Q: So, which consumer stocks are you shorting? A: Colgate-Palmolive [CL], Kellogg [K] and General Mills [GIS], which are trading at 17 to 18 times earnings, but have secular earnings-growth rates of 7% to 10%. These companies historically are seen as recession-resistant, but we doubt it. All three are aggressively lifting their selling prices in response to huge cost increases, but demand is starting to suffer as private-label companies and generics gain market share. Demand elasticity, or sensitivity to changes in prices, in toothpaste, soaps and other consumer products has begun to surface in the current recession, as consumers trade down to private-label products.

Q: So, which consumer stocks are you shorting? A: Colgate-Palmolive [CL], Kellogg [K] and General Mills [GIS], which are trading at 17 to 18 times earnings, but have secular earnings-growth rates of 7% to 10%. These companies historically are seen as recession-resistant, but we doubt it. All three are aggressively lifting their selling prices in response to huge cost increases, but demand is starting to suffer as private-label companies and generics gain market share. Demand elasticity, or sensitivity to changes in prices, in toothpaste, soaps and other consumer products has begun to surface in the current recession, as consumers trade down to private-label products.

Q: So, which consumer stocks are you shorting? A: Colgate-Palmolive [CL], Kellogg [K] and General Mills [GIS], which are trading at 17 to 18 times earnings, but have secular earnings-growth rates of 7% to 10%. These companies historically are seen as recession-resistant, but we doubt it. All three are aggressively lifting their selling prices in response to huge cost increases, but demand is starting to suffer as private-label companies and generics gain market share. Demand elasticity, or sensitivity to changes in prices, in toothpaste, soaps and other consumer products has begun to surface in the current recession, as consumers trade down to private-label products.

Q: You're short Berkshire Hathaway [BRK.A]. Betting against Warren Buffett in the past was a costly move, as evidenced by Berkshire's stellar performance since the 1960s. Why do so now? A: No. 1, there will never be another Warren Buffett. I respect and admire him considerably, but in part because of the lucrative compensation set-up in the hedge-fund industry, the investment landscape now is inhabited by a lot more smart and aggressive managers who comb for value -- far more than there were 10, 20 or 30 years ago. Berkshire Hathaway's outperformance versus the market has been narrowing in the last decade, and I expect that will continue. Investors are going to dump the shares if Buffett is no longer at the helm, though I'm not signaling that he plans to step down anytime soon.

Q: You mentioned one of your short themes is the dental industry. What's behind that? A: We're short three companies in that space: Danaher [DHR], Henry Schein [HSIC] and Patterson Cos. [PDCO]. The sector is exposed to a weakening consumer and it's not heavily shorted, something we look for. My father was a dentist, and through him I know a great many dentists and CPAs whose clientele consists of dentists and doctors. We have made extensive channel checks of practitioners around the country. One thing we have learned is that elective cosmetic dental procedures are starting to tail off dramatically.

Q: You mentioned one of your short themes is the dental industry. What's behind that? A: We're short three companies in that space: Danaher [DHR], Henry Schein [HSIC] and Patterson Cos. [PDCO]. The sector is exposed to a weakening consumer and it's not heavily shorted, something we look for. My father was a dentist, and through him I know a great many dentists and CPAs whose clientele consists of dentists and doctors. We have made extensive channel checks of practitioners around the country. One thing we have learned is that elective cosmetic dental procedures are starting to tail off dramatically.

Q: Do you have a favorite dental short? A: Yes, it's Danaher, which isn't typically thought of as a dental company. It's actually a diversified industrial company, but dental products account for roughly 25% of revenue. What caught my eye in Danaher's latest quarter was that they reported flat core dental equipment and consumable sales. Danaher has a trailing 12-month price/earnings ratio of about 20. In contrast, the P/E ratio of General Electric [GE], another diversified industrial company, is under 15. This is surprising since GE consistently has had more rapid organic growth overall than Danaher, and organic growth is the key sentiment driver and metric that moves the diversified-stock group.

Q: How about one more short idea? A: Fastenal [FAST], whose stock has risen from 33 in late January to around 50. They operate about 2,200 stores in nonmetropolitan areas selling an array of services and industrial supplies, including threaded fasteners. What intrigues me about this company, in looking at the second half of the year, is that their sales growth is going to be increasingly difficult to sustain, and a profit miss will likely follow. Earlier this month, Fastenal announced its daily sales in April dropped by half a percentage point on a sequential basis. That compares to an 11-year average gain of 0.5%. Companywide sales in May could be several percentage points lower than the typical seasonal growth.