A Little More Like It

Well today the market lost big. The Dow was down 286 points, the Nasdaq was down 46 and the S&P 500 ended down 3o points. In my opinion it was long overdue. As I predicted this morning, financials and airlines got it really bad. Big financial names were down as much as 15% on news that institutional depositors had withdrawn almost all of their deposits from WaMu. I read today that there were only $100M of such deposits left, down from $2.5B last quarter and $11B a year ago. Additionally, credit default swaps have priced in a 24% chance of default at WaMu this year and 50% over the next five years. This is certainly not good news. It appears my idea to short WaMu into earnings would have been a profitable trade, but I did not have the nerve due to the hot money pouring into financials at the time. Wow do things change fast. It looks like select financials may be testing their lows of last week during trading next week. Add the $2B loss at National City to round out financial earnings and the euphoria surrounding financials seems like ages ago. I foresee a long, slow downtrend in the financials until the next crop of good news.

Other points for the financials I found funny: the new CEO of Wachovia bought 1 million shares at an average price of $16.24 Tuesday. Unless he dumped them in a hurry, you would think he could have timed the market a little better. Also, the shorts that fled financials after the new SEC rule proposals have returned en masse, with net short positions increasing 10% or more at Wachovia, WaMu, and Banc of America. There was a similar trend in the automakers after Ford and Diamler's big losses. I read a JPMorgan report today that said that at the end Q2, financials were the second most heavily shorted industry in the history of Wall Street records. The first? Automakers. Such high levels of pessimism do not inspire faith in the markets moving forward...