najdorf

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  • Time to Short the Utilities
    The original article makes a trading argument with no reference to current prices (other than the bogus technical analysis). Many utilities have had a huge decline in pricing without a commensurate decline in earnings: for instance PCG is down 13% in the last year, while earnings have been solid, interest rates have come down a lot, and they've raised the dividend. This is for a 100% regulated utility with minimal risk other than SF political risk - it's been sold off along with the rest of the stock market. Particularly if the rally continues and investors continue to seek the stability of regular dividends in uncertain times, I can't see companies like this one losing significant additional market cap in the next year. Even if you're right on your directional call (i.e. the XLU drops some), shorting one of the most stable sectors after months of bear market isn't a high-profit-potential strategy.

    Of course you could probably find some utilities that are over-leveraged, under pricing or regulatory pressure, or have mismanaged their supplies and derivatives. But you need to do the research to come up with a good specific short - shorting a fairly boring sector ETF based on a shallow interest-rate guess is not going to produce impressive profits. Interest rates are notoriously difficult to time because the market anticipates them and they don't always have the effect you would expect. If you really think you can outpredict the market on rates, you should be a bond investor, where at least your guess has a direct effect on pricing.
    Aug 12 11:49 am |Rating: 0 0 |Link to Comment |View article

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