"just one more thing"

- Lt. Columbo

I should have mentioned that I have moved from about 2% in banks to nearly 5% today.

I have to run out for early drinks with my pal Larry McDonald.  (The meeting involves travelling, so I am outta here!)

Thanks for reading my Diary today.

Enjoy the evening.

Be safe.

Adding to (SPY) $388.65 and (QQQ) $294.89.

Adding to (DIS) .

Now large sized.

S&P futures have given up about 33 handles from the highs. 

I just bought back these morning sales in (SPY) $389.75 and (QQQ) $295.70: 

Mar 14, 2023 ' 09:50 AM EDT DOUG KASS

Trading Around Core

Selling some of the (SPY) $391.17 and (QQQ) $295.73 purchased much lower yesterday in premarket.

Will buy back on weakness.

Getting more aggressive on (PNC) (under $129) and (FTIB) (under $26). 

Back buying (FITB) two dollars lower (at $26.18) than I sold after the close last night.

In the last few months my Chop Bucket (trading range expectation) of between 3700-4100 in the S&P Index has been a great guide for trading and investing, both long and short. 

After today's 70 handle rise in the Index we are now basically in the middle of that projected range.

Thus far I made a mistake calling an audible and selling out my (UAL) last night.

A marketing genius but not so much on the investment side:

This morning's sharp rebound rally is very much a function of the severely oversold condition in the market that I noted in the pre-opening Comments. Aiding that rebound also, is the relative calm in the regional banking area with no sign of deposits hemorrhaging out of any institution visible.

The rebound so far seems to be respecting the near-term technicals. So far, the S&P has not heavily challenged the resistance at 3925/3950. The market will also focus on the next step in the attempt to re-auction the SVB and whether it looks like it will be impossible to do as an entity and that it needs to be broken up.

As I say, so far, there is a sigh of relief, but a welcome one after that many days of selling, particularly of selling of that intensity.

Watch the auction and the yields are bouncing back so, keep an eye on them moving up another 25% from here. All will grab the attention and possibly put some pressure on the equity markets.

Stay safe.

Arthur

At 10:50 am:Breadth

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Biggest Movers

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Heat Map

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(PARA) , (ELAN) , (FRPT) , (BAC) , (PNC) , (TRSSF) .

From Peter: CPI data and Fed response not just next week but thereafter. The February CPI rose .4% m/o/m headline as expected while the core rate was up by .5% m/o/m, one tenth above what was expected. The y/o/y gains are 6% and 5.5% respectively vs 6.4% and 5.6% in the month before. With respect to services, prices ex energy rose .6% m/o/m and 7.3% y/o/y with the latter at a fresh 41 yr high. Rental growth is still playing catch up and is also old news but heavily influencing this data. Owners' Equivalent Rent was up .7% m/o/m and 8% y/o/y. Rent of Primary Residence was up by .8% m/o/m and 8.8% y/o/y. Based on real world data points, rent growth is now running at less than half this for new leases and renewals.

Medical care costs fell .5% m/o/m while up 2.3% y/o/y because of lower health insurance prices (for the methodology quirk I've talked about each month over the past 6) which were down by 4.1% m/o/m. After some robust price increases, the price of motor vehicle maintenance was up .2% m/o/m and still up 12.5% y/o/y. Car insurance prices jumped another .9% m/o/m after a 1.4% jump in January and are up 14.5% y/o/y. Airline fares grew by 6.4% in the month and by 26.5% y/o/y. On the goods side, core prices were unchanged and no longer falling for a 2nd month and are up 1% y/o/y, the slowest since August 2020. Used car prices at retail fell 2.8% m/o/m (should reverse up again as wholesale prices are inflecting higher) and down by 13.6% y/o/y. New car prices continued to rise, by .2% in the month and by 5.8% vs last year. Apparel prices jumped by .8% for a 2nd month, and by 3.3% y/o/y. Prices related to the home are still rising briskly, up by .8% m/o/m and by 6.3% y/o/y. Bottom line, we have again a further acceleration in service prices that is offsetting the continued moderation in goods prices. That said, we know rental growth is being way overstated but should still growth 3-4% sustainably after the current supply increase gets absorbed as the demand is still very solid. Goods prices on the other hand have likely bottomed on the downside of the spike. The combination is still going to lead to slower but sustainable inflation and why the Fed is going to hike rates by 25 bps next week but likely pause thereafter. The call for a rate cut next week by a particular bank makes no sense to me as the Fed would look so weak in doing so and would make all the vocal hawks look silly. I want to also say this, this will be the first rate hiking cycle in 40 yrs where the Fed's ability to pivot aggressively with rate cuts thereafter in reacting to an economic downturn is going to be extremely limited as long as inflation remains so much above its 2% target. Those looking for the Fed to save them in the coming recession will have to temper their expectations I believe. In response to the persistent inflation report, the 5 yr inflation breakeven is getting back what it lost yesterday and rising by 8 bps to 2.42%, though still down from the near 2.80% it saw two weeks ago before some banks blew up. The 2 yr yield was up about where it was right before the report. The odds of a 25 bps rate hike next week is 84%.

