Tuesday, June 24, 2008

Buy the banks as the hedge funds unwind

As I see it, the most bang for your buck in the financials is with Wachovia Bank (WB 17.86), and SunTrust (STI 37.40). The best large cap plays are Wells Fargo (WFC 25.20) and Bank of America (BAC 26.62). STI, and WB are below tangible book, and BAC is a couple bucks above it, assuming the $11 billion of goodwill in their purchase of LaSalle bank stands, and then discarding the entire $66 billion of their previous goodwill down the drain. At these prices, you gotta buy these banks, not sell them. The're already trying to discount the hereafter, and the stocks aren't even dead yet!

And if you want to play ETF's, here's a high octane pairs trade for you: Buy the Ultra Financials (UYG 22.90) and short the Ultra-short Financial (SKF at 137.65). That will give you a 4 to 1 upside leveraged bet!

And then think like a hedge fund. Redemptions are hitting for the June quarter. The big trade that worked was to be short the financials, and to be long ag. With the reversals in BG, AGU and MOS the last couple of days, and the pullback in POT and IPI, it looks like some are starting to unwind these bets. Monsanto (MON 135.79) was down 6 today, and it reports numbers tomorrow. If you see a sell on the news, it's an extra green light for the financials. That could be a key tell for the acceleration of this unwind.

Everyone already thinks Bernanke is out of bullets. Today on "bubblevision" they were asking if "the Fed was even relevant!"

I'm leaving that argument alone, but it just means that market players have already picked their sides.

So it's time for Mr. Market to pick their pockets.

So they'll move the money and they'll move it quick!

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