Shorting the Brown Shoots

Green shoots has become a tiring term - clichés in the age of new media really run of out of gas quickly, and I recently took a two week working vacation to dig out green shoots for my readers. Data is nice, but you can get that anywhere and it basically starts arguments. So I told myself to take a hard look on the ground? What did I find? Brown shoots everywhere.

...Are anecdotes worth investing in? Just as Peter Lynch, you can start with these anecdotes but first you must ask yourself why is Wall Street so adamant about green shoots and the "bottom." Simple. Wall Street is congenitally biased to the upside, we were coming off a very sharp decline in the markets and Obama has a great ability to lead, convincing us and then remind us the world is not ending.

So, are we at a bottom? Perhaps - but my concern, my observations are about the lack of a rebound. And the current market is now beginning to look for signs of a rebound. So brown shoots mean a lot as the market starts looking to Christmas and beyond.

The tricky part is the definition of a rebound. I read this morning about the big turnaround in auto sales. They are "only" going to be down 20% at Ford (F) and call option activity is accelerating (I am long, in my service, Ford calls). Turnaround? A year of 55 million in sales with worldwide capacity to make 100 million cars? The auto industry is representative of the debate. We may bottom at 55 million but when will sales support current stock valuations? And that is true for most if not all consumer discretionary stocks, from Tiffany (TIF) to the Cheesecake Factory (CAKE).

So, short term, you can play the short term optimist. As I said, I am long Ford in my service but what about the longer term?

For a longer term trade, assuming you agree with me and the summer will be a bust, so look to short travel related stocks. And if you sense Christmas will see Santa stuck in the chimney, look to short names that people will continue to trade down from - Cheesecake Factory, P.F. Changs (PFCB), Macy's (M). Avoid names people will trade down to such as: Dollar Tree (DLTR), Wal-Mart (WMT), Darden (DRI) (Olive Garden). Look for real discretionary spending stocks like Harley Davidson (HOG), Tiffanys, Coach (COH), Nordstrom (JWN), and look for underpriced products that will see increased demand in the winter such as natural gas (the UNG).

Disclosure: No positions

Comments

[Ted Hurlbut:]

I think we'll see a modest rebound in retail sales begin in Q4, when same-store sales comps turn pretty favorable. The key question is whether consumers will be ready to pay closer to full retails than they have been. Retailers are doing their part to prop up sales and margins, cutting planned inventories to levels far lower than in recent memory. Discount will continue to do well, mid-tier should begin to bounce back, but the specialty and luxury sectors may remain pretty sluggish.

Ted Hurlbut
www.hurlbutassociates.com

Jul 01 09:54 AM

[wg:]

I keep hearing everybody recommending "shorting' this and that stock or treasury bond. Well how in hell do you do it? I'm with Merrill Lynch, and my brokers say they don't have the authority to short stocks.

Jul 01 10:14 AM

[Vinsanity:]

That depends on the nature of your relationship. If you have given them control and discretion and the prospectus says "No Shorting", guess what?

If it is a non-discretionary broker relationship, then they are flat lying to you to make you leave them alone. I will assume you will educate your self on how to sell short, because that button is right next to "buy" and "sell" so it is an achievable goal and concept.




On Jul 01 10:14 AM wg wrote:

> I keep hearing everybody recommending "shorting' this and that stock
> or treasury bond. Well how in hell do you do it? I'm with Merrill
> Lynch, and my brokers say they don't have the authority to short
> stocks.

Jul 01 04:12 PM