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.

Jobs Data

Tomorrow's jobs data is crucial for the markets in the short term. We are also approaching options expiration (Friday). Should be interesting.

Rally on Election Hopes?

This rally is unsustainable. The market may not be rational, but it eventually self corrects.

I know we hope that a change in government will fix things, but it won't. This Depression is A-political.

This is just a technical bounce. If you are a trader you already missed the move, don't chase it.

Steve Keen

Thanks to an old friend from high school (thanks John!), I have found another source of great economic information. This is not easy, as much that is out there is very "surface" and many economists that are in the employ of large financial institutions or the government have a vested interest in not digging deeper, especially if the truth that lies underneath the headlines is hard to stomach.

Mr. Keen seems an exception to this. He has done rigorous analysis on the very questions I have been pondering, such as how GDP has been debt driven for the past decade or so, and what the effects of that on future growth (or contraction in this case) will be.

One of the things I do on this blog is try to make economics understandable to the regular person out there, so I tend to use simpler language and not too much empirical data.

However, if you want the data to back up what I have been saying...you can get it on Keen's site.

http://www.debtdeflation.com/blogs


Happy reading!

I Love Art Cashin

Not LOVE, love, like I love my husband, I mean I love watching him on CNBC.

He is so classy, but doesn't act arrogant like so many of the younger, "slick" traders who haven't been through near what he has.

Also, he is right often, and this clip is no exception. (although I would say 10-15 years, not 7) He is able to see the big picture, and is refreshingly honest.

Rise of Religious Extremeism?

I have been very critical of radical, or extremist Islam. I am going to rant a bit here, but first read this:

http://www.cnn.com/2010/US/09/07/florida.quran.burning/index.html?hpt=T2

Burning the Koran is a TERRIBLE idea. It is hateful, wrong, and just plain stupid. Why on Earth would anyone do such a thing?

Hating others only increases the hate in the world.

You do not fight hate with hate. Extremist "Christians" are just as crazy as extremist Muslims. By extremist I mean those who interpret religious text literally and use the words they find in these text to justify violence against others.

I mean really, at this stage in human evolution haven't we figured out that physically harming our fellow man is wrong?

Are these the same "Christians" that justify beating their children with the "spare the rod spoil the child" thing?

Maybe the reason they are not taking a reasoned approach to countering the ideas of Islamic extremists is that they have much in common. I mean, they both justify violence and hateful acts based on the ancient texts they read. They both think their way is the only way, and envision a world in which everybody believes and does exactly the same things they do.

Do they have a first amendment right to burn whatever they want? Absolutely. Does this make it right? Absolutely not. Sounds like a debate over a certain building being erected in lower Manhattan, doesn't it?

Is There A God? Hawking Says No.

"I am that I am." - Jesus. "Before Abraham was, I am." - Jesus

When Jesus speaks of his Father, we automatically assume there must me a Creator.

But is there one Creator? Or many?

Are we all Creators?

Is it possible that the above words of Jesus pointed to the truth that time and existence are relative, that existence just exists, and it is the acceptance of this truth that brings peace to the human mind? I mean, clearly Jesus was not born before Abraham. Perhaps existence, on the energetic level is eternal.

Einstein pointed out that matter can neither be destroyed or created, it can only change form. If this is true, than who could have "created" the matter of the Universe. Perhaps it just is.

Hawking says the Universe was created spontaneously, and has no creator.

http://online.wsj.com/article/SB10001424052748704206804575467921609024244.html?mod=WSJ_hpp_MIDDLETopStories

He is basically saying the Universe just exists. Actually, many do. It is that it is, and that is enough.

Is it the Human mind that requires a concept of time? A beginning and and end? A creator and destroyers?

Quite possibly.

I mean really, everything is relative, including time and space.

Is the whole idea of God a creation of the human mind? A desperate attempt to bring meaning to existence, beyond that which exists in the present moment?

My God is the energy of Love. My God is the Life Force that dances in the winds of the Universe. I have no need to know who or what created that energy. I know it is eternal, and peace lies inside it.

May the Force be with you.