No. 2 - Trading the Crisis

How to Trade Lending Crisis as Home Loan Foreclosures Reach an All-Time High

Are mortgage ills blossoming into a full-fledged financial flu? According to a trade association, borrowers with the worst credit fell behind on their payments at the highest rate in 4 years. Meanwhile, the poster child for the crisis, New Century Financial (NEW), was de-listed by the New York Stock Exchange today and Accredited Home Lenders (LEND) lost more than half its value. How do you trade the mortgage woes?

Dylan Ratigan welcomes options trader Jon Najairan, Fast Money's own "6th man."

Jon says there are a number of shoes about to drop. One of them is Harley Davidson (HOG). This stock continues to roll over and has a lot of pressure on it because of the loans they make. (Jon says people who buy Harleys are over-extending themselves.) This stock was down $1.70 today and Jon expects it to drop to the mid-50’s.

Tim Starzzini says it’s not just the credit exposure that HOG has, it’s that these consumers who are buying luxury items and can’t afford them, are going to have less access to capital. These discretionary items (and the companies who make them) will be the first to go.

Najarian saw the same activity in MBIA (MBI), a financial guarantee service, and he thinks that stock is going a lot lower. The only good news is that most of the action is in the “front month”, meaning they think this will be over in 30 days.

Eric Bolling says companies like the PMI Group (PMI) - an insurer of mortgages -- is the next level to go. (They insure people who get their loans from the sub-prime space.)

Guy Adami reminds the panel that traders sold indiscrimiently today. He says home builders are down 3.5% today and consequently they’re getting compelling, but not just yet.

Dylan says the bottom line is PMI is a new name to watch tomorrow morning.

Questions? Comments?

Trader disclosure:
On MAR 13, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:
Bolling owns (ICE), (NMX), (PMI) put Options, (XOM), Gold, Silver, Soybeans, is short Corn. Strazzini owns (BRCM), (CHK), (MER). Najarian is short (MBI), is short (RYL), is short (CTX), is short (NDE), is short (HD), is short (HRB), is short (LOW), is short (HOG).