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DAILY DIARY

Doug Kass

Dip Shopping

* I spent today buying the dip...

Breadth picked up, particularly on the New York Stock Exchange, which turned well positive throughout the afternoon:

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I liked the action, and I am pleased that I bought the dip.

Thanks for reading my Diary today.

Enjoy the evening.

Be safe.

Running to another meeting.

Position: None.

Anticipation on the S&P -- Is Keepin' Me Waitin'

* From Yogi Berra to Carly Simon...

* When I was thinking how right tonight might be...

- Carly Simon, Anticipation 

" Anticipation, anticipation

Is makin' me late
Is keepin' me waitin'

And tomorrow we might not be together
I'm no prophet and I don't know nature's ways
So I'll try and see into your eyes right now
And stay right here 'cause these are the good old days

And stay right here 'cause these are the good old days"

If the S&P Index breaks convincingly through 3900, there will likely be a lot of systematic and technical buying.

Anticipation.

Position: Long SPY; Short SPY calls and puts

It's Like Deja Vu, All Over Again!

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Much like Friday when the S&P Index was off by more than -40 handles and recovered close to flat by the end of the day, today's session looks quite similar. 

Falling by -40 handles in the early going, we are now up slightly on the day as measured by S&P cash.

Position: Long SPY, Short SPY calls and puts

3 Adds

I have added to (MSFT) , (AMZN) and (QQQ) .

Position: Long MSFT, AMZN, QQQ

Updated Levels Column

Late last week I promised an updated Levels column this morning. 

I have been in and out of my office for meetings all day so I was not able to execute on my promise. 

I will deliver the column on Tuesday.

Position: None

Minding Mr. Market - My Calculus

* Armed with a calculator I continue to predict a trading range in the S&P of between 3825-4225

As the market rallied to their August highs - of about 4150, S&P Index - I suggested that we are in a trading range bordered on 3800-3850 on the downside vs. 4200-4250 on the upside. 

My trading range, as well as the market's "fair market value", was based on five market/economic/interest rate/valuation outcomes - from most negative to most positive - and assigning a probability to each outcome. 

S&P cash is now 3875. It got to our lower end of the trading range early this morning and I added to (SPY) my holdings. 

Thus - no precision suggested! - we have an estimated 350 S&P handles to the upside and only 50 S&P handles to the downside. 

That's a positive ratio of 7:1.

Position: Long SPY, Short SPY calls and puts

Net Long

Expanding my net long exposure...

Position: None

Subscriber Comment of the Day

Brendan McCarty dougie kass

FDX put in support from a high a long time ago...

View Chart »View in New Window »

Position: Long FDX

Midday Musings From Sir Arthur Cashin

The bulls benefit from a couple of things. Number one, the mildly oversold condition is inhibiting some venturesome selling, but more importantly, the fact that we did not trade below Friday's intraday low in the S&P and, the fact that the yield on the ten-year backed off the pre-opening highs has allowed some very short-term traders (probably algorithm jockeys) to dabble in looking, perhaps, for a flip.

The yields will be the most important to watch as we move into the afternoon and on any weakness getting below Friday's intraday low (3837 in the S&P) will be critical.

Let's take a look at some of this morning's numbers.

This morning's low in the S&P of 3838 would qualify among some cocktail napkin chartist as a retest of Friday's intraday low, which may have been what gave them a bit of an extra boost. Any weakness in the afternoon will face those levels again.

As we discussed about the yield, pre-opening, it got up to 3.52% and that had put pressure on things. Since then, we have backed off to 3.46% - 3.47%, which helps the venturesome buyers and, the fact that Bitcoin did not crack also helped the risk profile.

Just to repeat myself - watch those yields carefully and, on any weakness, watch that 3837 level.

Cross your fingers and stay safe.

Arthur

Position: None

QQQ Add

I added to (QQQ) on a break below $287.

Position: Long QQQ

Getting Longer of Banks

I have covered my short (JPM) calls for a profit, and I will now just be long JPM equity.

I am doing the same with my (PNC) short calls over the next few days or so.

Position: Long JPM, PNC, Short PNC calls

Baby Steps... Into Tech

Apropos to my last post - I put my foot in the water. 

