Thursday, June 5, 2008

Recession Proof?

Been a strange week so far in the markets. If you read the eternally bullish media over the weekend, you would've believed we would just start to coast on an upward trend this week as limited data came out. But then the Lehman rumors kicked in, foreclosures rose, airlines continued to fight bankruptcy, Bernanke actually acknowledged concern over the dollar's worthlessness and inflation, and Obama locked up the race. Let's address a few of these things.

Lehman has been rumored to be the next Bear for quite some time as it is now the smallest remaining Ibank left. David Einhorn, master short-seller and disciple of Bill Ackman, grand-master short-seller and the guy who called the bond insurer fiasco, has been saying for awhile now that Lehman's books lie. The stock plummeted from $36 to $28, now back to $33. I've debated on shorting this stock for months, while also contemplating getting long when it hit $20 after the Bear crash. Late both times, I bought out-of-the-money puts til' 09' for pennies, thinking that if a pseudocrash occurs, I'll make out quite well. If not, then we played for the homerun.

Freddie came out today and told us that foreclosures are now in the 6% range and that we can expect the highest rates over the next 12 months, something I've been saying all along as peak ARM resets hit this July.

The airlines are broke. Only Southwest, who hedged oil contracts at $55/barrel, did it right. With jet fuel now at $155, airlines took away even the free peanuts this week. Book your flights now because you may not see discount prices for years to come and your preferred airline may be out of business in 6 months.

"Recession proof" businesses are not so much these days. Casino bonds have been behaving like junk. After establishing themselves as solid investment vehicles during the last market bubble, they've lost 4.4% this year. On the flip side, discount retailer WalMart continues to vacuum up every low price consumer in this country at the expense of Target and others to increase same-store sales dramatically.

Obama is in. My employer just asked me yesterday what I think this will mean for the markets if he wins the whole enchilada. I don't think much. Perhaps a short rally, but the economy is going to continue to stink no matter who wins, and a Democrat in office will exacerbate that pain.

The dollar is getting hammered today, despite Bernanke's acknowledgement that we've driven it into the ground. Europe's refusal to lower rates is buoying their currency at our expense, and they're laughing about it.....

IOD: LEH puts 1/09 22.50s

http://www.bloomberg.com/apps/news?pid=20601213&sid=ai5fFOMi9bag&refer=home

http://www.thestreet.com/story/10419757/1/lehman-trouble-einhorn-called-it.html?puc=newshome

http://www.marketwatch.com/news/story/continental-cut-3000-jobs-reduce/story.aspx?guid=%7BB64442DC%2D9B18%2D4C63%2D9E1C%2D23CB8964DE83%7D

4 comments:

Anonymous said...

For a while, I was getting worried that the Fed might be able to print our way out of the financial disaster but I'm feeling better in recent weeks. There are too many holes in the dikes and fixing one (e.g. bailing out homeowners) can make another hole just leak faster (e.g. bank's balance sheets). Dance Mr. Bernanke, dance...

AX said...

Thanks Anon for your post. Sounds eerily similar to my brother who stood his ground post MLK and ST. Patty's Day meltdowns to watch his financial puts go even lower....

Tiger Coach said...

Politics...Presidents...and Markets... Obama should have some type of an impact on health care...more psychological than physical. He can say whatever he wants on stage, in the end, ANY promise has to go through both the House and Senate...and be revised over and over again.

As for McCain (Whom I may not even vote for...but will probably win the election...) I would think defense, oil, and financials (selected carefully) may be the place to be...

I like your LEH play here, although I look for a continued rally early next week, and maybe then a good buying opportunity.

I cashed out KO... While theyu may get a bump from the Olympics coverage and sponsorships...I think there is a growing concern for health-related issues on that stock. Dr. OZ (Cleveland Clinic) is going to start a campaign against the soft drink makers...Oprah will be on that band wagon. Like 43 grams of sugar per can is bad for you or something:)

I would like to know what the bank examiner thinks of STI... Here's a list of the big boys...
http://nyjobsource.com/banks.html

WMT to the rescue...I have not seen lines for gas since 911. Today Sam's was selling fuel at 3.75 and the masses came. Envoy, Cadillac, Infiniti, tier two of the luxury cars all looking for cheap gas. TRLG we'll see. I'm sure they have the niche. However, we'll see if they are able to grow sales in this environment...From what I have read, there are book keeping issues there as well. (see my citation on the blog)

PS I am not getting the traffic to my site like you...what are you doing to get that ?

BD

AX said...

Sugar doesn't kill you. There's some proof that all the sodium and aspartame in diet soda does, or cause high blood pressure, or cause MS type symptoms....

TRLG has been very volatile, I wouldn't worry about it too much.

As far as increasing traffic, keep doing what you're doing. You've published SA articles successfully. Try also submitting responsed on popular forums like MarketWatch and dare I say stockpicker...ewww, you'll have to put up with a lot of Crammer sycophants though.