Monday, May 3, 2010

Betting Against Big Banks

FAZ is an ETF (Exchange Traded Fund) that rises when bank stocks decrease in price. If its indexed big bank stocks rise or fall by three percent, FAZ is designed to do the inverse with 3x leverage. That is, it will fall or rise by nine percent respectively.

If you think big banks -- possibly your "too big to fail" friends supported by the U.S. Federal Reserve -- will survive by being able to rip off the wealth of the population, you might buy shares in an index ETF like XLF, which rises when its indexed bank stocks rise. On the other hand, if you think big banks will run into serious problems or even fail, FAZ might be worth a look.

The chart above shows that at the depth of the panic sell-off of almost every asset class in March, 2009, FAZ was trading about 100 times more than it is today. Even a modest fall in the fortunes of the now insolvent big banks, say, by about 30 percent, might double the FAZ price due to the 3x leverage.

How to bet against big banks
Let's say one purchases 100 shares, known as "one lot", with an AON (all-or-none) order, at today's price of about $12 USD per share. That is $1200 invested, ignoring the $7 commission of an on-line brokerage like Scottrade (which provided the chart above). One almost always uses a "limit" order, not a "market" order.

One immediately places a GTC (good 'til cancel) Stop order to sell these 100 shares, at, say, $9.78. Why that price? Well, the all-time low for FAZ is $10.78. So $9.78 allows for the market to go against this position (bank stocks make new 52-week highs). However, if big bank stocks rally strongly, they would have to put in a rather awesome performance (totally contrary to their real financial status) for FAZ to make new lows in the $10 area.

In the worst case, one stands to loose a bit over $200 of the investment, about 20 percent of initial cost. In brief, the "long" FAZ position may be viewed as a low risk, high reward position.

Caution: Big Banks Almost Always Win
If one is gutsy enough to be long FAZ, one is going up against the world-wide illuminist cartel who have succeeded in rigging almost anything related to money and wealth in their favor.

Examples: If the IMF or European governments bail out Greece, it has nothing to do with helping the Greeks, and everything to do with illuminist banks getting money they lent to Greece paid back. Same with the TARP program in the U.S.A. which had nothing to do with helping Main Street, but rather was designed to take taxpayer money to pay off the big bank cartel, run by our New World Order wannabes, the illuminist super-wealthy oligarchy.

Trade Like the Super-Rich
The illuminist cabel takes positions as "strong hands", or if not, ones that will be guaranteed against loss, where the position profits or is paid for by working citizens and their children, as described above. The strong hand approach might suggest that no Stop order is used in a FAZ long position. Remember the strong hands seek to profit, in part, by shaking the weak hands out of the market, and love to "hit the stops" taking the little guys out of play. Without any Stop order, a little guy can trade like a big guy, in a situation as described above at least, since the FAZ position becomes a sort of non-expiring option to profit from big bank armageddon, whenever it might occur. That is, at almost any time in the next few years, if big banks or the general economy run into any serious problems, resulting in a stock market drop ("correction"), FAZ will probably cough up nice returns, thank you.

Race to the New World Order
Analysts debate (see "Further Reading" links) whether the illuminist oligarchy will win or loose, when the dust settles. A win means fascist world government, loss of individual freedoms via de facto enslavement of the population, a universal currency that they control and use as a tool to continue transfer of wealth from people to themselves, continuing wars, and so forth. A loss for the illuminists would entail substantial loss of their accumulated wealth due to some major miscalculation, an unexpected catalyst event, some fragmentation in their ranks where many are now engaged in a run on the gold banks which could collapse them at any moment, new gold bugs like China and old gold bugs like India buying up shrinking physical supplies of gold and silver to force the illuminist bullion banks to fold, the fact that traders, both big and small world-wide, now know that governments, as fronts for the illuminists, are bluffing which is the kiss of death for them, since everyone knows they can bet with abandon against these governments, given their bluff -- namely, the governments hold no winning cards in their hands.

On the conceptual level, this war of the worlds seems to have only one other viable contender in the race to the New World Order -- the itsy-bitsy, tiny Baha'i world community, promoting abolishment of an elite ruling class, personal freedom on every front -- economic, spiritual, in expression, world peace, the oneness of mankind, harmony among religions, a universal currency directly based on real money -- gold and silver, and more. A present-day David and Goliath story.

Increased volatility in major world markets in recent days suggest confusion, bullish and bearish heavy-weights exchanging blows toe-to-toe and that something significant may be imminent.

This article is informational, not investment advice.
© 2010 James J Keene