Bookkeeping: Starting Regions Financial (RF) as a Bailout Trade

I'm starting to run into problems in terms of compliance with Marketocracy.com ; by rule I can't have more than 35% cash, and can't have more than 25% in any 1 position. I'm running against the threshold in both - since I'm using SHV (a short term bond ETF) as a cash equivalent - meaning I'm actually near 60% in cash or "near cash equivalents" :)

For investing purposes once the toxic paper is taken away from the banks and into your wallet the market should cheer that, and run up banks - I prefer for INVESTMENT purposes, some names we've mentioned in the past - the larger regional financials such as Wells Fargo (WFC), BB&T (BBT) and PNC Financial (PNC). These companies still have a lot of issues ahead of them, but the market has "spoken" and they are willing to look through years of impaired profits and credit contraction and run into these commercial banks.

The smaller regional banks are more of a risk/reward and more of TRADES (not investments). Since I'm wary of this market, and it's not an investors market, I'm simply looking for trades to put some of this cash to work. As I wrote earlier sometime before Friday and Sunday I expect the mother of all bailouts to pass and the "free market" capitalists to cheer that the nanny state is here. It won't be quite as much of a doozy as last week (up 8% in 1 day and 1 hour) but a nice 3%+ move should not be out of the question.

To that end I was eyeing Regions Financial (RF) mid week last week as I thought central banks would do a coordinated rate cut (instead we got the mother of all bailouts) and RF ran from $10 to near $20. Needless to say I was a bit peeved I did not put on that position. Now Regions has dropped all the way back down to upper $12s, so I am going to give this a try on the second iteration of the bailout. Plus I have the government on my side as no one is allowed to short it. So I'm just using this one name as a proxy for the group; there could be any number of nameless, faceless smaller banks that could fit the bill.

I'm beginning Regions Financial (RF) with a 3.3% stake in the $13.10s. I'll be out post bailout and/or hopefully somewhere near $16-$17 on "bailout euphoria". Hopefully by next Monday at the latest.

Not that it matters but here is their last earnings report

The reason this one came to light (on my radar) was the FDIC gave Regions the assets of failing Integrity Bank, which means for better or worse (depending on how much you trust the FDIC which did not even have IndyMac bank on its troubled bank list a quarter before it failed and still does not have Washington Mutual on its list) - the FDIC trusts Regions.

• Shares of Regions Financial Corp. jumped Tuesday after the regional bank assumed $900 million in deposits from a failed Atlanta area bank. Late Friday, federal regulators declared Alpharetta, Ga.-based Integrity Bank insolvent and the Federal Deposit Insurance Corp. was named receiver. The FDIC later approved Regions' assumption of $900 million of insured and uninsured deposits.
• Birmingham, Ala.-based Regions will serve 23,000 accounts of Integrity Bank and will take over operations of Integrity's five branches in Atlanta, effective Tuesday.
• nalysts generally viewed the transaction as a positive for the bank. It provides Regions with additional deposit funding, which in turn boosts the company's liquidity, said Sandler O'Neill & Partners analyst Kevin Fitzsimmons, who upgraded the stock to "Hold" from "Sell." The deal also adds to Regions' market share in Atlanta, and provides the bank with new customers to whom it can sell additional products, he said.
• What's more, the transaction validates the soundness of Regions. "With the market on high alert for signs of stress at banks, we view the FDIC approval of Regions to assume the deposit accounts of Integrity as an indication that Regions itself is deemed to be a sound institution by regulators," wrote JPMorgan Securities analyst Steven Alexopoulos in a note to investors Tuesday.

Again this is just a trade based on the coming bailout - if I were investing I'd choose one of the 3 banks above. This is a volatile name but keep it in the context of a portfolio chock full of cash and avoiding both risk on the short or long side in a market that can be up or down 3% in seconds based on news events coming from Washington D.C.

If I'm wrong and the bailout dies for whatever reason, obviously we'll take a hit here. But with the President going on prime time tonight to tell you how important it is we bailout those who got us into this mess, and that in the long run "there is a wonderful chance we'll make serious change on this investment!" I doubt the bailout does not pass.

Long Regions Financial in fund and personal account