Thanks for reading my Diary today and all week.

I will be out of the office tomorrow and I won't be writing but you will be in the capable hands of Stephen "Sarge" Guilfoyle.

Enjoy the evening and the weekend.

Be safe.

I have been adding to my (SPY) and (QQQ) shorts -- average cost basis on today's trades are $439.87 and $343.54.

Rabobank and Bank of America (BAC) think the Fed will blink in September when we are already in recession. 

All I can say is that would leave inflation far above target and compound their policy error(s) and contradict Powell's pledge to do what Volcker did. 

I realize cynicism is a very attractive stance to take these days especially regarding the Fed after what it did in early 2019 but then inflation was under 2% - as they measure it but we know it was higher. The only way to fight inflation is by slowing the economy and squeezing out excess debt-fueled growth, and other excesses. 

Abandoning tightening to avoid or dampen recession would mean we will have permanently higher inflation until another form of demand destruction occurs such as a debt deflationary bust which would be a more severe version of a recession. 

I am of the view that the Fed is more likely to try for the less drastic route of recession than a deflationary bust. 

Government debt will keep rising as deficits keep growing through this process. Wall Street always wants a free lunch but the rations are running low.

Break in! 

Blinken says Russia may be planning a chemical weapons attack. 

Stocks take a modest dip.

I have added to my (SPY) and (QQQ) shorts - at $439.26 and $342.94, respectively.

I also have a partial strangle on the S&P - short May SPY puts and calls, with a large imbalance of short calls.

* I am most of today's volume!

Given the magnitude of the two day market advance, the hawkish Fed utterances yesterday and my ursine market view - shorting these calls is my Trade of the Week.

P.S. - I know it's late in the week!

The bulls continue to struggle to get the traditional plus tick results for St. Patrick's Day. They seemed to be having some difficulty with the cocktail napkin chart resistance. Traders have all been awaiting the TIPS auction at 11:30. The initial market response to the auction appears to be a yawn.

No news or apparent progress in Ukraine. So, it is continued Fed analysis guiding the market for now.

Stay alert. Keep your seatbelt fastened and Erin go Bragh.

Stay safe.

Arthur

Cannabis company, TeraAscend (TRSSF)  , reports good results. 

Shares +10% after the recent schmeissing.

More later.

I continue to press my shorts on this little rally from the lows.

As we approach noon, Mr. Market is putting on a reasonably good showing. 

Of course that could change at any moment!

Gold and silver are now overbought - taking off some more now - $181.90 and $23.55.

From small to tag ends.

I am expanding my short book further and I am adding to my (TLT) long.

Here is what we said in that late morning update:

"Late Morning Update Possible Ukraine compromise premium seems to be bleeding out of the market. It could be critical how they close after the FOMC press conference. A negative close could have sharp implications for the week to come. Too early to tell, but keep your eye on the action from 2:30 to 4:00 p.m. Stay safe."

Sure enough, as we worked our way into the afternoon, the hopeful armistice premium did actually bleed out of the market and, when 2:00 came and, it time for the Fed statement and looming press conference, almost all of that premium went out and stocks did threaten to go negative, which we had feared in the update. However, after very briefly turning negative in the Dow, as Powell went on, the market decided to come back and buy into the market.

So, even with no further new developments on the "armistice", they decided it was time to buy and build on Turnaround Tuesday's nice returns. So, as I say, they closed within the high tick of the day. A nice performance overall. Shortly, after Zelensky finished addressing a Joint Congressional session remotely, all of the networks began picking up on it and his obvious call for a no-fly zone situation in Ukraine and why that was not possible and why Biden would never give it up and amazingly, the majority of the media venues talked on the fact that it would raise the ante and might risk Putin bringing nuclear arms into the game. Most disturbingly, they were not talking about tactical nuclear arms blowing up a bridge in Ukraine or somewhere like that, but a good deal of the commentators talked about pressing a nuclear button and sending missiles at the mainland U.S. with targets like Washington, Manhattan, etc. Now that was not entirely surprising.

The topic had come up again and again in the preceding days as we noted when we said there was some concern that our protective missile dome had never been completed under Ronald Reagan and, therefore, an unduly large part of the U.S. population would be susceptible to that kind of nuclear attack, but apparently, at least to the people that the networks brought on as experts, the unthinkable is unfortunately very thinkable these days.

Luckily, all that discussion clearly had no market effect.

There was no shift to end of the world playing. There was no rushing to bonds on a flight to safety and, so it is really that specter in the back of the mind that will probably help you avoid sleep in the coming evenings, but as I say, a lot of what happened began with hope and when the hope didn't really show up, it didn't really dissipate.

