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DAILY DIARY

Doug Kass

After-Hours Movers

As of 4:22 p.m.:

10-22-24-AHM-Screenshot 2024-10-22 at 4.22.37 PM
Position: None

Tuesday Closing Market Numbers

Closing Breadth

10-22-24-CB-Screenshot 2024-10-22 at 4.20.00 PM

% Movers

10-22-24-CM-Screenshot 2024-10-22 at 4.21.59 PM

S&P 500 Sectors

10-22-24-CSP-Screenshot 2024-10-22 at 4.21.07 PM

Nasdaq 100 Heat Map

10-22-24-CH-Screenshot 2024-10-22 at 4.20.49 PM
Position: None

Why I Covered My McDonald's Short

Break in!

McDonald's  (MCD)  is trading -$30 on a report of an E.coli outbreak.

I covered my short at $284.57.

Position: None

A Challenged Consumer Experience at Starbucks

Starbucks  (SBUX)  is -$5 on the company's EPS release, which was a miss on both the top and bottom line.

Here is the release:

Starbucks Coffee Company - Starbucks Reports Preliminary Q4 and Full Fiscal Year 2024 Results

Position: Short SBUX

The Prudent Thing to Do

It is unclear why cannabis is experiencing such strength today.

The next catalyst is a week from Tuesday — in which Amendment 3 (adult recreational use) in Florida is voted upon.

The polls suggest passage with about 65% in favor (60% is required for passage).

With gains of close to +10% and  (MSOS)  trading at the day's high of $7.78, the prudent thing is to take some profits, which is what I am doing.

I will add back on weakness.

Position: Long MSOS (L), AYRWF (VS), GTBIF (S), CURLF (S), VRNOF (S), TCNNF (S), TSNDF (VS); Short MSOS calls (S)

Things I Did Today

At 2:45 p.m. the S&P Index is -2 handles.

I spent most of the day adding to my short exposure.

The proximate call for my tactics is the second day of weak breadth:

10-22-24-Breadth-1729622948591blob

Today's "things":

* I added to my  (JPM)  short at $224.50.

* I took a short position in  (BAC)  at $42.31.

* I covered some  (POOL)  after a -$25 drop in the last few weeks (and -$8 today).

* On every rally from the -30 drop in the S & P in the early going I added to my short book.

* I added to my  (DJT)  calls short (when the common was +$2). 

Position: Short SPY calls (S), POOL (VS), BAC (S), JPM (M), DJT calls (VS)

Selling More Index Calls Short

With S & P cash down by only -2 handles, I am selling more Index calls short.

Position: Short SPY calls (S)

Adding to DJT Short

I am adding to my short  (DJT)  call position.

Position: Short DJT calls (VS)

Subscriber Comment of the Day (Part Deux)

TechNova

MSOS : The type of candle you like to wake up with every morning.

Position: Long MSOS (VL); Short MSOS (M)

Subscriber Comment of the Day

douglas cassel

Doug K's note on the USA debt is well taken. The impact of increasing debt has been delayed, most likely due to the dollar being a reserve currency, but there are many other factors that have contributed to the inevitable. The lack of immediate repercussions was seized upon by various clueless economists(Krugman et al) and short term focused politicians, combined with the pandemic to let the genie out of the bottle. Sometime, possibly soon, the consequences will manifest, which include inflation, currency devaluation, debt defaults(real and de facto), and loss of dollar hegemony. A country enslaved to it's debt will have a restrained economy, limited ability to undertake new initiatives or build infrastructure, and eventually stagnate.

I have spent many hours thinking about how to deal with this situation. Traditional hedges, such as gold and land remain viable, however, both have serious drawbacks, such as storage costs and land taxes. Fast growing industries generally do well, as demonstrated in Weimar Germany. Crypto, and BTC in particular, is in theory a perfect inflation hedge, but is yet unproven.

I suggest people look at a recent paper from the Minneapolis Fed which states that BTC interferes with government abilities to deficit spend, and hence should be banned or taxed. The very fact that the Fed is worried about BTC is reason enough IMHO to buy it. TN's point about the need for Congressional support of BTC becomes very important in the face of such opposition from the economic bureaucrats.

