This morning, I took a small short position in Chicago Mercantile Exchange (CME). Major investment banks are closing shop, hedge funds are seeing redemptions, and as a result, I expect trading volumes in commodity and fixed-income products to slow substantially over the next few quarters.
I'll admit, I'm not exactly early to the party on shorting this stock, given its huge drop, but at about 20 times expected full-year earnings, I see significant potential for multiple shrinkage as investors truly realize that trading volumes slow. While the exchanges don't carry the balance sheet risk of the brokers, they will feel the fallout of Wall Street's problems.
In addition, I think the stock could drop quite a bit after the company pays its $5 a share special dividend on October 10.
Wednesday, September 17, 2008
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