Plans for the Bear Raid Are Being Drafted

 | Oct 18, 2011 | 7:09 AM EDT
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OK, so Dexia's behind us. The match that seemed to light the fuse of reform has now gone out and we are back to waiting for the next bank blowup before there is a resolution in Europe. That means we have to give up a lot of points until it happens, and it means that the shorts are lining up their target bank right now to cause the raid.

It feels like the short mafia is in some backroom at a French bar choosing its target and this time when it fails -- and it will fail -- we might get some coordinated action. It is the right time to strike now because the French government doesn't want to lose its prized AAA status, so the big three -- Paribas, SocGen and Agricole -- are most vulnerable. As the bookies would say, it is pick 'em.

Unfortunately the coordinated action won't come until Dow 11,000. Or lower.

Of course all of this would be easier if the Chinese were able to help. You would think they have the slowdown to justify it, especially with the amazing plunge in copper. Plus you have Jim Chanos saying they are now having the Great Depression, China-style. When is Roubini going to pile on there?

But Brent doesn't come down, so they are checkmated too. There's no sign that Brent will come down because the regulators seem to want futures position limits for all commodities ... except for oil.

The world is checkmated right now as we in this country have a president who I believe is struggling to meet the demands of the 5,000 people who are occupying various streets around the country. Or is it 10,000? 1,000? A division? All they want is forgiveness on student loans because they can't get jobs, and forgiveness on mortgages because their houses are underwater or are about to be foreclosed.

You get the picture.

At times like this I would say at my hedge fund, "OK, we dropped a couple of percent yesterday but we are still wildly overbought -- 7.5 on the oscillator -- so why not just take some shots at the high-growth stocks that ran, but deep-in-the-money puts on the worst of the worst? Hit the Oil Services HOLDRS (OIH) and the Financial SPDR (XLF) and the retailers (even though I like those stocks) and let's make some money."

And that's precisely what people will do!



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