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DAILY DIARY

Doug Kass

Calling It a Day

Moments ago I received this from Todd's associate and I am calling it a day: 

It is with full, but heavy hearts that we announce the passing of Todd Barron who left us

peacefully on January 26th. He was a beloved father, husband, son, brother, and friend,

whose love for life and commitment to his community sparked joy in all who knew him.

Todd battled Ewing's Sarcoma for 6 years and he persevered and overcame more than anyone

could have ever imagined. Todd was a giver and was selfless. He truly enjoyed helping anyone

and loved to bring people together. Todd was loved by all and was a true inspiration to all of us

through his battle with cancer. We will miss him tremendously, but will certainly carry his spirit,

love of life, and grace with us forever.

Please watch Todd's moving acceptance speech when he received the Courage Award from the Sarcoma Foundation of America last year. Todd's commitment to these organizations and their inspiring work were deeply important to him. 

Thanks for reading my Diary today and all week. 

Enjoy your weekend and hug your loved ones. 

Position: None

Bespoke Speaks

Position: None

My Energy Longs

Adding to my energy longs on the small drop in the late morning.

Position: Long OXY common (VL) calls (S), CVX (L), XOM (L)

Programming Note

I have a personal chore to attend to and will be back at 11:30 am.

Position: None

The Book of Boockvar

From Peter:

If someone can square up for me what the Beige Book seen last week said about the US economy ("A majority of the twelve Federal Reserve Districts reported little or no change in economic activity since the prior Beige Book period") and yesterday's GDP print, I'm all ears.

By the way, this is what the Beige Book said in its previous release in November: "On balance, economic activity slowed since the previous report, with four Districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity." Is the reconciliation due to all the massive government spending and tax incentives for all the green initiatives and chip factory building?

Here are some notable comments from earnings calls on the macro:

Sherwin Williams

"On the architectural side, US new residential sentiment has improved. Single family starts have been up y/o/y for 6 consecutive months. Mortgage rates are expected to begin moderating but will remain well above historic levels. In residential repaint, existing home sales drove a portion of our sales and have declined y/o/y for 28 straight months. The trajectory of recovery is not clear here and the LIRA (Leading Indicator of Remolding Activity) index is forecasting negative remodeling spend in 2024."

"In new commercial, starts slowed considerably in 2023, which we expect will impact completions starting midway through 2024. Commercial lending standards have also tightened, and the Architecture Billings Index has been negative for 5 consecutive months."

"On the DIY side, we'll remain in share gain mode as we do not currently see a macro economic catalyst driving meaningful improvement in consumer demand. "

"On the industrial side, the PMI numbers for manufacturing in the US, Europe, and Brazil have largely been negative for multiple months, with China being slightly better recently. We expect automotive refinish to be our most resilient business in this environment, but we expect to see ongoing benefits from recent share gains."

"Industrial Wood is likely to benefit from recovery in new residential, given the furniture, flooring and cabinetry end markets it serves."

On the pricing and cost front, it is really a mixed situation, "our outlook assumes our raw material costs will be down by a low single digit percentage in 2024 compared to 2023...While raw materials will likely be a benefit for us, other costs including wages, healthcare, energy and transportation are expected to be up in the mid to high single digit range in 2024."

As a result and for those who think the drop in inflation (outside of rents which is an easy call here) is an easy trip, "Paint Stores Group is implementing a 5% price increase effective February 1. The Performance Coatings and the Consumer Brands Group are also likely to have some targeted pricing activity in 2024, though at a more modest level than Paint Stores."

Union Pacific

"The economic environment continues to look muted in 2024, particularly in the first half. We are off to a poor start in January based on severe winter storms and market challenges we are seeing in coal and intermodal."

Shifting to the consumer.

LVMH

Highlighting the continued strength in the very high end:

"The fourth quarter delivered higher growth than the third. That's good news. We know that there were some uncertainties in the market, but that went well. And yet, in 2023, the economic and especially geopolitical context was rather uncertain with the various conflicts throughout the world, with inflation, and rising interest rates, things seemed to be calming a bit. We'll see what the situation is in 2024 but a year marked by those two major global difficulties. Organic growth was sustained across all our activities, except in Wines & Spirits."

American Airlines

Travel still solid:

"Demand remains strong, and we've seen robust bookings to start the year as travel trends have begun to normalize across entities. We're also very encouraged by the trends we're seeing in business travel. Domestic revenues from business travel ended the fourth quarter at approximately 90% of 2019 levels."

Visa

Understanding they benefit from inflation in terms of ticket sizes:

"Consumer spending remained resilient with Q1 y/o/y payments volume growth at 8%. US payments volume grew 5% y/o/y. International payments volume grew 11%."

"As we look at the monthly total US payments volume growth rates throughout the quarter, we saw low in October and a peak in November with December in between. Putting it all together, the step down of about 80 bps in total US payments volume growth from Q4 to Q1 was primarily due to a less favorable mix of weekends and weekdays compared to last year and a combination of a few small items...Consumer spend across all segments from low to high spend has remained relatively stable. Our data does not indicate any meaningful behavior change across consumer segments."

"In the US, consumer holiday spend growth was in the mid single digits on a y/o/y basis (again, in nominal terms). Consumer retail spending was similar to last year. However, retail spending on key shopping days from Thanksgiving to Cyber Monday was much stronger. E-commerce increased its share of retail spending vs last year."

"We did see that growth slow down the first week of January and we've looked really closely at it. And it's directly correlated to the extreme cold weather that's hit many parts of the US."

Capital One

"Top line growth trends in the domestic card business remained strong, even with growth moderating somewhat in the fourth quarter."

"The charge-off rate for the quarter was up 213 bps y/o/y to 5.35%. The 30 plus delinquency rate at quarter end increased 118 bps from the prior year to 4.6%. On a sequential quarter basis, the charge off rate was up 95 bps and the 30 plus delinquency rate was up 30 bps."

And what they think about this? "we believe that normalization has run its course and credit results have stabilized...And at this point, we have a pretty good window into January as delinquency entries in December indicated continuing delinquency rate stability in January. We've always said that delinquencies are the leading indicator of where charge-offs are going."

"We believe the charge-off rate is stabilizing now and settling out to about 15% about 2019 levels."

The Auto Sector

"Auto originations declined 7% y/o/y."

Loan growth on the commercial side fell 1% and we continue to see basically no C&I loans growth from the commercial banks. Capital One said "The modest declines are largely the result of choices we made earlier in the year to tighten credit."
_________

Tokyo CPI in January ex food and energy slowed to 3.1% from 3.5% and that was 3 tenths below expectations with Japan seeing the same inflation moderation on a rate of change basis that everyone is. The problem for them though is this core/core rate is still above 2% and the BoJ still has NIRP in place. Lower food and energy prices kept a lid on the headline which was up 1.6% vs 2.4% in the month before. In response, the 10 yr JBG yield and the 10 yr inflation breakeven each did fall by 2 bps.

German consumer confidence weakened while it ticked up in France. In the UK it was higher by 3 pts m/o/m to the best level since January 2022 at -19. GFK said this about the UK, "Despite the cost of living crisis still impacting many households across the UK, consumers appear to be encouraged by the positive news about falling inflation." The US consumer confidence reads have reflected the same thing as we know.

The hawks in the ECB are out today after yesterday's meeting that rate cuts are still further out and don't expect much. Governing council member Martins Kazaks acknowledged that while rates will likely fall this year, "We've seen from the 70s and 80s that if one starts to be relaxed too early then there's the risk that inflation starts to come back and then one would need to raise rates much more."

ECB member Boris Vujcic said "lately I have the feeling that markets take whatever you say as being dovish. They have been very trigger happy."

In response, the euro is bouncing but bond yields are little changed.

Position: None

Boockvar on the December PCE

From Peter:

The December PCE both headline and core rose .2% m/o/m as expected with headline up 2.6% y/o/y and 2.9% for the core. Again, the reason why PCE trends below CPI is because it has a much smaller weighting in housing and a much bigger weight in healthcare where medicaid and medicare reimbursement rates are a big part of that calculation.

The only surprise in the data this morning was the upside in personal spending as it was up .7% m/o/m, two tenths more than expected and November was revised up by 2 tenths.

As this level of spending was again above the rate of personal income growth of .3% m/o/m, the savings rate is now down to just 3.7%. That is the lowest since December 2022.

Bottom line, inflation continues to head in the right direction and I'll say for the umpteenth time, while this is good of course, the war against inflation is not won until it stays in the 2ish range on a SUSTAINABLE basis. Service prices should continue to slow this year but we are now at risk for an uptick in goods prices.

As for the economy, and the 'strength' of the consumer, are they really 'strong' when they keep drawing down on their savings to the lowest level in a year in order to keep spending going?

Treasury yields rose in response to the upside in spending.