Bought small position in (QQQ) at $287.52. 

Also initiated small positions in (MSFT) $241.95 and (AMZN) $123.25.

Position: Long QQQ, MSFT, AMZN

Tech Watch

With sentiment so poor for growth stocks and with open market interest rates likely to be peaking - I feel naked without any growth exposure. 

Look for me to be buying tech weakness... if it occurs.

Position: None

FedEx

I sold some FedEx (FDX) - trading rental not a long term lease! - above $164 as it's from the $155 low on Friday.

Will add back on weakness, if it occurs.

Position: Long FDX

Am I The Only One Buying?

Banks are the world's fair- and homebuilders are arguably a close second.

Maybe the later (homies) are anticipating a peak in interest rates.

if this occurs, the entire market could rally.

Position: None

Boockvar on Builders Sentiment

From Peter: 

The September NAHB home builder sentiment survey saw its index fall another 3 pts m/o/m to 46 after dropping by 6 pts in August, 12 in July and in the 6 months prior. It's now declined each month this year not surprisingly considering the steep rise in mortgage rates on top of the sharp home price increases. The estimate was 47. Present conditions fell 3 pts to 54 while the Future outlook was down by 1. Of note too, Prospective Buyers Traffic dropped by 1 pt to just 31 with the reminder that 50 is the breakeven point between up and down.

We know the buyer is facing the affordability challenge and "builders continue to grapple with elevated construction costs." In response, "more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities and price reductions." As to the number of builders that are reducing prices, "24% of builders reported reducing home prices, up from 19% last month."

Bottom line, the faltering demand picture we know, the still high construction costs we do too, even if moderating. The only big question remains is to what extent do prices fall, both for new and existing homes, from here or at least stop going up.

There wasn't much of a rate move in response to this data but the 10 yr yield is still doing a dance today with 3.50%.

NAHB

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Prospective Buyers Traffic

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Position: None

MSOS Add

Adding to AdvisorShares Pure US Cannabis ETF (MSOS) now.

Position: Long MSOS, Short MSOS calls

The Book of Boockvar

We know we were just on the cusp of a major union rail strike in addition to other strikes in other industries we've heard about in the last few weeks. To quantify the number, I learned in the WSJ over the weekend that Cornell University has a 'Labor Action Tracker' that measures the number of strikes nationally. From January 1st, 2021 thru September 16th, 2021 there were 150 strikes. From January 1st, 2022 thru this past Friday there has been 273.

There is no data today of note overseas and we know the big news this week will come from the Fed, BoE and BoJ.

With the Fed, we are most likely going to get the last 75 bps rate hike in this cycle, with a downshift to 25-50 bps from here. I wouldn't be surprised if Powell told us that in recognition of the economic impact the tightening is already having and will continue to as it cycles through the economy in the coming quarters... and would lead to a market rally if the case. He'll still try to talk tough on inflation however.

The consensus for the BoE is another 50 bps increase but there is a definite possibility of 75 bps. With respect to the BoJ, we know Kuroda's job is getting ever more difficult and while his stubbornness will likely remain intact in keeping YCC at the current rate, I will not be surprised if something changes soon.

Ahead of this, bond yields are rising again in Europe and in turn the US. The German 10 yr bund yield has broken above its mid June high. At 1.80%, it's at the highest level since January 2014. The Italian 10 yr yield, higher by 7 bps to 4.10%, is just below its June peak of 4.18%. The Greek 10 yr yield is jumping by 18 bps to 4.46% vs 4.71% a few months ago. The US 10 yr yield is at 3.50% as it retests that June high.

The ECB's mission creep into climate was given some details today as they want their corporate bond holdings to be more focused on those companies with good climate scores. This nonsense use of a central bank whose sole mandate is price stability at which they've failed miserably at and where they never should have been buying corporate bonds to begin with will only lead to undesirable political and economic outcomes. 

German 10 yr Bund Yield

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With Chengdu in China fully reopening again, there is also a story that Hong Kong might end its hotel quarantine for those traveling to the city. Just maybe the Chinese are getting close to ending their obsessive approach to Covid after next month.

