Tag Archives: Jim Cramer

Jim Cramer’s Christmas Gift To Short-Sellers

Financial Markets, Housing Market, Market Manipulation, U.S. Economy, , , ,

Wall Street’s best contrarian indicator has spoken. Jim Cramer issued a strong buy on the Dow last Wednesday. He references the “generals” that are “leading the charge” higher in the stock market.   He sees no end in sight to current move in market leaders. Those will prove, once again for Cramer, famous last words.   It will be more like Custard making his last stand.

Perhaps the most amusing section of his maniacal diatribe was his assertion that Goldman Sachs (GS) and JP Morgan (JPM) are “cheap” because of Trump. A colleague and I were, serendipitously discussing GS as a great short idea last week. Cramer is a bona fide lunatic who must relish the thought of leading the retail stock lemmings to slaughter. The financials have gone parabolic since the election and now the hedge funds who whisper sweet nothings into Cramer’s ear need an exit.   Please don’t give up your chair to the sound of CNBC’s Pied Piper.

The puts on JPM and GS are loaded with premium. I don’t want to recommend any specific put ideas.   If you have an interest in shorting shares, GS and JPM are among the best shorts in the Dow right now.

That was an excerpt from the latest issue of the Short Seller’s Journal.   Shorts are working again.   Four of the five short ideas in last week’s SSJ were down for the week (one was unchanged) – one retail idea was down 13.6% and the puts recommended were up 400%.  In fact, most of the short ideas since early August have been working, some better than others, with one them down nearly 40% since early August.

Beneath the facade of the Dow and the SPX, many stocks and sectors are down for year. For instance, the DJ Home Construction index is down 11.1% from its 52-week high early this year.  It’s 52% below its all-time high in July 2005.  The current SSJ presents an home construction-related stock that is technically and fundamentally set-up to fall off a cliff.  I also presented my for favorite homebuilder shorts along with put option ideas.

The SSJ is a weekly subscription-based newsletter.  It’s billed on monthly recurring basis with no required minimum subscription period.  Each issue is delivered to your email in-box and has at least 2 or 3 short ideas plus put option ideas.   New subscribers will receive a handful of the most recent issues plus a complimentary copy of the Mining Stock Journal.  SSJ subscribers can subscribe to the MSJ for half-price.  You can get more information and a subscription here:  Short Seller’s Journal subscription link.

Microsoft’s Acquisition Of Linked-In Is Beyond Idiotic

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I will say right off the bat that Microsoft’s stock is now one of my favorite short-sell candidates.  This is the 2000 tech bubble on steroids.  MSFT itself is extremely overvalued given that its revenues are down over 7% on a trailing twelve month basis compared to its FY 2015 ended June 30th.   Its net income is down 16% on the same comparison basis.   MSFT itself trades at a 38x trailing p/e with declining revenues and income.  It trades at 4.7x sales and 5.4x book value.

It’s been issuing debt like the U.S. Government in order to buy back shares, with its debt load increasing nearly 50%  since September, from $27 billion to over $40 billion.  Since June 2013, MSFT’s debt load is up 333% (from $12 billion).

MSFT’s valuation is in and of itself is insane given it’s debt-addled balance sheet and deteriorating business model.  Microsoft Windows 8 was a total abortion and Windows 10 is not much better.  Anyone with two brain cells to rub together uses the bare bones Windows 7 and the freeware Linux-based Microsoft surrogate software, which can can be downloaded for  free (or a gratis donation) and is superior to MSFT’s crap (see OpenOffice.org, for instance).

Now Microsoft has decided to layer nuclear waste on top of its own toxicity by acquiring Linked-In for over $26 billion.   This is a tragic, if not catastrophic, use of shareholder cash. Here’s LNKD’s net income history:  It reported GAAP net income going from $11.9 million in 2011 to $26.7 million in 2013.  Then it decided to use the Silicon Valley private equity unicorn stock valuation model and spend as much money on “R&D” as possible in order to generate losses.  And it has generated massive losses:  in 2014 it reported a $15.7 million loss. This ballooned to a $164 million loss in its FY 2015.  On a TTM basis, LNKD’s net income has plunged to nearly a $170 million loss.

And MSFT is paying for what?  This is from MSFT’s press release announcing the tragedy:

  • 19 percent growth year over year (YOY) to more than 433 million members worldwide
  • 9 percent growth YOY to more than 105 million unique visiting members per month
  • 49 percent growth YOY to 60 percent mobile usage
  • 34 percent growth YOY to more than 45 billion quarterly member page views
  • 101 percent growth YOY to more than 7 million active job listings   (LINK)

Anyone see ANY mention of those attributes generating any revenue, cash flow or operating income?   Remember when Maria Bartiromo and Joe Kernan used to crow about “clicks and eyeballs” to justify multi-billion market caps for internet businesses with nary a business model?  That’s what this acquisition is all over again.

MSFT on the surface is paying:  5.4x sales, 4x book value, 4.8x enterprise value (market cap + debt) AND 58x enterprise value to EBITDA.    Wait, anyone notice there’s no implied p/e ratio?  That’s because there’s no “e.”  But of course Wall Street has stuck a hockey stick net income forecast for FY 2017, so the implied “forward” p/e is 45x.

