Drastic Changes Ahead

Even though I am up 17% for the year, I’ve decided to implement some draconian changes to the way I buy and sell securities. Gone are the days of half measures and low conviction positions. Effective rather immediately, I am going to focus trades around a very specific thesis, one that I’ve been researching for a long, long time.

What is the ultra-trend with regards to humanity?

The answer is simple: people want to improve their lives. We want to live longer, healthier and be happy–all the fucking time. To get there, we buy “stuff” and use services that makes us happy. We want to eat healthy and tend to our illnesses whenever we get sick.

There are many ways to interpret “happy”, when discussing stocks. For me, I believe there are certain long term trends that cannot be discounted. People don’t want to eat unhealthy foods, which is why organic food sales will continue to do great. Longer term, MCD, WEN, YUM and BKW are shorts.

We want clean water and food that isn’t genetically modified. We want the best electronics and quality clothes.

Certain restaurants stand out from others, due to quality and freshness of food, which is why their stocks do well.

Without mentioning specific investment ideas, it’s really hard to explain what my angle is going to be. The wheels are in motion you will find out soon enough, small plebbers from the internets.

Zombie Fly will rise from the ashes and eat brains, organic of course, soon enough.

Thanks to the help of Chuck Bennett, I was able to secure a 4,000 watt generator, from some nefarious creature living in the backwoods of New Jersey. This ‘gent’ had a fairly large “jerk-off hole” in his pants and was heaving up a storm, like due to his emphysema like condition. His backyard was littered with lawn mowers (the riding type) and lots of other stolen goods. Chuck and I tried our best to not laugh in his face, instead opting to mildly mock his “Pakistani-like existence”–living in the part of NJ that no one gives a shit about.

I paid him $650 and went on my way.

The House of Fly is stocked with 6 months supply of grain and the pantry has more than 1 weeks worth of water/dry goods. The main concern stems from the high water table in the Princeton area, which has plagued many a basement with floods during power outages. The sump pumps must be energized, at all times. Since I just moved in, I have been unable to have a large natural gas, permanent, generator installed. I will make sure to do so next spring.

So I had to fish around for generators, finding myself #205 on the Sears waiting list. All hardware stores were sold out, within a 150 mile radius. It’s fucking ridiculous.

GNRC is making a killing.

For now, I’m kicking back, listening to some music, consuming sone Chimay Grande Reserve–putting two middle fingers up whenever the weather man speaks.

SVU, PPC, DDD and APKT were all big positions of mine. I sold them, but kept DECK and FFIV. This cannot be coincidence. There are dark forces at play here, cursing my house. These same devils are now bringing great, gargantuan hurricanes/snow storms, to my house–all at once. To make matters infinitely worse, I am without back-up generator. To think I might have to forgo the basic luxuries of the light bulb has me aghast with anger.

If any of you know of a hardware store in or around the Princeton area, who has generators, let me know. I’d greatly appreciate if you canvassed the entire area for me, as I am too busy getting punched in the scrotum to worry about my livelihood.

Stocks reversed off the lows and have POMO’d their way higher. I am demonstrating world class patience by holding onto my losers. There is a specific reason for that. I don’t want to make any new mistakes. The current mistakes have turned to ‘legacy’ ideas. All this talk of destruction is really overblown, as I am up more than 17% for the year. But my gains have been halved in about 3 weeks, so it feels like death.

The cold truth is, I’m a coal man, always have been, always will be. I need to get back in the mine, workin’ again.

Maybe next week will bring better fortunes. In the meantime, you should all say a prayer or two for Senor Tropicana, to make sure the Gods protect his assets and flower him with coin (no homo).

http://www.youtube.com/watch?v=vQqK_vUHrZI

My day cannot get worse. I have a large position getting mangled, and oh by the way all of my other positions are getting mangled too. One investor emailed me “DECK, WTF?”

Yes, DECK WTF, indeud.

It joyous to wake up to down 17% off abysmal earnings per share guidance.

The market is following suit, with everything getting taxed. The lack of momentum, I’m afraid, is leading up to a major move to the downside. Of course I am biased today, as I am consumed with The Black Death. I keep reminding myself, in a rain man sort of way, that “the manipulators don’t like to be made fun of,” over and over again–as if my vocabulary was restricted to just 9 words.

Let’s be clear: there is no tomorrow, only today. There will be time to make all of the money back, AND MORE. But right now is a very different matter.

I am talking about capitulation, gentlemen.

Prepare for it.

The market is spitting in the face of the bears, but they’re shitting on me. Like I said yesterday, insider information was leaked before DECK’s earnings. The only reason why I held was because of the 2 point gap down. I figured the news had leaked and the damage had been done.

