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Guest Dazel
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I am hoping that people will look at and add to the this thread on a pure idea type way. The macro issues of the world are beat to death everywhere. I am interested in companies, assets, commodities, currencies, bonds that are overvalued....however, board members use it hedging, shorting, or both it is not my business how you use the ideas.

 

Groupon....a Shorting opportunity missed by us so far....

 

We tried to short groupon at $31 a share on the open of their ipo....we could not get enough shares to short because there were not enough avaliable....this should have been an immediate red flag to us as everyone was trying to short it! We backed off as it dropped to $26 in a matter of days...closing yesterday at $16.98....

We

Hate their business! All of the insiders have already sold out....our last look at a pure short was at $24 it had a market cap of $16b...they do not have cash and their brun rate is very large...we think the institutions basically dumped it on the market.

Puts now are very expensive so we will be watching it closely...hoping it gets a short covering bounce...if it does we will be shorting it or buying puts.

 

I would love to hear other shorting ideas...HESTER...we are looking for your expertise.

 

Dazel

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John Templeton had a strategy of going short IPOs about 10 days before the "lock-up" was expired and had incerased by 3x the initial IPO price and did quite well in the dot com boom and bust.

 

Packer

 

Where did you get that from?  i want to read the entire thing. ;D

 

Thank you in advance

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We have watched linked in...do this in the last two weeks...they went from $87 to $66..in that time as insiders became unlocked...the high was $122 for the year. We have been analyzing ipo's this year they are down on average 8 percent from their ipo price but much more from their highs...

 

Dazel.

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I got it from Investing the Templeton Way chapter 6 page 161.

 

Packer

I read the same thing and I thought what a bookend on an amazing investment career as I believe he started his investment career by buying the 10 cheapest stocks on the NYSE in the 30's and ended up shorting the most overvalued stocks at the peak of the high tech bubble.

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Demand Media (DMD) is another one I missed the boat on, considering how well I know this industry. (Actually I hastily bought some PUTs over the summer but kind of screwed up my execution, buying cheap out-of-the money puts, when I should have bought closer to in-the-money.) Oh well. Next time.

 

(The corollary to shorting DMD is to go long Tucows ticker: TCX or TC.TO)

 

I just started thinking this week that over the next year, shorting Web 2.0 darlings may be the way to go. I'm talking the profitless wonders with no business model, not the googles. \

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Group on in our opionion will continue to drop...However, speculatively and short term it should get support from the investment houses that peddled it....they do not want to look like they unloaded a stinker on the market but the reality is they did.

 

We agree with Sanjeev and crm....but we are  a bit scared of momentum investors that percieve "salesforce.com" as a brand....in the "cloud"....we do not agree with this nonsense...however we see weaker companies out there to hedge with.

 

Jim Rogers is short us tech, emerging markets not china, and European stocks...as we know he is very ling commodities.

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Sorry guys I missed this thread due to the holidays but found it now...

 

I don't really like shorting things like Groupon and Linked-In, personally. It's a tough way to make money shorting momentum or hot stocks. They are both probably bad businesses and will both definitely see their stocks fall a lot at some point. But I just try to stay away from hot stocks. One internet bubble type situation will wipe a portfolio of Groupons and LinkedIn out. Buying puts is probably prudent when they are cheap, but they aren't right now.

 

I think there will be some time to short those two when the cracks really start forming. The biggest downside to that is the trade will be crowded then and the borrow will be tight, but the Groupon/Linked-In trade is already crowded.

 

 

I prefer what I call reverse momentum stocks. Stocks that were once high flyers but now see their businesses falter and stocks crater. For example, Netflix. Netflix's fall was due to both a reversion to the mean from their ridiculous valuation, and a faltering business. I shorted them after the stock fell 50%, but when you're selling for 70 times earnings and content costs are getting out of control, threatening making earnings negative, 50% isn't enough.

 

People like Whitney Tilson shorted Netflix all the way up, while the business was strong. Then the cracks started showing, business and stock momentum reversed, and there was plenty of time to get in on the short side, but Whitney had already capitulated.

 

It's the same way with frauds often. You could of been short all the Chinese RTO frauds since 2007 and experienced nothing but pain. Circa 2009 John Bird AKA Waldo Mushman was getting margin calls. Then all the research shops and short sellers started publishing research and asking questions in 2010, and the cracks started forming. Spring 2011 when CCME fell, all hell broke loose, but there was still room to get into plenty of names. Indeed still there are Chinese RTO frauds right now that can be borrowed and will probably prove to be a fraud over the next year or two.

 

However, with synthetic shorting (I.E. puts) it's good to get in early and keep rolling over at expiration, as VOL will be too high when the cracks form to make much money and the "Irrational longer than you are solvent" isn't present.

 

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Ideas:

 

I've got a lot of ideas so not sure what to offer. There are different types of shorts and they should be sized differently. For me to take a large short position the stock needs either to have a near term catalyst or some tether to reality so I don't get killed on a big and irrational run.

