Shorting ideas

[finetrader]

Not that i know anything about, but isn't it  WEB who is shopping in Japan for cheap company right now?

I'm sure he thought about the yen before going on the hunt in Japan.

 

 

[Guest Hester]

This is a random comment I found on another site. The guy makes really good points Re Japan.

 

"Warren says here he does not invest on Macro considerations. Well, he ought to avoid Japan then, since the macro risk is especially important there. Runaway yen inflation is structurally in the cards, as is a JGB default, just not as fast as Kyle Bass thinks...below are my reasons (re-posted from another comment of mine). Buffett could buy a wonderful business at a sensible (yen denominated) price there, but a Japanese sovereign crisis may well render that price nonsensical and the company's cash flow either trivial or destroyed. As a Berkshire shareholder, I want him thinking hard about macro before buying Japanese equities or companies.

 

(Below is re-posted)

Kyle Bass' "Widow-maker" JGB/Yen short won't work, since the crisis won't happen soon enough for the shorts to profit. Here's what will delay it, but it will come.

 

•Japan is super-stockpiling forex reserves by its present interventions to suppress the yen. These will later be spent defending the yen, pushing off the crisis day. The present interventions can be done at ZIRP rates, so Japan piles up a forex warchest for free. The current account will add even more over time. Further yen suppression will, too. These forex reserves now equal over 20% of GDP. These will not eliminate a determined currency assault, but they will delay the effects far longer than people suppose. The longer Japan remains the risk-off haven, the bigger this will swell as the government capitalizes on this win-win forex situation. Extrapolation from the costs of their current interventions, Japan could now sustain a 20 yen/$ boost constantly, for over a year.

•Household savings are still 16x the national budget. As they die in ever greater numbers, death/estate taxes channel a big amount of this directly into the national treasury. This alone could alleviate immediate marginal rollover problems instead of worsening them. Politically, the Diet could easily increase this tax and very quickly reap a windfall. It would be much easier than the sales or vat tax, and the Keidanren plus the banks and LDP would be able to force it through, especially by trading concessions to farmers, whose vote is hugely disproportional to the elderly, owing to perennial failure to redistrict.

•The budget will certainly cut military spending (greater reliance on U.S. security as we worry about China more) and by increasing the Health co-pay for individuals under the national health insurance. The first is politically very popular, the second is easy via ministerial actions insulated from real democracy. Privatizations of Japan Tobacco, Japan Post, public utilities, etc. will also produce brief windfalls of approximately 2/3 of one year's annual bond dependence.

•Most importantly, the rollover crisis will be partially self-correcting. The Government will not intervene until the 135-160 range. At that time, the forex stockpile will be twice as powerful as now, and the longer they wait, the easier intervention will be. Meanwhile, Japan GDP will be skyrocketing as the exporting engine explodes to life. Bank and Ins. Co. balance sheets will show net improvement as overseas carry-trade investments increase in value, easing credit and exerting negative rate pressure. In the 170's, tax revenues would be swelling, current account-driven upward pressure on the yen would be extreme, and the forex warchest spending would be decisive.

•Next, the Japanese people have a ridiculous capacity for austerity, legendary obedience, literally suicidal willingness to support Japan, when asked. If the emperor were to ask the people to 'buy bonds' they would.

•Also, odds of default are high in countries with external creditors, but politically much harder in countries where sovereign default injures mainly its own nationals. This creates much more political solidarity and appetite for true reform than can has been the case in Greece and Italy, where nationalism is at odds with austerity. In Japan, these forces are in mutual support.

•The continual productivity gains combined with Japan's low industrial utilization mean that there is much less domestic demand for investment of national savings, so the savings glut burns off even slower and can more easily be lent to the government in the form of JGB's than would be the case in a healthy economy.

 

Now, none of these individually eliminates a rollover crisis, but collectively they do push it back, beyond what the costs of a current hedge justify. So, this may still be a widow-maker trade."

[ERICOPOLY]

"Warren says here he does not invest on Macro considerations. Well, he ought to avoid Japan then, since the macro risk is especially important there.

 

Which Japanese corporations have a majority of revenue from international sales? 

 

1)  R&D/production costs massively devalue (Yen is destroyed)

2)  International revenue keeps pouring in

 

Translation:  better profit margin after Yen falls

[Guest misterstockwell]

"Warren says here he does not invest on Macro considerations. Well, he ought to avoid Japan then, since the macro risk is especially important there.

 

Which Japanese corporations have a majority of revenue from international sales? 

