Monday, March 17, 2008

Socialized Medicine

Bear Stearns is bankrupt. They lied, S&P lied, everybody is else is still in the process of lying. However, as I wrote to the other day, I'm worried that the market didn't plunge even more on news of the 5th largest investment firm going bankrupt 3 days after the CEO assured us they had plenty of capital. The Fed is acting in ways the haven't since the Great Depression, and they're propping the market up with incredible loans ($30 billion in risk-free money to J.P. Morgan for their bailout of BSC) and money printing.

There is no concern for inflation or currency devaluation. Clearly other banks will fail. The Fed simply said that our financial system cannot afford for that to happen and will continue to accept the kitchen sink as collateral. While my positions and reasoning have been affirmed despite the bullish analysts bashing us bears for our pessimism and short-selling, the Fed is curtailing my profits. I fear tomorrow will be another rally on outlandish cutting, dollar be damned. If futures hold until the open, I might get out of everything today and move into a bearish or even double inverse dollar fund, possibly along with gold. I would like to short Lehman but that thought is 2 weeks late as they have dropped from the mid-50s and will open in the high 20s today.

I am keeping this short for now as I am glued to the open, but I will detail any transactions later. I would just like to finish with a thought. If the gov't owns our banks, what kind of country do we live in? Feels a bit like the 1930s in here....

Ok, I'm out. I'm still holding onto my XLY retail index (in the money) put as I think retail is in for a very tough year. I will list below my puts sold and percent return since purchase. The average length of time held was 77+ days, but most were around 68-73 days. 77 days ago on Dec. 31, the market peaked at 13365. We are down 11.5% since that time.

PUT Purchase Price Sell Price %Change

XLF 10.85 16.45 +52%
BAC 9.90 15.30 +55%
WM 8.30 11.80 +42%
MDC 8.80 6.10 -31%
CTX 8.00 8.80 +10%
LEN 6.70 7.70 +15%

Guess I wasn't too late to get my shorts in, despite every analyst in the country saying so at the new year. Average return based on actual dollars put in (Unfortunately had less money in XLF and BAC) was 19.8%. A fair evaluation of my effort to hit homeruns says 3 triples, 2 singles, and a big fat backwards K. I got impatient with the homebuilders as I fear the bulls tomorrow on possibly a full-point cut. I am not ruling out a return to shorting homebuilders as I believe there will be several bankruptcies in this industry that the gov't will not bailout (not directly, if they buy back all the subprime loans homebuilders will shoot through the roof). It's been a rough ride, but beating the market by 30% isn't too bad. Not bad either for a novice options trader. I'd like to see you find that kind of return in a mutual fund. What's next? Shorting the dollar I believe, but I'm also not ruling out taking some homerun shots to the upside. Again, MSFT has my attention.

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