Position: None

Premarket Percentage Movers

At 8:27 am:

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Position: None

Most Active ETFs (Premarket)

At 8:14 am:View Chart »View in New Window »

Position: None

Selected Premarket Movers

Upside

- (PRCH) +29% (receives $25M with signing of Strategic Agreement with Aon)
- (APPF) +16% (earnings, guidance)
- (EHTH) +16% (reports prelim Q4)
- (BAH) +5.1% (earnings, guidance)
- (BTMD) +4.4% (announces $20M share repurchase authorization)
- (OLN) +4.1% (earnings, guidance)
- (COIN) +4.0% (Oppenheimer Raised COIN to Outperform from Perform)
- (GNTX) +4.0% (earnings, guidance)
- (TVTX) +3.3% (announces Licensing Agreement with Renalys Pharma to develop and commercialize Sparsentan in Japan, South Korea, Taiwan, and Southeast Asian nations)
- (ALV) +2.9% (earnings, guidance)
- (AXP) +2.4% (earnings, guidance)

Downside

-ICU -20% (prices 10.8M shares at $0.83/shr in $9.0M registered direct offering)
- (PTCT) -10% (CHMP issues negative opinion for renewal of Conditional Marketing Authorization for Translarna (ataluren) following re-examination procedure)
- (INTC) -9.8% (earnings, guidance)
- (LBPH) -6.7% (fielding notable client queries/interest and investigating potential market speculation circulating)
- (HLTH) -5.5% (announces additional cost reduction measures including cutting 24% of global workforce)
- (KLAC) -2.9% (earnings, guidance)
- (WDC) -2.7% (earnings, guidance)
- (V) -2.4% (earnings, guidance)
- (LHX) -2.3% (earnings, guidance)
- (TMUS) -2.2% (earnings, guidance)

Position: Short AXP (S)

Good Night Sweet Todd

"Now cracks a noble heart. Good night, sweet prince and flights of angels sing thee to thy rest."

- William Shakespeare, Hamlet

I could not sleep last night as a dear friend of mine was on my mind. 

Toddy isn't a nobleman or a famous strategist like Byron Wien.

He is one of the kindest people I have ever known and this morning he lies, taking some of his last breaths. 

I met Toddy through his brother, who I affectionately have written about, calling him (in my Diary) Barron Von Broker. Todd and Mike and Ronnie lead a Morgan Stanley private wealth group in Palm Beach. 

Toddy and the team were very supportive of me. From the beginning they have been subscribers. When my book came out they celebrated with a special book signing event and party at their brokerage office. 

I felt so confident about the team's investment expertise that I sent over Chuck (Brown Bear) Zion's parents (Jane and Rabbi Martin Zion) capital for them to manage. More important than that, Toddy treated the Zions as I did - like his own parents as he shuttled them to and for from errands, etc. When Rabbi Zion passed away, he, and his team, paid special attention to Jane Zion. 

Ultimately my personal fixed income funds when to the team - where Toddy was the bond market specialist. Last year, as Treasurer of my golf club, I sent over my club's excess cash for him to invest in fixed income securities. 

But Toddy's fixed income expertise was not his defining measure. He was simply the nicest and most charitable friend I ever had - an amazingly dutiful son, father and husband. 

Despite cancer ravaging his body and having his leg amputated, Toddy's attitude over the last year has been, not surprisingly, upbeat. 

His smile has been never-ending and infectious. 

Only 1 1/2 months ago he was advising me about rolling over our Club's treasuries. As always, he was full of humor and optimism. 

Toddy will leave his remarkably strong and caring wife Debbie, who came from my home town on Long Island, and his two daughters with a legacy few men will leave. 

As we wait for the inevitable our hearts are broken. 

My tears this afternoon are the silent language of the grief of losing someone so special. 

In truth my sorrow this afternoon is my weeping for a relationship that has been a delight. 

May his memory be a blessing. 

"Who is wise? One who learns from every man ... Who is strong? One who overpowers his inclinations ... Who is rich? One who is satisfied with his lot ... Who is honorable? One who honors his fellows."

- Ben Zoma, Ethics of the Fathers

Position: None

More Night Moves: A Detailed Look at Overnight Futures and Why/What Markets Are Moving

* After days of weak breadth, breadth improved on Thursday:

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* Investor sentiment has now moved into overbought territory =- the S&P Short-Range Oscillator is at 1.32% vs. 0.18%

* This morning, yields and crude oil prices are lower whilr gold is climbing (+$5.70) and Bitcoin rebounds (+2.5%)

* The U.S. dollar is flat this morning

* Some "Cure" for a Friday:

"I don't care if Monday's blue
Tuesday's grey and Wednesday too
Thursday, I don't care about you
It's Friday, I'm in love
Monday you can fall apart
Tuesday, Wednesday break my heart
Oh, Thursday doesn't even start
It's Friday, I'm in love"

- The Cure, "Friday I'm in Love"

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"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 hold 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 brief observations I wanted to highlight and provide a summary of overnight price movements in various asset classes:

* Stock futures are lower following disappointing after-hours earnings reports. S&P futures peaked at -4 and bottomed at -25. Nasdaq futures peaked at -59 and bottomed at -180. At 6:25 a.m. ET, S&P futures were -7 and Nasdaq futures were -92.

