Tag Archives: Short Seller’s Journal

Valeant (VRX): “Hope” Is Not A Valid Investment Strategy.

A reader asked my opinion on the latest commentaries posted on Seeking Alpha about VRX.  Generally they had a bullish slant, permeated with gratuitous rationalization seeded in blind hope. “Hope” is not a valid investment strategy.  VRX is down another 8% today, which says a lot given that its probably the only stock in the Russell 2000 index that is red today.

One “analyst” explained away the reasons why VRX would not default on its debt.  But I laid this out pretty clearly yesterday.   Yes the banks will keep VRX alive. The banks are keeping EVERYTHING alive because they have $2.3 trillion in excess reserves that enable them to plug the cash flow deficits currently occurring from delinquent and defaulted assets.

VRX will not default because the banks will grant as much leeway to VRX as is needed to keep the corpse alive.  At this point in time, VRX’s assets likely are worth enough to cover the bank debt obligations.  Just like a vampire would want to keep a body warm and the pulse ticking while sucking out the blood, the banks will hold up VRX in order to get as much money out as possible.

Of course, the longer this drags out, the uglier it will become for all economically interested parties.  Because there’s accounting and disclosure fraud involved, we can expect the class-action shareholder lawsuits to pile up once the lawyers get a whiff of the blood being sucked out by the banks.Untitled

But keeping VRX alive for creditor purposes won’t help the stock. At this stage in the game,  VRX stock will descend – sometimes quickly, sometimes slowly – below $10.  In other words, VRX’s stock has entered the Irreversible Debt Spiral.

NewSSJ GraphicIn fact, VRX has already dropped another $1 while I have been writing this commentary. Money managers who like to keep their job are unloading this stock as if they were bailing water from the Titanic. 25 million shares have traded already vs the 90-day average daily volume of 13 milllion.  ANY money manager who holds on to this stock is in serious breach of its fiduciary duty.

The Economy And Stocks: Someone Is Smoking Crack

Privately compiled and reported economic indicators started rolling over in 2012, which is why the Fed continued to “re-up” its money printing. With most S&P 500 companies having now reported Q4 2015 earnings, there’s been four consecutive years of declining net income – both GAAP and “non-GAAP.” If I had told you two years ago that the S&P 500 revenues and earnings would decline but that stock prices would continue higher, you would have asked me if I was smoking crack.  –  Short Seller’s Journal

A big driver of the economy for the last four years has been the auto and housing markets. While it may not be evident in some areas yet, both sectors of the economy are starting to seize up.

Auto sales in February missed analysts’ forecasts and were down from January.  Not mentioned in the still-bullish reports was the fact that GM’s and VW’s sales declined, while Ford’s jump in sales was driven by a big bulge in rental fleet sales.  Note to crackheads: rental fleet sales are not the best measure of the demand for autos.  At the same time, new car inventories at dealers soared to a 14-year high.    With subprime auto loan delinquencies beginning to spike up, along with repo rates, on whom will the dealer/lending syndicate unload all this inventory?

Similarly, the housing market in previously red-hot areas is starting to fizzle, led by a rapid escalation in listings in the higher end of the market.  Housing market expert Mark Hanson describes the popping bubble in Silicon Valley:  Tech-Head Housing Cities Seizing Up.  This article describes the collapsing Houston housing market:  Oil crash is crushing Houston’s housing market.   The virus popping Houston’s real estate bubble is now spreading throughout Texas.   Miami’s market was white hot for a few years.  Of course, as is par for the course, Miami is now perilously overbuilt:  Miami’s Epic Condo Boom Turns Into Glut. That same market condition is hitting the southwest coast of Florida, as a flood of existing home listings are helping the continuous  “price reduced” notices chase the market lower.

The same scene is now starting to play out in many major MSA’s – NYC, Washington DC/northern Virginia, etc.  While the lower end of the market is still somewhat firm in many areas because the Government is proliferating the availability of low credit rating subprime nuclear mortgages to first-time buyers who can barely afford a pot to piss in, the upper-middle and high end of the housing market is being perilously flooded with listings. In one high-end enclave south of Denver that is averaging at least one listing over $800k per block, a friend of mine who lives near there asks:  “who is going to buy these homes?”

