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DAILY DIARY

Doug Kass

Thursday's Closing Market Numbers

Closing Volume

- NYSE volume 9% below its one-month average;

- NASDAQ volume 2% below its one-month average;

- VIX index: +8.36% to 20.48

Breadth

10-3-24-CB-Screenshot 2024-10-03 at 4.01.36 PM

S&P 500 ETF Sectors

10-3-24-CSP-Screenshot 2024-10-03 at 4.02.33 PM

Nasdaq 100 Heat Map

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Position: None

TLT's Low Point on the Day

  iShares 20+ Year Treasury Bond ETF  (TLT)  is at the low of the day.

Position: Short TLT (M)

Programming Note

I will be leaving shortly for the Jewish holiday.

There will be no "Things" column today.

Position: None

Happy New Year

To all of my Jewish friends, Shana Tova.

To all my friends, this interview by Bari Weiss of Douglas Murray is well worth an hour of your time:

Douglas Murray: A Time of War - YouTube

Position: None

More Fed Speak

Fed's Goolsbee (non-voter for 2024; voter for 2025): "25bps v 50bps not as important as getting rates down over next 12 months by a lot to get to neutral"

- New inflation numbers "basically" at target; Labor market is at full employment

- Strike could start as inconvenience, get worse as it goes on

- We have largely gotten inflation down

- Economy hasn't yet been affected by dockworkers strike, which was predicted; Retailers have been stockpiling and have ~2 weeks of inventory;

- After that we'll see

Position: None

Tweet of the Day

From my pal Larry:

Position: None

Programming Note

I will be out for a few hours due to the Jewish holiday.

Position: None

Boockvar on Claims Data

From Peter Boockvar: 

Claims data and some benefit thoughts

Initial jobless claims rose to 225k from 219k last week and that was 4k more than estimated. The 4 week average was 224k vs 225k in the week before. Continuing claims were little changed, down 1k w/o/w to 1.826mm which was a hair below expectations.

Bottom line, the story remains the same with a modest pace of firing’s as measured here at the same time continuing claims remain elevated. Some things to think about though with the low level of initial claims is that for some, the gig job opportunity, aka driving for uber, delivering for Instacart for example, pays more than unemployment benefits. Thus, some choose a gig job if they lose their regular job, rather than file. Also, with most of the jobs lost over the past year mostly in technology, this is what Challenger said in their monthly job cut report with regards to that sector, “Those reductions often come with generous severance packages, as well, meaning many of these workers could afford to stay out of the labor market for a while and continue to spend.” And thus they don’t file for benefits either.

On the hiring side, Challenger said hiring plans in September are down 32% y/o/y and “For the year, employers have announced plans to add 483,590 jobs, down 33% from the 726,333 announced hiring plans through September 2023. These are the lowest YTD hiring plans since 2011, when employers planned to add 300,794 jobs through September.”

On the firing side, Challenger said job cuts fell 4% sequentially but are up 53% y/o/y. For the full year, job cuts are up about 1% y/o/y YTD.

4 week avg Initial Claims

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 Continuing claims

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Position: None.

Taking in My Short Index Calls

I took in today's and yesterday's short Index calls after the S&P Index dropped 30 handles from the day's high. (S&P cash is now -21 handles).

Today is a Jewish holiday so volume will be light and volatility high.

I plan to re-short on strength.

Position: None

Out of OXY Common

Out of my entire  (OXY)  common at $54.27.

Position: Long OXY calls VS

Adding to Short Index Calls

With S&P cash now +9 handles I am adding to my short index calls.

Position: SHORT SPY Calls S QQQ Calls S

Pressing My TLT Short

Pressing my  (TLT)  short.

Position: Short TLT S

SPY Play

With S&P cash -10 handles, I am adding to my small short Index call positions now.

Position: Short SPY calls S QQQ calls S

GS, MS Shorts

Pressing  (GS) and  (MS) shorts.

Position: Short GS S MS S

Short-Term Plans ...

Anything can happen on a light trading volume day but I would note that RSP (equal weighted S&P Index) is -0.7% compared to negligible changes in the S&P and Nasdaq.


This, along with the crude oil/energy equity correlation (mentioned previously) makes me want to add to my short exposure.

See opener.

Position: Short SPY Calls S QQQ calls S

Pressing My Home Building Shorts

Pressing my home building shorts.

Position: Short TOL (M); DHI (S); LEN (S); KBH (S); GRBX (M)

Boockvar on Dock Strikes, Prices, Sentiment, Bank of England's Rate Chatter

From Peter Boockvar:

Container prices/sentiment/earnings comments/Bailey ready to cut again

Obviously depending on how long the port strikes continue on, I do want to wait until next week to see if there is any notable flow thru to container shipping rates and to what extent ships are re-routing to the west coast vs sitting and waiting for the strike to end and enter the east and gulf coast ports. But, at least through yesterday prices continue to fall. I'll add here the Shanghai to New York route and prices here fell by $106 w/o/w to $5,922. The peak this year was $9,612 in mid July and it started the year at $3,074. The trips to Rotterdam and LA fell too. We'll see fresh air cargo rates tomorrow. 

Shanghai to NY

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While the market continues to chop around, though still around record highs, the sentiment continues to get more bullish as measured by the weekly Investors Intelligence survey of newsletter writers. Bulls rose to 55.7 from 52.5 while Bears fell by 1.6 pts to 21.3. That's the highest Bull read since late July. Also, just a few days ago the CNN Fear/Greed index touched 75 which straddled the 'Extreme Greed' category but has since fallen back to 68, back into 'Greed.' After touching 50.8 two weeks ago, AAII today said Bulls fell for a 2nd week, by 4.1 pts to 45.5. They still remain well above Bears at 27.3, though up 3.6 pts w/o/w. Bottom line, sentiment has definitely shifted more bullish over the past few weeks, alongside the Fed's more aggressive rate cut and the trip back to the market highs but nothing is extreme, just complacent.

We know there has been a consumer shift back more towards eating at home and reducing the trips to restaurants, particularly for those lower income households. Conagra in yesterdays call, a stock we own, talked about what they are eating at home and whether its cooking their own or buying something to stick in the microwave.

"A year or so ago, we did see some behavior shifts toward more scratch cooking, and I'm talking very affordable stuff, a bag of rice, a pound of ground beef, things like that. Our products like cans of tomatoes would do well in that environment. But from what we're seeing in the data now, the scratch cooking behavior shift we saw a year ago seems to be running its course. And specifically, what we're seeing now is there's a pivot back to more convenient items...So, consumers have pivoted back to convenience, which we are capitalizing on in our Frozen space."

On the consumer, "there is still value seeking behavior happening."

On cost inflation, "we had originally estimated our overall inflation and that's everything, that's materials and our manufacturing and our transportation and warehousing. We had estimated that as a 3% increase for the year. We're now estimating at 3.2%...We spend a lot on beef in our inputs and we're seeing double digit inflation even higher than we originally estimated. And it's a supply issue, just the lack of herd expansion, lower cattle weights from the heat...Another one is sweeteners. There's just tighter supply conditions, driven mostly by the drought. So, double digit inflation in these and what are big input categories for us."

Further, "We're seeing some other more moderate inflation areas like chicken. We're seeing inflation in milk, but that's a smaller spend for us."

From Levi Strauss:

The Levi's brand grew nicely but was offset by "areas that did not meet our expectations this quarter, Dockers, China, and Mexico." Dockers is now being shopped around, China is only 2% of their business and it was specifically Mexican wholesale that underperformed.

With Levi's, "We also continue to gain share among high-income consumers supported by our efforts to elevate the brand."

"I'd say from a consumer standpoint, generally, we're feeling good about the consumer, but we also recognize that we continue to operate in an uncertain environment."

Ahead of the revision to the S&P Global US PMI and the ISM services index, Singapore said its PMI was down 1 pt m/o/m but to a still strong 56.6. On the outlook, "Despite easing from an over three year high in August, confidence levels remained above the long-run average and reflected hopes among private sector firms for a better year ahead for business activity." It's no coincidence that the Singapore dollar is trading near 10 yr highs vs the US dollar. We remain bullish and long stocks in Singapore.

The Eurozone September services PMI was revised up to 51.4 from the initial print of 50.5 though still down from 52.9 in August and the lowest since February. Spain was the bright spot with their services PMI rising to 57 but "The situation in the other three leading eurozone economies is quite different. In France, service providers' business activity slowed down after the Olympics effect and in Germany and Italy, growth almost hit a wall in September."

In the UK, its services PMI was revised to 52.4 from 52.8 initially and down from 53.7 in August. S&P Global said "UK service providers indicated a moderate expansion of activity in September, fueled by resilient business and consumer spending. However, the post-election rebound lost some momentum as output, new work and employment all increased at the slowest pace for three months." The UK economy has definitely held in better than many of its other European peers.

Nothing market moving on these revisions but the pound is down after BoE Governor Andrew Bailey in an interview with the Guardian said to expect more rate cuts soon as they can be "a bit more activist" and "a bit more aggressive" when it comes to policy and rates to the downside. The 2 yr gilt yield is lower by 4.4 bps in response.

Pound move after Bailey spoke

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Position: None.

Oil Vey!

Crude is +$1.91 but energy stocks are lower.

This is a warning signpost and makes me feel more comfortable about my recent energy sales.

Position: Long OXY common M calls VS XOM VS CVX VS SLB VS; Short OXY calls M

From The Dales Report (on Cannabis)

* Trulieve is taking the RPOF to court... 

kasscannabis

Florida's cannabis saga just got a lot more litigious. Trulieve Inc., the state's largest medical marijuana company, has slapped the Republican Party of Florida with a defamation lawsuit, accusing them of running an "intentionally deceptive campaign" to mislead voters about Amendment 3—a proposed constitutional amendment to legalize recreational marijuana. With mail-in ballots already floating around for the November 5 election, the timing couldn't be juicier.

At the heart of the lawsuit is a TV ad featuring a gardener who dreams of cultivating his own cannabis plants, only to be confronted by a smug "Big Weed" character saying, "Actually, we wrote the amendment, so we're the only ones that can grow it." Trulieve argues that this ad, along with GOP-funded mailers, falsely portrays the company as masterminding a corporate coup to monopolize the cannabis market and squash the little guy.

Opponents of the measure, including Governor Ron DeSantis, claim that Amendment 3 is a boon for existing medical marijuana operators, allowing them to dominate the recreational market while keeping home growers out of the game. They argue it's a power grab that enshrines a monopoly "forever." Trulieve counters that the amendment doesn't ban home cultivation—it simply doesn't address it, leaving current laws unchanged. Plus, they point out that the amendment allows the legislature to increase the number of licensed operators, potentially inviting more competition, not less.

Evan Power, the Republican Party's chairman, fired back with a zinger: "It's so funny that a company that puts almost $100 million into a political campaign is so sensitive about honest TV ads... If this huge, powerful corporation can't handle it, then they should go sit at the little kid's table." Ouch.

For investors, this courtroom drama is more than just political theater; it's a high-stakes indicator of Florida's cannabis market trajectory. Trulieve has invested nearly $93 million into pushing Amendment 3, signaling their anticipation of a lucrative recreational market. However, the lawsuit and the heated rhetoric suggest that legalization faces a bumpy road, riddled with legal potholes and political speed bumps.

In the midst of this legal haze, voters are left to decipher a cloud of conflicting messages thicker than a premium vape hit. Will Florida embrace recreational cannabis and open the doors for market expansion, or will the opposition's tactics keep the industry in its current state? One thing's clear: the Sunshine State's cannabis industry is anything but mellow right now, and both investors and consumers should keep their eyes peeled for the next twist in this rollercoaster ride.

Position: Long MSOS (VL) TCNNF (S)

Exchange-Traded Fund Action in the Premarket

Charts from 8:24 a.m. ET:

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Position: None.

Charting the Movers Before the Bell

Chart from 8:45 a.m. ET

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Position: None.

Upside/Downside Movers in the Premarket

Upside:

-EVGO +20% (JPMorgan Chase and Co Raised EVGO to Overweight from Neutral, price target: $7)

-BKSY +6.2% (wins five-year NGA Luno A contract valued up to $290M to monitor global economic activity and military capability)

-SMR +5.2% (GOOGL reportedly considering using nuclear energy to power data centers)

-HROW +4.2% (relaunches TRIESENC, following more than five years on FDA Drug Shortage List)

-WWW +3.4% (Exane BNP Paribas Raised WWW to Outperform from Neutral, price target: $22)

-RNA +3.1% (US FDA Removed Partial Clinical Hold on Delpacibart Etedesiran (del-desiran/AOC 1001))

-CCJ +3.0% (GOOGL reportedly considering using nuclear energy to power data centers)

-MDAI +3.0% (completes proof-of-concept module of its wound measurement technology that calculates the total body surface area of a burn)

-NNE +2.8% (Biden-Harris Administration Invests $1.5B to Bolster the Nation's Electricity Grid and Deliver Affordable Electricity to Meet New Demands)

-ACN +2.2% (momentum following formation of new NVIDIA business group)

-TCBP +2.2% (announces Artificial Intelligence Initiative with PartnerCarnegie Mellon University for Donor Screening)

-AMTX +2.0% (completes Initial Construction Phase of Multi-Dairy Digester; Biogas Production of over 200k MMBtu/yr scheduled to begin by YE24)

-NVDA +1.9% (CEO bullish comments on CNBC)

Downside:

-LEVI -12% (earnings, guidance; announces strategic review of Dockers brand)

-HIMS -9.5% (FDA affirms Zepbound (tirzepatide) injection shortage has been resolved)

-NG -4.3% (earnings, guidance)

-STLA -3.6% (Barclays Cuts STLA.IT to Equal Weight from Overweight, price target: €12.50)

-NGVT -2.5% (appoints Fernandez-Moreno as interim CEO after Fortson steps down, effective immediately)

-WOLF -6.3% (Mizuho Securities Cuts WOLF to Underperform from Neutral, price target: $8)

-IONS -3.3% (to present data on donidalorsen at ACAAI)

-PCSA -3.0% (first patient dosed in Phase 2 clinical trial of NGC-Cap in Metastatic Breast Cancer)

Position: None.

Facing Unpleasant Facts... The Truth Goes on Existing

* Accumulated market risks again dwarf rewards.  

 "...However much you deny the truth, the truth goes on existing, as it were, behind your back."

- George Orwell, Facing Unpleasant Facts: Narrative Essays  

For the third month in a row equities have started out weaker early in the month -- though in August and September, stocks quickly rebounded.

But this month, we start out an all-time high in equities, the highest concentration of equities in U.S. households (at 25% up from 10% sixteen years ago), thin credit spreads and a historically high forward price-to-earnings multiple. All this is despite numerous geopolitical risks, political uncertainty, interest rate moves, inflation (the CRB is within 1% of its high as noted by Peter Boockvar yesterday), continued supply issues in important materials like copper, and other economic uncertainties (such as the potential supply shortages from the massive East Coast port strike). All of these are producing potential adverse outcomes -- many of which are being dismissed by the bullish cabal and, importantly, machines and algos that worship at the altar of price momentum (knowing little about value and everything about price).    

