Saturday, June 18, 2011

Slow Motion

A little bit of gloating and lamenting on RIMM, as the stock plunged to $27 yesterday at times on awful guidance. I recommended this loser near $45 as a short just a few weeks ago, and successfully shorted it 3 times over that period. However, with at the money options pricing in a 5% premium in either direction, a hedge on earnings with one day until expiration was out of the question and stellar gains prompted me to close my positions before earnings. What a mistake. When I said analysts were falling over themselves to lower price targets, it was from the $70s to $50s or $50s to $40s. Stung again by their gross overconfidence, geniuses such as JPM lowered their targets to $30 and finally slapped sell ratings on RIMM. Thanks guys.

I also wrote on 5/13 that triple-digit moves were becoming commonplace and in just over a month, we've had around 10 trading days with that kind of swing. The VIX rose 40% in a week (finally) and was even rising with the market at times the last few days. Anyone who thought they'd cleverly buy Pandora on the open this week is sitting with between a 33%-50% loser already, with the stock earning a $5.50 price target on its second day. Please add any company with limited barrier to entry whose CEO openly states the company won't earn any money for the foreseeable future to your short list (I will let you know when puts are available).

Greece. Where does collapse get us? Where does a bailout get us? It's difficult to short French and German banks, and if you had, you got roasted yesterday. The euro took a nice plunge recently but popped and will continue to pop on whispers of ECB injections. Let's wait and see. Interesting to note that the current head of Lehman said yesterday he sees a lot of similarities to its own demise and the current European fiasco. Bankers and governments certainly never learn.

Saturday, June 4, 2011

Basket Weaving 101

Looks like we picked a good week to finally get short with the market down 5 consecutive weeks for the first time in 7 years and the worst 1-day performance since August on continued abysmal economic and employment data. RIMM fell over 12% as analysts are now fighting over each other to lower their price targets and with earnings 2 weeks away, RIMM may still have a few dollars left to shave off. The others in our basket, CSCO, SHLD, and FSLR, all gave away quick pops to finish lower this week. CSCO actually fell below $16 yesterday, SHLD is back below $70, and FSLR lost all of its German anti-nuclear momentum in 2 sessions.

For the first time since its bailout, AIG was punished for issuing more shares. I neglected to mention this loser for our basket last week, but AIG has fallen from the mid $50s to under $28. An excellent article by Bloomberg's Jonathan Weil entitled, Government Prays a Bigger Sucker Is Out There, details AIG's future inability to use past losses to offset tax liabilities. This in essence (similar to homebuilders' clawbacks or banks reducing loan-loss provisions) has been the only thing making AIG appear solvent over the last 2 years. Take this away and the company will bleed money. Another Bloomberg article this week reveals:

“'There seems to be essentially no investor constituency for AIG,' said Paul Howard, director of research at Solstice Investment Research."

The government still owns a 77% stake in AIG and they had to dump these shares at $29. How much lower will the next round go as suckers stop lining up?

In case you blinked, GM is now well below its IPO price, Ford fell under $14, and LNKD is now more than 33% below its first-day high of $122. Groupon is rushing to market and looking to raise $750 million dollars, but of course, will raise much more than that with this offering. I'm sure I'm not the only one concerned about the fact that the last round of venture capital went mostly to paying off its previous rounds of VC. Paul Kedrosky was ahead of this curve 2 months ago, asserting Groupon will eventually be a great short (watch his comments here