At 4:15 p.m.:

Breadth

S&P 500 Sector ETFs

I am selling more DKNG over $46.

Long Term Capital was a "once in a lifetime event."

Not to worry, the U.S. will bail everyone out with the excess capital in our Sovereign Wealth Fund:

From Bloomberg article on QRT Multistrat Fund. February 13, 2025

Multistrats are notorious for leaning on vast amounts of borrowed money to juice their bets. QRT takes it to a whole new level. As a firm, Millennium’s total amount of regulatory assets, which includes leverage, was 7.5 times its investor cash at the end of 2023; Citadel’s was roughly 7.2 times. At Morlat and Laizet’s outfit, it’s been at least twice that.

The European Securities and Markets Authority warned in its latest semi-annual report about the “substantial ” use of leverage by hedge funds.

People who know QRT well say there are perils in expanding so quickly, and that any fund is likely to underperform eventually. But they argue there’s less hubris at the firm than is common in this ego-saturated market. Its founders came through periods at Credit Suisse and Societe Generale SA, including the latter’s calamitous episode with rogue trader Jerome Kerviel.

With S&P cash +46 handles I am moving to a medium-sized Index short.

Wolf Street howls about the PPI.

First one on Apple AAPL: 

Then this guy keeps moving the goalposts on his new models (that are not scaling and not getting better) more than Tesla TSLA guy is moving the goalposts on full self-driving. Sadly, as fast as Tesla guy is saving the federal government money, they are turning around and lighting it on fire by handing it to AI guy for Project Stargate. Yuck!

OpenAI's Efforts at Pure Scaling Have Hit a Wall

As of today, the jig is up. Orion has been officially downgraded — to GPT 4.5, by Sam Altman himself.

From this post, we can infer a few things.

• First, Orion – OpenAI’s last great effort at pure scaling – has failed. We can infer that they want to ship it, now, because they can get no further with it. But we can also infer that they don’t want to call it GPT-5 — presumably because nobody would take it seriously as AGI. If they called Orion GPT-5, reactions would likely converge for many on “is that all there is?” OpenAI’s mystique might well take a serious hit. The company’s future rests on them doing something truly revolutionary, and Orion turns out not to be that.
• Second, pure scaling will no longer be the means of attack. Instead, OpenAI will be throwing the kitchen sink at future efforts to build GPT-5, including “test-time-compute,” a new approach that involves longer, more expensive inference times rather than “constant time inference” of GPT-4-like models, as well as (I suspect) massive amounts of synthetic data, which appears to work better for semi-closed domains like math and coding than in the open-ended real world.

If Altman knew how to build AGI, he would build it. Instead, he rechristened Orion as GPT 4.5 rather than 5, which likely means that despite major bills, Orion never met the expectations so-called scaling laws had implied.

Instead all we are getting is another entry in the GPT 4.x sweepstakes.

A security and privacy researcher who works for Google DeepMind (but who spoke for herself, not the company) spelled it out:

https://garymarcus.substack.com/p/breaking-openais-efforts-at-pure

With S&P cash +34 handles I am shorting more Index calls.

I shorted more SBUX (Final Trade by Drawdown on FIN TV so I am feeling more comfortable!), JPM and PLTR.

Added to MSOS.

Back in the office.

Getting my sea legs back.

% Gainers

% Decliners

- NYSE volume is even with its one-month average;  

- Nasdaq volume is 6% above its one-month average;  

- VIX index -2.8% at 15.45

From Peter Boockvar:

If a deal is made, will commerce go back to the way it was?/Other stuff

On hopes that the Russia/Ukraine war can finally end (I'm guessing with Ukraine ceding the eastern part of the country to Russia in return for guarantees that Putin would never invade again, including security protections given by others), natural gas prices in Europe are down for a 3rd day but still remain above where they were a few weeks ago and double where they were one year ago today when last winter was mild. That said, they are well below the panic spike soon after the initial invasion. Brent crude is down 1% today after a 2.4% fall yesterday but is down just slightly on the week. A key question upon an end to the war is whether the economic separation that has taken place between Russia and Europe (along with others aligned, like the US) over the past 3 years continues. Will Germany resume Russian natural gas imports? Will the US resume uranium conversion/enrichment imports from Russia? etc... I can’t imagine things going back to the way it was in terms of commerce as long as Putin is alive and his regime is still in place.

TTF Natural Gas Price

Here is a fresh stock market sentiment check. Today's AAII measure of the mood of the individual investor is pretty bearish. While this is my least favorite gauge as it's very fickle and reads like an EKG chart, it still can't be ignored when it gets offsides. Bulls fell 4.9 pts to 28.4, a 4 week low while Bears rose by 4.4 pts to 47.3, the most since November 2023. On the flip side, the weekly Investors Intelligence survey has Bulls still well above Bears, though well off its peak spread. Bulls were 46.8 vs 49.2 in the week before while Bears slipped too to 29 from 30.2 with the balance expecting a Correction. The CNN Fear/Greed index closed at 43 vs 44 one week ago and slightly in the 'Fear' camp. The Citi Panic/Euphoria index is still well into Euphoria land at .67 vs the threshold of .41.

Bottom line, it's muddled as I look at the Citi index and I worry but the AAII tells me too many people are cautious with the other metrics sort of in no man's land.

Expect more rate hikes from the BoJ this year off a still microscopic level of .50%. January PPI rose 4.2% y/o/y, up from 3.9% in December and above the estimate of 4%. That's the quickest pace since June 2023. The 10 yr Japanese inflation breakeven closed overnight at the highest level since it was first introduced in 2013 at 1.61%. Longer term JGB yields are higher as is the yen.

