The Devil and I Are Looking For Shorts

The main reason why I built The PPT was to automate my research. I needed a program that could automatically evaluate the balance sheets of every stock publicly traded, compared their debt vs cash, let me know when earnings estimates have been lowered, alert me to short positions, allow me to isolate companies who are trading poorly and whose earnings and revenues are decelerating.

I built PPT when the market was going down, in bear mode. This was to alert me to dangers, assist me in short sales.

Since then, I increased the power of the tool. Granted, many of you still can’t grasp how to use it, which is being addressed in the current iteration, PPT 5.0–soon to be released this century. But I know how to and will share with you a few screen results.

Most impaired balance sheets, trending lower.

Downward revisions, trending lower.

My current shorts are CCL, AG and JCP. I intend to start hedging longs until I flip the switch and go net short after tax day, 4/15. Until then, I am in a very big net long position, but will take advantageous shorts to take advantage of the slowly but surely dilapidation of this upward moving tape.

I will post my new short ideas tomorrow, after The Devil and I figure out which ones are going lower.

It’s very early in the JCP story. However, one thing is for certain, they will draw down on all of their cash by the end of 2013. This company is going to recapitalize, whether it be through private financing or a large, dilutive secondary, or bond offering.  It’s not in any danger of going bankrupt, just yet, since they have a credit facility to fall back on. But the trends in retail are the very worst ever witnessed by a big box store, including SHLD.

If forced to liquidate their real estate to raise capital, they are likely to receive “distressed bids” from prospective buyers, nowhere close to $200-250 per sq ft.

The vultures will be circling their wagons until they nail down some financing.

Ron Johnson made a huge mistake, thinking the old horse faced– sea hag crowd– at JCP was hip like the AAPL dork-a-tron line slaves. Clearly, he struck lightening in the bottle with the Apple stores and is now comically lost at JCP.

Being that Bill Ackman is getting “barbelled” on both JCP and HLF, I suspect there might be an exaggerated run on both positions, to further weaken “Montauk Bill” and his scurrilous ways.

Other positions of Bill’s to keep an eye on, in case he needs to raise money, are BEAM, CP, GGP, TGT and LOW.

Ackman owns good, liquid stocks, but these two (JCP, HLF) are going dreadfully wrong for him and I am obliged to kick him down a few flights of spiked steps–as I sashay (no homo) to my next destination.

I know you may think I am late to the party. However, it’s only getting started just now.

I started a short position in JCP.

The miners are underperforming the base metal by almost 20x today. We are getting to the pain threshold for many long term precious metal holders. These are the Tea Party people, distraught over Obama part II, now being dispatched by Bernanke part 1.

The Rick Santelli crowd has been annihilated, amidst black plumes of toxic smoke, chards of metal zipping through the air, unbelievably hot ovens melting their faces off to the bone.

I am +10% on my AG short and would short more, if I didn’t respect the specter of a mean reversion rally. On any meaningful spike, I am a net seller of AG, until it hits $12.

I also want to sell short some steel names with insurmountable debt loads, like MT. Providing I sell one of my longs to free up buying power, I will take on another short in the basic material space. The bear argument lies in China, so you might as well press the underwater longs there, in any name that is weak and dependent on the Chinese audit frauds.

CLF, MT, MTL and FCX come to mind.

I added a little bit to my DSS position. It’s very small cap and not for the faint of heart, another Devil pick–alongside PAMT.

I’d like to add to my HLF and APO positions. However, I am completely and utterly at my limit, with zero cash reserves.

In case you’re wondering if I’m worried about the market trading down: my answer is positively no.

This story always fascinated me, so I had to close it out.

SCMR announced it will be liquidating the company.

Sycamore announces intent to proceed with Dissolution; Certificate of Dissolution expected to be filed on March 7, 2013  (0.56)

Co announced today that its Board of Directors has determined that, for the reasons stated in the Definitive Proxy Statement filed with the Securities and Exchange Commission in connection with the Special Meeting of Stockholders of the Company held on January 29, 2013, and after reviewing strategic alternatives for all of the Company’s assets and available options for providing value to the Company’s stockholders, it is advisable and in the best interest of the stockholders for the Company to proceed with its previously announced liquidation and dissolution in accordance with the plan of complete liquidation and dissolution that the stockholders approved at the Special Meeting, effective as of the close of business on March 7, 2013.

After paying more than $14.00 in special dividends, the last remnant from the dot come bubble is calling it quits. If you are not aware of the story, in a nut shell, this is what happened.

Just before the dot com bubble bursted in 2000, SCMR was a high flying stock. They did a secondary offering when the stock was around $1,400 (split adjusted), netting them more than a billion dollars. Hell, the market cap of SCMR, at its peak, was $44 billion.