Short term, I am uncertain anything I just said matters much. Longer term, the deficit might be the most important issue investors face.

Position: None

Shorting Another Bank Stock

I shorted  (BAC)  at $42.31.

Position: Short BAC (S)

Pool Has Taken a Dive

Pool  (POOL)  shares are down by more than -$25 in the last few weeks. I am taking in some of my short position.

Position: Short POOL (S)

Miami Herald Editorial

* In favor of adopting recreational use of cannabis in Florida...

War on drugs racist, approve Florida Amendment 3 on pot | Miami Herald

Position: Long MSOS (VL)

Adding to Short Index Calls

With S & P cash -14 handles I am adding to my short Index calls.

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

Adding to JPM Short

I added to my  (JPM)  short at $224.50.

Position: Short JPM (S)

Contributor Comment of the Day

* "Meet" Bret Jensen talking my book

Bret Jensen

Interesting piece on MarketWatch (a rare occurrence). Contrasts the huge difference between the Internet Bubble and the AI Bubble. The former ignited massive increases in consumer-based revenues as individuals spend hundreds of billions to get laptops and added another utility bill (broadband) to gain access/use the internet. AI is generating very little in consumer revenue. Revenue spend is all from corporations doing data center builds and buying chips from the likes of NVDA.

Opinion: The AI bubble is looking worse than the dot-com bubble. Here’s why. - MarketWatch

Position: None

Why JPM Stock Is Moving

Break in!

JPMorgan's  (JPM)  shares abruptly headed down on a New York Times report that Jamie Dimon might consider a position in a Harris Administration. 

Jamie Dimon Privately Supports Kamala Harris. He Just Won’t Say So. - The New York Times

Position: Short JPM (S)

Down, Up Volume, Breadth, Nasdaq 100 Heat Map and More

- NYSE volume is 11% below its one-month average;

- NASDAQ volume is 17% above its one-month average

- VIX: up 3.76% to 19.06

a1022kass
b1022kass
c1022kass
d22kass
Position: None.

Boockvar on Long and Short Story for Rates, China, Home Builders

From Peter Boockvar:

Global selloff in bonds/China gets some early traction on apartment sales

The 4.30% level on the 10 yr Treasury yield is the key level to watch here, as we tick above 4.20% today, as it is the 50% retracement of the 5% yield peak last October and the 3.60% low two days before the Fed cut rates by 50 bps. I've expressed my belief many times that I wouldn't be surprised if long rates rose as the Fed cut short rates. Yields are jumping around the globe too even as some central banks outside of the US, ex Japan, are more dovish than the Fed. The Aussie 10 yr yield is higher by 16 bps to 4.43% (the RBA is not dovish btw), matching the highest level since May. The 40 yr JGB yield was up by 5 bps to 2.52% and approaching its May highs of 2.58%. Germany is mired in no growth, the ECB just cut for a 3rd time and bund yields are up 15 bps in two days to the highest since early September. The Canadian 10 yr yield is higher by 11 bps ahead of expectations that the Bank of Canada will cut rates by 50 bps on Wednesday.

The move higher in US short rates to 4.04-.05% is in spite of voting member Mary Daly saying yesterday, "So far, I haven't seen any information that would suggest we shouldn't continue to reduce the interest rate. This is a very tight interest rate for an economy that already is on a path to 2% inflation, and I don't want to see the labor market go further." I'll argue again, getting to the 2% path is one thing, staying there is another.

Bottom line, we can point to a few reasons for the rise in global long rates but one possibility is that markets are giving a big thumbs down to central banks easing policy before we've seen a SUSTAINABLE drop in inflation. I reaffirm my belief that we're still in a bond bear market that after a 40 yr bull market doesn't end in just a few years. I remain bearish on the long end and bullish on the short end. With gold and silver up again today (though could be due for a rest at any time) in the face of the rise in yields, just maybe too they are the beneficiaries of the bond bear market rather than being threatened by a rise in bond yields.

