Why Christmas Will Kill Retail 14 comments
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Swine flu.
C’mon people, all you technical players and bulls out there have put your money on the riskiest bets since the March 8 low. Bets like retail, home and commercial real estate. Get real.
You’re probably already worried about your long positions. Technicals indicate we’re overbought. Optimism is the highest since 2003. Up volume is weak. Earnings multiples are too high during this ending (as some of you believe) recession.
But swine flu will kill your portfolio. It is no black swan: billions of people will be exposed to a flu virus, not vaporized in a nuclear blast. But the virus is hospitalizing too many folks, too many of those affected are in the ICU, and the northern hemisphere is experiencing flu season way too early for investors to underplay swine flu. (Weekly update from WHO)
Cooler heads around the world will be staying home when possible and donning N95 masks when out. Those of us who like to ignore bad news (hello, America!) may lead everyday lives longer, until changes at schools and hospitals become too big to ignore. That just means the investing tide will turn faster, especially when nerves are already jittery in October or November.
Want to park your money in a long play? Try home-shopping and park-your-butt-on-the-couch plays like E-Bay (EBAY), Amazon (AMZN) and Netflix (NFLX).
But when the return of the secular bear combines with swine flu fears, money could hit the sidelines like it did in September 2008. If you’ve got the stomach for it, go short on retail, commercial real estate and commodities. Gold bugs will keep gold above $700, but silver and the car metals like palladium will dive.
Timing the market right on short CRE plays could still kill you, even if you’re ultimately correct. Consider double-short (SRS) or triple-short CRE (DRV) like playing an aggressive game of hearts – you’ve got a shoot-the-moon hand, but you might lose a point somewhere in the mix.
Go double-short on oil (DTO). Hurricane season is already a bust in the gulf, and inventories and capacities are simply too high.
Long plays are few and far between. Alpha Pro-Tech (APT) is a tiny company with no debt, a (barely) positive earnings history, substantial N95 mask business, and enough other products to provide some protection in case the swine flu play is wrong. Tread carefully, however: the stock has already moved huge this year, and its share price is just entering the shark waters around $5, when margin buyers and shorts can wreak havoc.
One final word: if you’re too conservative to try these strategies, watch the VIX. When the VIX is low and up volume is light, go for it. You’ll miss out on leading indicators like oil (already falling), but I imagine that big banks and private equity will try to prop commercial real estate as long as possible before throwing away their hands.
Disclosure: Long SRS, DRV and APT
Disclosure: Long SRS, DRV and APT
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>>>In temperate areas of the northern hemisphere (represented by North America, Europe, and Central Asia), influenza and respiratory disease activity remains low overall, with some countries experiencing localized outbreaks. <<<
What did Ross Snyder read?
everything that guy just said is bullshit.
By Rob Stein
The Washington Post, August 25
"Swine flu could infect half the U.S. population this fall and winter, hospitalizing up to 1.8 million people and causing as many as 90,000 deaths — more than double the number that occur in an average flu season, according to an estimate from a presidential panel released Monday.
"The virus, clinically called H1N1, could cause symptoms in 60 million to 120 million people, more than half of whom might seek medical attention, and could peak before a vaccine is widely available, the President's Council of Advisors on Science and Technology estimated in an 86-page report assessing the government's response to the first influenza pandemic in 41 years."
The real fear is not the human toll on lives but the closing that could take place to prevent the spread of the disease: schools, sporting events, concerts, conferences, etc. The other concerns are that people will hunker down and stay out of public areas, stop shopping, and stop traveling. Those are the sources for the concerns about economic disruptions.
While I don't put much credence in it, I read a story just a few weeks ago from a British newspaper that was predicting a 50% drop in GDP. Now, that is ridiculous and way over the top. But forecasts by the IMF are for the U.S. to suffer a drop in GDP of 4% in the year following the flu season (2010). That is "if the flu season is as bad as they expect it to be." Of course, the big word in there is "if." But, it is not completely out of the realm of possibilities since this strain is highly contagious and will require two vaccine shots (or a shot with a booster) to keep it from spreading. But how do we get to minus 4% GDP for a year with the impact all falling into one quarter? If we assume that we can rebound fairly quickly once the flu season ends it is not unreasonable to expect the following changes in GDP: Q2 -2%, Q3 0% (flat), Q4 +2%. Without seasonality adjustments that gives us an aggregate economic impact of zero for the last three quarters. In order to get to minus 4% for the year we would need to experience minus 16% change in GDP during Q1. This is not my prediction but rather an explanation of how IMF may be getting to their forecast just to puts things into perspective. If you apply similar numbers to world GDP, the results are just as staggering. So, I believe that the author is just extrapolating from the IMF projections to form his opinions. But, the IMF has been known to make mistakes, so accepting their views as certainty can be risky.
This strain of swine flu is manifesting itself like the "common cold" and spread through the air or by contact. I am not counting on a pandemic, but do believe that the world is about due for another one. (they have hit about every 50 years over the past few (centuries, latest was 1968). I'd be thankful if this were it rather than the H5N1 avian flu that cropped up a few years ago. Over 50% of those people who got infected died. It's virility was what was scary. Every flu strain has different characteristic. My guess is that we will probably be okay even if we have a pandemic but it is anybody's guess on how bad (or minimal) the economic impact will be.
On Aug 31 11:09 AM kriswells wrote:
> I'm still wondering what Christmas has to do with an article all
> about the swine flu.
We have no idea what the ramifications of this flu really will be. But the predictions 30% to 50% of US citizens contracting H1N1 indicate that there will be a contraction in GNP. People can't produce if they're staying away from work.
Invest accordingly.
####
Good article Ross, FYI I suggest you begin following Mark Bern, One Eye, OptionsGirl, Doubleguns, or myself. The five of us, and several more, are all over the H1N1 issue, and have been for at least a couple of months here on SA. Together, we've identified a host of stocks that are shooting up, morbid as this may seem to be. For instance, check out what this stock is doing today (SVA).
There's a running thread about the H1N1 virus that's attracting a lot of attention, recently. Please climb aboard, and add in your knowledge.
Wait, I think I already have it, I'm feeling a fever, I'm, no, this is the end...