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Selling some of the (SPY) $391.17 and (QQQ) $295.73 purchased much lower yesterday in premarket.

Will buy back on weakness.

* Finally, an oversold!

* And we responded by raising our net long equity exposure in a relatively meaningful way - while selling some of our Treasuries

Not only did the S&P move back into a more attractive buying zone but the equity market finally hit an oversold and the bond market reached a short term overbought. 

These conditions resulted in our buying of stocks and paring back our Treasuries holdings: 

* The S&P Oscillator fell dramatically - to a deeply oversold -7.04% -- a rise from -5.05% on Friday, -3.96% on Thursday and from only -1.23% last Wednesday. 

* S&P cashed closed at 3855 -- about 45 handles below "fair market value" at 3900. Upside reward is finally favorable relative to risk - with +245 handles of potential upside v. -155 handles of possible downside -- that's a positive ratio of 1.6x. 

* It was a six sigma event for bonds on Monday - resulting in a deep, short-term overbought. We sold a portion of our Treasuries right near the day's high! 

To put the rise in prices and decline in yields into perspective:

and

The markets have repriced Fed rate hike expectations:

While spreads followed the crazy price rise:

Bottom Line

As contrarians with a calculator in hand we have raised our equity exposure and we have reduced our fixed income holdings.

I see the lights, I see the lights

I see the party lights
They're red and blue (and blue) and green
Oh, everybody (everybody) in the crowd is there
But you won't let me make the scene

Do it, fine mama (hoo-hoo)...

Help, mama dear, oh look, aheal, oh dear
I'm feeling oh-so blue
They're doin' the Twist, the Fish, the Mashed Potato too
I'm here and lookin' at you

I see the lights, I see the lights

- Claudine Clark,Party Lights

The musical highlights of Macon, Georgia, are but three but they are stupendous: Little Richard, James Brown and Otis Redding. Then you have "Party Lights" recorded by native Maconian Clark, for dessert. 

Although Clark wrote, produced and sang the song on her own, this is girl group music in form and spirit. Within the confines of that genre, its extremely unusual to see a performer, much less a young unknown, granted so much responsibility. But this anomaly resolves itself when you that the song began life as a quickie "B" side, hastily recorded to give Chancellor Records (home of Fabian, Frankie Avalon and other vomitous muck) something to go along with the elaborately arranged "A" iside, "Disappointed."

Clark, a guitar and organ prodigy who left Macon to attend Philadelphia's Coombs College on a musical scholarship, was being groomed as a pop diva in the Nancy Wilson/Dionne Warwick mold. "Party Lights", therefore, was a throwaway, so Chancellor not only let her do the work but keep the credit! 

But "Disappointed" lived up to its name and within two weeks of its release, Chancellor was preparing to give up on promoting the record. Then a disc jockey flipped it over and his listeners flipped out. The label shifted its promotion to "Party Lights", which hit the Billboard Hot 100 chart for the first time in June. For the next two months, it wended a tortuous path up the weekly listings, sometimes leaping 15 notches, sometimes barely given a nudge. But it peaked at about number five, making it one of the biggest surprise hits of the post-Presley, pre-Beatles era. 

