Peapack-Gladstone Financial PGC finally acting better (+6%).

It's been a long time.

New high in one of our latest longs, Valvoline VVV.

It has been on a steady rise of late.

* But the other way around...

I have covered the SPY/QQQ common I converted into short calls this morning. 

From premarket:

Premarket Trading

Back shorting (SPY) /QQQ common on the gap higher following the soft inflation print:

* SPY at $562.60

* QQQ at $504.62

DOUG KASS JUL 11, 2024 9:10 AM EDT

* Covering some Index short calls as the action is confusing...

* I plan to reshort on strength....

Here you go:

SPY -0.71%

QQQ -1.73%

IWM +3.37%

RSP (equal weighted S&P) +1.28%

I am sufficiently confused that, with S&P cash -44 handles (a reversal of 65 handles from the premarket lows) that I am taking down my short calls from medium sized to small sized.

From my pal Peter:

From Peter Boockvar:

Inflation continues to moderate, September cut is a lock I believe/Claims data, holiday influenced

June CPI unexpectedly fell one tenth headline vs the estimate of up one tenth. The core rate was higher by one tenth vs the estimate of up two tenths. Versus last June, headline CPI is up 3% and the core rate by 3.3% vs 3.3% and 3.4% respectively in May. A 2% drop in energy prices m/o/m for a 2nd month was the main driver of the headline decline. Food prices grew by .2% m/o/m and 2.2% y/o/y. Specifically, Food at Home prices rose .1% m/o/m and 1.1% y/o/y, still growing slower than Food Away from Home where prices jumped .4% m/o/m and 4.1% y/o/y.

Services inflation ex energy also slowed to a one tenth gain m/o/m, though still up 5% y/o/y. On the rental side, both OER and Rent of Primary Residence each rose .3% m/o/m after many months of .4% increases. The y/o/y gains are 5.4% and 5.1% for each. While real world rents are growing slower than this, rents in CPI never rose as much as they did in the real world a few years ago. Medical care costs rose .2% m/o/m after a .5% print in the month before and are up 3.3% y/o/y. Healthcare insurance prices rose .1% m/o/m after a .5% rise in May. Higher insurance prices remain a problem as we saw a .9% rise in vehicle insurance m/o/m and is up 19.5% y/o/y. Fixing a car saw prices up .2% m/o/m and 6% y/o/y. On the travel side prices are falling, and following what Delta said, airline fares fell 5% in the month alone and are down 5.1% y/o/y. Hotel prices fell 2.5% m/o/m and by 2.8% y/o/y.

On the core goods side, prices were little changed again m/o/m, down .1% and lower by 1.8% y/o/y. A fall in used and new car prices were the main reasons with used car prices in particular down by 10.1% y/o/y. Apparel prices rose .1% m/o/m and by .8% y/o/y. It’s still early to see the spike in shipping costs to have an impact on retail prices. Prices around the home continue to deflate with ‘household furnishings and supplies’ prices down by .2% m/o/m and 2.5% y/o/y.

Bottom line, service inflation is further moderating, though still up 5% y/o/y, and goods prices continue to deflate (and we’ll see to what extent in the coming quarters the spike in shipping costs will have here in reversing this) and the Fed is being given a green light to cut in September. Assume the PCE, because of its differing weightings and most heavily on government medical care payments, is getting closer to 2% and that is what the Fed will be keying off, for better or worse.

I’ll argue again though, the battle with inflation is being won but the outcome of the war is yet to be determined and will only be when we have a SUSTAINED period of low inflation.

Treasury yields are responding sharply. The 2 yr yield of 4.52% compares with 4.63% just before the print. The 10 yr yield is down almost 10 bps post print to 4.20%. I look at the October fed funds contract to calculate the odds of a September cut and I have them now at 94% vs 78% yesterday.

Core CPI y/o/y

After a steady rise in initial claims, for the week ended July 6th they came in at 222k vs the estimate of 235k. That said, because of the July 4th holiday I’ll pay attention to next week’s figure instead. Not caught up in the July 4th seasonal adjustment issues, continuing claims remained high at 1.852mm, little changed w/o/w and just below the highest level since November 2021.