Importantly, to this observer, is the growing likelihood of yet another monetary policy mistake (with little room for error or to maneuver, as the Fed locks itself, once again, into a box, limiting its ability to change policy midstream), leaving term premium at risk (and that is why I am shorting bonds -- more on this later today). On top of this, the potential policy mistake of continued, reckless and unhinged fiscal spending which, as (debt) is measured against GDP (U.S. debt to GDP is now at 7%, up from 3.4% in 2017), lands the U.S. in the same spot as many other less developed and fiscally irresponsible countries.

Of course, as is the case historically, fiscal concerns are fashionably dismissed (in some measure because of their legitimate and unknown timing impact) particularly when stocks are near an all-time highs. But I am reminded of Bill's question and Mike's response in Ernest Hemingway's breakthrough novel, "The Sun Also Rises":

“How did you go bankrupt?” Bill asked. 

“Two ways,” Mike said. "Gradually and then suddenly."  

When we combine "the party on phase" (h/t Stan Druckenmiller) of feckless and inflexible monetary and undisciplined fiscal policies together it appears to me that the prospects of a "soft landing" are growing ever more remote and that the potential risks to such an ideal economic and market setting are not being priced into our equity or fixed income markets.

It is for these reasons and others (e.g., speculation has returned in China) I can not share the consensus' economic and market enthusiasm. 

Bueller, Bueller, Bueller?

As an aside, the much heralded "broadening" is not happening. Financials are fizzling out. (Berkshire Hathaway  (BRK.B)  /Warren Buffett sells Bank of America  (BAC)  shares almost daily). Transports are doing worse and, (imagine this!) the Magnificent Seven is flat-lining.

And just look at the rollover in the Russell Index, which is no longer crowing, an index that my friend Tom Lee forecast would rise by 40% from July's levels. 

 This morning at 6:45 am. S&P futures are -19 and Nasdaq futures are -90 handles.

As seen below, in yesterday afternoon's "Things" -- I did a lot of long selling and short selling (in both equities and in bonds)

Things I Did Today

Equities started the day weighted down by the conflict in the Middle East — but have moved back to neutral this afternoon.

I traded actively in today's regular trading session:

Today's "things": 

 * I moved to a delta neutral position in (OXY)  (above $54).

* I shorted small (SPY)  and (QQQ)  calls with S&P cash +9 handles.

* Added to shorts in (ARES)  $159.22, (APO)  $134.41, (KKR)  $131.62, (TLT)  $97.81.

* Pressed five home builder shorts.

.* Added to longs (MSOS)  $6.94, (CURLF)  $2.92, (GTBIF)  $10.22.

* I sold the oil gap and Energy stock spike early in the morning — reduced my other energy holdings all morning on a scale higher ( (SLB)  $44.02, (XOM)  $122.55 and (CVX)  $151.99) to very small.

* I added to (MCD)  short at $303.

By Doug Kass Oct 2, 2024 3:34 PM EDT

 

 

Position: Long SLB (VS), XOM (VS), CVX (VS), MSOS (VL), CURLF (S), GTBIF (S), OXY common (M) and calls (S); Short SPY calls (VS), QQQ calls (VS), MCD (M), TOL (M), DHI (S) LEN (S), GRBK (M), KRB (S), OXY calls (M)

Charting the Technicals

"Twitter has become a group conversation of that type that used to take place on trading floors."

- Barry Ritholtz

Bonus — Here are some great links:

AlphaTrends on Equities and Bitcoin

The Most Important Chart

The October Setup

Digging Into S&P Spikes After China's Rally 

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-35.69%
Doug KassOXY12/6/23-14.96%
Doug KassCVX12/6/23+10.20%
Doug KassXOM12/6/23+12.04%
Doug KassMSOS11/1/23-28.97%
Doug KassJOE9/19/23-16.61%
Doug KassOXY9/19/23-26.35%
Doug KassELAN3/22/23+33.30%
Doug KassVTV10/20/20+63.03%
Doug KassVBR10/20/20+76.55%