No. 2 - Subprime Slime

While Lehman, Investors Shrug Off the Subprime Slime, the Risks – And Trades -- Remain

Lehman Brothers (LEH), the #2 underwriter of mortgage-backed bonds, said today that bad home loans were "well contained" echoing comments from Goldman Sachs (GS) yesterday. In sharp contrast, a Merrill Lynch economist said today that the lending crisis would eventually lead to the first drop in home prices since the Great Depression. How do you trade the sub-prime slime with smart guys making such conflicting conclusions?

Eric Bolling says the market is in a housing recession and the sub-prime problem is pushing its way outward, however. PMI Group (PMI), which on yesterday’s show Eric said would trade lower, traded further down today, even after the rally. Eric owns puts in this stock and tomorrow he’s taking half his position off the table.

Tim Strazzini says some of the (financial) names are going to rally tomorrow although there will be more bad news. In terms of trading, these stocks will catch a breather and it will be a great opportunity to get short. Tim says AmeriCredit (ACF) will be a great short

Dylan asks if it’s better to be short the stock or buy puts in the stock?

Tim answers as a general rule, without knowing when an investor would be using his advice, it would be better to be short.

Guy Adami says short boatmaker Brunswick. Corp. (BC). Guy is disturbed that BC says earnings will be second half, “back end weighted.” Any time a company tells investors earnings will be “back end weighted” they’re trying to buy time. The stock is trading at $31.5. Guy says if there’s a bounce in this stock, sell it.

Dylan asks why?

Guy explains people won’t have the cash to buy luxury items such as boats. It’s a highly discretionary item. People don’t write checks for boats, they finance them.

Jeff Macke chimes in that General Motors (GM) sales are up, and they finance cars.

Tim Strazzini says that’s from their 0% interest incentives.

Dylan says the bottom line is PMI trade worked yesterday and Brunswick is another stock to be wary of.

Questions? Comments?

Trader disclosure:
On MAR 14, 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 (PMI) Put Options, Gold, Silver, Soybeans,(DIS) is Short Corn Strazzini Owns (YHOO), (VZ), (BRCM)