"The normal month/quarter-end markups today could be challenged by a large reallocation trade out of stocks and into bonds (reflecting the wide relative performance between equities and fixed income during the month and quarter) as well as being influenced by the magnitude of the market's surprising rise since mid-March."
- Kass Diary, Minding Mr. Market 

One in a row!

The reallocation trade (discussed throughout this week) was conspicuous in the last 30 minutes of trading.

I am shortly going on a board meeting so I will make it short and sweet.

Thanks for reading my Diary today, I hope it was helpful today (especially to traders).

Separately... some big news.

I will be making my first appearance on CNBC in seven years on (Judge) Scott Wapner's "Overtime" at 4 p.m. tomorrow!

Enjoy the evening

Be safe.

I just covered the other half of my (QQQ) short at $363.80 - for a hefty gain:

Mar 31, 2022 ' 06:47 AM EDT DOUG KASS

My Comment of the Day

dougie kass • a few seconds ago

I shorted a very small amount of (QQQ) just now at $368.52.
I wanted to get pregnant with a starter position which I intend to increase on a scale higher.
Dougie

I have pressed some shorts into what I expect to be a large reallocation trade this afternoon out of stocks and into bonds. 

I might be wrong - but that is what I see given the nosedive in bonds and rise in equities in March!

The logistical supply chain problem are deep-rooted and likely to be persistent: 

Skeptcl

Briefing:

Ford Motor to halt production at Flat Rock Assembly Plant in Michigan next week owing to global semiconductor shortage, according to Reuters (17.12 -0.14)
3/31/2022, 12:02:56 PM ET
Reuters

https://www.reuters.com/bus...

In response to a number of emails, I am sticking with the balance of my Nasdaq short.

My pal Dennis Gartman just sent this to me in an email:

View Chart »View in New Window »

The rally in the Nasdaq has taken that index perfectly into "The Box" marking the 50%-62% retirement of the break that began in early January. On the futures the Box is 14,800-15,290 and the high earlier this week was approximately 15,200!  Volume on the rally has been increasingly smaller and the CNN Fear and Greed Index, which had fallen to 11 three or four weeks ago has risen to "neutral" at 50 today and in bear markets neutral is about as far as this index can get. 

Buy gold and sell equities; buy gold and sell bonds; buy gold and buy corn. 

Dennis

"Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names."

- Bob Farrell's Rules of Investing 

Some noon observations: 

* Banks/financials rolling over bigly.

* Autos are an accident - even after the precipitous drop for the highs.

* Despite all the love in the business media, Disney (DIS) back under $140/share.

* Semis unglued.

* Housing stocks to new lows.

* As Home Depot (HD) goes, so goes the nation.

* Meme stocks deflating with the YOLO spirits.

* (ARKK) is leaking again. 

Yeah, we have (MSFT) and (AAPL) . 

So what? 

Where's the beef?

I have a research call between 3-4 pm today, and a Board meeting from 5-6:30 pm.

After having taken off a lot of my Green Brick (GRBK) position at $23-$24, I am now adding back under $20 based on my expectation of lower bond yields and a possible company buyback.

With (SPY) now close to even on the day I am expanding my short book.

Remember, I expect, and I might be wrong, a rather large reallocation out of stocks and into bonds this afternoon.

Covering some short puts and adding to my short calls after the rally off of the lows.

At 10:53 am:

Breadth

View Chart »View in New Window »

Biggest Movers 

View Chart »View in New Window »

Heat Map

View Chart »View in New Window »

The banks, and now the brokerages, look dreadful. 

I would continue to avoid despite their popularity.

Home Depot's (HD) shares are down another -$6. 

As Home Depot goes, so goes the nation!

I just took a $3 profit on half of my (QQQ) short from a few hours ago. 

Sticking with the balance.

* Growth stocks have led the market's relatively narrow late-March advance -- reminiscent of last year's top-heavy performance

* As in 2021, I expect this to end badly

I contended -- in yesterday's opening missive (There is Downside Risk to Economic Growth and Upside Risk to Inflation) -- that we have witnessed a Bear Market Rally over the last two weeks.

We will see.

I also pointed to this week's underperformance and the poor reaction to earnings of several leading large cap stocks:

* Home Depot (HD) : As Home Depot Goes So Goes The Nation

* Micron (MU) :From Big to Micro(n)

* Restoration Hardware (RH) : Not Very Restorative

The market has quickly pivoted back from value to growth in March's last-half rally. Indeed the strength in growth stocks like Apple (AAPL) , Snowflake (SNOW) , Nvidia (NVDA) , Microsoft (MSFT) , Meta FB , Amazon (AMZN) and Alphabet (GOOGL) is reminiscent of the top-heavy growth-stock strength experienced in 2021. (It was interesting -- and laughable -- to note the universal enthusiasm towards Apple, now that it has rallied +17% since March 14 in the business media -- reminding me once again that FIN TV tells us where the puck has been and not where it is going!) Meanwhile, everyone's fave value sector, financials (banking), continues to lag and has started to roll over again.