At least in retrospect, its no surprise that "Party Lights" was hit. The record opens in a thunderation of drums, with a girl group shrieking "I see the lights! I see the party lights!". Clark comes in with a voice that's like a prophesy of Aretha Franklin in its growly gospel overtones. The beat and the lyrics have their antecedents (Little Eva's "Locomotion" that I often post in my Diary, "Do You Love Me?", and "Please Mr. Postman ("deliver da letter da sooner the better") - but Clark's shouting her guts out, as if all the ghosts of her hometown heroes had developed an anima for this hasty occasion. 

For sheer energy. "Party Lights" ranks as one of the greatest female cries of joy and frustration ever put to wax.

* From trouble ahead, trouble behind to a market that just won't like be much fun (since I quit drinkin') to You Can't Roller Skate With a Buffalo Herd (meaning it's a tough market to navigate these days). And soon thereafter the market was down 4%-6% from the early February highs - and The Law Won! Wednesday I moved to Long Island's Billy Joel so I can finally find what I am looking for. Thursday was no futures column - lyrics silent! Today, the swoon (and SIVB) took the markets by surprise - in this not so magic moment... To today's optimism, I see the market's party lights.

* Regardless of the new regime of volatility, there is no change in my base expectation that we may have seen the top in the S&P 500 Index for all of 2023. As discussed in my opener, we have breached (to the downside) the middle of the range - bringing stocks back into a buy level.

* Adjusting for the small rise in stock futures (at 6: 22 a.m.), the S&P sits at 3855, slightly under my fair market value. According to my calculus, there is a more attractive distribution of upside (+245 handles) and -155 handles to the downside.

* In this trading market I am trading more actively these days. I have been emphasizing pairs trades, straddles and strangles. But, Friday and Monday I have been an incremental buyer on weakness.

* While I am a bit more positive over the near term, the intermediate term outlook for stocks, remains difficult in light of the competition and a "sea change" and new regime of (still) higher interest rates:

* The S&P Oscillator climbed meaningfully into more negative ground -- from -5.05% to -7.04%. More oversold, obviously. (See upcoming opener.)

"You are never as smart as u think you are when you are making money or as dumb as u think when losing."

-- Unknown

"The stock market will do whatever it has to do to embarrass the greatest people to the greatest extent possible."

-- Wally Deemer

"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"

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

The market (and money) never sleeps -- and neither do I, it appears! I have previously 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 are often exaggerated outside the regular trading session. I frequently try to capture those efficiencies by trading actively both in the pre- and after-market sessions.

Here are some brief observations I wanted to highlight and a summary of overnight price movements in various asset classes:

*Monday's close (S&P 3855 is under fair value and compares to The Chop Bucket of 3700-4100 for the S&P 500. S&P cash adjusted for the modest rise in futures is exactly 3870 providing a more favorable reward vs. risk:

* Stock futures were higher most of the evening . S&P futures had peaked at +24 and bottomed at -2. Nasdaq futures peaked at +82 and bottomed at -1. At 6:30 a.m. ET, S&P futures were +19 and Nasdaq futures were +47.

* The S&P Short-Range Oscillator has been a great trading gauge. When it gets oversold, as it did last Thursday (at over -4%), the market robustly rallied. When it moved to less oversold (-1%), there is typically a market headwind. The Short-Range Oscillator closed Monday deeply in oversold -7.04% compared to Friday's -5.05%. For perspective, when the rally started on Dec. 28, 2022, the Oscillator was deeply negative (oversold).

* I have also kept a bead on volatility. In recent days, reflecting the bank crisis, the VIX has climbed from the high teens to the mid twenties. This morning, the VIX was at 26.94 (+0.42). As volatility declined recently, I took off a lot of my straddles and strangles for a profit. I plan to get back into some straddles with the boost in vol today!

* The U.S. dollar is stronger against the yen and euro, slightly weaker against sterling.

* I have been continually writing that bonds should be at center stage to equity weightings - it's all about the rates. And the move yesterday was, well... unique (a six sigma event). Again, see my upcoming opener.

* I certainly had no plan to sell Treasuries - until the nearly unprecedented move on Monday.

