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DAILY DIARY

Doug Kass

From Flagpole to That's All

As we used to say in the harness racing game, Mr. Market climbed from flagpole to that's all today.

I have a 4 pm dentist appointment so I will recap in the morning.

Thanks for reading my Diary.

Enjoy the evening.

Be safe.

Position: None

More on CPI Inflation

Position: None

Momentum Has Its Limits

From Bill Gross:

Position: None

Howling About the CPI

Wolf Street howls about what lies beneath the CPI.

Position: None

What the Bears Can Hope For

At this point in time the only thing Bears can hope for - in a market dominated by machines and algos - may be a failure in the S&P at cash 5300.

For those that are aggressive and very short term oriented, the SPY (ODTE) $529 puts trade at $0.56.

P.S. - I don't play the ODTE game!

Position: Short SPY common (VS) calls (S), QQQ common (VS) calls (S)

Programming Note

I have a short research call at 2 pm, back in about 30 to 45 minutes!

Position: None

Shorting Banks

My Trade of the Week (short  (XLF) ) is underperforming the general market's gains.

Earlier in the week I mentioned the overbought in financials and that JP Morgan  (JPM)  may have met resistance.

Today, in a sea of green, JPM shares are -$1.60.

From Monday:

Trade of the Week - Shorting XLF $41.94

For the first time in the recent rally the financials seem heavy. Berkshire (BRK.B) and JP Morgan (JPM) - large components - have reversed early gains.

I would note that many technicians and strategists have recently endorsed financials, apparently in response to the strong relative performance.

Given my economic and rate concerns, I am fading that growing consensus now.

Shorting (XLF) might make some sense as a tradeable idea now.

I added to my smallish XLF short at $41.94 this morning.

Short XLF S/M

MAY 13, 2024 11:15 AM ED

Position: None

Bondaleros

From Divine Ms M:

Position: None

'Cogs in a Wildly Unpredictable System'

From my pal Andrew:

Position: None

Goldman Sachs on the CPI Report

BOTTOM LINE: April core CPI rose 0.29% month-over-month, 1bp below consensus and the slowest pace since December. The year-on-year rate fell 0.2pp to 3.6%. The composition of the report was encouraging, with a 31-month low for the primary rent gauge, declines in both new and used car prices, and much of the strength still coming from lagged catch-up in OER and car insurance. 

After incorporating the details of the CPI report, we have left our April core PCE inflation estimate unchanged at +0.25% month-over-month, corresponding to a year-over-year rate of +2.77%. We continue to expect the Fed to cut the funds rate by 25bps in July and proceed with cuts at a quarterly pace thereafter. 

Core retail sales declined by 0.3% in April, against consensus expectations for an increase. Headline spending remained unchanged. The Empire manufacturing index declined in May, against consensus expectations for an increase. The composition of the report was mixed, with declines in the new orders and employment components and an increase in the shipments component. 

The April retail sales report was even weaker than our below-consensus expectations, and we lowered our Q2 GDP tracking estimate by 0.4pp to +3.0% (qoq ar) and our domestic final sales estimate by 0.3pp to +2.4%. We lowered our past-quarter GDP tracking estimate for Q1 by 0.2pp to +1.3% (vs. +1.6% originally reported).

Position: None

DraftKings Add

I added to my DraftKings  (DKNG)  long this morning.

Position: Long DKNG (S)

Bond Market Update

Yields have steadily moved lower throughout the day:

* The yield on the 2-year Treasury is -7 bps to 4.751%.

* The yield on the 10-year Treasury is -8 bps to 4.369%.

* The yield on the long bond is -6 bps to 4.529%.

Position: None

McDonald's McFranchisee

Position: Short MCD (S)

Disney Short Profit

I have covered my small trading short rental in Disney  (DIS)  just now at $102.80.

Nice profit over a short timeframe.

Position: None

More Signs of an Overbought Market

Position: None

The Book of Boockvar

From Peter:

Copper by the way is up another 2% and by 10% in 5 trading days. We remain bullish and long a variety of commodity stocks. The Fed’s job does not get easier.

Ahead of the April cost of living figures and retail sales data today, the NY Fed released yesterday its Quarterly Report on Household Debt and Credit. They list the absolute debt levels in a variety of credit categories (which is only helpful when looked at relative to GDP and/or income which is not mentioned) and serious delinquent rates. 'Serious' defined as 90 days or more past due. 

They said this, "In the first quarter of 2024, credit card and auto loan transition rates into serious delinquency continued to rise across all age groups. An increasing number of borrowers missed credit card payments, reveling worsening financial distress among some households."

To be specific, the 'serious delinquency' rate for mortgage debt wen to .92% in Q1 '24 from .59% in Q1 '23. For a HELOC, it was .52% vs .48% in Q1 '23. For auto loan debt it rose to 2.78% w/o/w from 2.33%. In credit cards, it jumped to 6.86% from 4.57%. And, it did slip to .80% from .94% for student loans.

We have a remarkably mixed and uneven economy from my vantage point I'll reiterate.

Here is what Home Depot said about the consumer and macro where US stores saw a 3.2% y/o/y drop in same store sales:

"Our sales were impacted by a delayed start to spring and continued softness in certain larger discretionary projects. However, where weather was favorable, we saw good customer engagement and strength in outdoor projects."

"Big ticket comp transactions or those over $1,000 were down 6.5% compared to the first quarter of last year. We continue to see softer engagement in larger discretionary projects where customers typically use financing to fund the project such as kitchen and bath remodels."

"While pro backlogs remained relatively stable, we hear from our pros that homeowners continue to take on smaller projects."

And we know that with the pace of existing home transactions running near 30 yr lows, it impacts spend on the home. "When a customer buys or sells a home, they spend more in that year than in a year when they don't. And so there's no doubt that we're missing some of that project demand and that's what's weighing on our sales as we had anticipated."

From Jack in the Box whose comps fell 2.5% y/o/y in the quarter:

"Now, at this point, you're aware of the consumer headwinds impacting our industry and the need to drive transactions and win share, especially with the lower income guest...Although Q2 proved to be a challenging sales environment, I'm encouraged by the improvement at Jack near the end of the quarter and leading into May."

"We in the industry are all seeing this kind of pressure from the headwinds on the consumer. We definitely felt it coming into the 2nd quarter and so we know that value is going to be something we talk about for the rest of the year."

In the quarter, "Jack experienced a decline in transactions as well as unfavorable mix shift during the quarter, partially offset by an approximately 5% lift in price."

"Wage inflation in the quarter was 4.6%."

From Boot Barn, whose stock is down pre market but seeing some positive trends:

"To summarize, we have seen broad based sequential improvement across virtually all major merchandise departments, both stores and e-commerce channels and in all four regional geographies. This trajectory began as we progress from our 3rd quarter into the 4th quarter, then improved in April and again into May where we have seen positive same store sales in bulk channels on a m/o/m basis."

Here though is the caveat, "While we are quite pleased to see the inflection in this business, we are careful to note that we are commenting on a relatively short recent trend and are about to cycle the most difficult year ago trend in the month of June. Additionally, the macro environment continues to be somewhat uncertain and our core customer is still facing persistent inflationary pressure."

Shifting to freight and shipping it around, the Cass Freight April index saw a 1.6% m/o/m drop seasonally adjusted "as for-hire demand remains broadly soft." They said "Lunar New Year timing and/or the Baltimore bridge may have temporarily affected April data, but at this pace, volumes are at risk of giving up those gains in Q2."

They also said "For-hire fleets likely still are seeing soft demand because of significant private fleet capacity additions in the past couple of years. Private fleets are now more actively competing for spot freight to fill empty backhauls, lengthening below-trend for-hire demand levels."

On the freight rate side, the inferred rate fell .4% m/o/m "but has been very stable for the past four straight months." If current trends remain, freight rates will be down 8% y/o/y, according to Cass.

Bottom line, there are no longer supply chain issues. It's more mixed volume trends and still excessive capacity in parts of the shipping lanes.

The Dallas Fed released its Banking Conditions Survey a few days ago and said this:

"Loan volumes grew for the first time in over a year despite credit standards continuing to tighten, and loan pricing continuing to rise. Credit tightening accelerated for commercial and residential mortgages while it decelerated for commercial and industrial loans and consumer loans. Loan nonperformance picked up slightly overall. Bankers’ outlooks turned pessimistic: They expect a modest decrease in loan demand six months from now in addition to a deterioration in loan performance and overall business activity."

Bottom line, credit supply from the banks remains tight while demand, because the expensive cost of money, remains muted.

​​Mortgage rates fell again w/o/w which helped refi's rise 4.7% w/o/w but purchase applications fell by 1.7%. Those purchase apps are still hovering around 30 yr lows.

Purchase Applications

b1
Position: None

Just Desserts?

AMC  (AMC)  and GameStop  (GME)  short borrows have been unavailable since the beginning of the meme squeeze.

Now, with the stocks retreating, naturally the shares are available to short!

Position: None

Back Shorting SPY, QQQ

I am back shorting SPY and QQQ common at $526.62 and $449.02, respectively - following the in line price inflation release, benefitted from lower new and used car prices.

Scaling higher.

Position: Short SPY common (VS) calls (S), QQQ common (VS) calls (S)

Selected Premarket Movers

Upside

-ARQT +14% (earnings)
-NXT +14% (earnings, guidance)
-MBRX +13% (commences NIH-Funded Phase 2 Clinical Trial of STAT3 Inhibitor for Treatment of Glioblastoma (NU 21C06))
-CASI +11% (receives FDA clearance for Investigational New Drug (IND) application for CID-103 in Immune Thrombocytopenia)
-SRAD +8.9% (earnings, guidance)
-GSM +7.7% (earnings, guidance; approves $200M share buyback program)
-ACET +5.8% (earnings)
-MYTE +5.0% (earnings, guidance)
-WOOF +4.4% (appoints Glenn Murphy as Executive Chairman of the Board)
-DT +3.9% (earnings, guidance; announces $500M share repurchase)
-NU +3.9% (earnings)
-MMYT +3.2% (earnings)
-DOLE +3.0% (earnings, guidance)
-GDRX +3.0% (signs new direct contracting agreement with The Kroger Co. from Jun 1st to deliver improved prescription pricing at more than 2,200 Kroger family pharmacy locations nationwide)
-VRCA +2.7% (announces amendment to collaboration and license agreement with Torii Pharmaceutical Co. Ltd. to fund Global Pivotal Phase 3 clinical trial to study YCANTH for treatment of Common Warts)
-ADAP +2.6% (earnings; discloses term loan facility of up to $125M)
-NYCB +2.3% (to sell ~$5B in warehouse loans to JPMorgan Chase)

Downside

-DLO -31% (earnings, guidance)
-PXLW -28% (earnings)
-DFLI -15% (earnings, guidance)
-IRIX -11% (earnings)
-AMC -9.9% (meme stock weakness)
-INFN -9.7% (earnings, guidance)
-GME -8.1% (meme stock weakness)
-BOOT -5.6% (earnings, guidance)
-VSEC -3.2% (prices ~2.1M shares at $71.00/shr) 

Position: None

Premarket Percentage Movers

Screenshot 2024-05-15 at 8.37.28 AM   %%%%%%%
Position: None

Most Active Premarket ETFs

Screenshot 2024-05-15 at 8.36.38 AM etfsss
Position: None

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

* Equities continue on a tear after a brief period of backing and filling.

* Volume has increased - as has speculation.

* My continued view is that equities are not compensating investors for risks and are expensive against interest rates and rising inflation.

* "Slugflation" remains my baseline expectation, copper goes vertical:

1

* Stock futures were flat into the CPI release.

* The S&P Short-Range Oscillator is now deeply overbought - at 7.6%.

* Bond yields rallied in price (lower in yield) yesterday and that trend continues today (-2 bps):

2

* The U.S. dollar has reversed lower against the yen:

3

* Brent is up by two bits.

* Gold is +$16.10 and silver is up meaningfully +$0.39.

* Bitcoin is +$1,200 (+2%).

* Yesterday one of the most iconic drummers of all time, John Barbata, passed away

Barbata was the drummer of The Turtles, Jefferson Starship, Jefferson Airplane and Crosby Stills Nash and Young. He famously turned down David Geffen's offer to join The Eagles. Happy Together, I believe, was his first recording with The Turtles:

Imagine me and you, I do

I think about you day and night, it's only right

To think about the girl you love and hold her tight

So happy together

If I should call you up, invest a dime

And you say you belong to me, and ease my mind

Imagine how the world could be, so very fine

So happy together

- The Turtles, Happy Together

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 were unchanged most of the evening and early morning session. The range was extraordinarily narrow. S&P futures peaked at +8 and bottomed at -3. Nasdaq futures peaked at +23 and bottomed at -21. At 5:49 am ET, S&P futures were +3 and Nasdaq futures were +5:

4
5

* Commodities are higher. Brent crude was +$0.25 t to $82.62.

* The S&P Short-Range Oscillator is deeply overbought at 7.60% v. 5.06%.

* The VIX is at 13.92 (+0.50). Given the low vol I am still out of straddles/strangles now.

* The US dollar is lower against the yen, euro and pound.

* Interest rates are lower. The yield on the two-year Treasury is 4.80% (-2 basis points). The yield on the 10-year Treasury is -3 basis points at 4.418%. The long bond yield is -2 1/2 bps at 4.569%.

* Overnight, the inversion of the 2s/10s Treasuries curve is back up to -39 basis points.