Microsoft’s acquisition of LNKD is about as idiotic as it would be to try and convince someone that the sun rises in the west and sets in east.   If anything, this deal is emblematic of an American systemic Ponzi scheme that has gone “off the rails.”

Linked-In is nothing more than a glorified jobs networking bulletin board.  Sure, as the system continues to unravel and more “business services” people lose their jobs, there might be a big jump in “clicks and eyeballs” on Linked-In.  But this will be out of desperation trying to find anyone on the Linked-In board who might offer a ray of hope for employment.  But no one will spend their unemployment check on LNKD’s idiotic premium services.   That will be money much better spent on whiskey and weed, which is exactly what MSFT’s upper management and board of directors must be ingesting to have come up with this idea.   MSFT is my lowest risk short-sell idea of the year.

The best part is that Jim Cramer is pounding the table hard with bullish commentary about this deal.   This makes the idea of shorting MSFT a slam-dunk.  It reminds me of his bullish call on Bear Stearns before Bear collapsed.

If you like this analysis, you might benefit from my Short Seller’s Journal.  Every week is present what I believe to be somewhat unique market insight, a minimum of two short-sell ideas, recommendations for using options and capital/trade management strategies.   My picks greatly outperformed the S&P 500 when the market dropped from early January to mid-February.  You can access the SSJ using this link:   Short Seller’s Journal.

Latest Short Seller’s Journal Has Been Published

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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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The Square IPO Just Caused Pensions To Become Even More Underfunded

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The Square IPO is an event that will deliver a big blow to Silicon Valley private equity valuations and further exacerbate the already near-catastrophic condition of most, if not all, pension funds.

It’s been well publicized that most, if not all, State pension funds are moderately to significantly underfunded.  Notwithstanding the fact that States have been “borrowing” cash from these funds in order to pay for State and local Government spending deficits, every pension fund has been earning significantly lower rates of return on its asset base relative to future benefit funding requirements.

The math is pretty simple.  Every pension fund, public and private, has an established (actuarial) forecast of future benefit outflows vs. fund member contributions and invested capital earnings.  Most, if not all, pension funds have been assuming either a long term ROR of 7.5% or 8% on assets.  This is the rate of return required every year in order to fund the long term beneficiary payment obligations.  Every year that a fund underperforms its 7.5/8% “hurdle” rate of return is a year in which the fund becomes more underfunded.

Pension funds were disastrously underfunded after the stock market crash that bottomed in the spring of 2009.  Most pension funds are allocated 60% in fixed income and 40% in equities, real estate, alternatives.  Even with the “remarkable” move in the stock market over the last five years, and because fixed income has returned almost nothing over the time period, pension funds never were able to dig out of the “hole” created in 2009.

Most of them over the past few years have chased returns by literally shoveling money at private equity funds and speculative real estate funds.  The investments which do not have continuously observable markets in order to evaluate pricing and appropriate market-to-market are perfect for these funds because they can mark up their private equity and real estate investments quarterly based on “mark to model” pricing assumptions.  On the flip side, they can drag their feet on marking these investments down when those asset classes head south.

Keep in mind that many of these funds were never properly marked down to market after the financial crisis, so when you hear Calpers or the Illinois State Retirement fund is 40% or 50% underfunded, on a true mark-to-market basis it’s probably closer to 60% or worse.  All the accounting games used by corporations are also used by corporate and public pension funds.

Several pension funds are now allocating as much as 20% of their capital to private equity funds.  Most of this money is invested in Silicon Valley, biotech and real estate.  Biotech has already been crashing.   Real estate is starting to crash.

And it looks like the private equity Silicon Valley bubble is now popping.  The valuations became absurd, as small start-ups with no revenues were routinely valued in the billions, based ridiculously on, say, a $10 million dollar funding that valued the entire business on paper at $1 billion.  It was, to say the least, retarded.

But along with the soaring paper valuations, private equity fund valuations were marked up to fairytale levels and long with them the value of pension investments in these funds.

It looks like all of that has changed now, as the highly touted Square IPO was priced yesterday 42% below its last round of private equity funding.   Think about what this means.  It was only a matter of time before Silicon Valley “unicorn” slow motion train wreck ran out track and hit a wall.  This is an utter disaster for the pension industry.

Naturally Jim Cramer, who probably has not even bothered to look at any part of the Square deal or its related documentation and instead is vomiting out the smoke blown up his ass by his hedge fund cronies, has issued a strong buy on Square.  This will be the final kiss of death for this stock.

I’m not saying that Square doesn’t have intrinsic value.  Surely it does as it actually is a real business with real revenue, although the revenues are slowing and the losses are growing. But what does this say about all the companies in private equity portfolios that have been assigned huge bubble valuations and don’t have revenues?  Mark them down at least 60%.

The point here is that now big pension funds, which are already underfunded, just become even more unfunded with the mark to market event provided by the Square IPO.  While these pension funds will drag their feet on marking down their private equity investments, this reality is going to get worse over time and these funds will become insidiously underfunded.

And then what happens if the Fed does raise rates, which will knock down fixed income and stock investments?   Lights out.  And, by the way, everything I just said about public pension funds also applies to corporate pension funds, some of which are likely even more underfunded than their public counterparts.