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Off of the horrific (SNAP) release (after the close) I am adding aggressively to relatively small positions in (META) $125.21 and (GOOGL) $97.48.

I am also adding to a large position in (PINS) $21.

SNAP's woes impact the trading in these stocks more than their business, imho.

More tomorrow.

* Because...

That is the common refrain of the strategists these days -- and I just heard a commentator on financial TV say that this is the case, so it is so obvious to hold to a negative market view.

My response is that it was an appropriate stance at the end of 2021 to fight the FED in anticipation of a tightening and it might be an appropriate stance now (after the swiftest and largest Fed tightening in history) to fight the Fed in the face of growing evidence of declining economic growth and a peak of inflation and interest rates.

Thanks for reading my Diary today.

Enjoy the evening.

Be safe.

I have added a small position in a new bank position, Fifth Third Bancorp (FITB) ($31.13), this afternoon. 

I have been following the bank and its predecessors for many decades.

I was undaunted by the Treasuries rate rise today - and I continued to add to my increasingly unpopular net long exposure.

Here is an hourly overlay of the (SPY) vs. (TLT) .

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I will be on a research call from 1:45 to 2:30 pm.

Radio silence.

I added to (SPY) $366.94 and (QQQ) $270.15.

Equities fall from the highs under the weight of higher interest rates, again.

VIX is slipping a bit today - that's good for my straddle!

With S&P cash about 40 handles off its high, I am selling more in the money puts short.

Pinterest (PINS) is on fire again, seeing more "unusual" call activity... 1500 $24 calls expiring tomorrow trading at $0.65, that's aggressive.

Randorama on Green Thumb Industries' CEO appearance on CNBC: 

Randy pops4

reiterarted the positive talking points...FL: 3rd largest market dollar volume with over $2 billion run rate...700,000 patients/20 million people ...still medical state
RE: Florida large opp for test sampling with 10 stores
compared to alcohol as large opportunity but public needs to become informed...compared to riverboats where it was grown with caution step by step...
US annual legal sales
2030 forecasts if 18 states legalize $72 billion

From Pete, the data... it mattas!

Initial jobless claims fell to 214k, 19k below expectations and down from 226k last week. Continuing clams rose to 1.385mm from 1.364mm and that was just a hair above the estimate. The 4 week average was little changed at 212k vs 211k in the week prior. The bottom line remains the same here, employers are holding on tight to the employees that they have and the tech area that is laying people off are seemingly finding no problem finding a new job or at least are getting a generous severance that will tide them over.

4 Week Avg in Claims

After the negative print seen with the NY manufacturing index for October, today's Philly index was -8.7 from -9.9 and vs the estimate of -5.0. New orders remained deeply negative at -15.9 vs -17.6 and vs the 6 month average of -9.0. Backlogs too were also below zero at -22.5 vs -28.5 and vs the 6 month average of -9.0. Inventories stayed below zero but a bit less so. Delivery times remained negative while prices paid and received bounced somewhat. Employment improved as did the workweek.

The 6 month business outlook was negative for a 5th straight month and expectations for prices paid and received fell notably. Capital spending plans were little changed.

Bottom line, US manufacturing is in a recession and should be confirmed by the other regional surveys and the national one too.

Philly Fed

* In premarket and opening... 

Added to (MSOS) $10.60, (PNC) $150.55, (UAL) $28.90 and (TLT) $95.01.

* Some food for thought...

* Dogma and the lack of objectivity are a toxic brew when investing

For years I have been struck by the increased level of partisanship - in the networks, in Americans and, naturally in our politicians. 

It didn't used to be like that in a previous world of objective journalism, cooperation and in the absence of one-sided TV networks. 

Chris Matthews captured the good old days in his book,Tip and the Gipper. 

The same condition applies to market views - in which partisanship seems to have taken the roles of being either bullish or bearish. 

To me, as in politics, many are too entrenched in an investment "view "- failing to make an objective observation by looking forward in the windshield and not backward in the rear view mirror. 

Intransigence, dogma, lack of objectively (and perma anything!) and unwillingness to change one's investment view in the face of changing facts are a menu for poor investment performance. 

As an aside, it might have been investment partisanship that has contributed to such a wide dispersion of investment performance in 2022.

