FC Stone Caught in the Six Degrees of Financial Exposure

Includes: FCSX, MFGLQ
by: TraderMark

Sheesh, I just started this position in FC Stone Group (FCSX) last week [Beginning Starter Stake in FCStone], and already carnage ensues - this is like 6 degrees of Kevin Bacon, except it's 6 degrees of financial exposure. Even if you are not a bank, if you are related within 6 degrees, you are being taken out to the back of the shed and shot. Thankfully it is only a 1% type of position so the % loss is awful but in dollar terms its not horrific. However,  throwing money at anything even "somewhat" related to financials is simply a black hole right now... here is an article that mentions the carnage in the stocks that have "6 degrees of relation" to the main financials; there appears to be a whole brotherhood being slaughtered in concert. This is when fear overtakes any form of logic.

  • MF Global (MF), the world's largest broker of exchange-listed futures and options, sought to reassure investors that it had enough funds for normal business even with its stock falling as much as 78 percent on Monday.
  • "In sympathy with the Bear Stearns news, several other companies, including MF Global, have gotten hammered today," said William Lefkowitz, option strategist at brokerage firm vFinance Investments in New York. "Speculation is that clients are pulling money away from these financial companies leading to tremendous sell-offs and a lot of put buying," he added. "Investors are very fearful that there will be more problems in financial companies and that the potential for more bankruptcies exist."
  • In addition to MF Global, inter-dealer broker GFI Group Inc (NYSE:GFIG) was down 28 percent at $46.99 and FCStone Group Inc (FCSX) was down 34 percent at $23.65 on Nasdaq. Interactive Brokers Group Inc (NASDAQ:IBKR) was down 20 percent at $23.72.

The logic of this makes little sense, but it is simply dangerous right now to venture in these shark infested financial waters. Any rumor can lead to a panic ... even to the "best of breed". I am simply going to sit tight at this point as the drop in the stock has dropped the weighting to 0.6% or so, but just like any of my other financials I am not adding despite these "bargain" prices because I cannot model sheer panic. Any of these stocks could be out of business in a week or up 100%. A new paradigm.

In moments like this we need some laughs so I had to sort of laugh at this comment from MF Global (MF) "we have no exposure to Joseph Lewis" - this is the guy who lost over a billion in Bear Stearns. Apparently he is now the new asbestos? It is just funny how it sounded but the most likely fear is Joseph Lewis (again this is not Buffet with $40B) is so strapped for cash he will sell any of his holding to pay off his Bear Stearns losses (maybe it was borrowed money?) - but this just shows you how any rumor can kill almost any company once confidence is lost. Amazing to watch it happen.

  • Shares of MF Global plunged as much as 80% in heavy trading Monday amid worries that investors may be pulling their accounts from the brokerage firm, Bloomberg reported. The selling lightened up around midday after MF Global said it had $1.4 billion in committed, undrawn credit lines “and no exposure to subprime mortgage-backed securities or Bear Stearns investor Joe Lewis,
  • Lewis is the billionaire currency trader who has emerged as one of the big losers in the collapse of Bear’s stock. JPMorgan Chase (NYSE:JPM) agreed Sunday night to buy Bear Stearns for $2 a share, or $240 million, in stock - a stunningly low price for a firm with such an august history, and one that will lock in major losses for Lewis, who was buying Bear stock last summer at $120.

I guess we all have to go check all our stocks now and make sure Joseph Lewis is not an investor!

Disclosure: Long FCStone Group in fund; no personal position