Thoughts and trades...

Lost a lot of money on paper today, however, I made real money. I covered my DSL short early in the day for a 25% gain and sold CFC short @ $17.36 late in the day.

Here's what I'm thinking right now:
We're seeing a repeat of June or July. First, one or more bond indexes (ABX, LCDX, etc.) started imploding. Then the dollar fell through its support levels. Finally, panic came as fear caused a flight to quality (Treasuries) which rebounded the dollar (just a little) and caused an equity selloff. Don't let the disconnect fool you - the dollar drop is bullish for the DOW - until it (dollar) drops too much and rebounds. A little fear is bullish for the DOW; a lot of fear is bearish.

I think it is a good time to short AIG, which announces November 9th. It's down from $70 a couple weeks ago to close at $62.15. Their principle problem is that they have the most subprime exposure of all the insurance companies. The timing on the trade is that this is the first quarter that they are announcing after many, many downward ratings revisions. Just look at the ABX indexes to see what even a one-level drop does to prices. Now, they probably don't use the ABX indexes to price their portfolio, but they will have to take some sort of writedown in the event of a downgrade. This could hurt them a lot: insurance companies are not supposed to be volatile.

With the VIX under 20 again, I think sentiment is much to optimistic. I think that the DOW strength this week is a result of rate cut anticipation, and if the bears come out next week, they could sweep the field.