Savvy Broker Needed

[powayseller]

Does anyone know a trader, broker, or other financial service experienced in shorting stocks?

I’m ready to take the plunge. Too much money can be made in shorting the obvious builders, lenders, and retailers, and manufacturers, and I’m letting the opportunities slip by, because of bad advice of people like the $350/yr. Yamamoto Forecast. You guys have convinced me to take the plunge.

I wrote Mr. Yamamoto 3x, and left some phone messages, asking him to defend his decision to put us 100% in cash at money markets rated by bankrate.com. Why would he do that without checking the Weiss rating first, and provide a list of approved banks? For $30/monthly newsletter, it’s the least he could do. Next, he ought to tell people who don’t need instant access to their money, to go with the safest cash holding of all : short term US Treasuries.

Mostly, with his supposed great trading knowledge, he should have a list of stocks to short. What’s this 100% cash BS when you pay $30/month for his advice?

I’m sure there are companies currently not pricing in the big losses I expect in subprime lending, since people are not fully aware yet of the losses to be had. Companies like WaMu, which recently bought out Providian and will get doubly creamed when credit cards start defaulting.

I’m looking for someone who knows about the upcoming housing bust and recession. Someone who has studied the balance sheets and annual reports and SEC statements of various companies. NOT a technical trader. I want someone with a proven record of shorting, i.e. they made money shorting, and they read the SEC submissions and financials. I am willing to pay for this advice.

Schahrzad Berkland

[vcguy_10]

Obviously, Yamamoto-san makes his money selling $360/yr subscriptions. If he had a system for making money in the stock market, he wouldn’t waste his time selling “advice”.

Shorting has a high risk/high return profile. Too risky for me. Our friend Soros made a billion dollars shorting the sterling pound and Italian lira in 1992, but people who are no less smart than him lost their shirts (and more) trying to do the same thing before or after him. You can clean up if you’re lucky, but if not, there’s no limit to your losses.

Beware of charlatans and market “timers” who may heed your call and come knocking your door. Sensible people know that the higher the return, the higher the risk.

[powayseller]

vrudny, your comments are surprising, esp. if you’ve been reading my posts. I am not a trader, but consider myself a knowledgeable long-term investor. You are new to the forums?

I’ve predicted the market would tank since last January at least, but was always afraid of shorting, bec. of the high risk. I’ve been writing on this forum that people should sell their stocks early 2006. At that time, I was afraid of shorting, because I had read how risky it is. You can read my previous posts from last winter to get all the details.

My prediction of the market tanking has not yet occured, but all the signs for it are getting stronger.

I see opportunities in many companies which have not yet been beaten down, like WaMu, furniture makers, retailers, computer manufacturers esp. since the bulls are expecting the computer sector to keep going up but in a recession they are going down too, as companies pull back on capital spending. So it is definitely not too late.

Did you short anything?

[JES]

Is it the case that even though the pros have already shorted stocks, there is still opportunity because very few are predicting the kind of crash and recession that powayseller and others are? The pros are not shorting in anticipation of a major crash and recession are they? That’s where your money is to be made if you are right and time it well.

[Wiley]

Couple thoughts,

A. I have yet to meet a broker that wasn’t just a salesperson disguised as a market seer. I’m sure they are out there but if they are that smart they are probably managing a fund (ok a bear fund).

B. I really hate this perpetual hype that shorting is so dangerous because stocks can go to infinity. If you get caught the wrong way you just cover and get out.

C. Nothing ever goes straight one way or the other and the decline in housing stocks does seem to be getting long in the tooth. Ultimately I agree they are going down more.

[Steve Beebo]

I’m no expert in shorting stocks, or even in the stock market. I have a brother who has an Edward Jones office, and he has handled mutual funds for me for 15+ years that have done great – I won’t pull any money out of stock mutual funds. But shorting homebuilder stocks doesn’t sound like a good idea right now – maybe it would have been a great idea 6-12 months ago. I think the market has most likely already factored in the problems they will have in the next couple of years.

