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Toyota A Good Long-Term Short


Automaker no longer "most overrated."


Hello from the border of Mellowville. I've been trying to get into Mellowville's city limits since waking up this morning to find the rules of the game had been changed yet again. Alas, a state of mental calm remains ever just out of reach, largely because if you aren't confused and afraid you simply aren't paying attention, and I'm an attentive guy. Your options are to bury your head in the sand, get out of Dodge or play small and fast. I've been doing the latter two, in varying degrees.Minyanville's Why Wall Street Will Never Be the Same

  • I started and shared yesterday a long position in the SDS ETF, an investment designed to move in the opposite direction of the S&P 500 at twice the rate. The last time I had the SDS on my books was literally the day prior to when Hank Paulson's proposed bail-out plan jammed the market 4% higher, effectively instantaneously. Suffice it to say, I was more than a little gun-shy regarding Uncle Sam's ability to stuff my short bets. When the whole world got into it this morning, I was delighted and amazed to be able to get out at the open with the markets actually lower on the day.

    None of which I share to boast (I'm long Disney (DIS), which should be a more than sufficient karmic offset). Nor does my selling the SDS suggest I think we're out of the woods, financially. Global collaboration is an act of desperation, not strength. I share the trade to make this point: I'm old beyond my years, I've been trading for a good deal of time and my SDS position was large-ish only relative to how small I've been playing this year. If a moderately sized, winning trade that was on my books for less than 20 hours makes me want to throw up in my mouth multiple times and takes 5 years off my life, it might be the kind of market you're better off not being involved with at all.

  • Speaking of which, I've had an existing Toyota (TM) short which has worked quite well this week, given that Toyota missed EPS and the Nikkei 225 fell 9.4% yesterday. Unlike the SDS, Toyota didn't make me feel sick at all. I think it's a long-term short; the recent decline simply suggests Toyota has gone from "the most over-rated company on earth" to "at best, the Southwest Airlines of autos". I'll reload the short again at some point but, for now, I got a catalyst (the company missing) and a gain. In this tape, that means take profits.

  • Costco (COST), Kohl's (KSS), JC Penney (JCP) and just about everyone else who sells merchandise set up an open that looked to be 2% lower than last night's close. I'll confess, I missed the memo on SSS getting released a day early because of tomorrow's holiday. Regardless, it would be almost impossible for me to be less enthusiastic about the outlook for the consumer going into the holidays. Gas prices are falling. Unemployment is rising and every other conceivable catalyst is also negative. I'm dreaming of a bleak Christmas and, as Disney taught us all, dreams can (and will) come true.

    What Disney is likely to teach me next is "booking losses to offset gains" tax strategies and "bear markets kill all stocks, including best of breed" as an axiom. You simply have to admire a company so dedicated to being part of a full lifetime of experiences.

  • Sadly, despite Disney's best efforts, some people never learn. Take, for example, rumors that the ever nefarious and elusive "short sellers" were driving down shares of Morgan Stanley (MS) yesterday. The accusation was that these shorts were spreading rumors that would fail to close their deal to sell a quarter of the company to Japan's Mitsubishi at the Buffett Terms, only without Warren's endorsement. Much as I dig a good conspiracy theory, I'd suggest that the fact of MS selling a huge chunk of itself at ridiculous terms with the stock off 60% in the last 30 days, the general financial meltdown and the fact that no one still really has any idea what's on MS' books were all ample reasons for folks to be selling Morgan Stanley.

  • Is it too soon to look back and laugh about the days when we all thought the Russians and Chinese would suddenly start throwing money at American companies, discarding centuries of their own cultural traditions, once they got a whiff of our sweet, sweet capitalism? Probably so, huh? Let's stick to Vanilla Ice. Remember when he was cool? Man, what were we thinking?

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Position in DIS.

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