[Jul 10: Whose Bottom Will this Be? Lehman Brothers (LEH) or Fannie/Freddie?]
Once again I reiterate what I've been saying over and over - I'd be short Freddie Mac (FRE) (and up 40% in 2 days) if I could be. I'm on the opposite side of this trade from Bill Miller who I truly wonder will be forced to resign after this move [Aug 13: Bill Miller Continues to Boggle Me - Increasing Stake in Freddie Mac] I'm not sure how he is sleeping at night after adding 30M shares of this disaster on top of the 50M shares he already owned. Frightful.
There are some incredible profit opportunities on the short side - frustrating not to be able to use them to add to the portfolio. 40% gains don't come too easily on the long side. I'm not sure if by the time we are up and running for real, that we'll ever have such "easy" opportunities as are being presented right now. A lot of regional banks are going to be kaput too in under 6 months. But this one (FRE) is like a softball - I don't think it will ever get back over $5 again. (below $5 a stock is not shortable) I do expect some crazy gyrations as it turns into one of these nonsense stocks that can pop up and down 20% a day, but the roadmap of eventual landing spot is clear. As for Lehman, if it breaks that July 15th low the hedge fund computers will pile in on the short side even further purely on a technical basis. Hanging by a thread. That one could go either way - as I wrote last month I think the Federal Reserve now wants to show it will actually allow someone to fail and since it cannot be Freddie or Fannie it might be Lehman as the sacrificial lamb OR some foreign company might swoop in and buy Lehman for $5 or something like that.
The fact our market is even near to being "flat" when we are on the trail to losing a GSE (or as I believe both) is beyond amusing. People are obviously numb and in denial of just how bad things are. Err.. I'm sorry "it's all priced in." If you said this would be the outcome a year ago people would call you crazy. Now it's becoming "priced in" - hah. What a mess we've allowed.
So again, whose bottom will this be? Lehman or Fannie/Freddie?
Long Freddie Mac puts in personal account
5 comments:
In case it makes you feel any better, theres no borrow on FRE and hasn't been for some time. So even those of us who CAN short haven't been able to profit from its decline unfortunately.
PUTS.
Can a mutual fund play with options? Shorting calls (naked) and buying puts with the cash from the short-calls have the same effect as shorting directly. I can do this in my self-directed IRA, no issues.
You can buy also puts directly without shorting the calls but you risk time premium and some stocks have high I-V making this an expensive gamble.
I can do anything that does not create leverage
meaning I cannot sell calls or puts but I can cover common long with puts or buy naked calls or puts
Which I plan to do.
I big win like ANR from 40 to 90 in 60 days with a 1% exposure in the fund would make about 1 year worth of return for most funds ;)
I'll just do it for 5-7 names and limit exposure and use long dated calls (LEAPs if available) but if you hit just a few a year you can add a nice 3-5% to annual return.
I look forward to doing that since I feel like I have 1 arm tied behind my back in this current system.
Basically I'm going to be running this with as many bells and whistles that the SEC allows. The main difference between this and a hedge fund is the inability to use leverage and the much heavier regulation and restrictions. Also of course you cannot buy things like distressed debt in a mutual fund (not that I have any profiency in that) And another difference is whom can invest in mutual funds versus hedge funds.
But I plan to run very differently than the crowd. If it provides success or not we'll have to check back in 5-10 years.
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