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DAILY DIARY

Doug Kass

How the Market Behaves

Sometimes you have to admit that you have no idea why the market is behaving as it is. 

This is one of those times. 

I am leaving early to have a beer and then to watch a ball game. 

Thanks for reading my Diary. 

Enjoy the evening. 

Be safe.

Position: None

More Group Stink (Part Deux)

Another one that had the business media gushing was Nvidia (NVDA) - which just concluded its conference call... I was listening. 

It was a good meeting but with little excitement/new and no company share buyback, which some expected. 

NVDA share are now -$4 after being $9/share higher in the day. 

More crickets.

Position: None

More Group Stink

* Case in point, Nike

It's always amusing to watch price momentum based investors and (options) traders - who probably didn't even listen to the company's conference call or read the release - opine on the fundamentals of a company that has just reported. 

And gush with enthusiasm! 

A good case in point is Nike (NKE) - whose EPS report was universally heralded in the business media and on Fin TV. 

Though I had a less positive reaction to the EPS beat - I don't have a dog in the hunt so I am not going to discuss it - I would note that Nike is basically trading on its day's low - at $133 and change it is only +$3/share on the day after being +$9 on the opening trade of $139. 

Crickets for a stock that has slid throughout the trading day and is still nearly -$50 below its 52- week high.

Position: None

Forcing the Issue

With about 90 minutes left of trading, the one observation I want to make is that the buyers (FOMO?) appear to be panicky now and seem to be forcing the issue - especially as evidenced by the "crap" rising. 

Others may see it differently - enjoying the momentum regardless of the backdrop!

Position: None

Deja Vu?

And now the low quality (read: crap) is ripping higher. 

Seems like deja vu all over again.

Position: None

Clueless in Palm Beach

Having been offsides this week, I plan to try to change my luck.

So I will be leaving at the close to go to a Spring Training game, Mets vs. Astros.

Position: None

Added to SPY

Besides buying Treasuries, my only equity trade has been in (SPY) (short side). 

I just added to my SPY short at $449.

Position: Short SPY common, calls and puts

State of the Times

I just purchased a large amount of one year US notes.

Position: Long Treasuries

Midday Musings From Sir Arthur Cashin

Stock bulls managed to punch a bit above yesterday's intraday highs, but failed to achieve escape velocity. That will make the milepost to watch this morning's intraday highs. Just for the record, that is Dow 34866; S&P 4510 and Nasdaq 14101.

Let's see if they can punch through there and spook some of the remaining shorts.

Stay safe.

Arthur

Position: None

Market Breadth

Here is the market breadth (reversing Monday's weakness), biggest movers and heat map as of 10:55 am.

Breadth

View Chart »View in New Window »


Biggest Movers

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Heat Map

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Position: None

Today's Trades  

A quiet day as I really don't understand the continued market strength. 

My only activity, besides buying one year US notes, was in trading (SPY)

* Covered a small amount of SPY at $445.69 and shorted more SPY at $446.47.

Position: Short SPY common, calls and puts

S&P

The S&P Index is now approximately 350 handles above this time a week ago. 

Enough said.

Position: Short SPY common, calls and puts

The Book of Boockvar

More inflation arsonists from the Fed will be showing up today in their fire trucks, NY president Williams and Daly and Mester from SF and Cleveland, respectively. Meanwhile, yields continue higher globally with a sharp selloff in Asian bonds that spilled over to Europe and here. The Reserve Bank of Australia screwed up too with being overly easy for way too long with the failed YCC and the market is revolting against them. The 2 yr Australian yield is jumping by 17 bps today alone to 1.56%. It was at .59% at the beginning of the year. Their 10 yr yield is up by 14 bps to 2.72%, the highest since November 2018. New Zealand saw similar yield moves and they jumped too in Hong Kong, South Korea, Singapore and Indonesia to name some others.

In Europe, the German 10 yr yield is now at .50%, up another 4 bps and compares with the 2021 closing yield of -.18%. Thus, the market has already raised rates well before the ECB will get around to it. The German 2 yr yield is up by 4 bps to -.24%, the least negative since October 2015 and for perspective, the ECB went negative in June 2014. European bank stocks are in turn getting a lift and that is what is helping European stocks today. The Euro STOXX bank index is though still 80% below where it was in 2007. So the only thing the ECB has done over the past 10 years with QE and NIRP is essentially save the hide of European budgets, nothing else.

I'll finish here by adding to my continued expressed point that where European bond yields go from here, the epicenter of the global bond bubble, will be a key determinant of where US yields go by raising the prospect of more disruptions if the Bank of Japan ever decides to widen its yield curve control bank in response to higher inflation and now a weaker yen. I bring up the weakening yen today because it is really getting weak to the lowest level vs the dollar since early 2016 as BoJ monetary policy becomes even more separated from the rest of the world. This ties into the massive costs that Japan has because they import almost all of their fossil fuel energy needs.

According to the International Energy Agency, in 2019 "fossil fuels accounted for 88% of total primary energy supply" in Japan and about all of that is imported. A weaker yen on top of much higher energy costs is a huge pain point, especially with so many nuclear plants still off line post Fukushima. Of 33 plants still operable, only 10 are being used with hopes for 15 more to open, but not soon enough.

Australia 2 yr Yield

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German 2 yr Yield

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Japanese Yen (the higher the weaker)

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In case you missed the WSJ article yesterday titled "High Fuel Prices Sting Small Businesses", it said "52% of small business owners said higher energy prices were affecting their businesses, according to a March survey of more than 780 small businesses for the Wall Street Journal by Vistage Worldwide, a business coaching and peer advisory firm." These businesses are also having difficulty finding workers and now face higher interest rates. This quote stood out from David Hastings, the CEO of Hastings Water Works, a 30 yr old swimming pool service, maintenance and management company, "I am absolutely raising all my prices across the board and I am doing so aggressively." The bold is mine.

Nickel prices on the LME by the way are back to where they closed on March 4th, just under $30,000 a ton.

I include a chart below of the Green Markets North America Fertilizer Price Index which includes potash, phosphate and nitrogen in its different forms. The price is of Friday and highlights the sharp increase in nutrient costs that many farmers face globally. Unfortunately in the Ukraine, now in the midst of planting season, only about 1/3 of arable land will be planted, based on estimates I've seen, with the fall harvest hugely uncertain because of the lack of fertilizer availability. Higher food prices will remain a big global problem. I've been bullish for years on the fertilizer names like NTR and MOS but less so now after the price spike, notwithstanding the amazing fundamentals.

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Yesterday I mentioned the South Korean exports in the 1st 20 days of March. Today Taiwan said its February exports were higher by 21.1% y/o/y, well better than the estimate of up 14%. The semi's out of Taiwan are precious goods in high demand as we know. Exports of Taiwan's electronic products jumped by 32% y/o/y. The TAIEX was flat overnight and outperforming global stock markets, down just 3.6% year to date.

In the UK, the CBI industrial orders index rose to 26 from 20 and better than the expected drop of 4 pts. CBI said "This survey highlights strong order books and output growth, but the cost pressures facing manufacturers have been amplified by the conflict in Ukraine." I still like many UK stocks, particularly the European oil companies that trade on its exchange and some of the REIT's too.

Position: None

Staying the Course

Surprisingly, there continues to be no selling pressure. 

But, I am staying the course.

Position: None

Morning Musings From Sir Arthur Cashin

Traders did not need Edgar Allan Poe or Aguste Dupin or any of his heirs such as Sherlock Holmes since Monday's trading was not quite the mystery that some thought it was cracked up to be. As I told Carl Quintanilla and some of the CNBC Squawk on the Street team in an interview that was delayed by technical difficulties, there was a chance that the Vernal Equinox would exert some influence by having the market begin to change its mood and, by early afternoon, that looked to be absolutely spot on with the Dow down over 400 points and looking quite vulnerable.

I told Morgan Brennan that I was not sure that the market would be hanging its hat on what Fed Chair Jay Powell would say in his midday interview. Many of the TV pundits probably would disagree.

I did see several citing Powell for the reason that yields were moving up and the market was moving down. While I think his attitude may have had a bit of an influence, he basically said nothing new. It was pretty much a repeat of where he had been. I think yields were more readily influenced by what was happening in Europe, where yields were going up multiple basis points before they started to move here. I think we have gotten to levels that traders assume might cause some real attention. We have the ten-year certainly up at 2.25% and that has been thought to be an attention getting level, but equally and perhaps more important still, the shorter term treasury notes spiked many basis points.

So, we saw a lot of curve flattening and, even the threat of some reversal, which stocks never like because inverted curves tend to precede and often indicate looming recessions. I don't think it was the 100% influence of yields. I think they had a very, very heavy weight.

I think the continued concerns about how extensive combat could become in Ukraine and whether others would be dragged into it, even by the Russian presumption that they were aiding and abetting the Ukrainians and, therefore, counterattack against European NATO nations and even the Mainland United States might be in order.

While not a heavy influence on the market, I think it is anxiety that lingers somewhere in the back. So, the bulls much to their credit, managed to circle the wagons in early afternoon and trim the losses with the Dow closing down just a little over 200 points and, the S&P almost pulling back to fractional plus territory although it never quite made it.

One of the other things I said to the CNBC Squawk on the Street team was I thought the markets were grappling with a lot of moving averages and, I think, again that was so particularly Nasdaq having some problems and the S&P early on, looking at, I think, the 100 day moving average. So, they will be the thoughts that we will keep in our mind.

