Fat Shorts - COF & HI
Look at COF, which is following Providian (PVN). BOth do credit cards, with lots of sub-prime customers.
Providian has a higher loss rate than COF, and PVN has warned.
Possibly folowing behind that is Household (HI) price 57) January & APril puts on HI are available at reasonable prices.
I will be buying HIMJ (Jan 50 puts) and HIPL (april 60 puts)
Household is not so much sub-prime, but still low end lending
How to evaluate - when the sub prime business is good, these companies sell for 3 to 6 times book value.
When sub prime business goes bad, they come down to 1.0 to 1.5 times book value. Also, book value drops slightly with negative earnings - maybe a few percent.
Even if the economy recovers tommorrow, consumer BK and slow payments will continue to rise until February-March - it tends to lag.
Most of the stock are held by insitutions, and as the see the sub prime market slip, they will dump ALL these companies and go hide in regional banks or T bills.
Most of these ideas came from Grant's & Forbes, who have seen some credit cycles.
Check out the charts for PVN (swan dive) then plug in COF (dropping) and HI (slipping)...
stockcharts.com[l,a]dhcayimy[pb50!b200!i!d20,2!f][vc60][iUb14!Lw14!Lc5]
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