At 4:26 p.m.:

Closing Breadth

S&P 500 Sector ETFs

Heat Map

Pretty good takedown of all the spin coming from AI cabal post the Microsoft MSFT news, including MSFT themselves, who probably wants the money losers to keep buying stuff from them and they want to keep the funding party going:

Microsoft "Strongly Refutes" Cowen Report It Is Canceling Data Center Orders... But Questions Remain

Media star Saylor's MSTR share price has moved from $543 to $285 since mid-November 2024.

The business media has performed an injustice — instead of asking tough questions about the company's strategy and leverage, softballs were consistently thrown.

Like the St. Louis Cardinals-Houston Astros game I attended in Jupiter, Florida yesterday afternoon, it's been a rout for shareholders.

Wolf Street howls about Apple's expansion plans.

Besides my forays into the Indices today I added to the following longs:

* MSOS at $3.28

* TCNNF at $4.28

* GTBIF at $6.99

* At this point some might be getting my points!

If you want to be in the business of selling guns to the warfighters, might as well do it the old fashioned way: 

As far as Nvidia's quarter and guidance, it seems the stock market is telling us once again it should be pretty good, but I have no idea, and am not trying to comment on the short term trajectory of the business, and instead am sticking to the overall viability of the LLM business model. 

Here is one datapoint I do feel more confident about:

With S&P cash +14 handles I am moving off my delta-adjusted Index neutral position by selling out some of my SPY $601.22 and QQQ $525.32 longs.

From earlier:

My Morning Move

With S&P cash only +9 handles (and down from +36 handles earlier) I have moved to a delta adjusted neutral position in the indexes.

Position: Long SPY common M QQQ common M; Short SPY calls M QQQ calls M

By Doug Kass Feb 24, 2025 9:49 AM EST

Large-caps with widest intraday % ranges (High - Low) 

Advancers

Decliners

- NYSE volume is 19% above its one-month average;

- Nasdaq volume is approximately flat to its one-month average

- VIX: up 4.67% to 19.06

Magnificent Seven Moves intraday as of 9:46 a.m.:

douglas cassel

3 minutes ago

"Don't let the past remind us of what we are not now"

Buffet's singular performance was based upon a preternatural ability to analyze companies combined with the assumption that the US economy would continue on an upward trajectory.

The question the rest of us face is not about his unique track record, but whether the basic assumption about continued US growth remains true.

If one can be certain that prosperity will continue, then investing in growing companies and indices will remain a winning formula, at least in the longer term.

Many here, and many pundits, are beginning to question the future course of the US economy, both short and longer term. If Doug K is right, and AI is a bust, one can truly question the long term prospects for the USA. The combination of debt, China, demographics and climate degradation could conceivably lead to longer term stagnation.

FWIW, my timeline is more limited, but Buffet's strategy might be more suited to an earlier, different time. That is the question for the future.

DK

Dougie Kass

STAFF

Just Now

Another thing that is obvious and that materially helped Warren/Berkshire was the low level of stock prices and price earning multiples that served as a unique launching pad for decades of higher stock prices and portfolio gains for the company...

With S&P cash only +9 handles (and down from +36 handles earlier) I have moved to a delta adjusted neutral position in the indexes.

From Peter Boockvar:

A few things of importance

This story out there that Microsoft is canceling AI data center leases according to a Cowen report gives me more reason to believe that a stock market regime change is upon us where the AI trade no longer dominates and the DeepSeek news was a game changer in terms of the global view of it. And maybe the users (like all of us) of generative AI now become more of a focus as businesses integrate it into their businesses to the extent that they can right now as it is still very early. That said, as heard from other hyperscalers, there is still an enormous amount of spend going on. Watch now too the data center REITs and every private equity real estate fund that has gotten into this space even though technology changes fast compared to other areas of CRE.

