The Credit Crisis Financial Stocks Short Journal

Discussion in 'Journals' started by Daal, Aug 14, 2008.

  1. Daal


    This journal will be to report short ideas in financial stocks
    I dont think they have bottomed and have further to go down, if they did bottomed then I just going to have to lose some money. When they do bottom or when I decide I wont short them anymore then I plan to close the journal

    My current short list is order of confidence is

    I also own puts on $2 JAN 2009 on MBI.
    The largest position is on the GSEs and they are bigger than the other ones combined
    Needless to say today has been painful, I dont use stops but I do decrease my positions when they go significantly against me and I dont have a strong view.
    MBI soared today but I this is a stock I really have a strong view and the position was decreased in the past so I'm confortable letting it ride(I had it go against me 40% one day, talk about pain)

    Please feel free to post short ideas and specially the reasoning behind them, I could also go into further detail on the reasoning behind the shorts if anybody wants it
  2. eagle


    Since the last spike dated on June 12, 2008; MBI has soared 100%. While WB (2008/07/22) and WM (2008/07/15) have gave up gain. FRE and FNM, no spike has been spotted.
  3. Daal



    FRE FNM - Around $1 to $3 a share. I'm highly confident there is significant downside in these stocks and big dillution looms around the corner when the treasury infuses capital and deals with 'moral harzard'. Expecting nice gains from this position

    MBI - $0 a share. Even if the management is right that they wont be clobbered by their CDOs and other synthetics(which is doubtful) the holding company(not the bond insurer) is insolvent at the moment due their GIC business. more downgrades could lead them to a liquidity crisis, nobody is rolling over debt with the holding company at this point

    WB - $4-$6 a share - the CEO is saying he doesnt need capital, thats music to a short seller ears. They have $120b on pay option arm that might lose them around $30b, yet he assumes it will cost them around $10b. A selling panic could drive this stock WAY down. its probably the position whos got the most potential in the short-run, but it will be a bumpy ride

    WM - under $1 a share.
    I believe there is around 20% chance that WM will be the biggest bank run the US has suffered in DECADES, they will make indymac look like a busy day.

    They cant raise capital without destrying the common and there is not a catalyst that will help this company, NONE(except for a crazy takeover). I mean housing is not coming back for at least 9-12 months. They have $50b in pay option arms which they will of course get clobbered.
    Commercials are already pulling the funds out, I will be shocked if they didnt lose signicant retail deposits this quarter with all the negative press
  4. Daal


    Short squeezes

    Dont be fooled by the massive rallies financials pull every once and a while, if you look at a chart of XLF EVERY rally was a shorting opportunity dont think 'this time is different' because things are up 5% or so, its a trap. in fact when things are rallying really hard and everybody is bullish thats pretty much the LEAST risky time to short financials but it does take some courage, you can decrease your size to deal with the volatility
    I'm expecting at least one more 35 vix and 'sell all my financials please' bottom this year, but it could be two or three
  5. eagle


    Zero for MBI? You must be kidding or I might miss something here. Applying the fundamental abstraction, the price run-up recently wasn't convinced anyone that it was purely a short squeeze.
  6. m22au


    First of all I think DSL, VNBC and BKUNA are toast, but since these are under $100 million, they don't provide as much opportunity as bigger companies.

    My list, in order of confidence is:

    FRE (still waiting for that $5 billion capital raise)


    WM (death spiral financing with TPG earlier this year)

    These three (still) provide great opportunities on the downside, despite losses over the last year.

    They basically trade as $0 call options with unknown expiry dates.

    In the unlikely event that WM survives the next few years, then the short squeeze will be huge.

    Then some secondary ideas:

    LEH (dubious assets on balance sheet)

    MER (probably in better shape than LEH, given recent sale of dodgy assets)

    WB (pay option ARM portfolio, as discussed by Daal above)


    Also, does GM count as a financial company?

  7. Daal


    I agree that it isn't a short squeeze. the market seem to be pricing in the possibility that the insurers will unwind their exposures at smaller losses and that will save them. but on the mbi there is also the GIC thing going on. if moodys downgrade them, this will keep putting pressure on their liquidity. they have debt that comes due every month up to 2010 is not being rolled over(their SIV is being unwond) and these guys are talking about buying back stock. their source of liquidity(the bond insurance subsidiary) is being held hostage to Dinallo so the holding can run into trouble

    the problem is the market might shake me out of my shorts before it goes to $0. those rallies are so persistent, I wont, however ,sell my puts with a gun to my head. if the ceo mention words like 'deterioration in our exposures' 'unexpected increase in credit impairment' 'liquidity issues', the stock will be down 50-80% so fast it will make everybodys head spin, it happened before

    as a side note, I expect the barron's article about the GSEs to gap them down today. if this continues then they will make equity issues virtually impossible and guarantee the destruction of the common, expecting nice gains there
  8. m22au


    Revised list:

    LEH, MER, WB, RF

    New addition: AIG

  9. eagle


    Good reasoning. Thanks for your explanation.

  10. Daal


    FNM and FRE are moving down significantly. I need to make sure this kind of success doesnt influence my trading, it looked like one of the easiest trades I've seen and it turns out it was but I always need to remain careful. MBI looked extremely easy too and that didnt turn out too well. Massive rallies happen for all kinds of crazy reasons, in the case of MBI after the MLK holiday it was rumors of WRoss buying the company, that mbia was too big to fail and a barrons article saying they were golden.
    They were all wrong, but it did sent the stock from $7 to $17 in a short-period.

    Its amazing the degree of optimism the stock market brings on people, its wishful thinking at its finest, only daytrading newbies can beat this

    btw, m22, whats you case for shorting AIG?I always assumed I missed the boat there and it reached valueland(David Swensen was buying etc) so I never looked for their exposures,leverage,etc
    #10     Aug 19, 2008