Tautology of the Skeptical Sinner

In other news, Bernanke also believes that the Bigfoot body was not a hoax.

Personally, I’d listen to Buffet more than the Fed chairman. This is nothing but another straw for the bulls to grasp at, boys and girls, nothing but a self-delusional bear market rally.

Next week will be a little up and down, but when we push past September, its going to be a Dark October.

It’s a great time to be short on financials.

(I’m short on Bank of America corp at the time of writing)

First off, let me open by saying “I told you so“.

Financial whizz, Kenneth Rogoff, stated in an interview today that he anticipates “The worst is yet to come in the U.S.,” (source) He expects a major bank to go bust in the next few months.

As we’ve seen (July 15th, anyone?) any time even a small bank goes pop, financials get hammered.

“The degree and depth of what’s happening in the financial industry is beyond anything we’ve seen in decades and it takes time to get your arms around the severity of what’s happening and what the long-term and short-term ramifications are,” - said John Merrill, chief investment officer at Tanglewood Wealth Management. (source)

Never mind Freddie and Fannie getting hit hard by the potential government bailout… there’s more to come…

If anyone is still under the illusion that we aren’t in a bear market at this point, move along, you’re not going to be any further convinced here. But for those of you who realize that important factoid can appreciate the short rallies we see are really false ones and that there is going to be a big drop coming, no matter which bank gets hit with bad news.

As a result, I’m holding aggressive shorts on Bank of America (NYSE:BAC) - the one bank thats trying to convince us that everythings okay. The one bank that kept its dividend the same. And the one bank that happened to buy Countrywide earlier this year.

Yes, I know, I know… they’re saying that all of CWD bonds and liabilities are contractually excluded from affecting them because of the way the buyout was engineered, but you can’t buy a lemon without ending up smelling a little citrusy. My money’s on investors finding out the hard way that they’re not as protected as they’re saying they are.

I’m counting on a strike price of $17.50 sometime between now and November 22nd, and with a put position of  $22.50 currently at $1.72 that’s going to yield an almost 300% return. (I got in at $1.15 during a nice little delusional rally).

Given the drop BAC took during the failure of IndyMac.. (Down to $18.44) I don’t consider this unrealistic.

If you’re still hoping the Fed may magic up engineer a miracle rally and want a little more time to save your position, go for a Jan 09 short position.

As always, remember, any option trading can be considered a high risk position, so be sure to allow for that risk to be part of a balanced trading strategy unless you want to end up like the financials are now.

Ahh 80’s geekiness revisited with relish, Karate Kid 1 and 2 available now on hulu.com - wax on… wax off.

Classic.

While I’m thankful that confidence is surging again, I’m too plugged in to the economy to think that this is anything but a short term Bear Market Rally.

Don’t people read? Can’t they hear the desperation in the Real Estate and Automotive sectors? Don’t they understand that the tangled mess of the Subprime CDOs is still ready to bite?

I’m short on Citi and Bank of America, and I expect them to both drop substantially by the end of the year.

I don’t mind if I lose money on these options, because if I do - it will mean that the financials did manage to get their sh*t back together and that the economy won’t be in the deep freeze for much longer.

I’m going with a blend of Puts (Options) with Citi and Bank of America, Jan 09 date on the expectation that the value of these options will rise.

.CMC - 15.00 Strike Price (Meaning a 25% drop or worse, in the stock price of Citi between now and Jan 09) - Currently trading at $0.93 - I imagine any seriously bad news (Which I’m expecting) will put the value of this option up to $1.50 or more for a 50% + gain.

.BACME is another one I want to get in on, but the price right now is a little more than I would like. Its a strike price of $25.00, and trading at $2.04 today, meaning that Bank of America shares need to fall $8 - I would expect these to go as high as $4.00 if Bank of America gets more bad subprime fallout. My target price is around $1.80 before I buy these puts.

If you’re not familiar with Options, please keep in mind that it is essentially gambling. Never work options if you are unfamiliar with the risks.

If you’re looking for a long hold investment, I’m liking ACI - they’re coal, and if you don’t think that the Green Revolution is going to fly all the way, they’re definitely a sound long term aquisition as an exporter of coal. A Strong dollar, or Agressive Eco-legislation will push the price down further, but ultimately, Energy is a long term growth product, and there are tons of coal burning power plants around the world.