Anyway, given all the pork that's been thrown on this bailout bill, I believe it will receive the 11 converts it needs to get passed. Consequently, I think this market will rally. Why? Because this is the "mother of all bailouts", I don't know if this bailout will work in the long run (this is RTC x 10 in size and scope) but I feel pretty confident that it will at least temporarily unfreeze credit markets and reduce libor (while the world digests whether it will truly end this vicious credit cycle we're in). So my play will be to go long banks.
However, rather than go long C, GS, MS, or even the UYG. I will go long UBB (a Brazilian bank). This bank has absolutely no exposure to subprime (so I feel a little more comfortable with my purchase) and it also has a beta of 2 when regressed with the XLF (financial sector spider index). That means in theory it should act like the UYG, except without the stupid 1% NAV fee the UYG charges (that's on top of the transaction fee mind you).
Of course, UBB's R-SQUARED when regressed on the XLF is only 25%. That means the XLF only explains about 25% of the total stock price variation in UBB. However, I feel it's safe to say that UBB and XLF are a little more correlated right now since we are on the brink of financial Armageddon (ie all financials are moving in lock step).
No comments:
Post a Comment