And...

Commodities are lower across the board. Brent crude is down -$0.46 to $81.97.

* The S&P Short-Range Oscillator is now overbought 1.32% vs. 0.18%.

* The VIX is up again to 13.69 (+$0.24).

* The U.S. dollar is flat this morning.

* Treasury yields are flat to lower. The 2-Year Treasury yield is unchanged at 4.314% and the 10-Year is -2 basis points to 4.118%. Over there, the yield on the 10-Year U.K. Gilt bond is also flat.

* Overnight, the inversion of the 2s/10s Treasuries curve is down to -20 basis points. Real rates remain quite elevated; the 10-year is still about 1.75, again in real terms.

* Gold is up $5.20 and sits at $2,023.

* Bitcoin is +$1000 to nearly $41k.

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

Maybe, Maybe, Maybe

Ludacris Forecast (when Nasdaq futures were +100 I called for a possible reversal)

Weakness in Regional Banks

Here were Thursday's trades:

* I covered my protective call shorts in energy stocks

Position: Long OXY common VL and calls S XOM L CVX L

Themes and Sectors

This is a valuable table for momentum-based short term traders:

View Chart »View in New Window »


Position: None

From The Street of Dreams

From JPMorgan: 

US: Futs are mixed led by RTY. Pre-Mkt, MegaCap Tech are mostly lower. Semis are weaker after INTC's lackluster earnings last night: INTC, NVDA and QCOM are -11.9%, -1.3% and -1.7% lower. Bond yields are flat, and USD is weaker. Commodities are mixed; oil is lower this morning. Today, key focus will be PCE print at 8.30am ET: Feroli sees PCE to print 0.2% vs. 0.2% survey vs. -0.1% prior and core PCE to print 0.22% vs. 0.2% survey vs. 0.1% prior, largely in line with expectations. After the strong GDP beat yesterday, a in-line or lighter-than-expect PCE could supports the goldilocks scenario. On earnings, eyes on AXP for consumer read-through.

and...

EQUITY AND MACRO NARRATIVE: Yesterday, real GDP surprised to the upside, growing 3.3% in 4Q23 vs. 2.0% survey, thanks to the larger-than-expected inventory change. The 4Q GDP beat suggests the resilience of US economy and provide positive outlook for earnings growth in 4Q. Additionally, dovish tone from ECB also helped sentiment around global central banks ahead of FOMC next week; bonds rallied modestly. Overall, key focus today will be the PCE data: recall that yesterday's 4Q releases suggests two consecutive 2.0% saar in core PCE for 3Q and 4Q. After the strong GDP beat yesterday, an in-line or lighter-than-expect PCE could further supports the goldilocks scenario.

Position: None

Charting The Technicals

"Life imitates art far more than art imitates life."

- Oscar Wilde

Bonus - Here are some great links:

The Recession Has Been Cancelled

Semis Lead

Shorts Keep Falling

Chinese Stocks Attempt to Double Bottom

Position: None

Developments and Observations

In this post I wanted to target several important developments and/or observations of the past week: 

* Technology - Look Out Below?

The S&P Technology Index rose above 30% in weighting in the S&P Index for the first time

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* On Valuation:

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* From the 4Q GDP Report:

Has no one else noticed this from Q4 GDP report? Annualized interest on the federal debt now exceeds $1 trillion and is projected to breach $3 trillion, annualized rate, by Q4 2030 - INSANE and UNSUSTAINABLE:

View Chart »View in New Window »

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* A Possible Rotation Into Energy?

Multi-month high in the price of crude oil:

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The Energy sector $XLE rallied 2.25% Thursday and is still down on the year even with oil $USO up 8.4%

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Position: None

Howling About Housing

I have been writing about the imminent contraction in residential real estate - a contrary view.

Today, Wolf Street howls about housing.

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-35.66%
Doug KassOXY12/6/23-16.42%
Doug KassCVX12/6/23+8.55%
Doug KassXOM12/6/23+10.96%
Doug KassMSOS11/1/23-29.53%
Doug KassJOE9/19/23-18.03%
Doug KassOXY9/19/23-27.61%
Doug KassELAN3/22/23+28.72%
Doug KassVTV10/20/20+62.60%
Doug KassVBR10/20/20+74.40%