This is a good resource for short term traders:

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Upside

(IBM) +3% earnings
(LVS) +1% earnings
(XERS) +11%
(ALK) +1% earnings
(DHR) +2% earnings
(T) +2% earnings
(LBRT) +4% earnings
(HRI) +5% earnings
(AAL) +3% earnings, guidance
(PM) +2% earnings
(BX) +2% earnings
(DGX) +1% earnings

Downside

(TSLA) -5% earnings
(LRCX) -2% earnings
(KNX) -5% earnings
(KMI) -2% earnings
(AA) -9% earnings
(NOK) -6% earnings
(ERIC) -15% earnings
(DOW) -2% earnings
(WDFC) -6% earnings
(ALL) -10% prelim results
(TALS) -2% initial FY23 guidance
(TALS) -25% update on FREEDOM-1 phase 3 clinical trial: Patient death, but trial continues
(ITRM) -5% trial enrollment update
(NUE) -2% earnings, guidance

From Bramo:

See Pete's valuable comments on sentiment among other factors: 

An important earnings release was yesterday from Ally Financial who does big business in auto lending. If there was an area of excess over the past few years it was in this industry in terms of aggressive lending where many consumers were making in a year the same amount as they were spending on a car. But, thanks to a long maturity schedule and low rates, monthly payments were doable. However, the loan to value many times was well above 100% and some people are now handing back the keys just as they did with homes 15 years ago.

Ally said in their call, "We expect continued increases in delinquencies as consumer trends normalize post-pandemic, and we are closely monitoring additional inflationary pressures...As pandemic tailwinds normalize, we expect delinquencies and net charge-offs to migrate above 2019 levels. We expect normalized delinquencies of 3.4% to 3.8% vs 3.1% in 2019, and we expect losses to migrate toward 1.6%, which is 30 bps higher than 2019. To compensate for that incremental loss content, we've added 125 bps of price since 2019."

Now these are not scary or alarming numbers yet and do imply declines in used car pricing to an extent but something we should all keep an eye on in the quarters to come and the stock fell 8% yesterday in response.

After hearing from JB Hunt a few days ago, Landstar, another large truckload carrier had similar comments:

"There continues to be a lot of unease regarding US economic conditions as we head into the fourth quarter. On a macroeconomic level, continuing inflation concerns along with possible further action by the Federal Reserve to address these concerns at the risk of causing further recessionary pressure, as well as current geopolitical tensions and the corresponding volatility in the international energy markets, add significant uncertainty to the performance of the overall domestic freight environment. Moreover, high inventory levels being reported by large retailers corresponds with what we anticipate will be decreased seasonal demand for freight services in connection with the 2022 holiday shipping season."

To the question I keep asking on housing out loud, 'to what extent will home prices fall from here?,' what will keep them elevated is still the lack of supply as so many don't want to give up their 3% type mortgage rate. Redfin yesterday said in September "The number of homes sold dropped 25% y/o/y while new listings fell 22% - the largest declines since May 2020 and April 2020, respectively."

They went on to say, "The US housing market is at another standstill, but the driving forces are completely different from those that triggered the standstill at the start of the pandemic. This time, demand is slumping due to surging mortgage rates, but prices are being propped up by inflation and a drop in the number of people putting their homes up for sale. Many Americans are staying put because they already relocated and scored a rock bottom mortgage rate during the pandemic, so they have little incentive to move today."

With regards to stock market sentiment, last week's II data had more Bears than Bulls to the greatest extent since March 2009. Yesterday, Bulls rose to 31.3% from 25% while Bears slipped to 40.3% from 44.1%. This does not reflect the big rally on Monday and Tuesday. The AAII today does and Bulls rose 2.2 pts to 22.6 after falling by 3.5 last week. Bears were little changed at 56.2, just a few weeks off the multi yr high of 60+.

The CNN Fear/Greed index at 37 is up from 24 one week ago. Bottom line, this bear market is doing what others have done, death by a thousand cuts that just grinds us investors into the ground. Sentiment as a result has been down for a while and thus trying to figure out what is extreme enough to trigger a rally is getting harder. At least last week's extreme II figure was a catalyst for this Monday and Tuesday rally but what now?

Shifting overseas, Taiwan said its exports fell by 3.1% y/o/y in September, not as bad as the down 5% estimate but still negative after an up 2% print in August. Exports to China/Hong Kong dropped 28% y/o/y and a spokesperson at the statistics department said "Mainland China's economic recovery is slower than originally estimated." We know how important Taiwan's tech sector is on the world economic stage.

Japan also reported its trade data and it was about as expected. Exports were goosed by the weak yen which touched 150 today, higher by 29% y/o/y. The weak yen also made imports really expensive and they were up 46% y/o/y. The BoJ also intervened again in the JGB market in order to keep that 10 yr beach ball yield under water at .25%. When that YCC goes at some point, that ball is going much higher (or at least to the next YCC upper range).