Position: None

Caveat Emptor: Don't Believe The Hype

* What I have learned from my unprofitable journey into investing in cannabis stocks... and how you can benefit from my mistake

"Yes
Was the start of my last jam
So here it is again, another def jam
But since I gave you all a little something
That we knew you lacked
They still consider me a new jack
All the critics you can hang 'em
I'll hold the rope
But they hope to the pope
And pray it ain't dope"

- Public Enemy, Don't Believe The Hype

There have been few market sectors that have performed as badly as cannabis stocks. 

While I got beat up, my losses were far from and nowhere near the general and large decline in the industry's shares over the last few years. 

Here are some lessons that I have relearned about investing in cannabis stocks over the last two years, and for that matter, in most equities over my investment career: 

* Be Independent In View: Pool all your resources and come up with a series of probable scenarios and weight each scenario by probability in order to develop a calculus and range of "values" in seeking a realistic upside reward vs. downside risk and in an attempt to ascertain a "margin of safety" in each investment you make. 

* Be Realistic: In establishing the exercise (above) of evaluating an industry or company's prospects, avoid the hyperbole and exaggerated outcomes of others. Use common sense and logic of argument. At the very least, be objective - at most, cynical when evaluating their input. 

* Fundamentals Trump Everything: While investors were starry eyed about the longer term promise of cannabis (and the large total market, TAM) the fundamentals were steadily deteriorating in 2021-22. 

Analysts and investors steadily ignored these eroding fundamentals - I was late too but started expressing concern in late 2021/early 2022 in a series of negative columns - focusing too much on their perception of the potential treasures of the too distant future. 

* Evaluate The Orbit of Your Outside Resources: Avoid the confident of view in a world of uncertainty and with a wide range of outcomes, stay away from conflicted and biased paid "advisors" to companies, as they typically have an agenda that differs from yours. Keep these "types" away from your children and from your portfolios. 

The value of the "insights" of paid consultants, in particular, is inverse to the number of their tweets or comments that they make on social media! To this day they are still confidently tweeting out their bullish pablam with frequency! With the benefit of hindsight there might have been more tweeps and tweets about cannabis than any other market sector extant. I and others should have recognized this earlier! 

* Analysts Are Notoriously Bullish - Take Their Views With A Grain of Salt": I have run several sell-side research departments and one buy side research effort - so I know of where they come. 

There are exceptions, but in the main - and partially to maintain company relationships - brokerage firms (and the sell-side) exist to sell you merchandise. Their estimates are too often "group stink", gathered in a herd of closely gathered forecasts that essentially mirror company guidance. 

Over time, analysts have universally presented the cannabis industry as a ticket to high returns with low risk - they were woefully inaccurate. Not surprisingly they are still unrepentant about being so wrong-footed and still mostly bullish! 

* Seek Out Competitors' Input: Try to speak to competitors to better and more objectively assess the lay of the land as they can often tell you more than analysts, stock brokers and/or managements. 

* Talk to Managements But Don't Take Their Bullish Views as Gospel: In the extreme Warren Buffett once said that corporate managers sometimes lie like Ministers of Finance on the Eve of Devaluation. The Oracle's words have some substance. 

* (Almost Always) Seek Out Superior Managements With Solid Accountants/Auditors and Financial Controls: Again, in retrospect, many cannabis equities failed to fulfill this characterization and recommendation. Remember when an accounting problem is revealed, more quickly as there is never just one cockroach! 

* Be Cynical With Regard to The Timing and Anticipation of Regulatory Change: Our representatives in Washington, DC are not a group you can count on to produce timely and effective legislation - regardless of how compelling. With our political leaders' growing party bias things have worsened. Change comes even more slowly, if at all, as cannabis investors have learned with regard to the steady promise of federal legislative initiatives (SAFE Banking, uplistings, etc.). As Gretchen was told in the movieMean Girls, "stop trying to make fetch happen, its not going to happen."  

* The Three Worse Words in Investing Are... "Total Addressable Market (TAM)": TAM is a crutch and often hard to refute because it is an abstract or conceptual factor, many years out. My experience, and it is certainly the case for cannabis stocks, that it is often subject to exaggeration and hyperbole. 