* The Two-Year Treasury yield is retracing some of yesterday's drop Today +24 bps at 4.246% and the 10-Year is +9 bps to 3.602%. Over there, the yield on the 10-Year U.K. Gilt bond is +9 bps. See my Barron'sinterview two weekends ago that describes rising rates as the single most important headwind against further stock gains.

* The 10s/2s Treasuries curve has made a dramatic move from -110 bps. Now at only -65 bps!

* Commodities - where there are no zero days to expiration options! - are broadly much lower again this morning.

Brent oil is -$1.83 to $78.95 (I am still avoiding energy stocks):

and

* Gold is -$9/oz

Here is a synopsis of some of my columns I believe were important, or in the event you were out for the day and did not read my Diary. I was at a Board meeting most of the morning. The principal intent is to review the logic of my market moves and other factors:

Welcome to March 2023 (And Rising Bank Deposit Betas) 

Why I Get Up Early

Finally An Oversold

(Bloomberg's)Tom Keene: Tweet of the Day

Google and Amazon Are Beneficiaries of the VC Chaos

Minding Mr. Market

And here are Monday's trades (an active day!):

* Big move: Mar 13, 2023 ' 09:30 AM EDT DOUG KASS

Treasuries

Given the 54 bps drop in the one year Treasury bill yield I am reluctantly selling some.

* Mar 13, 2023 ' 09:30 AM EDT DOUG KASS

Treasuries

Given the 54 bps drop in the one year Treasury bill yield I am reluctantly selling some.

* Mar 13, 2023 ' 01:14 PM EDT DOUG KASS

Adding to Indexes

* (SPY) $385.76

* (QQQ) $291.20

* Mar 13, 2023 ' 01:32 PM EDT DOUG KASS

More on GE, FRPT

I covered my (GE) short ($88.25).

Reassessing my research tilt, shares acting superior and I am looking to expand longs.

More to come.

Also, back buying (FRPT) ($55.85).

* Mar 13, 2023 ' 01:50 PM EDT DOUG KASS

Treasuries Sale

Selling more Treasuries. 

* Mar 13, 2023 ' 02:15 PM EDT DOUG KASS

For Those That Are Counting...

My financial/bank exposure is a bit under 2%.

Remember, my risk profile is conservative and I always move slowly and incrementally in a regime of higher volatility.

That said, I would go to 5% on a further beating.

Today I added to every bank - except (JPM) which was +$4 on Friday - and reestablished my Citigroup (C) long.*

Premarket Trades

DOUG KASSMar 13, 2023 6:00 AM EDT

* Added to $385.31 * Added to $289.16*

Google and Amazon Should Be Beneficiaries of VC Chaos

DOUG KASSMar 13, 2023 7:40 AM EDT

Buying $91.07 and $90.86 in premarket trading.*

Mar 13, 2023 ' 03:20 PM EDT DOUG KASS

PARA Position

Buying back a small position in (PARA) at $19.65 - with the recognition that we might see a dividend cut.

Doing this based on the streaming industry rationalizing itself going forward.

* Bought and sold (UAL) in after hours for a push.

* Added to (DIS) and (ELAN)
__________ 

Long SPY (M), QQQ (M), GOOGL (M), AMZN (M), DIS (M), PARA (M), JPM (VS), FITB (S), WFC (S), BAC (M), USB (S), BK (S), PNC (M), FRPT (S), ELAN common (M) calls (S), DIS (M), FRPT (S).

Short SPY calls (S). QQQ calls (S).

Yesterday I initiated a long position in (FRC) at about $32/share: 

Mar 13, 2023 ' 03:00 PM EDT DOUG KASS

FRC Add

Added small to First Republic (FRC) on weakness (cost basis $32ish now)

Speculative and small amount of capital employed in this purchase.

This is an important move for TerrAscend - and it could launch the shares of (TRSSF) higher over the short term. 

Most importantly, the move dramatically improves the cannabis company's access to and cost of capital - putting it at a competitive advantage against its peers. 

The shares will likely climb today - perhaps meaningfully. 

If I am correct about the market's favorable response, there is another benefit to the company - TRSSF can use a higher (than peer) valuations stock as currency for acquisitions. 