* Gold is +$14.50 at $2,374. Silver is +$0.38.

* Bitcoin was +2% or +$1,300 and is $62.9k.

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:

The Beginning of The End of The Bull Market (Or End of the Beginning)? 

The Market as a Casino

More From Stool Presidente

A WEED Optimist Lives in MSOS

Mr. Market is Broken

Sarge on Market Structure

Mission: A New High

The Fall of the Roman Empire

Here were yesterday's trades:

* New short,  (AFRM)

* Added to shorts in BOWL,  (POOL)  and  (BOOT)

* Shorted  (HD)

* Added to  (XLU)  short (common) and puts

* Added to  (XLF)  short

* Added to short SPY and QQQ calls

Position: Short SPY calls (S) puts (VS), QQQ calls (S) puts (VS), AFRM (S), BOWL (S), POOL (S), BOOT (S), HD (S), XLU common (S) and calls (S), XLF (M)

Blah Blah

* More Fedspeak...

10:00 AM: Fed Vice Chair for Supervision Barr (Voter) testifies on oversight of financial regulators before the House Financial Services Committee (Text available: Livestream.

12:00 PM: Fed Bank of Minneapolis President Kashkari (Non-Voter) participates in a fireside chat on the economy, Minneapolis, MN (Audience Q&A expected. No media Q&A. Livestream: minneapolisfed.org/live);

3:20 PM: Fed Board Governor Bowman (Voter) speaks on "Innovation and the Evolving Financial Landscape" at the DC Blockchain Summit 2024, Washington, DC (No text. Q&A expected from moderator. No webcast)

Position: None

Sell-Side on 2 Names

Boot Barn price target lowered to $125 from $127 at BTIG BTIG analyst Janine Stichter lowered the firm's price target on Boot Barn to $125 from $127 but keeps a Buy rating on the shares. The company's Q4 showed "encouraging upside" on revenue and gross margins while its momentum carried into Q1, with flat quarter-to-date comps and slightly positive comps May to date, the analyst tells investors in a research note. Boot Barn's FY25 guidance is below consensus, but it conservatively continues to incorporate negative comps, taking into account the uncertainty later in the year around a condensed holiday period and the election, on top of a cautious consumer, the firm added.

DraftKings price target raised to $60 from $56 at UBS UBS raised the firm's price target on DraftKings to $60 from $56 and keeps a Buy rating on the shares. The company's better than expected Q1 earnings showed continued improving structural hold and unit economics across its existing business, the analyst tells investors in a research note. Given DraftKings' improvement in customer engagement and retention, the firm increased estimates post the earnings report.

Position: Long DKNG (S), Short BOOT (S)

Recommended Reading

Knowledge@Wharton - Four Pillars of Decision-Driven Analytics.

Position: None

Tweet of the Day

Position: None

Is The Fix In?

Position: None

Cartoon of the Day

Position: None

Slugflation Lies Ahead

Position: None

The Market Is Now Deeply Overbought

Overnite the S&P Short Range Oscillator gapped higher, to 7.6% from 5.06%.

That is the highest level in quite a while.

Position: Short SPY calls (S) puts (VS), QQQ calls (S) puts (VS)

This BOOT Is Made for Shorting

After the close last night, BOOT - our newest short - guided lower for the first time since Covid, and the shares traded down -$8:

Position: Short BOOT (S)

The Cannabis Mystery Buyer Continues Buying

Position: None

Chart of the Day

k chart
Position: None

More on Home Despot

Position: Short HD (S)

Charting The Technicals

"He who wishes to be rich in a day will be hanged in a year."
- Leonardo da Vinci

Bonus - Here are some great links:

The Bears Are Back 

What The Huge Gains Mean 

The Utility Momentum 

Short Squeezes Are Back 

Know What You Own

Position: None

This Week in Charts

From Charlie, here.

Position: None

Howling About HELOCs

Wolf Street howls about the return of HELOCs. 

Position: None

Home Despot No More

A very thoughtful review and analysis of Home Depot by my pal, Sarge... here

I have been on and off short over the last year in this name and I reinitiated a short in HD this week.

Position: Short HD (S)

Is Everything Coming Up Roses?

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-30.77%
Doug KassOXY12/6/23-11.58%
Doug KassCVX12/6/23+14.23%
Doug KassXOM12/6/23+17.80%
Doug KassMSOS11/1/23-19.25%
Doug KassJOE9/19/23-11.42%
Doug KassOXY9/19/23-23.42%
Doug KassELAN3/22/23+32.77%
Doug KassVTV10/20/20+66.93%
Doug KassVBR10/20/20+79.01%