Unrelatedly, the S&P Oscillator (which I use as a gauge of overbought/oversold) remains elevated. At the close it stood at 5.11%, down from a very high 6.69% the day earlier.

The normal month/quarter-end markups today could be challenged by a large reallocation trade out of stocks and into bonds (reflecting the wide relative performance between equities and fixed income during the month and quarter) as well as being influenced by the magnitude of the market's surprising rise since mid-March.

Fasten your seatbelts.

I added (small) to (GLD) and (SLV) longs in premarket trading.

Chinese tech stocks fall as U.S. signals a tough stance on delisting.

What's the natural instinct of a politician/government official/central banker when a policy of theirs doesn't work? It's not to reflect on it and try something different, but claim it wasn't enough and just do more of it and hope for a different outcome. That explains what is going with the talk of a huge strategic petroleum release that will only temporarily reduce the price of crude oil. The reason why high prices is the medicine for high prices is because it encourages more supply and destroys demand which results in lower prices. What the SPR release will do is discourage more supply and stimulate more demand. And eventually these barrels of oil will have to be replaced by buying them at some point.

The stock market had something going for it a few weeks ago and that was depressed sentiment. Today, not anymore and while things are definitely far from ebullient, they are much more neutral. Yesterday Investors Intelligence said Bulls rose to 37.7 from 35.3 while Bears fell 1.2 pts m/o/m to 34.1. As for the mood of the individual investors, AAII today said that the number of Bears fell by 7.9 pts after dropping by 14.4 last week. At 27.5, that is the least since November 2021. Bulls were little changed at 31.9 vs 32.8 last week. The CNN Fear/Greed index closed almost spot on the 50 level at 51, aka Neutral. In the current debate of whether the worst is in for stocks or this is just a bear market rally, some forget that beginning in a few months, the Fed is most likely going to be draining $80-100b per month of liquidity. The last time that happened we know was in 2018 where we saw the vol trade blow up in the early part of the year and the Q4 market mess. Bottom line, there is a lot more wood to chop this year.

AAII Bears

A few days ago Apartment List released its March National Rent Report and it showed that rents rose .8% m/o/m. They said "So far this year, rents are growing more slowly than they did in 2021, but faster than the growth we observed in the years immediately preceding the pandemic. Year over year rent growth currently stands at a staggering 17.1%, but most of that growth took place last spring and summer. Over the first three months of 2022, rents have increased by a total of 1.8%, but we're just beginning to enter the busy season for the rental market, when the bulk of annual rent growth typically occurs." These figures measure new leases, not the extension of an expiring lease where I've seen prices up between 7-9% y/o/y. Either way, rent growth is about double what's been reflected in the BLS CPI and PCE numbers.

There is some light though as supply is picking up. Apartment List said "our national vacancy index is continuing to slowly inch up, indicating a gradual easing of the tight market conditions...Our vacancy index hit 4.6% this month, continuing a 7 month streak of increases after bottoming out at 3.8% last August." The pre pandemic norm was 6%. Bottom line, just as with home prices, we've likely seen max pain in terms of price increases but still remaining very elevated, especially relative to income, wage growth and overall inflation. That said, now we have spiking mortgage rates of course that only encourages more renting.

With all the self imposed economic pressure China is putting on itself in their response to covid in addition to the distress going on with residential real estate developers and the flow thru impact on housing, the state sector weighted manufacturing and services composite PMI for March fell to 48.8 from 51.2. Both components are now showing contraction with manufacturing dipping to 49.5 from 50.2 and services at 48.4 from 51.6 with of course the latter more impacted by the strict covid policy as factories mostly stay open. That's the lowest since the February 2020 plunge to 28.9 before magically rebounding to 53 in March 2020. Expect the April figures to be weak too as many of the covid crackdowns in the major cities of Shanghai and Shenzhen occurred in the latter part of March. While the weakness wasn't much of a surprise, how long China is going to play this whack a mole game with covid is completely unknown. The Shanghai comp fell .4% and the H share index was down by 1.1%.