TRSSF and (CNPOF) are our only cannabis holdings.

From Senator Warren:

From my pal Dan:

This table is a good resource for short-term traders:

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Another one from Bramo:

From JPMorgan:

US: Futs are higher as the bond market continues to see large moves; 3M yield is -13bps, 2Y yield is +18bps. Separately, the 2Y breakeven is +15bps. Pre-mkt, MegaCap Tech and some regional banks are outperforming. USD is higher; Meera warns against getting max bearish the USD. The cmdty complex is lower dragged by energy. CPI prints later this morning; Bram sees ~1.5% options-implied move. Terminal rate expectations have fallen from 5.62% a week ago to 4.86% today, pre-mkt. The market is likely to wrestle with the Fed's path as it has to weigh financial stability vs. inflation risks. Rates vol may continue to move higher from here, potentially puling cross asset vols higher, too.

More...

EQUITY AND MACRO NARRATIVE: Yesterday saw interesting price action as the bond market's view seemingly does a 180 and many Equities sub-sectors seeing multi-standard deviation moves, ex-Tech (both super and sub-sectors). What now from here? Below are some thoughts surrounding the most discussed client questions, Feroli and Bram's views on CPI and related market moves, and an update on cross-asset views.

· IS THE FED PAUSED? The bond market has moved from pricing in 3x rate hikes and zero cuts this year (as of Thursday, 3/9 COB) to pricing in zero rate hikes and 3x rate cuts this year (as of 3/13 COB). When answering this question, I would consider (i) Does Powell believe that this weekend's actions were sufficient or are bank failures now a part of "data dependency"? and (ii) Is inflation a greater risk than financial stability, or perceived financial stability?

o Does Powell believe that this weekend's actions were sufficient or are bank failures now a part of "data dependency"? My best guess is that Yes, Powell thinks this is a sufficient move to backstop deposits such that small business payrolls may be facilitated. Given a large enough systemic risk, I do think Powell/Yellen would upsize in short order, similar to what happened during COVID.

o Is inflation a greater risk than financial stability, or perceived financial stability? Seemingly the answer here is financial stability is the greater threat. Flippantly, if Powell wanted to get unemployment higher, then you let venture funding fail and the majority of the ~4mm workers of VC-backed portfolio companies are likely out of work. Instead, the Fed/Treasury are moving to remove financial system risk which means that inflation remains a problem.

-- SIDE NOTE - "Private equity firms invested more than $6 trillion in the US economy in the 10 years through 2021 and employ more than 11.7 million Americans. Venture capital money more than quadrupled from 2007 to 2021, to about $1 trillion, and VC-backed companies have 3.8 million workers - a 960% increase from 1990." - Bloomberg (article is here)

o WSJ's Nick Timiraos reviews the potential difficulty of containing systemic risk and inflation, simultaneously. Timiraos flags comments by the Fed's Waller who says that sufficient tools exist to address financial stability concerns and that monetary policy should focus on fighting inflation (article is here).

o Powell headlines from Bloomberg, post-market:

-- POWELL SAYS EVENTS AROUND SVB DEMAND SWIFT, THOROUGH REVIEW

-- *FED RELEASES STATEMENT ON PLANS FOR REVIEW OF SVB FAILURE

-- *FED SAYS VICE CHAIR BARR TO LEAD REVIEW OF SVB SUPERVISION

-- *FED TO PROBE ITS SUPERVISION OF SVB, RELEASE REVIEW BY MAY 1

o Overall, the Fed considers financial system stability to be a part of its dual mandate, so in the absence of further bank runs and/or bankruptcies, it seems likely that the Fed hikes at least one more time. I agree with Mike Feroli's view that we still see a 25bps hike in March (full note is here). This current Fed action, and presumably any future action, are being interpreted as a de facto version of QE. This is triggering short covering in the spicier parts of the market while also triggering a flight to quality within Equities. Thus, the Fed may find it difficult to tighten financial conditions further. Alternatively, there are calls for rate cuts as soon as next week. One client has suggested that the ideal outcome would be an increase in taxes with the Fed cutting rates.

From Bramo: