When the next shoe drops, when the next shoe drops, when the next shoe drops... ok, we get it, I'm sure everyone agrees there's likely more downside, but why, and where is it coming from? In other words, what's the next shoe?
Corporate leveraged loans. If you got tired of hearing subprime residential markets in 2007, brace yourself for corporate leveraged loan markets for 2008.
Some i-banks are smart enough to take advantage of the credit default swaps to hedge themselves from the corporate mess. Among the biggest players include securities behemoths Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc., "each having substantial leveraged-loan exposure, finishing their fiscal first quarters at the end of the month," according to the WSJ.
Now why not short GS, too? I thought about it, I really did. MS looks safer to short though. It seems GS protected itself from subprime residential early on by shorting the ABX, and subsequently still rained down record profits. I sense the team was likely academic enough to recognize the next logically progressive step to follow would be corporate debt, and to protect oneself with buying credit default swaps as an insurance hedge against their leveraged loan exposure. And I was really hoping to make a killing on GS on the short side, although if I could think of it, I'm pretty sure they thought of it too.
i can see MS trade around a P/E (TTM) of 14 max, but single digits is more likely.
For more, http://www.financialnews-us.com/?page=ushome&contentid=23...
$42.87 (02/19/08)
