Short financial stocks using 3x Inverse ETF, on margin --> FAZ @ 9.24
This trade is based on a few different ideas. Technicals: the spectacular run-up in stock prices with barely a breather since August, equities are a little overbought, and provided a catalyst, a correction to the 50-day MA seems possible. The catalyst? Spain and Portugal have bond auctions this Wednesday the 12th. Last Wednesday, Portugal placed ?€500? of 6 months at I think over 3.5%...anyways, it was a completely unsustainable number, and it looks like it may spiral. Euribor is steady/declining (liquidity courtesy of the ECB), but PIGS yields and CDS spreads are widening, as well as 2-year swap spreads (the highest since the Greece crisis last May). The choice of shorting financial stocks in particular is based on the Massachusetts Supreme Judicial Court ruling yesterday that is likely to cause certain foreclosures (see the Court's opinion - a good read - see below) in title-theory states (about half the states) to be voided. This is more of a medium-term theme, only because I don't think most people will see the significance of the decision right away.
Key risks:
- Path of least resistance for stocks is up, so without a catalyst, the market will likely grind higher. For example, if China does buy the large amount of Spanish, etc. bonds that it has suggested it may, that might keep the lid on the crisis for now. Close attention will be paid, and my eye is on the exit door.
The case can be found on the Massachusetts Supreme Judicial Court website:
The case: U.S. BANK NATIONAL ASSOCIATION, trustee vs. Antonio IBANEZ (and a consolidated case). For ABFC 2005-OPT 1 Trust, ABFC Asset Backed Certificates, Series 2005-OPT 1. [FN3]). No. SJC-10694.
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