Monday, April 13, 2009

Bookkeeping: Closing Prudential (PRU) Short

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As stated this weekend, I am quickly running out of "bad charts" to short - so many stocks are running without relent. To be long you are forced to chase stocks up after huge moves, but it is quite painful on the short side.

The financial sector is on fire now that we will all wink and say nothing on the balance sheet matters - remember, the FASB change of mark to market will increase earnings by an estimated 20% across the sector as per the Bloomberg story we posted. It is quite neat when you can mark to whatever your own estimate is for losses... fantasy world.

But if it is right or wrong, or a farce or not - the hot money does not care and that money is bowling us over. If the government wants AIG stock to soar, it will do it. Such leaders as Fannie Mae, AIG, and Citigroup are taking us higher. Companies that would not even have a common stock if not for taxpayers.... joyous.

I am covering the last of my Prudential (PRU) short, we only had a 0.4% stake left and its a solid 20%+ loss, but only a few thousand in real terms (on $1M+ portfolio). Prudential and peers are the beneficiaries of a newly announced TARP bailout last week... the beat goes on.

With Goldman Sachs (GS) reporting tomorrow - and you know all the favors they have been given .... I would not be surprised to see another gap up and off to the races day. It is quite remarkable how this market has absolutely no resting points. I am getting squeezed out of short position after short position, which means when the retracement comes I will of course have very little short exposure...

I am now coming to the theory that those companies under the wing of government will beat expectations while those who have to deal with the real economy in a non fantasy accounting world will be the ones to disappoint. But with this week full of financial earnings - those are the ones subsidized by taxpayers, so I'm going to continue to hit the exits after chart after chart turns against us.

Marc Faber said it very well in this piece from Bloomberg
  • “You have essentially a government that gives financials free money at the expense of the taxpayer,” Faber said. “With this free money, they may actually have decent earnings in the near future.”
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