A Short Convention in Miami: Ugly Stocks in a Beautiful City

Your California editor just exchanged the sunny sands of Laguna Beach for the sunny sands of Miami Beach. This year marks your editor’s eleventh consecutive annual pilgrimage to Miami. Officially, he visits Miami to attend a gathering of professional short-sellers and other n’er-do-wells. Unofficially, he visits Miami only to dine at Joe’s Stone Crab…and to drink a mojito or two.

As for the conference, it is an invitation-only affair that consistently offers a wealth of investment insight. Short-sellers are very proficient at identifying structural weaknesses in both companies and entire economies. Therefore, every year, your editor discovers something new that’s wrong with the way the world works.

That said, the group of short-sellers that attends this gathering are a fairly affable group. They are not congenitally pessimistic and dour…just congenitally pessimistic. Actually, the members of this group are simply insightful and versatile. They can generate a dollar in markets that go down as well as up…or at least in markets that go down.

Every year, the attendees convene to exchange investment ideas. Specifically, each person must present one security to buy and one to sell short. One year later, the host of the conference tabulates and presents the results…to the glory of the best stockpickers and the chagrin of the worst. Your editor is pleased to say that he has performed this stock-picking function without distinction. Although he has never won, neither has he embarrassed himself. His selections have delivered consistently above-average results, which is good enough for a return invitation.

Some of his short-sale recommendations from the early years of the conference included disasters-in-the-making like Plug Power (PLUG), Sallie Mae (SLM), General Motors (GM), Pacific Ethanol (PEIX) and Flagstar Bank (FBC). These short-sale ideas did not all work within the first year after your editor’s recommendation. But a sick corporation is a sick corporation…and it will succumb to its infirmities eventually.

Unfortunately for The Daily Reckoning faithful, your editor is strictly prohibited from divulging any of the recent insights or investment ideas that surface from the conference. That said, the macro-economic impressions that emerge from each year’s conference profoundly shape your editor’s analysis during the ensuing months and years.

This group of short-sellers, for example, was early to recognize the stock market bubble of 2000, and even earlier to recognize the credit-bubble-cum-housing-bubble of 2005-2007. Throughout that entire timeframe, your editor dutifully (and repeatedly) published cautionary observations about the excesses in both housing and credit.

Where will the next financial crises occur?

The assembled group of shortsellers is nominating some interesting candidates. Your editor cannot name any names. But one of the nominees has a Great Wall and the other has a bunch of famous ruins…(and we’re not even counting its national balance sheet).

As the booms and the busts change from year to year, so do the attendees themselves. With every passing year, this cast of characters seems a little wealthier…and a lot older. Your editor, the only exception in the group, shows up every year feeling poorer, but looking MUCH younger.

But he is not so young that he would still prefer hanging out in a South Beach nightclub to hanging out in his hotel bed. During the early years of the conference, your editor would sometimes venture out into the wilds of the South Beach night scene. Thanks to his well-connected and high-rolling companions, he would breeze past the long lines and velvet ropes of hotspots like Bed, Mynt or the Shore Club to arrive at a collection of bar tables stocked with Grey Goose vodka and Veuve Cliquot champage.

After spending a few hours drinking martinis – amidst a crush of physically flawless 20-somethings dancing to eardrum-numbing “house music” – your editor would amble back to his hotel room, fall into bed and begin to wonder when his ears would stop ringing.

In recent years, however, your editor has opted for activities more befitting his demographic profile – activities like eating and falling asleep on a lounge chair next to the hotel pool.

Eating and napping may lack the glamour and sex appeal of partying all night in the company of Brazilian models… But eating and napping is much more fun. You should try it.

The Daily Reckoning