Doug Kass fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- How the outlook for the market is souring.
- How Twitter will continue to fly solo.
Click here for information on RealMoney, where you can see all the blogs, including Doug Kass'--and reader comments--in real time.
My Takeaways and Observations (Early Edition)
Originally published Oct. 13 at 3:05 p.m. EDT
My weeklong "Market Outlook Worsens" series continued Thursday morning.
Prophesying with my pen: Keep your eyes wide, I say once again.
Fastenal, an investment short, doing what it was supposed to do! Its poor results are usually an economic mirror.
P.S. Another indication of slowing domestic growth from transporter Covenant on Thursday morning.
And shorting JCP puts.
S Squared in the house!
A questionable downgrade of The Mighty Oak from Barclays.
A down day for the markets -- from the get-go. But up quite a bit from the lows of the day. Indeed, at 2 p.m. (now) SPDR S&P 500 ETF Trust (SPY) - Get Report only down $0.40 after being down $2.20. Shorting more SPY as I write.
- The U.S. dollar strengthened after recent weakness.
- The price of crude oil rose $50.34.
- Gold increased by $4 but was double that gain in the early morning. I added to SPDR Gold Trust ETF (GLD) - Get Report on the dip now from the highs.
- Ag commodities (big gains): wheat up $0.16, corn up $0.10, soybeans up $0.85 and oats down $0.02.
- Bonds rallied in price, with iShares Barclays 20+ Yr Treas.Bond ETF (TLT) - Get Report up a beaner. The 10-year yield fell by five basis points to 1.73% and the long bond by four basis points.
- The 2s/10s spread rose by over one basis point to 89 basis points.
- But munis and high-yield issues got hit. Blackstone/GSO Strategic Credit Fund (BGB) - Get Report was down $0.07 (I would sell).
- Banks faltered. Wells Fargo (WFC) - Get Report lost its after market gain and then some. I added to my small Financial Select Sector SPDR Fund (XLF) - Get Report short -- even in the face of bank reports Friday.
- Life insurance stocks down big again - profiting from my recent short adds in the space. Hartford Financial (HIG) - Get Report down small, I added to this long.
- Brokerages lower, too.
- Retail continued its relative outperformance. But JCP didn't participate, and I added.
- Autos down. Ford (F) - Get Report new multimonth low. General Motors (GM) - Get Report weaker.
- Old tech lower, but mildly so.
- Biotech flatlined after Wednesday's schmeissing.
- In individual stocks, Chipotle Mexican Grill (CMG) - Get Report continues to get whacked after poor channel checks. The stock is down $24 in the last two days. Fertilizers (Monsanto (MON) and Potash Corporation of Sasketchewan (POT) ) stable on better ag commodities prices. Apple some profit taking (I am re-establishing my short).
- Ag equipment lower.
- (T)FANG is mixed Thursday.
- Media continues to roll over. Disney (DIS) - Get Report , a short on Best Ideas List, rolls over more. Now $25 under my Best Ideas List entry price!
Here are some value added contributions on our site:
1. Jim "El Capitan" Cramer on the Wells Fargo fiasco. I wouldn't buy, however, I would note that pretax income before provisions have been flat for five years. Its losing its premium valuation because of not only the fraud but the fundamental reality.
2. Robert "Not Rita" Moreno on two ports in the storm.
3. Rev Shark remains cautious and concerned with return of capital and not return on capital.
4. The Antonia "The Big O" Oprita has some Euro trash to go through.
5. My pal Chris Laudani doesn't like catching falling knives.
6. Jeremy Lakosh nailed Fastenal technically, and he updates his view.
Position: Long DD GLD OAK, HIG, JCP; Long HIG, JCP, DD, GLD, OAK, SPY, TLT, NFLX, MET, LNC, GM, F, SBUX, FAST
The Market Outlook Worsens
Originally published Oct. 11 at 7:21 a.m. EDT
This morning the yield on the 10-year U.S. note climbed another three basis points to 1.76%. The yield is now 41 basis points above July levels, serving to underscore my notion that a
Generational Low in Bond Yields already has occurred.
Meanwhile, the U.S. dollar has strengthened further, breaking 1.11 to the euro. This serves as a threat to 2016-17 earnings of U.S. corporations doing business outside the country at a time in which industrials (such as Honeywell (HON) - Get Report , PPG (PPG) - Get Report and Dover (DOV) - Get Report ) are starting to feel the heat of slowing global growth and a weakening top line.
As I discussed in yesterday's Trade of the Week -- shorting SPDR S&P 500 ETF (SPY) - Get Report at $216.65 -- rising interest rates and lower profits are a potentially toxic and unfriendly combination for the S&P index.
When I throw in a dose of the following headwinds, the stage could be set for a difficult three to nine months for the capital markets:
- Overvaluation, with 25x GAAP and 19x non-GAAP
- political uncertainties
- the likelihood of more fiscal gridlock (2017-20) with a Democratic presidency and Senate and a Republican House
- geopolitical risks
- nascent inflationary pressures
- a mean regression of corporate profit margins
- an undercapitalized and derivative top-heavyDeutsche Bank (DB) - Get Report
- the dominance of risk parity and volatility trending strategies that exaggerate short-term market moves and run the risk of more dangerous flash crashes,
- the general lack of fear and Bull Market of Complacency, and
- a peak in central banks' liquidity
For most, it might be an opportune time to raise cash, reduce equity exposure and, generally, err on the side of conservatism.
For me, with market risks mounting, I plan to raise my short exposure on any further market strength.
Position: Long SDS; short SPY, TLT large
Of JCPenney, Risks and Low-Priced Stocks
Originally published Oct. 13 at 12:13 p.m. EDT
Let me, again, be very clear.
From my perch JCPenney is a several-year investment and not a trade.
I have made the point several times and in my more lengthy analysis on the company.
I have learned the hard way that inexpensive stocks (like JCP) are almost always embraced by subscribers on this site, regardless of the operating and financial risks.
JCPenney is one of only a handful of longs for me. By my calculation it possesses good upside/downside over a one- to three-year period if it can execute its stated goals.
I have observed that the current quarter will likely be adversely impacted by unseasonably warm weather, so expectations, from my perch, are low/limited.
However, I think we are setting up for a better fourth quarter for the company if the weather cooperates and its merchandising strategy gets customer transaction.
I hold several low priced stocks with attractive upside/downside but I don't discuss these investments in my Diary because I understand the predilection of many to fly to these stocks like bees to honey.
But higher-priced stocks can be rewarding. As an example, I have made it clear that DuPont (DD) - Get Report is my favorite large-cap long. The shares have risen by nearly 50% in a relatively flat market since I purchased it. But I know for sure that subs have neglected this $68 stock (which was $52 in early 2016) in favor of JCPenney (by a multiple factor!).
Bottom Line: Subject to risk profiles, there is a role for speculative stocks in everyone's portfolio. But low-priced stocks like JCP (and others) are almost always speculative and should be weighted accordingly and relative to your appetite for risk. My advice is to always do your own homework and pay more attention to attractive priced higher-priced stocks that I (and other contributors) are long, consider buying deep in the money calls if you want the "high."
Position: Long DD, JCP (large).
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long AAPL, WFC.
At the time of publication, Kass and/or his funds were long/short XXX, although holdings can change at any time.
Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.