Sunday, July 27, 2008

I'm Back

First of all, my apologies to my loyal readers who have been waiting for the next post. I don't really get true vacation days as a PA, so I had to work about 2 weeks straight so I could get 6 days off. I haven't posted because I've been out of town. Unfortunately, this coincided with a huge financial rally, one that cut into profits and was based on some of the worst numbers in banking history. We should've seen this coming as similar scenarios occurred during 4th quarter and Q1 results, with "the worst must be behind us" thinking carrying bear rallies.

But fear not. Two more banks failed on Friday. Fannie and Freddie will get downgraded by S&P, and turns out the bailout plan might dilute shareholder value down to zero, not something looked favorably upon. We will most likely get a bounce during Thursday's session as GDP numbers will be grossly inflated by rebate checks (thanks Simon Constable), which, as we've already seen has done zero for retailers. Just ask Costco and AmEx, who both said the consumer is dead in the last week. Ford lost $9 billion, GM reports this week. Chrysler has gotten killed and even Toyota can't make money.

And, if an Itulip thread is a sign of things to come, there will be no off-balance sheet lies big enough to hide behind. "The National Australia Bank's decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world." 90%. Meaning, exposure to US mortgages will not be discounted, but actually worthless. And the NAB isn't the only one holding exposure.

June unemployment numbers should be interesting, and miserable. Back to school spending will be shaved down to nothing as teens can't find jobs and their parents have cut them off. "America's Research Group sees back-to-school spending falling as much as 2%. A mere 1.5% of consumers said they will buy products at full price. Last year, 11% said they would."

Jim Jubak likes our shorts. He lists Citi and Wachovia as 2 of 5 companies that will suffer long-term damage from this crisis, despite recent gains. A former short, WaMu, also makes the list.

With that said, greed did get the better of me. Just last Tuesday, I was sitting on 5 puts up triple digits. While all of them sit in the money still, I only cashed out on one, COF, for a 70% return. Disbelief over horrible numbers didn't coincide with short-selling rules and Paulson bailouts in my head, and the staggering gains mounted quickly. Guess I should've invested a few minutes in more stop-limits. But (fake) earnings season is over soon, and then there's just 3 months of bad news ahead with the economy withering every second. Nothing to hide behind except oil, which is only falling because people can't afford to drive, not due to supply issues.

Oh, and can we hang the MSM yet? Here are 2 titles of articles from the last 2 days, "Will Jobs Data Call a Bottom," and "Credit Crisis May Bottom in October: Lehman Analyst." Terribly optomistic titles wouldn't you say? The actual content is nothing but doom and gloom about the economy and how things can only get worse with no sign of improvement over years, let alone months. Be careful what you read.


Tiger Coach said...

Eli's article says it all...great comments too!

Anymore small banks that are not being bailed out by the Housing Bill?

DCNorth said...

*snort* that was hilarious. Hiring you would be an admission that they are nothing more than a sham operation!...haha

AX said...

What are you talking about? It would be the best move they ever made! Nah, you're right. We'll just keep beating the market by 30%while they keep piping in noise about "the bottom." Let's see what happens if unemployment in June hits close to 6 figures...

DCNorth said...

Whoops...should have been on the blog "Why Not".

DCNorth said...

Ax...why would they hire you when they can read it for free?...haha. I'd hire you, but nothing x 10% is still nothing...haha.

But starting to build that base...looking to get some Wachovia puts.