 

1)  R&D/production costs massively devalue (Yen is destroyed)

2)  International revenue keeps pouring in

 

Translation:  better profit margin after Yen falls

 

Hahaha--and how does the production cost drop when they need to buy commodities to produce products? Will miners accept monopoly money for their goods?

[ERICOPOLY]

"Warren says here he does not invest on Macro considerations. Well, he ought to avoid Japan then, since the macro risk is especially important there.

 

Which Japanese corporations have a majority of revenue from international sales? 

 

1)  R&D/production costs massively devalue (Yen is destroyed)

2)  International revenue keeps pouring in

 

Translation:  better profit margin after Yen falls

 

Hahaha--and how does the production cost drop when they need to buy commodities to produce products? Will miners accept monopoly money for their goods?

 

The labor costs are where the savings are, not the commodities.

 

"ha ha ha". 

[txlaw]

"Warren says here he does not invest on Macro considerations. Well, he ought to avoid Japan then, since the macro risk is especially important there.

 

Which Japanese corporations have a majority of revenue from international sales? 

 

1)  R&D/production costs massively devalue (Yen is destroyed)

2)  International revenue keeps pouring in

 

Translation:  better profit margin after Yen falls

 

Hahaha--and how does the production cost drop when they need to buy commodities to produce products? Will miners accept monopoly money for their goods?

 

The labor costs are where the savings are, not the commodities.

 

"ha ha ha".

 

Plus, many commodities are in a bubble.

 

I wonder what will happen to core inflation when the bubble bursts and once we shift to to a global natural gas market.

 

I'm very skeptical of Kyle Bass' take on Japan.  Yeah, there will almost certainly be devaluation of the yen, but does that mean default, or the Keynesian endpoint as Bass likes to say?  I wouldn't bet on it. 

 

I've been considering buying EWJ to get exposure to Japan.

[Guest misterstockwell]

The labor costs are where the savings are, not the commodities.

 

"ha ha ha".

 

How do you figure that? Workers will demand much more monopoly money inside the country, and costs will rocket higher for products sourced outside the country. The only benefit would be to those buying the products internationally, but the companies would need to do all business overseas and use only non-Yen currencies, plus would need to have had stashed tons of working capital in other currencies just to stay afloat. A crashed yen would not help the Japanese companies.

[ERICOPOLY]

The labor costs are where the savings are, not the commodities.

 

"ha ha ha".

 

How do you figure that? Workers will demand much more monopoly money inside the country, and costs will rocket higher for products sourced outside the country. The only benefit would be to those buying the products internationally, but the companies would need to do all business overseas and use only non-Yen currencies, plus would need to have had stashed tons of working capital in other currencies just to stay afloat. A crashed yen would not help the Japanese companies.

 

I don't believe that currency collapse equates to immediate and commensurate raises in wages of local workers. 

 

That's where we disagree.

 

The company may also have long term debt denominated in Yen -- easily washed away with the rapidly rising nominal value of the export business.

[Santayana]

The labor costs are where the savings are, not the commodities.

 

"ha ha ha".

 

How do you figure that? Workers will demand much more monopoly money inside the country, and costs will rocket higher for products sourced outside the country. The only benefit would be to those buying the products internationally, but the companies would need to do all business overseas and use only non-Yen currencies, plus would need to have had stashed tons of working capital in other currencies just to stay afloat. A crashed yen would not help the Japanese companies.

 

I don't believe that currency collapse equates to immediate and commensurate raises in wages of local workers. 

 

That's where we disagree.

 

The company may also have long term debt denominated in Yen -- easily washed away with the rapidly rising nominal value of the export business.

 

You only have to look at recent history in the US to validate what Eric is saying.    Weakening dollar, but stagnant wages for quite some time now.

[ERICOPOLY]

The labor costs are where the savings are, not the commodities.

 

"ha ha ha".

 

How do you figure that? Workers will demand much more monopoly money inside the country, and costs will rocket higher for products sourced outside the country. The only benefit would be to those buying the products internationally, but the companies would need to do all business overseas and use only non-Yen currencies, plus would need to have had stashed tons of working capital in other currencies just to stay afloat. A crashed yen would not help the Japanese companies.

 

I don't believe that currency collapse equates to immediate and commensurate raises in wages of local workers. 

 

That's where we disagree.

 

The company may also have long term debt denominated in Yen -- easily washed away with the rapidly rising nominal value of the export business.

 

You only have to look at recent history in the US to validate what Eric is saying.    Weakening dollar, but stagnant wages for quite some time now.

 

The US worker just doesn't realize he can "demand" more money  :P

[Guest misterstockwell]

Japan's currency crash would not resemble the slow downward trend of our dollar.

