It was another ugly day as mighty Casey continues to strike out.

I have to prepare for a two day board meeting so I am outta here.

Thanks for reading my Diary today - I hope it was value added

Enjoy the evening.

Be safe.

From bullish JPMorgan's Marko Kolanovic: 

"We acknowledge that the path of future inflation is uncertain. We expect CPI inflation to peak in 1Q but continue to remain high, ending the year at 3.9%. This of course assumes that the Fed's policy to tighten financial conditions is measured, data dependent and does not precipitate a recession. Moreover, bond yields should move higher as they incorporate expectations of both higher policy rates and greater inflation risk. We recognize that the path of optimal monetary policy is narrow in the current backdrop, raising the risk of policy error."

The S&P Index is -4.5% this month and -12.3% year to date.

The Nasdaq Index is -8.4% in March and -19.5% in 2022.

Covering some more (FXLV) and (SBUX) .

I am keying on three stocks - (AMD) , (PYPL) and (MSFT) - as trading long rentals in anticipation of a rebound... at some point!

From Charlie!... here.

"I am going to write a good Diary on Real Money Pro today... and I am going to help people. Because I am good enough, I am smart enough and doggone it, people like me."

- Daily Affirmations With Dougie Kass

Today's Affirmations is about the possible impact of Russian Oligarch's U.S. hedge fund redemptions.

As it turns out several Russian Oligarchs invested in high profile and successful U.S. hedge funds.

Could their redemption requests explain some of the market's weakness in the last 1-2 weeks?

"I am not a licensed therapist, though. I deserve good things. I refuse to beat myself up. I am an attractive person. I am fun to be with."

I added to my trading long rentals - across the board - into the whoosh lower.

Back in Amazon (AMZN) at $2831 and Alphabet (GOOGL) at $2512.

I just reshorted March (SPY) $422 puts at $9.25.

Back long (GM) $41.59, (F) $15.87, and (MSFT) $282.09.

My Bloomberg interview from this morning - it starts at the 20 minute and 30 second mark! 

As I discussed in my Bloomberg "Market Surveillance" interview this morning, here are some reasons we could see a near- to intermediate- term bounce in equities: 

* Any progress in Ukraine/Russia talks. 

* Equities are -11.8% through the first 48 trading days of the year - that is the fourth worst start of the year in 94 years. Looking out intermediate term, in all of those five other bad beginnings (2009, 2020, 1935, 1933 and 1982) stocks staged a sharp recovery over the balance of the year ranging from +28% to +65%:

* The -13% drawdown in the S&P Index (from top to bottom) is in line with the average intra year correction since 1928:

* We have already seen a schmeissing in a number of popular high growth stocks:

* Bonds have had the worst start of the year in history - at -4.8%, the second worst year was 1994 with a decline of less than 3%. Yields may be close to peaking as the economy starts to peter out:



* Hedge funds have degrossed/derisked in the last two weeks:

Mar 14, 2022 ' 10:05 AM EDT DOUG KASS

Chart of the Day

On the positive side there has been a lot of de-risking over the last few weeks:

Sentiment continues to sour, and currently represent extremely light positioning.

Source: GS Global Investment Research Division as of 3/14/22

I just covered today's (SPY) put short at $5.89 - a nice day's pay!

Mar 14, 2022 ' 09:48 AM EDT DOUG KASS

SPY Add

I have added to my (SPY) short put position - sold more March $422 puts short at $7.90.

At 10:38 am:

Market Breadth

View Chart »View in New Window »

Heat Map

View Chart »View in New Window »

Largest Movers 

View Chart »View in New Window »

 * Shorted (SPY) March $422 puts at $7.90.

* Repurchased (AMD) at $103.92 and (PYPL) at $99.42.

dougie kass

Just one observation: Markets usually don't fall apart and are ok when banks are strong (today).
Dougie

On the positive side there has been a lot of de-risking over the last few weeks: 

Sentiment continues to sour, and currently represent extremely light positioning.

