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CAPS players told you so / Moody's is a joke / No job losses here / Man, it's going to be expensive to stock my bunker /

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May 21, 2008 – Comments (11) | RELATED TICKERS: MCO

Anyone who has been reading the blogs of the top CAPS players will not be shocked by the following headline: Fed sees slower growth, higher unemployment in '08.  We've been telling you that the economy is not in as good a shape as the manipulated government statistics and annoying uberbulls like Larry Kudlow have been saying.  The markets got crushed today, even many of my beloved oil stocks (with oil sitting at a mind-blowing $133.50).  Mr. Market definitely did not like the Federal Reserve confirming what the smart CAPS players already knew...that the economy is slowing and that unemployment is going to rise.  For good measure, the Fed added that it is unlikely that they cut rates again.  We'll see about that, but at the very least the Federal Funds rate is going to sit here on the bottom at 2% for much longer than the Fed Fund Futures were guessing just last week, a 50% chance of a cut before the November election.  HAHAHAHA.  I wish I knew how to make that bet.  We all better hope that the Fed doesn't raise rates that soon, or the economy is really going to hit the fan.

For those of you interested in the specific forecast by the Fed, they lowered their projected growth for the year to 0.3%-1.2% from 1.3%-2.0% and raised their expected unemployment rate to 5.5%-5.7% from 5.3%.

I'm glad that have slowly started to give up my unwritten rule about not shorting companies and dipped my toe into the real-world water for the first time in a long while this morning.  I am actively looking for consumer discretionary short plays and I would love some suggestions.

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Here's a great one.  The company that brought us the AAA rated garbage that has been partially responsible for the current credit mess has one upped itself, this time using a buggy computer model to mistakenly rate risky debt AAA and then proceeding to sweep its mistake under the rug.  According to a report in yesterday's Financial Times (see article: Moody’s error gave top ratings to debt products) Moody's (MCO) supposedly even went as far as to alter its models to enable the billions of dollars of debt that was mistakenly rated too high to retain its rating until it made a massive downgrade in early 2008.  How on Earth does this company have any credibility left?  I wouldn't trust a word they say.

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Despite all of the doom and gloom that has been in the news today and the Fed's forecast of a rise in the unemployment rate, there is one field that is booming...repo men (see article:  Economic Tide is Rising for Repo Man).  Apparently, reposessing boats from people who have defaulted on their loans is a booming business.  I wonder if there are any banks that specialize, or at least have a large portfolio of boat loans.  That would be a good short.  If you think that filling up your car is expensive with $4 gas, try dropping a G on filling up a boat.

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Not even those end of the world wackos who are digging their bunkers and filling them with canned food and guns are immune from the rampant inflation that we are experiencing: U.S. shooters feel pinch as ammo costs soar.  The spike in metal prices that we have seen recently have caused the prices of ammo for many popular guns to more than triple over the past three years.  Perhaps it's all of the demand that has been created by the current warmonger administration.

Deej

No position in MCO

11 Comments – Post Your Own

#1) On May 21, 2008 at 8:01 PM, mandrake66 (83.43) wrote:

You have so much trouble freeing up space in your CAPS portfolio to add new ideas...but one stock I noticed today was AmeriCredit (America + Credit can't be a good thing, right?). I saw in the WSJ that they had actually managed to sell $750M worth of bonds last week backed by, wait for it, subprime auto loans. This was being touted as a sign that credit markets were improving. I took it as a sign that bond traders are more insane than I thought.

It is the latest indication of what many are saying is the bottom of the credit crunch; other signs include the $750 million sale of an AmeriCredit Corp. unit's bonds backed by auto loans to risky borrowers.

They had actually only intended to sell $500M, but demand was so great they increased it 50%. Looking into this company (ACF) slightly further, I see that they do a large business in subprime auto loans. This was going to be my homework project for tomorrow, but here is a stock that is just screaming "red thumb me".

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#2) On May 21, 2008 at 8:07 PM, mandrake66 (83.43) wrote:

Not to say it isn't without its risks. I just noticed dwot wrote the bear pitch for it, and has suffered a 25 point haircut on it so far.

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#3) On May 21, 2008 at 8:38 PM, hondo928 (99.63) wrote:

I agree with you as far as Moody's go, but I have an outperform pitch on it, and until today was doing pretty well, here is my reasoning, they are one of the biggest players in what is essentially a governement granted duopoloy (Or oligopoly).  AM Best is pretty much not a player in the field, and Fitch is a minor player, so that leaves Moody's and Standard and Poors.  I don't mind seeing MCO taking the beating(which they deserve) because in the long-term it is a company that will always be growing and will always have business.  Unless we start letting everyone be a Credit Rating Agency,  they will be in business. That would be an awful idea.  Sure regulation may need to be increased but if MCO gets any cheaper I think I'm putting in a buy order  

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#4) On May 21, 2008 at 8:49 PM, columbia1 wrote:

ACF, interesting, a quick look shock me, p.e.of 35,LUK is been buying in 8-9 mil. shares , slightly less than 10% ownership, looking forward to see what you have to say about this one. I'm staying clear!!

