Streets are Full of Corpses of Those Who Short Sold Bank Stocks

Bank seemed like obvious shorts a couple of weeks ago. Lot of bright folks went in and we've just seen the sharpest ball-breaking short-killing rally ever.

The banks just made so much sense to short.  They couldn't make money.  Some of the assets had proven worthless (residential real estate, credit cards) with lots of other assets (commerical real estate) looking to be headed that way.   Geithner came out with an unrealistic plan to get the assets off of their balance sheets and they rallied.  Lots of smart people, knowing that the only people who made money in 2008 were those who shorted the banks, shorted these banks into the rally.  Then, the banks got a nothing move up as mark-to-mark accounting was suspended.  Just when it seemed like the rally would run out of steam, Wells Fargo unveiled a ridiculous earnings report that caused the market to move up in a short covering rally.  It has just been shorts selling to shorts until today when the government has basically given everyone a clean bill of health.  Lots of bright shorts got killed in this sharp move.  And, I am afraid that there are a lot more shorts to find more pain.  The market is all about sentiment and sentiment is just going to get more and more positive for the banks following the release of the stress test.  

As obvious as shorting the banks seemed, it has already proved very painful to many bright people.

Aron Livrone
Aron Livrone: Aron is a 2008 Wharton MBA with a consulting background prior to moving from Sweden to the US to begin his MBA.

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