Japan PPI y/o/y

Japan 10 yr Inflation Breakeven

The UK economy in December unexpectedly expanded by .4% m/o/m vs the estimate of up .1% and this helped to lift Q4 to an increase of .1% q/o/q vs the forecast of down .1%. It was mostly government spending though that drove the growth as there was no contribution from household spending and business investment declined. The new Labor government has layered on more taxes on top of an already overtaxed citizenry.

To some earnings calls.

From MGM Resorts, whose stock is up pre market as Las Vegas powers ahead still:

On tough comps, revenues and adjusted EBITDAR did fall y/o/y but "December occupancy and ADRs were still up single digits y/o/y." And, "December slot handle and slot win were an all time record level for any month in our history." January also started out on a strong note with an occupancy rate of 94% and high ADR.

Also of note, "In Macau, we achieved the best ever full year segment adjusted EBITDAR in the history of MGM China."

From Martin Marietta Materials, the maker of aggregate materials for construction like highways, homes and buildings and has exposure to businesses doing well and not so well:

"our full year 2025 aggregate shipment guidance of 4% growth at the midpoint assumes that strong infrastructure and data center demand, a full year of 2024 acquisition contributions and normalized weather patterns will all more than offset the slowdown in private construction, which is primarily interest rate driven."

The outlook from Ryder:

"In terms of market assumptions, we're expecting a muted growth environment in 2025, reflecting freight market conditions. The top end of our 2025 forecast range assumes continued contractual earnings growth and a very modest improvement in rental demand later in the year. We expect to see typical seasonal patterns in rental most of the year and slightly better than seasonal trends later in the year, reflecting an anticipated slow freight recovery."

From Cisco, whose stock is rallying pre market as it benefits from its cloud and AI infrastructure business:

"We continue to see very strong momentum in service provider and cloud, with product orders up 75%, driven by triple digit growth in webscale. Three of the top six webscalers each grew orders in the triple digits, and two of the six each grew more than 50%. This shows our increasing relevance to this high growth customer market as they scale their infrastructure for AI." They also saw good growth in its networking product line including switching, enterprise routing, webscale infrastructure, and industrial networking applications in our IoT products."

And, "We also continue to see robust order growth for data center switching."

From Taylor Morrison, the homebuilder:

"From a sales perspective, as I shared on our last earnings call in October, we were seeing healthy demand trends in line with seasonal patterns. While interest rates increased sharply through the quarter, activity held up with impressive consistency through year end...I am pleased that this sales success was achieved with only a modest increase in incentives needed to address the impact of higher interest rates." And this helped their gross margin.

The key to their success? "I attribute the positive results to the quality locations of our communities, which are concentrated in attractive core submarkets with minimal exposure to further out tertiary locations." They believe that "tertiary markets are facing the most pricing pressure from rising inventory as well as greater sensitivity to affordability constraints among the first time buyers attracted to such markets."

From Kering, the maker of Gucci, and its geographic rundown:

"with the exception of Japan, all regions improved sequentially in Q4, driven by slightly better traffic and higher average tickets. Western Europe remained in negative territory, down 8% in Q4, a 3 percentage point improvement compared to Q3, driven by locals and tourists. Local demand, accounting for roughly 50% of the total, remains muted. Purchases by tourists were a touch below last year, with most nationalities positive or stable except Asians...In North America, Q4 down 9%, showed a 6 percentage point sequential improvement due to less unfavorable traffic trends and higher average tickets."

In Asia, "Asia Pacific recovered in Q4, down 24%, a 6 percentage point upswing compared to Q3. Mainland China, Hong Kong and Macau led this sequential recovery...Finally, rest of the world was up 5% in Q4, fueled by Middle East and to a lesser extent Latin America."

Most active premarket exchange-traded funds as of 8:09 a.m.:

Premarket percentage movers at 8:26 a.m. ET:

* It's your own trip, be my guest...

I am long 

PSIL

 but it is very speculative:

Datadog DDOG lowers guidance and another one bites the dust. 

-$17.

Wolf Street howls about rising inflation.

Yeesh, I was hoping that AI would give me the benefit of the doubt and tell me I was married to Elizabeth Hurley.

No such luck!

https://futurism.com/ai-chatbot-hallucinations-marriage

META will break its eighteen-day streak of daily advances:

Bonus — Here are some great links:

Friday Before Presidents Day Is Usually Higher

Animal Spirits in Europe

Is Inflation Making a Comback?

The Gift and Curse of Leveraged ETFs

Your Trading Pattern Revealed

* Yesterday I covered the dip and sold the rip...

I always like to see the range in S&P futures trading overnight to get sense of the market.

It was a relatively wild one last night, with SPOOs trading +20 handles, then down -20 handles and now (at 5:12 AM) resting at about -2 handles.

The inability to maintain the climb from the lows on Wednesday morning could be a "tell."

Yesterday I properly covered my short Index position on the whoosh lower and reshorted SPY and QQQ calls late in the day as the market rallied.

Stay tuned!

As mentioned yesterday, I left early on a business trip in the late afternoon. I will be returning to the office today at around 12:30. However, I will be posting in my Diary before 9 AM this morning.

I am reposting this from yesterday as it "bears" rereading:

Doomberg: "The US Is Not Broke."

* On the Nasdaq Index... a "cooled triangle pattern"

The Nasdaq has not made an all-time high this year.

Since January, the Nasdaq has a coiled triangle pattern — making lower highs and higher lows.

This narrowing may suggest a large resolution is upon us: 

The S&P Short Range Oscillator fell from 1.11% to 0.53% — a slightly less overbought.