Google, Apple, Starbucks: Doug Kass' Views

Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.


Midday Musings

Originally published March 7 at 2:36 p.m. EST

  • Nice move off of the lows for Allergan (AGN) . (More than +$3 for the homegamers!)
  • My Generational Bottom in Bond Yields (last July) looks very much intact. Two basis points higher in yield Tuesday
  • Today's three-year US note auction was soft. This is not surprising as historically it is quite sensitive to expectations of Fed policy. At 1.63% yield, it was above the when-issued market, the bid to cover (2.74) was below the one year average of 2.80 and dealers got stuck with 42% of the auction (vs. 12-month average of 39%). The yield is the highest in seven years.
  • Let's begin to focus on high yield bonds--the space is starting to lose steam. (If you are in Blackstone/GSO Strategic Credit Fund (BGB) , reconsider the position).
  • Let's also keep an eye on the S&P (cash) level of 2363. That's last Tuesday's close, the day before the President's speech to Congress that everyone got excited about ... but then, arguably, has been diluted by weekend and weekday tweets. The Russell 2000 RUX and the Transportation Indices have already given back that rally. The DJIA (DIA) is still 115 points above and the Nasdaq  is 23 points above that level.
  • Again, the market "action" seems to be different than over the past two months.
  • Gold continues its schmeissing, for the sixth day in a row (and since we sold SPDR Gold Trust (GLD) above $119). Phew! But I would note, leveraged junior gold mining ETFs [Dx Dl Jr Gld Min 3X  (JNUG) and [Market Vectors Junior Gold Miners ETF (GDXJ) are holding up--so I wouldn't be surprised if a reversal (higher) is imminent. GLD is within $1 of my correction target!
  • Broad based decline in agricultural commodities today--me no likey. And I would continue to avoid fertilizers--they're crap (and the commodity price recovery is far away)
  • Retail stocks? Fuhgettaboutit! Non playable.
  • President Trump put a smackdown on pharma and biotech Tuesday morning. Gilead Sciences  (GILD) is still a value trap.
  • Share price action in VRX, CMG--seem to be exclamation points to the notion of "Peak Ackman."
  • FANG battling--but my guess they are ready to be defanged.
  • SNAP's (SNAP) 10% drop is causing collateral damage to Twitter (TWTR) --and I am adding more aggressively.
  • Next week, "Three Steps and a Stumble?"
  • I have added to ProShares Trust UltraPro Short QQQ ETF (SQQQ) and ProShares UltraShort S&P500 (SDS) Tuesday--further raising my net short exposure back up.
Position: Long SDS SQQQ AGN TWTR; Short SPY QQQ .

Takeaways and Observations

Originally published March 6 at 5:00 p.m. EST

Perhaps we can make a parallel between the S&P Index and Snap SNAP. Today SNAP just fell (by nearly 15%), maybe the S&P will follow! Hey, a guy can hope.

After all, the irrational might now be rationalized. And here is how some hedge fund icons feel about the subject ...

Remember, risk happens fast.

I have done a good job in depicting the possible SNAP price action after the IPO last week. I thought shares would soar out of the box, moving into the high $20s. At $29, late last week, I wrote to sell, Mortimer. SNAP closed down $3.54 to $23.77. Here is why I would avoid SNAP and here is why I would (and have!) purchase Twitter (TWTR) (it's my "Trade of the Week").

So far so good on the gold call. And there is a lesson in leveraged ETFs here!

By the way, the price of gold declined for the fifth day in a row--for the first time since late November.

Don't be brave, avoid Valeant (VRX) .

Financials, uncharacteristically, declined in the face of lower bond prices and higher yields. It might be the most crowded trade. Avoid the crowd now. I am net short the sector.

Deutsche Bank's DB woes are symptomatic of an overlevered and under-earning EU banking system. Stay away ... or at least I am.
Today's trades, modest in size--I still have jet lag.

Despite a $1 billion buy program on the close, the market uncharacteristically declined in the last few minutes. S&P lost three to four handles near the close instead of rising three or four (or more) handles!

* The dollar strengthened.
* The price of crude oil dropped by a dime.
* Gold gave up a small amount.
* Ag commodities: wheat +6, corn -2, soybeans flat and oats +10 (that's a big move).
* Lumber +$1.40
* Bonds continue to fall--as yields rose by about two basis points.
* Municipals and high-yield markets traded lower, too. Closed-end muni bond funds were mixed and GSO Strategic Credit Fund (BGB) +$0.05 (I would be selling this ETF).
* Banks hit with profit-taking.
* Life insurance conspicuously weak, again. Hartford Financial (HIG) almost bucked the sector's weakness. I took off some of my Lincoln National (LNC) short, as I got too large.
* Brokerages lower, but not by that much.
* Autos suffered, despite the good news on the sale of European operations (GM). I am substantially in the peak autos pew. Incentives are high and rising, dealer inventory/sales in dangerous ground, auto paper delinquency rates eroding post haste. I expect second half EPS for OEMs to be guided lower.
* Old tech showed little price change.
* Ag equipment was flat.
* Media was mixed, with Disney (DIS) weakening (though a lot of technical support being voiced). I don't like the fundamentals and the news on ESPN layoffs.
* Transports gained with CSX (CSX) and Union Pacific (UNP) higher.
* Retail was horrific--I would continue to avoid the entire sector, which faces regulatory and macroeconomic headwinds. On top of that, the channel changes are accelerating. Target (TGT) , Macy's (M) , Nordstrom (JWN) and J.C. Penney (JCP) downside features.
* Big pharma was mixed.
* Energy mixed also.
* Consumer staples down on our strengthening currency.
* Biotech was sold (-1%). Allergan (AGN) and Gilead (GILD) downside leaders. Speculative biotech continues to trade poorly.
* (T)FANG showed very little price movement with Netflix (NFLX) up on a research call but Amazon (AMZN) and Alphabet (GOOGL) slighty lower.
* In individual stocks, Starbucks ( (SBUX) continues to underperform (I have been adding on the short side), Apple (AAPL) lower (but well off the lows of the day), DuPont (DD) up small on a sell-side upgrade (I am a sub-$75 buyer after having recently reduced my long position further).

Here are some value-added contributions on our site:

  1. Jim "El Capitan" Cramer on the state of the market. Though I respectfully disagree with his statement that there is a lot of skepticism. When I look at the CNN Fear/Greed, the inflows into bullish ETFs and the strength and optimism in the investor surveys--I see it differently.
  2. Bob Lang likes fangs.
  3. Rev Shark on afternoon delights.
  4. Guy "From" Ortmann on bullish and bearish reversals. Where's Mindy (McConnell)? (Did you know Pam Dawber, a.k.a. Mindy, is married to Mark Harmon?
  5. Martin Baccardax on Deutsche Bank (DB) .

Nanu, nanu!

Position: Long CPB large, TWTR, SDS, SQQQ, DD small, AGN, HIG large; short SBUX, DIS small, AAPL small, CAT, L .

Action Alerts PLUS, which Cramer manages as a charitable trust, is long AGN, AAPL, GOOGL and SBUX.

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