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Crises Opportunities

Shawn Baldwin from CMG in Chicago economic discussion of the capital markets and capital management

Crises Opportunities September 29, 2008     The package was defeated due to political, populistic pandering and patronization of the masses of the lower intellectual horsepower, Wall Street hating public. These geniuses still haven't figured out that these companies comprise their respective retirement portfolios. It will be approximately one 401k and/or mutual fund retirement statement before the general Presidential election—almost definitively insuring an Obama win.      The S+P (down 77), Nasdaq (down 145)and the Dow (down 540) have cratered — as I said they would last Monday—we are also seeing everyone starting to state that the package will not be enough (as I said last Tuesday)-this panic will create wild volatility as investors are unsure where to go. There are so many opportunities here that I am salivating as I write this. This will cause enough uncertainty between the time needed to go back and draft another package that will most likely require Wall Street to be equity investors along with the general public allowing the Statesmen to declare a victory and save their respective necks as their seats come up for re-election.    This uncertainty will create tremendous opportunities in credit default spreads and LDI which I will elaborate on later tonight. I was right on the ETN short positions, they have collectively yielded over 30% returns in the last week. The ETF's arent compiled but will swing dramatically upward after the new package is complete and the market has settled. This will be driven by the advisors who like the low fees, tax efficiency and the ability to move in and out. I got Wachovia completely wrong-I traded it out of it with a 20 to 25% loss on the position, it seems as though they will sell of the bank assets to Citi (Citi will use bailout money to pay for the mortgage package and they will not stiff debtors like JP Morgan did with WaMu), Wachovia will maintain the brokerage and asset businesses AG Edwards and Everen. This makes sense in retrospect since Bob Steele's job before being the Under Treasury Secretary was running equities for Goldman Sachs. Bet on the new entity that Bob Steele runs.     In terms of JP Morgan, Goldman Sachs and Morgan Stanley—I was completely right they all increased dramatically the next 2 days after I recommended them. These stocks should be bought at these levels, they will go higher, they will receive capital from Paulson and are in a position to dominate, I do not see dramatic upswing for the behemoth known as Bank of America but it will generate steady earnings for those focused on the slow and steady. As I stated previously—the pricing power that they have will be multiplied with fewer competitors. Their shares will accelerate dramatically in line with the value of the discounted assets they have acquired easily with no regulatory interference. In less than 30 days JPM acquired Bear Stearns and WaMu the largest thrift in the land sending it shares 11% higher in less than 4 days after I wrote about it. One of them will most assuredly pick up IndyMac and give their value a tremendous boost—I am just not sure who that will be yet. Rumors have floated that it would might be Goldman but I am unsure…it could be ex-Goldman guys. :)    With the redemption for Hedge Funds coming Sept 30 along with the ban on naked US short-selling ending Oct 2 —there will be several volatile swings for traders. Hedge funds will use synthetics to short specific financials further and the demise of others financial stocks have been guaranteed. Hedge funds are preying on the weaknesses of smaller hedge funds by continuing to short stocks to cause other funds more pressure and to accelerate their own gains. This will continue and is artificial pressure on the market which helps to exacerbate the problem.   At 388 Google is a buy—this stock is being punished due to over enthusiastic pessimism and it will surge higher before the quarter is out. GOOG is the tech leader and is poised to dominate all advertising. As many of you know I underwote the offering in the investment bank and I have commented on CNBC and accurately called the stock going to 700 when others were very negative on that possibility. With revenue over $16b along 5mm shares moving a day, a market cap of $126b and a PE of over 26x—it remains one of the best tradable stocks and in the early 400's. It is a STEAL and in less than 6 moths when it is over 575 you will wish that you had bought it.     

The commercial paper market will tighten as investors run for the hills since the question of when banks will be working again has been pushed back to an indefinite question mark. The Middle East has risen in power and deal-making strength. There will be no place else on earth where money is free flowing from excess liquidity. The European banks began to show their susceptibility to the contagion today, their real estate and valuation is already on a precipice and it will be pushed closer to the edge with these latest events.   Tomorrow will be a wild day as everyone tries to point the blame and assure the public at the same time. Trading opportunities abound in uncertain times.