Not only is the stock market not even remotely discounting the underlying economic reality, but the S&P 500 spent the last four weeks clawing back 78% of the 249 point (12%) drop that occurred just after New Year’s despite the continued plethora of increasingly negative economic reports.

At some point the Fed is going to lose its ability to jump-start the stock market with its monetary defibrillator.  There is a lot of money to be made taking the other side of NewSSJ Graphicwhomever is chasing stocks higher right now.   The Short Seller’s Journal will help you take advantage of the highly overvalued stock market with weekly ideas for shorting stocks.  Each issue includes exclusive market commentary, a minimum of two short-sell ideas plus strategies for using puts and calls.  Subscribers will also have free access to all future IRD short-sell research reports plus a discount to the Mining Stock Journal.   You can subscribe by clicking HERE or on the image to the right.

2008 Redux Times 10 Is Brewing

Using the “jobless claims” metric,  the financial media and snake oil salesmen would have us believe that the Government-compiled jobs market metrics indicate “sustained strength in the labor market that should further dispel fears of a recession”  – Reuters’ Animal Farm.

A reader asks:  “if the jobs market is so good why did my bilingual daughter, who graduated with a 3.8 GPA from Ga. Tech [Dr. Paul Craig Roberts’ undergrad school], not get a job offer for two months until someone I know hired her?”

A funny thing, those Government compiled, manipulated and propagated reports.  I answered with:   “She was fishing in the wrong fishing hole for jobs – she should have been sending her resume to Burger King and Starbucks.  But it sounds like the service sector is starting to shed jobs as well.  I honestly don’t know how they are coming up with their jobs reports.  As for the jobless claims, it makes sense that the claims are dropping like this.  As the labor force shrinks, especially the component that would qualify for jobless benefits, the number of people who file for jobless benefits shrinks, right?”

The first time I read “1984,”  I tried to imagine Orwell’s vision superimposed on the United States.  Now I don’t have to imagine.  Instead of Big Brother spying on us through our televisions (and they might through “smart” tvs), the Government monitors us through our cell phones, emails and web-browsing.  It’s truly frightening and it’s quite stunning how so few in this country understand – or are willing to accept – the degree to which it occurs on a daily basis.

While the Ministry of Propaganda spins its wheels convincing the public of a new bull market in stocks and a robust economic recovery are both in process – bolstered by a job market with more alleged openings than bodies willing to fill those alleged openings – the underlying structure of the economic and financial system is quickly rotting away.

Zerohedge reports today that the yield spread between 2-yr and 30-yr Treasuries is at its lowest (the difference between the yield on the 2yr Treasury and the 30yr Treasury) since its low-point in 2008 – A Flat Yield Curve Spells Recession.  There’s yet another comparison between 2008 and now.

The fundamental problems which caused the 2008 de facto financial collapse were never fixed.  Instead, they were “treated” with money printing and the massive expansion of credit.  While this enabled the operators benefiting from these subtle and insidious this wealth transfer mechanisms, it also seeded the next big systemic earthquake, which has the potential to be 10x worse than 2008.

Notwithstanding the Fed’s omnipresent intervention in the interest rate markets (Treasuries, repos, Fed funds and interest rate swap derivatives), the Fed has been unable to prevent a “flattening” of the yield curve.   A flat yield curve is the Treasury market’s signal that the U.S. is going into a recession.  Without that Fed intervention the Treasury would be inverted, a market event that verifies a deep recession in process.

While treating the problems with negative interest rates, money printing, debt creation and the continuous effort to systematically control the markets may temporarily cover up the symptoms of the underlying problems,  it is analogous to rubbing Neosporin on melanoma.  Eventually that cancerous mole will manifest as untreatable lymphoma.

The U.S. economic and political system is on the verge of a systemic disruption that will make life difficult for the entire population.  It’s anyone’s guess when the catalyst hits that pushes that button, but the force with which the next 2008 times 10 hits will likely even shock and awe those of us who can see that something ugly is about to hit.

