At The Tinker Factory, we view American Campus Communities (ACC) as one of many candidates that will trade to zero. Yesterday, ACC rallied along with the rest of the market. It rallied right to the resistance level I have my eye on.
For more detailed research on this name, see Stripnomics.

Peace

The Mathematics will be forced to face their implications

1. I am not short the dollar anymore. While I had expectations that the dollar would break down out of it’s recent consolidation, it broke up. That’s trading. If you are trading because you want to be right all the time, then this is the wrong business for you. Trading is not about being right frequently. It is about the magnitude of your gain when you are right. This concept is illustrated more clearly in The Babe Ruth Effect: Frequency VS Magnitude.

2. I am bullish on Gold. However, in the short term I have re-allocated any interest in gold to short more of the REITs. At some point I will be long the yellow metal again.

3. Why am I so bearish on the REITs? Because that is where the alpha will be. The market will trade lower, but what sector is going to crash lower and outperform to the downside? The commercial REITs. Stay tuned to Stripnomics for the names with the worst fundamentals. If you’d rather look at a chart of the real estate index, just check out symbol (IYR).

Peace

Look Out Below

Inasmuch as we are part of nature we are also perfect; it is our humanity that is imperfect. And, ironically, because of our capacity for imperfection and error we are free beings - a freedom that no stone or animal can enjoy. Without the possibility of error and real indeterminacy implied by the quantum theory, human liberty is meaningless.
The God that plays dice has set us free.

-Heinz R. Pagels

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It has been a while since I have written. I have so much to tell. So many stories. Some have been written, some are being written, and some will be written.

There are a couple of articles that I find interesting to read:

Malcolm Gladwell’s expose of Sidney Weinberg is an excellent read. Remember, there is no greater gift in the universe than adversity. We have all had our share. Adversity is a guest in my life. I am able to embrace it because I know that the only one that can beat me is me. I feel blessed at the adversity that I have been gifted. It has helped me go places and see things that many have not.

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Michael Lewis is one of my favorite writers. His piece, The End, hits the nail on the head. As I stated in my post from September 22nd, Investment Banking as we know it is over. Lights out. Game over.

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As an update to my positions, I have bearish bets on many commercial REIT names. My favorite shorts are Alexandria Real Estate Equities Inc. (ARE) and HCP, Inc. (HCP). Both are houses of cards, just like Prologis (PLD). The cluelessness of everyone involved in these names is amazing and so beautifully opportunistic. NO ONE seems to have a clue as to what is happening in this sector. No one except myself and my collaborator at The Tinker Factory.

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Where am I bullish? Gold.

In a conversation with some of my collaborators last night, I heard the most prescient comment:
In hard times, people want to own dollars. In harder times people need to own gold. I am very very very bullish on the yellow metal (GLD), and I continue to build my bullish position.

Peace

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Prologis (PLD) still rhymes with AIG. They both still share the same path of least resistance. Zero.

Let’s take a look at the 15 minute chart of PLD today. Look at that scripted short squeeze. Kudos to whoever is trying to squeeze this one higher. This gimmickry works….until it doesn’t.

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Now, lets look at the 15 minute chart of PLD from Septembert 19th. Remember, that was the first day of trading after they announced the ever ominous….”We won’t make earnings, but we are raising our dividend.” Back then, we saw the same scripted short squeeze at the end of the day.

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Don’t be swayed by short term market manipulations. This one is a zero. The math cannot lie. The math cannot play cover up.

For more analysis on PLD, especially the truth about their new credit facility, see Richard Woon’s blog, Stripnomics.

Speaking of manipulation, as stated here, there is no Chinese Wall in Investment Banking. The fact that there is an attempt to convince the public otherwise is a public relations gimmick.

Peace

Markets are filled with players and emotions and opinions and arguments. I am not the type that likes to argue much. I usually state my position and if others want to listen, then that is up to them.

There is a proverb that says a picture is worth a thousand words. Pictures can describe complex stories with simple still images.  That is why I always remind people to simply Trade the Picture.  Pictures can strip away emotion and they can lead you to what is really important.

The president of  Stripnomics has posted three pictures.  I have posted the pictures below with his permission.

For the Aha moment with these pictures I quote:

Leverage is best employed when the probability of growth is high because if you get caught in a stagnant or negative growth situation you can fall prey to my oft mentioned term, “Gamblers Ruin.”

In gambling, this occurs when you lose your bankroll.  In the context of a firm, it is when the firm’s debt can no longer be serviced or restructured.”

First, notice how with Berkshire, Warren knows that there is a time for leverage and a time to reign in that leverage.

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With Lehman, leverage tipped past the point of no return.  From the tipping point, Gambler’s Ruin is inevitable.

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With Prologis (PLD), Gambler’s ruin is inevitable.  Nobody in the mainstream media is talking about this.  YET.  Another way to describe Gambler’s Ruin?  Ian Malcolm says it best, “Increasingly, the mathematics will demand the courage to face it’s implications.”

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Most famous blowups are due to Gambler’s ruin.  Prologis (PLD) will be no different.  I haven’t even had time to write about their extremely complex structure that can give rise to abuse.  I can’t say for sure if they are abusing their complex structure, but it sure smells like they are to me.  Especially with their prolific use of unconsolidated investees.

There are many other firms out there that have suffered from Gambler’s ruin of late.  (AIG), Bear Stearns (BSC), Fannie (FNM), Freddie (FRE).  That is all fine and good, but there are many more firms who will suffer from it.  It is my job as a volatilist to identify these things before they happen.  I need to understand volatile situations BEFORE volatility enters the room.

You wonder why the powers that be are blaming short sellers?  Because they know that these firms are too highly levered.  They know that they allowed them to become too highly levered UNDER THEIR WATCH.  So now they are putting out a PR blitz to put the blame on someone else.

Leverage is the problem.  Leverage was the problem. Leverage will be the problem next time.

Nothing changes in the markets, just the participants.  In any marketplace, the majority of the money always flows to the minority of hands.

Morgan (MS), Goldman (GS), Merrill (MER), Citigroup (C) are not out of the woods.

Neither are many many other publicly traded entities.

As I have stated before, the reddest of red flags is when a company blames short sellers for their problems.

The ban on short selling tells us who the government is trying to lay their problem off on.

Peace