Source: GS Global Investment Research Division as of 3/14/22

I have added to my (SPY) short put position - sold more March $422 puts short at $7.90.

I see the bad moon a-rising
I see trouble on the way
I see earthquakes and lightnin'
I see bad times today

Don't go around tonight
Well it's bound to take your life
There's a bad moon on the rise

- Credence Clearwater Revival, Bad Moon Rising

As to where Mr. Market is headed, I am going to stick to my post of late Friday afternoon: 

Mar 11, 2022 ' 03:00 PM EST DOUG KASS

At Week's End, a Few Thoughts

• In a paperless and cloudy world, are investors and citizens as safe as the markets assume we are?
• In a flat, networked and interconnected world, is it even possible for America to be an "oasis of prosperity" and a driver or engine of global economic growth?
• With the G-8's geopolitical coordination at an all-time low, how slow and inept will the reaction be if the wheels do come off?

The reason I want you to remember these questions is that the answers might serve as valuation busters in the fullness of time...

- Kass Diary, "This Ain't No Seder, I Now Have Eight Questions" (2017)

As you all know I am always in doubt and often wrong - but there are few things - see my quote above - I am confident in expressing at the end of this long week:

* I am reasonably confident that late 2021/early 2022 marked a broad and important stock market top.

* Given the wide array of uncertainties, we are likely in a lengthy and heightened regime of volatility.

* Inflation will be persistent and sticky over the next 18 months.

* Supply chain problems will also persist well beyond what the consensus expects.

* Globalization is a thing of the past - it will be expensive with inflation to make the transition away from globalization.

* The world is interconnected and the risks associated with financial contagion have never been more acute.

* Market structure changes which benefited the markets in 2019-22 may contribute to the weakness in 2022-23.

* Speaking of market structure, quantitative strategies and products are leveraged and will exaggerate market moves, particularly on the way down).

* Consensus 2022 S&P earnings forecasts are too high.

What the diabolical stone cold killer in the Kremlin is thinking is the never ending question as the horror continues to unfold in the Ukraine. I just started to read the book Putin's World written by Angela Stent and published in 2019 and it only took a chapter or two to understand his big picture frame of mind. She wrote "The idea of permanently giving up lands Russia once controlled has been anathema to tsars, general secretaries, and post Soviet presidents. Almost immediately after the USSR collapsed, some in the new Russian leadership - although not Boris Yeltsin himself - began thinking about how to regain their lost territories. There is no precedent in Russian history for accepting the loss of territory, only for the expansion of it. What is it that propels this Russian drive for expansion?"

Knowing that she wrote these words in 2018-2019, Stent went on to cite Catherine the Great who ran the country in the mid to late 1700's as "the one who conquered the territories that today are the scene of the Ukraine-Russia standoff in Eastern Ukraine" and is someone that desired for this "drive for expansion." Stent said that Catherine "came to believe there was only one way for Russia to defend its fluid borders. 'That which stops growing begins to rot,' she once said, adding, 'I have to expand my borders in order to keep my country secure.'"

Only 10 pages later Stent wrote "Russian's senses of their own identity was also increasingly bound up with their sense of imperial destiny, of paternalistically ruling those around them, including Ukrainians, who were known as their 'little brothers.'

Tying this back to Putin, Stent wrote what he's most likely thinking, "The central argument is that, since the Soviet collapse, there is a mismatch between Russia's state borders and its national or ethnic borders, and that this is both a historical injustice and a threat to Russia's security. After the Soviet collapse, 22mm Russians found themselves outside Russia, living in other post-Soviet states. Russia, in Putin's view, has a right to come to the defense of Russians under threat in the post-Soviet space."

I bring this up not to make a specific point other than give some background on what is likely going through the crazy, killer mind of Putin who insanely thinks he can just invade a neighboring country with a democratically elected government because of his empire building fantasies. It unfortunately means that he won't stop until he fully gets Ukraine and that the current sanctions and then some will remain in place until this guy is gone forever, of course depending on who will replace him.