We'll of course see if the move up in long term rates continues but too many still assume that just because short rates fall, long rates have to do the same. Pulte Home is getting the reality check even though they said this in today's earnings release, "Years of underbuilding has created a structural shortage of homes and correspondingly high home prices, so the Federal Reserve's pivot to lowering interest rates provides a powerful tool in helping to address the affordability challenge faced by today's homebuyers." Bankrate said last night though that the average 30 yr mortgage rate is back above 7% at 7.04%, up 8 bps just yesterday. That's the highest since the end of July.

10 yr Treasury yield (line drawn at 4.30%)

boockvard1022a

Bankrate Avg 30 yr Mortgage Rate

boockvard1022b

With respect to gold and silver, the western investor via ETF fund flows have come back in again to the market but as seen below, still well below the highs.

ETF Total Holdings of Gold in Ounces

boockvard1022c

ETF Total Holdings of Silver in Ounces

boockvard1022d

As we look to China to see if the policy steps to put a floor under their residential real estate market is gaining any traction, this is from the South China Morning Post today (I do subscribe), "Average weekly and monthly sales this month have risen substantially vs volumes before Beijing's September 24 rescue package...Transactions involving new homes in 15 Chinese cities surged 24% to 24,287 units last week from the preceding seven days, according to data tracked by the Lingping Real Estate Data research Institute. Secondary home transactions increased 20% to 20,724 units across 10 major cities, it added. This is a marked improvement over this year's average sales of 15,497 units per week leading up to Beijing's stimulus announcement late last month." https://www.scmp.com/business/china-business/article/3283370/chinas-home-sales-gain-momentum-beijings-support-revives-confidence-reports-show

Maybe this is a factor too in the global rise in bond yields

Position: None.

There Are No New Eras: Excesses Are Never Permanent (Part Trois)

I have been extremely aggressive in shorting homebuilders.

Yesterday, homebuilder equities declined by about 4% with losses of between $4 to $8 in each company -- as interest rates globally were schmeissed.

Previously written:

On Wednesday I cautioned about the homebuilder space.

Since then, and over the last two trading days, I have more aggressively shorted merchant builder equities.

I would note that  (TLT)  (I remain short) dropped by $1.55/share yesterday -- reflecting a growing view that the U.S. economy is growing above potential (see Wolf Street):

1. The yield on the 1-year Treasury bill rose by five basis points.

2. The yield on the 3-year Treasury note also advanced by five basis points.

3. The yield on the 10-year Treasury note increased by eight basis points. (This is the rate that mortgage rates are generally set against).

4. The yield on the long bond rose by nine basis points.

Here are my Diary comments from Oct. 16:


* Homebuilder stocks are now vulnerable to a decline...

* But for now I treat these stocks as "trading sardines and not eating sardines" actively trading around a small core short position.

The housing recovery (in price and activity) has slowed down for all of the reasons I have recently discussed in my Diary.

As expected, the abnormally low inventory of existing homes for sale is now rising and affordability (consider the quantum price increases in home prices between 2017-2022) is dulling demand despite some pressure off of mortgage rates (which have now stabilized). Moreover, the cumulative or stacked inflation in the cost of living since 2000 has pressured consumers' general ability to afford near record home prices.

Here Wolf Street howls about the weakness and current state of the residential real estate markets.

With the average merchant builder trading at a record multiple to book value (above 2.2x), the cost of new land acquisition expected to cut into future profitability and an emerging and growing imbalance between existing home demand and supply (serving as a competitive challenge to builders of new homes), I expect (in the fullness of time) for homebuilder stocks to retreat meaningfully from current levels.

But for now it appears that investors are considering a new paradigm of non-cyclicality and uninterrupted growth for the sector. This optimism is likely misplaced. (See Bob Farrell's Rule #3 on Investing below):

Farrell Rule #3. There are no new eras—excesses are never permanent.

