Wednesday, November 28, 2007

An explanation

I just had to pretend I was working at CIBC and be very self -promotional. Maybe I could cover Citigroup? The point is, this has been a difficult market, and only in a difficult, very heavily shorted market, can analyst opinions have such a pronounced effect on stock prices. So I had to advertise the nonsense that Wall Street spews and how you can make money off of it.

The action today should alert market players to the amount of pessimism and shorting that is out there. Hedge funds have a very low exposure to stocks, and Wall Street has it's hands full of mortgage inventory, so they are thin on stock exposure. So the market ramps, and ramps hard.

Now you know why Wall Street was so hysterical about the financials. They needed stock prices lower. But this news isn't after the fact. I wrote about it here.

Reread my story on FRE. And then, let's see if Goldman was being just a bit disingenuous.

The beauty of Goldman is how they manage clients and their own money. So Goldman downgraded FRE. Big deal. At these prices the preferred will be a home run. And six months from now we'll hear how Goldman saved Freddie. Sort of like heating your house by throwing your furniture in the fireplace.

I'd vote against their downgrade. And buy the stock.

Remember Goldman's downgrades of C and FNM?

But Goldman Sachs is doing their best to panic financial holders. Downgrading the financials at the bottom like C and FNM, and yelling fire in the crowded sub-prime theater. Buy them, when Goldman screams. They are the ones that need to cover their shorts.

Maybe their trading agenda is different from the reality facing the marketplace. It might be getting a tad crowded, especially since Paulson, one of the largest shorts is looking to go long. And if you don't know what his track record is, you shouldn't be listening to the drivel that the brokerage firms are spouting.

Did you listen to their drivel? Or did you get sucked in by their agenda? Now I also mentioned Paulson. And I wasn't talking about Treasury Secretary Hank. But Paulson Credit Opportunities Fund.

Paulson’s Credit Opportunities fund has made a gross return of 690% and a net return, after fees, of 551% for the first 10 months of the year, according to a source close to the firm. The firm’s Credit Opportunities II fund has made a gross return of 410% and a net 328%. Paulson’s assets under management have mushroomed from $6 billion in January to nearly $28 billion, and the firm is close to cracking the top 10 in hedge fund land, at least in AUM. It is hard to see their performance being much better. I am assuming they are number one, a remarkable feat for such a large fund.

The elephants move the market, and you need to know what the elephants are doing. And the elephants that were short, want to bring in their bets.

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