The market let that premium on Ukraine talks out, but when they came back, they reinstated certainly part of that premium and, as I say, with the action of the ten year, there was no mad flight to safety, I guess we are becoming blasé about this military risks.

The cocktail napkin chartists are getting themselves twisted in a knot. The sharp rally of the last couple of days has taken the Dow up to 34000/34200 potential channel. The same is true of the S&P, which is up in the 4300/4400 channel. At any other time, the cocktail napkin team might have assumed it tops out and rolls over here. However, the calendar may get in the way.

Today, as you may or may not have noticed is St. Patrick's Day and the Leprechauns apparently come out to work on St. Patrick's Day. It has a trading pattern that favors a mild rally. Something on the order of up 100 to 150 points in the Dow. In today's kind of market, that thesis may have been shot in the foot.

Pre-opening, the Russians came out with some less than upbeat comments on Ukraine and they also singled out President Biden's calling Putin a war criminal. The Russians said that was "unforgiveable". As we have said time after time since the invasion started - when you are trying to get someone to the negotiating table, it is not good sense to call them a war criminal despite whatever they do. In the concept of war criminality, raises images of something like the Nuremberg trials or the fact that even after the cessation of hostility, they may be brought up on international charges. That does not encourage someone to come to the negotiation table and we are seeing some of that this morning.

The other complicating factor is, as I say, being the St. Patrick's Day bias to the upside. Today is also Purim, but that's kind of a floating calendar on the Gregorian calendar and, I don't have much solid information on the past performance on Purim. Overnight, global equity markets are mixed to mildly better. We are going to get bank rate information this morning in Europe as we go to press.

We expect a quarter rate hike there too. So, we will see how markets tend to take that. The markets are marginally indecisive obviously. The Ukraine/Russia situation is an absolute key. The cocktail napkin resistance will be a curiosity and the TIPS auction this afternoon may gave us a better look at what is the real concern about inflation. So, it looks like a bit of a confusing morning. We will all keep an eye on the newsticker to see any further comments on the Ukraine situation. That TIPS auction is at 11:30. So, keep your eye out for that.

The futures, as we go to press, shows the Dow down about 100 points. So, the Leprechauns will have their work cut out for them to get the almost traditional plus tick close for St. Patrick's Day, but let's have some faith in the Leprechauns.

So, keep your seatbelt fastened.

Have a very Happy St. Patrick's Day and, now let's revert to our traditional close from the comments on this day. At any rate, in honor of St. Patrick and at the risk of becoming the Salman Rushdie of the Hibernians, I will reveal to you a secret Irish prayer that St. Patrick gave the Irish in 452 A.D. For over 15 centuries it has been whispered in the ear of each Irish lad on the day before he receives his first corkscrew. "For those who are with us May God turn their fortunes bright For those who are against us May God turn their hearts toward us And if God cannot turn their hearts May He at least turn their ankles So we may know them by their limp!" Consensus - Up the rebel, up your spirits, up your glasses and let the market take care of itself.

With our blessing, have a Guinness or two to wash down your corned beef and cabbage and that lovely dessert for Purim Hamantaschen.

Many were wondering why the market ripped higher post Fed meeting, I certainly got a lot of questions. But sometimes it's just about positioning. Participants have their short term trades on, their hedges going into the meeting and when the news is finally out, whatever the outcome, the positions are sold off, whether bets on up or down. That's it.

I've been doing this long enough to never trust the action in the last hour of the day on Fed day, regardless of direction because of this. Big picture, we are entering a period of double tightening with rate hikes and QT and thus the economic and market headwinds only get stronger.

With regards to market sentiment, it's still pretty dour. Yesterday Investors Intelligence said Bulls fell to 30.6 from 32.2 while Bears rose .9 pt to 36.5 w/o/w. That Bear number is the most since March 2020 when it was above 40. Today, AAII said Bulls fell 1.5 pts to 22.5, near a multi year low when it hit 19.2 four weeks ago. Bears rose 4 pts to 49.8 and compares with 53.7 a few weeks ago.

After touching 13 last week, the CNN Fear/Greed index closed at 22 yesterday, still considered in the 'Extreme Fear' part of the dashboard. Bottom line, the mood is cautious and is historically a good set up for a rally but if we don't get one with this backdrop, it just reinforces that the Bear has taken over and could be right for a period of time, just as the Bulls when loaded on the boat could be right for a long stretch of time.

Initial jobless claims fell to 214k from 229k last week and that was 6k less than expected. As a print of 249k fell out of the calculation, the 4 week average fell to 223k from 232k. Delayed by a week in reporting, those still receiving continuing claims fell to just 1.42mm, a new low going back to 1970.

