The Credit Crisis Financial Stocks Short Journal

I found an interesting article on why lots of the bearish arguments put by Roubini, Shilling, Shiller for the stock market might not be correct
http://www.forbes.com/2009/05/11/pr...ates-stock-opinions-contributors-shiller.html

That article might reach diffirent conclusions if the comparision is with investment grade corporate bond yields but it seems that people are using "valuation bottoms" as a reason to be bearish, what they forget is that secular bear markets last something like 18y on average, it started in 2000 its only half way through, the Shiller bottom PE of 6-10 and the masssive dividend yields dont have to come in this bear market, in fact its likely not to. The market could bottom out here and stays in a range of 600-1100 for years going up and down while earnings rise after the recession is over, dividends would rise as well, valuations would fall even though stocks are flat doing nothing and people would get their valuation bottom even though short sellers didnt make a cent

That scenario is likely to play out if there is inflation as it would drive up interest rates(leading to lower stock multiples) but also earnings and dividends
 
I guess I have some kind of consolation for not dodging a drawdown with this rally
One macro trader with a good record, Thiel from Clarium is still down about 50% from his 08 peak, his networth is mostly in his fund so he is taking a big hit.
http://static.10gen.com/businessinsider.com/~~/f?id=4a0c733814b9b93d00444e36

As I understand it he stayed short the US dollar after the summer and refused to believe it had turned, I was short as well but I didnt had much problem releasing as I had tried to pick the dollar bottom earlier a few times based on contrarianism

It seems that one of the most risky situations for a macro bet is when you make a lot of money and the market turns against you, you refuse to believe its anything other than a temporary move, the visions of more gains are just too enticing. I avoided that mistake in the commodity crash, I didn't in this financial/garbage rally but I still can't help to hang in there as it just that the numbers dont add up

Here's what one analyst said about one of my shorts MET
"MetLife has $32 billion of commercial real estate exposure versus $18 billion of tangible equity. Think of all those office buildings and shopping centers that are reporting record vacancies. I don't understand how MetLife can report these loans at more than 99% of cost. It ought to be more like 80% or even 70% of cost... And before it's all over, I think that's exactly what will happen."
 
The rating agencies are getting into the act. BAC might get upgraded by Moody's it was announced today.

And afterhours the government bailed out HIG for 3.4 bil.

Hard to be more than a daytrader in these markets.
 
Quote from Daal:

I guess I have some kind of consolation for not dodging a drawdown with this rally
One macro trader with a good record, Thiel from Clarium is still down about 50% from his 08 peak, his networth is mostly in his fund so he is taking a big hit.
http://static.10gen.com/businessinsider.com/~~/f?id=4a0c733814b9b93d00444e36

As I understand it he stayed short the US dollar after the summer and refused to believe it had turned, I was short as well but I didnt had much problem releasing as I had tried to pick the dollar bottom earlier a few times based on contrarianism
More...

If we are to believe his public comments, Thiel was heavily short the GBP earlier this year - didn't work out too well.

Judging from the april stmt - Clarium is long gov't bonds, short equities, and has siginificant money placed on FX crosses - my best guess would be short GBP/JPY.
 
I agree that in a free market, MET is a good short here.

However, as you know, these markets are seeing an increasing amount of govt intervention.

Eg:
http://www.telegraph.co.uk/finance/...iches-speculators-in-sham-bank-bail-outs.html

It seems that in addition to the Greenspan put and the Bernanke put, we also now have the Geithner put: if you're a financial services company of size, then you will not go bankrupt. Furthermore, if your common stock plunges, the govt will provide an overly-generous scheme (funded by taxpayers) to bail you out. This is all in addition to the generous terms of the PPIP.



