Wednesday, July 16, 2008

Is This What Motion Sickness Feels Like?

Yep, and we're all out of Dramamine. Fortunately, I have an iron constitution. Once while taking the ferry back from Martha's Vineyard, I read the newspaper while people were heaving over the railing. Volatility is good for us. It provides good entry points and then rapid swings downward. The market tumbled over 200 points, went positive, then finished down 100 yesterday.

Bad things are happening. IndyMac blew up. Fannie and Freddie are insolvent. Guru Bill Ackman has a plan for saving them at the cost of wiping out all shareholder value. People will scoff at this initially, but he had a similar plan for the bond insurers and he was right 6 months ago. Perhaps the government will quit screwing around and acknowledge this mess.

CPI was through the roof. Really? I hadn't noticed my $70 fill-ups, gas stations charging for refills, diminished container sizes at higher prices, bananas up 40%, 75% off signs in every retail window, and McDonald's selling burgers at 1960s prices.

Retail had an awful June despite the stimulus checks. Not good. ``The stimulus checks are providing a fairly potent environment for retail sales,'' said Joseph Brusuelas, chief economist at Merk Investments LLC in Palo Alto, California. ``That is masking the real condition of the consumer, who is flat on his or her back. Once the impact of the stimulus fades, we're going to have a massive payback.''

Just when I thought there wasn't enough room to short financials even more, I, uhh, found some. Doesn't take much to convince me these days. After Citi has had 9 hedge funds fail in the last year, turns out they have a mysterious $1.1 trillion dollars in assets that might make it onto their balance sheet. That would make them more bankrupt than they already are. So far, only $100 billion in assets have "reappeared," but this could change quickly.

Downey Financial, a $38 stock 6 months ago, is now trading for a dollar. I guess that's what happens when you're non-performing assets hit 15%.

And Wachovia. Financial hating Meredith Whitney says they're finished. When their mortgage-backed securities get written down, they'll lose every penny of their $40 billion. Stock is up
10 % today. Sounds like a good time to bet against them.

National City had a run against it this week, pushing my strangle into 25% profitability when the put was sold at 150% profit. It would take a miracle to ever squeeze 5 cents out of the call, so I consider this trade closed.

And thank you Barron's, for your stellar first-half recap. "Not surprisingly, our biggest losers this year were in the financial sector, the worst industry group in the stock market, with a 30% drop in the year's first half. Seemingly inexpensive stocks like First Horizon, East West Bancorp and American International Group got crunched after our articles, largely by credit problems." Yeah, I believe I've covered these winners extensively. Nice call pros.

IOD: WB 1/09 $5 puts, KMX 1/09 $10 puts, BAC 1/09$15 puts

http://www.bloomberg.com/apps/news?pid=20601109&sid=a1liVM3tG3aI&refer=home

http://www.marketwatch.com/news/story/downey-non-performing-assets-jump-1433/story.aspx?guid=%7B764132AD%2D6C6E%2D438D%2DA8BA%2D1A59DE86C66B%7D&dist=hplatest

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOAhjktHvbXU&refer=home

12 comments:

Tiger Coach said...

Interesting read on the market today. People have been waiting for a reason to jump on the bandwagon...Bove was finally right.. A former president of the Atlanta Fed said this is the bottom for financials... Interestingly enough, Wells Fargo's profit came from the insurance division... Democrats are talking about a second stimulus check... inflation on the rise... rising unemployment... if rates are raised... the consumer is DOA.

Did you ever stop to think the whole housing mess started as a government stimulus package that went arye?

I'm still short...

AX said...

As well you should be. The market can't go down 5% everyday. I thought shorting BAC when it went up 10% was prudent, who knew we'd get 22% today? Banks still have terrible balance sheets and are writing less loans. How is that good for business. Even WF admitted to waiting 180 days before considering loans delinquent, up from 120. This is good news? Let's see how the rest of the week/month play out. GNW still down today.

Tiger Coach said...

cut and paste this is your browser.

http://itulip.com/forums/showthread.php?t=4550

DCNorth said...

Wow. Just watched the video and it doesn't get anymore blunt than that. Today was nothing more some people buying the "pig with lipstick". Great opportunity to load up on the puts today and loaded up on the BAC's.

AX said...

Me too. Like I said, volatility is our friend. Can't make 20% everyday! Takes contact courage in this environment to push your returns. No rush. We have 7 months of bad news ahead with a possible surprise bank failure. That's why I like having some slack/time. Costs a little more, but worth the piece of mind.

Tiger Coach said...

WFC goes from 120 to 180 days for delinquency...

That is just crazy... Talk bout changing the rules of the game during the game...

Why is it that mainstream media does not cover the manipulation in reporting??? That should be the story of the day... pure acts of desperation.

The pig should start squealing again by Friday...

Tiger Coach said...

WFC goes from 120 to 180 days for delinquency...

That is just crazy... Talk bout changing the rules of the game during the game...

Why is it that mainstream media does not cover the manipulation in reporting??? That should be the story of the day... pure acts of desperation.

The pig should start squealing again by Friday...

Anonymous said...

Ax,

What do you think of GOOG right now? Would you buy or hold off? Every analyst I have heard has said to stay away from it so I take that as a sign to jump on it.

Anon

DCNorth said...

You know what was funny Tiger Coach? Was watching Mad Money last night and Jim Cramer was on talking about how Well Fargo is one of the banks to get into! He is such a clown...

DCNorth said...

Hey Ax,

Just picked up some more BAC puts at $25 yesterday morning and riding them down. This dead cat bounce...perfect way to make more money in puts. I was able to afford the 01/09 $25.

AX said...

Good Courage, DC. Last 2 weeks have been a joke. When AmEx and Costco say the American consumer is dead, you know we have big problems. WaMu paper went into "upfront", meaning you can't buy insurance on their bonds without putting the money upfront because the risk of default is too high. Look, not all of these financials may return to levels of 2 weeks ago, we have to accept that. But there will be more implosions. Better to make 200% on one and lose some on 3 others than have four 10% gains.

New posts coming, was out of town but expect a few over the next couple of days. Thanks for the input.

Tiger Coach said...

http://www.housingwire.com/2008/07/26/as-housing-act-passes-questions-emerge/