[powayseller]

JES, I agree with you, but as you can see, even the progressive contrarians on piggington are siding with the bulls. For this reason, there is plenty of opportunity to make money, bec. we contrarians are in the minority. I made a recession call in 2/06, and the most contrarian economist, Dr. Roubini, didn’t make it until 6 months later!

[privatebanker]

Why short stocks when you can buy put options? Shorting has no limit to risk. Put options can only expire worthless worst case scenario.

[Daniel]

Powayseller,

A friendly advice: be careful what you wish for. You have very strong beliefs, and it seems to me that you’re looking for validation, not advice. You want a broker to guide your hand, but you also want a broker to give you exactly the advice you want to hear (economy is going into the tank, and go short). If the broker/advisor tells you to go long or stay in cash, you’re not happy.

To make a somewhat cynical analogy, you’re like the patient convinced that she has a certain disease, and shopping for doctors in the hope that one will diagnose it “correctly”.

Powayseller, you either trust yourself to be right, and in that case you don’t need an advisor, just open an account at Schwab, or Ameritrade, or whatever, and trade according to your beliefs. Or you trust an advisor, and give that person your money to invest as he/she thinks it’s best. You really can’t have it both ways.

[powayseller]

Daniel, I’m specifically looking for someone who has already studied the financial statements, since that is a very long process, that I don’t want to spend the time on right now.

I don’t look for validation at all, I’m quite contrarian. My requirement is that the trader/broker must have the same view of the economy as I; no sense asking for assistance from someone who’s more comfortable with the status quo of dollar cost averaging, and therefore will have NO clue what I’m talking about.

Daniel, asked for the name of someone with these qualifications, not an evaluation of my personality, which you can post in “off topic” if you are so inclined. Let’s stay on topic, please.

[bubble_contagion]

Last year when TOL was close to $60 many people on Ben’s blog shorted the stock. Even the brothers Toll were cashing out. Today TOL is at $26. It may be a little too late to short the builders but about the right time to short the lenders.

[michael]

PowaySeller – I work for one of the wirehouses. Our structured product desk in New York is constantly creating new products. Last year they came out with an 18 month “Bear Note” that shorted the HGX (Home Builder Index). There is currently a note that is long Asian currencies – short US dollar. I share your views on housing. I also am a firm believer in Modern Portfolio Theory. I recommend you call a couple of wirehouses and ask about their structured products. I have worked with the structured product desk to create custom investments for clients with at least $1mm to invest in structured products.

[davelj]

If I wanted short exposure, I’d invest in the Prudent Bear Fund. It will do very well if the market tanks – and conversely will do quite horribly if the market goes up. Unless you’re prepared to spend at least 10 hours a day at it, I wouldn’t bother shorting individual stocks. Too much can go wrong. I am a firm non-believer in MPT and CAPM.

[powayseller]

davelj, the last time I read the definitions of MPT and CAPM, I decided I don’t believe in it either. What are your reasons? Did you invest in the Prudent Bear funds? What do you think about shorting WaMu? The gains on shorting an undiscovered loser like WaMu could be huge. But yes, a lot can go wrong; they could quietly move their losses to a different section of their books, and by the time the market realizes their losses are due to foreclosures, my shorts will be priced out. The gov’t could bail them out, etc.

[PD]

I think homebuilder stocks are going to go down a lot more.

[powayseller]

PD, so do I. The market has not yet priced in the severity of the slowdown.

Remember when Lucent was trading over $80/share? I think it even went to $95. It dropped to $5, and I thought that was the bottom, and bought $1,000 of LU. Then it proceeded to go down to $2.50. Who would have thought?

The same thing will happen to Toll Bros and the other builders. Toll, from its height of $60, is likely going to hit $1.50/share.

Some say it’s too well capitalized, they are too big to fail. They said the same thing about Lucent.

