Monday, June 23, 2008

Feeling Exposed?

After another brutal week, we are heading past March, January lows again. Not much has changed. Financials are getting slaughtered and oil is booming. The question is, will we keep falling or are we headed towards our third cycle of bouncing over 13,000?

I don't know. I don't think that we should, but then again, I think there are hundreds of companies that should be bankrupt that keep bouncing back. What concerns me is, do I have enough downside exposure? If we do head towards 10K, where and how will I be making money? Gold will make me money. Oil may or may not, depending on how those stocks perform. Capital One and Retail shorts will be homeruns, but my general portfolio will take a beating. So, time to get back into the game and increase downside puts? Probably.

Some thoughts. Continue to look for banks that will implode. Citi, BAC, and Lehman continue to head the list, but let's not count out UBS and many others. Increase gold exposure or perhaps silver significantly. Short the Dow. Short the S&P. Easy to do, may not have much homerun potential but certainly offers protection.

Went to Walmart yesterday and drew some conclusions from this visit. As you may recall, I routinely drive right past it to go to Super Target for the bulk of our family shopping. But I got a hot tip on a set of plastic golf clubs for $5 for my daughter, so we took the morning to scoop them up and perhaps get some ice cream. I was pretty much shocked by how cheap stuff was. Target is significantly cheaper than the grocery store, but for some daily items, Walmart was definitely cheaper than Target (although, wipes and Frappacinos were more expensive!). Now, there is no comparison in the shopping experience (cleanliness, nicer stuff, no warehouse effect, employees not just released from rehab) between the 2, which is why I'm willing to drive the extra mile. But, Tiger Coach recently asked me what I thought about shorting Target. I almost fell over.

Target is a winner. This will continue to be a tough environment while Walmart slashes prices and brings in customers. But Ackman owns 10% of Target and has a way of working magic. With the stock down almost 30%, if it approaches $45, I would do the opposite. Go long out to 2010. Give a chance for recovery and see if we're not near the bottom.

Just a few blurbs from the weekend:

"More than 80 percent of the fund managers, investors and hedge fund service providers at the event said they expect the credit crisis will continue, a survey found. Almost a quarter said they expect the situation ``will deteriorate significantly.'' This was taken from a Bloomberg article of a fund manager meeting over the weekend.

"MBIA Inc.'s five-level downgrade by Moody's Investors Service probably will force it to make $7.4 billion of payments and collateral postings." Another Bloomberg headline. Another winning call for Ackman and Tilson. Ugly stuff. Wish we had shorted on a bounce back over $15 in January.

And finally, something that would make me very happy. "Gold May Rise to $5,000 on Inflation, Schroder Says (Update1)." This would be quite a scenario. This would also get me a 500% return!

Gold May Rise to $5,000 on Inflation, Schroder Says (Update1)June 19 (Bei Hu - Bloomberg)

http://www.bloomberg.com/apps/news?pid=20601213&sid=a5IgwR.6DR0s&refer=home

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZFL_bKzqxYU&refer=home

3 comments:

Tiger Coach said...

Ax..

TGT is a great store...my wife (a.k.a. the consumer of the house) prefers it over WMT. That being said, WMT slashed its margins several months ago...for-seeing the tight economic environment we are currently in... At the end of the day, people will shop for price first, and ambiance second.

You'll note WMT's commitment to delivering value to the customer...sometimes to the cost to others.

Ackman is a genius, and I would not question his influence over this company. Quite simply, it is not as well positioned to take advantage of the current economic situation... In a better economy, where the consumer is less driven by price, TGT would look more attractive. Buffet also holds WMT.

Tiger Coach said...

AS for Gold, I hold VGPMX...as a large portion of my 403 B portfolio. They have some gold..etc. etc.. but have a large interest in platinum and palladium... while both are precious metals, they both have industrial application as well.

Oil...who knows... one false move in the Middle East and I can see oil @ $200... I am not so sure production is as big of a problem as everyone is blaming OPEC. It is more of a position that the dollar (which oil is currently priced in)... has lost some punch....

I would invite any reader to click the site for Ron Paul...amazing argument he lays out.
http://www.house.gov/paul/congrec/congrec2006/cr021506.htm





P.S.
TGT will probably look a little better at $40

AX said...

Can only hope TGT ever makes it that low. Of course, if it does, I think the Dow will be around 10K.