Inverse ETF

ProShares has exchange traded funds which are the inverse of major indices. Great if you're bearish on some part of the market economy for the next year e.g. small cap like Jeremy Grantham, Chief Investment Strategist, GMO.

This is a way you can keep your money invested, but actually profit when the recession worsens; great for non-sheltered accounts too, where holding positions 12 months to avoid the short term capital gains tax is a concern.

This is also a conservative way to hedge your long positions in the market, if you want some insurance "just in case" your portfolio loses value or the market sells off to a lower bottom. If you don't have insurance in a crash, whose fault is that?

IPO Visa

Thursday, Visa Inc will have the largest Initial Public Offering (IPO) of shares in the history of the world, raising about $15 billion, two-thirds of which would go to suffering member banks including Citigroup, Bank of America Corp and JPMorgan Chase & Co. This is the biggest IPO of all time, the Mother of all IPO's -- twice the size of the next 2 largest IPO's combined.

Suffering, I say, because of big losses on subprime derivative investments and a deteriorating consumer credit market as recession sets in. Good for cash starved banks, and good for investors, shares of Visa will rocket; but unless you're already cozy with an underwriter, look for some other angle to profit from this singularity e.g. Mastercard (MA) shares may decline short term, as capital is re-allocated in a lower risk higher return new issuance of V.

Biography: I've only gotten in on one IPO so far: the stock of the dot com which employed me in 1999 as an ecommerce java developer. I got the IPO stock through our local Morgan Stanley broker, who told me to hold the stock when it was going down and failed to explain that a stop would not protect me in case of a gap. He didn't last long at the company; I hope he chose a new career outside of finance.

RIP Carlyle Capital Corp

Today S&P published "hopes that the [subprime] crisis can be contained over the next few quarters." In other words: we don't have an accounting of the damage yet, less than half of which has been publicly disclosed so far, but we think we may get a grip in the next nine to twelve months. This report assuaged investors today? Incredible.

S&P says that we know 110 billion USD has been written off by Merrill, UBS, Citi, AIG, Swiss Reinsurance, et cetera; and guesses there is at least 135 billion USD to go. Oh heavens, that futurenews is going to be understood when it turns news, right? Because S&P has warned us it would surely come, right?

Perhaps the news at Carlyle Capital Corp. prompted such kind words from S&P? Carlyle stock plummeted 88% as they hit the point of asset seizure and liquidation: failure. "Nevermind the dead body, folks, nothing to see here, move along; we knew this was coming, no surprises, move along, move along."

In other words, we see a bottom a few quarters off - there are going to be a few hundred billion dollars in write-offs soon - but don't panic we have it contained.

Financials bounce briefly

Today's band-aid from The Fed: lending up to $200 billion in Treasury securities for up to 28 days to primary dealers in the bond market, accepting Fannie Mae, Freddie Mac, AAA-rated CDO's collateral. Pro's acknowledge this is short-term relief aimed directly at the heart of the problem, subprime CDO depreciation.

This delays the inevitable, giving brokers and banks with huge exposure to subprime debt some breathing room to continue to raise cash through asset liquidation, so they don't have to accept "fire sale" pricing and take larger losses due to the urgency of their capital need. This is room to maneuver, so instead of stumbling in haste and looking the fool, they can look respectable as they do what must be done to get more cash. That's nice, huh?

This may be a good time to buy bearish put options on the financial sector (XLF), Citigroup (C), Merrill Lynch (MER), and/or Wachovia (WB), while the euphoria lasts, to profit from the plummet, which shall continue; yes, it shall continue.