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30 more stocks added to no-short list / Inflation vs. Deflation

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September 22, 2008 – Comments (21) | RELATED TICKERS: GE , GM , FMD

This morning, the NYSE added 30 new companies to the no short list. Here's a list of the new additions with a few companies highlighted my myself:

GLG GLG Partners
GE General Electric Co.
OCN Ocwen Financial Corp.
KBW KBW Inc.
GFG Guaranty Financial Group Inc.
MFG Mizuho Financial Group, Inc.
FMR First Mercury Financial Corp.
STC Stewart Information Services Corp.
FCF First Commonwealth Financial Corp.
MTB M&T Bank Corp.
DFS Discover Financial Services
BMO Bank of Montreal
TD Toronto Dominion Bank
CM Canadian Imperial Bank of Commerce
FMD First Marblehead Corp.
BBV Banco Bilbao Vizcaya SA
CIB BanColombia SA
LM Legg Mason, Inc.
NFP National Financial Partners Corp.
AXP American Express Company
CIT CIT Group Inc.
GM General Motors Corp.
HIG The Hartford Financial Services Group
ADS Alliance Data Systems Corp.
ALD Allied Capital Corp.
RAS RAIT Financial Trust
DRL Doral Financial Corp.
FSR Flagstone Reinsurance Holdings
MCO Moody’s Corp.
COF Capital One Financial Corp.

A few comments:

Wow, General Motors was added to the list. Why? I suppose that it has a stake in GMAC, but still.

As a former shareholder who escaped before the company completely imploded (but not without some pain), I find the First Marblehead addition interesting.

Discover and Capitol One are two companies that I have shorted myself in real life over the past year.

Moodys is an absolute joke. The credit ratings agencies have not been punished nearly enough considering the fact that they were rating all sorts of garbage AAA when it clearly was not. They and S&P have been doing a TERRIBLE job over the past several years at assessing risk. The fact that they essentially have a monopoly has prevented these terribly run companies from getting hammered nearly as much as they should have. If my company (which is private) had made as many mistakes as they have over the past several years our clients would freak and we would be forced out of business.

Legg Mason is an absolute mess as well. I don't know what it is, but Bill Miller seems to have lost his mojo. I was questioning his stock picking ability in this sort of environment already, but his disastrous investment in the GSEs sealed the deal for me. Without a cleanup hitter like Miller, Legg Mason is just another investment management company.

I personally own GE and given the enormous size of GE Capital I can see why it was added to the list when so many other banks have been. I'm not saying that the short ban should exist at all, in my opinion it absolutely shouldn't, but since it does they might as well throw GE on there as well.

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There are basically two camps of people out there right now.  I call them "Inflationists" and "Deflationists."

The Deflationists believe the fact that liquidity is drying up because that banks will be unbelievably tight with credit going forward, that the likely death of the type of 30-to-1 leverage that so many were employing over the past several years, and a massive global economic slowdown will suck the life out of the prices of all assets.

 

Inflationists on the other hand believe that Ben Bernanke, who has studied the causes of the Great Depression in great detail and has talked about how Japan should have "dropped money from a helicopter" to prevent the deflation that it experienced, will join forces with Hank Paulson, who will do everything within his power to protect his Wall St. friends, to completely flood the United States with money and lower the value off the U.S. dollar to prop up asset values.  This, combined with the economies of foreign countries, particularly emerging markets, which will continue to grow at a nice clip will keep the demand for and prices of natural resources fairly high.

I am in the latter camp.  The Federal Reserve and the Treasury have way too much power and it is completely within their ability to pull the rug out from under the dollar if they want to.  Our out of control government spending and massive current account deficit probably would have eventually steered things in that direction anyhow.  Our Friends Hank and Ben are just going to speed up the process.

Which camp are you in and why?

Deej

21 Comments – Post Your Own

#1) On September 22, 2008 at 10:06 AM, daayoo (< 20) wrote:

All the manuplation is going to end badly!!!

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#2) On September 22, 2008 at 10:17 AM, russiangambit (29.49) wrote:

I experienced Russia's default in 1998 and all the things preceding it. Current situation reminds me of it somewhat, - manufacturing is dead, government inflating out of debt, the economy operating on monopoly money of people selling stuff to each other at higher and higher prices. So, I am in the inflation camp.