The Writing Is On The Wall: Latest Issue Of Short Seller’s Journal Is Up

It’s been estimated that at least a third of the 175 oil producing companies in the U.S. are at risk of slipping into bankruptcy this year. At some point banks are going to have to start foreclosing on defaulted loans and many companies will be forced to liquidate. Shell Oil announced this past week that it is exiting its North American shale operations. The writing is on the wall. This is going to inflict a significant amount of damage to the U.S. economy – an amount of damage that is not yet being anticipated by investors or by the policymakers.  – the February 28th issue the Short Seller’s Journal

This week I feature a two stocks that can treated either as a “quick hit” or positioned as a long term short. I’m also going to include a highly undervalued silver mining stock as a “contra” stock market idea. For new subscribers, because the precious metals sector tends to move inversely to the stock market, going long mining shares is similar to shorting stocks.

I also review some strategies for using puts to either speculate on a big move lower or replicating a longer term short position in AMZN – see AMAZON dOT CON.

You can subscribe by clicking on this link – SHORT SELLER’S JOURNAL – or on the image below.  Subsribers to SSJ will be able to subscribe to the Mining Stock Journal for half-price.  The debut issue should be out this upcoming week or the following week at the latest.

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Fundamentals Uber Alles – Are You Prepared For The Next Leg Down?

Certain aspects of this market have become relatively easy to predict. I told my partners yesterday that they would take silver below $15 once the U.S. paper market was the only market open market on Friday (today). Soon as the London p.m. fix was set, the NY paper market manipulators went to work and they hammered silver.  Interestingly the mining stocks have been very reluctantly going down these past two trading sessions. This is quite remarkable given that, from the HUI’s low-close of 100.77 on January 19, the index has run up as much as 67%. It’s due for a “technical” pullback but it seems to be yielding rather grudgingly.

There may be a message in that. I’ll be rolling out a Mining Stock Journal next week to complement my Short Seller’s Journal. Subscribers the SSJ will be able to join the MSJ for half-price.

Everyone is getting frustrated with this bear market rally.  In 9 trading days the S&P 500 has gone up 122 points, mostly in big “chunks,” despite increasingly negative economic developments.  If anything points to the fact that this stock market is broken, it’s the fact NYSE circuit breakerthat exchange operators had to “unplug” the electronic markets early yesterday morning to halt an imminent rout in stock futures.  At it’s nadir yesterday during the NYSE session, it looked as if the S&P 500 was about to drop off a cliff but mysteriously a big buyer appeared and stimulated a “V” rally.

“The mispricing of assets across world markets has reached epidemic proportions” – This Is Why You Can Expect Another Global Stock Market Meltdown (Marketwatch).

When the fundamentals don’t “fit” the valuations, eventually the valuations “regress” toward the fundamentals.  This is not an opinion – this is a law of markets.  Currently the global Central Banks are attempting to change this law.  It’s a pretty pathetic visual of Ben Bernanke or Janet Yellen confronting Atlas, who merely shrugs.

As an example, in my January 3rd issue I defied CNBC and Oprah and issued a short recommendation on Weight Watchers (WTW), which had spiked over $22 when Oprah was dropping stock pump bombs on Twitter (for which she should be investigated by the SEC but won’t be):

After selling back down to $18 from $28 by Dec 24, Oprah tweeted out a video ad promoting her participation in Weight Watchers (“come join me ladies”). The stock jumped 26% from the December 24 close, to close out 2015 at $22.80. Based on the December 31 close, the stock trades at 26 p/e and 13x trailing EBITDA. The Weight Watchers brand name is quite stale with little to no growth prospects despite Oprah’s “quick fix” presence, the stock is significantly overvalued. Especially given that the stock was trading at $4/share in August. I find it testament to the insanity of the current stock bubble that the market value of a company like WTW can move up 700% in four months based on the presence of Oprah Winfrey on its board of directors.

The stock dropped down below $11 by Feb 8, when Oprah again tried to pump the stock (note: she owns 10% of the stock and her promotional pump was 2 weeks before earnings). The stock ran up over $15.  WTW announced earnings after the close last night and the stock is getting drilled for 27% back down to $11 today.  Nothwistanding the fact that I’m calling for an investigation of Oprah and her stock manipulation games, WTW fundamentally is not worth $5, let alone $15.

I wanted to use this example to illustrate my point that, regardless of the short term zigs and zags in the stock market, eventually the gravitational pull of fundamentals take over and the stock market will seek its intrinsic value.  There’s still a plethora of stocks trading at insane multiples of revenues, cash flow and book value.  The market bottom won’t be seen until all of these stocks have either gone out of business or are trading at valuation levels which reflect the ability of their business models to generate bona fide  – not “adjusted non-GAAP” – cash income based on the actual demand for their products or services.

