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Strategies & Market Trends : Group Theories -- Ignore unavailable to you. Want to Upgrade?

To: macavity who wrote (83)	2/4/2002 10:22:00 PM
From: macavity	Respond to of 1017

Financials - $NF. The past few weeks reminded me of 1998, pre-LTCM circa June/July. The markets were moving sideways/ rallying without a good word. There was the Russian Forward FX Fiasco, followed by the debt fiasco; there was Monica Lewinsky and the lame duck prez and there where a whole myriad of other events. The thing that my boss told me to pay attention to the position of the margin boys (i.e. LTCM) and all the players that were getting burned in Russia and the Emerging markets. Pay attention to credit spreads. Here is the rub. Enron goes from 70Bn to zero; Argentina defaults on 140Bn USD of debt and then transfers deposits to pesos at 1:1.4 and loans at 1:1, locking a loss for any bank with a balanced balance sheet. When people lose money they start unwinding positions. I was staggered that the market held up through all these losses. Now people are losing in TYC and any other company that has an accounting issue. As Cramer puts it so well in RealMoney.com .... I believe the market will be merciless to companies that have made lots of acquisitions using stock or have paid lots of individuals with stock, or have created entities that deal with the company off the balance sheet. These stocks will have to be sold before this era is over. Those who try to own them through this period will eventually give up because of the pain. Now better 'traders' unwind their losers, but worse traders unwind their profitable trades in the hope that the losers 'come back again'. (We have all been there!) The short is with losses this large (from shares and defaults) the whole market has to come off. The fact that it didn't until last week is testament to the fact that timing is everything. The difference between now and the LTCM time was that then weekly and monthly trends were positive and thus supportive of the daily and weekly charts. Now the weekly trend is flat and the monthly is bearish. We may be now approaching a period of enforced liquidation and margin calls due to what are very large losses in debt and credit markets. Just look at WCOM/Bernie Ebbers - his second margin call. I see support for WCOM in the 4.5 USD area. This is now where my worries for the financials arise. A lot of them have their fingers in a lot of pies and I feel a lot of them are going to get in trouble. c.f. JPM. They are probably the biggest trader of credit derivatives (or they were when they were JPMorgan). This is the insurance of debt and credit instruments. $XBD has been masking the weakness of the large caps - JPM, GS, MER, MWD, BSC, LEH. Now that credit spreads are widening despite falling yields we may be seeing once again the flight-to-quality. If 10yr yields take out the 4.80% level then equity may be revisiting the lows. I have (from monthly charts) trendline support for the $SPX at $SPX~1040/50 level from the 1982 low - i.e down 5% from here. We tested it in Sep2001. Lets see if we can hold above it. Target from the double top breakdown in daily is about 1060/50 Good luck all! -macavity Short SPY and LEH Looking to short some semis Keeping an eye on drugs and defensives