Continuing Claims

From nated0gg41:

MSOS and specific cannabis co. investors - What's everyones plan, if we get positive news, I know we traded it last time? I watched the recommended view podcast Dougie recommended yesterday which the largest lobbyist made it seem the rescheduling had a very high probability of being passed before the presidential election as the commentary period is coming to a close in the coming weeks.Is everyone looking at this as a trade the news if the rescheduling is passed or combination with a LT investment based on cannabis potentially expanding FL and other states? Outcome of the presidential election? I have a VL position just trying to understand the game plan of others as well.

• Dougie Kass

  Premature for me to judge my response.Depends where the stock prices are!In theory a rescheduling - followed by Florida opening up for recreational use (ballot in November) and SAFER - sets the stage for custody problems being remedied and institutionalization of sector.In the extreme, on top of this could be some meme-like performance as the "opening up" of sector is romanticized.

TerrAscend (TSNDF) is among the most attractive cannabis equities.

Well managed and strategically located (geographies).

From my friend Shadd Dales and The Dales Report.

I have several company meetings this afternoon out of town.

I will likely be leaving by about 1:30 p.m. today.

I pressed (the long side of) cannabis on this morning's weakness.

At yesterday's close the S&P Short Range Oscillator jumped from 0.6% to 2.55%.

It's now more overbought.

From Peter Boockvar:

I promise/Sentiment/No sushi please/Pound at 1 yr high/Gold

I'll say again, I promise that about 75% of companies reporting earnings will beat the estimate. The revenue side? I'm not as confident this quarter.

With the S&P 500 and NASDAQ continuing its relentless move higher (we have to now specify which 'stock market' we're talking about), let's look at sentiment again. The updated Investors Intelligence survey still has a very wide spread between Bulls and Bears, above the extreme level of 40, but a bit less so this week. Bulls fell a touch to 62.7 from 63.1 while Bears rose 1 pt to 17.9. The AAII survey of individual investors saw a big jump in bullishness with Bulls rising by 7.5 pts to 49.2, the highest since late March. Bears fell by 4.4 pts w/o/w to just 21.7 and that is the lowest since late February. The CNN Fear/Greed index has finally shifted into the 'Greed' side at 58 vs 44 last week but nothing extreme here as this is not just looking at the big cap tech stocks.

Bottom line, the bulls have been right on the names we all know but the bears have been right on most everything else.

After a dramatic move higher over the past 11 weeks, container prices were flattish for the week ended 8/11. The Shanghai to Rotterdam trip saw the price dip by $8 w/o/w to $8,048. As a reminder, it started the year just under $1,700 and was about $2,000 in February 2020. The Shanghai to LA route saw a $40 price increase w/o/w to $7,512.

Bottom line, someone in the manufacturing/retail/consumer space is going to have to eat this sharp price rise and it will depend who has the leverage to pass it on to their customer.

With respect to the consumer, a company you likely never heard of, Kura Sushi, one of the largest chain sushi restaurants in the US with about 65 in 17 states and DC saw its stock drop 16% yesterday. In their earnings call they said this:

"sales in the fiscal 3rd quarter did not meet our expectations. This sales decline, which began mid-April, was sudden and unexpected...We believe the current headwinds are macro driven and transitory."

"We believe the comp deterioration over the prior quarter was driven by the overall macro environment and consumer sentiment, particularly in California, as well as a degree of cannibalization as we execute our planned strategy of infilling existing markets."

Pepsi missed sales estimates and saw a drop in volumes in the quarter. In their earnings release they mentioned the "subdued category performance within North America convenient foods" among other reasons.

While Delta slightly missed both top and bottom line estimates, they said "Peak summer travel demand remains strong."

When it comes to construction, building data centers is certainly where it's at. The Dodge Momentum Index for June, measuring US construction, saw a jump to 198.6 from 179.9 in May. They said "Data centers continued to dominate planning projects in June - fueling another strong month for commercial planning." They mentioned "moderate growth in retail, hotels, and warehouse projects." And, "On the institutional side, weaker healthcare planning was offset by an improvement in education activity."

The British pound is higher for a 2nd day to a one year high vs the US dollar and gilt yields are up too. The US dollar is not strong against everything. Yesterday the chief economist of the BoE Huw Pill sounded a bit hawkish and not in a rush to cut rates. "It is hard to dispute the case that inflation persistence in the UK continues to prove - well - persistent. More data will come before we take our next policy decision at the MPC meeting on 1 August. But we have to be realistic about how much any one or two releases can add to our assessment."