Rest assured we are a long way from that level on the Dow/S&P 500.  The Short Seller’s Journal is a weekly research and trading report which presents at least two short ideas per issue.  It also provides ideas for using put and call options and capital management/trading advice.  It emphasizes a long term, fundamental approach to shorting the market.   You can access it clicking here:   Short Seller’s Journal.

Hey Dave,   Loving your SSJ service. In fact it is just what I was looking for as the market rolls over. I expect to have my best year in the market ever, assuming the powers that be don’t step in to halt trading just when things are heating up, or some other such manipulation.   I think the journal provides just the right amount of depth, and your writing style makes me chuckle. Keep the great tips coming.  – Ken

More On Morons And Mark Hulbert

The mainstream media version of Dan Norcini was out today with yet another vacuous warning about gold.   Recall that Mark Hulbert was the mainstream media idiot who ranted and raved as recently as July that gold was only worth $800:    Gold Might Be Up This Year, But It’s Worth Only $800.

Where does Marketwatch find these guys?  Seriously.  Now that his $800 call has proved to be heinously wrong, he’s out warning that gold will be volatile:   Irrational Exuberance:  Expect Gold To Be Massively Volatile

Thanks for the reminder, Mark, that markets tend to go and down because buyers and sellers have differing opinions and exert those opinions with variability in the degree of their relative efforts.

Hulbert’s witches brew “sentiment” indicator is telling him that gold is going lower.  I’m guessing it’s the same magic potion that whispered sweet nothings in his ear about $800 gold…

Gold has been forced lower by western Central Banks and Governments dumping cargo-load upon cargo-load of paper gold onto the market – and an occasional multi-hundred tonne pallet of Central Bank custodial gold onto the LBMA for added effect. Like all cartel-manipulated activity, the party had to come to an end eventually.

The problem with snake-oil covered “econometric models”  and other such statistical hocus-pocus is that the forumulas are based on the assumption that the input-data embody a certain degree of “normalcy.”  However the data-pool for the price-behavior of gold over the past five years has been anything but “normal.”

Au contraire, Mark, in case you have not noticed – which you probably have not given that Untitledyour focus is centered on the “irrational exuberance” of “sentiment” sampling – every time they try to smash gold during exceptionally low volume time periods, gold bounces back. Silver is outperforming gold on smash days and underperforming gold on rally days. At some point silver will begin to outperform gold on rally days and that’s when it will be “lights out” for anyone short the precious metals

As an aside, my latest issue of the Short Seller’s Journal will be sent to subscribers this NewSSJ GraphicSunday. I’ve picked out construction industry stock that has at least $100 to fall before this bear market is over and I also have “quick hit” scalp idea that will pay off next week if this  bear market dead-cat bounce is over.

It’s A Truth Or Dare Stock Market

Hi Dave, I purchased a box of silver eagles on SD Bullion today! I also did the 250 strike on Amazon! Great report on Amazon! I’m really excited about the coins! Thanks for the help! I feel like I have taken a big step in protecting my family!  Thanks, Jeff

I received that email yesterday from a subscriber to my Short Seller’s Journal.  He made a $7500 profit on AMZN puts that I had recommended.  He took the profits plus part of his original capital and bought a box of silver eagles from Silver Doctors (SD Bullion is the best source to buy silver eagles based on price and reliability of service – I receive no benefit from saying this but I’ve been buying silver for over 15 years and I know how to differentiate between good and bad coin dealers).  He rolled the rest of his capital from the original AMZN put trade into the January 2017 $250 puts, which could end up being a home run.

There’s a rumor floating around the market that Google is looking at buying AIG. Remember AIG?  AIG is the big insurance company that was taking insane risks in the subprime mortgage derivatives market.  It blew up in 2008 and, in the process, had technically blown up Goldman Sachs.  Ex-Goldman CEO, Henry Paulson,  was strategically inserted into the Treasury Secretary post specifically to make sure that Goldman was bailed out when this happened.

