Kip: A dear friend of mine by the name of GringoDoc sent me this anonimous piece:
<<It's not easy being short these days - in the market, that is.
Talk to just about any professional investor who shorts stocks --
or makes bets that they will go down in value -- and you can feel
the sense of frustration. With stocks reaching new highs each day,
often regardless of underlying business trends, short sellers are
throwing up their hands in despair.
Their main gripes: Investors have tossed out the basics, like
researching fundamentals, to make room for a "nothing can go
wrong" mentality that has them throwing money at the market in a
speculative frenzy. Hubris factor of 12 on a scale of one to ten,
they say. Completely idiotic and manic. Like being in a madhouse.
"I've been doing this for three years, and never has it been this
insane," says William Fleckenstein, of Fleckenstein Capital in
Seattle. "The facts have nothing to do with anything anymore.
Being right does not count very much. You have to be right when
people are not in the mood to come up with 15 reasons why serious
problems are only temporary."
Case in point: Fleckenstein thought he had a lay-up Wednesday
morning after semiconductor equipment maker KLA-Tencor Corp.
(NASDAQ: KLAC) announced sales for the first quarter will fall 17%
because of a slowdown in the sector. Wrong. The stock closed up $2
3/4 to finish at $41. "They announced horrible results, and it
went up anyway."
It has been the same story with other stocks he has shorted like
Ultratech Stepper Inc (NASDAQ: UTEK) PRI Automation (NASDAQ: PRIA)
and Applied Materials (NASDAQ: AMAT). "Virtually every company in
the semiconductor capital equipment making business is terrible
and getting worse. Announcing bad news. But most of the big ones
are up."
Same thing with companies like Motorola (NYSE: MOT) and Intel
(NASDAQ: INTC). Both of them have preannounced bad earnings news
in recent weeks, but fared fairly well anyway, instead of
suffering the kinds of big losses short sellers say they would
have under different market conditions.
"Intel is in its worst business position in ten years," says
Fleckenstein. "But it is trading sideways. And that is a moral
victory. I am very sick and tired of this nonsense."
You can understand why. After turning in three excellent years
shorting against bull markets, Fleckenstein is down so far this
year "in the teens." But he is not alone. The five short sellers
tracked by Evaluation Associates in Connecticut are down 9.8% as
of the end of February. That loss is probably a lot higher now,
given the strong market performance of March.
Part of the reason that stocks keep going up even though their
fundamentals suggest they should be going down is that mutual fund
managers want to be fully invested to beat their competitors,
short sellers believe. "They are buying this stuff because it
looks good on the chart. No one is doing their homework," says
Fleckenstein.
And that is causing a speculative buying frenzy, he says. "I talk
to a lot of people who don't know anything about the businesses
they are invested in. I am not saying they are stupid. They just
don't know anything about the businesses. And when you buy
something you don't know anything about, that is 100%
speculation."
Says another short seller who asked not to be identified: "It is
extremely frustrating to watch your hard efforts to do fundamental
analysis produce no results, while people who are working less are
more successful." To this short seller, it is like being in a
"madhouse."
CompUSA (NYSE: CPU), for example, traded off about 20% Wednesday
after it announced weak sales and lower prices would hurt earnings
-- something the company expects to continue for a few quarters.
"And were other computer retailers down?" asks the short seller.
"Naaaw. I can't think of a time when being right mattered less."
What really puzzles short sellers is that the enthusiasm for
stocks is occurring at a time when a lot of the conditions that
once made for a solid market are reversing. Earnings are being
revised down dramatically. The economy is slowing. Companies do
not have the ability to raise prices, but at the same time their
costs are going up.
"The momentum of the market has overtaken the fundamentals," says
Marc Perkins, of Kass Perkins Partners in Delray Beach, Fla. "When
the market reaches the full-blown mania phase, as I believe it
has, it is very, very difficult to make any money as a shorter.
But I am a true believer in the premise that there has to be
another bear market lurking not too far around the corner."
Meanwhile, Perkins is shorting a lot less than he used to. |
