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Time to Short Sell the GOOG

Created: Tuesday, October 10th, 2006
04:51:48 UTC
Last modified: Tuesday, October 10th, 2006
04:52:10 UTC

Coming from a swing trader and SEO, I can say with some authority that GOOG is posed to break $450 within coming days due to the YouTube buyout. When this occurs, some jackass economist will point out, rightly so, that YouTube is —400 million in debt and has no realistic business model. Then it will shift on GOOG Video which was only supposed to be a YouTube killer but always did abysmal.

However it works out, and news is virtually irrelevant when dealing with frenetically over—valued stock, GOOG's "tension point", the point where old investors view they have a golden opportunity to get out while the getting's good (after irrationally holding on to it *far* (years) longer than they normally would have (it really is completely overvalued)) and new people will find it cost—prohibitive.

Additionally, unlike the last major tension point, when the stock hit $475 nad dipped mightily towards $360, there is no gimmick like spontaneous introduction to the S&P 500 (and required bids). the *only* the hope is that one or more of the insiders would risk *billions* in capital by puttting against the stock only to buy up hundreds of billions of liquidating stock and stick it back into GOOG. It's not unprecendented if only for size (most i've ever heard of this happening was in the tens of millions; trillions are in play with GOOG market cap + derivatives).

With enough capital at stake (you'd need at least 10% of the market cap or 15 billion dollars) in effect buying out the outrageous $150 puts that would suddenly become *very* valuable and at the same time buying ever—lower call margins, one or more major market holders with an interest in maintaining GOOG's status as an online giant, much less its employees' salary + raises, future limited expansion and a good chunk of the California economy fleeing elsewhere, one could descalate the stock at much slower speeds and generally stave off an outright collapse al la a 2006 Black Tuesday. GOOG is so overbought it represents ~6% of the entire NASDAQ.

At any rate, GOOG will almost certainly break $450 range within the year and at that point it's new high will be very sensitive to even the most simplistic of bad news. All it took for Sun Microsystems to plummit from $72 to $35 over 1 month was a single cautionary seminar at a private tech conference. Even things as "trivial" as the addition of a company with no viable business model that costs 400 million a year and cost 1.6 billion to buy could set investors on edge.

Goog is high purely because of insane speculation and trust by lay investors who really should never be in such a stock to begin with and institutions who are either compelled to hold on (due to S&P 500 mirroring or high prices). For all of 2006, the vast fortunes made on GOOG have not been via call derivatives nor certainally not long holdings, but put options, and usually the ridiculously cheap $100 contracts that net $35,000 worth when the stock dips 50 points in a session.

GOOG is a classic example of what to stay away from, especially in the next 4 months. What is better? To get out or (certainly) stay out and be sad that you missed a few hundred dollars at most or to risk losing significantly more? In the best case scenario, if pockets of people no bigger than a few thousand were to sell their GOOG holdings in a controlled fashion over a period when it is still at momentum increase, it could safely return to better semblence at around the same market cap and P/E ratio as YHOO or IACI (Ask.com, TicketMaster, etc.), both of which are far more diversified, less hyped and more sound investments in the longer term.