Also, GDP growth in May in the UK was up .4% m/o/m, twice the estimate and helped by construction and retail spending/services side of the economy. I was in London last week and the stores and restaurants were pretty crowded.

British Pound

The Bank of Korea and Malaysia's central bank each left their policy rate unchanged as expected. Specifically with the BoK, they don't seem interested in cutting rates soon. Governor Rhee said "Market expectations for a cut are somewhat excessive...We're growing confident inflation will converge to the target, but it's hard to tell when rate cuts will begin." The Korean Won is higher on the hawkishness and their 2 yr yield is higher by 4.5 bps but only after falling by 10 bps yesterday.

I need to mention gold again as it hovers around record highs and we remain bullish and long. I do so after reading a Bloomberg News story talking about a UBS survey of central bank reserve managers. The article, citing the UBS report which I don't have, said "Central bank reserve managers are increasingly worried about the safety of their currency assets, citing rising geopolitical risk across the world...The so-called 'weaponization' of FX reserves was listed as a top risk by a third of the participants, double last year's amount. The biggest concern for 87% of 40 central banks surveyed by UBS was a further escalation in the tensions between Russia and Ukraine, China and the US, as well as the situation in the Middle East."

And what these worries mean? "The worry is that central bank assets could be sanctioned, seized or trapped if conflicts escalate."

Central banks bought over 1,000 tons of gold in 2022, a record amount, bought a similar amount in 2023 and are on track to do so again in 2024.

Gold

* My tweet of the day...

As of 8:34 a.m.:

At 8:51 a.m.:

Back shorting SPY/QQQ common on the gap higher following the soft inflation print:

* SPY at $562.60

* QQQ at $504.62

Upside:

-QS +34% (Volkswagen Group’s PowerCo and QuantumScape entered into a groundbreaking agreement to industrialize QuantumScape’s next-generation solid-state lithium-metal battery technology)

-LXEO +17% (announces Investor Webcast to Report Interim Phase 1/2 Clinical Data of LX2006 for Treatment of Friedreich Ataxia Cardiomyopathy on Jul 15th)

-MEI +11% (earnings, guidance)

-WDFC +11% (earnings, guidance)

-IINN +8.1% (receives Israeli Regulatory Approval for the INSPIRA ART100 System)

-MSTR +5.3% (announces 10-for-1 stock split)

-SEDG +5.1% (marks milestones in U.S. manufacturing strategy regarding shipments to Florida, Texas)

-PALI +4.7% (announces Successful Completion of First GMP Manufacturing of PALI-2108 Drug Substance and Engineering Batches of Drug Product)

-PFE +2.9% (plans to move ahead with once-daily weight loss pill)

-AA +2.7% (earnings, guidance)

-ABEO +2.2% (announces Non-Exclusive Agreement with Beacon Therapeutics to evaluate therapeutic potential of Abeona's Patented AAV204 Capsid for Select Ophthalmology Indications)

-COST +2.0% (reports Jun SSS; plans to increase annual membership fees by ~8%)

-GVA +2.0% (awarded ~$20M contract by the Coachella Valley Association of Governments)

Downside:

-SLRX -21% (US FDA places seclidemstat (SP-2577) in combination with azacitidine clinical trial on partial clinical hold due to a serious and unexpected grade 4 adverse event)

-ETWO -13% (earnings, guidance)

-DAL -9.1% (earnings, guidance)

-POLA -8.3% (reports prelim Q2)

-VKTX -5.5% (PFE plans to move ahead with once-daily weight loss pill)

-AZZ -2.6% (earnings, guidance)

-PEP -1.7% (earnings, guidance)

-CAG -1.5% (earnings, guidance)

Fed speakers today:

11:30AM: Fed Bank of Atlanta President Bostic (Voter) participates in a discussion on "Economic Inclusion" before the National Credit Union Administration Diversity, Equity, and Inclusion (DEI) Summit, Minneapolis, MN (No livestream. Audience Q&A expected. No media Q&A. No embargoed text).

1:00PM: Fed Bank of St. Louis President Musalem (Non-Voter) participates in fireside chat on the U.S. economy and monetary policy before the Little Rock Regional Chamber's Power Up Little Rock event, Little Rock, AK.

