Today I shorted MBIA (NYSE:MBI) at $61.29. The bearish outlook for MBIA is presented here. Basically, MBIA is a credit insurer of products such as municipal bonds, MBS, and CDOs. The problem is that the company has insured over $200 billion of structured finance assets while maintaining a total statutory capital base of only $7 billion to payout on defaults. Therefore, a mere 3% structured finance loss will wipe out MBIA’s entire capital base.

And even if structured finance losses remain under 3%, a loss of as little as $500 million in MBIA’s statutory capital base could impair its AAA rating. That would put it at a significant competitive disadvantage against other credit insurers.

I want to point out that I ordinarily would not short a stock like MBIA. But most of my portfolio consists of microcap gold juniors whose share prices are very vulnerable to a further deterioration in credit markets and a deflationary environment. If this occurs, then shorting a stock such as MBIA should hedge against some of my losses.MBIA