Tuesday, March 13, 2007

here's the leg down

Subprime lending is moving into catastrophe mode and taking the rest of the market with it. I'm eagerly awaiting the capitulation but using today's weakness to build a bull put spread on Altria, my defensive name that should rally first after the damage is done.

The short trade in NFI, LEND, NEW (now delisted!) is over -- the whole world is short these guys; there are no shares to lend out.

Since this economy depends so heavily on the consumer, anything that threatens his profligate spending should be viewed with serious concern. A blowup of the subprime guys will definitely impact lending. This market should be down hard.

In the long term the bull case/goldilocks scenario remains. Plenty of guys are waiting for lower interest rates to make capital purchases and the labor market is still very tight. This leg down will be a terrific opportunity to move capital from the sidelines.

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