Also in Asia, the Bank of Indonesia hiked rates by 50 bps as expected to 4.75% and Australia reported a weaker than expected jobs number for September but bond yields there jumped anyway in response to the global bond market selloff yesterday.

French business confidence in October was unchanged m/o/m at 102 but that was 1 pt better than expected while still at the lowest level since April 2021.

French Business Confidence

Germany said its September PPI was up 45.8% y/o/y for a 2nd straight month and higher by 2.3% m/o/m, just shocking numbers.

German PPI

Finally, gilt yields are falling again after BoE member Ben Broadbent said he doesn't necessarily seeing their bank rate getting as high as markets are pricing in. A 75 bps rate hike is expected for a few weeks which is what I think they do.

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As I have written, all investment roads lead to interest rates:

I have taken a trading rental in (TLT) at $96.08.

From Danielle DiMartino Booth:

Zeroing in, the billings index for multifamily declined to 47.9 in September. While historically this is not an overly weak reading, it's coinciding with a collapse in single-family homebuilder sentiment, according to the National Association of Home Builders (NAHB). Note that during the last housing bust, when the NAHB metric (yellow line) crossed under the AIA series (red line), it foreshadowed a lengthy correction.
Moreover, lending conditions in the broader commercial real estate sector have tightened significantly; multifamily projects fall under this umbrella. The Federal Reserve's Senior Loan Officer Opinion Survey indicated a net 40.0% of banks tighteningstandards in the third quarter, up from a net 1.5% easing in the second quarter (light blue line). That 41.5-point swing was larger than any quarter during the housing bust in the 2000s - and it's just getting started.
Demand is also getting whacked. The National Multifamily Housing Council's (NMHC) Quarterly Survey of Apartment Market Conditions sales volume index collapsed to 10 in the third quarter from the second quarter's neutral 50 reading (purple line). The 40-point decline was a record quarterly move. NHMC's debt financing index also crashed to 3 in the third quarter from 9 in the second and 71 in the third quarter of last year (orange line). The 68-point year-over-year drop was unprecedented since the 1999 series' inception.Note: The NMHC survey has a time stamp in the first month of each quarter. The third quarter was released on July 21st. That means the fourth-quarter data with an October reference period is imminent. Given the Fed's continued aggressive stance, we expect no improvement.
Zelman & Associates data echoed the pessimism as multifamily occupancy accelerates to the downside. Since December, the occupancy rate has fallen nearly 200 basis points. Since 2011, the current reading level of 94% (third chart) was only documented in four other non-pandemic months.
Tighter financial conditions and deteriorating demand beg the question: "Will slated multifamily projects reach completion?" Trepp data suggest skepticism is in order. More than $52 billion in loans from about 3,000 properties in the firm's database with current debt service coverage at 1.25x or less mature over the next 24 months. Almost half of the properties, roughly 1,450, are multifamily. Some $17 billion of the $52 billion has occupancy below 80%. Call it refinancing risk on steroids even as the NMHC reported that multifamily sales have fallen by 26% year-over-year (which is much better than Office, where sales are down 56%).
As we say repeatedly, starting points matter. Per Zelman, "Multifamily backlog under construction jumped by more than 900,000 for the first time in nearly FIFTY years." The persistent post-COVID run of multifamily building permits (pink line) over multifamily housing starts (blue line) illustrates this hard data backlog, traditionally seen as positive guides for padding future builder revenues. Bucking tradition is the rising risk of cancellations as developers see a break in the labor cycle over the horizon.
An extended downturn in the apartment sector would elongate the housing recession. To that end, yesterday, S&P Global's Ben Herzon downgraded his third (~-29%) and fourth quarter (~-25%) assumptions for residential investment. When the dust on the construction sites settles, two words that will not be used to describe the current downturn in residential real estate are 'short' and 'shallow.

This daily feature, "Futures" is like inside baseball - I try to show you and write about what thoughtful hedge fund managers are looking at when they awake - setting the stage for their strategy in the day. The market is a complicated mosaic and the more info you have the better trader and investor you will be!

* "All investment roads lead to interest rates" as demonstrated recently. However, there has been some delinkage in the last few days - as both stocks and bonds have both risen. The bearish view is that stocks will mean revert and move back lower. The bullish argument is that this delinkage may signal a peak in interest rates and inflation. I favor the later argument.

* Stock futures were lower most of the evening and early morning session. In the market with no memory from hour to hour and day to day, there is no clear indication what will happen today!

