The market will roar tomorrow.
Now here's my advice - sell any and all financial stocks - anything that may have written CDS in the market - into the spike tomorrow.
Do it at the opening bell, and do not look back.
Here's why:
By getting warrants that massively dilute existing shareholders what Paulson has done is paint a target on the back of every financial firm in America.
All of them.
Let's say I'm a Hedge Fund. I want to make a billion dollars.
I pick on, oh, Goldman Sachs. I know they wrote a bunch of CDS. I, and a bunch of my hedge fund buddies, short the firm's stock into the ground.
Eventually, this will force a ratings downgrade. As soon as it does, Goldman can't make the capital calls on the CDS, and is forced to ask for help.
They get help and the common stockholders are wiped out.
I, Mr. Hedgie, say "thank you very much" and cover my short at a huge profit.
Then I repeat this with the next firm.
I get rich and buy me a new yacht, while the common stockholders in the firms are destroyed.
This will happen to every firm in America as soon as this is figured out by the Hedge Fund community, which, incidentally, will take less time than it took me to write this and record the attached video.
Sell your financial stocks into the spike tomorrow folks. No firm that is "seriously interconnected" in our financial system is safe from this, and this "risk" was wholly manufactured by the actions of our government this evening.
You've been warned!
PS: Here's the press release. 3 Month Libor (currently 2.88%) + 850 basis points (+8.5%)?! Wow! I have better rates than that on a credit card; that's slightly over 11%!
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