Market Panic July 11th

Below is a post I sent as an email to various friends in the middle of the day on Friday, the 11th of July 2008. I am posting it here for fun and completeness.
I stand by my predictions.. this time I will beat my chest a bit more since I had talked about these on my blog


1) S&P going to 1100 and Dow going to 10K before 3 months are up. I think it will bounce back though in the short term- i.e. the next week. This is a classic case of everybody collectively putting their heads in sand and then realizing it was a bad strategy as they get hit. I think overall we are going DOWN... Right now everyone is panicking but Bernanke and Co. will resuce us again the market will bounce back a bit and then go down slowly again.

2) It is interesting that today is Friday which is BAD for a market meltdown starting early in the day since there is enough time to panic and NO one wants to go home long ! As yahoo finance says- Investors have little reason to shop for bargains Friday because many financial companies are reporting results next week and are expected to announce another round of big write-downs. I say- Thus today could be a full fledged panic and this time I am talking REAL panic. FNM and FRE are central to America. This is not an I Bank failing ....

3) I expect home prices to fall severely actually across the global markets.

4) SHORT TERM: Govt. is caught on the wrong foot I think. They have to come out and say they will save fannie and freddie but they don't want to totally SAVE it either! There is a limit to what they can save. I think though that the two days weekend will give the govt a chance to say something reassuring on MONDAY or over the weekend most likely. I also expect politicians to say something and put pressure to save FNM and FRE. This is Mr. Bernanke's worst case scenario or approaching that anyway...So far he has done well I think but he must stay up at night thinking INFLATION....

5) Long Term This is going to severely dent any confidence the average investor has left. I won't be shocked to see people buying bonds and pension funds getting out of the stock market in larger quantities. I expect HFs to get long vol quickly. So Vol will spike, esp. as everyone and their mom will buy puts.

6) Beginning of the bigger recession coming...Many credit card companies, Home Equity companies are going to have a very hard time.

7) Indicators- VIX is at 29. I expect VIX to go to 35-40. You can check the bid/ask spreads on FNM and FRE on Etrade or whatever. It is awesome... the bid/ask is wider than the price!!!

the Awesome thing is that USDBRL- brazilian real is APPRECIATING against the dollar. I still like being long BRL! Right now USDBRL is at 1.6-1.7 levels. Typically in times of crises it goes to 2.5. Turkish Lira is going to hell in a handbasket.

Cheap PuntTrade Ideas:
1) I am trying to buy FNM and FRE at 3.1 and 2.1 dollars. DO NOT pay more than 5 at any rate. it is a cheap punt for s**ts and giggles.

2) Short Goldman stock - too high at current levels. Buy some puts on it.

3) 5) Inflation will be the BIG deal- in the US, UK, China, India. Buy some Gold calls but the train has left the station a bit so wait for the bounce back in the stock market and fall in Gold. Inflation is coming. You can sell some puts on Gold or buy call spreads - but the bid/ask will kill you...still worth a shot if you think inflation is going to be as bad as I think it will be.
4) Oil is going to $175 before the year is over. Esp. if a hurricane comes. No speculators are not at fault... :)
5) Would short the dollar againt NZD and AUD and JPY
6) Long AUD, CAD and Oil producers all commodity producers for the next 1 year. After that short....
7) Short Indian and Chinese stock market- long Brazilian and Russian stock markets.
8) short credit card companies ( yes STILL bearish them. Their losses will come to head in about 4-6 more months and their defaults will climb. Until then they will hide it.)

Enjoy the mayhem... it is sad but educational