* The U.K. and the EU's economic and financial uncertainties - of taming inflation, on one hand, and resuscitating economic growth, on the other hand - remain the concern du jour. As I wrote Monday, who would have thought several months ago, that U.K. policy would be the tail that wags the U.S. market's dog? Anyway, this results in me looking at U.K. gilt yields and the pound's value when I arise at 4 am, even before reading about the NY Yankees win! ( Damn Verlander!) Yankees lose ALCS Game 1 2022 (mlb.com) ... This morning sterling was stronger and gilt bond yields were lower - likely contributing to the futures rally from the evening lows, and now virtually unchanged after S&P futures were -25.

* Obviously the losing skein in the U.S. markets reversed mightily yesterday and Monday. Wednesday the market did a good job of "fighting" to not give up those gains. I see more of this type of action ahead.

* As mentioned, I remain in the camp of a successful test in here as noted in my opening missive last Tuesday, on Bloomberg early last week and in my opener on Tuesday (Why I Remain Optimistic on Both Stocks and Bonds) - though it doesn't have to be a straight line higher! I also had mentioned that I spoke to Lee Cooperman last Tuesday night and he mentioned that two technicians he speaks to and respects are looking for a rally over the near term. They were solely wrong on Friday! But very right on Monday.

* The unprecedented instability of currencies and interest rates continues to underscore the likely end of the salad days of easy financial conditions and holds the key to the prospective course of global equity markets during the near term. Though I think we can move higher, elevated short-term interest rates remain a market hurdle and a restriction for meaningful gains from here. With VIX high, that is why I like the S&P straddle I put on this week.

* Overnight, non-U.S. currencies, especially the pound and the Eurodollar, improved against the US dollar. The recent climb in overseas interest rates is the byproduct of ill-timed (2021-2022) and now hawkish monetary policy, and what appear to be related reverse currency wars are non trivial reasons why the market has declined, the VIX is over 30 (rear view?) and many are fearful.

* Iinvestor sentiment has been sour and the bears I speak to are very emboldened now - in the last week bears are digging in their feet. As mentioned, previous bullish strategists - Goldman, JPMorgan and others - are now confidently bearish, bulls are now talking about limited downside and not so much about the upside, and put buying set a record three weeks ago Friday. AAII Bears are at March 2009 levels and the S&P oscillator remains in an oversold state, but down from 10 days ago... but sentiment is not a good timing tool. As mentioned early last week, traders' short hedges are at records.

* As mentioned, and for emphasis, all roads like to interest rates. Goodbye TINA (There Is No Alternative), hello TATA (Treasuries Are the Alternative): I believe the bond rout continues to create an opportunity in both fixed income and, in the fullness of times, in equities. Depending on one's risk profile, short-dated Treasuries are compelling even though I expect a market rally.

* Notwithstanding a spike interest rates, I am a continued buyer of stocks on weakness.

* The yield on the U.S. 2-Year Note reversed yesterday's gain and was one basis point lower this morning after also advancing for most of the last few months. The yield on the 10-Year was (up big on Wednesday) -2 bps - now at 4.115% and up by over 50 basis points in the last month. The 10-year U.K. gilt yield is -5 basis points, also reversing yesterday's climb in yield.

* Market inflation data have noticeably moderated, softening labor and commodities, in recent months. In the last few days I have highlighted the imminent weakness in rental and home prices, which work with a lag in the data. 7% mortgage rates will hand homeowners a bum deal and I now believe that home price drops will accelerate relative to consensus expectations. This morning soft commodities are a bit higher. Brent oil was +$1.29/barrel to almost $93.70.

"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"

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

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.

S&P futures were lower most of the evening - but between the time I started to write this column (and I type this sentence), they have turned positive.

In recent weeks, during these volatile markets, I have kept a bead on volatility as well as currency rates. This morning VIX was +0.14 to 30.84. The VIX has been stubbornly high over the last 10 days - and remains so. Importantly, if you watch my trades I am using the elevated VIX to take in larger premiums in my short calls and puts and my straddle put on yesterday - as well as putting on a straddle.

Gold, which has collapsed in recent weeks, was finally higher this morning - by $7. I still can't work it up to buy precious metals.

Brent oil was +$1.41 to almost $94/barrel.

Bond yields continue to represent the greatest risk to equities, accounting for the reversal in futures just now. With rates spiraling ahead equities grow harder to value. Bond yields, the equity market's nemesis, are likely responsible for a large portion of the market's drubbing this year As noted, this morning yields are lower in the US and UK.

