New short position: USG

On 01.28.10, In Shorts, by David Pinsen

Shorted sheet rock  company USG today at $12.45. As I mentioned on the old blog last fall, I regretted not shorting this when I was first bearish on it back in ‘08. Would have been a better bet to short USG back then, but we’ll see if I can make money shorting it now. I suspect that when the market corrects significantly, USG will drop further than the market. We’ll see what happens if I don’t get stopped out before then. Short Screen shows an Altman Z-score of about 0.65 for USG. Scores below 1.81 indicate distress. Note that there isn’t much chance that USG will actually go bankrupt again — if it got to that point, Warren Buffett would almost certainly bail it out (as he has done previously) — but any rescue financing in the future would likely further dilute current shareholders.

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David Pinsen

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  • Should have posted this as a reply to Homer. Deleted. Same content above.
  • Homer315
    Dave, almost every time you mention a new short, you talk about how you expect it to drop more than the market does when the market as a whole corrects. In this post, you state you expect the market to correct "significantly." What sort of correction are you expecting out of the market? The S&P's already dropped nearly six percent in less than a week. Do you have some sort of time frame in mind or envision a drop that you think may/will happen?

    I'm curious since a market correction is clearly part of your thesis for shorting these stocks.
  • By "significant" I mean a correction of 20-30% or more. I added the adjective "significant" to differentiate that sort of correction from the correction we've had in the past week or so. I don't know when that sort of correction will occur, but when it does, I should make money on my short positions and puts. I may make money on these positions even if we don't have a significant correction -- I made money on my BAGL, KITD, and TRMA shorts without one. But having some short exposure when the next big correction hits is definitely a motivation here.
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