There's Always A Bear Market Somewhere
By Ian Cooper
There’s blood in the Streets. The market is getting roiled by Iran (they missed the UN deadline), catapulting oil prices, and, oh yes, that pesky inflationary fear sparked by Wednesday’s consumer pricing news. Now, you can cry over it, and watch as our historically high indices get beaten bloody, or you can make money off of it.
And as I’ve said repeatedly, the best place to put your money is in sub-prime lender put options. Rising loan defaults and foreclosures are on the rise and are likely to continue hurting sub-prime lenders, in particular, for this reason: “Sub-prime lenders are particularly susceptible to the current housing-market downturn because they often deal with borrowers who stretch financially to buy homes. More than half of these borrowers, for instance, take out adjustable mortgages, whose interest rates are often lower than those of fixed-rate mortgages. But adjustable rates change, based on market conditions. In addition, many sub-prime lenders are not obligated to follow the tougher regulations that apply to commercial banks,” according to United Press International.
I’m not trying to beat a dead horse any further than I already have. The honest truth is this – I’m trying to make you money… lots of it. And the best way to do that is to buy sub-prime lenders puts as sub-prime lender underlying stocks continue to drop. New Century Financial (NEW), which traded above $30 just weeks ago, is dropping under $17 as this is being written. More than 20 sub-prime lenders have filed for bankruptcy protection while others like NovaStar and HSBC stink up the Street.
As for the impact on the broader market, the tightening of the credit standard reins may impact many lenders and borrowers as lenders rewrite loan guidelines, and begin checking credit histories more than before. That could then lead to fewer loans and even more bad news for the lenders.
Take care,
Ian L. Cooper, Editor, Death Cross Trader