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 he remains manifestly bearish
- How housing isn't as strong as it looks
Click here for information on RealMoney, where you can see all the blogs, including Doug Kass'--and reader comments--in real time.
I remain manifestly bearish--but, as I have previously noted, so many are defensive (light or short) and investor sentiment has soured. I am mindful and have learned to be more reactionary in my trading book.
Slightly off the day's highs at the close--we almost repeated Tuesday's advance and market character during the day.
Rotation is clear as day--out of high beta and into financials.
- The U.S. dollar weakened.
- Crude oil rose by nearly a beaner to $49.50. Nat gas climbed a penny.
- Another weak day for gold, down $5.50 to $1223; I wrote upon the subject yesterday and previously.
- Agricultural commodities: wheat +2, corn +7, soybeans +31(!), oats +1.
- Lumber +5.
- Bonds fell. iShares 20+ Year Treasury Bond ETF (TLT) down half a beaner.
- The yield on the 10-year U.S. note was unchanged, with the yield at 1.86%. The long-bond yield rose by two basis points to 2.67%.
- Municipals were flat and so were closed-end muni funds.
- The high-yield market was bid for. iShares iBoxx High Yield Corporate Bond ETF (HYG) up 15 cents and SPDR Barclays High Yield Bond ETF (JNK) up a nickel.
- Blackstone/GSO Strategic Credit Fund (BGB) was three cents higher and appears to be challenging the recent highs.
- Banks were the standout group despite no normalization in the yield curve.
- Insurance was broadly higher. My long, Hartford Financial Services Group (HIG) , lagged--I added.
- Brokerage stocks on fire. Morgan Stanley (MS) up 40 cents and Goldman Sachs (GS) up $4.
- Retail rallied after being sold off for weeks. Shorts Nordstrom (JWN) was up 20 cents and Foot Locker (FL) up 75 cents.
- Energy stocks followed the rise in crude oil. Schlumberger (SLB) was up $2.
- Old tech was led by an outsize gain in IBM (IBM) , up $3, but Intel (INTC) , Microsoft (MSFT) and Cisco (CSCO) all were stronger.
- Media lagged. Comcast (CMCSA) and Disney (DIS) were up only modestly.
- Staples were higher, but not materially so. Nevertheless, my Consumer Staples Select Sector SPDR Fund (XLP) short (Trade of the Week) is stinking up the joint.
- Agricultural equipment was strong, with Deere (DE) up 80 cents and Caterpillar (CAT) up $1.30.
- (T)FANG looks like it is being rotated out of.
- NOSH was lower, save O'Reilly Automotive (ORLY) .
- CRABBY was led by Citigroup (C) but hurt by Alleghany (Y) .
- In individual stocks, Apple (AAPL) continues its forceful move, up $1.75. It is now in my shorting range. Stay tuned. Potash (POT) recovered from yesterday's loss. Twitter (TWTR) had a dead-cat bounce. DuPont (DD) , my large-cap fav, looks like it has a mission at $70. My fav short, Coca-Cola (KO) , is flat. Oaktree Capital Group (OAK) is better; I have been buying.
Here are some valuable columns form Real Money Pro today:
Some observers attribute Tuesday's frisky market advance to the April U.S. new-home sales data that substantially beat consensus expectations, as this chart shows:
Source: The Daily Shot
But as Grandma Koufax used to say: "Hold your horses." I view the optimism about U.S. real estate as misplaced, as the housing market has become deeply bifurcated and imbalanced.
The high end is flourishing, but low- and medium-end housing are foundering--and will likely face growing challenges from worsening affordability trends and rising mortgage rates. The median newly built home's price surged to more than $320,000 in April, stretching affordability and sowing the seeds for a slowdown:
Source: The Daily Shot
Sure, higher-end homes are selling, which helped raise last month's median sale price. But such properties typically go to buyers with high credit scores, loads of down-payment cash and little problem obtaining mortgages. Those not so fortunate can find it hard to get a mortgage:
Source: The Daily Shot
Frankly, the average Joe is being priced out of the market--and worsening affordability was the principal reason why the 2007-10 U.S. housing bust was as bad as it was.
Unfortunately, we're already seeing the signposts of a new slowdown in parts of California, New York City and South Florida (what Mark Hanson calls The South Beach Housing Bubble). These market segments have historically been precursors to broader housing weakness.
As I wrote in March:
"As real estate maven Mark Hanson has often asked in his columns, where will the 'orthodox, end-user, fundamental, owner-occupant demand' come from to absorb the increased supply that will be hitting the housing market this spring and summer? Alternatively, where will sharply increased 'unorthodox demand' (i.e. from real estate investors) come from?
What Hanson calls Florida's 'South Beach Housing Bubble' is the most visible start to an emerging disequilibrium between supply and demand. This is especially appearing in higher-end housing, as Latin American investors' demand deteriorates in the face of economic and currency pressures at home. Chinese demand for U.S. housing is also beginning to fade as the yuan faces depreciation.
This withdrawal of foreign-investor demand for American housing will likely be a growing storyline this year. Housing-market tops almost always start with peaks in the hot markets of Florida, California and elsewhere, especially for high-end housing. This cycle is no different. ...
I believe that the next shoe to drop in housing will be California. This has already started in Silicon Valley, where home prices have rocketed higher over the past decade but now look set to fall.
-- Doug's Daily Diary, Move Over Peak Autos, Here Comes Peak Housing (March 14, 2016)