 

Also, I am not sure how the exporters would benefit in the end. The "edge" they would have is that every other currency in the world could buy more Japanese product denominated in yen. Thus, they would get more yen. More monopoly money. They will need it as their debt costs, in yen, will skyrocket. Also, their cost, in yen, to buy commodities, which are not found in japan, will skyrocket. Food, energy, etc. will rip higher in Japan, and the workers will riot if their loaf of rice costs a trillion yen. Germany is a great model.

 

It's not a good thing.

[Guest Hester]

I'm wondering how this will be tied back to LVLT, to complete the cycle. I've got that feeling of incompleteness right now.

[Kraven]

I'm wondering how this will be tied back to LVLT, to complete the cycle. I've got that feeling of incompleteness right now.

 

+1

[Ben Graham]

I'm wondering how this will be tied back to LVLT, to complete the cycle. I've got that feeling of incompleteness right now.

 

  :D

I'm wondering how this will be tied back to LVLT, to complete the cycle. I've got that feeling of incompleteness right now.

 

+1+1+1=(3)  :D

[Crip1]

 

 

+1+1+1=(3)  :D

 

Got to be good looking 'cause he's so hard to see...

 

(Apologies, all...I've got the music in me this morning)

 

-Crip

[Crip1]

Getting away from Japan and back to shorting ideas, I can't help but think that this will be a great candidate down the line:

 

http://www.washingtonpost.com/business/technology/zynga-prices-ipo-plans-to-raise-up-to-1b/2011/12/02/gIQAtGLgKO_story.html

 

-Crip

[Guest Dazel]

If you read my first post again on group on...you will see that our complacency has cost us

Dearly as group on is now in the $4's..we were looking at a mid 20's short.

 

The puts we looked at on this would have been up 6 times....over 9 month period. Anyone have any great short ideas?

 

Dazel.

[writser]

A possible idea might be Salesforce.com. 20 billion market cap, 3 billion revenue, hardly profitable, cloud computing overhyped, insiders get huge options grants and dump stock like crazy. No open market insider buys since 2009 and the stock has gone up 800% since. Accusations of dubious accounting (http://articles.businessinsider.com/2011-09-01/tech/30127255_1_accounting-practices-marc-benioff-software-contracts). CEO acts like a snake oil salesman and pumps his own stock in Jim Cramers' show. Problem is that there is no catalyst afaik. I've been short for a while, and the ride has been "exciting", to say it positively :)

 

Another idea was written up by another member of this board. I haven't looked at it in detail but at first glance it was interesting: http://alphavulture.com/2012/07/20/shorted-some-vivus-vvus/

[Cardboard]

CRM should be an excellent short and eventually this company will be hated by the Street. AMZN is the same thing or growth at any cost and into any direction. The game will stop once people starts to truly question if they will ever make money. Both companies keep telling us that they need to gain market share and that eventually they will suddenly stop spending and profits will surge. This is not how companies or humans operate. When sales growth or demand slows it will be because competition will have increased or saturation has been reached. Either way, that is not when gross margin increases. Even if they cut SG&A and marketing at that point, the best they will do is to maintain current profits.

 

There was a nasty article in the WSJ last night about CRM lack of profitability yet the stock is still holding strong. This morning Piper Jaffray came out with strong support saying that the backlog would be strong in H2. Their price target is $207 or a $29 billion market cap. The analysts are the main problem with all these momentum stocks. They keep increasing price targets, they never look at profits, only sales growth matters. The way they act, it almost seems that they are pumping the stocks for the benefit of someone else who is holding or trying to create short squeezes.

 

Cardboard

[ECCO]

CRM should be an excellent short and eventually this company will be hated by the Street. AMZN is the same thing or growth at any cost and into any direction. The game will stop once people starts to truly question if they will ever make money. Both companies keep telling us that they need to gain market share and that eventually they will suddenly stop spending and profits will surge. This is not how companies or humans operate. When sales growth or demand slows it will be because competition will have increased or saturation has been reached. Either way, that is not when gross margin increases. Even if they cut SG&A and marketing at that point, the best they will do is to maintain current profits.

 

There was a nasty article in the WSJ last night about CRM lack of profitability yet the stock is still holding strong. This morning Piper Jaffray came out with strong support saying that the backlog would be strong in H2. Their price target is $207 or a $29 billion market cap. The analysts are the main problem with all these momentum stocks. They keep increasing price targets, they never look at profits, only sales growth matters. The way they act, it almost seems that they are pumping the stocks for the benefit of someone else who is holding or trying to create short squeezes.

 

 

Cardboard, you will find the answer when looking at who own the stock.  Yahoo said that 9% is own by insiders and 99% by intitutionnal and mutual fund for a total of 108%. Now, who are analysts best client... 