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#3) On September 22, 2008 at 10:19 AM, TMFBent (99.83) wrote:

Oy. GM doesn't even have a controlling interest in a financing arm. Ford (which I own) does! Not on that list? (Note that, contrary to my own pecuniary interests, I do not believe Ford should be on that list, nor the recipient of taxpayer money...)

I do think this "stocks should only go up" mentality shows the utter ignornance and cynicism of the so-called regulators.

These knuckleheads should all be fired.

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#4) On September 22, 2008 at 10:49 AM, LordZ wrote:

I think you know how this will end/...

No country for old men...

 

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#5) On September 22, 2008 at 10:55 AM, saunafool (98.94) wrote:

I am in the inflation camp. I don't see how they prevent total collapse without running the printing presses like crazy.

I also wonder why GE needs to be on the do not short list. They have like 9 billion shares. This is clearly a publicity stunt which will have zero impact for any of these companies.

Furthermore, if shorting can cause stock prices to go "artificially" low, then isn't the Fed taking away the possibility of bargains for the rational investors?

Oh yeah, I forgot, the government doesn't give a rat's *ss about people who save, invest, and avoid excessive debt.

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#6) On September 22, 2008 at 11:03 AM, anchak (99.86) wrote:

I am in the inflationary camp.....

(1) Dont fight the govt....and this one has multiple ones behind it.

(2) China is cutting rates!!!! Its economy never even dropped below a 10% growth rate. I know they actually need about 9%+  growth just to sustain the populace - but achieving that growth with curbed inflation is very very tough

(3) I think there will be a lot of turmoil short term. Inflationary pressures are very apparent when the economy is surging - however at times like this - the effects are more transient and tend to show up with a lag.

 

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#7) On September 22, 2008 at 11:07 AM, TheClub55 (< 20) wrote:

Inflation Camp – the best definition for inflation from an economic standpoint is “an increase in the money supply will lead to increased prices”.  We are currently printing money and prices are increasing… now people will point to the loss of housing value, yes it’s going down – but if we were not printing money like mad home values would be down further.  Then we see pricing increases for for fixed goods (commodities), there can be some manipulation in the short-0term by big Gov (ex - the recent dollar run), but things will always return to economic reality.  I fully expect it could take 2-3 year before we see the full inflation effect!

 

As for me… I am going to refi the home this week (one I really don’t like) to a 30 yr fixed protect my future payments (currently 4 yrs into a 7 arm), so I am putting my $$$ into my belief in inflation.

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#8) On September 22, 2008 at 12:03 PM, amoldov (31.92) wrote:

Inflation here too ... mostly because I think captain Ben will lead us there.

Not long ago I watched an interview with Warren Buffet saying they (Berkshire) exitted all currency bets (they held Brazilian reals for years). Is he in the deflation camp? According to Deej's theory, the commodity backed currency of Brazil should do well.

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#9) On September 22, 2008 at 12:33 PM, carstenjansing (90.75) wrote:

todays answer of the stock market is clear: INFLATION (see all the commodity stocks run today)

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#10) On September 22, 2008 at 12:33 PM, DemonDoug (92.48) wrote:

Anyone who has read my blogs knows I'm firmly in the inflation group.  In one recent post I noted how, with the current bill added to the price tag, we have basically (as a country) printed 1.5T new dollars.

Yeah, gold is going higher, and so is oil.

Remember folks: Dollars are priced in oil (as opposed to oil being priced in dollar).  There are simply too many digital dollar bits chasing too few resources and be prepared for 200/bbl oil by the end of 2010.

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#11) On September 22, 2008 at 12:39 PM, Gingerbreadman55 (30.37) wrote:

right on Doug. The dollar simply doesn't represent assets, and when the world realizes that the dollar basing is hurting them no one will want dollars anymore.