The bottom line remains the same with the demand for labor still exceeding the amount of needed bodies with the number of job openings far above the number of people looking. Now we'll of course see how this changes in coming months and quarters as consumers readjust their spending habits in light of an ever rising cost of living and businesses are still challenged by supply constraints but for now, the state of the labor market is still tight.

Initial Claims

Continuing Claims

In stark contrast to the weak March NY manufacturing survey, the Philly regional survey surprised to the upside. It printed 27.4 from 16 in February and that is well above the estimate of 14.5. New orders jumped while inventories fell to zero. The NY survey showed the exact opposite. Backlogs got back most of what it lost last month. Delivery times almost doubled and both prices paid and those received accelerated. Prices paid in fact rose to the highest level since 1979. Both employment and the workweek bounced in March.

With the 6 month business outlook, it fell to 22.7 from 28.1 and that compares with the 6 month average of 25.2. Expectations for pricing rose. Capital spending plans increased. Of particular note was the sharp jump in expectations for Inventories which rose to 30.8 from 4.3. We know inventories made up 500 bps of the 7% Q4 GDP report and if this Philly read is broad based, expect a reversal in coming quarters.

Bottom line, the Philly index being completely opposite than what NY told us has me even more confused on the state of manufacturing. Let's see others before we draw a conclusion but it is safe to say that while maybe supply chains were beginning to unfreeze in early to mid February, it is now even more uncertain in light of the war. And the demand side is ever more fragile because of the sticker shock many are now experiencing for things like cars and homes among many other things.

Philly Mfr'g

Prices Paid

Lastly on the data front, housing starts in February totaled 1.77mm, above the estimate of 1.7mm and January was revised up by 19k. Both single family and multi family starts were up m/o/m. With respect to permits, they moderated from January for both categories.

Bottom line, there is one thing nowadays to start construction of a new home but because of shortages of so many things, who knows when it will get finished. That said, there are a lot of new homes being built relative to meager household formation growth so the supply/demand balance is tipping towards the former. As for demand, there is huge demand for lower priced homes but unfortunately there aren't that many of them as prices continue to rise.

Good luck finding a new home priced below $350k for lower income families. As for multi family, it's a red hot sector as we know and supply of new inventory has been pretty steady in response. What this eventually means for rents we'll see but after a pretty sharp pace of gains over the past year, the m/o/m pace over the past few months are showing some signs of plateauing, thankfully for those renting.

Single Family Starts

Multi Family Starts

Adding to (TLT)  at $132.30.

I have shorted (SPY) calls for May and I initiated a trading short rental in (SNOW) in premarket trading at $195.75 - mortician and obstetrician!

I plan to take a short trading rental in the the banks based on (1) yesterday's gap, and (2) a flatter yield curve, which is the banking industry's "bread and butter." 

Moreover, and far less important, one well known and Perma Bull Fin TV star confidently bought banks yesterday - I will use this as a contrary signal.

* I saw this coming... a hawkish Fed, labor shortages, wage inflation, $110 oil and persistent inflation in the face of continued supply chain dislocations

* I do not see a benign outcome

* Stick with quality

* Trade sardines, don't eat sardines

Surprise #2. Powell Turns Hawkish - But Monetary Policy Fails to Dent Rising Inflation

Despite accelerated tapering and an attempt to signal slow and steady rate hikes, inflation accelerates well beyond expectations. By February inflation is running close to 8%. Though comparisons are tough, inflation stays well above consensus expectations (sticking at above 5% this summer).

ESG investing, the complete reopening of the global economy and rising geopolitical tensions sends oil to over $110 a barrel.

While Omicron proves far less virulent than initially feared, business closures put in place and uncertainties serve to exacerbate the supply chain dislocations seen in 2021. The continued logistical mess reinforces more (cost push) inflation and mounting inflationary expectations.

The U.S. labor shortage intensifies and wages grow +6%. The shift from "goods to services" demand post Covid actually causes more inflation as, surprisingly, service prices accelerate across the board.

"Slugflation" (sluggish growth and sustained inflation), a distant cousin to "stagflation," becomes a feature and commonly used term in 2022.

As interest rates increase (in the U.S. and in Europe), the rising higher debt burdens in the financial system - which have clearly institutionalized instability - lead to a new regime of equity market volatility rarely seen in modern investment history. Daily moves in the S&P Index of 2%-3% become commonplace.

The housing shortage worsens, as labor shortages limit home construction and homes for rent companies buy whatever supply they find. Home prices go up by another 15%. Eventually, the high prices for everything will begin to impact affordability and demand, as consumers can't afford to maintain consumption when interest rates ratchet higher later in the year.

