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Individual Position Analysis - Day 11

|Includes: Alliance Data Systems Corporation (ADS), BWLD, GMCR, TRLG, WRLD

I’d like to begin a routine of analyzing our individual positions on a bimonthly basis. Things can change rather dramatically in this market in extremely short time frames. For that reason, keeping grounded in the analysis on the individual names in the portfolio will serve everyone well. Let’s begin:

- ADS – Ultimately, I do not want to get very heavily weighted on the short side of this one. The market cap of this company is somewhat higher than what I prefer, as is the outstanding float. However, as a matter of stock market etiquette and moral chivalry, I couldn’t help but lace this abhorrent excuse for a company with a dose of Dr. Kellegro’s home made acid…in the hopes that it will see its true self.

This is a relic of credit cycles past similar to WRLD, although not as toxic. Anybody who believes that the role of the consumer in the modern day American and for that matter, global economy, has been forever altered should take heed of these types of opportunities on the short side. Money is no longer freely available through the ATM that was the American home. Savings rates are in the process of a long term normalization process. The consumer is going through a long cycle of retrenchment. Companies such as ADS are exposed to this negative cycle of events.

- WRLD - the same as ADS except on steroids while swimming in a pool of lard on a 110 degree day. Another play on the negative implications of a prolonged period of consumer retrenchment. This is a company that will, more than likely, cease to exist at one point during this cycle. The beauty of the capitalist system and the free flow (actually, I should say that it used to be the free flow, now it’s the manipulated flow) of capital is that it acts as an enema for the financial system and economy. The Federal Reserve is attempting to regulate the cleansing process. However,the process will eventually – irrespective of the Fed’s wishes – wash away all the small pieces of excrement that are desperately clinging onto the walls of the economic rectum. Eventually the economy will emerge with a clean rectum…and companies such as WRLD will be lost in the sewer of time with only a snippet of foul odor remaining as their legacy.

- TRLG – read “TRLG Short Sale Synopsis” for the details on this short. Nothing has changed. I am looking to add to this if it continues to move up and would like to make it our largest short position.

- BWLD – I haven’t had a chance to explain my thinking behind this short so what better day to do it than the day this company closed at an all time high. I don’t know what Buffalo Wild Wings are and I have never had the pleasure of dining on a Buffalo Wild Wing. However, what I do know is that serving chicken wings with various sauces to a group of alpha males while they watch other alpha males throw and catch balls is a fad. This company is making all the mistakes of the typical company who caters to the retail crowd. As nonlinear in nature as the markets are, it is peculiar how linear in nature the decisions amongst these companies are that inevitably lead to their demise. 

An idea that’s driven purely by momentum to the point that management is feeding off the stock price. This leads to management pushing the envelope of ideas in an effort to keep the stock price high while they dump their shares. Typically, management is able to do this through expansion of stores, acquisitions or diversifying of their product line in an effort to further build excitement, which in turn, creates more momentum, which in turn creates more upgrades, which in turn brings in more momentum players, which in turn….you get the picture.

Rarely do any of these companies turn into the next McDonalds, Apple, Google etc. A vast majority of the time management gets ahead of itself and they end up scratching their heads as liabilities increase and revenues begin suffering once the momentum ends. BWLD is making all of the standard errors and their stock price is playing its standard game with Wall Street analysts playing their standard part. It’s all a lie…a shell game…a transfer of wealth from one party to another. But, of course, it’s masked as an investment that will pay for your children’s college education. Yeah..ok guys.

Anyways, I’m drifting off the subject. BWLD is a flash in the night sky. Technically, it has broken out to the upside and momentum players are hopping on board. I will be watching to see how it reacts to this breakout over the next couple of weeks. I wouldn’t at all be against covering and reinitiating should this breakout turn into something substantial on the upside.

- GMCR – read “GMCR Is A Murderer”for more information about this maker of coffee machines and the single serving cups that accompany them. This company was upgraded yesterday. Typical. Where were these Wall Street clowns in monkey suits when the stock was trading at 20 or 30? Why do they push momentum? Are they simply trend followers with Harvard MBAs that manipulate their research in order to justify the stock price? All questions that need to be addressed. Whose interests are truly being served here? The individual investor or the insiders at the company, investment banks and trading desks? Benjamin Button here will be a teenager once he gets off his coffee buzz.

I don’t comment on stocks that are trading below $2. I will only pass on comments when I initiate the positions and when I close them out. All I will say is that I continue to have high hopes for both companies and believe that our legal system will make the correct decision in both cases.

I will comment on the multiple upgrades to the names in the portfolio as well as the retail sales information that was released today over the weekend.

This was Day 11…I am the incontrovertible…..Dr. Kellegro.



Disclosure: Short ADS, GMCR, WRLD, TRLG, BWLD