Dead Cat Bounces
As I said yesterday, when the market started way up, that was the time to buy puts.
I do believe that the market will be heading lower - too much bad news is about to erupt. tax season is going to force banks and lenders to be honest about their losses. That will signal the next wave of dumping. Following fast on top of that will be whispers of earnings misses.
Are we through the worst of the liquidity problems? Yes and no. Thanks to massive cash infusion by the Fed, the patient has enough blood. The Fed has dropped rates fast and pumped $50B in 1 month as emergency loans. But the patient remains very leaky - the full scale of loan write-offs is about to be revealed - and that will still be low-balling the issue.
So we will see a lot of companies missing, especially consumer companies. And that will affect basic inventory and infrastructure investment by companies.
I'm thinking of a portfolio mix as follows:
30% Agriculture
30% Oil services
30% Global infrastructure
10% Puts or covered calls
You absolutely must expect a protracted and deep downturn and plan for it.
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On a side note, I almost suggested shorting Mastercard (MA).
* Lots of credit card defaults. While MA does not manage the debt (they just proces the charges), it does point to slower spending
* General slowdown in spending
* Too dependent on international travel - MA charges a whopping 3% additional fee on purchases made outside of the US. I think international travel will slow and reduce their take
But gas prices have surged 10% to $100 a barrel. Since folks pay at the pump with Mastercard, that's just handing them another 10% profit on gas sales. I can't find out how much they make on gas, but I bet it is enormous. And the increase at the pump is pure MA profit.
I do believe that the market will be heading lower - too much bad news is about to erupt. tax season is going to force banks and lenders to be honest about their losses. That will signal the next wave of dumping. Following fast on top of that will be whispers of earnings misses.
Are we through the worst of the liquidity problems? Yes and no. Thanks to massive cash infusion by the Fed, the patient has enough blood. The Fed has dropped rates fast and pumped $50B in 1 month as emergency loans. But the patient remains very leaky - the full scale of loan write-offs is about to be revealed - and that will still be low-balling the issue.
So we will see a lot of companies missing, especially consumer companies. And that will affect basic inventory and infrastructure investment by companies.
I'm thinking of a portfolio mix as follows:
30% Agriculture
30% Oil services
30% Global infrastructure
10% Puts or covered calls
You absolutely must expect a protracted and deep downturn and plan for it.
----------------------
On a side note, I almost suggested shorting Mastercard (MA).
* Lots of credit card defaults. While MA does not manage the debt (they just proces the charges), it does point to slower spending
* General slowdown in spending
* Too dependent on international travel - MA charges a whopping 3% additional fee on purchases made outside of the US. I think international travel will slow and reduce their take
But gas prices have surged 10% to $100 a barrel. Since folks pay at the pump with Mastercard, that's just handing them another 10% profit on gas sales. I can't find out how much they make on gas, but I bet it is enormous. And the increase at the pump is pure MA profit.
posted by Andrew at
3:35 AM
1 Comments:
I liked your post on the puts.. We would like to see more posts on Options strategies.
On a different note, as predicted $ didn’t take a beating after the rate cut. I was following the Rupee v/s $, during the rate cut Rupee was 39.10 now it moved to 39.90. One reason being FII’s pulled out from the Indian market and there is less $ inflow against the outflow. I would expect $ to appreciate further in future because US will be done with the rate cuts in 6-9 months time whereas globally all countries still on a high interest regime. After 1 year, interest rate can only go up in US since there won’t be any scope for further rate cut barring a severe recession. But interest rate can only come down in countries like India to offset the loss.
Some of the outsourcing companies like CTSH & Infy might benefit in these conditions in future so buying 2010 calls may be a good idea?
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