Quote from Daal:

I guess I have some kind of consolation for not dodging a drawdown with this rally
One macro trader with a good record, Thiel from Clarium is still down about 50% from his 08 peak, his networth is mostly in his fund so he is taking a big hit.
http://static.10gen.com/businessinsider.com/~~/f?id=4a0c733814b9b93d00444e36

As I understand it he stayed short the US dollar after the summer and refused to believe it had turned, I was short as well but I didnt had much problem releasing as I had tried to pick the dollar bottom earlier a few times based on contrarianism

It seems that one of the most risky situations for a macro bet is when you make a lot of money and the market turns against you, you refuse to believe its anything other than a temporary move, the visions of more gains are just too enticing. I avoided that mistake in the commodity crash, I didn't in this financial/garbage rally but I still can't help to hang in there as it just that the numbers dont add up

Here's what one analyst said about one of my shorts MET
"MetLife has $32 billion of commercial real estate exposure versus $18 billion of tangible equity. Think of all those office buildings and shopping centers that are reporting record vacancies. I don't understand how MetLife can report these loans at more than 99% of cost. It ought to be more like 80% or even 70% of cost... And before it's all over, I think that's exactly what will happen."
More...
 
Quote from ralph00:

If we are to believe his public comments, Thiel was heavily short the GBP earlier this year - didn't work out too well.

Judging from the april stmt - Clarium is long gov't bonds, short equities, and has siginificant money placed on FX crosses - my best guess would be short GBP/JPY.
More...

Prime brokers GS and Credit Suisse, looks like his risk managers choose too big to fail insitutions. I wonder why he choose Bermuda as domicile instead of Cayman like everyone else
 
Quote from m22au:

I agree that in a free market, MET is a good short here.

However, as you know, these markets are seeing an increasing amount of govt intervention.
More...

m22au,

Jobless claims blew estimates, in this pace we are on track to 10.5% by year end according to roubini. In the 90-91 recession and in the 2001 the unemployment rate added another 1% after the recession ended, that would make it 11.5% this time, one could argue this time is worse which suggests 12% or one could argue it will be less worse because the government will pump more stimulus and government hiring will rise.

Either way the market doesnt even agree with the 10.3% stress test scenario(JPM wouldn't trade at $35 if it did), the treasury, FASB or bernanke cant prevent the market from finding out reality even though they are trying hard to mislead people, so I'm not too worried about TARP injections or PPIP
 
Interesting how people were seeing green shoots in the manufacturing data, this lastest NY Mfg survey is pretty bad in my view

The new orders index, by month of the report
Jan -22.8 Feb -30.5 Mar -44.8 Apr -3.9 May -9.0

Prices Received(proxy for pricing power in manufacturing)
Jan -3.4 Feb -20.7 Mar -23.6 Apr -18.0 May -27.3

If there are green shoots in manufacturing then how come they are being forced to slash prices like there is no tomorrow?Business is supposed to be about the bottom line net income, if they slash everything to $1.99 then new orders will improve(the second derivative at least) but the business will be doing badly

If the same pressure in pricing power is happening the the average US corporation then earnings going forward wont look so good
 
Rosenberg latest letter
http://pragcap.com/breakfast-with-david-rosenberg

I find this part the most telling "We should add that the just-released consensus forecasts published by the Philly Fed show that professional economists just trimmed their Q3 real GDP projections to a 0.4% annual rate from the 1.0% estimate previously"

This shows that market participants wont be detached from reality forever, which is one of the major reasons I choose the risk of a bigger drawdown instead of covering. Covering would only make sense if I were afraid of a stock market bubble, and I believe the odds are overwhealming against one developing, this is different from the tech boom where people could just close their eyes and hope their tech stock would have earnings next year, if the economy performs worse than expected then the stress test scenario will play out, goldman will earn $1b for the entire period, JPM loses $5b, C posts massive losses. The stock market HAS to tank lead by financials
 
Seems like the more Rosie, Roubini, Whitney, et al stomp their feet, the higher financials, cyclicals, commodity plays, ... go.

Markets are tough - you can be right some of the time, but never all the time or even a majority of the time. Nov 2007-Mar 2009 was their time in the sun, but its looking like their 15 minutes are up. I hope they used this time to cash in for themselves, because it seems they are headed down the Elaine Gazarelli path. I hope folks who listened to them (I for one) cashed in on some good trades during this period because it looks like its time to find a new guru.

Anti Rosie trades ...

Long financials
Long commodity plays
Long GBP or long GBP/JPY
Short T-bonds
 
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