Biggest Disaster (and Best Short Play) of 2011

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希望不要先入为主，情形有可能是真的最好的做空对象；也有可能是见底的最后一喊。什么东西众人皆知了，成了过街老鼠了，人见了都躲着走了，就是差不多见底了...
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Biggest Disaster (and Best Short Play) of 2011

Andrew Packer (December 28, 2010)

“No bank is lending right now. We have had to explore other alternatives to balance our books.”

That’s something you don’t want to hear from a small business owner… especially one that’s in dire need of credit.

Even more so from a company that survived a three-year recession while its numerous smaller competitors went out of business.

And yet, that’s exactly what I heard last month from one of my old financial contacts. Not good. And I thought I was the only one still talking seriously about a “credit crunch!”

Even worse… this once solid, expanding company has had to abandon traditional banking to look for hard asset lenders. That’s one step closer to sending unused office equipment to a pawnshop to raise some quick cash.

Sadly, this is not an unusual situation. Small businesses all over the U.S. are finding them in the same sticky spot.

But not surprisingly, the mainstream media keeps cheering as the markets hit fresh two-year highs as we close out 2010.

And the more mainstream investors cheer like idiots, the more I want to stay safe. In today’s issue, I’ll give you my hands-down best shorting opportunities for 2011 to ensure you stay safe next year – and profit along the way.
Look to Businesses for a Reality Check… NOT Stocks

Readers of Credit Crunch Short Report know that even the tiniest hint of reality can send shares reeling. That’s why 75% of our short positions grabbed gains in 2010 – even as markets rose.

And going forward, the reality for small businesses is much more pessimistic than liquidity-drunk media and politicians would have you believe.

Even worse, following their nasty habit of investing with beer goggles on will come back to bite you.

Why? Because once this latest round of news is digested, overextended markets will start to pull back again (except for a few companies that can deliver growth without government help).

This market may end up looking like returns between 1968 and 1980: flat. And that’s before adjusted for inflation.

As the Fed revs up the printing press and the dollar tanks, even a rising stock market will actually lose in terms of purchasing power. (Don’t worry, though, the government will still tax you on your perceived “gains.”)

There’s too much bad news to offset money creation. I’ve never subscribed to the notion that magically printing money will somehow solve America’s financial problems. More dollars chasing the same amount of goods just results in higher prices (or more dollars) for those goods.

Fortunately, inflation still hasn’t been a problem yet. It can’t be. For the moment, we have a banking system that won’t lend! It boggles the mind to even call these do-nothing TARP-supported institutions “banks” at this point.

The bottom line here is all this so-called good news in the market won’t last. And while strong companies will survive (and even thrive as competitors go bankrupt), the weakest companies will suffer the most.

If you’re interested in shorting after a 21-month rally in stocks, there’s really one place where you need to put your money.
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The Best Short for 2011 Shouldn’t Come as a Surprise

Let’s face it… by any objective standard the economic recovery has been weak.

So it shouldn’t surprise you that ground zero for the latest mess – housing – still remains a pretty toxic place to be investing. And the banks still wrapped up in the housing mess will be the best short opportunities for 2011 – no contest.

There are several reasons for this.

Banks are taking an average of 14 months to foreclose. Courts are tied down, or engaging in questionable legal practices to deal with the caseload.

Banks have gone from giving away money to anyone on the street to requiring everything short of a blood sample to borrow funds.

But for those folks who managed to hold on to their homes for the first round, there’s another problem. And that’s because mortgages with adjustable options rates are just beginning to reset. These types of mortgages are, in some cases, worse than the subprime mortgages that nearly brought down the economy two years ago.
Mortgage Resets Spell another Downward Tumble for Housing

This explains the Fed’s commitment to keeping interest rates as low as possible for the foreseeable future. After all, with ultra-low rates come low resets that homeowners can afford.

That also means that one of the best shorts in 2011 will be regional banks with huge exposure to option adjustable rates. After 140 bank failures in 2009 and 151 in 2010, you’d think all the weak banks would have died off by now.

But some haven’t – and weak regionals will be the best place to put your money if you’re willing to go where the real profits are.

Until next time, follow the short path to profits!


Andrew Packer
Editor, Credit Crunch Short Report