 

 

[Olmsted]

CRM stock price is high because revenue growth is high.  Revenue growth is high because of an admittedly great product along with a motivated sales staff.  The sales staff is motivated by high compensation, largely in high-priced CRM shares. 

 

Flattening revenue growth = share price decline = sales staff need to be paid in cash = massive losses = implosion

 

The question is when?  I have never been good at timing an implosion like this.  The cycle I describe in the first paragraph can go on for a loooong time before a catalyst breaks the chain.  I'm inclined to try to short on the way down, after that catalyst has emerged.  But by then put premia are high and it is less profitable.  Suggestions, anyone?

[ItsAValueTrap]

I don't like the idea of shorting salesforce because the underlying business is a high quality business.  I think that there are some shorts where your rate is return is going to be very poor.  If a stock takes a long time to collapse, your rate of return is not as good.  And if it goes up several times before then and you are forced to cover...  :/

 

Some short ideas:

Einhorn has some detailed presentations on JOE and GMCR.  (I am short both.)

At GMCR there may be some fraud going on.

JOE is a bet against Californian real estate.  But it's more than that.  If Joe has sold off all its best land first, then what's left isn't very good. 

 

DDMG may be a good short because visual effects is not a great business.  A lot of very good special effects houses (private businesses) go bankrupt from time to time (e.g. Orphanage, CORE, Asylum, etc.).  Though this may mostly be specific to doing visual effects for movies.  Commercials are ok but none of those companies are publicly listed (and they're really small).

(I am not short DDMG.)

 

IMAX is an ok short.  Once they saturate their network then it's unclear how they are going to make profits.  (They are maybe a third of the way there.)  A fifth (probably less now) of their customers aren't paying on time... though I don't know if I am being overly optimistic because I am short Imax.

 

KBH is overvalued on a P/B basis and they aren't as well managed as TOL/LEN/NVR.  I shorted this in the past, but I am not short it anymore.  I think that most of their old losses should have been recognized for now; in the past after the housing crash, their communities weren't selling but they were capitalizing interest and not writing down their communities so book value was inflated.

High short interest like HOV.

 

GORO:  http://thestreetsweeper.org/undersurveillance/Will_GORO_Ever_Find_That_Magic_Pot_of_Gold_

I am short this.  The borrow is really ugly.

 

JCP:  I am not short this... but probably will if it rallies.  It looks like they have the worst managed stores in their retail space.

The free haircuts and upselling on the haircuts goes against their 'honest' pricing strategy.  Read the comments on their Facebook page.

A lot of Ron Johnson's ideas should have been tested on a smaller scale before being rolled out.  This is a huge, huge mistake.  Even Sam Walton made mistakes as a retailer (read his book)... but the important thing is to not let mistakes hurt you a lot, to learn from mistakes and to constantly tinker.

The store remodels is another example of testing things on a small scale first.  This is absolutely nuts.

 

It's just so weird that the Apple stores are one of the best retail operations around yet JC Penney is so awful.

 

Independent oil & gas:  Apparently this sector is like airlines.  I need to do more research here, but there may be names with negative free cash flow playing the inflated PUD (proven undeveloped) reserve game.  I shorted ATPG in the past.

 

Junior mining:  This sector is a huge destroyer of capital, even in a commodities bull market.  Anybody have good ideas on shorting this?  AAB and PNP (Pinetree) may trade at large premiums to book value one day... but they are trading at large discounts right now.  G&A is a huge drain on both companies.  Pinetree is a better short because it is diversified.

Maybe short GDXJ if/when it gets close to its all time highs?

 

 

The sales staff is motivated by high compensation, largely in high-priced CRM shares. 

I don't think it matters too much to salespeople if you pay them in cash or shares.

 

But CRM paying employees in shares is really smart as it is a phantom method of selling stock at high prices.  And I don't think you want to short smart people.

 

[Parsad]

Some short ideas:

Einhorn has some detailed presentations on JOE and GMCR.  (I am short both.)

At GMCR there may be some fraud going on.

JOE is a bet against Californian real estate.  But it's more than that.  If Joe has sold off all its best land first, then what's left isn't very good.

 

If Einhorn is shorting JOE as a bet against Californian real estate, then he's going to be very surprised...I believe all of JOE's real estate is in Florida.  ;D  Cheers!

[ItsAValueTrap]

Oops, got the states mixed up.  Good eye.

[Packer16]

I am not sure I want to be short a call option with no expiration (JOE).  What will make this go down?  You have Fairholme on the long side of this bet.

 

Packer