I think it’s time to revisit the concept of hedging for disaster, something I advocated during another “recovery,” in October of 2008, where we made our cover plays to carry us through a worrisome holiday season and into Q1 earnings – “just in case.” The idea of disaster hedges high return ETFs that will give you 3-5x returns in a major downturn. That way, 10% allocated of your portfolio to protection can turn into 30-50% on a dip, giving you some much-needed cash right when there is a buying opportunity.
At the time, I advocated SKF Jan $100s at $19. SKF hit $300 around Thanksgiving and those calls made a profit of over $280 (1,400%), so putting just 5% of your portfolio into that financial hedge would give you back 75% of your portfolio when you cash out. Keep in mind these are INSURANCE plays – you expect to LOSE, not win but if you need to ride out a lot of bullish positions through an uncertain period, this is a pretty good way to go. We cashed out last week but not everything, we had 15 positions that weren’t worth closing out from our Buy List, which is not too surprising as 64 of the 66 plays were winners so of course we had a few that weren’t done yet!
Seven banks were done on Friday and were seized by the FDIC – the most in one week since October, including Advanta Bank of Draper, Utah with $1.6Bn in assets and the FDIC could find NO ONE to take over their operations and took a hit of $636M on that bank alone. Think about that for a moment – here is a banks that is supposed to have $1.6Bn in assets but, when the government finally has to step in – it turns out they are $600M short (40%). Gosh I hope our entire banking system isn’t 40% short – don’t you?
Maybe it’s just and extreme example. Three of Friday night’s bank failures are in Georgia: Century Security Bank of Duluth. Appalachian Community Bank of Elijay, and Bank of Hiawassee. They had respective assets: $96.5M, $1.01B and $377.8M and ALL are being acquired at a cost to the Deposit Insurance Fund of $586.9M. Ooops, that’s 40% too. Maybe there’s a pattern here and the FDIC steps in when banks are going past that 40% threshold. That’s good news because we can assume C, with their $2Tn in reported assets probably REALLY has $1.2Tn so yay, I guess…
Are we at the above point…
