Sunday, October 26, 2008

Celebrating Negative Growth

"Our ideas held no water but we used them like a dam."

-We Missed the Boat
-Modest Mouse

Seems to apply to a lot of people these days, Bernanke, Paulson, Bush....perhaps even the CEO of Hartford who, when questioned by analysts said "we're comfortable with our capital position although I don't know what that position is." The stock went on to fall 50% yesterday.

You may remember a recent short recommendation on Williams-Sonoma, also the owner of Pottery Barn. That's working out pretty well as they announced an unexpected 3rd quarter loss and decreased projections for 4th quarter from 86 cents to 30 cents. Owweee, but good for us.

3rd quarter GDP came in at 0.3%. It's Halloween, not April 1st. Nobody believes this farce of a number as we all know it will get revised down sharply. Consumer spending was the worst in 28 years and it will only continue to get worse. How long can the already dead consumer support this economy with job layoffs announced by the tens of thousands recently? AmEx, Motorola, Merrill, the proposed merger of GM and Chrysler would eliminate at least 24K jobs, and everyday disappointing earnings from companies like Avon, EA, Sun...not only is there no discretionary income, there's no income period. And we still await massive hedge fund dumping.

As more anecdotal evidence of consumer demise, I ate with Anon and a few others at a pharmaceutical-sponsored dinner in downtown West Palm at Forte di Asprinio.last night. Forte has the cache of its owner having been featured on Bravo's Top Chef, and is located on the busiest downtown street. I am sad to report that through our two-and-a-half hour dinner, we were the only guests. In case you missed it, even Cheesecake reported a 5% decline in same-store comps, while Darden had a more than 1% decline (we're still short both).

I was amused yesterday not only by the nature of the article, but by some of the interviewees in a piece by Bloomberg about the shock over banks using recent capital injections from the treasury to fund bonuses. It seems that, not unlike Scholes who reappeared after the LTCM fiasco, former CEOs associated with their own disasters like John Gutfreund (Salomon) and Fred Joseph (Drexel Burnham) were dug up. These guys were featured prominently in Liar's Poker and Den of Thieves, CEOs of companies that were involved in small scandals like junk bonds and the S&L debacle. "Odds that Wall Street will forgo the payouts are slim to none,'' according to Gutfreund. Thanks, John, because we know you sure as hell never missed a bonus. Even Barney Frank is upset over this development, coming from a man who should handcuff himself along with Fuld and Mozilo.

Be ready to act in the next couple of weeks to the short-side. We're still seeing the euphoria from our 900-point day based on nothing discernible. If horrible unemployment and slashed earnings make for a huge rally, then I guess I'm lost.


Tiger Coach said...

Ax... I am horrified to see the huge rally in WYNN... I left school seeing they were up $3.0... and now note they are up $13.00 today... No logical explanation for those companies as I have anecdotal evidence that Vegas...and casinos are DEAD!!! Hopefully momentum runs the other way!!! Then again, I 'm playing against the house!!!

CNK and FXI are still worthy of consideration.

Once this election farce is over.. look out below!!!

AX said...

The proper term is "fally" TC. Perhaps LVS had been battered a bit much down to $6, but the rally this week will be short lived. Auto and unemployment numbers coming out should be brutal.

DCNorth said...

Hello Ax,

Wow. Didn't think the bounce down would be a) this immediate b) this sharp down. Time for the market to continue it's ride down...


AX said...

Read a good case for Dow 4K today, DC, now maybe that's a bit extreme, but liquidation and eventually hyperinflation. Obama can't stop it and either can all the world put together. The news on WSM and BBW just keeps getting worse, should've added more BBW on Friday.