Where Today's Max Pain Is

Tyler Durden's picture

While the stock market ramp on the disappointing ECB press conference can be, somewhat, explained and was to be expected by the central bank-addicted market's renewed focus that since the ECB did nothing, it is now the BOJ's turn to ramp up Quantitative Easing - a thesis which has been floating since November, and at one point resulted in 700 pips of "priced in" USDJPY upside - one group of investors is having a bad day: all those short Green Mountain Coffee shares, which as we pointed out last night exploded to 52 week highs in the aftermath of the Coke minority investment announcement. This is today's maximum pain trade.

This trade has been further exacerbated by the fact that as the chart of Short Interest below shows, the higher the stock price went into yesterday's (disappointing) earnings announcement, the more shorts piled in (if not reaching the highs seen in late 2012) , encouraged by repeated utterances of the short thesis by the likes of David Einhorn and, of course, perpetual piggybacker Whitney Tilson, and as of the most recent report amounted to 37.6 million shares, or a whopping 31% of the stock float.


Incidentally, and since we still operate under a brokne, centrally-planned market, this was partially to be expected: as we explained last September in "Presenting The Best Trading Strategy Over The Past Year: Why Buying The Most Hated Names Continues To Generate "Alpha"" sadly the only sure way to generate returns under Chief Risk Officer Bernanke and now Yellen, has been to go long the most shorted names and wait for the "come to Goldman" moment.

All that said, those short and still refusing to cover may have some reasons for hope. Here is some perspective from Doug Kass who shorted the stock after yesterday's pop:

I have a number of reasons for my skeptical take and my short position:

  1. The Coca-Cola agreement masked weak fourth-quarter earnings and forward guidance. (On TheStreet, Herbela Greenberg covered this well.)
  2. It could be argued that in light of the fourth-quarter results and absent the Coca-Cola deal, Green Mountain's share price would be under $70 a share on yesterday's release -- perhaps even lower.
  3. The coffee story has likely played out for Green Mountain. If the current fundamental trends continue, Green Mountain Coffee Roasters' sales could shortly turn negative.
  4. A 10% holding in Green Mountain, though too much to ignore, might be too little to matter. (Note: The Green Mountain deal was only $1.25 billion compared to Coca-Cola's $165 billion market capitalization.)
  5. The value proposition of at-home soda (costing about $0.50 a serving) vs. the purchase of a 12-pack for $2.75 at the supermarket is suspect. (At least coffee is brewed, soda is simply poured out of a bottle. In fact, you don't even need a glass!)
  6. The business opportunity is small and might be viewed as an affront to Coca-Cola bottlers who are trying to accelerate bottle and can sales.
  7. The business opportunity involves a lot of execution risk. In particular, the technology for the cold beverages that Coca-Cola and Green Mountain are contemplating (i.e., a carbonation tablet) hasn't even been developed -- there is not even a prototype yet.
  8. It is uncertain that the home soda market is all that large and whether it is taking market share. The heaviest users of SodaStream (SODA) use it for sparkling water, as the flavor market and usage has been slow to develop.
  9. The soda market is in a clear secular decline.
  10. Coca-Cola might have taken the stake in Green Mountain in order to enter the coffee market -- it might want the coffee not the cold!
  11. Coca-Cola paid 168% of SodaStream's market cap for 10% of Green Mountain. Does this make sense in light of SodaStream's large (7 million) installed base while

Green Mountain currently has no installed base and still appears to be one and a half years away from its product launch?
Similar to Italian director and scriptwriter Frederico Fellini's films, Thursday evening's outsized share price advance was a combination of investors' and traders' desires, fantasies and dreams.


To me, Green Mountain's sharp share price rise was like one of Fellini's LSD-driven experiences in which objects (and their functions) have lost their significance and deviated from reality.

So is this time different? We will find out, however, we fear by the time the true intrinsic value of GMCR emerges, there will be no shorts to pick up the pieces.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
BandGap's picture

Flight to safety?

666's picture

"Flight to safety?"


I'd like to take a flight to safety, but the Mars expedition isn't ready for liftoff yet.

tradebot's picture

Fooey...last week y'all said if the USD/JPY fell below 102 all hell was going to break loose...I think "Look out below" was used as well.