Turning to the Fed, there has been so much digital ink pored on this topic that there isn't much more to add that hasn't already been said. The Fed is tightening monetary policy into the teeth of the most difficult macro environment this current crop of central bankers has ever seen. How far they'll get is of course impossible to say for sure but I don't think it will be much. We know there is one thing to hike rates but another to shrink the balance sheet at the same time in terms of the impact. So many years of addiction to QE and zero rates has made the financial system ever more vulnerable and unstable to when it unwinds.

This all said, ending the financial poison of QE and zero rates is a long term good thing but only if we never see it again which seems highly unlikely until modern day mainstream monetary thinking changes.

It's not just the Fed this week that is meeting, the BoE and Brazilian central bank will be hiking rates this week too.

In the weekend FT, there was added insight into how the thinking of many on the ECB has shifted on inflation notwithstanding the Russian invasion. "The argument about inflation dominated and prevailed over anything else, including the war, the uncertainty and the fears about growth," said one person involved in the meeting. Another comment for someone there was this, "It is getting clearer and clearer to more of my colleagues that the transitory story on inflation is a bankrupt story." My bold and this person went on to say "It is not just oil and energy prices that are rising fast, you have food, non energy industrial goods and services all accelerating at more than 2%. We have to do something - we cannot be the only central bank not reacting."

The European bond market is selling off sharply on this new reality and as I've argued many times before, you can't just analyze the US Treasury market based on your expectations for growth and inflation without understanding the influence of overseas bond markets. The German 10 yr bund yield is higher by 10 bps to .35%, the highest since November 2018. The French 10 yr yield is up by 8 bps to .81%, also the most since November 2018. The rest of the region is seeing similar increases in yields. The US 10 yr yield did touch 2.10% early this morning but not sits just below at 2.07-.08%. The US 3 yr yield is touching 2% now and the 5 yr is now above it.

10 yr German Bund Yield

The other notable story over the weekend was the decision in China to shut down the 17.5mm person southern China city of Shenzhen, the Silicon Valley of that country. Two years of lessons learned on how best to deal with covid and they are still repeating all the mistakes as shutdowns only temporarily stop a spread. Higher immunity is the only thing that works. You can only imagine how disruptive this will be to global supply chains but hopefully this does end in a week. Foxconn, the major supplier to Apple, is already stopping production at its Shenzhen locations. Chinese stocks got slammed again and the level of panic after already sharp declines is reminding me of the NASDAQ in 2002.

Is part of the drop in oil prices today in response to the worries of less demand out of China? Likely a definite influence.

And speaking to the supply chain challenges that are only intensifying in the face of the war, Automotive News is citing AutoForecast Solutions who said as of last week, "The number of vehicles cut from automakers' factory schedules because of ongoing microchip shortages surged 42% this week from previous estimates." They said most of the cut came from plants in Europe and Asia. Japan in particular has been hit and even today Toyota said they are stopping operations in Changchun in China because of Covid lockdowns.

A few weeks ago the Swedish Riksbank said they were sticking to their belief that rates should stay at zero until 2024. We'll see about that after Sweden said its February CPI rose 4.5% y/o/y and 3.4% ex energy, both 4 tenths more than expected.

I will be on Bloomberg with Tom Keene and Paul Sweeney this morning at about 9:30 am.

GS/Kostin was mighty bullish and confident three months ago. 

This his second reduction in S&P target in a few weeks:

* 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 quite bullish evening/early morning for futures. Gold was -$19 and Brent crude was slightly lower (-$4.50 to under $104/barrel).

S&P futures were noticeably stronger than Nasdaq futures throughout the session - SPOOs peaked at +47 and bottomed at +7. At 6:00 am ET they were at +46.

Nasdaq futures topped out at +145, dropped as low as -8. At 6:00 am ET they were at +139.

I am flat  (SPY) , covered my SPY call short in the whoosh lower on Thursday and I remain short the March SPY $422 puts (with an expiration on Friday).

Being short SPY puts is being long.