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DAILY DIARY

Doug Kass

Friday's Closing Market Internals

Closing Volume

- NYSE volume 3% above its one-month average

- NASDAQ volume 1% below its one-month average

- VIX: down 4.88% to 22.03

Breadth

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S&P 500 Sectors

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Nasdaq 100 Heat Map

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Position: None

Boockvar's Weekly Summation

From Peter Boockvar:

Succinct Summation of the Week’s Events:

Positives,

1)Within the October jobs data, average hourly earnings were as expected when including revisions and the y/o/y gain was 4% which compares with the pre Covid pace of 2.5%. Hours worked ticked up by one tenth to 34.3, still hovering around multi year lows, not including Covid.

2)Helped by a big seasonal adjustment lift, ADP said the US private sector added a net 233k jobs in October, about double the estimate of 111k and vs 159k in September which was revised up by 16k. There was almost no job growth for small businesses with employees under 50 but jumps for medium and large companies. On the pay side, wages for ‘job stayers’ rose by 4.6% y/o/y vs 4.7% in the month before. For ‘job changers’, pay was up 6.2% y/o/y vs 6.6% in September.

3)Initial claims fell to 216k, 14k below expectations and down from 228k in the week before. I’m not sure now what impact the recovery from the hurricanes is having in certain states. Smoothing it out, the 4 week average fell to 237k from 239k. Still elevated, though off the highest level in 3 years, continuing claims fell to 1.862mm from 1.888mm.

4)The headline September PCE gain was .2% m/o/m and the core rate was higher by .3% (and August was revised up by one tenth to a .2% gain), about as expected. The y/o/y increases were 2.1% and 2.7% y/o/y vs 2.3% and 2.7% in the month before. Lower energy prices kept a lid on the top line, partly offset by another gain in food. Also, services inflation continued on, offsetting the deflation in goods prices.

5)With regards to Q3 GDP, it was about as expected at 2.8% and driven by a 3.7% rise in consumption which added 246 bps to that figure. Within consumption was a jump in durable goods spending which added 60 bps to GDP, with almost half being motor vehicles. Spending on services added 120 bps. The other area of GDP growth was from government spending, contributing 85 bps to GDP with national defense making up 50 bps of that. Elsewhere, there was no growth. Trade was a detraction of 56 bps, inventories subtracted just under 20 bps and gross private domestic investment was flat. The only bright spot in this last category was 56 bps added by spending on equipment which I’d guess is related to AI data center buildouts. There was no contribution from spending on intellectual property as AI spend is stealing from other CapEx. Residential construction took off 20 bps from GDP.

6)September personal Income growth was as forecasted, up by .3% while spending was up .5% m/o/m, one tenth above expectations. Spending growth was evenly split between goods and services.

7)The Q3 Employment Cost Index rose .8% q/o/q vs the estimate of .9%. It was up 3.9% y/o/y. Specifically private sector wages and salaries rose .8% q/o/q and 3.8% y/o/y which is further moderation but in part due to tougher comps. They rose 4.5% in Q3 2023 to highlight. In Q3 2019, private sector wages and salaries grew by 3% y/o/y, for perspective.

8)With the average 30 yr mortgage rate in September falling all the way down to about 6.15% (now back to 6.73%), the lowest in a year and a half, home buyers stepped up according to the National Association of Realtors in today’s pending home sales figure which rose 7.4% m/o/m, well above the estimate of 1.9%. Sales were up 2.2% y/o/y.

9)Apartment List released its October rent report and new lease rates fell by .7% m/o/m "as we get further into the slow season for the rental market." Rental rates are also down .7% y/o/y. Also, "On the supply side of the rental market, our national vacancy index ticked up to 6.8%, the highest reading since the onset of the pandemic...The third quarter of 2024 saw the most new apartment completions for a single quarter in 50 years, and with more than 800k units still in the construction pipeline, the supply boom has runway to continue into 2025."

10)The October consumer confidence index from the Conference Board rose to 108.7 from 99.2 and that was much above the estimate of 99.5. Both main components were up m/o/m. One yr inflation expectations rose one tenth m/o/m to 5.3% which matches a 4 month high. The Conference Board said the uptick in inflation expectations could be led by food and services. They also said “Mentions of prices and inflation continued to top write-in responses as topics affecting consumers’ views of the economy, but more respondents mentioned slower inflation and lower grocery prices.” The main reason for the confidence lift was the improvement in the answers to the labor market questions. Spending intentions were mixed.

11)From Apple: "iPhone revenue set a September quarter record of $46.2b up 6% from a year ago, with growth in every geographic segment. On Apple Intelligence, “We're getting a lot of positive feedback from developers and customers. And in fact, if you look at the first three days, which is all we have, obviously, from Monday, the 18.1 adoption is twice as fast as the 17.1 adoption was in the year ago quarter. And so, there's definitely interest out there for Apple Intelligence."

12)From Amazon: "At a time when consumers are being careful about how much they spend, we're continuing to lower prices and ship even more quickly, and we can see this resonating with customers as our unit growth continues to be strong and outpace even our revenue growth."

13)From Microsoft: Their cloud drove most of the growth and their AI business "is on track to surpass an annual revenue run rate of $10 billion next quarter, which will make it the fastest business in our history to reach this milestone."

14)Meta saw 20% y/o/y revenue growth, an incredible pace off a big base and with 3.2 billion people "using at least one of our family of apps on a daily basis in September."

15)From Google/Alphabet: Sundar Pichai wasted no time talking about AI going right at it after saying "Q3 was another great quarter." Cloud growth was strong at 35% y/o/y with operating margins at 17%. Search saw sales rise by 12% y/o/y "led by growth in the financial services vertical due to strength in insurance followed by retail."

16)From Camden Property Trust: Not positive for them but for the consumer was easing rental growth, 'Signed New Lease Rates' fell 4.8% y/o/y in October 2024 and only partly offset by 'Signed Renewal Rates' which rose 3%, thus giving a 'Signed Blended Lease Rate of -1.7%. If you look at when these rates will become effective, the blended rate is down .8% y/o/y.

17)From Mastercard: "The macroeconomic environment remains supportive and continues to underpin the strength in consumer spending. The labor market remains strong, even if slightly below historically tight levels. And inflation has moderated, albeit at varied levels across categories and countries. Overall, we remain positive about our growth outlook, but we will continue to monitor the environment."

18)From Visa: On the US consumer, "Consumer spend across all segments from low to high spend has remained relatively stable to Q3. Our data does not indicate any meaningful behavior change across consumer segments from last quarter."

19)From Capital One: On the consumer, "I think the US consumer remains a source of relative strength in the overall economy. The labor market remains strong. You know we saw signs of softening in the first half of 2024 and the unemployment rate ticked up a bit, but the most recent data points on unemployment and job creation have actually shown renewed strength. Incomes are growing in real terms and last month, we saw a significant upward revision of the savings rate. Consumer debt servicing burdens are stable relative to pre-pandemic levels and consumers have higher average bank account balances than before the pandemic."

20)From Mister Car Wash: To a question on the broader demand trends and income level, "it's been pretty consistent across the board. We haven't seen anything unusual, when we slice and dice it by average household income. Again, you would think that the bottom quartile would behave differently, but we're just not seeing that. So it's a little head scratching, to be honest with you. And our interpretation again is that the universal appeal of car wash services and the fact that, if anything, if people have been holding back, they're starting to come back because their cars are really dirty and they want to get them clean."

21)Brinker’s via Chili’s, Cheesecake Factory, Shake Shak and Texas Roadhouse all thread the restaurant needle in casual dining with value menus and having less lower income consumer exposure.

22)From Chipotle: On their consumer, "We're still seeing strength across all income cohorts, even in this competitive environment, which gives us the belief that we are still delivering extraordinary value for the consumer...Again, all income cohorts, even low income, are showing positive signs of strength."

23)From Booking Holdings: Revenue grew by 9% y/o/y. "From a regional perspective, we observed an improvement in our room night growth in Europe in the third quarter, which was the primary driver of the sequential increase in our global room night growth. In Asia, we continue to perform well with another quarter of double digit growth...In the US, we see relatively stable levels of growth in our business so far this year, which we think continues to outpace the broader US accommodation industry."

24)From MGM Resorts: "we saw record ADRs in Las Vegas and record occupancy at our regional resorts…In the 4th quarter here in Las Vegas, we're encouraged by the stability of demand that we're seeing. We're also gearing up for year two of F1, which while not as large as last year's event, still brings significant economics to MGM during what has historically been one of the slowest weekends of the year, no more…In Macau, MGM China achieved a record breaking 3rd quarter with net revenues increasing 14% y/o/y."

25)From Royal Caribbean: "Robust demand for its vacation experiences drives strong results and improved outlook." They saw "stronger pricing on close-in demand, continued strength in onboard revenue and lower costs due to timing" and "We see elevated demand patterns continuing as we build the business for 2025."

26)From Martin Marietta:: "Looking ahead to 2025 and beyond, we expect to benefit from record levels of federal and state investments in highways, streets and bridges. Additionally, reshoring and the build out of artificial intelligence infrastructure should provide steady growth in these aggregates-intensive end markets for years to come."

27)From Decker’s: "HOKA continued to experience solid growth around the globe" and "UGG again demonstrated broad based growth across regions and channels."

28)China's private sector focused Caixin manufacturing PMI rose 1 pt m/o/m to 50.3. The improvement was domestic as "External demand, however, remained weak. The gauge for new export orders stayed in contractionary territory for the 3rd consecutive month, reflecting sluggish global economic conditions, which weighed particularly on exports of investment and consumer goods."

29)China's October manufacturing and non-manufacturing composite index rose a touch to 50.8 from 50.4 in September with manufacturing lifting to 50.1 from 49.9 while the latter rose to 50.2 from 50.

30)The October Vietnam manufacturing PMI 51.2 vs 47.3.

31)While the BoJ may hike again in December or January, they dragged their feet again this week.

32)Japan reported better than expected jobs data for September.

33)The Eurozone saw a better than expected Q3 performance with a q/o/q gain of .4%, twice the estimate and higher by .9% y/o/y. Part of the increase was a better than expected print from Germany but only after their Q2 figure was revised down. It really was a slightly above estimate number from France and Spain that helped while Italy saw no growth vs the estimate of a .2%.

34)There was slight improvement in the German consumer confidence index from GFK to -18.3 from -21. The estimate was -20.5 and while still negative, it's the best print since April 2022. While a slight m/o/m gain, GFK said "The uncertainty caused by crises, wars and rising prices is still very much present and is preventing factors that encourage consumption, such as real income growth, from taking full effect."

Negatives,

1)Let’s put aside the weaker than expected October job growth in the establishment survey due to all the noise and distortions due to the weather (strike impact easier to quantify) but the prior two months were revised down a total of 112k. Also, look at household survey. Jobs lost in this figure totaled 368k and also there was a 220k fall in the size of the labor force. This follows gains of 430k in the month before in employment and 150k in the labor force size.

2)Job openings in September fell to 7.44mm, down about 400k m/o/m and well below the estimate of 8mm. That is the least since January 2021. The hiring rate did tick up to 3.5% from 3.4% but the quit rate fell to 1.9% which is the lowest since 2015 not including Covid.

3)The US manufacturing recession continues on as measured by the October ISM index which fell to 46.5 from 47.2 and that was 1.1 pts below expectations. This index has had one 50+ print since October 2022. In terms of overall industry breadth, 5 of 18 surveyed saw growth, the same number seen in September, while 11 experienced a contraction. The bottom line from the ISM, “Demand remains subdued, as companies continue to show an unwillingness to invest in capital and inventory due to concerns (for example, inflation resurgence) about federal monetary policy direction in light of the fiscal policies proposed by both major candidates. Production execution eased in October, consistent with demand sluggishness.”

4)Combining the income and spending figures saw the savings rate drop to 4.6% in September which is the lowest since December 2023.

5)The MBA said the average 30 yr mortgage rate jumped by 21 bps w/o/w to 6.73% coincident with the rise in the 10 yr yield. Purchases though did rebound by 5% after 3 weeks of declines but refi's fell again, by 6.3% w/o/w.

6)The 10 yr gilt yield rose to a one year high as clearly UK debts and deficits matter again. The 2 yr yield jumps too.

7)From Apple: On Apple Intelligence and the upgrade cycle, I don’t think it’s ramping as quick as hoped but CFO said, "we've very early in the cycle, very early in the cycle with a lot of new products and features that we are launching, and we're very excited about them, but it's early, and the Apple Intelligence rollout is going to happen over time, not across the world as normally we do with software releases."

8)From Microsoft: All the spend is a big focus. "Capital expenditures including finance leases were $20 billion in line with expectations...Roughly half of our cloud and AI related spend continues to be for long lived assets that will support monetization over the next 15 years and beyond. The remaining cloud and AI spend is primarily for servers both CPUs and GPUs to serve customers based on demand signals." As a result of all this spend, free cash flow fell 7% y/o/y.

9)From Meta: Same here. "Capital expenditures, including principal payments on finance leases were $9.2 billion, driven by investments in servers, data centers, and network infrastructure." And here is their guidance, "We anticipate our full year 2024 capital expenditures will be in the range of $38 billion to $40 billion, updated from our prior range of $37 billion to $40 billion. We continue to expect significant capital expenditure growth in 2025."

10)From Google/Alphabet: Same here. Their CapEx in the quarter was $13b, "reflecting investment in our technical infrastructure with the largest component being investment in servers, followed by data centers and networking equipment. Looking ahead, we expect quarterly CapEx in the 4th quarter to be at similar levels to Q3."

11)From Hyatt: "we reported system wide RevPAR growth of 3%, and we continue to see high end consumers prioritizing travel as RevPAR growth was strongest amongst our luxury brands. Leisure transient revenue decreased approximately 4% in the quarter driven by the US and Greater China."

12)From Uber: "we've been very public in terms of the increase, the substantial increase in commercial insurance costs, really that have happened over the past two years. And as we have passed on those increases in costs, especially in states where insurance costs are very, very high, like New Jersey or California, as we passed on those costs, we've seen the kind of the typical elasticity from consumers, which is as price goes up, the transaction growth slows down a bit. And that elasticity is usually one for one." Also, "We are seeing weekday growth stronger than weekend growth as well. So people are definitely getting back to work. I think like the weekend party hours, maybe consumers are a little more price sensitive in terms of whether they choose to go our or not. But weekday is very strong."

13)From Starbucks: With respect to the 6% drop in US comps, it was "driven by a 10% decline in comparable transactions, partially offset by a 4% increase in average ticket, mainly from pricing. Traffic declined across all channels and day parts, with the most pronounced decline in the afternoon day part. In addition to the continued decline of non-Starbucks Rewards member visits, frequency also slowed across all SR member deciles, in comparison to prior year and ultimately impacted spend."

14)From McDonald’s: "On our last call, we shared the QSR sector had meaningfully slowed in many of our markets with industry traffic declining in several major markets and that consumers, especially those in the low-income category were choosing to eat at home more often. This trend continued in the third quarter. QSR traffic has remained under pressure reflecting industry wide challenges. And while we anticipated a challenging environment in 2024, our performance so far this year has fallen short of our expectations."

15)From EBAY: "We continue to face a dynamic macro and consumer spending environment in the quarter. And as we noted on the last earnings call, political news, sporting events and elevated travel in July influenced consumer behavior."

16)From Malibu Boats: "we navigated a challenging market environment driven by continued macroeconomic factors and slower retail demand. Net sales decreased by approximately 33% y/o/y as we maintained our focus on reducing channel inventories. While we are encouraged by the recent move in interest rates, we will need a sustained cycle of rate cuts, bring back payment buyers into the market. Retail demand remains challenging and will likely remain challenging until payment buyers return to the market."

17)From CDW: "While demand for cloud solutions remained strong and we continued to see a pickup in client device growth, hardware solutions remained under pressure and the firmer footing we anticipated for our corporate channel did not materialize…the macro and IT spending environment remained challenging. Technology complexity combined with persistent economic and geopolitical uncertainty has led to large project delays and further extension of sales cycles. Laid on top was the uncertainty around the outcome of the US election, which has dampened not only government spending but also other public sector end markets, as well as spend from commercial customers.” Also, "this limited demand environment has heightened competition and increased pricing intensity across all end markets."

18)From Stanley Black & Decker: "As we look at our markets in aggregate today, they remain relatively stable on the surface. That said, some continue to be pressured by the continuation of mixed consumer trends, especially related to housing, as well as weak automotive production backdrop."

19)From DR Horton: "Our sales pace was in line with normal seasonality from the 3rd to 4th quarter but was below our expectations. While mortgage rates have decreased from their highs earlier this year, many potential homebuyers expect rates to be lower in 2025. We believe that rate volatility and uncertainty are causing some buyers to stay on the sidelines in the near term. To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buydowns, and we have continued to start and sell more of our homes with smaller floor plans."

20)From TriNet: "Slower economic growth, higher interest rates, and generally cautious outlook resulted in a third quarter of no net hiring amongst our customer base. While the headline jobs reports have been generally positive from the BLS over the last year, our experience has differed materially. Growth in several sectors, including government, construction, and healthcare are fueling aggregate headlines, while our core verticals of technology, life sciences, financial services, and other professional services have been muted."

21)From Ford: On the EV business, "No doubt there's a global price war and it's fueled by overcapacity, a flood of new EV nameplates, and massive compliance pressure. In our home market in the US, no OEM is immune. Since Q1 of last year, EV volumes have grown 35% while revenues in total are flat at $14 billion. That means the progress on volume has been fully offset by prices. We're expecting roughly 150 new EV nameplates to hit North America by the end of 2026. And some of our competitors are already resorting to very aggressive lease tactics even on brand new products which creates huge residual risk and overhang and brand damage."

22)From Capital One: the caveat to their positive comments on consumer, "Now we see some pockets of pressure related to sort of the cumulative effects of inflation and elevated interest rates. And we are almost certainly still seeing a thing that we've been calling out for years, even really before it happened saying we think it inevitably will happen but we won't fully be able to measure that. We won't be able to measure that along the way, but that is delayed charge-offs from the pandemic period. We should remember that millions of consumers who would have charged off under normal circumstances in 2020, 2021 and 2022 avoided defaulting, thanks to unprecedented stimulus and forbearance. And these consumers were on the edge, and they got a lifeline. But for some of them, their underlying vulnerability remains. So I believe that what we're seeing today is catching up from that period of historically low charge-offs."

23)From Carter’s: "Shopping for holiday related apparel trended later than last year, we believe consumers are shopping closer to need and buying what's needed and only when needed. In recent weeks, thankfully, as weather turned cooler in more parts of the country, the trend in our holiday related apparel has improved."

24)Manufacturing PMI’s seen in Asia: Taiwan 50.2 vs 50.8, South Korea 48.3 vs 48.3, Thailand 50 vs 50.4, Indonesia 49.2 vs 49.2, and Malaysia 49.5 vs 49.5.

25)The UK October manufacturing PMI was revised to 49.9 from the initial figure of 50.3 and down from 51.5 in September. That's the weakest since April. S&P Global attributed some of this softness to hesitancy ahead of the unveiling of the new UK budget which is now out. Also, "This domestic headwind, combined with an ongoing loss of export business, led to the first outright contraction in new work intakes since April. Output growth came close to stalling as a result."

26)In the Eurozone, October CPI rose 2% y/o/y, a touch above the estimate of 1.9% and up from 1.7% last month. The core rate held at 2.7%, also one tenth above expectations. Services inflation is still pretty persistent, rising 3.9% y/o/y while goods prices are muted, rising .5% y/o/y. Lower energy prices continue to keep a lid on the headline, down by 4.6% y/o/y but food/alcohol/tobacco prices were higher by 2.9% y/o/y.

27)Germany said that in October the number of unemployed jumped by 27k which was about double the forecast of up 15k. Their unemployment rate was 6.1%, holding to match the highest since October 2020.

28)The October Eurozone Economic Confidence index fell to 95.6 from 96.3 which is below the estimate of no change and continues to flat line. Manufacturing weakened further while consumer confidence and those in retail and construction were less negative. Services continue to be the standout, though unchanged m/o/m in positive territory.

29)Phil Lesh, “such a long, long time to be gone and a short time to be there.”

Position: None

A Special Thanks

A special thanks for providing me with this platform today, all week and during the last 28(!!) years.

I hope to continue to provide creative and value added commentary and ideas.

Enjoy the weekend.

Be safe.

Position: None

Things I Did Today

* Markets advanced from flagpole to that's all today (at least as of 2:30 p.m.).

* However, half the gains have evaporated in the last two hours.

At 2:30 p.m. the S&P Index is +28 handles — after being up +66 handles in the morning.

Here's today's flattish breadth which is an improvement from the last few days: 

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Today's "Things":

* Shorted more Index calls with S&P cash +52 handles and then more +65 handles (now up only 28 handles).

* Covered those short Index calls when market's advance halved.

* Added to  (BAC)  $42.30 and  (JPM)  $224.28 shorts.

* Sold my oils:  (CVX)  at $155.85,  (XOM)  at $118.86 and  (SLB)  at $40.21.

* Sold some  (BA)  at $155.36 (+$5) on the proposed union settlement (this was an unexpected gain!+

Position: Long BA (S/M), SPY common (M), QQQ common (M); Short BAC (M), JPM (M), SPY calls (M), QQQ calls (M)

A Technical JP Morgan Tweet

Position: Long JPM (M)

Taking in My Index Calls Sold

With S&P cash more than halving the early morning advance (now +28 handles vs. +64 handles at morning high) I am taking in my calls sold for a profit and moving to a delta neutral position in the Indices.

Position: Long SPY common (M), QQQ common (M); Short SPY calls (M), QQQ calls (M)

Professor Galloway on 'High Anxiety'

Scott Galloway on No Mercy/No Malice... "High Anxiety."

Position: None

Dan Niles Tweet

* From a smart and pragmatic investor...

Position: None

Mea Culpa

I should never have covered my  (XLU)  short.

Bad move, Dougie.

Position: None

Howling About Hurricanes and Boeing

Wolf Street howls about the hurricanes and Boeing  (BA)  strike impact the jobs data.

Position: None

Oil Vey

Energy stocks reverse hard.

(SLB)  and  (XOM)  down on the day.

(XOM)  is over -$4 off its morning high (and from where I sold).

I own no energy equities.

Position: None

Cannabis Tweet of the Day

Position: None

Cannabis Chatter

There is chatter that a Safe Banking Bill (for cannabis) will be proposed in the upcoming lame duck session.

I suspect there is some truth in this.

If so, it becomes another positive catalyst (accompanying the possible passage of Amendment 3 In Florida and a rescheduling) to a growing list of positives.

I continue to add to  (MSOS) .

Position: Long MSOS (L); Short MSOS calls (VS)

My Tweet of the Day (Part Deux)

Position: None

Trading Around Boeing Long

Boeing  (BA)  is a beast (+$6).

I am tempted to trade around the long investment and take profits.

In fact, I will at $155.36.

Position: Long BA (M)

Day's Low TLT

(TLT)  is now -$1.10 and at the low of the day.

The yield on the 10-year U.S. note is +7 basis points to over 4.35%.

Is this the tipping point for equities?

Position: None

The Dales Report

From the excellent and value-added Dales Report:

Here is some recommended viewing going on right now (on cannabis).

And here was the report's comments from yesterday:

In a twist that could make even the most seasoned political analysts do a double-take, cannabis legalization has blossomed into a truly bipartisan issue in the United States. Yes, you read that right—the nation that once declared war on weed now finds both major presidential candidates endorsing its legalization. It's as if Democrats and Republicans finally found common ground, and it smells a lot like, well, you know.

Let's start with Vice President Kamala Harris, the Democratic presidential nominee. Harris has been vocal about her support for federal cannabis legalization. She's framed it as a matter of social justice, emphasizing the disproportionate impact of marijuana prohibition on communities of color. Her plan includes expunging the records of those convicted for cannabis-related offenses and investing in communities hit hardest by the war on drugs. It's a policy position that resonates with progressive voters and aligns with the Democratic Party's platform.

On the other side of the aisle, former President Donald Trump, the GOP nominee, has also signaled support for cannabis reform. While traditionally more conservative on drug policy, Trump has surprised many by expressing openness to federal legalization. He's suggested that regulating cannabis could boost the economy—a nod to his business-minded base—and has even hinted at the benefits of removing cannabis from the Controlled Substances Act. It's a pragmatic approach that acknowledges the shifting public sentiment and the greenbacks to be made in the green industry.

Now, let's zoom in on Florida, where Amendment 3 is sparking heated debates hotter than a Miami summer. This ballot initiative aims to legalize recreational cannabis for adults 21 and over, essentially turning the Sunshine State into the "Sun-grown State." Both presidential candidates have influenced the conversation, with Trump having the upper hand and directly endorsing the ballot initiative in his home state.

Recent polls suggest that a significant majority of Floridians support Amendment 3, with numbers hovering around the crucial 60% mark needed for it to pass. Despite opposition from Governor Ron DeSantis, who seems determined to play the role of the strict parent, the amendment is gaining traction. Advocates argue that legalization would generate substantial tax revenue, create jobs, and reduce the burden on the criminal justice system. Critics, however, raise concerns about public health and safety, though these arguments appear to be losing steam.

Moreover, the potential passage of Amendment 3 in Florida could unlock one of the largest untapped cannabis markets in the country. Florida's population isn't just large; it's diverse and includes a substantial elderly demographic that could benefit from medical cannabis. The state's tourism industry could also see a boost, with visitors perhaps seeking more than just theme parks and beaches.

Cannabis legalization has evolved from a fringe issue to a political juggernaut that neither party can afford to ignore. With both presidential candidates onboard, it's clear that the tide has turned. The plant that was once vilified is now being championed as a source of economic growth, social justice, and medical relief.

For investors, entrepreneurs, and consumers alike, the bipartisan embrace of cannabis signals a burgeoning industry ripe with opportunities. It's not often that Democrats and Republicans see eye to eye, but when they do, it might just be over a shared vision of a greener America—both environmentally and financially.

So, as we watch the political landscape shift, one thing is clear: the future of cannabis in the United States is looking higher and brighter than ever. And that's something even Wall Street can toast to (once custody is fixed of course), perhaps with a cannabis-infused beverage in hand.

Position: None

Boockvar on Manufacturing Recession

From Peter Boockvar:

The manufacturing recession continues on

Before I get to the ISM report which was soft, the 10 yr yield is back to where it was right before the 8:30 data at around that key 4.30% level. The 2 yr yield though at 4.13-.14% is below the 4.21% seen right before but above the 4.07-.08% it fell too immediately after the payroll report. The market is still priced for another rate cut next week while the long end has clearly gone its own way.

The US manufacturing recession continues on as measured by the October ISM index which fell to 46.5 from 47.2 and that was 1.1 pts below expectations. This index has had one 50+ print since October 2022.

New orders rose 1 pt but also remained in contraction at 47.1. Backlogs are still well below 50 at 42.3 from 44.1 in the week before. Still no sign of an inventory build as this component fell to 42.6 from 43.9 and at the customer level, declined to 46.8 from 50. Continuing a string of declines in manufacturing employment, this component was 44.4 vs 43.9 in the month before. It’s the 5th month in a row under 50. Export orders remained negative too at 45.5 vs 45.3 in September. That is also the 5th month in a row in contraction. Supplier deliveries held above 50 for a 4th month as supply chains have normalized. Lastly, prices paid bounced back above 50 at 54.8 after falling 6 pts last month.

Specifically on employment, the ISM said “Respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes…Right sizing the workforce across industries continues.”

On inventories, “Manufacturing inventories remain at low levels as the contracting manufacturing economy continues to cause panelists’ companies and their customers to closely manage working capital, including manufacturing inventory.” That said, eventually we’ll need some inventory building and when that comes, this manufacturing recession could end. When? I can’t tell you because I don’t know.

On exports, “New export orders continue to be weak as international trading partners struggle with weak economies.”

In terms of overall industry breadth, 5 of 18 surveyed saw growth, the same number seen in September, while 11 experienced a contraction with the balance seeing no change. That number seeing a decline in business compares with 13 in September. Just 3 industries saw an increase in employment and just one had a rise in export orders. With prices paid, 11 industries paid more, the most in 5 months vs 7 last month.

The bottom line from the ISM, “Demand remains subdued, as companies continue to show an unwillingness to invest in capital and inventory due to concerns (for example, inflation resurgence) about federal monetary policy direction in light of the fiscal policies proposed by both major candidates. Production execution eased in October, consistent with demand sluggishness.”

I’ll add, the manufacturing recession is now two years on, though with inventories lean, all we need is some end market demand, both domestically and internationally to create a need for some inventory rebuilding but who knows when.

Here were some industry specific comments from some respondents:

“Right-sizing continues. Contingency plans have been formulated to anticipate trade policies that will impose tariffs on key materials.” [Chemical Products]

“Market demand has significantly decreased in the second half of 2024 and is expected to be soft through the first quarter of 2025. Although inflation has stabilized and returned to historical levels, and interest rates are decreasing, there appears to be a general pessimism in the economy that is driving customers to be more restrictive in their capital expenditures, including investment in commercial vehicles. Uncertainty in the outcome of the upcoming election has resulted in several risk analysis studies to be prepared, particularly focused on the future of the electric vehicle (EV) migration and trade restrictions/penalties.” [Transportation Equipment]

“Business is picking up; outlook is optimistic, but not great.” [Computer & Electronic Products]

“Sales have been very slow the past six months. Interestingly, though, inquiries are up more than 30 percent from a year ago. This indicates there is pent-up demand, but customers are skittish about national and global economic conditions. We are hearing directly from customers that they need to order equipment to satisfy their requirements but are going to keep projects as long as possible before pulling the trigger.” [Machinery]

“Business levels remain depressed. It feels like a ‘wait and see’ environment regarding where the economy is heading; customers don't want to commit to inventory, which is resulting in lower order levels.” [Fabricated Metal Products]

“Overall projections are that business will remain strong through the fourth quarter. Some order increases are starting, and a lot more projects are slated for the first quarter of 2025. Will demand be there to support it?” [Nonmetallic Mineral Products]

“This has been an interesting fourth quarter already. The port strikes, hurricanes and election will all affect us in some way. Our industry is energy intensive, so our largest concern is the national and state mandates toward electrification. Electrical components were already in short supply, and with the substation and power line damages, we expect the electrical supply chain will be even worse. Components for green energy projects will be further delayed, but we don't expect the environmental mandates to be delayed.” [Paper Products]

“The seasonal business cycle is as planned: Consumer confidence in building materials remains relatively strong, and expectations are for continued growth into 2025 due to reduced interest rates and the potential for further small cuts.” [Wood Products]

ISM Mfr’g

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Prices

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Employment

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Position: None.

Bond Market Alert

The yield on the 10-year Treasury note is 4.32% (+4 basis points).

Position: None

Charting Breadth, S&P 500 Sector ETFs and Nasdaq 100

kass111a
kass111b
kass111c
Position: None.

Bigger Short in JPM

I have moved to a large short in  (JPM) .

Position: Short JPM L

Moving to a Larger Short Index Call Position

With S&P cash +64 handles I am moving to an even larger short Index call position now.

Position: Long SPY common M QQQ common M; Short SPY calls L QQQ calls L

Boockvar on Jobs and Why Treasuries Are Rallying

From Peter Boockvar:

The jobs data and why Treasuries are rallying

Let’s start with this disclaimer from the BLS with regards to the hurricanes:

“The initial establishment survey collection rate for October was well below average. However, collection rates were similar in storm-affected areas and unaffected areas. A larger influence on the October collection rate for establishment data was the timing and length of the collection period. This period, which can range from 10 to 16 days, lasted 10 days in October and was completed several days before the end of the month.”

“No changes were made to either the establishment or household survey estimation procedures for the October data. It is likely that payroll employment estimates in some industries were affected by the hurricanes; however, it is not possible to quantify the net effect on the over-the-month change in national employment, hours, or earnings estimates because the establishment survey is not designed to isolate effects from extreme weather events. There was no discernible effect on the national unemployment rate from the household survey.”

So, the 12k October establishment survey print includes a lot of noise but compares with the estimate of 100k. The two prior months were revised down a total of 112k which is not explained away by weather and likely why Treasuries are rallying with the 10 yr yield down 9 bps post release and the 2 yr yield is lower by 14 bps.

The household survey is likely also a reason for the rally in Treasuries and drop in yields as jobs lost here totaled 368k and also there was a 220k fall in the size of the labor force. This follows gains of 430k in the month before in employment and 150k in the labor force size. Thus, the unemployment rate held at 4.1% for the wrong reasons. Clouding this all was the ‘Not at work due to bad weather’ which totaled 512k, the most since a major snow storm years ago BUT as they still remained EMPLOYED and collected paychecks, it was NOT deducted from the household survey calculation. The all in unemployment rate held at 7.7%.

This as opposed to the establishment survey where the figure was negatively impacted by storms/strikes.

Average hourly earnings were as expected when including revisions and the y/o/y gain was 4% which compares with the pre Covid pace of 2.5%. Hours worked ticked up by one tenth to 34.3, still hovering around multi year lows, not including Covid.

Bottom line, the weak household survey this month, after a strong September, is what we should be looking at because it looks past the weather/strikes influence and it is in exact contrast to what ADP said which looks past it too.

While the market is fully pricing in a Fed cut next week, with all the confusing data out there and after cutting 50 bps in September, I would think proper risk management should lead to NO RATE CUT but something they can always revisit in December. And if this softer household survey data is repeated next month, the Fed should feel more comfortable in cutting again.

Position: None.

Moving to a Large Short Index Call Position Now

With S&P cash +52 handles I am adding to my short Index calls.

Position: Long SPY common M QQQ common M; Short SPY calls L QQQ calls L

Bank Moves

Adding to  (JPM)  short $224.28 and  (BAC)  $42.30.

Position: Short JPM M; BAC S

Out of Energy Equities

* On the morning gap higher...

I have sold the balance of the following longs:

(CVX)  $155.85 (+$7)

(XOM)  $118.86 (+$2)

(SLB) $40.21

Position: None.

My Comment of the Day

Dougie Kass

STAFF

Just Now

With S and P cash +41 handles I am back shorting Index calls.

Before this was delta neutral Index position.

 

Position: Long SPY common M QQQ common M; Short SPY calls M QQQ calls M

Adding to MSOS

In premarket trading I added to  (MSOS)  at $6.61

Position: Long MSOS L

Select Premarket Movers

Upside:

-GSAT +45% (Globalstar and Apple agreed to make certain amendments to the Services Agreements)

-PDEX +28% (earnings)

-TEAM +22% (earnings, guidance)

-PRLB +18% (earnings, guidance)

-CDXC +17% (earnings, guidance)

-HALO +12% (earnings, guidance)

-EOSE +9.3% (achieves Second Set of Performance Milestones Related to Cerberus Strategic Investment)

-WAT +9.0% (earnings, guidance)

-MTZ +8.2% (earnings, guidance)

-MGA +7.0% (earnings, guidance; to resume share repurchases)

-AMZN +6.9% (earnings, guidance)

-INTC +6.9% (earnings, guidance)

-CMLS +6.8% (earnings)

-CHTR +5.9% (earnings, guidance)

-W +5.7% (earnings)

-FEMY +5.3% (issued U.S. Patent Covering FemBloc Device for Female Permanent Birth Control FemBloc)

-DORM +5.2% (earnings, guidance)

-NINE +4.2% (earnings)

-TREE +3.7% (earnings, guidance)

-GDYN +3.6% (earnings, guidance)

-ICU +3.2% (reports setting a new monthly enrollment record with 10 critically ill acute kidney injury (AKI) patients added to the NEUTRALIZE-AKI pivotal trial during the past month, bringing total enrollment to 56)

-CAH +2.7% (earnings, guidance)

-CVX +2.1% (earnings, guidance)

-NMTC +2.1% (expands Existing Distribution Agreement with Zimmer Biomet for commercialization of OneRF Ablation System)

Downside:

-ARBE -19% (files to sell ordinary share offering of indeterminate size)

-ASPI -6.3% (files to sell common share offering of indeterminate size)

-BJRI -5.7% (earnings)

-WGS -5.7% (hearing 866K share block is being offering from $77-80/shr through Jefferies)

-ARCB -5.0% (earnings, Oct metrics)

-FOXF -5.0% (earnings, guidance)

-IR -3.1% (earnings, guidance)

-AAPL -2.1% (earnings, guidance; files to sell debt; indeterminate amount)

Position: None

Most Active Premarket ETFs

As of 8:14 a.m. and their mini-graphs:

11-1-24-ETF-Screenshot 2024-11-01 at 8.32.59 AM
11-1-24-ETF-2-Screenshot 2024-11-01 at 8.33.25 AM
Position: None

Premarket Percentage Movers

As of 8:32 a.m.:

11-1-24-Movers-Screenshot 2024-11-01 at 8.32.07 AM
Position: None

Bottom Line on the Jobs Report

The weak jobs number and persistent inflation data increases my confidence in slugflation. 

I will be back in office right after the opening.

Position: None

Boockvar on Apple, Amazon, Uber, Global PMIs and More

From Peter Boockvar:

Interesting earnings comments, particularly from Uber/Global PMIs

I'll start with some earnings calls and then go to the global October manufacturing PMI's. Everything still points to a mixed bag with pockets of strength and those of weakness.

From Apple:

With their new models, "iPhone revenue set a September quarter record of $46.2b up 6% from a year ago, with growth in every geographic segment." iPhone sales in China in particular were flattish y/o/y. Mac was up 2% y/o/y, iPad higher by 8% y/o/y and wearables/home/accessory sales fell by 3% y/o/y. Service revenues were up by 12% y/o/y.

To a question on what is the early feedback on Apple Intelligence and analysts trying to get a read on the upgrade cycle, Tim Cook said "We're getting a lot of positive feedback from developers and customers. And in fact, if you look at the first three days, which is all we have, obviously, from Monday, the 18.1 adoption is twice as fast as the 17.1 adoption was in the year ago quarter. And so, there's definitely interest out there for Apple Intelligence."

Another analyst tried to dig deeper on new iPhone sales/upgrades and Apple Intelligence and the CFO said, "we've very early in the cycle, very early in the cycle with a lot of new products and features that we are launching, and we're very excited about them, but it's early, and the Apple Intelligence rollout is going to happen over time, not across the world as normally we do with software releases."

And more from Tim Cook on the staged rollout of Apple Intelligence and whether people will upgrade, "In terms of the demand curve, I would just say that what we believe here is that it's a compelling reason for upgrading, and that's both my personal experience and feedback that I'm getting, and so we'll see. We're not projecting beyond the current quarter, obviously. We just don't do that." So not much guidance and more a wait and see on how things play out with the new phones.

From Amazon:

"At a time when consumers are being careful about how much they spend, we're continuing to lower prices and ship even more quickly, and we can see this resonating with customers as our unit growth continues to be strong and outpace even our revenue growth."

Their CapEx numbers are quite astonishing. "Year to date, capital investments were $51.9b. We expect to spend approximately $75b in CapEx in 2024. The majority of the spend is to support the growing need for technology infrastructure. This primarily relates to AWS as we invest so support demand for AI services while also including technology infrastructure to support our North America and International segments."

And in 2025? "I suspect we'll spend more than that in 2025. And the majority of it is for AWS, and specifically, the increased bumps here are really driven by generative AI."

What are they seeing on the consumer? "we're seeing a continuation of many of the things we've discussed over the last few quarters. Customers looking for deals and are price conscious. This matches up well with our Prime events which were well received and saved billions of dollars for our Prime members."

And, "When you look at the split between revenue growth and unit growth, you do see some impact of the lower ASP (average selling price) products that we're selling as well as some of the trade down that consumers are doing."

The Fed and the renter will be happy with these stats from Camden Property Trust, a stock we own. They are heavily focused on the sunbelt and so is experiencing where most of the new supply is coming from. 'Signed New Lease Rates' fell 4.8% y/o/y in October 2024 and only partly offset by 'Signed Renewal Rates' which rose 3%, thus giving a 'Signed Blended Lease Rate of -1.7%. If you look at when these rates will become effective, the blended rate is down .8% y/o/y. Their conference call is this morning.

From Mastercard, again benefiting from the secular trend of digital/card payments from cash:

"The macroeconomic environment remains supportive and continues to underpin the strength in consumer spending. The labor market remains strong, even if slightly below historically tight levels. And inflation has moderated, albeit at varied levels across categories and countries. Overall, we remain positive about our growth outlook, but we will continue to monitor the environment."

Notwithstanding little economic growth in Europe, "What we're seeing from a macro standpoint and you've probably seen this in the most recent economic data is you're starting to see positive trends come through there with momentum in France and Spain and even in Germany."

From Hyatt Hotels:

"we reported system wide RevPAR growth of 3%, and we continue to see high end consumers prioritizing travel as RevPAR growth was strongest amongst our luxury brands. Leisure transient revenue decreased approximately 4% in the quarter driven by the US and Greater China." That leisure drop is why the stock fell 7% yesterday.

"Group rooms revenue increased approximately 6% in the quarter with strong results in both the US and Europe...Business transient customers continue to deliver the largest y/o/y growth with revenue up approximately 16%. In the US, revenue increased at a similar growth rate and major urban markets continue to benefit from the recovery of business travel."

Uber talked about the negative impact of rising auto insurance on their business, "we've been very public in terms of the increase, the substantial increase in commercial insurance costs, really that have happened over the past two years. And as we have passed on those increases in costs, especially in states where insurance costs are very, very high, like New Jersey or California, as we passed on those costs, we've seen the kind of the typical elasticity from consumers, which is as price goes up, the transaction growth slows down a bit. And that elasticity is usually one for one."

Also, "We are seeing weekday growth stronger than weekend growth as well. So people are definitely getting back to work. I think like the weekend party hours, maybe consumers are a little more price sensitive in terms of whether they choose to go our or not. But weekday is very strong."

From Mister Car Wash, a stock we own:

To a question on the broader demand trends and income level, "it's been pretty consistent across the board. We haven't seen anything unusual, when we slice and dice it by average household income. Again, you would think that the bottom quartile would behave differently, but we're just not seeing that. So it's a little head scratching, to be honest with you. And our interpretation again is that the universal appeal of car wash services and the fact that, if anything, if people have been holding back, they're starting to come back because their cars are really dirty and they want to get them clean."

Also, "It's pretty consistent across all the income demographics. That's a little different than what we saw in Q1 and Q2, where those lower income demographics, it seemed like they were under a little bit more pressure. So we're pleased to see that lower income demographic bounce back just a little bit from how they had been trending."

From Malibu Boats which makes boats:

"we navigated a challenging market environment driven by continued macroeconomic factors and slower retail demand. Net sales decreased by approximately 33% y/o/y as we maintained our focus on reducing channel inventories. While we are encouraged by the recent move in interest rates, we will need a sustained cycle of rate cuts, bring back payment buyers into the market. Retail demand remains challenging and will likely remain challenging until payment buyers return to the market."

Ahead of the US ISM manufacturing index, we got a bunch overseas and still reflects the global manufacturing malaise going on. Taiwan 50.2 vs 50.8, South Korea 48.3 vs 48.3, Thailand 50 vs 50.4, Indonesia 49.2 vs 49.2, Vietnam 51.2 vs 47.3, and Malaysia 49.5 vs 49.5.

China's private sector focused Caixin manufacturing PMI rose 1 pt m/o/m to 50.3. The improvement was domestic as "External demand, however, remained weak. The gauge for new export orders stayed in contractionary territory for the 3rd consecutive month, reflecting sluggish global economic conditions, which weighed particularly on exports of investment and consumer goods."

With Taiwan, "Taiwan's manufacturing growth continued to soften during October as the broader slowdown in global manufacturing apparent in recent months again weighed on sector performance."

On the South Korean print, "Another muted month of data...provides evidence that domestic industrial activity weakened at the start of the 4th quarter. Manufacturing output fell for the 2nd successive month in October, and at the fastest pace since June 2023 amid muted sales. Weak demand was often attributed to a subdued domestic economy as well as global economic malaise."

Also, the UK October manufacturing PMI was revised to 49.9 from the initial figure of 50.3 and down from 51.5 in September. That's the weakest since April. S&P Global attributed some of this softness to hesitancy ahead of the unveiling of the new UK budget which is now out. Also, "This domestic headwind, combined with an ongoing loss of export business, led to the first outright contraction in new work intakes since April. Output growth came close to stalling as a result."

Position: None

Sorry Jim...

After reviewing Apple's  (AAPL)  quarterly report I am sticking to my short thesis:

Sell Apple, Don't Hold Apple

Reports of weak Chinese sales has resulted in weakness in Apple (AAPL) shares (-$3) in premarket trading.

Sorry Jim, I have been shorting AAPL on any strength recently.

Position: Short AAPL (M)

By Doug Kass Oct 25, 2024 6:32 AM EDT

Position: Short AAPL (VS)

Tweet of the Day

Position: None

Amazon's Tour De Force

Stated simply, Amazon's  (AMZN)  quarter was a tour de force.

Here is the report. 

Amazon.com, Inc. - Amazon.com Announces Third Quarter Results

More later.

Position: Long AMZN (VS)

Cannabis News: An Opportunity to Buy?

The delay in the DEA hearing was greeted negatively late yesterday:

DEA Marijuana Rescheduling Hearing Delayed Until 2025, Agency Judge Rules - Marijuana Moment

This should not be surprising considering the legislative and legal disappointments over the last few years that the cannabis industry has faced.

However, I don't view this as negatively as I see it simply as an administrative move to determine the standing of the parties that are appearing.

Basically the judge wants to be sure that the right witnesses for the meeting are approved and the wrong witnesses are not.

Accordingly, I will take advantage of the recent weakness to build back up my cannabis holdings.

Hopefully this is a golden opportunity right at attractive prices right before Tuesday's passage of Amendment 3 in Florida (adult recreational use).

Position: Long MSOS (M/L); Short MSOS calls (S)

Charting the Technicals

"I'm not superstitious, but I am a little stitious."

- Michael Scott

Bonus — Here are some great links:

Will Bearish Configuration Take Semis Lower?

November's First Trading Day ("Jazzy" Jeff Hirsch)

Chart Breakouts

Spooky Volatility as Seasonality Improves

Position: None

My Tweet of the Day

Position: None

QQQ Has Left the Island

From my pal Wally:

Position: Long QQQ common (M); Short QQQ calls (M)

Chart of the Day

Position: None

'Far From Gruven'

Doomberg's "Far From Gruven" describes the weak state of the German automobile market. 

Position: None

Programming Note

I have to take a member of my family for some surgery.

I will be out between 8 a.m. and 10 a.m.

Radio silence.

Position: None

The Market Grows More Oversold

The oversold condition has expanded in the last 24 hours.

The S&P Short Range Oscillator has increased from -3.60% to -4.49%.

Position: Long SPY common (M); Short SPY calls (M)

Fly Me to the Moon

Fly me to the moon
Let me play among the stars
Let me see what spring is like
On a-Jupiter and Mars

- Frank Sinatra, Fly Me To The Moon Fly Me To The Moon (2008 Remastered)

The union representing striking machinists at Boeing  (BA)  has endorsed the proposal and a vote is set for Monday. 

Boeing's shares are +$3.35 overnight.

We added to this name yesterday afternoon:

Adding to Boeing

Adding to Boeing (BA) at $149.75.

Position: Long BA (M)

By Doug Kass Oct 31, 2024 1:28 PM EDT

Position: Long BA (M)

Howling About Super Micro

Wolf Street howls about the dark humor of Super Micro Computer  (SMCI) .

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-28.84%
Doug KassOXY12/6/23-11.54%
Doug KassCVX12/6/23+14.43%
Doug KassXOM12/6/23+17.98%
Doug KassMSOS11/1/23-15.70%
Doug KassJOE9/19/23-10.53%
Doug KassOXY9/19/23-23.39%
Doug KassELAN3/22/23+43.40%
Doug KassVTV10/20/20+67.81%
Doug KassVBR10/20/20+79.91%