LoneStarHog's picture

Lotta HASH marks on those SHORTs, today.

adr's picture

I like Yelp surging 20% for some reason I can't find. Lower revenue, but upbeat forecast?

A company that sells nothing worth $5 billion that makes no profit and has a -500 P/E. But some algo is happy.

What is sad is that there are a lot of companies together worth a few hundred billion dollars that collectively lose billions of dollars. They really have no hope of ever generating real profit, but Wall Street keeps saying they are successful businesses.

I'm sure a higher evolved alien species caught a glimpse of the insanity of Wall Street and said fuck that planet.

mayhem_korner's picture



I hope this is a new daily feature from Tylerland.

adr's picture

Does anyone remember Fizzies? You can still buy them at some specialty stores. You can buy a pack of ten tabs for $2. You drop one in water and it turns into soda. I can't think of anything quicker and easier than that.

Or you can go to Sam's Club or Costco and buy a case of Coke syrup for $20 and add it to seltzer water. The added cost of the convenience of the Kuerig machine just isn't worth it. I wonder if Green Mountain has figured out how to keep the drink carbonated. Soda Stream goes flat very quickly.

The world is just insane. Too many people trying to get rich without working for it. Fools chasing fools.

ParkAveFlasher's picture

Oooh, the ever-effervescent glass of soda, that's the holy grail, the everlasting gobstopper.  Can't wait to tell the wife that the home equity loan I just took out to add a bedroom (which comes with its own laundry, bathroom, lounge, and kitchenette, per local ordinances requiring no less than $30k spent for every panel of 4x8 drywall erected) will be diverted into buying Green Mountain shares.

Winston Churchill's picture

Even soadstream is a rehashed idea from a bankrupted company.

We had the exact same thing in the late 1960's.

Didn't catch on then either at the price differential.

ParkAveFlasher's picture

Apologies from copying my work from a previous thread.  You may read this in your best "Michael Corleone sit-down with Solozzo and the Police Chief" voice, and imagine the thunderous build-up of sound caused by an overhead train approaching just above the street:

What I want, is a gigantic tube snaking from Central Coke Headquarters to my McMansion, so that I can attach the tube to a special dispensary unit next to my bed, network-enabled, installed by the properly trained, licensed, and insured corporate service task forces, so that I get the freshest and downright ice-coldest possible product at the most opportune moment, which is during commercial breaks as I watch my favorite shows on my 50-inch TV, which is of course opposite my bed, and which I watch until my restless leg syndrome dies down and allows me to sleep around 12:30pm, usually after I've consumed huge amounts of prescription drugs, so that I can wake up and roll into the ensuite shower stall and douse myself with body wash, never taking my eyes off the TV, while fresh product gurgles at the ready in the manifolds of my beloved dispensary unit, to which I've magnetically affixed a picture of the Holy Mother.

Lewshine's picture



Your explanation of YELP applies to the entire stock market(s) of the world! Stocks are used to sell a lie - The biggest ever.

monopoly's picture

How many times have we said here "shorting" these broken markets is insane. At some point that will change, but obviously not yet. 

Ban KKiller's picture

Coke products are just junk. All soft drinks are junk. 

Bullish! Just what the market needs!

Spungo's picture

"I like Yelp surging 20% for some reason I can't find"

I didn't even know that company was public. I checked it on Google Finance and it has no PE ratio. That sounds about right. A worthless company worth 6 billion US dollars. It's almost like a parody of that southpark episode where they determine the value of something by a cutting off a chicken's head and seeing which square it runs to.

One of We's picture

Get to work old yellen!

The Capitalist Review's picture

Let's be honest, exposure to homemade soda is about as exciting as homemade soap. The real remaining frontier for soda, and it's an oldie but a goodie, is putting "coke" back in Coke.

Now THAT should generate some "high" alpha.

The worst trader's picture

Max pain is holding VXX futures and have a piece of shit like BOJ increase QE. Thats pain ! Fuck you central planers. I can't wait for the day you lose control.

The worst trader's picture

Soda stream fizz fizzes out as fast as the use of the expensive apparatus will. Everone who bought one has stoped using it in less that 6 months.