Friday, July 11, 2008

Get Shorty

Hope Tuesday didn't give you any hope other than a great day to buy more shorts. Even yesterday's 80 point bump was strictly smoke and mirrors/Fed gobbledygoo. Our largest mortgage lenders are bankrupt, insolvent. Even I bought the too big to fail arguments on these guys 6 months and 90% ago. This is the Black Swan. This is the unforeseeable. How could these companies making money hand over fist lose so much? We didn't want to believe it in the $50s. Then, in the $20s, we were reassured. Now they are worthless and if they government takes over, shareholders will be left with nothing.

It's never too late to blow up in this market. Having talked a big game on silver the last few weeks, I failed to purchase at my buy point of under $175 on the SLV Tuesday. Today, $186. I should've just put in a limit order but I got caught up in trying to acquire and succeeding in getting GGP and GNW. GGP is a REIT essentially, a commercial real estate short, and GNW is a mortgage insurer with exposure in Florida, Texas, and California.

Auto Nation is imploding as I write this. But Carmax and Group 1 Automotive, Carmax's Southern competitor, is also on our blowup list. I debated on shorting Whole Foods this week, but thought there might be other worse off candidates. Nordstrom's and J. Crew are on my retail radar, and they have imploded since Tuesday as well. But it's a long way down for retail. If your name doesn't contain "dollar" or "Wal" in the title, the post-stimulus check pain is going to kick in hard and fast. Marketwatch detailed the future troubles. "Things in the department-store arena were even worse, however. Nordstrom said June same-store sales tumbled 18.6%, meeting Thomson Reuters-compiled analyst estimates, and the retailer warned that second-quarter earnings would fall either slightly below or at the lower range of its previous estimate of 65 cents to 70 cents a share. Total sales dropped 14.1% to $731 million. Nordstrom said it was hurts by a shifting of its half-yearly sale for women and kids into May. Nordstrom was down 8.7% at $28.52.

And J.C. Penney was more than 10% at $31.93 after reporting that June same-store sales fell 2.4%. Analysts had expected the same-store department-store sales to fall 1.1%, according to Thomson Financial. Total sales for the five weeks ended July 5 fell 0.4% to $1.6 billion. For July, the company said it expects a mid-single-digit percent decrease in same-store sales."

It wasn't too late to short the casinos apparently, as MGM dumped 21% yesterday and failed to rally on the Wynn news of Macao's huge profits. Well, MGM doesn't have a casino in Macao so the 50% loss Wynn experienced in Vegas applies. Ouch.

Which leads me back to the question of the year. Is it worth owning any long positions? A dilemma is posed by owning something such as Freeport. The stock is actually up 2% on a day the Dow is down 2% due to gold's $23 spike. But the miner is not correlated with the commodity directly. Will it get pounded while the commodity goes up. Itulip says yes. That scares me. We'll see.

IOD: GGP and GNW puts, of course


DCNorth said...

Hello Ax.

Great Blog. Took a dive into some STI Puts on the friday and up! Thank you.

AX said...

Thanks for checking in, dc. Friday turned out to be a great entry point for STI, kablooey today with more pain to come....