I'm a bit uncertain as to the timing of it - maybe it has to do with Treasury's increased leverage (no pun intended) with the AIG board and executives. Geithner already ordered AIG to suspend its bonus payments for 2009, and will claw back bonus payments from 2008 (Bloomberg). Maybe it has to do with the Wall Street Journal receiving a leaked document with the identities of some of the counterparties, and how much they've received.
It's almost certain there will be public and political outcry when it's disclosed that JPMorgan Chase, Goldman Sachs, Merrill Lynch (now part of Bank of America), and a number of European banks have been paid out of taxpayer-supplied funds. Ironic, since these American-based banks also received tax dollars through TARP (and probably TALF, though that is still secret).
On Friday, I entered into a short position on US financial companies (through FAZ). The historical record suggests a selloff after four up days. Mondays tend to be a bit bearish as bears re-short various companies. (Similarly, Fridays have an upside bias as bears tend to cover their shorts to avoid the risk the Feds will announce a new bailout program over the weekend.) Additionally, I was not optimistic that the G20 finance ministers would generate substantive agreement on policy.
It looks like there is broad agreement in the communique, which, I should point out, was drafted BEFORE the actual meeting. However, it appears the meeting avoided problems predicted by the more pessimistic, with some agreement on global regulation and an increase in funding for the IMF. (The IMF funding decision will have to wait for the G20 summit in London in three weeks, but there are expectations that the heads of state will agree to a doubling of the IMF bailout pool to $500 billion.)
Because of my entrypoint, I am confident that I'll be able to exit the position at break-even if we continue the range-bound uptrend.
I may exit the short position and switch to long before earnings reports from the major US banks. In a terrible irony, the banks may surprise with earnings precisely because of AIG-underwritten CDS.
Friday was a doji day - meaning the market is trying to decide whether to rally or dive. Looking forward to details from AIG.
2 comments:
awesome blend of fundamentals analysis with eye towards technicals for trading! i'm so proud of how far you've come. very proud :)
Thanks buddy! You deserve a great deal of credit for whatever improvement I've made. :)
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