I recall seeing charts of extraordinary low 3-5 year EBITDA and sales multiples based on the projections of the analytical community. Some are still delivering them with regularity! Those estimates (based on TAM) were not worth the cost of the ink needed to produce them. 

* When Looking for a "Bottom," Selling Call Premium Against Unloved Stocks Can Insulate Investors From Some Losses: This is exactly what I have done throughout the painful drop in cannabis stocks. I have consistently been short (high implied volatility) (MSOS) calls throughout my losing investment in the sector. 

* A Low/Conservative Weighting (Particularly Of Out of Favor Sectors That Are Trending Lower in Price) Can Also Insulate Investors From Losses: I have never had more than 5% of my portfolio in cannabis stocks, sometimes far less. 

Bottom Line

One of the reasons my Diary is helpful to me is that when I make investment boners (which, in some periods, occur with frequency) I can go back and evaluate why - in the hope that I won't make the same mistake again.

My unprofitable sojourn into cannabis stocks are a good example of employing some discipline in a bad investment. 

But today's opening missive has broader implications beyond weed. 

Learn from my mistakes, I try to.

Position: Long MSOS, GTBIF, CRLBF, TCNNF, VRNOF, AYRWF, TRSSF, TLRY, Short MSOS calls, TLRY calls

Premarket Movers

Upside

- (PRPL) +35% (confirms receipt of unsolicited, non-binding proposal to be acquired at $4.35/sh from Coliseum Capital Management, LLC)
- (KNBE) +23% (confirms received a non-binding proposal from Vista Equity Partners Management, LLC for $24.00/shr)
- (CRGE) +8.6% (selected by NYC's largest privately owned parking management provider City Parking for EV charging infrastructure buildouts throughout the New York City Area)
- (TRVI) +7.1% (releases positive data from full set of subjects in Phase 2 CANAL trial of Haduvio in treatment of chronic cough in idiopathic pulmonary fibrosis)
- (WIX) +6.5% (confirms Starboard Value takes 9.0% stake)
- (BLUE) +6.3% (receives FDA accelerated approval for SKYSONA gene therapy for early, active cerebral adrenoleukodystrophy (CALD))
- (EBF) +6.0% (earnings)
- (LRMR) +5.0% (William Blair Raised LRMR to Outperform from Market Perform)
- (AZO) +3.9% (earnings)
- (ARRY) +3.4% (Piper/Sandler Raised ARRY to Overweight from Neutral, price target: $28)
- (TBPH) +3.2% (initiates $250M capital return program; acquires GSK's entire holdings at $9.75/shr)
- (NFLX) +1.8% (Oppenheimer Raised NFLX to Outperform from Perform, price target: $325)

Downside

- (VIRI) -64% (Phase 2b Study of IMC-1 in Fibromyalgia did not achieve statistical significance)
- (TTWO) -5.6% (recent premarket weakness being attributed to allegedly leaked gameplay of GTA VI game title; Rockstar Studios has not yet issued a formal response)
- (COIN) -5.0% (crytpto weakness; UK FCA issues warning against crypto exchange FTX)
- (RIOT) -5.0% (crypto weakness)
- (MARA) -4.9% (crypto weakness)
- (VNTR) -4.8% (BMO Capital Markets Cuts VNTR to Underperform from Market Perform, price target: $0.60 from $2)
- (SE) -2.9% (lower off report of Shopee job reductions)

Position: None

There Is an Alternative

* More so this morning..

And higher short term bond/interest rates are weighing on Bitcoin and growth stocks this morning. 

The challenge of higher rates was described in this post in late August:

Aug 31, 2022 ' 09:00 AM EDT DOUG KASS

Goodbye TINA, Hello TATA

* The rise in interest rates represents a bonafide challenge that limits the upside to stock prices and valuations

Move over TINA ("There Is An Alternative") and say hello to my new friend TATA ("Treasuries Are The Alternative").

It is tautological that the dramatic rise in open market interest rates over the last 15 months represents an unadulterated headwind that likely will limit the future upside in equities.

Higher interest rates tend to adversely impact corporate profitability and stock prices.