The S&P Oscillator stands at -3.18% (still oversold) - its been range bound since last Wednesday. The oscillator has been a good short-term trading tool over the last few months! When the oversold is extreme I tend to be more of an aggressive buyer and vice versa.

Cryptocurrencies are flat again - uninspiring action with little volume, Bitcoin was unchanged at $19,200 and the conversation (and FIN TV specials/interviews (no Mooch or Saylor) have exited in recent weeks. This asset class is "off the tape" and I continue to have zero interest in it.

S&P futures peaked at +12 and bottomed at -39. At 7:00 a.m. ET futures were +11 handles.

Nasdaq futures peaked at +20 and bottomed at -140 . At 7:05 a.m. ET futures were +20 handles.

Here is a synopsis of some of my columns I believe were important, or in the event you were out yesterday. The principal intent is to review the logic of my market moves and other factors:

Straddle up! 

Recommended Cannabis Read of the Day 

All Investment Roads Lead to Interest Rates

Strange Things Are Afoot at the Circle K 

Pininterest Activity 

New Feature: Movers After the Close 

Here were Wednesday's trades. This section provides transparency and a further record in memorializing my good and bad investments - frankly, there are a lot of disingenuous actors that smile and get away in the business media with disastrous recommendations of individual stocks and in piss poor market projections:

* Added to strangle.

* Added to banks, across the board.

* Added to MSOS and several individual cannabis equities.

* Oct 19, 2022 ' 09:50 AM EDT DOUG KASS

Today's Trades

Added to (UAL) $38.52, (DAL) $32.35, (PINS) $23.01, and (AMZN) $114.60.
__________

Long SPY, QQQ, PNC, C, WFC, BAC, JPM, MSOS Et al., UAL, PINS, AMZN

Short SPY calls and puts, QQQ calls, MSOS calls, PINS calls, AMZN calls

From my friends at Miller Tabak:

I agree with MT that inflation will be sharply decelerating, that productivity will be relatively stable and that the Ukraine war will not intensify.

My disagreement (I STILL look for a "mild and brief recession") is principally with regard to the impact of a downturn in housing which, as you all know, weights above the belt in its impact on GDP.

Housing is coming to a crawl now in the face of 7%+ fixed mortgage rates:

Wednesday, October 19, 2022

A Recession Is Unlikely, Unless One of Three Things Happen

The Wall Street Journal's latest survey of economists puts the risk of a U.S. recession within a year at 63%.[1] We disagree. We still put the odds at just 35%. This week, we reiterate why recession fears are exaggerated and detail what incoming data could make us change our mind.

There are reasons for optimism. We have predicted a terminal Federal Funds rate over 4.5% since June, which is now the consensus view. We do not expect the FOMC, however, to raise rates above 5%, which should prevent real five-year rates from rising much above 2%. There is little evidence that 2% real rates are high enough to induce a recession. Firm and household balance sheets also suggest little need for deleveraging, a central feature of most recessions. Finally, the impact of a strong dollar and terrible productivity (see last week's report) have already damaged GDP growth in the first half of 2022. A partial recovery in 2023 (we are far more optimistic about productivity than the dollar) might provide an important buffer against recession.

Nevertheless, we do see a 35% chance of a recession. We will be looking for three things in upcoming data that would hint at a looming downturn. First, our optimism depends on the Fed not having to raise rates far above 5%. Inflationary expectations remain surprisingly low: the New York Fed's September survey of 3-year ahead consumer inflationary expectations is just 2.9%. If inflationary expectations rise significantly, then the Fed will have to go well above 5%, real rates will rise above 2%, and a recession will occur. If medium-term inflationary expectations were as high as current core-inflation (5-6%), the Fed would have to go all the way to 7-8% to curb inflation.

Second, housing and investment may be more sensitive to interest rates than we expect. Housing looks to have peaked in April. In many recessions, business investment starts to sag 2-6 month after housing's peak. So far, however, business fixed investment is holding up well with the Atlanta Fed forecasting it to grow 5.0% in 3Q2022. We will be watching core capital goods, a proxy for investment, especially closely to see if this trend reverses.

Third, we believe that productivity has bottomed out and is likely to partly recover in 2023. Labor productivity's 2.7% y/y decline remains hard to explain, although there is mounting evidence that labor shortages are more at fault than supply chain disruptions or energy prices. If productivity not only stagnates through mid-2023, but falls further, a recession is likely. Advance indicators of a further decline in productivity could be rising job quits, which have fallen from 3.3% in April to 3.0% in August, inexplicably slow wage growth, or a major escalation in Ukraine.