Time to Get out of the Pool

I will close ALD and ACI today. There's just too much bad stuff on the horizon.

From the Financial Times comes this story about how a govt bailout of Fannie and Freddie would wipe out $36 billion in regional bank and insurance company holdings of Fannie and Freddie preferred shares. JPM just announced that they've lost 50% or $600 million on these equities. Here's an example in the FT story of how much this could hurt regional banks:

Philadelphia-based Sovereign bank said this week it holds more than $600m in preferred stock issued by Fannie Mae and Freddie Mac, representing 0.78 per cent of its total assets.

Analysts at CreditSights said a full write-off of Sovereign's preferred stock in Fannie and Freddie could represent as much as four quarters of earnings. Sovereign executives warned there was a possibility they could take a significant writedown in the third quarter.

With oil jumping up to $119 on hurricane fears, this will be a golden opportunity to short oil. I'm thinking of shorting DIG instead of buying DUG as the margin for short sales is lower than for owning shares. Also, DIG has been trading above NAV. I will do this trade today if oil hits $120.

Also, we're hearing from the FDIC that they may need a bailout from the Treasury.

(Reuters) - Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.

The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.

"Short-term cash flow pressures," you say? Hmmm.... I say, then why has your list of troubled banks risen from 90 to 117?