When it comes to the big picture Tilson tells us he anticipates a lot more losses to come in the financial sector. However, the environment has created some interesting opportunities from the long-side.
Tilson tells us these days he’s bottom fishing for banks. “Valuations have compressed so much we actually flipped around and went long some financials such as American Express and Wells Fargo .”
That’s right he’s long Wells Fargo.
Of course there are no certainties, but Tilson likes the odds. "I think there's a 70% chance Wells Fargo makes it without any kind of catastrophic outcome in which case it's a $40 - $60 stock. And at current levels that's a pretty attractive risk/reward."
In fact he thinks investors are making a major mistake when they play financials. "People often look at what the losses will ultimately be and then compare it to today's balance sheet and make a decision."
In other words, if the losses are higher than the current reverseves they assume the company is toast.
"But the mistake is the losses will come in over many years. As long as profits keep up with losses they're going to make it."
And in fact, it's that thesis which lies at the heart of Tilson's Wells Fargo trade.
“I think Wells Fargo will have losses of $8 billion a quarter for many quarters to come but they’re making $8-$10 billion of profit per quarter. As long as profits keep up with losses they should win the race.”
What's the bottom line?
If you decide to go bottom fishing Tilson has a few words advice, "look at companies with strong balance sheets, real franchises that you think can survive without doing highly dillutive equity raises or get bailed out by the government."
Got something to to say? Send us an e-mail at email@example.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment but not have it published on our website send those e-mails to firstname.lastname@example.org.
Trader disclosure: On Mar. 27th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (AAPL), (POT), (WMT), (SDS), (GE), (GS); Macke Is Short (BRK.B); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Seymour Owns (AAPL), (BAC), (FXI), (EEM), (TTM), (RIO), (TSO), (WFC); Finerman's Firm Is Short (IJR), (MDY), (SPY), (USO), (IWM); Finerman's Firm Owns (BAC) Preferred; Finerman's Firm Owns (MSFT); Finerman's Firm Owns (WFC) Preferred; Finerman's Firm Is Short (BPO)
CNBC.com with wires