The Fed is left in an impossible position of finally realizing it needs to get "serious" about inflation into a slowing economy.

Powell realizes he should have let Lael Brainard have the job.

Treasury Secretary Yellen, recognizing that inflation is materially widening the wealth and income gap (by acting as a regressive tax) encourages Powell to do "whatever it takes" to stop inflation.

Whip Inflation Now (WIN) buttons are distributed nationally.

Powell ends up more Volcker-like than anyone predicted. The Fed Chair turns very hawkish and focuses on inflation - not jobs or stocks. But it is too late and the monetary pivot fails to materially reduce an elevated level inflation as years of monetary excesses are not easily reversed.

In 2022 we learn that there is no monetary policy that remedies the inflationary impact of continued global supply chain and logistical disruptions and imbalances.

- Kass Diary, 15 Surprises for 2022

I saw this coming as clear as day (See Surprise #2, above, in my 15 Surprises for 2022)

If the Fed follows through along with its stated plan of multiple rate hikes, coupled with the continued pressure on the consumer from inflationary pressures, it creates tightening financial conditions that are a recipe for economic and possible market disaster. 

The markets disagreed with this statement - ramping dramatically after an initial fall. 

To me, the upside market action was inexplicable - not surprising in a world of machines and algos. 

I simply don't know why the market rallied to the degree it did. I let go of my longs and shorted the rally late in the day as I do not see a benign market or economic outcome. 

My conclusion is that it could have simply been a vicious Bear Market Rally - as I remain of the strong belief that late 2021/early January 2022 marked an important and broad distributive market top. 

Stick With Quality

From a financing standpoint the Fed's actions mean the cost of capital will rise - it already has in the last four weeks with rates rising and the junk bond market deteriorating in price with widening spreads - and access to the capital markets will narrow. 

This backdrop should result in increased dispersion, known as a stock picker's market.

I have a lot of experience analyzing companies - large, medium and small - in a host of industries and categories and I currently sit on public Board of Directors, and have been on many others in the past. 

My experience participating on those Boards and based on my decades of analysis suggest that tightening financial conditions will translate into a meaningful financing and liquidity headwind to smaller and even some medium-sized companies. 

My advice? No more gewgaws and stick with quality. You do not want small, speculative companies with modest or no profitability in your portfolios in a late stage market and economic cycle. 

Trading Aggressively

In the fullness of time, tightening financial conditions will also likely be a headwind to equities. 

I have expressed the view that this is a trading sardine market and not an eating sardine market - providing great opportunities to trade and not so great opportunities to invest (buy/hold). 

In recent weeks you can vividly see the sometimes frenetic trading tactics I am employing - with little interest of investing. 

This will change and will return to the land of the living and investing - but not in the current heightened regime of volatility, with valuations so elevated and with a wide range of uncertain outcomes, many of them adverse. 

Remember, trading is more difficult than investing because it requires way more decisions. And the more decisions one makes, the more likely to make a mistake! 

Bottom Line - The Business We've Chosen

"I heard it, I wasn't angry.

I knew Moe, I knew he was headstrong, talking loud, saying stupid things.

So when he turned up dead I let it go.

I said to myself this is the business we've chosen.

I didn't ask who gave the order because it had nothing to do with business."

- The Godfather

Stick with quality in a mature economic and market cycle. 

Trade sardines, don't eat sardines. 

This too shall pass, but for now this is the strategy I have chosen. 

"$2 million in a bag in your room. I am gong in to take a nap.... When I awake and the money is on the table I know I have a partner. If it isn't I know I don't."

Metrics of Treasury market liquidity and depth have deteriorated to levels not seen since 2020

US Treasury Market Function Index*, measured in z-scores

From my friends at Miller Tabak - The Fed Admits Its Policy Mistake:

The March FOMC meeting was one of the Fed's most hawkish moments since the Volker era. Projecting seven total rate hikes in 2022 (we had projected six, and we expected the March Summary of Economic Projections to predict five) is an acknowledgment that the Fed has misjudged the nature of U.S. inflation, which has become increasingly widespread and entrenched. Having made this forecast, it will take a major shock for the Fed not to follow through. We expect a 50 bps hike in May (CME Fed futures have this at just 37%, an underestimate) along with rate hikes at the following four meetings. We note that five FOMC members projected at least nine rate hikes in 2022, an outcome consistent with two 50 bps hikes, and four 25 bps hikes at the remaining six 2022 FOMC meetings. Chairman Powell was explicit that this outcome was realistic if incoming inflation data come higher than expected. Given that underlying inflationary pressures are rising (e.g. the war in Ukraine, covid-19 in China, more on this later), such an outcome is now close to even-money.