Well done!

douglas cassel

The failure of multiple investment firms to accurate predict the S&P is simultaneously humorous and informative. Huge firms with top flight research, computer models, access to management, and very smart people are routinely and uniformly wrong. One would think that even a random distribution would result in someone getting close. My guess is that most firms don't want to be too far from the mean, as it might make them look bad, so they tend to adjust toward the average.

These types of data should make the rest of us cautious, as our resources cannot match those of the big firms, and hence must rely much more on public data and intuition. For me the take home message is that people too often assume being correct is based upon insight or diligence rather than luck, or random distribution.

As I have previously stated many times, I have de-emphasized such predictions in my investing based upon these reasons. One cannot escape expectations, but relying on them in the face of a market turning against you is probably the biggest reason people fail with investing; Modern portfolio theory is a little bit right sometimes, as listening to the market is sometimes more important than how one interprets the fundamentals.

On another note, I started pushing AAPL when it was 160, been a pretty good ride.

keithfern

Agree Doug. And remember that none of these well informed and well paid analysts get fired for being with the pack - whether that is below or above a forecast. No one wants to be an outlier - too risky and you become the pariah in the collusion crowd.

douglas cassel

Of all of the mistakes I have made, paying people to lose money for me has been the hardest to deal with. I have tried many advisors over the years. The one meme that I can't escape is "if you are so smart, why do you need my money. You should be on a private island somewhere"

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

From JPMorgan:

US: Futs are off small following yesterday’s rally and into today’s CPI; pre-mkt Mag7 names are mixed with AMZN/NVDA higher. Keep an eye on Staples with COST/WMT higher as COST hikes membership px’s. Bond yields are flat to down 1bps pushing the USD lower for a second day. In cmdtys, all 3 complexes are seeing strength. CPI and Fedspeak will dominate today’s headlines but also keep an eye on jobless claims as another Powell input.

and...

EQUITY AND MACRO NARRATIVE: Yesterday was an interesting melt-up into today’s CPI print where the expectation is for a print that keeps the Fed on track to cut in September. Interestingly, we seemed to get a bit of a rotation with some squeezy characteristics. For example, Renewable Energy, Housing, and Credit Laggards were among the best baskets adding more than 1z but our High Short Interest and Potential Squeeze baskets were +0.5z. Cyclicals were flat to Defensives as Value has a +1.2z day.

Are we gearing up for an ‘Everything Rally’? A cooler than expected CPI helps especially if paired with a stronger Retail Sales print next week and a strong start to earnings season from the Banks. I jokingly mentioned to a colleague that the best hedge is probably Long Russell 2000, borrowing a trade idea from my Equity Derivatives colleagues. In all seriousness, I think you stay long and adjust your risk using options as ultimately we are shifting to a micro-driven market in the near-term and this earnings season has the potential to be as volatile, or more so, than last earnings season. The balance of the note contains (i) TMT earnings preview; (ii) a review & reiteration of the long Mexico trade; and (iii) a repost of the CPI Scenario Analysis with an update from Rates Trading.

The reasons why I am not aggressively buying Disney DIS under $97 are several fold:

* Disney is a consumer-based company — and a consumer-led economic downturn appears to lie ahead.

* Two large capital outlays ($60 billion on parks and cruises expansion and the $76 billion NBA TV contract) have been announced into the aforementioned consumer-led economic downturn.

* Elevated park admission prices make the company vulnerable to demand elasticity.

* Other secular challenges — including more rapid legacy TV deterioration, outdated movie lineups, streaming competition about to get even more heated (with Skydance's acquisition of control of Paramount Global PARA).

The Mouse Will Roar Again, but for these reasons I am giving Disney's shares a wider berth as I accumulate.

* Continuing the theme of a weakening consumer...

Delta Air Lines DAL and PepsiCo PEP disappoint and guide lower.

We are short Coca-Cola KO.

For those that question Warren Buffett's investing acumen, I suggest you look at the price performance of Apple AAPL and its recent impact on Berkshire Hathaway's BRK.A BRK.B investment portfolio.

Berkshire holds approximately 790 million shares (5.4% of the outstanding) of Apple — representing about one half of its stock portfolio.

Since April 2024, Berkshire's position in Apple has appreciated by nearly $60 billion.

"Markets trend only about 15% of the time; the rest of the time they move sideways."

- Paul Tudor Jones

Bonus — Here are some great charts:

When to Expect S and P Underperformance 

Alpha Trends 

No It's Not Just Large Caps

A Soaring Nasdaq