I now have $1000 to $2000 each (small 'cause you can lose it all) in January put options (shorting) on the following retailers:
Circuit City - CC
Amazon.com - AMZN
Home Depot - HD
Federated Department Stores - FD
Just fun money to play around with. I think it's gonna get brutal out there as the housing ATM has now closed, credit is drying up, interest rates are up, the wealth effect is over, real estate industrial complex job losses mount, and consumer panic sets in.
I used to be a buyer for May Company, recently bought by Federated, and boy their stores are just awful, boring, frustrating and outdated. Amazon has a 47 PE that needs to get whacked, Home Depot is run by an incompetent CEO and no longer has the housing/construction windfall, and Circuit City is Best Buy's poor cousin, and it's tough to justify $5000 on a new TV when you just "lost" $100,000 on your house.
I'll keep you posted. Up 120% on Home Depot in a month already. Anyone else have any brilliant suggestions?
July 21, 2006
Betting against the retailers with put options
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25 comments:
how exactly are you up 120%? is that calculated bbased on leverage or is like a stock price?
I'm not up on options.
takin from http://www.nizenotes.com/
If Bernanke is Right...
Ethan Harris at Lehman Brothers, via Bloomberg, nails it:
If Bernanke proves to be right in his forecast it would be ``the first time in history'' that the Fed stopped inflation ``without imposing pain on the economy.''
Of course, Bernanke isn't right. The economy is a mess and inflation is worse than Bernanke is publicly stating. Here's Harris again:
``The Fed has a very optimistic view about inflation, and I think they will find out they are wrong and will have to tighten more."
As upward inflation trends become more obvious, the Fed will continue to fight inflation, perhaps raising rates from time to time. But they won't cut rates until there is a crisis in the economy--there will be a lot of pain, though, before the cuts start, a lot of pain.
Lowes for their big ticket appliances.
The dollar. I'm dollars against Euros not because that is the best play but because of the liquidity.
Tech (except apple and msft).
General commodity prices. This isn't obvious but slowing economies; less steak> fewer cattle> less demand for wheat> lower commodity prices.
without a doubt this will be headlines in the coming months, as the shit hits the fan.
http://tinyurl.com/r8czk
(General commodity prices. This isn't obvious but slowing economies; less steak> fewer cattle> less demand for wheat> lower commodity prices. )
so a roaring economy means high commodity prices? I guess that doesn't explain the 80s and 90s. the economy weak during the 30s and 70s was when commodities soared.
Commodity prices are feeling the effects of "peak oil".
Agriculturals depend on cheap fossil fuel inputs---as those go up, the farmers are cutting back on production.
Even mining depends substantially on cheap oil: diesel fuel primarily, and tires.
Buy up defense (offensive) stocks and walmart.
Along with retailers, casual dining chains have been going down steadily, and probably have farther to fall.
PFCB (PF Changs); YUM; EAT; DRI (Red Lobster) and others. When things get tight, you can eat at home more, and out less.
The Bond Market never lies. . .
The Fed DOES know how bad things are, and the 10 year bond is saying SLOWDOWN AHEAD. . .why else would it be a 5.04% today when Fed Rate is at 5.25%. . .an inverted yield is 80% likely to predict a recession. A slowdown will Kill retail.
cramer, as always, the perfect contrarian
sell everything!
Housing's so bad that it is infecting everything, including things it shouldn't affect. I understand the correlations. They make sense to me. Sell earthmovers, sell rock companies, sell sheetrock companies. Sell Home Depot (HD - commentary - Cramer's Take) and Black & Decker (BDK - commentary - Cramer's Take).
But what happens if the Fed is done raising rates? Do you buy them back? Can you get in them lower? And what happens if the companies you sell aren't all that in bed with housing? Do you really need to sell every share of the Caterpillars (CAT - commentary - Cramer's Take) and the Ingersoll Rands (IR - commentary - Cramer's Take) because of housing? That's what's happening.
(I saw the same thing happen yesterday in autos. Everyone knows autos are slow. But did it suddenly just dawn on everyone who owns Johnson Controls (JCI - commentary - Cramer's Take) that the company is in the auto business?)
I believe companies like Masco (MAS - commentary - Cramer's Take), Fortune Brands (FO - commentary - Cramer's Take) and American Standard (ASD - commentary - Cramer's Take) have more going for them than a D.R. Horton (DHI - commentary - Cramer's Take) or Lennar (LEN - commentary - Cramer's Take).
I could be wrong, and I am definitely wrong when it comes to the stocks ... for now.
But six months from now, I bet these stocks are higher, not lower. And remember, stocks aren't always that savvy. Think of Procter & Gamble (PG - commentary - Cramer's Take) at $53 and being given away a few months ago. Think of Altria (MO - commentary - Cramer's Take) forever at $70.
Yeah, short-term stocks get it wrong all of the time. But to write off every company that has a housing component is just plain stupid.
Yet, that's what is happening.
Anon 11:12 PM:
I think you are right that we shouldn't write off everything with a housing component to it, but if it's something that goes into a new house, you may see a decline. For things like A/C units, they will still sell because people need A/C when the thermometer hits 90+ degrees. However, if less new houses are going up, there is less A/C units to sell.
The stocks that will perform the best are the ones that have a good chunk of revenue outside the US. Caterpillar and Proctor & Gamble are good examples of that. Not only do they sell in fast-growing markets, but currencies in foreign countries are often holding up better than the dollar.
After the housing market implodes, many people who worked as real estate agents and mortgage brokers will be out of work. They will flood onto the market for low wage service jobs at places like retail stores and restaurants. This increased supply of low wage service workers on the job market will depress wages, thus reducing labor costs for retailers.
"This increased supply of low wage service workers on the job market will depress wages, thus reducing labor costs for retailers. "
-hey, great news! we got cheap labor because we have 10% unemployment! it's gravy days for retailers!
man, think through the argument first. if that happens, they'll have no customers, since nobody will have any money
comprendo?
cramer didn't say sell everything - that's anon. cramers words are below that.
he said the exact opposite -don't sell. he said the sell off in non-housing stuff isn't warranted (home depot etc)
i completely disagree
Labor is far and away the largest expense for a retailer, so even a modest drop in the unit cost of labor can yield a substantial decrease in expenses. Large retailers like Walmart can easily adjust prices on items they sell, because they can easily obtain large quantities of very cheap manufactured goods from places like China. The growing American serf class will continue to consume things they don't need that are produced by sweatshop and prison/slave labor overseas. That is, they will get by on their meager service wages until someone in their family gets sick, at which point they'll owe their soul to the company store.
"I'm sure the Fed knows how bad things really are, but can't say it out loud because there are many whom the Fed answers to who would cry bloody murder."
Read the beginning of this:
http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf
The Fed won't raise rates at the next meeting, IMO ie sacrifice dollar for stock market. This will mean dollar death - (inflation will jump like mad on all the things you need) because the supposed interest rate differential is what is keeping the dollar afloat - with the stock markets bouncing up for a short time before the big fall - The Plunge Protection Team (Working Group on Financial Markets) may hold it together until the elections (short at your own risk in a manipulated market! Recommend a safer short via a Rydex Inverse Index Fund, if you want to play that side), but after that all bets are off.
Also, watch out for the Middle East or any other unexpected event - may make all the above void except for the big fall in all paper assets. When it happens, it will be quick - get into a secure position now.
I would consider puts in HD and CCL, most of consumer discretionary is going to get hit. Maybe even SBUX.
Funny - nobody has mentioend fuel costs.
In Maine, everybody has to travel long distances because everything is so far apart.
It's also pretty cold for most of the year. Homes that used to cost $300 a month to heat are now costing $500 - $600 a month. And my gasoline bills have tripled.
We're talking an extra $600-$900 a month, just for fuel, in an area where the average mortgage costs about that much.
How can anyone even afford lunch anymore, let alone a new home?
Better Get a Very Big Gun A Really big big Gun - and learn how to use it - those of us with Military Action Experience know what the hell I am talking about. Time to Protect your Home and your health and the Smart take what ever steps are Necessary to do just that. Take care of your Health First - Do not take unnessary Risks - Weight all Options and then Re-Weigh all Options - Engage in only those that you have a better than 80% chance of Succeding in - Guard the Family closely and the Home Closer - Get to a all Cash Position if Possible - Do Not Participate in Mob Mentality or Mob Mentality Ideas. Stay Level Headed - Harness your Fear make it work for You. Be a Survivor....
"Stay Level Headed - Harness your Fear make it work for You. Be a Survivor...."
Figures, military a-hole. This kind of mentality got you into the sad military to begin with. I always said that people the either a) join the military or b)local govt as a cop, are low lifes that were at the bottom of their class. Can you say DUH?
Actually I can Say West Point - Vietnam 1965-1968 Retired 0-6
I'm guessing Junior College Landscaping for you.
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