By the end of 2009, Toll could be a penny stock. Their outlook will worsen, as fewer people can buy their homes, and they have to write off more land options.

BTW, if its current price of $26, half off its peak, were so great, why are the insiders selling instead of buying?

I’m probably the most bearish on this board, daring to suggest that builders could be penny stocks.

[PD]

I think builder stocks are going to retreat to their 2002-2003 prices at the very least.

[technovelist]

No, you are not the most bearish on this board. I don’t expect the stock market, or the economy for that matter, to survive in a recognizable form after the upcoming catastrophe.

[davelj]

PS, I’ll get to your questions, but I gotta run for now.

[powayseller]

technovelist, can you elaborate on your predictions?

[PD]

Vrudny, I actually think that shorting homebuilders is a safer play than shorting the market right now. Homebuilders are beaten down but ask yourself if there is any chance that their earnings are going to recover? If their earnings are not going to recover then there is only downside for their price. Look at their graph over the last five years. It matches with the RE boom. Do you think there is any chance that their value is going disassociate from RE bust? I am actually encouraged that so many people think they are done going down. That tells me that the gravy train is far from full. Choo, Choo!

[technovelist]

Sure, I’ll elaborate on my predictions.

Basically, I think we are approaching the climax of a very long wave of increasing government interference in the economy. This is the first time in history that there is no sound money in circulation anywhere. It has been only 33 years since the last link to gold was severed by Nixon (whether he had a choice is a different discussion), and in that time we have seen tremendous changes in the world economy, none of them favorable to long-term economic sustainability.

As the Austrian school of economics teaches, there is no such thing as a “soft landing” from a great inflation. There are only two outcomes of such an inflation:

1. The government stops printing money. In this case, all the overleveraged debtors go under, and you get something like the Great Depression. However, it would be much worse now because the average person is in much worse economic shape than the average person in the 1930’s. Similarly with the government itself, which is a gigantic debtor, again in much worse shape than the 1930’s.

2. The government doesn’t stop printing money, but tries to print enough to “keep up with demand”. This results in the total destruction of the currency. This is much worse in the short run than the first possibility, as it destroys the division of labor. With no money, no one can pay anyone else to work. However, in the long run, the survivors will probably be better off than with the first possibility, as the government will also collapse, freeing them from that overwhelming burden.

Which of these will happen? I expect that the government will do anything in its power to avoid the deflationary depression, and in so doing will trigger the hyperinflation. But I could be wrong, which is why I won’t overleverage myself with debt that would be wiped out in a hyperinflation.

I’ll be happy to answer any questions you may have.

[anxvariety]

This isn’t professional advice.. just making note on something I’m doing. I just bought 2k worth of Feb 2007 $30 Bed Bath and Beyond puts.

Retail sales are supposedly strong right now.. but what do most people do when they’re bored and depressed – they go max out their cards.. I think cards will be maxed out by Christmas. This stock can’t last much longer at 18 P/E.

[Wiley]

I take back what I said earlier. I would use this guy if was to use a broker. I think more of a money manager then broker. He occaisionally posts to this site (which is excelllent also by the way).

http://www.jsmineset.com  (post by Monty Guild)

[sdappraiser]

Whats that smell? Cooked books. Good luck shorting with that possibility hanging over all these companies. Freddie and Fannie did it, you think they are the only ones padding the books to keep the bonuses flowing? Sure, it may come to light eventually, hopefully before you get the margin call or are forced to cover.

[powayseller]

SDA, cooked books can fool the market for a while, like Enron. You’re right.

Does anyone want to form an investment club? We could start our first meeting w/ a report on our chosen company.

[anxvariety]

Does anyone want to form an investment club? We could start our first meeting w/ a report on our chosen company.

I’d probably be interested in something like this.

[Diego Mamani]

Or cut and paste? After all, quoting sections for discussion purposes, provided the source is credited, is considered fair use.

[Author]

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