1+1=2

dollar will buckle from the pressure

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#12) On September 22, 2008 at 1:08 PM, Tastylunch (29.54) wrote:

as Demon can tell you (and you've probably guessed) I've been in the inflation camp for a long time

I think deflationists mistake develeraging for deflation, they aren't neccessarily the same imo , That can be and was bad for commodities in the short term  but long term we'll see.

Here's some of why I think it's inflation (the question to me is hyper or regular really)

 1) M3 is not reported anymore

2) the CPI is not at all reflective of reality. As a retailer I can tell you the CPI is completely bogus

3) The Fed almost always overshoots (often badly) and misgauages the lag effect of their actions

4) rate cuts

5) weak dollar

6) Global inflation being imported back here through goods (only Trichet's hawkishness was keeping it check). Jubak had a good article on that. China,Vietnam you name it inflation is happening just about everywhere. Our deleveraging is acting as a sponge right now, but once it's saturated.....

7)  discount window, capital injections... need I go on?

8) the credit log jam, once credit flows again the floodgates may open so to speak on inflation....

9) it's an election year where the incumbents are likely toast,so they will likely take greater than necessary measures to appear like they are doing something in the hopes of changing that.

and lastly most importantly it's what I'm seeing in my inventory repurchases, already many new items I'm buying are averaging 8-12% higher than July (!!) and my wholesalers tell me that they are trying to hold major price increases down till after xmas purchases (which for us is earlier than the consumers of course) Already I've had two special letters from vendors, who never usualywrite me, telling me they are raising prices 20% on me for next summer.

That's pretty huge. This xmas is going to be very very bad for retailers I fear. We are all going to have to choose between margin and sales. I'm choosing to sacrifice margin as I usually do in inflationary times, but it's enough it's a very tough call.

I can't see how Pier 1 and Circuit city survive...

So again the real question to me is it Hyperinflation Weimar style or just bad inflation (70's US style) that's coming?

 

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#13) On September 22, 2008 at 1:19 PM, dinodelaurentis (69.10) wrote:

The United States of Zimbabwae.

if it actually is the Weimar Republic then we'll have great cabarets!!

didn't we win the war? it is all so confusing...

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#14) On September 22, 2008 at 2:33 PM, TMFDeej (99.46) wrote:

Thanks for the comments everyone. 

Wow, my inflation call is looking pretty prescient today.  Let's see if it keeps up.

Deej

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#15) On September 22, 2008 at 5:51 PM, khrushchv (< 20) wrote:

I say we ditch Paulson and Bernanke and install the right people to do a good job: Senator Palpatine and a Sith Lord...

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#16) On September 22, 2008 at 5:52 PM, khrushchv (< 20) wrote:

I say we ditch Paulson and Bernanke and install the right people to do a good job: Senator Palpatine and a Sith Lord...

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#17) On September 22, 2008 at 6:37 PM, GeneralDemon (27.72) wrote:

You may want to present the true deflationist argument (yours is not accurate). Is is the following: As with Japan from 1989 until the present and also during the great depression, It did not matter what the interest rate was - the demand for credit evaporated. The government could not force people and business to take on more credit.

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#18) On September 22, 2008 at 9:05 PM, giantSwan (< 20) wrote:

If we are entering a prolonged inflationary period should we be taking out loans predicting that the capital will be worth less in the future?

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#19) On September 22, 2008 at 9:19 PM, giantSwan (< 20) wrote:

If we are entering a prolonged inflationary period should we be taking out loans predicting that the capital will be worth less in the future?

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#20) On September 23, 2008 at 2:34 AM, dwot (97.03) wrote:

I was in deflation and now I am undecided.  I have to think recent events through...

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#21) On September 23, 2008 at 12:14 PM, freddie25 (< 20) wrote:

Why can't we be in both camps at the same time?

Obviously business is bad, most definetly recessionary although the numbers are being cook to look like we have positive growth.  Earnings will be impacted soon and likely to hit equities hard.  Layoffs could blow an already weak consumer balance sheet out of the water.  The dollar and treasuries are likely to get hit driving up real rates. Lowering fed fund rates in this environment and flooding markets with liquidity is called pushing on a string no?

Meanwhile, the presses are running fall on printing money so inflation is going to get worse (its already understated)

So we have stagflation, both!

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