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Short Covering and more reading

Recs

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March 27, 2008 – Comments (1)

Bespoken's piece on short interest got my attention today.  Apparently 5.4% of the S&P is shorted right now.  Apparently the short interest is in the range of 52 week high in 9 out of 10 sectors.

So, there will be a few short covering rallies yet again.  I don't particularly follow the shorts and I've read this short covering rally stuff, so seeing the graph showing how much it has gone up surprised me.  

Looks like the China bubble has blown its top off...  In 109 trading days China has lost 40.8%.  It came down fast compared to the last S&P bear which took almost 2 years to reach a bottom.

I've said I'm out of the market for a year, so looking at and processing the information showing the length of time to unwind is good to know.

Ekkkk!  $1.1 trillion in second mortgage loans. CR has a post with more information on it.  The commentary on this one is quite good.

Financial Armegadon has  a post outlining the difficulty collecting on the derivatives.  Seriously, I'm at a point in my life where I think, why pay for insurance when they constantly screw you over on honest claims.  I've paid way, way, way more in insurance than I've tried to collect, but twice I've had an idiot hit my car and somehow insurance did not cover it.  That is just so against my understanding of what I was paying for.  I tried to make a claim for a broken pipe and water damage on my home insurance, denied.  Apparently they claimed that was a slow leak and leaks are only covered if you notice them immediately.  So, if it started slowly a week or a month earlier, your claim is toast.  My new home insurance was crap and we had replace balconies.  Anyway, they'll make you take them to court to force them to pay.

Big Picture has a piece on how homeowner don't accept the changing market and end up riding it all the way down.  I suspect they are also getting bad advice based on past perceptions that have not be corrected for today's realities.  Home prices have gone down in the past, however, never behind such a large bubble.  So, they go down 10% and they do turn around.  Affordability has never been worse and people aren't putting that into their analysis.  When I decided to sell my home, I priced it based on the market and I didn't go looking for a bigger gain.  I noticed my neighbour two doors down has his unit on the market for 10% more than what I sold at and I think we'd done more to our unit.  Who knows, Vancouver's market is still crazy, but if this guy is serious about selling, well, I think he's nuts.  In this kind of market I would not take a chance to end up chasing a market that is declining.  It was 4 months from when we listed until we moved out.

Mish had a post about Citibank and how they are fraudulently misrepresenting rates to clients. This one is a very good read.  They are trying to get clients to renew at a fixed rate of over 6% when the wording in their contract clearly gives the renewal rate tied to an index of bank rates.  The fed reduced rates and they benefit from it from the language of their contract and Citibank is trying to deceive them about it.  It is a good read.

1 Comments – Post Your Own

#1) On March 27, 2008 at 10:27 PM, nuf2bdangrus (< 20) wrote:

All of what you say is true, and I happen to be an avid Seeking Alpha reader, and noticed those articles.  Your experiences with insurance make me think of fine print, the stuff that always comes back to get you.  Buffet called derivatives weapons of mass destruction...and he's right...a perfect example of how we create a tool to minimize risk, and wind up creating much more of it.  MER is suing a counterparty who has cold feet, read -"can't pay".  They won;t see a dime for years, if ever.  Insurance people love to sell security, but hate to honor their words.  We can not now or ever live in a riskless world, as bad as our culture wants to.  Ironically, studies show that the more we try to honogenise and thus eliminate risk, the greater chance for a random black swan event.

 

These are interesting times.

 

As for the shorts, and I am one, they are right fundamentally....the harsh rallies squeeze the weak and late ones.  Hate em, but have learned to endure them.  Either cover early, or wait it out, as I did with MER, shorting at 44, and watching the pig go to 49, now it's under 42.  Fundamentals always trump technicals in the end.  

 

Good post.  You have done your homework. 

 

Ah, real estate prices falling?  We call that "price discovery", I wrote a blog about it a few months ago.  Price discovery for homesellers will begin to clear the market, but the bubble days of debt financed spending are over.  over 

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