The Best of Kass

NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this week, Kass explained why he has never shorted shares of Sears Holdings and detailed why he is short other retail stocks.

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When Not to Short
Originally published on Friday, March 2 at 3:28 p.m. EST.
  • Never short an equity whose short interest exceeds 7% of the outstanding float or three days of volume.
  • Sears Holdings' ( SHLD) share price action today (+$7) (and its strong year-to-date performance (+135%)) are examples of why I have basic tenets on short-selling.

    Among my rules is that I will never short an equity whose short interest exceeds 7% of the outstanding float.

    In the case of Sears Holdings, there are 106 million shares outstanding, but the float (noninsider shares owned by the public) is only 40.8 million shares.

    There are 13.15 million shares short, representing 32.5% of the float.

    This is a nonstarter to me and why I have never shorted Sears Holdings.

    Another principle I have with regard to shorting is that I never short a stock whose short interest is over three days of volume.

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    In the case of Sears Holdings, the average daily trading volume (over the past three months) is 2.25 million shares. The 13.15 million shares short represent about 6x average daily trading volume. Again this is a nonstarter.

    If you must short a stock with a high short interest relative to the company's float, elect to buy puts and define your risk.

    Otherwise, shorting heavily shorted stocks can be harmful to your investment and financial well-being.

    I know, I have the scars to go with that experience!

    Position: None


    Shorted RTH
    Originally published on Thursday, March 1 at 12:24 p.m. EST.
  • Today's consumption and income data were just dismal.
  • I just shorted Market Vectors Retail ETF ( RTH).

    Just look at today's consumption and income numbers.

    January income rose 0.3%, well below the estimates by consensus of +0.5%, and spending was up only 0.2%, less than half the forecast. As a result of +0.2% personal consumption inflation (Bernanke's favorite measure of inflation), real income was up by only 0.1% and actually dropped by 0.1% as measured by after-tax disposable income.

    Meanwhile, real spending was flat.

    Position: Short RTH


    Retail Short Strategy
    Originally published on Thursday, March 1 at 12:13 p.m. EST.
  • I just shorted more Ralph Lauren at $176.90 and have orders to initiate a short in Market Vectors Retail ETF.
  • A couple of shorts have come back into my price levels, including Polo Ralph Lauren ( RL).

    My view is that the warm weather pulled forward sales, which will be penalized in March-April period.

    I just shorted more Ralph Lauren at $176.90 and have orders to initiate a short in Market Vectors Retail ETF.

    Position: Short RL

    Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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