When the bubble popped, the stock plummeted so hard and fast, due to their business falling to drill bits. However, because they had a billion dollars sitting in US treasuries (they never had a chance to spend it), the interest alone on the bonds kept them alive. It offset the losses from the operating business, after they slimmed down to survive the new, new economy. One could argue that management milked SCMR just to draw 13 years of salary. They tried to reinvigorate the business several years ago, through an acquisition–but it fell flat.

Today marks the end of the dot com bubble, the very last remnant of an era of excitement, excess and legendary stock runs.

60 minutes did a hit piece on China last night. They’ve must’ve collaborated with Muddy Waters for the material.

Futures are lower and the American economy is on the cusp of ending, or suffering from a 0.5% annual drawdown thanks to sequestration.

Do we really care?

Come on. You people make me sick already, timing tops and running away from bottoms.

Retail and restaurants, R n R you pikers–remember that.

I am sure all of the experts will be “cashing out” tomorrow, following an early morning gap lower. I flick my cigar ashes in your general direction and hold the course.

We’re buyers of stocks in March. I don’t see the global push for higher stock prices ending because the librarians from 60 minutes said so.

To hedge, I am keeping my CCL and AG shorts and may initiate new ones in the basic material space.

The housing thesis is still on track, with new homes sales at the highest levels since 2008. Moreover, the 16% gain in January was the best in over two decades.

Japanese Prime Minister, Abe, is still fixed on “creating” inflation. While many view this as reckless economic policy, I believe it is bullish for equity valuations in Japan, as pressure mounts on the Yen, exporters benefit.

So let’s examine these two core thesis trades and see what’s working.

The PPT‘s Housing Resurgence index is chugging ahead, once again.

Within the index, over the past week, the following stocks were the best performers.

MTG +38%

PATK +15.8%

PGTI +11.5%

Z +10.6%

TPX +9.7%

My core holdings in the housing industry are USG and BZH, +1% and down 1.7% respectively.

Over the past month, the following housing related stocks performed best.

ANGI +36%

MTG +32%

Z +22%

CSTE +20%

PGTI +16%

Most of the bigger winners are speculative small cap names. Moving up the market cap ladder we can get a better feel for what’s working.

Month to date returns for housing stocks with market caps over $5 billion.

CBG +11%

MSM +6%

MHK +3.8%

FBHS +3.8%

MAS +3.5%

1 week returns

CX +6.2%

HD +5.2%

WHR +4.9%

RLGY +4.2%

SHW +3%

As you can see, the gains are still very robust. Albeit, my positions have yet to yield spectacular results, I am comforted by the fact the industry is still in a sharp upward mode. Both USG and BZH are “battle ground” stocks with huge short positions. In USG, 22% of the float is sold short and in BZH 27%. Many of the shorts are “legacy”, remnants from the 2008 housing crisis meltdown. It is my belief, as the housing market improves, these shorts will be forced to cover, allowing the shares of  both USG and BZH to run wild, like a naked man inside of a Japanese brothel.

Keep in mind, part of the driver in housing is the emergence of  private equity and REITs in the residential space. As of today, Blackstone (BX) (my top position) and Public Storage (PSA) are the number 1 and 2 owners of US households in the country, from a corporate position. I suspect these trends will continue, effectively drying up inventory and pushing home prices higher.

Japanese equities have traded sideways over the past month, after huge gains. However, last week, they surged again.

SNE +8.1%

ATE +4%

IX +4%

CAJ +2.2%

Both TM and HMC are about flat for the past month. It’s only a matter of time before the weakness in the Yen (-16% over 6 mos) allows the big auto makers to peels the skin off their idiot competitors. I am long term bullish on both.

At the moment, my only long Japanese position is MTU (+1% for the week), but have an interest in reacquiring shares of SNE and HMC for a longer term duration.

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Galaxy: Milky’d Way
Time: 16:00

With the market at new highs, it’s important to watch the underperformers and sell them short. Bear in mind, if a stock cannot rise in this environment, something is wrong with it. This isn’t technical or fundamental analysis. Simply put, I am a servant of trends. On occasion, I become obsessed with a thesis and will fixate my energies on it. But for the most part, I am buying and selling whatever the market is rewarding and punishing.

Steel and Iron should be avoided, especially AKS, GGB, SID, MTL and CLF.

Their balanced sheets are dreadful and people are fleeing the shares.

Small cap oil drillers are death. Avoid them.

Metals and mining are heading lower. Avoid names like WLT, ACI, BTU, MCP, EC and GTI.

Once again, gold and silver miners are heading lower, on their way to fresh 52 week lows.

Stocks that look especially bad are NEM, ANV, IAG, AG, EXK, HMY, ABX and NG.

Copper and aluminum should also be avoided. There will be the temptation to buy into these sectors, hoping for a bounce. But these are bad sectors and really bad companies. The market has discarded them in the same way and fashion that the warrior spartan class tossed deformed babies off mountaintops.

Do not let these bottom feeders taint your rich portfolios with their disgrace.

Ignore them or sell them short.

Have a nice weekend and enjoy the sequestration galas being held throughout NYC this evening.
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