Wrong.

Nothing could’ve prepared me for what looks like the RIMMification of the company.

Sam Poser from Sterne Agee is sticking to his $32 price target, but says the company is still too optimistic. Here’s a snippet of the report.

Our Call
The worst is yet to come. Despite lowered guidance, management appears far too confident that cold weather will fully ease the pain. We believe that Classic styles will perform better if weather comes, but the fashion part of that business may be lost forever. We expect that material order cancellations in 4Q12 will result in a guidance miss and severe pressure on 2013. We are waiting to speak with management prior to updating our estimates.

3Q EPS results were overstated and there are oodles of red flags: DECK reported 3Q12 EPS of $1.18 which was above guidance but was 26% below last year. However, revenue was down 9.2% versus LY and down 10% versus guidance. The EPS beat was a result of a push-out of some expenses into 4Q, and we believe, an unwillingness by management to appropriately address the excess UGG inventory resulting from the 11.9% decrease in UGG sales. Overall inventory was up 36.4% at $486.7M. The UGG inventory was up 43% at $452M. The company increased its borrowing on its credit facility from $45M LY to $275M this year, which included $85M for share repurchases, and resulted in $7.42 in net debt per share compared with $0.60 in net cash per share LY. Accounts receivable (A/R) increased to 63% of sales versus 47% which leads us to believe that management is giving better terms or is stuffing the channel. We further question the A/R increase because non-DTC sales decreased from 89.1% of total sales to 86.1% of total sales.

Will DECK weather its guidance? FY12 EPS guidance was reduced from ~$4.58 to $3.40. FY12 revenue is now expected up 5% versus prior guidance of up ~14%. UGG sales are now expected to be flat with last year compared to prior guidance of +10%. Baked into UGG guidance are an increase in 4Q sales of 6%, which includes an 11% decrease in SSS, and what we view as a modest decrease in wholesale revenue. The over/under on achieving 4Q guidance appears to solely based on weather; weather was mentioned 39 times on the 3Q12 call versus 10 times on the 3Q11 call. 4Q GM is expected to decrease by 430bps versus prior guidance of -250bps. The change in GM is a result of higher sheepskin costs and lower European margins, offset by increased retail, and Sanuk sales. Neither sales nor margins are including potential material cancellations from wholesale accounts despite the fact that orders have already been pushed out of 3Q into 4Q. Inventory levels at year end are expected to be up 20% on top of a 102% increase LY, which reflects 30 forward WOS.

2013 appears dicey: The company expects to open ~30 stores and get back 150bps in margin due to lower sheepskin prices. Higher prices caused a 500bp drag in GM in ’12. That 150 bp increase may only serve to offset other weaknesses. Management said that all expenses are in play, including store openings, if 4Q12 guidance is not achieved. We see a major risk of order cancellations in 4Q12 which will likely result in poor ’13 results, with 1Q13 being a liquidation period. We continue to believe that there is no safe inventory and that the Classic UGG styles are subject to fashion risks despite management’s weather commentary.

The market was supposed to be down 100. All things considered, today’s tape is terrific. But it’s just more of the same, isn’t it? Slow grind, churning between industries, devoid of momentum and energy.

I’m down 4% for the day, still very dead.

DECK just reported one of the worst quarters I’ve seen since I was ‘Ramp’d‘–back in the dot bomb days.

I can’t take it anymore. Thanks to the end of day leaked insider information in DECK, stubbornly, I opted to hold into earnings–knowing full well the company sucks giant dicks. They don’t sell boots anymore. THEY SUCK GIANT DICKS.

These are the facts.

I lost 0.8% today.

At the open of tomorrow, not counting all of my other, wonderful, stocks, I stand to shed 2.5%–thanks to the sinkhole that is DECK. I will most likely lose anywhere between 3-5% tomorrow alone. The only way I don’t shed blood tomorrow is if VHC and TC ramps higher. But you know that isn’t likely to occur. I am cursed, stuck with repeating the process of surging and blowing up–over and over again. Each and every time I surge ahead, I get knocked down.

When I am smashed, destitute and without hope, I roar higher.

My only solace, during hard times like this, is knowing I’ve done this before. This is a very familiar road for me, especially over the past 5 years.

After this debacle, I will need to regroup, tighten up the ship, leave no room for error, in order to clean up the mess of the OSG-FFIV-DECK triangle of death.

I stepped out for two hours to get my Apple computer fixed. I said to myself “Fly, you have time to sell DECK before they report earnings tonight. The stock will likely trade flat.”

