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DAILY DIARY

Doug Kass

Tuesday's After-Hours Movers

As of 4:37 p.m.:

11-5-24-AHM-Screenshot 2024-11-05 at 4.37.37 PM
Position: None

Tuesday's Closing Market Internals

Volume

- NYSE volume flat to its one-month average

- NASDAQ volume 25% above its one-month average

- VIX: down 6.87% to 20.47

Closing Breadth

11-5-24-CB-Screenshot 2024-11-05 at 4.13.03 PM

 S&P 500 Sectors

11-5-24-CSP-Screenshot 2024-11-05 at 4.15.17 PM

Nasdaq 100 Heat Map

11-5-24-CH-Screenshot 2024-11-05 at 4.14.14 PM
Position: None

Moving Down the Oversold Scale

The S&P Short Range Oscillator fell all the way back to 1.35%, so we are moving down the oversold scale.

Position: Short SPY common (M)

After-Hours Trading

In the after hours I moved to medium-sized short Indices (common) — been selling on a scale as high as  (SPY)  $577.35 and  (QQQ)  $493.20.

My averages:

* SPY $576.68

* QQQ $492.48

Position: Short SPY common (M), QQQ common (M)

Earnings After the Close

11-5-24-Earnings-1730839884838blob
Position: None

Reshorting Very Small

I reshorted  (SPY)  at $575.63 and  (QQQ)  at $491.83 — but very small.

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

Good Luck America

I am leaving early to go to an election party in Palm Beach and meet up with my friend who I hope will become (in 2026) the next Governor of Florida.

I will leave you all with what I wrote this morning:

The Judgement Day

* Take a load off Fanny, take a load for free

Go down, Miss Moses, there's nothin' you can say

It's just ol' Luke, and Luke's waitin' on the Judgement Day.

"Well, Luke, my friend, what about young Anna Lee?"

He said, "Do me a favor, son, woncha stay an' keep Anna Lee company?"

- The Band, The Weight and The Weight

Please vote today.

We are a divided country.

President John F. Kennedy called out the office of the presidency "as the vital center of action."

Half the country will be disappointed with the outcome of the presidential election.

But, when the voting is over we will honor the collective will of our democracy.

As Winston Churchill famously said:

"Democracy is the worst form of government, except for all the others."

Our country will survive and prosper regardless of who is elected as our system of democracy is stronger than who is installed as president and/or which party controls the Congress.

As President Ronald Reagan said in his farewell speech in 1989:

"Ours was the first revolution in the history of mankind that truly reversed the course of government, and with three little words: 'We the People.'..My friends: We did it. We weren't just marking time. We made a difference. We made the city stronger, we made the city freer, and we left her in good hands. All in all, not bad, not bad at all."

So, regardless of outcome today, we will forever remain the "shining city upon a hill."

By Doug Kass Nov 5, 2024 7:00 AM EST

Position: None

DJT Halted

Break in!

Trump Media  (DJT)  abruptly drops (by over $5/share) and the shares are halted.

Position: None

LY From SoFi

Position: None

Things I Did Today

As of 2 p.m. equities have risen from the get go and haven't looked back.

I came into today at market neutral — and am now very modestly net short in exposure.

If it wasn't for tonite's election results I would have been aggressively shorting this up move.

Things today:

* Reshorting  (TSLA)  at $252.61.

* Reshorting  (NVDA)  at $138.72.

* Shorted  (APO)  at $150.32.

* Shorted  (YUM)  at $135.14.

Position: Short APO (VS), TSLA (S/M), NVDA (S/M)

Boockvar on the 10-Year Bond Auction

From Peter Boockvar:

10 yr auction decent, helped by back up in rates

The 10 yr auction was decent. The yield of 4.347% was a hair under the when issued of 4.35%. The bid to cover of 2.58 was above the 12 month average of 2.51. And, the number of direct and indirect bidders totaling 85% was around the one year average.

