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Posts from the ‘Salesforce.com (CRM)’ Category

It Helps to have Some Shorts

I’ve mentioned before how I can’t short in the RBC practice account that I post here. But I do own a number of shorts in my actual accounts.  On a day like we had yesterday, where everything is down, those shorts help a lot. That’s especially true when one of them implodes like it did last night.

I mentioned on my October 19th post that I had shorted Green Mountain Coffee Roasters (GMCR) after receiving a Google alert that they were the subject (victim?) of a David Einhorn presentation outlining the negative case for the company.

As an aside, I would really recommend having a google alert account set up.  Its easy to do, you just have to create a google account and list a number of key words for which you want emails sent to you when the googlebots find them.  One of my key words is Einhorn.  I was sent my first alert about his presentation about 10 minutes after the fact.  The stock had already dropped $7 but I sold it short at about $83.

I added to that short on Monday, rather presciently it appears, after reading Einhorns presentation in full over the weekend.  It anovervalued company, and the anecdotal accounting and inventory management schemes do sound rather fishy.  But even above all of that, we used to have various single serving coffee packet systems at work, including one for a while that used the Van Houtte brand, and they simply aren’t very good.  A number of us got headaches from drinking the coffee.  It gave you some weird buzz.  It just wasn’t normal coffee.  The machine we have at work now makes its single servings on the spot from real beans.  There is no comparison.

But enough about GMCR.  That boat has sailed, as it dropped some 30% last night in after hours after missing revenues.

Most of my shorts are put on as hedges against the current macro risks.  Therefore most of my shorts are bank stocks.   GMCR was one of two exceptions to this.   The other exception is Salesforce.com (CRM).  Unlike GMCR, which has already crated and the easy money made, I think there is plenty of downside left in Salesforce.com.  This article from Smart Money does a pretty good job of describing the bear case for the company.

One of the two bank shorts that I have accumulated is Bank of America.  Its my single largest short position, which is to say it is about the size of my average long position.  I shorted Bank of America for a number of reasons:

  1. Exposure to the US housing market.  As described in some detail in this testimony to the Senate by Laura Goodman, there is probably more risk of another wave of defaults as there is of an imminent recovery.  If the PrimeX index is any example, housing defaults will soon spill over into prime mortgages.
  2. Exposure to Europe.  In itself their exposure to Europe ($15B) is not going to send BoA to the edge.   But it doesn’t help.
  3. In need of capital.  The sale of preferred shares to Warren Buffett, the sale of the China Construction company stake, and recent overtures in SEC filings about raising capital all suggest more money is needed
  4. Unintelligible financial statements.
  5. They are, after all, king of the big bad banks.  This may mean they get bailed out if things get really bad, but it also means they remain near the center of the male storm that is Europe

UBS is my other short bank position.  To be honest, it wasn’t my first choice.  I have tried to short Deutche Bank and RBS in the past but can never get shares.  UBS seems to have problems whenever something blows up, and recent events just showed that the company does not have the best capital controls.

Finally, I have a small short that I just took in Home Capital Group (HCG.to).  They are a bit of a darling of the Canadian market, and do not trade expensively, at 10x earnings.  What they have against them is that they fund a lot of the non-convention loan demand in the Canadian mortgage market.  So they fund the loans that CMHC won’t insure or that need to meet special criteria to get them to insure.  I’ve put on and taken off the short in HCG a number of times, and this time will likely be no exception.  I like to have a short on them when the market is going into a liquidity crunch because the company is at the center of those liquidity markets.  I also like to have a short on them because its a free option on something eventually going wrong with the Canadian housing market.  While that has not happened yet, it seems to me likely to happen at some point.

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