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July 29, 2008


22 Cents on the Dollar

Merrill Has $5.7 Billion of Writedowns, Sells Shares

“The firm said it sold $30.6 billion of CDOs to an affiliate of the Dallas-based investment firm Lone Star Funds for $6.7 billion, resulting in a pretax writedown of $4.4 billion. Merrill will provide financing for about 75 percent of the purchase price, according to the statement. The sale values the CDOs at about 22 cents on the dollar.”

Yowza. Good thing the SEC is foiling short sellers of financial stocks — it’s too easy a trade. Every time the trend flips up on the shorter time frames (like the 15-min. chart below), you could hit it hard when it reverses back down. “Coulda” caught nearly ten points these last few days doing just that (assuming you can locate shares).

Have any of you guys tried shorting any of the stocks on the SEC no-no list (PDF) since it came out?

Related: Bloomberg a Buyer as Merrill Sheds Assets

This entry was posted on Tuesday, July 29th, 2008 at 2:18 pm (utc+8) and is filed under Trading.

8 Responses to “22 Cents on the Dollar”

  1. darin said:
    July 29th, 2008 at 2:51 pm

    I’m trading with Thinkorswim, which normally has pretty good short availability, but MS, MER, C, WM, and GS are hard to borrow. Surprisingly COF and WB are easy borrows.

    Options are probably a good bet for getting short the financials

  2. C. Maoxian said:
    July 29th, 2008 at 3:20 pm

    darin: Thanks for the report. Neither COF nor WB is on the no-no list.

  3. bob said:
    July 29th, 2008 at 6:46 pm

    IB’s had some of them, but it varies even intraday.

  4. Steven Place said:
    July 29th, 2008 at 7:58 pm

    Buy puts.

    I think I’ll make a “fscked company” ETF with equal weighting in all the stocks in the list and see where they are in six months.

  5. Timothy Sykes said:
    July 29th, 2008 at 8:05 pm

    Steven, no need, Bill Miller was nice enough to create that ETF for us :)

  6. Tom in DC said:
    July 29th, 2008 at 8:08 pm

    Despite some observed difficulty in obtaining several of these issues in the early phases of this SEC tantrum, there is no difficulty shorting when you can construct a synthetic short with options.

    For my next trick, the market maker will then go short the stock to hedge my options, as they were exempt from the naked shorting rule. Smoke and mirrors?

  7. pete said:
    July 29th, 2008 at 8:54 pm

    my firm uses a 3rd party locate co. - have to pay for the stocks on the restricted list- yest FNM was .02 a share for a locate borrow

  8. Keith Shepard said:
    July 29th, 2008 at 9:14 pm

    I tried a short on Citigroup yesterday through Schwab and my order was immediately rejected. Of course Citigroup tanked yesterday even without my help. Meh. Stupid SEC.

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