Translation: There will be a hot group of stocks every few years, but speculation fads do not last forever. In fact, over the last 100 years, we have seen speculative bubbles involving various stock groups. Autos, radio, and electricity powered the roaring 20s. The nifty-fifty powered the bull market in the early 70s. Biotechs bubble up every 10 years or so and there was the dot-com bubble in the late 90s. “This time it is different” is perhaps the most dangerous phrase in investing.

As Jesse Livermore puts it:

A lesson I learned early is that there is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.

 

kass1022



Until there is a break in share-price momentum I intend to treat the volatile and high beta homebuilder stocks as trading vehicles (and weigh them appropriately in size). Specifically, my strategy continues to be concentrated on trading around a very small core short position.

Yesterday I continued to do so — profitably.

By Doug Kass Oct 16, 2024 9:55 AM EDT

Position: Short TOL (S), KBH (S), LEN (S) DHI (S), GRBK (S)

ETF Action in the A.M.

Charts from 8:34 a.m. ET:

1022a
1022b
Position: None.

Charting the Market Movers Before the Opening Bell

 Chart from 9:03 a.m. ET:

1022premrk
Position: None.

Tweet of the Day (Part Deux ... a.k.a. OMG This Is Huge Debt!)

Position: None.

Upside, Downside Movers in the Premarket

Upside:

-BCTX +17% (Bria-IMT Phase 3 interim results expected in 2H25; Reports outperforming Metastatic Breast Cancer patients and Standard-Beating Survival Data)

-IRTC +13% (receives FDA 510(k) clearance for design updates previously made to Zio AT Device)

-MLI +10% (earnings)

-INDP +6.2% (announces Clinical Supply Agreement with BeiGene to Evaluate Novel Cancer Treatment Combinations)

-CORZ +4.3% (announces Exercise of Final Contract Option by CoreWeave for Delivery of Approximately 120 MW of Additional Digital Infrastructure to Host High-Performance Computing Operations)

-CAKE +3.7% (reportedly JCP Investment Mgmt is pushing for a breakup, urging spin out of 3 smaller brands into a separate public company)

-SRRK +3.5% (announces closing of full exercise of option to purchase 1.6M additional shares in public offering)

-PM +2.8% (earnings, guidance)

-ZION +2.5% (earnings)

-NEO +2.3% (granted New York state approval for its Neo Comprehensive Solid Tumor assay and NeoTYPE DNA & RNA Lung)

-DHR +2.2% (earnings, guidance)

-SVRA +2.2% (expects to complete submission of molgramostim BLA in aPAP with US FDA in 1H25)

-DGX +2.1% (earnings, guidance)

-SHLS +2.0% (Holder Point72 discloses 5.4% stake)

Downside:

-BOOM -19% (Q3 guidance)

-GPC -11% (earnings, guidance)

-MEDP -10% (earnings, guidance)

-PII -7.4% (earnings, guidance)

-NNE -7.3% (files to sell stock and warrants)

-SHW -5.7% (earnings, guidance)

-GE -4.8% (earnings, guidance)

-ASPN -4.2% (prices 4.25M shares at $20/share)

-COHR -3.9% (Rosenblatt Securities Inc. Cuts COHR to Neutral from Buy, price target: $105)

-DRCT -3.8% (New Circle Principal Investments files to sell 2.9M shares)

-KMB -3.3% (earnings, guidance)

-VZ -3.3% (earnings, guidance)

-NUE -3.0% (earnings, guidance)

-MRX -2.9% (holders file to sell 7M ordinary shares)

Position: None.

Some Sell-Side Opinions on My Names

Walgreens Boots Alliance  (WBA)  price target lowered to $14 from $16 at TD Cowen

TD Cowen lowered the firm's price target on Walgreens Boots Alliance to $14 from $16 and keeps a Buy rating on the shares. The firm updated its estimates and based on its store closure build, they see FY26 adj. EPS still falling year-over-year albeit at slower rate before returning to growth in FY27.

