that the Bear has taken over. 

Position: None

Known Unknowns?

I am buying some more (SPY) in here at $422.20 - right into the hot inflation print.

I am hopeful that a high print has been discounted.

Stay tuned.

Position: Long SPY, Short SPY calls and puts

Chart of the Day  

Global FCI now tighter than its long-run average of 100

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Position: None

I Am In Motion - Locomotion - These Days

* Trading sardines and not eating sardines

"My little baby sister can do it with ease
It's easier than learning your A B C's
So come on, come on, do the locomotion with me"

- Little Eva, Locomotion



Wednesday's breath-taking advance gave us a glimpse of the market's upside potential.

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But, by no means, is it a given that the potential will become kinetic and that we have started on our course of market recovery.

The challenges of geopolitical risk, slugflation (sluggish growth and elevated inflation), a hawkish Fed pivot, more pronounced supply-chain issues (owing to the Ukraine conflict) and still relatively high valuations will be with us for some time.

And, obviously, we are in a very "newsy" market where prices can flip on a dime.

(Note: Do not listen to the uber-confident "talking heads" that give you unqualified forecasts for stock prices -- keep your portfolios and children away from them as they are dangerous to your investment health as so many uncertainties abound!)

Bottom Line

* Keep higher-than-average cash positions

* Given the newsy nature of the markets, keep your portfolio's VAR (value at risk) low 

* Be opportunistic

* Be unemotional

* Trading sardines, not earing sardines

Despite yesterday's impressive rally we likely remain in a trading sardine market and not an eating sardine market.

I sold a lot of my trading longs on yesterday's advance -- and I just bought the (SPY) dip in premarket trading.

I continue to trade actively, maintain large cash reserves -- but, equally important, I am willing to unemotionally buy oversolds and extreme selloffs (like we experienced early this week).

This is a market good for traders, not so good for the buy-and-hold crowd.

Position: Long SPY; Short SPY calls and puts

Amazon's Buyback and Split Are Meaningless

Amazon's (AMZN) $10 billion buyback on a $1.4 trillion market cap is so small (and not a capital return statement) that it raises more questions than answering a question.

It is less than symbolic (as some analysts suggest this morning).

The buyback is paltry and it's laughable to me that the analysts adore the mood.

The buyback is full of sound and fury signifying nothing.

As to the stock split it is meaningless in the fullness of time -- and anyone that buys the stock on this (and after the ramp) needs his head examined.

Position: None

Tweet of the Day

Expect more of this:

Position: None

My Comment

dougie kassa few seconds ago

5AM Failure of Ukraine talks, pushes Spoos -30
I repurchased my SPY long position at $324. 68.
Dougie

Position: Long SPY; Short SPY calls and puts

More Night Moves: A Quick Look at Overnight Futures

* The market (and money) never sleeps

* The market has no memory from day to day

"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:

It was a modestly bearish bullish evening/early morning for futures. Gold is flat and Brent, possibly contributing to the equity futures weakness, is not giving it up (+$4.47 to $116/barrel).

S&P futures peaked at +8 and bottomed at -30. At 4:39 am ET we were at -21.

Nasdaq futures topped out at +10 and dropped to -145. At this writing they were at -89 (I noticed that (MSFT) is -$5.50 in premarket).

I am flat (SPY) and I have my strangle on for March expiration (a week from Friday).

Position: Short SPY calls and puts
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-32.45%
Doug KassOXY12/6/23-14.21%
Doug KassCVX12/6/23+11.69%
Doug KassXOM12/6/23+14.41%
Doug KassMSOS11/1/23-22.80%
Doug KassJOE9/19/23-13.32%
Doug KassOXY9/19/23-25.70%
Doug KassELAN3/22/23+30.32%
Doug KassVTV10/20/20+66.37%
Doug KassVBR10/20/20+79.06%