AIG was also saved by the taxpayers.  It’s businesses were reinflated by the Fed’s QE and it’s stock ran from $20 to a recent high last of $64.  Carl Icahn, the quintessential stock operator took a stake in AIG in October and had been trying to force a break-up of the company.  The stock is down over 18% since Carl announced his position in the stock.  The Google rumors started flying around about a day ago. It has to be one of the most retarded ideas I’ve seen floated in quite some time.  It reminds me of the “clicks and eyeballs” analysis to justify the bloated valuations on internet stocks back in 1999.

Carl Icahn makes mistakes.  I took other side of one of his mistakes in the late 1990’s when he decided that taking control of the badly failing Stratosphere Casino in Vegas was a good idea.  His idea failed miserably and I made a lot of money for Bankers Trust from shorting the daylights out of the Stratosphere first mortgage bonds, which ultimately were worth zero after trading as high at $110 (110% of par value).

My point here is that something not being mentioned anywhere is going with AIG’s financial stability.  The credit default swap rate on AIG bonds has mysteriously shot straight up:

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I have no idea what has the CDS market spooked. But I know from 1st-hand experience that credit markets tend to have information and “see things” well before the stock market sees it. Accounting disclosure, by design, has become catastrophically opaque in the financial sector. Anyone who has only access to the SEC-filed financial documents is seeing no more than a sliver of the truth about what is going on at AIG, or at any financial company for that matter.

Whether or not this will turn out be big mistake for Icahn remains to be seen. But anyone who is jumping on AIG because there’s a rumor that Google should buy it is ignoring the signal being broadcast by the CDS market.   Often rumors designed to juice a stock are “coincidentally” floated at a time when someone privy to inside information decides that it’s time to get out of Dodge and needs an influx of “dumb” money to buy the stock so he can exit.  The CDS market is suggesting this could be the case with AIG.  We know Icahn is dumping AAPL right now…

This is the type of analysis and insight that subscribers to my Short Seller’s Journal receive on a weekly basis. At some point I will wade knee-deep into AIG’s financials and see if I can figure out why the CDS market is so spooked because I know the original factors which sunk AIG the first time around have likely reappeared, in a different form, and AIG could well be an epic short opportunity.

Silver Will Be The Trade Of The Decade At It’s Current Price

I’m starting to warm up to the idea that the fraudulent silver price fix on the LBMA a couple weeks ago marked the final “capitulation” of the nearly 5-year price pullback in silver and 4+ year pullback in gold.  We have yet to hear a satisfactory explanation from the LBMA for the exceedingly odd price behavior of silver seconds before the  a.m. London silver price was set on January 28th.

I believe that event marked the “last gasp” effort by the highly corrupt LBMA bullion banks to shakedown the physical silver market in order to get their hands on as much physical silver as possible at as cheap of a price as possible.  I believe, not uniquely by the way, that the synthetic short interest (paper derivatives shorts) in silver is even worse than for gold, which we know is at least 100:1.

Big banks hate losing money and will do anything – legal or illegal – to avoid losing money or to minimize losses.  I saw this first-hand and peripherally participated in activities designed to minimize losses when I worked on Wall Street in the 1990’s.  Everything is worse now in that regard and the people who are supposed to enforce the laws and oversee trading activities at these banks are now in on the corruption.

With that as the preface, I believe silver is beaten down and cheap relative to gold and any other investment alternatives and I think buying silver now – at it’s current price – will prove to be the trade of the decade.

Right now gold is outperforming silver on up-days BUT silver outperforms gold when the metals sell off.  Typically gold will outperform silver in the early stages of a big bull market move.  Gold current outperformance vs. silver is reflected in retail activity, as noted by Doc at Silver Doctors and some other bullion dealers to whom I spoken about the market recently, in which sales volume of gold coins is outpacing volume in silver.

But this will soon crossover as gold appreciates in price and waves of new buyers flock to silver rather gold because it feels better to buy more ounces of silver than gold.  Silver is poor man’s gold and always has been for 1000’s of years.  When this dynamic kicks in, the gold/silver ratio will drop quickly from its current 78x.   I suspect before this bull market is over, the GSR will drop well below 20, if not 10.

We saw this in 2011, when silver began to go parabolic before the western Central Banks had seen enough and began to throw 100’s of tonnes of paper gold and silver at the market in order to not only prevent the metals from moving higher but to beat down the price on gold and silver to their current levels.  In the bull move from late 2008 to April 2011, the GSR dropped from 100 to 32.

