Thursday, February 19, 2009

Re-opened short positions.

Most of the details of Geithner's plans (and when I say "Geithner" I really mean "bank lobbyists" because the man is somehow beholden to them despite not being an elected official -- just like Paulson was) are still completely hidden from us, but in a broader scope I think the writing is on the wall. The stimulus bill was signed into law and the housing bailout was announced, so I am now comfortable enough guessing the direction of the government to reopen my short positions. I have once again taken out a heavy position against SSO, which is a 2x leveraged fund tracking the entire S&P 500. I have also sold short a small position in FAS just for fun (a 3x leveraged fund tracking the Russel 1000 Financials) and I have purchased $25 puts on KRE, the regional banking index.

I believe KRE will greatly underperform the overall market because it consists of a lot of regional banks which will fail and are not big enough to be bailed out by the taxpayer, and it will also fall when investors see a few of the large banks being nationalized pre-privatized put into pre-conservatorship with a cherry on top.

I'm happy to be in my short positions again. It was frustrating sitting out while waiting to see how the government was going to handle itself, especially as the market started realizing how poor the plans were and stocks resumed falling, but I believe it was the right thing to do given that I wish to be an investor and not a trader.

The market is still trading at more than 10 times earnings, and earnings have a very long way to fall in the next six months.

Again, my positions:
Sold short SSO
Sold short FAS
Purchased $25 puts on KRE

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