 

In any case, I like some REIT's, among many other things. I think many retail investors are piling into them for the yield, due to low external rates, and are ignoring risk. They trade off of dividend yield and are tethered to reality. Here's an example of a writeup I did of one, one of my favorite shorts: http://westkootenaiinvesting.wordpress.com/2011/08/02/uht/

 

The stock is a little off since then but still relevant.

 

All my good China RTO shorts have either collapsed or in one case was bought out (you can probably guess which one that was), the exception being Le Gaga, which is definitely a fraud. They are a glorified fruit farm with Apple or Microsoft's margins, and a strong executive relationship with Chaoda Modern Agriculture, another vegetable grower that is a fraud that's crumbling at the moment.

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Hester,

 

i agree with you with regards to groupon....we missed the window of opportunity...we may get another chance..and yes puts are too expensive...we also agree with this premise with regards to crm..as we mentioned earlier.

 

A question with regards to Green mountain coffee....in your opinon is their model broken? obviously Ainhorn is all over with regards to this one...their k-cup patent is up in sept 2012...we think the sbux deal is going to eat into their own higher margin business and is not profitable...they are eating cash from what we see. it has fallen in half from its high...massive insider selling at above $90...i agree on netflix as i have said on another board.

 

what do you think? we do not have a position looking at the puts.

 

Dazel.

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Hester,

 

 

looking at UHT.....they borrowed almost $30m in the last 2 quarters and spent nearly  $25m  in capex....do you know why?

It looks rich...on a first look without your detail which is obviously extensive...related party transactions can get tricky though as you know.

 

Dazel.

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As a suggestion, if you find the puts too expensive which as you know is due to high implied volatility, look at buying a put spread: buy a put with strike close to current price and sell a put with a lower strike. The volatility being high for both, the sale will reduce your cost. However, it will also limit your potential upside.

 

Cardboard

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Hester,

 

 

looking at UHT.....they borrowed almost $30m in the last 2 quarters and spent nearly  $25m  in capex....do you know why?

It looks rich...on a first look without your detail which is obviously extensive...related party transactions can get tricky though as you know.

 

Dazel.

 

The capex was spent on acquiring more medical office buildings. The debt was mostly to fund that and also to fund advances to their LLC's. They make frequent and consistent net advances (that is, net of repayments) to their LLC's, which are heavily indebted, although the debt is not recourse to UHT.

 

 

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I agree with Mr. Bass in that the Japanese Bond short trade appears attractive, and perhaps has a good negative correlation to the equity markets.

 

Bass makes an incredibly compelling case for that (among other things) in this video I just got done watching. Shorting Japanese insurers that hold a lot of government bonds is something I am exploring.

 

http://www.youtube.com/watch?feature=player_embedded&v=WWgtzwqWh60

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Hester,

 

i agree with you with regards to groupon....we missed the window of opportunity...we may get another chance..and yes puts are too expensive...we also agree with this premise with regards to crm..as we mentioned earlier.

 

A question with regards to Green mountain coffee....in your opinon is their model broken? obviously Ainhorn is all over with regards to this one...their k-cup patent is up in sept 2012...we think the sbux deal is going to eat into their own higher margin business and is not profitable...they are eating cash from what we see. it has fallen in half from its high...massive insider selling at above $90...i agree on netflix as i have said on another board.

 

what do you think? we do not have a position looking at the puts.

 

Dazel.

 

I think you could make the case that the GMCR cracks are getting big. Their last Q was bad. They are kind of on my list, I've only read their last 10-Q and Einhorn's full presentation.

 

I honestly have no idea how the patent expiration will affect the business. One thing is for sure, it won't be positive. But I just don't know how much consumer loyalty they have. I haven't really done the work yet to have a qualified opinion

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I agree with Mr. Bass in that the Japanese Bond short trade appears attractive, and perhaps has a good negative correlation to the equity markets.

 

Bass makes an incredibly compelling case for that (among other things) in this video I just got done watching. Shorting Japanese insurers that hold a lot of government bonds is something I am exploring.

 

http://www.youtube.com/watch?feature=player_embedded&v=WWgtzwqWh60

 

how do you normally approach a research project like that ?

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I agree with Mr. Bass in that the Japanese Bond short trade appears attractive, and perhaps has a good negative correlation to the equity markets.

 

Bass makes an incredibly compelling case for that (among other things) in this video I just got done watching. Shorting Japanese insurers that hold a lot of government bonds is something I am exploring.

 

http://www.youtube.com/watch?feature=player_embedded&v=WWgtzwqWh60

 

i read that the japanese own 95% of their own debt. seems like it's in stable hands and not leveraged.  also japan can print money and monetize the debt if need be. if bass gets this one right he should run for King of the World. He would get elected.

 

WTF. Debt is not leveraged? Just because Japanese people own Japanese debt does not mean the country does not owe anybody anything. If Japanese insurers want to forgive their bonds then that's fine with me, my future shorts will do well.

