I have a long Discover Financial (DFS) position married against a short Capital One (COF) position; but in this day and age such hedging strategies are moot points. Every stock in a sector goes (or more rarely nowadays, down) as based on HFT algorithms. Differentiating between companies within a sector is moot as all go in the same direction. We're slowly adjusting to this reality even though we've been pointing it out for over 2 years.

Discover reported earnings today and considering the economic situation it's pretty solid; with such low costs of capital nowadays thanks to your friendly Fed - while it's a pain to savers in the country - it is great for the financial corporations of America and really, catering to them is what it is all about. As long as too many Americans don't join the "Debtors Revolution" are happy to pay 23-30%+ interest rather than their old 5-12%, while the companies can borrow from the Fed at nearly zero; the business model could be the best on Earth. Even with 10, 15, 20% default rates.

Excluding the one time gain from anti trust settlements with Visa (V) and Mastercard (MA), Discover posted a whopping 52 cents in profit versus -12 cents that analysts estimated. Thank you Ben Bernanke. This came despite a 7% drop in sales volume, showing how incredibly positive the Fed has made the world for financial firms with such a low cost of borrowing. I am surprised the stock is not up much much more - if they can repeat 50 cents in the coming quarters thats a $2.00 EPS rate, slap even a 12 PE ratio on that and you have a $24 stock. Considering the offering they recently did (which added more shares) the results are even more impressive. (Jul 7, 2009: Discover Financial to Offer $500M in Stock) Their default rate is also much better than some of our top oligarchs such as Citigroup (C) and JPMorgan (JPM).