New short positions

Today, I have taken new short positions for my personal account and for Bridgestone Capital Mangement B.V.

I have added short positions in retailers, because their downside is still considerable large from current levels due to the fact that the economy is at the brink of a deep consumer recession, combined with higher level of inflation and a deep credit crunch. Consumer confidence will continue to erode, until house prices stabilize. House prices will likely overreact to the downside, just as they moved up to quickly in the 2000s, which will cause the average house price to go down on average by 30-35% from peak to through. Many more mortgages will reset between now and 2010 and more mortgages will be under water, which will cause new waves of foreclosures.

The job market is also eroding and will continue to shed jobs in the next five quarters. This environment will be dangerous for retailers, especially the ones who have a higher leverage, wrong product-mix and high inventories.

I started a short position in Sears Holdings (SHLD) today, because I still think that this company has the wrong product-mix in this environment. The weak market position will cause revenue to decline sharply and will cause this company to post losses in a few of the next quarters. However, I am great fan on this company in the long-haul, because I believe in the undervalued assets of this firm (like its large real-estate holdings), the undervalued brands and its chairman Eddie Lampert. Shorting this stock is not for the weakest investors among you, because the float is really small and short-interest is pretty high, so short squeezes can happen (however I think, we just had one).

I started a short position in JC Penney (JCP)

My last new short position in the retail-sector is in Saks (SKS), because I think that eventually also the high-end consumers will cut back their spending, especially when we are heading into a consumer-lead recession, which can be as severe as the one in the mid-'70s.

Prices of these names and other retail-names can fall heavily from these levels. I think that when we are at the worst of the recession (1st quarter 2009), these names can trade 50% below the current market price, which would be it very interesting to take the opposite trade for the long-haul then.