 

Printing money typically leads to inflation. Inflation is typically bad for long term bonds yielding 1%.

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I agree with Mr. Bass in that the Japanese Bond short trade appears attractive, and perhaps has a good negative correlation to the equity markets.

 

Bass makes an incredibly compelling case for that (among other things) in this video I just got done watching. Shorting Japanese insurers that hold a lot of government bonds is something I am exploring.

 

http://www.youtube.com/watch?feature=player_embedded&v=WWgtzwqWh60

 

how do you normally approach a research project like that ?

 

Nothing special, I'd start with probably a bigger and more well known insurer and translate the statements.

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I agree with Mr. Bass in that the Japanese Bond short trade appears attractive, and perhaps has a good negative correlation to the equity markets.

 

Bass makes an incredibly compelling case for that (among other things) in this video I just got done watching. Shorting Japanese insurers that hold a lot of government bonds is something I am exploring.

 

http://www.youtube.com/watch?feature=player_embedded&v=WWgtzwqWh60

 

i read that the japanese own 95% of their own debt. seems like it's in stable hands and not leveraged.  also japan can print money and monetize the debt if need be. if bass gets this one right he should run for King of the World. He would get elected.

 

I've come across similar figures around 90%. The Japanese economy is incredibly leveraged, and i think it poses more risk over a shorter period of time being in like-minded hands. If Japan prints money to monetize the debt that would only add more fuel to the fire on the direction of interest rates. It really is astonishing, the dynamics of the current interest rates in Japan relative to its demographics and economics. It is only a matter of time before Japan defaults (but it could perhaps be a ways away, though i don't think that will be the case). The 10 year old question is, when? If rates only go to 3% then interest expense alone would eat up more than half of the government's tax revenues, nevermind their entitlement programs and domestic spending. Its like a giant elephant is standing in the middle of the room and nobody notices it is there. The trade has been around for a long time, nicknamed the widow maker. The math has made sense for a long time. The only question is when do the domestic investors finally stop purchasing. The fact that their is an indirect government law for Japanese financial institutions to hold Japanese bonds has helped contain rates as well over the years. The sovereign problems in Japan seem the most obvious and the math is getting beyond silly.

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I agree with Mr. Bass in that the Japanese Bond short trade appears attractive, and perhaps has a good negative correlation to the equity markets.

 

Bass makes an incredibly compelling case for that (among other things) in this video I just got done watching. Shorting Japanese insurers that hold a lot of government bonds is something I am exploring.

 

http://www.youtube.com/watch?feature=player_embedded&v=WWgtzwqWh60

 

i read that the japanese own 95% of their own debt. seems like it's in stable hands and not leveraged.  also japan can print money and monetize the debt if need be. if bass gets this one right he should run for King of the World. He would get elected.

 

I've come across similar figures around 90%. The Japanese economy is incredibly leveraged, and i think it poses more risk over a shorter period of time being in like-minded hands. If Japan prints money to monetize the debt that would only add more fuel to the fire on the direction of interest rates. It really is astonishing, the dynamics of the current interest rates in Japan relative to its demographics and economics. It is only a matter of time before Japan defaults (but it could perhaps be a ways away, though i don't think that will be the case). The 10 year old question is, when? If rates only go to 3% then interest expense alone would eat up more than half of the government's tax revenues, nevermind their entitlement programs and domestic spending. Its like a giant elephant is standing in the middle of the room and nobody notices it is there. The trade has been around for a long time, nicknamed the widow maker. The math has made sense for a long time. The only question is when do the domestic investors finally stop purchasing. The fact that their is an indirect government law for Japanese financial institutions to hold Japanese bonds has helped contain rates as well over the years. The sovereign problems in Japan seem the most obvious and the math is getting beyond silly.

 

25% of Japan's budget pays interest expense, Bass was saying in that video I linked. That's with rates under 1%. If rates move up the game is over, but like you said that could take 10 years.

 

Shorting insurers is multifaceted, and could succeed regardless of rates, but if rates go up many will definitely be insolvent.

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I agree with Mr. Bass in that the Japanese Bond short trade appears attractive, and perhaps has a good negative correlation to the equity markets.

 

Bass makes an incredibly compelling case for that (among other things) in this video I just got done watching. Shorting Japanese insurers that hold a lot of government bonds is something I am exploring.

 

http://www.youtube.com/watch?feature=player_embedded&v=WWgtzwqWh60

 

i read that the japanese own 95% of their own debt. seems like it's in stable hands and not leveraged.  also japan can print money and monetize the debt if need be. if bass gets this one right he should run for King of the World. He would get elected.

 

To summarize Bass: Problem is not only existing debt but going forward. Japanese savings rate has been coming down from around 15% range to barely above 0%. So in future their debt had to be funded from external sources. Their debt to govt revenues is around 20. At a wtd average debt cost of 1% interest expense is taking up 25% of govt revenues. If debt costs rise by 1-2% you can do the math. Picture aint pretty.

 

Vinod

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