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 - Get Report) , Lincoln National (LNC - Get Report) , Goldman Sachs (GS - Get Report) and Morgan Stanley (MS - Get Report) 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 - Get Report) kind.
* Speculative biotech improving--especially of a Sage Therapeutics (SAGE) kind (a Bobby Lang pick!). ZIOPHARM Oncology (ZIOP) +10%.
*Chipotle Mexican Grill (CMG - Get Report) continues its impressive advance.
* Incyte (INCY - Get Report) +!
* Campbell Soup (CPB - Get Report) in face of a strong consumer staples look.

The Bad
* Ag equipment lower despite an easy compare for March retail sales at Deere ( DE - Get Report) . Caterpillar CAT -$1.70 and DE -$1.10
* Perrigo ( PRGO - Get Report) new lows.
* Transports--especially of a railroad kind (CSX ( CSX - Get Report) and Union Pacific ( UNP - Get Report) 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 - Get Report) down a beaner) I added to ProShares UltraShort S&P500 (ETF) ( SDS - Get Report) and ProShares Trust UltraPro Short QQQ ETF ( SQQQ - Get Report) longs.
* Lumber -$10.
* For the second day in a row the optical space is lower on China and Apple ( AAPL - Get Report) fears.
* GE ( GE - Get Report) fizzling and might be rolling over.
* An uncommon losing day for Elon Musk's baby, Tesla ( TSLA - Get Report) . (-$9)
 
The Ugly
* Brokerages can't rally, breaking down. Morgan Stanley ( MS - Get Report) and Goldman Sachs ( GS - Get Report) are on my Best Ideas List (short).
* Tractor Supply ( TSCO - Get Report) -7%.
* Fastenal ( FAST - Get Report) a mess after a gross margin miss.
* FMC ( FMC - Get Report) , Nucor ( NUE - Get Report) and United Rentals ( URI - Get Report) 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 .