Eric Dubin and “Doc” hosted me for their weekly metals and markets podcast last week.   We discuss a range of topics but focus on the precious metals.  Note:  I mention a new emerging junior exploration silver miner that I featured in a recent issue of my Short Seller’s Journal.  Anyone who subscribes to the SSJ and mentions that they heard about it on the Silver Doctors podcast will receive a copy of that back-issue when they subscribe:

The Global Economic System Is Crashing – The Stealth Gold Bull Is Alive

Well, this time is indeed very different. This is not Jan., 2015. The world is waking up to the fact that a brand new, multi-headed hydra solvency crisis is upon us. – Eric Dubin, The News Doctors (link below)

One of the idiots from Wall Street that CNBC likes to roll out was on scratching his head over the behavior of the stock market. He asserted that it was nothing more than panic because “the real economy is doing well.”

I’m wondering what data he’s using to draw that conclusion. Nearly every report that has been released for the last few months, other than the highly manipulated/fabricated Government employment report, is showing that economic activity is collapsing to levels last observed in 2008.

The Baltric Dry Index has collapsed to all-time lows. Freight and goods transportation indices area showing a collapse in demand in the wholesale and retail distribution system. This shows a collapse in consumer spending. Based on unadjusted, unannualized numbers, existing home sales plunged 20% from Q3 to Q4. Auto sales are quickly rolling over. Energy debt is blowing a hole in bank balance sheets across the country. Auto finance paper is next.

These are black swans. They’re black swans because no one seems to see them. If they the market sees them then it is not acknowledging them. The current sell-off in the stock market is not remotely close to an acknowledgement of these black swans.

The S&P 500 is at its most overvalued in history by several metrics. It’s dropped roughly 10% from its all-time high and a spectrum of people from money managers to Congressmen are calling on the Fed to “do something.” No one seemed to be bothered by the fact that the stock market never should have been enabled by the Fed to go parabolic over the last 5 years, becoming more dislocated from the underlying fundamentals than at any time in history.

Then there’s gold.  Gold has been pushed inexorably lower by western Central Banks in order to facilitate bad monetary policy decisions.  But gold is the ultimate hedge against corrupt Central Banks and Governments.   Physical gold inventories at the bullion bank controlled gold exchanges in the west are quickly disappearing, as is silver now too.  GLD does not count because it’s always been a roach motel largely of paper gold.

This disappearance of physical gold is another black swan that is neither recognized nor acknowledged by the market, except by a few “conspiracy theory riddled” gold bugs. But the third leg of the gold bull market that began in 2000/2001 is stealthily taking off. Eric “The News Doctors” Dubin has written a worthwhile analysis of what is unfolding:  Stealth Gold Bull Market Continues;  Real-Time Analysis.

Someone from Australia emailed me a report showing that the Perth Mint had temporarily suspended gold sales last night/yesterday.  Physical gold is indeed disappearing.  Soon it will be harder to get at the retail level unless the buyer is willing to pay a hefty premium over spot.  I’m going to start converting as much paper currency as I can into silver – the original and first monetary metal – because it will soon become hard to get as well.

 

Latest Short Seller’s Journal Has Been Published

The featured stock is being dumped by insiders at an alarming rate. What do they know about the Company that is being ignored or overlooked by the market? In the last three months, insiders have sold 7.2 million shares vs. “buying” 535k shares. The buying has largely consisted of the conversion of restricted stock units granted as compensation into tradeable shares which will be then be sold.

Jim Cramer has a table-pounding buy on this stock. That’s usually the kiss of death. Cramer calls this company on of the best stories for 2016. For those of you who are unaware, Cramer is one of the best contrarian stock indicators possibly in history. More often than not, a table-pounding buy issued by Cramer is the kiss of death for a stock. Perhaps the best example of this was his strong endorsement of Bear Stearns shortly before Bear Stearns completely collapsed. This company won’t collapse but it is extremely overvalued, especially in the face of a economy headed into a deep recession.

I also have revisted to ideas from earlier issues, one of which is now down 17% vs. 10% for the S&P 500 in the same time period. Finally, I have a quick-hit short sell idea on a company that is highly overvalued and reports earnings next week.  I also had detailed ideas for using puts and calls to replicated shorting the stocks, with specific put/call suggestions.

You can subscribe to the Short Seller’s Journal by clicking on this link:  SSJ or on the image below:

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