Lo and behold, someone leaked information, sending the stock screaming lower. That’s it. I resign to the fiction of “fate” and will just sit here and wait for my execution. On principle, I refuse to sell DECK, as it tanks lower, into earnings. I could very easily accept and deal with a post apocalyptic DECK, after reporting abysmal earnings. But this is too much.

My favorite analyst, Sam Poser from Sterne Agee, says the DECK brand is shattered and pricing is collapsing. He insists “the brand is broken.” Who am I to bet against Mr. Poser?

I am the fucking Fly and shall do so, even though it’s crazy and likely to cause severe financial hardship.

I want to demonstrate some simple math for you cynics out there–because you’re stupid.

Stock A is a 7% position and it’s down 11.5%.

Stock B is a 20% position and it’s up 2%.

Stock C is a 13% position and it’s up 2.2%.

Stock D is a 15% position and it’s up 2%.

Just out of those 4 stocks, knowing the weighting a daily change, what is the net result?

That’s called “diversification” gentlemen. It enables one to withstand outlier events without blowing up.

I’m eying coal. The sector is selling off for two consecutive days, likely due to bad earnings at CLF. Remember, the coal sector is impaired. You don’t buy the sector for its fundamentals. It is a play on the future, which makes it the perfect Pro-Romney election day pick. I intend to buy ANR and JRCC, ahead of the elections and sell after Romney is declared King.

You bastards went to bed happy, thinking Le Fly finally got ground into dust, via FFIV. Well, you’re fucking wrong. This whole time I was actually short the stock. Just kidding. Actually, I don’t like to kid, for life, and especially this shit, isn’t a game. It never was and I don’t give a shit about the fall colors.

Fuck the fall and fuck FFIV.

However, curiously, I find myself +1% this morning, thanks to VHC, TC, DECK and MCP. Of course I am pissed, after selling DDD to buy FFIV. It was the worst trade in the world. But as you can see by my morning swagger (no sashay), “The Fly” is doing just fine.

As I pen this stupid masterpiece, my fortunes have taken a mysterious turn for the worse. Instead of editing this, like some of you dicksucking bloggers out there, I stream in real time. Get this, my ‘morning swagger’ has been trimmed to just 0.2%. I am not feeling so boastful anymore, especially with FFIV getting pummeled in the nuts like this, down a broker’s dozen.

Moving on, the market really needs to bounce today. If we reverse lower again, I’m afraid we can slip a quick 1-3%, just for sport. It’s true, the gravitational laws of supreme mathematics have dictated to us that stocks are due to climb higher. So, like any servant of probability, I’ve opted to sit tight and “enjoy the ride.”

At the close of this blog, “The Fly” was up 0.5%.

http://www.youtube.com/watch?v=IwqSuEEn4vI

I bet you thought I forgot or willingly ignored THE FUCKING CATASTROPHE that is FFIV, who reported abysmal earnings after the bell. I was muttering to myself, earlier in the day, to sell this fucker because it was gonna hurt me. I kind of knew they sucked, but figured “let’s roll the dice and see what happens.” Have you ever done that before?

I bet you haven’t.

The company is stupid, plainly. I wish it was a deer, so I could run it over with my car, or shoot it in the head. Every other quarter it blows up like a sick, demented Jack in the Box strapped with a dynamite vest, then it surges, then blows up again. As a matter of fact, that sort of fucked up behavior embodies most stocks these days. Have you taken a gander at FIO after the bell?

Don’t think I forgot about OSG either. I lost 25% on that cocksucker and it dropped from $5 to $1 in like 2 days after I sold. I guess the powers that hold together the stock figured “now that Fly is out, let’s just file for bankruptcy–ABANDON SHIP.”

Surreal.

So I’m gonna wake up to a paper loss of 20% in FFIV in the morning, from cost. I can’t average down in that fucking stupidity. It needs to be sold. You can’t average down in a stock that misses earnings. It will take a quarter for it to rebound and catch its legs. I might not sell tomorrow or even the day after. But rest assured, I will blow that pig out.

Looking at my profit and loss, I am fucking lucky to be up more than 25% for the year. I’ve been blowing up in one stock after another, only buttressed by massive winners. I played ANR in September and October, both times from $6.5 to $8.75. I had scores in EXK, CLF and NAK. I am sitting on a gain in VHC; but most of my positions are in the red.

I am going to have to avoid all earnings plays, from here on. I cannot afford to lose 20% at a clip. It’s fucking lunacy. I still have upwards of 17% of cash on hand, fully prepared to dive back into the ol’ coal mine again, for a quick 40% gain–or two.

Oh, fuck this shit. I’m off to drink another cup of earl gray, while drawing out some blueprints for my pineapple coffin.