Winnebago  (WGO)  price target lowered to $70 from $75 at Benchmark

Benchmark lowered the firm's price target on Winnebago to $70 from $75 and keeps a Buy rating on the shares ahead of the company's earnings report due before the market open on October 23. The firm is factoring in some market share attrition over the next couple of years, which is reflected in its lowered estimates, noting that the reduction in its price target is "largely representative of a reduction in market share at mid-cycle estimates."


Morgan Stanley sees September quarter beat, below consensus guide from Apple 
(AAPL)

Morgan Stanley forecasts a 4% September quarter EPS beat and 2% revenue beat upcoming from Apple, but notes that the firm's December-end quarterly revenue and EPS forecasts are now 1% and 2% below consensus, respectively, given "mixed iPhone data points" that reflect a more conservative iPhone shipment assumption for calendar Q4. While the firm notes it hasn't seen iPhone forecast cuts from builds and its own supply-chain checks, it adds "we did pick up data points that allude to potential build cuts to come." While near-term dynamics are "unlikely to change bulls' or bears' views" on Apple or Apple Intelligence, the firm thinks "any stock underperformance will be short lived" and it keeps an Overweight rating and $273 price target on Apple shares with its long-term AI upgrade cycle thesis intact.

Position: Short WBA (S) AAPL (M) MS (S) WGO (S)

My Tweet of the Day

Position: None

Another Tweet From Bramo

Position: None

Cannabis Tweet of the Day

If this is accurate, To The Moon Alice  (MSOS) :

Position: Long MSOS (VL)

Tweet of the Day

From Bramo:

Position: None

Funniest Tweet of the Day

Position: None

Nothing Here

Position: None

Themes and Sectors

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

10-22-24-Kass-1729594158527blob
Position: None

From The Street of Dreams

From JPMorgan:

EQUITY AND MACRO NARRATIVE: While there was no particular fundamental drivers for yesterday’s selloff given the relatively muted calendar, the rapid repricing in yields (2-, 5-, 10- and 30y yields were 8bp, 10bp, 11bp and 11bp higher) pressured the broad equities, particularly in some interest rate sensitive sectors. On the rising yields, Jay Barry tells us that “while it may be tempting to initiate duration longs at these levels, we remain neutral as we are cognizant that technical dynamics, the lack of first-tier data which can change market’s Fed expectations, and the approaching election all point towards potential further curve steepening.” His full note is here.

On sector basis, we saw selloff in both homebuilders and regional banks: XHB and KRE are 3.1% and 2.9% lower today. On housing, we will have received two major data (Existing Home Sales and New Home Sales on Wednesday and Thursday) and a busy earnings calendar (PHM, NVR, TMHC, WHR, CCS and MHK). While near-term rates volatility remains a headwind for the group, with the Fed now starting rate cuts, further upside on yields is possible but limited. Meanwhile, homebuilders should continue to benefit from a favorable demand/supply backdrop.

Position: None

On the Road Again

* Willie Nelson and cannabis... entering a new era?

On the road again
Goin' places that I've never been
Seein' things that I may never see again
And I can't wait to get on the road again

-Willie Nelson, On The Road Again

Willie Nelson And Colorado Governor Rally Cannabis Community To Support Kamala Harris For President - Marijuana Moment

Position: Long MSOS (VL)

Charting the Technicals

"Buy that coffee. Have that ice cream. And be nice."

- Jon Boorman

Bonus — Here are some great links:

Zero Red Flags From Credit Spreads

Weren't Rates Supposed to Fall?

Metals

Not Out of the Woods Yet 

No One Watches Cable TV Anymore

Position: None

From The Divine Ms M

* Bad breadth...

As I noted late yesterday there were 362 advancing issues and 1,512 declining issues on the NYSE yesterday.

On the Nasdaq there were 917 advancing issues and 2,168 declining issues on the Nasdaq.

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

The Markets Remain Overbought

The S&P Short Range Oscillator stands at 2.7% (down from 3.56%). It remains overbought.

Position: Short SPY calls (S)

Fin TV!

* On "Markets in Turmoil"...

Position: None

Minding Mr. Market

Yesterday, net/net I added to my short exposure.

More on my updated market outlook this morning.

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%