....the last six months of the Bush administration will mark one of the greatest periods of systematic looting in American history. Never again will so many assets be handed off to regulators and corrupt apparatcheks for “distribution” to the privileged.
To facilitate this looting will require taking the banks all the way down to ultimate support to grab the lowest hanging fruit.
In asking the question of who gets looted and who gets the distressed pickings, I think it is important to consider who is most exposed. The answer is the investment banks who have thin capital bases relative to their fictitious capital holdings and obligations. The biggest plum of all are the assets of GSE’s Fannie Mae and Freddie Mac. Therefore I think we are going to see them dropping one by one like flies. And it really does look like the next crisis is Lehman Brothers. It is not that LEH is terribly more exposed than the others, it’s just that they apparently drew the wrong straw.
The wrong straw is the long straw, we want to be short the financials on this fundamental basis. We will trade the sectors technically, but the reason for the trade id a fundamental one. So, the stops will be very lose and the position sizes will be bigger to begin with and will accumulate faster as the trade progresses. I call this a blind short. If and when profits are made they will be taken, but we will stay in with puts to be safe and still in a position.
We will start with the usual suspects Merill Lynch (MER) and Lehman Brothers (LEH).