7 Stimulus Trades That No One is Talking About

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Trade #1:
The Investment Banks

The Democrats are going to create new regulatory requirements for derivatives and new capital and “behavior” or “reporting” requirements for investment banks. This will reduce operating profits for these outfits, already hit by the disappearance of the IPO market, the mortgage bond market, mergers and so on. There will no meaningful opposition, so the question is how far the Democrats will go, and they are raring to go far.

Can you blame them? I mean, the bozos running Morgan Stanley (MS) and Goldman Sachs (GS) just told the world they were giving out many billions in bonuses in 2008. That will really help them with Barney Frank.  No one on Capitol Hill will be able to stand up to a new, overly tight regulatory regime, and this is one area Obama might oblige the left wing of his party.

Recommendation:  I would buy longer-term puts on either Morgan Stanley or Goldman Sachs -- and even without a partial meltdown due to regulatory fears, the companies are grossly overvalued based on their earnings power going forward.

Next: Trade #2 - The Corner Bank