Thursday, May 29, 2008
Price Action In Financials Signals Trouble Looming On The Horizon...
While most of us have been mesmerized by the price action in commodities, emerging markets and energy related plays over the past several weeks, it appears the financials have been making a rather stealthy yet alarming move to the downside. Looking at the 6 month chart of the XLF we notice that somehow we've managed to make our way back toward the lows set in March, and it appears that Lehman (LEH) has been looking ominously weaker than any other financial. Notably, David Einhorn of Greenlight Capital has been publicly parading the analysis behind his Lehman short position saying they are extremely undercapitalized and have essentially hidden $6.5 billion of CDOs on their balance sheet. Furthermore, credit default swaps on Lehman debt have begun rising dramatically over the past several weeks, going from 130 last month to just under 250 now. Merril debt has also spiked to 196. Taking into account these observations, a put position on the XLF as well as LEH seems like a good bet as something is definitely brewing within the financials yet again. If another round of credit woes surface the Fed may need to remain sidelined a bit longer than expected or we may actually begin to hear expectations of further rate cuts which would add further fuel to the commodity move. Would remain long Oil and Natural Gas, short XLF and LEH, short USD/EUR, and short the DIA here.
Subscribe to:
Post Comments (Atom)
5 comments:
what month would you recco for puts on the XLF and LEH? June or longer out?
based on the enormous call buying in the June VIX contracts, it looks like theres something coming very soon so Im favoring the Junes.
Nice Post!! What are your thoughts on holding a gold position? I think it's a great hedge against increasing inflation and falling dollar. I own 50% of my portfolio in the symbol "gld" since summer and plan to continue to hold.
I like gold, but i like oil, nat gas, steel, and copper better. We are in an environment where inflation is not only being spurred by the decline in the dollar, but also by very real demand for critical inputs such as energy and metals. Gold has traditionally been THE inflation hedge, but in this environment where strength in emerging markets is also driving inflationary pressures i think its best to favor those commodities that have stronger fundamental backdrops.
Do you think it's time to begin accumulating a short position on credit card service providers, V and MA? Article recently came out stating "less spaming of V and MA credit card applications in the mail". The P/E is Extremely High and these companies make their money on growth, so based on the news we could see the P/E curtailed some in the near future. As I see it this could be a great reward with little risk envolved. Or is it still to early to bet against them?
Post a Comment