There remains one major inaccuracy in the Fed's forecast. The FOMC itself now expects to overshoot the neutral rate of 2.4-2.5% by going to 2.8% by late 2023, and remaining there through 2024. This is an admission of a minor policy error; more effective policy would reach the 2.5% level without going higher. A 2.8% Federal Funds rate will not, however, be enough to bring inflation down to the Fed's 2023 (2.7%) and 2024 (2.3%) core-PCE inflation forecasts. We continue to expect that the Fed will have to go to the 400-425 bps band to regain control of inflation. This is 50 bps higher than even the two most hawkish FOMC members' forecast.

Overall, this meeting is good news for financial markets. It does not change the reality that the Fed will have to go above 250 bps, it is just the Fed finally acknowledging this reality. Medium-long term inflationary expectations remain in good shape; the New York Fed's new Survey of Consumer Expectations finds that long-run expected inflation is 3.0%. Given that household inflationary expectations are biased upwards by about 1%, this is good news. As a result, the Fed has likely acted in time. The risk of the Fed having to go very high (e.g. above 5%) remains low, as does the risk of rate hikes causing a U.S. recession.

In a series of multiple trades I covered most of my Starbucks (SBUX) short in the last week:

Mar 14, 2022 ' 03:12 PM EDT DOUG KASS

FXLV, SBUX

Covering some more ( (FXLV) ) and (SBUX) .

But one has to ask why is Starbucks' bench so shallow as to have to bring back the old CEO:

* The market (and money) never sleeps

dougie kass • 9 hours ago

* The market has no memory from day to day

* Yesterday I went long premarket weakness, today I am shorting premarket strength

"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.

Moreover, the overnight/early morning futures holds opportunities as it is (1) inefficient, though liquid, and (2) it seems fear and greed is often exaggerated outside the regular trading session.

It was a neutral evening/early morning for futures. Gold moved back higher (+$29), which I consider bearish for equities and Brent crude was +$4.27 to $102.42/barrel (also bearish for stocks).

S&P futures peaked at +14 and bottomed at -15. At 5:26 a.m. ET they were at -9.

Nasdaq futures topped out at +100, dropped as low as -49. At 5:27 a.m. ET they were at -34.

Yesterday I shorted the strength in the market at the close and expanded that short following the close of trading (from Comments Section):

Sold more Spy and QQQ short after the close
$436.50 and $341
Enjoy the evening.

I am currently short (SPY) after liquidating my bullish position of short SPY puts (expiring tomorrow) at a good price.

I also added to my (TLT)  long after the Fed rate raise.

USA: Hawkish Dots16 March 2022 ' 3:13PM EDTBOTTOM LINE: The FOMC raised the funds rate target range at the March meeting, as widely expected. More importantly, the median dot in the Summary of Economic Projections now shows seven interest rate hikes in 2022-up from the three projected at the December meeting-and seven participants showed more than seven hikes. The median SEP projections showed a significant downgrade to the GDP growth projections (-1.2pp to +2.8%) and an upward revision to core inflation projections (+1.4pp to 4.1%) in 2022.MAIN POINTS:1. The FOMC raised the funds rate target range to 0.25%-0.5%, as widely expected. More importantly, the median dot in the Summary of Economic Projections now shows seven interest rate hikes in 2022-up from the three projected at the December meeting-and seven participants showed more than seven hikes, which would require at least one 50bp hike at one of the six remaining meetings this year. The projected hiking path now shows a 7-3½-0 hike baseline for 2022-24-compared to the December projected pace of 3-3-2. Ten participants projected a funds rate above the median longer-run dot in 2024, with the longer-run median edging down to 2.375% (vs. 2.5% in December).2. The statement did not provide specific guidance on the pace of tightening, instead projecting "appropriate firming in the stance of monetary policy" and an expectation that inflation "returns to 2 percent" and that the labor market "remains strong". The language discussing the factors determining appropriate policy was unchanged. The statement also noted that the FOMC "expects to begin reducing its [balance sheet] at a coming meeting."3. The SEP showed a significant downgrade to the GDP growth projections in 2022 (-1.2pp to +2.8%) but left projections for 2023 (+2.2%) and 2024 (+2.0%) unchanged. The median core inflation forecast for 2022 was revised up significantly (+1.4pp to 4.1%) with smaller upward revisions in 2023 (+0.3% to 2.6%) and 2024 (+0.2 to 2.3%). The median unemployment rate forecasts were unchanged at 3.5% in 2022 and 2023, but revised up slightly in 2024 (+0.1pp to 3.6%).