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Best Hedging Strategies for Specific Economic Factors

875 Views | 6 Replies | Last: 2 mo ago by rathAG05
I bleed maroon
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AG
So, what got this going in my head was a desire to hedge against deteriorating credit quality overall, but specifically on consumer credit. A guy on CNBC said that 90-day credit card delinquency went from 5% to 11% in the past year. I can see no evidence of this, but I do see it's gone from 8% to 11%. In any case, I'd like to find a way to profit (in part by way of hedging or protecting my existing risks) on further deterioration.

I considered simply buying puts on Capital One, or other large credit card issuers, but I'd prefer something more elegant, narrow and incisive. I haven't yet researched other tracking instruments or ETFs that could more efficiently do the job. Any ideas?

Also, since increased tariffs (boo!) seem to be in the cards no matter who's elected, I'd like to hedge away some of this risk as well (either in favor of domestic providers or shorting international ones). Once again, I'd like something specific to this threat, and not broad-based. I don't know of any, but am very interested in ideas.
ATM9000
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AG
The problem though is the effects of both of these items are going to be general rather than specific. There will surely be interventions to both that will shape exactly how the market will react.

As such, I think your answer is to go generally long volatility.
Proposition Joe
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ATM9000 said:

The problem though is the effects of both of these items are going to be general rather than specific. There will surely be interventions to both that will shape exactly how the market will react.

As such, I think your answer is to go generally long volatility.

This. I always equate much of it to what was going on in The Big Short... it often doesn't matter if you are right about something, the market can be manipulated in such a way that power > accuracy. I mean, reference the GameStop fiasco.

It's like the deficit and the general house of cards our economy is as a whole... Sure, eventually it's all going to come crashing down. But the can will be kicked down the street as long as it can so you're just guessing if you think you know when that will actually happen and you can go broke waiting on it.

Troglodyte
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AG
Can you buy a credit default swap on a consumer credit securitization?
I bleed maroon
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AG
Troglodyte said:

Can you buy a credit default swap on a consumer credit securitization?
I really like the idea, but I'm thinking something consumer-friendly that I can buy in a Schwab account. Let me know the CUSIP.
Troglodyte
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AG
I bleed maroon said:

Troglodyte said:

Can you buy a credit default swap on a consumer credit securitization?
I really like the idea, but I'm thinking something consumer-friendly that I can buy in a Schwab account. Let me know the CUSIP.
Maybe you can short large issuers. Synchrony Financial (SYF) may be best. They appear to have a large portion of their book in consumer credit cards. The others are the big banks and they have lots of other lines of business.
rathAG05
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AG
Haha! Our government won't let the consumer credit fail because they won't let big banks/creditors fail. I don't think this will turn out how you think.
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