XME,GLD,USO
With “DELEVERAGING” fast becoming the new buzzword it looks like it’s time to piggyback the trend. What does that mean? Stay short commodities, in my opinion the move down has just started. There was talk today that Lehman picked up a bunch of Bear Stearns business and some prime brokerage was a part of it. Prime brokerage is the part of the business that for a big part, services hedge funds. Hedge funds crave leverage ( Carlyle Group received $35 for every dollar they had under management) That ended in bankrupcy this week. The conversation that Lehman had with hedge funds today, only guessing,went something like this, “we’ll do business with you but in this environment the leverage we will give you is going to be much less than what your used to.” When your prime broker has this conversation with you, one of the options is to start selling and reducing exposure, especially your winners, you know the positions you owned on 8 to leverage. That is one of the reasons for the unwinding in commodities today and I really feel it has only just begun. Just look at PCU and FCX today.
Unwinding of sectors can be very profitable if you are short. Just look at the dry shippers and the solar space in the last 2 months