Bottom line, the back in yields today to back above 4.30% likely helped the auction in terms of providing a better yield. Regardless of who wins today, there is no stopping the massive Treasury supply that continues to flood us and after 40 years of people complaining about rising debts and deficits and it never mattering, I do thing now it does. I look at the price of gold and I’m reinforced by what is happening in the UK gilt market as the sovereign debt challenges are global. Yes, inflation and economic trends are obviously an influence on yields but so are the laws of supply and demand. And we still have to think about the possibility that if the economy rolls over which would imply a rally in long rates if we use the historical playbook, the US debts/deficits would get even worse and maybe long rates rise instead. If the case, that’s something you only see in emerging markets.

Position: None

Adding to My Nvidia Short

I am adding to my Nvidia  (NVDA)  short above $139 now.

Here is the Nvidia Tweet of the Day:

Position: Short NVDA (S)

Whitney Tilson on Berkshire Hathaway

My pal Whitney knows Warren's company as well as anyone else in the world.

Here is an analysis:

Yesterday I analyzed Berkshire Hathaway's (BRK-B) third-quarter earnings report, and today I'll update my estimate of the company's intrinsic value...

If you've followed my work for long, you'll know that at various points over the years I've called Berkshire "America's No. 1 Legacy Stock" or "America's No. 1 Retirement Stock." I say this because Berkshire offers a unique combination of safety, growth, and undervaluation.

While the undervaluation right now isn't as great as it has been at certain times in the past, I still like the stock and think it's a good foundation for any conservative portfolio for anyone practicing "stay rich" investing rather than "get rich" investing.

As longtime readers know, I've used a consistent method to estimate Berkshire's intrinsic value for the past two decades. I believe it's similar to the one CEO Warren Buffett uses: take the cash and investments per share and add the value of the operating businesses.

At the end of the third quarter, cash and investments were about $448,000 per A-share. Since then, Berkshire's stock portfolio has declined by about $4,000 per share, so that's about $444,000 today.

Berkshire's trailing 12-month pretax operating earnings were about $25,000 per share. (I adjust for volatile insurance and investment income by subtracting it and then adding back half of the average over the past two years, which is $10.0 billion of pretax earnings. I think this is conservative, given that Berkshire's total insurance and investment income has averaged $8.7 billion annually over the past 10 years.)

The chart below shows how the two drivers of Berkshire's value – investments and earnings per share ("EPS") – have done since 2002. As you can see, there are occasional dips... but overall, these show an extraordinary record of consistent growth:

11-5-24-Kass-unnamed - 2024-11-05T133823.595

I apply a conservative below-market multiple of 11 times to Berkshire's pretax operating EPS of about $25,000 to arrive at a value of around $275,000 per share.

Thus, my estimate of Berkshire's intrinsic value is about $444,000 (cash and investments) plus roughly $275,000 (operating businesses), for a total of around $719,000 per A-share or $479 per B-share.

This table shows this calculation for each year-end starting in 2002:

11-5-24-Kass-2-unnamed - 2024-11-05T133939.038

The A-shares closed yesterday at $664,750, meaning that the stock is trading at a roughly 7.5% discount to my estimate of its intrinsic value.

That's not a bad discount... But again, the undervaluation isn't as great as it has been at certain times in the past.

For example, when my team and I recommended buying Berkshire's B-shares in our flagship Stansberry's Investment Advisory newsletter back in December, we calculated that the stock was trading at a 14% discount to intrinsic value.

(Investment Advisory subscribers can read that full issue right here. And if you aren't a subscriber, you can find out how to become one – plus gain access to our entire portfolio of open recommendations – by clicking here.)

Since our recommendation, the stock has risen 23% through yesterday's close – nearly matching the strong performance of the S&P 500 Index – but its intrinsic value has only risen about half that amount... which is why the discount has shrunk.

Does this mean it's time to dump Berkshire if you've owned it for a while and are sitting on nice gains?

Not at all...

It simply means you should have modest expectations right now – namely, that Berkshire will likely outperform the S&P 500 by one to two, rather than two to three, percentage points annually... which was the case when my team and I recommended it last year in the Investment Advisory.

In other words, if the S&P 500 compounds at 5%, I would expect Berkshire to do 6% to 7%.

Position: None

Amendment 3 (Florida) Tweet

Position: None

Waiting Game

I have no Index positions (common or options) on - as a reminder.

