Time to Short Brown Shoots

Green shoots has become a tiring term - clichés in the age of new media really run of out of gas quickly - and I recently took a two week working vacation to dig out green shoots for my readers. Data is nice - but you can get that anywhere and it basically starts arguments. So I told myself to take a hard look on the ground? What did I find? Brown shoots everywhere.

The two weeks on the road were spent in very different economies - the "posh" but understated part of Long Island, the North Fork; Hartford, Connecticut (family); Maine (need to eat some serious fresh lobster); Nova Scotia (gorgeous); Maine again (got to get back home); and then four days in New York City including a book part for my new title, Sell Short.

What did I see? There were two or three other guests in my luxury hotel in Greenport, empty restaurants with great food. We had no problems walking in to one of the most popular restaurants in Hartford; ditto for the most popular lobster in Bar Harbor (I copped out and got a small one but I did manage to ruin my shirt); a near empty hotel in Nova Scotia, one of the three luxury resorts capitalized by the Canadian government and the most popular destinations in prior seasons. And in Nova Scotia, same day reservations for a special whale watching exhibition in a zodiac that only holds a dozen nerdy tourists. Driving back through Maine, I stayed at a Wyndham in Portland filled with airline personnel and no one else, across from the very, very empty Mall of Maine. And I concluded my trip at a very busy Hilton in New York - busy, busy you say? - filled with tourists taking advantage of radically discounted priced rooms, buying what was available at the half price theater ticket booth or just walking the streets. We found same day tickets available for almost all shows, including for Mary Stuart (terrific play) and In the Heights (great musical, hottest dance chorus since Pippin, yes, I am that old). All of this during tourist season.

And a book party with guests from all parts of the economy, all discussing an uncertain future and all pulling in their spending. Except for the teacher at a prep school and the television producer working the Bernie Madoff case.

Are anecdotes worth investing in? Just as Peter Lynch - you can start with these anecdotes - but first you must ask yourself why is Wall Street so adamant about green shoots and the "bottom." Simple - Wall Street is congenitally biased to the upside, we were coming off a very sharp decline in the markets and Obama has a great ability to lead, convincing us and then remind us the world is not ending.

So, are we at a bottom? Perhaps - but my concern, my observations are about the lack of a rebound. And the current market is now beginning to look for signs of a rebound. So brown shoots mean a lot as the market starts looking to Christmas and beyond.
The tricky part is the definition of a rebound. I read this morning about the big turnaround in auto sales - they are "only" going to be down 20% at Ford and call option activity is accelerating (I am long, in my service, Ford calls). Turnaround? A year of 55 million in sales with worldwide capacity to make 100 million cars? The auto industry is representative of the debate - we may bottom at 55 million but when will sales support current stock valuations? And that is true for most if not all consumer discretionary stocks, from Tiffany to the Cheesecake Factory.

So, short term, you can play the short term optimism - as I said, I am long Ford in my service - but what about the longer term?
For a longer term trade, assuming you agree with me and the summer will be a bust, so look to short travel related stocks. And if you sense Christmas will see Santa stuck in the chimney, look to short names that people will continue to trade down from - Cheesecake Factory, P.F. Changs, Macys -- - avoid names people will trade down to - Dollar Tree, Wal-Mart, Darden (Olive Garden). Look for real discretionary spending stocks - Harley Davidson, Tiffanys, Coach, Nordstrom - and look for underpriced products that will see increased demand in the winter - natural gas (the UNG).