Most fundamentally based investors use a dividend discount model to forecast the price of a company's stock based on the theory that its present day price is worth the sum of all of its future dividend payments when discounted back to their present value. Importantly, higher interest rates mean future discounted valuations are lower as the discount rate used for future cash flow is higher.

Here is a demonstration of the interest rate rise over the last 14 months:

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The 1-Year US Treasury yield has moved from an all-time low of 0.04% (14 months ago) up to 3.43% (today) - to the highest level since December, 2007.

The rise in interest rates doesn't mean that the markets can't experience rallies - markets can.

It does mean, that in all likelihood, the upside to equities and to valuations are limited.

Position: None

Tweet of the Day (Part Four)

From my good friend Lance:

Position: None

We Are at The Bottom of My Expected S&P Trading Range Now

I paid $382.28 for more (SPY) at about 6:40 am.

Position: Long SPY, Short SPY calls and puts

Tweet of the Day (Part Trois)

From Jonathan:

Position: None

Tweet of the Day (Part Deux)

Position: None

Charts of the Day (Parts Deux and Trois)

Empire State Manufacturing Prices Paid/Received indicate Peak Inflation:

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Position: None

Tweet of the Day

A cornucopia of Fed moves:

Position: None

Themes and Sectors

View Chart »View in New Window »

Position: None

Chart of the Day

Cyclicals vs. 2/10 Year Treasury spread

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Position: None

Table of the Day

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Position: None

More Night Moves: A Quick Look at Overnight Futures

* The market (and money) never sleeps -- and neither do I, it appears!

* Stock futures were mostly higher before I went to bed on Sunday night - when I awoke they were broadly lower. The weakness has intensified in the last 60 minutes.

* Brent crude is getting hit, down -$1.22 to $90.13.

* Gold, which collapsed last week, is down again, -$11.50. I still can't work it up to buy.

* Soft commodities are flat to lower.

* Bond yields, likely responsible for the drop in futures, are again slightly higher. The yield on the 10-Year is +4.2 basis points to 3.489%. I added to Treasuries on yield strength during the last few months.

* With the monumental drop two days ago, the S&P oscillator remains oversold but still fairly low, at -2.82%  - a level it has been since Sept. 12 . The oscillator has been a good short-term trading tool over the last few months!

"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 here. 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.

Stock futures moved lower in the last few hours.

Brent is -$1.22.

Soft commodities are flat to lower.

The 10-Year U.S. Note yield is +4.2 basis point at 3.49% (Goodbye TINA, Hello TATA). I continue to buy Treasuries.

S&P futures peaked a +9 and bottomed at -40. At 6:01 a.m. ET futures were -36 handles.

Nasdaq futures peaked at +15 and bottomed at -132. At 6:04 a.m. ET futures were -118 handles.

Here is a synopsis to some of my columns I believe were important. The intent is to review the logic of my market moves and other factors:

Minding Mr. Market (Part One) 

Minding Mr. Market (Part Deux) 

Will Buffett Buy Fed Express?

FedEx market cap

Here were Friday's trades:

* Added to FDX at around $162 initially and then lower.

* SPY add $383-ish.

Sep 16, 2022 ' 12:40 PM EDT DOUG KASS

Afternoon Trades

* Added to (SPY) at $382.33.

* Added to (DIS) $107.25.

* Added to (FDX) at $157.45.

* I lost a portion of my bank positions ( (BAC) and (WFC) ) as well as a good hunk of (MSOS) due to Friday's expiration. I will be replacing them in today's market weakness.

Position: Long SPY, DIS, FDX, MSOS, BAC, WFC, Short SPY calls and puts, MSOS calls, BAC calls, WFC calls
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-31.13%
Doug KassOXY12/6/23-14.95%
Doug KassCVX12/6/23+12.40%
Doug KassXOM12/6/23+14.91%
Doug KassMSOS11/1/23-22.06%
Doug KassJOE9/19/23-14.08%
Doug KassOXY9/19/23-26.33%
Doug KassELAN3/22/23+28.94%
Doug KassVTV10/20/20+66.05%
Doug KassVBR10/20/20+77.71%