Fast Money

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Fast Money

No. 3 - Bad Loan Fungus


Trading is the next to fall as bad loans spread like a fungus.

Over the past few weeks, we saw what happens to companies who make home loans to people who cannot repay them. But the same so called sub-prime credit is not only used to buy houses. A Federal Reserve official said today that people with shaky credit might not be able to pay back a wide range of loans on everything from flat screen TV’s to motorcycles. Where will the next shoe drop as bad lending practices hit other industries?

Jon Najarian says it hits Harley Davidson (HOG) and it hits right away. Options traders are aggressively buying puts in May of this year; “May 62.50 puts,” he says and they’re looking for the stock to fall significantly into the 50’s.

Jon says Harley Davidson not only has loans out to riders, but has loans out to finance their stores, too. These guys are leveraged to their eyeballs.

Tim Strazzini says even without this credit situation HOG was grossly overvalued and they were going to see people buying less bikes. 

Guy Adami says the company already announced that 2007 was going to be a challenging year for them.  He suggests that HOG might be in trouble.

Jeff Macke says another company to look at closely is used car seller Carmax (KMX). They make over half their profits from financing. These guys needs stability in the lending markets because their business relies on being able to extend credit to their customers.  This is where the big problems are going to lurk.

Tim Strazzini disagrees and  says he has analyzed Carmax closely. They don’t have the credit exposure that people think they have in the used car space, he says.

Tim says AmeriCredit Corp. (ACF) is an ancillary play in the credit story. If the market sees a rally in this stock as well as CompuCredit Corp. (CCRT) and Capital One Financial (COF), then these are names he thinks are great shorts.

Questions? Comments?

Trader disclosure:
On MAR 9, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders.Najarian Owns (BA), (GS), (KLAC), (LVS), (LEH), (MSFT), (NE), (PDE), (STP) Is Short (HOG) Strazzini Owns (T), (YHOO), (BRCM), (SNDK), (TXN), (NSM) is short (HOG) On 1/25 Najarian owned (MSFT)