Tuesday, October 7, 2008

Naked Without Shorts On

Wooo, I was feeling a little naked there for awhile without any short positions aside from SRS, which suddenly doesn't look so bad does it after gaining $55 in the last 2 weeks? This is a direct result of the impending CRE collapse which I've warned of for most of the year, hidden neatly behind residential mortgages. GGP almost hit 0 today, another stellar reco. With the help of Vornado, SRS may have plenty of room left to run and we'll look to exploit REITs further as empty mall space and a broke consumer spell doom for the industry.

What did I dress up in? Well, I started with Williams-Sonoma, maker of high-end cooking and kitchen tchotchkes that are overpriced and under-functional. But wait, if you short now, I'll throw in their other brand, Pottery Barn, at no extra cost! Maker of high-price tchotchkes that cost 3 or 4 times what you'd pay at Target, Pottery Barn is Ghost Town, USA. There's just too much dependence on discretionary income to make these brands go, and if you take out the sale of the company airplane (probably a 1-time item), the company made 7 cents last quarter. Gross.

Who else smells stinky? I think Darden Restaurants does. Sellers of red lobsters and bottomless bowls of pasta, dining out will simply be too expensive for most of us over the next year. We are broke. The tip alone at the end of dinner could cover the cost of a fast food delight and middle-end dining will be next in line for empty booths and price cuts. I mentioned this before they released dismal earnings three weeks ago and now the fall will continue.

These companies fit into the middle of what I now think will be 3 tiers of investment opportunities for us over the next 18 months:

1. Companies that are already crappy on paper, have been punished, and could go to 0 (BBW is a prime example, add KKD and Saks as well).

2. Companies that are trading in the teens and higher that have suffered, but will struggle even further as the economy collapses.

3. Good companies that are along for the ride and may provide us with the best buying opportunity for years to come. WE ARE IN NO HURRY HERE! If we had a dollar for every "technical" low that had been breached or every pundit who showed us a chart flooring the bottom, we'd be wealthier than Fuld and his minions. But let's keep some cash available for Apple hitting the $70s, Google falling below $300 (really?), or GE hitting $15. Why not?

I'll note that Cramer now thinks the Dow might crater below 8K and that Tobias Levkovich, Citi's world class analyst, has shifted from the most bullish to the most bearish analyst on Wall St. He's now realizing that his 1475 S&P prediction as recently as last month may not come to fruition. Thanks for the heads up guys....

IOD: WSM 5/09 $12.50 puts
DRI 4/09 $20 puts


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