With respect to the German elections, I don't believe the results, all down the line, were any surprise and the new Chancelor Friedrich Merz still has the challenge of forming a new coalition government without the AfD as he's said. Whenever one is formed, we'll see whether there are changes to the 'debt brake' policy and to what extent which has limited its debt to GDP ratio and how much defense spending ramps up. Either way, we have a new center right government in Germany at the same time the European region as a whole has realized that they've suffocated themselves with too much regulation/bureaucracy/red tape with so many things. Germany also needs to turn its nuclear plants back on because their electricity costs are just too high and not sustainable if they want to better compete with the rest of the world.

The DAX is up .8% today in response and 13% year to date. Interestingly too, the mid cap MDAX index is jumping by 2.5% and by 10% year to date. German bund yields are slightly higher as we watch what will come of that 'debt brake' easing and defense spending possibilities. The euro is little changed but it looks like on the chart that it is carving out a reverse head and shoulders pattern which is bullish for it if realized.

Euro

In anticipation of the election results and the political shift to the right, the February Expectations component of today's German IFO business confidence index did rise 1.1 pts m/o/m to 85.4 which is the highest since November but still hovering at low levels. The headline figure was 85.2, unchanged with January and below the estimate of 85.8 because of a one point drop in the Current Assessment. The IFO is always succinct in their bottom line and said "The German economy is waiting to see how things develop."

IFO

Domino's Pizza missed estimates with both comps and earnings and mentioned "a challenging global macroeconomic environment" in its earnings release with a call to come today.

Owens Corning which makes and supplies roofing and insulation products said this today with their guide:

"Owens Corning expects near term demand for nondiscretionary repair activity to remain stable as the year begins while residential new construction and remodeling is expected to remain soft. Commercial construction activity in North America is expected to start the year slower than the prior year. The result of incremental tariffs which have not yet been implemented may also have a near-term impact. In Europe, the company expects market conditions to remain weak in the near-term in residential and commercial markets, similar to the second half of 2024."

Most active premarket exchange-traded funds as of 8:34 a.m. ET:

Premarket percentage movers as of 8:41 a.m. ET:

Upside:

-FRSX +57% (announces the integration of NVIDIA Jetson Orin into its Perception Technologies)

-PEPG +24% (earnings, cash guidance; expects to report results from FREEDOM 15 mg/kg cohort in 2H25 and from FREEDOM2 5 mg/kg cohort in 1Q26)

-VVOS +13% (expands strategic alliance in Colorado and seeks new sleep center affiliations and acquisitions)

-WRD +9.0% (announces approval to launch its latest generation Robotaxi, the GXR, for fully unmanned paid ride-hailing services in Beijing)

-BDRX +8.1% (plans to initiate Phase 3 registrational study of eRapa in Familial Adenomatous Polyposis (FAP) next quarter)

-SMMT +6.9% (announces clinical trial collaboration with Pfizer to evaluate Ivonescimab in combination with Pfizer antibody drug conjugates; earnings)

-AMRX +6.0% (receives US FDA ANDA Supplemental 49 approval for Buprenorphine Hydrochloride)

-HCC +5.8% (provides update on Blue Creek Steelmaking Coal Project)

-TWLO +3.6% (Morgan Stanley Raised TWLO to Overweight from Equal Weight, price target: $160 from $144)

-VLRS +3.0% (earnings, guidance)

-HOOD +2.7% (SEC closes its investigation into Robinhood Crypto with no action)

-NKE +2.6% (Jefferies Raised NKE to Buy from Hold, price target: $115 from $75)

-BRDG +2.5% (confirms Apollo to Acquire Bridge Investment Group for ~$1.5B in all-stock deal; earnings, raises dividend)

Downside:

-IVVD -33% (US FDA declined request to expand existing Emergency Use Authorization of PEMGARDA (pemivibart) to include treatment of Mild-to-Moderate COVID-19 for Immunocompromised Persons Who Have No Alternative Therapeutic Options)

-TH -24% (US govt intends to terminate the existing Pecos Children’s Center Contract, effective immediately; withdraws guidance)

-WLK -4.3% (earnings)