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#5) On May 21, 2008 at 8:56 PM, leohaas (31.56) wrote:

"Not even those end of the world wackos who are digging their bunkers and filling them with canned food and guns are immune from the rampant inflation that we are experiencing: U.S. shooters feel pinch as ammo costs soar.  The spike in metal prices that we have seen recently have caused the prices of ammo for many popular guns to more than triple over the past three years"

I thought that smart guys like you would be done by now stacking up the bunker. What went wrong? 

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#6) On May 22, 2008 at 12:58 AM, Tastylunch (29.29) wrote:

Kinda funny Deej, when you offer tips , people give you tons of comments. when you ask for help you don't get many leads. :-)

Oh btw thanks in advance for the bankruptcy charm DCR is going to give me.

I've been shorting stocks since feb in real life. This is the only short of environment I ever do it (2000 was a fun year for shorting).

The ones I usually mess with are ones that I feel are cruddy and under followed (what's that a hidden corpolite as ooposed to hidden gem?). I've got burned before on some high profile crappy companies shorting guys like ACMR has been more successful for me as they don't seem to as much of a boost from surprise news. AC Moore seems horribly run to me (they seem to not know how to manage inventory) and it's still expensive.

To me one of my top short candidates is one you already know about CPKI. (my rambly pitch here). Their management is still pursuing aggressive expansion this year, which I think is a bad plan.I'm also concerned about their over reliance on the California market since there were so many foreclosures there. One bad wildfire and you could have a big miss in this sales environ.

Build a Bear (BBW) although really beaten up , strikes me as a concept that could go completely extinct if this environment gets bad enough. I know a lot of parents who hate how commoditized they've made teddy bears and how deceptively expensive that place is (it's the outfits that kill ya). I haven't done a lot of dd on BBW since the easy money may be gone there.

Zales looks really bad to me, it still sports a pretty high P/e, it sells luxury goods and more nimble online competitors are taking market share. Plus TMFBreakeDave I believe was/is a bear on it. (my pitch fwiw)

Finally T-REX (TWP ) looks very very intriguing to me  as a short (my pitch again fwiw). It sells wood alternative decks, railings and other large outdoor home improvement products. Their financials at last look are absolutely awful and their P/e is above 50. Fair warning I am getting killed on this call, but I suspect that may be excessive speculation going into earnings on the hopes of a good spring. I plan to really read up on their 10k's etc over the weekend as I'm considering a position in this one. Considering how bad Home Depot did, that may be a warning sign that consumers aren't dropping money on HI projects like wall street thought they would...

At any rate I'd do a lot more dd on any of these guys before doing anything but they might be good places to start. 

Hope this gives you some decent leads. 

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#7) On May 22, 2008 at 1:18 AM, Tastylunch (29.29) wrote:

ah crud I forgot Lifeway (LWAY)

They make probiotic drinks and various dairy and non dairy products and they recently raised the ire of the FDA. I've yet to have tried any of  their products but they strike as fancy milk from what I can tell essentially. That sounds about as discretionary as you can get.

their P/e is 70+ also

my pitch

well that should give you some places to look. I've only shorted ACMR so far in my actual portfolio. But this weekedn I'm going to read up more on the rest.

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#8) On May 22, 2008 at 5:36 AM, TMFDeej (99.32) wrote:

Wow, thanks for the great ideas, Tasty.  I've got three companies lined up for real-world shorts once trading starts this morning.  Funny enough, one of them you mentioned.  I definitely think
that if one is going to short anything in this environment it has to be restaurants.  They are going to get hit by the perfect storm of higher meat prices later this year that no one seems to be pricing in yet plus completely destroyed consumer spending.  Their only hope is that vacations will become so expensive that people will cancel them and go out to dinner at home or possibly for cheaper restaurants to capture consumers trading down from more expensive places.

I'll trade you a stock that I picked up shares of in real life at the beginning of May (I'm just now allowed to talk about it).  HLX.  I plan on writing something about it.  Its sort of an under the radar way to play the deepwater drilling trend that I have been talking about. 

Deej 

Long HLX 

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#9) On May 22, 2008 at 5:44 AM, TMFDeej (99.32) wrote:

Oh yeah, you're welcome for DCR.  This recent mind-blowing surge in the price of oil has even caught my by surprise.  I figured that we'd get over $111, but this is nuts.  I ended my DCR pick too early...you're going to end up getting more points from it than I am.  Send a few to my Pay Pal account :).

Deej 

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#10) On May 22, 2008 at 5:48 AM, TMFDeej (99.32) wrote:

Hey columbia1.  I wouldn't touch a company that originates subprime auto loans with a ten foot pole in this environment, but it is a huge credit to AmeriCredit management that they were able to do a securitization.  Who on Earth bought that paper?  That's who we should short ;).  Between their amazing ability to get someone to take those notes off of their hands and the interest that a company with such a proven trackrecord like LUK has in them would definitely keep me from shorting them.

Deej 

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#11) On May 22, 2008 at 4:30 PM, Tastylunch (29.29) wrote:

Np Deej happy to give back when I can,

I might have close my TWP pick though, looks like I may be wrong about their outlook

 http://www.businessweek.com/investor/content/apr2008/pi2008048_670945.htm?chan=top+news_top+news+index_investing

HLX sounds v v interesting I'll go take a look at it.I look forward to your writeup 

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