Saturday, March 15, 2008

Crisis of Confidence

I don't think anyone wants to be Christopher Columbus in here, meaning lets be the first ship that tries to go see if the world is flat or round. Flat would have been bad for Chris. My meaning is, who wants to be the first to jump in the pool next week? I said on Wednesday that there was a substantial amount of Morgan Stanley puts bought and Lehman showed huge out of the money put purchases yesterday. The put buying in Bear Stearns proved spot on in the last two weeks. Tells me the Street thinks more shoes may drop, maybe not, but they are certainly backing it up with big money here. Most of these situations don't just end in writedowns, they end in mass liquidations and flat out bankrupcies. If something goes wrong next week with Lehman or Morgan and they face the same issues as BSC (which I doubt by the way) who will the Fed turn to as a back stop this time? Bank of America, Wachovia?

In the STUPID MOVE OF THE WEEK category, Mr Lewis,considered smart money by many, who is about a 10% owner of BSC at prices about 300% higher than Fridays close financed a big part of his purchases by SELLING PUTS in BSC. This is considered a bullish trade that produces income. In other words the puts go lower if the stock goes up. If the trade works it's basically free money and you keep the premium, if it doesn't you are a dead man. This makes buying a 700k home on a $30,000 income with no money down look conservative


About Me

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I am a former hedge fund manager, broker and capital markets dude who now trades for his own account. I love what I do. I will try to post some stocks and an occasional chart that looks attractive for entry.I will also try to point out the idiocy of conventional wisdom and the lack of value added by the mainstream financial media. These postings should not be viewed as recommendations.