-DPZ -4.2% (earnings; raises dividend)

-U -3.8% (files to sell $500M offering of Convertible Senior Notes)

-CCO -3.7% (earnings, guidance)

-BABA -3.5% (to invest >CNY380B (>$52.0B) on AI and cloud infrastructure over next 3 years)

-PLTR -3.4% (NOTE engages John Lee, former Head of Contracts for Palantir’s U.S. Government Vertical, as a Senior Strategic Advisor)

-OC -3.3% (earnings, guidance)

-RIVN -2.7% (Tier1 firm Cuts RIVN to Underperform from Neutral, price target: $10 from $13 following earns, guidance last week)

-WBX -2.2% (announces $10M investment via private placement of 26.7M shares)

This table is a valuable resource for momentum-based short term traders:

From JPMorgan:

U.S.: Futs are higher following the worst session of the year, leaving the SPX ~2% below its ATHs. Pre-mkt, Mag7 names are mixed with RTY outperforming; Fins/Banks are bid this morning pointing to a rebound in Value/Cyclicals. Bond yields are 1-2bps higher with a flat USD. Cmdtys are mostly lower with WTI still above $70/bbl and precious metals with a slight bid. Weekend trade news was muted with the German election and RU/UKR in focus. Today’s macro data focus is on regional activity indicators.

and...

EQUITY AND MACRO NARRATIVE: The SPX fell 1.7% last week, including 2.1% on Thurs/Fri after setting a new all-time high on Wednesday. In both days, we saw a messy opening print where the market struggled to recover on Thursday and then closed on the low on Friday. Friday’s -1.7% performance was the worst since Dec 18 and the SPX remain +2.2% for the year. It appears to be a Momentum factor unwind as crowded plays materially underperformed. While the moves felt very “un-windy” we failed to see panic selling on our Cash Equities desk and saw very little appetite for downside protection/bearish bets on our Equity Derivatives desk. In bond space, we saw a flight to safety with yields peaking on Tuesday and declining through the balance of the week. Despite the move in Treasuries, we saw the USD continue to appreciate. Despite the move higher in the USD, commodities performed well led by metals and natgas. This begs the question as to whether there is more to this pullback. The following charts from our Delta One team can give a sense of positioning, which seem to indicate that crowded positions are most at-risk while the Beta and Momentum unwinds are largely complete.

* Freedom is just another word for nothin' left to lose... 

Busted flat in Baton Rouge, waitin' for a train

When I's feelin' near as faded as my jeans

Bobby thumbed a diesel down, just before it rained

And rode us all the way into New Orleans

I pulled my harpoon out of my dirty red bandana

I's playin' soft while Bobby sang the blues

Windshield wipers slappin' time, I's holdin' Bobby's hand in mine

We sang every song that driver knew

Freedom is just another word for nothin' left to lose

Nothin', don't mean nothin' hon' if it ain't free, no-no

And feelin' good was easy, Lord, when he sang the blues

You know feelin' good was good enough for me

Good enough for me and my Bobby McGee

- Janis Joplin, Me and Bobby McGee

"Slug":

"Flation":

Source: Hedgeye

Plus six consecutive weeks of declining bond yields...

Bonus — Here are some great links:

The World Is Turning

Stock Market Whipsaw Continues

February's Weak Spot

Was Friday's Washout the Beginning of the End?

The Bearish Thesis

The tweet below was sent to me as being a positive for Bitcoin. If true, I think quite the opposite. In fact, it is another positive for gold:

This is plausible. The tweet indicates billions of $ in BTC was stolen from the U.S. Marshalls. I guess, in theory, the U.S. Marshalls could have been in possession of BTC they confiscated from criminals.

If the U.S. Marshalls had the BTC stolen back by criminals, I think this is a disaster for BTC. First of all, this does not reduce the supply of BTC. It actually sort of increased it. It went from the U.S. Marshalls, where it was out of circulation, back to the criminals, where it is in circulation.

