Do the Monolines Hold the Key?

Did bearish bloggers blow it in mid-January? Things were scary, and we were just days away from a French rogue trader hitting the tape. Doug Kass’ move to cover shorts in financials was met with a Bronx cheer in the blogosphere, although he was a few days early.  But we want to give Kass props; the best proxy for financials, the (XLF), has outperformed since his call:

January 14th
Today we will tempt fate, and throw our hat in the ring with Doug Kass. Hopefully he won’t mind a little company. Perhaps we have not seen THE bottom, but pressing a basket of financials short here is not very appealing. 1440 Wall Street

The battleground in the monolines has been the key to this market; bad news mid-January took the stocks down and U.S. indices followed. This contributed to Kerviel’s downfall as his big bet was undone by a series of events that started here in the States. The purge refreshed, and we have found our sea legs again.

But will it hold? The battleground in the bond insurers might be reaching a climax as Bill Ackman goes back on the offensive.

Either bloggers and journalists were late to the story emerging in the monolines or I have overestimated it, but spending the last few weeks calling Bernanke and regulators nitwits is hardly constructive. Groupthink is firmly in control on many blogs, perhaps commenters find comfort in numbers.

Predictably, Cramer is flip-flopping, and he likes the financials again after pissing on them at the mid-month lows. Perhaps it is time to fade them again, and wait to see how Ackman’s battle plays out. If the dominoes topple there will be hell to pay; this is scary.  But regulators, from Paulson to Bernanke, have at least been coming out of their coma. Too, Eric Dinallo and Wilbur Ross have provided food for thought, although they might ultimately prove to be impotent.

Stay tuned to the monolines, I still think they hold the key to this tape. Meanwhile, we will soon find out if Wayne’s call to fade the homebuilders today will be the correct one.
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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