After the hot inflation reads out of Spain and Germany over the past few days, France and Italy did the same today. France said CPI accelerated to a rate of gain of 5.1% and Italy's went to 7%. Because most of France's energy needs are met by nuclear, they've been able to mitigate the impact of spiking natural gas and oil.

Germany said the number of unemployed in March fell by 18k, a bit less than the estimate of down 20k. The unemployment held at 5%, the level at which it stood in March 2020. The post reunification low was 4.9% in April 2019. This number was not market moving as sovereign yields are declining across the board after the recent jump and follows the US Treasury really yesterday and which is continuing today.

MFrank • 14 hours ago

dougie kass MFrank • 13 hours ago

FGEN: Akebia Therapeutics Receives Complete Response Letter from the FDA for Vadadustat for the Treatment of Anemia due to Chronic Kidney Disease in Adult Patients

Re FGEN

1. Near term it was lose lose. Now the analysts can trash the class. I know someone who worked on vad and drug was bad drug. They sited liver toxicity also, which we did not have a problem with

2. Well see if az wants to move forward now. Nothing in their way if they have agreement with fda. Dr Provenzano said they wanted to see Akba result. Regardless as I've said for last 2 years unencumbered asset with 3 phase 3s being held hostage by Roxa

Dougie

dougie kass • a few seconds ago

I shorted a very small amount of (QQQ) just now at $368.52.
I wanted to get pregnant with a starter position which I intend to increase on a scale higher.
Dougie

I have long been concerned with funding the deficit into a rising rate backdrop:

I don't necessarily agree with this view but I offer it from my friends at Miller Tabak:

The Economic Risk From the Ukrainian War Is Declining

Thursday, March 31, 2022

With the war in Ukraine nearing the five-week point, we decided to re-examine our earlier predictions about its macroeconomic impact. We initially forecast that a protracted conflict that disrupted energy supplies could reduce U.S. growth by 0.5% and Eurozone growth by 2.0%, with bigger effects possible if the war also led a general reduction in the taste for risk.

The bad news is that the war does appear to be a major driver of risk aversion. Figure 1 (red) shows Moody's Baa-Treasury 10-year spread, which spiked to 2.35% in early-March. Movements in credit spreads are especially significant when they cannot be explained by other economic and financial measures (e.g. inflation, equity prices, etc.), but instead contain novel information. The black line in Figure 1 ("residual spread") thus shows the part of Moody's spread that does not depend on these factors. It reached 97 bps in March which, excepting April 2020, was its highest level since early 2016. This suggests that Ukraine, and not rate hikes, were the major driver of weaker sentiment earlier this month.

Figure 1: Ukraine War's Impact on Credit Spreads



There are two encouraging economic developments surrounding the war. First, Moody's spread has come back down to 1.94% and we are sure this decline will surely pass through to the residual spread (black line) when the data are available. We suspect that investors' increased risk aversion earlier this month was not just driven by energy prices, but also reflected unease about other unpredictable and difficult to quantify economic risks from the war. The decline likely reflects that, despite the war's brutality, investors have grown more comfortable with these risks. Second, it is encouraging that even as the risk of energy disruptions fluctuate, the price of crude oil (Brent) remains bounded between $95 and $125 per barrel. This supports our view that the worst-case scenario is closer to $150 per barrel crude, instead of $200.

Overall, we are downgrading our assessment of the war's economic impact. We now put the 2022 growth effects of a very long war at 1.2% for Europe and 0.3% for the U.S. The war could still have bigger effects by causing another decline in the taste for risk. But this would likely require a major escalation.

Remarkable and concerning:

* 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 hold opportunities as they are (1) inefficient, though liquid, and (2) it seems fear and greed is often exaggerated outside the regular trading session.

It was a relatively quiet evening/early morning for futures -- with a positive bias. Gold was -$5 and Brent crude was -$4 to about $109 a barrel.

Bond yields are under some pressure.

S&P futures peaked at +18 and bottomed at +1. At 4:24 am ET they were at +6.

Nasdaq futures topped out at +111 and dropped as low as +17. At 4:25 am ET they were at +67.

In terms of my trading in the indexes, Wednesday I re-shorted (SPY) in premarket trading:

Speaking of being short SPY, I added at $460.17 a few minutes ago.

And I put back my SPY strangle (but small in size):

Mar 30, 2022 ' 02:55 PM EDT DOUG KASS

More SPY

Back shorting some May (SPY) $435 puts at $5.80.

In other words, strangle back on (also short SPY $434 calls).

As I mentioned yesterday, I am looking for a large month-end reallocation trade out of stocks and into bonds today (month and quarter end).

Stay tuned!

Wither oil prices: