Judgment Day; The Good, the Bad and the Ugly: Doug Kass' Views

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


Judgment Day for Financials Is at Hand

Originally published April 13 at 9:11 a.m. EST

"Don't wait for the last judgment -- it takes place every day."

--Albert Camus

Like Sonny the Cuckoo Bird, throughout the last three months business commentators, money managers and strategists have been "cuckoo for Cocoa Puffs" when it comes to bank stocks. Indeed, if you do a Google search you will see that the banking industry has been the most touted sector since the election. That consistent endorsement has been a self-confident one and remains so despite the 8% fall in the sector from the March highs.

I believe the consensus optimism on banks is misplaced. And I also believe that if I prove to be correct, we predictably will hear crickets from the "carpet sweepers" who confidently have endorsed the group.

Thus far bank stocks have had a modest reaction to relatively good and above-consensus earnings reports.

But first-quarter profit reports are simply rearview mirror influences; I prefer to look forward as the market is a discounting mechanism.

We now are approaching judgment day for the financial sector and I expect the stocks to continue to roll over in the weeks and months ahead, as described extensively in a recent column I wrote about financials. (I would note that MetLife (MET) , Lincoln National (LNC) , Goldman Sachs (GS) and Morgan Stanley (MS) are on my Best Ideas List as shorts.)

Slowing economic growth relative to expectations, moderate gains in commercial and industrial loan demand, a peaking in autos and housing activity, lower-than-consensus implied interest rates, a flattening yield curve, limited regulatory changes to Dodd-Frank and other factors lie on top of elevated valuations, which are back to pre-crisis levels.

The bottom line is that those in the banking industry barely will earn their cost of capital in the years ahead, and price/earnings ratios will reflect that state.

I am a seller of financial stocks on strength.

Position: None .

The Good, the Bad and the Ugly

Originally published April 12 at 3:12 p.m. EST

"It's not a joke, it's a rope, Tuco. Now I want you to get up there and put your head in that noose. -- Blondie, " The Good, the Bad and the Ugly"
 
Let's move to the abbreviated Monarch Notes form of "Takeaways, " with "The Good, the Bad and the Ugly."

The Good
* Gold continues its rally (+$3).
* Big Pharma better--especially of a Johnson & Johnson (JNJ) kind.
* Speculative biotech improving--especially of a Sage Therapeutics (SAGE) kind (a Bobby Lang pick!). ZIOPHARM Oncology (ZIOP) +10%.
*Chipotle Mexican Grill (CMG) continues its impressive advance.
* Incyte (INCY) +!
* Campbell Soup (CPB) in face of a strong consumer staples look.

The Bad
* Ag equipment lower despite an easy compare for March retail sales at Deere ( DE) . Caterpillar CAT -$1.70 and DE -$1.10
* Perrigo ( PRGO) new lows.
* Transports--especially of a railroad kind (CSX ( CSX) and Union Pacific ( UNP) lower).
* Insurance mauled.
* Banks broadly lower--but losses reduced during the day's trading session.
* The stock market has a different complexion--I am seeing some pimples.
* At 245PM S&P near its daily lows. ( ( SPY) down a beaner) I added to ProShares UltraShort S&P500 (ETF) ( SDS) and ProShares Trust UltraPro Short QQQ ETF ( SQQQ) longs.
* Lumber -$10.
* For the second day in a row the optical space is lower on China and Apple ( AAPL) fears.
* GE ( GE) fizzling and might be rolling over.
* An uncommon losing day for Elon Musk's baby, Tesla ( TSLA) . (-$9)
 
The Ugly
* Brokerages can't rally, breaking down. Morgan Stanley ( MS) and Goldman Sachs ( GS) are on my Best Ideas List (short).
* Tractor Supply ( TSCO) -7%.
* Fastenal ( FAST) a mess after a gross margin miss.
* FMC ( FMC) , Nucor ( NUE) and United Rentals ( URI) leading cyclicals lower--as Trump initiatives may be pushed back in time.
 
Position: Long CPB large, SDS, SQQQ; Short AAPL small, CAT small, FAST, SPY small, QQQ small .

More from Investing

Berkshire Hathaway Loosens Buyback Rule to Help Spend $109 Billion

Berkshire Hathaway Loosens Buyback Rule to Help Spend $109 Billion

Nucor Shares Retreat Despite Nearly Doubling Q2 Earnings

Nucor Shares Retreat Despite Nearly Doubling Q2 Earnings

Investors Trample Skechers After Disappointing Earnings

Investors Trample Skechers After Disappointing Earnings

Tilray's Stock Lights Up Following First U.S. Marijuana IPO

Tilray's Stock Lights Up Following First U.S. Marijuana IPO

Domino's Stock Dips After Revenue, Same-Store Sales Miss

Domino's Stock Dips After Revenue, Same-Store Sales Miss