Check Out the Specialty Lending Market in the U.S.

Currently, many Lombardi Financial services are issuing alerts for subscribers who are interested in shorting their stocks. Our job is to identify loser stocks just before they tank, where we recommend short selling them, and then monitor their underperformance, so that you can determine the best time to buy them back.

The idea here is to borrow shares of potential loser stocks from your broker, sell them before they nosedive at higher prices, and cover the positions the moment the stocks’ price hits rock bottom. The difference between the high short sale prices and the lower buyback prices is how you profit.

Recently, I stumbled upon a company that’s listed on the NYSE, which, within the last 52 weeks, traded as high as $51.97. I saw the signs of trouble relatively late; that is, I waited until there was sufficient evidence that the stock was indeed a goner. The moment I saw confirmation of substantial fundamental and technical weakness, I recommended short selling the stock at $20.15. And, just yesterday, an alert went out to cover the position at $5.02. Our profit on this trade was a whopping 300%.

I have to leave the details of this trade for our subscribers to Pump & Dump Alert service, but this trade got me so excited that I decided at least to point our Profit Confidential readers in the right direction. So, here it goes — look into the specialty lending market in the U.S.!

Why? The specialty lending market is particularly vulnerable in the U.S. at this time. Note that the leash on Canadian lenders has only recently been loosened — this particular financial services market segment didn’t have time to either inflate or implode.

However, right now there is no barrier in place for Canadian investors, preventing them from shorting U.S. stocks, as signs of trouble in the American lending market are now moving upward from subprime borrowers to prime borrowers.

Most homebuyers, on both sides of the border, fall in the large, gray area between subprime borrowers (those with the worst credit rating) and prime borrowers (those with the best credit rating). Over the past few years, the lending business for these in-between borrowers has grown to record levels.

This is mostly due to Alt-A mortgages, which capture innovative mortgage products that have made homes affordable for many people who wouldn’t be able to buy them otherwise. Quite a few of those individuals shouldn’t have become homeowners in the first place, yet they only started to worry when the real estate market in the U.S. started inflating.

Of course, now, as things are tightening on the macroeconomic level, leading to credit deterioration, among other things, the specialty lending market has hit not just a bump on the road but a brick wall.

Now, I’m not trying to be overly negative; I’m just stating the facts. To help you make a decision about whether or not you should engage in short selling, I suggest that you first talk to your broker about all the risks and rewards of this highly speculative trading strategy. Next, do you research, either independently or with the help of your broker. My tip is to look into specialty lenders, preferably those with huge debt obligations and a weak ability to meet their debt obligations in the short term.