Welcome to WallStreetOasis.com's latest This Week in Finance newsletter, where we profile the hottest investment ideas, substantive market data, incisive financial blogging, and the best under-the-radar research Wall Street has to offer.
Investments: Get Short!
During the prior two weeks, equity markets have once again been feeling the pain of the myriad headwinds they currently face. Macro themes of record high oil prices and struggling financial institutions continued, while news of higher-than-expected unemployment, the first true downgrades of the monoline insurers, and further reductions in corporate dividends contributed to record high short-interest on the New York Stock Exchange.
However, shorting is often difficult for the individual investor. Margin accounts are risky, and many financial sector employees are explicitly banned from shorting in their personal accounts. Put options can be highly profitable, but come with their own sets of risks, restrictions, and are expensive in this highly volatile environment. So, how does one take advantage? There are currently 38 short ETFs offered by Proshares (28 of which are ultrashorts, giving you two times the inverse return of an index). Through these products, you can add short exposure to various sectors, regions, market-caps, commodities, and even middle - long-term treasury bonds. They are all listed, (relatively) liquid, and when used properly, can provide either a nice hedge or an opportunistic gain. Find a list of these offerings here.
Research of the Week: Playing the Mergers
One of the oldest and most popular investment strategies is risk-arbitrage (also known as merger-arbitrage), where after a merger or takeover is announced, the stock of the acquiree is purchased in the hope of capturing the spread between the current price and the takeover price, and the acquirer stock is shorted in a ratio related to the merger terms in order to lock-in the arbitrage spread. MergerInvesting.com offers a nice summary of all the current deals and absolute and annualized spreads. TheDeal.com has a better page dedicated to these, but many parts require a subscription.
Blog-wrap: Run for Cover!
Bespoke Investment Group examines its self-created torture index (or how badly are we being hurt by weak markets, a weak dollar, and surging prices). Historically speaking, it is very ugly right now.
TWIF Notes:
BRIC no more? Brazil, Russia, India, and China have often been grouped as the most attractive emerging markets. However, while Brazil and Russia have outperformed to most other regions of the world this year, +8% and +3% respectively, India and China have lagged greatly, losing -26% and -30% year-to-date respectively. Inflation worries have hurt India and China, but fundamentals remain strong, creating a potential buying opportunity. MSCI offers multiple Index ETFs.
Lehman Brothers' (LEH) stock continues its freefall, having lost nearly 40% since mid-May, on the back of further write-downs and increased agitation from Greenlight Capital's David Einhorn.
Get Schooled.
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Questions? Comments? Send an e-mail to Hedgehog@WallStreetOasis.com or send a private message to him at WallStreetOasis.com. To read previous issues of This Week in Finance please click here: http://www.wallstreetoasis.com/xtracker/type/simplenews
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