Under A Minnesota Sky

Under a Minnesota sky I breathe the air tonight.

Under a Minnesota sky I greet the oak grove that remains.

Under a Minneaota sky the invasive vines stake their claim and the forest yerns for its domain.

Under a Minnesota sky I smell the smoke of a deciduous fire.

The red fox and racoon watch from the bush, and we wonder if I belong under their Minnesota sky.

Under a Minnestoa sky I grasp the collison of the forest and the fire of the world.

My daughter breaks the silence...under a Minnesota sky; I wash her beautiful hair.

Under the Minnesota sky I love, I live, I am.

Still In A Range...

But man, the bulls are making a good run at it. I am still looking at the market as being in a 25+ year cycle. The end of this cycle will illustrate all the flaws of Keynesian economics. I hope Keynesians can't stay irrational longer than I can stay short.

11,200 or so on the DOW is the top of this range. The right shoulder is still forming on the biggest head and shoulders top in recorded economic history. (How exciting for geeks like me!)

Even though helicopter Ben would like you to take on lots of debt and spend, spend, spend, so he can hold on to his failing economic theory, he can't change nature. We are in the Keynesian endgame.

Don't let the financial media fool you.

By the way, the media's reson for todays market rally? Some popular hedge fund guy (who believes inflation, not deflation is our biggest problem, said to buy, buy, buy. Gee I wonder why?)

He doesn't want to fight the FED? So, if he is right, economies and stock markets have no underlying value and are completely driven by government policies. Any time something goes down, the government can just prop it up, and the fundamentals don't matter.

Gee, that worked out well for the Soviets.

Value does matter. Stock prices eventually, not at any given moment on time, reflect the ability of a company to generate wealth, and value for its shareholders. In Tepper's view, company values are a derivative of government policy. My God, if they are we have REALLY gotten away from Capitalism, and things are much worse than I thought, economically speaking.

GOVERNMENTS DON'T CREATE WEALTH, THEY ALLOCATE IT! THEY DEVALUE CURRENCIES! THEY TYPICALLY DESTROY VALUE!(obviously not in all cases) Any "value" the government adds to the stock market is just another form of asset inflation. When this becomes clear market will sell off, in a massive way.

Think The Housing Market Has Bottomed?...Think Again

Housing has not bottomed.

Really? What else is there to say.

Unions?

The Daily Show tells it like it is...again.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Working Stiffed
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

WalMart! Huh!

Deflation 101

I was shopping with a friend the other day and she inadvertently gave me a little lesson in deflation I would like to share.

Deflation: A general decline in prices, often caused by a reduction in the supply of money or credit.
or: A reduction in the level of NATIONAL INCOME and output, usually accompanied by a fall in the general price level.

Now, the following tale is only about one transaction, and I am aware that deflation is defined as a general fall in prices across the entire economy, but I still feel it offers a clear illustration of what deflation looks like in everyday life.

My friend and I were at Barnes and Noble. I was looking for a copy of a Harry Potter book my daughter needed for free reading time at school. It didn't take me long to find it. It was $9.99.
I bought the book and began looking for my friend, as she was browsing in a different part of the store. She walked up to me with a "used" copy of the book she had just found on the other side of the store. It looked exactly like the new book I had just purchased. The difference: it was $3. So, being a rational human (most of the time), I immediately returned the $10 book and purchased the $3 book. I then thanked my friend for saving me $7. That, my friends, is very rapid, deflation.

It is happening all across the country. Retailers are being forced to slash prices to sell their oversupply of goods. Why? There is too much "stuff" out there, and not enough demand. Because of high household debt burdens, unemployment, and increased savings, people are much more price sensitive than they were during the boom. Consequently, retailers have to lower prices to get people to buy anything. Once people realize they have been paying way too much for things, they stop paying too much.

Have you noticed the rise of the thrift store? This is also a result of deflation.

So, perhaps we should look at who will survive. Will it be Barnes & Noble, Amazon, Borders, or Half Price Books? Due to the rise of e-books, there is probably only room for one in the space.
If you can pick the winner and short the losers, you will make a lot of money.

How about OfficeMax, Staples and Office Depot? Again, only one will survive, pick the winner and get paid.

Walgreens, CVS, Rite Aid....I could go on and on.

Circuit City lost out to Best Buy. Linen's and Things lost out to Bed Bath and Beyond.

Don't deny deflation, don't fear it. Profit from it.

Critical Week

Yes, I am still short...and right now it hurts. However, I have not changed my opinion about the stock market. As a matter of fact, I am more bearish now than ever. I am not suggesting the average investor short stocks. This is a very risky strategy. But unless you have a 20+ year time horizon, you should avoid them altogether, at least for now. After the next downturn, you will be able to buy some large blue chip dividend paying stocks VERY cheap.

I have no doubt that this rally is being driven by traders and the same very large banks that were bailed out by us, the taxpayers.

The stocks that are dragging the indexes up are trading at very high multiples. Salesforce.com (CRM) is an example. Also, look into GMCR, NFLX, PCLN, and SHLD.

The headline reason for today's rally? Home builder sentiment is better than expected. Seriously? I mean, home builders feel better about things, so that means you should by stocks. A few components driving the Dow: Home Depot (16.4 p/e), Alcoa (39.69 p/e), CAT (p/e 29.3).

Oh, and the NBER (National Bureau of Economic Research) says the Recession is over...so it must be.

This is a very important week for traders. I believe market direction will change dramatically in the next few days.

Obvious Short*

This is what the 10-yr chart of GMCR looks like:

Now, look at the chart of the long China ETF, FXI, just prior to its demise in Nov 2007:

I didn't short China then, though I did a bit later, soon enough to take some advantage of the fall.

My point is this:

Every once in a while, there are some obvious bubble/story stocks out there that are easy shorts and GMCR is one of them.

http://money.cnn.com/2009/06/03/pf/green_mountain_coffee_stock.fortune/index.htm

There was an article in the WSJ:

http://online.wsj.com/article/SB10001424052748703376504575491253935081606.html

They bought another coffee company to sell off its assets and use the proceeds from those assets to pay off their own debts. Would a truly healthy company need to do such a thing? In addition, could they do it if their stock was not trading at a totally unrealistic price based on valuation?

It reminds me of the Qwest acquisition of US West at the height of the tech bubble.
The acquirer, who knows its earnings are unsustainable, has an astronomical P/E (GMCR trades at 54.8 times earnings), and has too much debt, buys a profitable, boring, low P/E company and saddles it with debt only to sell its assets to service that debt at a later date. This is parasitic behavior, and perhaps it is the only way GMCR will survive.


Now, I am not saying they sell a bad product. On the contrary. I am just saying their stock and, hence their company is extremely overvalued. I also see their product being a victim of the deflationary recession we are in. I mean, who is going to buy these overpriced machines that only make one cup of coffee at a time? From what I can tell they retail from between $100 and $200. I can get a pretty good coffee maker that makes 12 cups at Target for $36. Oh, I know, they are stylish. They look cool and expensive, like something you don't really need, but want. Not a good place to be as the consumer pulls back.

In my humble opinion, if sales don't fall at GMCR due to the recession, it should be trading at about $9 a share. I am looking to buy put options today.

When the market corrects, it will.

*As always, trade at your own risk. Shorting stocks can result in large losses if you don't know what you are doing, and sometimes does even if you do.