CDS Regulation: Stocks to Avoid

Dan Dicker, RealMoney.com contributor, says the new CDS rule will help and hurt the markets but regardless you have to avoid certain stocks.
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It's a new government and a new Wall Street. Rules are changing, but for the better or worst remains to be seen. Dan Dicker, RealMoney.com contributor, is focusing on the latest casualty, Credit Default Swaps. Watch this video as he tells you what this new Wall Street regulation means for stocks.

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Normally, an investor buys a heavily leveraged CDS and then has the money to short stocks to force the share price down. The more the stock price plummets, the more the CDS are worth. This was a very popular trend in 2008 specifically with the bank stocks,

Lehman Brothers

,

Bear Stearns

, and

Morgan Stanley

(MS) - Get Report

. As shorting ran rampant, the market capitalization of the companies got so drastically reduced that they had difficulty raising money making it hard for them to compete in the ever shrinking credit markets.

This vicious cycle contributed to the collapse of multiple companies from

Bear

to

Lehman

to

Washington Mutual

to

AIG

(AIG) - Get Report

to

Wachovia

. President Obama is the new sheriff in town, however, and the government has introduced several regulations to police Wall Street. As Dicker says, these rules are the kind that "helps

and hurts." One in particular does not allow investors to actually trade or own or sell or buy a CDS piece for paper unless you have interest in the underlying bond. The good news is investors can no longer use CDS as a leverage tool to bear raid, but the bad news is that banks lose a HUGE piece of business to the tune of $28 trillion a year. To find out more of what Dan Dicker thinks sign up for realmoney.com and email

for a special

offer now.

Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks. Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years. Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals. Dan obtained a bachelor of arts degrees from the State University of New York at Stony Brook in 1982.