So, did the Vernal Equinox, in fact, change the market? Well, it certainly interrupted the string of smart plus tick closes, but you are going to need more than one day to find out if the bears have successfully counterattacked. The game is on the table.

We will see if we need any great detectives as we proceed further, but with that ten-year yield, closing actually above 2.25%, I think yields are going to be the attention getter in the future with the geopolitics in Ukraine particularly the wildcard. Meanwhile, overnight, equity markets and futures are trading better, especially in Asia. For that reason, I suspect one of the big catalysts may be the new superstrength in the Chinese tech sector. Alibaba is going to have a major buyback program and the Chinese government continues to make cooing sounds following the Vice Premier's apparent endorsement of Chinese equities two days ago.

Also helping, I think, is the overture from Ukrainian President Zelensky who has offered to promise no attempt to join NATO and discussion of some of the Russian influence providences of Ukraine in an agreement for a ceasefire and a Russian withdrawal. There is no sign that Putin is ready to come to the table, but it is enough to help support equities in Europe to a mild degree.

The yields continue to move higher with the ten-year getting up around 2.30% and the two year/ten year flattening and threatening to invert. Bond yields do not appear to be an influence so far this morning with concentration being, as I say, on hopes in Ukraine and support from Chinese comments that are really helping their tech sector.

From the look at the futures at dawn in Manhattan, the Dow looks to open up 100 points or so, which would bring into question whether the Vernal Equinox had done anything to change equity traders' minds for anything more than for just several hours. That has to be played out in the future with today being a key. We are still grappling with those moving averages. So, if they do manage to rally today, they need to so with some vigor and push up through those moving averages levels. For now, the bulls appear to have a mild initiative.

Let's see if they can carry it to the close. I would continue to watch those yields. If they begin to move higher, we will see some problems. I think the move in yields higher both yesterday and this morning did have some influence from Powell, but I personally believe, they were more strongly motivated by dramatically higher inflationary readings in Europe, particularly in Germany. So, I would keep my eye across the pond as well.

Again, I think, this morning, it looks like the bulls have the ball. Let's see if they can move it and maintain control into the close. You know the drill. Keep your eye on the newsticker. Keep your seatbelt fastened and try to stay safe.

Position: None

The New FAANG

* Say hello to the market's new friends...

"You wanna play rough? Okay! Say hello to my little friend."

- Tony Montana,Scarface



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Move over Facebook (Meta) FB , Amazon (AMZN) , Apple (AAPL) , Netflix (NFLX) and Google (Alphabet) (GOOGL) .

And say hello to the market's new friends (in 2022): 

* Fuel

* Agriculture and Aerospace

* Nuclear

* Gold and Critical Metals

Position: Long GLD

Remembering Evergrande

From the Wall Street Journal, here.

Position: None

Tweet of the Day (Part Seven)

El Erian chimes in:

Position: None

Sectors and Themes

From yesterday:

View Chart »View in New Window »

Position: None

Tweet of the Day (Part Six)

Another good tweet from Bramo:

Position: None

Tweet of the Day (Part Five)

I cautioned about this yesterday:

Mar 21, 2022 ' 03:32 PM EDT DOUG KASS

Does a Major Cyber Attack Lie Ahead in the U.S.?

* And are investors under pricing risk again?

  • 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)

Nothing would surprise me, anymore:

Position: None

Tweet of the Day (Part Four)

Position: None

Minding Mr. Market

I have been slowly expanding my short exposure into the surprising market rally that began last Tuesday.

As I mentioned yesterday afternoon, higher energy prices, rising bond yields (and a more hawkish Fed), growing geopolitical risks and other factors are conspiring to make -- at least to me -- attractive (short) entry points on the indexes.

This strategy runs counter to the Perma Bull (Belskiesque) approach to money management and runs in the face of those that stare at the machine intently, worship at the altar of price momentum and believe "price is truth."

To me, the upside reward is now, once again, dwarfed by the downside risk.

And my view is being backed up by the tactical positioning and composition of my portfolio's assets.

Position: None

Tweet of the Day (Part Trois)

Position: None

Tweet of the Day (Part Deux)

Position: None

Tweet of the Day

I continue to be surprised by the equity market's resiliency in the face of higher energy prices and lower bond prices:

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.

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 -- until about 30 minutes ago when the S&P futures inexplicably rose. Gold is unchanged and Brent crude is -$1.

Bond prices, on the other hand, are moving lower again -- with a 2 bps move higher in yield.

S&P futures peaked at +17 and bottomed at -19. At 4:41 am ET they were at +15.

Nasdaq futures topped out at +64, dropped as low as -70. At 4:42 am ET they were at +63.

I shorted more (SPY) after the close over $445 and covered some SPY around 8 pm last night at about $443.86 and I am now replacing that cover with more shorts at $445.92.

Position: Short SPY common, 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%