I want to see how things settle out tonight. ...

Position: None.

Programming Note

I have a business lunch between 11:30 a.m. and 12:45 p.m.

Radio silence.

Position: None.

He Just Voted for Riemenschneider

* But I just voted for Mayhew 

So, I met this guy on the line and, well.... it's a long story!

Going to a lunch meeting be back in an hour.

Position: None

Volume, Breadth, S&P 500 Sector ETFs, Heat Map and More

- New York Stock Exchange volume is 6% below its one-month average;

- Nasdaq volume is 21% above its one-month average.

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2
3
4
Position: None.

Boockvar on ISM's Tricky Readout

From Peter Boockvar

ISM services at more than 2 yr high but more mixed under the hood

The October ISM services index rose to 56 from 54.9 and that was 2.2 pts above expectations. That’s also the highest level since July 2022 (measuring direction, not degree of change).

The internals were more mixed though as Business Activity dropped by 2.7 pts m/o/m to 57.2 but after being up 6.6 pts in September. New orders fell 2 pts to 57.4 but after rising by 6.4 pts last month. Backlogs remained below 50 at 47.7 from 48.3. Employment was a bright spot, up by 4.9 pts to 53 from 48.1 in September. Inventories were little changed m/o/m but elevated at 57.2. Supplier deliveries also contributed to the headline gain, up by 4.3 pts but that reflects longer lead times and we can point to the hurricanes as some of the reason. Maybe even the port strikes too. Prices paid fell 2.7 pts but remaining well above 50 at 58.1, though well off the 2022 highs.

The industry breadth improved with 14 of 18 industries surveyed seeing growth vs 12 in the month before. Just 2 saw a contraction in business vs 5 in September.

On the slower supply chains, “Deliveries are impacted by the recent hurricanes.”

On the pick up in hiring, “Hiring seasonal labor for holiday peak activity,” though this figure is supposed to be seasonally adjusted. Also, “We have lost employees due to normal attrition and are having issues backfilling these positions.”

The election is still a factor as on new orders, “Slightly lower due to holding back funds until after the US presidential election.”

Bottom line, the rise in employment and supplier deliveries (slower supply chains) accounted for the upside, with the latter for the wrong reasons with issues post hurricanes and likely port strikes too. Either way, with US manufacturing in a recession, the non-manufacturing sectors of services and government induced construction are keeping the economy afloat, along with anything related to AI spend though which is taking CapEx spend from other things rather than growing the overall spending pie.

As the Treasury market is focused on the headline figure and not the internals, yields are at the highs of the morning. The 2 yr yield at 4.23% compares with 4.19% just before the data hit. The 10 yr yield is up at 4.35%, higher by 3 bps post release.

ISM Services

boocka

Business Activity

boockb

Employment

boockc

Prices Paid

boockd
Position: None.

Today's Trades

* Shorted  (TSLA)  at $254.94

* Shorted  (NVDA)  at $138.53

Position: Short TSLA S NVDA S

My Tactical Strategy for Cannabis Today

* I believe passage of a key Amendment in Florida is likely but less likely than consensus expectations.

* Should Amendment 3 pass, I expect a more muted response than most expect.

* Cannabis equities are investments and not trades.

After a poor start investing in cannabis a few years ago, we have done well investing and trading the space since 2022.

Today is a critical day for cannabis, as Amendment 3 (which will allow for adult recreational use in Florida - I just voted for it!) is on the ballot.

With a large population base and a substantially larger number of tourists who visit Florida annually, it is widely assumed that Amendment 3 will pass.

The various polls suggest between 63% to 65%. A minimum of 60% is needed for passage.

Gov. DeSantis' very vocal and ubiquitous TV advertising pitches against passage suggest to me that the consensus expectation of a 3 to 5 percentage point plurality (vs. the threshold of passage of 60% might be overstated).

I am less optimistic than the consensus and it is my view that odds favor passage of Amendment 3 but it could be a very close vote.

Importantly, even if the Amendment is passed, I believe expectations of a substantial gap higher in the space are too optimistic. There is simply not the "buying power" of retail to sustain a meaningful cannabis industry share price advance.

And, with the Drug Enforcement Administration meeting on rescheduling being delayed recently -- the set up for the sector is sub-optimal.

After having sold the last blast higher (as  (MSOS)  traded at around $8/share) I recently began to repurchase MSOS in the $6.60 level following the DEA hearing delay. Here's what I wrote at the time:

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)

By Doug KassNov 1, 2024 7:30 AM EDT

Bottom Line

Analysts and the Twittersphere are very excited that passage of Amendment 3 will launch cannabis stocks on a sustained move higher.

I am fearful that the vote will be far closer than optimistic consensus expectations.

I am also less sanguine for a number of reasons including a likely two-month delay in the rescheduling decision and the recent advance in cannabis share prices.

More importantly, until custodial issues make institutional ownership easier, the retail community of investors/traders (who have suffered monumental losses in the last several years) are not likely capable of a sustaining a durable move higher in cannabis stocks. They just don't have the fire power.

For these reasons (and others) I believe cannabis equities are investments and not trades.

Position: Long MSOS (M); GTBIF (VS); CURLF (VS); TCNNF (VS); TSNDF (VS); GLASF (VS); VRNOF (VS); AYRWF (VS)

Boockvar With Some Election Wisdom, Earnings Comments, and Auto Updates

From Peter Boockvar:

Regardless of the outcome, the sun will still rise tomorrow/Autos the new pressure point in manufacturing

Well, we made it to November 5th, barely, but we did. And regardless of who wins, the sun will still rise tomorrow, and life, commerce, markets, etc... will continue on whether we like it or not. For those not happy with the result, we'll at least be one day closer to 2028.

With a bunch more earnings results to go through, here are some.

From Marriott:

Group revenue continues to lead the growth "Given our industry leading distribution of convention hotels at nearly double the number of rooms of the next closest peer...Group revenues for 2025 were pacing up 7% at the end of the quarter, on a 3% increase in room nights and a 4% increase in average daily rate."

The business transient business "experienced another quarter of growth, with 3rd quarter RevPAR rising 2%. Leisure transient RevPAR was flat to the year ago quarter, while still well above 2019 levels." Hyatt too last week talked about slowing leisure travel.

Here is what they said on how the election influenced their business. "The election impact on US and Canada RevPAR is forecasted to be around negative 300 bps in November, and negative 100 bps for the quarter, double that of past election cycles, as we have meaningfully lower transient and group room nights on the books for both this week and next."

Internationally, China was where the weakness was "as macroeconomic pressures led to weak domestic leisure demand and restricted pricing power. Severe weather and higher end guests traveling to other regions also impacted the area."

Providing value to customers is not just a winning strategy in the US, it is in China too. From Yum China, "KFC system sales increased 6% y/o/y. Same store sales were at 98% of prior year levels with 1% same store transaction growth. Our strategy to widen the price range and capture lower ticket average delivery orders are yielding results. Entry price combos have driven incremental traffic and delivery sales continue to growth double digits." Also, "Smaller ticket items like coffee and breakfast continue to outperform."

With Pizza Hut, "Our entry price pizza, burgers and single person meals attracted incremental traffic from value conscious consumers and solo diners."

From Wynn Resorts:

In Vegas, "Demand remained healthy...More recently, demand has remained healthy in the fourth quarter with strong growth in slot handle, table drop and solid non-gaming demand...demand from the high-end consumer remains stable."

In Boston, "Demand was strong across the business...demand has remained healthy through October."

In Macau, EBITDA rose 3% y/o/y with revenue up 6% but "the competitive environment in Macau is clearly intense."

Ahead of the Fed meeting, their analysis of the inflation picture and with rents being a key component, we've seen that the sunbelt states are where the most rental pressure is coming from. However, the coastal states, along with parts of the Midwest and Northeast are seeing continued rent growth. AvalonBay Communities which caters to most these geographies said they expect full year 2024 same store residential revenue to rise between 3.4-3.6%. Their call is this morning.

Shifting to some industrial names.

From NXP Semi: "While we experienced some strength against our expectations in the Communication Infrastructure, Mobile and Automotive end markets, we were confronted with increasing macro related weakness in the Industrial & IoT market. Our guidance for the 4th quarter reflects broader macro weakness especially in Europe and the Americas." I'll add, auto has been weak everywhere else I've seen.

From Lattice Semiconductor:

"On an end market basis, communications and computing was up 12% sequentially, driven by both general purpose and AI servers. Industrial and Automotive was down 7% sequentially, primarily due to broader market demand and continued inventory normalization."

"Based on our discussions with customers and partners, we now expect more of a U shaped recovery than a V shaped one in 2025."

From Celanese, a chemical company whose stock is down about 15% pre market:

"During the 3rd quarter, Celanese continued to navigate persistent demand weakness across key end markets like paints, coatings, and construction, as well as rapid and acute downturns in Western Hemisphere automotive and industrial segments."

Here was one more comment on autos, "In the 3rd, we faced a severely constrained demand environment that, in some cases like auto, degraded swiftly."

Ahead of the US ISM services PMI at 10am, we saw some more overseas. Singapore continues to be an economic standpoint, a market where we are long some Singapore stocks, as its October PMI was 55.5, though down from 56.6 in the month before. Hong Kong's PMI improved to 52.2 from 50. And China's Caixin services PMI was up 1.7 pts m/o/m to 52.

On China, Caixin said "Growth in new business partly reflected another solid rise in export orders. This led to a quicker rise in business activity while the level of backlogged work also increased."

With Hong Kong, "Frequent mentions of Chinese stimulus measures spurring new sales, including from Mainland China, were made by survey respondents."

The Reserve Bank of Australia held rates unchanged at 4.35% as expected. They have been and remain hawkish, particularly Governor Michele Bullock. The statement said "It will be some time yet before inflation is sustainably in the target range and approaching the midpoint. This reinforces the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out."

In response to the monetary hawkishness, the Aussie 2 yr yield is up 2.5 bps to 4.08%, the highest since late July and the Aussie $ is higher as well.

Aussie 2 yr yield

boock2
Position: None.

Upside, Downside Moves Before the Bell

Upside:

-QNST +32% (earnings, guidance)

-ALAB +23% (earnings, guidance)

-VMEO +20% (earnings, guidance)

-BCOV +19% (earnings, guidance)

-PLTR +17% (earnings, guidance)

-BOWL +14% (earnings, guidance)

-GFS +14% (earnings, guidance)

-EVER +10% (earnings, guidance)

-PAYO +9.7% (earnings, guidance)

-AVO +9.1% (prelim Q4 revenue)

-HIMS +8.9% (earnings, guidance)

-EGHT +7.3% (earnings, guidance)

-LPX +6.8% (earnings, guidance)

-PMTS +6.7% (earnings, guidance)

-CENX +5.7% (earnings, guidance)

-EMR +5.6% (earnings, guidance)

-MLCO +5.0% (earnings)

-DLTR +4.7% (appoints Micheal Creedon as interim CEO; Affirms Q3 outlook, strategic review ongoing)

-XMTR +4.7% (earnings, guidance)

-CSTL +4.0% (earnings, guidance)

-EXPD +3.8% (earnings)

-MPC +2.8% (earnings, guidance)

Downside:

-MQ -35% (earnings, guidance)

-VRCA -34% (earnings)

-JELD -27% (earnings, guidance)

-CE -19% (earnings, guidance)

-CVGI -16% (earnings, guidance)

-MAX -16% (FTC staff proposes to seek injunctive, monetary relief and civil penalties relating to Company practices)

-HDSN -14% (earnings, guidance)

-NVTS -13% (earnings)

-CRUS -12% (earnings, guidance)

-LSCC -12% (earnings, guidance)

-ATUS -11% (earnings, guidance)

-TDC -8.9% (earnings, guidance)

-BOOM -8.1% (earnings, guidance)

-TKR -7.4% (earnings, guidance)

-HOLX -6.8% (earnings, guidance)

-NXPI -6.7% (earnings, guidance)

-ST -5.5% (earnings, guidance)

-CLF -5.4% (earnings, guidance)

-ABCL -5.2% (earnings)

-TEM -4.1% (earnings, guidance; to acquire Ambry Genetics, a developer of genetic testing for $600M in cash and stock deal)

-AGCO -3.6% (earnings, guidance)

-PTLO -3.6% (earnings, guidance)

-GKOS -3.3% (earnings, guidance)

-BWIN -2.5% (earnings)

-WYNN -2.1% (earnings)

Position: None.

ETF Moves Before the Opening Bell

Charts from 8:19 a.m. ET:

kass2
kass3
Position: None.

Platinum Play Update

(PPLT)  (platinum), the object of my recent affection, is getting jiggy in premarket (+$1.85).

Position: Long PPLT M

Charting the Premarket Movers

Chart from 8:35 a.m. ET:

kass1
Position: None.

From the Street of Dreams: Yum! Reports

Yum! Brands reports Q3 adjusted EPS $1.37, consensus $1.41 Reports Q3 SSS down 2%. David Gibbs, CEO, said "I'm incredibly proud of how our teams have navigated such a complex consumer environment to deliver 3% Core Operating Profit growth this quarter. The strengths of our twin growth engines were evident: Taco Bell U.S. significantly outperformed QSR competition with 4% same-store sales growth, and KFC International grew units an impressive 9% year-over-year. KFC International's unit openings spanned 64 countries this quarter, and year-to-date gross openings are up nearly 150 units year-over-year. While sales have been impacted by pressures relating to geopolitical conflicts and challenged consumer sentiment, our iconic brands which are led by our world-class talent and enabled by Yum!'s unmatched scale and cutting-edge, proprietary tech, are positioned for unstoppable growth."

Position: Short YUM S

The Judgement Day

* Take a load off Fanny, take a load for free

Go down, Miss Moses, there's nothin' you can say

It's just ol' Luke, and Luke's waitin' on the Judgement Day.

"Well, Luke, my friend, what about young Anna Lee?"

He said, "Do me a favor, son, woncha stay an' keep Anna Lee company?"

- The Band, The Weight and The Weight

Please vote today.

We are a divided country.

President John F. Kennedy called out the office of the presidency "as the vital center of action."

Half the country will be disappointed with the outcome of the presidential election.

But, when the voting is over we will honor the collective will of our democracy.

As Winston Churchill famously said:

"Democracy is the worst form of government, except for all the others." 

Our country will survive and prosper regardless of who is elected as our system of democracy is stronger than who is installed as president and/or which party controls the Congress.

As President Ronald Reagan said in his farewell speech in 1989:

"Ours was the first revolution in the history of mankind that truly reversed the course of government, and with three little words: 'We the People.'..My friends: We did it. We weren't just marking time. We made a difference. We made the city stronger, we made the city freer, and we left her in good hands. All in all, not bad, not bad at all."

So, regardless of outcome today, we will forever remain the "shining city upon a hill." 

Position: None

Tweet of the Day (Part Deux)

Wrong way Corrigan:

Position: None

Charting the Technicals

“Democracy is the worst form of government, except for all the others.”

- Winston Churchill

Bonus — Here are some great links:

A View From the Floor

Is the Nasdaq Developing a Bearish Technical Pattern? 

Congress Matters

Flashback

The Best Election Trade Nobody Is Talking About

Position: None

Ms. Market Remains Oversold

The S&P Short Range Oscillator slipped from -4.95% to -3.18%.

Position: None

Boeing Strike Ends

Boeing's  (BA)  wage offer is accepted by its machinist union.

Shares are +$5 and trading at $160!

BA was a recent long buy under $150.

Position: Long BA (M)

Tweet of the Day

Position: None
Doug Kass - Watchlist (Longs)
ContributorSymbolInitial DateReturn
Doug KassVKTX4/2/24-31.13%
Doug KassOXY12/6/23-14.95%
Doug KassCVX12/6/23+12.40%
Doug KassXOM12/6/23+14.91%
Doug KassMSOS11/1/23-22.06%
Doug KassJOE9/19/23-14.08%
Doug KassOXY9/19/23-26.33%
Doug KassELAN3/22/23+28.94%
Doug KassVTV10/20/20+66.05%
Doug KassVBR10/20/20+77.71%