The Credit Crisis Financial Stocks Short Journal

Tilson is long and likes BP
http://www.cnbc.com/id/15840232?video=1516597145&play=1

Says liabities are pre-tax charges and BP makes a ton of money

 

Tilson makes a strong case here. Says they have $30b a year in pre-tax earnings, how can that not be enough?
Even if the company were to lose money for a couple of years, that wouldn't make the current price a steal but if thats all the downside there is, its a good bet
Not to mention there is a chance the spill will be contained earlier than some think

Also with so much fear, the odds are that the market is mispricing the shares to the downside, its what markets do, over and over again. Considering a long there

 

It had small EUR short coming into today but I increased quite a bit through the day, even though I believe it might just rally hard. I'm kinda forced to, as I'm adding some bullish bets I need to have some kind of hedge in the form of a positive expectancy bet that is negatively correlated. I'm also doing the 'bottom pick the S&P500' short-term trading game more often, and being short EUR helps to cut down the volatility

 

Nobody said this game was easy ... Many are called, few are chosen

 

Amazing move by Lampert
http://www.businessweek.com/news/20...-payout-may-shield-him-from-tax-update1-.html

Distributed stock from his hedge fund to himself in order to avoid the end of the carried interest tax. Good example of intelligent tax planning. The 'trust' idea and state planning probably helps a ton for any chance of the IRS coming on this loophole since they would be unable to prove the sole purpose of the transaction was to minimize taxes

 

Krugman has some arguments against US fiscal austerity
"So how much we spend on supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental budget picture. Why, then, are Very Serious People demanding immediate fiscal austerity?The answer is, to reassure the markets — because the markets supposedly won’t believe in the willingness of governments to engage in long-run fiscal reform unless they inflict pointless pain right now. To repeat: the whole argument rests on the presumption that markets will turn on us unless we demonstrate a willingness to suffer, even though that suffering serves no purpose.

And the basis for this belief that this is what markets demand is … well, actually there’s no sign that markets are demanding any such thing. There’s Greece — but the Greek situation is very different from that of the US or the UK. And at the moment everyone except the overvalued euro-periphery nations is able to borrow at very low interest rates."

I have some disagreements with this. ''even though that suffering serves no purpose'', it actually serves a big purpose, it shows that politicians inherently biased to spend are willing to stop doing so, this is similar to the Fed outlining their exit strategy which helps to control inflation expectations. There is nothing irrational about it.

Lets say a fat guy(who is your co-worker) says he havent eat in 24hrs and he is going to the supermarket to buy some food, he needs your money, you know he needs that to survive but you also suspects he is likely to go into a eating binge and buy everything in sight, that might make you nervous, maybe you dont give him the money. But if he outlines a health plan and which foods he will buy and furthermore asks for a limited amount of money(cutting down unessentials) he sounds more credible, perhaps you will fund him now. You understand that funding him is important as he helps you make money but if you just give money without any regard he is going to die of heart disease, so you HAVE to try to compliance from him by getting him into the right path. If markets aren't 'reassured' by the government, they start to believe in worst case scenarios, we just saw that with Hungary. So the Krugman policy might work in textbook theory(where everyone acts rationally, how ironic) but in the real world it doesnt

"And the basis for this belief that this is what markets demand is … well, actually there’s no sign that markets are demanding any such thing"

The evidence is the move in CDS prices that Krugman seems to be blinded to even though the same measure is widely used to explain the Greece situation. Its still low but its on a up trend, just like a tons of EU nations were a few months ago

 

There is another flaw in the krugman argument, he is looking at the gov debt performance during a period of verbal fiscal austerity, as the WH has made it clear they want to decrease the deficit(whether they will follow up is another matter), not at the performance with the government saying they will borrow and spend as much as they want. As Hungary shows, what the gov says matters

 

Another reason is that w/the stock at 10 and falling, there is little to no chance of raising capital, and any capital raise that actually gets done is likely to be very dilutive. At 20 and rising, a capital raise (if necessary) that does not screw over the existing shareholders becomes much more likely.

This is Soros' reflexivity rearing its head. The simple fact of a rising stock price actually creates its own condition for a healthier company and continued share increases.

 

True. This seems to be a big factor specially when debt/leverage is large, which might mean that the tails are more likely than its implied in options prices during those periods. I tried to profit in the H2 of last year by buying puts in XLF but I forgot to buy calls as well. I threw at towel after a while but buying volatility on dips will probably a new trading theme I will follow

 

From Rosenberg, this seems to be a version of the Hussman study
"It’s been a painful 30 days for equities with the S&P 500 down about 13-14%. In the past, such a sharp sell-off didn’t usually end well, unfortunately. We dug through the history books, looking at the past 70 years and found that in the 21 instances when the S&P 500 fell 13-14% in 30 days(note: this probably triggers the leadership reversal that Hussman indicates), the market sold-off by an additional 10%, on average. This happened in 18 of the 21 instances that we studied (in other words, 85% of the time when the market was down by 13-14% in 30 days, it continued to slide). Each cycle may be different, but it always pays to tip your hand to the historical record."

Next stop, ES 9xxish