But more importantly, BTC is meant to be a secure asset. Once again, it has proven not to be secure. Imagine putting your net worth into an asset, that can be stolen by anyone globally? You have exposed yourself to an army of thieves. Yes, physical assets can also be stolen. But they are not marketed as un-stealable.

If you hold dollars (or dollar-based assets like equities) at a financial institution, you are backstopped. As long as the institution does not fold, they are on the hook for the electronic theft. And there are institutions as well, like Vanguard, that unlike banks, are largely risk free and you can park your money there.

Physical assets like gold are subject to theft, but that has always been the case, and is in the price. At least in the case of a physical asset, your only exposure to theft is someone local, that has to physically steal it from you, which is a risk that has been known for a long time, and is in the price. You are not exposed to an army of global hackers, that can do this at a push of a button. I know which risk I would rather take. The risk of BTC being a stealable asset is not in the price. If it can be stolen electronically, it basically becomes worthless. What was viewed as highly secure, would be the complete opposite.

The related point, if gold were missing from Fort Knox, it would be good for the price of gold. This is the opposite issue. If the U.S. needs the gold back, they would have to buy it on the open market. Since this is a legacy issue, it would also mean there is less gold out there than people believed.

Then the other issue, related to the hype about quantum computing, if quantum compute is real, BTC also becomes worthless. Quantum computing can break the encryption that secures BTC. For those that believe in the rapid rate of technological change, including quantum computing, why bet on an asset that could instantly become worthless? 

This is interesting from Cowen with regard to Microsoft MSFT cancelling data center leases. 

The tweeter claims it is the same for META, although in the section of the note I can see, it only mentions MSFT. Anyway, it wasn’t too hard to tell from Satya Nadella’s recent comments that he was souring somewhat on the whole thing. You could almost summarize a portion of his comments (- “[If you look at the Industrial Revolution] there was a lot of money lost” - “…countries are going to deploy capital… I'm so excited to be a leaser… I build a lot, I lease a lot.“) by saying it seems he is happy to lease space to those that want to pay him to lose money to do this stuff. And even in the face of that, MSFT is still cancelling data center leases according to this, which reflects their underlying view of forward demand from the money losers – he knows they too cannot do this forever: 

Here are two more on the Microsoft data center cancellations, with more detail including what was stopped and what the implications might be:

* Rear-view mirror versus windshield.

* Note how bullish most technical analysts were earlier last week going into Thursday and Friday's "rug pull."

I posted this after the close on Friday afternoon (in case you missed it):

Minding Mr. Market

As expressed earlier and over the last few weeks, going into this year I believed the S&P's 2025 upside was about +5% (not intended to be precise!) and the downside was between -10% and -15%.

This means, if I am accurate in view, the move towards the higher end of my year's forecast earlier this week substantially eroded the reward/risk ratio (even further) to virtually zero upside and 15%+ downside.

As also noted recently, I expected January to mark an overall market high for the year — particularly in the Mag 7 space (where I have AI concerns (See More Tales of Nvidia) and the roll over in share prices are becoming more apparent).

With "slugflation" ahead (prickly inflation and sluggish economic growth), fixed-income markets providing a near equity-like return (with less volatility and risk), fiscal and monetary policy unpredictable (and, perhaps wrong footed), valuations above the 96%-tile and market structure being a bonafide concern (with most on the same side of the long boat), equities remain overpriced.

In late January my hedge fund began to liquify, taking off a number of longs and pairs trade in anticipation of a buying opportunity in the coming months.

Given the strategy I am employing, the idea of above-average cash reserves seems reasonable for many investors.

Thanks for reading my Diary today and all week.

Enjoy the weekend.

Position: None

By Doug Kass Feb 21, 2025 4:53 PM EST

The S&P Short Range Oscillator moved back to oversold at Friday's close at -1.42% vs. 0.09%.

With S&P futures +35 handles I am selling some of my long Index positions (I hedged out my short calls in Friday's whoosh lower):

* SPY $603.30

* QQQ $528.80