Over the past 6 months Assurant  (AIZ) has so far managed to get through the credit crisis unscathed. A few weeks ago a Barron’s article even suggested that Assurant will ultimately benefit from a continually weakening housing market. Although Assurant will continue to write more creditor placed homeowners policies, the company still has significant exposure to the credit crunch and a weakening economy.

First, let’s take a look at mortgage exposure.

Fuel Systems Solutions (FSYS) has had a tremendous rise since my piece back in April. The shares have nearly quadrupled in less than three months and are due for a correction, They have simply gone up too far in too short of a time frame.

The shares are pricey: Trading at 38 times 2008 earnings estimates and nearly four times book value of $9.70, the stock is vulnerable to some hefty selling if FSYS fails to execute its business plan flawlessly, as this equity is priced to perfection and beyond.

Consumer confidence keeps heading lower as gasoline keeps heading higher and property values plummet. This double whammy has the potential to put the consumer into a long tail-spin. In such an environment, as disposable income declines, credit card use goes up.

Visa (V) would benefit from such credit card use, as it already has. The stock has recently pulled off its high of $90 and sits a good 12% lower. Meanwhile, credit card issuers will not fare so well. Companies like Capital One, which issue unsecured debt, will see increasing amount of delinquencies and loan defaults. Capital One (COF) is sitting a mere 10% above its 52-week low and has collapsed from $53 to $39 within 5 weeks.

If many of you are wondering what a Kindle is, don't worry. You're not alone. Kindle is a wireless reading device that was developed by Amazon.com (AMZN). You can read books, newspapers and magazines on the device just as you would read them on paper. Amazon released these devices last November amidst a lot of hype.

After six months of nothing happening on the Kindle front, Amazon CEO Jeff Bezos issued a press release calling the Kindle a "huge success" and a "revolutionary" device. Now, we're not new to such hype, but the clincher here is he had no numbers, no sales figures and no revenue amounts to support his claim. And immediately, pandering analysts raised the price target on Amazon, yet again making life difficult for shorts.

A. Schulman (SHLM) is a supplier of plastic compounds and resins used in a variety of consumer, industrial, automotive and packaging applications.

Market cap: $630 million; Enterprise Value: $750 million

Titan Machinery (NASDAQ: TITN) is the latest darling of the so-called "Ag Boom". Titan Machinery sells farm and construction equipment via a network of 48 stores located in the upper Midwest – mostly in the Dakotas, Minnesota and Iowa. They exclusively sell Case and New Holland ag and construction equipment, all produced by CNH Global, NV (NYSE: CNH). The company came public in December 2007 with an IPO price of $8.50 and closed the first day of trading at $9.50. In the next 6 months the stock made steady progress towards $20, lingered in the low $20's, and in the last month has broken out to the low $30's. As of this writing, the total return to IPO investors is 256%.

Lately, the company has been on an absolute tear – showing 3 year revenue and net income CAGRs of 39% and 59%, respectively. For their most recent quarter ended 4/30/2008, revenue was up 91% y/y to $152.6M, and net income was up a staggering 327% to a record $3.4M. On the day of the release, the stock opened up 7% before closing up 11%, and climbing to $34 over the next week, a 22% increase on the pre-earnings closing price. That paragraph should have set off a few alarm bells, which I'll return to in a bit.

Goodrich Petroleum (GDP) is an independent oil and gas exploration and production company.

Market cap: $2.5 billion; Enterprise Value: $2.8 billion

MBIA Inc. (MBI) and Ambac Financial Group, Inc. (ABK) have been at the center of the credit and housing crisis as insurers of sub-prime, sub-A loans and prime housing loans. Analysts continue to drop the earnings estimates and the stocks themselves fall to new lows weekly.

MBIA Inc.

FreightCar America (RAIL) makes railroad freight cars with an emphasis on cars that carry coal. It is a Chicago-based company that has manufacturing facilities in Illinois, Virginia, and Pennsylvania.

Sometimes a company faces a perfect storm and gets squeezed on all sides. This is what is happening to RAIL right now. Demand is slowing down due to the economy being in the pits and material costs are going through the roof at the same time. The company said it is having a tough time passing along its costs to customers. It is forced to pay surcharges on its raw materials.

My first position in Bank of America (BAC) was a 1/30 P on 6/4. Since then, I added a second position of 1/27.50s on 6/12. This week I added a third position of 1/22.50s on 6/24.

Everything I have read, and the credit climate I see, tells me this stock has the potential to drop down into the teens like Citi (C). While Citi has an unbelievable amount of exposure to the consumer lending market, BAC has a similar risk in its extremely heavy credit card portfolio.

Marvel - owner of more than 5,000 characters including Spider-Man, Iron Man, Hulk and X-Men - has made a spectacular comeback since its bankruptcy in 1998. Shares trade for $33, after earnings more than doubled in 2007 to $140M. This year Marvel began producing its own films, opening up a new source of revenue besides its bread-and-butter licensing segment.

Introduction: Heavy Mortgage Backed Securities Exposure Will Lead To Big Declines

Redwood Trust (RWT) is a REIT-structured entity that makes leveraged investments in financial instruments that themselves are highly leveraged. It’s my candidate for the financial midcap stock most likely to lose 80% of its value in the next six months. Its portfolio is broadly similar to other mortgage REITs that have fallen more than 99% from their peaks to now, such as New Century Financial (NEWCQ) and Thornburg Mortgage (TMA). What has allowed RWT to not collapse 99% as several other mortgage finance REITs is (1) RWT wisely did not rely on short-term debt and debt subject to margin calls, and instead funded its most unwise investments with securitized debt; (2) its portfolio of MBS is of somewhat older vintage than TMA’s and NEWCQ; (3) its exposure is more to jumbo, ALT-A, and Neg-Am mortgages rather than subprime.

I usually don't break out the Ultrashort moves since they are very frequent (probably 50%+) of trades as I hedge against this incredibly difficult market, but since this is significant, I am going to break it out.... and be contrary again and say, I am cutting Ultrashort Financial (SKF) to nearly 0. (keeping 5 shares)

I know the financials are the bane of the market. But here we are approaching January 2008 and March 2008 highs in the chart. In fact if I didn't know better this looks like a chart for a coal stock since early May: 55% gain since that time - it's been a good ride and a wonderful hedge - and this does not mean it cannot continue going up.

Questions:

Is it fair to consider short-term cash available because of delayed payment terms of Amazon's (AMZN) A/Ps as Free Cash Flow? Most of their “FCF” from 2007 vanished in the March 2008 Quarter.

Reader S. V. raises an interesting question:

I am working on scenarios to trade the contra-ultra indexes like SDS to take advantage of either a combo spread (selling puts and buying call) or another method to take advantage of price movements while reducing risk.   Any thoughts?

Research in Motion (RIMM) has done phenomenally well over the past year, returning roughly 150% to investors, many of whom see significant upside in the company's continued inertia into the consumer space.  In the near-term, this sort of fad-rich perspective could very well push the stock price higher, as RIM rolls out its new media rich handset, the Blackberry Bold. 

Longer-term prospects, however, could play out in a completely different way. 

Jim Chanos, the world’s biggest short-seller, today made an appearance in the enemy camp.

Chanos, the president of Kynikos Associates, which has $6 billion invested in bearish bets on the stock market, gave a talk yesterday at the Stanford Directors’ College, an annual symposium at Stanford Law School for the directors of public companies.

CKE Restaurants (CKR) owns, operates, franchises, and licenses quick-service restaurants in the United States, primarily under the Carl's Jr. and Hardee's names.

Market cap: $600 million; Enterprise Value: $1 billion